III. Budget Results - Third Quarter 2016

Approved Budget Modifications

The 2016 Budget Resolution delegated to the Chief Financial Officer (CFO) and selected other officials the authority to make certain modifications to the 2016 FDIC Operating Budget. The following budget reallocations were made during the third quarter in accordance with the authority delegated by the Board of Directors. None of these modifications changed the total 2016 FDIC Operating Budget as approved by the Board in December 2015.

• In August 2016, the CFO approved the realignment of existing Salaries and Compensation budget among three divisions within the Ongoing Operations component based on an analysis of year-to-date spending for regular salaries and fringe benefits. The reallocation provided the Division of Insurance and Research and the Division of Information Technology (DIT) with additional budget authority of $1.5 million and $0.5 million, respectively. This was offset by a reduction of $2.0 million in the salaries and compensation budget of the Division of Risk Management Supervision.

• In August 2016, the CFO approved additional changes within both the Ongoing Operations and Receivership Funding budget components. The following changes were made within the Ongoing Operations budget component:

• The Information Security & Privacy Staff (ISPS) budget was increased by $1,750,388 ($1,350,388 in the Outside Services – Personnel expense category and $400,000 in the Equipment expense category) to provide funding for credit monitoring and compliance with new Federal Information Security Management Act of 2002 regulations.
• The DIT budget was increased by $600,000 in the Outside Services – Personnel category to support an independent security assessment and the mandatory implementation of a security tool developed by the Department of Homeland Security.
• The CIO Council budget was reduced by $5.5 million in the Outside Services – Personnel expense category, based on a reassessment of 2016 resource requirements and current spending plans for CIO Council projects.
• A total of $3,149,612 was realigned to the Corporate Unassigned contingency reserve.
• In the Receivership Funding budget component, $100,000 was realigned from the Corporate Unassigned contingency reserve to the Outside Services - Personnel expense category of the ISPS budget, also related to IT security requirements.

• In September 2016, the CFO approved an increase in DIT’s Ongoing Operations budget of $5,038,617 ($4,875,617 in the Outside Services – Personnel expense category and $163,000 in the Equipment expense category). The purpose of this increase was largely to address projected operational shortfalls in DIT’s budget for infrastructure services and to provide funding to conduct two high priority security initiatives and an update of the IT strategic plan, including development of a communications strategy to disseminate information on the CIO’s plans for changes in the delivery of IT services. The increase in the DIT budget was offset by a corresponding reduction in the Corporate Unassigned contingency reserve.

The amounts remaining within the Corporate Unassigned contingency reserves for the Ongoing Operations and Receivership Funding budget components were $14,715,540 and $27,536,513, respectively, following these 3rd quarter budget changes.

The 2016 Budget Resolution also delegated to the CFO the authority to modify approved 2016 staffing authorizations for divisions and offices, as long as those modifications did not increase the total approved 2016 FDIC Operating Budget. The following changes were approved by the CFO in accordance with the authority delegated to him by the Board of Directors:

• In September, the CFO approved an increase of seven permanent authorized positions in the Office of the Inspector General (OIG). This increase brought the OIG’s 2016 staffing authorization into line with the OIG’s pending FY2017 appropriation request. According to the OIG, the requested staffing increase was necessary to address the rising workload associated with Congressional requests.

• No funds were reallocated within the OIG budget as a result of this change. Sufficient funds were available to cover these additional positions because of delays in filling budgeted vacancies.

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, 2016, are defined as those that either (1) exceed the YTD budget by $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 expense category or division/office by an amount that exceeds $2 million and represents more than four 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 variance in five major expense categories during the third quarter in the Ongoing Operations component of the 2016 FDIC Operating Budget:

• Outside Services-Personnel expenditures were $15 million, or 9 percent, less-than-budgeted.
• The Division of Administration (DOA) spent $8 million less-than-budgeted, largely due to lower-than-budgeted spending for several security related initiatives, including Finger Printing Services, Background Investigations, Physical Security, and the Access Control Program; and delays in and reduced contractor support requirements for several HR initiatives, including the Performance Management and Recognition Program as well as Salary Structure review, development of a Corporate Workforce Planning Model, administration of student programs, and the revision of position descriptions for positions subject to the Fair Labor Standards Act.
• The CIO Council spent almost $2 million less-than-budgeted, due to lower spending on systems maintenance and a late start in the use of the Technical Obsolescence Remediation Fund.
• ISPS spent about $2 million less-than-budgeted, primarily due to the implementation of software solutions that reduced the need for contractor services and the erroneous inclusion of ISPS’s budget for software subscriptions in the Outside Services-Personnel category rather than the Equipment category where actual expenses were correctly charged (this budgeting error was corrected in October).
• The Division of Depositor and Consumer Protection spent $1 million less-than-budgeted due primarily to delays in planned MoneySmart projects, the Small Dollar Savings project, and the biennial FDIC Survey of Unbanked and Underbanked Households as well as lower-than-expected spending for maintenance of the Economicinclusion.gov website.

