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In its unique role as deposit insurer of banks
and savings associations, and in cooperation
with the other state and federal regulatory
agencies, the Federal Deposit Insurance
Corporation (FDIC) promotes the safety and
soundness of the U.S. financial system and the
insured depository institutions by identifying,
monitoring and addressing risks to the deposit
insurance funds.
The FDIC promotes public understanding
and the development of sound public policy
by providing timely and accurate financial
and economic information and analyses. It
minimizes disruptive effects from the failure
of banks and savings associations. It assures
fairness in the sale of financial products and
the provision of financial services.
The FDIC’s long and continuing tradition
of excellence in public service is supported
and sustained by a highly skilled and diverse
workforce that continuously monitors and
responds rapidly and successfully to changes
in the financial environment.

The Federal Deposit Insurance Corporation
(FDIC) is an independent agency created by
the Congress that maintains the stability
and public confidence in the nation's financial
system by insuring deposits, examining
and supervising financial institutions, and
managing receiverships.

Values
The FDIC is a leader in developing and
implementing sound public policies, identifying
and addressing new and existing risks in
the nation's financial system, and effectively
carrying out its insurance, supervisory, and
receivership management responsibilities.




The FDIC and its employees have a long and continuing tradition of distinguished public service.
Six core values guide FDIC employees as they strive to fulfill the Corporation's mission and vision:

• Integrity

•

FDIC employees adhere to the highest ethical
standards in the performance of their duties
and responsibilities.

• Competence

• Financial Stewardship

The FDIC maintains a highly skilled, dedicated
and diverse workforce.

The FDIC acts as a responsible fiduciary,
consistently operating in an efficient and
cost-effective manner on behalf of insured
financial institutions and other stakeholders.

• Teamwork
FDIC employees work cooperatively with
one another and with employees in other
regulatory agencies to accomplish the
Corporation's mission.

Effectiveness
The FDIC responds quickly and successfully to
identified risks in insured financial institutions
and in the broader financial system.

•

Fairness
The FDIC treats all employees, insured
financial institutions, and other stakeholders
with impartiality and mutual respect.




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

Office of the Chairman

February 14, 2005

Sirs,

In accordance with:
• the provisions of section 17(a) of the Federal Deposit Insurance Act,
• the Chief Financial Officers Act of 1990, Public Law 101-576, and
• the Government Performance and Results Act of 1993,
the Federal Deposit Insurance Corporation is pleased to submit its
2004 Annual Report.

Sincerely,

Donald E. Powell
Chairman

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




Message from the Chairman
Message from the Chief Financial O fficer

I.

M anagement’ Discussion and Analysis
s
The Year in Review
Insurance
Supervision and Consumer Protection
Receivership Management
Effective M anagem ent of Strategic Resources

II. Financial Highlights
Deposit Insurance Fund Performance
Operating Expenses
Investm ent Spending

III. Performance Results Summary
Summary of 2004 Performance Results by Program
2004 Budget and Expenditures by Program
Performance Results by Program and Strategic Goal
Multi-Year Performance Trend
Program Evaluation

IV. Financial Statements and Notes
Bank Insurance Fund (BIF)
Savings Association Insurance Fund (SAIF)
FSLIC Resolution Fund (FRF)
GAO's A udit Opinion
Management's Response
O verview of the Industry

V.

Management Controls
Material Weaknesses
High Vulnerability Issues
M atters fo r Continued M onitoring
Internal Controls and Risk M anagem ent Program

VI. Appendixes

4
6

8
8
8
12
19
20

24
24
24
25

28
28
30
31
36
41

42
42
60
80
94
99
100

102
102
103
103
105

106

A. Key Statistics

106

B. M ore A bout the FDIC

118

C. O ffice of Inspector General's A ssessm ent of the
M anagem ent and Performance Challenges Facing the FDIC

126

Our P riorities
★ S ta b ility
'k

S o u n d P o lic y

★ S t e w a r d s h ip

Message
from the
Chairman
Donald E. Powell




I am pleased to present the Federal D eposit Insurance C orporation's (FDIC)
2004 Annual Report. During the past year, w e continued to aggressively pursue
our three major priorities: promoting the stability of the nation's financial system,
developing and articulating sound policy positions, and meeting our stewardship
obligations to the deposit insurance funds.
Meeting the FDIC's mission is an increasingly complex responsibility, but the FDIC
made exceptional progress during 2004. I am proud of the dedication and hard
w ork of the FDIC's employees over the past year.
I am pleased to highlight in this report some of our major accom plishm ents in
2004:
•

W e w orked to ensure that adequate capital standards w ould be maintained
in the new Basel Capital Accord.

•

W e continued our efforts to reduce regulatory burden on financial institutions
as mandated by the Economic Growth and Regulatory Paperwork Reduction
A ct of 1996 (EGRPRA). W ith other federal bank and th rift regulatory agencies,
w e solicited and received over 700 com m ents on consum er protection
and deposit-related regulations, and w e requested com m ent on proposed
changes to the FDIC's C om m unity R einvestm ent A ct regulations.

•

W e aggressively refined our supervisory strategies consistent w ith changes
to the Bank Secrecy A ct included in the USA PATRIOT Act. The FDIC, the
Departm ent of Treasury's Financial Crimes Enforcem ent N etw ork (FinCEN),
and the other federal banking agencies also entered into an inform ation
sharing M em orandum of Understanding to enhance com m unication and
coordination to help financial institutions identify, detect and interdict terrorist
financing and money laundering.

•

W e funded 17 research proposals to produce the firs t working papers to be
published by our n ew Center fo r Financial Research.




•

W e reached approximately 300,000 consumers w ith our M oney Smart financial
education program, resulting in the form ation of over 40,000 new banking
relationships, and expanded our M oney Smart program alliance to include five
Hispanic organizations. In addition, w e released the M oney Smart curriculum
in an interactive com puter-based instruction fo rm at. The M o n e y S m art
curriculum is a training program to help adults outside the financial mainstream
enhance their m oney-m anagem ent skills and establish positive banking
relationships.

•

W e established a Resolutions Policy C om m ittee to develop a comprehensive
strategy and action plan for handling a large-bank failure in the least costly
manner, maximizing net recoveries and minimizing any disruption.

•

W e made significant progress tow ard the com pletion of a new Web-based
Central Data Repository (CDR) for Call Reporting and other regulatory reporting,
in cooperation w ith our Federal Financial Institutions Examination Council
(FFIEC) partners. Targeted fo r im plem entation in 2005, the CDR w ill employ
state-of-the-art technology and the XBRL (Extensible Business Reporting
Language) data standard. This system w ill fu rth e r enhance the FDIC's ability
to provide high-quality, tim ely data about the banking industry to regulators,
financial institutions and the public.

•

W e continued to realign our w orkforce to m eet future workload requirements.
The 2005 budget approved by the Board reflects a reduction of 674 authorized
positions over the next year.

•

A new Corporate Employee Program was announced that w ill allow us to
create a smaller, more flexible w orkforce in the future.

•

W e initiated a tw o-year e ffo rt to im prove our inform ation technology (IT)
program by modernizing our IT infrastructure and applying an enterprise
architecture approach to guide future IT decision-making.

In accordance w ith the Reports Consolidation A ct of 2000, the FDIC com pleted
an assessm ent of the reliability of the performance data contained in this report.
No material inadequacies w ere found and the data is considered to be complete
and reliable.
I am very proud of our achievem ents over the past year and look forw ard
to continued successes next year. The FDIC stands firm in its co m m itm e n t
to prom oting stability, pursuing sound policy and m eeting our stew ardship
responsibilities fo r the deposit insurance funds.
It is a privilege and an honor to serve as Chairman of the FDIC, and I look
forward to the many opportunities that lie ahead.

Donald E. Powell

Message
from the
Chief
Financial
Officer
Steven O. App




I am pleased to report that the funds
managed by the FDIC maintained their
strong financial condition in 2004 and to
highlight som e of our accom plishm ents
in this area.
The U.S. Government Accountability Office
(GAO) again issued unqualified audit opinions
fo r all three funds adm inistered by the
Corporation (Bank Insurance Fund, Savings
Association Insurance Fund, and the Federal
Savings and Loan Insurance Corporation
(FSLIC) Resolution Fund). This marks the
13th consecutive year that w e received
unqualified opinions, and dem onstrates
our continued dedication to sound financial m anagem ent and the reliability of the
financial data upon w hich w e make critical decisions. I w ould like to extend my
sincere appreciation to the many individuals w hose hard w o rk allowed the FDIC
to achieve this milestone.
Financial highlights during 2004 include:
•

The Bank Insurance Fund (BIF) increased by $1.0 billion to $34.8 billion, and
the Savings Association Insurance Fund (SAIF) increased by $480 million
to $12.7 billion, compared to increases of $1.7 billion and $493 million
respectively, in 2003.

•

Comprehensive income for BIF was $1 billion. This w as substantially low er
than the $1.7 billion reported last year. This reduction was primarily due to a
significant deceleration in the rate at w hich the provision fo r insurance losses
declined during 2004 when compared to 2003. For 2003, the reduction in the
provision fo r insurance losses added $931 million to com prehensive income,
w hile fo r 2004 it added only $269 m illio n -a $662 million difference. Earnings
on U.S.Treasury obligations w ere also $80 million low er than in 2003.

•

Comprehensive income for SAIF was $480 million. This was slightly lower
than the $493 million reported last year. This reduction was primarily due
to low er earnings on U.S. Treasury obligations of $6 million in 2004 compared
to 2003.

•

Both the BIF and the SAIF reported unrealized losses on available-for-sale
securities in 2004 of $112 million and $36 million, respectively. The deposit
insurance funds experienced such unrealized losses tw o years in a row.
These unrealized losses w ere largely due to the fact that U.S.Treasury
yields generally increased throughout much of the latter half of 2003 and
2004, after dropping sharply in 2002 and early 2003. Despite the m odest
unrealized losses in 2004, cum ulative unrealized gains in the funds remained
high at $690 million in the BIF and $238 million in the SAIF.

W e continued our efforts to reduce operating costs in 2004. The Board of Directors
approved a 2005 Corporate Operating Budget that was virtually unchanged from
the 2004 Corporate Operating Budget, despite absorbing higher salary and
benefits cost and inflation in non-personnel costs. Total estimated 2005 spending
(including 2005 spending for previously approved multi-year investm ent projects)
is estim ated to be about $36 m illion or 2.9 percent lo w e r than in 2004. The
FDIC's Capital Investm ent Review C om m ittee (CIRC) also continued to focus




on sound developm ent of large-scale IT-related projects as well as improvements
in the management of investm ent spending. Several major IT projects w ere
re-baselined in 2004, and the Corporation is com m itted to com pleting these
projects w ithin their revised schedules and budgets.
The FDIC also made considerable progress in 2004 in enhancing its information
security programs, taking positive actions in a num ber of key security program
areas. The FDIC provided security awareness training to its employees and
contractors, and is w orking diligently to address recent and emerging IT security
standards and guidelines developed by the National Institute of Standards and
Technology (NIST). Information technology and system s security remain high
priorities at the FDIC, and w e are continuously w orking to strengthen controls in
these areas. The Office of Inspector General (OIG) recently com pleted its annual
evaluation of inform ation system s security at the FDIC, as mandated by the
Federal Inform ation S ecurity M anagem ent A ct o f 2002, and identified no
significant deficiencies that w arrant consideration as potential material
weaknesses.
The FDIC 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. W e have
identified no material weaknesses that w ould a ffect the accuracy of the financial
statem ents. This report describes our continuing e fforts to provide tim ely and
useful performance inform ation to FDIC managers, OM B, and the Congress.
Based on these internal management evaluations, and in conjunction w ith the
results of GAO's independent financial statem ents audits, I can certify w ith
reasonable assurance that the FDIC's risk management and internal control
system s, taken as a whole, are in conform ance w ith the standards prescribed
by GAO and that w e are in compliance w ith the requirem ents of FMFIA.
In 2005, the FDIC w ill continue to focus on effective cost management, produce
tim ely and reliable financial information, and maintain a strong enterprise-wide
risk management and internal control program.

Sincerely,

Steven O. App

7

I. Management’s
Discussion
and Analysis




T h e Y ear in R e v ie w
The year 2004 marked continued
changes w ithin the FDIC, but
maintaining stability o f the nation's
financial services industry remained
a primary focus. The FDIC continued
to lead and participate in many
interagency initiatives in an effort
to m eet the demands of an ever
evolving financial services industry.

Deposit Insurance Reform
The FDIC again gave priority attention
to e n a ctm e n t o f com prehensive
deposit insurance reform legislation
in 2004.
The FDIC's reform recom m endations
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
a com bined deposit insurance
fund. Under the present system ,
statutorily mandated m ethods of
managing the size o f 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 ifficu lt economic tim es
w hen the industry can least afford
it. Currently, safer institutions
subsidize riskier in stitu tio n s
unnecessarily, w hile new entrants
and grow ing institutions avoid
paying premiums. To address these
problems, the FDIC recommended
that Congress give the Board of
Directors the discretion to:

During 2004, the FDIC continued
its emphasis on reducing regulatory
burden, and also enhanced its
examination program while promoting
measures to improve its efficiency.
Studies w ere conducted in various
areas, identifying risks and promoting
best practices among the regulatory
and banking industries. In 2004, the
FDIC actively contributed to efforts
to address money laundering and
te rro ris t financing risks as w ell
as other financial crimes such as
identity theft.
Highlights of the Corporation's 2004
accom plishm ents are presented in
this section fo r each of the FDIC's
three major business lines - Insurance,
Supervision and Consumer Protection,
and Receivership M anagem ent - as
well as its program support functions.

•

Manage the combined fund
w ithin a range.

•

Price deposit insurance
according to risk at all tim es
fo r all insured institutions.

•

Grant a one-tim e initial
assessm ent credit to
recognize institutions' past
contributions to the deposit
insurance funds and create
an ongoing system of
assessm ent credits and
rebates to prevent the fund
from grow ing too large.

Insurance
The FDIC insures bank and savings
association deposits. As insurer, the
FDIC m ust continually evaluate and
effectively manage how changes in
the economy, the financial markets
and the banking system affect the
adequacy and the viability of the
deposit insurance funds.

•

Indexing the level of deposit insur­
ance coverage to ensure that basic
account coverage is neither eroded
over tim e by inflation nor made
subject to irregular adjustments.

