Financial I Section V.

FINANCIAL SECTION 67
ANNUAL REPORT 2013

68 FINANCIAL SECTION 

DEPOSIT INSURANCE FUND (DIF)

FEDERAL DEPOSIT INSURANCE CORPORATION

DEPOSIT INSURANCE FUND BALANCE SHEET AT DECEMBER 31

Dollars in Thousands

2013 2012

Assets

Cash and cash equivalents $3,543,270 $3,100,361 

Investment in U.S. Treasury obligations (Note 3) 38,510,500 34,868,688 

Trust preferred securities (Note 10) 0 2,263,983 

Assessments receivable, net (Note 8) 2,227,735 1,006,852 

Interest receivable on investments and other assets, net 511,428 433,592 

Receivables from resolutions, net (Note 4) 16,344,991 23,119,554 

Property and equipment, net (Note 5) 377,223 392,880 

Total Assets $61,515,147 $65,185,910 

Liabilities 

Accounts payable and other liabilities $300,575 $349,620 

Unearned revenue - prepaid assessments (Note 8) 0 1,576,417 

Refunds of prepaid assessments (Note 8) 0 5,675,199 

Liabilities due to resolutions (Note 6) 12,625,982 21,173,785 

Postretirement benefit liability (Note 13) 193,591 224,225 

Contingent liabilities for: 

Anticipated failure of insured institutions (Note 7) 1,198,960 3,220,697 

Litigation losses (Note 7) 5,200 8,200 

Total Liabilities 14,324,308 32,228,143 

Commitments and off-balance-sheet exposure (Note 14)

Fund Balance

Accumulated Net Income 47,186,974 32,682,237 

Accumulated Other Comprehensive Income

Unrealized gain on U.S. Treasury investments, net (Note 3) 20,215 33,819 

Unrealized postretirement benefit loss (Note 13) (16,350) (60,448)

Unrealized gain on trust preferred securities (Note 10) 0 302,159 

Total Accumulated Other Comprehensive Income 3,865 275,530 

Total Fund Balance 47,190,839 32,957,767 

Total Liabilities and Fund Balance $61,515,147 $65,185,910 

The accompanying notes are an integral part of these financial statements.
FINANCIAL SECTION 69

DEPOSIT INSURANCE FUND (DIF)

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

FEDERAL DEPOSIT INSURANCE CORPORATION

DEPOSIT INSURANCE FUND STATEMENT OF INCOME AND FUND BALANCE 

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Revenue

Assessments (Note 8) $9,734,173 $12,397,022 

Interest on U.S. Treasury obligations 103,363 159,214 

Systemic risk revenue 0 (161,135)

Other revenue (Note 9) 163,154 6,127,211 

Gain on sale of trust preferred securities (Note 10) 458,176 0 

Total Revenue 10,458,866 18,522,312 

Expenses and Losses

Operating expenses (Note 11) 1,608,717 1,777,513 

Systemic risk expenses 0 (161,135)

Provision for insurance losses (Note 12) (5,659,388) (4,222,595)

Insurance and other expenses 4,799 7,282 

Total Expenses and Losses (4,045,872) (2,598,935)

Net Income 14,504,738 21,121,247 

Other Comprehensive Income

Unrealized loss on U.S. Treasury investments, net (13,604) (13,878)

Unrealized postretirement benefit gain (loss) (Note 13) 44,097 (26,886)

Unrealized (loss) gain on trust preferred securities (Note 10) (302,159) 50,752 

Total Other Comprehensive (Loss) Income (271,666) 9,988 

Comprehensive Income 14,233,072 21,131,235 

Fund Balance - Beginning 32,957,767 11,826,532 

Fund Balance - Ending $47,190,839 $32,957,767
ANNUAL REPORT 2013

70 FINANCIAL SECTION 

DEPOSIT INSURANCE FUND (DIF)

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

FEDERAL DEPOSIT INSURANCE CORPORATION

DEPOSIT INSURANCE FUND STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Operating Activities

Provided by:

Assessments $7,111,902 $1,525,414 

Interest on U.S. Treasury obligations 1,080,157 1,088,697 

Dividends and interest on trust preferred securities 154,393 360,754 

Recoveries from financial institution resolutions 5,696,453 4,937,738 

Miscellaneous receipts 79,773 69,285 

Used by:

Operating expenses (1,558,229) (1,703,278)

Disbursements for financial institution resolutions (3,857,214) (8,998,978)

Refunds of prepaid assessments (Note 8) (5,850,135) 0 

Temporary Liquidity Guarantee Program debt obligations 0 (117,708)

Dividends and interest on trust preferred securities transferred to U.S. Treasury 0 (182,754)

Miscellaneous disbursements (17,228) (15,030)

Net Cash Provided (Used) by Operating Activities 2,839,872 (3,035,860)

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations 27,704,523 32,132,623 

Sale of U.S. Treasury obligations (Note 3) 0 2,554,781 

Sale of trust preferred securities (Note 10) 2,420,000 0 

Used by:

Purchase of property and equipment (57,390) (67,344)

Purchase of U.S. Treasury obligations (32,464,096) (33,388,751)

Net Cash (Used) Provided by Investing Activities (2,396,963) 1,231,309 

Net Increase (Decrease) in Cash and Cash Equivalents 442,909 (1,804,551)

Cash and Cash Equivalents - Beginning 3,100,361 4,904,912 

Cash and Cash Equivalents - Ending $3,543,270 $3,100,361
FINANCIAL SECTION 71

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 

operations of the FDIC are generally found in the Federal 

Deposit Insurance (FDI) Act, as amended (12 U.S.C. 1811, 

et seq). In carrying out the purposes of the FDI Act, 

the FDIC, as administrator of the Deposit Insurance 

Fund (DIF), insures the deposits of banks and savings 

associations (insured depository institutions) from loss due 

to institution failures. In cooperation with other federal and 

state agencies, the FDIC promotes the safety and soundness 

of insured depository institutions 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. 

The FDIC is also the administrator of the FSLIC Resolution 

Fund (FRF). The FRF is a resolution fund 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. The DIF and the FRF are maintained 

separately by the FDIC to support their respective 

functions. 

Pursuant to the Dodd-Frank Wall Street Reform and 

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

FDIC is the manager of 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 

failing financial company, such as 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 insured depository 

institutions (IDIs) or solvent depository institution 

holding companies (including affiliates) upon the systemic 

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 limits the FDIC’s systemic risk 

determination authority under section 13 of the FDI Act to 

IDIs for which the FDIC has been appointed receiver. Prior 

to this change, the authority permitted open bank assistance 

and the creation of the Temporary Liquidity Guarantee 

Program (TLGP) that expired on December 31, 2012 

(see Note 9).

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 

Notes to the Financial Statements

DEPOSIT INSURANCE FUND 

December 31, 2013 and 2012
ANNUAL REPORT 2013

72 FINANCIAL SECTION 

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

(unless a systemic risk determination is made). 

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 

$146.0 billion and $132.9 billion as of December 31, 2013 and 

2012, respectively. 

OPERATIONS OF RESOLUTION ENTITIES

The FDIC is responsible for managing and disposing of 

the assets of failed institutions in an orderly and efficient 

manner. The assets held by receiverships, pass-through 

conservatorships, and bridge institutions (collectively, 

resolution entities), and the claims against them, are 

accounted for separately from the DIF assets and liabilities 

to ensure that proceeds from these entities are distributed 

in accordance with applicable laws and regulations. 

Accordingly, income and expenses attributable to resolution 

entities are accounted for as transactions of those entities. 

Resolution entities are billed by the FDIC for services 

provided on their behalf.

2. SUMMARY OF SIGNIFICANT 

ACCOUNTING POLICIES

GENERAL

These financial statements pertain to 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). As permitted by the Federal 

Accounting Standards Advisory Board’s Statement of 

Federal Financial Accounting Standards 34, The Hierarchy 

of Generally Accepted Accounting Principles, Including 

the Application of Standards Issued by the Financial 

Accounting Standards Board, the FDIC prepares financial 

statements in accordance with standards promulgated 

by the Financial Accounting Standards Board (FASB). 

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

Management makes estimates and assumptions that affect 

the amounts reported in the financial statements and 

accompanying notes. 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 (including shared-loss 

agreements); guarantee obligations for structured 

transactions; the postretirement benefit obligation; and 

the estimated losses for anticipated failures, litigation, 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 OBLIGATIONS

The DIF funds are required to be invested in obligations 

of the United States or in obligations guaranteed as to 

principal and interest by the United States. The Secretary 

of the Treasury must approve all such investments in excess 

of $100,000 and has granted the FDIC approval to invest 

the DIF funds only in U.S. Treasury obligations that are 

purchased or sold exclusively through the Bureau of the 

Fiscal Service’s Government Account Series program.

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

classified as available-for-sale. Securities designated as 

available-for-sale are shown at fair value. Unrealized gains 

and losses are reported as other comprehensive income. 

