Federal Deposit Insurance Corporation
550 17th Street, N.W., Washington, D.C. 20429-9990 Deputy to the Chairman and CFO
February 21, 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: Fourth Quarter 2017 CFO Report to the Board
The attached report highlights the FDIC’s financial activities and results for the quarter ended
December 31, 2017.
Executive Summary
• During the fourth quarter of 2017, the Deposit Insurance Fund (DIF) balance increased by $2.2
billion, from $90.5 billion at September 30, 2017 to $92.7 billion at December 31, 2017. The
quarterly increase was primarily due to $2.7 billion of assessment revenue, partially offset by $444
million of operating expenses.
• The reserve ratio, which is the ratio of the DIF balance to estimated insured deposits, was 1.30
percent for the fourth quarter 2017, compared to the third quarter 2017 reserve ratio of 1.28
percent.
• During the fourth quarter of 2017, the FDIC was named receiver for two failed institutions. The
combined assets at inception for these failed institutions were $150 million with estimated losses of
$63 million. The corporate cash outlay during the fourth quarter for these failures was
approximately $117 million.
• Through December 31, 2017, overall FDIC Operating Budget expenditures were below budget by
11 percent ($227 million). About a third of this variance ($78.5 million) was attributable to
underspending in the Receivership Funding budget component due to lower-than-budgeted
resolutions and receivership management workload. Most of the remainder of the underspending
was in the Ongoing Operations budget component ($147 million) and was primarily the result of
higher-than-expected vacancies in budgeted positions during the year. In addition, lower-than-
anticipated expenses for facilities, outside counsel, security services (including background
checks), and other outside services contributed to the Ongoing Operations variance.
550 17th Street, N.W., Washington, D.C. 20429-9990 Deputy to the Chairman and CFO
February 21, 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: Fourth Quarter 2017 CFO Report to the Board
The attached report highlights the FDIC’s financial activities and results for the quarter ended
December 31, 2017.
Executive Summary
• During the fourth quarter of 2017, the Deposit Insurance Fund (DIF) balance increased by $2.2
billion, from $90.5 billion at September 30, 2017 to $92.7 billion at December 31, 2017. The
quarterly increase was primarily due to $2.7 billion of assessment revenue, partially offset by $444
million of operating expenses.
• The reserve ratio, which is the ratio of the DIF balance to estimated insured deposits, was 1.30
percent for the fourth quarter 2017, compared to the third quarter 2017 reserve ratio of 1.28
percent.
• During the fourth quarter of 2017, the FDIC was named receiver for two failed institutions. The
combined assets at inception for these failed institutions were $150 million with estimated losses of
$63 million. The corporate cash outlay during the fourth quarter for these failures was
approximately $117 million.
• Through December 31, 2017, overall FDIC Operating Budget expenditures were below budget by
11 percent ($227 million). About a third of this variance ($78.5 million) was attributable to
underspending in the Receivership Funding budget component due to lower-than-budgeted
resolutions and receivership management workload. Most of the remainder of the underspending
was in the Ongoing Operations budget component ($147 million) and was primarily the result of
higher-than-expected vacancies in budgeted positions during the year. In addition, lower-than-
anticipated expenses for facilities, outside counsel, security services (including background
checks), and other outside services contributed to the Ongoing Operations variance.
I. Financial Results(See pages 7 — 8 for detailed data and charts.)
Deposit Insurance Fund
• The DIF's comprehensive income totaled $9.6 billion for 2017, compared to comprehensive income
of $10.6 billion during 2016, a $977 million year-over-year decrease. Although assessment
revenue in 2017 of $10.6 billion was $608 million higher than 2016 assessment revenue of $10.0
billion, the lower negative provision for insurance losses of $1.4 billion year-over-year(negative
$183 million in 2017 as compared to negative $1.6 billion in 2016) more than offset the effect of the
revenue increase.
The provision for insurance losses was a negative $183 million for 2017, compared to negative
$1.6 billion for 2016. The negative provision for 2017 primarily resulted from a $969 million
decrease to the estimated losses for prior year failures offset by a $718 million increase for higher-
than-anticipated estimated losses for current year failures. The 2016 negative provision was
almost fully attributable to reductions in estimated losses for prior year failures. The $969 million
decrease in the estimated losses for prior year failures was primarily attributable to(1)a decrease
in receivership shared-loss liability cost estimates of $420 million primarily due to 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;(2)
$383 million of unanticipated recoveries received, or expected to be received, by receiverships
from tax refunds, litigation settlements, and professional liability claims; and (3)a $124 million
decrease in receivership contingent legal and representation and warranty liabilities, as well as
projected future receivership expenses.
