95

FINANCIAL 

SECTION

V.
ANNUAL REPORT

96 FINANCIAL SECTION

Federal Deposit Insurance Corporation

Deposit Insurance Fund Balance Sheet 

As of December 31

(Dollars in Thousands) 2017 2016

ASSETS

 Cash and cash equivalents $ 1,829,198 $ 1,332,966

 Investment in U.S. Treasury securities (Note 3) 83,302,963 73,511,953

 Assessments receivable, net (Note 9) 2,634,386 2,666,267

 Interest receivable on investments and other assets, net 505,766 526,195

 Receivables from resolutions, net (Note 4) 5,972,971 7,790,403

 Property and equipment, net (Note 5) 334,050 357,575

Total Assets $ 94,579,334 $ 86,185,359

LIABILITIES

 Accounts payable and other liabilities $ 236,971 $ 238,322

 Liabilities due to resolutions (Note 6) 1,203,260 2,073,375

 Postretirement benefit liability (Note 12) 259,316 232,201

 Contingent liabilities:

 Anticipated failure of insured institutions (Note 7) 97,777 477,357

 Guarantee payments and litigation losses (Notes 7 and 8) 34,515 2,589

Total Liabilities 1,831,839 3,023,844

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

FUND BALANCE

 Accumulated Net Income 93,272,447 83,166,991

ACCUMULATED OTHER COMPREHENSIVE INCOME

 Unrealized (loss) gain on U.S. Treasury securities, net (Note 3) (479,362) 20,271

 Unrealized postretirement benefit loss (Note 12) (45,590) (25,747)

Total Accumulated Other Comprehensive (Loss) (524,952) (5,476)

Total Fund Balance 92,747,495 83,161,515

Total Liabilities and Fund Balance $ 94,579,334 $ 86,185,359

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

DEPOSIT INSURANCE FUND (DIF)
2017

FINANCIAL SECTION 97

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) 2017 2016

REVENUE

 Assessments (Note 9) $ 10,594,838 $ 9,986,615

 Interest on U.S. Treasury securities 1,056,989 671,377

 Other revenue 11,947 16,095

Total Revenue 11,663,774 10,674,087

EXPENSES AND LOSSES

 Operating expenses (Note 10) 1,739,395 1,715,011

 Provision for insurance losses (Note 11) (183,149) (1,567,950)

 Insurance and other expenses 2,072 3,509

Total Expenses and Losses 1,558,318 150,570

Net Income 10,105,456 10,523,517

OTHER COMPREHENSIVE INCOME

 Unrealized (loss) gain on U.S. Treasury securities, net (499,633) 29,462

 Unrealized postretirement benefit (loss) gain (Note 12) (19,843) 8,301

Total Other Comprehensive (Loss) Income (519,476) 37,763

Comprehensive Income 9,585,980 10,561,280

Fund Balance - Beginning 83,161,515 72,600,235

Fund Balance - Ending $ 92,747,495 $ 83,161,515

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

98 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) 2017 2016

OPERATING ACTIVITIES

Provided by:

 Assessments $ 10,609,959 $ 9,488,215

 Interest on U.S. Treasury securities 1,622,583 1,523,215

 Recoveries from financial institution resolutions 3,952,375 3,601,149

 Miscellaneous receipts 16,853 16,057

Used by:

 Operating expenses (1,838,673) (1,671,768)

 Disbursements for financial institution resolutions (3,010,042) (502,716)

 Miscellaneous disbursements (799) (8,998)

Net Cash Provided by Operating Activities 11,352,256 12,445,154

INVESTING ACTIVITIES

Provided by:

 Maturity of U.S. Treasury securities 29,931,209 26,517,122

Used by:

 Purchase of U.S. Treasury securities (40,756,734) (38,474,320)

 Purchase of property and equipment (30,499) (31,334)

Net Cash (Used) by Investing Activities (10,856,024) (11,988,532)

Net Increase in Cash and Cash Equivalents 496,232 456,622

Cash and Cash Equivalents - Beginning 1,332,966 876,344

Cash and Cash Equivalents - Ending $ 1,829,198 $ 1,332,966

The accompanying notes are an integral part of these financial statements.
2017

FINANCIAL SECTION 99

DEPOSIT INSURANCE FUND

NOTES TO THE FINANCIAL STATEMENTS

December 31, 2017 and 2016 

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 

$191.5 billion and $182.1 billion as of December 31, 2017 

and 2016, respectively. 

OPERATIONS OF RESOLUTION ENTITIES

The FDIC, as receiver, is responsible for managing and 

disposing of the assets of failed institutions in an orderly and 

efficient manner. The assets held by receiverships, passthrough 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, income and expenses attributable to resolution 

entities are accounted for as transactions of those entities. 
ANNUAL REPORT

100 FINANCIAL SECTION

DEPOSIT INSURANCE FUND

2

The FDIC, as administrator of the DIF, 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 Treasury’s 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. Any 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 $10 billion or more 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 straightline 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 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 
2017

FINANCIAL SECTION 101

NOTES TO THE FINANCIAL STATEMENTS

3

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

to direct the activities that most significantly affect 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, 2017 and 2016. Therefore, consolidation is 

not required for the 2017 and 2016 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. 

