93

2016

FINANCIAL 

SECTION

V.
ANNUAL REPORT

94 FINANCIAL SECTION

DEPOSIT INSURANCE FUND (DIF)

Federal Deposit Insurance Corporation

Deposit Insurance Fund Balance Sheet 

As of December 31

(Dollars in Thousands) 2016 2015

ASSETS

 Cash and cash equivalents $ 1,332,966 $ 876,344

 Investment in U.S. Treasury securities (Note 3) 73,511,953 62,496,959

 Assessments receivable, net (Note 9) 2,666,267 2,172,472

 Interest receivable on investments and other assets, net 526,195 417,871

 Receivables from resolutions, net (Note 4) 7,790,403 11,578,079

 Property and equipment, net (Note 5) 357,575 378,250

Total Assets $ 86,185,359 $ 77,919,975

LIABILITIES

 Accounts payable and other liabilities $ 238,322 $ 272,571

 Liabilities due to resolutions (Note 6) 2,073,375 4,419,195

 Postretirement benefit liability (Note 12) 232,201 233,000

 Contingent liabilities:

 Anticipated failure of insured institutions (Note 7) 477,357 394,588

 Litigation losses and other (Notes 7 and 8) 2,589 386

Total Liabilities 3,023,844 5,319,740

 Commitments and off-balance-sheet exposure (Note 13)

FUND BALANCE

 Accumulated Net Income 83,166,991 72,643,474

ACCUMULATED OTHER COMPREHENSIVE INCOME

 Unrealized gain (loss) on U.S. Treasury securities, net (Note 3) 20,271 (9,191)

 Unrealized postretirement benefit loss (Note 12) (25,747) (34,048)

Total Accumulated Other Comprehensive Income (Loss) (5,476) (43,239)

Total Fund Balance 83,161,515 72,600,235

Total Liabilities and Fund Balance $ 86,185,359 $ 77,919,975

The accompanying notes are an integral part of these financial statements.
2016

FINANCIAL SECTION 95

DEPOSIT INSURANCE FUND (DIF)

Federal Deposit Insurance Corporation

Deposit Insurance Fund Statement of Income and Fund Balance 

For the Years Ended December 31

(Dollars in Thousands) 2016 2015

REVENUE

 Assessments (Note 9) $ 9,986,615 $ 8,846,843

 Interest on U.S. Treasury securities 671,377 422,782

 Other revenue 16,095 33,913

Total Revenue 10,674,087 9,303,538

EXPENSES AND LOSSES

 Operating expenses (Note 10) 1,715,011 1,687,234

 Provision for insurance losses (Note 11) (1,567,950) (2,251,320)

 Insurance and other expenses 3,509 10,936

Total Expenses and Losses 150,570 (553,150)

Net Income 10,523,517 9,856,688

OTHER COMPREHENSIVE INCOME

 Unrealized gain (loss) on U.S. Treasury securities, net 29,462 (60,333)

 Unrealized postretirement benefit gain (Note 12) 8,301 23,703

Total Other Comprehensive Income (Loss) 37,763 (36,630)

Comprehensive Income 10,561,280 9,820,058

Fund Balance - Beginning 72,600,235 62,780,177

Fund Balance - Ending $ 83,161,515 $ 72,600,235

The accompanying notes are an integral part of these financial statements.
ANNUAL REPORT

96 FINANCIAL SECTION

DEPOSIT INSURANCE FUND (DIF)

Federal Deposit Insurance Corporation

Deposit Insurance Fund Statement of Cash Flows

For the Years Ended December 31

(Dollars in Thousands) 2016 2015

OPERATING ACTIVITIES

Provided by:

 Assessments $ 9,488,215 $ 8,677,795

 Interest on U.S. Treasury securities 1,523,215 2,064,836

 Recoveries from financial institution resolutions 3,601,149 6,329,454

 Miscellaneous receipts 16,057 147,001

Used by:

 Operating expenses (1,671,768) (1,631,297)

 Disbursements for financial institution resolutions (502,716) (2,282,721)

 Miscellaneous disbursements (8,998) (107,478)

Net Cash Provided by Operating Activities 12,445,154 13,197,590

INVESTING ACTIVITIES

Provided by:

 Maturity of U.S. Treasury securities 26,517,122 19,590,780

Used by:

 Purchase of U.S. Treasury securities (38,474,320) (33,766,067)

 Purchase of property and equipment (31,334) (60,479)

Net Cash (Used) by Investing Activities (11,988,532) (14,235,766)

Net Increase (Decrease) in Cash and Cash Equivalents 456,622 (1,038,176)

Cash and Cash Equivalents - Beginning 876,344 1,914,520

Cash and Cash Equivalents - Ending $ 1,332,966 $ 876,344

The accompanying notes are an integral part of these financial statements.
2016

FINANCIAL SECTION 97

DEPOSIT INSURANCE FUND

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2016 and 2015 

1 

1. Operations of the Deposit Insurance Fund 

OVERVIEW 

The Federal Deposit Insurance Corporation (FDIC) is the 

independent deposit insurance agency created by Congress 

in 1933 to maintain stability and public confidence in the 

nation’s banking system. Provisions that govern the FDIC’s 

operations are generally found in the Federal Deposit 

Insurance (FDI) Act, as amended (12 U.S.C. 1811, et seq). In 

accordance with the FDI Act, the FDIC, as administrator of 

the Deposit Insurance Fund (DIF), insures the deposits of 

banks and savings associations (insured depository 

institutions). In cooperation with other federal and state 

agencies, the FDIC promotes the safety and soundness of 

insured depository institutions (IDIs) by identifying, 

monitoring, and addressing risks to the DIF. Commercial 

banks, savings banks and savings associations (known as 

“thrifts”) are supervised by either the FDIC, the Office of the 

Comptroller of the Currency, or the Federal Reserve Board. 

In addition to being the administrator of the DIF, the FDIC 

is the administrator of the FSLIC Resolution Fund (FRF). The 

FRF is a resolution fund responsible for the sale of the 

remaining assets and the satisfaction of the liabilities 

associated with the former Federal Savings and Loan 

Insurance Corporation (FSLIC) and the former Resolution 

Trust Corporation. The FDIC maintains the DIF and the FRF 

separately to support their respective functions. 

Pursuant to the Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 (Dodd-Frank Act), the 

FDIC also manages the Orderly Liquidation Fund (OLF). 

Established as a separate fund in the U.S. Treasury 

(Treasury), the OLF is inactive and unfunded until the FDIC 

is appointed as receiver for a covered financial company. A 

covered financial company is a failing financial company 

(for example, a bank holding company or nonbank financial 

company) for which a systemic risk determination has been 

made as set forth in section 203 of the Dodd-Frank Act. 

The Dodd-Frank Act (Public Law 111-203) granted the FDIC 

authority to establish a widely available program to 

guarantee obligations of solvent IDIs or solvent depository 

institution holding companies (including affiliates) upon the 

systemic risk determination of a liquidity event during times 

of severe economic distress. The program would not be 

funded by the DIF but rather by fees and assessments paid 

by all participants in the program. If fees are insufficient to 

cover losses or expenses, the FDIC must impose a special 

assessment on participants as necessary to cover the 

shortfall. Any excess funds at the end of the liquidity event 

program would be deposited in the General Fund of the 

Treasury. 

The Dodd-Frank Act also created the Financial Stability 

Oversight Council (FSOC) of which the Chairman of the 

FDIC is a member and expanded the FDIC’s responsibilities 

to include supervisory review of resolution plans (known as 

living wills) and backup examination authority for 

systemically important bank holding companies and 

nonbank financial companies. The living wills provide for 

an entity’s rapid and orderly resolution in the event of 

material financial distress or failure. 

OPERATIONS OF THE DIF 

The primary purposes of the DIF are to (1) insure the 

deposits and protect the depositors of IDIs and (2) resolve 

failed IDIs upon appointment of the FDIC as receiver in a 

manner that will result in the least possible cost to the DIF. 

The DIF is primarily funded from deposit insurance 

assessments. Other available funding sources, if necessary, 

are borrowings from the Treasury, the Federal Financing 

Bank (FFB), Federal Home Loan Banks, and IDIs. The FDIC 

has borrowing authority of $100 billion from the Treasury 

and a Note Purchase Agreement with the FFB, not to 

exceed $100 billion, to enhance the DIF’s ability to fund 

deposit insurance. 

A statutory formula, known as the Maximum Obligation 

Limitation (MOL), limits the amount of obligations the DIF 

can incur to the sum of its cash, 90 percent of the fair 

market value of other assets, and the amount authorized to 

be borrowed from the Treasury. The MOL for the DIF was 

$182.1 billion and $171.0 billion as of December 31, 2016 

and 2015, respectively. 

OPERATIONS OF RESOLUTION ENTITIES 

The FDIC is responsible for managing and disposing of the 

assets of failed institutions in an orderly and efficient 

manner. The assets held by receiverships, pass-through 

conservatorships, and bridge institutions (collectively, 

resolution entities), and the claims against them, are 

accounted for separately from the DIF assets and liabilities 

to ensure that proceeds from these entities are distributed 

according to applicable laws and regulations. Therefore, 
ANNUAL REPORT

98 FINANCIAL SECTION

DEPOSIT INSURANCE FUND 

2

income and expenses attributable to resolution entities are 

accounted for as transactions of those entities. The FDIC 

bills resolution entities for services provided on their behalf. 

2. Summary of Significant Accounting Policies 

GENERAL 

The financial statements include the financial position, 

results of operations, and cash flows of the DIF and are 

presented in accordance with U.S. generally accepted 

accounting principles (GAAP). These statements do not 

include reporting for assets and liabilities of resolution 

entities because these entities are legally separate and 

distinct, and the DIF does not have any ownership or 

beneficial interests in them. Periodic and final accounting 

reports of resolution entities are furnished to courts, 

supervisory authorities, and others upon request. 

USE OF ESTIMATES 

The preparation of the financial statements in conformity 

with GAAP requires management to make estimates and 

assumptions that affect the reported amounts of assets and 

liabilities, revenue and expenses, and disclosure of 

contingent liabilities. Actual results could differ from these 

estimates. Where it is reasonably possible that changes in 

estimates will cause a material change in the financial 

statements in the near term, the nature and extent of such 

potential changes in estimates have been disclosed. The 

more significant estimates include the assessments 

receivable and associated revenue; the allowance for loss 

on receivables from resolutions (which considers the impact 

of shared-loss agreements); the guarantee obligations for 

structured transactions; the postretirement benefit 

obligation; and the estimated losses for anticipated failures 

and representations and indemnifications. 

CASH EQUIVALENTS 

Cash equivalents are short-term, highly liquid investments 

consisting primarily of U.S. Treasury Overnight Certificates. 

INVESTMENT IN U.S. TREASURY SECURITIES 

The FDI Act requires that the DIF funds be invested in 

obligations of the United States or in obligations 

guaranteed as to principal and interest by the United 

States. The Secretary of the Treasury must approve all such 

investments in excess of $100,000 and has granted the FDIC 

approval to invest the DIF funds only in U.S. Treasury 

obligations that are purchased or sold exclusively through 

the Bureau of the Fiscal Service’s Government Account 

Series program. 

The DIF’s investments in U.S. Treasury securities are 

classified as available-for-sale (AFS). Securities designated 

as AFS are shown at fair value. Unrealized gains and losses 

are reported as other comprehensive income. Realized 

gains and losses are included in the Statement of Income 

and Fund Balance as components of net income. Income 

on securities is calculated and recorded daily using the 

effective interest or straight-line method depending on the 

maturity of the security (see Note 3). 

REVENUE RECOGNITION FOR ASSESSMENTS 

Assessment revenue is recognized for the quarterly period 

of insurance coverage based on an estimate. The estimate 

is derived from an institution’s regular risk-based 

assessment rate and assessment base for the prior quarter 

adjusted for the current quarter’s available assessment 

credits, certain changes in supervisory examination ratings 

for larger institutions, as well as modest assessment base 

growth and average assessment rate adjustment factors. 

Beginning July 1, 2016, the estimate includes a surcharge 

for institutions with greater than $10 billion in total 

consolidated assets (see Note 9). At the subsequent 

quarter-end, the estimated revenue amounts are adjusted 

when actual assessments for the covered period are 

determined for each institution. 

CAPITAL ASSETS AND DEPRECIATION 

The FDIC buildings are depreciated on a straight-line basis 

over a 35- to 50-year estimated life. Building 

improvements are capitalized and depreciated over the 

estimated useful life of the improvements. Leasehold 

improvements are capitalized and depreciated over the 

lesser of the remaining life of the lease or the estimated 

useful life of the improvements, if determined to be 

material. Capital assets depreciated on a straight-line basis 

over a five-year estimated useful life include mainframe 

equipment; furniture, fixtures, and general equipment; and 

internal-use software. Computer equipment is depreciated 

on a straight-line basis over a three-year estimated useful 

life (see Note 5). 

