Federal Deposit Insurance Corporation 

550 17th Street, N.W., Washington, D.C. 20429-9990 Deputy to the Chairman and CFO

 

 August 21, 2008 

MEMORANDUM TO: The Board of Directors 

FROM: Steven O. App 

Deputy to the Chairman and 

 Chief Financial Officer 

Bret D. Edwards 

Director, Division of Finance 

SUBJECT: Second Quarter 2008 CFO Report to the Board 

The attached report highlights the Corporation's financial activities and results for the period ending 

June 30, 2008. 

Executive Summary

 

• The Deposit Insurance Fund (DIF) balance decreased by 14 percent ($7.626 billion) to $45.217 

billion during the second quarter of 2008. The second quarter 2008 decrease was primarily due 

to the $10.0 billion increase in the contingent liability for anticipated failures, the majority of 

this amount pertained to the projected loss for IndyMac Bank. 

 

• All of the DIF investment portfolio’s held-to-maturity (HTM) securities were reclassified as 

available-for-sale (AFS) securities effective as of June 30, 2008, as it was determined that in 

light of significant actual and potential resolution-related outlays, the FDIC could no longer 

assert that it had the positive intent and ability to hold its HTM securities until their maturity 

dates, as required by generally accepted accounting principles. The reclassification resulted in 

an increase in unrealized gains on AFS securities of $1.630 billion. 

• On May 9, 2008, ANB Financial, National Association, Bentonville, Arkansas, was closed by 

the Office of the Comptroller of the Currency and the FDIC was named receiver. Of the 

$2.011 billion in total assets at inception, Pulaski Bank and Trust Company, Little Rock, 

Arkansas, purchased $229 million, while the FDIC retained $1.782 billion in assets, comprised 

primarily of commercial real estate loans. DIF recorded a $1.546 billion net receivable from 

the ANB Financial receivership, representing an estimated $1.760 billion in subrogated claims, 

less an allowance for loss of $214 million. 

• On May 30, 2008, the Office of the Comptroller of the Currency closed First Integrity Bank, 

National Association, Staples, Minnesota, and named the FDIC as receiver. First International 

Bank and Trust, Watford City, North Dakota, assumed all of the $49.7 million in deposits of 

the failed institution and purchased $34.9 million of the $51.8 million in assets. DIF recorded a 

$47.4 million net receivable from the First Integrity Bank receivership, representing $49.7 

million in subrogated claims, less an allowance for loss of $2.3 million. 
2

• For the six months ending June 30, 2008, expenditures related to the Corporate Operating and 

Investment Budgets ran below budget 5 percent and 2 percent, respectively. The variance with 

respect to the Corporate Operating Budget expenditures was primarily the result of lower 

spending for contractual services in both the Ongoing Operations and Receivership Funding 

components of the budget through the second quarter. Detailed quarterly reports are provided 

separately to the Board by the Capital Investment Review Committee (CIRC). 

The following is an assessment of each of the three major finance areas: financial statements, 

investments, and budget. 

Trends and Outlook

Financial Results Comments 

I. Financial 

Statements 

• The DIF decreased by 14% ($7.626 billion) to $45.217 billion during 

the second quarter. The primary reason for the decrease was a $10.0 

billion increase in the contingent liability for anticipated failures. This 

increase was partially offset by an increase in the unrealized gains of 

$1.559 billion, an increase in assessment revenue of $640 million, and 

an increase in the interest earned on investment securities of $651 

million. Note that subsequent to June 30, the FDIC experienced three 

bank failures during the month of July – IndyMac Bank, First National 

Bank of Nevada, and First Heritage Bank with total assets of $32.0 

billion, $3.9 billion, and $161 million, respectively. In July, the DIF 

disbursed $14.5 billion to fund these failures - $11.5 billion to pay 

insured depositors and $3 billion to fund the operations of the IndyMac 

Federal Bank conservatorship. The initial loss estimate for these 

failures are: $8.9 billion for IndyMac Bank, $820 million for First 

National Bank of Nevada, and $42 million for First Heritage Bank. 

II. Investments • DIF investment portfolio’s amortized cost (book value) decreased by 

$41 million or 0.08 percent during the first half of 2008, and totaled 

$50.428 billion on June 30, 2008. At quarter end, the DIF portfolio’s 

yield was 4.44 percent, down approximately 28 basis points from its 

December 31, 2007, yield of 4.72 percent. A large factor behind this 

decline was securities totaling just over $5 billion, with a high weighted 

average yield of 5.48 percent, matured during the first half of the year. 

