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Federal Deposit Insurance Corporation
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The Federal Deposit Insurance

Mission

Corporation (FDIC) is the independent
deposit insurance agency created by Congress
in 1933 to m a in ta in s ta b ility and public
confidence in the nation's banking system .

The FDIC contributes to s ta b ility and public
confidence in the nation's finan cial system
by insuring deposits, exam ining and super­
vising financial institutions, and managing
receiverships.

In its unique role as deposit insurer of banks
and savings associations, and in cooperation
w ith the other state and federal regulatory
agencies, th e FDIC prom otes the safety and
soundness of insured depository institutions
and the U.S. financial system by identifying,
m onitoring and addressing risks to the deposit
insurance funds.
The FDIC prom otes public understanding and
sound public policies by providing finan cial
and econom ic inform ation and analyses. It
m inimizes disruptive effects from the fa ilu re
of banks and savings associations. It assures
fairness in th e sale of finan cial products and
the provision of finan cial services.
The FDIC's long and continuing tra d itio n of
public service is supported and sustained by
a highly skilled and diverse w orkforce th at
responds rapidly and successfully to changes
in the finan cial environm ent.

Vision
The FDIC is an org an iza tio n dedicated
to id e n tify in g , analyzing and addressing
existing and emerging risks in order to promote
s ta b ility and public confidence in the na tio n’s
financial system.




The FDIC has identified seven core values that guide corporate operations. The values reflect the
ideals th a t th e FDIC expects all o f its em ployees to strive fo r as they accom plish the tasks needed
to fu lfill the mission.
1 Financial Stewardship
The FDIC is com m itted to being a responsible
fiducia ry in its e ffo rts to provide insured
in stitu tio n s the best value fo r th e ir contribu­
tions to th e insurance funds.
2 Effectiveness
The FDIC's reputation rests on its profession­
alism, its adherence to th e highest ethical
standards, and its skilled and dedicated
w orkforce.
3 Responsiveness
The FDIC strives to respond rapidly, innovatively
and effectively to risks to th e financial system.
It w orks effectively w ith other federal and
state supervisors to achieve consistency in
policy and regulation. It seeks and considers
inform ation from the Congress, the financial
in stitution industry, individuals seeking and
receiving financial services, and others outside
the FDIC in the developm ent of policy. The
FDIC seeks to m inim ize regulatory burden
w h ile fu lfillin g its statutory responsibilities.
4 Teamwork
The FDIC promotes and reinforces a corporate
perspective and challenges its em ployees
to w ork cooperatively across internal and
external organizational boundaries.

5 Fairness
The FDIC strives to tre a t everyone fa irly
and equitably. It exercises its responsibilities
w ith care and im partiality, promotes a w ork
environm ent th a t is free of discrim ination
and values diversity, and adheres to equal
opportunity standards.
6 Service
The FDIC's long and c ontinu ing tra d itio n
o f public service is supported and sustained
by a highly skilled and diverse w orkforce th a t
responds rapidly and successfully to change.
7 Integrity
The FDIC strives to perform its w o rk w ith
th e highest sense of integrity, requiring the
agency to be, am ong other things, honest
and fair. The FDIC can accom m odate the
honest difference o f opinion; it cannot
accom m odate the com prom ise o f principle.
Integrity is measured in term s of w h a t is
rig ht and ju st, standards to w hich the FDIC
is com m itted.




FDIC
Federal Deposit Insurance Corporation
550 17th St. NW Washington DC, 20429

Office of the Chairman

March 31, 2003

Sirs,

In accordance with:
• the provisions o f section 17(a) o f the Federal Deposit Insurance Act,
• the C hief Financial Officers Act o f 1990, Public Law 101-576, and
• the Government Performance and Results Act o f 1993,
the Federal Deposit Insurance Corporation is pleased to submit its
2002 Annual Report.

1. Powell
Chairman

The President of the United States
The President of the United States Senate
The Speaker of the United States House of Representatives

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Message from the Chairman
Message from the Chief Financial O fficer

I. M anagement’s Discussion and Analysis

4

8

10

Operations of the Corporation - The Year in Review
insurance
Supervision
Receivership M anagem ent
Operating M ore Efficiently

10
10
13
16
17

Financial Highlights
Deposit Insurance Fund Performance
Corporate Budgeting
Capital Investm ent Review C om m ittee

19
19
21
21

II. Performance Results
Summary of 2002 Performance Results by Program
2002 Budget and Expenditures by Program
Program Performance Results
Multi-Year Performance Trend
Program Evaluation

III. Financial Statements and Notes
Bank Insurance Fund (BIF)
Savings Association Insurance Fund (SAIF)
FSLIC Resolution Fund (FRF)
GAO's A udit Opinion
Managem ent's Response
Overview of the Industry

IV. Management Controls
Material W eaknesses
High Vulnerability Issues
M atters fo r Continued Monitoring
Internal Controls and Risk M anagem ent Program

V. Appendixes

22
22
24
25
30
38

40
40
60
80
98
104
105

106
107
107
108
109

110

A. Key Statistics

110

B. M ore A bout the FDIC

122

C. O ffice o f Inspector General's M anagem ent and
Performance Challenges Facing the FDIC

129

Index

131

M essage
from the
Chairman







I am pleased to present the Federal Deposit Insurance Corporation's (FDIC) 2002
Annual Report. It was a productive year at the FDIC. W e m et all of our major
statutory responsibilities, conducting over 2,500 safety and soundness examina­
tions and over 1,800 compliance examinations of FDIC-supervised institutions
and resolving the failure o f 11 FDIC-insured institutions. In addition, w e made
substantial progress tow ard our goal of strengthening the Corporation and
positioning it to carry out its responsibilities m ore efficiently and effectively
in the future.
I w ould like to highlight ju st a fe w of our m ost significant accom plishm ents
during 2002:
•

W e moved deposit insurance reform from a concept to Capitol Hill. The
House of Representatives overw helm ingly passed deposit insurance reform
legislation in 2002, and w e are looking forw ard to passing deposit insurance
reform out of the House and Senate before the end o f 2003.

•

W e im plem ented a ne w streamlined organizational structure that is based on
our three major lines of business - insurance, supervision, and receivership
management - and substantially reduced the num ber of management and
support positions w ithin the Corporation. In conjunction w ith these changes,
w e put in place a new management team com m itted to transforming corporate
operations for the future, and w e delegated increased authority and responsi­
bility to low er organizational levels in order to m ove decision-making closer
to the bankers and other stakeholders w ith w hom w e work.

•

W e largely com pleted the staffing reductions that w ere required to bring the
size o f our w orkforce into line w ith the decline in our workload resulting from
institutional consolidation w ithin the banking industry, and the com pletion
of residual w o rk from the banking and th rift crises of the late 1980s and early
1990s. This ongoing e ffo rt w ill continue to be a priority at the FDIC as w e
seek to be m ore efficient and better stew ards o f the insurance funds. The
centerpiece of this e ffo rt was a highly successful buyout program in w hich
approximately 700 employees accepted buyout packages that w ere
targeted to elim inate em ployee surpluses and address skills imbalances.

•

W e continued to shift our use of resources to pay even greater attention
to the institutions that represent the greatest potential risk to the insurance
funds. Two new major programs w ere initiated in 2002 to address this
concern:
•

Dedicated Examiner Program
W e, w ith th e cooperation of our fe llo w regulators, have assigned
"d e d ica te d " examiners to each of the eight largest insured banking
institutions to monitor their operations and provide more tim ely information
about emerging risks. Our examiners w ill w ork closely w ith their counter­
parts at the federal financial regulatory agencies that are the primary
supervisors of those institutions and provide real-time access to information
on those institutions.




•

MERIT Program
The new Maximum Efficiency, Risk-Focused, Institution-Targeted (MERIT)
Guidelines Program provides fo r the use of risk-focused examination
procedures at FDIC-supervised institutions w ith assets o f less than
$250 million that are well-managed, well-capitalized and m eet other
program criteria. The program ensures that our resources are focused
on those institutions that pose the greatest risk to the insurance funds,
w hile preserving the integrity o f the examination process.

W e expanded our "M o n e y Sm art" program through alliances w ith over
300 national and regional organizations and have recently focused on
m easurem ent of the results of these programs. M oney Smart is a financial
education program developed to address grow ing national concern over the
proliferation o f predatory lending practices, and to help bring people w ith little
or no banking experience into the financial mainstream.
W e expanded our efforts to dissem inate inform ation, stim ulate discussion,
and address the risks facing the financial services industry by hosting
three symposia on some of the m ost important issues now facing the banking
industry. These symposia brought together som e of the best minds in the
business to discuss financial transparency and disclosure, risk management,
deposit insurance pricing, and other factors affecting the econom ic landscape
fo r banks and the insurance funds. W e also launched an electronic news
bulletin called FYI to provide insured institutions and other interested parties
high-quality analysis of emerging risks and other issues of concern to the
banking industry.
W e continued to be vigilant concerning the adequacy of corporate governance.
As such, w e initiated various measures designed to m itigate the risk of
increased public concern regarding accounting practices and oversight and
the adequacy of corporate governance, w hich in part, prom pted passage
of the Sarbanes-Oxley A ct of 2002. W e are reviewing board activities, ethics
policies and practices o f the banks the FDIC supervises and auditor independ­
ence requirements. In early 2003, w e issued guidance to institutions about
the Sarbanes-Oxley Act, including the actions the FDIC encourages institutions
to take to ensure sound corporate governance.
W e established an Advisory C om m ittee on Banking Policy that w ill give
us the benefit of some of the m ost talented and experienced people in
governm ent, business and banking as w e attem pt to reshape the FDIC
fo r the future.

W e w ill build on this solid record of accom plishm ents in 2003. W e w ill continue
to fulfill our stew ardship responsibilities to the insurance funds through an
effective supervisory program that prom ptly identifies and addresses emerging
risks and a receivership management program that minimizes, to the extent
possible, the cost o f insured institution failures. W e w ill continue to disseminate
high-quality inform ation and analysis on major issues and to provide leadership
fo r the adoption of appropriate policy and regulatory changes. And, w e w ill
continue to strive to contain our operational costs and to improve our operational
efficiency and effectiveness.
It has been an honor to serve as Chairman o f the FDIC during this past year.
As a form er banker, I know how im portant the FDIC's w o rk is to the stability
of our economy and to the peace of mind of depositors w ho rely on the promise
represented by the FDIC seal displayed at insured institutions all across the
country.
W e at the FDIC w ill continue to do everything possible to give the financial
institutions the best value fo r their contributions to the deposit insurance funds,
to diligently play our part in ensuring economic stability through good stew ard­
ship of those funds and forward-thinking policy solutions, and to remain a symbol
of confidence upon w hich American consum ers can depend.

Sincerely,

Donald E. Powell







I am pleased to report that, fo r the
eleventh consecutive year, the FDIC has
received unqualified "clean" opinions from
the U.S. General Accounting O ffice (GAO)
on audits of its 2002 financial statements
for the Bank Insurance Fund (BIF), Savings
A ssociation Insurance Fund (SAIF),
and Federal Savings and Loan Insurance
Corporation Resolution Fund (FRF). These
clean opinions a ttest to the fact that our
financial statements are fairly presented and
dem onstrate discipline and accountability
in the execution of our responsibilities as
ste w a rd s o f these funds.
The Corporation's investm ent strategy reflects prudent m anagem ent of the
$32.1 billion BIF and $11.7 billion SAIF. It is notew orthy that the interest earned
on investm ent securities last year accounted fo r 94.2 percent of revenues fo r
the BIF and 95.8 percent of revenues for the SAIF, w ith $2.26 billion in combined
interest earned. A nother notew orthy result in 2002 w as the large accumulation
o f unrealized gains on Available for Sale (AFS) securities, particularly in the BIF.
For 2002, the BIF accumulated unrealized gains of $566 million, and the SAIF
accum ulated unrealized gains of $192 million. In part, th e large balances of
unrealized gains helped to maintain the reserve ratios o f the funds above the
Designated Reserve Ratio (DRR), w hich benefited the industry by avoiding
insurance assessm ent prem ium payments. These tw o factors combined - strong
earnings on the investm ent portfolio and unrealized gains - helped to boost the
BIF by $1.6 billion, the largest calendar year increase since 1995.
Several initiatives focused on reengineering business processes to improve cost
m easurem ent and containment. The FDIC budget w as restructured to reflect an
ongoing operations com ponent, a receivership operations com ponent, and an
investm ent com ponent to help better manage expenses. As a result o f aggres­
sive e fforts to stream line corporate operations during 2002, the 2003 budget
includes estim ated spending of $1.1 billion, w hich is seven percent low er than
2002 spending. The FDIC also established new and more rigorous procedures
fo r reviewing proposed capital investm ents. The centerpiece o f this new
process is the Capital Investm ent Review C om m ittee (CIRC), w hich w ill be
responsible fo r reviewing all major proposed inform ation technology and other
investm ent initiatives before they are funded. The CIRC w ill carefully assess the
projected return on investment of each proposed project, and ensure that there is
a sound business case fo r each project.

The Corporation initiated w o rk on tw o major investm ent projects during 2002:
•

In March, the Board of Directors unanimously approved the expansion of our
Seidman Center office com plex in Northern Virginia. The expanded facility w ill
house an additional 1,100 employees w h o are now w orking in leased space
in do w ntow n W ashington, DC. W e expect to break ground fo r the expanded
facility in 2003, w ith com pletion scheduled fo r 2006. This expansion w ill
reduce future facility costs by an estim ated $78 million (net present value)
over the next 20 years.

•

During the fourth quarter, w e began developm ent o f an integrated financial
system , scheduled to be implem ented in July 2004. This "N e w Financial
Environm ent" w ill improve business processes by adopting the best business
practices built into softw are packages, sim plify and consolidate financial
system s and data, and enhance the Corporation's ability to address its future
financial m anagem ent and inform ation needs. It w ill also substantially reduce
the costs o f financial m anagem ent and reporting.

The FDIC continues to focus on inform ation technology challenges. During 2002,
w e conducted a self assessment, w ith an emphasis on inform ation security, to
evaluate our progress in addressing prior audit findings. The FDIC inform ation
security program w ill continue to be strengthened in 2003 to ensure that key
management tools are in place to support the Corporation's mission and strategic
goals.
The FDIC has evaluated its risk m anagem ent and internal control system s in
accordance w ith the reporting requirem ents of the Federal Managers' Financial
Integrity A ct of 1982 (FMFIA) and GAO internal control standards. Based on
these assessments, I can provide you w ith reasonable assurance that the
Corporation's risk management and internal control system s, taken as a
whole, are in conformance w ith the standards prescribed by GAO and that
the objectives of FMFIA have been achieved.
Finally, this year's Annual Report has been redesigned to help streamline our
reporting process by combining the Chief Financial O fficers A ct Report, the
Program Performance Report, and the traditional Annual Report. The performance
results contained in this combined report summarize our success in achieving
the goals w e established fo r 2002. Our priority is to provide timely, reliable and
useful data to our stakeholders. To that end, the FDIC w ill continue to employ
sound financial m anagem ent techniques and emphasize the importance of
a strong risk management and internal control program to m eet its statutory,
regulatory and fiduciary responsibilities.

Sincerely,







O perations o f the
C o rp o ratio n The Year in Review
In 2002, the FDIC continued to posi­
tion itself to m eet the demands of
an evolving banking industry - one
that is being reshaped by institution­
al consolidation, globalization
and technology. The Corporation
assumed a major leadership role
on significant econom ic and policy
issues, pursuing the enactm ent of
deposit insurance reform legislation
and sponsoring several symposia for
regulators, policymakers and others
on other im portant public policy
issues. It also directed increased
attention to new and emerging risks
in the banking system , focusing
more resources on larger institutions
and those identified as posing a
higher potential risk to the deposit
insurance funds. The FDIC im ple­
mented a streamlined organizational
and m anagem ent structure and
appointed a new management team
to lead it into the future.
Highlights of the Corporation's 2002
accom plishm ents in each of its three
major business lines are presented
below.

Insurance________________________
The FDIC insures bank and savings
association deposits to help ensure
the stability of the financial system
and the public's confidence in the
U.S. banking system . As insurer,
the FDIC continually evaluates how
changes in the economy, the finan­
cial markets and the banking system
affect the adequacy and the viability
of the deposit insurance funds.

The FDIC's effo rts in 2002 focused
on deposit insurance reform, other
activities to prom ote sound public
policies, expanded examination
activities and dedicated examiner
program, new international capital
standards, and resolving failed
institutions.
Deposit Insurance Reform
The FDIC gave priority attention
to enactm ent of com prehensive
deposit insurance reform legislation
in 2002. Legislation containing major
elem ents of the FDIC deposit insur­
ance reform proposals developed
over the past three years was
introduced both in the House of
Representatives and the Senate.
On April 23, the FDIC's Chairman
testified before the Senate Banking
C om m ittee on the FDIC's proposals
fo r deposit insurance reform .
The FDIC's recommendations, w hich
w ere summarized in the testim ony,
include:
•

Merging the Bank Insurance Fund
(BIF) and the Savings Association
Insurance Fund (SAIF).

•

Granting the FDIC's Board of
Directors the flexibility to manage
the combined deposit insurance
fund. Under the present system ,
statutorily mandated m ethods of
managing the size of the BIF and
SAIF may cause large prem ium
sw ings and could force the FDIC
to charge the highest prem ium s
during d ifficult econom ic tim es
when the industry can least afford
it. Currently, safer institutions
subsidize riskier institutions
unnecessarily w hile new entrants
and grow ing institutions avoid
paying prem ium s. To correct
these problems, the FDIC recom­
mended th a t Congress give the
Board of Directors the discretion
to:

•

•

Manage the combined fund
w ithin a range.

•

Price deposit insurance accord­
ing to risk at all tim es and for
all insured institutions.

•

Grant a one-tim e initial assess­
m ent credit to recognize
institutions' past contributions
to the fund and create an
ongoing system of assessment
credits and rebates to prevent
the fund from growing too large.

Indexing deposit insurance cover­
age to ensure that basic account
coverage is not eroded over tim e
by inflation and increasing the
current level of deposit insurance
coverage fo r retirem ent accounts.

The House passed H.R. 3717, the
Federal Deposit Insurance Reform
A ct of 2002, on May 22 by a vote of
408 to 18. Although the Senate did
not pass either H.R. 3717 or a similar
Senate bill, S. 1945, the Safe and
Fair Deposit Insurance A ct of 2002,
during the 107th Congress, the
Corporation successfully addressed
many key issues surrounding deposit
insurance reform, establishing
a sound base for future passage
o f legislation. Enactment o f deposit
insurance reform w ill remain a
priority of the FDIC during the 108th
Congress. The FDIC w ill continue
to examine in greater detail how
to im plem ent risk-based pricing for
deposit insurance and m ethods that
could be used to create objective
measurem ents of an insured deposi­
tory institution's risk.




Since im plem entation of pending
deposit insurance reform legislation
w as not enacted, developm ent of
a final pricing recom mendation and
im plem entation plan fo r inclusion in
a notice and com m ent rulemaking
during 2002 w as put on hold. The
FDIC continues to refine these
options and explore other possibilities
fo r using objective measures to
price deposit insurance premiums.
O ther Activities to Promote
Sound Public Policies
In addition to its leadership on deposit
insurance reform, the Corporation
sponsored three policy symposia
and hosted various conferences
and w orkshops during 2002 on major
issues o f concern to the banking
industry and regulators. In June,
the FDIC held a sym posium on
"Enhancing Financial Transparency"
that attracted Congressional members
and staff, bankers, academics,
regulatory policy makers, financial
analysts and the media. In July, the
FDIC and Credit Suisse First Boston
co-sponsored a sym posium on the
"Rise of Risk Management: Basel
and Beyond." A t that meeting, top
g overnm ent o fficials and leading
experts fro m Wall S treet, the
business sector, the accounting
profession and academia discussed
the importance of appropriate risk
management policies and procedures.
In September, the FDIC co-sponsored
w ith the Journal o f Financial Services
Research a sym posium on pricing
the risks of deposit insurance. Leading
scholars and researchers examined
the latest developm ents in credit
risk modeling and related risk
m easurem ent m ethods and their
im plications fo r deposit insurance
pricing. The FDIC also hosted eco­
nom ic roundtables on the econom ic
o utlook and the risks of deflation
and the U.S. housing m arket and
consum er sector.

The FDIC also began publication
in early 2002 of an electronic news
bulletin called FYI, w ith over 5,000
subscribers by year-end. FYI sum m a­
rizes emerging issues in banking,
finance and the economy. The form at
is designed to complement the FDIC's
in-depth reports and publications. FYI
also serves as a vehicle fo r releasing
analytical w ork as it becomes available.
In addition, a quarterly communication
entitled L e tte r to the Stakeholders
has been released fo r FDIC-insured
in stitu tio n s, em ployees, and other
stakeholders and highlights the
FDIC's current initiatives and key
perform ance indicators.
In February, Chairman Powell
established a ne w FDIC Advisory
C om m ittee on Banking Policy to
provide advice and recom menda­
tions to the FDIC on a w ide range
of issues relating to the Corporation's
mission and activities, and examine
how the FDIC can improve its effec­
tiveness and address larger issues
facing the financial services sector.
The com m ittee is composed of 12
members representing a cross-section
of distinguished leaders from
academia, econom ics, financial
services, private industry, public
affairs and the public interest com ­
m unity. The co m m itte e convened
fo r th e firs t tim e on November 13
in W ashington, DC.
Expanded Special Examination
Activities and Dedicated Examiner
Program
In 2002, the FDIC focused increased
examination resources on larger
institutions and problem institutions
w here the risks to the funds are

/ /

greatest, w hile streamlining exami­
nations fo r those posing less risk.
One key com ponent of this shift was
an expansion o f special examination
activities in non-FDIC supervised
institutions.
On January 29, the FDIC Board of
Directors adopted an agreem ent
w ith the O ffice of T hrift Supervision,
the O ffice of the Com ptroller of the
Currency, and the Board of Governors
of the Federal Reserve System that
enables the FDIC to examine insured
depository institutions (IDIs) that
represent a heightened risk to the
deposit insurance funds. The Federal
Deposit Insurance A ct provides
that the FDIC Board can authorize
special examinations of any insured
depository institution w henever
such an examination is necessary
fo r insurance purposes. The FDIC
has long considered it a top priority
to examine all insured banks and
thrifts as needed to assess their
financial condition and degree of
risk to the insurance funds. This new
agreem ent establishes an improved
process fo r determ ining w hen the
FDIC w ill use its authority to examine
any insured institution and provides
fo r enhanced coordination and coop­
eration of the agencies' supervisory
efforts. These measures w ill ensure
that the FDIC w ill be able to fulfill
its responsibilities to p ro te ct the
deposit insurance funds in the m ost
efficient and least burdensome
manner possible.

12




The agreem ent provides that the
FDIC may conduct special examina­
tions of any IDI that:
•

Has a "3 ," " 4 " or " 5 " CAMELS
composite rating (for the adequacy
of capital, the quality of assets,
the capability of management,
the quality and level of earnings,
the adequacy of liquidity, and
the sensitivity to market risk), or

•

Is undercapitalized as defined
under the Prompt Corrective
Action provisions of Section 38
of the Federal Deposit Insurance
Act.

Under the interagency agreement,
the FDIC may seek to participate in
examinations or meetings w ith sen­
ior bank management of institutions
that exhibit material deteriorating
conditions or other adverse develop­
m ents regardless of their current
rating at the invitation of, or w ith o u t
the objection of, the primary federal
regulator.
The interagency agreem ent also
provides for the FDIC's establishment
o f a dedicated examiner program
fo r the eight largest banking organi­
zations. Because of their size and
m arket share, these eight "large
insured depository institutions" (LIDIs)
expose the deposit insurance funds
to substantial risk. Assets controlled
by these eight institutions represent
approximately 41 percent of industry
assets. A similar level of concentra­
tion also exists on the deposit side approximately nine percent of all
dom estic deposits are held by one
LIDI.

The FDIC is not the primary regulator
fo r the eight LIDIs. However, the
FDIC's eight dedicated examiners,
selected in A ugust 2002, serve as
the FDIC's primary points of contact
for the oversight of these institutions.
Pursuant to the agreem ent, to the
fullest extent possible, the FDIC
w ill continue to rely on results of
the w o rk perform ed by the primary
federal bank supervisors in assessing
the condition and risk-managem ent
practices of individual institutions.
The dedicated examiners are provided
access to supervisory personnel and
supervisory inform ation, including
risk assessments, supervisory plans,
reports of examination and other
docum ents related to these eight
banks, and are invited to participate
in certain examination activities.
The dedicated examiner program
allows the FDIC firs t hand, tim ely
access to inform ation needed to
stay fully abreast of the risks in
these institutions and to quickly
recognize w hen ne w risks emerge.
To assist the FDIC in quickly identify­
ing and prioritizing areas of risk both
to groups of banks and to specific
institutions, a Risk Analysis Center
(RAC) w ill be established in 2003 to
serve as a central clearinghouse for
vital bank risk inform ation. The RAC
w ill place special emphasis on the
tim ely analysis of inform ation gener­
ated by the dedicated examiner
program.
N e w International Capital
Standards
Internationally, the FDIC continues
to participate in a num ber of global
supervisory groups, including
th e Basel C o m m itte e on Banking
Supervision. The FDIC actively
participated in th e C o m m itte e's

efforts to update and revise the
1988 Basel Capital Accord to make
the capital standards of internationally
active banks m ore com prehensive,
risk-sensitive, and reflective of
advances in banks' risk m easure­
m e n t and m anagem ent practices,
w h ile continuing to ensure these
banks maintain adequate capital
reserves.
The FDIC invested resources on
several fronts to ensure that the new
Accord, w hen final, w ill be compatible
w ith the agency's roles as both
insurer and supervisor o f banking
organizations. The FDIC was w ell
represented on several com m ittees,
task forces and groups that published
docum ents for industry review during
2002. These included: "Q uantitative
Impact Study 3 ," w hich is serving
as a comprehensive field te s t of
the proposals for revising the 1988
Accord, and the "Second W orking
Paper on the Treatment of Asset
Securitizations," w hich introduces
more risk-sensitive approaches for
addressing many of the emerging
risks in the rapidly growing securiti­
zation market.
Resolving Failed Institutions
During 2002, the FDIC resolved
11 financial in stitu tio n failures.
These failed institutions had a total
of $2.6 billion in assets and $2.2 bil­
lion in deposits. By the next business
day after each failure, the FDIC
had issued payout checks to insured
depositors, or depositors had access
to deposits determined to be insured.
(See the accompanying table for
details about liquidation activities.)




Liq u id atio n H ig h lig h ts 2 0 0 0 -2 0 0 2
Dollars

W '

■-

in b i l l i o n s
2002
10

Total Failed Banks
Assets of Failed Banks

$

2.5

$

.05

1

Total Failed Savings Associations
“ Assets of Failed Savings Associations

Net Collections from Assets in Liquidation*

$ 1.84

“Total Assets in Liquidation'

S 1.24

Net Collections from Assets Not in Liquidation*

$

Total Assets Not in Liquidation*

$ 1.24

.02

2001
3
$
.05

2000

6
S

1

i-M
$
$
$
$
$

2.18
.31
.57
.08
1.52

$

$
$
$
$

.38
1
.03
60
.54
16
2.80

•A ls o includes assets from thrifts resolved by the form er Federal Savings and Loan Insurance Corporation and the Resolution
Trust Corporation.

Sup<ervision
Supervision and consum er protection
are the cornerstones of the FDIC’s
efforts to ensure the stability of and
public confidence in the nation's
financial system . As of year-end,
the Corporation supervised 5,348
FDIC-insured state-chartered com ­
mercial banks that are not mem bers
of the Federal Reserve System
(referred to as "sta te nonm em ber
banks"). Through safety and sound­
ness and consum er compliance
examinations of these FDIC-supervised institutions, the FDIC assesses
their m anagem ent practices and
policies as w ell as their compliance
w ith applicable laws and regulations.
The FDIC also educates bankers and
consumers on m atters of interest
to bank custom ers, and addresses
consum ers’ questions and concerns.

S afety and Soundness
Exam inations
During 2002, the FDIC conducted
2,534 statutorily required safety and
soundness examinations. An on-site
safety and soundness examination
was not conducted fo r fo u r institu­
tions because specific circumstances
regarding the institutions indicated
an exception should be made.
A total of 1,806 examinations w ere
conducted in 2002 by state authori­
ties under the alternating examina­
tion program, and an additional
78 examinations w ere conducted
w ith FDIC's assistance. Thirty-six
institutions w ere due fo r an exam­
ination by state authorities, and five
institutions had mergers pending
at year-end. The remaining 31 institu­
tions have exam inations scheduled
during the first and second quarters
o f 2003.

13

■■Ml

FDIC E xam in ation s 2 0 0 0 - 2 0 0 2

Safety and Soundness:
Ij;
State Nonmember Banks

Savings Banks
National Banks

State Member Banks
f

Savings Associations
Subtotal
1 Compliance/Comm unity Reinvestment Act

Trust Departments
Data Processing Facilities
_

2001

2000

2,290
229
10
5
0
2,534
1,820
524
1,681

2,300
241
16

2,232
235
17
2
0
2,486
2,257
533
1,585

q
0
2,566
2,180
466
1,625

;?

............... , ................................. .......... ................................................................

Total

The num ber o f FDIC-supervised
institutions identified as "p ro b le m "
institutions w ith a composite "4 " or
" 5 " CAMELS rating increased from
67 at year-end 2001 to 84 at year-end
2002. During 2002, 48 institutions
w ere removed from problem status
due to com posite rating upgrades,
mergers, consolidations, or sales,
and 63 institutions w ere added to
the problem bank list. The FDIC is
required to conduct follow -up
exam inations of all designated
problem in stitu tio n s w ith in
12 months of their last examination.
As of December 31, 2002, all followup exam inations fo r problem
in stitu tio n s had been perform ed
on schedule.
Stream lining Examinations
for Financially Sound Institutions
W hile directing increased resources
to large and high-risk institutions and
to the international front, the FDIC
also im plem ented measures to
improve efficiency by maximizing
the use o f risk-focused examination
procedures at small well-managed
banks in sound financial condition.

14

2002




6,559

6,837

6,861

Specifically, in May 2002, the FDIC
im plem ented a new program to
stream line safety and soundness
examinations of certain financially
sound banks. The program, known
as "M E R IT " - fo r "m axim um
efficiency, risk-focused, institutiontargeted examinations" - streamlines
examinations fo r FDIC-supervised
institutions w ith a supervisory rating
of "1 " or "2 ," that have $250 million
or less in total assets and that
are well-managed, and m eet other
program criteria w hile maintaining
the quality and integrity of the
examination. By year-end, the pro­
gram had achieved more than a
20 percent reduction in examination
hours for all eligible " 1 " and " 2 "
rated FDIC-supervised institutions
w ith under $250 million in assets.
Reducing Regulatory Burden
The FDIC also continued efforts to
explore options for reducing regulatory
burden on the financial services
industry. Based on input from the
banking industry and the public, an
interdivisional working group devel­
oped and began im plem enting
short- and long-term strategies to
reduce regulatory burden. These
strategies include seeking accelerated
compliance w ith the regulation review

requirem ents pursuant to the
Econom ic G rowth Recovery and
Paperwork Reduction Act, improving
com m unication of FDIC regulations
and policies to financial institutions,
and creating a new FDIC Regulatory
Burden W eb page to solicit industry
input, and com m unicate initiatives
in this area.
M inority Depository Institutions
The FDIC has historically taken steps
to preserve and encourage m inority
ow n e rsh ip o f insured financial
institutions. On April 9, 2002, the FDIC
Board adopted a new policy state­
m ent related to m inority depository
institutions. The new policy state­
m ent reflects changes in certain
regulations and expands th e FDIC's
M in o rity D epository In stitu tion s
Program. Enhancem ents to the
program include increased com m u ­
nication w ith m inority depository
institutions, b e tte r coordination
w ith trade associations that repre­
sent m inority depository institutions,
better defined roles fo r a national
program coordinator and regional
coordinators, and m ore opportunities
fo r institutions to request technical
assistance.
Compliance Examination Program
The FDIC takes seriously its statutory
responsibilities to enforce consum er
protection laws and regulations.
It adm inisters a compliance examina­
tion program to help ensure that
consumers are able to make informed
choices about credit transactions and
deposit accounts and to help ensure
equal access to the credit markets.
The FDIC's compliance examination
program covers nearly 20 different
federal statutes and regulations rang­
ing from traditional disclosure laws
(such as the Truth in Lending Act)

to fair lending statutes (such as
the Equal Credit Opportunity and
Fair Housing Acts) to the Com m unity
Reinvestm ent A ct (CRA), w hich
encourages insured depository
institutions to help m eet com m unity
credit needs. The FDIC has also
added the privacy and insurance
consum er protection provisions of
the Gramm-Leach-Bliley A ct of 1999
to its compliance examination
program.
Compliance examinations are con­
ducted on an established schedule
by specially trained personnel. The
interval betw een compliance exami­
nations is typically tw o to three years
fo r banks w ith strong compliance
records. Banks w ith weak compliance
performance are typically examined
on an annual or shorter cycle. The
FDIC uses the full extent of its
enforcem ent authority, as appropri­
ate, to address instances of noncom­
pliance. Further, the FDIC m eets its
statutory responsibilities under the
Equal Credit Opportunity A ct to
refer patterns or practices of credit
discrimination to the Departm ent of
Justice. The FDIC conducted 1,820
compliance and CRA examinations
in 2002, compared to 2,180 in 2001.
Ten FDIC-supervised institutions
due fo r an examination in 2002 w ere
deferred, nine due to mergers or
charter changes, and one to allow
coordination w ith a scheduled safety
and soundness examination. Nine
institutions w ere assigned a com ­
posite " 4 " rating fo r compliance
as of year-end 2002. None w ere
assigned a com posite " 5 " rating.
Eight of the nine "A " rated institutions
have entered into a Memorandum of
Understanding (MOU) w ith the FDIC
to correct compliance issues, and the
ninth is currently reviewing a draft
MOU, w hich is expected to be final­
ized in early 2003. (For more details,
see the FDIC Examinations table
on page 14.)



Financial Literacy
One of the FDIC's m ost important
consum er protection goals is to
prom ote financial education to those
outside o f the financial mainstream.
The "M o n e y S m art" program,
unveiled in 2001, is primarily designed
to help adults w ith little or no bank­
ing experience develop positive
relationships w ith insured depository
institutions. By year-end 2002, the
FDIC had supplied more than 32,000
copies o f the M oney Smart training
curriculum to various groups.
A p proxim ately 40 percent o f the
requests fo r M oney Sm art w e re
from financial institutions and credit
unions. The remainder w ere largely
from educational service organiza­
tions, such as com m unity colleges
and adult education centers; com m u­
nity organizations; state and local
governm ent agencies; em ploym ent
service organizations; and faith-based
groups.
Over 1,000 representatives of
com m unity organizations, government
agencies and financial institutions
have attended orientation sessions
on Money Smart held across the
country. The Money Smart program
also includes multi-partner agreements
in w hich low and moderate-income
adults can receive a variety of gov­
ernm ent services, and those outside
of the financial mainstream are
provided financial education w ith
M oney Smart as the principal
curriculum.
As of year-end 2002, the FDIC had
entered into partnership agreements
w ith the Neighborhood Reinvestment
Corporation, U.S. Departm ent of
Housing and Urban Development,
U.S. D epartm ent o f Labor,
U.S. Small Business Administration,

Association of M ilitary Banks of
America, Independent Com m unity
Bankers of America, Internal Revenue
Service, O ffice of the W hite House
Initiative on Asian American Pacific
Islanders, and over 300 other national
and regional organizations. A Spanish
version of the M oney Smart curricu­
lum was rolled out in mid-2002, and
a Chinese version w ill be available
in early 2003. The FDIC is pleased
w ith th e positive feedback from
the M oney Sm art curriculum and
w ill continue to improve and expand
this im portant program.
Consumer Complaints
and Inquiries
The FDIC investigates and responds
to complaints and inquiries from
consumers, financial institutions and
other parties about consum er protec­
tion and fair lending laws, as w ell as
deposit insurance matters. In 2002,
the FDIC received 8,368 complaints,
of w hich 3,987 w ere against statechartered nonm em ber banks. Nearly
54 percent o f the state nonm em ber
bank complaints concerned credit
card accounts. The m ost frequent
complaints involved billing disputes
and account errors, loan denials,
credit card fees and service charges,
and collection practices. In July 2002,
the FDIC established a centralized
Consumer Response Center (CRC)
that is responsible for investigating
all types of consum er com plaints
about FDIC-supervised institutions
and fo r answering consumer inquiries
about consum er protection laws and
banking practices. The establishm ent
o f the CRC w ill fa cilita te tim e ly
responses to complaints and inquiries.
In addition, the FDIC received over
7,000 w ritte n inquiries and 8,000
telephone inquiries from consumers
and bankers about FDIC insurance
and consum er protection issues.

The largest percentage of inquiries
related to w hether specific financial
institutions w ere insured by the
FDIC and deposit insurance coverage.
O ther com m on inquiries w ere
requests for copies of FDIC consumer
publications, questions about bank­
ing practices and consum er rights
under federal consum er protection
laws, and how to obtain a personal
credit report.
The FDIC has established a Central
Call Center as its primary telephone
point of contact fo r questions on
deposit insurance from the banking
com m unity and the public. (For more
inform ation about the Call Center
(toll-free, 1-877-275-3342),
see page 127.)
To reach out to consumers needing
assistance on m atters arising from
failed financial institutions, the FDIC
also operates a C ustom er Service
Center w ith staff dedicated primarily
to handling records research and
collateral releases. The records
research staff responded to over
4.000 inquiries in 2002. This group
researches the historical records of
failed financial institutions to answer
custom er questions about deposit
accounts, loan transaction histories,
tax suits for delinquent real estate
taxes and other issues. The collateral
release sta ff researches and deter­
mines ownership of collateral securing
loans from failed financial institutions
in order to provide a release of lien,
assignm ent or reconveyance to the
borrower. This staff completed nearly
15.000 collateral release requests in
2002 .

