Financial 

Statements 

and Notes

IV.

Finacita
ANNUAL REPORT 2012

Deposit Ins

Fede ral Deposit Insurance Cor

Deposit Insurance Fund Balance Shee t 

Dollars in Thousand

2012 2011

Asset

Cash and cash equivalents $3,100,361 $3,277,

Cash and investments - restricted - systemic risk (Note 

 (Includes cash/cash equivalents of $0 at December 31, 20

 and $1,627,073 at December 31, 2011)

0 4,827,319

Investment in U.S. Treasury obligations, net (Note 3) 34,868,688 33,86

Trust preferred securities (Note 5) 2,263,983 2,213,

Assessments receivable, net (Note 9) 1,006,852 282,

Receivables and other assets - systemic risk (Note 16) 0 1,948,

Interest receivable on investments and other assets, net 433,592 488,

Receivables from resolutions, net (Note 4) 23,119,554 28,54

Property and equipment, net (Note 6) 392,880 401,

Total Assets $65,185,910 $75,850,522 

Liabilities

Accounts payable and other liabilities $349,620 $374,

Unearned revenue - prepaid assessments (Note 9) 1,576,417 17,399,

Refunds of prepaid assessments (Note 9) 5,675,19

Liabilities due to resolutions (Note 7) 21,173,785 32,790,

Debt Guarantee Program liabilities - systemic risk (Note 16) 0 117,

Deferred revenue - systemic risk (Note 16) 0 6,639,

Postretirement benefit liability (Note 13) 224,225 187,

Contingent liabilities f

Anticipated failure of insured institutions (Note 8) 3,220,697 6,

Systemic risk (Note 16) 

Litigation losses (Note 8) 8,20

Total Liabilities 32,228,143 64,023,990 

Commitments and off-balance-sheet exposure (Note 

Fund Balance

Accumulated Net Income 32,682,237 11,560,

Accumulated Other Comprehensive Inco

Unrealized gain on U.S. Treasury investments, net (Note 3) 33,819 47,

Unrealized postretirement benefit loss (Note 13) (60,448) (33,5

Unrealized gain on trust preferred securities (Note 5) 302,159 251,

Total Accumulated Other Comprehensive Income 275,530 265,542 

Total Fund Balance 32,957,767 11,826,532 

Total Liabilities and Fund Balance $65,185,910 $75,850,522 

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

64 Finac
Deposit Ins

Fede ral Deposit Insurance Cor

Deposit Insurance Fund Statement of Income a

for th Ye ars Ended D

Dollars in Thousand

2012 2011

Revenu

Assessments (Note 9) $12,397,022 $13,49

Interest on U.S. Treasury obligations 159,214 127,

Systemic risk revenue (Note 16) (161,135) (131,1

Other revenue (Note 10) 6,127,211 2,846,

Total Revenue 18,522,312 16,341,996 

Expenses and Loss

Operating expenses (Note 11) 1,777,513 1,625,

Systemic risk expenses (Note 16) (161,135) (131,1

Provision for insurance losses (Note 12) (4,222,595) (4,413

Insurance and other expenses 7,282 3,

Total Expenses and Losses (2,598,935) (2,915,423)

Net Income 21,121,247 19,257,419 

Other Comprehensive Incom

Unrealized (loss) gain on U.S. Treasury investments, net (13,878) 20,

Unrealized postretirement benefit loss (Note 13) (26,886) (15,0

Unrealized gain (loss) on trust preferred securities (Note 5) 50,752 (84,5

Total Other Comprehensive Income (Loss) 9,988 (78,647)

Comprehensive Income 21,131,235 19,178,772 

Fund Balance - Beginning 11,826,532 (7,352,240)

Fund Balance - Ending $32,957,767 $11,826,532 

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

Finacita
ANNUAL REPORT 2012

Deposit Ins

Fede ral Deposit Insurance Cor

Deposit Insurance Fund Statement of Cash Flos for the Ye ar

Dollars in Thousand

2012 2011

Operating Activiti

Net Income: $21,121,247 $19,257,419 

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

operating activities:

Amortization of U.S. Treasury obligations 854,195 388,895

Treasury Inflation-Protected Securities inflation adjustment (98,050) (25,307)

Depreciation on property and equipment 76,365 77,720

Loss on retirement of property and equipment 14 1,326

Provision for insurance losses (4,222,595) (4,413,629)

Unrealized Loss on postretirement benefits (26,886) (15,059)

Change in Operating Assets and Liabilities (Net of Provision for Lo

(Increase) in assessments receivable, net (724,605) (64,354)

Decrease (Increase) in interest receivable and other assets 51,181 (227,962)

Decrease (Increase) in receivables from resolutions 6,371,418 (5,802,003)

Decrease in receivables - systemic risk 1,948,151 321,271

(Decrease) in accounts payable and other liabilities (24,543) (140,123)

Increase in postretirement benefit liability 36,258 22,094

(Decrease) in contingent liabilities - systemic risk (2,216) (117,777)

(Decrease) in contingent liabilities - litigation losses 0 (276,000)

(Decrease) Increase in liabilities due to resolutions (11,616,727) 2,278,635

(Decrease) Increase in Debt Guarantee Program liabilities - systemic risk (117,027) 87,693

(Decrease) in unearned revenue - prepaid assessments (15,823,411) (12,657,206)

(Decrease) in deferred revenue - systemic risk (6,513,828) (2,399,644)

Increase in refunds of prepaid assessments 5,675,199 0

Net Cash (Used) by Operating Activities (3,035,860) (3,704,011)

Investing Activitie

Provided by

	 Maturity of U.S. Treasury obligations 32,132,623 12,976,273

Sale of U.S. Treasury obligations 2,554,781 0

Used by:

Purchase of property and equipment (67,344) (64,896)

	 Purchase of U.S. Treasury obligations (33,388,751) (36,409,429)

Net Cash Provided (Used) by Investing Activities 1,231,309 (23,498,052)

Net (Decrease) in Cash and Cash Equivalents (1,804,551) (27,202,063)

Cash and Cash Equivalents - Beginning 4,904,912 32,106,975 

Unrestricted Cash and Cash Equivalents - Ending 3,100,361 3,277,839 

Restricted Cash and Cash Equivalents - Ending 0 1,627,073 

Cash and Cash Equivalents - Ending $3,100,361 $4,904,912 

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

66 Finac
Notes to the Financial Statements

Deposit Insu ran

December 31, 2012 and 2011

1.  Operati o

the Dep

Insu rance

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 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 16).

The Dodd-Frank Act also created the 

Financial Stability Oversight Council 

(FSOC) of which the Chairman of 

the FDIC is a member and expanded 

the FDIC’s responsibilities to include 

supervisory review of resolution plans 

(known as living wills) and backup 

examination authority for systemically 

important bank holding companies 

and nonbank financial companies. 

