Federal Deposit Insurance Corporation

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

 December 6, 2018

MEMORANDUM TO: The Board of Directors

FROM: Steven O. App

Deputy to the Chairman

and Chief Financial Officer

Craig R. Jarvill

Director, Division of Finance

SUBJECT: Third Quarter 2018 CFO Report to the Board 

The attached report highlights the FDIC’s financial activities and results for the quarter ended 

September 30, 2018.

Executive Summary

• During the third quarter of 2018, the Deposit Insurance Fund (DIF) balance increased by $2.6

billion, from $97.6 billion at June 30, 2018, to $100.2 billion at September 30, 2018. The quarterly 

increase was primarily due to $2.7 billion of assessment revenue.

• The reserve ratio reached 1.36 percent as of September 30, 2018, exceeding the statutorily 

required minimum reserve ratio of 1.35 percent ahead of the September 30, 2020, deadline 

required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. As a result, 

FDIC regulations provide for two changes to deposit insurance assessments upon reaching the 

minimum: (1) surcharges on insured depository institutions with total consolidated assets of $10 

billion or more (large banks) will cease; and (2) small banks will receive assessment credits for the 

portion of their assessments that contributed to the growth in the reserve ratio from 1.15 percent to 

1.35 percent, to be applied in any quarter that the reserve ratio is at or above 1.38 percent.

• There were no financial institution failures during the third quarter of 2018; the last failure occurred 

on December 15, 2017.

• Through September 30, 2018, overall FDIC Operating Budget expenditures were approximately 8 

percent ($124.5 million) below budget. This variance was primarily the result of vacancies in 

budgeted positions, delays in purchasing equipment for the new backup data center, lower-thanbudgeted spending for contractual services and outside legal counsel, and delays in building 

improvement projects.
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I. Financial Results (See pages 6 – 7 for detailed data and charts.)

Deposit Insurance Fund 

• During the nine months ending September 30, 2018, the DIF’s comprehensive income totaled $7.5 

billion compared to comprehensive income of $7.3 billion for the same period last year. The slight

increase was largely the result of a $400 million increase in interest on U.S. Treasury securities, a 

$347 million decrease in provision for insurance losses, and a $237 million increase in assessment 

revenue. The increases were almost fully offset by an $854 million increase in unrealized losses on 

U.S. Treasury securities.

• The provision for insurance losses was a negative $327 million for the first nine months of 2018, 

compared to positive $20 million for the same period last year. The negative provision for 2018 

primarily resulted from a $333 million decrease to the estimated losses for prior year failures. This 

adjustment was attributable to two primary components: a $181 million reduction to receivership 

shared-loss liability cost estimates resulting from lower-than-anticipated losses on covered assets, 

reductions in shared-loss cost estimates from the early termination of shared-loss agreements (SLAs)

during the year, and unanticipated recoveries from SLAs where the commercial loss coverage has 

expired but the recovery period remains active; and $115 million of unanticipated recoveries from tax 

refunds, litigation settlements, and professional liability claims received by receiverships.

Assessments

• During September, the DIF recognized assessment revenue of $2.7 billion. Of this amount, $1.4 billion 

represented the estimate for the third quarter 2018 insurance coverage and $1.3 billion represented 

estimated surcharges on banks with $10 billion or more in assets. Additionally, the DIF recognized a 

$19 million adjustment, which increased assessment revenue.

• On September 28, 2018, the FDIC collected $1.4 billion in DIF regular assessments and $1.3 billion in 

surcharge assessments for second quarter 2018 insurance coverage.

II. Investment Results (See pages 8 – 9 for detailed data and charts.)

DIF Investment Portfolio

• On September 30, 2018, the total liquidity (also total market value) of the DIF investment portfolio 

stood at $95.5 billion, up $9.9 billion from its December 31, 2017, balance of $85.6 billion. During the 

year-to-date period, interest revenue, receivership dividends, and deposit insurance assessment 

collections far exceeded resolution-related outlays and operating expenses.