Realized gains and losses are included in the Statement of 
FINANCIAL SECTION 73

Income and Fund Balance as components of net income. 

Income on securities is calculated and recorded on a daily 

basis using the effective interest or straight-line method 

depending on the maturity of the security. 

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 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. At the 

subsequent quarter-end, the estimated revenue amounts are 

adjusted when actual assessments for the covered period 

are determined for each institution (see Note 8). 

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. Personal computer equipment is depreciated on a 

straight-line basis over a three-year estimated useful life.

REPORTING ON VARIABLE INTEREST ENTITIES

FDIC receiverships engaged in structured transactions, 

some of which resulted in the issuance of note obligations 

that were guaranteed by the FDIC in its corporate capacity 

(see Note 7, Contingent Liabilities for: FDIC Guaranteed 

Debt of Structured Transactions). As the guarantor of note 

obligations for several structured transactions, the FDIC 

in its corporate capacity is the holder of a variable interest 

in a number of variable interest entities (VIEs). The FDIC 

conducts a qualitative assessment of its relationship with 

each VIE as required by Accounting Standards Codification 

(ASC) Topic 810, Consolidation. These assessments 

are conducted to determine if the FDIC in its corporate 

capacity has 1) power to direct the activities that most 

significantly impact 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 ASC 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 which 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 limited 

liability company (LLC) or trust 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 results of each analysis identified a party other than the 

FDIC in its corporate capacity as 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 in its corporate capacity to 

be characterized as a primary beneficiary to any VIE 

with which it was involved as of December 31, 2013 and 

2012. Therefore, consolidation is not required for the 

2013 and 2012 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 Corporation if payments are made 

on guarantee claims. Ongoing analyses will be required in 

order to monitor consolidation implications under ASC 810.

The FDIC’s involvement with VIEs, in its corporate capacity, 

is fully described in Note 7.

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. 
ANNUAL REPORT 2013

74 FINANCIAL SECTION 

PRESENTATION OF STATEMENT OF CASH FLOWS

To enhance cash flow information for operating activities of 

the DIF, in 2013, the FDIC changed the method of presenting 

the DIF’s Statement of Cash Flows from the indirect method 

to the direct method, which is preferable and is encouraged 

by the Financial Accounting Standards Board. Accordingly, 

the DIF’s 2012 Statement of Cash Flows has been 

conformed to this method of presentation for comparative 

purposes. For 2013 and 2012, the reconciliation of net 

income to net cash from operating activities is presented in 

Note 16.

DISCLOSURE ABOUT RECENT RELEVANT 

ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements have been deemed 

not applicable or material to the financial statements as 

presented.

3. INVESTMENT IN U.S. TREASURY 

OBLIGATIONS

As of December 31, 2013 and 2012, investments in U.S. 

Treasury obligations, were $38.5 billion and $34.9 billion, 

respectively. As of December 31, 2013 and 2012, the DIF 

held $4.6 billion and $5.3 billion, respectively, of Treasury 

Inflation-Protected Securities (TIPS), which are indexed to 

increases or decreases in the Consumer Price Index for All 

Urban Consumers (CPI-U).

In 2012, the FDIC sold securities designated as availablefor-sale for total proceeds of $2.6 billion. The gross realized 

gains and losses on these sales were $878 thousand and 

$241 thousand, respectively, which resulted in a total net 

gain of $637 thousand. The cost of these securities sold 

was determined based on specific identification. Since 

these securities were purchased on behalf of the TLGP, the 

realized gain was recognized in the “Systemic risk revenue” 

line item on the Statement of Income and Fund Balance 

(see Note 9).
FINANCIAL SECTION 75

TOTAL INVESTMENT IN U.S. TREASURY OBLIGATIONS AT DECEMBER 31, 2013

Dollars in Thousands

Maturity

Yield at 

Purchase1

Face 

Value

Net 

Carrying 

Amount

Unrealized 

Holding 

Gains

Unrealized 

Holding 

Losses

Fair 

Value

U.S. Treasury notes and bonds

Within 1 year 0.23% $14,300,000 $14,552,418 $4,167 $(31) $14,556,554 

After 1 year 

through 5 years 

0.70% 18,351,209 19,382,202 24,408 (14,013) 19,392,597 

U.S. Treasury Inflation-Protected Securities

Within 1 year -0.86% 2,150,000 2,464,330 1,050 (1,130) 2,464,250 

After 1 year 

through 5 years 

-0.99% 1,800,000 2,091,335 5,788 (24) 2,097,099 

Total $36,601,209 $38,490,285 $35,413 $(15,198)2 $38,510,500 

1 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 longterm 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 2013.

2 The unrealized losses occurred as a result of temporary changes in market interest rates. These unrealized losses occurred over a period of less 

than a year. 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, 2013.

TOTAL INVESTMENT IN U.S. TREASURY OBLIGATIONS AT DECEMBER 31, 2012

Dollars in Thousands

Maturity

Yield at

Purchase1

Face

Value

Net

Carrying

Amount

Unrealized

Holding

Gains

Unrealized

Holding

Losses

Fair

Value

U.S. Treasury notes and bonds

Within 1 year 0.34% $24,800,000 $25,228,393 $19,871 $0 $25,248,264 

After 1 year 

through 5 years 

0.32% 4,050,000 4,341,814 4,569 0 4,346,383 

U.S. Treasury Inflation-Protected Securities

Within 1 year -0.86% 1,650,000 1,813,291 0 (9,788)2 1,803,503 

After 1 year 

through 5 years 

-0.87% 2,900,000 3,451,371 19,167 0 3,470,538 

Total $33,400,000 $34,834,869 $43,607 $(9,788) $34,868,688 

1

 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 longterm 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 2012. 

2

 The unrealized losses occurred as a result of temporary changes in market interest rates. These unrealized losses occurred over a period of less 

than a year. The FDIC does not intend to sell the TIPS and is not likely to be required to sell them before their maturity in 2013, thus, the FDIC 

does not consider these securities to be other than temporarily impaired at December 31, 2012.
ANNUAL REPORT 2013

76 FINANCIAL SECTION 

4. RECEIVABLES FROM 

RESOLUTIONS, NET

RECEIVABLES FROM RESOLUTIONS,

NET AT DECEMBER 31

Dollars in Thousands

2013 2012

Receivables from 

closed banks

$106,291,226 $116,940,999 

Allowance for losses (89,946,235) (93,821,445)

Total $16,344,991 $23,119,554

The receivables from resolutions result from payments 

made by the DIF to cover obligations to insured depositors 

(subrogated claims), advances to resolution entities for 

working capital, and administrative expenses paid on 

behalf of resolution entities. Any related allowance for 

loss represents the difference between the funds advanced 

and/or obligations incurred and the expected repayment. 

Estimated future payments on losses incurred on assets 

sold to an acquiring institution under a shared-loss 

agreement (SLA) are factored into the computation of the 

expected repayment. Assets held by DIF resolution entities 

(including structured transaction-related assets; see Note 7) 

are the main source of repayment of the DIF’s receivables 

from resolutions. 

As of December 31, 2013, there were 479 active 

receiverships, including 24 established in 2013. As of 

December 31, 2013 and 2012, DIF resolution entities held 

assets with a book value of $38.4 billion and $53.5 billion, 

respectively (including $27.1 billion and $36.5 billion, 

respectively, of cash, investments, receivables due from 

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

the current asset book value of $38.4 billion is held by 

resolution entities established since the beginning of 2008.

Estimated cash recoveries from the management and 

disposition of assets that are used to determine the 

allowance for losses are based on asset recovery rates from 

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

asset valuation data, aggregate asset valuation data on 

several recently failed or troubled institutions, sampled 

asset valuation data, and empirical asset recovery data 

based on failures as far back as 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 and recoveries on 

the covered 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 

2013 financial reporting, the shared-loss cost estimates 

were updated for the majority (98% or 285) of the 290 

active SLAs; the remaining 5 were based on recent loss 

estimates. The updated shared-loss cost projections for the 

larger agreements were primarily based on new third-party 

valuations estimating the cumulative loss of covered 

assets. The remaining agreements were stratified by either 

receivership age or geographic location. A random sample 

of institutions within each stratum was selected for new 

third-party loss estimations, and valuation results from the 

sample institutions were aggregated and extrapolated to 

institutions within the like stratum based on asset type and 

performance status.

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. 

Continuing economic uncertainties could cause the 

DIF’s actual recoveries to vary significantly from current 

estimates. 

WHOLE BANK PURCHASE AND ASSUMPTION 

TRANSACTIONS WITH SHARED-LOSS AGREEMENTS 

Since the beginning of 2008, the FDIC resolved 304 failures 

using whole bank purchase and assumption resolution 

transactions with accompanying SLAs on total assets 

of $216.6 billion purchased by the financial institution 

acquirers. The acquirer typically assumes all of the 
FINANCIAL SECTION 77

deposits and purchases essentially all of the assets of a 

failed institution. The majority of the commercial and 

residential loan assets are purchased under an SLA, where 

the FDIC agrees to share in future losses and recoveries 

experienced by the acquirer on those assets covered under 

the agreement. SLAs are used by the FDIC to keep assets 

in the private sector and to minimize disruptions to loan 

customers.