The living wills provide for an entity’s 

rapid and orderly resolution in the 

event of material financial distress 

or failure.

Operations of the DIF

The primary purposes of the DIF are 

to 1) insure the deposits and protect 

the depositors of IDIs and 2) resolve 

failed IDIs upon appointment of the 

FDIC as receiver, in a manner that 

will result in the least possible cost 

to the DIF (unless a systemic risk 

determination is made). 

The DIF is primarily funded from 

deposit insurance assessments. Other 

available funding sources, if necessary, 

Finacita
ANNUAL REPORT 2012

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 $132.9 billion and $114.4 

billion as of December 31, 2012 

and 2011, 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, passthrough conservatorships, and bridge 

institutions (collectively, resolution 

entities), and the claims against 

them, are accounted for separately 

from the DIF assets and liabilities 

to ensure that proceeds from these 

entities are distributed 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 

Signif

Acc oun

Poli

Genera

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 

interests in them. Periodic and final 

accountability 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 valuation of trust 

preferred securities; the assessments 

receivable and associated revenue; the 

allowance for loss on receivables from 

resolutions (including shared-loss 

agreements); guarantee obligations 

for structured transactions; refunds 

of prepaid assessments; 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 Public 

Debt’s Government Account Series 

program.

The DIF’s investments in U.S. Treasury 

obligations are classified as availablefor-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 Income 

and Fund Balance as components of 

net income. Income on securities is 

68 Finac
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, and a modest assessment 

base growth factor. 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 9). 

Capital Assets 

and Depreciation

The FDIC buildings are depreciated 

on a straight-line basis over a 35- to 

50-year estimated life. 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 8, 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, 2012 and 2011. 

Therefore, consolidation is not 

required for the 2012 and 2011 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 8.

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.

Finacita
ANNUAL REPORT 2012

Disclosure about Recent 

Relevant Accounting 

Pronouncements

Recent accounting pronouncements 

have been deemed to be not applicable 

or material to the financial statements 

as presented.

3. Invest ment

U.S. Treasu r

Ob ligati 

As of December 31, 2012 and 

2011, investments in U.S. Treasury 

obligations, net, were $34.9 billion 

and $33.9 billion, respectively. As 

of December 31, 2012 and 2011, the 

DIF held $5.3 billion and $5.0 billion, 

respectively, of Treasury InflationProtected Securities (TIPS), which 

are indexed to increases or decreases 

in the Consumer Price Index for All 

Urban Consumers (CPI-U). During 

2012, the FDIC sold securities 

designated as available-for-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 

“Deferred revenue - systemic risk” line 

item on the Balance Sheet.

70 Finac
Total Investment in U.S. Treasury Obigations, Ne t at D

Dollars in Thousand

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 Securitie

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 

long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.0 percent, based on figures 

issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 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.

Total Investment in U.S. Treasury Obigations, Ne t at De

Dollars in Thousand

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 0.27% $24,500,0002 $24,889,547 $17,842 $(93) $24,907,296

After 1 year

through 5 years

0.93% 3,900,000 3,923,428 38,778 0 3,962,206

U.S. Treasury Inflation-Protected Securitie

Within 1 year 0.51% 1,200,000 1,537,664 659 (8) 1,538,315

After 1 year

through 5 years

-0.92% 3,050,000 3,464,909 0 (9,481) 3,455,428

Total $32,650,000 $33,815,548 $57,279 $(9,582)3 $33,863,245

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 

long-term annual inflation assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 1.8 percent, based on figures 

issued by the Congressional Budget Office and Blue Chip Economic Indicators in early 2011. 

2 Includes one Treasury note totaling $1.8 billion which matured on Saturday, December 31, 2011. Settlement occurred on the next business 

day, January 3, 2012.

3 All 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. Unrealized losses related to the TIPS converted to unrealized gains by January 31, 2012, and unrealized losses related to the U.S. 

Treasury notes and bonds existed on just one security that matured with no unrealized loss on January 31, 2012, and thus the FDIC does not 

consider these securities to be other than temporarily impaired at December 31, 2011.

Finacita
ANNUAL REPORT 2012

4.  Receivable

Resoluti 

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 8) are the main source of 

repayment of the DIF’s receivables 

from resolutions. 

As of December 31, 2012, there were 

463 active receiverships, including 51 

established in 2012. As of December 

31, 2012 and 2011, DIF resolution 

entities held assets with a book value 

of $53.5 billion and $71.4 billion, 

respectively (including $36.5 billion 

and $50.5 billion, respectively, of 

cash, investments, receivables due 

from the DIF, and other receivables). 

Ninety-nine percent of the current 

asset book value of $53.5 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 

institution-specific 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 2012 

financial reporting, the shared-loss 

cost estimates were updated for the 

majority (93% or 276) of the 298 active 

shared-loss agreements; the remaining 

22 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 receivership age. A 

random sample of institutions within 

each age 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 age 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 301 failures using whole bank 

purchase and assumption resolution 

transactions with accompanying 

SLAs on total assets of $214.6 billion 

purchased by the financial institution 

acquirers. The acquirer typically 

assumes all of the deposits and 

Receivable from Re slutions, Ne t

Dollars in Thousand

2012 2011

Receivables from closed banks $116,940,999 $121,369,428

Allowance for losses (93,821,445) (92,821,032)

Total $23,119,554 $28,548,396

72 Finac
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 7). 

As of December 31, 2012, 286 

receiverships have made shared-loss 

payments totaling $23.3 billion. 

In addition, DIF receiverships are 

estimated to pay an additional 

$18.1 billion over the duration of 

these SLAs on $103.7 billion in total 

remaining covered assets.

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 

$120.7 billion in remaining assets 

in liquidation ($17.0 billion) and 

current shared-loss covered assets 

($103.7 billion) are concentrated in 

commercial loans ($60.0 billion), 

residential loans ($43.6 billion), 

securities ($3.1 billion), and structured 

transaction-related assets as described 

in Note 8 ($12.1 billion). Most of the 

assets in these asset types originated 

from failed institutions located in 

California ($34.3 billion), Florida 

($14.1 billion), Puerto Rico ($10.9 

billion), Illinois ($10.5 billion), 

Georgia ($9.8 billion) and Alabama 

($9.0 billion).

5. Trust Pre

Secu r

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. 

The principal amount is due in 2039. 