16




Receivership M anagem ent
The goal of the receivership manage­
m ent program is to minimize losses
and maximize recoveries to creditors
of receiverships. In 2002, the FDIC
pursued this goal by quickly and
actively marketing assets from failed
institutions, providing fo r the expedi­
tious and orderly te rm in a tio ns of
receiverships, and im plem enting
a service-billing m ethodology to
ensure fair and reasonable charges
to receiverships fo r the services
provided by the Corporation.
Institution and Asset Marketing
The FDIC is proactive in its marketing
efforts. C om petitive marketing of
failed institutions assures that the
highest price is obtained fo r the
deposit franchise and assets o f the
failed institution, thus minimizing
the im pact on the deposit insurance
funds. All qualified and interested
bidders w ere contacted regarding
an opportunity to bid fo r each of the
11 institutions that failed in 2002.
In addition, 85 percent of the book
value of the marketable assets w ere
marketed w ithin 90 days of failure.
This was done to minimize the costs
associated w ith managing the assets
and maximize the net recovery to
the receivership estate, thereby
benefiting the uninsured depositors
and the creditors of the failed
in stitu tio n . (For details, see table on
Liquidation H ighlights on page 13.)
Two resolutions in 2002 w arrant
special note: Ham ilton Bank and
NextBank. The firs t involved
Ham ilton Bank, N.A., closed by
the Office of the Comptroller o f the
Currency on January 11. Hamilton
Bank had total assets o f $1.2 billion
and total deposits of $1.1 billion,
and was headquartered in Miami, FL.
The bank operated eig h t bank
branches in Florida and a single bank
branch in Puerto Rico. Hamilton
Bank also had a small representative

office in Panama and another in
Peru. W hat made this
failure so unique was that it w as the
firs t tim e the FDIC w as receiver for
such a large volum e of international
loans. Hamilton's principal focus was
comm ercial trade finance and lend­
ing to small companies operating in
the United States and throughout
Central America.
In resolving th is failure, th e FDIC
to o k a rarely used approach to
protect depositors by transferring
all the insured deposits (savings and
checking accounts, certificates of
deposit, and Individual Retirement
Accounts) fro m three of H am ilton's
nine branches, and only th e insured
transactional accounts (savings and
checking) from the remaining six
branches. The Israel D iscount Bank,
New York, NY assumed $531.6 million
of th e insured deposits. The FDIC
paid out more than $582.6 million
of insured deposits through checks
mailed directly to the remaining
account holders.
By the end of June, more than
$1 billion of Hamilton's assets had
been collected, sold or booked
as a market-determ ined loss. A t
that tim e, Ham ilton’s Miami-based
receivership office was closed, and
responsibility fo r the remaining
assets (approximate book value of
$100 million) was transferred to the
FDIC's office in Dallas, TX. Those
remaining assets principally involve
bankruptcies, litigation or investiga­
tions. As of December 31, 2002,
the cost of the Hamilton Bank failure
to the Bank Insurance Fund was
estim ated to be $172 million.

The second notew orthy resolution
involved an Internet-only bank,
NextBank, N.A., chartered in
Phoenix, AZ. NextBank was closed
by the O ffice of the Comptroller
of the Currency on February 7.
NextBank's principal business was
the origination and sale of credit card
receivables to a special-purpose trust
(M aster Trust), w hich paid fo r the
receivables by selling securities to
the public. These securities w ere
backed by the cash flo w s generated
from the receivables. The bank had
no brick-and-mortar banking facilities,
and its main business w as issuing
credit cards. The FDIC received no
bids fo r th e deposits and paid out
the insured deposits by mailing
checks directly to depositors.
The FDIC, as receiver, assumed serv­
icing responsibilities for NextBank's
credit card portfolio. The credit card
portfolio consisted of over one million
cards w ith about 800,000 belonging
to the Master Trust and the remainder
being bank-owned. The management
and m arketing of these assets
required extensive negotiations
w ith the many parties involved in
the credit card processing and
securitization business. Ultimately,
the bank-owned cards w ere sold
under a loss-sharing agreement.
The FDIC, as servicer, marketed
the bank's interest in the trust, but
no buyer was found and the M aster
Trust cards w e re shut dow n on
July 10. The FDIC is currently
administering the receivership's
remaining interests in the M aster
Trust.
The N extBank Instant Finance
N etw ork receivables w e re sold
through D ebt X, an asset-auction
com pany th a t operates on the
Internet. The sale, consisting
of 900 accounts w ith a book value
o f approxim ately $1 m illion,
w as conducted electronically via
D ebt X's secure W eb site. As of



December 31, 2002, the cost of
the NextBank failure to the Bank
Insurance Fund was estim ated
to be b e tw een $300 m illion and
$350 million.
In addition to these resolution activi­
ties, the FDIC filed a lawsuit in the
district court fo r the Northern District
of Illinois on November 1 against
Ernst & Young, the outside auditors
fo r Superior Bank, Hinsdale, Illinois.
Superior Bank, a $2 billion institution,
failed on July 27, 2001. The complaint
charges Ernst & Young w ith fraud
and negligence in its audits of
Superior and seeks actual damages
of $548 million and punitive damages
in an am ount three tim es the actual
damages, as w ell as interest and
costs. The FDIC's com plaint asserts
that Ernst & Young failed to properly
audit Superior's residual assets
and then concealed its erroneous
auditing fo r fear that its acknow l­
edgem ent w ould damage Ernst &
Young's $11 billion sale o f its
consulting arm to Cap Gemini,
a French company. No trial date
had been set as o f year-end.
Terminations
The FDIC, as receiver, manages
the receivership estate and its
subsidiaries w ith the goal of
expeditious and orderly term ination.
The oversight and prom pt termination
of receiverships preserves value for
the uninsured depositors and other
receivership claimants by reducing
overhead and other holding costs.
During 2002, the FDIC continued
to m eet its target of term inating
75 percent of receiverships w ithin
three years of the failure date.

Billing for Services Provided
In 2002, the Corporation implemented
a new service-billing m ethodology to
charge receiverships fo r the services
provided by the FDIC. In addition,
benchmark data w ere collected
to perm it the Corporation to better
evaluate and set the rates to be
charged fo r these services. During
2003, receivership m anagem ent
personnel w ill exam ine those areas
in w hich FDIC costs significantly
exceed those benchm arks and,
w here necessary, im plem ent appro­
priate cost-m anagem ent measures
to address those cost differentials.

Operating M ore Efficiently
The Corporation took a number of
steps in 2002 to improve its overall
efficiency and effectiveness, from
internal restructuring and downsizing
to enhancing technology-related
tools.
Corporate Reorganization
The FDIC substantially revamped its
internal organizational structure to
improve operational efficiency and
unify corporate e fforts in each of the
three major business lines: insurance,
supervision, and receivership
management. As part of this major
restructuring, the FDIC also stream ­
lined the Corporation's m anagement
and support structures.

The major organizational changes
made in 2002 include:
•

The Division of Insurance and the
Division of Research and Statistics
w ere merged into a new Division
of Insurance and Research to
facilitate a more integrated and
effective research and policy
leadership capability.

•

The Division of Supervision and
the Division of Compliance and
Consumer Affairs w ere merged
into a new Division of Supervision
and Consumer Protection. The
regional and field structure o f the
new division was also streamlined,
w ith a reduction in the num ber
of regional offices from eight
to six. Additionally, 89 field offices
w ere consolidated into 52 territo­
ries fo r safety and soundness
functions, and 73 field offices were
consolidated into 30 territories for
compliance functions.

•

•

The receivership accounting
operations of the Division of
Finance w ere transferred to
the Division o f Resolutions and
Receiverships to better align
business processes in the
C orporation's receivership
m anagem ent program.
Personnel and training functions
w ere merged to create a new
Human Resources Branch w ithin
the Division o f Adm inistration.

Downsizing
The Corporation also took steps to
com plete the downsizing that it has
been addressing fo r much o f the
past decade. Em ploym ent dropped
from 6,167 at the beginning of 2002
to 5,430 at year-end 2002 as a result
of declining w orkloads and organiza­
tional streamlining. M uch of the
needed reduction in staffing was
accomplished voluntarily through
IS



targeted buyout program s that
resulted in the retirem ent or resigna­
tion of approximately 700 employees
and the reassignm ent of surplus
employees to vacant positions
elsewhere w ithin the Corporation.
In addition, approximately 30 surplus
attorntey positions w ere eliminated
through a reduction-in-force in
May. The decade of downsizing
is substantially completed.
The savings resulting from corporate
restructuring, downsizing and other
initiatives directed tow ard cost con­
tainm ent and im proved operating
efficiency w ill, when fully realized,
reduce future corporate operating
costs by an estim ated $80 million
annually. The initial impact can be
seen in the 2003 budget adopted
by the Board o f D irectors in
December 2002. Estimated 2003
spending w ill decline by seven
percent from 2002 spending.
Corporate University
In another m ove to im prove its
long-term operational e fficiency
and effectiveness, the Corporation
began developing a new Corporate
University that w ill be modeled on
the best practices of high-performing
organizations in both the public and
private sectors. The new Corporate
University w ill provide an integrated
fra m e w o rk fo r addressing future
leadership developm ent and skill
requirem ents. It w ill include core
training program s fo r the FDIC's
three major business lines - insurance,
supervision, and receivership man­
agem ent - and give employees the
opportunity fo r cross-training and
job rotation. This w ill facilitate the
establishment, over time, of a flexible,

perm anent w o rk fo rc e capable of
responding expeditiously to changing
workload needs and priorities. Leader­
ship d e velopm ent program s w ill
assist in providing a strong foundation
fo r current and future FDIC leaders.
The Corporate University w ill use
technology, sem inars, hands-on
experience and traditional instruction
to m ake learning easier, m ore
convenient and continual.
Inform ation Technology Initiatives
In 2002, the Corporation also con­
tinued to pursue a num ber of major
technology-related investm ents that
will, w hen implem ented, reduce
future operating costs. The largest
o f these projects, the N ew Financial
E nvironm ent (NFE), w ill greatly
improve operating efficiencies and
provide substantial cost savings to
the FDIC after it is im plem ented in
mid-2004. The NFE w ill replace the
Corporation's current accounting and
related system s and w ill facilitate the
im plem entation of stream lined w ork
processes. It w ill also provide better
inform ation and support to FDIC
m anagem ent fo r decision-making.
In addition, the FDIC continued to
develop FDICconnecf, a secure
electronic Web-enabled environm ent
allow ing the Corporation to e le c ­
tronically exchange inform ation w ith
insured financial institutions. W ith
the autom ation of data exchanges,
the FDIC w ill be able to streamline
and improve business processes,
and reduce costs. In particular, the
faster receipt of inform ation w ill
enable the FDIC to provide more
tim ely inform ation to the public.

Phase II Construction of the
Seidman Center
In March 2002, the FDIC Board of
Directors unanimously approved the
expenditure of $110.9 million for
Phase II construction at the FDIC's
existing Seidman Center facility in
Northern Virginia. The Corporation’s
decision was based on an extensive
analysis of various lease, purchase
and build scenarios. Phase II con­
struction was determ ined to be the
m ost economical option over the
long term . The project w ill save the
FDIC an estim ated $78 million over
20 years on a net present value basis
compared to the projected costs
of continued leasing in dow ntow n
W ashington, DC. Phase II construc­
tion is targeted for com pletion by
2006.

Financial H ighlights
In its role as deposit insurer of banks
and savings and loan associations,
the FDIC prom otes the safety and
soundness of insured depository
institutions. The financial highlights
discussed below address the per­
formance of the deposit insurance
funds. It also includes a discussion
of initiatives to restructure the
internal budget to closely m onitor
operations and investm ents and the
establishment of a Capital Investment
Review Committee (CIRC) to better
manage capital investm ents.

Deposit Insurance Fund
Performance
The FDIC administers tw o deposit
insurance funds - the Bank Insurance
Fund (BIF) and the Savings Association
Insurance Fund (SAIF) - and manages
the FSLIC Resolution Fund (FRF),
w hich fulfills the obligations o f the
form er Federal Savings and Loan



—

^ —

—

FD IC -lnsured D eposits ( e s tim a te d 1 9 6 0 -2 0 0 2 )
D o l l a r s

in

b i l l i o n s
ISAIF-lnsured
IBIF-lnsured

1960

70

80

90

2000

02

3,000
2,500

I I I . . n i l

linn

2,000
1,500

■

I

i

linn

1,000
500

iiJJiULUJ
Source: Commercial Bank Call Reports and Thrift Financial Reports

Insurance Corporation (FSLIC)
and th e fo rm e r Resolution Trust
Corporation (RTC). The fo llo w in g
sum m arizes the condition of the
FDIC's insurance funds.
The Corporation's investm ent strategy
fo r the BIF and th e SAIF reflects
prudent management, w ith interest
earned on investm ent securities
of approxim ately $1.69 billion fo r
the BIF and $564 m illion fo r the
SAIF. Successful investing o f the
funds during the year yielded total
returns that surpassed M errill
Lynch's (ML) 1-10 Year U.S. Treasury
Index o f 9.05 percent fo r calendar
year 2002. The BIF and the SAIF
portfolio investm ents yielded returns
of 9.20 and 9.89 percent, w hich
exceeded the M L Index by 15 and
84 basis points, respectively.

III I
Deposit insurance assessm ent rates
remained unchanged from 2001 for
both the BIF and the SAIF, ranging
from 0 to 27 cents annually per
$100 of assessable deposits. Under
the assessm ent rate schedule, 91.5
percent o f BIF-member institutions
and 90.1 percent of SAIF-member
institutions w e re in the low est riskassessm ent category and paid no
deposit insurance assessm ent for
the firs t semiannual period of 2003.
D eposits insured by the FDIC
approached $3.4 trillion in 2002,
as the number o f insured institutions
fell below the 9,400 mark fo r the
firs t tim e. Insured deposits rose by
1.2 percent during the fourth quarter,
bringing the grow th rate fo r the
full year to 5.5 percent, the secondfastest annual grow th rate in the
past 16 years. Insured deposits of
the 9,372 FDIC m em ber institutions
rose by $177 billion in 2002, including
an $8.3 billion (4.3 percent) increase
in insured brokered deposits.

19

m

l ln s u r a n c e Fund Reserve Ratios P e rc e n t o f In s u re d D e p o s ts

1.45

t l

1.40

1.30
1.25 (target ratio)

1

] * III]I■ I Ir3i k! 1J

1.35

1

k

1

1
11 1S It

1
1 i 1
I 11 1

I1 I

JL

0
12/96

12/97

12/98

During 2002, deposits insured by
the BIF increased by 4.9 percent,
to $2.5 trillion. The BIF balance was
$32.1 billion at year-end 2002, or
1.27 percent of estim ated insured
deposits (compared to 1.25 percent
at Septem ber 30, 2002). This was up
from the year-end 2001 reserve ratio
of 1.26 percent, as deposits insured
by the BIF increased by $117.9 billion
and the BIF fund balance increased
by $1.6 billion.
The reserve ratio o f th e SAIF
w as 1.37 percent at year-end 2002
(com pared to 1.38 percent at
September 30, 2002), up from 1.36
percent at year-end 2001. The balance
of th e SAIF w as $11.7 billion on
D ecem ber 31, 2002. SAIF-insured
depo sits w e re $860.4 billion
at year-end 2002, having grow n
7.4 percent fo r th e year. (See the
accompanying table on Insurance
Fund Reserve Ratios.)

20




12/99

12/00

12/01

3/02

Despite the relatively rapid grow th of
insured deposits, insured institutions
continued to rely increasingly on
other funding alternatives. Insured
deposits as a percentage of dom estic
liabilities continued a steady, 11-year
decline, falling to 49.9 percent at the
end of 2002, compared to 50.9 per­
cent at the end of 2001. A t year-end
2002, the ratio w as 45 percent for
institutions w ith total assets greater
than $1 billion, and 71 percent fo r
smaller institutions. (See the accom­
panying tables on FDIC-insured
Deposits on page 19 and Risk Related
Premiums on page 21.)

6/02

9/02

!

12/02

During 2002, 11 FDIC-insured institu­
tions failed. Ten of those institutions,
w ith combined assets of $2.5 billion,
w ere insured by the BIF. The other
institution, w ith assets of $50 million,
was insured by the SAIF. Losses
fo r the 11 failures are estim ated at
$630 million. In 2001, there w ere
four failures of insured institutions,
w ith total assets of $2.2 billion and
estimated losses of $445 million. The
con tin g e n t liabilities fo r anticipated
failures of BIF-and SAIF-insured
institutions as of December 31, 2002,
w e re $1.0 billion and $90 m illion,
respectively.

I

Capital Investm ent Review
Com m ittee

iR is k -R e la te d Prem ium s

The follow ing tables show the number and percentage of institutions insured by the Bank Insurance Fund (BIF)
and the Savings Association Insurance Fund (SAIF), according to risk classifications effective for the first semi­
annual assessment period of 2003. Each institution is categorized based on its capitalization and a supervisory
subgroup rating (A, B, or C), w hich is generally determined by on-site examinations. Assessment rates are basis
points, cents per $100 of assessable deposits, per year.
BIF Supervisory Subgroups*

Well Capitalized:
Assessment Rate
Number o f Institutions
Adequately Capitalized:
Assessment Rate
Number of Institutions
Undercapitalized:
Assessment Rate
Number of Institutions

.

-

-

A

B
—

0
7,470(91.7% )

3
441 (5.4%)

3
106(1.3% )
w

C
M

10
13 (0.2%)
■■
.....24
0(0.0% )

24
10(0.1% )

0
1,113(90.6% )

3
82 (6.7%)

17
18(1.5% )

3
7(0.6%)

10
4 (0.3%)

24
4 (0.3%)

10
0 (0.0%)

24
0 (0.0%)

27
1 (0.1%)

* •
10
1 (0.0%)

i

17
97(1.2% )

27
5(0.1% )

SAIF Supervisory Subgroups'
Well Capitalized:
Assessment Rate
Number of Institutions
Adequately Capitalized:
Assessment Rate
Number of Institutions
Undercapitalized:
Assessment Rate
Number of Institutions

■ ,

—

• BIF data exclude SAIF-m em ber "Oakar" institutions th at hold BIF-insured deposits. The assessm ent rate reflects the rate
for BIF-assessable deposits, which rem ained the sam e throughout 2002.
■ SAIF data exclude BIF-m em ber "Oakar" institutions th at hold SAIF-insured deposits. The assessm ent rate reflects the rate
for SAIF-assessable deposits, w hich rem ained the sam e throughout 2002.

Corporate Budgeting
The FDIC has restructured its
budget fo r 2003 to include separate
Operating and In vestm e n t Budgets.
The Operating Budget includes
funding fo r both ongoing operations
of the Corporation and receivership
operations. The new Investm ent
Budget approved by the Board of
Directors is a com posite of individual
budgets for major investment projects.




The Board approved a 2003
Corporate Operating Budget of
$1,070.5 million and a multi-year
Investm ent Budget of $70.4 million.
Total estim ated spending fo r 2003
w ill be approximately $1.1 billion,
seven percent low er than 2002
spending. A lm ost tw o-thirds of
projected 2003 spending w ill fund
personnel and related costs.

During 2002, the FDIC began man­
aging its capital investm ents from
a new vantage point. The FDIC
created a Capital Investment Review
C o m m itte e (CIRC), dedicated to
reviewing and overseeing all major
inform ation technology (IT) and
non-IT in ve stm e n t initiatives w ith
e stim ated capital outlays o f m ore
than $3 m illion, as w e ll as certain
other projects that cost less but are
considered m ission-critical to the
FDIC.
The purpose o f th e CIRC is to
im plem ent a system atic management
review process that supports budg­
eting fo r th e FDIC's capital invest­
m ents and ensures the regular
monitoring and proper management
of these investm ents, once funded.
The CIRC is responsible fo r reviewing
the major capital investment initiatives
funded in the new Investment Budget
as w ell as significant enhancements
and maintenance costs associated
w ith the FDIC's current initiatives.
The in ve stm e n ts review ed by
th e CIRC include m ajor co m puter
purchases, so ftw a re application
developm ents, and office buildings.
The CIRC determines w hether
the business case supporting the
proposed investm ent is sound, w elljustified and appropriate fo r funding
consideration by the FDIC's Board
o f Directors. The CIRC w ill also
continue to m onitor and report on
the status of approved investm ent
projects to the Board of Directors.

21

II. Performance
Results




Sum m ary of 2002 Performance Results by Program

In accordance w ith Section 232.8 of the O ffice o f M anagem ent and Budget's
Circular No. A -11, Part 2, the FDIC is pleased to report that there w ere no
situations in 2002 w here performance had an adverse e ffe ct on the FDIC's
activities or programs. In addition, 2002 performance w as considered in the
developm ent of the FDIC's 2003 Annual Performance Goals. The Office
o f Inspector General (OIG) has shared its vie w of the challenges the Corporation
is confronting and has acknowledged the numerous actions under w ay to
address these issues. See Appendix C for a list of these challenges. Management
is com m itted to addressing issues identified by the OIG, as evidenced by the
initiatives discussed in the operations section of the report.

Program Area

Insurance

Performance Results

• Resolved 11 insured institution failures, providing depositors w ith tim ely access to insured
deposits in each case. For seven of the failures, depositors had uninterrupted and continuous
access to insured deposits as the deposits w ere assumed by an acquiring entity. For the
remaining four failures, a deposit payout was conducted w here a check in the am ount of the
insured deposit was mailed to each depositor in the required tim e frames.
•T h e House of Representatives voted to approve deposit insurance reform legislation. Although
the Senate failed to act on the legislation before adjournment, the Corporation w ill continue to
pursue deposit insurance reform in the 108th Congress.
•C o m p le te d risk assessm ents for all large insured depository institutions.
• Improved the accuracy and efficiency of off-site risk identification models.
• Published
•
•
•
•
•
•
•

economic and banking inform ation and analysis:
Quarterly editions o f Regional Outlook,
68 Briefing Notes,
Semiannual FDIC Report on U nderwriting Practices,
Semiannual Report on U nderw riting Practices by Region,
Six Bank Trends,
Quarterly editions o f the Real Estate Data System, and
Semiannual Survey o f Real Estate Trends.

•C re a te d a new electronic com m unications tool (FY7) to dissem inate pertinent, tim ely analysis
on risk-related issues to key stakeholders; published 36 FYls.

Supervision

‘ C o nd ucted 2,5 34 sa fe ty and sou nd ne ss exa m in ation s. T his included all s ta tu to rily required sa fe ty
and sou nd ne ss exam inations, e xce p t fo r a sm all n u m b e r d e fe rre d due to pending m ergers.
•C o n d u c te d 1,820 com p lia nce and C o m m u n ity R e in ve stm e n t A c t e xa m in ation s in accordance
w ith FDIC policy.

Receivership

• C o ntacted all k n o w n and qu alified po tentia l bidders in each o f th e 11 in s titu tio n fa ilu re s in 2002.

M anagem ent

. M a rke te d at least 85 p e rce n t o f all m arke ta ble asse ts w ith in a 90-day tim e fra m e fo r nine




of th e 11 in s titu tio n s th a t failed in 2002. (For th e rem a ining tw o in stitu tio n s, th e 90-day
tim e fra m e had n o t expired a t year-end.)
•T e rm in a te d 108 receiverships.




2002 Budget and Expenditures by Program

The FDIC budget fo r 2002 totaled $1.22 billion. Excluding $142.9 million fo r
Corporate General and Adm inistrative expenditures, budget am ounts w ere
allocated to corporate programs and related goals as follow s: $152.6 million,
or 14 percent, to the Insurance program; $606.7 million, or 57 percent, to the
Supervision program; and $313.9 million, or 29 percent, to the Receivership
M anagem ent program.
Actual expenditures fo r the year totaled $1.19 billion. Excluding $125.8 million
fo r Corporate General and Adm inistrative expenses, actual expenditures w ere
allocated to programs as follow s: $118.3 million, or 11 percent, to the Insurance
program; $629.3 million, or 59 percent, to the Supervision program; and
$316.5 million, or 30 percent, to the Receivership M anagem ent program.
H igher-than-proposed spending fo r the Supervision program and low er-thanprojected spending fo r the Insurance program reflect actual tim e charges by
examiners. During 2003, the FDIC w ill review tim e reported by examiners
to ensure that they are accurately allocating their tim e betw een these tw o
programs.

P ro g ra m P e r f o r m a n c e Results

Supervision Program Results
Strategic Goal: FDIC-supervised institutions are safe and sound.
Annual Performance Goal

Indicator

Target

Results

1

Conduct on-site safety and soundness
examinations to assess an FDICsupervised insured depository
institution's overall financial condition,
management practices and policies,
and compliance w ith applicable
regulations.

Conduct required examinations
in accordance w ith statute
and FDIC policy.

One hundred percent of
required examinations are
conducted on tim e.

Achieved

2

Prompt supervisory actions are
taken to address problems found
during the FDIC examination of FDICsupervised institutions identified
as problem insured depository
institutions. FDIC-supervised insured
depository institution compliance
w ith formal and informal enforcement
actions is monitored.

The num ber of m onths from
the last examination of a
problem bank until a follow-up
examination is conducted.

Follow-up examination is
conducted w ithin 12 months
o f com pletion of the prior
examination.

Achieved

Strategic Goal: Consumers' rights are protected and FDIC-supervised institutions invest in th eir com m unities
■■■■■■■■■■■■■■■ ■ I
E ighty-five percent of
Achieved
Assessm ent of participants'
Effective outreach and technical
workshop participants who
understanding of the financial
assistance are provided on topics
com plete self-evaluation
education topics after attending
related to the Com m unity
form s rate as "3 " or better,
a One Stop Center financial
Reinvestment A ct (CRA), fair
education workshop. The FDIC’s
on a scale o f " 1 " to "4 ," the
lending, and com m unity
compliance examination program degree to which they increase
development.
their understanding of the
covers nearly 20 different federal
financial education topic(s).
statutes and regulations ranging
from traditional disclosure laws
(such as the Truth in Lending Act)
to fair lending statutes (such
as the Equal Credit Opportunity
and Fair Housing Acts) to the
C om m unity R einvestm ent Act
(CRA), w hich encourages
insured depository institutions
to help m eet com m unity credit
needs. The FDIC has also
added the privacy and insurance
consum er protection provisions
of the Gramm-Leach-Bliley
Act of 1999 to its compliance
examination program.




2.5

S u p e rv is io n P ro g ra m R e s u lts (continued)
Strategic Goal: Consumers' rights are protected and FDIC-supervised institutions invest in their com m unities.
Annual Performance Goal

Indicator

Target

Results

4

Effectively m eet the statutory man­
date to investigate and respond to
consum er complaints about FDICsupervised financial institutions.

Timely responses to w ritten
complaints.

Ninety percent of w ritten
complaints are responded to
w ithin tim e frames established
by policy.

Achieved

5

Conduct comprehensive and
compliance-only examinations in
accordance w ith FDIC examination
frequency policy.

Conduct required examinations
in accordance w ith statute and
FDIC policy.

One hundred percent of
required examinations are
conducted w ithin tim e frames
established by statute and
FDIC policy.

Achieved

6

Prompt supervisory actions are
taken and m onitored on all
institutions rated " 4 " or "5 " for
compliance to address problems
identified during compliance
examinations.

Timely follow -up examination
and related activity confirm s
w hether the institution is in
compliance w ith the
enforcem ent action.

A follow -up examination or
related activity is conducted
w ithin 12 m onths from the
date o f a formal enforcem ent
action confirm ing compliance
w ith the enforcem ent action.

Achieved

In s u ra n c e P ro g ra m R e s u lts
Strategic Goal: Insured depositors are p rotected from loss w ith o u t recoijrse to taxpayer funding.
1

26

FDIC is prepared to deal w ith all
financial institution closings and
emerging issues.




Number of business days after
institution failure by w hich
depositors w ill have access to
insured funds either through
transfer of deposits to successor
insured depository institution
or depositor payout.

If the failure occurs on
a Friday, the target is one
business day.

Achieved

If the failure occurs on any
other day of the w eek, the
target is tw o business days.

Achieved

In s u ra n c e P ro g ra m R e s u lts (continued)
Strategic Goal: Insured depositors are protected from loss w ith o u t recourse to taxpayer funding.
•

2

3

.

-s®?.

- s -• -

- -

v

,

.v-1'"

.

Annual Performance Goal

Indicator

Target

Results

Identify and address risks to the
insurance funds.

Maintain and improve off-site
risk identification model(s).

Review and enhance existing
FDIC off-site risk identification
m odels to address credit,
agricultural, real estate,
technology and other risks
by December 31, 2002.

Achieved

Assess risks posed by large
insured depository institutions.

Assess risks in 100 percent
of large insured depository
institutions and adopt
appropriate strategy.

Achieved

Identify and fo llo w up on
concerns referred for examination
or other action (e.g., contact
the insured institution or
primary supervisor).

Identify and fo llo w up on
100 percent of referrals.

Achieved

Disseminate data and analyses
on current issues and risks
affecting the banking industry
to bankers, supervisors,
stakeholders and the public.

Analyses are included in
regular publications or as
ad-hoc reports on a tim ely
basis.

Achieved

Conduct industry outreach
aimed at the banking
comm unity and industry trade
groups to discuss current
trends and concerns and to
inform bankers about available
FDIC resources.

Achieved

Maintain and improve the
Research Information System
(RIS), w hich serves as the
foundation of m ost analysis and
statistical reporting for the FDIC.

Update and expand data
availability in RIS.

Achieved

D evelop a m ore e ffic ie n t
approach to bank data collection
and management.

D evelop p ro je ct scope,
evaluate technical alternatives,
prepare recom m endations
and establish im plem entation
schedule.

Achieved

Maintain sufficient and reliable
inform ation on insured depository
institutions.




In s u ra n c e P ro g ra m R e s u lts (continued)
Strategic Goal: Insured depositors are protected from loss w ith o u t recourse to taxpayer funding.

4

Annual Performance Goal

Indicator

Target

Results

Maintain and improve the deposit
insurance system .

Continue the comprehensive
deposit insurance review
initiated in 2000.

W ork w ith the Congress to
develop and pass a reform
package.

Achieved

Develop pricing recom m en­
dations and im plem entation
plans fo r inclusion in a notice
and com m ent rulemaking
during 2002.

On Hold

Develop and analyze baseline
data of im plem ented m odifi­
cation results.

Achieved

Identify and review possible
modifications to the Risk-Related
Premium System (RRPS).

Assess the feasibility of
Achieved
developing objective screens
for the RRPS that identify
financial institutions dem on­
strating excessive risk, such
as certain types of credit risk,
market risk and operational risk.
Analyze the accuracy of
projected losses to and
reserves fo r the insurance
funds.

Maintain the reserve balance
to insured deposits.

V




Review discrepancies between
projected failed assets and
actual failed assets by applying
sophisticated analytical
techniques to examine the
effectiveness of the loss
projection model and adjust
the system accordingly.

Achieved

Perform comprehensive
analysis o f all aspects of
reserving m ethodology and
im plem ent enhancements
as necessary.

Achieved

Maintain the designated
reserve ratio (DRR) as required
by statute, using the DRR
target.

Achieved

R e c e iv e rs h ip M a n a g e m e n t P ro g ra m R e s u lts
Strategic Goal: Recovery to creditors of receiverships is achieved.
U M a H H H H M a o B a flB H iiiw a a iK a i
Annual Performance Goal

Indicator

Target

Results

1

M arket failing institutions to all
known qualified and interested
potential bidders.

List o f qualified and interested
bidders.

Contact all known qualified
and interested bidders.

Achieved

2

The FDIC values, manages and
markets assets of failed institutions
and their subsidiaries in a tim ely
m anner to m axim ize net return.

Failed institution's assets
are marketed.

Eighty-five percent of book
value of failed institution's
m arketable assets are
m arketed w ith in 90 days
o f failure.

Achieved

3

Investigations w ill be conducted into
all potential professional liability claim
areas in all failed insured depository
institutions, and a decision to close
or pursue each claim is made as
promptly as possible, considering the
size and com plexity of the institution.

Percentage of investigated claim
areas fo r w hich a decision has
been made to close or pursue
the claim w ithin 18 months
after the failure date.

For 80 percent of all claim
areas, a decision is made to
close or pursue the claim.

Achieved

4

The FDIC, as receiver, manages
the receivership estate and its
subsidiaries tow ard an orderly
termination.

Timely term ination of new
receiverships.

Terminate 75 percent of
Achieved
receiverships managed through
the Receivership Oversight
Program w ithin three years
of the failure date (starting
w ith receiverships established
in the year 2000).




29

M u lt i- Y e a r P e r f o r m a n c e T re n d

Depositor Payouts in Instance of Failure
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Insured deposits are trans­
ferred to successor insured
depository institution or
depositor payouts are begun
within three days of insured
depository institution failure.

Timely payments
made to all
depositors
for seven of
eight insured
depository
institutions that
failed in 1999.

Timely payments
made to all
depositors of the
seven insured
depository
institutions that
failed in 2000.

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
not established
in 1999.

Annual goal
not established
in 2000.

Timely payments
made to all
depositors of
the four insured
depository
institutions that
failed in 2001.

Timely payments
made to all
depositors of
the 11 insured
depository
institutions that
failed in 2002.

Deal w ith all
financial institution
closings and
emerging issues.

Revised Goal:
FDIC is prepared to deal with
all financial institution closings
and emerging issues.

Legislation on
deposit insurance
reform was
introduced in the
House and the
Senate.

Risk Classifications
Maintain and improve the
deposit insurance system.

SO



To improve system,
Financial Risk
Committee
established.

Reserve ratio
maintained at
or above the
statutory
mandate of
1.25 percent.

Reserve ratio
maintained. FDIC
published its final
recommendations
for deposit
insurance reform.

Reserve ratio main­
tained at or above
the statutory ratio
of 1.25 percent.
Chairman testified
before the Senate
Committee in
support of deposit
insurance reform.

Maintain and
improve the
deposit insurance
system. Provide
educational infor­
mation to insured
depository institu­
tions and their
customers to
help them under­
stand the rules
for determining
the amount of
insurance coverage
on their deposits.

R isk Id e n tific a tio n a n d R e p D rtin g
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Identify and address risks
to the insurance funds.

Off-site and on-site
risk identification
processes were
used to identify
risk areas and
concerns such as:
subprime lending,
construction
lending practices,
loan underwriting
standards,
electronic banking
and privacy.

Economic trends
and emerging
risks were
identified,
monitored and
addressed through
the publication
of surveys,
guidance and
reports and
outreach
programs.

Developed several
approaches to
credit risk that will
be incorporated into
Virtual Supervisory
Information On the
Net system. Risk
assessments of
all large insured
depository
institutions (LIDIs)
were completed
in compliance
with program
requirements.

Significant progress
made in improving
the accuracy and
efficiency of offsite risk identifica­
tion models. Risk
assessments of
all large insured
depository
institutions (LIDIs)
were completed
in compliance
with program
requirements.

Identify and
address risks to
the insurance
funds.

Conducted 2,568
or 97 percent
of required safety
and soundness
examinations*

Conducted 2,575
or 97 percent
of required safety
and soundness
examinations.*

Conducted 2,534
or 98 percent
of required safety
and soundness
examinations.

Conduct on-site
safety and sound­
ness examinations
to assess an FDICsupervised insured
depository institu­
tion’s overall
financial condition,
management
practices and
policies, and
compliance
with applicable
regulations.

On average,
examination
reports were
processed and
mailed to
institutions within
44 days of receipt
in regional office.
Target is 45 days.

Sixty-seven
institutions
designated as
problem (com­
posite "4 " or "5 "
rated). Fifty-six
were removed
from problem
status and 76
added.

Eighty-four
institutions
designated as
problem (com­
posite "4 " o r "5"
rated). Forty-eight
were removed
from problem
status and 63
added.

Take prompt
supervisory actions
to address prob­
lems identified
during the FDIC
examination of
FDIC-supervised
institutions identified
as problem insured
depository institu­
tions. Monitor FDICsupervised insured
depository institu­
tions' compliance
with formal and
informal enforce­
ment actions.

S a fe ty a n d S o u n d n e s s E x a in in a tio n s

Conduct on-site safety and
soundness examinations to
assess an FDIC-supervised
insured depository institution's
overall financial condition,
management practices and
policies, and compliance with
applicable regulations.

Conducted 2,555
or 95 percent
of required safety
and soundness
examinations*

Note: From 1999 -2001, the totals
reflect examinations initiated
during the year. This will vary
slightly from the chart on page 14,
which displays examinations
completed during these years.

S a fe ty a n d S o u n d n e s s Enfc r c e m e n t A c tio n s

Take prompt supervisory actions
to address problems identified
during the FDIC examination
of FDIC-supervised institutions
identified as problem insured
depository institutions. Monitor
FDIC-supervised insured
depository institutions'
compliance with formal and
informal enforcement actions.




The number of
problem institutions
increased from 41
at 12/31/98 to 43
as of 12/31/99.
Thirty-one
institutions
removed from
problem status
and 33 added.

Compliance Examinations
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Conduct comprehensive and
compliance-only examinations
in accordance with FDIC
examination frequency policy.

Conducted 2,368
examinations or
102 percent of
annual target.
No delinquent
examinations.

Conducted 2,257
examinations or
102 percent of
annual target.
There were three
delinquent
examinations at
the end of 2000.

Conducted 2,180
comprehensive,
compliance only, and CRA
examinations in
accordance with
FDIC policy.

Conducted 1,820
comprehensive,
compliance only, and CRA
examinations in
accordance with
FDIC policy.

Conduct
comprehensive
and compliance only examinations
in accordance with
FDIC examination
frequency policy.

Annual goal was
not established
in 1999.

One pilot forum
on financial literacy
and predatory
lending was held
in each region.