The House passed H.R. 522, the
Federal Deposit Insurance Reform
A ct of 2003, on April 22, 2003, by
a vote of 411 to 11. Although the
Senate Banking C om m ittee held a
hearing on deposit insurance reform
in February 2003, it did not act on
a deposit insurance bill before the
108th Congress adjourned. The FDIC
provided inform ation and analysis
to Congress in support of deposit
insurance reform legislation.
Support was obtained for a proposed
assessm ent cred it and rebate
system as w e ll as a n ew deposit
insurance pricing system . Enactment
o f deposit insurance reform w ill
remain a priority of the FDIC during
2005.
Im provem ents to th e FDIC's
Loss Reserve M ethodology
Discrepancies betw een projected
failed assets and actual assets
and projected and actual losses
at failed financial institutions w ere
reviewed at Financial Risk Committee
meetings in March and September.
No deficiencies in the m ethodology
fo r projecting losses w ere noted.
During 2004, enhancem ents to
the FDIC's reserving process and
methodology w ere also implemented,
in accordance w ith recommendations
from a comprehensive 2003 study.
The Financial Risk Committee adopted
new guidelines for deviating from
actual historical failure rates and
enhanced coefficients contained in
the research model w hich is used to
develop loss given failure estimates.
In addition, a w orking prototype
of an integrated fund model was
developed to be tte r measure
and manage risk to the deposit
insurance funds.




N e w International Capital
Standards
The FDIC continues to actively
participate in efforts to align capital
standards w ith advances in financial
in s titu tio n s ' risk m easurem ent
and management practices, w hile
ensuring that such institutions and
the industry as a w hole maintain
adequate capital and reserves.
During 2004, the FDIC was active
on a num ber of global and dom estic
supervisory and policy groups
and subgroups including the Basel
C om m ittee on Banking Supervision
(BCBS), the Capital Task Force, and
the Accord Im plem entation Group.
The FDIC also participated in various
U.S. regulatory e ffo rts aimed at
interpreting international standards
and establishing sound policy and
procedures fo r im plem enting these
standards.
The BCBS published the "International
Convergence of Capital Measurement
and Capital Standards" in June 2004,
w hich is more com m only referred
to as "B asel II" or the "R evised
Framework." These broad international
standards w ill provide the underpin­
nings fo r a U.S. revised capital rule,
w hich is currently anticipated to be
finalized by dom estic bank and th rift
regulatory authorities in m id-2006
fo r im plem entation in January 2008.
Ensuring the adequacy of insured
in stitu tio n s' capital under Basel II
remains a key objective for the FDIC.
In 2004, the FDIC actively participated
in dom estic and international policy
and implementation efforts to ensure
th e se n e w rules are designed
appropriately. These e fforts included

the d e velopm ent o f exam ination
guidance, w hich is intended to
provide the industry w ith regulatory
p erspectives fo r im plem entation,
and the perform ance of a fourth
quantitative impact study (QIS)
begun in 2004 to assess the potential
im pact of the Revised Fram ework
on financial institution and industry­
w ide capital levels.
The FDIC invested significant
resources on several fronts in 2004
to ensure that the Revised Framework
w ill be com patible w ith the
C orporation's roles as both deposit
insurer and supervisor. Significant
w o rk was performed, both interna­
tionally and domestically, to assure
that Basel II w ill be im plem ented
efficiently, that effective supervisory
oversight w ill continue, and that
these new rules w ill not create
unintended and potentially harmful
consequences. To that end, the
FDIC began to identify, hire and train
personnel to ensure that a strong
infrastructure w ill exist to m eet the
many challenges posed by adoption
of the com plex risk m anagement
standards put forth under Basel II.
Regulatory Burden Reduction
Initiatives
During 2004, under the leadership
of Vice Chairman John Reich, the
federal bank and th rift regulatory
agencies continued a cooperative
three-year effort to review all of their
regulations (129 in all) that impose
som e burden on th e industry.
The purpose of the review, w hich
is mandated by the Economic
G rowth and Regulatory Paperwork
Reduction A ct of 1996 (EGRPRA),
is to identify and elim inate any
outdated, unnecessary or unduly
burdensome regulatory requirements,
w hile ensuring safety and soundness
and consum er protections remain
strong.

9

For th e purposes o f th is review,
the agencies categorized th e ir
regulations into 12 separate groups.
Every six months, new groups
of regulations are published fo r
comment, giving bankers, comm unity
groups and others an opportunity
to identify regulatory requirem ents
they believe are no longer needed,
as w ell as consum er protections that
m ust be preserved. C om m ents on
the firs t group of regulations, w hich
included Applications and Reporting,
Powers and Activities and International
Banking, w ere solicited in 2003,
and w ere analyzed during 2004.

The FDIC and the other financial
regulatory agencies undertook several
initiatives in 2004 that are expected
to relieve regulatory burden, improve
operational efficiencies of banks, or
assist financial institutions in assess­
ing potential risk. They published
additional interagency guidance and
examination procedures on the USA
PATRIOT Act. The FDIC also sought
com m ents on proposed changes
to its C om m unity Reinvestment
A ct regulations and its regulations
governing certain international
activities. (Final regulations in both
areas are expected in early 2005.)

The agencies issued notices fo r
co m m e n t on tw o m ore groups of
regulations in 2004:

The FDIC also redesigned the
EGRPRA W eb site to make it more
com prehensive and user-friendly
and redesigned its Financial Institution
Letter (FIL) form at to make it easier
fo r financial institutions to identify
w h e th e r the subject o f the FIL
applies to their specific institution
and the area of the institution to
w hich the FIL is m ost relevant.

•

Lending-related consum er
protection regulations, w hich
include Truth-In-Lending
(Regulation Z), Equal Credit
O pportunity (Regulation B),
Home Mortgage Disclosure Act
(HMDA); and

•

D eposit-related and o ther
co nsu m er protection regulations,
which include Privacy of Consumer
Financial Information, Truth-lnSavings, and Deposit Insurance
Coverage.

The agencies received over 700
responses to th e request fo r
com m e nts on these tw o groups
of regulations.
The agencies also held six outreach
m eetings in 2004, three for bankers
and three fo r consum er and com m u­
nity groups. These outreach sessions
w ere intended to increase industry
awareness of the EGRPRA project
and obtain feedback.

10



In 2005, the agencies w ill continue
to analyze the com m ents and other
feedback that have been received
and expect to propose legislative
or regulatory changes, w here
appropriate, to address certain
regulatory burdens and needed
consum er protections.
Center for Financial Research
The Corporation established the
FDIC Center fo r Financial Research
(CFR) in late 2003 to prom ote
research that provides meaningful
insights regarding developm ents
in deposit insurance, the financial
sector, prudential supervision, risk
measurem ent and management,
regulatory policy and related topics
that are o f interest to the FDIC, the
financial services industry, academia
and policymakers. The CFR is a

partnership betw een the FDIC and
the academic com m unity w ith
prom inent scholars actively engaged
in administering and carrying out its
research program. The CFR carries
out its mission through an agenda
of research, analysis, forum s and
conferences th a t encourage and
fa cilita te an ongoing dialogue
incorporating industry, academ ic
and public-sector perspectives.
The CFR supports high-quality original
research by sponsoring relevant
research program lines and soliciting
rigorous analysis of the issues
w ithin five program areas. These
programs benefit from the leader­
ship of program coordinators w ho
are drawn largely from the outside
academic com m unity. Input is
also obtained from six prom inent
econom ists w ho serve as Senior
Fellows. The CFR sponsors a Visiting
Research Fellows Program to
provide support fo r in-residence
scholars fo r defined tim e periods.
In 2004, the CFR funded 17 research
proposals, the results o f w hich
w ill be published in the new CFR
W orking Papers Series. The CFR
also engaged leading scholars in
banking and finance to collaborate
w ith FDIC s ta ff on subjects of
m utual interest.
The CFR and The Journal fo r
Financial Services Research (JFSR)
sponsored their fourth annual
research conference, "R isk Transfer
and Governance in the Financial
S ystem ," in Septem ber 2004.
The conference, w hich included
21 presentations selected from more
than 60 submissions, attracted more
than 100 researchers and included
both d o m e stic and international
participants. The CFR held tw o
workshops during the year for authors
to present their interim results on
CFR-sponsored research.

Identifying and Addressing
Risks to th e Insurance Funds
The FDIC prepares summary analyses
each quarter on th e condition of
large insured financial entities, based
primarily on inform ation provided
by their primary Federal regulators.
These analyses assist the FDIC in
identifying risk trends and potential
exposure to the insurance funds.
Identified risks are highlighted in
various reports and com m unicated
thro u g h o u t th e Corporation in
both w ritte n fo rm a t and by oral
presentations.

M em bers of the RAC M anagem ent Committee and Liaisons Seated (I to r):
M ig uel B row ne, Steve Fritts, M ic h a e l Jackson, and Don Inscoe.
Standing (I to r ) :
B ill Stark, Jim M eyer, Sylvia Plunkett, and Tom Dujenski.

All institution-specific concerns
identified through this ongoing
analytical process in 2004 w ere
referred to FDIC regional offices
fo r appropriate follow -up action.
In m ost cases, these concerns were
resolved in connection w ith the
institution's primary Federal regulator.
The FDIC also conducted numerous
outreach activities during 2004 on
m atters of economic and banking
risk analysis w ith com m unity groups,
other regulators, and the banking
industry. Among them w ere a series
of internal and public roundtables
that included a 2004 banking outlook
roundtable in N ew York City, our
third annual W ashington, DC
econom ic outlook roundtable, and
an economics luncheon featuring
Dr. Catherine Mann of the Institute
fo r International Economics.
The Corporation also released four
issues of FDIC Outlook during the
year, along w ith a number of FYI
electronic bulletins. Featured Outlook
articles addressed topics such as
emerging risks in mortgage and home
equity lending, trends in commercial




lending, and the challenges to banks
facing rural depopulation. FYI reports
published during the year featured
an FDIC assessm ent o f banking
industry exposure to debt obligations
of government-sponsored enterprises
(GSEs) and a series of articles on the
evolving nature of banking in America,
including a look at the changing role
o f com m unity banks, bank branching
trends, and challenges from changing
paym ent system s. Four quarterly
issues of FDIC State Profiles were
released fo r each state during 2004,
and the results of those reports w ere
discussed at regularly scheduled
press briefings.
FFIEC Central Data Repository
The FDIC continued to provide
leadership fo r an interagency
initiative to im plem ent the Central
Data Repository (CDR). This effort
includes the Federal Reserve Board
and the Office of the Comptroller of
the Currency. The CDR is designed
to consolidate the collection, validation
and publication o f quarterly bank
financial reports. The CDR w ill be
accessible to regulators, financial
institutions and the public. This
initiative is being undertaken in
cooperation w ith the Call Report
softw are vendors and the banking
industry, and w ill em ploy new

technology that uses XBRL (Extensible
Business Reporting Language) data
standard to stream line the collection,
validation and publication of Call
Report data. Originally scheduled
fo r im plem entation in October 2004,
rollout of the CDR was postponed to
address industry feedback and allow
more tim e fo r system testing and
e n ro llm e n t o f financial in stitu tions.
As a result, a two-phased im plem en­
tation o f the CDR during the second
and third quarters o f 2005 is now
planned.
Risk Analysis Center
The Risk Analysis Center (RAC)
was established in 2003 to provide
inform ation about current and
emerging supervisory issues. The
RAC brings together economists,
bank examiners, financial analysts
and others to m onitor and analyze
economic, financial, regulatory and
supervisory trends, and their potential
implications for the continued financial
health of the banking industry and
the dep o sit insurance funds.
C om prehensive solutions are
developed to address risks identified

11

during the process. Guided by the
FDIC's National Risk C om m ittee and
the RAC M anagem ent Com m ittee,
the RAC serves as a clearinghouse
fo r inform ation generated by the
FDIC's six regional offices and
sponsors a num ber o f projects
involving risk-related issues.
Two initiatives w ere im plem ented
in 2004 to improve the dissemination
of risk-related inform ation. First, the
Supervisory Discussion Room was
initiated to provide interactive
nationw ide audio and video-confer­
ences on various topics. Each session
includes a presentation on a bank
supervision m atter. Second, the
Examiner Forum was developed in
conjunction w ith the Field Supervisor
(FS) Council to increase examiner
awareness of the RAC and to share
inform ation about emerging issues
among the field examination staff.
Both initiatives provide examiners an
opportunity to exchange information
across regions and w ith technical
specialists in the W ashington office.
RAC activities also include regular
m onitoring and analysis of economic
and financial developm ents and
com m unication o f these issues w ith
FDIC sta ff and management. Staff
conducts a w eekly conference call
to discuss recent developm ents,
and daily Economic Data Releases
are sent by email to FDIC subscribers
sum m arizing intra-day econom ic
news. The RAC w ebsite also serves
as a clearinghouse fo r internal
analyses o f em erging risks. Initial
findings on em erging issues are
often fo llo w e d by m ore in-depth
analysis in form al RAC projects.
Resolving Institution Failures
See Receivership M anagem ent
Section (page 19)

12



Supervision and
Consumer Protection
Supervision and consum er protection
are cornerstones o f the FDIC’s
efforts to ensure the stability of
and public confidence in the nation's
financial system . A t year-end 2004,
the Corporation was the primary
federal regulator fo r 5,272 FDICinsured, state-chartered institutions
that are not m em bers of the Federal
Reserve System (generally referred
to as "state non-member" institutions).
Through safety and soundness,
consumer compliance and Community
Reinvestment Act (CRA) examinations
of these FDIC-supervised institutions,
the FDIC assesses their operating
condition, m anagem ent practices
and policies, and their compliance
w ith applicable laws and regulations.
The FDIC also educates bankers
and consumers on matters of interest
and addresses consum ers' questions
and concerns.
Safety and Soundness
Examinations
During 2004, the Corporation
conducted all 2,515 statutorily
required safety and soundness
examinations. The num ber and
total assets o f FDIC-supervised
institutions identified as "p ro b le m "
institutions (defined as having a
com posite CAMELS1 rating o f "4 "
or "5 ") decreased during 2004. As
o f D ecem ber 31, 44 in stitu tio n s
w ith total assets o f $5.3 billion

were identified as problem institutions
com pared to 73 in stitu tio n s
w ith total assets o f $8.2 billion on
Decem ber 31, 2003. These changes
represent a decrease of 39.7 percent
and 35.4 percent, respectively, in
the num ber and assets o f problem
in stitu tio n s. During 2004, 57 in stitu ­
tio n s w ere removed from problem
institution status due to com posite
rating upgrades, mergers, consolida­
tions or sales, and 28 w ere new ly
identified as problem institutions.
The FDIC is required to conduct
fo llo w -u p exam inations o f all
designated problem institutions within
12 months of the last examination. As
of December 31, 2004, all follow -up
examinations fo r problem institutions
had been perform ed on schedule.
Compliance and C om m unity
Reinvestm ent Act (CRA)
Examinations
The FDIC conducted 1,459
com prehensive com pliance-CRA
examinations, 673 compliance-only
examinations,2 and four CRA-only
examinations in 2004, compared
to 1,610 joint com pliance-CRA
examinations, 307 com pliance-only
examinations, and tw o CRA-only
examinations in 2003. The FDIC
conducted all joint and comprehensive
examinations w ithin established tim e
frames. As of December 31, 2004,
five institutions w e re assigned a
" 4 " rating fo r compliance, and no
institutions w ere rated " 5 ." Of
the five institutions rated "4 " as of
December 31, 2004, four are w ithin
the 12 month w in d o w follow ing
issuance of an enforcem ent action.