APPLICATION OF RECENT ACCOUNTING STANDARDS

In May 2014, the FASB issued Accounting Standards Update 

(ASU) 2014-09, Revenue from Contracts with Customers 

(Topic 606). The ASU, and its related amendments, requires 

an entity to recognize revenue based on the amount it 

expects to be entitled for the transfer of promised goods or 

services to customers. The FDIC’s implementation efforts 

have included identifying revenue within the scope of the 

new guidance. The new guidance is not expected to require 

a material change in the timing and measurement of 

revenue related to deposit insurance assessments. The FDIC 

does not expect the ASU to have a material impact on the 

DIF’s financial position or its results of operations. The new 

standard is effective on January 1, 2019, with early adoption 

permitted. The FDIC continues to evaluate the full effect of 

this guidance on the DIF, including changes related to 

disclosure requirements and alternative adoption methods.

In January 2016, the FASB issued 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 ASU permits 

nonpublic entities to exclude disclosures related to the fair 

value of financial instruments measured at amortized cost. 

The FDIC has early adopted this provision and Note 14 was 

revised accordingly. The FDIC has determined that the other 

provisions of the ASU, which are 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 

FDIC’s implementation efforts are on-going and include a 

review of the entire portfolio of leases currently classified as 

operating leases. The standard is effective for the DIF on 

January 1, 2020, with early adoption allowed. The FDIC 

estimates an increase of approximately $157 million in assets 

and liabilities based on the amount disclosed as lease 

commitments for future years in Note 13. The FDIC does not 

expect the ASU to have a material effect on the DIF’s 

financial position or its results of operations. 

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 and requires the cumulative effect of the 

change on the DIF’s beginning fund balance when it is 

adopted. The FDIC continues to assess the effect the ASU 
ANNUAL REPORT

102 FINANCIAL SECTION

DEPOSIT INSURANCE FUND

4

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 (dollars in millions). 

December 31, 2017 Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Fair

Maturity Purchasea Value Amount Gains Losses Value

Within 1 year 1.25% $ 26,525 b $ 26,661 $ 0 $ (53) $ 26,608

After 1 year 

through 5 years 1.67% 56,500 56,694 3 (428) 56,269

Subtotal $ 83,025 $ 83,355 $ 3 $ (481) $ 82,877

After 1 year 

through 5 years -0.14% $ 400 $ 427 $ 0 $ (1) $ 426

Subtotal $ 400 $ 427 $ 0 $ (1) $ 426

Total $ 83,425 $ 83,782 $ 3 $ (482) c $ 83,303

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 2017. 

(b) Includes two Treasury notes totaling $2.1 billion which matured on Sunday, December 

31, 2017. Settlements occurred the next business day, January 2, 2018. 

(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, 2017. 

The aggregate related fair value of securities with unrealized losses was $75.5 billion as of 

December 31, 2017. 

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 Inflation-Protected Securities

U.S. Treasury notes and bonds

(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. 

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 

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 (dollars in thousands). 

December 31 December 31

2017 2016

Receivables from closed banks $ 76,725,761 $ 80,314,038

Allowance for losses (70,752,790) (72,523,635)

Total $ 5,972,971 $ 7,790,403

As of December 31, 2017, the FDIC, as receiver, managed 

338 active receiverships, including eight established in 2017. 

The resolution entities held assets with a book value of $8.8

billion as of December 31, 2017, and $14.9 billion as of 

December 31, 2016 (including $6.5 billion and $11.6 billion, 

respectively, of cash, investments, receivables due from the 

DIF, and other receivables).

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 
2017

FINANCIAL SECTION 103

NOTES TO THE FINANCIAL STATEMENTS

5

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. 

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 2017, the shared-loss cost estimates were 

updated for all 104 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. 

As of December 31, 2017, 14 percent or $1.9 billion of 

remaining shared-loss covered assets (consisting primarily of 

single-family loans) are located in Puerto Rico, which 

sustained significant damage from the September 2017 

hurricanes. The FDIC continues to assess and monitor the 

circumstances and conditions that may cause an increase in 

losses to the DIF from these shared-loss covered assets. The 

extent to which the acquiring institutions may incur elevated 

loan losses (after consideration of borrower insurance and 

other financial assistance) resulting in related shared-loss 

claims, if any, is not yet determinable. Consequently, no 

additional losses have been reflected in the DIF. 

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 $215.7 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 eightto 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, 

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). 
ANNUAL REPORT

104 FINANCIAL SECTION

DEPOSIT INSURANCE FUND

6

Receivership shared-loss transactions are summarized as 

follows (dollars in thousands). 