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal was
not established
in 1999.

Annual goal was
not established
in 2000.

Conducted 25
Money Smart
workshops
with over
600 participants.

Money Smart
classes attended
by approximately
2,800 participants.

Provide effective
outreach and
technical assistance
on topics related
to the CRA, fair
lending and
community
development.

CRA Outreach
Effective outreach, technical
assistance and training are
provided on topics related to
the Community Reinvestment
Act (CRA) and community
development.
Revised Goal:
Provide effective outreach
and technical assistance
on topics related to the CRA,
fair lending and community
development.




Compliance Enforcement Actions
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Corrective actions are taken,
if appropriate, to address
problems identified during
compliance examinations;
bank compliance with those
actions is monitored.

Nine institutions
were designated
as compliance
problems and
rated "4 ." All
enforcement
actions were
in place.

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
was not
established
in 1999.

For institutions
Six of seven
on average rated
institutions had
either been
a composite
examined in the
"4 " or "5 ," the
FDIC conducted
preceding 12
all follow-up
months or were
examinations
still within the 12
within the targeted month time frame
between exam­
time frame of
of 12 months
inations. One
institution was
from the issuance
pending resolution
date of a formal
enforcement action. for safety and
soundness reasons,
and the compliance
examination was
deferred pending
resolution.

Eight of nine
institutions had
entered into a
Memorandum of
Understanding
(MOU) with the
FDIC and the
ninth was in the
process of
reviewing the
recommended
MOU.

Prompt
supervisory
actions are taken
and monitored
on all institutions
rated "A" or "5 "
for compliance.

Revised Goal:
Prompt supervisory actions
are taken and monitored on all
institutions rated "A" or "5 "
for compliance.




33

Consumer Com plaints and Inquiries
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Effectively respond to written
complaints and inquiries
related to deposit insurance
and consumer protection laws.

A pilot customer
satisfaction survey
was conducted.

One hundred
percent of the
FDIC's responses
to the 6,736
written complaints
and inquiries
received were made
within targeted
average turnaround
tim e frames.

FDIC sent 612
survey cards to
consumers and
bankers who
contacted the
Washington Office
concerning
inquiries and
complaints. Eightyfour (14 percent)
of the cards were
returned to the
FDIC. Sixty-two
percent of the
the responses
rated the FDIC
as "excellent" in
response quality
and 64 percent
rated the FDIC as
"excellent" in
in timeliness of
response.

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
was not
established
in 1999.

Annual goal
was not
established
in 2000.

Annual goal
was not
established
in 2001.

FDIC received
8,368 consumer
complaints, closing
95 percent of them.
Of the complaints
closed, 94 percent
were closed within
policy time frames.

Meet the
statutory mandate
to investigate
and respond
to consumer
complaints about
FDIC-supervised
financial
institutions.

Revised Goal:
Meet the statutory mandate
to investigate and respond
to consumer complaints
about FDIC-supervised
financial institutions.

Digitized 34
for FRASER


Asset M anagem ent

IliHHHHHHHRHHHHHHHBHH
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Market 80 percent of a failed
institution's assets to franchise
and nonfranchise investors
within 90 days of resolution.

Annual goal
was not
established
in 1999.

Ninety-five percent
of failed institutions'
assets were
marketed within
90 days, thus
exceeding the
target of 80 percent.

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Revised Goal:
Value, manage and market
assets of the failed institutions
and their subsidiaries in
a timely manner to maximize
net return.

Annual goal
was not
established
in 1999.

Annual goal
was not
established
in 2000.

For three
institutions that
failed, the FDIC
marketed 100
percent of the
marketable assets.
The remaining
institution was
placed into con­
servatorship. Loan
pools, servicing
operations and
residuals that
totaled in excess
of the 80 percent
target were
marketed within
the 90-day time
period.

For nine of 11
institutions that
failed, at least 85
percent of all
marketable assets
were marketed
within the 90-day
time frame, thus
meeting the target.
For tw o of the
failures, 90 days
had not expired
by year-end.

Value, manage
and market assets
of the failed
institutions and
their subsidiaries
in a timely manner
to maximize
net return.




Least-Cost Resolution
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Market to all known qualified
and interested potential
assuming institutions.

Annual goal
was not
established
in 1999.

There were seven
failures in 2000.
One hundred
percent of the
qualified potential
bidders were
contacted.

There were four
failures in 2001.
One hundred
percent of the
qualified potential
bidders were
contacted.

There were 11
failures in 2002.
One hundred
percent of the
qualified potential
bidders were
contacted.

Market failing
institutions to all
known qualified
and interested
potential bidders.

As of 12/31/99, six
institutions failed
within the first three
quarters of 1999
and decisions were
made with regard
to five of the 66
potential claims.
For the April 1998
failure, decisions
were made in all
11 claim areas in
17 months. The
remaining 1998
failures occurred
less than 18 months
ago.

A decision to close
or pursue each
claim was made
within 18 months
after the failure date
for 100 percent
of all investigations.

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
was not
established
in 1999.

Annual goal
was not
established
in 2000.

Five of nine
institutions that
reached the 18month milestone
had 100 percent
of professional
liability investiga­
tions completed.

Two of six institu­
tions that reached
the 18-month
milestone during
2002 had 100 per­
cent of professional
liability investiga­
tions completed.
The other four
institutions had
at least 80 percent
of professional
liability investiga­
tions completed,
meeting the goal
of 80 percent.

Conduct
investigations
into all potential
professional
liability claim areas
in all failed
insured depository
institutions.
Decide to close
or pursue each
claim as promptly
as possible,
considering the
size and complexity
of the institution.

Professional Liability Claims

Investigations are conducted
into all potential professional
liability claim areas in all failed
insured depository institutions
and a decision to close or
pursue each claim will be
made within 18 months after
the failure date in 80 percent
of all investigations.

Revised Goal:
Conduct investigations into all
potential professional liability
claim areas in all failed insured
depository institutions.
Decide to close or pursue each
claim as promptly as possible,
considering the size and
complexity of the institution.

Digitized 36
for FRASER


Receivership Terminations
Annual Goal

1999 Results

2000 Results

2001 Results

2002 Results

2003 Goal

Achieve a 35 percent reduction
in the number of active
receiverships in 2000.

Annual goal
was not
established
in 1999.

One hundred
fifty-six receiver­
ships were
terminated, thus
achieving the.
goal of 156

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
revised
(see below).

Annual goal
was not
established
in 1999.

Annual goal
was not
established
in 2000.

Fifty-two out of
the 76 targeted
receiverships were
terminated in 2001.
In mid-2001, the
target of 76
terminations was
revised to 36. The
pace of termination
was slowed by
impediments that
represented
material financial
or legal risks
to the FDIC.

For the eight failures
from 1999 that
matured in 2002,
FDIC terminated
six receiverships,
meeting the target
to terminate
75 percent within
three years
of failure.

Manage the
receivership
estate and its
subsidiaries
toward an orderly
termination. Value,
manage and
market assets
of the failed
institutions and
their subsidiaries
in a timely manner
to maximize
net return.

Revised Goal:
Manage the receivership
estate and its subsidiaries
toward an orderly termination.




P ro g ra m E v a lu a tio n

During 2002 and early 2003, the FDIC com pleted evaluations o f programs designed to achieve the
strategic objectives set forth in the Supervision: Consumer Rights program area of the FDIC's 2001-2006
Strategic Plan.
The program evaluation of each strategic objective included a list of issues to be evaluated, background
context of the evaluation, analysis of programs and actions to achieve the objective, evaluation methodology,
and findings. The follow ing section presents the issues evaluated and summarizes the results of this
evaluation.
Strategic
Objective

Deposit insurance funds and system remain viable.

Issues
Evaluated

How does the FDIC ensure that FDIC-supervised institutions com ply w ith consum er protection, Com m unity
R einvestm ent A ct (CRA), and fair lending laws?

Findings

The FDIC has extensive procedures in place to evaluate how w ell FDIC-supervised institutions comply w ith
consum er protection, CRA, and fair lending laws. The FDIC conducts compliance and CRA examinations
to evaluate FDIC-supervised institutions' practices regarding consum er protection, CRA, and fair lending
laws. In addition to the examination process, the FDIC investigates consum er complaints about banking
practices. Noncompliance w ith consum er protection and fair lending laws can result in civil liability and
negative publicity as w ell as informal or formal enforcem ent actions against the institution to correct the
identified violations. The FDIC also uses the institutions' record of compliance w ith consum er protection,
CRA, and fair lending laws w hen evaluating applications fo r new or expanded activities and certain
other corporate applications. The Program Evaluation team found that, through its compliance and CRA
examinations and its Complaint and Inquiry Program, the FDIC has appropriate procedures in place to
evaluate how w ell FDIC-supervised institutions com ply w ith consum er protection, CRA, and fair lending
laws.

Strategic
Objective

Consumers have access to easily understood inform ation about their rights and the disclosures due them
under consum er protection and fair lending laws.

Issues
Evaluated

Does the FDIC provide inform ation to consumers about their rights and the disclosures due consumers
under current consum er protection and fair lending laws?
Is the inform ation easily accessible and easily understood?

Findings

The FDIC undertakes an extensive and expanding number of activities to provide information on consumers'
rights and the disclosures due them under consum er protection and fair lending laws. A w ide array of
materials detail consum ers' rights; provide consum er inform ation and answers to questions concerning
deposit insurance, banks, and consum er rights; and o ffe r practical guidance on how to become a better
inform ed user of financial services. These are readily accessible and w idely distributed on the FDIC's
W eb site and at outreach seminars and w orkshops. M any materials are also available in hard copy and
som e in m ultiple languages. For example, Spanish, Korean and Chinese versions of inform ation on how
FDIC deposit insurance w orks are in print. The FDIC also has been actively involved in consum er education
and disclosure w ith the creation, im plem entation and ongoing support of programs such as Money Smart
and "EDIE" - the FDIC's Electronic Deposit Insurance Estimator. In addition, the FDIC conducts evaluations
to assess the effectiveness of its activities and program modifications and im provem ents. The Program
Evaluation team found that through its extensive inform ation dissemination efforts, consum er education
and outreach activities, and procedures to handle consum er complaints and inquiries, the FDIC has
appropriate measures in place to prom ote the protection of consum ers' rights.







5ANKING ON OUR FUTURE
T o d ay , T o g e t h e r - I n v e s t i n o u r Y outh

Distinguished economists from banks, the U.S. Senate
and the W hite House join FDIC economic experts in
November in a roundtable discussion of ways to
deal w ith future developments.
Richard Brown, Associate Director in the Division of
Insurance and Research, moderates the discussion.
Donna Gambrell, Deputy Director of the Division
of Supervision and Consumer Protection, hosts
a signing ceremony in April when the FDIC and the
Neighborhood Reinvestment Corporation, a public
nonprofit corporation, agreed to pool their resources
to promote financial literacy.
Chairman Powell speaks to students participating
in the FDIC’s M oney Smart program at
H.D. W oodson High School in W ashington, DC.
The FDIC's Advisory Committee - leaders from
U.S. business, education, finance and governm ent holds its firs t m eeting in November in the FDIC's
Board Room. The com m ittee was formed to advise
the FDIC on delivery of services, policy development
and corporate infrastructure.
President George W. Bush's Chief of Staff,
A ndrew Card, was invited to speak to the Advisory
Committee.
Deputy to the Chairman and Chief Operating Officer
John F. Bovenzi (right) and Deputy to the Chairman
and Chief Financial Officer Steven 0. App also
addressed the committee.

39

III. Financial
Statements
and Notes
Bank Insurance
Fund
December 31, 2002
and 2001




Federal

Deposit

Insurance

Corporation

Bank Insurance Fund Statem ents of Financial Position at December 31
Dollars

in

Thousands
2002

2001

Assets
Cash and cash equivalents

$

4,606,896

$

1,436,613

Investment in U.S. Treasury obligations, net: (Note 3)
H eld -to-m atu rity securities

16,709,665

20,477,568

A vailable-for-sale securities

10,823,593

9,685,367

Interest receivable on investm ents and other assets, net

483,674

547,101

Receivables from bank resolutions, net (N ote 4)

505,395

79,155

Property and equipm ent, ne t (N ote 5)

303,084

303,969

Total Assets

$

33,432,307

$

32,529,773

$

148,573

$

134,990

Liabilities
Accounts payable and other lia b ilitie s
Contingent liabilities for: (Note 6)
1,008,097

A nticipa ted fa ilu re of insured in stitution s
Litigation losses

1,911,000

204,805

Other contingencies
Total Liabilities

37,123
20,492

7,835

1,381,967

2,090,948

31,238,171

30,192,903

812,169

245,922

32.050,340

30,438,825

Commitments and off-balance-sheet exposure (Note 10)
Fund Balance
Accum ulated net income
Unrealized gain on available-for-sale securities, ne t (N ote 3)
Total Fund Balance

Total Liabilities and Fund Balance

$

33,432,307

S

32,529,773

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




41

Federal

Deposit

Insurance

Corporation

Bank Insurance Fund Statem ents of Income and Fund Balance for th e Years Ended December 31
Dollars

in

Thousands

2002

2001

Revenue
Interest on U.S. Treasury obligations

$

1,692,381

Assessm ents (N ote 7)
O ther revenue

1,834,768
47,777

0

78,227

Realized gain on sale of U.S.Treasury obligations
Total Revenue

$

84,030
19,474

35,964

1,795,885

1,996,736

Expenses and Losses
Operating expenses

821,136

785,855

Provision fo r insurance losses (N ote 8)

(86,970)

1,756,321

Interest and other insurance expenses

16,451

17,226

750,617

2,559,402

Total Expenses and Losses

Net lncome/(Loss)

1,045,268

Unrealized gain on available-for-sale securities, ne t (N ote 3)
Comprehensive lncome/(Loss)
Fund Balance - Beginning

Fund Balance - Ending
The accompanying notes are an integral part of these financial statements.

42FRASER
Digitized for


$

(562,666)

566,247

26,269

1,611,515

(536,397)

30,438,825

30,975,222

32,050,340

$

30,438,825

Federal

Deposit

Insurance

Corporation

Bank Insurance Fund Statem ents of Cash Flows for th e Years Ended December 31
Dollars

in

Thousands
2002

2001

Cash Flows From Operating Activities
Cash provided by:
Interest on U.S. Treasury obligations

$

1,858,852

$

1,116,406

Recoveries from bank resolutions

1,913,936
368,603

Assessm ents

81,971

47,075

M iscellaneous receipts

22,607

38,422

(742,270)

(729,635)

Cash used by:
Operating expenses

(2,168,187)

(84,651)

(38,311)

(21,696)

131,068

1,532,054

M a tu rity o f U.S. Treasury obligations, he ld -to-m atu rity

3,625,000

3,320,000

M a tu rity or sale of U.S. Treasury obligations, available-for-sale

1,150,000

2,398,572

D isbursem ents fo r bank resolutions
M iscellaneous disbursem ents
Net Cash Provided by Operating Activities (Note 13)

Cash Flows From Investing Activities
Cash provided by:

Cash used by:
(49,647)

(61,189)

0

(1,418,875)

(1,686,138)

(4,490,345)

Net Cash Provided/(Used) by Investing Activities

3,039,215

(251,837)

Net Increase in Cash and Cash Equivalents

3,170,283

1,280,217

Cash and Cash Equivalents - Beginning

1,436,613

156,396

Purchase o f property and equipm ent
Purchase o f U.S. Treasury obligations, he ld -to-m atu rity
Purchase o f U.S. Treasury obligations, available-for-sale

Cash and Cash Equivalents - Ending

S

4,606,896

$

1,436,613

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




43

Bank Insurance
Fund
Notes to the
Financial
Statements
December 31, 2002
and 2001




■ ■ ■ ■ ■ ■ ■ ■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■ ■■■Mi

1. L egislative H istory and O p eratio n s o f th e Bank Insurance Fund

Legislative History
The U.S. Congress created the Federal Deposit Insurance Corporation (FDIC)
through enactm ent of the Banking A ct of 1933. The FDIC w as created to restore
and maintain public confidence in the nation's banking system .
The Financial Institutions Reform, Recovery, and Enforcem ent A ct of 1989
(FIRREA) was enacted to reform, recapitalize, and consolidate the federal deposit
insurance system. The FIRREA created the Bank Insurance Fund (BIF), the Savings
Association Insurance Fund (SAIF), and the FSLIC Resolution Fund (FRF). It also
designated the FDIC as the adm inistrator of these funds. All three funds are
maintained separately to carry out their respective mandates.
The BIF and the SAIF are insurance funds responsible for protecting insured bank
and th rift depositors from loss due to institution failures. The FRF is a resolution
fund responsible fo r w inding up the affairs of the fo rm e r Federal Savings and
Loan Insurance Corporation (FSLIC) and liquidating the assets and liabilities
transferred from the form er Resolution Trust Corporation (RTC).
Pursuant to FIRREA, an active institution's insurance fund membership and primary
federal supervisor are generally determ ined by the in stitu tio n 's charter type.
Deposits of BIF-member institutions are generally insured by the BIF; BIF members
are predominantly commercial and savings banks supervised by the FDIC, the
Office of the Comptroller of the Currency, or the Federal Reserve Board. Deposits
of SAIF-member institutions are generally insured by the SAIF; SAIF members
are predominantly thrifts supervised by the Office of Thrift Supervision.
In addition to traditional banks and thrifts, several other categories o f institutions
exist. The Federal Deposit Insurance A ct (FDI Act), Section 5(d)(3), provides
that a m em ber of one insurance fund may, w ith the approval of its primary
federal supervisor, merge, consolidate w ith, or acquire the deposit liabilities of
an institution that is a m em ber of the other insurance fund w ith o u t changing
insurance fund status for the acquired deposits. These institutions w ith deposits
insured by both insurance funds are referred to as Oakar financial institutions.
The FDI Act, Section 5(d)(2)(G), allows SAIF-member th rifts to convert to a bank
charter and retain their SAIF m em bership. These institutions are referred to as
Sasser financial institutions. The Home O w ners’ Loan A ct (HOLA), Section 5(o),
allows BIF-member banks to convert to a th rift charter and retain their BIF
m em bership. These institutions are referred to as HOLA thrifts.

O ther Significant Legislation
The Om nibus Budget Reconciliation A ct of 1990 (1990 OBR Act), the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), and the Deposit
Insurance Funds A ct of 1996 (DIFA) made changes to the FDIC's assessm ent
authority (see Note 7) and borrowing authority. The FDICIA also requires the
FDIC to: 1) resolve failing institutions in a manner that w ill result in the least
possible cost to the deposit insurance funds and 2) maintain the insurance
funds at not less than 1.25 percent o f estim ated insured deposits or a higher
percentage as circumstances warrant.




Bank Insurance Fund

The Gramm-Leach-Bliley A ct (GLBA) was enacted on November 12,1999, in
order to modernize the financial services industry (banks, brokerages, insurers,
and other financial services providers). The GLBA lifts restrictions on affiliations
among banks, securities firm s, and insurance companies. It also expands the
financial activities perm issible fo r financial holding companies and insured
depository institutions, their affiliates and subsidiaries.

Recent Legislative Initiatives
Legislation on deposit insurance reform was introduced during February 2002
in the House and Senate. The House acted on the FDIC's recom m endations
by passing legislation, H.R. 3717, the Federal Deposit Insurance Reform A ct of
2002, on May 22, 2002. Another reform bill, S. 1945, the Safe and Fair Deposit
Insurance A ct of 2002, w as introduced in the Senate on February 14, 2002.
No further action was taken by the 107th Congress during the year on these
bills. In January and February 2003, however, similar deposit insurance reform
legislation w as reintroduced in the Senate and House, respectively. Legislative
proposals during the 107th Congress included merging BIF and SAIF, modifying
restrictions on charging risk-based insurance premiums, implementing assessment
credits and rebates, changing the designated reserve ratio from a fixed 1.25 per­
cent of estim ated insured deposits to a range, increasing deposit insurance
coverage for all accounts (including higher coverage for retirem ent accounts), and
indexing the insurance lim it to inflation. Deposit insurance reform provisions may
have a significant impact on the BIF and the SAIF, if enacted into law. FDIC manage­
ment, however, cannot predict w hich provisions, if any, will ultimately be enacted.

Operations of th e BIF
The primary purpose of the BIF is to: 1) insure the deposits and protect the
depositors of BIF-insured institutions and 2) resolve failed institutions, including
managing and disposing of their assets. In addition, the FDIC, acting on behalf
of the BIF, examines state-chartered banks that are not m em bers of the Federal
Reserve System.
The BIF is primarily funded from: 1) interest earned on investments in U.S. Treasury
obligations and 2) deposit insurance assessments. Additional funding sources
are U.S. Treasury and Federal Financing Bank (FFB) borrowings, if necessary.
The 1990 OBR A ct established the FDIC's authority to borrow from the FFB
on behalf of the BIF and the SAIF. The FDICIA increased the FDIC's authority
to borrow fo r insurance purposes from the U.S. Treasury, on behalf o f the BIF
and the SAIF, from $5 billion to $30 billion.
The FDICIA established a limitation on obligations that can be incurred by the BIF,
known as the M axim um Obligation Limitation (MOL). As o f Decem ber 31, 2002
and December 31, 2001, the M O L fo r the BIF w as $56.7 billion and $55.4 billion,
respectively.

Receivership Operations
The FDIC is responsible fo r managing and disposing o f th e assets o f failed
institu tio n s in an orderly and e fficie n t manner. The assets held by receivership
entities, and the claims against them , are accounted for separately from BIF assets




and liabilities to ensure that receivership proceeds are distributed in accordance
w ith applicable laws and regulations. Also, the income and expenses attributable to
receiverships are accounted for as transactions of those receiverships. Expenses paid
by the BIF on behalf of the receiverships are recovered from those receiverships.

2. S um m ary o f S ig n ifica n t A c c o u n tin g P o licie s
General
These financial statem ents pertain to the financial position, results of operations,
and cash flo w s of the BIF and are presented in conform ity w ith U.S. generally
accepted accounting principles (GAAP). These statements do not include reporting
fo r assets and liabilities o f closed banks fo r w hich the FDIC acts as receiver.
Periodic and final accountability reports of the FDIC's activities as receiver are
furnished to courts, supervisory authorities, and others as required.

Use of Estimates
FDIC m anagem ent makes estim ates and assum ptions that a ffect the am ounts
reported in the financial statem ents and accompanying notes. Actual results
could differ from these estimates. W here it is reasonably possible that changes
in estim ates w ill cause a material change in the financial statem ents in the near
term , the nature and extent of such changes in estim ates have been disclosed.

Cash Equivalents
Cash equivalents are short-term, highly liquid investments w ith original maturities
of three m onths or less. Cash equivalents consist primarily of Special U.S. Treasury
Certificates.

Investm ent in U.S. Treasury Obligations
Section 13(a) of the FDI Act, as amended, (12 U.S.C. 1823(a)), states that BIF
funds "shall be invested in obligations o f the United States or in obligations
guaranteed as to principal and interest by the United States". The A ct further
requires that the Secretary of the Treasury approve all such investments in excess
of $100,000. The Secretary has granted approval to invest BIF funds only in U.S.
Treasury obligations, provided that such obligations are purchased or sold through
the Bureau of the Public Debt's Government Account Series (GAS) program.
BIF investments in U.S.Treasury obligations are either classified as held-to-maturity
or available-for-sale. Securities designated as held-to-maturity are shown at amor­
tized cost. Amortized cost is the face value of securities plus the unamortized
premium or less the unamortized discount. Amortizations are computed on a daily
basis from the date of acquisition to the date of maturity, except fo r callable U.S.
Treasury securities, which are amortized to the first anticipated call date. Securities
designated as available-for-sale are shown at market value, which approximates fair
value. Unrealized gains and losses are included in Comprehensive Income. Realized
gains and losses are included in the Statements of Income and Fund Balance as
components of Net Income. Interest on both types of securities is calculated on
a daily basis and recorded monthly using the effective interest method.




Bank Insurance Fund

Allow ance for Losses on Receivables From Bank Resolutions
The BIF records a receivable for the amounts advanced and/or obligations incurred
for resolving failing and failed banks. Any related allowance for loss represents
the difference between the funds advanced and/or obligations incurred and the
expected repayment. The latter is based on estimates of discounted cash recoveries
from the assets of failed banks, net of all applicable estimated liquidation costs.

Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated to all funds
administered by the FDIC using workload-based allocation percentages. These
percentages are developed during the annual corporate planning process and
through supplem ental functional analyses.

Depreciation
The FDIC has designated the BIF as adm inistrator of property and equipm ent
used in its operations. Consequently, the BIF includes the cost of these assets
in its financial statem ents and provides the necessary funding fo r them . The BIF
charges the other funds usage fees representing an allocated share o f its annual
depreciation expense. These usage fees are recorded as cost recoveries, w hich
reduce operating expenses.
The W ashington, D.C. office buildings and the L. W illiam Seidman Center in
Arlington, Virginia, are depreciated on a straight-line basis over a 50-year estimated
life. The San Francisco condom inium offices are depreciated on a straight-line
basis over a 35-year estim ated life. Leasehold im provem ents are capitalized and
depreciated over the lesser of the remaining life of the lease or the estim ated
useful life o f the im provem ents, if determ ined to be material. Capital assets
depreciated on a straight-line basis over a five-year estim ated life include main­
fram e equipm ent; furniture, fixtures, and general equipm ent; and internal-use
softw are. Personal com puter equipm ent is depreciated on a straight-line basis
over a three-year estim ated life.

Related Parties
The nature of related parties and a description of related party transactions are dis­
cussed in Note 1 and disclosed throughout the financial statements and footnotes.

Reclassifications
Reclassifications have been made in the 2001 financial statements to conform to
the presentation used in 2002.

47

■ ■ ■ M M

3. Investm ent in U .S. Treasury O b lig a tio n s, Net

As of December 31, 2002 and December 31, 2001, the book value of investments
in U.S. Treasury obligations, net, was $27.5 billion and $30.2 billion, respectively.
As of December 31, 2002, the FDIC held $6.2 billion of Treasury inflation-indexed
securities (TIIS) for the BIF. These securities are indexed to increases or decreases
in the Consumer Price Index fo r All Urban Consumers (CPI-U). Additionally, FDIC
held $1.5 billion of callable U.S. Treasury bonds at December 31, 2002, w ith the
prem ium s being amortized to the firs t call date. Callable U.S. Treasury bonds
may be called five years prior to the respective bonds' stated m aturity on their
semi-annual coupon payment dates upon 120 days notice.
There were no available-for-sale securities sold during 2002. In 2001, the BIF reported
a gross realized gain of $78 million on the sale of securities designated as availablefor-sale. Proceeds from the sales were $1.5 billion. Specific identification was used
to determine cost of the securities sold in computing the realized gain.
U.S. Treasury Obligations at December 31, 2002
Dollars

in T h o u s a n d s

Unrealized
Holding
Gains

Net

Maturity*

Yield at^
Purchase’

Face
Value

Carrying
Amount

Unrealized
Holding
Losses

Market
Value

Held-to-Maturity
W ith in 1 ye a r

5.98%

A fte r 1 year th ru 5 years

6.24%

10,265,000

10,401,894

1,169,295

11,571,189

A fte r 5 years thru 10 years

5.39%

2,895,000

2,961,035

370,281

3,331,316

Treasury Inflation-Indexed
A fte r 5 y ears t hru 10 years

3.82%

Total

$

2,690,000

$

607,987
$

2,737,1 i

63,325

609,548

16,457,987

$

1,390,000

$

16,709,665

$

$

2,800,513

68,169

677,717

1,671,070

$ 18,380,735

Available-for-Sale
W ith in 1 year

5.31%

A fte r 1 year thru 5 years

4.91%

Treasury Inflation-Indexed
A fte r 5 years thru 1 !0 je a j^

3.78%

$

3,355,1
5,010,245

Total

9,755,245

1,389,723

27,614

1,417,337

3,595,734

235,538

3,831,272

5,025,967

549,017

5,574,984

$

10,011,424

812,169

$ 10,823,593

$

26,721,089

Total Investment in U.S. Treasury Obligations, Net
Total

$

26,213,232

$

2,483,239

S

$ 29,204,328

For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to firs t call date.
For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation
assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of M anagem ent and Budget and the
Congressional Budget Office in early 2002.




Bank Insurance Fund

U.S. Treasury Obligations at December 31, 2001
Dollars

in

Thousands

Maturity*

Yield atT
Purchase

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

Unrealized
Holding
Losses

Market
Value

1 Held-to-Maturity
3,666,801

10,345,000

10,516,639

752,344

(2,193)

11,266,790

A fte r 5 years thru 10 years

5.39%

5,505,000

5,696,333

196,238

0

5,892,571

Treasury Inflation-Indexed
A fte r 5 years thru 10 years

3.82%

596,008
1 $ ' 20,071,008

$ 20,477,568

$

$

$

$

11,807

597,795

1,031,536

’

s

(25)

3,737,923

6.40%

Total

$

71,147

5.77%

A fte r 1 year thru 5 years

$

3,625,000

$

W ith in 1 year

$

0

609,602

(2,218)

S 21,506,886

1Available-for-Sale
W ith in 1 year

4.57%

A fte r 1 year thru 5 years

5.54%

Treasury Inflation-Indexed
A fte r 5 years thru 10 years

3.78%

Total

$

1,050,000

4,911,545
“ S

9,346,545

1,056,197
3,454,666

3,385,000

4,928,582
$

9,439,445

10,721

$

156,271
103,950
$

270,942

0

$

S

1,066,918
3,610,937

0
(25,020)

5,007,512

(25,020)

9,685,367

$

I Total Investment in U.S. Treasury Obligations, Net

Total

$

29,417,553

§
S 29,917,013

S

1,302,478

_

L

(27,238)

$ 31,192,253

• For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to firs t call date.
T For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a w eighted average of
Bloomberg s calculation of yield w ith a long-term inflation assumption of 2.5% annually, as measured by the Consumer Price Index (CPI).




As of Decem ber 31, 2002 and 2001, the unamortized prem ium, net of the
unamortized discount, was $508 million and $499 million, respectively.

49

£££■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■

4. R eceivables From B ank R esolutions, Net

The bank resolution process takes different form s depending on the unique facts
and circumstances surrounding each failing or failed institution. Payments for
institutions that fail are made to cover obligations to insured depositors and
represent claims by the BIF against the receiverships' assets. There w ere ten
bank failures in 2002 and three in 2001, w ith assets at failure of $2.5 billion and
$54 million, respectively, and BIF outlays of $2.1 billion and $49.5 million,
respectively.
Assets held by the FDIC in its receivership capacity fo r closed BIF-insured insti­
tutions are the main source of repaym ent o f the BIF's receivables from closed
banks. As of December 31, 2002 and 2001, BIF receiverships held assets w ith
a book value of $1.1 billion and $154.6 million, respectively (including cash,
investm ents, and miscellaneous receivables of $479 million and $71.9 million at
December 31, 2002 and 2001, respectively). Generally, the estim ated cash
recoveries from the management and disposition of these assets that are used
to derive the allowance for losses are based in part on a statistical sampling
of receivership assets. For certain recent and significant failures, a separate
evaluation was performed, based on non-representative sampling, to estim ate
cash recoveries on the m ajority of receivership assets in order to determ ine
the appropriate allowance for losses. These estim ated recoveries are regularly
evaluated, but remain subject to uncertainties because of potential changes
in econom ic conditions. Such uncertainties could cause the BIF's and other
claimants' actual recoveries to vary from the level currently estimated.

I Receivables From Bank Resolutions, N et at December 31
Dollars

|

in T h o u s a n d s

2002
Receivables from closed banks

$

(5,550,218)

A llow an ce fo r losses

Total

Digitized50
for FRASER


III

2001

6,055,613

505,395

$

5,368,970
(5,289,815)

__
S

79,155

Bank Insurance Fund

5. P rop erty and Equipm en t, Net
Property and Equipm ent, N et at December 31
Dollars

in T h o u s a n d s

2002
Land

$

37,352

2001
$

29,631

Buildings

171,362

175,265

A pplication so ftw a re (includes w ork-in-process)

155,196

131,104

Furniture, fixtures, and equipm ent
A ccum ulated depreciation

Total




$

98,497

93,593

(159,323)

(125,624)

303,084

$

303,969

The depreciation expense w as $47 m illion and $45 m illion fo r 2002 and 2001,
respectively.

6. C o n tin g e n t Lia b ilitie s for:
Anticipated Failure of Insured Institutions
The BIF records a contingent liability and a loss provision fo r banks (including
Oakar and Sasser financial institutions) th a t are likely to fail w ith in one year of
the reporting date, absent som e favorable event such as obtaining additional
capital or merging, when the liability becomes probable and reasonably estimable.
The contingent liability is derived by applying expected failure rates and histori­
cal loss rates to groups o f institu tio n s w ith certain shared characteristics. In
addition, institution-specific analysis is perform ed on those banks w h e re failure
is im m inent absent institution m anagem ent resolution o f existing problem s.
As o f Decem ber 31, 2002 and 2001, the contingent liabilities fo r anticipated
failure of insured institutions w ere $1.0 billion and $1.9 billion, respectively.
In addition to these recorded contingent liabilities, the FDIC has identified
additional risk in the financial services industry that could result in a material
loss to the BIF should potentially vulnerable financial institutions ultim ately fail.
This risk is evidenced by the level of problem bank assets and the presence
of various high-risk banking business models that are particularly vulnerable
to adverse econom ic and market conditions.
Due to the uncertainty surrounding future econom ic and market conditions,
there are other banks fo r w hich the risk of failure is less certain, but still consid­
ered reasonably possible. Should these banks fail, the BIF could incur additional
estim ated losses up to $6.0 billion.
The accuracy o f these estim ates w ill largely depend on future economic and
market conditions. The FDIC's Board o f Directors has the statutory authority
to consider the contingent liability from anticipated failures o f insured institutions
w hen setting assessm ent rates.

51




Litigation Losses
The BIF records an estim ated loss fo r unresolved legal cases to the extent that
those losses are considered probable and reasonably estimable. In addition to
the am ount recorded as probable, the FDIC has determ ined that losses totaling
$53.8 million from unresolved legal cases are reasonably possible.

Other Contingencies

Representations and Warranties
As part o f the FDIC's efforts to maximize the return from the sale of assets
from bank resolutions, representations and warranties, and guarantees are
offered on certain loan sales. In general, the guarantees, representations, and
warranties on loans sold relate to the com pleteness and accuracy of loan docu­
m entation, the quality of the underw riting standards used, the accuracy of the
delinquency status w hen sold, and the conform ity o f the loans w ith characteris­
tics of the pool in w hich they w e re sold. The total am ount of loans sold subject
to unexpired representations and warranties, and guarantees w as $6.7 billion
as o f Decem ber 31, 2002. The contingent liability from all outstanding claims
asserted in connection w ith representations and w arranties w as $11.6 million
and $1.5 million at Decem ber 31, 2002 and 2001, respectively.
In addition, future losses on representations and warranties, and guarantees
could be incurred over the remaining life of the loans sold, w hich is generally
20 years or more. Consequently, the FDIC believes it is possible that additional
losses may be incurred by the BIF from the universe of outstanding contracts
w ith unasserted representation and warranty claims. However, because of the
uncertainties surrounding the tim ing of when claims may be asserted, the FDIC
is unable to reasonably estim ate a range o f loss to the BIF from outstanding
contracts w ith unasserted representation and warranty claims.

7. A sse ssm e n ts

The 1990 OBR A ct removed caps on assessm ent rate increases and authorized
the FDIC to set assessm ent rates fo r BIF m em bers semiannually, to be applied
against a m em ber's average assessm ent base. The FDICIA: 1) required the
FDIC to im plem ent a risk-based assessm ent system ; 2) authorized the FDIC to
increase assessm ent rates fo r BIF-member institutions as needed to ensure that
funds are available to satisfy the BIF’s obligations; 3) required the FDIC to build
and maintain the reserves in the insurance funds to not less than 1.25 percent
of estim ated insured deposits; and 4) authorized the FDIC to increase assess­
m ent rates more frequently than semiannually and im pose em ergency special
assessm ents as necessary to ensure that funds are available to repay U.S.
Treasury borrowings.
The FDIC uses a risk-based assessm ent system that charges higher rates to
those institutions that pose greater risks to the BIF. To arrive at a risk-based




Bank Insurance Fund

assessm ent fo r a particular institution, the FDIC places each institution in one
of nine risk categories, using a tw o-step process based firs t on capital ratios and
then on other relevant information. The assessm ent rate averaged approximately
22 cents and 14 cents per $100 of assessable deposits fo r 2002 and 2001,
respectively. On Novem ber 12, 2002, the Board voted to retain the BIF assess­
m ent schedule at the annual rate o f 0 to 27 cents per $100 of assessable
deposits fo r the firs t semiannual period o f 2003. The Board reviews prem ium
rates semiannually.
As stated above, the FDICIA requires the FDIC to maintain the insurance funds
at a designated reserve ratio (DRR) of not less than 1.25 percent of estimated
insured deposits (or a higher percentage as circum stances warrant). As of
Septem ber 30, 2002, the BIF reserve ratio was 1.25 percent of estim ated
insured deposits. The FDICIA authorizes and mandates BIF assessm ents if
needed to maintain the fund at the DRR or to return the fund to the DRR if it
falls below the DRR. The FDIC is required to set semiannual assessm ent rates
that are sufficient to increase the reserve ratio to the DRR not later than one
year after such rates are set, or in accordance w ith a recapitalization schedule
of fifteen years or less.
The DIFA provided, among other things, fo r the elimination of the mandatory
m inim um assessm ent form erly provided fo r in the FDI Act. It also provided for
the expansion of the assessment base for payments of the interest on obligations
issued by the Financing Corporation (FICO) to include all FDIC-insured institutions,
and it made the FICO assessm ent separate from regular assessments, effective
on January 1, 1997. The FICO w as established by the C om petitive Equality
Banking A ct o f 1987 as a m ixed-ow nership governm ent corporation w hose
sole purpose w as to function as a financing vehicle fo r the FSLIC.
The annual FICO interest obligations o f approximately $790 million are paid on
a pro rata basis using the same rate fo r banks and thrifts. The FICO assessm ent
has no financial impact on the BIF. The FICO assessm ent is separate from the
regular assessm ents and is imposed on banks and thrifts, not on the insurance
funds. The FDIC, as adm inistrator o f the BIF and the SAIF, is acting solely
as a collection agent fo r the FICO. During 2002 and 2001, $621 m illion and
$627 m illion, respectively, w as collected fro m BIF-m em ber institu tio n s and
rem itted to the FICO.