On December 23, 2009, Citigroup 

terminated the guarantee agreement, 

citing improvements in its financial 

condition. The FDIC incurred no 

loss from the guarantee prior to the 

termination of the agreement. In 

connection with the early termination 

of the agreement, the FDIC agreed to 

reduce its portion of the $3.025 billion 

in TruPs by $800 million. However, 

pursuant to an agreement between the 

Treasury and the FDIC, 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 retained the 

$800 million of Citigroup TruPs as 

security in the event payments were 

required to be made by the DIF for 

guaranteed debt instruments issued 

by Citigroup and its affiliates under 

the TLGP. Because no payments 

were required prior to expiration of 

the TLGP on December 31, 2012, the 

FDIC transferred the $800 million in 

Citigroup TruPs and $183 million 

in related dividends and interest to 

the Treasury.

The remaining $2.225 billion 

(liquidation amount) of TruPs is 

classified as available-for-sale debt 

securities in accordance with FASB 

ASC Topic 320, Investments – Debt 

and Equity Securities. At December 

31, 2012, the fair value of the TruPs 

was $2.264 billion (see Note 15). An 

unrealized holding gain of $302 million 

is included in accumulated other 

comprehensive income. 

Finacita
ANNUAL REPORT 2012

6.  Property

Equi pmen

The depreciation expense was 

$76 million and $78 million for 2012 

and 2011, respectively.

7.  Liabi li

to Resol

As of December 31, 2012 and 2011, the 

DIF recorded liabilities totaling $21.1 

billion and $32.7 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, there was $56 million and 

$80 million in unpaid deposit claims 

related to multiple receiverships 

as of December 31, 2012 and 2011, 

respectively. The DIF pays these 

liabilities when the claims are 

approved. 

8. Conti ng

Li abi liti

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.

Banking industry performance 

continued to recover in 2012 at a 

gradual, steady pace. According to 

the quarterly financial data submitted 

by IDIs, the industry reported total 

net income of $107.4 billion for 

the first three quarters of 2012, an 

increase of 14.9% over the first three 

quarters of 2011. Improving credit 

performance, which has led to 

lower loan loss provisions, has been 

primarily responsible for most of the 

improvement in earnings. Losses to 

the DIF from failures that occurred in 

2012 fell short of the amount reserved 

at the end of 2011, as the aggregate 

number and size of institution failures 

in 2012 were less than anticipated. 

The removal from the reserve of 

institutions that did fail in 2012, as 

well as projected favorable trends 

in bank supervisory downgrade and 

failure rates, all contributed to a 

decline by $3.3 billion to $3.2 billion in 

the contingent liability for anticipated 

failures of insured institutions at 

December 31, 2012.

In addition to these recorded 

contingent liabilities, the FDIC has 

identified risk 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 

up to $6.3 billion for year-end 2012 as 

compared to $10.2 billion for year-end 

2011. The actual losses, if any, will 

largely depend on future economic 

and market conditions and could differ 

materially from this estimate.

During 2012, 51 institutions failed with 

combined assets at the date of failure 

of $11.8 billion. Supervisory and 

market data suggest that the financial 

performance of the banking industry 

should continue to improve over 

the coming year. However, ongoing 

asset quality problems and limited 

opportunities for earnings growth will 

continue to be sources of stress on 

the industry. In addition, two key risks 

continue to weigh on the economic 

outlook. First, uncertain prospects for 

the European economy have increased 

volatility in the global financial 

markets, which could trigger increased 

volatility in the U.S. financial markets 

and adversely affect the U.S. economy. 

Second, the outcome of continued 

Property and Equipmnt, Ne t at D

Dollars in Thousand

2012 2011

Land $37,352 $37,352

Buildings (including leasehold improvements) 313,221 316,129

Application software (includes work-in-process) 135,059 130,718

Furniture, fixtures, and equipment 152,280 159,120

Accumulated depreciation (245,032) (241,404)

Total $392,880 $401,91

74 Finac
negotiations on the federal debt limit 

and the federal budget in 2013 could 

significantly affect the U.S. economy 

and, in turn, IDIs. The FDIC continues 

to evaluate the ongoing risks to 

affected institutions in light of existing 

economic and financial conditions, 

and the extent to which such risks will 

continue to 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 $8 million and $1 million for 

the DIF as of December 31, 2012 and 

2011, respectively, and has determined 

that there are no reasonably possible 

losses from unresolved cases.

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 of IMFB and the 

respective subsidiaries, including 

mortgage loans and mortgage loan 

servicing rights, to OneWest Bank 

and its affiliates. To maximize sale 

returns, 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. 

Although the representations and 

indemnifications were made by or are 

obligations of the sellers, the FDIC, 

in its corporate capacity, guaranteed 

the receivership’s indemnification 

obligations under the sale agreements. 

The representations relate generally 

to ownership of and right to sell the 

assets; compliance with applicable 

law in the origination of the loans; 

accuracy of the servicing records; 

validity of loan documents; and 

servicing of the loans serviced for 

others. Until the periods for asserting 

claims under these arrangements 

have expired and all indemnification 

claims quantified and paid, losses 

could continue to be incurred by 

the receivership and, in turn, the 

DIF, either directly, as a result of 

the FDIC corporate guaranty of 

the receivership’s indemnification 

obligations, or indirectly, as a result of 

a reduction in the receivership’s assets 

available to pay the DIF’s claims as 

subrogee for insured accountholders. 

The acquirers’ rights to assert 

claims to recover losses incurred as 

a result of breaches of loan seller 

representations extend out to March 

19, 2019 for the Fannie Mae and 

Ginnie Mae reverse mortgage servicing 

portfolios (unpaid principal balance 

of $16.2 billion at December 31, 2012 

compared to $16.7 billion at December 

31, 2011), and March 19, 2014 for the 

Fannie Mae, Freddie Mac and Ginnie 

Mae mortgage servicing portfolios 

(unpaid principal balance of $34.3 

billion at December 31, 2012 compared 

to $38.5 billion at December 31, 2011). 

The acquirers’ rights to assert claims 

to recover losses incurred as a result 

of other third party claims (including 

due to pre-March 19, 2009 acts or 

omissions) and breaches of servicer 

representations, including liability 

with respect to the Fannie Mae, Ginnie 

Mae and Freddie Mac portfolios as 

well as the private mortgage servicing 

portfolio and whole loans (unpaid 

principal balance of $53.9 billion 

at December 31, 2012 compared to 

$62.0 billion at December 31, 2011) 

expired on March 19, 2011. 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 costing of possible cure actions. 

It is highly unlikely that all of these 

potential defects will result in losses.

The IndyMac receivership has paid 

a cumulative total of $14 million in 

approved claims through December 

31, 2012 and a cumulative total of $5 

million through December 31, 2011. 