• On September 30, 2018, the DIF investment portfolio’s yield was 1.92 percent, up 40 basis points from 

its 1.52 percent yield on December 31, 2017. The new Treasury securities purchased during the yearto-date period had higher yields than the maturing securities’ yields.

• In accordance with the third quarter 2018 DIF portfolio investment strategy, staff purchased 21 short- to 

intermediate-maturity conventional Treasury securities, all designated as available-for-sale. The 21 

securities had a total par value of $10.2 billion, a weighted average yield of 2.62 percent, and a 

weighted average maturity of 1.91 years.
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III. Budget Results (See pages 10 – 11 for detailed data.)

Approved Budget Modifications

The 2018 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials 

the authority to make certain modifications to the 2018 FDIC Operating Budget. The following budget 

reallocations were approved during the third quarter in accordance with the authority delegated by the 

Board of Directors.

• In August, the Chief Information Officer (CIO) approved the reallocation of approximately 

$121,000 from the Outside Services – Personnel expense category to the Equipment expense 

category of the CIO Council budget to support the hosting and subscription costs for the Legal 

Division’s Advanced Legal Information System. 

• In September, the CFO approved budget changes in the Salary and Compensation budgets for 

most divisions and offices, based upon a Division of Finance review of corporate-wide spending 

in that expense category through August 2018. In the Ongoing Operations budget component, 

these reallocations resulted in reductions totaling approximately $18.1 million in the Salaries and

Compensation budgets of individual divisions and offices to reflect unused spending through 

August. The funding was reallocated to the Corporate Unassigned contingency reserve. There 

were no changes within the Salary and Compensation expense category for the Receivership 

Funding budget component. 

Following these budget modifications, the balances in the Corporate Unassigned contingency reserves 

as of September 30, 2018, were $20,634,877 in the Ongoing Operations budget component and 

$23,908,578 in the Receivership Funding budget component.

Approved Staffing Modifications

The 2018 Budget Resolution delegated to the CFO the authority to modify approved 2018 staffing 

authorizations for divisions and offices, as long as those modifications did not increase the total 

approved 2018 FDIC Operating Budget. 

• In September, the Chairman announced a restructuring of the Executive Offices. This 

restructuring included the following changes:

o Re-establishment of the position of Deputy to the Chairman for External Affairs.

o Re-establishment of the position of Deputy to the Chairman for Policy.

o Consolidation of the responsibilities of the Deputy to the Chairman and Chief Operating 

Officer (COO) and the Director, Division of Administration (DOA), into a single position.

o Realignment of the Internal Ombudsman function and associated staff from the Office 

of the COO to DOA.

o Realignment of one secretarial position from the Office of the COO to the Office of the 

Chairman.

The restructuring resulted in a reduction of three authorized permanent positions (from 35 to 

32) in the Executive Offices and an increase of five authorized permanent positions (from 372 

to 377) in DOA.

Spending Variances

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

Significant spending variances for the nine months ending September 30, 2018, are defined as those 

that either (1) exceed the YTD budget by more than $1 million and represent more than two percent of 

a major expense category or total division/office budget; or (2) are under the YTD budget for a major 
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expense category or division/office budget by an amount that exceeds $7 million and represents more 

than seven percent of the major expense category or total division/office budget. 

Significant Spending Variances by Major Expense Category

Ongoing Operations

There were significant spending variances in three major expense categories of the Ongoing 

Operations budget component at the end of the third quarter:

Outside Services – Personnel expenditures were $18.7 million, or 10 percent, below budget. This was 

the result of under-spending by several organizations:

• The Division of Information Technology (DIT) spent $4.3 million less than budgeted due to 

delays in spending for contractor services related to migration to the new backup data center 

and reduced contractor expenses for infrastructure services.