During that period, staff deferred purchases of conventional Treasury 

securities in light of expected and potential resolution funding needs as 

well as depressed Treasury yields. All available funds were invested in 

overnight investments. At quarter end, overnight investments totaled 

$9.255 billion, or about 17.4 percent of the total portfolio as measured 

by market value. During the first half of the year, overnight 

investments averaged about 2.38 percent on a bond equivalent yield 

basis. However, on June 30, 2008, overnight investments had a bond 

equivalent yield of 1.74 percent. Thus, the DIF portfolio’s lower 

average yield at quarter end reflects a large amount of previously high 

yielding Treasury securities now being invested in lower yielding 

overnight investments. 
3

Trends and Outlook

Financial Results Comments 

• Conventional Treasury market yields increased dramatically during the 

second quarter of 2008, with the two-year Treasury note posting the 

most significant increase. The yield increases appeared to reflect a 

number of factors, including concerns over potentially accelerating 

inflationary pressures and rising inflation expectations, an unwinding of 

so-called flight-to-quality trades as the recent financial market turmoil 

appeared to have mitigated, and a strong consensus opinion that the 

Federal Reserve is at or near the end of its easing cycle. During the 

third quarter of 2008, Treasuries are expected to be volatile as market 

participants gauge whether financial market turmoil is subsiding, 

inflation is a concern, and the Federal Reserve might begin raising 

interest rates, prompting Treasury prices to fall; or the market turmoil is 

not subsiding and has the potential to get worse, prompting further 

flight-to-quality Treasury price rallies. 

• At the end of the second quarter of 2008, the DIF portfolio’s AFS 

securities (including all securities that were previously classified as 

HTM) had unrealized gains of $2.045 billion. Market consensus 

expectations are for Treasury yields to gradually rise over the last half 

of 2008 and into 2009, which would likely reduce these unrealized 

gains. However, regardless of changes in yields, existing net unrealized 

gains will be reduced due to the passage of time (that is, any unrealized 

gains or losses vanish as AFS securities approach their maturity dates). 

III. Budget • Approximately $492 million was spent in the Ongoing Operations 

component of the 2008 Corporate Operating Budget, which was $25 

million (5 percent) below the budget for the six months ending June 30, 

2008. The Outside Services - Personnel expense category was 

approximately $16 million below its year-to-date budget, and the 

Salaries and Compensation category was $7 million below its year-todate budget. Together, these two categories represented 94 percent of 

the total Ongoing Operations variance. 

• Approximately $27.6 million was spent in the Receivership Funding 

component of the 2008 Corporate Operating Budget, which was $2.8 

million (9 percent) below the budget for the six months ending June 30, 

2008. Spending during the second quarter was significantly greater 

than in the first quarter as activities and equipment purchases were 

accelerated in preparation for expected increases in receivership and 

resolution activity. 

• Authorized staffing increases since the beginning of the year directly 

relate to the increased receivership and resolution activity and elevated 

examination workload. Most of the authorized staffing increase is for 

hiring non-permanent staff. This trend is likely to continue into the 2nd

half of 2008. 
4

I. Corporate Fund Financial Statement Results (See pages 9 – 10 for detailed data and charts.)

Deposit Insurance Fund (DIF) 

• For the six months ending June 30, 2008, DIF reported a comprehensive loss of $7.196 billion 

compared with comprehensive income of $1.062 billion for the same period last year. This 

$8.258 billion year-over-year decrease was primarily due to a $10.822 billion increase in the 

provision for insurance losses, partially offset by a $1.767 billion increase in the unrealized 

gain on available-for-sale investments and an $854 million increase in assessment revenue. 

• The provision for insurance losses was $10.746 billion at June 30, 2008, compared with a 

negative $76 million for the comparable period in 2007. Approximately 82% of this change, 

($8.9 billion of the $10.822 billion) resulted from the contingent loss reserve estimate recorded 

in the second quarter for IndyMac Bank. 

• The unrealized gain on AFS securities was $1.686 billion as of June 30, 2008, compared with 

an unrealized loss of $81 million at June 30, 2007. The major reason for this increase was a 

$1.630 billion cumulative adjustment made in June 2008 to mark all previously designated 

HTM securities to market. Management determined that the FDIC could no longer assert that 

it had the positive intent and ability to hold these securities to maturity as they might be sold in 

response to a liquidity need. All DIF investments are now shown on the financial statements 

at fair market value. 

• Assessment revenue was $1.088 billion as of June 30, 2008, compared with $234 million for 

the same period last year. The continuing increase in assessment revenue reflects the 

declining balance of one-time assessment credits available. DIF collected $455 million in 

assessments for first quarter 2008 insurance coverage which was $13 million higher than the 

estimate recorded at the end of the first quarter 2008. DIF also recorded a $627 million 

receivable for estimated net assessments due from insured institutions for second quarter 2008 

insurance coverage. 