December 31 December 31

2017 2016

Shared-loss payments made to date, net of recoveries $ 29,014,957 $ 28,988,624

Projected shared-loss payments, net of "true-up" recoveries $ 428,971 $ 966,063

Total remaining shared-loss covered assets $ 13,896,921 $ 20,807,196

The $6.9 billion reduction in the remaining shared-loss 

covered assets from 2016 to 2017 is primarily due to the 

liquidation of covered assets from active SLAs, expiration of 

loss coverage for 14 commercial loan SLAs, and early 

termination of SLAs impacting 43 receiverships during 2017. 

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 receiverships and payments on 

the covered assets under SLAs. The majority of the 

remaining assets in liquidation ($2.3 billion) and current 

shared-loss covered assets ($13.9 billion), which together 

total $16.2 billion, are concentrated in commercial loans 

($264 million), residential loans ($13.8 billion), and structured 

transaction-related assets ($1.4 billion) as described in Note 

8. Most of the assets originated from failed institutions 

located in California ($9.6 billion), Puerto Rico ($1.9 billion), 

and Florida ($1.7 billion). 

5. Property and Equipment, Net

Depreciation expense was $54 million and $50 million for

2017 and 2016, respectively. The “Property and equipment, 

net” line item on the Balance Sheet consisted of the 

following components (dollars in thousands). 

December 31 December 31

2017 2016

Land $ 37,352 $ 37,352

Buildings (including building and leasehold improvements) 325,322 348,008

Application software (includes work-in-process) 112,727 127,113

Furniture, fixtures, and equipment 72,384 69,624

Accumulated depreciation (213,735) (224,522)

Total $ 334,050 $ 357,575

6. Liabilities Due to Resolutions 

As of December 31, 2017 and 2016, the DIF recorded 

liabilities totaling $1.2 billion and $2.1 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. 

Ninety-one 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 2017. According to the most 

recent 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 third 

quarter 2007. The industry reported total net income of 

$139.6 billion for the first nine months of 2017, an increase 

of 9.2 percent over the comparable period one year ago.

Losses to the DIF from failures that occurred in 2017 were 

higher than the contingent liability at the end of 2016, as the 

deterioration in the financial condition of certain troubled 

institutions and the resulting cost of institution failures was 

more than anticipated. However, the reversal of the liability 

for institutions that failed in 2017, as well as favorable trends 

in bank supervisory downgrade rates, contributed to a 

decline in the contingent liability from $477 million at 

December 31, 2016 to $98 million at December 31, 2017. 

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 
2017

FINANCIAL SECTION 105

NOTES TO THE FINANCIAL STATEMENTS

7

these risks, the FDIC believes that it is reasonably possible 

that the DIF could incur additional estimated losses of 

approximately $373 million as of December 31, 2017, as 

compared to $919 million as of year-end 2016. The actual 

losses, if any, will largely depend on future economic and 

market conditions and could differ materially from this 

estimate.

During 2017, eight institutions failed with combined assets 

of $5.2 billion 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 remain

narrow despite recent interest rate hikes. Economic 

conditions that challenge the banking sector include the 

potential effect of increases in interest rates on liquidity and

economic activity; the impact of the 2017 hurricanes and 

wildfires on credit quality; the impact of continued weak 

energy and commodity prices on local markets; and the risk 

of market volatility from geopolitical developments. 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 for the DIF as of December 31, 2017 

and 2016. In addition, the FDIC has identified $1 million of 

reasonably possible losses from unresolved cases as of 

December 31, 2017 and 2016. 

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 (now

known as CIT Bank) and its affiliates (collectively, Acquirers). 

Under the sale agreements, the Acquirers have 

indemnification rights to recover losses incurred as a result 

of third-party claims and breaches of the Sellers’ 

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 indirectly by the DIF. 

The unpaid principal balances of loans in the servicing 

portfolios sold subject to the Sellers’ indemnification 

obligations totaled $171.6 billion at the time of sale. The 

IndyMac receivership has paid cumulative claims totaling 

$110 million and $30 million through December 31, 2017 

and 2016, respectively. No claims have been asserted or 

accrued as of December 31, 2017. Claims under review in 

the amount of $18 million that were accrued for as of 

December 31, 2016, have been resolved. 

The Sellers have settled their obligations to the Acquirers 

and Fannie Mae with respect to the Fannie Mae mortgage 

loan portfolios (including claims relating to Fannie Mae’s 

inability to recover interest as a result of the servicer’s failure 

to pursue foreclosure within prescribed timelines). At the 

time of the sale to CIT, the loans serviced for Fannie Mae 

constituted approximately 70 percent of the reverse 

mortgage servicing portfolio. The receivership’s payment for 

this settlement is reflected in the “Receivables from 

resolutions, net” line item on the Balance Sheet. Given the 

passage of time and other factors, the FDIC believes that the 

likelihood of incurring losses directly to other investors is 

remote.