1 The CAMELS composite rating represents 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, and ranges from “1" (strongest) to
"5" (weakest).
2 Compliance-only examinations are conducted for most institutions at or near the mid-point between joint complianceCRA examinations under the Community Reinvestment Act of 1977, as amended by the Gramm-leach-Bliley Act of 1999.
CRA examinations of financial institutions with aggregate assets of $250 million or less are subject to a CRA examination no
more than once every five years if they receive a CRA rating of "Outstanding" and no more than once every four years if they
receive a CRA rating of "Satisfactory."

O f these four, tw o entered into
M em orandum s o f Understanding
w ith the FDIC and tw o are subject
to outstanding Cease and Desist
Orders. A Cease and Desist Order
fo r the fifth institution w ill likely be
issued during the first quarter of
2005.
Examination Program Efficiencies
The FDIC continued in 2004 to
im plem ent measures to improve
examination efficiency by maximizing
the use of risk-focused examination
procedures at well-managed banks.
Based on experience w ith the
M aximum Efficiency Risk-Focused
Institution Target (MERIT) Program
im plem ented in 2002, the FDIC
raised the threshold fo r well-rated,
well-capitalized banks qualifying
for streamlined examinations under
the MERIT Program to $1 billion, up
from $250 million. Use of the MERIT
Program allows the FDIC to direct
m ore examination resources to
institu tion s posing the m o st risks
to the insurance funds. The FDIC
also im plem ented more risk-focused
exam inations fo r the tru s t and
information technology specialty areas.
The FDIC continued to emphasize
the revised compliance examination
approach im plem ented during the
second half of 2003. During 2004,
the FDIC convened six focus groups
w ith bankers across the country
to discuss their experience w ith the
revised com pliance exam ination
process. The bankers strongly
supported the new process, reporting
that it had resulted in a more efficient
examination and th a t com pliance
examiners provided more constructive
feedback than in the past.




FDIC Examinations 2002-2004

. 2002

2004

2003

2,276

2.182
231
0
5
3
2,421

2,290
229
o
10
='
2,534

1,810
307
2
1,919

1,334
493
13
1,840

501
2,304
2,805
7,145

524
1,681
2,205
6,579

Safety and Soundness:
State Nonmember Banks
Savings Banks
Savings Associations
National Banks
State Member Banks
Subtotal - Safety and Soundness Examinations

236
0
0
3
2,515

:

CRA/Com pliance Examinations:

Compliance-Community Reinvestment Act
Compliance-only
CRA-only
HSubtotal CRA/Compliance Examinations

1,459
673
4
2,136

Specialty Examinations:
Trust Departments
Data Processing Facilities
■Subtotal-Soecialty Examinations

Total

f ■

In keeping w ith other recent strategic
initiatives to enhance supervisory
processes, the FDIC conducted a
pilot program to te s t a new approach
to bank supervision. The primary
purpose of the "relationship manager
program " pilot was to determ ine
the extent to w hich designation of
a relationship manager fo r each bank
w ould enhance risk-focused assess­
m ents and improve com m unications
w ith financial institutions.
The pilot explored alternatives to the
traditional point-in-time examination
by allowing supervisory activities to
be conducted over the appropriate
12- or 18-month supervisory cycle at
selected institutions, based on their
risk profiles. Relationship managers
developed supervisory plans fo r their
designated banks and served as the
institution's local primary point-ofcontact. Benefits of the pilot included
ongoing "real tim e " assessments,
as w ell as improved com m unications
w ith financial institutions. Preliminary
results of the pilot w ere favorable.
Results w ill be further evaluated
in 2005 to determ ine the feasibility
of im plem enting som e or all aspects
of the program nationwide.

534
2,570
3,104
7,755

N e w Supervisory Journal
The FDIC released in June the
inaugural issue of Supervisory Insights,
a professional journal providing a
forum fo r discussing how bank
regulation and policy are put into
practice in the field, sharing best
practices, and com m unicating about
the emerging issues bank supervisors
are facing. A second issue was
published in December. Supervisory
Insights is available on the FDIC's
internal and external W eb sites.
The journal, w hich w ill be published
tw ice yearly, includes regular features,
such as "Accounting N e w s" and
"From the Examiner's Desk," as
w ell as articles discussing areas
o f current supervisory focus at
the FDIC.

Shared National Credit
M odernization
The Shared National Credit (SNC)
program is an interagency e ffo rt
designed to provide a review and
credit quality assessm ent of many
of the largest and m ost complex
(syndicated) bank credits. The
purpose of the program is to gain
efficiencies and consistencies in the
review of credits shared by multiple
institutions under a form al lending
agreem ent. The program is governed
by an interagency agreement between
the Federal Reserve Board, the FDIC,
and the O ffice of the Com ptroller
of the Currency (OCC).
During 2004, the agencies initiated
a SNC Data Collection Modernization
project (SNC Modernization). The
project seeks to enhance and stream­
line this effective supervision program
by standardizing the SNC data
collection system , applying more
advanced credit risk analytics and
benchmarking techniques across
bank portfolios, and providing
participating banks w ith feedback
on their SNC portfolios across those
m etrics. In December, the agencies
published a Notice for Public Comment
in the Federal R egister requesting
the industry's feedback on the SNC
Modernization project. The notice
describes the changes to the
reporting system th e agencies
contem plate and identifies new data
elem ents the agencies propose to
collect. In the notice, the agencies
present a series of questions to elicit
com m ent on the expanded program
and to help the agencies refine
the design of the expanded data
collection system .

14




Hom eland Security
The financial sector is a critical
com ponent of the infrastructure
in the United States, and the FDIC
has taken a leadership role in
assisting part of the financial sector
in preparing fo r emergencies. As a
m em ber of the Financial and Banking
Information Infrastructure Committee
(FBI 1C), the FDIC sponsored a series
of outreach meetings in 21 cities
across the United States in 2004
on Protecting the Financial Sector:
A Public and Private Partnership.
These meetings provided financial
sector leaders w ith the opportunity
to com m unicate w ith senior govern­
m ent officials, law enforcem ent
mem bers, and em ergency manage­
m ent and private sector leaders
about protecting the financial sector.
Additional outreach meetings w ill
be scheduled for 2005.
Bank Secrecy Act
The FDIC is also fully com m itted
to assisting in efforts designed to
th w a rt the inappropriate use of the
banking system through activities
conducted by criminals and terrorists.
Our supervisory program, in conjunc­
tion w ith strong law enforcem ent
efforts, creates an environm ent
w here criminals and terrorists w ho
use the U.S. financial system to
fund their operations w ill risk being
discovered.
Since th e passage o f the USA
PATRIOT Act (Uniting and Strengthen­
ing America by Providing Appropriate
Tools Required to Intercept and
O bstruct Terrorism A ct of 2001),
the FDIC has been actively engaged
in a num ber of Bank Secrecy A ct
(BSA), anti-m oney laundering (AML),
and counter-financing o f terrorism
(CFT) initiatives. During the past
year, the FDIC contributed to joint

industry and interagency working
groups fo r the developm ent o f rules
and interpretive guidance; incorporated
rules and guidance into examination
procedures and industry resources;
refined the process fo r referring
BSA violations and other significant
m atters to the U.S. Departm ent
o f the Treasury's FinCEN; assisted
in global A M L and CFT efforts;
dedicated more sta ff to BSA/AML
oversight; provided BSA/AML/CFT
training to all risk m anagem ent
professionals; and participated in
numerous industry outreach sessions.
In S eptem ber 2004, the FDIC,
the other Federal banking agencies,
and FinCEN entered into an
information-sharing M em orandum
o f U nderstanding to enhance
com m unication and coordination
to help financial institutions identify,
detect, and interdict terrorist financing
and m oney laundering. The FDIC
also issued 20 formal actions and
entered into 83 informal agreem ents
that contained provisions regarding
BSA compliance.
International Stability
The FDIC serves as a m em ber of
the Consultative Group (CG) w ith
respect to M iddle East North Africa
Partnership fo r Financial Excellence
(PFE) initiative sponsored by the
State Departm ent (State) and the
Department of the Treasury (Treasury).
Under the PFE, the federal banking
agencies in the U.S. (the FDIC, the
Federal Reserve and the OCC) are
working w ith Treasury, State and
the U.S. Agency fo r International
Developm ent (USAID) in developing
a training initiative to assist in the
developm ent of bank supervision

in the Middle East and North Africa
(MENA) region. The CG consists
of representatives fro m the bank
supervisory bodies in th e MENA
region, training institutions and banker
associations in that region, and the
U.S. supervisory and regulatory
com m unity. The CG serves as the
advisory body and coordinating entity
to facilitate the design, developm ent
and im plem entation of the training
initiative. The objective o f th is
initiative is to help foste r economic
grow th in the region through the
im plem entation of sound financial
supervisory system s. The federal
banking agencies are delivering
technical assistance program s to
m e e t needs in the M EN A region.
The FDIC is scheduled to deliver
training focused on bank supervision
and resolutions in 2005.
As a m em ber o f th e Association
of Supervisors o f Banks o f the
Americas (ASBA) Strategic Planning
Im plem entation Com m ittee, the
FDIC helped develop specific action
plans for ASBA's 2 0 0 4 -2 0 0 8 strategic
plan. This plan w ill help ASBA
deliver more relevant and tim ely
support to its mem ber countries. The
strategic plan is focused on ensuring
ASBA m em ber countries e ffe ctive ly
im p lem ent legal and regulatory
fram e w orks, as w e ll as bank
supervisory policies, procedures
and program s th a t are in line w ith
the Basel core principles.
The FDIC fu lfille d 16 technical
assistance m issions in 2004.
Beneficiaries of these m issions
included Morocco, Kyrgyz Republic,
Iraq, Georgia, Russia, Jordan,
A rgentina, Serbia, Romania, several
countries in Latin Am erica, and
countries involved in the Partnership
fo r Financial Excellence Program in
the Middle East and North Africa.




In 2004, the FDIC also held 51
meetings w ith representatives from
foreign countries. The visitors usually
represented a country's central bank
or d eposit insurance agency. The
m ost frequent visitors were: China (7),
Korea (6), Russia (4), Indonesia (3),
Jamaica (3), Taiwan (3), and Japan (3).
Accounting Policy
During 2004, the FDIC was active
in addressing several com plex
accounting issues o f in te re st to
depository institutions. In February,
the FDIC, in conjunction w ith the
other financial institution regulators,
issued guidance on the proper
accounting and regulatory reporting
fo r certain types of deferred com ­
pensation arrangements. In order
to address the industry’s concerns
about potential changes in the
accounting fo r allowances fo r loans
and lease losses, the FDIC joined
other financial institution regulators
in March to advise the industry on
the status of the American Institute
of Certified Public A ccountants'
w ork on this im portant subject and
to remind institutions o f the current
accounting and regulatory reporting
guidance in this area. In addition,
in an e ffo rt to avoid adverse changes
in the accounting for loan participa­
tions, the FDIC w orked extensively
w ith the Financial A ccounting
Standards Board (FASB) to ensure
FASB fully understood the treatm ent
o f loan participations in receiverships
fo r its consideration and further
deliberation on the proper accounting
fo r this critical lending activity.

Financial Education and
C om m unity Developm ent
During 2004, the Corporation
continued to expand the scope and
impact o f its e fforts to increase the
availability of financial services to lowand m oderate-incom e populations,
as w ell as to those outside the
financial m ainstream.
The Corporation has worked diligently
to form partnerships w ith financial
institutions, bank trade associations,
non-profit organizations, com m unity
and consumer-based groups and
federal, state and local agencies
to prom ote financial education.
In 2004, the FDIC added over 200
partners to its M oney Sm art alliance,
increasing its total to over 900
partnerships nationally. Through
its M oney Sm art financial education
program , th e FDIC has provided
training to an e stim ated 8,300
volunteer instructors, reached
more than 294,000 consum ers,
dissem inated an additional 20,000
copies of the M oney Smart curricu­
lum, and seen the establishm ent
of more than 40,000 bank accounts.
The M o n e y S m art curriculum is
available in five languages: English,
Spanish, Chinese, Korean, and
Vietnamese. The FDIC launched
a new interactive computer-based
version of M oney S m art in English
and Spanish in S eptem ber 2004.
The target to conduct and participate
in 125 outreach and technical
assistance activities in 2004 w as
exceeded.

15

The FDIC conducted a study on
offshore outsourcing follow ing
Chairman P owell's March 4, 2004,
te s tim o n y before th e House
Subcom m ittee on Oversight and
Investigations on Financial Services
and the Senate Banking Com m ittee.
The purpose of the study was to
identify risks to consumer privacy
and identity theft from foreign out­
sourcing. The study also identified
best practices that financial institutions
can use to m itigate the risk inherent
in foreign outsourcing relationships.

Leaders gather at Commission's first meeting (I to r):
Federal Reserve Board Chairman Alan Greenspan,
FDIC Chairman Donald E. P ow ell,
N ational Credit Union A dm inistration Chairman Dennis D ollar
and Treasury Secretary John Snow.

The FDIC is one of 20 agencies
that are m em bers o f the Financial
Literacy Education C om m ission,
w hich was established by Congress
in 2003 to educate Am ericans
about the importance of personal
finances. The FDIC chairs one of
tw o subcom m ittees form ed by the
Commission, a subcom m ittee to
develop a national toll-free hotline
(1-888-mymoney) that consumers
can use to obtain inform ation
on personal finance topics. The
Commission launched the hotline
in late 2004.
During 2004, the FDIC also continued
to lead a Chicago-based pilot project
called the N ew Alliance Task Force
(NATF), which is focused on increasing
access to bank products and services
fo r Latino im m igrants. NATF is a
broad-based coalition of 63 m em ber
organizations, com prised o f the
Mexican Consulate, banks, communitybased organizations, federal bank
regulatory agencies, governm ent
agencies, and representatives from

16




the secondary m arket and private
m ortgage insurance companies. In
2004, NATF-member banks opened
50,000 new accounts throughout the
M idw est, totaling about $100 million
in new deposits, w ith an average
account balance o f $2,000.
Consumer Privacy and
Identity Theft
The FDIC has taken a leading role
in helping banks com bat identity
th e ft. In November 2004, the FDIC
published a study entitled Stop,
Thief! Putting an End to AccountHijacking Identity Theft. The study
took an in-depth look at identity
th e ft, focusing on account hijacking
(the unauthorized use of deposit
accounts). The study found account
hijacking fraud could be significantly
reduced if banks upgraded the
security m easures th e y use to
authenticate custom ers w h o access
their accounts remotely via computers
and used specialized softw are to
proactively detect and defend against
account hijacking. The study also
concluded that increased consumer
education and information-sharing
could reduce identity theft. The FDIC
is currently investigating the m ost
appropriate ways to fo llo w up on
the study's findings.