FSLIC Resolution Fund (FRF)

 

• FRF’s net income was $14 million for the second quarter of 2008 compared to a $55 million 

loss incurred during the first quarter. The additional income resulted primarily from an 

increase of $16 million in interest on U.S. Treasury obligations and a recovery of $10 million 

in tax benefits, offset by a $14 million increase in the provision for losses. 

II. DIF Investment Results (See pages 11 – 12 for detailed data and charts.) 

• The amortized cost (book value) of the DIF investment portfolio decreased by $41 million or 

by 0.08 percent—from $50.469 billion on December 31, 2007, to $50.428 billion on June 30, 

2008. The DIF portfolio’s market value increased by $95 million or by 0.18 percent, from 

$52.378 billion on December 31, 2007, to $52.473 billion on June 30, 2008. 

• The DIF investment portfolio's total return for the first half of 2008 was 2.659 percent, 

approximately 30 basis points more than its benchmark, the Merrill Lynch 1 - 10 Year U.S. 

Treasury Index (Index), which had a total return of 2.362 percent during the same period. 

Despite the DIF portfolio’s large cash balance, which acted as a drag on total return 
5

performance, the DIF portfolio’s Treasury Inflation-Protected Securities (TIPS) had 

significantly higher returns than the Index’s conventional Treasury securities, hence the overall 

portfolio outperformance. 

• During the second quarter of 2008, consistent with the approved quarterly DIF portfolio 

investment strategy, staff deferred purchases of Treasury securities in light of expected and 

potential resolution funding requirements and the comparatively low Treasury yields. On June 

30, 2008, the DIF portfolio’s overnight investment balance was $9.255 billion, well above its 

$150 million target floor balance. 

The Treasury Market 

• During the second quarter of 2008, conventional Treasury yields increased dramatically, with 

the two-year Treasury note posting the most significant increase. The yield increases appeared 

to reflect a number of factors, including concerns over potentially accelerating inflationary 

pressures and rising inflation expectations, an unwinding of so-called flight-to-quality trades as 

the recent financial market turmoil appeared to have mitigated, and a strong consensus opinion 

that the Federal Reserve is at or near the end of its easing cycle. During the second quarter of 

2008, yields on three-month and six-month T-Bills increased by 41 basis points and 67 basis 

points, respectively. The two-year note yield, which is also sensitive to actual as well as 

anticipated changes in the federal funds rate, increased significantly by 104 basis points, again, 

indicating that the Federal Reserve may be at or near the end of its easing cycle. Intermediatematurity Treasury yields also increased over the course of the quarter. The yield on the fiveyear Treasury note increased by 89 basis points; the yield on the ten-year Treasury note 

increased by 56 basis points. The conventional Treasury yield curve flattened during the 

second quarter of 2008; on June 30, 2008, the two-year to ten-year yield curve had a 135-basis 

point positive spread (compared to positive 183-basis point spread at the beginning of the 

quarter). Over the past five years, this spread has averaged 92 basis points. 

• During the second quarter of 2008, Treasury Inflation-Protected Securities’ (TIPS) real yields 

increased, although generally to a lesser extent than comparable maturity conventional 

Treasury securities because of rising inflation expectations. For example, the real yield on the 

five-year TIPS maturing on July 15, 2013, increased by 33 basis points. The real yield on the 

10-year TIPS maturing on January 15, 2017, increased by 34 basis points. 

Prospective Strategies 

• The current DIF investment strategy calls for placing all net proceeds from deposit insurance 

assessments, maturing securities, coupon and other interest payments, and receivership 

dividends into overnight investments in anticipation of possibly needing the funds for 

resolution activities. (See attached Approved Investment Strategy.) 

III. Budget Results (See pages 13 – 14 for detailed data.) 

Approved Budget and Staffing Modifications 

Two modifications were made to the 2008 Corporate Operating Budget and/or authorized staffing, 

in accordance with the authority delegated by the Board of Directors in the 2008 Budget 

Resolution: 
6

Corporate Operating Budget

• In April 2008, the Deputy to the Chairman and Chief Financial Officer (CFO) approved the 

reallocation of budget authority within the Ongoing Operations component of the Corporate 

Operating Budget to provide the Division of Resolutions and Receiverships (DRR) with an 

additional $4,523,308 in Salaries and Compensation for increases in permanent staff to be hired 

in 2008. As reported last quarter, DRR’s 2008 staffing authorization was increased by 39 

permanent positions, and DRR was given the authority to hire an additional 11 employees in 

excess of its 2008 staffing authorization on a temporary basis in anticipation of projected 

retirements through 2011 (“temporary overhires”). Funds of $5,455,408 were also reallocated 

from the Outside Services – Personnel expense category to the Salaries and Compensation 

expense category in the Receivership Funding component of DRR’s 2008 budget, in 

conjunction with an increase in DRR’s 2008 staffing authorization to hire an additional 69 nonpermanent employees. In addition, the CFO approved an increase of $665,850 for the Office of 

Public Affairs (OPA) to provide initial funding for the 75th Anniversary Deposit Insurance 

Public Education Campaign. Additional funding is expected to be made available for this 

campaign later in the year. In order to fund these new requirements, budget authority was 

reallocated from the unused first quarter budgets for regular salaries and benefits in the 

Division of Supervision and Consumer Protection and the Legal Division in the amounts of 

$3,736,315 and $1,452,843, respectively. 