The Acquirers’ rights to submit breach notices as well as 

their right to submit claims for reimbursement with respect 

to certain third party claims have passed. However, the 

Acquirers retain the right to assert indemnification claims for 

losses over the life of those loans for which breach notices or 

third party claim notices were timely submitted. While many 

loans are subject to notices of alleged breaches, not all 

breach allegations or third party claims will result in an 

indemnifiable loss. In addition, the Acquirers retain the right 

to seek reimbursement for losses incurred as a result of 

claims alleging breaches of loan seller representations 

asserted by Ginnie Mae on or before March 19, 2019 for its

reverse mortgage servicing portfolios. At the time of the 

sale to CIT the reverse loans serviced for Ginnie Mae 

constituted approximately 2 percent of the reverse mortgage 

servicing portfolio. Quantifying the contingent liability is 

subject to a number of uncertainties, including market 

conditions, the occurrence of borrower defaults and 

resulting foreclosures and losses, and the possible allocation 

of certain losses to the Acquirers. Therefore, because of 

these uncertainties the FDIC has determined that, while 

additional losses are probable, the amount is not currently 

estimable.
ANNUAL REPORT

106 FINANCIAL SECTION

DEPOSIT INSURANCE FUND

8 

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 2017 and 2016, 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, used structured transactions

(securitizations and structured sales of guaranteed notes 

(SSGNs) or collectively, “trusts”) to dispose of residential 

mortgage loans, commercial loans, and mortgage-backed 

securities held by the receiverships. 

For these transactions, certain loans or securities from failed 

institutions were pooled and transferred into a trust 

structure. The trusts issued senior and/or subordinated debt 

instruments and owner trust or residual certificates 

collateralized by the underlying mortgage-backed securities 

or loans.

From March 2010 through March 2013, the receiverships 

transferred a portfolio of loans with an unpaid principal

balance of $2.4 billion and mortgage-backed securities with 

a book value of $6.4 billion to the trusts. Private investors 

purchased the senior notes issued by the trusts for $6.2

billion in cash and the receiverships held 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 trust

only after all expenses have been paid, the guaranteed notes 

have been satisfied, and the FDIC has been reimbursed for 

any guarantee payments. 

The following table provides the maximum loss exposure to 

the FDIC, as guarantor, total guarantee fees collected, 

guarantee fees receivable, and other information related to 

the FDIC guaranteed debt for the trusts as of December 31, 

2017 and 2016 (dollars in millions).

December 31 December 31

2017 2016

Number of trusts 11 11

Trust collateral balances

Initial $ 8,780 $ 8,780

Current $ 2,169 $ 2,707

Guaranteed note balances

Initial $ 6,196 $ 6,196

Current (maximum loss exposure) $ 672 $ 1,073

Guarantee fees collected to date $ 159 $ 152a

Amounts recognized in Interest 

receivable on investments and other 

assets, net

Receivable for guarantee fees $ 8 $ 14

Receivable for guarantee payments, 

net $ 20 $ 2

Amounts recognized in Contingent 

liabilities: Guarantee payments and 

litigation losses

Contingent liability for guarantee 

payments $ 34 $ 2

Amounts recognized in Accounts 

payable and other liabilities

Deferred revenue for guarantee feesb $ 8 $ 14

(a) The guarantee fees reported previously in 2016 were $275 million and included fees

from another type of structured transaction for which the guarantees have expired.

(b) All guarantee fees are recorded as deferred revenue and recognized as revenue

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

Except as presented above, the DIF records no other 

structured transaction-related assets or liabilities on its 

balance sheet.

ESTIMATED LOSS FROM GUARANTEE PAYMENTS

Any estimated loss to the DIF from the guarantees is based 

on an analysis of the expected guarantee payments by the 

FDIC, net of reimbursements to the FDIC for such guarantee 

payments. The DIF recorded a contingent liability of $34

million as of December 31, 2017, for estimated payments 
2017

FINANCIAL SECTION 107

NOTES TO THE FINANCIAL STATEMENTS

9 

under the guarantee for one SSGN transaction, up from $2 

million recorded at December 31, 2016. As guarantor, the 

FDIC, in its corporate capacity, is entitled to reimbursement 

from the trust for any guarantee payments; therefore a $34

million corresponding receivable has been recorded. The 

related allowance for loss on this receivable is $14 million, 

reflecting the expected shortfall of proceeds available for 

reimbursement after liquidation of the SSGN’s underlying 

collateral at note maturity. Guarantee payments are 

expected to begin in February 2020 and continue through 

note maturity in December 2020. For the same SSGN 

transaction, at December 31, 2016, it was reasonably 

possible that the DIF would have been required to make a 

final guarantee payment of $28 million at note maturity. 

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.