The study recom m ended that the
banking agencies expand the scope
o f examination procedures to include
identification o f undisclosed thirdparty contracting arrangements and
conduct an analysis of the feasibility
o f using the FFIEC as a central
location fo r the Bank Service
Company A ct notices filed by
financial institutions. This information
could then be used fo r analysis,
monitoring and tracking by the
supervisory agencies. The FDIC
is w orking w ith the other banking
agencies to im p le m e n t these
recom m endations.
The FDIC is one of several federal
agencies charged w ith im plem enting
the provisions of the Fair and Accurate
C redit Transactions A c t o f 2003
(FACT Act), w h ich substantially
amended the Fair Credit Reporting
Act, particularly in the areas of
consum er access to and quality
of credit inform ation, privacy, and
identity th e ft. The FACT Act:
•

preserves uniform national
standards fo r the content of
consum er report inform ation
and creditor access to such
inform ation,

•

im proves consum er access
to credit information,

•

improves the quality of reported
credit information,

•

protects privacy,

•

com bats identity th e ft, and

•

prom otes financial literacy.

C onsistent w ith the privacy
requirem ents of the FACT Act,
the FDIC w orked w ith other federal
agencies to issue draft rules in 2004:
(1) perm itting creditors to obtain,
use and share medical information
only to th e degree necessary to
facilitate legitim ate operational
needs; and (2) providing consumers
w ith the ability to lim it the circum ­
stances under w hich affiliated
financial institutions may use certain
inform ation in connection w ith
marketing activities. These rules
w ill be issued in final form once
the agencies fully consider the
com m ents received in response
to the proposals. In the m eantim e,
the FDIC is training its examiners
on the concepts underlying these
rules, and is developing examination
procedures to evaluate industry
compliance.
Consistent w ith the identity th e ft
provision of the FACT Act, the FDIC
w orked w ith other federal agencies
in 2004 to propose rules that would
require banks to im plem ent a w ritten
identity th e ft protection program
which includes procedures to evaluate
red flags that m ight indicate identity
th e ft. The FDIC, w ith the other
agencies, also finalized rules requiring
institutions to properly dispose of
consum er inform ation derived from
credit reports in order to prevent
identity th e ft and other fraud. The
rules on disposal of consumer
inform ation become effective on
July 1, 2005.




Curbing Unfair and
Deceptive Practices
In March 2004, the FDIC and the
Federal Reserve Board (FRB) jointly
published guidance for state-chartered
institutions on unfair or deceptive acts
or practices prohibited by Section 5
of the Federal Trade Commission
(FTC) Act. This guidance explains
how institutions may avoid engaging
in practices that m ight be viewed
as unfair or deceptive. The FDIC
also joined w ith the FFIEC agencies
to propose guidance on overdraft
protection programs in June 2004.
The proposed guidance discusses:
•

approaches to providing consumers
w ith protection against account
overdrafts;

•

existing and potential concerns
about offering and administering
overdraft protection services;

•

key legal issues, including
compliance w ith the FTC A ct
and other applicable federal and
state laws;

•

safety and soundness considera­
tions, such as w hether institutions
o ffe rin g overdraft protection
services have adopted adequate
policies and procedures to address
the credit, operational and other
risks associated w ith these
services; and

•

Consumer Complaints
and Inquiries
The FDIC investigates and responds
to com plaints and inquiries from
consumers, financial institutions and
other parties about potential violations
of consum er protection and fair
lending laws, as w e ll as deposit
insurance m atters. The FDIC's
centralized C onsum er Response
C enter (CRC) is responsible fo r
investigating all types of consum er
complaints about FDIC-supervised
in stitu tio n s and fo r answ ering
inquiries about consum er protection
laws and banking practices. During
2004, the FDIC received 8,804
complaints, o f w hich 3,791 w ere
against state-chartered nonm em ber
banks. Approxim ately 41 percent
o f the state nonm em ber bank
consum er complaints concerned
credit card accounts, w ith the m ost
frequent complaints involving loan
denials, billing disputes and account
errors, terms and conditions, collection
practices, reporting o f erroneous
inform ation, id e n tity th e ft, and
credit card fees and service charges.
The FDIC also responded to 2,947
deposit insurance and 5,087 consumer
protection inquiries from consumers
and m em bers of the banking
com m unity. The FDIC responded to
over 90 percent of w ritten complaints
on a tim ely basis.

best practices in use or
recom m ended by the industry,
including th o se relating to
marketing overdraft protection
services and com m unicating
w ith custom ers about the
features of such programs.

The agencies received about 300
com m ents on the proposed guidance.
W e expect the final guidance to be
issued in 2005.

17

The FDIC also conducted 38 deposit
insurance sem inars fo r financial
institution em ployees, consum er
organizations, and bank regulatory
agencies. These seminars, w hich
w ere conducted in a variety of
form ats, including internet, phone
conference, and classroom, provided
an in-depth re vie w o f h o w FDIC
insurance works, including the FDIC's
rules fo r coverage of different types
of deposit accounts.

High school senior Christopher Perry (w ith Chairman Don P o w ell, left, and Chief of Staff
Jodey Arrington, right) said "he left w ith a positive outlook on the role of the FDIC and its
duty to insure depositors' money."

Deposit Insurance Education
An im portant part of the FDIC's role
in insuring deposits and protecting
the rights of depositors is its respon­
sibility to ensure that bankers and
consumers have access to accurate
inform ation about FDIC deposit
insurance rules. To th a t end, the
FDIC has an expansive deposit
insurance education program
consisting of seminars fo r bankers,
electronic tools fo r calculating
deposit insurance coverage, and
w ritte n and electronic information
targeting both bankers and
consum ers. During 2004, the FDIC
com pleted a digital video fo r bank
employees and custom ers explaining
how FDIC deposit insurance w orks
and issued a new edition o f our
E lectronic D eposit Insurance
Estimator (EDIE) fo r Bankers. The
video, w hich is available on DVD
and can also be view ed through
the FDIC's W eb site, provides an

18



o ve rvie w of deposit insurance
coverage rules and requirements,
w ith specific emphasis on the m ost
com m on account ow nership cate­
gories used by individuals and families.
The EDIE so ftw a re update m e t a
2004 performance target to provide
improved resources to bankers on
deposit insurance rules. It allows
bankers to calculate their custom ers'
insurance coverage for nearly all types
of deposit accounts an individual or
business may have at an insured bank
or savings association. C onsum ers
can also access EDIE directly through
the FDIC’s W eb site.
In 2004, the FDIC continued to expand
its educational tools fo r consumers
by issuing tw o new brochures
fo r bank custom ers. Insuring Your
Deposits describes insurance cover­
age rules fo r deposit accounts m ost
com m only ow ned by individuals
and families. Your Insured Deposits FDIC's Guide to D eposit Insurance
Coverage, an update of the 1999
version, provides an in-depth
explanation of the FDIC’s account
ow nership categories and includes
the FDIC's new rules fo r insurance
coverage of living trust accounts that
became effective on April 1, 2004.

Office of th e Om budsm an (OO)
Services to the Banking Industry
The OO w as established by federal
statute to serve as a confidential,
neutral, and independent resource
and liaison fo r bankers w ith the
FDIC on regulatory matters. The
OO ensures the fair and consistent
application o f FDIC rules and
regulations, and the fair treatm ent
of institutions throughout the FDIC's
examination, assessment, application,
enforcem ent, rule-making and other
processes. The OO w orks w ith
financial institutions and the FDIC
to inform ally resolve problems and
disputes at the earliest possible
stages. During 2004, bankers and
m em bers of the public contacted the
OO, voicing questions and seeking
problem or com plaint resolution.
Cumulatively, these contacts provided
the FDIC w ith an im portant perspec­
tive on general and specific matters
of importance, concern, or uncertainty
to bankers.

Receivership M anagem ent
The FDIC has the unique mission of
protecting the depositors of insured
banks and savings associations.
Since the FDIC's inception over
70 years ago, no depositor has
ever experienced a loss of insured
deposits at an FDIC-insured institution
due to a failure. The FDIC protects
insured depositors by prudently
managing the BIF and the SAIF and
using the assets of the funds to pay
insured deposits at the tim e of the
institution failure. Once an institution
is closed by its chartering a u th o rity the state fo r state-chartered
institutions, the OCC fo r national
banks, or the O ffice o f T hrift
Supervision (OTS) for federal savings
association s-the FDIC is responsible
fo r the resolution of the failed bank
or savings association. FDIC staff
gathers data about the troubled
institution, estim ates the potential
loss due to its failure, solicits and
evaluates bids from all known
qualified and interested bidders,
and then recom m ends the least
costly resolution transaction to
the FDIC's Board of Directors.
Resolving Financial Institution
Failures
During 2004, the FDIC resolved three
BIF-insured institution failures and
one SAIF-insured institution failure.
The SAIF-insured institution, Dollar
Savings Bank, Newark, N ew Jersey,
w ith total assets of $15 million, was
closed on February 14, and depositors
received their insured funds by check.
Guaranty National Bank of Tallahassee,
Tallahassee, Florida, w ith total
assets of $77 million, was closed on
March 12. All of Guaranty's deposits
and a large portion of its assets
w ere sold to another FDIC-insured
institution. Reliance Bank, W hite
Plains, New York, w ith total assets of
$27 million, was closed on March 19.




Liquidation Highlights 2002-2004
Do l l a r s i n b i l l i o n s
Total Resolved Banks
Assets of Resolved Banks
Total Resolved Savings Associations
lAssets of Resolved Savings Associations
Net Collections from Assets in Liquidation*
Total Assets in Liquidation*
Total D i v id e n i jf lH H H B B H H H H M I

$
$
$
S
$

2004
3
0.15
1
0.01
0.38
0.61
0.38

2003
3
$ 1.10
0
S

0 .00

2002
10
$

2 .50

S

0 .0 5

1

$ 1.70

$

1.84

$

$

1.24

$

2.12

0.81

$ 1.06

•Includes activity from thrifts resolved by the former Federal Savings and Loan Insurance Corporation and the Resolution
Trust Corporation.

All of Reliance's deposits and a large
portion of its assets w ere also sold
to another FDIC-insured institution.
The Bank of Ephraim, Ephraim, Utah,
w ith total assets of $46 million, was
closed on June 25. In all cases, the
target tim e fram e was m et for giving
depositors access to th e ir funds.
Ephraim's insured deposits w ere sold
to another FDIC-insured institution.
(See the accompanying table above
for details about liquidation activities.)
During 2004, the FDIC com pleted
investigations and decisions regarding
closure or pursuit of claims fo r all
five receiverships that had failed
w ithin the prior 18 months. This
exceeded the performance target
of reaching decisions on closure
or pursuit of professional liability
claim s fo r 80 percent of failed
in stitu tio n s w ith in 18 m onths of
the failure date.

Protecting Insured Depositors
Through Asset Marketing
The FDIC's ability to attract healthy
FDIC-insured institutions to assume
deposits and purchase the assets of
failed banks and savings associations
ensures that depositors have prompt
access to their insured deposits,
m inim izes the disruption to the
custom ers and the comm unity, and
allow s a fair portion of the failed
institution's assets to be returned to
the private sector almost immediately.
A ssets remaining after the resolution
transaction are liquidated by the
FDIC in an orderly manner, and the
proceeds are used to pay creditors
and uninsured depositors (depositors
whose accounts exceed the $100,000
deposit insurance lim its), and to
reimburse the insurance fund that
funded the resolution transaction.
In 2004, the FDIC again m et its goal
of marketing 85 percent of a failed
institution's marketable assets w ithin
90 days of the institution's failure.

19

m e t at year-end 2004, w ith only
one of four 2001 receiverships still
active. The single remaining receiver­
ship could not be term inated due to
the existence o f ongoing professional
liability litigation and o ther im pedi­
m ents. These cases continue to
be vigorously pursued through
appropriate negotiations and litigation
proceedings. In 2004, there w ere 30
pre-2001 receiverships term inated;
59 remain to be term inated.
Effective M anagem ent
of Strategic Resources

At the President's Quality A w ard Ceremony (I to r):
Deputy 0 M B D irector Clay Johnson, FDIC CFO Steve App,
DRR's Sharon A llen, Kevin Sheehan, Director M itchell Glassman,
Dan W alker, Nancy Champagne, Richard Salmon, 0 P M D irector
Kay Coles Jam es, and FDIC Deputy to the Chairman John Brennan.

Custom er Service Center
In order to help consum ers needing
assistance w ith m atters arising
from failed financial institutions, the
FDIC operates a C ustom er Service
Call Center w ith staff dedicated
to handling records research and
collateral releases. During 2004,
the FDIC staff responded to 36,791
inquiries. The records research staff
reviews the historical records of
failed financial institutions in order
to answ er custom er questions on
deposit accounts, loan transaction
histories, tax suits fo r delinquent
real estate and other issues.
The collateral release staff researches
and determines ownership of collateral
securing loans of failed financial
institutions in order to provide
a release of lien, assignm ent or
reconveyance to the borrower. This
staff successfully handled 13,494
collateral release inquiries in 2004.