PROVISION FOR INSURANCE LOSSES 

The provision for insurance losses primarily represents 

changes in the allowance for losses on receivables from 

closed banks and the contingent liability for anticipated 

failures of insured institutions (see Note 11).

REPORTING ON VARIABLE INTEREST ENTITIES 

The FDIC receiverships engaged in structured transactions, 

some of which resulted in the issuance of note obligations 

that were guaranteed by the FDIC, in its corporate capacity. 

As the guarantor of note obligations for several structured 

transactions, the FDIC, in its corporate capacity, holds an 

interest in many variable interest entities (VIEs). The FDIC 

conducts a qualitative assessment of its relationship with 

each VIE as required by the Financial Accounting Standards 

Board (FASB) Accounting Standards Codification (ASC) 

Topic 810, Consolidation. These assessments are conducted 

to determine if the FDIC, in its corporate capacity, has (1) 

power to direct the activities that most significantly affect 
2016

FINANCIAL SECTION 99

 NOTES TO THE FINANCIAL STATEMENTS 

3 

the economic performance of the VIE and (2) an obligation 

to absorb losses of the VIE or the right to receive benefits 

from the VIE that could potentially be significant to the VIE. 

When a variable interest holder has met both of these 

characteristics, the enterprise is considered the primary 

beneficiary and must consolidate the VIE. 

In accordance with the provisions of FASB ASC Topic 810, 

an assessment of the terms of the legal agreement for each 

VIE was conducted to determine whether any of the terms 

had been activated or modified in a manner that would 

cause the FDIC, in its corporate capacity, to be 

characterized as a primary beneficiary. In making that 

determination, consideration was given to which, if any, 

activities were significant to each VIE. Often, the right to 

service collateral, to liquidate collateral, or to unilaterally 

dissolve the VIE was determined to be the most significant 

activity. In other cases, it was determined that the 

structured transactions did not include such significant 

activities and that the design of the entity was the best 

indicator of which party was the primary beneficiary. 

The conclusion of these analyses was that the FDIC, in its 

corporate capacity, has not engaged in any activity that 

would cause the FDIC to be characterized as a primary 

beneficiary to any VIE with which it was involved as of 

December 31, 2016 and 2015. Therefore, consolidation is 

not required for the 2016 and 2015 DIF financial 

statements. In the future, the FDIC, in its corporate 

capacity, may become the primary beneficiary upon the 

activation of provisional contract rights that extend to the 

FDIC if payments are made on guarantee claims. Ongoing 

analyses will be required to monitor consolidation 

implications under FASB ASC Topic 810. 

The FDIC’s involvement with VIEs is fully described in Note 

8 under FDIC Guaranteed Debt of Structured Transactions. 

RELATED PARTIES

The nature of related parties and a description of related 

party transactions are discussed in Note 1 and disclosed 

throughout the financial statements and footnotes. 

DISCLOSURE ABOUT RECENT RELEVANT ACCOUNTING 

PRONOUNCEMENTS

In January 2016, the FASB issued Accounting Standards 

Update (ASU) 2016-01, Financial Instruments—Overall 

(Subtopic 825-10): Recognition and Measurement of 

Financial Assets and Financial Liabilities. The ASU addresses 

certain aspects of recognition, measurement, presentation, 

and disclosure of financial instruments through targeted 

changes to existing guidance. The FDIC has determined 

that the ASU, which is effective for the DIF beginning on 

January 1, 2019, will not have a material effect on the 

financial position of the DIF or its results of operations. 

In February 2016, the FASB issued ASU 2016-02, Leases 

(Topic 842). The new guidance requires that substantially 

all leases will be reported on the balance sheet through the 

recognition of a right-of-use asset and a corresponding 

lease liability. The ASU also requires lessees and lessors to 

expand qualitative and quantitative disclosures and key 

information regarding their leasing arrangements. The 

standard is effective for the DIF on January 1, 2020, with 

early adoption allowed. The FDIC does not expect the ASU 

to have a material effect on the DIF’s financial position or 

its results of operations. The FDIC will continue analyzing 

the full impact of the ASU. 

In June 2016, the FASB issued ASU 2016-13, Financial 

Instruments—Credit Losses (Topic 326): Measurement of 

Credit Losses on Financial Instruments. The ASU will replace 

the incurred loss impairment model with a new expected 

credit loss model for financial assets measured at amortized 

cost and for off-balance-sheet credit exposures. The 

guidance also amends the AFS debt securities impairment 

model by requiring the use of an allowance to record 

estimated credit losses (and subsequent recoveries) related 

to AFS debt securities. The ASU is effective for the DIF on 

January 1, 2021. The FDIC is assessing the effect the ASU 

will have on the DIF’s financial position and results of 

operations. 

Other recent accounting pronouncements have been 

deemed not applicable or material to the financial 

statements as presented. 

3. Investment in U.S. Treasury Securities 

The “Investment in U.S. Treasury securities” line item on the 

Balance Sheet consisted of the following components by 

maturity (in millions). 
ANNUAL REPORT

100 FINANCIAL SECTION

DEPOSIT INSURANCE FUND 

4

December 31, 2016

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Fair

Maturity Purchasea Value Amount Gains Losses Value

Within 1 year 0.87% $ 32,031 b $ 32,365 $ 25 $ (5) $ 32,385

After 1 year 

through 5 years 1.38% 40,525 40,707 92 (94) 40,705

Subtotal $ 72,556 $ 73,072 $ 117 $ (99) $ 73,090

After 1 year 

through 5 years 

-0.14% 400 420 2 0 422

Subtotal $ 400 $ 420 $ 2 $ 0 $ 422

Total $ 72,956 $ 73,492 $ 119 $ (99) c $ 73,512

U.S. Treasury notes and bonds

U.S. Treasury Inflation-Protected Securities

(a) The Treasury Inflation-Protected Securities (TIPS) are indexed to increases or decreases 

in the Consumer Price Index for All Urban Consumers (CPI-U). For TIPS, the yields in the 

above table are stated at their real yields at purchase, not their effective yields. Effective 

yields on TIPS include a long-term annual inflation assumption as measured by the CPI-U. 

The long-term CPI-U consensus forecast is 2.0 percent, based on figures issued by the 

Congressional Budget Office and Blue Chip Economic Indicators in early 2016. 

(b) Includes two Treasury notes totaling $3.4 billion which matured on Saturday, 

December 31, 2016. Settlements occurred the next business day, January 3, 2017. 

 

(c) These unrealized losses occurred over a period of less than a year as a result of 

temporary changes in market interest rates. The FDIC does not intend to sell the 

securities and is not likely to be required to sell them before their maturity date, thus, the 

FDIC does not consider these securities to be other than temporarily impaired at 

December 31, 2016. The aggregate related fair value of securities with unrealized losses 

was $31.4 billion as of December 31, 2016. 

December 31, 2015

Maturity 

Yield at 

Purchasea

Face 

Value

Net 

Carrying 

Amount

Unrealized 

Holding 

Gains

Unrealized 

Holding 

Losses

Fair 

Value

U.S. Treasury notes and bonds

Within 1 year 0.54% $ 21,495 $ 21,816 $ 3 $ (18) $ 21,801 

After 1 year 

through 5 years 1.19% 39,881 39,952 55 (44) 39,963 

Subtotal $ 61,376 $ 61,768 $ 58 $ (62) $ 61,764 

U.S. Treasury Inflation-Protected Securities

Within 1 year -0.80% $ 300 $ 324 $ 0 $ (2) $ 322 

After 1 year 

through 5 years 

-0.14% 400 414 0 (3) 411 

Subtotal $ 700 $ 738 $ 0 $ (5) $ 733 

Total $ 62,076 $ 62,506 $ 58 $ (67) b $ 62,497 

(a) The Treasury Inflation-Protected Securities (TIPS) are indexed to increases or decreases 

in the Consumer Price Index for All Urban Consumers (CPI-U). For TIPS, the yields in the 

above table are stated at their real yields at purchase, not their effective yields. Effective 

yields on TIPS include a long-term annual inflation assumption as measured by the CPI-U. 

The long-term CPI-U consensus forecast is 1.8 percent, based on figures issued by the 

Congressional Budget Office and Blue Chip Economic Indicators in early 2015.

(b) These unrealized losses occurred over a period of less than a year as a result of 

temporary changes in market interest rates. The FDIC does not intend to sell the 

securities and is not likely to be required to sell them before their maturity date, thus, the 

FDIC does not consider these securities to be other than temporarily impaired at 

December 31, 2015. The aggregate related fair value of securities with unrealized losses 

was $38.7 billion as of December 31, 2015. 

4. Receivables from Resolutions, Net 

The receivables from resolutions result from DIF payments 

to cover obligations to insured depositors (subrogated 

claims), advances to resolution entities for working capital, 

and administrative expenses paid on behalf of resolution 

entities. Any related allowance for loss represents the 

difference between the funds advanced and/or obligations 

incurred and the expected repayment. Estimated future 

payments on losses incurred on assets sold to an acquiring 

institution under a shared-loss agreement (SLA) are 

factored into the computation of the expected repayment. 

Assets held by DIF resolution entities (including structured 

transaction-related assets; see Note 8) are the main source 

of repayment of the DIF’s receivables from resolutions. The 

“Receivables from resolutions, net” line item on the Balance 

Sheet consisted of the following components (in 

thousands). 

December 31 December 31

2016 2015

Receivables from closed banks $ 80,314,038 $ 88,858,877

Allowance for losses (72,523,635) (77,280,798)

Total $ 7,790,403 $ 11,578,079

As of December 31, 2016, the FDIC had 378 active 

receiverships, including five established in 2016. The DIF 

resolution entities held assets with a book value of $14.9 

billion as of December 31, 2016, and $20.8 billion as of 

December 31, 2015 (including $11.6 billion and $16.0 

billion, respectively, of cash, investments, receivables due 

from the DIF, and other receivables). Ninety-nine percent 

of the current asset book value of $14.9 billion is held by 

resolution entities established since the beginning of 2008. 

Estimated cash recoveries from the management and 

disposition of assets that are used to determine the 

allowance for losses are based on asset recovery rates from 

several sources, including actual or pending institutionspecific asset disposition data, failed institution-specific 

asset valuation data, aggregate asset valuation data on 

several recently failed or troubled institutions, sampled 

asset valuation data, and empirical asset recovery data 

based on failures since 1990. Methodologies for 

determining the asset recovery rates incorporate estimating 

future cash recoveries, net of applicable liquidation cost 

estimates, and discounting based on market-based risk 

factors applicable to a given asset’s type and quality. The 

resulting estimated cash recoveries are then used to derive 

the allowance for loss on the receivables from these 

resolutions. 
2016

FINANCIAL SECTION 101

 NOTES TO THE FINANCIAL STATEMENTS 

5 

For failed institutions resolved using a whole bank purchase 

and assumption transaction with an accompanying SLA, the 

projected future shared-loss payments on the covered 

residential and commercial loan assets sold to the acquiring 

institution under the agreement are considered in 

determining the allowance for loss on the receivables from 

these resolutions. The shared-loss cost projections are 

based on the covered assets’ intrinsic value, which is 

determined using financial models that consider the quality, 

condition and type of covered assets, current and future 

market conditions, risk factors, and estimated asset holding 

periods. For year-end 2016, the shared-loss cost estimates 

were updated for all 148 receiverships with active SLAs. 

The updated shared-loss cost projections for the larger 

residential shared-loss agreements were primarily based on 

third-party valuations estimating the cumulative loss of 

covered assets. The updated shared-loss cost projections 

on the remaining residential shared-loss agreements were 

based on a stratified random sample of institutions selected 

for third-party loss estimations, and valuation results from 

the sampled institutions were aggregated and extrapolated 

to the non-sampled institutions by asset type and 

performance status. For the remaining commercial covered 

assets, shared-loss cost projections were based on the 

FDIC’s historical loss experience that also factors in the time 

period based on the life of the agreement. 

Also reflected in the allowance for loss calculation are endof-agreement SLA “true-up” recoveries. True-up recoveries 

are projected to be received at expiration in accordance 

with the terms of the SLA, if actual losses at expiration are 

lower than originally estimated. 

Note that estimated asset recoveries are regularly evaluated 

during the year, but remain subject to uncertainties 

because of potential changes in economic and market 

conditions, which may cause the DIF’s actual recoveries to 

vary significantly from current estimates. 