• In May 2008, the CFO approved the realignment of budget authority among divisions and 

major expense categories in the Receivership Funding component of the Corporate Operating 

Budget. The budget adjustment provided funding for the Division of Information Technology 

in the amount of $8,030,309 for equipment purchases and contractor support in preparation for 

an expected increase in receivership and resolution activities. The existing Receivership 

Funding budget for the Division of Administration increased by $2,469,691 to support 

additional facilities needs associated with that same increased level of activity. These increases 

were completely offset by a $5,250,000 reduction in the Receivership Funding budgets for 

Outside Services – Personnel of both the Legal Division and the Division of Receiverships and 

Resolutions. 

Investment Budget

 

The 2008 Investment Budget spending projections for the 4C project and the Claims 

Administration System were increased by $1,509,926 and $10,048,475, respectively, following the 

Board’s approval to increase the investment budgets for those projects in June. 

Spending Variances 

Significant spending variances by major expense category and division/office are discussed below. 

Significant spending variances for the six months ending June 30, 2008, are defined as those that 

either (1) exceed the YTD budget by $2 million and represents more than 3 percent for a major 

expense category or total division/office budget; or (2) are under the YTD budget for a major 

expense category or division/office by an amount that exceeds $3 million and represents more than 

5 percent of the major expense category or total division/office budget. 
7

Significant Spending Variances by Major Expense Category 

Ongoing Operations

There were three major expense categories that incurred a significant spending variance through 

the second quarter in the Ongoing Operations component of the 2008 Corporate Operating Budget: 

• Outside Services – Personnel expenditures were approximately $16 million, or 19 percent, less 

than budgeted. The variance was largely due to delays in planned information technology (IT) 

projects and lower-than-anticipated spending for IT maintenance and operations. In addition, 

delays in spending for consumer and community affairs education and outreach programs 

contributed to the variance. 

• Equipment expenditures were approximately $3 million, or 14 percent, less than budgeted. The 

variance was largely due to a change in the timing of planned spending for the IT Technical 

Refresh program. The budget for this program was initially spread evenly throughout the year, 

but the acquisition plan for the hardware and software purchases was subsequently revised to 

shift those purchases to the second half of the year. Also contributing to the variance was a 

temporary delay in purchasing of furniture, fixtures, and equipment in both headquarters and 

the field. 

• Outside Services – Other expenditures were approximately $2 million, or 30 percent, more than 

budgeted. The variance was due to spending for the FDIC’s 75th Anniversary Public Education 

Campaign that exceeded its current budget. As noted above, the CFO plans to reallocate 

additional funds to this initiative later in the year. 

Receivership Funding

The Receivership Funding component of the 2008 Corporate Operating Budget includes funding 

for non-personnel expenses that are incurred in conjunction with institution failures and the 

management and disposition of the assets and liabilities of the ensuing receiverships. Receivership 

Funding also includes all salary and compensation costs of employees hired on a non-permanent 

basis for actual or anticipated increases in receivership and resolution activity. 

There were two major expense categories in which a significant spending variance occurred 

through the second quarter in the Receivership Funding component of the 2008 Corporate 

Operating Budget: 

• Outside Services – Personnel expenditures were approximately $3 million, or 17 percent, less 

than budgeted, primarily due to the limited receivership and resolution activity that actually 

occurred through the second quarter. With the increased resolution activity in the third quarter, 

expenditures are expected to significantly increase in this category. 

• Equipment expenditures were $4 million, or 258 percent, greater than budgeted, due to the 

expedited purchasing of IT equipment in preparation for an anticipated increase in receivership 

and resolution activity later in the year. Budget was made available for this purpose through 

reallocation of existing budget authority. These funds were budgeted for later months during 

the year, resulting in a temporary budget variance. 
8

Significant Spending Variances by Division/Office1

Five organizations had significant spending variances through the end of the second quarter: 

• Overall, the Division of Information Technology (DIT) spent approximately $8 million, or 7 

percent, less than budgeted. This was comprised of $4.5 million in excess year-to-date 

spending in DIT’s Receivership Funding component, which was more than offset by $12.2 

million less spending than budgeted in the Ongoing Operations component of its budget and 

$0.3 million under spending for IT Investment projects. 