20



The Custom er Service Call Center
handled 76,217 calls asking for
information or assistance. The FDIC
C ustom er Service Center also
supported the Federal Emergency
M anagem ent Agency (FEMA) in
its effort to help the people affected
by hurricanes in Florida and other
parts of the country. M ore than 100
FDIC employees assisted FEMA in
fielding calls and processing FEMA
applications associated w ith these
emergencies.
Receivership Terminations
The FDIC, as receiver, manages
the receivership estate and the
subsidiaries of failed financial
institutions w ith the goal of achieving
an expeditious and orderly termination.
The oversight and prom pt termination
of receiverships help to preserve
value fo r the uninsured depositors
and creditors by reducing overhead
and other holding costs. For that
reason, the FDIC has established
a target of term inating 75 percent
of receiverships w ithin three years
of the failure date. This goal was

The FDIC m ust effectively manage
and utilize a num ber o f critical
strategic resources in order to
carry out its mission successfully,
particularly its human, financial, and
information technology (IT) resources.
Major accom plishm ents in improving
the Corporation's operational efficiency
and effectiveness are outlined below.
Although the FDIC is not subject to
the President's Management Agenda,
many of these e fforts are consistent
w ith that agenda.
Human Capital M anagem ent
The FDIC's employees are its m ost
im portant strategic resource. For
that reason, it seeks to continue
to be the em ployer of choice w ithin
the financial regulatory com m unity
and to operate a human resources
program that attracts, develops,
evaluates, rewards and retains a high
quality, results-oriented w orkforce.
This was a d ifficu lt challenge over
the past 12 years because the
Corporation w as in a continuous
downsizing m ode as it com pleted
the residual workload from the
banking and th rift crises of the late
1980s and early 1990s. FDIC staffing
declined from approximately 23,000
(including employees assigned to
the Resolution Trust Corporation)
in 1992 to fe w e r than 5,100 at
year-end 2004.

During 2004, the Corporation under­
took a com prehensive analysis of its
future staffing needs and form ulated
a human capital strategy to guide the
FDIC through the rest of this decade.
This strategy is based upon the
im plem entation of a new Corporate
Employee Program that w ill become
the foundation for the establishm ent
of a smaller more adaptable perma­
nent w orkforce that reflects a more
collaborative and corporate approach
to meeting critical mission functions.
This w o rkfo rce w ill be capable
o f adapting quickly to significant
unexpected events or changes in
w orkload priorities in the future.
The FDIC's future w orkforce w ill
also require a som ew hat different
mix of skill sets than are available
in the current w orkforce . The
Corporation initiated steps in late
2004 to begin reshaping its workforce
to be consistent w ith these concepts,
including changes to current training
program s adm inistered by its
Corporate University. The Corporation
also began the developm ent of a
new human capital fram ew ork that,
when im plem ented, w ill provide a
m ethodology fo r future w orkforce
planning and succession management.
The FDIC w ill require more flexibility
in its management of human resources
in order to realize its vision o f its
fu tu re w orkforce. To th a t end, the
Corporation w orked w ith the O ffice
of Personnel M anagem ent to obtain
expanded delegations of administrative
authority. It also su bm itte d to the
Congress in late 2004 proposed
legislation that would provide the FDIC
w ith additional personnel authorities
that are tied directly to the FDIC's
unique m ission responsibilities.
These included independent hiring
authority, greater flexibility in the use
o f term appointm ents, the ability to
re-employ annuitants and w aive dual
compensation restrictions, authority



to establish a separate appeals
process fo r disciplinary actions,
and th e ability to hire experts and
consultants in the sam e m anner
as o th e r federal agencies.
During the past year, the Corporation
continued to emphasize the linkage
o f individual pay to concrete
accom plishm ent and contributions.
Approxim ately 400 managers and
supervisors w e re converted to a
new Corporate Manager Program in
April 2004. This program is similar to
the Executive Manager classification
and pay program instituted in 2002
and replaces the old program of fixed
annual pay increases w ith a new
pay and bonus program in w hich
pay increases and bonuses vary by
individual and are not guaranteed.
M ore than 1,000 non-bargaining unit
employees w ere also converted
to a n ew C ontributions-Based
Compensation Program that provides
a w id e r range o f possible rewards
than the Corporate Success Award
program established in 2002.
The Corporation also initiated a new
buyout and early retirem ent program
in late 2004. This program is targeted
to reduce identified staffing surpluses
and to support the realignm ent of
the current workforce, consistent with
identified future w orkforce needs.
The Corporation also announced
planned reductions-in-force in 2005
and 2006, if necessary, to eliminate
employee surpluses and support
realignm ent of the FDIC w orkforce.

Reducing Costs and Improving
Financial M anagem ent
The FDIC's operating expenses are
largely paid from the insurance funds,
and the Corporation continuously
seeks to im prove its operational
efficiency in fulfillm ent of its fiduciary
responsibilities to the funds. To that
end, the Corporation engages annually
in a rigorous planning and budgeting
process to ensure that budgeted
resources are properly aligned w ith
workload. That is particularly true w ith
respect to staffing, since personnel
costs constitute w ell over 60 percent
of the Corporation's annual adminis­
trative expenses. In late 2004, the
FDIC Board of Directors approved
management recom m endations to
reduce authorized staffing by 674
positions, to 4,750, by year-end
2005.
Authorized year-end 2005 staffing
is substantially low er than previous
authorized staffing levels fo r the
resolutions and receivership business
line as w ell as the IT and adm inistra­
tive support functions. Staffing
reductions w e re approved fo r
the Division o f R esolutions and
R eceiverships and the Legal Division
following a lengthy analysis of current
and projected fu tu re w orkload in
the resolutions and receivership
m anagem ent area and re fle ct the
smaller number of financial institution
failures fo r the past several years.
Staffing reductions in the Division of
Inform ation Resources M anagem ent
and the Division of Adm inistration
reflect improved business processes,
savings from contract consolidation,
and outsourcing of functions w here
cost effective.

21

The FDIC adopted significant changes
in 2004 to the sourcing strategy for
obtaining contractor support for its IT
functions. These changes incorporate
the concept of partnering w ith the
private sector and other federal
agencies; the use of performancebased, results-driven contracts; the
consolidation of nearly 100 support
contracts into several large multi-year,
all-encompassing contracts; and the
appointm ent of full-tim e professional
o versight m anagers to manage
and adm inister these contracts.
The structure of the new contracts
places the emphasis on contractor
perform ance and links contractor
compensation to results achieved
rather than costs incurred. The
Board of Directors approved the
consolidation of contracts supporting
both th e IT infrastructure and
applications support.
Several years ago, the Corporation
separated its investm ent expenses
from its annual operating budget
in order to ensure a more rigorous
approach to th e approval and
m anagem ent of major investm ent
initiatives. The single m ost significant
current initiative is the construction
of additional FDIC office and m ulti­
purpose buildings adjacent to the
existing facilities at Virginia Square.
This project w ill elim inate the
need fo r the Corporation to lease
com m ercial space in d o w n to w n
Washington, DC, and w ill substantially
reduce future facility costs. The
project remains on target fo r occu­
pancy in the first quarter o f 2006.
M anagem ent processes have been
im plem ented to ensure adherence
to the project budget and schedule.
Construction of the new building w ill

Digitized 22 FRASER
for


M em bers of the CIO Council (I to r):
Seated, CIO Council Chair M ik e B artell and Sandra Thompson.
Standing: (I to r): Jerry Russomano, Eric Spitler, Gail Verley, Rus Rau,
Ann Bridges Steely and Doug Jones.
Not shown: Ron Bieker, M aureen S w eeney, Jan et Roberson, and
Gail Patelunas.

provide estim ated cost savings of
approximately $78 million (net present
value) over 20 years, w hen compared
to the projected costs associated
w ith the current headquarters leasing
arrangements.
Improving the FDIC's Use
of Inform ation Technology
The Corporation established a new
Chief Information Office (CIO) Council
in February 2004. The overall mission
of the Council is to serve as an
executive-level advisory group to the
CIO, and to help shape Corporate IT
strategy and activities. Establishing
the CIO Council is part o f a m ulti­
pronged approach to re-engineering
the Corporation's IT program. The
CIO Council advises the CIO on all
aspects of adoption and use of IT
at the FDIC. A ccom plishing the
C orporation's strategic goals and
business objectives depends on
achieving successful results from IT
initiatives. One of the firs t initiatives
of the Council w as to conduct an
analysis of FDIC's current applications

portfolio. An estim ated 30 existing
applications w ere retired in 2004,
w ith a larger num ber of retirem ents
expected to occur over the next
year.
The FDIC also greatly expanded
its use o f its e-governm ent portal,
FDICconnecf (a secure W eb site
that allows FDIC-insured institutions
to conduct business and exchange
inform ation w ith the FDIC, other
federal regulatory agencies and
various state banking departments),
in 2004. FDICconnecf w ill enable
the FDIC to com ply w ith the
G overnm ent Paperwork Elimination
A ct of 1998 (GPEA) and address
Presidential guidelines that direct
governm ent agencies to establish
electronic alternatives to current
paper processes w here feasible.
Nearly 44 percent of FDIC-insured
institutions have registered to use
FDICconnecf.

In 2004, the FDIC expanded the
capabilities of FDICconnecf to allow
institutions to subm it applications
seeking extensions o f tim e fo r
com pleting a transaction or condition
related to previously approved
applications; prior FDIC consent
to reduce or retire capital stock
or capital notes or debentures; and
approval to make golden parachute
payments or excess non-discriminatory severance plan payments. In
November, the FDIC Board approved
use of FDICconnecf as the vehicle
fo r all insured financial institutions
to receive their quarterly insurance
assessm ent invoices and elim inated
the requirem ent fo r institutions
to sign and return correct certified
statem ents, thus eliminating burden
on the institutions.




:

■h h

II. Financial
Highlights




D e p o s it In s u ra n c e Fund
P e rfo rm a n c e
The FDIC adm inisters 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 of the
form er Federal Savings and Loan
Insurance Corporation (FSLIC)
and the form er Resolution Trust
Corporation (RTC). The following
summarizes the condition of the
FDIC's insurance funds. (See the
accompanying tables on FDICInsured Deposits, Insurance Fund
Reserve Ratios and Risk-Related
Premiums on the follow ing pages.)
The BIF reported comprehensive
income (net income plus current
period unrealized gains/losses on
available-for-sale securities) of
$1 billion fo r the tw e lve m onths
ending December 31, 2004, compared
to $1.7 billion fo r the same period
in the prior year. This reduction
was primarily due to an increase
in unrealized losses on available-forsale securities o f $102 m illion and
a reduction in net income of $625
million. The decline in net income
primarily resulted from a smaller
negative adjustm ent of $269 million
to the provision fo r losses at
Decem ber 31, 2004, compared to
a negative $931 million adjustm ent
fo r the same period last year. BIF's
provision fo r losses negative adjust­
m ents w ere m ostly attributable to
the reduction of estim ated losses
for future and actual failures. As of
December 31, 2004, the fund balance
w as $34.8 billion, up from $33.8
billion at year-end 2003.

The SAIF reported comprehensive
income of $480 million for the twelve
months ending Decem ber 31, 2004,
compared to $493 million fo r the
same period in the prior year. This
reduction of $13 million was primarily
due to slightly low er earnings on
U.S.Treasury obligations w hereby
a $30 million increase in unrealized
losses was partially o ffse t by a $23
million increase in interest revenue.
As of D ecem ber 31, 2004, the fund
balance w as $12.7 billion, up from
$12.2 billion at year-end 2003.

O p e ra tin g E xpenses
Corporate Operating Budget expenses
totaled $1.004 billion in 2004, including
$986 million in ongoing operations and
$18 million fo r receivership funding.
This represented approxim ately
97 percent o f the approved budget
on ongoing operations and 24 percent
of the approved budget fo r receiver­
ship funding. Receivership funding
expenses w ere dow n significantly
from 2003 because the four financial
institution failures in 2004 w ere
relatively small banks.
In D ecem ber 2004, th e Board of
Directors approved a 2005 Corporate
Operating Budget of approximately
$1.1 billion, including ju s t over
$1.0 billion for ongoing operations.
The level of approved spending in
the 2005 budget remains virtually
the same as that in 2004 due to
continuing e fforts to identify opera­
tional efficiencies and control costs.
The Corporate Operating Budget
includes funding fo r a num ber
of major new initiatives, including
funding fo r a Hispanic financial
literacy program, and hiring additional
financial analysts and risk modeling
specialists to prepare fo r im plem en­
tation of the Basel Capital Accord.

The 2005 budget includes estimated
funding requirem ents ($35 million)
fo r litigation expenses projected to
be incurred on behalf o f th e FDIC
by the U.S. D epartm ent o f Justice.

FDIC-lnsured Deposits (estim ated 1960-2004)
Dollars

in

billions
■ SAIF-lnsured
■ BIF-lnsured

1960

70

80

90

2000

04

3,500

In v e s tm e n t S p e n d in g

3,000

The FDIC has a disciplined process
fo r reviewing proposed new capital
investm ent projects and managing
the im plem entation of approved
projects. M ost of the projects in
the current investm ent portfolio
are major IT system initiatives.
Proposed projects are carefully
reviewed to ensure that they are
consistent w ith the Corporation's
enterprise architecture and include
an appropriate return on investm ent
for the insurance funds. The process
also enables the FDIC to be aware of
risks to the major capital investm ent
projects and facilitates appropriate,
tim ely intervention to address these
risks throughout the developm ent
process. An investm ent portfolio
perform ance re view o f the m ajor
capital investments is provided to the
FDIC's Board of Directors quarterly.
During 2004, the Board of Directors
approved only one new investm ent
project, a new W eb-based tim e
and attendance reporting system .
Additional spending was also approved
fo r three existing investm ent projects:
(1) Legal Integrated M anagem ent
System increased by $1.4 million
to $5.06 million, (2) N ew Financial
Environment increased $17 million
to $51.8 million, and (3) ViSION
increased $6.2 million to $12.7 million.

Hi

2,500

500




ill ll

2,000

1,500
1,000

hi

IH IIJI

i

11

Source: Commercial Bank Call Reports and Thrift Financial Reports

Funding fo r FDIC sta ff assigned to
investm ent projects was transferred
to the Corporate Operating Budget,
at year-end 2004, in order to more
accurately account fo r and provide
year-to-year comparisons of salary
and compensation expenses included
in those operating budgets. However,
all other project spending continues
to be provided through separate
investm ent budget authorizations.