WHOLE BANK PURCHASE AND ASSUMPTION 

TRANSACTIONS WITH SHARED-LOSS AGREEMENTS 

Since the beginning of 2008 through 2013, the FDIC 

resolved 304 failures using whole bank purchase and 

assumption resolution transactions with accompanying 

SLAs on total assets of $216.5 billion purchased by the 

financial institution acquirers. The acquirer typically 

assumed all of the deposits and purchased essentially all of 

the assets of a failed institution. The majority of the 

commercial and residential loan assets were purchased 

under an SLA, where the FDIC agreed to share in future 

losses and recoveries experienced by the acquirer on those 

assets covered under the agreement. 

Losses on the covered assets of failed institutions are

shared between the acquirer and the FDIC, in its 

receivership capacity, when losses occur through the sale, 

foreclosure, loan modification, or charge-off of loans under 

the terms of the SLA. The majority of the agreements cover 

commercial and single-family loans over a five- to ten-year 

shared-loss period, respectively, with the receiver covering 

80 percent of the losses incurred by the acquirer and the 

acquiring institution covering 20 percent. Prior to March 

26, 2010, most SLAs included a threshold amount, above 

which the receiver covered 95 percent of the losses 

incurred by the acquirer. Recoveries by the acquirer on 

covered commercial and single-family SLA losses are also 

shared over an eight- to ten-year period, respectively. Note 

that future recoveries on SLA losses are not factored into 

the DIF allowance for loss calculation because the amount 

and timing of such receipts are not determinable. 

The estimated shared-loss liability is accounted for by the 

receiver and is included in the calculation of the DIF’s 

allowance for loss against the corporate receivable from the 

resolution. As shared-loss claims are asserted and proven, 

DIF receiverships satisfy these shared-loss payments using 

available liquidation funds and/or by drawing on amounts 

due from the DIF for funding the deposits assumed by the 

acquirer (see Note 6). 

Shared-loss transactions are summarized as follows (in 

thousands). 

December 31 December 31

2016 2015

Payments for shared-loss agreements to date $ 34,149,990 $ 33,475,276

Recoveries from shared-loss agreements to date (5,161,366) (4,468,296)

Net shared-loss payments made to date $ 28,988,624 $ 29,006,980

Projected shared-loss payments, net of "true-up" recoveries $ 966,063 $ 1,560,124

Total remaining shared-loss covered assets $ 20,807,196 $ 31,478,451

The $10.7 billion reduction in the remaining shared-loss 

covered assets from 2015 to 2016 is primarily due to the 

liquidation of covered assets from active SLAs, expiration of 

loss coverage for 42 commercial loan SLAs, and early 

termination of SLAs impacting 67 receiverships during 

2016. 

CONCENTRATION OF CREDIT RISK 

Financial instruments that potentially subject the DIF to 

concentrations of credit risk are receivables from 

resolutions. The repayment of these receivables is primarily 

influenced by recoveries on assets held by DIF receiverships 

and payments on the covered assets under SLAs. The 

majority of the remaining assets in liquidation ($3.3 billion) 

and current shared-loss covered assets ($20.8 billion), which 

together total $24.1 billion, are concentrated in commercial 

loans ($1.0 billion), residential loans ($19.8 billion), and 

structured transaction-related assets ($2.6 billion) as 
ANNUAL REPORT

102 FINANCIAL SECTION

DEPOSIT INSURANCE FUND 

described in Note 8. Most of the assets originated from 

failed institutions located in California ($11.7 billion), Florida 

($2.6 billion), Puerto Rico ($2.5 billion), Ohio ($2.3 billion), 

Texas ($1.5 billion), and Illinois ($0.7 billion).

5. Property and Equipment, Net

Depreciation expense was $50 million and $52 million for 

2016 and 2015, respectively. The “Property and equipment, 

net” line item on the Balance Sheet consisted of the 

following components (in thousands). 

December 31 December 31

2016 2015

Land $ 37,352 $ 37,352

Buildings (including building and leasehold improvements) 348,008 342,267

Application software (includes work-in-process) 127,113 132,280

Furniture, fixtures, and equipment 69,624 73,432

Accumulated depreciation (224,522) (207,081)

Total $ 357,575 $ 378,250

6. Liabilities Due to Resolutions

As of December 31, 2016 and 2015, the DIF recorded 

liabilities totaling $2.1 billion and $4.4 billion, respectively, 

to resolution entities representing the agreed-upon value 

of assets transferred from the receiverships, at the time of 

failure, to the acquirers/bridge institutions for use in 

funding the deposits assumed by the acquirers/bridge 

institutions. Seventy-eight percent of these liabilities are 

due to failures resolved under whole-bank purchase and 

assumption transactions, most with an accompanying SLA. 

The DIF satisfies these liabilities either by sending cash 

directly to a receivership to fund shared-loss and other 

expenses or by offsetting receivables from resolutions when 

a receivership declares a dividend. 

7. Contingent Liabilities

ANTICIPATED FAILURE OF INSURED INSTITUTIONS 

The DIF records a contingent liability and a loss provision 

for DIF-insured institutions that are likely to fail when the 

liability is probable and reasonably estimable, absent some 

favorable event such as obtaining additional capital or 

merging. The contingent liability is derived by applying 

expected failure rates and loss rates to the institutions 

based on supervisory ratings, balance sheet characteristics, 

and projected capital levels. 

The banking industry’s financial condition and performance

were generally positive in 2016. According to the quarterly 

financial data submitted by DIF-insured institutions, the 

industry’s capital levels continued to improve, and the 

percentage of total loans that were noncurrent at 

September 30 fell to its lowest level since year-end 2007. 

The industry reported total net income of $128 billion for 

the first nine months of 2016, an increase of 3.8 percent 

over the comparable period one year ago. 

Losses to the DIF from failures that occurred in 2016 were 

lower than the contingent liability at the end of 2015, as the 

aggregate number and cost of institution failures were less 

than anticipated. However, the contingent liability 

increased from $395 million at December 31, 2015 to $477 

million at December 31, 2016, due to the deterioration in 

the financial condition of certain troubled institutions. 

In addition to the recorded contingent liabilities, the FDIC 

has identified risks in the financial services industry that 

could result in additional losses to the DIF, should 

potentially vulnerable insured institutions ultimately fail. As 

a result of these risks, the FDIC believes that it is reasonably 

possible that the DIF could incur additional estimated 

losses of approximately $919 million as of December 31, 

2016, as compared to $800 million as of year-end 

2015. The actual losses, if any, will largely depend on future 

economic and market conditions and could differ materially 

from this estimate. 

During 2016, five institutions failed with combined assets of 

$265 million at the date of failure. Recent trends in 

supervisory ratings and market data suggest that the 

financial performance and condition of the banking 

industry should continue to improve over the coming 

year. However, the operating environment remains 

challenging for banks. Interest rates have been 

exceptionally low for an extended period, and there are 

signs of growing credit and liquidity risk. Revenue growth 

has been modest and margins continue to narrow despite 

banks’ investments in longer-term assets to mitigate the 

effect of low rates. Additionally, key risks to the U.S. 

economic outlook include the effect of increases in interest 

rates on economic growth; weakness in energy and 

commodity prices; and slowing growth in several advanced 

and emerging market economies. The FDIC continues to 

evaluate ongoing risks to affected institutions in light of 

existing economic and financial conditions, and the extent 

to which such risks may put stress on the resources of the 

insurance fund. 

LITIGATION LOSSES 

The DIF records an estimated loss for unresolved legal 

cases to the extent that those losses are considered 

probable and reasonably estimable. The FDIC recorded 

probable litigation losses of $200 thousand and $386 
2016

FINANCIAL SECTION 103

 NOTES TO THE FINANCIAL STATEMENTS 

7 

thousand for the DIF as of December 31, 2016 and 2015, 

respectively. In addition, the FDIC has determined that 

there are $1 million of reasonably possible losses from 

unresolved cases as of year-end 2016, compared to $555 

thousand at year-end 2015. 

8. Other Contingencies 

INDYMAC FEDERAL BANK REPRESENTATION AND 

INDEMNIFICATION CONTINGENT LIABILITY 

On March 19, 2009, the FDIC as receiver for IndyMac 

Federal Bank (IMFB) and certain subsidiaries (collectively, 

Sellers) sold substantially all of the assets, which included 

mortgage loans and servicing rights, to OneWest Bank 

(following a merger is now known as CIT Bank) and its 

affiliates (collectively, Acquirers). The Sellers made certain 

representations customarily made by commercial parties in 

similar transactions. Under the sale agreements, the 

Acquirers have rights to assert claims to recover losses 

incurred as a result of third-party claims and breaches of 

representations. The FDIC, in its corporate capacity, 

guaranteed the Sellers’ indemnification obligations under 

the sale agreements. Until all indemnification claims are 

asserted, quantified and paid, losses could continue to be 

incurred by the receivership and in turn, the DIF. 

The unpaid principal balances of loans in the servicing 

portfolios sold subject to representation and warranty 

indemnification totaled $171.6 billion at the time of sale. 

The IndyMac receivership has paid cumulative claims 

totaling $30 million and $21 million through December 31, 

2016 and 2015, respectively. Quantified claims asserted 

and under review have been accrued in the amount of $18

million and $1 million as of December 31, 2016 and 2015, 

respectively. 

The Sellers and Acquirers have been conducting 

negotiations with Fannie Mae regarding the terms of a 

financial settlement to address indemnification obligations 

for conventional and reverse mortgage loan portfolios. The 

settlement for the conventional mortgage loans in the 

Fannie Mae portfolio has been concluded, but negotiations 

for the reverse mortgage portfolio continue. The 

receivership’s payment for settlement of the conventional 

loans and the estimated loss for the reverse mortgage 

loans are reflected in the “Receivables from resolutions, 

net” line item on the Balance Sheet. 

The FDIC is evaluating the likelihood of additional losses 

that may arise as a result of indemnification claims based 

upon breaches or third party claims. As the Acquirers or 

Government Sponsored Entities (GSEs) – Fannie Mae, 

Freddie Mac and Ginnie Mae incur or expect to incur losses, 

they will assert claims. These claims will be reviewed to 

determine whether there is a basis for indemnification or 

reimbursement and, if so, whether any Acquirer may have 

liability for any portion of the claimed loss as a result of its 

acts or omissions. While many loans are subject to notices 

of alleged breaches and a number of third party claims 

have been asserted, not all breach allegations or third party 

claims will result in a loss and certain losses may be 

allocable to the Acquirers. As a result, potential losses, and 

the Sellers’ share of such losses, cannot be estimated. 

However, it is probable that future losses will be incurred 

given the following: 

 The Acquirers’ ability to submit breach notices was 

subject to contractual bar dates that have passed. 

In addition, their entitlement to reimbursement for 

certain third party claims is dependent upon those 

claims having been submitted prior to other 

contractual dates, some of which have also 

passed. However, the Acquirers retain the right to 

assert indemnification claims for losses over the 

life of those loans for which breach notices were 

timely submitted. 

 The Acquirers retain the right to seek 

reimbursement for losses incurred as a result of 

claims alleging breaches of loan seller 

representations asserted by Fannie Mae or Ginnie 

Mae on or prior to March 19, 2019, for their 

reverse mortgage servicing portfolios (unpaid 

principal balance of $11.7 billion at December 31, 

2016, compared to $12.9 billion at December 31, 

2015). 

 The GSEs have the right to assert certain claims 

directly against the Sellers for the mortgage 

servicing portfolios without regard to any 

contractual claims bar date. 

 Potential losses could be incurred for failures by 

the Sellers to initiate and pursue foreclosure within 

prescribed timeframes for certain government 

guaranteed loans, resulting in the refusal of the 

guarantor to pay interest owed to the investors. 

Fannie Mae has asserted a claim for $64 million of 

interest curtailments with respect to reverse loans. 

Any amounts paid to Fannie Mae will be allocated 

between the Sellers and the Acquirers. A review of 

the causes of this claimed loss as well as an 

allocation of this loss between the Sellers and the 

Acquirers is in the initial stages. 

For all these reasons, the FDIC believes it is likely that 

additional losses will be incurred. However, quantifying the 

contingent liability associated with the liabilities to 

investors and the Acquirers is subject to a number of 

uncertainties, including market conditions, the occurrence 

of borrower defaults and resulting foreclosures and losses, 
ANNUAL REPORT

104 FINANCIAL SECTION

DEPOSIT INSURANCE FUND 

8

and the allocation of liability between the Sellers and the 

Acquirers. Because of the uncertainties the FDIC has 

determined that, while additional losses are probable, the 

amount is not currently estimable. 