Losses on the covered assets are shared between the 

acquirer and the FDIC in its receivership capacity of the 

failed institution when losses occur through the sale, 

foreclosure, loan modification, or write-down of loans in 

accordance with the terms of the SLA. The majority of 

the agreements cover a five- to 10-year period with the 

receiver covering 80 percent of the losses incurred by 

the acquirer and the acquiring bank 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. As mentioned above, 

the estimated shared-loss liability is accounted for by the 

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

allowance for loss against the corporate receivable from the 

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

DIF receiverships satisfy these shared-loss payments using 

available liquidation funds and/or by drawing on amounts 

due from the DIF for funding the deposits assumed by the 

acquirer (see Note 6). 

As of December 31, 2013, 300 receiverships have made 

shared-loss payments totaling $26.4 billion. At December 

31, 2013 and 2012, estimates of additional payments by 

DIF receiverships over the duration of the SLAs were 

$12.3 billion and $18.1 billion, respectively, on total 

remaining covered assets of $78.2 billion and $103.7 billion, 

respectively.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the DIF 

to concentrations of credit risk are receivables from 

resolutions. The repayment of the DIF’s receivables from 

resolutions is primarily influenced by recoveries on assets 

held by DIF receiverships and payments on the covered 

assets under SLAs. The majority of the remaining assets 

in liquidation ($11.2 billion) and current shared-loss 

covered assets ($78.2 billion) which total $89.4 billion 

are concentrated in commercial loans ($40.1 billion), 

residential loans ($37.4 billion), securities ($2.8 billion), and 

structured transaction-related assets as described in Note 

7 ($7.5 billion). Most of the assets originated from failed 

institutions located in California ($27.1 billion), Florida 

($10.2 billion), Puerto Rico ($8.7 billion), Alabama ($6.8 

billion), Illinois ($6.6 billion) and Georgia ($6.3 billion).

5. PROPERTY AND EQUIPMENT, NET

PROPERTY AND EQUIPMENT, 

NET AT DECEMBER 31

Dollars in Thousands

2013 2012

Land $37,352 $37,352 

Buildings (including building and 

leasehold improvements)

314,775 313,221 

Application software (includes 

work-in-process)

149,115 135,059 

Furniture, fixtures, and equipment 142,621 152,280 

Accumulated depreciation (266,640) (245,032)

Total $377,223 $392,880 

The depreciation expense was $73 million and $76 million 

for 2013 and 2012, respectively.

6. LIABILITIES DUE TO RESOLUTIONS 

As of December 31, 2013 and 2012, the DIF recorded 

liabilities totaling $12.6 billion and $21.1 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 directly sending cash to the receivership to fund 

shared-loss and other expenses or by offsetting receivables 

from resolutions when the receivership declares a dividend. 

In addition, the DIF recorded liabilities of $29 million and 

$56 million in unpaid deposit claims related to multiple 

receiverships, which are offset by receivables included 

in the “Receivables from resolutions, net” line item of 

the Balance Sheet as of December 31, 2013 and 2012, 

respectively. The DIF pays these liabilities when the claims 

are approved. 
ANNUAL REPORT 2013

78 FINANCIAL SECTION 

7. CONTINGENT LIABILITIES FOR: 

ANTICIPATED FAILURE OF INSURED INSTITUTIONS

The DIF records a contingent liability and a loss provision 

for DIF-insured institutions that are likely to fail, absent 

some favorable event such as obtaining additional capital 

or merging, when the liability is probable and reasonably 

estimable. 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 continued to improve in 2013 at a 

gradual, steady pace. According to the quarterly financial 

data submitted by DIF-insured institutions, the industry 

reported total net income of $154.7 billion for full-year 2013, 

an increase of 9.6 percent over 2012. The downward trend 

in loan loss provisions that has coincided with the ongoing 

improvement in asset quality was responsible for most of 

the improvement in earnings. 

Losses to the DIF from failures that occurred in 2013 were 

lower than the contingent liability at the end of 2012, as 

the aggregate number and size of institution failures in 

2013 were less than anticipated. The removal from the 

contingent liability of institutions that did fail in 2013, as 

well as projected favorable trends in bank supervisory 

downgrade and failure rates, all contributed to a decline 

by $2.0 billion to $1.2 billion in the contingent liability for 

anticipated failures of insured institutions at December 31, 

2013.

In addition to the recorded contingent liabilities, the 

FDIC has identified risks in the financial services industry 

that could result in additional losses to the DIF, should 

potentially vulnerable insured institutions ultimately 

fail. As a result of these risks, the FDIC believes that it is 

reasonably possible that the DIF could incur additional 

estimated losses of approximately $3.0 billion as of year-end 

2013 as compared to $6.3 billion as of year-end 2012. The 

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

and market conditions and could differ materially from 

this estimate.

During 2013, 24 institutions failed with combined assets 

of $5.8 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, 

exposure to interest rate risk, reliance on short-term 

sources of funding, and limited opportunities for earnings 

growth will continue to stress the industry. Additionally, 

key risks continue to weigh on the economic outlook as 

well, including the impact of rising interest rates as they 

return to more normal levels; fiscal challenges at federal, 

state, and local levels; and global economic risks. 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 $5 million and $8 million for the 

DIF as of December 31, 2013 and 2012, respectively, and has 

determined that losses from unresolved cases totaling $125 

thousand are reasonably possible for year-end 2013.

OTHER CONTINGENCIES

IndyMac Federal Bank Representation and 

Indemnification Contingent Liability

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

Federal Bank (IMFB) and certain subsidiaries (collectively, 

sellers) sold substantially all of the assets, which included 

mortgage loans and servicing rights, of IMFB and its 

respective subsidiaries to OneWest Bank and its affiliates. 

The sellers made certain representations customarily made 

by commercial parties regarding the assets and agreed 

to indemnify the acquirers for losses incurred as a result 

of breaches of such representations, losses incurred as 

a result of the failure to obtain contractual counterparty 

consents to the sale, and third party claims arising from 

pre-sale acts and omissions of the sellers or the failed 

bank. The FDIC, in its corporate capacity, guaranteed the 

receivership’s indemnification obligations under the sale 

agreements. Until the periods for asserting claims under 

these arrangements have expired and all indemnification 

claims are quantified and paid, losses could continue to be 

incurred by the receivership and, in turn, the DIF.
FINANCIAL SECTION 79

The acquirers’ rights to assert claims to recover 

losses incurred as a result of breaches of loan seller 

representations extend out to March 19, 2014 for the Fannie 

Mae, Freddie Mac, and Ginnie Mae mortgage servicing 

portfolios (unpaid principal balance of $367 million at 

December 31, 2013 compared to $34.3 billion at December 

31, 2012) and to March 19, 2019 for the Fannie Mae and 

Ginnie Mae reverse mortgage servicing portfolios (unpaid 

principal balance of $15.2 billion at December 31, 2013 

compared to $16.2 billion at December 31, 2012).

On March 19, 2011, the acquirers’ rights to assert claims 

to recover losses incurred as a result of other third party 

claims and breaches of servicer representations expired. As 

of the expiration date of this claim period, notices relating 

to potential defects were received, but they require review 

to determine whether a valid defect exists and, if so, the 

identification and resolution of possible cure actions. It is 

highly unlikely that all of these potential defects will result 

in losses. Therefore, while additional potential losses 

relating to servicing representations may be incurred, those 

losses cannot currently be quantified.

The IndyMac receivership has paid cumulative claims 

totaling $15 million through December 31, 2013 and $14 

million through December 31, 2012. Additional claims 

asserted, but under review, were accrued in the amount 

of $7 million and $1 million as of December 31, 2013 and 

December 31, 2012, respectively. Review and evaluation 

is in process for approximately $32 million in reasonably 

possible liabilities with respect to alleged breaches of 

representations and warranties as of December 31, 2013 

and 2012. Potential losses relating to origination and 

servicing representations, which also cannot currently be 

quantified, may also be incurred under other agreements 

with investors.

As a result of existing origination and servicing 

representation provisions, the IndyMac receivership and 

the wholly-owned subsidiary Financial Freedom Senior 

Funding Corporation have repurchased loans with an 

aggregate principal balance of $308 million and $100 million 

respectively. Estimated losses of up to $48 million could 

be incurred on these portfolios. Because these loans have 

been repurchased and are now considered receivership 

or receivership subsidiary assets, the resulting estimated 

losses are reflected in the “Receivables from resolutions, 

net” line item on the Balance Sheet. 