25

■ BIF
■ SAIF
—
1.45

...............
-------- ------

1.40

N N « i« N M

■

----■—„..,
—m
,. -

]......H |H

M w n M

US_______
1.30___________
1.25 (target ratio)

6/02

26



9/02

12/02

3/03

6/03

9/03

12/03

3/04

6/04

9/04

Risk-Related Premiums
The following 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 semiannual assessment period of 2004. Each institution is categorized based on its
capital group (1, 2, or 3) and supervisory subgroup (A, B, or C which is generally determined by on-site
),
examinations. Assessment rates are basis points, cents per $100 of assessable deposits, per year.
BIF Supervisory Subgroups*
C apital Group

A

B

C

0
7,314(92.7%)

3
421 (5.3%)

17
79(1.0%)

3
58 (0.7%)

10
4(0.1%)

24
8(0.1%)

10
2 (0.0%)

24
0 (0.0%)

27
2 (0.0%)

0
1,073 (93.3%)

3
62 (5.4%)

17
9 (0.8%)

3
4 (0.3%)

10
2 (0.2%)

24
0 (0.0%)

10
0 (0.0%)

24
0 (0.0%)

27
0 (0.0%)

1. W e ll Capitalized:

Assessment Rate
Number of Institutions
2. A dequately Capitalized:

Assessment Rate
Number of Institutions
3. U ndercapitalized:

Assessment Rate
Number of Institutions

SAIF Supervisory Subgroups'
|1. W e ll Capitalized:

Assessment Rate
Number of Institutions
|2. Adequately Capitalized:

Assessment Rate
Number of Institutions
3. U ndercapitalized:

Assessment Rate
Number of Institutions

• BIF data exclude SAIF-member "Oakar" institutions that hold BIF-insured deposits. The assessment rate reflects the rate
for BIF-assessable deposits, which remained the same throughout 2004.
■ SAIF data exclude BIF-member “Oakar” institutions that hold SAIF-insured deposits. The assessment rate reflects the rate
for SAIF-assessable deposits, which remained the same throughout 2004.




III. Performance
Results
Summary




S u m m a ry o f 2 0 0 4 P e rfo rm a n c e R esu lts by P ro g ra m
The FDIC su ccessfully achieved 26 o f the 31 annual perform ance targets
established in its 2004 Annual Performance Plan. Three performance targets were
not applicable and tw o w ere not met. The FDIC did not hold a Future of Banking
Conference in 2004, as originally planned. Instead, it elected to dissem inate the
results of the study and solicit feedback from interested parties by publishing
papers from the study on the FDIC W eb site and discussion o f the study results
in FDIC publications and speeches by senior FDIC officials. Originally scheduled
fo r im plem entation in October 2004, rollout of the Call Data Repository was
postponed to address industry feedback and allow more tim e for system testing
and enrollm ent of financial institutions.
Key accom plishm ents by program are highlighted below. There w e re no
instances in w hich 2004 perform ance had a m aterial adverse e ffe c t on
successful achievement of the FDIC's mission or its strategic goals and objectives
w ith respect to its major program responsibilities. In addition, consideration
of 2004 performance results was an integral part of the developm ent of the
FDIC's 2005 Annual Performance Goals.
The Office of Inspector General (OIG) has shared its view of the most significant
challenges the Corporation is confronting and has acknowledged actions
underway to address these issues. (See Appendix C for a list of these challenges.)
M anagem ent is com m itted to addressing each of the issues identified by the
OIG.

Program Area

Insurance

Performance Results

• Resolved four failed insured institutions, providing depositors w ith access to insured deposits
in each case. For three of the four failures, depositors had uninterrupted and continuous access
to insured deposits as the deposits w ere assumed by an acquiring entity. One of the four failures
was a payout.
•C o m p le te d im plem entation of enhancem ents to the reserving process and m ethodology in
accordance w ith recom m endations from a comprehensive study.
• Congress did not enact deposit insurance reform legislation. The FDIC w ill continue to press
fo r reform.
• Completed risk assessm ents fo r all large insured depository institutions and follow ed up on all
identified concerns referred fo r examination or other supervisory action.
• Improved the accuracy and efficiency of off-site risk identification models.
• Completed the developm ent o f a CD-ROM and Internet-based resource fo r bankers on the
deposit insurance rules.
• Published
•
•
•
•
•

Supervision and
Consumer Protection

economic and banking inform ation and analysis:
Four FDIC Outlook publications.
Ten FYI electronic bulletins.
Four editions of the FDIC Quarterly Banking Profile (QBP).
Four editions of the FDIC State Profiles.
Five articles authored or co-authored by FDIC sta ff accepted fo r publication
in professional journals.

• Conducted 2,515 safety and soundness examinations. This included all statutorily required safety
and soundness examinations, except fo r a small num ber deferred due to pending mergers.
• Conducted 2,136 compliance and C om m unity Reinvestment A ct examinations in accordance
w ith FDIC policy.
• Participated in 125 M o n e y S m art events and technical assistance activities related to the
C om m unity R einvestm ent Act, fair lending and co m m u n ity developm ent, and added 200
M oney Smart Alliance members and distributed 20,000 copies of the M oney Smart curriculum.

Receivership
M anagem ent




• Contacted all qualified potential bidders in three of the four institution failures in 2004. One failed
institution w as not offered fo r sale as a result of fraud allegations and little advance notice of
the closing.
• Marketed 100 percent of marketable assets of five failed financial institutions w ithin 90 days
of failure (one of the institutions failed in late 2003).
•T erm inated three receiverships, meeting the target to term inate 75 percent w ithin three years
of failure date.




2004 Budget and Expenditures by Program

The FDIC budget fo r 2004 totaled $1.210 billion. Excluding $147 m illion fo r
Corporate General and Adm inistrative expenditures, budget am ounts w ere
allocated to corporate programs and related goals as follow s: $221 million,
or 18 percent, to the Insurance program; $567 million, or 47 percent, to the
Supervision and Consumer Protection program; and $275 million, or 23 percent,
to the Receivership M anagem ent program.
Actual expenditures for the year totaled $1,112 billion. Excluding $131 million
fo r Corporate General and Adm inistrative expenditures, actual expenditures
w ere allocated to programs as follow s: $143 million, or 13 percent, to the
Insurance program; $631 million, or 57 percent, to the Supervision and Consumer
Protection program; and $207 million, or 19 percent, to the Receivership
Managem ent program.

2004 Expenditures and Budget (Support Allocated)
Dollars

in

Millions

■ Expenditures
■ Budget
$ 700

Insurance
Program

Supervision and
Consumer Protection
Program

Receivership
Management
Program

General
and
Administrative

P e r f o r m a n c e R e s u lts by P r o g r a m a n d S t r a t e g i c G o a l

Insurance Program Results
Strategic Goal: Insured depositors are protected from loss w ith o u t recourse to taxpayer funding.
Annual Performance Goal
1.

2.

Indicator

Target

Results

Respond prom ptly to 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.
See pg. 19.

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

Not
Applicable.
All failures
occurred on
a Friday.

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

Achieved.
See pg. 11.

Identify and address risks to the
insurance funds.

Assess risks posed by large
insured depository institutions.

Identify and follow up on concerns Identify and fo llo w up on
referred for examination or other 100 percent of referrals.
action (i.e., contact the insured
institution or primary supervisor).
Disseminate data and analyses
on current issues and risks
affecting the banking industry
to bankers, supervisors,
stakeholders, and the public.

Maintain sufficient and reliable
inform ation on insured depository
institutions.




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

Achieved.
See pg. 11.

Conduct industry outreach
activities aimed at the banking
com m unity and industry trade
groups to discuss current
trends and concerns and
to inform bankers about
available FDIC resources.
3.

Achieved.
See pg. 12.

Achieved.
See pg. 11.

Im plem ent a modernized
Call Reporting process by
December 31, 2004.

Not
Achieved.
See pg. 11.

Maintain quality and tim eliness
of bank data.

31

Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss w ith o u t recourse to taxpayer funding.
Annual Performance Goal

Indicator

Target

Results

Maintain and improve the deposit
insurance system.

Pursuit of changes to the
deposit insurance system is
in accordance w ith proposals
subm itted to the Congress.

Provide inform ation and
analysis to Congressional
com m ittees in support of
deposit insurance reform
legislation.

Achieved.
See pgs.
8-9.

Develop and obtain the
necessary support fo r a
proposed assessm ent credit
and rebate system and a
new deposit insurance
pricing system.

Achieved.
See pgs.
8-9.

W hen deposit insurance
reform is enacted, implement
legislation in accordance
w ith statutorily prescribed
tim e frames.

Not
Applicable.
Legislation
not enacted
in 2004.

Review discrepancies
betw een projected failed
assets and actual failed assets
by applying sophisticated
analytical techniques to
examine the effectiveness
of the loss projection model
and adjust the m ethodology
for projecting losses
accordingly.

Achieved.
See pgs.
8-9.

Im plem ent enhancements
to the reserving process and
m ethodology in accordance
w ith recom m endations from
a comprehensive 2003 review.

Achieved.
See pgs.
8-9.

Set assessm ent rates to
maintain the insurance funds
at the designated reserve
ratio, or return them to the
designated reserve ratio if
they fall below it, as required
by statute.

Achieved.
See pgs.
8-9.

Digitized32 FRASER
for


Make appropriate changes to
the current methodology for
projecting losses in failing
financial institutions and
establishing related loss
reserves fo r the deposit
insurance funds.

Maintain fund adequacy.

Insurance Program Results (continued)
Strategic Goal: Insured depositors are protected from loss w ith o u t recourse to taxpayer funding.
Annual Performance Goal

Not
Applicable.
Legislation
not enacted
in 2004.

Achieved.
See pgs.
8-9.

Conduct a conference on the
"Future of Banking."

Host conference, present
findings from the study and
obtain feedback from scholars
and industry representatives
and other interested parties.

Not
Achieved.
See pg.28.

Maintain quality and visibility
of the Corporation's banking
research activities.




Results

Develop a working prototype
of a new, integrated fund
model fo r financial risk
m anagement.

Provide educational inform ation
to insured depository institutions
and their custom ers to help them
understand the rules for determ ining
the am ount of insurance coverage
on deposit accounts.

Target
If deposit insurance reform
legislation becomes law in
2004, prom ulgate rules and
regulations establishing criteria
fo r replenishing the deposit
insurance fund w hen it falls
below the low end of the range.

5.

Indicator

Im plem ent an FDIC Center
fo r Financial Research w ith
enhanced ties to the academic
com m unity.

Achieved.
See pg.10.

U tility of educational tools
developed fo r bankers and
consumers.

Develop a CD-ROM and
Internet-based resource for
bankers on the deposit
insurance rules.

Achieved.
See pg. 18.

33

Supervision and C onsum er P ro te ctio n Program Results
S trategic Goal: FDIC-supervised institutions are safe and sound.
Annual Performance Goal

Indicator

Target

Results

1.

Conduct on-site risk management
examinations to assess an FDICsupervised insured depository
institution's overall financial condition,
m anagem ent practices and polices,
and compliance w ith applicable laws
and regulations.

Percentage of required
examinations in accordance
w ith statutory requirements
and FDIC policy.

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

Achieved.
See pg. 12.

2.

Take prom pt supervisory actions to
address problem s found during the
FDIC examination of FDIC-supervised
institutions identified as problem
insured depository institutions.
M onitor FDIC-supervised insured
depository institutions' compliance
w ith formal and informal enforcem ent
actions.

Follow -up examination of
problem banks.

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

Achieved.
See pg. 12.

Strategic Goal: Consumers' rights are protected and FDIC-supervised ins titutions invest in their comm unities.

34

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




Achieved.
See pg. 15.

Achieved.
See pg. 15.

Outreach activities and
technical assistance.

2.

Achieved.
See pg. 15.

Reach an additional 200,000
individuals.

Provide effective outreach and
technical assistance on topics related
to CRA, fair lending, and com m unity
developm ent.

Add an additional 200 M oney
Sm art Alliance M em bers.

Provide an additional 20,000
copies of M oney Smart
curriculum.

1.

Additions to the M oney Smart
Alliance and the num ber of
M oney Sm art curriculum
provided.

Conduct or participate in 125
technical assistance efforts
(examination support) or
banker/community outreach
activities related to CRA,
fair lending, or comm unity
development.

Achieved.
See pg. 15.

Timely responses to w ritten
complaints.

Ninety percent of w ritte n
com plaints are responded
to w ithin tim e fram es
established by policy.

Achieved.
See pg. 17.

Supervision and C onsum er P ro te ctio n Program Results (continued)
Strategic Goal: Consumers' rights are protected and FDIC-supervised institutions invest in th eir communities.
Annual Performance Goal

Indicator

Target

Results

3.

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

Conduct required examinations
in accordance w ith FDIC policy.

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

Achieved.
See pg. 12.

4.

Take prom pt supervisory actions and
m onitor institutions rated "4 " or "5 "
for compliance to address problems
identified during com pliance
examinations.

Timely follow -up examinations
and related activity.

Follow-up examination or
related activity is conducted
w ithin 12 m onths from the
date of a formal enforcem ent
action to confirm that the
institution is in compliance
w ith the enforcem ent action.

Achieved.
See pg. 12.

R e c e iv e rs h ip M a n a g e m e n t P ro g ra m Flesu lts
Strategic Goal: Recovery to creditors of receivership is achieved.
1.

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

List of qualified and interested
bidders.

Contact all known qualified
and interested bidders.

Achieved.
See pg. 19.

2.

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

Percentage of failed institution's
assets marketed.

Eighty-five percent of book
value of a failed institution's
m arketable assets are
m arketed w ithin 90 days
of failure.

Achieved.
See pg.19.

3.

Manage the receivership estate and
its subsidiaries tow ard an orderly
term ination.

Timely term ination of new
receiverships.

Terminate 75 percent of
Achieved.
receiverships managed through See pg.20.
the Receivership Oversight
Program w ithin three years
of the failure date.

4.

Conduct investigations into all
potential professional liability claim
areas in all failed insured depository
institutions and decide as prom ptly
as possible to close or pursue each
claim, considering the size and
com plexity of the institution.

Percentage of investigated claim For 80 percent of all claim
areas for w hich a decision has
areas, a decision is made
been made to close or pursue
to close or pursue the claim
the claim.
w ithin 18 m onths after the
failure date.




Achieved.
See pg. 19.

35

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

Depositor Payouts in Instarice of Failure
Annual Goal

2001 Results

2002 Results

2003 Results

2004 Results

The FDIC responds promptly
to financial institution closings
and emerging issues.

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.

Timely payments made
to all depositors of the
three insured depository
institutions that failed
in 2003.

Tm ely payments made
to all depositors of the
four insured depository
institutions that failed
in 2004.

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

Legislation on deposit
insurance reform was
passed in the House
and was pending in the
Senate when Congress
recessed for the year.

Risk Classifications
Maintain and improve the
deposit insurance system.

Bank Insurance Fund (BIF) BIF and SAIF reserve
ratios maintained at
and Savings Association
Insurance Fund (SAIF)
or above the statutory
reserve ratios maintained. ratio of 1.25 percent.
Chairman testified before
FDIC published its final
the Senate Committee
recommendations for
deposit insurance reform. in support of deposit
insurance reform.

BIF and SAIF reserve
ratios maintained at
or above the statutory
ratio of 1.25 percent.
Chairman testified before
the Senate Committee
in support of deposit
insurance reform.

