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Chief Financial Officer's (CFO) Report to the Board

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Executive Summary
   •  Summary Trends and Results
I. Corporate Fund Financial Results

   •  DIF Balance Sheet
   •  DIF Income Statement
   •  DIF Statements of Cash Flows
   •  Selected Financial Data
II. Investments Results & Prospective Strategies

   •  Deposit Insurance Fund Portfolio Summary
   •  Approved Investment Strategies
III. Budget Results

   •  Budget & Expenditures by Major Expense Categories
   •  Budget & Expenditures by Budget Component, Division & Office
Printable Version

Summary Trends and Results - Third Quarter 2008

Financial Results Comments
I. Financial Statements
  • On October 13, 2008, a systemic risk determination was invoked by the Secretary of the Treasury (in consultation with the President) following recommendation of the Boards of the FDIC and the Federal Reserve. A systemic risk finding is invoked when it is determined that the failure of an institution or institutions could threaten the stability of the entire financial system. In response to this finding, the FDIC implemented the Temporary Liquidity Guarantee Program (TLGP) as part of a larger government effort to strengthen confidence and encourage liquidity in the nation’s banking system. For participating entities, the program provides guarantees for certain senior unsecured debt of insured depository institutions and certain holding companies; and provides unlimited coverage for noninterest-bearing transaction accounts held by insured depository institutions through December 31, 2009. The TLGP Final Rule was issued on Friday, November 21, 2008.
II. Investments
  • The DIF investment portfolio’s amortized cost (book value) decreased significantly by $18.8 billion during the first nine months of 2008, and totaled $31.7 billion on September 30, 2008. The decline was primarily the result of funding failed institution resolutions during the first nine months of 2008. At quarter end, the DIF investment portfolio yield was 4.71 percent, almost equal to its December 31, 2007, yield of 4.72 percent. While substantial amounts of Treasury Inflation-Protected Securities (TIPS) and longer-duration conventional Treasury securities were sold during the third quarter of 2008, the portfolio’s relatively stable yield reflects, in part, the fact that the DIF portfolio’s securities have generally similar yields across maturity sectors. At quarter end, the DIF portfolio had only $851.2 million in overnight investments, down dramatically from its second quarter ending balance of $9.3 billion. Resolution-related outlays prompted drawing down the overnight investment balance prior to liquidating securities. In fact, this somewhat high $851.2 million overnight investment was because the DIF received $618.6 million in assessments on September 30, 2008.
  • Conventional Treasury market yields declined dramatically during the third quarter of 2008 as the deepening economic crisis and financial market turmoil prompted a flight to quality with burgeoning investor demand for Treasury securities. The yield declines also reflected growing consensus expectations for additional federal funds target rate cuts. Not surprisingly, the yield declines on intermediate- to longer-maturity Treasury security yields were less dramatic than those of shorter-maturity securities. During the fourth quarter of 2008, Treasury yields are expected to continue to be volatile as market participants gauge whether financial and economic market turmoil is subsiding, prompting Treasury prices to fall; or whether financial and economic market turmoil is deepening, prompting further flight-to-quality Treasury price rallies.
III. Budget
  • Approximately $759 million was spent in the Ongoing Operations component of the 2008 Corporate Operating Budget, which was $32 million (4 percent) below the budget for the nine months ending September 30, 2008. The Outside Services - Personnel expense category was approximately $21 million below its year-to-date budget, and the Salaries and Compensation category was $9 million below its year-to-date budget. Together, these two categories represented 91 percent of the total Ongoing Operations variance.
  • Approximately $74 million was spent in the Receivership Funding component of the 2008 Corporate Operating Budget, which was $0.3 million (0.5 percent) less than the budget for the nine months ending September 30, 2008. Spending during the third quarter was significantly more than in the first two quarters as resolutions and receivership activities occurred at a greater pace than during the first half of the year. In September, the Board approved an increase in the Receivership Funding budget component from $75 million to $150 million. If the growth in the resolutions and receivership management workload continues at its current pace, the budget requirement for 2009 will be much higher.
  • Authorized staffing has increased 17 percent from 4,810 at the beginning of the year to 5,621 as of September 30, 2008, due to the increase in resolutions and receivership management activity and the elevated examination workload. The majority of the authorized staffing increase is for hiring non-permanent employees. This trend is also likely to continue into the 2009 budget year.


Last Updated 12/15/2008 dofbusinesscenter@fdic.gov