PURCHASE AND ASSUMPTION INDEMNIFICATION 

In connection with purchase and assumption agreements 

for resolutions, the FDIC, in its receivership capacity, 

generally indemnifies the purchaser of a failed institution’s 

assets and liabilities in the event a third party asserts a 

claim against the purchaser unrelated to the explicit assets 

purchased or liabilities assumed at the time of failure. The 

FDIC, in its corporate capacity, is a secondary guarantor if a 

receivership is unable to pay. These indemnifications 

generally extend for a term of six years after the date of 

institution failure. The FDIC is unable to estimate the 

maximum potential liability for these types of guarantees as 

the agreements do not specify a maximum amount and any 

payments are dependent upon the outcome of future 

contingent events, the nature and likelihood of which 

cannot be determined at this time. During 2016 and 2015, 

the FDIC, in its corporate capacity, made no indemnification 

payments under such agreements, and no amount has 

been accrued in the accompanying financial statements 

with respect to these indemnification guarantees. 

FDIC GUARANTEED DEBT OF STRUCTURED 

TRANSACTIONS 

The FDIC, as receiver, uses three types of structured 

transactions to dispose of certain performing and nonperforming residential mortgage loans, commercial loans, 

construction loans, and mortgage-backed securities held by 

the receiverships. The three types of structured 

transactions are limited liability companies (LLCs), 

securitizations, and structured sale of guaranteed notes 

(SSGNs). 

Under the LLC structure, the FDIC, in its receivership 

capacity, contributed a pool of assets to a newly formed 

LLC and offered for sale, through a competitive bid process, 

some of the equity in the LLC. Since 2009, private investors 

purchased a 40- to 50-percent ownership interest in the 

LLC structures for $1.6 billion in cash. The LLCs issued 

notes of $4.4 billion to the receiverships to partially fund 

the purchase of the assets; these notes were guaranteed by 

the FDIC, in its corporate capacity. As of December 31, 

2016 and 2015, no guaranteed LLC notes remain.

Securitizations and SSGNs (collectively, trusts) are 

transactions in which certain assets or securities from failed 

institutions are pooled and transferred into a trust 

structure. The trusts issue senior and/or subordinated debt 

instruments and owner trust or residual certificates 

collateralized by the underlying mortgage-backed securities 

or loans. 

Since 2010, private investors purchased the senior notes 

issued by the trusts for $6.2 billion in cash and the 

receiverships hold the subordinated debt instruments and 

owner trust or residual certificates. In exchange for a fee, 

the FDIC, in its corporate capacity, guarantees the timely 

payment of principal and interest due on the senior notes, 

the latest maturity of which is 2050. If the FDIC is required 

to perform under its guarantees, it acquires an interest in 

the cash flows of the trust equal to the amount of 

guarantee payments made plus accrued interest. The 

subordinated note holders and owner trust or residual 

certificate holders receive cash flows from the entity only 

after all expenses have been paid, the guaranteed notes 

have been satisfied, and the FDIC has been reimbursed for 

any guarantee payments. 

All Structured Transactions with FDIC Guaranteed Debt 

Through December 31, 2016, the receiverships have 

transferred a portfolio of loans with an unpaid principal 

balance of $16.4 billion and mortgage-backed securities 

with a book value of $8.8 billion to 14 LLCs and 11 trusts. 

The LLCs and trusts subsequently issued notes guaranteed 

by the FDIC in an original principal amount of $10.6 billion. 

Since March 2013, there have been no new guarantee 

transactions. As of December 31, 2016 and 2015, the DIF 

collected guarantee fees totaling $275 million and $265 

million, respectively, and recorded a receivable for 

additional guarantee fees of $14 million and $26 million, 

respectively, included in the “Interest receivable on 

investments and other assets, net” line item on the Balance 

Sheet. All guarantee fees are recorded as deferred revenue, 

included in the “Accounts payable and other liabilities” line 

item on the Balance Sheet, and recognized as revenue 

primarily on a straight-line basis over the term of the notes. 

As of December 31, 2016 and 2015, the amount of deferred 

revenue recorded was $14 million and $26 million, 

respectively. Except as discussed below, the DIF records no 

other structured transaction-related assets or liabilities on 

its balance sheet. 

Any estimated loss to the DIF from the guarantees is based 

on an analysis of the expected guarantee payments by the 

FDIC, reimbursements to the FDIC for guarantee payments, 

and guarantee fee collections. As of December 31, 2016, 

the FDIC recorded a contingent liability for guarantee 

payments totaling $2 million for an SSGN transaction 

beginning in November 2019 up to note maturity in 

December 2020, and an offsetting receivable due to 

expected reimbursements. The contingent liability and 

related receivable are included in the “Contingent liabilities: 

Litigation losses and other” and “Interest receivable on 

investments and other assets, net” line items, respectively, 

on the Balance Sheet. For the same SSGN transaction, as of 

December 31, 2016, it is reasonably possible that the DIF 

would be required to make a final guarantee payment of 

$28 million at note maturity, as compared to payments of 
2016

FINANCIAL SECTION 105

 NOTES TO THE FINANCIAL STATEMENTS 

9 

$25 million through note maturity as of December 31, 2015. 

The FDIC expects that all guarantee payments made would 

be fully reimbursed from the proceeds of the liquidation of 

the SSGN’s underlying collateral. 

For all of the remaining transactions, the estimated cash 

flows from the trust assets provide sufficient coverage to 

fully pay the debts. To date, the FDIC, in its corporate 

capacity, has not provided, and does not intend to provide, 

any form of financial or other type of support for structured 

transactions that it was not previously contractually 

required to provide. 

As of December 31, 2016 and 2015, the maximum loss 

exposure was zero for LLCs and $1.1 billion and $1.6 billion 

for trusts, respectively, representing the sum of all 

outstanding debt guaranteed by the FDIC. 

9. Assessments 

The FDIC deposit insurance assessment system is mandated 

by section 7 of the FDI Act and governed by part 327 of 

title 12 of the Code of Federal Regulations (12 CFR Part 

327). The risk-based system requires the payment of 

quarterly assessments by all IDIs. 

In response to the Dodd-Frank Act, the FDIC implemented 

several changes to the assessment system, amended its 

Restoration Plan (which is required when the ratio of the 

DIF balance to estimated insured deposits (reserve ratio) is 

below the statutorily mandated minimum), and developed 

a comprehensive, long-term fund management plan. The 

plan is designed to restore and maintain a positive fund 

balance for the DIF even during a banking crisis and 

achieve moderate, steady assessment rates throughout any 

economic cycle. Summarized below are actions taken to 

implement requirements of the Dodd-Frank Act and 

provisions of the comprehensive, long-term fund 

management plan. 

 The FDIC amended the Restoration Plan, which is 

intended to ensure that the reserve ratio reaches 

1.35 percent by September 30, 2020, as required 

by the Dodd-Frank Act, in lieu of the previous 

statutory minimum of 1.15 percent by the end of 

2016. The FDIC updates, at least semiannually, its 

loss and income projections for the fund and, if 

needed, increases or decreases assessment rates, 

following notice-and-comment rulemaking, if 

required. 

 The FDIC Board of Directors designates a reserve 

ratio for the DIF and publishes the designated 

reserve ratio (DRR) before the beginning of each 

calendar year, as required by the FDI 

Act. Accordingly, in September 2016, the FDIC 

adopted a final rule maintaining the DRR at 2 

percent for 2017. The DRR is an integral part of 

the FDIC’s comprehensive, long-term 

management plan for the DIF and is viewed as a 

long-range, minimum target for the reserve ratio. 

 The FDIC adopted a final rule that suspends 

dividends indefinitely, and, in lieu of dividends, 

adopts lower assessment rate schedules when the 

reserve ratio reaches 1.15 percent, 2 percent, and 

2.5 percent. 

As of June 30, 2016, the reserve ratio of the DIF reached 

1.17 percent. As a result of the ratio exceeding 1.15 

percent, assessment rates were modified as follows, 

beginning with the quarter ending September 30, 2016. 

 Lower regular assessment rates became effective 

for all IDIs pursuant to final rules published in 

February 2011 and May 2016. 

 A new risk-based method for calculating 

assessment rates became effective for institutions 

with less than $10 billion in total assets (small 

banks) pursuant to the final rule published in May 

2016. The revised method is designed to be 

revenue-neutral, but helps ensure that banks that 

take on greater risks pay more for deposit 

insurance. 

Additionally, the Dodd-Frank Act requires that the FDIC 

offset the effect of increasing the minimum reserve ratio 

from 1.15 percent to 1.35 percent on small banks. To 

implement this requirement, the FDIC imposed a surcharge 

to the regular quarterly assessments of IDIs with $10 billion 

or more in assets (larger institutions), beginning with the 

quarter ending September 30, 2016. Pursuant to a final rule 

published in March 2016: 

 The surcharge generally equals an annual rate of 

4.5 basis points applied to a larger institution’s 

regular quarterly assessment base (with certain 

adjustments). The FDIC projects that surcharges 

will last eight quarters. 

 The FDIC will impose a shortfall assessment on 

larger institutions to achieve the minimum reserve 

ratio of 1.35 percent by the September 30, 2020 

statutory deadline, if the reserve ratio has not 

reached 1.35 percent by the end of 2018. 

 The FDIC will provide assessment credits to small 

banks for the portion of their assessments that 

contribute to the growth in the reserve ratio 

between 1.15 percent and 1.35 percent to ensure 
ANNUAL REPORT

106 FINANCIAL SECTION

DEPOSIT INSURANCE FUND 

10

that the effect of reaching 1.35 percent is fully 

borne by the larger institutions. The assessment 

credits will be determined and allocated as soon 

as practicable after the reserve ratio reaches 1.35 

percent. In each quarter that the reserve ratio is at 

least 1.38 percent, the credits will be used to fully 

offset a small institution’s quarterly insurance 

assessment, until credits are exhausted. 

ASSESSMENT REVENUE 

Annual assessment rates averaged approximately 6.6 cents 

per $100 of the assessment base through June 30, 2016. 

Annual assessment rates averaged approximately 7.4 cents 

per $100 for the second half of 2016, reflecting both lower 

regular assessment rates for all IDIs and assessment 

surcharges on larger institutions. While the assessment 

rate schedule applicable to all IDIs decreased, some IDIs’

rates increased because of the small bank pricing method 

change and/or the deterioration of their financial condition. 

Annual assessment rates averaged approximately 6.5 cents 

per $100 of the assessment base during 2015. The 

assessment base is generally defined as average 

consolidated total assets minus average tangible equity 

(measured as Tier 1 capital) of an IDI during the assessment 

period. 

The “Assessments receivable, net” line item on the Balance 

Sheet of $2.7 billion and $2.2 billion represents the 

estimated premiums due from IDIs for the fourth quarter of 

2016 and 2015, respectively. The actual deposit insurance 

assessments for the fourth quarter of 2016 will be billed 

and collected at the end of the first quarter of 2017. During 

2016 and 2015, $10.0 billion and $8.8 billion, respectively, 

were recognized as assessment revenue from institutions, 

including $2.4 billion in surcharges from large IDIs in 2016. 

RESERVE RATIO 

As of September 30, 2016 and December 31, 2015, the DIF 

reserve ratio was 1.18 percent and 1.11 percent, 

respectively. 

ASSESSMENTS RELATED TO FICO 

Assessments continue to be levied on institutions for 

payments of the interest on obligations issued by the 

Financing Corporation (FICO). The FICO was established as 

a mixed-ownership government corporation to function 

solely as a financing vehicle for the former FSLIC. The 

annual FICO interest obligation of approximately $790 

million is paid on a pro rata basis using the same rate for 

banks and thrifts. The FICO assessment has no financial 

impact on the DIF and is separate from deposit insurance 

assessments. The FDIC, as administrator of the DIF, acts 

solely as a collection agent for the FICO. As of December 

31, 2016 and 2015, approximately $794 million and $798 

million, respectively, was collected and remitted to the 

FICO. 

10. Operating Expenses 

The “Operating expenses” line item on the Statement of 

Income and Fund Balance consisted of the following 

components (in thousands). 

December 31 December 31

2016 2015

Salaries and benefits $ 1,235,244 $ 1,248,146

Outside services 265,492 280,050

Travel 92,126 97,819

Buildings and leased space 93,518 90,945

Software/Hardware maintenance 64,757 62,604

Depreciation of property and equipment 50,403 52,233

Other 26,191 28,314

Subtotal 1,827,731 1,860,111

Less: Expenses billed to resolution 

entities and others (112,720) (172,877)

Total $ 1,715,011 $ 1,687,234

11. Provision for Insurance Losses 

The provision for insurance losses was a negative $1.6 

billion for 2016, compared to negative $2.3 billion for 2015. 

The negative provision for 2016 primarily resulted from a 

decrease of $1.7 billion in the estimated losses for 

institutions that failed in current and prior years, partially 

offset by an increase of $97 million in the contingent 

liability for anticipated failures. 