Assessments
During December, the DIF recognized assessment revenue of $2.7 billion. Of this amount, $1.4
billion represented the estimate for the fourth quarter 2017 insurance coverage and $1.3 billion
represented estimated surcharges on banks with $10 billion or more in assets.
• On December 29, 2017, the FDIC collected $1.4 billion in DIF assessments and $1.2 billion in
surcharge assessments for third quarter 2017 insurance coverage.
II. Investment Results(See pages 9 - 10 for detailed data and charts.)
DIF Investment Portfolio
• On December 31, 2017, the total liquidity (also total market value)of the DIF investment portfolio
stood at $85.6 billion, up $10.3 billion from its December 31, 2016, balance of $75.3 billion. During
the year, interest revenue, receivership dividends, and deposit insurance assessment collections
far exceeded resolution-related outlays and operating expenses.
• On December 31, 2017,the DIF investment portfolio's yield was 1.52 percent, up 40 basis points
from its 1.12 percent yield on December 31, 2016. The new Treasury securities purchased during
the year generally had higher yields than the maturing securities' yields, some considerably higher.
• In accordance with the approved fourth quarter 2017 DIF portfolio investment strategy, staff
purchased a total of 29 short- to intermediate-maturity conventional Treasury securities, all
designated as available-for-sale. The 29 securities had a total par value of $10.8 billion, a
weighted average yield of 1.92 percent, and a weighted average maturity of 3.41 years.
Deposit Insurance Fund
• The DIF's comprehensive income totaled $9.6 billion for 2017, compared to comprehensive income
of $10.6 billion during 2016, a $977 million year-over-year decrease. Although assessment
revenue in 2017 of $10.6 billion was $608 million higher than 2016 assessment revenue of $10.0
billion, the lower negative provision for insurance losses of $1.4 billion year-over-year(negative
$183 million in 2017 as compared to negative $1.6 billion in 2016) more than offset the effect of the
revenue increase.
The provision for insurance losses was a negative $183 million for 2017, compared to negative
$1.6 billion for 2016. The negative provision for 2017 primarily resulted from a $969 million
decrease to the estimated losses for prior year failures offset by a $718 million increase for higher-
than-anticipated estimated losses for current year failures. The 2016 negative provision was
almost fully attributable to reductions in estimated losses for prior year failures. The $969 million
decrease in the estimated losses for prior year failures was primarily attributable to(1)a decrease
in receivership shared-loss liability cost estimates of $420 million primarily due to 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;(2)
$383 million of unanticipated recoveries received, or expected to be received, by receiverships
from tax refunds, litigation settlements, and professional liability claims; and (3)a $124 million
decrease in receivership contingent legal and representation and warranty liabilities, as well as
projected future receivership expenses.
Assessments
During December, the DIF recognized assessment revenue of $2.7 billion. Of this amount, $1.4
billion represented the estimate for the fourth quarter 2017 insurance coverage and $1.3 billion
represented estimated surcharges on banks with $10 billion or more in assets.
• On December 29, 2017, the FDIC collected $1.4 billion in DIF assessments and $1.2 billion in
surcharge assessments for third quarter 2017 insurance coverage.
II. Investment Results(See pages 9 - 10 for detailed data and charts.)
DIF Investment Portfolio
• On December 31, 2017, the total liquidity (also total market value)of the DIF investment portfolio
stood at $85.6 billion, up $10.3 billion from its December 31, 2016, balance of $75.3 billion. During
the year, interest revenue, receivership dividends, and deposit insurance assessment collections
far exceeded resolution-related outlays and operating expenses.
• On December 31, 2017,the DIF investment portfolio's yield was 1.52 percent, up 40 basis points
from its 1.12 percent yield on December 31, 2016. The new Treasury securities purchased during
the year generally had higher yields than the maturing securities' yields, some considerably higher.
• In accordance with the approved fourth quarter 2017 DIF portfolio investment strategy, staff
purchased a total of 29 short- to intermediate-maturity conventional Treasury securities, all
designated as available-for-sale. The 29 securities had a total par value of $10.8 billion, a
weighted average yield of 1.92 percent, and a weighted average maturity of 3.41 years.