The FDIC completed
implementation of
enhancements to the
reserving process and
methodology in
March 2004. During
2004, assessment rates
were maintained at or
above the designated
reserve ratio as
required by statute.

Identify and address risks
to the insurance funds.

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

Significant progress was
made in improving the
accuracy and efficiency
of off-site risk
identification models.
Risk assessments of
all large insured
depository institutions
(LIDIs) were completed
in compliance with
program requirements.

Significant progress was
made in improving the
accuracy and efficiency
of off-site risk
identification models.
Risk assessments of
all large insured
depository institutions
(LIDIs) were completed
in compliance with
program requirements.

Maintain sufficient and
reliable information on
insured depository
institutions.

Annual goal was not
established in 2001.

Annual goal was not
established in 2002.

Annual goal was not
established in 2003.

The Central Data
Repository (CDR) system
is being developed.
Phase I of the CDR is
expected to be delivered
by the end of 2005.

Digitized 36 FRASER
for


Risk Classifications (continued)
Annual Goal

2001 Results

2002 Results

2003 Results

2004 Results

Provide educational information
to insured depository institutions
and their customers to help
them understand the rules for
determining the amount of
insurance coverage on deposit
accounts.

Annual goal was not
established in 2001.

Annual goal was not
established in 2002.

Annual goal was not
established in 2003.

Utility for educational
tools was developed for
bankers and consumers.

Risk M a n a g e m e n t, S a fe ty

nd S o un d ness

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

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

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

Conducted 2,421
required safety and
soundness examinations
in accordance w ith FDIC
policy.

Conducted 2,515
required safety and
soundness examinations
in accordance w ith FDIC
policy.

Eighty-four institutions
designated as problem
(composite "4 " or "5 "
rated). Forty-eight were
removed from problem
status and 63 added.

Seventy-three institutions
designated as problem
(composite "4 " or " 5 1
’
rated). Fifty-eight with
total assets of $6.98
billion were removed
from problem status
and 47 with total assets
of $4.99 billion were
added. Additionally, the
FDIC issued the following
formal and informal
enforcement actions:
40 Cease and Desist
Orders and 157
Memoranda of
Understanding.

Forty-four institutions
designated as problem
(composite "4 " or "5 "
rated). Fifty-seven with
total assets of $6.3
billion were removed
from problem status
and 28 with total assets
of $4.8 billion were
added. Additionally, the
FDIC issued the following
formal and informal
enforcement actions:
38 Cease and Desist
Orders and 145
Memoranda of
Understanding.

Safety and Soundness Enforcements Actions
Take prompt and effective
supervisory actions to address
problems identified during the
FDIC examinations of FDICsupervised institutions
identified as problem insured
depository institutions. Monitor
FDIC-supervised insured
depository institutions'
compliance with formal
and informal enforcement
actions.




Sixty-seven institutions
designated as problem
(composite "A" or "5 "
rated). Fifty-six were
removed from problem
status and 76 added.
Evaluations changed
to monitor migration
of troubled banks.

37

warn
Compliance Examinations

—

Annual Goal

2001 Results

2002 Results

2003 Results

2004 Results

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

Conducted 2,179
comprehensive
compliance-only and
CRA examinations in
accordance with FDIC
policy. There were no
delinquencies in 2001.

Conducted 1,840
comprehensive
compliance-only and
CRA examinations in
accordance with FDIC
policy. There were no
delinquencies in 2002.

Conducted 1,919
comprehensive
compliance-only and
CRA examinations in
accordance with FDIC
policy. There were no
delinquencies in 2003.

Conducted 2,136
comprehensive
compliance-only and
CRA examinations in
accordance with FDIC
policy. There were no
delinquencies in 2004.

Conducted 25 Money
Smart workshops with
over 600 participants.

Money Smart
classes attended
by approximately
2,800 participants.

The FDIC supplied
more than 111,000
copies of Money Smart
curriculum to
organizations. FDIC
sponsored 65 public
outreach initiatives,
111 com m unity
development activities,
and 67 technical
assistance activities.

Targets for the following
were met: added 200
new Money Smart
Alliance members;
distributed 20,000 copies
of M oney Smart
curriculum: additional
294,000 members
reached: and conducted
125 outreach and
technical assistance
activities.

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

The only "4 " rated
institution entered into
a Memorandum of
Understanding (MOU)
with the FDIC.

Of the five institutions
rated "4 " as of
December 31, 2004,
tw o entered into
Memorandums of
Understanding with
the FDIC; and tw o are
subject to outstanding
Cease and Desist Orders;
A Cease and Desist
Order for the fifth
institution is expected
to be issued during the
first quarter of 2005.

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

Compliance Enforcement ictions
Prompt and effective
supervisory actions are
taken and monitored on all
institutions rated "4 " or "5 "
for compliance.

38



Six of seven institutions
had either been
examined in the
preceding 12 months
or were still within the
12 month time frame
between examinations.
One institution was
pending resolution for
safety and soundness
reasons, and the
compliance examination
was deferred pending
resolution.

Consumer Com plaints and Inquiries
Annual Goal

2001 Results

2002 Results

2003 Results

2004 Results

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

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

Annual goal revised
(see below).

Annual goal revised
(see below).

Annual goal revised
(see below).

Effectively meet the statutory
mandate to investigate
and respond to consumer
complaints about FDICsupervised financial institutions.
(Revised-2002)

The 2001 annual
performance goal was
not compatible to the
current annual goal.

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

FDIC received 8,010
consumer complaints
and closed 99 percent
of them. Of the
complaints closed,
94 percent were closed
within policy time frames.

FDIC received 8,742
consumer complaints,
closing 95 percent of
them. Of the closed
complaints, 95 percent
were closed within
policy time frames.

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

For all 11 institutions that
failed, at least 87 percent
of all marketable assets
were marketed within
the 90-day time frame,
thus exceeding the
target of 85 percent.

For all three institutions
that failed, at least 98
percent of all marketable
assets were marketed
within the 90-day time
frame, thus exceeding
the target of 85 percent.

Five financial institutions
reached their 90-day
threshold during 2004.
One hundred percent
of all marketable assets
were marketed within
the 90-day time frame.

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.

There were three failures
in 2003. One hundred
percent of the qualified
bidders were contacted.

There were four failures
in 2004. One hundred
percent of the qualified
bidders were contacted
for the sale of three
failed institutions. One
failed institution was
not offered for sale.

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

Least-C ost Resolution
Market to all known qualified
and interested potential
assuming institutions.




39

Least-Cost Resolution (continued)
Annual Goal

2001 Results

2002 Results

2003 Results

2004 Results

Conduct investigations of 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.

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

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

Four of ten institutions
that reached the 18-month
milestone during 2003
had 100 percent of
professional liability
investigations completed.
The other six institutions
had at least 80 percent
of professional liability
investigations completed,
meeting the goal of
80 percent.

All five institutions that
reached the 18-month
milestone during 2004
had 100 percent of
professional liability
investigations
completed, meeting
the goal of 80 percent.

Manage the receivership
estate and its subsidiaries
toward an orderly termination.
(Revised-2001)

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, the FDIC
terminated six
receiverships, meeting
the target to terminate
75 percent within three
years of failure.

For the seven failures
that occurred during
2000 that matured in
2003, the FDIC
terminated four
receiverships, below
the target to terminate
75 percent within three
years of failure.

For the four failures
that occurred during
2001 that matured in
2004, the FDIC
terminated three
receiverships, meeting
the target to terminate
75 percent within three
years of failure date.

Digitized 40 FRASER
for


P ro g r a m E v a lu a tio n
During 2004, the FDIC com pleted evaluations of programs designed to achieve the strategic
objectives set forth in the Receivership M anagem ent area of the FDIC's 2004 - 2009 Strategic
Plan. The follow ing section highlights the issues evaluated and summarizes the results of this
evaluation.
Strategic
Objective
Issues evaluated

The FDIC resolves failed insured depository institutions in th e least-costly manner.

★ W hat is the process fo r marketing failing institutions?
★ H ow is a listing of qualified and interested potential bidders generated?

Findings

During 2004, four financial institutions failed. Three of the four w ere marketed using a W e b based autom ated notification system . The fourth was not marketed due to the unique situation
involving allegations of fraud and little advance notice o f the closing. The FDIC maintains
a database o f qualified and interested potential bidders consisting of financial institutions.
In composing the potential bidders list, the FDIC takes into account the failed institution's
geographic location, com petitive environm ent, m inority-ow ned status, financial condition, asset
size, capital level and regulatory ratings. By using a Web-based system , the FDIC can market
to a potential bidder both the failed institution and its assets m ore effectively and efficiently.

Strategic
Objective

Receiverships are managed to m axim ize net return to w ard an orderly and tim ely
term ination.

Issues evaluated

★ H ow are net returns maximized?
★ W hat constitutes orderly and tim ely termination?

Findings

For 2004, the FDIC's goal was to market 85 percent of book value of a failed institution's
marketable assets w ithin 90 days o f failure. Five financial institutions reached their 90-day
threshold during this tim e. In each instance, 100 percent of the marketable assets w ere marketed
w ithin 90 days. Returning failed bank assets to the private sector quickly allows the FDIC to
maximize net recoveries and minim ize any disruption to the local com m unity. The oversight and
prom pt term ination of the receivership preserves value for the uninsured depositors and other
receivership claimants by reducing overhead and other holding costs. The FDIC uses a number
of inform ation technology applications, including Internet auctions, to facilitate the m anagement
and marketing of assets.

Strategic
Objective

Potential recoveries, including claims against professionals, are investigated and
are pursued and resolved in a fair and cost-effective manner.

Issues evaluated
Findings




★ How are potential recoveries identified and investigated?
The FDIC fo llo w s extensive guidelines on how to conduct an investigation o f a failed institution
to identify potential claims and recovery sources. Every aspect o f the process is extensively
docum ented and reviewed, from pre-closing steps, to previewing potential claims and discovering
and preserving sources of recovery fo r these claims, through tracking costs and recoveries.
In addition, the FDIC keeps careful track of investigations at a high level through the M anagement
Control Plan, w hich serves to maintain a record o f each investigation and keep risks in check.
Such risks principally arise from the failure to maintain accurate reports and records necessary
to substantiate claims.

41

IV. Financial
Statements
and Notes
Bank Insurance
Fund
December 31, 2004
and 2003




Federal

Deposit

Insurance

Corporation

Bank Insurance Fund Balance Sheet at Decem ber 31
Dollars

in T h o u s a n d s

2004

2003

Assets
Cash and cash equivalents

$

1,822,005

$

2,544,281

Investment in U.S. Treasury obligations, net: (Note 3)
Held-to-maturity securities

22,637,330

16,293,073

Available-for-sale securities

9,470,605

14,209,773

Interest receivable on investments and other assets, net

601,498

550,999

Receivables from bank resolutions, net (Note 4)

375,303

511,089

Property and equipment, net (Note 5)

Total Assets

357,106

287,380

$

35,263,847

$

34,396,595

$

268,680

$

231,441

Liabilities
Accounts payable and other liabilities
Contingent liabilities for: (Note 6)
Anticipated failure of insured institutions
Litigation losses and other

Total Liabilities

8,261

178,266

200,301

204,693

477,242

614,400

Commitments and off-balance-sheet exposure (Note 11)

Fund Balance
Accumulated net income
Unrealized gain on available-for-sale securities, net (Note 3)

Total Fund Balance
Total Liabilities and Fund Balance

34,096,676

32,979,898

689,929

802,297

34,786,605

33,782,195

S 35,263,847

$

34,396,595

The accompanying notes are an integral part o f these financial statements.




43

Federal

Deposit

Insurance

Corporation

Bank Insurance Fund S tatem ent of Income and Fund Balance for the Years Ended December 31
Dollars

in T h o u s a n d s

2004

2003

Revenue
Interest on U.S. Treasury obligations

$

1,552,576

Assessments (Note 7)
Other revenue

$

95,268
27,553

Total Revenue

1,530,014
80,159
15,831

1,675,397

1,626,004

Expenses and Losses
Operating expenses (Note 8)

822,381

805,496

(269,368)

(931,164)

Insurance and other expenses

5,606

9,945

Total Expenses and Losses

558,619

(115,723)

Net Income

1,116,778

1,741,727

Unrealized loss on available-for-sale securities, net

(112,368)

(9,872)

Comprehensive Income

1,004,410

1,731,855

33,782,195

32,050,340

Provision for insurance losses (Note 9)

Fund Balance - Beginning
Fund Balance - Ending
The accompanying notes are an integral part o f these financial statements.

Digitized44 FRASER
for


$

34,786,605

$

33,782,195

Bank Insurance Fund

Federal

Deposit

Insurance

Corporation

Bank Insurance Fund S tatem ent of Cash Flows for th e Years Ended December 31
Dol l ars

in T h o u s a n d s

2004
Operating Activities
Net Income:

$

1,116,778

2003

$

1,741,727

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of U.S.Treasury obligations

737,439

Depreciation on property and equipment

455,628

(181,650)

Treasury inflation-indexed securities (TIIS) inflation adjustment

(115,150)

54,424

54,947

(269,368)

(931,164)

817

92

(Increase) in interest receivable and other assets

(36,433)

(69,826)

Decrease in receivables from bank resolutions

218,693

102,663

Provision for losses
Terminations/adjustments of work-in-process accounts

Change in Operating Assets and Liabilities:

Increase in accounts payable and other liabilities

15,819

85,577

(Decrease) in contingent liabilities for litigation losses and other

(1,047)

(25,367)

1,655,472

1,299,127

Maturity of U.S.Treasury obligations, held-to-maturity

3,365,000

3,890,000

Maturity of U.S.Treasury obligations, available-for-sale

5,810,000

1,690,000

Net Cash Provided by Operating Activities
Investing Activities
Provided by:

Used by:
Purchase of property and equipment

(104,502)

(41,804)

(10,026,597)

Purchase of U.S.Treasury obligations, held-to-maturity

(3,659,868)

(1,421,649)

(5,240,070)

(2,377,748)

(3,361,742)

Net Decrease in Cash and Cash Equivalents

(722,276)

(2,062,615)

Cash and Cash Equivalents - Beginning

2,544,281

4,606,896

Purchase of U.S Treasury obligations, available-for-sale

Net Cash Used by Investing Activities

Cash and Cash Equivalents - Ending

$

1,822,005

$

2,544,281

The accompanying notes are an integral part o f these financial statements.