• DOA spent $3.9 million less than budgeted due mostly to a lower-than-expected level of 

contractor support for human resources functions, underspending for guard services due to 

delays in on-boarding of new contractors, fewer-than-anticipated background investigations, 

and reduced expenses for the new Student Residence Center contract.

• The Office of Chief Information Security Officer (OCISO) spent $3.2 million less than budgeted 

due to deferred spending on multiple contracts, including those supporting the backup data 

center project.

• The CIO Council spent $2.2 million less than budgeted due to delays in starting development 

and enhancement projects and lower-than-projected expenses for systems maintenance and 

operations.

Equipment expenditures were $15.4 million, or 17%, under budget, mostly due to delays in equipment 

purchases for the backup data center and technology refreshment in DIT and OCISO.

Buildings expenditures were $12.3 million, or 16%, under budget due to procurement delays for four 

Headquarters building projects. Building improvement projects for the San Francisco Regional Office 

were also deferred, and reimbursements from the construction contractor for expenses related to a 

San Francisco Regional Office project were credited to the Buildings/Miscellaneous Operating account, 

which decreased total net expenses incurred for the year.

Receivership Funding

The Receivership Funding component of the 2018 FDIC Operating Budget includes funding for 

expenses that are incurred in conjunction with institution failures and the management and disposition 

of the assets and liabilities of the ensuing receiverships, except for salary and benefits expenses for 

permanent employees assigned to the receivership management function. 

There was a significant spending variance in one major expense category of the Receivership Funding 

budget component at the end of the third quarter. Spending for Outside Services - Personnel was $21 

million, or 17%, below budget. This variance was mainly attributable to underspending for pre-closing 

and closing activities by the Division of Resolutions and Receiverships (DRR) because there have 

been no bank failures in 2018. Lower-than-anticipated expenses in the Legal Division for outside legal 

counsel services for receivership and resolution activities also contributed to this variance.
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Office of Inspector General

There were no significant spending variances through the third quarter in any major expense category 

of the Office of Inspector General budget component.

Significant Spending Variances by Division/Office1

Five organizations had significant spending variances through the end of the third quarter.

• DRR spent $25 million, or 14%, less than budgeted, due mostly to lower than expected 

spending in the Outside Services – Personnel expense category of the Receivership Funding 

budget component. As noted above, this under-spending was attributable to the lack of 

institution failures this year.

• DOA spent $23 million, or 11%, less than budgeted, due largely to contract procurement delays 

in major building improvement projects at Headquarters buildings, deferred spending for 

building improvement projects at the San Francisco Regional Office, and fewer-thananticipated interior improvements and construction projects at various other offices. DOA also 

contracted for fewer-than-expected background investigations and spent less for guard 

services due to delays in on-boarding of new contractors.

• DIT spent $16 million, or 9 percent, less than budgeted, mostly due to delays in the acquisition 

of equipment and contractual services for the backup data center, the replacement of obsolete 

equipment from the technology refreshment allowance, and spending for equipment 

maintenance and subscriptions. It also had lower-than-expected expenses for salaries due to 

vacancies in budgeted positions and for contracted infrastructure support services.

• Legal spent $14 million, or 10 percent, less than budgeted, due mainly to unfilled vacancies in 

budgeted positions and underspending for outside counsel services.

• OCISO spent $8 million, or 22 percent, less than budgeted, due mainly to delays in planned 

spending for equipment and services related to the backup data center project, lower-thanexpected spending for other contractual services, and delays in the purchase of equipment 

from the technology refreshment allowance.