8. Pro vision fo r Insurance Losses

Provision for insurance losses was a negative $87 million for 2002 and $1.8 billion
for 2001. The follow ing chart lists the m ajor com ponents of the provision for
insurance losses.

I Provision fo r Insurance Losses fo r th e Years Ended D e ce m b er 31
Dollars

j

in T h o u s a n d s

2001

2002
Valuation Adjustments:
$

Closed banks
Open bank assistance and other assets
Total Valuation Adjustments

616,844

$

(41,106)

6,006

(928)

622.850

(42,034)

(902,903)

1,776,645

Contingent Liabilities Adjustments:
A n ticip a te d fa ilu re o f insured in stitution s
Litig ation losses

190,572

Other contingencies
Total Contingent Liabilities Adjustments
$

Total

Digitized 54
for FRASER


16,095
2,511

5,615

(709,820)

1,798,355

(86,970)

$

1,756,321

9. Em p loye e Ben efits
Pension Benefits, Savings Plans and Postem ploym ent Benefits
Eligible FDIC employees (permanent and term employees w ith appointm ents
exceeding one year) are covered by either the Civil Service R etirem ent System
(CSRS) or the Federal Employees Retirement System (FERS). The CSRS is a
defined benefit plan, w hich is o ffse t w ith the Social Security System in certain
cases. Plan benefits are determ ined on the basis of years o f creditable service
and compensation levels. The CSRS-covered em ployees also can contribute
to the tax-deferred Federal T hrift Savings Plan (TSP).
The FERS is a three-part plan consisting o f a basic defined benefit plan that
provides benefits based on years o f creditable service and compensation levels.
Social Security benefits, and the TSP. Autom atic and matching em ployer contri­
butions to the TSP are provided up to specified am ounts under the FERS.
Although the BIF contributes a portion of pension benefits for eligible employees,
it does not account fo r the assets of either retirem ent system . The BIF also does
not have actuarial data fo r accumulated plan benefits or the unfunded liability
relative to eligible employees. These am ounts are reported on and accounted
fo r by the U.S. O ffice of Personnel Management.
Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred
401 (k) savings plan w ith matching contributions. The BIF pays its share of the
em ployer's portion of all related costs.

Bank Insurance Fund

1 Pension Benefits, Savings Plans Expenses and Postem ploym ent Benefits for th e Years Ended December 31
Dollars

in T h o u s a n d s

2002
Separation Incentive Payment

$

29,085

2001
$

3,304

Civil Service R etirem ent System

13,365

11,205

Federal Employees R etirem ent System (Basic Benefit)

30,366

29,562

FDIC Savings Plan

18,956

18,254

Federal T h rift Savings Plan

12,235

11,871

Total




$

104,007

S

74,196

During 2002, the Corporation offered voluntary employee buyout programs to
a m ajority of its employees and conducted a reduction-in-force (RIF) in an effort
to reduce identified staffing excesses. As a result, over 700 employees left or
w ill leave the Corporation by December 31, 2003. Approxim ately 91 percent of
the affected employees have left their positions in 2002. Termination benefits
included compensation of fifty percent of the current salary fo r voluntary depar­
tures. The total cost of this benefit to the Corporation was $33.1 million for
2002, w ith BIF's pro rata share totaling $28.9 million, w hich is included in the
"Operating expenses" line item . In 2002, BIF paid $10.1 million of this com pen­
sation benefit and the remaining unpaid am ount is recorded as a liability in the
"A ccounts payable and other liabilities" line item.

Accrued Annual Leave
The BIF's pro rata share of the Corporation's liability to employees fo r accrued
annual leave is approximately $34.1 million and $35.3 million at December 31, 2002
and 2001, respectively.

Postretirem ent Benefits Other Than Pensions
The FDIC provides certain life and dental insurance coverage fo r its eligible
retirees, the retirees' beneficiaries, and covered dependents. Retirees eligible
fo r life insurance coverage are those w h o have qualified due to: 1) immediate
enrollm ent upon appointm ent or five years of participation in the plan and
2) eligibility fo r an im m ediate annuity. The life insurance program provides
basic coverage at no cost to retirees and allows converting optional coverages
to direct-pay plans. Dental coverage is provided at no cost to all retirees eligible
fo r an im m ediate annuity. A t December 31, 2002 and 2001, the BIF's net
postretirem ent benefit asset recognized in the "In te re st receivable on invest­
ments and other assets, n e t" line item in the Statem ents of Financial Position
was $130 thousand and $3.6 million, respectively.
The Corporation's postretirem ent benefits plan curtailm ent loss resulting from
the voluntary em ployee buyout programs and reduction-in-force was $1.6 million
in 2002, w ith BIF's pro rata share totaling $1.3 million.

10. C o m m itm e n ts and O ff-B alance-Sheet Exposure

Com m itm ents:

Leased Space
The BIF's allocated share of the FDIC's lease com m itm ents totals $138.6 million
fo r future years. The lease agreem ents contain escalation clauses resulting in
adjustm ents, usually on an annual basis. The allocation to the BIF o f the FDIC's
future lease com m itm ents is based upon current relationships of the workloads
among the BIF, the SAIF, and the FRF. Changes in the relative workloads could
cause the am ounts allocated to the BIF in the future to vary from the am ounts
shown below. The BIF recognized leased space expense of $36.9 million and
$38.5 million fo r the years ended Decem ber 31, 2002 and 2001, respectively.

1 Leased Space C om m itm ents
Dollars

in T h o u s a n d s

2003

2004

2005

2006

2007

2008/Thereafter

$ 38,318

$ 34,487

$ 28,780

$ 19,309

$ 11,076

S 6,667




Off-Balance-Sheet Exposure:

Asset Securitization Guarantees
As part of the FDIC's effo rts to maximize the return from the sale or disposition
of assets from bank resolutions, the FDIC has securitized som e receivership
assets. To facilitate the securitizations, the BIF provided lim ited guarantees to
cover certain losses on the securitized assets up to a specified m axim um . In
exchange fo r backing the lim ited guarantees, the BIF received assets from the
receiverships in an amount equal to the expected exposure under the guarantees.
The remaining term of the lim ited guarantee is 24 years. The table below gives
the maximum off-balance-sheet exposure the BIF has under these guarantees.

Bank Insurance Fund

I Asset Securitization Guarantees at December 31
Dollars

in

Thousands

2002
M axim um exposure under th e lim ite d guarantees

$

Less: G uarantee claim s paid (inception-to-date)

$

(35,034)

Less: A m o un t o f exposure recognized as a conting ent lia b ility

Maximum Off-Balance-Sheet Exposure Under the Limited Guarantees




243,764

2001

(6,508)

$

202,222

330,936
(34,756)
(3,966)

$

292,214

Deposit Insurance
As of Septem ber 30, 2002, deposits insured by the BIF totaled approximately
$2.5 trillion. This w ould be the accounting loss if all depository institutions were
to fail and the acquired assets provided no recoveries.

11. C o n ce n tra tio n o f C re d it R isk

Financial instrum ents that potentially subject the BIF to credit risk consist primarily
of gross receivables from bank resolutions totaling $6.1 billion. The receivables
from bank resolutions include payments made to cover obligations to insured
depositors, advances to receiverships to provide working capital, and receivables
fo r expenses paid by the BIF on behalf o f receiverships. Assets held by the
FDIC in its receivership capacity fo r closed BIF-insured institutions are the main
source o f repaym ent of the BIF's receivables from closed banks. An allowance
fo r loss of $5.6 billion, or 92% of the gross receivable, was recorded as of
Decem ber 31, 2002. Of the remaining eight percent of the gross receivable,
the am ount of credit risk is limited since 77% of the receivable w ill be repaid
from receivership cash and cash equivalents.




12. D isclosures A b o u t the Fair Value o f Financial Instruments

Cash equivalents are short-term , highly liquid investm ents and are shown at
current value. The fair market value of the investm ent in U.S. Treasury obligations
is disclosed in Note 3 and is based on current m arket prices. The carrying
amount of interest receivable on investments, short-term receivables, and accounts
payable and other liabilities approximates their fair market value, due to their
short maturities and/or comparability w ith current interest rates.
The net receivables from bank resolutions primarily include the BIF's subrogated
claim arising from payments to insured depositors. The receivership assets that
w ill ultim ately be used to pay the corporate subrogated claim are valued using
discount rates that include consideration of market risk. These discounts ultimately
affect the BIF's allowance fo r loss against the net receivables from bank resolu­
tions. Therefore, the corporate subrogated claim indirectly includes the effe ct
of discounting and should not be view ed as being stated in term s of nominal
cash flow s.
Although the value of the corporate subrogated claim is influenced by valuation
of receivership assets (see Note 4), such receivership valuation is not equivalent
to the valuation of the corporate claim. Since the corporate claim is unique, not
intended fo r sale to the private sector, and has no established market, it is not
practicable to estim ate its fair m arket value.
The FDIC believes that a sale to the private sector o f the corporate claim w ould
require indeterm inate, but substantial discounts fo r an interested party to profit
from these assets because of credit and other risks. In addition, the tim ing of
receivership payments to the BIF on the subrogated claim does not necessarily
correspond w ith the tim ing of collections on receivership assets. Therefore,
the e ffe ct of discounting used by receiverships should not necessarily be viewed
as producing an estim ate of m arket value fo r the net receivables from bank
resolutions.

Bank Insurance Fund

13. S u p plem en tary Inform ation R elating to the S tatem ents
o f Cash Flow s

I Reconciliation of N et Income to N et Cash Provided by Operating Activities for the Years Ended December 31
Dollars

in T h o u s a n d s

2002
Net lncome/(Loss)

$

1,045.268

2001
$

(562,666)

Adjustments to Reconcile Net lncome/(Loss) to Net Cash Provided
by Operating Activities
Income Statement Items:
A m ortization o f U.S. Treasury obligations

217,742

160,763

(110,679)

(96,064)

Gain on sale o f U.S.Treasury obligations

0

(78,227)

D epreciation on property and equipm ent

47,484

44,723

2,149

1,568

TIIS in fla tio n adjustm ent

R etirem ent o f property and equipm ent

Change in Assets and Liabilities:
Decrease in in tere st receivable on investm ents and other assets
(Increase) Decrease in receivables from bank resolutions
Increase (Decrease) in accounts payable and other lia b ilitie s
(Decrease) Increase in contingent lia b ilitie s fo r an ticipated fa ilu re of insured in stitution s
Increase in other contingencies
Increase in contingent lia b ilitie s fo r litig a tio n losses

Net Cash Provided by Operating Activities




$

63,688

17,273

(426,239)

270,434

14,218

(16,591)

(902,903)

1,769,645

12,658

5,995

167,682

15,201

131,068

$

1,532,054

59

Savings
Association
Insurance
Fund
December 31. 2002
and 2001




Savings A ssociation Insurance Fund

Federal

Deposit

Insurance

Corporation

1Savings Association insurance Fund S tatem ents of Financial Position at December 31
Dollars

in T h o u s a n d s

2002

2001

Assets
Cash and cash equivalents

1,907,353

$

$

276,507

Cash and other assets: R estricted fo r SAIF-m em ber e xit fees (N ote 3)
(Includes cash and cash equivalents of $187.7 million and $71.9 million
at December 31, 2002 and December 31, 2001, respectively)

311,864

299,374

H eld -to-m atu rity securities

5,726,840

6,718,418

A vailable-for-sale securities

3,769,576

2,745,476

Investment in U.S. Treasury obligations, net: (Note 4)

Interest receivable on investm ents and other assets, net

153,320

156,126

Receivables fro m th rift resolutions, ne t (N ote 5)

287,855

1,285,150

Total Assets

$

12,156,808

S

11,481,051

$

7,100

$

8,111

Liabilities
Accounts payable and other lia b ilitie s
Contingent liabilities for: (Note 6)

90,493

233,000

SAIF-m em ber e xit fees and investm ent proceeds held in escrow (N ote 3)

311,864

299,374

Total Liabilities

410,070

546,127

11,465,716

10,845,515

281,022

89,409

11,746,738

10,934,924

A nticipa ted fa ilu re o f insured in stitu tio n s
Litigation losses

5,642

613

Commitments and off-balance-sheet exposure (Note 10)

Fund Balance
Accum ulated net income
U nrealized gain on available-for-sale securities, net (N ote 4)

Total Fund Balance

Total Liabilities and Fund Balance

S

12,156,808

$

11,481,051

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




61

Federal

Deposit

Insurance

Corporation

Savings Association Insurance Fund Statem ents of Income and Fund Balance for the Years Ended December 31
Dollars

in T h o u s a n d s

2002

2001

Revenue__________________________________________________________________________________
Interest on U.S. Treasury obligations

$

564,259

Assessm ents (N ote 7]
Realized gain on sale of U.S.Treasury obligations
O ther revenue

___________$

633,725
35,402

23,783

51,630

0

12,364

779

733,121

588,821

Total Revenue

Expenses and Losses
O perating expenses
O ther insurance expenses
Total Expenses and Losses

Net Income

101,591

124,363

Provision fo r insurance losses (N ote 8)

(156,494)

443,103

751

19,389

(31,380)

564,083
169,038

620,201

Unrealized gain on available-for-sale securities, net (N ote 4)

191,613

7,238

Comprehensive Income

811,814

176,276

10,934,924

10,758,648

Fund Balance - Beginning

Fund Balance - Ending
The accompanying notes are an integral part of these financial statements.

Digitized 62
for FRASER


$

11,746,738

S

10,934,924

Savings A ssociation Insurance Fund

Federal

Deposit

Insurance

Corporation

1S aving s A ssociation Insurance Fund S ta te m e n ts of Cash F lo w s fo r th e Years Ended D e c e m b e r 31
Dollars

in

Thousands

2001

2002
Cash Flows From Operating Activities
Cash provided by:
Interest on U.S. Treasury obligations

$

576,192

$

661,895
35,554

Assessm ents

23,709

Entrance and e xit fees, includinq in tere st on e xit fees (N ote 3)

15,811

16,725

1,126,940

246,535

73

2,615

(119,993)
(103)

(1,976,964)

1,497,470

(1,116,421)

1,070,000

2,049,512

150,000

875,245

0

(826,788)

Recoveries fro m th rift resolutions
M iscellaneous receipts
Cash used by:
O perating expenses

(102,429)

(125,159)

D isbursem ents fo r th rift resolutions
M iscellaneous disbursem ents
Net Cash Provided by (Used by) Operating Activities (Note 13)

(352)

Cash Flows From Investing Activities
Cash provided by:
M a tu rity of U.S. Treasury obligations, he ld -to-m atu rity
M a tu rity or sale U.S. Treasury obligations, available-for-sale
Cash used by:
Purchase of U.S. Treasury obligations, he ld -to-m atu rity
Purchase of U.S. Treasury obligations, available-for-sale
Net Cash Provided by Investing Activities

Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Unrestricted Cash and Cash Equivalents ■ Ending

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




(823,265)

249,187

1,274,704

1,746,657

158,283

348,424

190,141

1,907,353

276,507
71,917

187,728

Restricted Cash and Cash Equivalents - Ending
Cash and Cash Equivalents - Ending

(970,813)

$

2,095,081

S

348,424

Savings
Association
Insurance
Fund
Notes to the
Financial
Statements
December 31, 2002
and 2001




1. L egislative H istory and O p eratio n s o f th e Savings A sso ciatio n
Insurance Fund

Legislative History
The Financial Institutions Reform, Recovery, and Enforcem ent A ct of 1989
(FIRREA) was enacted to reform, recapitalize, and consolidate the federal deposit
insurance system . The FIRREA created the Savings Association Insurance Fund
(SAIF), the Bank Insurance Fund (BIF), and the FSLIC Resolution Fund (FRF).
It also designated the Federal Deposit Insurance Corporation (FDIC) as the
adm inistrator of these funds. All three funds are maintained separately
to carry out their respective mandates.
The SAIF and the BIF are insurance funds responsible fo r protecting insured
th rift and bank depositors from loss due to institution failures. The FRF is a
resolution fund responsible fo r w inding up the affairs of the form er Federal
Savings and Loan Insurance Corporation (FSLIC) and liquidating the assets and
liabilities transferred from the fo rm e r Resolution Trust Corporation (RTC).
Pursuant to the Resolution Trust Corporation Completion A ct of 1993 (RTC
Completion Act), resolution responsibility transferred from the RTC to the SAIF
on July 1, 1995. Prior to that date, th rift resolutions w ere the responsibility of
the RTC (January 1, 1989 through June 30, 1995) or the FSLIC (prior to 1989).
Pursuant to FIRREA, an active institution's insurance fund mem bership and
primary federal supervisor are generally determ ined by the institution's charter
type. Deposits of SAIF-member institutions are generally insured by the SAIF;
SAIF m em bers are predom inantly th rifts supervised by the O ffice of Thrift
Supervision (OTS). Deposits of BIF-member institutions are generally insured
by the BIF; BIF m em bers are predom inantly com m ercial and savings banks
supervised by the FDIC, the Office o f the Com ptroller of the Currency, or
the Federal Reserve Board.
In addition to traditional th rifts and banks, several other categories of institutions
exist. The Federal Deposit Insurance A ct (FDI Act), Section 5(d)(3), provides that
a m em ber of one insurance fund may, w ith the approval of its primary federal
supervisor, merge, consolidate w ith, or acquire the deposit liabilities of an institu­
tion that is a m em ber of the other insurance fund w ith o u t changing insurance
fund status fo r the acquired deposits. These institutions w ith deposits insured
by both insurance funds are referred to as Oakar financial institutions. The FDI
Act, Section 5(d)(2)(G), allows SAIF-member th rifts to convert to a bank charter
and retain their SAIF m em bership. These institutions are referred to as Sasser
financial institutions. The Home O w ners' Loan A ct (HOLA), Section 5(o), allows
BIF-member banks to convert to a th rift charter and retain their BIF m em bership.
These institutions are referred to as HOLA thrifts.

O ther Significant Legislation
The Omnibus Budget Reconciliation A ct of 1990 (1990 OBR Act), the Federal
Deposit Insurance Corporation Im provem ent A ct of 1991 (FDICIA), and the
Deposit Insurance Funds A ct o f 1996 (DIFA) made changes to the FDIC's




Savings A ssociation Insurance Fund

assessm ent authority (see Note 7) and borrowing authority. The FDICIA also
requires the FDIC to: 1) resolve failing institutions in a manner that w ill result
in the least possible cost to the deposit insurance funds and 2) maintain the
insurance funds at not less than 1.25 percent of estim ated insured deposits
or a higher percentage as circum stances warrant.
The Gramm Leach Bliley A ct (GLBA) w as enacted on November 12,1999, in
order to modernize the financial services industry (banks, brokerages, insurers,
and other financial service providers). The GLBA lifts restrictions on affiliations
among banks, securities firm s, and insurance companies. It also expands the
financial activities perm issible fo r financial holding companies and insured
depository institutions, their affiliates and subsidiaries.

Recent Legislative Initiatives
Legislation on deposit insurance reform was introduced during February 2002
in the House and Senate. The House acted on the FDIC's recom m endations
by passing legislation, H.R. 3717, the Federal Deposit Insurance Reform A ct of
2002, on May 22, 2002. Another reform bill, S. 1945, the Safe and Fair Deposit
Insurance A ct of 2002, w as introduced in the Senate on February 14, 2002.
No further action was taken by the 107th Congress during the year on these
bills. In January and February 2003, however, similar deposit insurance reform
legislation w as reintroduced in the Senate and House, respectively. Legislative
proposals during the 107th Congress included merging SAIF and BIF, modifying
restrictions on charging risk-based insurance prem ium s, im plem enting assess­
m ent credits and rebates, changing the designated reserve ratio from a fixed
1.25 percent of estim ated insured deposits to a range, increasing deposit
insurance coverage fo r all accounts (including higher coverage fo r retirem ent
accounts), and indexing the insurance lim it to inflation. Deposit insurance reform
provisions may have a significant impact on the SAIF and the BIF, if enacted into
law. FDIC management, however, cannot predict w hich provisions, if any, w ill
ultim ately be enacted.

Operations of the SAIF
The primary purpose of the SAIF is to: 1) insure the deposits and protect the
depositors o f SAIF-insured institutions and 2) resolve failed institutions, including
disposing of their assets. In this capacity, the SAIF has financial responsibility for
all SAIF-insured deposits held by SAIF-member institutions and by BIF-member
banks designated as Oakar financial institutions.
The SAIF is primarily funded from : 1) interest earned on investm ents in
U.S. Treasury obligations and 2) deposit insurance assessments. Additional
funding sources are borrowings from the U.S. Treasury, the Federal Financing
Bank (FFB), and the Federal Home Loan Banks, if necessary. The 1990 OBR A ct
established the FDIC's authority to borrow from the FFB on behalf o f the SAIF
and the BIF. The FDICIA increased the FDIC's authority to borrow fo r insurance
purposes from the U.S. Treasury, on behalf of the SAIF and the BIF, from
$5 billion to $30 billion.




The FDICIA established a limitation on obligations that can be incurred by the SAIF,
known as the M axim um Obligation Limitation (MOL). As o f Decem ber 31, 2002
and December 31, 2001, the M O L for the SAIF was $19.9 billion and $18.8 billion,
respectively.
Receivership Operations
The FDIC is responsible fo r managing and disposing o f the assets of failed
institutions in an orderly and efficient manner. The assets held by receivership enti­
ties, and the claims against them, are accounted for separately from SAIF assets
and liabilities to ensure that receivership proceeds are distributed in accordance
w ith applicable laws and regulations. Also, the income and expenses attributable to
receiverships are accounted for as transactions of those receiverships. Expenses paid
by the SAIF on behalf of the receiverships are recovered from those receiverships.

2 . S um m ary o f S ig n ific a n t A cc o u n tin g Policies

General
These financial statem ents pertain to the financial position, results of operations,
and cash flo w s o f the SAIF and are presented in conform ity w ith U.S. generally
accepted accounting principles (GAAP). These statements do not include reporting
fo r assets and liabilities of closed th rift institutions fo r w hich the FDIC acts
as receiver. Periodic and final accountability reports of the FDIC's activities as
receiver are furnished to courts, supervisory authorities, and others as required.

Use of Estimates
FDIC m anagem ent makes estim ates and assum ptions that a ffect the amounts
reported in the financial statem ents and accompanying notes. Actual results
could d iffe r from these estim ates. W here it is reasonably possible that changes
in estim ates w ill cause a material change in the financial statem ents in the near
term , the nature and extent of such changes in estim ates have been disclosed.

Cash Equivalents
Cash equivalents are short-term, highly liquid investments w ith original maturities
of three months or less. Cash equivalents consist primarily of Special U.S. Treasury
Certificates.

Investm ent in U.S. Treasury Obligations
Section 13(a) of the FDI Act, as amended, (12 U.S.C.1823 (a)), states that SAIF
funds "shall be invested in obligations of the United States or in obligations guaran­
teed as to principal and interest by the United States." The A ct further requires that
the Secretary of the Treasury approve all such investments in excess of $100,000.
The Secretary has granted approval to invest SAIF funds only in U.S. Treasury
obligations, provided that such obligations are purchased or sold through the
Bureau of the Public Debt's Governm ent A ccount Series (GAS) program.




Savings Association Insurance Fund

SAIF's investments in U.S. Treasury obligations are either classified as held-tomaturity or available-for-sale. Securities designated as held-to-maturity are shown
at amortized cost. Amortized cost is the face value of securities plus the
unamortized premium or less the unamortized discount. Amortizations are computed
on a daily basis from the date of acquisition to the date of maturity. Securities des­
ignated as available-for-sale are shown at market value, w hich approximates fair
value. Unrealized gains and losses are included in Comprehensive Income. Realized
gains and losses are included in the Statements of Income and Fund Balance as
components of Net Income. Interest on both types of securities is calculated on
a daily basis and recorded monthly using the effective interest method.

Allowance for Losses on Receivables From Thrift Resolutions
The SAIF records a receivable for the amounts advanced and/or obligations incurred
fo r resolving failing and failed thrifts. Any related allowance for loss represents
the difference between the funds advanced and/or obligations incurred and the
expected repayment. The latter is based on estimates of discounted cash recover­
ies from the assets of failed thrifts, net of all applicable estimated liquidation costs.

Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated to all funds
administered by the FDIC using workload-based allocation percentages. These
percentages are developed during the annual corporate planning process and
through supplem ental functional analyses.

Related Parties
The nature of related parties and a description o f related party transactions
are discussed in Note 1 and disclosed th roughout th e financial statem ents
and footnotes.

Reclassifications
Reclassifications have been made in the 2001 financial statem ents to conform
to the presentation used in 2002.

3 . Cash and O th er Assets: R estricted fo r S A IF -M em b er Exit Fees

The SAIF collects entrance and exit fees fo r conversion transactions when an
insured depository institution converts from the BIF to the SAIF (resulting in an
entrance fee) or from the SAIF to the BIF (resulting in an exit fee). Regulations
approved by the FDIC's Board of Directors (Board) and published in the FederalHegister
on March 21, 1990, directed that exit fees paid to the SAIF be held in escrow.
The FDIC and the Secretary of the Treasury w ill determ ine w hen it is no longer
necessary to escrow such funds fo r the paym ent of interest on obligations
previously issued by the FICO. These escrow ed exit fees are invested in

6

U.S. Treasury securities pending determ ination o f ownership. The interest
earned is also held in escrow. There w ere no conversion transactions during
2002 and 2001 that resulted in an exit fee to the SAIF.

le a s h and O ther Assets: Restricted for S A IF-M em b er Exit Fees at December 31
Dollars

in

I

Thousands
2002

Cash and cash equivalents

$

2001

187,728

Investm ent in U.S. Treasury obligations, net

71,917

$

223,213

122,402

Interest receivable on U.S. Treasury obligations

4,244

1,734

Total

$

311,864

299,374

$

U.S. Treasury Obligations at December 31, 2002 (Restricted for S AIF-M em ber Exit Fees)
Dollars

in T h o u s a n d s

Held-to-Maturity
Yield at
Purchase

Maturity

Face
Value

W ith in 1 year_______________ 6.59%
A fte r 1 year thru 5 years
A fte r 5 years thru 10 years

5.45%
...4.99%

Total

$
___
~

35,000___ $
64,000

~

$

~ 20,000

Net
Carrying
Amount

Unrealized
Holding
Gains

34,986 ______ $

Unrealized
Holding
Losses

222_________ $

0

Market
Value
$ J35.208

66,830____________6,298_________________ 0_____________ 73,128
20,586____________2,108

0

119,000

______ 22,694

$ 122,402$

U.S. Treasury Obligations at December 31, 2001 (Restricted for S AIF-M em ber Exit Fees)
Dollars

in T h o u s a n d s

Held-to-Maturity

Maturity

Yield at
Purchase

Net
Carrying
Amount

Unrealized
Holding
Gains

Unrealized
Holding
Losses

$

$

5.95%

100,000

$ 100,027

A fte r 1 year thru 5 years

6.10%

75,000

76,764

3,814

0

80,578

A fte r 5 years thru 10 years

5.03%

44,000

46,422

893

0

47,315

219,000

$ 223,213

0

$ 230,284

Digitized (tS
for FRASER


$

$

2,364

Market
Value

W ith in 1 year

Total

$

Face
Value

7,071

S

0

$

102,391

The unamortized prem ium, net of the unamortized discount, was $3.4 million
and $4.2 million at December 31, 2002 and 2001, respectively.

8,628




Savings Association Insurance Fund

4 . In v es tm e n t in U .S. Treasury O b ligatio ns, N et

As o f D ecem ber 31, 2002 and 2001, the book value o f in ve stm e n ts in
U.S. Treasury Obligations, net, was $9.5 billion and, the FDIC held $2.1 billion
of Treasury inflation-indexed securities (TIIS) fo r the SAIF. These securities are
indexed to increases or decreases in the Consumer Price Index fo r all Urban
Consumers (CPI-U).
During 2002, FDIC purchased $639 million of callable U.S. Treasury securities
fo r the SAIF. These securities are designated as either held-to-maturity or available-for-sale, w ith the prem ium s being amortized to the firs t call date. Callable
U.S. Treasury bonds may be called five years prior to the respective bonds'
stated m aturity on their semi-annual coupon payment dates upon 120 days
notice. None of these securities w ere called during the year.
There w ere no available-for-sale securities sold during 2002. In 2001, the SAIF
reported a gross realized gain of $52 million on the sale of securities designated
as available-for-sale. Proceeds from the sales w ere $795 million. Specific identifi­
cation w as used to determ ine cost o f the securities sold in com puting the
realized gain.

69

U.S. Treasury Obligations at December 31, 2002 (Unrestricted)
Dollars

in T h o u s a n d s

Maturity*

Net
Carrying
Amount

Face
Value

Yield at
Purchase’

Unrealized
Holding
Gains

I Held-to-Maturity

Unrealized
Holding
Losses

Market
Value

I
$

541,662

$

12,242

0

$

553,904

6.23%
5.91%

2,880,000

2,941,199

317,167

0

3,258,366

A fte r 5 years thru 10 years

5.78%

2,030,000

2,021,651

298,277

0

2,319,928

Treasury Inflation-Indexed
A fte r 5 years thru 10 years

3.85%
$

Total

535,000

$

W ith in 1 year
A fte r 1 year thru 5 years

224,432

222,328

5,669,432

S 5,726,840

23,917
$

1Available-for-Sale

651,603

0

246,245

$

0

$

$

0

$

6,378,443

]
$

473,317

$

9,660

5.77%

A fte r 1 year thru 5 years

4.81%

1,235,000

Treasury Inflation-Indexed
A fte r 5 years thru 10 years

3.84%

1,675,573

1,672,974

3,385,573

$ 3,488,554

S

281,022

$ 9,215,394

$

932,625

$

475,000

$

W ith in 1 year

Total

$

1,342,263

82,983
188,379

s

0
0

482,977
1,425,246

0

1,861,353
$

3,769,576

Total Investment in U.S. Treasury Obligations, Net
Total

$

9,055,005

$ 10,148,019

• For purposes of this table, all callable securities are assumed to mature on their firs t call dates. Their yields at purchase are reported as th e ir yield to first call date.
T For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation
assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the
Congressional Budget Office in early 2002.

TOFRASER
Digitized for


Savings A ssociation Insurance Fund

U.S. Treasury Obligations at December 31, 2001 (Unrestricted)
Dollars

in

Thousands

Maturity

Yield at
Purchase*

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

Unrealized
Holding
Losses

Market
Value

Held-to-Maturity

j

W ith in 1 year

5.91%

A fte r 1 year thru 5 years

6.17%

2,540,000

2,592,612

162,155

0

2,754,767

A fte r 5 years thru 10 years

5.65%

2,905,000

2,935,018

138,050

0

3,073,068

$

970,000

$

973,252

$

15,735

$

0

$

988,987

Treasury Inflation-Indexed
A fte r 5 years thru 10 years

3.85%

Total

S

220,012

217,536

6,635,012

$ 6,718,418

S

4,813

$

$

0

320,753

S

3,213

$

222,349

0

S

0

$

7,039,171

Available-for-Sale
W ith in 1 year

6.44%

A fte r 1 year thru 5 years

6.18%

Treasury Inflation-Indexed
A fte r 5 years thru 10 years

3.84%

Total

$

75,000
930,000

S

74,412
942,448

55,065

77,625

0

1,642,564

1,639,207

2,647,564

S 2,656,067

$

94,870

S

(5,461)

S 9,374,485

S

415,623

S

(5,461)

36,592

997,513

(5,461)

1,670,338

$

2,745,476

Total Investment in U.S. Treasury Obligations, Net
Total

S

9,282,576

S 9,784,647

• For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a weighted average of
Bloomberg's calculation of yield w ith a long-term inflation assumption of 2.5% annually, as measured by the Consumer Price Index (CPI).




As of December 31, 2002 and 2001, the unamortized prem ium, net of the
unamortized discount, was $160.4 million and $91.9 million, respectively.

71




■ S S H H M N K M H M H M H H B H H IM H H M H B IM M fi

5. R eceivables From T h rift R esolutions, N et

The th rift resolution process takes different form s depending on the unique facts
and circumstances surrounding each failing or failed institution. Payments for
institutions that fail are made to cover obligations to insured depositors and repre­
sent claims by the SAIF against the receiverships' assets. There was one th rift
failure in both 2002 and 2001, w ith assets at failure of $50.2 million and $2.2 billion,
respectively, and SAIF outlays of $37 million and $1 billion, respectively.
Receivables from th rift resolutions decreased by $997 million to $288 million at
December 31, 2002. This decrease was primarily due to: 1) recoveries totaling
$850 million of payments made to cover obligations to insured depositors for
the Superior Bank, FSB receivership and 2) a final paym ent of $213 million from
the Superior conservatorship to repay the line of credit of $1.5 billion, w hich
w as extended to the conservatorship fo r liquidity purposes.
A ssets held by the FDIC in its receivership capacity fo r closed SAIF-insured insti­
tutions are the main source of repaym ent of the SAIF's receivables from closed
thrifts. As of December 31, 2002 and 2001, SAIF receiverships held assets w ith
a book value of $490 million and $210 million, respectively (including cash,
investm ents, and miscellaneous receivables of $93 million and $16 million at
December 31, 2002, and 2001, respectively). The estim ated cash recoveries
from the management and disposition o f these assets that are used to derive
the allow ance fo r losses are based, primarily, on a non-representative sam pling
o f receivership assets. This non-representative sample, based primarily on asset
book values, provided 95% coverage of the entire portfolio's book value fo r
the year ended Decem ber 31, 2002. These estim ated recoveries are regularly
evaluated, but remain subject to uncertainties because of potential changes
in econom ic conditions. Such uncertainties could cause the SAIF's and other
claim ants' actual recoveries to vary from the level currently estim ated.
As part of the FDIC's efforts to maximize the return from the sale of assets from
th rift resolutions, representations and warranties, and guarantees w ere offered
on loan sales from the Superior resolution. In general, the guarantees, represen­
tations, and warranties on loans sold relate to the com pleteness and accuracy of
loan documentation, the quality of the underwriting standards used, the accuracy
o f the delinquency status w hen sold, and the conform ity of the loans w ith
characteristics of the pool in w hich they w ere sold. The total am ount of loans
sold subject to unexpired representations and warranties, and guarantees was
$4.8 billion as of December 31, 2002. SAIF did not establish a liability fo r all
outstanding claims asserted in connection w ith representations and warranties
because the receivership has sufficient funds to pay fo r such claims. However,
future losses on representations and warranties, and guarantees could be incurred
over the remaining life of the loans sold, w hich is generally 20 years or more.
Consequently, the FDIC believes it is possible that additional losses may be
incurred by the SAIF from the universe of outstanding contracts w ith unasserted
representation and warranty claims. However, because of the uncertainties
surrounding the tim ing of when claims may be asserted, the FDIC is unable
to reasonably estim ate a range of loss to the SAIF from outstanding contracts
w ith unasserted representation and warranty claims.




Savings A ssociation Insurance Fund

6 . C o n tin g e n t Liabilities for:

Anticipated Failure of Insured Institutions
The SAIF records a contingent liability and a loss provision fo r th rifts (including
Oakar and Sasser financial institutions) that are likely to fail w ithin one year of
the reporting date, absent some favorable event such as obtaining additional
capital or merging, w hen the liability becomes probable and reasonably estimable.
The c o n tin g e n t liability is derived by applying expected failure rates and
historical loss rates to groups of institutions w ith certain shared characteristics.
In addition, institution-specific analysis is performed on those thrifts w here failure
is im m inent absent institution management resolution of existing problems. As
of Decem ber 31, 2002 and 2001, the contingent liabilities fo r anticipated failure
o f insured institutions w ere S90 million and $233 million, respectively.
Due to the uncertainty surrounding future economic and market conditions, there
are other th rifts fo r w hich the risk of failure is less certain, but still considered
reasonably possible. Should these th rifts fail, the SAIF could incur additional
estim ated losses up to $1.3 billion.
The accuracy o f these estim ates w ill largely depend on future econom ic and
m arket conditions. The FDIC's Board of Directors has the statutory authority to
consider the contingent liability from anticipated failures of insured institutions
w hen setting assessm ent rates.

Litigation Losses
The SAIF records an estim ated loss fo r unresolved legal cases to the extent
those losses are considered probable and reasonably estimable. In addition to
the am ount recorded as probable, the FDIC has determ ined that losses from
unresolved legal cases totaling $1.6 million are reasonably possible.
In addition, tw o cases are currently pending in the U.S. D istrict Court against
the FDIC alleging that the FDIC's calculation of a special assessm ent exceeded
the amounts due pursuant to the DIFA. The DIFA authorized the FDIC to make a
one-tim e special assessm ent fo r the purpose o f fully capitalizing the SAIF to its
designated reserve ratio (DRR) of 1.25% . The plaintiffs seek refunds of special
assessm ent overpaym ents and interest from the date o f the overpaym ents.
The FDIC believes the probability of refunds is rem ote and therefore no estim ate
of loss is recorded or disclosed.