As described in Note 4, the estimated recoveries from 

assets held by receiverships and estimated payments 

related to assets sold by receiverships to acquiring 

institutions under shared-loss agreements (SLAs) are used 

to derive the loss allowance on the receivables from 

resolutions. The $1.7 billion decrease in the estimated 

losses from failures was primarily attributable to four 

components. The first component was unanticipated 

recoveries of $545 million in litigation settlements, 

professional liability claims, and tax refunds by the 

receiverships. These are typically not recognized until the 

cash is received since significant uncertainties surround 

their recovery. 

The second component was a decrease of $584 million in 

the receiverships’ shared-loss liability primarily due to both 

the early termination of numerous SLAs during the period, 

which resulted in lower-than-anticipated losses on covered 

assets, and the unanticipated recoveries from SLAs where 

the commercial loss coverage has expired but the recovery 

period remains active. The third component was a $406 
2016

FINANCIAL SECTION 107

 NOTES TO THE FINANCIAL STATEMENTS 

11

million decrease in the estimated losses from failures that 

resulted from a reduction in projected future receivership 

expenses and legal and representation and warranty 

liabilities. The final component was a $231 million decrease 

resulting from greater-than-anticipated collections from 

receiverships’ asset sales and updated estimated recovery 

rates applied to the remaining assets in liquidation. 

12. Employee Benefits 

PENSION BENEFITS AND SAVINGS PLANS 

Eligible FDIC employees (permanent and term employees 

with appointments exceeding one year) are covered by the 

federal government retirement plans, either the Civil 

Service Retirement System (CSRS) or the Federal Employees 

Retirement System (FERS). Although the DIF contributes a 

portion of pension benefits for eligible employees, it does 

not account for the assets of either retirement system. The 

DIF also does not have actuarial data for accumulated plan 

benefits or the unfunded liability relative to eligible 

employees. These amounts are reported on and accounted 

for by the U.S. Office of Personnel Management (OPM). 

Under the Federal Thrift Savings Plan (TSP), the FDIC 

provides FERS employees with an automatic contribution of 

1 percent of pay and an additional matching contribution 

up to 4 percent of pay. CSRS employees also can 

contribute to the TSP, but they do not receive agency 

matching contributions. Eligible FDIC employees may also 

participate in an FDIC-sponsored tax-deferred 401(k) 

savings plan with matching contributions up to 5 percent. 

The expenses for these plans are presented in the table 

below (in thousands). 

December 31 December 31

2016 2015

Civil Service Retirement System $ 3,230 $ 3,949

Federal Employees Retirement System (Basic Benefit) 111,368 108,056

Federal Thrift Savings Plan 34,966 35,140

FDIC Savings Plan 37,499 39,767

Total $ 187,063 $ 186,912

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The DIF has no postretirement health insurance liability 

since all eligible retirees are covered by the Federal 

Employees Health Benefits (FEHB) program. The FEHB is 

administered and accounted for by the OPM. In addition, 

OPM pays the employer share of the retiree’s health 

insurance premiums. 

The FDIC provides certain life and dental insurance 

coverage for its eligible retirees, the retirees’ beneficiaries, 

and covered dependents. Retirees eligible for life and 

dental insurance coverage are those who have qualified 

due to (1) immediate enrollment upon appointment or five 

years of participation in the plan and (2) eligibility for an 

immediate annuity. The life insurance program provides 

basic coverage at no cost to retirees and allows converting 

optional coverage to direct-pay plans. For the dental 

coverage, retirees are responsible for a portion of the 

premium. 

The FDIC has elected not to fund the postretirement life 

and dental benefit liabilities. As a result, the DIF recognized 

the underfunded status (the difference between the 

accumulated postretirement benefit obligation and the plan 

assets at fair value) as a liability. Since there are no plan 

assets, the plan’s benefit liability is equal to the 

accumulated postretirement benefit obligation. 

Postretirement benefit obligation, gain and loss, and 

expense information included in the Balance Sheet and 

Statement of Income and Fund Balance are summarized as 

follows (in thousands). 

December 31 December 31

2016 2015

Accumulated postretirement benefit 

obligation recognized in Postretirement 

benefit liability $ 232,201 $ 233,000

Amounts recognized in accumulated other 

comprehensive income: Unrealized 

postretirement benefit loss

Cumulative net actuarial loss $ (24,212) $ (31,938)

Prior service cost (1,535) (2,110)

 Total $ (25,747) $ (34,048)

Amounts recognized in other comprehensive 

income: Unrealized postretirement benefit 

gain

Actuarial gain $ 7,726 $ 23,193

Prior service credit 575 510

 Total $ 8,301 $ 23,703

Net amortization out of other comprehensive 

income included in net periodic benefit cost $ 1,567 $ 3,842
ANNUAL REPORT

108 FINANCIAL SECTION

DEPOSIT INSURANCE FUND 

12

Expected amortization of accumulated other 

comprehensive income into net periodic benefit cost is 

summarized as follows (in thousands). 

December 31, 2017

Prior service costs $ 575

Net actuarial loss 79

Total $ 654

The annual postretirement contributions and benefits paid 

are included in the table below (in thousands). 

December 31 December 31

2016 2015

Employer contributions $ 6,388 $ 6,064 

Plan participants' contributions $ 739 $ 728

Benefits paid $ (7,126) $ (6,792) 

The expected contributions for the period ending 

December 31, 2017, are $7.5 million. Expected future 

benefit payments for each of the next 10 years are 

presented in the following table (in thousands). 

2017 2018 2019 2020 2021 2022-2026

$6,720 $7,195 $7,686 $8,226 $8,780 $53,075

Assumptions used to determine the amount of the 

accumulated postretirement benefit obligation and the net 

periodic benefit costs are summarized as follows (in 

thousands). 

December 31 December 31

2016 2015

Discount rate for future benefits (benefit obligation) 4.67% 4.29%

Rate of compensation increase 3.90% 3.70%

Discount rate (benefit cost) 4.29% 4.00%

Dental health care cost-trend rate

 Assumed for next year 4.50% 4.70%

 Ultimate 4.50% 4.50%

 Year rate will reach ultimate 2017 2017

13. Commitments and Off-Balance-Sheet Exposure 

COMMITMENTS: 

Leased Space 

The DIF leased space expense totaled $48 million and $47

million for 2016 and 2015, respectively. The FDIC’s lease 

commitments total $165 million for future years. The lease 

agreements contain escalation clauses resulting in 

adjustments, usually on an annual basis. Future minimum 

lease commitments are as follows (in thousands). 

2017 2018 2019 2020 2021 2022/Thereafter

$43,715 $34,262 $30,681 $16,283 $11,632 $28,337

OFF-BALANCE-SHEET EXPOSURE:

Deposit Insurance 

Estimates of insured deposits are derived primarily from 

quarterly financial data submitted by IDIs to the FDIC and 

represent the accounting loss that would be realized if all 

IDIs were to fail and the acquired assets provided no 

recoveries. As of September 30, 2016 and December 31, 

2015, estimated insured deposits for the DIF were $6.8 

trillion and $6.5 trillion, respectively. 

14. Disclosures about the Fair Value of Financial 

Instruments

Financial assets recognized and measured at fair value on a 

recurring basis at each reporting date include cash 

equivalents (see Note 2) and the investment in U.S. 

Treasury securities (see Note 3). The DIF’s financial assets 

measured at fair value consisted of the following 

components (in millions). 

December 31, 2016

Quoted Prices 

in Active 

Markets for 

Identical Assets

Significant 

Other 

Observable 

Inputs

Significant 

Unobservable 

Inputs

(Level 1) (Level 2) (Level 3)

Assets

 Cash equivalents1 $ 1,326 $ 1,326

Available-for-Sale Debt Securities

Investment in U.S. Treasury 

securities2 73,512 73,512

Total Assets $ 74,838 $ 0 $ 0 $ 74,838

Total 

Assets at 

Fair Value

 (1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities 

valued at prevailing interest rates established by the Bureau of the Fiscal Service. 

(2) The investment in U.S. Treasury securities is measured based on prevailing market 

yields for federal government entities. 
2016

FINANCIAL SECTION 109

 NOTES TO THE FINANCIAL STATEMENTS 

13

December 31, 2015

Quoted Prices 

in Active 

Markets for 

Identical 

Significant 

Other 

Observable 

Inputs

Significant 

Unobservable 

Inputs

(Level 1) (Level 2) (Level 3)

Assets

 Cash equivalents1 $ 862 $ 862

Available-for-Sale Debt Securities

Investment in U.S. Treasury 

securities2 62,497 62,497

Total Assets $ 63,359 $ 0 $ 0 $ 63,359

Total 

Assets at 

Fair Value

 (1) Cash equivalents are Special U.S. Treasury Certificates with overnight maturities 

valued at prevailing interest rates established by the Bureau of the Fiscal Service. 

(2) The investment in U.S. Treasury securities is measured based on prevailing market 

yields for federal government entities. 

Some of the DIF’s financial assets and liabilities are not 

recognized at fair value but are recorded at amounts that 

approximate fair value due to their short maturities and/or 

comparability with current interest rates. Such items 

include assessments receivable, interest receivable on 

investments, other short-term receivables, and accounts 

payable and other liabilities. 

The net receivables from resolutions primarily include the 

DIF’s subrogated claim arising from obligations to insured 

depositors. The resolution entity assets that will ultimately 

be used to pay the corporate subrogated claim are valued 

using discount rates that include consideration of market 

risk. These discounts ultimately affect the DIF’s allowance 

for loss against the receivables from resolutions. Therefore, 

the corporate subrogated claim indirectly includes the 

effect of discounting and should not be viewed as being 

stated in terms of nominal cash flows. 

Although the value of the corporate subrogated claim is 

influenced by the valuation of resolution entity assets (see 

Note 4), such valuation is not equivalent to the valuation of 

the corporate claim. Since the corporate claim is unique, 

not intended for sale to the private sector, and has no 

established market, it is not practicable to estimate a fair 

value. 

The FDIC believes that a sale to the private sector of the 

corporate claim would require indeterminate, but 

substantial, discounts for an interested party to profit from 

these assets because of credit and other risks. In addition, 

the timing of resolution entity payments to the DIF on the 

subrogated claim does not necessarily correspond with the 

timing of collections on resolution entity assets. Therefore, 

the effect of discounting used by resolution entities should 

not necessarily be viewed as producing an estimate of fair 

value for the net receivables from resolutions. 

15. Information Relating to the Statement of Cash 

Flows

 

The following table presents a reconciliation of net income 

to net cash from operating activities (in thousands). 

December 31 December 31

2016 2015

Operating Activities

Net Income: $ 10,523,517 $ 9,856,688

Adjustments to reconcile net income to net cash provided

 by operating activities:

Amortization of U.S. Treasury securities 977,245 1,411,376

Treasury Inflation-Protected Securities inflation adjustment (5,578) 12,465

Depreciation on property and equipment 50,403 52,233

Loss on retirement of property and equipment 1,607 2,415

Provision for insurance losses (1,567,950) (2,251,320)

Unrealized gain on postretirement benefits 8,301 23,703

Change in Assets and Liabilities:

 (Increase) in assessments receivable (493,795) (169,048)

 (Increase) Decrease in interest receivable and other assets (107,749) 242,128

 Decrease in receivables from resolutions 5,437,632 7,425,888

 (Decrease) in accounts payable and other liabilities (34,249) (18,435)

(Decrease) in postretirement benefit liability (799) (10,419)

Increase in contingent liabilities - litigation losses and other 2,389 0

(Decrease) in liabilities due to resolutions (2,345,820) (3,380,084)

Net Cash Provided by Operating Activities $ 12,445,154 $ 13,197,590

 

16. Subsequent Events 

Subsequent events have been evaluated through February 

8, 2017, the date the financial statements are available to 

be issued. 

FDIC v. BANK OF AMERICA, N.A. 

On January 9, 2017, the FDIC filed suit in the United States 

District Court for the District of Columbia alleging that Bank 

of America, N.A. (BoA) underpaid its insurance assessment 

from the second quarter of 2013 through the fourth quarter 

of 2014 by approximately $542 million, inclusive of interest. 