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

2017, the FDIC adopted a final rule maintaining the

DRR at 2 percent for 2018. The DRR is an integral

part of the FDIC’s comprehensive, long-term

management plan for the DIF and is viewed as a longrange, 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 total consolidated 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 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.
ANNUAL REPORT

108 FINANCIAL SECTION

DEPOSIT INSURANCE FUND

10

• 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 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

Through December 31, 2017, annual assessment rates 

averaged approximately 7.2 cents per $100 of the 

assessment base for 2017, approximately 7.4 cents per $100 

for the second half of 2016, and approximately 6.6 cents per 

$100 during the first half of 2016. 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. Effective July 1, 2016, the 

change in the annual assessment rates primarily resulted 

from the net effect of the surcharges on large institutions, 

offset by lower regular assessment rates for all IDIs. 

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

Sheet of $2.6 billion and $2.7 billion represents the 

estimated premiums due from IDIs for the fourth quarter of 

2017 and 2016, respectively. The actual deposit insurance 

assessments for the fourth quarter of 2017 will be billed and 

collected at the end of the first quarter of 2018. During 2017

and 2016, $10.6 billion and $10.0 billion, respectively, were 

recognized as assessment revenue from institutions, 

including $4.9 billion and $2.4 billion in surcharges from

large IDIs in 2017 and 2016, respectively. 

PENDING LITIGATION FOR UNDERPAID ASSESSMENTS 

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

District Court for the District of Columbia (and amended this 

complaint on April 7, 2017), alleging that Bank of America, 

N.A. (BoA) underpaid its insurance assessments for multiple 

quarters based on the underreporting of counterparty 

exposures. In total, the FDIC alleges that BoA underpaid 

insurance assessments by $1.12 billion, including interest for 

the quarters ending March 2012 through December 2014. 

The FDIC invoiced BoA for $542 million and $583 million 

representing claims in the initial suit and the amended 

complaint, respectively. BoA has failed to pay these past due 

amounts. Pending resolution of this matter, BoA has fully 

pledged security with a third-party custodian pursuant to a 

security agreement with the FDIC. As of December 31, 2017, 

the total amount of unpaid assessments (including accrued 

interest) was $1.13 billion. For the years ending December 

31, 2017 and 2016, the impact of this litigation is not 

reflected in the financial statements of the DIF. 

RESERVE RATIO

As of September 30, 2017 and December 31, 2016, the DIF 

reserve ratio was 1.28 percent and 1.20 percent, respectively. 

ASSESSMENTS RELATED TO FICO

Assessments are levied on institutions for payments of the 

interest on bond obligations issued by the Financing 

Corporation (FICO) and will continue until the final bond 

matures in September 2019. The FICO was established as a 

mixed-ownership government corporation to function solely 

as a financing vehicle for the former FSLIC. 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. Interest obligations collected and remitted to the 

FICO as of December 31, 2017 and 2016, were $760 million 

and $794 million, respectively. 

10. Operating Expenses

The “Operating expenses” line item on the Statement of 

Income and Fund Balance consisted of the following 

components (dollars in thousands). 

December 31 December 31

2017 2016

Salaries and benefits $ 1,222,793 $ 1,235,244

Outside services 265,514 265,492

Travel 88,786 92,126

Buildings and leased space 88,465 93,518

Software/Hardware maintenance 77,911 64,757

Depreciation of property and equipment 53,639 50,403

Other 26,362 26,191

Subtotal 1,823,470 1,827,731

Less: Expenses billed to resolution entities and others (84,075) (112,720)

Total $ 1,739,395 $ 1,715,011

11. Provision for Insurance Losses

The provision for insurance losses was a negative $183

million for 2017, compared to negative $1.6 billion for 2016.

The negative provision for 2017 primarily resulted from a

$969 million decrease to the estimated losses for prior year

failures offset by a $718 million increase for higher-thananticipated estimated losses for current year failures, as
2017

FINANCIAL SECTION 109

NOTES TO THE FINANCIAL STATEMENTS

11

compared to the contingent liability at year-end 2016. The 

2016 negative provision was almost fully attributable to 

reductions in estimated losses for prior year 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. Summarized 

below are the three primary components that comprise the 

$969 million decrease in estimated losses for prior year 

failures. 

• Receivership shared-loss liability cost estimates

decreased $420 million primarily due to lowerthan-anticipated losses on covered assets,

reductions in shared-loss cost estimates from the

early termination of SLAs during the year, and

unanticipated recoveries from SLAs where the

commercial loss coverage has expired but the

recovery period remains active.

• Receiverships received, or are expected to receive,

$383 million of unanticipated recoveries from tax

refunds, litigation settlements, and professional

liability claims. These recoveries are typically not

recognized in the allowance for loss estimate until

the cash is received by receiverships, or

collectability is assured, since significant

uncertainties surround their recovery.

• Reductions in receivership contingent legal and

representation and warranty liabilities, as well as

projected future receivership expenses, resulted in a

loss estimate decrease of $124 million.

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

an automatic contribution of 1 percent of pay and an 

additional matching contribution up to 4 percent of pay. 