7. Assessm ents

||||||a ||||a ||a H ||a |||||^ ^
The 1990 OBR A ct removed caps on assessm ent rate increases and authorized
the FDIC to set assessm ent rates for SAIF m em bers semiannually, to be applied
against a m em ber's average assessm ent base. The FDICIA: 1) required the
FDIC to im plem ent a risk-based assessm ent system ; 2) authorized the FDIC
to increase assessm ent rates fo r SAIF-member institutions as needed to ensure
that funds are available to satisfy the SAIF's obligations; 3) required the FDIC to
build and maintain the reserves in the insurance funds to not less than 1.25 percent
of estimated insured deposits; and 4) authorized the FDIC to increase assessment
rates m ore frequently than semiannually and impose em ergency special assess­
ments as necessary to ensure that funds are available to repay U.S. Treasury
borrowings.
The FDIC uses a risk-based assessm ent system that charges higher rates to
those institutions that pose greater risks to the SAIF. To arrive at a risk-based
assessm ent fo r a particular institution, the FDIC places each institution in one
o f nine risk categories, using a tw o-step process based firs t on capital ratios and
then on other relevant inform ation. The assessm ent rate averaged approximately
26 cents and 41 cents per $100 of assessable deposits fo r 2002 and 2001,
respectively. On N ovem ber 12, 2002, the Board voted to retain the SAIF
assessm ent schedule at the annual rate of 0 to 27 cents per $100 o f assessable
deposits fo r the firs t semiannual period of 2003. The Board review s prem ium
rates semiannually.
The DIFA provided, among other things, fo r the capitalization of the SAIF to
its DRR of 1.25 percent by means o f a one-tim e special assessm ent on SAIFinsured deposits. The SAIF achieved its required capitalization by means of a
$4.5 billion special assessm ent effective October 1, 1996. Since October 1996,
the SAIF has maintained a reserve ratio at or higher than the DRR of 1.25 percent
of insured deposits. As of September 30, 2002, the SAIF reserve ratio was
1.38 percent of estim ated insured deposits.
The DIFA provided fo r the elimination of the mandatory m inim um assessm ent
form erly provided fo r in the FDI Act. It also provided fo r the expansion of the
assessm ent base fo r payments of the interest on obligations issued by the
Financing Corporation (FICO) to include all FDIC-insured institutions, and it
made the FICO assessm ent separate from regular assessments, effective on
January 1, 1997. The FICO was established by the Com petitive Equality Banking
A ct of 1987 as a m ixed-ownership governm ent corporation w hose sole purpose
w as to function as a financing vehicle fo r the FSLIC.
The annual FICO interest obligations of approximately $790 million are paid on a
pro rata basis using the same rates fo r th rifts and banks. The FICO assessm ent
has no financial impact on the SAIF. The FICO assessm ent is separate from the
regular assessm ents and is imposed on th rifts and banks, not on the insurance
funds. The FDIC, as adm inistrator o f the SAIF and th e BIF, is acting solely
as a collection agent fo r the FICO. During 2002 and 2001, $161 m illion and
$164 million, respectively, w as collected from SAIF-m em ber in stitu tio ns and
rem itted to the FICO.

Savings A ssociation Insurance Fund

8. Provision fo r Insurance Losses

Provision fo r insurance losses w as a negative $156.5 million and $443.1 million
fo r 2002 and 2001, respectively. In 2002, the negative provision w as primarily
due to low er estim ated losses fo r anticipated failures w hich resulted from the
improved financial condition o f a fe w large thrifts. The follow ing chart lists the
major com ponents o f the provision fo r insurance losses.

Provision for Insurance Losses for th e Years Ended December 31
Dollars

in T h o u s a n d s

2001

2002
Valuation Adjustments:
$

Closed th rifts
Total Valuation Adjustments

(10,113)

$

440,487

(10,113)

440,487

(142,507)

(1,083)

(3,874)

3,699

Contingent Liabilities Adjustments:
A nticipa ted fa ilu re of insured in stitution s
Litigation losses
Total Contingent Liabilities Adjustments
$

Total




2,616

(146,381)
(156,494)

$

443,103

9. Em ployee B enefits

Pension Benefits, Savings Plan and P ostem ploym ent Benefits
Eligible FDIC employees (permanent and term em ployees w ith appointm ents
exceeding one year) are covered by either the Civil Service R etirem ent System
(CSRS) or the Federal Employees R etirem ent System (FERS). The CSRS is a
defined benefit plan, w hich is o ffse t w ith the Social Security System in certain
cases. Plan benefits are determ ined on the basis of years o f creditable service
and com pensation levels. The CSRS-covered employees also can contribute
to the tax-deferred Federal T hrift Savings Plan (TSP).
The FERS is a three-part plan consisting of a basic defined benefit plan that
provides benefits based on years o f creditable service and compensation
levels, Social Security benefits, and the TSP. A utom atic and matching employer
contributions to the TSP are provided up to specified am ounts under the
FERS.
Although the SAIF contributes a portion of pension benefits for eligible employees,
it does not account fo r the assets o f either retirem ent system . The SAIF also
does not have actuarial data fo r accumulated plan benefits or the unfunded
liability relative to eligible employees. These am ounts are reported on and
accounted fo r by the U.S. O ffice o f Personnel Management.

Pension Benefits, Savings Plans Expenses and Postem ploym ent Benefits for th e Years Ended December 31
Dollars

in

Thousands

2002
Separation Incentive Payment

$

4,276

2001
$

494

Civil Service R etirem ent System

1,715

1,561

Federal Employees R etirem ent System (Basic Benefit)

4,765

4,043

FDIC Savings Plan

2,951

2,508

Federal T h rift Savings Plan

1,913

Total

76FRASER
Digitized for


$

15,620

1,622

S

10,228

Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred
401 (k) savings plan w ith matching contributions. The SAIF pays its share of the
employer's portion of all related costs.
During 2002, the Corporation offered voluntary employee buyout programs to
a m ajority of its employees and conducted a reduction-in-force (RIF) in an e ffo rt
to reduce identified staffing excesses. As a result, over 700 em ployees left or
w ill leave the Corporation by Decem ber 31, 2003. Approxim ately 91 percent of
the affected employees have left their positions in 2002. Termination benefits
included compensation of fifty percent of the current salary fo r voluntary
departures. The total cost of this benefit to the Corporation was $33.1 million
fo r 2002, w ith SAIF's pro rata share totaling $4.2 million, w hich is included in the
"O perating expenses" line item . All o f this am ount was paid by SAIF in 2002.

Accrued Annual Leave
The SAIF's pro rata share of the Corporation's liability to employees fo r accrued
annual leave is approximately $5.5 million and $4.6 million at December 31, 2002
and 2001, respectively.

P ostretirem ent Benefits Other Than Pensions
The FDIC provides certain life and dental insurance coverage fo r its eligible
retirees, the retirees' beneficiaries, and covered dependents. Retirees eligible
fo r life insurance coverage are those w ho have qualified due to: 1) im m ediate
enrollm ent upon appointm ent or five years of participation in the plan and
2) eligibility fo r an im m ediate annuity. The life insurance program provides basic
coverage at no cost to retirees and allows converting optional coverages to
direct-pay plans. Dental coverage is provided at no cost to all retirees eligible
fo r an im m ediate annuity. A t December 31, 2002, the SAIF's net postretirem ent
benefit liability recognized in the "A ccounts payable and other liabilities"
line item in the S tatem ent o f Financial Position w as $145 thousand. At
December 31, 2001, the SAIF's net postretirem ent benefit asset recognized
in the "In te re st receivable on investm ents and other assets, n e t" line item
in the S tatem ent of Financial Position was $148 thousand.

Savings A ssociation Insurance Fund

10. C o m m itm en ts and O ff-B alan ce-S h eet Exposure

Com m itm ents:

Leased Space
The SAIF's allocated share of the FDIC's lease com m itm ents totals $22.3 million
fo r future years. The lease agreem ents contain escalation clauses resulting
in adjustm ents, usually on an annual basis. The allocation to the SAIF of the
FDIC's future lease com m itm ents is based upon current relationships of the
w orkloads among the SAIF, the BIF, and the FRF. Changes in the relative w ork­
loads could cause the am ounts allocated to the SAIF in the future to vary from
the am ounts show n below. The SAIF recognized leased space expense of
$6.5 million and $5.8 million at Decem ber 31, 2002 and 2001, respectively.

I Leased Space C om m itm ents
Dollars

in

Thousands

2003

2004

2005

2006

2007

2008/Thereafter

$ 6,150

$ 5,535

$ 4,619

$ 3,099

$ 1,777

$ 1,070




Off-Balance-Sheet Exposure:

Deposit Insurance
As of Septem ber 30, 2002, deposits insured by the SAIF totaled approximately
$838 billion. This w ould be the accounting loss if all depository institutions w ere
to fail and the acquired assets provided no recoveries.

11 . C o nc e n tra tio n o f C red it Risk

Financial instrum ents that potentially subject the SAIF to credit risk consist
primarily o f gross receivables from th rift resolutions totaling $722 million. The
receivables from th rift resolutions include payments made to cover obligations
to insured depositors, advances to receiverships to provide w orking capital, and
receivables fo r expenses paid by the SAIF on behalf of receiverships. Assets
held by the FDIC in its receivership capacity fo r closed SAIF-insured institutions
are the main source of repaym ent o f the SAIF's receivables from resolutions.
M ost of the gross receivables and related allowance fo r losses of $434 million are
attributable to the failure o f Superior Bank. O f SAIF's $288 million net receivable,
$282 million is estim ated to be repaid by Superior receivership assets, primarily,
cash and a prom issory note arising from a settlem ent w ith the ow ners of the
failed institution. The credit risk related to the prom issory note is lim ited since




half of the outstanding note is secured by a letter of credit and the remaining
half is subject to the creditw orthiness of the payor o f the note. Annual m onitor­
ing of the creditw orthiness of the payor is perform ed and currently indicates a
low risk of non-performance.

12. D isclosures A b o u t the Fair Value o f Financial Instruments
Cash equivalents are short-term , highly liquid investm ents and are shown at
current value. The fair market value of the investm ent in U.S. Treasury obligations
is disclosed in Notes 3 and 4 and is based on current market prices. The carrying
a m ount of in te re st receivable on investm ents, short-term receivables, and
accounts payable and other liabilities approximates their fair m arket value,
due to their short m aturities and/or comparability w ith current interest rates.
The net receivables from th rift resolutions primarily include the SAIF's subrogated
claim arising from payments to insured depositors. The receivership assets that
w ill ultim ately be used to pay the corporate subrogated claim are valued using
discount rates that include consideration of market risk. These discounts ultimately
a ffe ct the SAIF's allowance fo r loss against th e net receivables fro m th rift
resolutions. Therefore, the corporate subrogated claim indirectly includes the
e ffe c t o f discounting and should not be vie w e d as being stated in te rm s o f
nominal cash flow s.
Although the value of the corporate subrogated claim is influenced by valuation
o f receivership assets (see Note 5), such receivership valuation is not equivalent
to the valuation of the corporate claim. Since the corporate claim is unique, not
intended fo r sale to the private sector, and has no established market, it is not
practicable to estim ate its fair market value.
The FDIC believes that a sale to the private sector of the corporate claim w ould
require indeterm inate, but substantial, discounts for an interested party to profit
from these assets because o f credit and other risks. In addition, the tim ing of
receivership payments to the SAIF on the subrogated claim does not necessarily
correspond w ith the tim ing of collections on receivership assets. Therefore,
the e ffe ct of discounting used by receiverships should not necessarily be view ed
as producing an estim ate o f m arket value fo r the net receivables fro m th rift
resolutions.

Savings A ssociation Insurance Fund

13. S u p p lem en tary In fo rm atio n R elating to th e S ta te m e n ts o f
Cash Flows

I Reconciliation of N et Income to N et Cash Provided by Operating Activities for the Years Ended December 31
Dollars

in T h o u s a n d s

2002
Net Income

S

2001

S

620,201

169,038

Adjustments to Reconcile Net Income to Net Cash
Provided by (Used by) Operating Activities
Income Statement Items:
Am ortization of U.S. Treasury obligations (unrestricted)

32,503

47,333

TIIS in fla tio n adjustm ent

(37,429)

Gain on sale of U.S. Treasury obligations

(37,407)
0

(51,630)

811

863

Change in Assets and Liabilities:
Decrease in am ortization o f U.S. Treasury obligations (restricted)
Decrease in entrance and e x it fees receivable, including in tere st receivable
on investm ents and other assets
Decrease (Increase) in receivables from th rift resolutions
(Decrease) Increase in accounts payable and other lia b ilitie s
(Decrease) in contingent lia b ility fo r an ticipated fa ilu re o f insured in stitution s

5,317

32,641

997,295

(1,281,002)

(1,011)

362

(142,507)

(1,083)

(Decrease) Increase in conting ent lia b ility fo r litig a tio n losses

(5,029)

3,699

Increase in e xit fees and investm ent proceeds held in escrow

12,489

15,595

Net Cash Provided by (Used by) Operating Activities




$

1,497,470

S

(1,116,421)

FSLIC
Resolution
Fund
December 31, 2002
and 2001




FSLIC Resolution Fund

Federal

Deposit

Insurance

Corporation

I FSLIC Resolution Fund Statem ents of Financial Position at December 31
Dollars

in

Thousands
2002

2001

Assets
Cash and cash equivalents

$

Investm ent in se cu ritiza tio n -re la te d assets acquired from receiverships (N ote 3)
Receivables fro m th rift resolutions, ne t (N ote 4)
Other assets, net (N ote 5)
Total Assets

3,618,330

$

1,087,102

131,304

286,455

22,511
$

3,490,396

98,114

3,870,259

29,697
$

4,893,650

Liabilities
Accounts payable and other lia b ilitie s

$

Contingent lia b ilitie s fo r litig a tio n losses and other (N ote 6)
Total Liabilities

14,408

$

14,787

546

5,304

14,954

20,091

Commitments and concentration o f credit risk (Note Wand Note 11)
Resolution Equity (Note 8)
Contributed capital
A ccum ulated d e fic it
Unrealized gain on available-for-sale securities, ne t (N ote 3)
A ccum ulated d e ficit, net
Total Resolution Equity

Total Liabilities and Resolution Equity

$

126,827,821

128,073,030

(123,015,273)

(123,505,818)

42,757

306,347

(122,972,516)

(123,199,471)

3,855,305

4,873,559

3,870,259

$

4,893,650

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




SI

Federal

Deposit

Insurance

Corporation

FSLIC Resolution Fund Statements of Income and Accumulated Deficit for the Years Ended December 31
Dollars

in T h o u s a n d s

2002

2001

Revenue
Interest on secu ritiza tio n-relate d assets acquired from receiverships

$

7,264

Interest on U.S. Treasury obligations
Interest on advances and subrogated claim s
Realized gain on investm ent in secu ritiza tio n-relate d assets acquired
from receiverships (N ote 3)
O ther revenue
Total Revenue

$

32,758

46,835

99,488

1,394

18,447

352,486

352,179

25,098

78,166

581,038

433,077

Expenses and Losses
O perating expenses
Provision fo r losses (N ote 7)
Expenses fo r g o o d w ill settlem ents and litig a tio n (N ote 1)
Interest expense on notes payable and other expenses
Realized loss on investm ent in s ecu ritiza tio n-relate d assets acquired
fro m receiverships (N o te 3)
Total Expenses and Losses

Net Income
U nrealized loss on available-for-sale securities, net (N ote 3)
Comprehensive Income

Accumulated Deficit - Beginning

Accumulated Deficit - Ending
The accompanying notes are an integral part of these financial statements.




45,684

74,683

(149,359)

(368,987)

40,351

62,542

4,804

27,299

1£ 52^
(57,468)

23,541

(180,922)

490,545

761,960

(263,590)

(149,070)

226,955

612,890

(123,199,471)

(123,812,361)

$ (122,972,516)

$ (123,199,471)

j

FSLIC Resolution Fund

Federal

Deposit

Insurance

Corporation

FSLIC Resolution Fund Statem ents of Cash Flows for the Years Ended December 31
Dollars

in

Thousands

2002

2001

Cash Flows From Operating Activities
Cash provided by:
Interest on U.S. Treasury obligations

$

Interest on s e cu ritiza tio n -re la te d assets acquired from receiverships
Recoveries from th rift resolutions
M iscellaneous receipts

46,835

$

99,488

8,745

36,148

307,694

476,678

32,607

53,351

Cash used by:
Operating expenses

(44,421)

(83,342)

Disbursem ents fo r th rift resolutions

(30,373)

(25,153)

Disbursem ents fo r g o o d w ill settlem ents and litig a tio n expenses

(40,351)

(62,542)

(9,119)

(9,279)

271,617

485,349

M iscellaneous disbursem ents
Net Cash Provided by Operating Activities (Note 13)

Cash Flows From Investing Activities
Cash provided by:
Investm ent in s e cu ritiza tio n -re la te d assets acquired from receiverships
Net Cash Provided by Investing Activities

1,101,525

902,402

1,101,525

902,402

21,459

0

Cash Flows From Financing Activities
Cash provided by:
U.S.Treasury paym ents fo r g o o d w ill settlem ents
Cash used for:
Return o f U.S. Treasury paym ents (N ote 8)
Payments to Resolution Funding Corporation (N ote 8)
Net Cash Used by Financing Activities

Net lncrease/(Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending

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




$

0

(5,300)

(1,266,667)

(1,406,596)

(1,245,208)

(1,411,896)

127,934

(24,145)

3,490,396

3,514,541

3,618,330

S

3,490,396

FSLIC
Resolution
Fund
Notes to the
Financial
Statements
December 31, 2002
and 2001




1. L egislative H istory and O perations o f th e FSLIC R esolution Fund

Legislative History
The U.S. Congress created the Federal Savings and Loan Insurance Corporation
(FSLIC) through the enactm ent of the National Housing A ct of 1934. The Financial
Institutions Reform, Recovery, and Enforcem ent A ct of 1989 (FIRREA) abolished
the insolvent FSLIC, created the FSLIC Resolution Fund (FRF), and transferred
the assets and liabilities o f the FSLIC to the FRF-except those assets and
liabilities transferred to the Resolution Trust Corporation (RTC)-effective on
A ugust 9, 1989. The FRF is responsible fo r w inding up the affairs o f the
fo rm e r FSLIC.
The FIRREA was enacted to reform, recapitalize, and consolidate the federal
deposit insurance system . In addition to the FRF, FIRREA created the Bank
Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). It also
designated the Federal Deposit Insurance Corporation (FDIC) as the administrator
of these funds. All three funds are maintained separately to carry out their
respective mandates.
The FIRREA also created the RTC to manage and resolve all th rifts previously
insured by the FSLIC fo r w hich a conservator or receiver was appointed during
the period January 1, 1989, through A ugust 8, 1992. The FIRREA established
the Resolution Funding Corporation (REFCORP) to provide part of the initial funds
used by the RTC for th rift resolutions. Additionally, funds w ere appropriated fo r
RTC resolutions pursuant to FIRREA; the RTC Funding A ct of 1991; the RTC
Refinancing, Restructuring and Improvement A ct of 1991; and the RTC Completion
A ct of 1993.
The RTC's resolution responsibility was extended through subsequent legislation
from the original term ination date of August 8, 1992. Resolution responsibility
transferred from the RTC to the SAIF on July 1, 1995.
The RTC Completion A ct of 1993 (RTC Completion Act) term inated the RTC
as of Decem ber 31, 1995. All remaining assets and liabilities of the RTC w ere
transferred to the FRF on January 1,1996. Today, the FRF consists of tw o
distinct pools of assets and liabilities: one com posed of the assets and liabilities
o f the FSLIC transferred to the FRF upon the dissolution o f the FSLIC on
August 9, 1989 (FRF-FSLIC), and the other com posed of the RTC assets and
liabilities transferred to the FRF on January 1, 1996 (FRF-RTC). The assets
of one pool are not available to satisfy obligations of the other.
The RTC Completion A ct also made available approximately $18 billion w orth of
additional funding to the RTC, of w hich the RTC actually d re w dow n $4.6 billion.
The RTC Completion A ct requires the FDIC to return to the U.S. Treasury any
funds that w ere transferred to the RTC pursuant to the RTC Completion A ct
but not needed by the RTC. This appropriation w as fully repaid in 2000.
The FDIC m ust transfer to the REFCORP the net proceeds from the FRF's sale
o f RTC assets, after providing fo r all outstanding RTC liabilities. Any such funds
transferred to the REFCORP pay the interest on the REFCORP bonds issued to




FSLIC Resolution Fund

fund the early RTC resolutions. Any such payments benefit the U.S. Treasury,
w hich w ould otherw ise be obligated to pay the interest on the bonds. During
2002, the FRF-RTC transferred $1.3 billion to the REFCORR

Operations of the FRF
The FRF w ill continue operations until all o f its assets are sold or otherwise
liquidated and all of its liabilities are satisfied. Any funds remaining in the FRFFSLIC w ill be paid to the U.S. Treasury. Any remaining funds of the FRF-RTC
w ill be distributed to the REFCORP to pay the interest on the REFCORP bonds.
FDIC has conducted an extensive re vie w and cataloging o f FRF's residual
assets and liabilities and is continuing to explore approaches fo r concluding
FRF's activities. Some o f the issues and item s that remain open in FRF are:
1) criminal restitution orders (generally have from 5 to 10 years remaining);
2) litigation claims and judgm ents obtained against officers and directors and
other professionals responsible fo r causing th rift losses (judgments generally
vary from 5 to 10 years); 3) numerous assistance agreem ents entered into by
the form er FSLIC (FRF could continue to receive tax sharing benefits through
year 2020); 4) goodwill litigation (no final date for resolution has been established;
see Note 6); and 5) representations and warranties made to support the sale of
assets including loans and servicing rights (these liabilities could be incurred over
the remaining life o f the loans, w hich is generally 20 years or more; see Note 6).
FDIC is considering w h e th e r enabling legislation or other measures may be
needed to liquidate the remaining FRF assets and liabilities.
The FRF has been primarily funded from the follow ing sources: 1) U.S. Treasury
appropriations; 2) am ounts borrowed by the RTC from the Federal Financing
Bank (FFB); 3) am ounts received from the issuance of capital certificates to REF­
CORP; 4) funds received from the m anagem ent and disposition o f assets of the
FRF; 5) the FRF's portion o f liquidating dividends paid by FRF receiverships; and
6) interest earned on Special U.S. Treasury Certificates purchased w ith proceeds
of 4) and 5). If these sources are insufficient to satisfy the liabilities o f the
FRF, payments w ill be made from the U.S. Treasury in am ounts necessary,
as appropriated by Congress, to carry out the objectives of the FRF.
Public Law 103-327 provided $827 m illion in funding to be available until
expended to facilitate efforts to w ind up the resolution activity o f the FRF-FSLIC.
The FRF received $165 million under this appropriation on November 2, 1995.
In addition, Public Law 104-208 and Public Law 105-61 authorized the use
by the U.S. D epartm ent o f Justice (DOJ) of $26.1 m illion and $33.7 million,
respectively, from the original $827 million in funding, thus reducing the am ount
available to be expended to $602.2 million. The funding made available to DOJ
covers the reim bursem ent o f reasonable expenses of litigation incurred in the
defense of claims against the United States arising from the goodwill litigation
cases.
A dditional g oodw ill litigation expenses incurred by DOJ are paid directly
from the FRF-FSLIC based on a M em orandum o f Understanding (MOU) dated
October 2, 1998, betw een the FDIC and DOJ. Under the term s o f the MOU,
the FRF-FSLIC paid $17.5 million and $66.8 million to DOJ fo r fiscal years 2003
and 2002, respectively. DOJ returns any unused fiscal year funding to the




FRF unless special circum stances w arrant these funds be carried over and
applied against current fiscal year charges. A t Septem ber 30, 2002, DOJ had
$68.6 million in unused funds that w ere applied against FY 2003 charges of
$86.1 million. Separate funding fo r goodwill judgm ents and settlem ents is
available through Public Law 106-113 (see Note 6).

Receivership Operations
The FDIC is responsible fo r managing and disposing o f 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 w ith applicable laws and regulations. Also, the income and expenses
attributable to receiverships are accounted fo r as transactions of those receiver­
ships. Expenses paid by the FRF on behalf o f the receiverships are recovered
from those receiverships.

2. S um m ary o f S ig n ific a n t A cc o u n tin g Policies

General
These financial statem ents pertain to the financial position, results of operations,
and cash flo w s o f the FRF and are presented in conform ity w ith U.S. generally
accepted accounting principles (GAAP). These statem ents do not include report­
ing fo r assets and liabilities of closed th rift institutions fo r w hich the FDIC acts
as receiver. Periodic and final accountability reports of the FDIC's activities as
receiver are furnished to courts, supervisory authorities, and others as required.

Use of Estimates
FDIC m anagem ent makes estim ates and assum ptions that a ffect the amounts
reported in the financial statem ents and accompanying notes. Actual results
could d iffe r from these estim ates. W here it is reasonably possible that changes
in estim ates w ill cause a material change in the financial statem ents in the near
term , the nature and extent of such changes in estim ates have been disclosed.

Cash Equivalents
Cash equivalents are short-term, highly liquid investm ents w ith original maturities
of three m onths or less. Cash equivalents consist o f Special U.S. Treasury
Certificates.

Investm ent in Securitization-Related Assets Acquired From Receiverships
The investm ent in securitization-related assets acquired from receiverships is
classified as available-for-sale and is shown at fair value w ith unrealized gains
and losses included in Resolution Equity. Unrealized gains and losses are com ­
puted on a quarterly basis using a cash flo w model that calculates the estim ated




FSLIC Resolution Fund

fair value of the assets at term ination. This model is updated w ith current data
supplied by the trustees, w hich includes prepaym ent speed, delinquency rates,
and m arket pricing. Realized gains and losses are recorded based upon the
difference betw een the proceeds at term ination of the deal and the book value
of the investm ent on both the escrow account and the related residual certificate,
and are included as components of Net Income. Additionally, realized losses are
recognized on the credit enhancem ent reserve fo r a decline in fair value that is
judged to be an other-than-temporary impairment.

Allow ance for Losses on Receivables From Thrift Resolutions
The FRF records a receivable fo r the am ounts advanced and/or obligations
incurred fo r resolving troubled and failed thrifts. Any related allowance for loss
represents the difference between the funds advanced and/or obligations incurred
and the expected repayment. The latter is based on estimates of discounted
cash recoveries from the assets of assisted or failed th rift institutions, net of all
applicable estim ated liquidation costs. Estimated cash recoveries also include
dividends and gains on sales from equity instrum ents acquired in resolution
transactions.

Cost Allocations Am ong Funds
Operating expenses not directly charged to the funds are allocated to all funds
administered by the FDIC using workload-based allocation percentages. These
percentages are developed during the annual corporate planning process and
through supplem ental functional analyses.

Related Parties
Limited Partnership Equity Interests. Former RTC receiverships w ere holders
of limited partnership equity interests as a result of various RTC sales programs
that included the National Land Fund; M ultiple Investor Fund; N-Series; S-Series;
and Judgem ents, Deficiencies, and Charge-offs programs. The m ajority of the
limited partnership equity interests have been transferred from the receiverships
to the FRF. These assets are included in the "O th e r assets, n e t" line item in
the FRF's Statem ents o f Financial Position.
The nature of related parties and a description of related party transactions are dis­
cussed in Note 1 and disclosed throughout the financial statements and footnotes.

Reclassifications
Reclassifications have been made in the 2001 financial statem ents to conform to
the presentation used in 2002.

3 . In v es tm e n t in S e cu ritizatio n -R e lated Assets A cq u ired From
R eceiverships

In 2002, the investm ent in securitization-related assets decreased by $989 million
to $98 million primarily due to the term ination of 15 securitization deals. The FRF
received $1.1 billion in proceeds from terminations during 2002 and $851 million
during 2001. The one remaining deal that is active as of Decem ber 31, 2002,
is expected to term inate in 2003.
The RTC engaged in numerous securitization transactions in order to maximize
the return from the sale or disposition of assets. The RTC sold $42.4 billion of
receivership, conservatorship, and corporate loans to various trusts that issued
regular pass-through certificates through its mortgage-backed securities program.
A portion of the proceeds from the sale of the certificates w as placed in credit
enhancem ent reserves (escrow accounts) to cover future credit losses w ith
respect to the loans underlying the certificates. In addition, the escrow accounts
w ere established to increase the likelihood of full and tim ely distributions of
interest and principal to the certificate holders and thus increase the marketability
of the certificates. The FRF's exposure from credit losses on loans sold through
the program is limited to the balance of the escrow accounts. The FRF is entitled
to any proceeds remaining in the escrow accounts at term ination of the securiti­
zation transactions. As part of the securitization transactions, the receiverships
received a participation in the residual pass-through certificates (residual certifi­
cates) issued through its mortgage-backed securities program. The residual
certificates entitle the holder to any cash flo w from the sale of collateral remain­
ing in the trust after the regular pass-through certificates and actual term ination
expenses are paid.
In 1996 and 1998, the escrow accounts and residual certificates w ere transferred
from the receiverships to the FRF fo r $5.7 billion and $1.4 billion, respectively.
Both transfers w e re o ffs e t by am ounts ow ed by the receiverships to
the FRF.

Investm ent in Securitization-Related Assets Acquired From Receiverships at December 31, 2002
Dollars

in T h o u s a n d s

Cost
Credit enhancem ent reserve

$




“ $

$

55,357

40,092

Unrealized
Holding
Losses
$

15,749

8,256

Residual certifica tes
Total

47,101

Unrealized
Holding
Gains

$

55,841

(13,084)

Fair
Value
$

$

(13,084)

74,109
24,005

0
$

98,114

FSLIC Resolution Fund

Investm ent in Securitization-Related Assets Acquired From Receiverships at December 31, 2001
Dollars

in

Thousands

Cost
Credit enhancem ent reserve

$

Unrealized
Holding
Losses

$

$

227,082

Residual certifica tes
Total

553,673

Unrealized
Holding
Gains

S

153,567
173,466

780,755

$

327,033

$

Fair
Value
$

(20,686)

686,554

0

400,548

(20,686)

S 1,087,102

4 . R eceivables From T h rift R esolutions, N et

The th rift resolution process took different form s depending on the unique facts
and circum stances surrounding each failing or failed institution. Payments for
institutions that failed w ere made to cover obligations to insured depositors
and represent claims by the FRF against the receiverships' assets. Payments
to prevent a failure w ere made to operating institutions when cost and other
criteria w ere met.
Assets held by the FDIC in its receivership capacity fo r the form er FSLIC and
SAIF-insured institutions are a significant source of repaym ent o f the FRF's
receivables from th rift resolutions. As o f Decem ber 31, 2002 and 2001, FRF
receiverships held assets w ith a book value o f $290 million and $448 million,
respectively (including cash, investm ents, and miscellaneous receivables of
$146 million and $264 million at December 31, 2002 and 2001, respectively).
The estim ated cash recoveries from the management and disposition of these
assets that are used to derive the allowance fo r losses are based on a non­
representative sampling o f receivership assets. This non-representative sample,
based primarily on asset book values, provided 97% coverage of the entire
portfolio's book value. These estim ated recoveries are regularly evaluated,
but remain subject to uncertainties because of potential changes in economic
conditions. Such uncertainties could cause the FRF's and other claimants'
actual recoveries to vary from the level currently estimated.

1Receivables From Thrift Resolutions, Net at December 31
Dollars

in T h o u s a n d s
2001

2002
Assets from open th rift assistance

$

A llow an ce fo r losses
Net Assets From Open Thrift Assistance
Receivables from closed th rifts
A llow an ce fo r losses
Net Receivables From Closed Thrifts
Total




$

15,000

$

384,885

(15,000)

(374,885)

0

10,000

27,636,213

32,534,350

(27,504,909)

(32,257,895)

131,304

276,455

131,304

$

286,455

$9

5. O ther A s se ts , Net
Other Assets, N et at December 31
Dollars

in T h o u s a n d s
2002

Accounts receivable, net

$

Due fro m FDIC funds
Assets acquired by th e Corporation, net
Lim ited partnership equity interests

$

$

22,511

1,555

0

500

16,428

21,784

5,348

Total




2001

735

5,858
$

29,697

6 . C o n t in g e n t L ia b ilit ie s f o r :

Litigation Losses
The FRF records an estimated loss fo r unresolved legal cases to the extent those
losses are considered probable and reasonably estimable. In addition to the amount
recorded as probable, the FDIC has determined that losses from unresolved legal
cases totaling $43.3 million are reasonably possible.

Additional Contingency

Goodwill Litigation
In United States v. W instar Corp., 518 U.S. 839 (1996), the Supreme Court held
that w hen it became impossible follow ing the enactm ent of FIRREA in 1989 for
the federal governm ent to perform certain agreements to count goodwill tow ard
regulatory capital, the plaintiffs w ere entitled to recover damages from the
United States. To date, approximately 120 lawsuits have been filed against
the United States based on alleged breaches of these agreements (Goodwill
Litigation). During 2002, the trial court entered orders finally dismissing
22 Goodwill Litigation cases.
On July 22, 1998, DOJ's O ffice of Legal Counsel (OLC) concluded that the
FRF is legally available to satisfy all judgm ents and settlem ents in the Goodwill
Litigation involving supervisory action or assistance agreements. OLC determined
that nonperformance o f these agreem ents w as a contingent liability that was
transferred to the FRF on A ugust 9, 1989, upon the dissolution of the FSLIC.
Under the analysis set forth in the OLC opinion, as liabilities transferred on
A ugust 9, 1989, these contingent liabilities fo r future nonperform ance of prior
agreem ents w ith respect to supervisory goodwill w ere transferred to the FRFFSLIC, w hich is that portion of the FRF encompassing the obligations of the
form er FSLIC. The FRF-RTC, w hich encompasses the obligations of the form er
RTC and was created upon the term ination of the RTC on Decem ber 31, 1995,
is not available to pay any settlem ents or judgm ents arising out of the Goodwill
Litigation. On July 23, 1998, the U.S. Treasury determ ined, based on OLC's
opinion, that the FRF is the appropriate source of funds fo r paym ents of any
such judgm ents and settlem ents.




FSLIC Resolution Fund

Section 110 of the Departm ent of Justice Appropriations Act, 2000 (Public
Law 106-113, Appendix A, Title I, 113 Stat. 1501A-3, 1501A-20) provides to
the FRF-FSLIC such sum s as may be necessary fo r the paym ent of judgm ents
and com prom ise settlem ents in the Goodwill Litigation, to remain available
until expended. Because an appropriation is available to pay such judgm ents
and settlem ents, any liabilities fo r the Goodwill Litigation should have no material
im pact on the financial condition o f th e FRF-FSLIC. N evertheless, the Civil
Division o f the DOJ has taken the position that all resources of the FRF m ust be
exhausted before the appropriation may be utilized. The FDIC and the Department
of the Treasury disagree w ith the position advocated by the Civil Division o f the
DOJ. OLC is considering this question, but has not issued an opinion.
The lawsuits comprising the Goodwill Litigation are against the United States and
as such are defended by the DOJ. On January 6, 2003, the DOJ again informed
the FDIC that it is "unable at this tim e to provide a reasonable estimate of the likely
aggregate contingent liability resulting from the l/V/nsfar-related cases." This uncer­
tainty arises, in part, from the existence of significant unresolved issues pending at
the appellate or trial court level, as well as the unique circumstances of each case.
The FDIC believes that it is probable that additional amounts, possibly substantial,
may be paid from the FRF-FSLIC as a result of judgm ents and settlem ents in
the Goodwill Litigation. However, based on the response from the DOJ, the
FDIC is unable to estimate a range of loss to the FRF-FSLIC from the Goodwill
Litigation, or determ ine w hether any such loss w ould have a material e ffect on
the financial condition of the FRF-FSLIC if the FRF m ust be exhausted before
the Section 110 appropriation may be utilized.

Guarini Litigation
Paralleling the goodwill cases are eight similar cases alleging that the govern­
m ent breached agreem ents regarding tax benefits associated w ith certain
FSLIC-assisted acquisitions. These agreem ents 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 plantiffs w ith
tax-exem pt reim bursem ent. A provision in the Om nibus Budget Reconciliation
A ct of 1993 (popularly referred to as the "Guarini legislation") eliminated the tax
deductions fo r these losses.
To date, there have been liability determ inations in five o f the "G uarini" cases.
In one of these cases, damages of approximately $28 million w ere recently
awarded by the Court of Federal Claims subsequent to the date of the financial
statements. As the tim e for filing an appeal has not yet lapsed, there may be
appeals. Decisions on liability have not been made in the other tw o pending
cases. An eighth case w as settled during 2002 fo r $20 thousand.
The FDIC believes that it is possible that substantial am ounts may be paid from
the FRF-FSLIC as a result of the judgm ents and settlem ents from the "Guarini
litigation". However, because the litigation of damages computation is still
ongoing, the am ount of the damages is not estim able at this tim e.

Representations and Warranties
As part o f the RTC's efforts to maximize the return from the sale of assets from
th rift resolutions, representations and warranties, and guarantees w ere offered
on certain loan sales. In general, the guarantees, representations, and warranties f

on loans sold relate to the com pleteness and accuracy of loan documentation,
the quality of the underw riting standards used, the accuracy o f the delinquency
status w hen sold, and the co n fo rm ity o f the loans w ith characteristics o f the
pool in w hich th e y w e re sold. The total am ount of the loans sold subject to
unexpired representations and warranties, and guarantees was $173 billion
as of Decem ber 31, 2002. The contingent liability from all outstanding claims
asserted in connection w ith representations and warranties w as $77 thousand
and $2.3 million at December 31, 2002 and 2001, respectively.
In addition, future losses on representations and warranties, and guarantees
could be incurred over the remaining life of the loans sold, w hich is generally
20 years or more. Consequently, the FDIC believes it is possible that additional
losses may be incurred by the FRF from the universe of outstanding contracts
w ith unasserted representation and warranty claims. However, because o f the
uncertainties surrounding the tim ing o f w hen claims may be asserted, the FDIC
is unable to reasonably estim ate a range of loss to the FRF from outstanding
contracts w ith unasserted representation and warranty claims.