 

Excess spending in the Receivership Funding area was necessary to procure equipment 

necessary for an anticipated increase in resolution activity. Under spending in Ongoing 

Operations included $8.4 million in outside services personnel, which primarily resulted from 

delays in development projects due to client refocus on core mission responsibilities. In 

addition, $2.5 million of equipment purchases are being deferred until later in the year. 

• The Division of Administration (DOA) spent approximately $7 million, or 8 percent, less than 

budgeted. The variance of $3.7 million in Ongoing Operations was attributable to lower net 

costs for the Student Residence Center (because of increased proceeds derived from outside use 

of the facility) and lower-than-budgeted spending for contractual services. The $3.1 million 

variance in the Receivership Funding component of DOA’s operating budget reflected the 

addition of nearly $2.5 million during the second quarter for facilities and equipment related to 

an expected increase in receivership and resolution activity (DOA projects that these funds will 

be fully expensed by the end of the year). 

 

• DRR spent approximately $3.6 million, or 8 percent, less than budgeted. The vast majority of 

this variance, $3.2 million, relates to the Receivership Funding component of DRR’s operating 

budget and is due to the limited resolution activity that actually occurred through the second 

quarter. Of the three institutions that failed in the first half of the year, only one, ANB 

Financial, had assets greater than $1 billion at the time of failure. The combined assets of the 

three failures totaled $2.2 billion. While spending increases have been growing in the 

Receivership Funding component through the second quarter, more significant costs are 

expected in the third and fourth quarters as new bank failures occur and resolution activities 

increase–three institutions failed in July with assets totaling over $36 billion. 

• The Division of Insurance and Research spent approximately $3 million, or 17 percent, less 

than budgeted. The majority of this variance was due to vacant budgeted positions and lowerthan-budgeted spending for the Central Data Repository. 

• The Executive Support Offices spent approximately $2 million, or 25 percent, more than 

budgeted. This variance was due to spending for the FDIC’s 75th Anniversary Public 

Education Campaign that exceeded OPA’s current budget. 

 

1

 Information on division/office variances reflects variances in both the Corporate Operating and Investment Budgets. 
FDIC CFO REPORT TO THE BOARD – Second Quarter 2008

Fund Financial Results ($ in Millions) - Unaudited

page 9

Balance Sheet

 

Jun-08 Mar-08

Cash & cash equivalents $ 9,257 $ 8,080 $ 1,177 $ 983 $ 8,274 

Investment in U.S. Treasury obligations, net 43,218 43,626 (408) 49,116 (5,898)

Assessments receivable, net 627 442 185 139 488 

Interest receivable on investments and other assets, net 695 623 72 805 (110)

Receivables from resolutions, net 2,179 751 1,428 307 1,872 

Property, buildings and other capitalized assets, net 355 347 8 360 (5)

Total Assets $ 56,331 $ 53,869 $ 2,462 $ 51,710 $ 4,621 

Accounts payable and other liabilities 208 127 81 122 86 

Postretirement benefit liability 116 116 0 130 (14)

Contingent Liabilities: future failures 10,590 583 10,007 31 10,559 

Contingent Liabilities: litigation losses & other 200 200 0 200 0 

Total Liabilities $ 11,114 $ 1,026 $ 10,088 $ 483 $ 10,631 

FYI: Unrealized gain on available-for-sale securities, net 2,045 486 1,559 153 1,892 

FYI: Unrealized postretirement benefit gain 19 19 0 2 17 

FUND BALANCE $ 45,217 $ 52,843 $ (7,626) $ 51,227 $ (6,010)

Income Statement 

 

Jun-08 Mar-08

Assessments earned $ 1,088 $ 448 $ 640 $ 234 $ 854 

Interest earned on investment securities 1,269 618 651 1,315 (46)

Other revenue 2 1 1 6 (4)

Total Revenue $ 2,359 $ 1,067 $ 1,292 $ 1,555 $ 804 

Operating expenses (includes depreciation expense) 494 238 256 487 7 

Provision for insurance losses 10,746 525 10,221 (76) 10,822 

Other expenses 1 1 0 1 0 

Total Expenses & Losses $ 11,241 $ 764 $ 10,477 $ 412 $ 10,829 

Net (Loss)/Income $ (8,882) $ 303 $ (9,185) $ 1,143 $ (10,025)

Unrealized gain/(loss) on available-for-sale securities, net 1,686 127 1,559 (81) 1,767 

Unrealized postretirement benefit gain/(loss) 0 0 0 0 0 

YTD Comprehensive (Loss)/Income $ (7,196) $ 430 $ (7,626) $ 1,062 $ (8,258)