The FDIC believes it is likely that additional losses 

will be incurred; however, quantifying the contingent 

liability associated with the representations and the 

indemnification obligations is subject to a number of 

uncertainties, including 1) borrower prepayment speeds, 

2) the occurrence of borrower defaults and resulting 

foreclosures and losses, 3) the assertion by third party 

investors of claims with respect to loans serviced for them, 

4) the existence and timing of discovery of breaches and 

the assertion of claims for indemnification for losses by the 

acquirer, 5) the compliance by the acquirer with certain loss 

mitigation and other conditions to indemnification, 6) third 

party sources of loss recovery (such as title companies and 

insurers), 7) the ability of the acquirer to refute claims from 

investors without incurring reimbursable losses, and 8) the 

cost to cure breaches and respond to third party claims. 

Because of these and other uncertainties that surround 

the liability associated with indemnifications and the 

quantification of possible losses, the FDIC has determined 

that, while additional losses are probable, the amount is 

not estimable. 

Purchase and Assumption Indemnification

In connection with purchase and assumption agreements 

for resolutions, the FDIC in its receivership capacity 

generally indemnifies the purchaser of a failed institution’s 

assets and liabilities in the event a third party asserts a 

claim against the purchaser unrelated to the explicit assets 

purchased or liabilities assumed at the time of failure. The 

FDIC in its corporate capacity is a secondary guarantor 

if a receivership is unable to pay. These indemnifications 

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

institution failure. The FDIC is unable to estimate the 

maximum potential liability for these types of guarantees 

as the agreements do not specify a maximum amount and 

any payments are dependent upon the outcome of future 

contingent events, the nature and likelihood of which 

cannot be determined at this time. During 2013 and 2012, 

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.
ANNUAL REPORT 2013

80 FINANCIAL SECTION 

FDIC Guaranteed Debt of Structured Transactions

The FDIC as receiver uses three types of structured 

transactions to dispose of certain performing and 

non-performing residential mortgage loans, commercial 

loans, construction loans, and mortgage-backed securities 

held by the receiverships. The three types of structured 

transactions are 1) limited liability companies (LLCs), 2) 

securitizations, and 3) structured sale of guaranteed notes 

(SSGNs). 

LLCs

Under the LLC structure, the FDIC in its receivership 

capacity contributes a pool of assets to a newly-formed 

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

some of the equity in the LLC. The day-to-day management 

of the LLC transfers to the highest bidder along with the 

purchased equity interest. In many instances, the FDIC in 

its corporate capacity guarantees notes issued by the LLCs. 

In exchange for a guarantee, the DIF receives a guarantee 

fee in either 1) a lump-sum, up-front payment based on the 

estimated duration of the note or 2) a monthly payment 

based on a fixed percentage multiplied by the outstanding 

note balance. The terms of these guarantee agreements 

generally stipulate that all cash flows received from the 

entity’s collateral be used to pay, in the following order, 1) 

operational expenses of the entity, 2) the FDIC’s contractual 

guarantee fee, 3) the guaranteed notes (or, if applicable, 

fund the related defeasance account for payoff of the notes 

at maturity), and 4) the equity investors. If the FDIC is 

required to perform under these guarantees, it acquires an 

interest in the cash flows of the LLC equal to the amount of 

guarantee payments made plus accrued interest thereon. 

Once all expenses have been paid, the guaranteed notes 

have been satisfied, and the FDIC has been reimbursed for 

any guarantee payments, the equity holders receive any 

remaining cash flows. 

Since 2009, private investors have purchased a 40- to 

50-percent ownership interest in the LLC structures for 

$1.6 billion in cash and the LLCs issued notes of $4.4 

billion to the receiverships to partially fund the purchase 

of the assets. The receiverships hold the remaining 50- to 

60-percent equity interest in the LLCs and, in most cases, 

the guaranteed notes. The FDIC in its corporate capacity 

guarantees the timely payment of principal and interest due 

on the notes. The terms of the note guarantees extend until 

the earlier of 1) payment in full of the notes or 2) two years 

following the maturity date of the notes. The note with the 

longest term matures in 2020. In the event of note payment 

default, the FDIC as guarantor is entitled to exercise or 

cause the exercise of certain rights and remedies including: 

1) accelerating the payment of the unpaid principal amount 

of the notes; 2) selling the assets held as collateral; or 3) 

foreclosing on the equity interests of the debtor. 

Securitizations and SSGNs

Securitizations and SSGNs (collectively, “trusts”) are 

transactions in which certain assets or securities from 

failed institutions are pooled and transferred into a trust 

structure. The trusts issue 1) senior and/or subordinated 

debt instruments and 2) owner trust or residual certificates 

collateralized by the underlying mortgage-backed securities 

or loans. 

Since 2010, private investors purchased the senior 

notes issued by the trusts for $6.2 billion in cash. The 

receiverships hold 100 percent of the subordinated debt 

instruments and owner trust or residual certificates. 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. In exchange for the 

guarantee, the DIF receives a monthly payment based 

on a fixed percentage multiplied by the outstanding note 

balance. These guarantee agreements generally stipulate 

that all cash flows received from the entity’s collateral be 

used to pay, in the following order, 1) operational expenses 

of the entity, 2) the FDIC’s contractual guarantee fee, 

3) interest on the guaranteed notes, 4) principal of the 

guaranteed notes, and 5) the holders of the subordinated 

notes and owner trust or residual certificates. 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 thereon. 

Once all expenses have been paid, the guaranteed notes 

have been satisfied, and the FDIC has been reimbursed for 

any guarantee payments, the subordinated note holders 

and owner trust or residual certificates holders receive the 

remaining cash flows. 
FINANCIAL SECTION 81

All Structured Transactions with FDIC 

Guaranteed Debt

Through December 31, 2013, the receiverships have 

transferred a portfolio of loans with an unpaid principal 

balance of $16.4 billion and mortgage-backed securities with 

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

LLCs and trusts subsequently issued notes guaranteed by 

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

of December 31, 2013 and 2012, the DIF collected guarantee 

fees totaling $231 million and $218 million, respectively, 

and recorded a receivable for additional guarantee fees 

of $66 million and $95 million, respectively, included in 

the “Interest receivable on investments and other assets, 

net” line item on the Balance Sheet. All guarantee fees are 

recorded as deferred revenue, included in the “Accounts 

payable and other liabilities” line item, and recognized as 

revenue primarily on a straight-line basis over the term 

of the notes. At December 31, 2013 and 2012, the amount 

of deferred revenue recorded was $66 million and $101 

million, respectively. The DIF records no other structuredtransaction-related assets or liabilities on its balance sheet.

The estimated loss to the DIF from the guarantees is 

derived from an analysis of the net present value (using 

a discount rate of 3.7 percent) of the expected guarantee 

payments by the FDIC, reimbursements to the FDIC for 

guarantee payments, and guarantee fee collections. It is 

reasonably possible that the DIF could be required to make 

a guarantee payment of approximately $27 million for an 

SSGN transaction at note maturity in 2020. Any guarantee 

payment made would be fully reimbursed from the proceeds 

of the liquidation of the SSGN’s underlying collateral. For 

all of the remaining transactions, the cash flows from the 

LLC or 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 to a trust or LLC that it 

was not previously contractually required to provide.

As of December 31, 2013 and 2012, the maximum loss 

exposure was $99 million and $2.2 billion for LLCs and $2.8 

billion and $3.2 billion for trusts, respectively, representing 

the sum of all outstanding debt guaranteed by the FDIC in 

its corporate capacity. Some transactions have established 

defeasance accounts to pay off the notes at maturity. As of 

December 31, 2013 and 2012, a total of $78 million and $1.6 

billion, respectively, has been deposited into these accounts.

8. ASSESSMENTS 

The framework for the FDIC deposit insurance assessment 

system is mandated by section 7 of the FDI Act and the 

provisions for implementation are contained in part 327 of 

title 12 of the Code of Federal Regulations. The FDI Act 

requires a risk-based assessment system and payment of 

assessments by all IDIs.

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

several changes to the assessment system 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 assessment system changes and provisions of 

the comprehensive plan.

♦ The FDIC adopted a Restoration Plan to ensure that 

the ratio of the DIF fund balance to estimated insured 

deposits (reserve ratio) reaches 1.35 percent by 

September 30, 2020. The FDIC will update, at least 

semiannually, its loss and income projections for the fund 

and, if needed, increase or decrease assessment rates, 

following notice-and-comment rulemaking, if required.

♦ The FDIC adopted a final rule which 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.

♦ The FDIC adopted a final rule which amends and clarifies 

some definitions of higher-risk assets as used in deposit 

insurance pricing for large and highly complex IDIs by 

1) revising the definitions of certain higher-risk assets, 

specifically leveraged loans and subprime consumer 

loans, 2) clarifying when an asset must be identified as 

higher risk, and 3) clarifying the way securitizations are 

identified as higher risk. The final rule became effective 

on April 1, 2013. 