Additional claims asserted, but under 

review, were accrued in the amount 

of $1 million as of December 31, 2012 

and $2 million as of December 31, 

2011. Alleged breaches of origination 

and servicing representations exist, 

and it is probable that the IndyMac 

receivership and its subsidiary 

Financial Freedom Senior Funding 

Corporation may incur up to $80 

million in losses; these estimated 

losses have been accrued as of 

December 31, 2012. In addition, 

review and evaluation is in process 

for approximately $32 million in 

reasonably possible liabilities with 

respect to alleged breaches of 

representations and warranties. 

Potential losses relating to origination 

and servicing representations, which 

currently cannot be quantified, 

may also be incurred under other 

agreements with investors.

The FDIC believes it is likely 

that additional losses will be 

Finacita
ANNUAL REPORT 2012

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. The difficulty in 

assessing losses is exacerbated further 

by the inability to use historical 

default and loss rates as a metric given 

recent economic events. 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 2012 

and 2011, the FDIC in its corporate 

capacity made no indemnification 

payments under such agreements, and 

no amount has been accrued in the 

accompanying financial statements 

with respect to these indemnification 

guarantees.

FDIC Guaranteed Debt of 

Structured Transactions

The FDIC as receiver uses three 

types of structured transactions to 

dispose of certain performing and 

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 

76 Finac
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 $5.7 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. 

All Structured Transactions 

with FDIC Guaranteed Debt

Through December 31, 2012, 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 $8.1 billion 

to 14 LLCs and 9 trusts. The LLCs 

and trusts subsequently issued 

notes guaranteed by the FDIC in an 

original principal amount of $10.1 

billion. As of December 31, 2012 and 

2011, the DIF collected guarantee 

fees totaling $218 million and $203 

million, respectively, and recorded a 

receivable for additional guarantee 

fees of $95 million and $106 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 straightline basis over the term of the notes. 

At December 31, 2012 and 2011, the 

amount of deferred revenue recorded 

was $101 million and $134 million, 

respectively. The DIF records no 

other structured-transaction-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 percent) of the 

expected guarantee payments by the 

FDIC, reimbursements to the FDIC for 

guarantee payments, and guarantee 

fee collections. The FDIC believes 

that it is reasonably possible that the 

DIF could incur an estimated loss for 

one transaction of $5.7 million in 2020, 

net of expected guarantee fees of $4.2 

million. This estimated loss may vary 

over time as conditions change. 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, 2012 and 2011, 

the maximum loss exposure was $2.2 

billion and $3.7 billion for LLCs and 

$3.2 billion and $3.9 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, 

2012 and 2011, a total of $1.6 billion 

and $2.2 billion, respectively, has been 

deposited into these accounts.

9. ss es

The Dodd-Frank Act provided 

for significant assessment and 

capitalization reforms for the 

DIF. In response, the FDIC 

implemented several changes to the 

assessment system and developed 

a comprehensive, long-term fund 

management plan. The plan is 

Finacita
ANNUAL REPORT 2012

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.

Restoration Plan

In October 2010, 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 in lieu of the 

previous target of 1.15 percent by 

the end of 2016. In addition, the Plan 

provides for the FDIC to 1) pursue 

rulemaking regarding the method that 

will be used to offset the impact of 

the increased reserve ratio on small 

institutions (less than $10 billion 

in assets) and 2) 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.

Designated Reserve Ratio

In December 2012, the FDIC 

adopted a final rule maintaining the 

designated reserve ratio (DRR) at 2 

percent, effective January 1, 2013. 

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.

Calculation of Assessment

In February 2011, the FDIC adopted 

a final rule, effective on April 1, 2011, 

amending part 327 of title 12 of the 

Code of Federal Regulations to 1) 

redefine the assessment base used 

for calculating deposit insurance 

assessments from adjusted domestic 

deposits to average consolidated 

total assets minus average tangible 

equity (measured as Tier 1 capital); 

2) change the assessment rate 

adjustments; 3) lower the initial base 

rate schedule and the total base 

rate schedule for all IDIs to collect 

approximately the same revenue for 

the DIF as would have been collected 

under the old assessment base; 4) 

suspend dividends indefinitely, and, 

in lieu of dividends, adopt lower 

assessment rate schedules when the 

reserve ratio reaches 1.15 percent, 

2 percent, and 2.5 percent; and 5) 

change the risk-based assessment 

system for large IDIs (generally, those 

institutions with at least $10 billion 

in total assets). Specifically, the final 

rule eliminates risk categories and the 

use of long-term debt issuer ratings 

for large institutions and combines 

CAMELS ratings and certain forwardlooking financial measures into 

two scorecards: one for most large 

institutions and another for large 

institutions that are structurally and 

operationally complex or that pose 

unique challenges and risks in case of 

failure (highly complex IDIs).

In October 2012, the FDIC adopted a 

final rule which amends and clarifies 

some definitions of higher-risk assets 

as used in the deposit insurance 

pricing scorecards 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 goal of this final 

rule is to ensure that the assessment 

system captures the risk inherent in 

higher-risk assets without imposing an 

unnecessary reporting burden. The 

final rule will become effective on 

April 1, 2013 and provides that, until 

then, large and highly complex IDIs 

will continue to report higher-risk 

assets using existing guidance. 

Assessment Revenue

Annual assessment rates averaged 

approximately 10.1 cents per $100 

and 11.1 cents per $100 of the new 

assessment base (as described above) 

for all of 2012 and the last three 

quarters of 2011, respectively. The 

annual assessment rate averaged 

approximately 17.6 cents per $100 

of the adjusted domestic deposits 

assessment base for the first quarter 

of 2011.

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 industry-funded. 

For the fourth quarter 2009 and each 

subsequent quarter, an institution’s 

risk-based deposit insurance 

assessment was offset by the available 

amount of prepaid assessments, 

thereby reducing that institution’s 

prepaid assessment balance. By 

regulation, any remaining prepaid 

assessments must be refunded to 

the institutions after collection of 

the amount due on June 30, 2013. 

The final prepaid offset will occur in 

June 2013 for the assessment period 

ending March 31, 2013. Therefore, 

at December 31, 2012, the “Unearned 

revenue – prepaid assessments” line 

item on the Balance Sheet of $1.6 

billion represents the final estimated 

prepaid offset and the “Refunds of 

prepaid assessments” line item reflects 

the estimate of $5.7 billion that will 

78 Finac
be returned to the institutions in June 

2013. Though the combined total for 

both the prepaid offset and refunds 

will remain unchanged, the estimated 

amount for each component may 

vary considerably because of the 

uncertainty inherent in projecting 

the assessment rate and base for IDIs 

beyond the customary 90-day period.