During this period, the FDIC alleges that BoA understated 

its counterparty exposure which resulted in the significant 

underpayment of insurance assessments. The FDIC 

reserved its right to amend the complaint to include 

additional monies believed to be owed for periods prior to 

this time frame. As of December 31, 2016 and 2015, the 

impacts of this pending litigation are not reflected in the 

financial statements of the DIF. 
ANNUAL REPORT

110 FINANCIAL SECTION

DEPOSIT INSURANCE FUND 

14

2017 FAILURES THROUGH FEBRUARY 8, 2017 

Through February 8, 2017, two insured institutions failed in 

2017 with total losses to the DIF estimated to be $80 

million. 
2016

FINANCIAL SECTION 111

FSLIC RESOLUTION FUND (FRF)

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Balance Sheet 

As of December 31

(Dollars in Thousands) 2016 2015

ASSETS

 Cash and cash equivalents $ 874,174 $ 871,037

 Other assets, net 4,391 760

Total Assets $ 878,565 $ 871,797

LIABILITIES

 Accounts payable and other liabilities $ 26 $ 624

Total Liabilities 26 624

RESOLUTION EQUITY (NOTE 5)

 Contributed capital 125,489,317 125,489,317

 Accumulated deficit (124,610,778) (124,618,144)

Total Resolution Equity 878,539 871,173

Total Liabilities and Resolution Equity $ 878,565 $ 871,797

The accompanying notes are an integral part of these financial statements.
ANNUAL REPORT

112 FINANCIAL SECTION

FSLIC RESOLUTION FUND (FRF)

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Statement of Income and Accumulated Deficit

For the Years Ended December 31

(Dollars in Thousands) 2016 2015

REVENUE

 Interest on U.S. Treasury securities $ 2,070 $ 298

 Other revenue 3,278 2,309

Total Revenue 5,348 2,607

EXPENSES AND LOSSES

 Operating expenses 2,725 3,064

 Goodwill litigation expenses (Note 3) 0 157,161

 Losses related to thrift resolutions (Note 6) (993) (153)

 Recovery of tax benefits (3,750) 0

Total Expenses and Losses (2,018) 160,072

Net Income (Loss) 7,366 (157,465)

Accumulated Deficit - Beginning (124,618,144) (124,460,679)

Accumulated Deficit - Ending $ (124,610,778) $ (124,618,144)

 

The accompanying notes are an integral part of these financial statements.
2016

FINANCIAL SECTION 113

FSLIC RESOLUTION FUND (FRF)

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Statement of Cash Flows

For the Years Ended December 31

(Dollars in Thousands) 2016 2015

OPERATING ACTIVITIES

Provided by:

Interest on U.S. Treasury securities $ 2,070 $ 298

Recoveries from thrift resolutions 2,270 2,555

Department of Justice's return of unused goodwill legal expense funds (Note 3) 2,162 0

Miscellaneous receipts 0 24

Used by:

Operating expenses (3,363) (2,783)

Payments for goodwill litigation (Note 3) 0 (513,616)

Miscellaneous disbursements (2) 0

Net Cash Provided (Used) by Operating Activities 3,137 (513,522)

FINANCING ACTIVITIES

Provided by:

U.S. Treasury payments for goodwill litigation (Note 3) 0 513,616

Net Cash Provided by Financing Activities 0 513,616

Net Increase in Cash and Cash Equivalents 3,137 94

Cash and Cash Equivalents - Beginning 871,037 870,943

Cash and Cash Equivalents - Ending $ 874,174 $ 871,037

The accompanying notes are an integral part of these financial statements.
ANNUAL REPORT

114 FINANCIAL SECTION

FSLIC RESOLUTION FUND 

NOTES TO THE FINANCIAL STATEMENTS 

December 31, 2016 and 2015

1 

1. Operations/Dissolution of the FSLIC Resolution Fund 

OVERVIEW 

The Federal Deposit Insurance Corporation (FDIC) is the 

independent deposit insurance agency created by Congress 

in 1933 to maintain stability and public confidence in the 

nation’s banking system. Provisions that govern the FDIC’s 

operations are generally found in the Federal Deposit 

Insurance (FDI) Act, as amended (12 U.S.C. 1811, et seq). In 

accordance with the FDI Act, the FDIC, as administrator of 

the Deposit Insurance Fund (DIF), insures the deposits of 

banks and savings associations (insured depository 

institutions). In cooperation with other federal and state 

agencies, the FDIC promotes the safety and soundness of 

insured depository institutions (IDIs) by identifying, 

monitoring, and addressing risks to the DIF. 

In addition to being the administrator of the DIF, the FDIC is 

the administrator of the FSLIC Resolution Fund (FRF). As 

such, the FDIC is responsible for the sale of remaining assets 

and satisfaction of liabilities associated with the former 

Federal Savings and Loan Insurance Corporation (FSLIC) and 

the former Resolution Trust Corporation (RTC). The FDIC 

maintains the DIF and the FRF separately to support their 

respective functions. 

The FSLIC was created through the enactment of the 

National Housing Act of 1934. The Financial Institutions 

Reform, Recovery, and Enforcement Act of 1989 (FIRREA) 

abolished the insolvent FSLIC and created the FRF. At that 

time, the assets and liabilities of the FSLIC were transferred 

to the FRF – except those assets and liabilities transferred to 

the newly created RTC – effective on August 9, 1989. 

Further, the FIRREA established the Resolution Funding 

Corporation (REFCORP) to provide part of the initial funds 

used by the RTC for thrift resolutions. 

The RTC Completion Act of 1993 terminated the RTC as of 

December 31, 1995. All remaining assets and liabilities of 

the RTC were transferred to the FRF on January 1, 1996. 

Today, the FRF consists of two distinct pools of assets and 

liabilities: one composed of the assets and liabilities of the 

FSLIC transferred to the FRF upon the dissolution of the 

FSLIC (FRF-FSLIC), and the other composed of the RTC assets 

and liabilities (FRF-RTC). The assets of one pool are not 

available to satisfy obligations of the other. 

OPERATIONS/DISSOLUTION OF THE FRF 

The FRF will continue operations until all of its assets are 

sold or otherwise liquidated and all of its liabilities are 

satisfied. Any funds remaining in the FRF-FSLIC will be paid 

to the U.S. Treasury. Any remaining funds of the FRF-RTC 

will be distributed to the REFCORP to pay the interest on the 

REFCORP bonds. In addition, the FRF-FSLIC has available 

until expended $602 million in appropriations to facilitate, if 

required, efforts to wind up the resolution activity of the 

FRF-FSLIC. 

The FDIC has extensively reviewed and cataloged the FRF's 

remaining assets and liabilities. Some of the unresolved 

issues are: 

 criminal restitution orders (generally have from 1 to 

21 years remaining to enforce); 

 collections of judgments obtained against officers 

and directors and other professionals responsible 

for causing or contributing to thrift losses 

(generally have up to 10 years remaining to 

enforce, unless the judgments are renewed or are 

covered by the Federal Debt Collections Procedures 

Act, which will result in significantly longer periods 

for collection of some judgments); 

 liquidation/disposition of residual assets purchased 

by the FRF from terminated receiverships; 

 two remaining issues related to assistance 

agreements entered into by the former FSLIC (FRF 

could continue to receive or refund overpayments 

of tax benefits sharing in future years); 

 goodwill litigation (reimbursement of a potential 

tax liability; see Note 3); and 

 Affordable Housing Disposition Program 

monitoring (the last agreement expires no later 

than 2045; see Note 4). 

The FRF could realize recoveries from tax benefits sharing, 

criminal restitution orders, and professional liability claims. 

However, any potential recoveries are not reflected in the 

FRF’s financial statements, given the significant uncertainties 

surrounding the ultimate outcome. 
2016

FINANCIAL SECTION 115

FSLIC RESOLUTION FUND 

2 

On April 1, 2014, the FDIC concluded its role as receiver of 

FRF receiverships when the last active receivership was 

terminated. In total, 850 receiverships were liquidated by 

the FRF and the RTC. To facilitate receivership terminations, 

the FRF, in its corporate capacity, acquired the remaining 

receivership assets. These assets are included in the “Other 

assets, net” line item on the Balance Sheet. 

During the years of receivership activity, the assets held by 

receivership entities, and the claims against them, were 

accounted for separately from the FRF’s assets and liabilities 

to ensure that receivership proceeds were distributed in 

accordance with applicable laws and regulations. Also, the 

income and expenses attributable to receiverships were 

accounted for as transactions of those receiverships. The 

FDIC billed receiverships for services provided on their 

behalf. 

2. Summary of Significant Accounting Policies 

GENERAL 

The financial statements include the financial position, 

results of operations, and cash flows of the FRF and are 

presented in accordance with U.S. generally accepted 

accounting principles (GAAP). During the years of 

receivership activity, these statements did not include 

reporting for assets and liabilities of receivership entities 

because these entities were legally separate and distinct, and 

the FRF did not have any ownership or beneficial interest in 

them. 

The FRF is a limited-life entity, however, it does not meet the 

requirements for presenting financial statements using the 

liquidation basis of accounting. According to Accounting 

Standards Codification Topic 205, Presentation of Financial 

Statements, a limited-life entity should apply the liquidation 

basis of accounting only if a change in the entity’s governing 

plan has occurred since its inception. By statute, the FRF is a 

limited-life entity whose dissolution will occur upon the 

satisfaction of all liabilities and the disposition of all 

assets. No changes to this statutory plan have occurred 

since inception of the FRF. 

USE OF ESTIMATES 

The preparation of the financial statements in conformity 

with GAAP requires management to make estimates and 

assumptions that affect the reported amounts of assets and 

liabilities, revenue and expenses, and disclosure of 

contingent liabilities. Actual results could differ from these 

estimates. Where it is reasonably possible that changes in 

estimates will cause a material change in the financial 

statements in the near term, the nature and extent of such 

potential changes in estimates have been disclosed. The 

valuation estimate for other assets is considered significant. 

CASH EQUIVALENTS 

Cash equivalents are short-term, highly liquid investments 

consisting primarily of U.S. Treasury Overnight Certificates. 

RELATED PARTIES 

The nature of related parties and a description of related 

party transactions are discussed in Note 1 and disclosed 

throughout the financial statements and footnotes. 

DISCLOSURE ABOUT RECENT RELEVANT ACCOUNTING 

PRONOUNCEMENTS 

In June 2016, the Financial Accounting Standards Board 

issued Accounting Standards Update (ASU) 2016-13, 

Financial Instruments – Credit Losses (Topic 326): 

Measurement of Credit Losses on Financial Instruments. The 

ASU will replace the incurred loss impairment model with a 

new expected credit loss model for financial assets measured 

at amortized cost and for off-balance-sheet credit exposures. 

The ASU is effective for the FRF on January 1, 2021. The 

FDIC is assessing the effect the ASU will have on the FRF’s 

financial position and results of operations. 

Other recent accounting pronouncements have been 

deemed not applicable or material to the financial 

statements as presented. 

RECLASSIFICATION 

Reclassifications have been made in 2015 financial 

statements to conform to the presentation used in 2016.

3. Goodwill Litigation 

In United States v. Winstar Corp., 518 U.S. 839 (1996), the 

Supreme Court held that when it became impossible 

following the enactment of FIRREA in 1989 for the federal 

government to perform certain agreements to count 

goodwill toward regulatory capital, the plaintiffs were 

entitled to recover damages from the United States. The 

contingent liability associated with the nonperformance of 

these agreements was transferred to the FRF on August 9, 

1989, upon the dissolution of the FSLIC. 

The FRF can draw from an appropriation provided by Section 

110 of the Department of Justice Appropriations Act, 2000 

(Public Law 106-113, Appendix A, Title I, 113 Stat. 1501A-3, 

1501A-20), such sums as may be necessary for the payment 

of judgments and compromise settlements in the goodwill 

litigation. This appropriation is to remain available until 

expended. Because an appropriation is available to pay such 

judgments and settlements, any estimated liability for 

goodwill litigation will have a corresponding receivable from 

the U.S. Treasury and therefore have no net impact on the 

financial condition of the FRF. 
ANNUAL REPORT

116 FINANCIAL SECTION

 

NOTES TO THE FINANCIAL STATEMENTS

3 

In 2015, the FRF paid $513.6 million to resolve the remaining 

active goodwill case using appropriations from the U.S. 

Treasury. For another case fully adjudicated in 2012, an 

estimated loss of $8 million for the court-ordered 

reimbursement of potential tax liabilities to the plaintiff is 

reasonably possible. 

The FRF-FSLIC paid goodwill litigation expenses incurred by 

the Department of Justice (DOJ), the entity that defended 

these lawsuits against the United States, based on a 

Memorandum of Understanding (MOU) dated October 2, 

1998, between the FDIC and the DOJ. These expenses were 

paid in advance by the FRF-FSLIC and any unused funds 

were carried over by the DOJ and applied toward the next 

fiscal year charges. In September 2016, the DOJ returned $2

million of unused funds to the FRF-FSLIC and retained $250 

thousand to cover future administrative expenses. The 

returned funds were recognized in the “Other revenue” line 

item on the Statement of Income and Accumulated Deficit. 