♦ The Federal Deposit Insurance Act (FDI Act) requires that 

the FDIC Board of Directors designate a reserve ratio for 

the DIF and publish the designated reserve ratio (DRR) 
ANNUAL REPORT 2013

82 FINANCIAL SECTION 

before the beginning of each calendar year. Accordingly, 

in October 2013, the FDIC adopted a final rule maintaining 

the DRR at 2 percent for 2014. The DRR is an integral 

part of the FDIC’s comprehensive, long-term management 

plan for the DIF and is viewed as a long-range, minimum 

target for the reserve ratio.

ASSESSMENT REVENUE

Annual assessment rates averaged approximately 7.8 cents 

per $100 and 10.1 cents per $100 of the assessment base 

for 2013 and 2012, respectively. The assessment base is 

generally defined as the average consolidated total assets 

minus the average tangible equity (measured as Tier 1 

capital) of the IDI during the assessment period.

In December 2009, a majority of IDIs prepaid $45.7 billion 

of estimated quarterly risk-based assessments to address 

the DIF’s liquidity need to pay for projected failures and to 

ensure that the deposit insurance system remained industryfunded. For each interim quarter, an institution’s risk-based 

deposit insurance assessment was offset by the available 

amount of prepaid assessments. The final offset of prepaid 

assessments occurred for the period ending March 31, 

2013, and in June 2013, as required by regulation, the DIF 

refunded $5.9 billion of unused prepaid assessments to IDIs. 

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

Sheet of $2.2 billion and $1.0 billion as of December 31, 2013 

and 2012, respectively, represents the estimated premiums 

due from IDIs for the fourth quarter of 2013 and 2012, 

respectively. The actual deposit insurance assessments for 

the fourth quarter of 2013 will be billed and collected at the 

end of the first quarter of 2014. During 2013 and 2012, $9.7 

billion and $12.4 billion, respectively, were recognized as 

assessment revenue from institutions.

RESERVE RATIO

As of December 31, 2013 and 2012, the DIF reserve ratio 

was 0.79 percent and 0.44 percent, respectively, of estimated 

insured deposits.

ASSESSMENTS RELATED TO FICO

Assessments continue to be levied on institutions for 

payments of the interest on obligations issued by the 

Financing Corporation (FICO). The FICO was established 

as a mixed-ownership government corporation to function 

solely as a financing vehicle for the former FSLIC. The 

annual FICO interest obligation of approximately $790 

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

banks and thrifts. The FICO assessment has no financial 

impact on the DIF and is separate from deposit insurance 

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

solely as a collection agent for the FICO. During 2013 

and 2012, approximately $792 million and $797 million, 

respectively, was collected and remitted to the FICO.

9. OTHER REVENUE 

OTHER REVENUE 

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Temporary Liquidity Guarantee 

Program revenue

$0 $5,885,330 

Dividends and interest on 

Citigroup trust preferred 

securities (Note 10)

124,726 177,831 

Guarantee fees for structured 

transactions (Note 7)

33,051 57,206 

Other 5,377 6,844 

Total $163,154 $6,127,211

TEMPORARY LIQUIDITY GUARANTEE PROGRAM 

(TLGP) REVENUE

Pursuant to a systemic risk determination in October 2008, 

the FDIC established the TLGP. In exchange for guarantees 

issued under the TLGP, the DIF received fees that were set 

aside, as deferred revenue, for potential TLGP losses. As 

losses occurred, the DIF recognized the losses as systemic 

risk expenses and offset the losses by recognizing an 

equivalent portion of the deferred revenue as systemic risk 

revenue.

In accordance with FDIC policy, the DIF recognized 

revenue when guarantee fees held were determined to be in 

excess of amounts needed to cover potential losses, and, for 

all remaining TLGP assets held as deferred revenue, upon 

expiration of the TLGP on December 31, 2012. The DIF 

recognized revenue of $5.9 billion in 2012.
FINANCIAL SECTION 83

10. GAIN ON SALE OF TRUST 

PREFERRED SECURITIES 

Pursuant to a systemic risk determination, the Treasury, 

the FDIC, and the Federal Reserve Bank of New York 

executed terms of a guarantee agreement on January 15, 

2009 with Citigroup to provide loss protection on a pool of 

approximately $301.0 billion of assets that remained on the 

balance sheet of Citigroup. In consideration for its portion 

of the shared-loss guarantee at inception, the FDIC received 

$3.025 billion of Citigroup’s preferred stock. All shares 

of the preferred stock were subsequently converted to 

Citigroup Capital XXXIII trust preferred securities (TruPS) 

with a liquidation amount of $1,000 per security and a 

distribution rate of 8 percent per annum payable quarterly.

On December 23, 2009, Citigroup terminated the guarantee 

agreement, citing improvements in its financial condition. 

The FDIC incurred no losses as a result of the guarantee 

and retained $2.225 billion (liquidation amount) of the 

$3.025 billion in TruPS as consideration for the period of 

guarantee coverage. The DIF recorded the TruPS at their 

fair value and recognized revenue of $1.962 billion upon 

termination of the agreement. In lieu of the FDIC returning 

the remaining $800 million (liquidation amount) of TruPS 

to Citigroup, the Treasury agreed to return $800 million in 

TruPS on behalf of the FDIC from its portion of Citigroup 

TruPS holdings received as a result of the shared-loss 

agreement. The FDIC held $800 million of TruPS as security 

for guaranteed debt instruments issued by Citigroup and 

its affiliates under the TLGP. Pursuant to the agreement 

between the Treasury and the FDIC, the FDIC transferred 

the $800 million in TruPS (plus related dividends and 

interest of $183 million) to the Treasury on December 28, 

2012, upon maturity of Citigroup’s last outstanding debt 

instruments.

To facilitate a sale of the retained TruPS, the FDIC 

exchanged the TruPS on September 9, 2013 for $2.420 

billion (principal amount) of Citigroup marketable 

subordinated notes. The exchange resulted in a realized 

gain to the DIF of $458 million reported in the “Gain on sale 

of trust preferred securities” line item on the Statement 

of Income and Fund Balance. FDIC reclassified the $458 

million out of accumulated other comprehensive income to 

“Gain on sale of trust preferred securities”, representing the 

sum of unrealized gains recorded as of December 31, 2012 

($302 million) and holding gains arising during the current 

period ($156 million). The resulting net effect on the DIF 

Statement of Income and Fund Balance was a $156 million 

increase to the 2013 comprehensive income.

On September 10, 2013, the subordinated notes were sold 

to the institutional fixed income market for the principal 

amount of $2.420 billion. The FDIC received $1.6 million 

for one day of accrued interest on the subordinated notes, 

which is included in the “Other revenue” line item on the 

Statement of Income and Fund Balance (see Note 9). Also 

included in the “Other revenue” line item is $123.1 million 

for dividends and interest earned on the TruPS in 2013 prior 

to their disposition (see Note 9).

11. OPERATING EXPENSES 

Operating expenses were $1.6 billion and $1.8 billion for 

December 31, 2013 and 2012, respectively. The chart below 

lists the major components of operating expenses.

OPERATING EXPENSES 

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Salaries and benefits $1,292,551 $1,300,697 

Outside services 326,040 337,379 

Travel 96,056 106,897 

Buildings and leased space 91,469 91,631 

Software/Hardware 

maintenance

56,297 63,108 

Depreciation of property and 

equipment

72,828 76,365 

Other 29,505 21,137 

Subtotal 1,964,746 1,997,214 

Less: Services billed to 

resolution entities

(356,029) (219,701)

Total $1,608,717 $1,777,513 

12. PROVISION FOR INSURANCE 

LOSSES 

The provision for insurance losses was negative $5.7 

billion for 2013, compared to negative $4.2 billion for 2012. 

The negative provision for 2013 primarily resulted from 

a reduction of $1.0 billion in the contingent liability for 
ANNUAL REPORT 2013

84 FINANCIAL SECTION 

anticipated failures due to the improvement in the financial 

condition of troubled institutions and a decrease of $4.8 

billion in the estimated losses for institutions that failed in 

prior years.

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 are used to derive the 

loss allowance on the receivables from resolutions. 

Consequently, the $4.8 billion reduction in the estimated 

losses from failures was primarily attributable to three 

components. The first component of this change was a $2.8 

billion decrease in the receiverships’ shared-loss liability 

that resulted from lower loss estimates in the underlying 

commercial and residential loans due to improvements in 

regional economies. The second factor was unanticipated 

recoveries of $1.3 billion in professional liability claims, 

litigation settlements and tax refunds by the receiverships, 

which are not recognized until the cash is received since 

there are significant uncertainties surrounding their 

recovery. Lastly, the remainder is primarily due to asset 

recoveries that exceeded projections and higher valuations 

on receivership assets.

13. 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).

Eligible FDIC employees also may participate in a FDICsponsored tax-deferred 401(k) savings plan with matching 

contributions up to 5 percent. 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.