Quarterly

Change

Jun-07 Change

Jun-07

 Year-Over-Year

Change

Deposit Insurance Fund

Deposit Insurance Fund

Year-Over-Year

Change

Quarterly 

448

926 936 982 1,015 1,075

789 768 731

560

137 168

251

627

455

0

200

400

600

800

1,000

1,200

2nd Qtr 2007 3rd Qtr 2007 4th Qtr 2008 1st Qtr 2008 2nd Qtr 2008

$ in Millions

Gross Assessment Revenue Credits Used Net Assessment Revenue

FDIC Investment Portfolio as of June 30, 2008 

 ($ in billions)

Overnight 

Investments, 

$9.3, 17%

Available-forSale 

Securities, 

$43.9, 83%

Total market value = 

$53 billion

FDIC Investment Portfolio as of March 31, 2008 

 ($ in billions)

Held-toMaturity 

Securities 

with maturites 

greater than 

90 days, 

$37.9, 68%

Held-toMaturity 

Securities 

w/in 90 days 

of maturity, 

$2, 4%

Available-forSale 

Securities, 

$7.1, 13%

Overnight 

Investments, 

$8.1, 15%

Total market value = 

$55 billion

From the 2nd Quarter 2007 assessment period to the 2nd Quarter 2008 period, assessment credits used declined by 43 percent 

resulting in an increase in quarterly net assessment revenue of 358 percent. Of the $4.7 billion in one-time assessment credits 

granted, $584 million (12 percent) is projected to be remaining after the second quarter 2008 assessment collections.
page 10

Fund Financial Results - continued ($ in Millions ) - Unaudited

$20.8

Statements of Cash Flows 

 

Jun-08 Mar-08

Net Income $ (8,882) $ 303 $ (9,185) $ 1,143 $ (10,025)

Amortization of U.S. Treasury obligations (unrestricted) 257 129 128 280 (23)

TIPS Inflation Adjustment (210) (80) (130) (213) 3 

Depreciation on property and equipment 27 13 14 26 1 

Provision for insurance losses 10,746 525 10,221 (76) 10,822 

Unrealized gain on postretirement benefits 0 0 0 0 0 

Net change in operating assets and liabilities (1,934) (94) (1,840) (9) (1,925)

Net Cash Provided by Operating Activities $ 4 $ 796 $ (792) $ 1,151 $ (1,147)

Investments matured and sold 5,009 3,039 1,970 4,565 444 

Investments purchased (includes purchase of property and 

equipment) (1) 0 (1) (7,687) 7,686 

Net Cash Provided by/(Used by) Investing Activities $ 5,008 $ 3,039 $ 1,969 $ (3,122) $ 8,130 

Net Increase (Decrease) in Cash and Cash Equivalents 5,012 3,835 1,177 (1,971) 6,983 

Cash and Cash Equivalents at beginning of year 4,245 4,245 0 2,954 1,291 

Cash and Cash Equivalents - Ending $ 9,257 $ 8,080 $ 1,177 $ 983 $ 8,274 

Selected Financial Data

 

Jun-08 Mar-08

Cash and cash equivalents $ 3,444 $ 3,415 $ 29 $ 3,716 $ (272)

Accumulated deficit, net (123,811) (123,825) 14 (123,875) 64 

Resolution equity 3,458 3,444 14 3,751 (293)

Total revenue $ 43 $ 23 $ 20 $ 106 $ (63)

Operating expenses 2 1 1 2 0 

Goodwill/Guarini litigation expenses 77 77 0 167 (90)

Net (loss)/Income $ (41) $ (55) $ 14 $ (41) $ 0 

 Source: Historical Statistics on Banking, Managing the Crisis, and Failed Bank Cost Analysis Database.

Year-Over-Year

Change

FSLIC Resolution Fund

Quarterly

Change Jun-07

Deposit Insurance Fund

Change Jun-07

Quarterly Year-Over-Year

Change

 Receivership Selected Statistics June 2008 vs. June 2007

Year-to-Date ($ in millions) Jun-08 Jun-07 Change Jun-08 Jun-07 Change Jun-08 Jun-07 Change

Total Receiverships 22 24 (2) 9 15 (6) 31 39 (8)

Assets in Liquidation 2,343 $ 321 $ 2,022 34 $ 32 $ 2 2,377 $ 353 $ 2,024

Collections 221 $ 47 $ 174 4 $ 33 $ (29) 225 $ 80 $ 145

Dividends Paid 232 $ 252 $ (20) 4 $ 1 $ 3 236 $ 253 $ (17)