 1

Information on division/office variances reflects variances in the FDIC Operating Budget. 
Fund Financial Results ($ in Millions) 

6

Balance Sheet

Quarterly Year-Over-Year

Sep-18 Jun-18 Change Sep-17 Change

Cash and cash equivalents $ 2,790 $ 3,535 $ (745) $ 1,237 $ 1,553

Investment in U.S. Treasury securities 92,211 88,300 3,911 79,439 12,772

Assessments receivable, net 2,702 2,679 23 2,635 67

Interest receivable on investments and other assets, net 539 558 (19) 517 22

Receivables from resolutions, net 2,897 3,711 (814) 9,317 (6,420)

Property and equipment, net 322 321 1 333 (11)

Total Assets $ 101,461 $ 99,104 $ 2,357 $ 93,478 $ 7,983

Accounts payable and other liabilities 204 232 (28) 198 6

Liabilities due to resolutions 654 905 (251) 2,421 (1,767)

Postretirement benefit liability 259 259 - 232 27

Contingent liability for anticipated failures 106 85 21 86 20

Contingent liability for guarantee payments and litigation losses 34 35 (1) 35 (1)

Total Liabilities $ 1,257 $ 1,516 $ (259) $ 2,972 $ (1,715)

FYI: Unrealized gain (loss) on U.S. Treasury securities, net (1,371) (1,137) (234) (17) (1,354)

FYI: Unrealized postretirement benefit (loss) gain (46) (46) - (26) (20)

Fund Balance $ 100,204 $ 97,588 $ 2,616 $ 90,506 $ 9,698

Deposit Insurance Fund

The repayment of the receivables 

from resolutions is primarily 

influenced by recoveries on assets 

held by DIF receiverships and 

receivership payments on the 

covered assets under shared-loss 

agreements. The majority of the 

remaining assets in liquidation 

($1.2 billion) and current sharedloss covered assets ($10.7 billion), 

which together total $11.9 billion, 

are concentrated in failed 

institutions located in California, 

Puerto Rico, Florida, and Texas.

Total balance = $11.9 billion
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Fund Financial Results - continued ($ in Millions) 

Income Statement (year-to-date)

Quarterly Year-Over-Year

Sep-18 Jun-18 Change Sep-17 Change

Assessments $ 8,176 $ 5,448 $ 2,728 $ 7,939 $ 237

Interest on U.S. Treasury securities 1,152 719 433 752 400

Other revenue 8 5 3 8 0

Total Revenue $ 9,336 $ 6,172 $ 3,164 $ 8,699 $ 637

Operating expenses 1,312 878 434 1,296 16

Provision for insurance losses (327) (206) (121) 20 (347)

Insurance and other expenses 2 1 1 1 1

Total Expenses and Losses $ 987 $ 673 $ 314 $ 1,317 $ (330)

Net Income 8,349 5,499 2,850 7,382 967

Unrealized gain (loss) on U.S. Treasury securities, net (892) (658) (234) (38) (854)

Unrealized postretirement benefit gain (loss) - - - - -

Comprehensive Income $ 7,457 $ 4,841 $ 2,616 $ 7,344 $ 113

Deposit Insurance Fund

Selected Financial Data

Quarterly Year-Over-Year

Sep-18 Jun-18 Change Sep-17 Change

Cash and cash equivalents $ 896 $ 892 $ 4 $ 883 $ 13

Accumulated deficit (124,593) (124,597) 4 (124,606) 13

Total resolution equity 897 893 4 884 13

Total revenue 11 7 4 5 6

Operating expenses 0 0 0 0 0

Losses related to thrift resolutions 0 0 0 0 0

Net Income (Loss) $ 11 $ 7 4 $ 5 6

FSLIC Resolution Fund

 Receivership Selected Statistics September 2018 vs. September 2017

$ in millions

Sep-18 Sep-17 Change Sep-18 Sep-17 Change Sep-18 Sep-17 Change

Total Receiverships 282 367 (85) - - - 282 367 (85)

Assets in Liquidation $1,245 $ 4,971 $ (3,726) $ 2 $ 2 - $ 1,247 $ 4,973 $ (3,726)

YTD Collections $1,333 $ 1,260 $ 73 - 1 $ (1) $ 1,333 $ 1,261 $ 72

YTD Dividend/Other Pymts - Cash $3,185 $ 1,448 $ 1,737 - - - $ 3,185 $ 1,448 $ 1,737

DIF FRF ALL FUNDS

Cash and Investments 

increased by $43.3 

billion from $51.7 billion 

at year-end 2014 to 

$95.0 billion at 

September 30, 2018. 