The expenses for these plans are presented in the table 

below (dollars in thousands). 

December 31 December 31

2017 2016

Civil Service Retirement System $ 2,644 $ 3,230

Federal Employees Retirement System (Basic Benefit) 111,228 111,368

Federal Thrift Savings Plan 35,180 34,966

FDIC Savings Plan 39,004 37,499

Total $ 188,056 $ 187,063

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 (dollars in thousands). 
ANNUAL REPORT

110 FINANCIAL SECTION

DEPOSIT INSURANCE FUND

12

December 31 December 31

2017 2016

Accumulated postretirement benefit obligation 

recognized in Postretirement benefit liability $ 259,316 $ 232,201

Amounts recognized in accumulated other 

comprehensive income: Unrealized postretirement 

benefit loss

Cumulative net actuarial loss $ (44,630) $ (24,212)

Prior service cost (960) (1,535)

 Total $ (45,590) $ (25,747)

Amounts recognized in other comprehensive income: 

Unrealized postretirement benefit (loss) gain

Actuarial (loss) gain $ (20,418) $ 7,726

Prior service credit 575 575

 Total $ (19,843) $ 8,301

Net periodic benefit costs recognized in Operating 

expenses

 Service cost $ 4,098 $ 3,882

 Interest cost 9,241 8,440

 Net amortization out of other comprehensive

 income 654 1,567

 Total $ 13,993 $ 13,889

Expected amortization of accumulated other comprehensive 

income into net periodic benefit cost over the next year is 

shown in the table below (dollars in thousands). 

December 31, 2018

Prior service costs $ 575

Net actuarial loss 1,491

Total $ 2,066

The annual postretirement contributions and benefits paid 

are included in the table below (dollars in thousands). 

December 31 December 31

2017 2016

Employer contributions $ 6,720 $ 6,388

Plan participants' contributions $ 788 $ 739

Benefits paid $ (7,508) $ (7,126)

The expected contributions, for the year ending December 

31, 2018, are $8.1 million. Expected future benefit payments 

for each of the next 10 years are presented in the following 

table (dollars in thousands). 

2018 2019 2020 2021 2022 2023-2027

$7,354 $7,809 $8,323 $8,846 $9,388 $55,733

Assumptions used to determine the amount of the 

accumulated postretirement benefit obligation and the net 

periodic benefit costs are summarized as follows. 

December 31 December 31

2017 2016

Discount rate for future benefits (benefit obligation) 4.03% 4.67%

Rate of compensation increase 3.44% 3.90%

Discount rate (benefit cost) 4.67% 4.29%

Dental health care cost-trend rate

 Assumed for next year 4.00% 4.50%

 Ultimate 4.00% 4.50%

 Year rate will reach ultimate 2018 2017

13. Commitments and Off-Balance-Sheet Exposure

COMMITMENTS:

Leased Space

The DIF leased space expense totaled $44 million and $48

million for 2017 and 2016, respectively. The FDIC’s lease 

commitments total $157 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 (dollars in thousands). 

2018 2019 2020 2021 2022 2023/Thereafter

$45,337 $41,069 $25,914 $18,325 $9,443 $17,289

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, 2017 and December 31, 

2016, estimated insured deposits for the DIF were $7.1

trillion and $6.9 trillion, respectively.
2017

FINANCIAL SECTION 111

NOTES TO THE FINANCIAL STATEMENTS

13

14. 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 (dollars 

in millions). 

December 31, 2017 Quoted Prices in

Active Markets for Significant Other Significant

Identical Assets Observable Inputs Unobservable Inputs Total Assets

(Level 1) (Level 2) (Level 3) at Fair Value

Assets

 Cash equivalents1 $ 1,820 $ 1,820

Available-for-Sale Debt Securities

 Investment in U.S. Treasury securities2 83,303 83,303

Total Assets $ 85,123 $ 0 $ 0 $ 85,123

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

at prevailing interest rates established by the Treasury’s Bureau of the Fiscal Service.

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

for federal government entities.

December 31, 2016 Quoted Prices in

Active Markets for Significant Other Significant

Identical Assets Observable Inputs Unobservable Inputs Total Assets

(Level 1) (Level 2) (Level 3) at Fair Value

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

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

at prevailing interest rates established by the Treasury’s Bureau of the Fiscal Service.

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

for federal government entities.

15. Information Relating to the Statement of Cash Flows

The following table presents a reconciliation of net income 

to net cash from operating activities (dollars in thousands).