DIF FRF ALL FUNDS

Institution Name Location

Date of 

Assistance/ 

Failure

Receiver Total Assets Estimated*/ 

Actual Loss

Continental Illinois N. B. & T Chicago, IL 5/17/1984 FDIC $40.0 $1.1

First RepublicBank Corp. (41 affiliates) Dallas, TX 7/29/1988 FDIC $32.5 $4.0

IndyMac Bank FSB* Pasadena, CA 7/11/2008 FDIC $32.0 $8.9

American Savings & Loan Assoc. Stockton, CA 9/7/1988 FSLIC $30.2 $5.4

Bank of New England Corp (3 affiliates) Boston, MA 1/6/1991 FDIC $21.7 $0.724

MCorp (20 affiliates) Dallas, TX 3/29/1989 FDIC $15.6 $2.8

Gilbraltar Savings (2 affiliates) Simi Valley, CA 3/31/1989 FSLIC $15.1 $0.095

First City Bancorporation (60 affiliates) Houston, TX 4/20/1988 FDIC $13.0 $1.1

Homefed Bank, FA San Diego, CA 7/6/1992 RTC $12.2 $0.752

Southeast Bank, NA Miami, FL 9/19/1991 FDIC $11.0 $0.0

Top Ten Bank & Thrift Failures from 1934 - 2008 by Asset Size 

($ in Billions)
page 11

6/30/08 12/31/07 Change

Par Value $47,778 $47,562 $216

Amortized Cost (Book Value) $50,428 $50,469 ($41)

Market Value $52,473 $52,378 $95

Primary Reserve 1 $53,150 $14,317 $38,833

Primary Reserve % of Total Portfolio 100% 26.9% 73.1%

Year-to-Date Total Return (Portfolio) 2.659% 8.629% not applicable

Year-to-Date Total Return (Benchmark) 2 2.362% 8.861% not applicable

Total Return Variance (in basis points) 29.7 (23.2) not applicable

Yield-to-Maturity 3 4.44% 4.72% (0.28%)

Weighted Average Maturity (in years) 3.63 4.06 (0.43)

Effective Duration (in years) 4 

 Total Portfolio 2.86 3.19 (0.33)

 Available-for-Sale Securities 3.47 1.29 2.18

 Held-to-Maturity Securities ----- 3.94 not applicable

6/30/08 12/31/07 Change

Book Value 5 $583 $393 ($190)

Yield-to-Maturity 2.43% 4.22% (1.79%)

Weighted Average Maturity (in days) 1 19 (18)

3

 The Yield-to-Maturity includes the potential yield of Treasury Inflation-Protected Securities (TIPS), which assumes an average

2.2% annual increase in the CPI over the remaining life of each TIPS.

5

 Due to the short-term nature of the NLF, the portfolio's Book and Market Values are identical for reporting purposes.

4

 For each TIPS, an estimated 80% "yield beta" factor is applied to its real yield duration to arrive at an estimated effective 

duration.

National Liquidation Fund (NLF) Investment Portfolio Summary

(Dollar Values in Millions)

Deposit Insurance Fund Portfolio Summary

(in millions)

1 The Primary Reserve is the total market value (including accrued interest) of overnight investments, available-for-sale (AFS) 

securitites and held-to-maturity (HTM) securities maturing within three months. NOTE: All of the DIF portfolio’s HTM 

2

 The benchmark is the total return of the Merrill Lynch 1-10 Year U.S. Treasury Index.

securities were reclassified as AFS securities effective as of June 30, 2008, because it was determined that in light of 

significant actual and potential resolution-related outlays, the FDIC could no longer assert that it had the positive intent 

and ability to hold its HTM securities until maturity dates.

U.S. Treasury Security Yield Curves

-1.10%

-0.10%

0.90%

1.90%

2.90%

3.90%

4.90%

3

Month

6

Month

1Year

2

Year

3

Year

4

Year

5

Year

7

Year

10

Year

6/30/08

3/31/08

TIPS

6/30/08

3/31/08

Conventional
page 12

Maintain a $150 million target floor overnight investment balance.

Strategically invest all available funds in excess of the target overnight investment balance, which may include purchasing 

conventional Treasury securities within the zero- to six-year maturity sector, purchasing Treasury Inflation-Protected

Securities (TIPS) within the two- to ten-year maturity sector, and/or purchasing callable Treasury securities, subject

subject to the following limitations:

All newly purchased Treasury securities shall be designated available-for-sale (AFS).

Newly purchased AFS conventional Treasury securities should have maturities of six years or less.

Increase the portfolio's primary reserve balance to the maximum extent possible.

Maintain a target overnight investment balance between $20 million and $25 million.

Strategically invest the remaining funds in the zero- to 12-month maturity sector.

No changes in strategy.