7. Provision fo r Losses

The provision for losses was a negative $149 million and a negative $369 million
fo r 2002 and 2001, respectively. In 2002, the negative provision w as primarily
due to: 1) recoveries of $95 million of net tax benefits sharing from assistance
agreem ents, 2) low er estim ated losses of $26 million to the credit enhancem ent
reserve, and 3) low er estimated losses of $20 million fo r assets in liquidation.
The negative provision in 2001 resulted primarily from: 1) recoveries of $163 million
o f net tax benefits sharing from assistance agreem ents and 2) recoveries of
$120 million from receiverships w ith positive equity w here the FRF is entitled
to the positive value o f the receivership to reduce the overall cost o f resolving
the institutions.

Provision for Losses for the Years Ended December 31
Dollars

in T h o u s a n d s
2002

2001

Valuation Adjustments:
Open th rift assistance
Tax be ne fits sharing recoveries

$

(3,072)

$

_______________________ (95,079)____________

(23,652)
(163,111)

Closed th rifts

(20,164)

(93,710)

M iscellaneous receivables

(28,776)

(88,758)

(147,091)

(369,231)

Total Valuation Adjustments
Contingent Liabilities Adjustments:
Litig ation losses

(86)

(2,015)

R epresentations and w arran tie s

(2,182)

2,259

Total Contingent Liabilities Adjustments

(2,268)

Total




S

(149,359)

244
S

(368,987)

FSLIC Resolution Fund

8 . R esolution Equity

As stated in the Legislative History section of Note 1, the FRF is comprised
of tw o distinct pools: the FRF-FSLIC and the FRF-RTC. The FRF-FSLIC consists
of the assets and liabilities of the form er FSLIC. The FRF-RTC consists of the
assets and liabilities of the form er RTC. Pursuant to legal restrictions, the tw o
pools are maintained separately and the assets of one pool are not available
to satisfy obligations of the other.
The follow ing table show s the contributed capital, accumulated deficit, and
resulting resolution equity fo r each pool.

Resolution Equity at December 31, 2002
Dollars

in

Thousands
FRF-FSLIC

Contributed capital - beginning

$

Add: U.S. Treasury paym ents fo r g o o d w ill settlem ents
Less: REFCORP payments
Contributed capital-ending
A ccum ulated d e fic it
Less: Unrealized gain on available-for-sale securities
Accumulated deficit, net
$

Total

44,157,025

FRF
Consolidated

FRF-RTC
$ ~

83,916,004

$ ....

128,073X129

21,459

0

21,459

0

(1,266,667)

(1,266,667)

44,178,484

82,649,337

126,827,821

(41,282,541)

(81,732,732)

(123,015,273)

0

42,757

42,757

(41,282,541)

(81,689,975)

(122,972,516)

$

2,895,943

959,362

$

3,855,305

Resolution Equity at December 31, 2001
Dollars

in T h o u s a n d s
FRF-FSLIC

C ontributed capital - beginning

$

44,157,025

FRF
Consolidated

FRF-RTC
$

85,327,901

$

129,484,926

Less: U.S. Treasury repaym ents

0

(5,300)

(5,300)

Less: REFCORP paym ents

0

(1,406,596)

(1,406,596)

Contributed capital-ending
Accum ulated d e fic it
Less: Unrealized gain on available-for-sale securities




83,916,005

128,073,030

(82,133,208)

(123,505,818)

0

306,347

306,347

(41,372,610)

Accumulated deficit, net
Total

44,157,025
(41,372,610)

$

2,784,415

(81,826,861)
$

2,089,144

(123,199,471)
S

4,873,559

93




Contributed Capital
To date, the FRF-FSLIC and the form er RTC received $43.5 billion and $60.1 billion
from the U.S.Treasury, respectively. These payments w ere used to fund losses
from th rift resolutions prior to July 1,1995. Additionally, the FRF-FSLIC issued
$670 million in capital certificates to the FICO and the RTC issued $31.3 billion
of these instrum ents to the REFCORP. FIRREA prohibited the paym ent of
dividends on any of these capital certificates. Through Decem ber 31, 2002,
as described in Note 1, th e FRF-RTC has returned $4,556 billion to the
U.S.Treasury and made payments of $4,122 billion to the REFCORP. These
actions serve to reduce contributed capital.

Accum ulated Deficit
The accumulated deficit represents the cum ulative excess o f expenses over
revenue fo r activity related to the FRF-FSLIC and the FRF-RTC. Approxim ately
$29.7 billion and $87.9 billion w ere brought forw ard from the form er FSLIC
and the fo rm e r RTC on A ugust 9,1989, and January 1,1996, respectively. The
FRF-FSLIC accumulated deficit has increased by $11.5 billion, w hereas the
FRF-RTC accumulated deficit has decreased by $6.2 billion, since their dissolution
dates.

9 . E m p lo y e e B e n e fit s

Pension Benefits, Savings Plans and Postem ploym ent Benefits
Eligible FDIC employees (permanent and term employees w ith appointm ents
exceeding one year) are covered by either the Civil Service R etirem ent System
(CSRS) or the Federal Employees R etirem ent System (FERS). The CSRS is a
defined benefit plan, w hich is o ffse t w ith the Social Security System in certain
cases. Plan benefits are determ ined on the basis of years of creditable service
and compensation levels. The CSRS-covered em ployees also can contribute
to the tax-deferred Federal Thrift Savings Plan (TSP).
The FERS is a three-part plan consisting of a basic defined benefit plan that
provides benefits based on years o f creditable service and compensation
levels, Social Security benefits, and the TSP. Autom atic and matching employer
contributions to the TSP are provided up to specified am ounts under the
FERS.
Although the FRF contributes a portion of pension benefits fo r eligible employees,
it does not account fo r the assets of either retirem ent system . The FRF also
does not have actuarial data fo r accumulated plan benefits or the unfunded
liability relative to eligible employees. These am ounts are reported on and
accounted fo r by the U.S. O ffice of Personnel Management.
Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred
401 (k) savings plan w ith matching contributions. The FRF pays its share of the
employer's portion of all related costs.

FSLIC Resolution Fund

I Pension Benefits, Savings Plans Expenses and Postem ploym ent Benefits for the Years Ended December 31
Dollars

i

in T h o u s a n d s

2001

2002
Civil Service R etirem ent System

$

711

$

1,055

Federal Employees R etirem ent System (Basic Benefit)

1,987

FDIC Savings Plan

1,186

1,748

756

1,131

Federal T h rift Savings Plan
Total




S

4,640

2,966

$

6,900

Accrued Annual Leave
The FRF's pro rata share o f the Corporation's liability to employees fo r accrued
annual leave is approximately $2.5 million and $4.1 million at December 31, 2002
and 2001, respectively.

Postretirem ent Benefits Other Than Pensions
The FDIC provides certain life and dental insurance coverage fo r its eligible
retirees, the retirees' beneficiaries and covered dependents. Retirees eligible
fo r life insurance coverage are those w ho have qualified due to: 1) im m ediate
enrollm ent upon appointm ent or five years o f participation in the plan and
2) eligibility fo r an im m ediate annuity. The life insurance program provides basic
coverage at no cost to retirees and allows converting optional coverages to
direct-pay plans. Dental coverage is provided at no cost to all retirees eligible
fo r an im m ediate annuity. A t December 31, 2002, the FRF's net postretirem ent
b e n e fit liability recognized in the "A ccounts payable and o ther lia b ilitie s"
line item in the S tatem ent o f Financial Position w as $466 thousand. A t
Decem ber 31, 2001, the FRF’s net postretirem ent benefit asset recognized
in the "O th e r assets, n e t" line item in the S tatem ent of Financial Position was
$232 thousand.

1 0 . C o m m it m e n t s

Leased Space
The FRF's allocated share of the FDIC's lease com m itm ents totals $8.7 million
fo r future years. The lease agreem ents contain escalation clauses resulting in
adjustm ents, usually on an annual basis. The allocation to the FRF of the FDIC's
future lease com m itm ents is based upon current relationships o f the workloads
among the FRF, the BIF, and the SAIF. Changes in the relative w orkloads could
cause the am ounts allocated to the FRF in the future to vary from the am ounts
show n below. The FRF recognized leased space expense of $4.0 million and
$5.5 million fo r the years ended Decem ber 31, 2002 and 2001, respectively.

9

I Leased Space C om m itm ents
Dollars

in T h o u s a n d s

2003

2004

2005

2006

2007

2008/Thereafter

$ 2,064

$ 2,039

$ 1,898

$ 1,378

$ 811

$ 474




1 1 . C o n c e n t r a t io n o f C r e d it R is k

Financial in stru m e n ts th a t potentially subject th e FRF to c re d it risk consist
prim arily of: 1) gross receivables fro m th rift resolutions totaling $27.7 billion
and 2) an investm ent in securitization-related assets acquired from receiverships
totaling $98.1 million. The receivables from th rift resolutions include payments
made to cover obligations to insured depositors, advances to receiverships to
provide working capital, and receivables fo r expenses paid by the FRF on behalf
of receiverships. Assets held by the FDIC in its receivership capacity for the form er
FSLIC and SAIF-insured institutions are the main source of repaym ent of the
FRF's receivables from th rift resolutions. An allowance fo r loss of $27.5 billion,
or 99.5% of the gross receivable, w as recorded as of Decem ber 31, 2002.
Of the remaining 0.5 percent of the gross receivable, 85% o f the receivable
is expected to be repaid from receivership cash, cash equivalents, and pledged
cash reserves. The credit risk related to the pledged cash reserves is limited
since the m ajority of these assets are evaluated annually and have experienced
minimal losses.
The value o f the investm ent in securitization-related assets is influenced by
the economy of the area relating to the underlying loans. O f this investm ent,
$130.5 million of the underlying mortgages are located in California and
$44.3 million of loans are located in New Jersey. No other state accounted
fo r a material portion o f the investment.

1 2 . D is c lo s u r e s A b o u t t h e F a ir V a lu e o f F in a n c ia l In s t r u m e n t s

Cash equivalents are short-term , highly liquid investm ents and are show n at
current value. The carrying am ount o f short-term receivables and accounts
payable and other liabilities approximates their fair m arket value, due to their
short m aturities and/or comparability w ith current interest rates.
The net receivables from th rift resolutions primarily include the FRF's subrogated
claim arising from payments to insured depositors. The receivership assets that
w ill ultim ately be used to pay the corporate subrogated claim are valued using
discount rates th a t include consideration o f m arket risk. These discounts
ultim ately affect the FRF's allowance fo r loss against the net receivables from
th rift resolutions. Therefore, the corporate subrogated claim indirectly includes
the effe ct of discounting and should not be view ed as being stated in term s of
nominal cash flow s.

FSLIC Resolution Fund

Although the value of the corporate subrogated claim is influenced by valuation
of receivership assets (see Note 4), such receivership valuation is not equivalent
to the valuation o f the corporate claim. Since the corporate claim is unique, not
intended fo r sale to the private sector, and has no established market, it is not
practicable to estim ate its fair market value.
The FDIC believes that a sale to the private sector of the corporate claim w ould
require indeterm inate, but substantial, discounts fo r an interested party to profit
from these assets because o f credit and other risks. In addition, the tim ing of
receivership payments to the FRF on the subrogated claim does not necessarily
correspond w ith the tim in g o f collections on receivership assets. Therefore,
the e ffe c t o f discounting used by receiverships should not necessarily be
view ed as producing an estim ate of market value fo r the net receivables from
th rift resolutions.
The investm ent in securitization-related assets acquired from receiverships is
adjusted to fair value at each reporting date using a valuation model that estimates
the present value o f estim ated expected future cash flo w s discounted fo r the
various risks involved, including both m arket and credit risks, as w ell as other
attributes o f the underlying assets (see Note 3).

1 3 . S u p p le m e n t a r y I n f o r m a t io n R e la t in g t o t h e S t a t e m e n t s o f
C a s h F lo w s

Reconciliation of N et Income to N et Cash Provided by Operating Activities for th e Years Ended December 31
Dollars

in T h o u s a n d s

Net Income

2002

2001

490,545

761,960

Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Change in Assets and Liabilities:
Decrease in receivables from th rift resolutions
(Increase) in securitization-related assets acquired from receiverships

155,151

129,921

(376,127)

(327,132)

Decrease in other assets

7,185

21,044

(Decrease) in accounts payable and other lia b ilitie s

(379)

(26,301)

0

(74,872)

(4,758)

729

(Decrease) in lia b ilitie s fro m th rift resolutions
(Decrease) Increase in contingent lia b ilitie s fo r litig a tio n losses
$

Net Cash Provided by Operating Activities




271,617

S

485,349

■■■■■■■■■
1 4 . S u b s e q u e n t E v e n ts

On January 10, 2003, FRF paid REFCORP $400 million from excess FRF-RTC
cash, bringing total payments to REFCORP to $4.5 billion.

1

4 gao

Comptroller General
o f the United States

^A c c o u n ta b ility * Integrity * Reliability

United S tates General Accounting Office
Washington, D.C. 20548

To the Board o f Directors
The Federal Deposit Insurance Corporation

W e have audited the statem ents of financial position as o f Decem ber 31, 2002
and 2001, fo r the three funds adm inistered by the Federal Deposit Insurance
Corporation (FDIC), the related statem ents of income and fund balance (accumu­
lated deficit), and the statem ents of cash flo w s fo r the years then ended. In our
audits o f the Bank Insurance Fund (BIF), the Savings Association Insurance Fund
(SAIF), and the FSLIC Resolution Fund (FRF), w e found
•

the financial statem ents of each fund are presented fairly, in all material
respects, in conform ity w ith U.S. generally accepted accounting principles;

•

although certain internal controls should be improved, FDIC had effective
internal control over financial reporting (including safeguarding o f assets) and
compliance w ith laws and regulations; and

•

no reportable noncompliance w ith the laws and regulations that w e tested.

The follow ing sections discuss our conclusions in more detail. They also present
inform ation on (1) the scope o f our audits, (2) a reportable condition1 related
to inform ation system control weaknesses, (3) BIF's reserve ratio, and (4) our
evaluation of FDIC management's com m ents on a draft of this report.

Opinion on BIF's
Financial Statem ents

Digitized9S
for FRASER


The financial statem ents, including the accompanying notes, present fairly,
in all material respects, in conform ity w ith U.S. generally accepted accounting
principles, BIF's financial position as of December 31, 2002 and 2001, and the
results of its operations and its cash flo w s fo r the years then ended.

1 Reportable conditions involve matters coming to the auditor's attention that, in the auditor's
judgment, should be communicated because they represent significant deficiencies in the
design or operation of internal control and could adversely affect FDIC’s ability to meet the
control objectives described in this report.

Opinion on SAIF's
Financial Statem ents

The financial statem ents, including the accompanying notes, present fairly,
in all material respects, in conform ity w ith U.S. generally accepted accounting
principles, SAIF's financial position as of Decem ber 31, 2002 and 2001, and the
results of its operations and its cash flo w s fo r the years then ended.

Opinion on FRF's
Financial S tatem ents

The financial statem ents, including the accompanying notes, present fairly,
in all material respects, in conform ity w ith U.S. generally accepted accounting
principles, FRF's financial position as of Decem ber 31, 2002 and 2001, and the
results of its operations and its cash flo w s fo r the years then ended.

Opinion on Internal Control

Although certain internal controls should be improved, FDIC m anagement main­
tained, in all material respects, effective internal control over financial reporting
(including safeguarding assets) and compliance as of December 31, 2002, that
provided reasonable but not absolute assurance that m isstatem ents, losses,
or noncompliance material in relation to FDIC's financial statem ents w ould
be prevented or detected on a tim ely basis. Our opinion is based on criteria
established under 31 U.S.C. 3512 (c), (d) [Federal Managers' Financial Integrity
A ct (FMFIA)].
Our w o rk identified weaknesses in FDIC's inform ation system controls, w hich
w e describe as a reportable condition in a later section of this report. The
reportable condition in inform ation system controls, although not considered
material, represents a significant deficiency in the design or operation o f internal
control that could adversely a ffect FDIC's ability to m eet its internal control
objectives. Although the weaknesses did not materially affect the 2002 financial
statem ents, m isstatem ents may nevertheless occur in other FDIC-reported
financial inform ation as a result of the internal control weaknesses.

Compliance w ith Laws
and Regulations

Objectives, Scope, and
M ethodology




Our te sts fo r com pliance w ith selected provisions o f laws and regulations
disclosed no instances o f noncom pliance th a t w o u ld be reportable under
U.S. generally accepted governm ent auditing standards. However, the objective
o f our audits was not to provide an opinion on overall compliance w ith selected
laws and regulations. Accordingly, w e do not express such an opinion.

FDIC management is responsible for (1) preparing the annual financial statements
in conform ity w ith U.S. generally accepted accounting principles, (2) establishing,
maintaining, and assessing internal control to provide reasonable assurance that
the broad control objectives o f FMFIA are met, and (3) complying w ith selected
laws and regulations.
W e are responsible fo r obtaining reasonable assurance about w hether (1) the
financial statem ents are presented fairly, in all material respects, in conform ity
w ith U.S. generally accepted accounting principles, and (2) m anagem ent main­
tained effective internal control, the objectives of w hich are

99




•

financial re p o rtin g -tra n s a c tio n s are properly recorded, processed, and
sum m arized to p e rm it th e preparation of financial sta te m e n ts in c o n fo rm ity
w ith U.S. generally accepted accounting principles, and assets are safeguarded
against loss from unauthorized acquisition, use, or disposition, and

•

compliance w ith laws and regulations-transactions are executed in accordance
w ith laws and regulations that could have a direct and material e ffe ct on the
financial statem ents.

W e are also responsible fo r testing compliance w ith selected provisions of laws
and regulations that have a direct and material effect on the financial statements.
In order to fulfill these responsibilities, w e
•

examined, on a te s t basis, evidence supporting the am ounts and disclosures
in the financial statem ents;

•

assessed the accounting principles used and significant estim ates made
by management;

•

evaluated the overall presentation of the financial statem ents;

•

obtained an understanding of internal control related to financial reporting
(including safeguarding assets) and compliance w ith laws and regulations;

•

tested relevant internal controls over financial reporting and compliance, and
evaluated the design and operating effectiveness of internal control;

•

considered FDIC's process fo r evaluating and reporting on internal control
based on criteria established by FMFIA; and

•

tested compliance w ith selected provisions of the Federal Deposit Insurance
Act, as amended, and the Chief Financial Officers A ct of 1990.

W e did not evaluate all internal controls relevant to operating objectives as broadly
defined by FMFIA, such as those controls relevant to preparing statistical reports
and ensuring efficient operations. W e lim ited our internal control testing to
controls over financial reporting and compliance. Because of inherent lim itations
in internal control, m isstatem ents due to error or fraud, losses, or noncompliance
may nevertheless occur and not be detected. W e also caution that projecting
our evaluation to future periods is subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
w ith controls may deteriorate.
W e did not te s t compliance w ith all laws and regulations applicable to FDIC.
W e limited our tests of compliance to those deemed applicable to the financial
statem ents fo r the year ended D ecem ber 31, 2002. W e caution that

noncom pliance may occur and not be detected by these te sts and that such
testing may not be sufficient fo r other purposes.
W e perform ed our w ork in accordance w ith U.S. generally accepted governm ent
auditing standards.
FDIC management provided comm ents on a draft of this report. They are discussed
and evaluated in a later section of this report and are reprinted in appendix I.

Reportable Condition




In connection w ith the funds' financial statem ent audits, w e reviewed FDIC's
inform ation system controls. Effective inform ation system controls are essential
to safeguarding financial data, protecting com puter application programs, providing
fo r the integrity o f system software, and ensuring the continued com puter
operations in case o f unexpected interruption. These controls include the corporatewide security management program, access controls, system software,
application developm ent and change control, segregation of duties, and service
continuity controls. During 2002, FDIC made progress in improving inform ation
system controls. Of the 41 prior year recom m endations that w e made, FDIC had
com pleted action on 18 and partially com pleted or had action plans to address
those remaining. During our current review, FDIC also corrected several new ly
identified weaknesses.
Nevertheless, continuing and newly identified vulnerabilities involving information
system controls continue to impair FDIC's ability to ensure the reliability,
confidentiality, and availability of financial data. For example, FDIC did not have
inform ation system controls to adequately ensure that (1) users had only the
access needed to perform their assigned duties, (2) its netw ork was secured
from unauthorized access, and (3) com prehensive programs w ere in place to
routinely oversee and m onitor access to its com puter data to identify unusual
or suspicious access. The effe ct of these w eaknesses increases the risk of
unauthorized disclosure of critical FDIC financial and sensitive personnel and
bank examination inform ation, disruption of critical financial operations, and
loss of assets.
As w e have previously reported, the primary reason fo r FDIC's inform ation
system control weaknesses is that it has not fully developed and im plem ented
a comprehensive corporatewide security m anagem ent program. An effective
program w ould include assessing risks, establishing a central security function,
establishing policies and related controls, raising awareness of prevailing risks
and m itigating controls, and regularly evaluating the effectiveness of established
controls. During the past year, FDIC has made progress in im plem enting such
a program, including establishing a central security sta ff to provide guidance and
oversight, enhancing its security awareness program, and continuing efforts to
develop and update security policy. However, FDIC has not yet fully established
a risk assessm ent process and the recently im plem ented program to assess
the effectiveness of controls does not address all critical evaluation areas.

101

A com plete risk assessm ent process w ould assist m anagem ent in making
decisions on necessary controls. Similarly, an ongoing com prehensive program
o f te sts and evaluations of the effectiveness of established controls w ould
enable FDIC to identify and correct inform ation security w eaknesses, such
as those reported in th is review.
W e determ ined that other management controls m itigated the e ffe ct of the
inform ation system control weaknesses on the preparation of the funds'
financial statem ents. Because o f their sensitive nature, the details surrounding
these weaknesses are being reported separately to FDIC management, along
w ith our recom m endations fo r corrective actions.

BIF's Reserve Ratio




The Federal Deposit Insurance Corporation Im provem ent A ct of 1991 (FDICIA)
requires FDIC to maintain BIF fund balance at a designated reserve ratio of at
least 1.25 percent of estim ated insured deposits.2 Under FDIC's required riskbased assessm ent system , as long as BIF's reserve ratio is at or above the
designated reserve ratio, FDIC cannot charge prem ium s to institutions that are
well-capitalized and highly rated by supervisors. Currently, over 90 percent of
the industry does not pay fo r deposit insurance. In 1991, BIF's reserve ratio was
significantly below the designated reserve ratio and did not reach the designated
reserve ratio of 1.25 percent of estim ated insured deposits until May 1995.3
During the years ended December 31, 1995 through 2000, BIF's reserve ratio
ranged from 1.30 to 1.38. As of Decem ber 31, 2001, and Septem ber 30, 2002,
BIF's ratio decreased to 1.26 and 1.25, respectively. A t its Novem ber 12, 2002,
meeting, the FDIC Board of Directors voted to maintain the existing BIF assess­
m ent rate schedule fo r the firs t semiannual assessm ent period o f 2003 based
on the board's determ ination that the reserve ratio w ould likely remain at or near
1.25 during the firs t half of 2003. M ost of BIF's income com es from the interest
earned on investm ents w ith the U.S. Treasury. FDIC describes the recent legisla­
tive initiatives to reform the federal deposit insurance system in note 1 of the
financial statem ents fo r BIF and SAIF.

2 Section 302 of FDICIA amended section 7(b) of the Federal Deposit Insurance Act. FDICIA
requirements are the same for both BIF and SAIF. SAIF reached the designated reserve
ratio in 1996, and as of September 30, 2002, SAIF's reserve ratio was 1.38 percent.
3 If the reserve ratio falls below 1.25 percent of estimated insured deposits, FDICIA requires
the FDIC Board of Directors to set semiannual assessment rates for BIF members that are
sufficient to increase the reserve ratio to the designated reserve ratio not later than 1 year
after such rates are set, or in accordance with a recapitalization schedule of 15 years or

FDIC Com m ents and
Our Evaluation




In com m enting on a draft o f this report, FDIC's Chief Financial O fficer (CFO)
was pleased to receive unqualified opinions on BIF's, SAIF’s, and FRF's 2002
and 2001 financial statem ents. FDIC's CFO also acknowledged the inform ation
system weaknesses w e identified and plans to continue e fforts to strengthen
its inform ation system program and to incorporate our recom m endations
into its security plans fo r 2003. W e plan to evaluate the effectiveness of the
corrective actions as part of our 2003 audit.

David M. W alker
Com ptroller General of the United States

February 27, 2003

103

104



Appendix

I

FDI€
Federal Deposit Insurance Corporation
550 17th St. NW Washington DC, 20429

Deputy to the Chairman & Chief Financial Officer

March 21, 2003
Mr. David M. Walker
Comptroller General of the United States
U. S. General Accounting Office
441 G Street, NW
Washington, DC 20548
Re: FDIC Management Response on the
GAO 2002 Financial Statements Audit Report
Dear Mr. Walker:
Thank you for the opportunity to comment on the U. S. General Accounting Office’s (GAO) draft
audit report titled, Financial Audit: Federal Deposit Insurance Corporation Funds’ 2002
and 2001 Financial Statements, GAO-03-543. The report presents GAO’s opinions on the
calendar year 2002 financial statements of the Bank Insurance Fund (BIF), the Savings
Association Insurance Fund (SAIF), and the Federal Savings and Loan Insurance Corporation
(FSLIC) Resolution Fund (FRF). The report also presents GAO’s opinion on the effectiveness
of FDIC’s internal controls as of December 31, 2002 and GAO’s evaluation of FDIC’s
compliance with laws and regulations.
We are pleased to accept GAO’s unqualified opinions on the BIF, SAIF, and FRF financial
statements and to note that there were no material weaknesses identified during the 2002
audits. The GAO reported that: the funds’ financial statements were presented fairly and in
conformity with U. S. generally accepted accounting principles; FDIC had effective internal
control over financial reporting (including safeguarding of assets) and compliance with laws
and regulations; and there were no instances of noncompliance with selected provisions of
laws and regulations.
GAO identified the need to improve internal control over FDIC’s information systems (IS) and
issued a reportable condition. Although GAO identified weaknesses in FDIC’s IS controls, the
audit team noted that significant improvements had been made over the last eighteen months,
and that the weaknesses did not materially affect the 2002 financial statements. We agree
with GAO’s assessment of both the status and the progress made in addressing IS general
control weaknesses. During 2002, FDIC’s accomplishments included completion of the first
IS controls self assessment, implementation of the Information Security Manager (ISM)
program, and development of an information security tactical plan to support FDIC’s
information security strategic plan. The FDIC will continue efforts to strengthen its
IS program and to incorporate GAO’s recommendations into its security plans for 2003.
If you have any questions or concerns, please let me know.

Sincerely,

Steven O. App
Deputy to the Chairman and Chief Financial Officer

O verview o f the Industry
During 2002, insured commercial
banks and savings institutions reported
record earnings, as a recovering
economy and favorable interest-rate
environm ent created conditions
conducive to strong performance.
The 9,354* commercial banks and
savings institutions insured by the
FDIC earned $105 billion in 2002, an
$18.1 billion (20.8 percent) im prove­
m ent over 2001, and the firs t tim e
their annual earnings have surpassed
the $100 billion mark. W ider net
interest margins and strong grow th
in consumer-related assets helped
boost net interest income. Growth
in noninterest revenues and higher
gains on sales of securities also
contributed to the im provem ent in
revenues. These positive develop­
ments helped o ffset higher expenses
fo r loan losses stem m ing from the
2001 recession.
Commercial banks reported recordhigh earnings fo r the second consec­
utive year. Net income at the 7,887
banks insured by the FDIC rose to
$90.1 billion, from $74.0 billion in
2001. The im provem ent in earnings
w as widespread; alm ost three out
of every four comm ercial banks 73.3 percent - reported increased
earnings in 2002. The industry's return
on assets (ROA), a basic yardstick
of earnings performance, also set
a new record. The average ROA of
1.33 percent surpassed the previous
record of 1.31 percent reached in
1999. Net interest income was
$21.9 billion (10.2 percent) higher
than a year earlier, as the industry's
net interest margin im proved to its
highest level in five years, and its

* Does not include 18 U.S. branches
of foreign banks.




portfolio of interest-earning assets
g re w by 8.5 percent. N oninterest
incom e w as up by $14.4 billion
(9.2 percent) from 2001. Falling
interest rates caused the values of
banks' fixed-rate securities portfolios
to appreciate in 2002, and sales of
securities during the year yielded
gains totaling $6.5 billion, an increase
of $2.0 billion (45.5 percent) compared
to banks' gains in 2001. Against
these positive developm ents, the
main factor lim iting the im provem ent
in bank earnings w as increased
expenses to cover loan losses.
Commercial banks charged o ff
$44.5 billion in loans during 2002,
an increase of $7.9 billion (21.7 per­
cent) from 2001. To cover these
and other expected losses, banks
set aside a total o f $48.1 billion in
loan-loss provisions, an increase of
$4.6 billion (10.6 percent) compared
to the previous year. M ost of the
increases in charge-offs and loan-loss
provisions occurred at large banks,
w hich have experienced rising losses
on loans to comm ercial and industrial
borrowers, and on credit-card loans.
In the latter part of the year, the
deteriorating trend in asset quality,
w hich has been underway fo r three
years, showed signs o f tapering off,
as noncurrent loans declined in the
fourth quarter fo r the firs t tim e since
1999.
Strong demand fo r residential m ort­
gage loans - both to finance home
purchases and to refinance existing
mortgages - helped lift earnings at
the nation's 1,467 insured savings
institutions. The industry earned
$15.2 billion in 2002, surpassing
the record level of the previous year
by $2.0 billion (14.8 percent). The
average ROA of 1.16 was the thirdhighest ever, and the best result
fo r the th rift industry in 56 years

(in 1945, the industry's ROA was a
record 1.27 percent; in 1946, it was
1.20 percent). It easily surpassed
the 1.07 percent ROA that thrifts
registered in 2001. As was the case
w ith comm ercial banks, earnings
im provem ents w ere widespread in
the th rift industry. A lm ost four out
of every five savings institutions 79.1 percent - reported higher net
income in 2002, compared to 2001.
Net interest income was up by
$3.3 billion (9.1 percent) from 2001,
as the average net interest margin
increased from 3.20 percent to
3.35 percent, its highest level since
1993. Gains on sales of securities
totaled $5.6 billion in 2002, an increase
of $1.4 billion (31.7 percent) from
the previous year. N oninterest
income fell fo r the firs t tim e in five
years, declining by $692 million
(5.9 percent). This drop was caused
prim arily by losses on servicing
incom e stem m ing from the large
w ave o f m ortgage refinancings
th a t occurred in 2002. Provisions
fo r loan losses w e re $437 m illion
(15.3 percent) higher than in 2001,
as net loan charge-offs rose by
$150 m illion (6.5 percent).




As part of the Corporation's continued co m m itm e n t to establish and maintain
effective and efficient internal controls, FDIC m anagem ent routinely conducts
ongoing evaluations of internal accounting and administrative control system s.
The results of these evaluations, as w ell as consideration of audits and reviews
conducted by the U.S. General Accounting O ffice (GAO), the O ffice of Inspector
General (OIG) and other outside entities, are used as a basis fo r the FDIC's
reporting on the condition of the Corporation's internal controls.
The FDIC's m anagem ent concludes that the system of internal accounting and
administrative controls at the FDIC, taken as a whole, com plies w ith internal
control standards prescribed by the GAO and provides reasonable assurance
that the related objectives are being met. This standard reflects the fact that all
internal control system s, no m atter how w ell designed, have inherent lim itations
and should not be relied upon to provide absolute assurance, and that control
system s may vary over tim e because of changes in conditions.
The Corporation's evaluation processes, the OIG audits and the GAO financial
statem ents audits have identified certain areas w here existing internal controls
should be improved. FDIC m anagem ent uses the chart below in the evaluation
process to determ ine the appropriate classification fo r these areas.

Effectiveness of Internal Controls

Risks

Controls
are
working
as intended

Controls are
not working
as intended,
but mitigating
controls exist

Controls are
not working as
intended and
minor/no mitigating
controls exist

High*

OK

High Vulnerability

Material Weakness

Medium*

OK

OK

High Vulnerability or
Matter for Continued
Monitoring

Low*

OK

OK

Warrants
Further Review

* High, Medium, and Low are measured on how potentially critical the area or operation is to achieving
the mission and objectives of the Corporation. Additionally, consideration is given to the risk to the
Corporation, absent the area or operation.

M aterial W eaknesses
For purposes of this report, FDIC
m anagem ent considers a w eakness
m aterial if it:
•

Violates statutory or regulatory
requirements;

•

Significantly weakens safeguards
against waste, loss, unauthorized
use or misappropriation of funds,
property or other assets;

•

Significantly impairs the mission
of the FDIC;

•

Fosters a conflict of interest;

•

Deprives the public of needed
services; or

•

M erits the attention of the
Chairman, the FDIC Board of
Directors or Congress.

To determine the existence of material
weaknesses, the FDIC has assessed
the results o f m anagem ent evalua­
tions and external audits o f the
Corporation's risk management and
internal control system s conducted in
2002, as well as management actions
taken to address issues identified in
these audits and evaluations. Based
on this assessm ent and application
o f th e above criteria, th e FDIC
concludes th a t no material
w eaknesses existed w ith in the
C orporation's operations fo r 2002
and 2001.

High V u ln e ra b ility Issues
For purposes of this report, FDIC
management has designated a high
vulnerability issue as a high-risk or
m edium-risk area w ith identified
deficiencies and ineffective internal
controls w ith m inor or no mitigating
controls. These areas w arrant special
attention of management, w ith the



need to strengthen controls. The
FDIC identified Information Systems
Security as a high vulnerability issue
for 2002 and 2001.
Highly sensitive inform ation is just
one critical corporate resource that
m ust be protected and managed
effectively so that the FDIC can fulfill
its mission. Information and analysis
on banking, financial services and
the econom y form the basis fo r the
developm ent of sound public policies
and promote public understanding and
confidence in the nation's financial
system . A strong enterprise-wide
inform ation security program is
essential to the successful accom­
plishm ent of the FDIC's goals.
The FDIC has made considerable
progress over the past tw o years
in establishing a strong, effective
inform ation security program. FDIC
m anagement recognizes that this
cannot be accomplished overnight but
w ill require a continual c o m m itm e n t
by management and the organization
over a period of several years.
In its report e n title d Independent
Evaluation o f the FDIC's Information
S ecurity Program - 2002, the OIG
concluded that "th e Corporation had
established and implemented manage­
m ent controls that provided limited
assurance of adequate security of
its inform ation resources." The OIG
reported that in three of ten manage­
m ent areas (Contractor and Outside
Agency Security, Capital Planning
and Investm ent Control, and
Performance M easurem ent), the
FDIC had no assurance that adequate
security had been achieved. The
FDIC is aggressively pursuing
m anagement actions in these areas.

As part of the audits of the FDIC's
2002 financial statem ents, GAO
identified w eaknesses in the FDIC's
inform ation system controls as a
reportable condition. The weaknesses,
although not considered material
by the GAO, represented a significant
deficiency in the design or opera­
tions of internal controls that could
adversely a ffect the FDIC's ability
to m eet its internal control objectives.
Although the GAO reported that the
FDIC made progress in addressing
previously identified weaknesses,
the GAO stated that the lack of a
fully developed and im plem ented
comprehensive corporate-wide
security management program was
the primary reason fo r the continued
weaknesses in this area. The weak­
nesses did not materially a ffect the
2002 financial statem ents.
In February 2002, the FDIC's Infor­
mation Security Strategic Plan was
approved to address these deficien­
cies. The plan provides for a sound
inform ation security structure and
assures the integrity, confidentiality
and availability of corporate inform a­
tion assets by proactively protecting
them from unauthorized access and
misuse.
During the latter part of 2002, the
FDIC undertook a self-assessm ent
of its information technology (IT) area
w ith primary focus on inform ation
security. This self-testing was neces­
sary to ensure that the FDIC was
prepared fo r the 2002 GAO financial
statem ents audit. During the selfassessment, the FDIC evaluated its
progress in addressing GAO findings
from earlier audits, and reviewed
additional key IT areas likely to be
examined by GAO during the 2002
audit. Upon com pletion of the
self-testing, the assessm ent team
and m anagem ent recognized that

continued and im m ediate effo rts
w ere needed to address prior audit
findings as w ell as new ly identified
high-risk areas. As a result of the
self-assessment, the FDIC information
security program w ill be considerably
strengthened through m ore rigorous
policies and procedures.

M atters fo r C on tin u e d
M o n ito rin g
For purposes of this report, matters
for continued monitoring are mediumrisk areas w ith ineffective internal
controls w ith m inor or no m itigating
controls in place, posing m edium
risk to the Corporation. These areas
w arrant continued m onitoring
o f corrective actions through
com pletion.
The Pre-Exit Clearance Process was
a m atter fo r continued monitoring
in the 2001 Chief Financial Officers
A ct (CFOA) Report. During 2002, an
internal control review of the PreExit Clearance Process revealed that
existing controls w ere adequate and
that access to the FDIC's system s
and facilities had not been compro­
mised by employees or contractors
leaving the Corporation. As a result,
th is area has been rem oved from
the continued monitoring list for
the 2002 Annual Report.
The C orporation's evaluation and
assessm ent process identified three
m atters that w arrant continued
m onitoring. These m atters w ere
also included in the 2001 CFOA
Report.