December 31 December 31

2017 2016

Operating Activities

Net Income: $ 10,105,456 $ 10,523,517

Adjustments to reconcile net income to net cash provided

 by operating activities:

Amortization of U.S. Treasury securities 543,445 977,245

Treasury Inflation-Protected Securities inflation adjustment (8,564) (5,578)

Depreciation on property and equipment 53,639 50,403

Loss on retirement of property and equipment 386 1,607

Provision for insurance losses (183,149) (1,567,950)

Unrealized (loss) gain on postretirement benefits (19,843) 8,301

Change in Assets and Liabilities:

 Decrease (Increase) in assessments receivable, net 31,881 (493,795)

 Decrease (Increase) in interest receivable and other assets 21,171 (107,749)

 Decrease in receivables from resolutions 1,620,258 5,437,632

 (Decrease) in accounts payable and other liabilities (1,352) (34,249)

 Increase (Decrease) in postretirement benefit liability 27,116 (799)

 Increase in contingent liabilities - guarantee payments and litigation losses 31,927 2,389

 (Decrease) in liabilities due to resolutions (870,115) (2,345,820)

Net Cash Provided by Operating Activities $ 11,352,256 $ 12,445,154

16. Subsequent Events

Subsequent events have been evaluated through February 8, 

2018, the date the financial statements are available to be 

issued. Based on management’s evaluation, there were no 

subsequent events requiring disclosure.
ANNUAL REPORT

112 FINANCIAL SECTION

FSLIC RESOLUTION FUND (FRF)

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Balance Sheet 

As of December 31

(Dollars in Thousands) 2017 2016

ASSETS

 Cash and cash equivalents $ 885,380 $ 874,174

 Other assets, net 497 4,391

Total Assets $ 885,877 $ 878,565

LIABILITIES

 Accounts payable and other liabilities $ 92 $ 26

Total Liabilities 92 26

RESOLUTION EQUITY (NOTE 5)

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

 Accumulated deficit (124,603,532) (124,610,778)

Total Resolution Equity 885,785 878,539

Total Liabilities and Resolution Equity $ 885,877 $ 878,565

The accompanying notes are an integral part of these financial statements.
2017

FINANCIAL SECTION 113

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) 2017 2016

REVENUE

 Interest on U.S. Treasury securities $ 7,065 $ 2,070

 Other revenue 764 3,278

Total Revenue 7,829 5,348

EXPENSES AND LOSSES

 Operating expenses 562 2,725

 Losses related to thrift resolutions (Note 6) 21 (993)

 Recovery of tax benefits 0 (3,750)

Total Expenses and Losses 583 (2,018)

Net Income 7,246 7,366

Accumulated Deficit - Beginning (124,610,778) (124,618,144)

Accumulated Deficit - Ending $ (124,603,532) $ (124,610,778)

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

114 FINANCIAL SECTION

FSLIC RESOLUTION FUND (FRF)

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Statement of Cash Flows

For the Years Ended December 31

(Dollars in Thousands) 2017 2016

OPERATING ACTIVITIES

Provided by:

Interest on U.S. Treasury securities $ 7,065 $ 2,070

Recovery of tax benefits 3,750 0

Recoveries from thrift resolutions 1,001 2,270

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

Miscellaneous receipts 4 0

Used by:

Operating expenses (555) (3,363)

Miscellaneous disbursements (59) (2)

Net Cash Provided by Operating Activities 11,206 3,137

Net Increase in Cash and Cash Equivalents 11,206 3,137

Cash and Cash Equivalents - Beginning 874,174 871,037

Cash and Cash Equivalents - Ending $ 885,380 $ 874,174

The accompanying notes are an integral part of these financial statements.
2017

FINANCIAL SECTION 115

FSLIC RESOLUTION FUND

NOTES TO THE FINANCIAL STATEMENTS 

December 31, 2017 and 2016 

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; 

• one remaining issue 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); 

• a potential tax liability associated with a fully 

adjudicated goodwill litigation case (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. 
ANNUAL REPORT

116 FINANCIAL SECTION

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 that could not be liquidated during the 

life of the receiverships due to restrictive clauses and other 

impediments. 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, as administrator of the FRF, 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 

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. 

APPLICATION OF RECENT ACCOUNTING STANDARDS 

In January 2016, the Financial Accounting Standards Board 

(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 ASU permits nonpublic entities to exclude 

disclosures related to the fair value of financial instruments 

measured at amortized cost. The FDIC has early adopted 

this provision and Note 7 was revised accordingly. The FDIC 

has determined that the other provisions of the ASU, which 

are effective for the FRF beginning on January 1, 2019, will 

not have a material effect on the financial position of the FRF 

or its results of operations. 

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 FDIC 

has determined the ASU, which is effective for the FRF 

beginning on January 1, 2021, will not have a material effect 

on the financial position of the FRF or its results of 

operations. 

Other recent accounting pronouncements have been 

deemed not applicable or material to the financial 

statements as presented. 
2017

FINANCIAL SECTION 117

 

 

NOTES TO THE FINANCIAL STATEMENTS

3

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. 

The last remaining goodwill case was resolved in 2015. 

However, 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 

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, 

2017, the maximum exposure on this indemnification is the 

current unpaid principal balance of the remaining 18 multifamily loans totaling $919 thousand. Based on a contingent 

liability assessment of this portfolio as of September 30, 

2017, the majority of the loans are at least 90 percent 

amortized, and all are scheduled to mature within one to 

three 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, 

2017 and 2016. 