4. Guarantees 

TAX LIABILITY INDEMNIFICATION 

Similar to the goodwill cases discussed in Note 3, there were 

additional cases alleging that the government breached 

agreements regarding tax benefits associated with certain 

FSLIC-assisted acquisitions. All eight of those cases have 

been settled. A case settled in 2006 obligated the FRF-FSLIC 

as a guarantor for potential tax liabilities. The Internal 

Revenue Service (IRS) audited the relevant tax return and 

during the audit did not raise concerns of taxability for the 

settlement receipts covered under the indemnification 

agreement. The normal audit period for the IRS to propose 

adjustments expired in 2016 and the FDIC has no 

expectation of any further audit or related exposure 

concerning this matter. 

FANNIE MAE GUARANTEE 

On May 21, 2012, the FDIC, in its capacity as administrator of 

the FRF, entered into an agreement with Fannie Mae for the 

release of $13 million of credit enhancement reserves to the 

FRF in exchange for indemnifying Fannie Mae from all future 

losses incurred on 76 multi-family mortgage loans. The 

former RTC supplied Fannie Mae with the credit 

enhancement reserves in the form of cash collateral to cover 

future losses on these mortgage loans through 2020. Based 

on the most current data available, as of September 30, 

2016, the maximum exposure on this indemnification is the 

current unpaid principal balance of the remaining 33 multifamily loans totaling $2 million. Based on a contingent 

liability assessment of this portfolio as of September 30, 

2016, the majority of the loans are at least 86 percent 

amortized, and all are scheduled to mature within one to 

four years. Since all of the loans are performing and no 

losses have occurred since 2001, future payments on this 

indemnification are not expected. No contingent liability for 

this indemnification has been recorded as of December 31, 

2016 and 2015. 

AFFORDABLE HOUSING DISPOSITION PROGRAM 

Required by FIRREA under section 501, the Affordable 

Housing Disposition Program (AHDP) was established in 

1989 to ensure the preservation of affordable housing for 

low-income households. The FDIC, in its capacity as 

administrator of the FRF-RTC, assumed responsibility for 

monitoring property owner compliance with land use 

restriction agreements (LURAs). To enforce the property 

owners’ LURA obligation, the RTC, prior to its dissolution, 

entered into Memoranda of Understanding with 28 

monitoring agencies to oversee these LURAs. The FDIC, 

through the FRF, has agreed to indemnify the monitoring 

agencies for all losses related to LURA legal enforcement 

proceedings. 

Since 2006, the FDIC entered into two litigations against 

property owners and paid $23 thousand in legal expenses, 

which was fully reimbursed due to successful litigation. The 

maximum potential exposure to the FRF cannot be 

estimated as it is contingent upon future legal proceedings. 

However, loss mitigation factors include: (1) the 

indemnification may become void if the FDIC is not 

immediately informed upon receiving notice of any legal 

proceedings and (2) the FDIC is entitled to reimbursement of 

any legal expenses incurred for successful litigation against a 

property owner. AHDP guarantees will continue until the 

termination of the last LURA, or 2045 (whichever occurs first). 

As of December 31, 2016 and 2015, no contingent liability 

for this indemnification has been recorded. 

5. Resolution Equity 

As stated in the Overview section of Note 1, the FRF is 

composed of two distinct pools: the FRF-FSLIC and the FRFRTC. The FRF-FSLIC consists of the assets and liabilities of 

the former FSLIC. The FRF-RTC consists of the assets and 

liabilities of the former RTC. Pursuant to legal restrictions, 

the two pools are maintained separately and the assets of 

one pool are not available to satisfy obligations of the other. 

Contributed capital, accumulated deficit, and resolution 

equity consisted of the following components by each pool 

(in thousands). 
2016

FINANCIAL SECTION 117

FSLIC RESOLUTION FUND 

4 

December 31, 2016

FRF-FSLIC FRF-RTC

FRF 

Consolidated

Contributed capital - 

beginning $ 43,864,980 $ 81,624,337 $ 125,489,317 

Contributed 

capital - ending 43,864,980 81,624,337 125,489,317

Accumulated deficit (43,029,200) (81,581,578) (124,610,778)

Total Resolution 

Equity $ 835,780 $ 42,759 $ 878,539 

December 31, 2015

FRF-FSLIC FRF-RTC

FRF 

Consolidated

Contributed capital - 

beginning $ 43,707,819 $ 81,624,337 $ 125,332,156 

Add: U.S. Treasury 

payment in excess 

of prior year 

receivable 157,161 0 157,161 

Contributed 

capital - ending 43,864,980 81,624,337 125,489,317

Accumulated deficit (43,036,684) (81,581,460) (124,618,144)

Total Resolution 

Equity $ 828,296 $ 42,877 $ 871,173 

CONTRIBUTED CAPITAL

The FRF-FSLIC and the former RTC received $43.5 billion and 

$60.1 billion from the U.S. Treasury, respectively, to fund 

losses from thrift resolutions prior to July 1, 1995. 

Additionally, the FRF-FSLIC issued $670 million in capital 

certificates to the Financing Corporation (a mixed-ownership 

government corporation established to function solely as a 

financing vehicle for the FSLIC) and the RTC issued $31.3 

billion of these instruments to the REFCORP. FIRREA 

prohibited the payment of dividends on any of these capital 

certificates. 

The FRF-FSLIC received $513.6 million in U.S. Treasury 

payments for goodwill litigation in 2015, of which $356.4 

million was accrued as a receivable at year-end 2014. The 

$157.2 million difference increased contributed capital in 

2015. Through December 31, 2016, the FRF received a total 

of $2.3 billion in goodwill appropriations, the effect of which 

increased contributed capital. 

Through December 31, 2016, the FRF-RTC had returned $4.6 

billion to the U.S. Treasury and made payments of $5.1 

billion to the REFCORP. The most recent payment to the 

REFCORP was in July of 2013 for $125 million. In addition, 

the FDIC returned $2.6 billion to the U.S. Treasury on behalf 

of the FRF-FSLIC in 2013. These actions reduced contributed 

capital. 

ACCUMULATED DEFICIT 

The accumulated deficit represents the cumulative excess of 

expenses and losses over revenue for activity related to the 

FRF-FSLIC and the FRF-RTC. Approximately $29.8 billion and 

$87.9 billion were brought forward from the former FSLIC 

and the former RTC on August 9, 1989, and January 1, 1996, 

respectively. Since the dissolution dates, the FRF-FSLIC 

accumulated deficit increased by $13.2 billion, whereas the 

FRF-RTC accumulated deficit decreased by $6.3 billion. 

6. Losses Related to Thrift Resolutions 

Losses related to thrift resolutions represent changes in the 

estimated losses on assets acquired from terminated 

receiverships, as well as expenses for the disposition and 

administration of these assets. 

These losses were a negative $993 thousand for 2016 

compared to negative $153 thousand for 2015. The 2016 

balance primarily resulted from a $1 million reduction in the 

estimated losses due to better-than-anticipated recoveries 

upon disposition of an asset during 2016. 

7. Disclosures about the Fair Value of Financial 

Instruments

At December 31, 2016 and 2015, the FRF’s financial assets 

measured at fair value on a recurring basis are cash 

equivalents of $831 million and $828 million, respectively. 

Cash equivalents are Special U.S. Treasury Certificates with 

overnight maturities valued at prevailing interest rates 

established by the Bureau of the Fiscal Service. The 

valuation is considered a Level 1 measurement in the fair 

value hierarchy, representing quoted prices in active markets 

for identical assets. 

Accounts payable and other liabilities are not recognized at 

fair value but are recorded at amounts that approximate fair 

value due to their short maturities and/or comparability with 

interest rates. 

Assets purchased by the FRF from terminated receiverships 

(see Note 1) and included in the “Other assets, net” line item 

on the Balance Sheet are primarily valued using projected 

cash flow analyses; however, these valuations do not 

represent an estimate of fair value. These assets (ranging in 

age between 22 to 27 years) could not be liquidated during 

the life of the receiverships due to restrictive clauses and 

other impediments. Because these impediments remain, 
ANNUAL REPORT

118 FINANCIAL SECTION

 

NOTES TO THE FINANCIAL STATEMENTS

5 

there is no market for these assets. Consequently, it is not 

practicable to provide an estimate of fair value. 

8. Information Relating to the Statement of Cash Flows 

The following table presents a reconciliation of net 

income/(loss) to net cash from operating activities (in 

thousands). 

December 31 December 31

2016 2015

Operating Activities

Net Income (Loss): $ 7,366 $ (157,465)

Adjustments to reconcile 

net income (loss) to net 

cash provided (used) by 

operating activities:

Losses related to thrift 

resolutions (only includes 

provision for losses) 0 (260)

Change in Assets and 

Liabilities:

(Increase) Decrease in 

other assets (3,631) 404

(Decrease) Increase in 

accounts payable and 

other liabilities (598) 254

(Decrease) in contingent 

liabilities for goodwill 

litigation 0 (356,455)

Net Cash Provided (Used) 

by Operating Activities $ 3,137 $ (513,522)

9. Subsequent Events

Subsequent events have been evaluated through February 8, 

2017, the date the financial statements are available to be 

issued, and management determined that there are no items 

to disclose. 
2016

FINANCIAL SECTION 119

GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT

441 G St. N.W.

Washington, DC 20548

Independent Auditor’s Report

To the Board of Directors

The Federal Deposit Insurance Corporation

In our audits of the 2016 and 2015 financial statements of the Deposit Insurance Fund (DIF) and 

of the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund (FRF), both of 

which are administered by the Federal Deposit Insurance Corporation (FDIC),1 we found

• the financial statements of the DIF and of the FRF as of and for the years ended 

December 31, 2016, and 2015, are presented fairly, in all material respects, in accordance 

with U.S. generally accepted accounting principles;

• although internal controls could be improved, FDIC maintained, in all material respects, 

effective internal control over financial reporting relevant to the DIF and to the FRF as of 

December 31, 2016; and

• with respect to the DIF and to the FRF, no reportable noncompliance for 2016 with 

provisions of applicable laws, regulations, contracts, and grant agreements we tested. 

The following sections discuss in more detail (1) our report on the financial statements and on 

internal control over financial reporting and other information2 included with the financial 

statements; (2) our report on compliance with laws, regulations, contracts, and grant 

agreements; and (3) agency comments. 

Report on the Financial Statements and on Internal Control over Financial Reporting

In accordance with Section 17 of the Federal Deposit Insurance Act, as amended,3 and the 

Government Corporation Control Act,

4 we have audited the financial statements of the DIF and 

of the FRF, both of which are administered by FDIC. The financial statements for the DIF 

comprise the balance sheets as of December 31, 2016, and 2015; the related statements of 

income and fund balance and of cash flows for the years then ended; and the related notes to 

the financial statements. The financial statements for the FRF comprise the balance sheets as 

of December 31, 2016, and 2015; the related statements of income and accumulated deficit and 

of cash flows for the years then ended; and the related notes to the financial statements. We 

also have audited FDIC’s internal control over financial reporting relevant to the DIF and to the 

FRF as of December 31, 2016, based on criteria established under 31 U.S.C. § 3512(c), (d), 

commonly known as the Federal Managers’ Financial Integrity Act (FMFIA).

 

1

A third fund managed by FDIC, the Orderly Liquidation Fund, established by Section 210(n) of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376, 1506 (July 21, 2010), is unfunded 

and did not have any transactions from its inception in 2010 through 2016. 

2

Other information consists of information included with the financial statements, other than the auditor’s report.

3

Act of September 21, 1950, Pub. L. No. 797, § 2[17], 64 Stat. 873, 890, classified as amended at 12 U.S.C. § 1827.

4

31 U.S.C. §§ 9101-9110. 
ANNUAL REPORT

120 FINANCIAL SECTION

GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

We conducted our audits in accordance with U.S. generally accepted government auditing 

standards. We believe that the audit evidence we obtained is sufficient and appropriate to 

provide a basis for our audit opinions.

Management’s Responsibility 

FDIC management is responsible for (1) the preparation and fair presentation of these financial 

statements in accordance with U.S. generally accepted accounting principles; (2) preparing and 

presenting other information included in documents containing the audited financial statements 

and auditor’s report, and ensuring the consistency of that information with the audited financial 

statements; (3) maintaining effective internal control over financial reporting, including the 

design, implementation, and maintenance of internal control relevant to the preparation and fair 

presentation of financial statements that are free from material misstatement, whether due to 

fraud or error; (4) evaluating the effectiveness of internal control over financial reporting based 

on the criteria established under FMFIA; and (5) providing its assessment about the 

effectiveness of internal control over financial reporting as of December 31, 2016, included in 

the accompanying Management’s Report on Internal Control over Financial Reporting in 

appendix I.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements and opinions on FDIC’s 

internal control over financial reporting relevant to the DIF and to the FRF based on our audits. 