PENSION BENEFITS AND 

SAVINGS PLANS EXPENSES

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Civil Service Retirement 

System

$5,430 $5,960 

Federal Employees Retirement 

System (Basic Benefit)

99,553 97,517 

FDIC Savings Plan 37,816 37,700 

Federal Thrift Savings Plan 35,686 34,555 

Total $178,485 $175,732 

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 dental 

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 
FINANCIAL SECTION 85

postretirement benefit obligation. At December 31, 2013 

and 2012, the liability was $194 million and $224 million, 

respectively, which is recognized in the “Postretirement 

benefit liability” line item on the Balance Sheet. The 

cumulative actuarial losses (changes in assumptions and 

plan experience) and prior service costs (changes to plan 

provisions that increase benefits) were $16 million and $60 

million at December 31, 2013 and 2012, respectively. These 

amounts are reported as accumulated other comprehensive 

income in the “Unrealized postretirement benefit loss” line 

item on the Balance Sheet. 

The DIF’s expenses for postretirement benefits for 2013 

and 2012 were $18 million and $14 million, respectively, 

which are included in the current and prior year’s operating 

expenses on the Statement of Income and Fund Balance. 

The changes in the actuarial losses and prior service costs 

for 2013 and 2012 of $44 million and negative $27 million, 

respectively, are reported as other comprehensive income 

in the “Unrealized postretirement benefit gain (loss)” line 

item on the Statement of Income and Fund Balance. Key 

actuarial assumptions used in the accounting for the 

plan include the discount rate of 4.75 percent, the rate 

of compensation increase of 4.0 percent, and the dental 

coverage trend rate of 4.5 percent. The discount rate of 4.75 

percent is based upon rates of return on high-quality fixed 

income investments whose cash flows match the timing and 

amount of expected benefit payments. 

14. COMMITMENTS AND OFFBALANCE-SHEET EXPOSURE

COMMITMENTS:

Leased Space

The FDIC’s lease commitments total $193 million for future 

years. The lease agreements contain escalation clauses 

resulting in adjustments, usually on an annual basis. The 

DIF recognized leased space expense of $52 million and 

$54 million for 2013 and 2012, respectively.

LEASED SPACE COMMITMENTS

Dollars in Thousands

2014 2015 2016 2017 2018

2019/

Thereafter

$48,013 $39,879 $36,208 $31,586 $20,123 $17,687 

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 December 31, 2013 and 2012, estimated 

insured deposits for the DIF were $6.0 trillion and $7.4 

trillion, respectively.
ANNUAL REPORT 2013

86 FINANCIAL SECTION 

15. DISCLOSURES ABOUT THE FAIR 

VALUE OF FINANCIAL INSTRUMENTS

Financial assets recognized and measured at fair value 

on a recurring basis at each reporting date include cash 

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

obligations (see Note 3). The following tables present 

the DIF’s financial assets measured at fair value as of 

December 31, 2013 and 2012.

ASSETS MEASURED AT FAIR VALUE AT DECEMBER 31, 2013

Dollars in Thousands

Fair Value Measurements Using

Quoted Prices 

in Active 

Markets for

Identical Assets

(Level 1)

Significant Other

Observable 

Inputs

(Level 2)

Significant

Unobservable 

Inputs

(Level 3)

Total Assets

at Fair Value

Assets

Cash equivalents1 $3,534,305 $3,534,305 

Available-for-Sale Debt Securities

Investment in U.S. Treasury Obligations2 38,510,500 38,510,500 

Total Assets $42,044,805 $0 $0 $42,044,805 

1 Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the Bureau of the 

Fiscal Service.

2 The investment in U.S. Treasury obligations is measured based on prevailing market yields for federal government entities.

ASSETS MEASURED AT FAIR VALUE AT DECEMBER 31, 2012

Dollars in Thousands

Fair Value Measurements Using

Quoted Prices

in Active 

Markets for

Identical Assets

(Level 1)

Significant Other

Observable 

Inputs

(Level 2)

Significant

Unobservable 

Inputs

(Level 3)

Total Assets

at Fair Value

Assets

Cash equivalents1 $3,091,778 $3,091,778 

Available-for-Sale Debt Securities

Investment in U.S. Treasury Obligations2 34,868,688 34,868,688 

Trust preferred securities $2,263,983 2,263,983 

Total Assets $37,960,466 $2,263,983 $0 $40,224,449 

1 Cash equivalents are Special U.S. Treasury Certificates with overnight maturities valued at prevailing interest rates established by the Bureau of the 

Fiscal Service.

2 The investment in U.S. Treasury obligations is measured based on prevailing market yields for federal government entities.
FINANCIAL SECTION 87

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

recognized at fair value but are recorded at amounts that 

approximate fair value due to their short maturities and/

or comparability with current interest rates. Such items 

include interest receivable on investments, assessments 

receivable, other short-term receivables, refunds of prepaid 

assessments, accounts payable, and other liabilities. 

The net receivables from resolutions primarily include the 

DIF’s subrogated claim arising from obligations to insured 

depositors. The resolution entity assets that will ultimately 

be used to pay the corporate subrogated claim are valued 

using discount rates that include consideration of market 

risk. These discounts ultimately affect the DIF’s allowance 

for loss against the receivables from resolutions. Therefore, 

the corporate subrogated claim indirectly includes the 

effect of discounting and should not be viewed as being 

stated in terms of nominal cash flows.

Although the value of the corporate subrogated claim is 

influenced by valuation of resolution entity assets (see 

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

the corporate claim. Since the corporate claim is unique, 

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

established market, it is not practicable to estimate a 

fair value.

The FDIC believes that a sale to the private sector of 

the corporate claim would require indeterminate, but 

substantial, discounts for an interested party to profit from 

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

the timing of resolution entity payments to the DIF on the 

subrogated claim does not necessarily correspond with the 

timing of collections on resolution entity assets. Therefore, 

the effect of discounting used by resolution entities should 

not necessarily be viewed as producing an estimate of fair 

value for the net receivables from resolutions.

At December 31, 2012, the fair value of the TruPS in 

the amount of $2.264 billion was classified as a Level 2 

measurement based on an FDIC-developed model using 

observable market data for traded Citigroup securities to 

determine the expected present value of future cash flows. 

Key inputs included market yields on U.S. dollar interest 

rate swaps and discount rates for default, call, and liquidity 

risks that were derived from traded Citigroup securities and 

modeled pricing relationships. 
ANNUAL REPORT 2013

88 FINANCIAL SECTION 

16. INFORMATION RELATING TO THE 

STATEMENT OF CASH FLOWS

17. SUBSEQUENT EVENTS 

Subsequent events have been evaluated through March 6, 

2014, the date the financial statements are available to 

be issued.

2014 FAILURES THROUGH MARCH 6, 2014

Through March 6, 2014, five insured institutions failed in 

2014 with total losses to the DIF estimated to be $92 million.

RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING ACTIVITIES 

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Operating Activities

Net Income: $14,504,738 $21,121,247 

Adjustments to reconcile net income to net cash provided (used) 

by operating activities:

Amortization of U.S. Treasury obligations 1,139,456 854,195 

Treasury Inflation-Protected Securities inflation adjustment (35,300) (98,050)

Gain on sale of trust preferred securities (458,176) 0 

Depreciation on property and equipment 72,829 76,365 

Loss on retirement of property and equipment 220 14 

Provision for insurance losses (5,659,388) (4,222,595)

Unrealized gain (loss) on postretirement benefits 44,097 (26,886)

Change in Assets and Liabilities:

(Increase) in assessments receivable, net (1,220,883) (724,605)

(Increase) Decrease in interest receivable and other assets (75,014) 51,181 

Decrease in receivables from resolutions 10,406,392 6,371,418 

Decrease in receivables - systemic risk 0 1,948,151 

(Decrease) in accounts payable and other liabilities (49,045) (24,543)

(Decrease) Increase in postretirement benefit liability (30,635) 36,258 

(Decrease) in contingent liabilities - systemic risk 0 (2,216)

(Decrease) in liabilities due to resolutions (8,547,803) (11,616,727)

(Decrease) in Debt Guarantee Program liabilities - systemic risk 0 (117,027)

(Decrease) in unearned revenue - prepaid assessments (1,576,417) (15,823,411)

(Decrease) in deferred revenue - systemic risk 0 (6,513,828)

(Decrease) Increase in refunds of prepaid assessments (5,675,199) 5,675,199 

Net Cash Provided (Used) by Operating Activities $2,839,872 $(3,035,860)
FINANCIAL SECTION 89

FSLIC RESOLUTION FUND (FRF)

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

FEDERAL DEPOSIT INSURANCE CORPORATION

FSLIC RESOLUTION FUND BALANCE SHEET AT DECEMBER 31

Dollars in Thousands

2013 2012

Assets

Cash and cash equivalents (Note 1) $871,612 $3,594,007 

Receivables from thrift resolutions and other assets, net (Note 3) 1,183 5,456 

Receivables from U.S. Treasury for goodwill litigation (Note 4) 356,455 356,455 

Total Assets $1,229,250 $3,955,918 

Liabilities 

Accounts payable and other liabilities $790 $2,442 

Contingent liabilities for goodwill litigation (Note 4) 356,455 356,455 

Total Liabilities 357,245 358,897 

Resolution Equity (Note 5)