For those institutions that did not 

prepay assessments or whose prepaid 

assessments have been exhausted, 

the “Assessments receivable, net” 

line item on the Balance Sheet of 

$1.0 billion and $282 million as 

of December 31, 2012 and 2011, 

respectively, represents the estimated 

premiums due from IDIs for the fourth 

quarter of 2012 and 2011, respectively.

Reserve Ratio

As of September 30, 2012, the DIF 

reserve ratio was 0.35 percent 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 mixedownership 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 2012 and 2011, 

approximately $797 million and $795 

million, respectively, was collected 

and remitted to the FICO.

10.  Other Rev

Temporary Liquidity 

Guarantee Program Revenue

Pursuant to a systemic risk 

determination in October 2008, the 

FDIC established the TLGP (see Note 

16). 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. 

This accounting practice isolated 

systemic risk activities from the 

normal operating activities of the DIF.

In accordance with FDIC policy, the 

DIF recognized revenue during the 

guarantee period 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. As a result, the 

DIF recognized total revenue of $5.9 

billion and $2.6 billion in 2012 and 

2011, respectively.

11.  Operati ng E

Operating expenses were $1.8 billion 

and $1.6 billion for 2012 and 2011, 

respectively. The chart below lists 

the major components of operating 

expenses.

Othe Re venue or the Ye ars E

Dollars in Thousand

2012 2011

Temporary Liquidity Guarantee Program revenue

(Note 16) $5,885,330 $2,569,579

Dividends and interest on Citigroup trust preferred

securities (Note 5) 177,831 178,000

Guarantee fees for structured transactions (Note 8) 57,206 92,229

Other 6,844 7,121

Total $6,127,211 $2,846,929

Operating Expenses fr the Ye ars En

Dollars in Thousand

2012 2011

Salaries and benefits $1,300,697 $1,320,991

Outside services 337,379 342,502

Travel 106,897 115,135

Buildings and leased space 91,631 93,630

Software/Hardware maintenance 63,108 58,981

Depreciation of property and equipment 76,365 77,720

Other 21,137 46,652

Subtotal 1,997,214 2,055,611 

Services billed to resolution entities (219,701) (430,260)

Total $1,777,513 $1,625,351

Finacita
ANNUAL REPORT 2012

12.  Provisi o

Insu rance 

Provision for insurance losses 

was negative $4.2 billion for 2012, 

compared to negative $4.4 billion for 

2011. The negative provision for 2012 

primarily resulted from a reduction 

of $1.4 billion in the contingent loss 

reserve due to the improvement in 

the financial condition of institutions 

that were previously identified to fail 

and a decrease of $2.8 billion in the 

estimated losses for institutions that 

failed in the current and prior years. 

13.  Employee Be

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 FDIC-sponsored 

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.

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 

postretirement benefit obligation. 

At December 31, 2012 and 2011, 

the liability was $224 million and 

$188 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 $60 million and $34 

million at December 31, 2012 and 

2011, 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 2012 and 2011 were $14 

million and $12 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 

Pensin Be nefi ts and Savings P

for th Ye ars Ended De

Dollars in Thousand

2012 2011

Civil Service Retirement System $5,960 $6,140

Federal Employees Retirement System (Basic Benefit) 97,517 95,846

FDIC Savings Plan 37,700 36,645

Federal Thrift Savings Plan 34,555 33,910

Total $175,732 $172,541

80 Finac
losses and prior service costs for 

2012 and 2011 of $27 million and $15 

million, respectively, are reported as 

other comprehensive income in the 

“Unrealized postretirement benefit 

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 3.75 percent, the 

rate of compensation increase of 4.0 

percent, and the dental coverage trend 

rate of 5.6 percent. The discount rate 

of 3.75 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. Commit ment

Off -Balance-

Exposu

Commitments:

Leased Space

The FDIC’s lease commitments total 

$216 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 

$54 million and $56 million for the 

years ended December 31, 2012 and 

2011, respectively.

Off-Balance-Sheet Exposure:

Deposit Insurance

Estimates of insured deposits are 

derived primarily from quarterly 

financial data submitted by IDIs to the 

FDIC and represent the accounting 

loss that would be realized if all 

IDIs were to fail and the acquired 

assets provided no recoveries. As of 

September 30, 2012 and December 

31, 2011, estimated insured deposits 

for the DIF were $7.3 trillion and $7.0 

trillion, respectively, including $1.5 

trillion and $1.4 trillion, respectively, 

of noninterest-bearing transaction 

deposits that exceeded the basic 

limit of $250,000 per account. Under 

the Dodd-Frank Act, noninterestbearing transaction deposits received 

unlimited deposit insurance coverage 

from December 31, 2010 through 

December 31, 2012. Upon expiration 

of this unlimited coverage on 

December 31, 2012, these deposits 

pose no further exposure to the DIF.

Leased Space Com

Dollars in Thousand

2013 2014 2015 2016 2017

2018/

Thereafter

$52,160 $46,521 $36,496 $33,509 $29,068 $18,511

Finacita
ANNUAL REPORT 2012

15. Disc losu 

the Fair Va

of Financi

Inst ru

Financial assets recognized 

and measured at fair value on a 

recurring basis at each reporting 

date include cash equivalents (Note 

2), the investment in U.S. Treasury 

obligations (Note 3) and trust 

preferred securities (Note 5). The 

following tables present the DIF’s 

financial assets measured at fair value 

as of December 31, 2012 and 2011.

In exchange for prior shared-loss 

guarantee coverage provided to 

Citigroup, the FDIC and the Treasury 

received TruPs (see Note 5). At 

December 31, 2012, the fair value of 

the securities in the amount of $2.264 

billion was classified as a Level 2 

measurement based on an FDICdeveloped model using observable 

market data for traded Citigroup 

securities to determine the expected 

present value of future cash flows. 

Key inputs include market yields 

on U.S. dollar interest rate swaps 

and discount rates for default, call, 

and liquidity risks that are derived 

from traded Citigroup securities and 

modeled pricing relationships. 

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.

82 Finac
Asset Me asured at Fair Value at Dece m

Dollars in Thousand

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

Asset

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

Available-for-Sale Debt Securitie

Investment in U.S. Treasury obligations2 34,868,688 34,868,

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

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 

U.S. Bureau of Public Debt. 

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

Asset Me asured at Fair Value at Dece m

Dollars in Thousand

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

Asset

Cash equivalents1 $3,266,631 $3,266,

Available-for-Sale Debt Securitie

Investment in U.S. Treasury obligations2 33,863,245 33,863,

Trust preferred securities $2,213,231 2,213,

Trust preferred securities held for UST (Note 5) 795,769 795,

Total Assets $37,129,876 $3,009,000 $0 $40,138,876 

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

U.S. Bureau of Public Debt. 