I OS



1 Contractor Oversight____________
In 2002, the FDIC continued to
emphasize strong internal controls
over contract oversight/project
management. A number of major
new system s and a significant
construction project are under
developm ent and pose risk to
the Corporation if not efficiently
and effectively managed. Thus,
it is imperative that the basic
contract oversight elem ents of
tim e, cost and project com pletion
be effectively monitored and
managed.
Major system s initiatives w ithin
the FDIC include the New Financial
Environm ent (NFE), the A ssess­
m ent Information M anagem ent
System II (AIMS II), the Corporate
Human Resources Information
System (CHRIS), FDICconnecf,
FDIC XP, and Virtual Supervisory
Information on the Net (ViSION).
The construction project involves
the building of Phase II of the
Seidman Center.
NFE w ill provide an integrated
financial system that focuses
on data-sharing, state-of-the-art
com puting technology, and the
ability to grow and change w ith
the Corporation's future financial
m anagem ent and inform ation
needs. The contract is a firm
fixed-price contract, and payment
is based on the approval of pre­
determ ined deliverables, not on
a percentage of tim e spent on the
project. The FDIC has appointed
a risk manager w ho is responsible
for conducting an independent
third-party review of NFE risks,
including m onitoring project cost

and tim e, and reporting to the
Chief Financial Officer and Division
o f Finance D irector on riskevaluation results.
AIM S II is the platform that w ill
provide the FDIC w ith a flexible,
robust tool to efficiently track
deposit insurance assessm ents
levied since the creation of the
BIF and the SAIF in 1989, as
w ell as any changes that pending
deposit insurance reform legisla­
tio n m ig h t require, including
possible credits or refund
calculations.
CHRIS is an integrated human
resources processing and infor­
mation system that w ill bring
together the functions and data
now residing in m ultiple stand­
alone system s; it is being im ple­
m ented increm entally through
four versions over a four-year
period.
F DICconnecf is a secure, elec­
tronic, Web-enabled environm ent
providing the FDIC w ith the capa­
bility to electronically exchange
inform ation w ith insured financial
institutions. In 2003, the FDIC
w ill make FDICconnecf available
to all institutions and develop
several additional electronic data
exchanges, including prem ium
assessments, delivery of Financial
Institution Letters, application
submission and tracking infor­
mation on deposit insurance.

FDIC XP is th e n e w corporate
com puter software package that
w ill provide a more stable and
secure environm ent in w hich
to work.
ViSION is an Internet-based data
system that provides the FDIC
and staff of the other federal
banking agencies and state
authorities access to supervisory
inform ation about financial
in stitutio ns.
Phase II Construction of the
Seidman Center is a project to
construct a tw o -to w e r office
building and multi-purpose facility
at the FDIC's existing Virginia
Square campus. The buildings w ill
accom m odate staff presently
housed at fo u r leased locations.
2 Risk Designation Levels/
Background Investigations
The FDIC adopted the risk desig­
nation system established by
the U.S. O ffice of Personnel
Management to provide corporate
officials w ith a system atic,
consistent and uniform w ay of
determining risk levels of positions.
The risk designation system
requires FDIC officials to desig­
nate risk levels fo r every position
in the FDIC in order to determ ine
the type of background investi­
gations required. In 2002, all
divisions and offices w ere
rem inded to ensure that position
risk designations are appropriately
revised w henever the risk o f a
position changes. Also, the FDIC
began developing a policy and
procedures regarding risk desig­
nation levels and background
investigations fo r contractors and
subcontractors.




3

Business Continuity Plan
The FDIC Business Continuity
Plan was developed to sustain
tim e-sensitive operations that
support mission-critical functions
in the event of a disruption. W hile
disruptions are unavoidable in
som e circumstances, continuity
planning helps minim ize negative
impacts and allows the FDIC to
continue meeting mission-critical
requirements. In developing this
plan, the FDIC considered mission
goals th a t are central to the
C orporation's operations and
determined key business functions
that support them.
The FDIC finalized plans fo r its
headquarters and all regional
offices. In 2002, a series o f tabletop exercises w ere conducted
to te s t the Corporation's ability
to respond to an emergency
and continue critical business
operations.

Internal C o n tro ls and Risk
M anagem ent Program
FDIC Circular 4010.3, "FDIC Internal
Control Programs and S ystem s,"
outlines steps necessary to remain
in compliance w ith provisions o f the
CFOA by establishing FDIC internal
control objectives, describing internal
control standards, and identifying

and monitoring risk m anagement
internal control programs and systems.
The process focuses on areas
o f high risk to provide reasonable
assurance th a t th e fo llo w in g
objectives are m et:
•

Programs are efficiently and
effectively carried out in accor­
dance w ith applicable laws and
management policies;

•

Assets are safeguarded against
waste, loss, unauthorized use
or misappropriation;

•

S ystem s are established to
alert management of potential
weaknesses;

•

Obligations and costs comply
w ith applicable laws; and

•

Revenues and expenditures appli­
cable to the FDIC's operations are
recorded and properly accounted
for, so that accounts and reliable
financial and statistical reports
may be prepared and account­
ability of assets may be maintained.

Division and office directors are
required to subm it a certification
statem ent addressed to the Chairman
asserting that their internal control
system s: (1) com ply w ith the FDIC
internal control standards and
(2) provide reasonable assurance
that the FDIC internal control objec­
tives are achieved. The certification
sta te m e n t also reports w h e th e r
m aterial weaknesses, high vulnera­
bility areas, or m atters fo r continued
m onitoring exist in the internal
control systems and, if so, provides
a description of the deficiency and
planned corrective action(s). These
certification statem ents are used
as support fo r the Corporation's
Statem ents on Internal Accounting
and A dm inistrative Controls.

109

A p p e n d ix A Key S ta tistics

S e le c te d S ta tis tic s
D o l l a r s

in

For the year ended December 31

m i l l i o n s

2002

V. Appendixes




2001 __________ 2000

Bank Insurance Fund
Financial Results
Revenue
Operating Expenses
Insurance Losses and Expenses
Net lncome/(Loss)
Comprehensive lncome/(Loss)
Insurance Fund Balance
Fund as a Percentage of Insured Deposits

$

$

Selected Statistics
Total BIF-Mem ber Institutions*
Problem Institutions
Total Assets o f Problem Institutions
$
Institution Failures
Total Assets of Current Year Failed Institutions
$
Number of Active Failed Institution Receiverships

$

1,796
821
<70)
1,045
1,611
32,050
1.25%

8,171
124
34,000
10
2,508
37

»
T

1,997
786
1,774
(563)
(536)
$ 30,439
1.26%

$

8,326
90
$ 32,000
3
$
54
36

8,572
74
$ 11,000
6
378
$
51

$

$

1,906
t7 3 |

(128)
1,261
1,56!
$ 30,975 1
1.35%

|

|

Savings Association Insurance Fund
Financial Results
Revenue
Operating Expenses
Insurance Losses and Expenses
N et Income
Comprehensive Income
Insurance Fund Balance
Fund as a Percentage of Insured Deposits
Selected Statistics
Total SAIF-M em ber Institutions
Problem Institutions
Total Assets of Problem Institutions
Institution Failures
Total Assets of Current Year Failed Institutions

Number of Active Failed Institution Receiverships

$

$

733
102
462
169
176
$ 10,935
1.36%

589
124
(156)
620
812
11,747
1.38"/

T

$
s

1,244
24
▼
8,000
1
50
3

$
$

1,287
24
8,000
1
2,180
3

T

As o f S eptem ber 3 0 ,2 0 0 2 .

•

Comm ercial banks and savings institutions. Does not include U.S. branches o f foreign banks.

■

Savings institutions and com m ercial banks.

664

189
364|
478
$ 10.759 |
1.43%

1,333
20
$ 13,000
1
30|
$
3

N u m b er and D epo sits o f BIF-lnsured Banks Closed Because o f Financial D iffic u ltie s , 1 9 3 4 th ro u g h 2 0 0 2 1
Dollars

in

Thousands
N u m b e r o f In sured B anks

D e p o s its o f In sured Banks

Year

Total

W ithout
Disbursements
by FDIC

W ith
Disbursements
by FDIC

Total

2,110

19

2,091

2002
2001
2000
1999
1998
1997

10
3
6
7
3
1

_
-

10
3
6
7
3
1

2,124,501
49,926
311,950
1,268,151
335,076
26,800

-

1996
1995
1994
1993
1992
1991
1990

5
6
13
41
120
124
168

1
10
-

5
6
12
41
110
124
168

168,228
632,700
1,236,488
3,132,177
41,150,898
53,751,763
14,473,300

1989
1988
1987
1986
1985
1984
1983

206
200
184
138
120
79
48

-

206
200
184
138
120
79
48

1982
,1981
1980
1979
1978
1977
1976

42
10
10
10
7
6
16

-

1975
1974
1973
1972
1971
1970
1969

13
4
6
1
6
7
9

1968
1967
1966
1965
1964
1963
1962

W ithout
Disbursements
by FDIC

Total
$

216,820,335

$

W ith
Disbursements
FDIC

4,298,814

$

Assets

212,521,521

$

257,321,694

2,124,501
49,926
311,950
1,268,151
335,076
26,800

2,507,565
54,470
378,088
1,423,819
370,400
25,921

4,257,667
-

168,228
632,700
1,236,488
3,132,177
36,893,231
53,751,763
14,473,300

182,502
753,024
1,392,140
3,539,373
44,197,009
63,119,870
15,660,800

24,090,551
24,931,302
6,281,500
6,471,100
8,059,441
2,883,162
5,441,608

-

24,090,551
24,931,302
6,281,500
6,471,100
8,059,441
2,883,162
5,441,608

29,168,596
35,697,789
6,850,700
6,991,600
8,741,268
3,276,411
7,026,923

-

42
10
10
10
7
6
16

9,908,379
3,826,022
216,300
110,696
854,154
205,208
864,859

-

9,908,379
3,826,022
216,300
110,696
854,154
205,208
864,859

11,632,415
4,859,060
236,164
132,988
994,035
232,612
1,039,293

_
-

13
4
6
1
6
7
9

339,574
1,575,832
971,296
20,480
132,058
54,806
40,134

-

339,574
1,575,832
971,296
20,480
132,058
54,806
40,134

419 ,950
3,822,596
1,309,675
22,054
196,520
62,147
43,572

3
4
7
5
7
2
1

1

3
4
7
5
7
2
0

22,524
10,878
103,523
43,861
23,438
23,444
3,011

3,011

22,524
10,878
103,523
43,861
23,438
23,444
0

25,154
11,993
120,647
58,750
25,849
26,179
N/A

1961
1960
1959
1958
1957
1956
1955

5
1
3
4
2
2
5

_
1
-

5
1
3
4
1
2
5

8,936
6,930
2,593
8,240
11,247
11,330
11,953

10,084
-

8,936
6,930
2,593
8,240
1,163
11,330
11,953

9,820
7,506
2,858
8,905
1,253
12,914
11,985

1954
1953
1952
1951
1950
1949
1948

2
4
3
2
4
5
3

2
-

2
2
3
2
4
4

998
44,711
3,170
3,408
5,513
6,665
10,674

26,449
1,190
-

998
18,262
3,170
3,408
5,513
5,475
10,674

1,138
18,811
2,388
3,050
4,005
4,886
10,360

1947
1946
1945
1944
1943
1942
1941

5
1
1
2
5
20
15

_
-

5
1
1
2
5
20
15

7,040
347
5,695
1,915
12,525
19,185
29,717

-

7,040
347
5,695
1,915
12,525
19,185
29,717

1940
1939
1938
1937
1936
1935
1934

43
60
74
77
69
26
9

2

43
60
74
75
69
25
9

142,430
157,772
59,684
33,677
27,508
13,405
1,968

328
85
-

142,430
157,772
59,684
33,349
27,508
13,320
1,968

-

~
1
-

-

-

-

1
-

3

I

}

1

6,798
351
6,392
2,098
14,058
22,254
34,804
161,898
181,514
69,513
40,370
31,941
17,242
2,661

1 Does not include institutions that received FDIC assistance and were not closed. Also does not include institutions insured by the Savings Association Insurance Fund (SAIF), which was
established by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.




Ill

Recoveries and Losses by the Bank Insurance Fund on Disbursements for the Protection of Depositors,
1 9 3 4 th ro u g h 2 0 0 2
Dollars

in

Thousands
D e p o s it P a y o ff C ases2

A ll C a ses1

Recoveries

Estimated
Additional
Recoveries

Estimated
Losses

16,144,064

11,018,429

308,556

4,817,079

5
0
0
0
0
0

1,586,551
0
0
0
0
0

789,550
0
0
0
0
0

308,501
0
0
0
0
0

488,500
0
0
0
0
0

38,650
84,459
179,046
646,071
3,675,219
6,136,134
2,786,334

0
0
0
5
25
21
20

0
0
0
261,203
1,890,869
1,468,407
2,182,583

0
0
0
159,268
1,398,731
1,000,733
1,648,969

0
0
0
0
0
0
0

0
0
0
101,935
492,138
467,674
533,614

3,428
0
55
0
0
0
0

6,198,801
6,916,094
2,022,766
1,775,717
1,007,235
1,640,154
1,407,038

32
36
51
40
29
16
9

2,116,556
1,252,160
2,103,792
1,155,981
523,789
791,838
148,423

1,262,140
822,612
1,400,945
739,659
411,175
699,483
122,484

0
0
55
0
0
0
0

854,416
429,548
702,792
416,322
112,614
92,355
25,939

1,106,579
107,221
121,675
74,372
512,927
20,654
561,532

0
0
0
0
0
0
0

1,168,571
781,778
30,680
16,117
35,641
5,996
37,865

7
2
3
3
1
0
3

277,240
35,736
13,732
9,936
817
0
11,416

206,247
34,598
11,427
9,003
613
0
9,660

0
0
0
0
0
0
0

70,993
1,138
2,305
933
204
0
1,756

292,431
2,259,633
368,852
14,501
171,430
51,294
41,910

0
0
0
0
0
0
0

39,615
143,644
66,386
1,688
216
272
162

3
0
3
1
5
4
4

25,918
0
16,771
16,189
53,767
29,265
7,596

25,849
0
16,771
14,501
53,574
28,993
7,513

0
0
0
0
0
0
0

69
0
0
1,688
193
272
83

6,476
8,097
10,020
11,479
13,712
19,172
0

6,464
7,087
9,541
10,816
12,171
18,886
0

0
0
0
0
0
0
0

12
1,010
479
663
1,541
286
0

0
4
1
3
7
2
0

0
8,097
735
10,908
13,712
19,172
0

0
7,087
735
10,391
12,171
18,886
0

0
0
0
0
0
0
0

0
1,010
0
517
1,541
286
0

5
1
3
4
1
2
5

6,201
4,765
1,835
3,051
1,031
3,499
7,315

4,700
4,765
1,738
3,023
1,031
3,286
7,085

0
0
0
0
0
0
0

1,501
0
97
28
0
213
230

5
1
3
3
1
1
4

6,201
4,765
1,835
2,796
1,031
2,795
4,438

4,700
4,765
1,738
2,768
1,031
2,582
4,208

0
0
0
0
0
0
0

1,501
0
97
28
0
213
230

1954
1953
1952
1951
1950
1949
1948

2
2
3
2
4
4
3

1,029
5,359
1,525
1,986
4,404
2,685
3,150

771
5,359
733
1,986
3,019
2,316
2,509

0
0
0
0
0
0
0

258
0
792
0
1,385
369
641

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

1947
1946
1945
1944
1943
1942
1941

5
1
1
2
5
20
15

2,038
274
1,845
1,532
7,230
11,684
25,061

1,979
274
1,845
1,492
7,107
10,996
24,470

0
0
0
0
0
0
0

59
0
0
40
123
688
591

0
0
0
1
4
6
8

0
0
0
404
5,500
1,612
12,278

0
0
0
364
5,377
1,320
12,065

0
0
0
0
0
0
0

0
0
0
40
123
292
213

1940
1939
1938
1937
1936
1935
1934

43
60
74
75
69
25
9

87,899
81,828
34,394
20,204
15,206
9,108
941

84,103
74,676
31,969
16,532
12,873
6,423
734

0
0
0
0
0
0
0

3,796
7,152
2,425
3,672
2,333
2,685
207

19
32
50
50
42
24
9

4,895
26,196
9,092
12,365
7,735
6,026
941

4,313
20,399
7,908
9,718
6,397
4,274
734

0
0
0
0
0
0
0

582
5,797
1,184
2,647
1,338
1,752
207

Year

Number
of
Banks

Recoveries

Estimated
Additional
Recoveries

Estimated
Losses

Number
of
Banks

Disbursements

Disbursements

Total

2,221

110,418,984

71,313,524

497,813

38,607,647

608

2002
2001
2000
1999
1998
1997

10
3
6
7
3
1

2,031,006
48,676
268,730
1,244,453
286,597
25,546

941,288
40,165
228,911
403,677
53,152
20,520

461,419
3,016
3,824
11,048
5,966
0

628,299
5,495
35,995
829,728
227,479
5,026

1996
1995
1994
1993
1992
1991
1990

5
6
13
41
122
127
169

169,386
609,045
1,224,769
1,797,302
14,172,884
21,412,652
10,816,602

130,736
524,528
1,045,691
1,150,918
10,495,954
15,271,553
8,028,290

0
58
32
313
1,711
4,965
1,978

1989
1988
1987
1986
1985
1984
1983

207
280
203
145
120
80
48

11,445,829
12,163,006
5,037,871
4,790,969
2,920,687
7,696,215
3,807,082

5,243,600
5,246,912
3,015,050
3,015,252
1,913,452
6,056,061
2,400,044

1982
1981
1980
1979
1978
1977
1976

42
10
11
10
7
6
17

2,275,150
888,999
152,355
90,489
548,568
26,650
599,397

1975
1974
1973
1972
1971
1970
1969

13
5
6
2
7
7
9

332,046
2,403,277 I
435,238
16,189
171,646
51,566
42,072

1968
1967
1966
1965
1964
1963
1962

3
4
7
5
7
2
0

1961
1960
1959
1958
1957
1956
1955

112



c o n tin u e d o n n e x t p a g e

Recoveries and Losses by th e Bank Insurance Fund on D isb u rsem ents fo r th e P ro te c tio n o f D epositors,
1 9 3 4 th ro u g h 2 0 0 2 (continued)
Dollars

in

Thousands
D e p o s it A s s u m p tio n Cases

Year

Number
of
Banks

Disbursements

Total

1,472

2002
2001
2000
1999
1998
1997

A s sis ta n c e T ra n s a c tio n s 1

Recoveries

Estimated
Additional
Recoveries

Estimated
Losses

Number
of
Banks

Disbursements

82,644,564

54,095,220

189,257

28,360.087

141

5
3
6
7
3
1

444,455
48,676
268,730
1,244,453
286,597
25,546

151,738
40,165
228,911
403,677
53,152
20,520

152,918
3,016
3,824
11,048
5,966
0

139,799
5,495
35,995
829,728
227,479
5,026

0
0
0
0
0
0

1996
1995
1994
1993
1992
1991
1990

5
6
13
36
95
103
148

169,386
609,045
1,224,769
1,536,099
12,280,529
19,938,128
8,629,084

130,736
524,528
1,045,691
991,650
9,095,987
14,267,727
6,376,724

0
58
32
313
1,711
4,965
1,978

38,650
84,459
179,046
544,136
3,182,831
5,665,436
2,250,382

1989
1988
1987
1986
1985
1984
1983

174
164
133
98
87
62
35

9,326,725
9,180,495
2,773,202
3,476,140
1,631,166
1,373,198
2,893,969

3,981,208
4,234,591
1,613,392
2,209,924
1,095,601
941,674
1,850,553

3,428
0
0
0
0
0
0

1982
1981
1980
1979
1978
1977
1976

25
5
7
7
6
6
13

268,372
79,208
138,623
80,553
547,751
26,650
587,981

213,578
71,358
110,248
65,369
512,314
20,654
551,872

1975
1974
1973
1972
1971
1970
1969

10
4
3
0
1
3
5

306,128
2,403,277
418,467
0
117,879
22,301
34,476

1968
1967
1966
1965
1964
1963
1962

3
o
6
2
o
o
0

1961
1960
1959
1958
1957
1956
1955

Recoveries

Estimated
Additional
Recoveries

Estimated
Losses

11,630,356

6,199,875

0

5,430,481

0
0
0
0
0
0

0
0
0
0
0
0

0
0
0
0
0
0

0
0
0
0
0
0

0
0
0
0
2
3
1

0
0
0
0
1,486
6,117
4,935

0
0
0
0
1,236
3,093
2,597

0
0
0
0
0
0
0

0
0
0
0
250
3,024
2,338

5,342,089
4,945,904
1,159,810
1,266,216
535,565
431,524
1,043,416

1
80
19
7
4
2
4

2,548
1,730,351
160,877
158,848
765,732
5,531,179
764,690

252
189,709
713
65,669
406,676
4,414,904
427,007

0
0
0
0
0
0
0

2,296
1,540,642
160,164
93,179
359,056
1,116,275
337,683

o
0
0
0
0
0
0

54,794
7,850
28,375
15,184
35,437
5,996
36,109

10
3
1
0
0
0
1

1,729,538
774,055
0
0
0
0
0

686,754
1,265
o
0
0
0
0

0
0
0
0
0
0
0

1,042,784
772,790
0
0
0
0
0

266,582
2,259,633
352,081
0
117,856
22,301
34,397

0
0
0
0
0
0
0

39,546
143,644
66,386
0
23
0
79

0
1
0
1
1
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

6,476
o
9,285
571
0
o
0

6,464
0
8,806
425
0
0
0

0
0
0
0
0
0
0

12
0
479
146
0
0
0

0
0
0
0
0
0
0

0
0
0
0
o
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
1
0
1
1

0
0
0
255
0
704
2,877

0
0
0
255
0
704
2,877

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

1954
1953
1952
1951
1950
1949
1948

2
2
3
2
4
4
3

1,029
5,359
1,525
1,986
4,404
2,685
3,150

771
5,359
733
1,986
3,019
2,316
2,509

0
0
0
0
0
0
0

258
0
792
0
1,385
369
641

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

1947
1946
1945
1944
1943
1942
1941

5
1
1
1
1
14
7

2,038
274
1,845
1,128
1,730
10,072
12,783

1,979
274
1,845
1,128
1,730
9,676
12,405

0
0
0
0
0
0
0

59
0
0
0
0
396
378

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

1940
1939
1938
1937
1936
1935
1934

24
28
24
25
27
1
0

83,004
55,632
25,302
7,839
7,471
3,082
0

79,790
54,277
24,061
6,814
6,476
2,149
0

0
0
0
0
0
0
0

3,214
1,355
1,241
1,025
995
933
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

1 Totals do not include dollar amounts for the five open bank assistance transactions between 1971 and 1980. Excludes eight transactions prior to 1962 that required no disbursements.
Also, disbursements, recoveries, and estimated additional recoveries do not include working capital advances to and repayments by receiverships.
2

Includes insured deposit transfer cases.
Note: Beginning w ith the 1997 Annual Report the number of banks in the Assistance Transactions column for 1988 was changed from 21 to 80 and the number of banks in the All Cases
column was changed from 221 to 280 to reflect that one assistance transaction encompassed 60 institutions. Also, certain 1982, 1983, 1989 and 1992 resolutions previously reported
in either the Deposit Payoff or Deposit Assumption categories w ere reclassified.




113

Income and Expenses, Bank Insurance Fund, from Beginning of Operations,
September 11, 1933, through December 31, 2002
Dollars

in

Millions
Expenses and Losses

In com e

Year

Total

Assessment
Income

Assessment
Credits

Investment
and Other
Sources

Total

$ 85,503.1

$ 53,344.6

$ 6,709.1

$ 38,867.6

$ 54,264.6

$37,121.0

$ 10,160.6

$ 6,989.0

$ 31,238.5

2002
2001
2000
1999
1998
1997

1,795.9
1,996.7
1,905.9
1,815.6
2,000.3
1,615.6

84.0
47.8
45.1
33.3
21.7
24.7

0.0
0.0
0.0
0.0
0.0
0.0

$ 1,711.9
1,948.9
1,860.8
1,782.3
1,978.6
1,590.9

0.0022%
0.0014%
0.0014%
0.0011 %
0.0008%
0.0008%

750.6
2,559.4
645.2
1,922.0
691.5
177.3

(87.0)
1,756.3
(153.0)
1,168.7
(37.7)
(503.7)

821.1
785.9
772.9
730.4
697.6
605.2

16.5
17.2
25.3
22.9
31.6
75.8

1,045.3
(562.7)
1,260.7
(106.4)
1,308.8
1,438.3

1996
1995
1994
1993
1992
1991
1990

1,655.3
4,089.1
6,467.0
6,430.8
6,301.5
5,790.0
3,838.3

72.7
2,906.9
5,590.6
5,784.3
5,587.8
5,160.5
2,855.3

0.0
0.0
0.0
0.0
0.0
0.0
0.0

1,582.6
1,182.2
876.4
646.5
713.7
629.5
983.0

0.0024%
0.1240%
0.2360%
0.2440%
0.2300%
0.2125%
0.1200%

254.6
483.2
(2,259.1)
(6,791.4)
(625.8)
16,862.3
13,003.3

(325.2)
(33.2)
(2,873.4)
(7,677.4)
(2,259.7)
15,476.2
12,133.1

505.3
470.6
423.2
388.53
570.8
284.1
219.6

74.5
45.8
191.1
497.5
1,063.1
1,102.0
650.6

1,400.7
3,605.9
8,726.1
13,222.2
6,927.3
(11,072.3)
(9,165.0)

1989
1988
1987
1986
1985
1984
1983

3,494.6
3,347.7
3,319.4
3,260.1
3,385.4
3,099.5
2,628.1

1,885.0
1,773.0
1,696.0
1,516.9
1,433.4
1,321.5
1,214.9

0.0
0.0
0.0
0.0
0.0
0.0
164.0

1,609.6
1,574.7
1,623.4
1,743.2
1,952.0
1,778.0
1,577.2

0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0800%
0.0714%

4,346.2
7,588.4
3,270.9
2,963.7
1,957.9
1,999.2
969.9

3,811.3
6,298.3
2,996.9
2,827.7
1,569.0
1,633.4
675.1

213.9
223.9
204.9
180.3
179.2
151.2
135.7

321.0
1,066.2
69.1
(44.3)
209.7
214.6
159.1

(851.6)
(4,240.7)
48.5
296.4
1,427.5
1,100.3
1,658.2

1982
1981
1980
1979
1978
1977
1976

2,524.6
2,074.7
1,310.4
1,090.4
952.1
837.8
764.9

1,108.9
1,039.0
951.9
881.0
810.1
731.3
676.1

96.2
117.1
521.1
524.6
443.1
411.9
379.6

1,511.9
1,152.8
879.6
734.0
585.1
518.4
468.4

0.0769%
0.0714%
0.0370%
0.0333%
0.0385%
0.0370%
0.0370%

999.8
848.1
83.6
93.7
148.9
113.6
212.3

126.4
320.4
(38.1)
(17.2)
36.5
20.8
28.0

743.5
400.5
3.5
4.1
9.1
3.5
3.9

1,524.8
1,226.6
1,226.8
996.7
803.2
724.2
552.6

1975
1974
1973
1972
1971
1970
1969

689.3
668.1
561.0
467.0
415.3
382.7
335.8

641.3
587.4
529.4
468.8
417.2
369.3
364.2

362.4
285.4
283.4
280.3
241.4
210.0
220.2

410.4
366.1
315.0
278.5
239.5
223.4
191.8

0.0357%
0.0435%
0.0385%
0.0333%
0.0345%
0.0357%
0.0333%

97.5
159.2
108.2
59.7
60.3
46.0
34.5

27.6
97.9
52.5
10.1
13.4
3.8
1.0

67.7
59.2
54.4
49.6
46.9
42.2
33.5

2.2
2.1
1.3
6.05
0.0
0.0
0.0

591.8
508.9
452.8
407.3
355.0
336.7
301.3

1968
1967
1966
1965
1964
1963
1962

295.0
263.0
241.0
214.6
197.1
181.9
161.1

334.5
303.1
284.3
260.5
238.2
220.6
203.4

202.1
182.4
172.6
158.3
145.2
136.4
126.9

162.6
142.3
129.3
112.4
104.1
97.7
84.6

0.0333%
0.0333%
0.0323%
0.0323%
0.0323%
0.0313%
0.0313%

29.1
27.3
19.9
22.9
18.4
15.1
13.8

0.1
2.9
0.1
5.2
2.9
0.7
0.1

29.0
24.4
19.8
17.7
15.5
14.4
13.7

0.0
0.0
0.0
0.0
0.0
0.0
0.0

265.9
235.7
221.1
191.7
178.7
166.8
147.3

114



Effective
Assessment
Rate1

Total

Provision
for
Losses

Administrative
and Operating
Expenses2

Interest and
Other Insur.
Expenses

Net Incom e/
(Loss)

129.9
127.2
118.2
106.8
103.3
89.34
180.4

c o n tin u e d o n n e x t p a g e

Income and Expenses, Bank Insurance Fund, from Beginning of Operations,
September 11, 1933, through December 31, 2 002 (co ntinue d)
Dollars

in

Millions
In c o m e

E xpenses and Losses

Year

Total

Assessment
Income

Assessment
Credits

Investment
and Other
Sources

Total

$ 85,503.1

$ 53,344.6

$ 6,709.1

$ 38,867.6

$ 54,264.6

$37,121.0

$ 10,160.6

$ 6,989.0

$ 31,238.5

1961
1960
1959
1958
1957
1956
1955

147.3
144.6
136.5
126.8
117.3
111.9
105.8

188.9
180.4
178.2
166.8
159.3
155.5
151.5

115.5
100.8
99.6
93.0
90.2
87.3
85.4

73.9
65.0
57.9
53.0
48.2
43.7
39.7

0.0323%
0.0370%
0.0370%
0.0370%
0.0357%
0.0370%
0.0370%

14.8
12.5
12.1
11.6
9.7
9.4
9.0

1.6
0.1
0.2
0.0
0.1
0.3
0.3

13.2
12.4
11.9
11.6
9.6
9.1
8.7

0.0
0.0
0.0
0.0
0.0
0.0
0.0

132.5
132.1
124.4
115.2
107.6
102.5
96.8

1954
1953
1952
1951
1950
1949
1948

99.7
94.2
88.6
83.5
84.8
151.1
145.6

144.2
138.7
131.0
124.3
122.9
122.7
119.3

81.8
78.5
73.7
70.0
68.7
0.0
0.0

37.3
34.0
31.3
29.2
30.6
28.4
26.3

0.0357%
0.0357%
0.0370%
0.0370%
0.0370%
0.0833%
0.0833%

7.8
7.3
7.8
6.6
7.8
6.4
7.0

0.1
0.1
0.8
0.0
1.4
0.3
0.7

7.7
7.2
7.0
6.6
6.4
6.1
6.3

0.0
0.0
0.0
0.0
0.0
0.0
0.0

91.9
86.9
80.8
76.9
77.0
144.7
138.6

1947
1946
1945
1944
1943
1942
1941

157.5
130.7
121.0
99.3
86.6
69.1
62.0

114.4
107.0
93.7
80.9
70.0
56.5
51.4

0.0
0.0
0.0
0.0
0.0
0.0
0.0

43.1
23.7
27.3
18.4
16.6
12.6
10.6

0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%

9.9
10.0
9.4
9.3
9.8
10.1
10.1

0.1
0.1
0.1
0.1
0.2
0.5
0.6

9.8
9.9
9.3
9.2
9.6
9.6
9.5

0.0
0.0
0.0
0.0
0.0
0.0
0.0

147.6
120.7
111.6
90.0
76.8
59.0
51.9

55.9
51.2
47.7
48.2
43.8
20.8
7.0

46.2
40.7
38.3
38.8
35.6
11.5
0.0

0.0
0.0
0.0
0.0
0.0
0.0
0.0

9.7
10.5
9.4
9.4
8.2
9.3
7.0

0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
0.0833%
N/A

12.9
16.4
11.3
12.2
10.9
11.3
10.0

3.5
7.2
2.5
3.7
2.6
2.8
0.2

9.4
9.2
8.8
8.5
8.3
8.5
9.8

0.0
0.0
0.0
0.0
0.0
0.0
0.0

43.0
34.8
36.4
36.0
32.9
9.5
(3.0)

1940
1939
1938
1937
1936
1935
1933/4

Effective
Assessment
Rate

5

Total

Provision
for
Losses

Administrative
and Operating
Expenses2

Interest and
Other Insur.
Expenses

Net Incom e/
(Loss)

1 The effective rates from 1950 through 1984 vary from the statutory rate of 0.0833 percent due to assessment credits provided in those years. The statutory rate increased to 0.12
percent in 1990 and to a m inimum of 0.15 percent in 1991. The effective rates in 1991 and 1992 vary because the FDIC exercised new authority to increase assessments above the
statutory rate when needed. Beginning in 1993, the effective rate is based on a risk-related premium system under which institutions pay assessments in the range of 0.23 percent
to 0.31 percent. In May 1995, the BIF reached the mandatory recapitalization level of 1.25%. As a result, the assessment rate was reduced to 4.4 cents per $100 of insured deposits
and assessment premiums totaling $1.5 billion were refunded in September 1995.
2 These expenses, which are presented as operating expenses in the Statements of Income and Fund Balance, pertain to the FDIC in its corporate capacity only and do not include costs
that are charged to the failed bank receiverships that are managed by the FDIC. The receivership expenses are presented as part of the "Receivables from Bank Resolutions, net" line
on the Statements of Financial Position. The narrative and graph presented in the ‘Corporate Planning and Budget" section o f this report (next page) show the aggregate (corporate and
receivership) expenditures of the FDIC.
3 Includes $210 million for the cumulative effect of an accounting change for certain postretirement benefits.
4 Includes $105.6 million net loss on governm ent securities.
5 This amount represents interest and other insurance expenses from 1933 to 1972.
6 Includes the aggregate amount of $80.6 million of interest paid on capital stock between 1933 and 1948.




ii a

Corporate Planning and Budget
Dollars

in

Millions

The FDIC's Strategic Plan and Annual
Performance Plan provide the basis
fo r annual planning and budgeting
fo r needed resources. The 2002
aggregate budget (for corporate,
receivership and capital spending)
w as $1.22 billion, w h ile actual
expenditures fo r th e year w e re
$1.19 billion, about $146 m illion
m ore than 2001 expenditures.
Over the past 10 years, the FDIC's
expenditures have increased and
decreased in response to workload.
During the past decade, expenditures
generally declined due to decreasing
resolution and receivership activity,

1 16




although they tem porarily increased
in 1996 in conjunction w ith the
absorption o f th e Resolution Trust
Corporation (RTC) and its residual
operations and w orkload. Total
expenditures increased in 2002 due
to an increase in receivership-related
expenses.
The largest com p o n e n t o f FDIC
spending is fo r the costs associated
w ith sta ffin g . The FDIC's s ta ff has
declined each year during the past
seven years. Staffing decreased by
12.0 percent in 2002, from 6,167
em ployees at the beginning of the
year to 5,430 at the end of the year.