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 34 

monitoring agencies to oversee these LURAs. As of 

December 31, 2017, 24 monitoring agencies 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, 2017 and 2016, no contingent liability 

for this indemnification has been recorded. 
ANNUAL REPORT

118 FINANCIAL SECTION

FSLIC RESOLUTION FUND 

4

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 

(dollars in thousands). 

December 31, 2017

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 (43,022,301) (81,581,231) (124,603,532)

Total Resolution 

Equity $ $ 842,679 $ 43,106 885,785

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

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. Through December 31, 2017, the FRF-FSLIC 

received a total of $2.3 billion in goodwill appropriations, the 

effect of which increased contributed capital. 

Through December 31, 2017, 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 $21 

thousand for 2017, compared to negative $993 thousand for 

2016. The negative balance in 2016 was due to a $1 million 

reduction in estimated losses for better-than-anticipated 

recoveries upon disposition of an asset. 

7. Fair Value of Financial Instruments

At December 31, 2017 and 2016, the FRF’s financial assets 

measured at fair value on a recurring basis are cash 

equivalents (see Note 2) of $842 million and $831 million, 

respectively. Cash equivalents are Special U.S. Treasury 

Certificates with overnight maturities valued at prevailing 

interest rates established by the U.S. Treasury’s 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. 
2017

FINANCIAL SECTION 119

 

 

NOTES TO THE FINANCIAL STATEMENTS

5

8. Information Relating to the Statement of Cash Flows 

The following table presents a reconciliation of net income 

to net cash from operating activities (dollars in thousands). 

December 31 December 31

2017 2016

Operating Activities

Net Income: $ 7,246 $ 7,366

Change in Assets and 

Liabilities:

Decrease (Increase) in 

other assets 3,894 (3,631)

Increase (Decrease) in 

accounts payable and 

other liabilities 66 (598)

Net Cash Provided by 

Operating Activities $ 11,206 $ 3,137

9. Subsequent Events 

Subsequent events have been evaluated through February 8, 

2018, the date the financial statements are available to be 

issued. Based on management’s evaluation, there were no 

subsequent events requiring disclosure. 
ANNUAL REPORT

120 FINANCIAL SECTION

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 2017 and 2016 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, 2017, and 2016, are presented fairly, in all material respects, in accordance 

with U.S. generally accepted accounting principles;

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

relevant to the DIF and to the FRF as of December 31, 2017; and

• with respect to the DIF and to the FRF, no reportable noncompliance for 2017 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 information included with the financial 

statements;

2 (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, 2017, and 2016; 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, 2017, and 2016; 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, 2017, 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 2017. 

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. 
2017

FINANCIAL SECTION 121

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) its assessment about the effectiveness of 

internal control over financial reporting as of December 31, 2017, 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, and evaluating and testing the design and operating 

effectiveness of internal control over financial reporting based on the assessed risk. Our audit of 

internal control also considered FDIC’s process for evaluating and reporting on internal control 

 

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. 
ANNUAL REPORT

122 FINANCIAL SECTION

GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

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, 2017, and 2016, and the results of its operations and its cash 

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

principles, and

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

position as of December 31, 2017, and 2016, 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, 

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

relevant to the DIF as of December 31, 2017, based on criteria established under FMFIA

and 

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

relevant to the FRF as of December 31, 2017, based on criteria established under FMFIA.
2017

FINANCIAL SECTION 123

GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

FDIC made progress during 2017 in addressing a significant deficiency6 that we reported in our 

2016 audit.7 Specifically, FDIC sufficiently addressed the deficiencies in information systems 

access and configuration management controls such that we no longer consider the remaining 

control deficiencies in this area, individually or collectively, to represent a significant deficiency 

as of December 31, 2017.

During our 2017 audit, 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.

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 to perform 

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

applicable laws, regulations, contracts, and grant agreements. 

 

6

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting 

that is less severe than a material weakness, yet important enough to merit attention by those charged with 

governance. 

7

GAO, Financial Audit: Federal Deposit Insurance Corporation Funds’ 2016 and 2015 Financial Statements, GAO-17-

299R (Washington, D.C.: Feb. 15, 2017). 
ANNUAL REPORT

124 FINANCIAL SECTION

GOVERNMENT ACCOUNTABILITY OFFICE 

AUDITOR’S REPORT (continued)

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 2017 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.

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. Further, FDIC stated that it remains committed to ensuring sound financial 

management remains 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, 2018
2017

FINANCIAL SECTION 125

MANAGEMENT’S REPORT ON INTERNAL CONTROL 

OVER FINANCIAL REPORTING

Appendix I
ANNUAL REPORT

126

MANAGEMENT’S RESPONSE TO THE AUDITOR’S REPORT

Appendix II

FINANCIAL SECTION