III. Budget Results - First Quarter 2015

Approved Budget Modifications

The 2015 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials the authority to make certain modifications to the 2015 Corporate Operating Budget.  The following budget reallocations were approved during the first quarter in accordance with the authority delegated by the Board of Directors.

• In January 2015, the Division of Information Technology (DIT), the Office of Minority and Women Inclusion, the Division of Insurance and Research, the Information Security and Privacy Staff (ISPS), and the CIO Council reallocated budget authority among major expense categories within their approved Ongoing Operations budgets, and the Division of Resolutions and Receiverships (DRR) reallocated budget authority among major expense categories within its approved Receivership Funding budget.  None of the budget realignments increased or decreased the total Board-approved budget, or the Ongoing Operations or Receivership Funding components of their budgets.

• In March 2015, the CFO approved the reallocation of $780,566 within the Ongoing Operations budget component from the Legal Division to the newly established Office of Financial Institution Adjudication (OFIA) for Salaries and Compensation ($737,967), Travel ($40,000), and Other Expenses ($2,599).  OFIA, although independent, was previously a part of the Legal Division for administrative purposes.  It is now a separate organizational entity within the Executive Support Offices reporting directly to the Chief Operating Officer.

• In March 2015, the CFO approved a $5,860,000 transfer of budget authority from the Corporate Unassigned contingency reserve to the Outside Services – Personnel and Equipment expense categories in the Ongoing Operations budget of DIT to fund an independent assessment of the FDIC’s IT program; an update of the IT strategic plan; the purchase of new file storage capacity and related services for the extended retention of e-mails and other documents; and the purchase of software licenses to support new security capabilities.

• In March 2015, the CIO approved the realignment of funds within the CIO Council budget between the Outside Services – Personnel (-$24,000) and Travel (+$24,000) expense categories to provide travel funds for the Receivership Oversight project.

Following these budget reallocations, the amounts remaining available within the Corporate Unassigned budgets for the Ongoing Operations and the Receivership Funding budget components were $19,140,000 and $22,710,143, respectively.

Approved Budget Modifications

The 2015 Budget Resolution delegated to the CFO the authority to modify approved 2015 staffing authorizations for divisions and offices, as long as those modifications did not increase the total approved 2015 Corporate Operating Budget.  The following changes were approved by the CFO in accordance with the authority delegated to him by the Board of Directors:

• In March 2015, the CFO approved the transfer of three authorized positions (two permanent, one non-permanent) from the Legal Division to OFIA in conjunction with the establishment of OFIA as a separate office within the Executive Support Offices.

Spending Variances

Significant spending variances by major expense category and division/office are discussed below.  Significant spending variances for the three months ending March 31, 2015, are defined as those that either (1) exceed the YTD budget by $3 million and represent more than five percent of 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 $5 million and represents more than ten percent of the major expense category or total division/office budget.

Significant Spending Variances by Major Expense Category

Ongoing Operations

There was a significant spending during the first quarter in two major expense categories of the Ongoing Operations component of the 2015 Corporate Operating Budget:

• Outside Services-Personnel expenditures were $8 million, or 14 percent, less than budgeted.  The Division of Administration (DOA) spent $4 million less than budgeted largely due to (1) the failure to fully accrue expenses for the new security guard services contract, (2) fewer background investigations than anticipated, and (3) delays in completing the succession planning project and related pay, performance, and competency modeling projects.  DRR spent $1 million less than budgeted, primarily due to delays in initiating projects in its Complex Financial Institutions and Planning and Resource Management Branches.  In addition, Corporate University spent $1 million less than budgeted primarily due to lower-than-projected expenditures for projects in the Dallas Learning Center and the Schools of Corporate Operations, Leadership Development, and Supervision.

• Equipment expenditures were $10 million, or 61 percent, less than budgeted.  DIT spent $7 million less than budgeted for hardware and software maintenance due to a slow start in purchasing equipment and processing hardware and software maintenance contracts.  About half of these planned first quarter expenses were actually incurred in April.  In addition, DOA spent $2 million less than budgeted due to lower spending for online information services and under-spending for furniture, fixture and equipment.

Receivership Funding

The Receivership Funding component of the 2015 Corporate 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 only one of the seven major expense categories during the first quarter in the Receivership Funding component of the 2015 Corporate Operating Budget:

• Outside Services-Personnel expenditures were $27 million, or 30 percent, less than budgeted.  DRR spent $16 million less than budgeted in the first quarter as resolutions, asset management and marketing costs declined at a faster rate than projected.  This included lower expenses for contracts supporting Owned Real Estate, Loan Servicing, Environmental, Failed Bank Data and Capital Markets related contracts.  In addition, the Legal Division spent $11 million less than budgeted due primarily to an unexpected decrease in the professional liability expenses during the first quarter that was attributable to pre-trial settlements, temporary stays in some cases, and other factors.  We will reassess the Outside Services – Personnel funding levels for DRR and the Legal Division at mid-year.

 Significant Spending Variances by Division/Office¹

Only four organizations had significant spending variances through the end of the first quarter:

• DRR spent $21 million, or 19 percent, less than budgeted, mostly due to less than budgeted spending for resolution and receivership workload for the reasons described above.

• The Legal Division spent $13 million, or 18 percent, less than budgeted.  Approximately $11 million of this variance was in the Receivership Funding budget component and was largely attributable to lower-than-budgeted spending for legal services contracting due to an unexpected decrease in the professional liability expenses during the first quarter that was attributable to pre-trial settlements, temporary stays in some cases, and other factors.  Additionally, there was a $1 million variance in the Ongoing Operations budget component due to slower-than-projected hiring.

• DIT spent $9 million, or 19 percent, less than budgeted.  This variance was largely attributable to delays in the timing of budgeted purchases and processing hardware and software maintenance contracts in the equipment category.

• DOA spent $8 million, or 12 percent, less than budgeted.  This variance was largely attributable to lower-than-budgeted spending for contractor support ($4 million) and equipment expenses ($2 million) in its Ongoing Operations Budget component.

¹Information on division/office variances reflects variances in the Corporate Operating Budget.