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

Finacita
ANNUAL REPORT 2012

16. Syst eic

Transact

Pursuant to a systemic risk 

determination, the FDIC established 

the TLGP (codified in part 370 of title 

12 of the Code of Federal Regulations) 

for IDIs, designated affiliates and 

certain holding companies on October 

14, 2008, in an effort to counter the 

system-wide crisis in the nation’s 

financial sector. The DIF received 

fees in exchange for guarantees 

issued under the TLGP and set aside, 

as deferred revenue, all fees for 

potential TLGP losses. As systemic 

risk expenses were incurred, the 

DIF reduced deferred revenue and 

recognized an offsetting amount as 

systemic risk revenue. Also, DIF 

recognized systemic risk revenue 

when guarantee fees held were 

determined to be in excess of amounts 

needed to cover potential losses. As 

a result, systemic risk activities were 

isolated from the normal operating 

activities of the DIF.

At its inception, the TLGP consisted of 

two components: 1) the Transaction 

Account Guarantee Program (TAG) 

and 2) the Debt Guarantee Program 

(DGP). The TAG provided unlimited 

coverage for noninterest-bearing 

transaction accounts held by IDIs 

on all deposit amounts exceeding 

the fully insured limit of $250,000 

through December 31, 2010. During 

its existence, the FDIC collected TAG 

fees of $1.2 billion. Total subrogated 

claims arising from obligations to 

depositors with noninterest-bearing 

transaction accounts were $8.8 billion, 

with estimated losses of $2.1 billion.

The DGP permitted participating 

entities to issue FDIC-guaranteed 

senior unsecured debt through 

October 31, 2009. The FDIC’s 

guarantee for all such debt expired 

no later than December 31, 2012. 

Through the end of the debt issuance 

period, the DIF collected $8.3 billion of 

guarantee fees and received additional 

fees of $1.2 billion from participating 

entities that elected to issue senior 

unsecured non-guaranteed debt. 

During the program, guaranteed debt 

issued totaled $618.0 billion and the 

FDIC paid $153 million in claims for 

principal and interest arising from the 

default of guaranteed debt obligations 

of six debt issuers. 

The expiration of the guarantee 

period for the DGP on December 

31, 2012 marked the conclusion of 

the TLGP. As established under 

terms of the TLGP, all excess funds 

were transferred to the DIF. Since 

inception, the DIF recognized total 

“Other revenue” of $8.5 billion 

(see Note 10). In 2012, the DIF 

received $5.2 billion of cash and a net 

receivable of $693 million included 

in “Receivables from resolutions, 

net”. The net receivable represents 

estimated recoveries on payments 

under the TLGP to cover obligations. 

In 2011, the DIF received $2.6 billion 

of cash and U.S. Treasury obligations.

17. Subs equen

Subsequent events have been 

evaluated through February 14, 2013, 

the date the financial statements are 

available to be issued.

2013 Failures through 

February 14, 2013

Through February 14, 2013, two 

insured institutions failed in 2013 with 

total losses to the DIF estimated to be 

$43 million. 

TLGP Summary (Ince ption through Dece mb

Dollars in Thousand

Collections:

Transaction Account Guarantee Program fees $1,156,332

Debt Guarantee Program fees 9,490,993

Interest earned on TLGP funds 42,293

 Total TLGP Fees and Interest Earned $10,689,618 

Payments

Transaction Account Guarantee Program claims $(8,769,873)

Less: Receipts of receivership dividends 6,016,

Net Transaction Account Guarantee

Program claims

(2,753,276)

Debt Guarantee Program claims paid (153,127)

TLGP operating expenses (6,707)

 Total TLGP Claims and Expenses Paid $(2,913,110)

Cash Transferred to the DIF 7,776,508 

Estimated Recovery on TAG Claims Paid 693,248

Excess TLGP Assets Transferred to the DIF $8,46

84 Finac
 FSLIC Resolutio

Fede ral Deposit Insurance Corp

FSL I Re solution Fund Balance Shee t 

Dollars in Thousand

2012 2011

Asset

Cash and cash equivalents $3,594,007 $3,533,410

Receivables from thrift resolutions and other assets, net (Note 3) 5,456 65,163

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

Total Assets $3,955,918 $3,955,028 

Liabilities

Accounts payable and other liabilities $2,442 $3,544

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

Total Liabilities 358,897 359,999 

Resolution Equit  (Note

Contributed capital 128,056,656 127,875,656

Accumulated deficit (124,459,635) (124,280,627)

Total Resolution Equity 3,597,021 3,595,029 

Total Liabilities and Resolution Equity $3,955,918 $3,955,028 

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

Finacita
ANNUAL REPORT 2012

FSLIC Resolutio

Fede ral Deposit Insurance Cor

FSL I Re solution Fund Statement o Income and

for th Ye ars Ended D

Dollars in Thousand

2012 2011

Revenu

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

Other revenue 2,549 3,

Total Revenue 5,007 4,618 

Expenses and Loss

Operating expenses 4,165 4,

Provision for losses (1,408) (8,5

Goodwill litigation expenses (Note 4) 181,000 82,

Recovery of tax benefits 0 (18,3

Other expenses 258 

Total Expenses and Losses 184,015 60,874 

Net Loss (179,008) (56,256)

Accumulated Deficit - Beginning (124,280,627) (124,224,371)

Accumulated Deficit - Ending $(124,459,635) $(124,280,627)

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

86 Finac
FSLIC Resolutio

Fede ral Deposit Insurance Cor

FSL I Re solution Fund Statement of C

for th Ye ars Ended D

Dollars in Thousand

2012 2011

Operating Activiti

Net Loss $(179,008) $(56,256)

Adjustments to reconcile net loss to

net cash (used) by operating activities: 

Provision for losses (1,408) (8,578)

Change in Operating Assets and Liabiliti

Decrease (Increase) in receivables from thrift resolutions and other assets 61,115 (33,177)

(Decrease) Increase in accounts payable and other liabilities (1,102) 554

Increase in contingent liabilities for goodwill litigation 0 32,960

Net Cash (Used) by Operating Activities (120,403) (64,497)

Financing Activitie

Provided by

	 U.S. Treasury payments for goodwill litigation (Note 4) 181,000 50,000

Net Cash Provided by Financing Activities 181,000 50,000 

Net Increase (Decrease) in Cash and Cash Equivalents 60,597 (14,497)

Cash and Cash Equivalents - Beginning 3,533,410 3,547,907 

Cash and Cash Equivalents - Ending $3,594,007 $3,533,410 

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

Finacita
ANNUAL REPORT 2012

Notes to the Financial Statements

FSLIC Resoluti 

December 31, 2012 and 2011

1. Operati 

Diss olu

of the FSL

Resoluti 

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 

(RTC Completion Act) 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 13 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 from 

2 to 14 years remaining to enforce, 

unless the judgments are renewed, 

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 through 2014); 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 

sharing of up to approximately $40 

million; however, any associated 

recoveries are not reflected in 

88 Finac
FRF’s financial statements given the 

significant uncertainties surrounding 

the ultimate outcome. The FDIC will 

consider returning a portion of the 

FRF-FSLIC’s remaining funds of $3.4 

billion to the U.S. Treasury in 2013.