Approved Investment Strategies

Strategy as of 2nd Quarter 2008

Strategy Changes for 3rd Quarter 2008

Strategy as of 2nd Quarter 2008

DEPOSIT INSURANCE FUND

Strategy Changes for 3rd Quarter 2008

NATIONAL LIQUIDATION FUND

Invest all proceeds from assessments, maturing securities, coupon and other interest payments, and receivership

dividends in overnight investments for potential resolution funding needs. 
page 13

1) Budgets for investment projects are approved on a multi-year basis; the year-to-date budget amount reflects the 2008 

spending estimates for approved projects. Detailed quarterly reports on the status of those projects are provided separately 

to the Board by the Capital Investment Review Committee. 

YTD YTD % of 

Major Expense Category Budget Expenditures Budget Used Variance

Corporate Operating Budget 

Ongoing Operations

Salaries & Compensation $338,761 $331,405 98% ($7,356)

Outside Services - Personnel 87,926 71,597 81% (16,329)

Travel 29,446 30,037 102% 591

Buildings 27,217 26,717 98% (500)

Equipment 21,048 18,047 86% (3,001)

Outside Services - Other 7,015 9,139 130% 2,124

Other Expenses 5,321 4,563 86% (758)

Total Ongoing Operations $516,734 $491,505 95% ($25,229)

Receivership Funding

Salaries & Compensation $2,565 $1,217 47% ($1,348)

Outside Services - Personnel 20,109 16,691 83% (3,418)

Travel 2,777 1,270 46% (1,507)

Buildings 2,556 1,364 53% (1,192)

Equipment 1,368 4,901 358% 3,533

Outside Services - Other 263 626 238% 363

Other Expenses 751 1,551 207% 800

Total Receivership Funding $30,389 $27,620 91% ($2,769)

Total Corporate Operating Budget $547,123 $519,125 95% ($27,998)

Investment Budget 1 $14,713 $14,413 98% ($300)

Grand Total $561,836 $533,538 95% ($28,298)

(Dollars in Thousands)

Executive Summary of 2008 Budget and Expenditures

by Major Expense Category

Through June 30, 2008
page 14

1) Executive Support includes the Offices of Diversity and Economic Opportunity, Public Affairs, Ombudsman, Legislative 

Affairs, Enterprise Risk Management, and International Affairs.

2) Executive Offices include the offices of the Chairman, Vice Chairman, Independent Director, Deputy to the Chairman 

and Chief Operating Officer, and Deputy to the Chairman and Chief Financial Officer.

3) Budgets for investment projects are approved on a multi-year basis; the year-to-date budget amount reflects the 2008 

spending estimates for approved projects. Detailed quarterly reports on the status of those projects are provided separately 

to the Board by the Capital Investment Review Committee.

YTD YTD % of 

Division/Office Budget Expenditures Budget Used Variance

 Corporate Operating Budget 

 Supervision & Consumer Protection $203,263 $200,341 99% ($2,922)

 Information Technology 100,962 93,292 92% (7,670)

 Administration 81,533 74,705 92% (6,828)

 Resolutions & Receiverships 44,661 40,542 91% (4,119)

 Legal 41,672 38,731 93% (2,941)

 Insurance & Research 18,333 15,555 85% (2,778)

 Finance 15,475 14,128 91% (1,347)

 Inspector General 13,152 11,477 87% (1,675)

 Corporate University 16,250 16,187 100% (63)

 Executive Support 1 9,297 11,625 125% 2,328

 Executive Offices 2 2,525 2,476 98% (49)

 Government Litigation 0 66 N/A 66

 Total, Corporate Operating Budget $547,123 $519,125 95% ($27,998)

 Investment Budget 3

 Information Technology $13,949 $13,632 98% ($317)

 Resolutions & Receiverships 20 541 2705% 521

 Insurance & Research 686 240 35% (446)

 Corporate University 58 0 0% (58)

 Total, Investment Budget 3 $14,713 $14,413 98% ($300)

 Combined Division/Office Budgets

 Supervision & Consumer Protection $203,263 $200,341 99% ($2,922)

 Information Technology 114,911 106,924 93% (7,987)

 Administration 81,533 74,705 92% (6,828)

 Resolutions & Receiverships 44,681 41,083 92% (3,598)

 Legal 41,672 38,731 93% (2,941)

 Insurance & Research 19,019 15,795 83% (3,224)

 Finance 15,475 14,128 91% (1,347)

 Inspector General 13,152 11,477 87% (1,675)

 Corporate University 16,308 16,187 99% (121)

 Executive Support 1 9,297 11,625 125% 2,328

 Executive Offices 2 2,525 2,476 98% (49)

 Government Litigation 0 66 N/A 66

 Grand Total $561,836 $533,538 95% ($28,298)

(Dollars in Thousands)

Executive Summary of 2008 Budget and Expenditures

by Budget Component and Division/Office

Through June 30, 2008