The increase was 

primarily due to 

assessment collections, 

interest on U.S. 

Treasury securities, and 

recoveries from 

resolutions, that far 

exceeded resolutionrelated outlays and 

operating expenses. 

51,720

63,374

74,845

85,132

95,001

14,502 17,219 14,629 16,202 12,635

3,462 4,021 2,183 4,850 1,627

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

2014 2015 2016 2017 9/2018

DIF Cash Flows ($ in millions)

Cash and Investments Inflow Outflow
8

9/30/18 12/31/17 Change

Par Value $96,526 $85,376 $11,150

Amortized Cost $96,458 $85,707 $10,751

Total Market Value (including accrued interest) $95,491 $85,590 $9,901

Primary Reserve 1 $95,491 $85,590 $9,901

Primary Reserve % of Total Portfolio 100.0% 100.0% 0.0%

Yield-to-Maturity 2 1.92% 1.52% 0.40%

Weighted Average Maturity (in years) 1.83 2.05 -0.22

Effective Duration (in years)

 Total Portfolio 1.76 1.97 -0.21

 Available-for-Sale Securities 1.85 2.07 -0.22

 Held-to-Maturity Securities 3 not applicable not applicable not applicable

9/30/18 12/31/17 Change

FRF-FSLIC

 Book Value 4 $852 $842 $10

 Yield-to-Maturity 2.13% 1.20% 0.93%

 Weighted Average Maturity overnight overnight no change

9/30/18 12/31/17 Change

Book Value 5 $3,025 $4,733 ($1,708)

Effective Annual Yield 2.08% 1.24% 0.84%

Weighted Average Maturity (in days) 50 51 (1)

5

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

Summary of Other Corporate Investment Portfolios

(Dollar Values in Millions)

4

 Due to the current short-term nature of this portfolio, its respective Par, Book, and Market Values are identical for reporting purposes.

(Dollar Values in Millions)

2

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

2.0% annual increase in the CPI over the remaining life of each TIPS.

Deposit Insurance Fund Portfolio Summary

(Dollar Values in Millions)

1

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

securities, and held-to-maturity (HTM) securities maturing within three months.

National Liquidation Fund (NLF) Investment Portfolio Summary

3

 In early August 2008, management reclassified all of the DIF portfolio's HTM securities as AFS securities effective as of June 30, 

2008, because the FDIC could no longer assert it had the positive intent and ability to hold its HTM securities until their maturity dates.
9

DEPOSIT INSURANCE FUND

Purchase up to $13 billion (par value) of Treasury securities with maturity dates between 

December 31, 2018, and December 31, 2023, subject to the following additional provisions: 

all newly purchased securities will be designated as AFS; no more than $2 billion (adjusted 

par value) of such securities shall consist of TIPS; and target at least $2 billion (par value) 

of newly purchased securities maturing between January 1, 2022, and December 31, 2023.

Purchase up to $14 billion (par value) of Treasury securities with maturity dates between 

March 31, 2019, and December 31, 2023, subject to the following additional provisions: all 

newly purchased securities will be designated as AFS; no more than $2 billion (adjusted par 

value) of such securities shall consist of TIPS; and target at least $3.5 billion (par value) of 

newly purchased securities maturing between January 1, 2022, and December 31, 2023.

NATIONAL LIQUIDATION FUND

Maintain an overnight deposit target floor balance within a range of $100 million to $300 

million.

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

No strategy changes for the fourth quarter of 2018.