• Travel expenditures were approximately $5 million, or 7 percent, lower-than-budgeted. Approximately $4 million of this amount was attributable to the reduced number of exams conducted and lower examination-related travel costs in the Division of Risk Management Supervision (RMS) as a result of the improved condition of FDIC-supervised banks and the change in exam frequency for favorably-rated banks having assets less than $1 billion.

• Buildings expenditures were approximately $4 million, or 5 percent, less-than-budgeted. This was largely attributable to delays in the start and/or completion of the Virginia Square Loading Dock Repair project and several other repair and maintenance projects.

• Equipment expenditures were approximately $6 million, or 9 percent, less-than-budgeted. This was primarily attributable to underspending by DIT, which spent $4 million less-than-budgeted because of a decision to defer hardware technical refresh purchases until it can assess the impact of the use of shared services. DOA spent $2 million less-than-budgeted, largely due to the delay in the purchase and installation of the Electronic Security System hardware in the remaining field offices and the slower-than-expected installation of one of the two sensitive compartmented information facility communication systems that was planned to be completed earlier this year.

• Outside Services – Other expenditures were approximately $3 million, or 23 percent, less-than-budgeted. This was primarily attributable to underspending in telecommunications by DIT, which spent $2 million less-than-budgeted, principally because it initially estimated that its annual budget for this expense category would be fully expensed during the first nine months of the year and because of the receipt of approximately $647,000 in vendor credits. In October, $690,000 of this variance was reallocated within DIT and the remaining balance is expected to be eliminated by year-end. DOA spent nearly $1 million less-than-budgeted, largely due to lower insurance premiums, a decline in nationwide mail volume, and lower demand for various support services, including printing, advertising and catering.

Receivership Funding

The Receivership Funding component of the 2016 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 were significant spending variances in four of the seven major expense categories through the third quarter in the Receivership Funding component of the 2016 FDIC Operating Budget:

• Salaries and Compensation were $10 million, or 21 percent, less-than-budgeted. This variance was attributable to vacancies in budgeted non-permanent positions in the Division of Resolutions and Receiverships (DRR) and the Legal Division.

• Outside Services-Personnel expenditures were $60 million, or 30 percent, less-than-budgeted. DRR spent $52 million less-than-budgeted, primarily because there were only five small bank failures in the first nine months of the year. This resulted in lower-than-budgeted expenses for contracts supporting owned real estate, loan servicing, bank closings, securitizations, loss share agreement oversight, environmental services, and asset valuation. The Legal Division spent $7 million less-than-budgeted, primarily due to lower-than-anticipated costs for the support of outside legal counsel for receivership-related legal matters.

• Travel expenditures were approximately $4 million, or 61 percent, less-than-budgeted. This was primarily attributable to the low number and small size of bank failures during the first nine months of the year.

• Other Expenses were approximately $8 million, or 64 percent, less-than-budgeted. This variance was attributable to the transfer of banking operations and the disposition of failed banks’ assets more quickly than expected because there were fewer-than-usual receivership claims and settlement costs (which account for 62 percent of the year-to-date Other Expenses budget) associated with actual failed bank resolutions.

 Significant Spending Variances by Division/Office

Six organizations had significant spending variances through the end of the third quarter:

• DRR spent $71 million, or 26 percent, less-than-budgeted. Approximately $68 million of this variance was in the Receivership Funding budget component and was largely due to lower-than-budgeted spending for resolution and receivership workload for the various reasons described above.

• RMS spent $21 million, or 5 percent, less-than-budgeted. This variance was largely attributable to vacancies in budgeted positions and the reduction in exam-related travel expenses.

• The Legal Division spent $18 million, or 10 percent, less-than-budgeted. This variance was largely due to underspending of approximately $10 million in the Salaries and Compensation expense category ($5 million each in the Ongoing Operations and Receivership Funding budget components) due to vacancies in budgeted non-permanent positions and slower-than-projected hiring to fill those vacancies. In addition, they spent $7 million less-than-budgeted in the Receivership Funding budget component for outside counsel costs for receivership-related legal matters.

• DOA spent $18 million, or 9 percent, less-than-budgeted. This variance was largely due to lower spending on contractor supported projects and functions explained earlier in the Outside Services – Personnel and Buildings expense categories of the Ongoing Operations budget component.

• DIT spent $8 million, or 5 percent, less-than-budgeted. This variance was largely attributable to delays in spending their equipment and telecommunications budgets as explained in more detail above in the Ongoing Operations budget section.

• The Executive Support Offices spent $2 million, or 12 percent, less-than-budgeted. This variance was largely due to vacancies in budgeted positions in the Offices of Corporate Risk Management (OCRM), Legislative Affairs, and Minority and Women Inclusion. Contract spending was also below budget in the Office of Communications and OCRM for public relations advisory services and the independent validation of FDIC models, respectively.