E stim ated Insured Deposits and th e Bank Insurance Fund, D ecem b er 3 1 ,1 9 3 4 , th ro u g h S ep tem b e r 3 0 , 2 0 0 2 1

Insu ran ce Fund as a P e rc e n ta g e o f

D e p o s its in In su red Banks ($ millions)

Year2

Insurance
Coverage

Total
Domestic
Deposits

2002
2001
2000
1999
1998
1997

$ 100,000
100,000
100,000
100,000
100,000
100,000

$ 3,764,891
3,584,610
3,326,745
3,038,385
2,996,396
2,785,990

1996
1995
1994
1993
1992
1991
1990

100,000
100,000
100,000
100,000
100,000
100,000
100,000

1989
1988
1987
1986
1985
1984
1983

Estimated
Insured 3
Deposits

Percentage
of Insured
Deposits

Deposit
Insurance
Fund

Total
Domestic
Deposits

Estimated
Insured
Deposits

$ 2,508,918
2,408,878
2,301,604
2,157,536
2,141,268
2,055,874

66.6
67.2
69.2
71.0
71.5
73.8

$ 31,383.3
30,438.8
30,975.2
29,414.2
29,612.3
28,292.5

0.83
0.85
0.93
0.97
0.99
1.02

1.25
1.26
1.35
1.36
1.38
1.38

2,642,107
2,575,966
2,463,813
2,493,636
2,512,278
2,520,074
2,540,930

2,007,447
1,952,543
1,896,060
1,906,885
1,945,623
1,957,722
1,929,612

76.0
75.8
77.0
76.5
77.4
77.7
75.9

26,854.4
25,453.7
21,847.8
13,121.6
(100.6)
(7,027.9)
4,044.5

1.02
0.99
0.89
0.53
(0.00)
(0.28)
0.16

1.34
1.30
1.15
0.69
(0.01)
(0.36)
0.21

100,000
100,000
100,000
100,000
100,000
100,000
100,000

2,465,922
2,330,768
2,201,549
2,167,596
1,974,512
1,806,520
1,690,576

1,873,837
1,750,259
1,658,802
1,634,302
1,503,393
1,389,874
1,268,332

76.0
75.1
75.3
75.4
76.1
76.9
75.0

13,209.5
14,061.1
18,301.8
18,253.3
17,956.9
16,529.4
15,429.1

0.54
0.60
0.83
0.84
0.91
0.92
0.91

0.70
0.80
1.10
1.12
1.19
1.19
1.22

1982
1981
1980
1979
1978
1977
1976

100,000
100,000
100,000
40,000
40,000
40,000
40,000

1,544,697
1,409,322
1,324,463
1,226,943
1,145,835
1,050,435
941,923

1,134,221
988,898
948,717
808,555
760,706
692,533
628,263

73.4
70.2
71.6
65.9
66.4
65.9
66.7

13,770.9
12,246.1
11,019.5
9,792.7
8,796.0
7,992.8
7,268.8

0.89
0.87
0.83
0.80
0.77
0.76
0.77

1.21
1.24
1.16
1.21
1.16
1.15
1.16

1975
1974
1973
1972
1971
1970
1969

40,000
40,000
20,000
20,000
20,000
20,000
20,000

875,985
833,277
766,509
697,480
610,685
545,198
495,858

569,101
520,309
465,600
419,756
374,568
349,581
313,085

65.0
62.5
60.7
60.2
61.3
64.1
63.1

6,716.0
6,124.2
5,615.3
5,158.7
4,739.9
4,379.6
4,051.1

0.77
0.73
0.73
0.74
0.78
0.80
0.82

1.18
1.18
1.21
1.23
1.27
1.25
1.29

1968
1967
1966
1965
1964
1963
1962

15,000
15,000
15,000
10,000
10,000
10,000
10,000

491,513
448,709
401,096
377,400
348,981
313,304
297,548

296,701
261,149
234,150
209,690
191,787
177,381
170,210

60.2
58.2
58.4
55.6
55.0
56.6
57.2

3,749.2
3,485.5
3,252.0
3,036.3
2,844.7
2,667.9
2,502.0

0.76
0.78
0.81
0.80
0.82
0.85
0.84

1.26
1.33
1.39
1.45
1.48
1.50
1.47

1961
1960
1959
1958
1957
1956
1955

10,000
10,000
10,000
10,000
10,000
10,000
10,000

281,304
260,495
247,589
242,445
225,507
219,393
212,226

160,309
149,684
142,131
137,698
127,055
121,008
116,380

57.0
57.5
57.4
56.8
56.3
55.2
54.8

2,353.8
2,222.2
2,089.8
1,965.4
1,850.5
1,742.1
1,639.6

0.84
0.85
0.84
0.81
0.82
0.79
0.77

1.47
1.48
1.47
1.43
1.46
1.44
1.41

1954
1953
1952
1951
1950
1949
1948

10,000
10,000
10,000
10,000
10,000
5,000
5,000

203,195
193,466
188,142
178,540
167,818
156,786
153,454

110,973
105,610
101,841
96,713
91,359
76,589
75,320

54.6
54.6
54.1
54.2
54.4
48.8
49.1

1,542.7
1,450.7
1,363.5
1,282.2
1,243.9
1,203.9
1,065.9

0.76
0.75
0.72
0.72
0.74
0.77
0.69

1.39
1.37
1.34
1.33
1.36
1.57
1.42

1947
1946
1945
1944
1943
1942
1941

5,000
5,000
5,000
5,000
5,000
5,000
5,000

154,096
148,458
157,174
134,662
111,650
89,869
71,209

76,254
73,759
67,021
56,398
48,440
32,837
28,249

49.5
49.7
42.4
41.9
43.4
36.5
39.7

1,006.1
1,058.5
929.2
804.3
703.1
616.9
553.5

0.65
0.71
0.59
0.60
0.63
0.69
0.78

1.32
1.44
1.39
1.43
1.45
1.88
1.96

1940
1939
1938
1937
1936
1935
19344

5,000
5,000
5,000
5,000
5,000
5,000
5,000

65,288
57,485
50,791
48,228
50,281
45,125
40,060

26,638
24,650
23,121
22,557
22,330
20,158
18,075

40.8
42.9
45.5
46.8
44.4
44.7
45.1

496.0
452.7
420.5
383.1
343.4
306.0
291.7

0.76
0.79
0.83
0.79
0.68
0.68
0.73

1.86
1.84
1.82
1.70
1.54
1.52
1.61

For 2002, the numbers are as of September 30, and prior years reflect December 31.
Starting in 1990, deposits in insured banks exclude those deposits held by Bank Insurance Fund members that are insured by the Savings Association Insurance Fund and include those
deposits held by Savings Association Insurance Fund members that are insured by the Bank Insurance Fund.
Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits were estim ated using percentages
determined from the June 30 Call Reports.
Initial coverage was $2,500 from January 1 to June 30, 1934.




nr

Income and Expenses, Savings Association Insurance Fund, by Year,
from Beginning of Operations, August 9, 1989, through December 31, 2002
Dollars

in

Thousands
In co m e

Expenses and Losses

Total

Provision
for
Losses

Interest
and Other
Insurance
Expenses

Administrative
and
Operating
Expenses

Funding
Transfer
from
the FSLIC
Resolut. Fund

Net Income
(Loss)

$ 1,468,260

$ 551,239

$ 29,800

$ 887,221

$ 139,498

$ 11,465,717

Year

Total

Assessment
Income

Investment
and
Other
Sources

Total

$ 12,794,479

$ 8,627,989

$ 4,166,490

2002
2001
2000
1999

588,821
733,121
664,080
600,995

23,783
35,402
19,237
15,116

565,038
697,719
644,843
585,879

0.003%
0.004%
0.002%
0.002%

(31,380)
564,083
300,018
124,156

(156,494)
443,103
180,805
30,648

751
19,389
8,293
626

124,363
101,591
110,920
92,882

0
0
0
0

620,201
169,038
364,062
476,839

1998
1997
1996
1995
1994

583,859
549,912
5,501,684
1,139,916
1,215,289

15,352
13,914
5,221,560
970,027
1,132,102

568,507
535,998
280,124
169,889
83,187

0.002%
0.004%
0.204%
0.234%
0.244%

116,629
69,986
(28,890)
(281,216)
434,303

31,992
(1,879)
(91,636)
(321,000)
414,000

9
0
128
0
0

84,628
71,865
62,618
39,784
20,303

0
0
0
0
0

467,230
479,926
5,530,574
1,421,132
780,986

1993
1992
1991
1990
1989

923,516
178,643
96,446
18,195
2

897,692
172,079
93,530
18,195
0

25,824
6,564
2,916
0
2

0.250%
0.230%
0.230%
0.208%
0.208%

46,814
28,982
63,085
56,088
5,602

16,531
(14,945)
20,114
0
0

0
(5)
609
0
0

30,283
43,932
42,362
56,088
5,602

0
35,446
42,362
56,088
5,602

876,702
185,107
75,723
18,195

Effective
Assessment
Rate

2

F D IC -ln s u re d In s titu tio n s Closed D u rin g 2 0 0 2
Dollars

in

Thousands
---------------------------------------N u m b er of

N am e and

B ank

D e p o s it

L o c a tio n

C la s s

A c c o u n ts

N

29,540

T o ta l

T o ta l

F D IC

A s s e ts

D e p o s its

D is b u r s e m e n ts

$ 1,231,646

$ 1,081,788

$ 1,028,668

|

E s tim a te d
Loss1

D a te o f

R e c e iv e r /

C lo s in g o r

A s s u m in g B a n k

A c q u is it io n

a n d L o c a tio n

Bank Insurance Fund
In s u r e d D e p o s it P a y o u ts
H a m ilto n B a n k , N A

Is ra e l D is c o u n t B a n k o f N e w Y o rk

Miami, FL

$ 171,500

01.11.02

N e x tB a n k , N A

New York, NY
F e d e ra l D e p o s it

Phoenix, AZ

N

4,017

668,681

502,858

548,511

300,000-350,000

02.07.02

In s u r a n c e C o rp o ra tio n

SM

687

18,714

17,954

17,372

6,300

03.28.02

In s u r a n c e C o rp o ra tio n

SM

1,223

10,595

7,195

7,400

09.30.02

In s u r a n c e C o rp o ra tio n

NM

6,295

$

59,818 1

$

50,066

$

59,208

$

3,300

11.08.02

In s u r a n c e C o rp o ra tio n

2,587

$

35,424

$

32,954

$

29,659

$

10,600

12.17.02

1,277

$

10,536

$

10,720

$

10,718

$

4,337

01.18.02

N e w C e n tu ry B a n k

F e d e ra l D e p o s it

Shelby Township, Ml
A m T ra d e In ter. B a n k o f G e o rg ia

Atlanta, GA

F e d e ra l D e p o s it

9,620 |

B a n k of A la m o

F e d e ra l D e p o s it

Alamo, TN

P u rc h a s e a n d A s s u m p tio n - In s u re d D e p o s its
T h e F a rm e rs B a n k a n d Trust
o f C h e n e y v ille

S a b in e S ta te B a n k an d T ru s t Co.

NM

ChenewiHe, LA

Many, LA

In s u r e d D e p o s it T ra n s fe r - A s s e t P u rc h a s e

B a n k o f S ie r r a B la n c a

T h e S e c u rity S ta te B a n k of P e co s

NM

Sierra Blanca, TX
O a k w o o d D e p o s it B a n k C o m p an y

Oakwood, OH

Pecos, TX
T h e S ta te B a n k a n d T ru st C o m p an y

SM

7,336

61,607

118,862

116,221

61,862

02.01.02

N e t F irs t N a tio n a l B a n k

Defiance, OH
B a n k L eu m i U S A

Boca Raton, FL

N

1,457

32,861

28,830

28,693

0

03.01.02

C o n n e c tic u t B a n k of C o m m e rc e

NM

Stamford, CT

New York, NY
H u d so n U n ite d B a n k

18,381

$

378,658

$

269,874

$

259,165

$

63,000

06.26.02

5,370

$

50,246

$

50,542

$

37,021

$

1,497

06.27.02

Mahwah, NJ

Savings Association Insurance Fund
In s u re d D e p o s it T ra n s fe r - A s s e t P u rc h a s e
U n iv e rs a l F e d e ra l S a v in g s B a n k

Chicago, IL

Codes fo r
Bank Class:

C h ic a g o C o m m u n ity B a n k

SA

NNational bank

NM State-chartered bank that is not
a m ember of the Federal Reserve System

SM State-chartered bank that is a m ember
of the Federal Reserve System

Chicago, IL

SA Savings association

1 Estimated losses are as of December 31, 2002. Estimated losses are routinely adjusted w ith updated information from new appraisals and asset sales, which ultimately affect the asset
values and projected recoveries.

US



E stim ated Insured D epo sits and th e Savings A sso ciatio n Insurance Fund,
D e ce m b er 3 1 , 1 9 8 9 , th ro u g h S ep tem b e r 3 0 , 2 0 0 2 1
D e p o s its in Insured In s titu tio n s ($ Millions)
Total
Domestic
Deposits

Insurance
Coverage

Year2

Estimated
Insured
Deposits3

Percentage of
Insured
Deposits

In su ran ce Fund as a P e rc e n ta g e o f
Deposit
Insurance
Fund

Total
Domestic
Deposits

Estimated
Insured
Deposits

2002
2001
2000
1999

$ 100,000
100,000
100,000
100,000

$ 958,935
897,278
822,610
764,359

$ 837,591
801,849
752,756
711,345

87.3
89.4
91.5
93.1

$ 11,585.8
10,935.0
10,758.6
10,280.7

1.21
1.22
1.31
1.35

1.38
1.36
1.43
1.45

1998
1997
1996
1995
1994

100,000
100,000
100,000
100,000
100,000

751,413
721,503
708,749
742,547
720,823

708,959
690,132
683,090
711,017
692,626

94.4
95.7
96.4
95.8
96.1

9,839.8
9,368.3
8,888.4
3,357.8
1,936.7

1.31
1.30
1.25
0.45
0.27

1.39
1.36
1.30
0.47
0.28

1993
1992
1991
1990
1989

100,000
100,000
100,000
100,000
100,000

726,473
760,902
810,664
874,738
948,144

695,158
729,458
776,351
830,028
882,920

95.7
95.9
95.8
94.9
93.1

1,155.7
279.0
93.9
18.2
0.0

0.16
0.04
0.01
0.00
0.00

0.17
0.04
0.01
0.00
0.00

1 For 2002, the numbers are as of September 30, and prior years reflect December 31
2 Starting in 1990, deposits in insured institutions exclude those deposits held by Savings Association Insurance Fund members that are insured by the Bank Insurance Fund and include
those deposits held by Bank Insurance Fund members that are insured by the Savings Association Insurance Fund.
3 Estimated insured deposits reflect deposit information as reported in the fourth quarter FDIC Quarterly Banking Profile. Before 1991, insured deposits w ere estimated using percentages
determined from the June 30 Call Reports.

Num ber, Assets, D epo sits, Losses, and Loss to Funds o f Insured T h rifts Taken O ver
or Closed Because o f Financial D iffic u ltie s , 1 9 8 9 th ro u g h 2 0 0 2 1
Dollars

in

Thousands

Total

Assets

Deposits

Estimated
Receivership
Loss

Total

753

396,341,365

319,345,975

75,048,291

82,155,438

2002
2001
2000
1999

1
1
1
1

50,246
2,179,783
29,530
62,956

50,542
1,670,802
28,583
63,427

1,497
440,000
1,402
1,343

1,497
440,000
1,402
1,343

1998
1997
1996
1995
1994

0
0
1
2
2

0
0
32,576
423,819
136,815

0
0
32,745
414,692
127,508

0
0
21,222
28,192
11,472

0
0
21,222
27,750
14,599

10
59
144
213
318

6,147,962
44,196,946
78,898,704
129,662,398
134,519,630

4,881,461
34,773,224
65,173,122
98,963,960
113,165,909

279,494
3,102,343
8,436,998
16,034,438
46,689,890

144,196
3,676,057
9,082,403
19,230,580
49,514,389

Year2

1993
1992
1991
1990
19895

4
Loss to Funds

1 Prior to July 1, 1995, all th rift closings w ere the responsibility of the Resolution Trust Corporation (RTC). Since the RTC was term inated on December 31, 1995, and all assets and liabilities
transferred to the FSLIC Resolution Fund (FRF), all the results of the thrift closing activity from 1989 through 1995 are now reflected on FRF's books. The Savings Association Insurance
Fund (SAIF) became responsible for all thrifts closed after June 30, 1995; there have been only five such failures. Additionally, SAIF was appointed receiver o f one thrift (Heartland FSLA)
on October 8, 1993, because, at that time, RTC's authority to resolve FSLIC-insured thrifts had not yet been extended by the RTC Completion Act.
2 Year is the year of failure, not the year of resolution.
The estimated losses represent the projected loss at the fund level from receiverships fo r unreimbursed subrogated claims o f the FRF/SAIF and unpaid advances to receiverships from
the FRF.
4 The Loss to Funds represents the total resolution cost of the failed thrifts in the SAIF and FRF-RTC funds, which includes corporate revenue and expense items such as interest expense
on Federal Financing Bank debt, interest expense on escrowed funds, and interest revenue on advances to receiverships, in addition to the estim ated losses for receiverships.
5 Total for 1989 excludes nine failures of the form er FSLIC.




119




FDIC Applications 2 0 0 0 -2 0 0 2
2002
Deposit Insurance

Approved
New Branches

Approved
Denied
Mergers

Approved
Requests for Consent to Serve*

Approved
Section 19
Section 32
Denied
Section 19
Notices of Change in Control

Letters of Intent Not to Disapprove
Disapproved
Brokered Deposit Waivers

Approved
Denied
Savings Association Activities'

Approved
Denied
State Bank Activities/Investments7

H H k p ro v e d
Denied
<. Conversions of Mutual Institutions

Non-Objection
Objection

112
112
0
1,285
1,285
0
201
201
0
295
295
12
283
0
0
0
31
31
0
33
33
0
69
69
0
26
26
0
4
4
0

.....

2001

2000

133

205

133

205

0

0

1 ,0 1 0

1 ,2 8 6

1 ,0 1 0

1 ,2 8 6

0

0

:%

316

266

316

0

0

231

249

231

248

19

15

212

233

0

1

0

1

0

0

21

28

21

28

0

0

21

25

21

25

0

0

76

80

76

80

0

0

29

36

29

36

0

0

4

8

4

8

0

0

* Under Section 19 o f the Federal Deposit Insurance (FDD A ct, an insured institution must receive FDIC approval before
employing a person convicted of dishonesty or breach o f trust. Under Section 32, the FDIC m ust approve any change
of directors or senior executive officers a t a state nonm em ber bank th at is not in com pliance w ith capital requirements
or is otherw ise in troubled condition.
Am endm ents to Part 303 o f the FDIC Rules and Regulations changed FDIC oversight responsibility in October 1998.
T Section 2 4 o f the FDI Act, in general, precludes an insured state bank from engaging in an activity not perm issible for
a national bank and requires notices be filed w ith the FDIC.

C o m p l ia n c e , E n f o r c e m e n t and O the r R e la te d L eg al A c t io n s 2 0 0 0 -2 0 0 2
2002

2001

2000

162

144

87

0

0

1

0
7
7

0
4
6

0
6
5

Sec. 8b Cease-and-Desist Actions
Notices of Charges Issued
Consent Orders

444

3
33

4*
26

Sec. 8e Removal/Prohibition of Director or Officer
Notices of Intention to Remove/Prohibit
Consent Orders

4
15

4
11

3*
17

0

0

0

Civil Money Penalties Issued
Sec.7a Call Report Penalties
Sec.8 i Civil M oney Penalties

1
65

4
71

3
11

Sec. 10c Orders of Investigation

7

7

7

Sec. 19 Denials of Service After Criminal Conviction

0

0

1

Sec. 32 Notices Disapproving Officer/Directors Request for Review 0

0

0

1
0
189

0
0
127

Total Number of Actions Initiated by the FDIC
Termination of Insurance
Involuntary Termination
Sec. 8a For Violations, Unsafe/Unsound Practices or Condition
Voluntary Termination
Sec.8a By Order Upon Request
Sec.8p No Deposits
Sec.8q Deposits Assumed

Sec. 8g Suspension/Removal When Charged With Crime

Truth in Lending Act Reimbursement Actions
Denials of Requests for Relief
Grants of Relief
Banks Making Reim bursem ent A
Suspicious Activity Reports (O p e n

a n d c lo s e d in s t itu t io n s ) *

Other Actions Not Listed

0
0
106
42,123

2 8 ,7 5 0

2 0 ,7 2 0

8

0

3

• Two actions included Sec.8 (c) tem porary orders.
" One action included a Sec.8 (e) suspension order.
A These actions do not constitute the initiation of a form al enforcem ent action and, therefore, are not included in the total




num ber of actions initiated.

A p p e n d ix B M ore A b o u t the FDIC
FDIC Board of Directors
Donald E. Powell, Chairman (seated), John M. Reich, John D. Hawke, Jr., James E. Gilleran (standing, left to right)

Aajfia)) sauiep

Donald E. Powell
Don Powell w as sw orn in as the
18th Chairman of the FDIC in
A ugust 2001. During the past year
he has w orked to maintain the
FDIC's reputation o f excellence
w h ile positioning the organization
to m e e t th e needs o f a rapidly
evolving banking industry.
Prior to being named FDIC Chairman
by President George W. Bush,
Mr. Powell - a life-long Texan w as President and CEO of The First
National Bank of Amarillo, w here he
started his banking career in 1971.



In addition to his professional
experience as a banker, Mr. Powell
has served on num erous boards
at universities, civic associations,
hospitals and charities.
He has been Chairman of the Board
of Regents of the Texas A & M
University System, w hich has more
than 90,000 students. Mr. Powell
also serves as A dvisory Board
M em ber of the George Bush School
of Governm ent and Public Service
and as form er Chairman of the
Amarillo Chamber o f Commerce.

Mr. Powell has also served on the
Board o f many other nonprofit,
public and com m unity organizations,
including the United Way, the
Harrington Regional Medical Center,
the City of Amarillo Housing Board,
and a num ber of other educational
institutions.
He received his B.S. in economics
from W est Texas State University and
is a graduate of The S outhw estern
Graduate School o f Banking at
S outhern M e th o d is t University.

John M. Reich
Mr. Reich became Vice Chairman
o f the FDIC Board o f D irectors
on N ovem ber 15, 2002, and has
served as a Board m em ber since
January 16, 2001. Following
Chairman Donna Tanoue's resignation
in July 2001 and until Mr. Powell
took office in August 2001, Mr. Reich
was Acting Chairman of the FDIC.
Mr. Reich enjoyed a 23-year career
as a com m unity banker in Illinois
and Florida, th e last 10 years of
w hich w ere as President and CEO
of the National Bank o f Sarasota,
Sarasota, FL.
Before joining the FDIC, Mr. Reich
served fo r 12 years on the staff of
U.S. Senator Connie Mack (R-FL).
From 1998 through 2000, he was
Senator Mack's Chief o f Staff,
directing and overseeing all of the
Senator's offices and com m ittee
activities, including the Senate
Banking Com m ittee.
Mr. Reich's substantial com m unity
service includes serving as Chairman
of the Board of Trustees of a public
hospital facility in Ft. Myers, FL, and
Chairman of the Board o f Directors
of the Sarasota Family YMCA. He
has also served as a Board m em ber
fo r a number of civic organizations,
and was active fo r many years in
youth baseball programs.
Mr. Reich holds a B.S. degree from
Southern Illinois University and
an M.B.A. from the University of
South Florida. He is also a graduate
of Louisiana State University's
School of Banking of the South.




John D. Hawke, Jr.
Mr. Hawke was sworn in as the
28th Com ptroller of the Currency on
December 8, 1998. A fte r serving 10
m onths under a recess appointment,
he was sworn in for a full five-year term
on October 13, 1999. As Comptroller,
Mr. Hawke serves as an FDIC Board
mem ber.
Prior to his a p p o in tm e n t as
C om ptroller, Mr. H awke served
fo r th re e and a half years as Under
Secretary of the Treasury for Domestic
Finance. Before joining Treasury,
Mr. Hawke was a senior partner at the
Washington, DC, law firm of Arnold
& Porter, where he began as an asso­
ciate in 1962. W hile there, he headed
the financial institutions practice, and
from 1987 to 1995, served as the
firm 's Chairman. In 1975, he left the
firm to serve as General Counsel to
the Board of Governors of the Federal
Reserve System, returning in 1978.
Mr. Hawke graduated fro m Yale
U niversity in 1954 w ith a B.A. in
English. From 1955 to 1957, he served
on active duty w ith the U.S. Air Force.
After graduating in 1960 from Columbia
University School of Law, where he
was Editor-in-Chief of the Columbia
Law Review, Mr. Hawke was a law
clerk for Judge E. Barrett Prettyman
on the U.S. Court of Appeals for
the District of Columbia Circuit. From
1961 to 1962, he served as counsel to
the Select Subcommittee on Education
in the House of Representatives.
From 1970 to 1987, Mr. Hawke taught
courses on federal regulation of bank­
ing at Georgetown University Law
Center. He has also taught courses
on bank acquisitions and financial
regulation, and served as the Chairman
of the Board of Advisors of the
Morin Center for Banking Law Studies
in Boston. Mr. Hawke has w ritten
extensively on matters relating to the
regulation of financial institutions.

James E. Gilleran
Mr. Gilleran became Director of the
O ffice of T h rift Supervision (OTS)
on D ecem ber 7, 2001. As OTS
Director, Mr. Gilleran is also an
FDIC Board member.
Mr. Gilleran was Chairman and CEO
of the Bank of San Francisco from
October 1994 until December 2000.
From 1989 to 1994, he w as the
California State Banking Super­
intendent. He served as Chairman
o f the Conference of State Bank
Supervisors (CSBS) from 1993 to
1994, and was a m em ber of the
CSBS's Bankers Advisory Council
until 2000.
Prior to his service as the California
Banking Superintendent, Mr. Gilleran
w a s m anaging partner o f th e
Northern California practice of the
public accounting firm KPMG Peat
Marwick. Before serving as managing
partner, he was in charge of KPMG's
banking practice in the w e ste rn
region o f the U.S. He w as w ith
KPMG fro m 1958 through 1987.
Mr. Gilleran has also been involved
in a num ber of educational, civic and
charitable organizations, including
serving as Chairman o f the American
Red Cross o f the (San Francisco)
Bay Area.
Mr. Gilleran is a certified public
accountant and a m em ber of the
American Institute of CPAs. He
graduated from Pace University in
1955, and received his law degree
from N orthw estern California
University in 1996.

/

FDIC Organization Chart/Officials
as o f Decem ber 31, 2002

124




Corporate Staffing
Staffing Trends 1993-2002

24,000
21,0
18,000
15,000

12,000
9,000

6,000
3,0

RTC

1993

94

95

6,775

5,899

2,043

96

97

98

99

2000

01

02

FDIC

14,219

11,627

9,813

9,151

7,793

7,359

7,266

6,452

6,167

5,430

Total Staffing

20,994

17,526

11,856

9,151

7,793

7,359

7,266

6,452

6,167

5,430

N o te :
All staffing totals reflect year-end balances.
The Resolution Trust Corporation (RTC) was fully staffed w ith FDIC employees and, until February 1992, the RTC was managed by the FDIC Board
of Directors. Upon the RTC's sunset at year-end 1995, all of its remaining workload and employees were transferred to the FDIC.




125

Number of Officials and Employees of the FDIC 2 0 0 1 -2 0 0 2 ( y e a r - e n d )

Total

Washington

Executive O ffices'

^Division of Supervision
Division of Compliance and Consumer A ffairs

[(Division of Supervision and Consumer Protection
Division of Resolutions and Receiverships *
jp-egal Division "
Division of Finance

2001

2002

89

44

89

1

0

2 ,5 3 2

0

198

0

2 ,3 3 4 * |
506

Division of Research and Statistics

[D ivision of Insurance
Division of Insurance and Research *

(Division of Administration
Office of Inspector General

(O ffice of Diversity and Economic Opportunity
Office of the Ombudsman

Office of Internal Control Management

0

570

0

64

0

0

176

0

2,635

522

454

111

124

411

330

524

622

317

375
284

207
0

247

229

349
0
0

396

63

101

475

0 ]

7 9 ]

187

0

157

0

475
158
34
16
17

584

321

397

234

114

■42

44

62

36

34

31

23

13

i:

10

17

18

0
3
0

1,882

2,275

3,548

3,892

0

75

18

43

0
3 2 |
0
1 8 7 j

5 s

0 |

[
5,430

6,167

* Includes the Offices of the Chairman, Vice Chairman, Director (Appointive!, Chief Operating Officer, Chief Financial Officer, Chief Inform ation Officer, Legislative A ffairs, and
Public Affairs.
T On June 3 0 ,2 0 0 2 , the Division of Supervision and the Division o f Com pliance and Consumer A ffairs w e re m erged into the n e w Division o f Supervision and Consumer Protection.
* On June 30, 2002 , th e Dallas field operations o f the Division of Finance and th e Division o f Inform ation Resources M an a g em en t w e re m erged into the Division of Resolutions
and Receiverships.
■ On June 30, 2002 , the O ffice o f the Executive Secretary, form erly included in the Executive Offices' count, w a s m erged into the Legal Division.
* On June 30, 2002 , th e Division o f Insurance and the Division of Research and Statistics w e re m erged into the new Division of Insurance and Research.

Digitized12
for6FRASER


g

100

0
0
30
154

i

........
Total

2001

0

412
m

2002

2,811

229

[D ivision of Information Resources Management

Regional/Field

45

2002

Sources of Inform ation

Hom e Page on the Internet

FDIC Call Center

■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■■M M

w w w .fdic.gov
A w ide range of banking, consum er
and financial inform ation is available
on the FDIC's Internet home page.
This includes the FDIC’s Electronic
Deposit Insurance Estimator, "EDIE,"
w hich estim ates an individual's
deposit insurance coverage; the
In stitu tio n Directory, financial
profiles o f FDIC-insured in stitu tio n s;
C om m unity R einvestm ent A ct
evaluations and ratings fo r institu­
tions and thrifts supervised by the
FDIC; Call Reports, banks' reports of
condition and income; and "M oney
Sm art," a training program to help
adults outside the financial main­
stream enhance their money skills
and create positive banking relation­
ships. Readers also can access
a variety o f consum er pamphlets,
FDIC press releases, speeches
and other updates on the agency's
activities, as w ell as corporate data­
bases and customized reports of FDIC
and banking industry information.




Phone: 877-275-3342 (ASK FDIC)
202-736-0000
TDD:

800-925-4618

The FDIC Call Center in Washington, DC,
is the primary telephone point of con­
tact for general questions from the
banking community, the public and
FDIC employees. The Call Center
directly, or in concert w ith other FDIC
subject matter experts, responds
to questions about deposit insurance
and other consumer issues and
concerns, as well as questions about
FDIC programs and activities. The Call
Center also makes referrals to other
federal and state agencies as needed.
Hours of operation are 8:00 a.m. to
8:00 p.m. Eastern Time. Information
is also available in Spanish. Recorded
information about deposit insurance
and other topics is available 24 hours
a day at the same telephone number.

Office of the Om budsman
550 17th S treet, N W
W ashington, DC 20429
Phone: 877-275-3342 (ASK FDIC)
Fax:

202-942-3040, or
202-942-3041

E-mail: ombudsman@ fdic.gov
The O ffice o f the O m budsm an
responds to inquiries about the
FDIC in a fair, impartial and tim ely
manner. It researches questions
and com plaints from bankers and the
public. The office also recom mends
w ays to improve FDIC operations,
regulations and custom er service.

Public Inform ation Center
801 17th S treet, NW
W ashington, DC 20434
Phone: 877-275-3342 (ASK FDIC)
202-416-6940
Fax:

202-416-2076

E-mail: publicinfo@fdic.gov
FDIC publications, press releases,
speeches and C ongressional
te stim o n y, directives to financial
institutions, policy manuals and other
docum ents are available on request
or by subscription through the
Public Information Center. These
docum ents include the Quarterly
Banking Profile, Statistics on Banking,
S um m ary o f Deposits and a variety
o f consum er pamphlets.

/

Regional and Area Offices

A tla n ta R eqional O ffic e

C hicago R egional O ffic e

D allas R egional O ffic e

10 Tenth Street, NE
Suite 800
Atlanta, Georgia 30309
(678) 916-2200

500 W est Monroe Street
Suite 3500
Chicago, Illinois 60661
(312) 382-7500

1910 Pacific Avenue
Suite 1900
Dallas, Texas 75201
(2 1 4 )7 5 4 -0 0 9 8

Alabam a
Florida
Georgia
N orth Carolina
South Carolina

Illinois
Indiana
Kentucky
M ichigan
Ohio

Virginia
W e s t Virginia

W isconsin

Kansas C itv R egional O ffice

N e w Y ork R egional O ffic e

2345 Grand Boulevard
Suite 1200
Kansas City, Missouri 64108
(816) 234-8000

20 Exchange Place
N ew York, N ew York 10005
(917) 320-2500

Iowa
Kansas
M innesota
M issouri
Nebraska

D elaw are
D istrict of Columbia
M aryland
N ew Jersey
N ew York
Pennsylvania




N orth Dakota
South Dakota

Colorado
N ew M exico
Oklahoma
Texas

M e m p h is Area Office
5100 Poplar Avenue
Suite 1900
Mem phis, Tennessee 38137
(901) 685-1603
Arkansas
Louisiana
M ississippi
Tennessee

Puerto Rico
Virgin Islands

Boston Area Office
15 Braintree Hill O ffice Park
Braintree, Massachusetts 02184
(781) 794-5500
Director: Daniel E. Frye
Connecticut
M aine
M assachusetts
N ew Ham pshire
Rhode Island
Verm ont

San Francisco R egional O ffic e
25 Ecker Street
Suite 2300
San Francisco, California 94105
(415) 546-0160

Alaska
Arizona
C alifornia
Guam
H aw aii
Idaho

M ontana
Nevada
Oregon
Utah
W ashington
W yom ing

A p p e n d ix C - O ffice o f Inspector G eneral's M a n a g e m e n t and Perform ance Challenges Facing
th e F D IC

The follow ing chart show s the FDIC's m ost significant management and performance challenges as identified by the
O ffice o f Inspector General (OIG):

Challenge

Brief Description

1

Adequacy of Corporate Governance
in Insured Depository Institutions

A number of well-publicized announcem ents of business failures, including
financial institution failures, have raised questions about the credibility
o f accounting practices and oversight in the United States. These recent
events have increased public concern regarding the adequacy of corporate
governance and, in part, prom pted passage o f the Sarbanes-Oxley A ct of
of 2002. The public's confidence in the nation's financial system can be
shaken by deficiencies in the adequacy o f corporate governance in insured
depository institutions.

2

Protection of Consumer Interests

The FDIC is legislatively mandated to enforce various statutes and regulations
regarding consumer protection and civil rights w ith respect to state-chartered,
nonm em ber banks and to encourage com m unity investm ent initiatives
by these institutions.

3

Security of Critical Infrastructure

To effectively protect critical infrastructure, the FDIC's challenge in this
area is to im plem ent measures to m itigate risks, plan fo r and manage
emergencies through effective contingency and continuity planning,
coordinate protective measures w ith other agencies, determ ine resource
and organization requirements, and engage in education and awareness
activities.

4

M anagem ent and Analysis of Risks
to the Insurance Funds

A primary goal of the FDIC under its insurance program is to ensure that its
deposit insurance funds do not require resuscitation by the U.S. Treasury.
Achieving this goal is a considerable challenge, given that the FDIC supervises
only a portion of the insured depository institutions.

5

Effectiveness of Resolution
and Receivership Activities

One of the FDIC's m ost im portant corporate responsibilities is planning
and efficiently handling the franchise marketing of failing FDIC-insured
institutions and providing prom pt, responsive and efficient resolution
of failed financial institutions. These activities maintain confidence and
stability in our financial system .

6

M anagem ent and Security
of Inform ation Technology (IT)
Resources

As corporate employees carry out the FDIC's principal business lines of
insuring deposits, examining and supervising financial institutions, and
managing receiverships, they rely on inform ation and corresponding
technology as an essential resource. Information and analysis on banking,
financial services and the econom y form the basis fo r the developm ent
of public policies and prom ote public understanding and confidence in the
nation's financial system . IT is a critical resource that m ust be safeguarded.




129

A p p e n d ix C - O ffice of Inspector G eneral's M a n a g e m e n t and Perform ance Challenges Facing
th e F D IC (co n tin u e d )

Challenge

Brief Description

7

Assessment of Corporate
Performance

The Corporation has made significant progress in im plem enting the Results
A ct and needs to continue to address the challenges of developing more
outcom e-oriented performance measures, linking performance goals and
budgetary resources, im plem enting processes to verify and validate reported
performance data, and addressing crosscutting issues and programs that
affect other federal financial institution regulatory agencies.

8

Transition to a N e w Financial
Environm ent

Although the N ew Financial Environment (NFE) offers the FDIC significant
benefits, it also presents significant challenges. These challenges w ill te st
the Corporation's ability to (1) maintain unqualified opinions on the FDIC's
annual financial statem ents through the system im plem entation and associ­
ated business process reengineering; (2) manage contractor resources,
schedules and costs; and (3) coordinate w ith planned and ongoing system
developm ent projects related to NFE.

9

Organizational Leadership and
M anagem ent of Human Capital

The Corporation m ust also w ork to fill key vacancies in a tim ely manner,
engage in careful succession planning, and continue to conserve and replenish
the institutional knowledge and expertise that has guided the organization
over the past years. A significant elem ent relates to organizational leadership
at the FDIC Board of Directors level. In order to ensure that the balance
betw een various interests im plicit in the Board's structure is preserved, the
Board should operate at full strength, w ith all five presidential^ appointed
positions filled.

10

Cost C ontainm ent and
Procurement Integrity

The Corporation m ust continue to identify and implem ent measures to contain
and reduce costs, either through m ore careful spending or assessing
and making changes in business processes to increase efficiency. Also,
the Corporation has taken a number of steps to strengthen internal controls
and oversight of contractors. However, our w o rk in this area continues to
show that further improvements are necessary to ensure effective acquisition
planning, fair and reasonable prices, and delivery of best value goods and
services.

130



In d e x

H

A
App, Steven 0 .
Applications, 2000-2002

8-9, 104
120

123
107-108

1

B
Bank Insurance Fund (BIF):
Financial Statements and Notes
Fund Performance Highlights
Risk-Related Premiums
(Also see Statistical Tables)

Hawke, John D., Jr.
High Vulnerability Issues

41-59
19-20
21

Insurance:
Program Results

10-13, 23
26-28

M
107

Material Weaknesses
Matters for Continued Monitoring

108-109

C
Capital Investment Review Committee
Commercial Banks (Financial Performance)
Corporate Budgeting:
FDIC Expenditures 1993-2002

21
105
21, 24
116

D
Deposit Insurance Reform

10-11

E
Efficient Operations
Enforcement Actions 2000-2002
Examinations 2000-2002

17-19
121
14

F
Failed Institutions:
FDIC-lnsured Institutions Closed During 2002
Liquidation Highlights
Federal Deposit Insurance Corporation (FDIC):
Board of Directors
Corporate Planning and Budget
Organization Chart/Officials
Regional and Area Offices
Sources of Information
Staffing
FSLIC Resolution Fund (FRF):
Financial Statements and Notes

20
118
13
122-123
116
124
128
127
125-126
81-97

G
General Accounting Office:
Audit Opinion
FDIC Management Response
Gilleran, James E.




98-103
104
123

P
Performance Results
Powell, Donald E.
Program Evaluation

22-37
4-7, 122
38

R
Receivership Management:
Program Results
Reich, John M.

16-17, 23
29
123

S
Savings Association Insurance Fund (SAIF):
61-79
Financial Statements and Notes
Fund Performance Highlights
19-20
21
Risk-Related Premiums
(Also see Statistical Tables)
105
Savings Associations (Financial Performance)
Statistical Tables:
110
Selected Statistics
Number and Deposits of BIF-insured Banks
111
Closed, 1934-2002
Recoveries and Losses by the BIF on Disbursements
for the Protection of Depositors, 1934-2002
112-113
Income and Expenses, BIF, from Beginning
of Operations
114-115
117
Estimated Insured Deposits and the BIF, 1934-2002
Income and Expenses, SAIF, by Year
118
FDIC-lnsured Institutions Closed During 2002
118
Estimated Insured Deposits and the SAIF, 1989-2002
119
Number, Assets, Deposits, Losses, and Loss to Funds
of Insured Thrifts Taken Over or Closed, 1989-2002
Supervision:
Program Results

119
13-16, 23
25-26

131







This Annual Report was produced by talented
and dedicated staff. To these individuals, w e w ould
like to o ffe r our sincere thanks and appreciation.
Special recognition is given to the follow ing individuals
fo r their contributions:
Marjorie C. Bradshaw
Sam Collicchio
Paul Covas
Alan Deaton
Jannie F. Eaddy
Vicki Faust
Barbara Glasby
Addie Hargrove
Patricia Hughes
Mia Jordan
Michael H. M acD erm ott
Michael J. Powers
Jay Rosenstein
Joan Spirtas

Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429 - 9990

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