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 

Signif

Acc oun

Poli

Genera

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 

interests in them. Periodic and final 

accountability 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 

allowance for losses on receivables 

from thrift resolutions 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.

Disclosure about Recent 

Relevant Accounting 

Pronouncements

Recent accounting pronouncements 

have been deemed to be not applicable 

or material to the financial statements 

as presented.

3.  Receiv

from Th

Resoluti 

Ot he Ass 

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, 2012, three of the 850 

FRF receiverships remain active until 

their liability-related impediments are 

resolved. 

The FRF receiverships held assets 

with a book value of $13 million 

and $15 million as of December 31, 

2012 and 2011, respectively (which 

primarily consist of cash held for 

non-FRF, third party creditors). 

Other Assets

Other assets decreased by $59 million 

to $3 million primarily due to the 

collection of a receivable for tax 

benefits sharing of $44 million and 

the release of the credit enhancement 

Finacita
ANNUAL REPORT 2012

reserves of $13 million (see Note 4, 

Contingent Liabilities for: Guarantees). 

The tax benefits sharing collection 

represented the FRF’s share of tax 

savings by entities that either entered 

into assistance agreements with the 

former FSLIC, or have subsequently 

purchased financial institutions that 

had prior agreements with the FSLIC. 

4. Conti ng

Li abi lit

Goodwill Litigatio

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-RTC, which 

encompasses the obligations of the 

former RTC and was created upon the 

termination of the RTC on December 

31, 1995, is not available to pay any 

settlements or judgments arising out 

of the goodwill litigation. 

The FRF can draw from an 

appropriation provided by Section 

110 of the Department of Justice 

Appropriations Act, 2000 (Public 

Law 106-113, Appendix A, Title I, 113 

Stat. 1501A-3, 1501A-20) such sums 

as may be necessary for the payment 

of judgments and compromise 

settlements in the goodwill litigation. 

This appropriation is to remain 

available until expended. Because 

an appropriation is available to pay 

such judgments and settlements, 

any estimated liability for goodwill 

litigation should have a corresponding 

receivable from the U.S. Treasury and 

therefore have no net impact on the 

financial condition of the FRF. 

For the year ended December 31, 

2012, the FRF paid $181 million as a 

result of a settlement in one goodwill 

case compared to $50 million for 

one goodwill case in 2011. The FRF 

received appropriations from the 

U.S. Treasury to fund these payments.

As of December 31, 2012, two 

remaining cases are active and 

pending against the United States 

based on alleged breaches of the 

agreements stated above. Of these 

two remaining cases, a contingent 

liability and an offsetting receivable 

of $356 million was recorded for one 

case as of December 31, 2012 and 

2011. 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 the other remaining 

active case, no awards were given to 

the plaintiffs by the appellate court. 

This case is fully adjudicated but the 

Court of Federal Claims is considering 

awarding litigation costs to the 

United States. 

At December 31, 2011, there were five 

active cases. For three of the cases 

considered active at year end 2011, 

one was settled and paid during 2012 

and two were fully adjudicated with 

no award; in one of these two cases 

the Court of Federal Claims awarded 

litigation costs of $231 thousand to the 

United States, which was paid in 2012.

In addition, the FRF-FSLIC pays the 

goodwill litigation expenses incurred 

Receivables fro Thrif t Re solutions 

Ne t at Dece mb

Dollars in Thousand

2012 2011

Receivables from closed thrifts $869,917 $1,800,417

Allowance for losses (867,208) (1,797,154)

Receivables from Thrift Resolutions, Net 2,709 3,2

Other assets 2,747 61,900

Total $5,456 $ 65,163 

90 Finac
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 2012, 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 2013 expenses. 

Guarini Litigatio

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. More 

definitive information may be available 

during 2013, after the Internal Revenue 

Service (IRS) completes its Large Case 

Program audit on the affected entity’s 

2006 returns; this audit remains 

ongoing. As of December 31, 2012, no 

liability has been recorded. The FRF 

does not expect to fund any payment 

under this guarantee. 

Guarantee

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 

73 multi-family loans totaling 

$10 million. Based on a contingent 

liability assessment of this portfolio, 

the average loan-to-value ratio is 21%, 

the majority of the loans are at least 

60% amortized, and all are scheduled 

to mature within three to eight 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, 2012.

5. Resoluti o

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.

Contributed Capital

The FRF-FSLIC and the former RTC 

received $43.5 billion and $60.1 billion 

from the U.S. Treasury, respectively, 

to fund losses from thrift resolutions 

prior to July 1, 1995. Additionally, 

the FRF-FSLIC issued $670 million in 

capital certificates to the Financing 

Corporation (a mixed-ownership 

government corporation established to 

function solely as a financing vehicle 

for the FSLIC) and the RTC issued 

Resolution Equity at Dece mber 

Dollars in Thousand

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

Finacita
ANNUAL REPORT 2012

$31.3 billion of these instruments to 

the REFCORP. FIRREA prohibited the 

payment of dividends on any of these 

capital certificates.

FRF-FSLIC received $181 million in 

U.S. Treasury payments for goodwill 

litigation in 2012. Furthermore, $356 

million was accrued for as receivables 

as of December 31, 2012 and 2011. 

Through December 31, 2012, 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, 2012, the 

FRF-RTC has returned $4.6 billion to 

the U.S. Treasury and made payments 

of $5.0 billion to the REFCORP. These 

actions serve to reduce contributed 

capital. The most recent payment to 

the REFCORP was in January of 2008 

for $225 million. 

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. Disc losu 

the Fair Va

of Financi

Inst ru

The following table presents the FRF’s 

financial assets measured at fair value 

on a recurring basis as of December 

31, 2012 and 2011.

Asset Me asured at Fair Value at Dece 

Dollars in Thousand

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

Asset

Cash equivalents1 $3,425,097 $3,425,097

Total Assets $3,425,097 $0 $0 $3,425,097 

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

U.S. Bureau of Public Debt. Cash equivalents are included in the “Cash and cash equivalents” line item. 