U.S. generally accepted government auditing standards require that we plan and perform the 

audits to obtain reasonable assurance about whether the financial statements are free from 

material misstatement, and whether effective internal control over financial reporting was 

maintained in all material respects. We are also responsible for applying certain limited 

procedures to other information included with the financial statements.

An audit of financial statements involves performing procedures to obtain audit evidence about 

the amounts and disclosures in the financial statements. The procedures selected depend on 

the auditor’s judgment, including the auditor’s assessment of the risks of material misstatement 

of the financial statements, whether due to fraud or error. In making those risk assessments, the 

auditor considers internal control relevant to the entity’s preparation and fair presentation of the 

financial statements in order to design audit procedures that are appropriate in the 

circumstances. An audit of financial statements also involves evaluating the appropriateness of 

the accounting policies used and the reasonableness of significant accounting estimates made 

by management, as well as evaluating the overall presentation of the financial statements. 

An audit of internal control over financial reporting involves performing procedures to obtain 

evidence about whether a material weakness exists.5 The procedures selected depend on the 

auditor’s judgment, including the assessment of the risk that a material weakness exists. An 

audit of internal control over financial reporting also includes obtaining an understanding of 

internal control over financial reporting, evaluating the design and operating effectiveness of 

internal control over financial reporting based on the assessed risk, and testing relevant internal 

 

5

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such 

that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be 

prevented, or detected and corrected, on a timely basis. A deficiency in internal control exists when the design or 

operation of a control does not allow management or employees, in the normal course of performing their assigned 

functions, to prevent, or detect and correct, misstatements on a timely basis. 
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GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

control over financial reporting. Our audit of internal control also considered the entity’s process 

for evaluating and reporting on internal control over financial reporting based on criteria 

established under FMFIA. Our audits also included performing such other procedures as we 

considered necessary in the circumstances.

We did not evaluate all internal controls relevant to operating objectives as broadly established 

under FMFIA, such as those controls relevant to preparing performance information and 

ensuring efficient operations. We limited our internal control testing to testing controls over 

financial reporting. Our internal control testing was for the purpose of expressing an opinion on 

whether effective internal control over financial reporting was maintained, in all material 

respects. Consequently, our audit may not identify all deficiencies in internal control over 

financial reporting that are less severe than a material weakness. 

Definition and Inherent Limitations of Internal Control over Financial Reporting 

An entity’s internal control over financial reporting is a process effected by those charged with 

governance, management, and other personnel, the objectives of which are to provide 

reasonable assurance that (1) transactions are properly recorded, processed, and summarized 

to permit the preparation of financial statements in accordance with U.S. generally accepted 

accounting principles, and assets are safeguarded against loss from unauthorized acquisition, 

use, or disposition, and (2) transactions are executed in accordance with provisions of 

applicable laws, regulations, contracts, and grant agreements, noncompliance with which could 

have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent, or 

detect and correct, misstatements due to fraud or error. We also caution that projecting any 

evaluation of effectiveness to future periods is subject to the risk that controls may become 

inadequate because of changes in conditions, or that the degree of compliance with the policies 

or procedures may deteriorate.

Opinions on Financial Statements

In our opinion: 

• The DIF’s financial statements present fairly, in all material respects, the DIF’s financial 

position as of December 31, 2016, and 2015, and the results of its operations and its cash 

flows for the years then ended, in accordance with U.S. generally accepted accounting 

principles.

• The FRF’s financial statements present fairly, in all material respects, the FRF’s financial 

position as of December 31, 2016, and 2015, and the results of its operations and its cash 

flows for the years then ended, in accordance with U.S. generally accepted accounting 

principles. 

Opinions on Internal Control over Financial Reporting

In our opinion, although certain internal controls could be improved, 

• FDIC maintained, in all material respects, effective internal control over financial reporting 

relevant to the DIF as of December 31, 2016, based on criteria established under FMFIA. 
ANNUAL REPORT

122 FINANCIAL SECTION

GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

• FDIC maintained, in all material respects, effective internal control over financial reporting 

relevant to the FRF as of December 31, 2016, based on criteria established under FMFIA.

As discussed in greater detail later in this report, our 2016 audit identified deficiencies in FDIC’s 

information systems controls that collectively represent a significant deficiency in FDIC’s internal 

control over financial reporting.

6

Although the significant deficiency in internal control did not affect our opinions on the 2016 

financial statements of the DIF and of the FRF, misstatements may occur in other financial 

information reported by the DIF and the FRF and not be prevented or detected and corrected on 

a timely basis because of this significant deficiency. 

In addition to the significant deficiency in information systems controls, we identified other 

deficiencies in FDIC’s internal control over financial reporting that we do not consider to be 

material weaknesses or significant deficiencies. Nonetheless, these deficiencies warrant FDIC 

management’s attention. We have communicated these matters to FDIC management and, 

where appropriate, will report on them separately.

Significant Deficiency in Information Systems Controls

During our 2016 audit, we identified new deficiencies in information systems controls that along 

with unresolved control deficiencies from prior audits, collectively represent a significant 

deficiency in FDIC’s internal control over financial reporting. Specifically, the deficiencies relate 

to general information systems controls in the areas of access and configuration management

controls. 

FDIC did not sufficiently implement controls to limit or detect access to computer resources. 

Specifically, FDIC did not have sufficient boundary protection controls on its network to fully 

isolate sensitive financial systems from other parts of its network. According to FDIC, a plan to 

fully isolate sensitive systems on a secure network segment had been made, but 

implementation of the plan had been delayed because of other competing priorities. Until it 

appropriately isolates its sensitive financial systems, FDIC faces increased risk that 

unauthorized or malicious attempts to communicate with its financial systems could go 

undetected.

FDIC did not consistently implement configuration management controls. Configuration 

management controls are intended to prevent unauthorized changes to information system 

resources and provide reasonable assurance that systems are configured and operating 

securely and as intended. Effective configuration management depends on the maintenance of 

a complete, accurate inventory of information system components. However, we identified 

deficiencies in FDIC’s implementation of these controls, placing its information and systems at 

increased risk of modification, loss, or disclosure. Specifically, see the following: 

• Although FDIC used multiple data sources to keep track of its inventory of network assets, it 

did not have a single, authoritative, complete, and accurate inventory of all network assets in 

its environment. This occurred because FDIC had not established a process to reasonably 

assure that a complete, accurate inventory was developed and maintained. Until FDIC 

develops and implements a process to maintain a complete, accurate inventory of its 

 

6

A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a 

material weakness, yet important enough to merit the attention of those charged with governance.
2016

FINANCIAL SECTION 123

network assets, its ability to identify potential vulnerabilities in unidentified assets may be

limited, posing unnecessary risks to information systems. 

• FDIC did not consistently scan its servers for vulnerabilities. FDIC policy states that servers 

are scanned for vulnerabilities weekly, vulnerability reports are produced monthly, and 

systems may not go unscanned for more than 2 consecutive months. However, FDIC had 

not scanned 51 servers in one of its general support systems during the 3-month time period

(July, August, and September 2016) that we reviewed. According to FDIC officials, this 

occurred because FDIC did not have an authoritative or complete inventory of its network 

assets and also because its legacy scanning and discovery tool failed to identify all servers. 

Officials also stated that the scanning and discovery tool has been replaced. In addition, the 

FDIC Office of Inspector General (OIG) has identified similar concerns. In its November 

2016 report on the effectiveness of FDIC’s information security program in accordance with 

the requirements of the Federal Information Security Modernization Act of 2014,7 the OIG 

reported that at the time of its audit, FDIC was not performing vulnerability scans for more 

than 900 production servers within another of its general support systems.

8 Without 

regularly scanning all servers, FDIC cannot reasonably assure that vulnerabilities in its 

servers are identified and corrected in a timely manner, increasing the risk that FDIC’s 

systems and information may be compromised. 

During 2016, FDIC made progress addressing previously reported control deficiencies related to 

its information systems. Key corrective actions included improving controls for authorizing users’ 

access to financial applications and for logging and monitoring financial applications to detect 

potentially malicious activity. However, other previously reported control deficiencies in FDIC’s 

information security continued to exist. For example, FDIC (1) had not fully implemented 

agency-wide configuration baselines and (2) did not always effectively monitor changes to 

critical server files.9

The cumulative effect of the control risks created by FDIC’s new and previously reported 

information security control deficiencies, while not collectively considered a material weakness, 

is important enough to merit the attention of those charged with governance of FDIC and 

therefore represents a significant deficiency in FDIC’s internal control over financial reporting as 

of December 31, 2016. Continued and consistent management commitment and attention will 

be essential to addressing existing deficiencies and continually improving FDIC’s information 

system controls. Until FDIC takes the necessary steps to address these new and previously 

reported control deficiencies, its sensitive financial information and resources will remain at 

increased risk of inadvertent or deliberate misuse, improper modification, unauthorized 

disclosure, or destruction.

 

7

Pub. L. No. 113-283, 128 Stat. 3073 (Dec. 18, 2014), codified as amended at 44 U.S.C. §§ 3551-3558.

8

Federal Deposit Insurance Corporation, Office of Inspector General, Audit of the FDIC’s Information Security 

Program—2016, AUD-17-001 (Arlington, Va.: November 2016). 

9

GAO, Information Security: FDIC Implemented Controls over Financial Systems, but Further Improvements Are 

Needed, GAO-16-605 (Washington, D.C.: June 29, 2016). 

GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)
ANNUAL REPORT

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GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

Other Matters

Other Information

FDIC’s other information contains a wide range of information, some of which is not directly 

related to the financial statements. This information is presented for purposes of additional 

analysis and is not a required part of the financial statements. We read the other information 

included with the financial statements in order to identify material inconsistencies, if any, with 

the audited financial statements. Our audit was conducted for the purpose of forming opinions 

on the DIF and the FRF financial statements. We did not audit and do not express an opinion or 

provide any assurance on the other information. 

Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements

In connection with our audits of the financial statements of the DIF and of the FRF, both of 

which are administered by FDIC, we tested compliance with selected provisions of applicable 

laws, regulations, contracts, and grant agreements consistent with our auditor’s responsibility 

discussed below. We caution that noncompliance may occur and not be detected by these 

tests. We performed our tests of compliance in accordance with U.S. generally accepted 

government auditing standards.

Management’s Responsibility

FDIC management is responsible for complying with applicable laws, regulations, contracts, and 

grant agreements.

Auditor’s Responsibility

Our responsibility is to test compliance with selected provisions of applicable laws, regulations, 

contracts, and grant agreements that have a direct effect on the determination of material 

amounts and disclosures in the financial statements of the DIF and of the FRF, and perform 

certain other limited procedures. Accordingly, we did not test FDIC’s compliance with all 

applicable laws, regulations, contracts, and grant agreements. 

Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements

Our tests for compliance with selected provisions of applicable laws, regulations, contracts, and 

grant agreements disclosed no instances of noncompliance for 2016 that would be reportable, 

with respect to the DIF and to the FRF, under U.S. generally accepted government auditing 

standards. However, the objective of our tests was not to provide an opinion on compliance with 

applicable laws, regulations, contracts, and grant agreements. Accordingly, we do not express 

such an opinion. 

Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant 

Agreements

The purpose of this report is solely to describe the scope of our testing of compliance with 

selected provisions of applicable laws, regulations, contracts, and grant agreements, and the 

results of that testing, and not to provide an opinion on compliance. This report is an integral 

part of an audit performed in accordance with U.S. generally accepted government auditing 

standards in considering compliance. Accordingly, this report on compliance with laws, 

regulations, contracts, and grant agreements is not suitable for any other purpose.
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GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

Agency Comments 

In commenting on a draft of this report, FDIC stated that it was pleased to receive unmodified 

opinions on the DIF’s and the FRF’s financial statements, and noted that we reported that FDIC 

had effective internal control over financial reporting and that there was no reportable 

noncompliance with tested provisions of applicable laws, regulations, contracts, and grant 

agreements. 

FDIC also noted that we reported deficiencies in FDIC’s information systems controls that 

collectively represent a significant deficiency. FDIC stated that it will work to improve its internal 

control environment and will focus additional management attention to address and remediate 

the identified information system control deficiencies, recognizing the essential role a strong 

internal control program plays in achieving an agency’s mission. Further, FDIC stated that 

dedication to sound financial management has been and will remain a top priority. The complete 

text of FDIC’s response is reprinted in appendix II.

James R. Dalkin

Director

Financial Management and Assurance

February 8, 2017
ANNUAL REPORT

126 FINANCIAL SECTION

MANAGEMENT’S REPORT ON INTERNAL CONTROL 

OVER FINANCIAL REPORTING

Appendix I
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MANAGEMENT’S RESPONSE TO THE AUDITOR’S REPORT

Appendix II
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