Strategy Changes for the 4th Quarter 2018

Investment Strategies

Strategy for the 3rd Quarter 2018

Strategy for the 3rd Quarter 2018

Strategy Changes for the 4th Quarter 2018
10

Annual YTD YTD % of YTD YTD

Major Expense Category Budget Budget Expenditures Budget Used Variance

FDIC Operating Budget 

Ongoing Operations

Salaries & Compensation $1,227,402 $915,979 $878,849 96% ($37,130)

Outside Services - Personnel 256,567 188,325 169,591 90% (18,734)

Travel 92,754 69,568 66,409 95% (3,159)

Buildings 106,307 78,104 65,802 84% (12,302)

Equipment 114,441 89,506 74,110 83% (15,396)

Outside Services - Other 16,196 12,198 11,611 95% (587)

Other Expenses 13,368 9,696 8,778 91% (918)

Total Ongoing Operations $1,827,035 $1,363,376 $1,275,150 94% ($88,226)

Receivership Funding

Salaries & Compensation $19,390 $15,706 $10,498 67% ($5,208)

Outside Services - Personnel 185,600 120,277 99,305 83% (20,972)

Travel 3,574 2,676 1,432 54% (1,244)

Buildings 6,968 5,231 3,982 76% (1,249)

Equipment 969 568 472 83% (96)

Outside Services - Other 1,327 998 911 91% (87)

Other Expenses 7,172 5,377 2,050 38% (3,327)

Total Receivership Funding $225,000 $150,833 $118,650 79% ($32,183)

Office of Inspector General

Salaries & Compensation $34,853 $26,140 $23,852 91% ($2,288)

Outside Services - Personnel 1,660 1,245 1,156 93% (89)

Travel 1,583 1,187 683 58% (504)

Buildings 0 0 0 0

Equipment 1,555 1,167 173 15% (994)

Outside Services - Other 0 0 0 0

Other Expenses 447 335 168 50% (167)

Total Office of Inspector General $40,098 $30,074 $26,032 87% ($4,042)

Total FDIC Operating Budget $2,092,133 $1,544,283 $1,419,832 92% ($124,451)

Executive Summary of 2018 Budget and Expenditures

by Budget Component and Major Expense Category

Through September 30, 2018

(Dollars in Thousands)
11

1) Executive Support includes the Offices of Minority and Women Inclusion, Communications, Ombudsman, 

Legislative Affairs, and Financial Institution Adjudication. 

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

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

Officer.

Annual YTD YTD % of YTD YTD

Division/Office Budget Budget Expenditures Budget Used Variance

 FDIC Operating Budget 

 Risk Management Supervision $579,831 $437,344 $419,766 96% ($17,578)

 Resolutions & Receiverships 236,786 178,570 153,997 86% (24,573)

 Administration 274,830 203,859 180,783 89% (23,076)

 Legal 197,518 149,938 135,617 90% (14,321)

 Information Technology 244,696 186,395 170,262 91% (16,133)

 Depositor & Consumer Protection 181,186 137,742 130,822 95% (6,920)

 Insurance & Research 51,532 38,610 37,482 97% (1,128)

 CIO Council 52,118 37,500 35,525 95% (1,975)

 Finance 40,935 30,509 29,545 97% (964)

 Inspector General 40,098 30,074 26,032 87% (4,042)

 Information Security & Privacy Staff 50,383 39,003 30,617 78% (8,386)

 Executive Support 1 21,902 16,458 15,158 92% (1,300)

 Complex Financial Institutions 19,715 13,862 13,301 96% (561)

 Corporate University - Corporate 26,153 21,477 19,388 90% (2,089)

 Corporate University - CEP 18,834 14,519 14,229 98% (290)

 Executive Offices 2 11,073 8,423 7,308 87% (1,115)

 Corporate Unassigned 44,543 0 0 0

 Total FDIC Operating Budget $2,092,133 $1,544,283 $1,419,832 92% ($124,451)

Executive Summary of 2018 Budget and Expenditures

by Division/Office

Through September 30, 2018

(Dollars in Thousands)