 

Asset Me asured at Fair Value at Dece m

Dollars in Thousand

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

Asset

Cash equivalents1 $3,377,203 $3,377,203

Credit enhancement reserves2 $14,431 14,431

Total Assets $3,377,203 $14,431 $0 $3,391,634

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

U.S. Bureau of Public Debt. Cash equivalents are included in the “Cash and cash equivalents” line item.

2 Credit enhancement reserves are valued by performing projected cash flow analyses using market-based assumptions.

92 Finac
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.

The net receivable from thrift 

resolutions is influenced by the 

underlying valuation of receivership 

assets. This corporate receivable is 

unique and the estimate presented 

is not necessarily indicative of the 

amount that could be realized in a 

sale to the private sector. Such a sale 

would require indeterminate, but 

substantial, discounts for an interested 

party to profit from these assets 

because of credit and other risks. 

Consequently, it is not practicable to 

estimate its fair value.

Finacita
ANNUAL REPORT 2012

Governmen Acc ounabilit 

94 Finac
Governmen Acc ounabilit y Offic e’s 

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Governmen Acc ounabilit y Offic e’s 

96 Finac
Governmen Acc ounabilit y Offic e’s 

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Governmen Acc ounabilit y Offic e’s 

98 Finac
Governmen Acc ounabilit y Offic e’s 

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Governmen Acc ounabilit y Offic e’s 

100 Finac
Governmen Acc ounabilit y Offic e’s 

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Management’s Re

Appendix I

102 Finac
Management’s Response (cont

Finacitat
ANNUAL REPORT 2012

Overview 

the Indu

The 7,181 FDIC-insured commercial 

banks and savings institutions that 

filed financial results for the first 

nine months of 2012 reported net 

income of $106.9 billion, an increase 

of 15.0 percent compared to the first 

nine months of 2011. This is the 

third consecutive year that industry 

earnings have registered a year-overyear increase. The improvement in 

earnings was attributable to lower 

expenses for loan-loss provisions, 

increased noninterest income, 

higher realized gains on securities 

and other assets, and growth in net 

interest income. Two out of every 

three institutions reported year-overyear increases in net income, and 

the percentage of institutions with 

negative net income for the first nine 

months of the year fell to 10.7 percent, 

down from 15.9 percent a year earlier.

The average return on assets (ROA) 

for the first nine months was 1.02 

percent, up from 0.92 percent for 

the same period of 2011. This is the 

highest nine-month industry ROA 

since 2007. More than half of insured 

institutions (57.7 percent) had higher 

ROAs in 2012 than in 2011. Insured 

institutions set aside $43.3 billion in 

provisions for loan and lease losses 

during the first nine months of 2012, a 

decline of $14.4 billion (25.0 percent) 

compared to the same period in 

2011. The industry’s total noninterest 

income increased by $10.3 billion (5.9 

percent), as income from loan sales 

rose by $9.3 billion (201.9 percent). 

Total noninterest expenses were $9.3 

billion (3.0 percent) higher, led by a 

$6.6 billion (5.0-percent) increase in 

salary and benefit expenses.

A challenging environment of low 

short-term interest rates combined 

with a flat yield curve contributed to 

a decline in the industry’s net interest 

margin in 2012. The average margin 

fell from 3.61 percent in the first three 

quarters of 2011 to 3.46 percent for the 

first three quarters of 2012. However, 

the industry’s interest-earning assets 

grew by 4.6 percent from the end of 

September 2011 through the end of 

September 2012, helping to boost net 

interest income by $1.9 billion (0.6 

percent).

Indicators of asset quality continued to 

improve in 2012. In the twelve months 

ended September 30, total noncurrent 

loans and leases -- those that were 

90 days or more past due or in 

nonaccrual status – declined by $22.2 

billion (7.1 percent). Loans secured 

by real estate properties accounted for 

more than half ($13.0 billion) of the 

reduction in noncurrent loans. New 

accounting and reporting guidelines 

resulted in a $14.9 billion (8.1 percent) 

increase in the amount of noncurrent 

1-4 family residential real estate loan 

balances reported, but this increase 

did not represent deterioration 

in the underlying performance of 

these loans. Noncurrent real estate 

construction and development loans 

fell by $17.0 billion (45.9 percent), and 

noncurrent real estate loans secured 

by nonfarm nonresidential properties 

declined by $8.2 billion (19.6 percent). 

Noncurrent balances in all other major 

loan categories declined, led by loans 

to commercial and industrial (C&I) 

borrowers (down $5.0 billion, or 26.1 

percent). Net charge-offs of loans and 

leases (NCOs) totaled $64.4 billion 

in the first three quarters of 2012, a 

decline of $23.5 billion (26.7 percent) 

over the same period in 2011. Credit 

card NCOs registered the largest yearover-year decline, falling by $9.3 billion 

(31.4 percent). Net charge-offs of real 

estate construction and development 

loans declined by $4.0 billion (56.4 

percent), C&I NCOs were $2.8 billion 

(32.6 percent) lower than in the first 

nine months of 2011, and NCOs in 

all other major loan categories also 

posted significant declines. At the end 

of September 2012, there were 694 

institutions on the FDIC’s “Problem 

List,” down from 844 “problem” 

institutions a year earlier. 

Asset growth remained modest in 

2012, but loan balances increased, 

after three consecutive years of 

contraction. During the 12 months 

ended September 30, total assets 

of insured institutions increased by 

$411.0 billion (3.0 percent). Loans and 

leases accounted for more than half 

of the increase in total assets, rising 

by $267.8 billion (3.7 percent). C&I 

loans increased by $173.6 billion (13.5 

percent), residential mortgage loans 

rose by $33.2 billion (1.8 percent), auto 

loans increased by $19.8 billion (6.7 

percent) and real estate loans secured 

by multifamily residential properties 

were up by $10.9 billion (5.0 percent). 

In contrast, real estate construction 

and development loans fell by $44.3 

billion (17.4 percent), and home equity 

loans declined by $41.0 billion (6.7 

percent). 

Growth in deposits outpaced the 

increase in total assets. In the 12 

months ended September 30, total 

deposits of insured institutions 

increased by $504.0 billion (5.0 

percent). Deposits in domestic 

offices rose by $554.9 billion, (6.5 

percent), while foreign office 

deposits fell by $50.9 billion. Much 

104 Finac
of the increase in domestic deposits 

occurred in balances in noninterestbearing transaction accounts that 

have temporary full FDIC insurance 

coverage. These accounts increased 

by $301.8 billion (21.7 percent), 

with $276.9 billion of the increase 

consisting of balances above the 

basic FDIC coverage limit of $250,000. 

Nondeposit liabilities declined by 

$152.3 billion (6.8 percent), while 

equity capital rose by $59.2 billion (3.8 

percent).

Finacitat