Contributed capital 125,332,156 128,056,656 

Accumulated deficit (124,460,151) (124,459,635)

Total Resolution Equity 872,005 3,597,021 

Total Liabilities and Resolution Equity $1,229,250 $3,955,918 
ANNUAL REPORT 2013

90 FINANCIAL SECTION 

FSLIC RESOLUTION FUND (FRF)

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

FEDERAL DEPOSIT INSURANCE CORPORATION

FSLIC RESOLUTION FUND STATEMENT OF INCOME AND ACCUMULATED DEFICIT 

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Revenue

Interest on U.S. Treasury obligations $1,196 $2,458 

Other revenue 1,953 2,549 

Total Revenue 3,149 5,007 

Expenses and Losses

Operating expenses 2,350 4,165 

Provision for losses (1,255) (1,408)

Goodwill litigation expenses (Note 4) 500 181,000 

Other expenses 2,070 258 

Total Expenses and Losses 3,665 184,015 

Net Loss (516) (179,008)

Accumulated Deficit - Beginning (124,459,635) (124,280,627)

Accumulated Deficit - Ending $(124,460,151) $(124,459,635)
FINANCIAL SECTION 91

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

FEDERAL DEPOSIT INSURANCE CORPORATION

FSLIC RESOLUTION FUND STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Operating Activities

Provided by:

Interest on U.S. Treasury obligations $1,196 $2,458 

Recoveries from financial institution resolutions 5,148 19,074 

Recovery of tax benefits 130 44,445 

Miscellaneous receipts 52 365 

Used by:

Operating expenses (3,921) (5,718)

Payments for goodwill litigation (Note 4) (500) (181,000)

Miscellaneous disbursements 0 (27)

Net Cash Provided (Used) by Operating Activities 2,105 (120,403)

Financing Activities

Provided by:

U.S. Treasury payments for goodwill litigation (Note 4) 500 181,000 

Used by:

Return of U.S. Treasury funds (Note 5) (2,600,000) 0 

Payment to Resolution Funding Corporation (Note 5) (125,000) 0 

Net Cash (Used) Provided by Financing Activities (2,724,500) 181,000 

Net (Decrease) Increase in Cash and Cash Equivalents (2,722,395) 60,597 

Cash and Cash Equivalents - Beginning 3,594,007 3,533,410 

Cash and Cash Equivalents - Ending $871,612 $3,594,007 

FSLIC RESOLUTION FUND (FRF)
ANNUAL REPORT 2013

92 FINANCIAL SECTION 

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 

operations of the FDIC are generally found in the Federal 

Deposit Insurance (FDI) Act, as amended (12 U.S.C. 1811, 

et seq). In carrying out the purposes of 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 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, the FDIC, through 

administration of the FSLIC Resolution Fund (FRF), 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 DIF and the FRF 

are maintained separately by the FDIC to support their 

respective functions.

The U.S. Congress created the FSLIC 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, created the 

FRF, and transferred the assets and liabilities of the FSLIC 

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 conducted an extensive review and 

cataloging of FRF’s remaining assets and liabilities. Some 

of the issues and items that remain open in FRF are 1) 

criminal restitution orders (generally have from 1 to 17 

years remaining to enforce); 2) collections of settlements 

and judgments obtained against officers and directors and 

other professionals responsible for causing or contributing 

to thrift losses (generally have up to 7 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 for some 

judgments); 3) a few assistance agreements entered into by 

the former FSLIC (FRF could continue to receive or refund 

overpayments of tax benefits sharing in future years); 4) 

goodwill litigation (no final date for resolution has been 

established; see Note 4); and 5) affordable housing program 

monitoring (requirements can exceed 25 years). The 

FRF could potentially realize recoveries from tax benefits 

Notes to the Financial Statements

FSLIC RESOLUTION FUND 

December 31, 2013 and 2012
FINANCIAL SECTION 93

sharing, criminal restitution orders, and professional 

liability claims; however, any associated recoveries are not 

reflected in FRF’s financial statements given the significant 

uncertainties surrounding the ultimate outcome. 

After evaluating FRF’s remaining assets and liabilities in 

2013, the FDIC returned $2.6 billion to the U.S. Treasury on 

behalf of FRF-FSLIC and paid $125 million to REFCORP 

on behalf of FRF-RTC (see Note 5). More transfers are 

expected to continue as remaining assets wind down and 

liabilities are satisfied.

RECEIVERSHIP OPERATIONS

The FDIC is responsible for managing and disposing of 

the assets of failed institutions in an orderly and efficient 

manner. The assets held by receivership entities, and the 

claims against them, are accounted for separately from FRF 

assets and liabilities to ensure that receivership proceeds 

are distributed in accordance with applicable laws and 

regulations. Also, the income and expenses attributable 

to receiverships are accounted for as transactions of those 

receiverships. Receiverships are billed by the FDIC for 

services provided on their behalf.

2. SUMMARY OF SIGNIFICANT 

ACCOUNTING POLICIES

GENERAL

These financial statements pertain to 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). As permitted by the Federal 

Accounting Standards Advisory Board’s Statement of 

Federal Financial Accounting Standards 34, The Hierarchy 

of Generally Accepted Accounting Principles, Including 

the Application of Standards Issued by the Financial 

Accounting Standards Board, the FDIC prepares financial 

statements in accordance with standards promulgated by 

the Financial Accounting Standards Board (FASB). These 

statements do not include reporting for assets and liabilities 

of receivership entities because these entities are legally 

separate and distinct, and the FRF does not have any 

ownership or beneficial interests in them. Periodic and final 

accounting reports of receivership entities are furnished to 

courts, supervisory authorities, and others upon request.

USE OF ESTIMATES

Management makes estimates and assumptions that affect 

the amounts reported in the financial statements and 

accompanying notes. 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 

changes in estimates have been disclosed. The more 

significant estimates include the valuation of other assets 

and the estimated losses for litigation.

CASH EQUIVALENTS

Cash equivalents are short-term, highly liquid investments 

consisting primarily of U.S. Treasury Overnight Certificates.

PROVISION FOR LOSSES

The provision for losses represents the change in the 

estimation of the allowance for losses related to the 

receivables from thrift resolutions and other assets.

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.

PRESENTATION OF STATEMENT OF CASH FLOWS

To enhance cash flow information for operating activities 

of the FRF, in 2013, the FDIC changed the method of 

presenting the FRF’s Statement of Cash Flows from the 

indirect method to the direct method, which is preferable 

and is encouraged by the Financial Accounting Standards 

Board. Accordingly, the FRF’s 2012 Statement of Cash 

Flows has been conformed to this method of presentation 

for comparative purposes. For 2013 and 2012, the 

reconciliation of net income to net cash from operating 

activities is presented in Note 7.

DISCLOSURE ABOUT RECENT RELEVANT 

ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update No. 2013-07, Presentation of 

Financial Statements - Liquidation Basis of Accounting, 

modifies Accounting Standards Codification Topic 205, 

Presentation of Financial Statements, to require an entity 

to prepare its financial statements using the liquidation 
ANNUAL REPORT 2013

94 FINANCIAL SECTION 

basis of accounting when liquidation is imminent. The 

amendments are effective during annual reporting periods 

beginning after December 15, 2013. As the remaining issues 

of the FRF continue to wind down (see Note 1), the FDIC 

will evaluate the applicability of this standard to the FRF. 

At this time, the FDIC has no approved liquidation plan for 

the final dissolution of the FRF. 

Other recent accounting pronouncements have been 

deemed not applicable or material to the financial 

statements as presented. 

3. RECEIVABLES FROM THRIFT 

RESOLUTIONS AND OTHER 

ASSETS, NET

RECEIVABLES FROM THRIFT RESOLUTIONS

The receivables from thrift resolutions include payments 

made by the FRF to cover obligations to insured depositors, 

advances to receiverships for working capital, and 

administrative expenses paid on behalf of receiverships. 

Any related allowance for loss represents the difference 

between the funds advanced and/or obligations incurred 

and the expected repayment. Assets held by the FDIC in its 

receivership capacity for the former RTC are a significant 

source of repayment of the FRF’s receivables from thrift 

resolutions. As of December 31, 2013, only one of the 

850 FRF receiverships remains active and is expected to 

terminate in 2014. 

The FRF receiverships held assets with a book value of 

$2 million and $13 million as of December 31, 2013 and 

2012, respectively (which primarily consist of cash held for 

non-FRF, third party creditors). 

OTHER ASSETS

Other assets primarily consist of assets that were acquired 

from terminated receiverships. 

RECEIVABLES FROM THRIFT RESOLUTIONS 

AND OTHER ASSETS, NET AT DECEMBER 31

Dollars in Thousands

2013 2012

Receivables from closed thrifts $35 $869,917 

Allowance for losses 0 (867,208)

Receivables from 

Thrift Resolutions, Net

35 2,709 

Other assets, net 1,148 2,747 

Total $1,183 $5,456 

4. CONTINGENT LIABILITIES FOR:

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. 

On July 22, 1998, the Department of Justice’s (DOJ’s) 

Office of Legal Counsel (OLC) concluded that the FRF is 

legally available to satisfy all judgments and settlements 

in the goodwill litigation involving supervisory action 

or assistance agreements. OLC determined that 

nonperformance of these agreements was a contingent 

liability that was transferred to the FRF on August 9, 1989, 

upon the dissolution of the FSLIC. On July 23, 1998, the U.S. 

Treasury determined, based on OLC’s opinion, that the FRF 

is the appropriate source of funds for payments of any such 

judgments and settlements. The FDIC General Counsel 

concluded that, as liabilities transferred on August 9, 1989, 

these contingent liabilities for future nonperformance of 

prior agreements with respect to supervisory goodwill were 

transferred to the FRF-FSLIC, which is that portion of the 

FRF encompassing the obligations of the former 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 
FINANCIAL SECTION 95

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 should have a corresponding 

receivable from the U.S. Treasury and therefore have no net 

impact on the financial condition of the FRF. 

The FRF paid $500 thousand and $181 million 

to the plaintiffs in one goodwill case in 2013 and 

2012, respectively. The $500 thousand represents a 

reimbursement for a tax liability of the plaintiffs as a result 

of the $181 million settlement received in 2012. The FRF 

received appropriations from the U.S. Treasury to fund 

these payments.

As of December 31, 2013, one case is active and pending 

against the United States based on alleged breaches of 

the agreements stated above. For this case, a contingent 

liability and an offsetting receivable of $356 million was 

recorded as of December 31, 2013 and 2012. This case is 

currently before the lower court pending remand following 

appeal. It is reasonably possible that for this case the FRF 

could incur additional estimated losses of $63 million, 

representing additional damages contended by the plaintiff. 

For a case that was fully adjudicated, an estimated loss of 

$8 million, which represents estimated tax liabilities, is also 

reasonably possible. 

For the second of the two cases active at year-end 2012, 

the United States’ Motion for Costs was denied by the trial 

court and the United States did not seek further review of 

this denial. This case is now concluded.

In addition, the FRF-FSLIC pays the goodwill litigation 

expenses incurred by the DOJ, the entity that defends these 

lawsuits against the United States, based on a Memorandum 

of Understanding (MOU) dated October 2, 1998, between 

the FDIC and the DOJ. FRF-FSLIC pays in advance the 

estimated goodwill litigation expenses. Any unused funds 

are carried over and applied toward the next fiscal year 

(FY) charges. In 2013, FRF-FSLIC did not provide any 

additional funding to the DOJ because the unused funds 

from prior fiscal years were sufficient to cover estimated FY 

2014 expenses. 

GUARINI LITIGATION

Paralleling the goodwill cases were similar cases alleging 

that the government breached agreements regarding tax 

benefits associated with certain FSLIC-assisted acquisitions. 

These agreements allegedly contained the promise of 

tax deductions for losses incurred on the sale of certain 

thrift assets purchased by plaintiffs from the FSLIC, even 

though the FSLIC provided the plaintiffs with tax-exempt 

reimbursement. A provision in the Omnibus Budget 

Reconciliation Act of 1993 (popularly referred to as the 

“Guarini legislation”) eliminated the tax deductions for 

these losses.

All eight of the original Guarini cases have been settled. 

However, a case settled in 2006 further obligates the 

FRF-FSLIC as a guarantor for all tax liabilities in the event 

the settlement amount is determined by tax authorities to 

be taxable. The maximum potential exposure under this 

guarantee is approximately $81 million. However, the FDIC 

believes that it is very unlikely the settlement will be subject 

to taxation. The Internal Revenue Service concluded an 

examination of the affected entity’s 2006 return without an 

assertion of taxation for an issue covered by the guarantee. 

The 2006 return was subsequently amended, and the 

amended return is under further administrative review. 

As of December 31, 2013, no liability has been recorded. 

The FRF does not expect to fund any payment under this 

guarantee. 

GUARANTEES

On May 21, 2012, the FDIC, in its capacity as manager 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 for 

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. The maximum exposure on this indemnification is the 

current unpaid principal balance of the remaining 60 multifamily loans totaling $7 million. Based on a contingent 

liability assessment of this portfolio, the majority of the 

loans are at least 65% amortized, and all are scheduled to 
ANNUAL REPORT 2013

96 FINANCIAL SECTION 

mature within two to seven years. Since all of the loans are 

currently in performing status and no losses have occurred 

since 2001, future payments on this indemnification are 

not expected. As a result, the FRF has not recorded a 

contingent liability for this indemnification as of December 

31, 2013.

5. RESOLUTION EQUITY

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

comprised of two distinct pools: the FRF-FSLIC and the 

FRF-RTC. 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.

The following table shows the contributed capital, 

accumulated deficit, and resulting resolution equity for 

each pool.

RESOLUTION EQUITY AT DECEMBER 31, 2013

Dollars in Thousands

FRF-FSLIC FRF-RTC

FRF 

Consolidated

Contributed capital - beginning $46,307,319 $81,749,337 $128,056,656 

Less: Payment to REFCORP 0 (125,000) (125,000)

Less: Return of U.S. Treasury funds (2,600,000) 0 (2,600,000)

Add: U.S. Treasury payment for goodwill litigation 500 0 500 

Contributed capital - ending 43,707,819 81,624,337 125,332,156 

Accumulated deficit (42,879,951) (81,580,200) (124,460,151)

Total $827,868 $44,137 $872,005 

RESOLUTION EQUITY AT DECEMBER 31, 2012

Dollars in Thousands

FRF-FSLIC FRF-RTC

FRF 

Consolidated

Contributed capital - beginning $46,126,319 $81,749,337 $127,875,656 

Add: U.S. Treasury payment for goodwill litigation 181,000 0 181,000 

Contributed capital - ending 46,307,319 81,749,337 128,056,656 

Accumulated deficit (42,882,341) (81,577,294) (124,459,635)

Total $3,424,978 $172,043 $3,597,021 
FINANCIAL SECTION 97

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 mixedownership 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.

FRF-FSLIC received $500 thousand and $181 million in U.S. 

Treasury payments for goodwill litigation in 2013 and 2012, 

respectively. Furthermore, $356 million was accrued for as 

receivables as of December 31, 2013 and 2012, respectively. 

Through December 31, 2013, the FRF has received or 

established a receivable for a total of $2.2 billion of 

goodwill appropriations, the effect of which increases 

contributed capital.

Through December 31, 2013, the FRF-RTC has 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 serve to reduce 

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. The FRF-FSLIC 

accumulated deficit has increased by $13.1 billion, whereas 

the FRF-RTC accumulated deficit has decreased by $6.3 

billion, since their dissolution dates.

6. DISCLOSURES ABOUT THE FAIR 

VALUE OF FINANCIAL INSTRUMENTS 

At December 31, 2013 and 2012, the FRF’s financial assets 

measured at fair value on a recurring basis are cash 

equivalents of $826 million and $3.4 billion, respectively. 

Cash equivalents are Special U.S. Treasury Certificates 

with overnight maturities valued at prevailing interest 

rates established by the Bureau of the Fiscal Service. 

The valuation is considered a Level 1 measurement in the 

fair value hierarchy, representing quoted prices in active 

markets for identical assets. 

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

recognized at fair value but are recorded at amounts that 

approximate fair value due to their short maturities and/

or comparability with current interest rates. Such items 

include other short-term receivables and accounts payable 

and other liabilities.
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98 FINANCIAL SECTION 

7. INFORMATION RELATING TO THE 

STATEMENT OF CASH FLOWS 

RECONCILIATION OF NET LOSS TO NET CASH FROM OPERATING ACTIVITIES 

FOR THE YEARS ENDED DECEMBER 31

Dollars in Thousands

2013 2012

Operating Activities

Net Loss: $(516) $(179,008)

Adjustments to reconcile net loss to net cash provided (used) 

by operating activities:

Provision for insurance losses (1,255) (1,408)

Change in Assets and Liabilities:

Decrease in receivables from resolutions and other assets 5,528 61,115 

(Decrease) in accounts payable and other liabilities (1,652) (1,102)

Net Cash Provided (Used) by Operating Activities $2,105 $(120,403)

8. SUBSEQUENT EVENTS

Subsequent events have been evaluated through March 6, 

2014, the date the financial statements are available to be 

issued, and management determined that there are no items 

to disclose.
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MANAGEMENT’S RESPONSE

Appendix I
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MANAGEMENT’S RESPONSE (continued)