45

Bank Insurance
Fund
Notes to the
Financial
Statements
December 31, 2004
and 2003




1. Legislation and O p eratio n s o f th e Bank Insurance Fund

Overview
The Federal Deposit Insurance Corporation (FDIC) is the independent deposit
insurance agency created by Congress in 1933 to maintain stability and public
confidence in the nation's banking system. Provisions that govern the operations
of the FDIC are generally found in the Federal Deposit Insurance (FDI) Act, as
amended, (12 U.S.C. 1811, e t seq). In carrying out the purposes of the FDI Act,
as amended, the FDIC insures the deposits of banks and savings associations,
and in cooperation w ith other federal and state agencies prom otes the safety
and soundness of insured depository institutions by identifying, monitoring and
addressing risks to the deposit insurance funds. The FDIC is the adm inistrator
of the Bank Insurance Fund (BIF), the Savings Association Insurance Fund
(SAIF), and the FSLIC Resolution Fund (FRF), w hich are maintained separately to
carry out their respective mandates. The BIF and the SAIF are insurance funds
responsible fo r protecting insured bank and th rift depositors from loss due
to institution failures. These insurance funds m ust be maintained at not less
than 1.25 percent of estim ated insured deposits or a higher percentage as
circum stances warrant. The FRF is a resolution fund responsible fo r the sale
of remaining assets and satisfaction of liabilities associated w ith the form er
Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution
Trust Corporation.
An active in stitu tio n 's insurance fund m em bership and prim ary federal
supervisor are generally determined by the institution's charter type. Deposits
of BIF-member institutions are generally insured by the BIF; BIF m em bers are
predom inantly commercial and savings banks supervised by the FDIC, the Office
of the Com ptroller of the Currency, or the Federal Reserve Board. 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.
In addition to traditional banks and thrifts, several other categories of institutions
exist. 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 fo r the acquired deposits. These institutions w ith deposits
insured by both insurance funds are referred to as Oakar financial institutions.
In addition, SAIF-member thrifts can convert to a bank charter and retain their SAIF
m em bership. These institu tio n s are referred to as Sasser financial institutions.
Likewise, BIF-member banks can convert to a th rift charter and retain their BIF
m em bership.

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 BIF-insured failed institutions
upon appointm ent of FDIC as receiver in a manner that w ill result in the least
possible cost to the BIF. 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.




Bank Insurance Fund

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 FDIC has borrowing authority from the U.S. Treasury up to $30 billion for
insurance purposes on behalf o f the BIF and the SAIF.
A statutory form ula, know n as the M axim um Obligation Lim itation (MOL),
lim its the am ount o f obligations the BIF can incur to the sum o f its cash,
90% of the fair m arket value of other assets, and the am ount authorized
to be borrowed from the U.S. Treasury. The M O L for the BIF was $57.0 billion
as of Decem ber 31, 2004 and 2003.

Receivership Operations
The FDIC is responsible for managing and disposing of the assets of failed
institutions in an orderly and efficient manner. The assets held by receivership
entities, and the claims against them , are accounted fo r separately from BIF
assets and liabilities to ensure that receivership proceeds are distributed in
accordance w ith applicable laws and regulations. Accordingly, income and
expenses attributable to receiverships are accounted fo r as transactions of
those receiverships. Receiverships are billed by the FDIC fo r services provided
on their behalf.

Recent Legislative Initiatives
In April 2001, FDIC issued recom m endations fo r deposit insurance reform. The
FDIC recom m endations included merging BIF and SAIF and improving FDIC's
ability to manage the merged fund by perm itting the FDIC Board of Directors
to price insurance prem ium s properly to reflect risk, to set the reserve ratio in a
range around 1.25 percent, establish a system fo r providing credits, rebates and
surcharges, and to elim inate the SAIF exit fee reserve. FDIC also recom mended
that Congress consider indexing deposit insurance coverage fo r inflation. During
the 107th Congress (2001-2002), hearings w e re held in the House and Senate
and legislation was introduced containing major elem ents of FDIC's deposit
insurance reform proposals. The legislation was not enacted prior to congres­
sional adjournment. During the 108th Congress (2003 - 2004), the House and
Senate again considered deposit insurance reform legislation; however, Congress
adjourned w ith o u t enacting that legislation. Legislation similar to the deposit
insurance reform proposals of the 107th and 108th Congress may be introduced
in the 109th Congress, which begins in January 2005. If Congress enacts deposit
insurance reform legislation that contains the above recom mendations, the new
law would have a significant impact on the BIF and the SAIF. FDIC management,
however, cannot predict w hich provisions, if any, w ill ultim ately be enacted.

47




2 . S u m m a ry o f S ig n ific a n t A c c o u n tin g P o lic ie 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 statem ents 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
Management makes estimates and assumptions that affect the amounts reported
in the financial statem ents and accompanying notes. Actual results could differ
from these estim ates. W here it is reasonably possible that changes in estim ates
w ill cause a m aterial change in the financial s ta te m e n ts in th e near term ,
the nature and extent of such changes in estim ates have been disclosed. The
m ore significant estim ates include allowance fo r loss on receivables from bank
resolutions, the estim ated losses for anticipated failures and litigation, and the
postretirem ent benefit obligation.

Cash Equivalents
Cash equivalents are short-term, highly liquid investm ents 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
BIF funds are required to be invested in obligations of the United States or
in obligations guaranteed as to principal and interest by the United States; the
Secretary of the U.S.Treasury m u st approve all such in vestm ents in excess
of $100,000. The Secretary has granted approval to invest BIF funds only in
U.S. Treasury obligations that are purchased or sold exclusively through the
Bureau o f the Public D ebt's G overnm ent A ccount Series (GAS) program.
BIF's investm ents in U.S. Treasury obligations are either classified as heldto-m aturity 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 prem ium or less the unamortized discount. Am ortizations are
com puted on a daily basis from the date o f acquisition to the date o f maturity,
except fo r callable U.S.Treasury securities, w hich are amortized to the firs t
anticipated call date. Securities designated as available-for-sale are show n 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 S tatem ent of Income and Fund Balance as com ponents of Net Income.
Interest on both types o f securities is calculated on a daily basis and recorded
m onthly using the effective interest method.




Bank Insurance Fund

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

Capital Assets and 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 of its
annual depreciation expense. These usage fees are recorded as cost recoveries,
w hich reduce operating expenses.
The FDIC buildings are depreciated on a straight-line basis over a 35 to 50 year
estim ated life. Leasehold im provem ents are capitalized and depreciated over
the lesser o f the remaining life of the lease or the estim ated useful life of 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 mainframe equipm ent;
furniture, fixtures, and general equipm ent; and internal-use software. Personal
com puter equipm ent is depreciated on a straight-line basis over a three-year
estim ated life.

Disclosure about Recent Accounting Pronouncements
Recent accounting pronouncem ents have been adopted or deemed to be not
applicable to the financial statem ents as presented.

Related Parties
The nature of related parties and a description of related party transactions are
discussed in Note 1 and disclosed throughout the financial statem ents and
footnotes.

Reclassifications
Reclassifications have been made in the 2003 financial statem ents to conform
to the presentation used in 2004.
In 2004, the BIF changed the form at of its S tatem ent of Cash Flows from the
direct method to the indirect method fo r purposes of reporting cash flo w s from
operating activities. Accordingly, the S tatem ent of Cash Flows fo r 2003 contains
certain reclassifications to conform to the BIF's current financial statem ent format.
For 2003 and 2004, the reconciliation o f net incom e to net cash provided by
operating activities is included in the S tatem ent of Cash Flows. Consequently,
inform ation pertaining to gross am ounts of receipts and payments, not required
fo r presentation o f the indirect method, is available w ith in other footnotes to
these financial statem ents.

49

3. In vestm en t in U .S .Treasury O bligations, N et
As of D ecem ber 31, 2004 and 2003, the book value of in ve stm e n ts in
U.S.Treasury obligations, net, was $32.1 billion and $30.5 billion, respectively.
As of December 31, 2004, the BIF held $6.6 billion of Treasury inflation-indexed
securities (TIIS). These securities are indexed to increases or decreases in the
Consumer Price Index fo r All Urban Consumers (CPI-U). Additionally, the BIF
held $6.6 billion of callable U.S. Treasury bonds at Decem ber 31, 2004. Callable
U.S.Treasury bonds may be called five years prior to the respective bonds' stated
m aturity on their semi-annual coupon paym ent dates upon 120 days notice.

U.S. Treasury Obligations at December 31, 2004
Dollars

in T h o u s a n d s

Maturity*

Yield at
PurchaseT

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

Unrealized
Holding
Losses "

Market
Value

Held-to-Maturity
Within 1 year

3.93%

After 1 year thru 5 years

4.94%

10,575,000

11,135,043

399,365

(10,104)

11,524,304

After 5 years thru 10 years

4.76%

4,360,000

4,374,344

197,842

(1,336)

4,570,850

Treasury Inflation-Indexed
After 1 year thru 5 years

3.82%

Total

$

6,290,000

$

640,107

$

6,486,753

$

641,190

21,865,107

$

1,560,000

$

50,757

$

76,255

22,637,330

$

1,598,564

$

(11,129)

$

6,526,381

0

724,219

$

10,129

$

717,445

(22,569)

S 23,338,980

Available-for-Sale
Within 1 year

3.65%

After 1 year thru 5 years

3.72%

1,685,000

Treasury Inflation-Indexed
After 1 year thru 5 years

3.81%

2,270,854

After 5 years thru 10 years

3.75%

3,004,072

Total

$

S

8,519,926

1,893,380

(3,051)

$

1,605,642

31,116

(11,945)

1,912,551

2,268,756

236,566

0

2,505,322

3,019,976

427,114

0

3,447,090

S

8,780,676

S

704,925

$

(14,996)

S

s

31,418,006

$

1,429,144

$

(37,565)

S 32,809,585

9,470,605

Total Investment in U.S. Treasury Obligations, Net

Total

$

30,385,033

• 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 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 2.2%, based on figures issued by the Congressional Budget Office and Blue Chip
Economic Indicators in early 2004.
■ A ll unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until
maturity. As a result, all losses are considered temporary.




Bank Insurance Fund

U.S. Treasury Obligations at December 31, 2003
Dollars

in T h o u s a n d s

Maturity*

Yield at
Purchase T

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

Unrealized
Holding
Losses "

Market
Value

Held-to-Maturity
Within 1 year

5.05%

After 1 year thru 5 years

5.66%

9,985,000

10,244,862

830,414

0

11,075,276

After 5 years thru 10 years

5.42%

1,910,000

1,976,450

191,954

0

2,168,404

Treasury Inflation-Indexed
After 5 years thru 10 years

3.82%

$

3,365,000

$

620,450

$

621,776

$

Total

3,449,985

15,880,450

$

$

5,810,000

$

65,110

$

78,947

16,293,073

$

6,050,064

$

(275)

$

3,514,820

0

700,723

1,166,425

$

(275)

$ 17,459,223

32,642

$

(230)

$

Available-for-Sale
6,082,476

Within 1 year

2.31%

After 1 year thru 5 years

4.68%

Treasury Inflation-Indexed
After 1 year thru 5 years

3.88%

1,225,321

1,215,319

139,813

0

1,355,132

After 5 years thru 10 years

3.75%

3,887,611

3,912,950

516,001

0

4,428,951

Total

1,995,000

s

12,917,932

2,229,143

114,071

0

2,343,214

s

13,407,476

S

802,527

$

(230)

$ 14,209,773

S

29,700,549

$

1,968,952

$

(505)

$ 31,668,996

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

$

28,798,382

• 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 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 2003.
■ A ll unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until
m aturity w ith in the coming year. As a result, all losses are considered temporary and w ill be eliminated upon redemption of the securities.




As of December 31, 2004 and 2003, the unamortized prem ium, net of the
unamortized discount, was $1 billion and $902 million, respectively.

51

4 . Receivables From Bank Resolutions, N e t
The receivables from bank resolutions include payments made by the BIF to
cover obligations to insured depositors, advances to receiverships fo r working
capital, and adm inistrative expenses paid on behalf o f receiverships. Any
related allowance for loss represents the difference betw een the funds advanced
and/or obligations incurred and the expected repaym ent. A ssets held by BIF
receiverships are the main source of repaym ent of the BIF's receivables from
closed banks. As of Decem ber 31, 2004, there w ere 31 active receiverships,
including 3 failures in the current year, w ith assets at failure o f $151 million
and BIF outlays of $133 million.
As of D ecem ber 31, 2004 and 2003, BIF receiverships held assets w ith
a book value of $504 m illion and $756 m illion, respectively (including cash,
investm ents, and miscellaneous receivables of $269 million and $436 million
at Decem ber 31, 2004 and 2003, 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 sampling of receivership assets. The
sampled assets are generally valued by estim ating future cash recoveries, net
of applicable liquidation cost estim ates, and then discounting these net cash
recoveries using current market-based risk factors based on a given asset's
type and quality. Resultant recovery estim ates are extrapolated to the non­
sampled assets in order to derive the allowance fo r loss on the receivable.
These estim ated recoveries are regularly evaluated, but remain subject
to uncertainties because o f potential changes in econom ic and m arket
conditions. Such uncertainties could cause the BIF's actual recoveries to
vary from th e level currently estim ated.

Receivables From Bank Resolutions, N et at December 31
Dollars

’

in T h o u s a n d s

2004
Receivables from closed banks

$

Allowance for losses

Total

52



4,621,702

2003
$

$

375,303

4,914,901
(4,403,812)

(4,246,399)
$

511,089

As of Decem ber 31, 2004, an allowance fo r loss o f $4.2 billion, or 92% of the
gross receivable, w as recorded. Of the remaining 8% o f the gross receivable,
the am ount of credit risk is limited since alm ost tw o-thirds of the receivable
w ill be repaid from receivership cash and investm ents.

Bank Insurance Fund

5.

P ro p e rty an d E q u ip m e n t, N e t

I Property and Equipment, Net at December 31
Dollars

in T h o u s a n d s

2004
Land

$

37,352

2003
$

37,352

Buildings (includes construction-in-process)

221,494

180,187

Application software (includes work-in-process)

223,149

177,111

Furniture, fixtures, and equipment

133,556

97,682

(258,445)

(204,952)

Accumulated depreciation

Total




$

357.106

$

287,380

The depreciation expense w as $54 m illion and $55 m illion fo r 2004 and 2003,
respectively.

6 . C o n tin g e n t L ia b ilitie s fo r:
Anticipated Failure of Insured Institutions
The BIF records a contingent liability and a loss provision
(including Oakar and Sasser financial institutions) th a t
one year o f the reporting date, absent som e favorable
additional capital or merging, w hen the liability becomes
estimable.

for BIF-insured institutions
are likely to fail w ith in
event such as obtaining
probable and reasonably

The contingent liability is derived by applying expected failure rates and loss
rates to institutions based on supervisory ratings, balance sheet characteristics,
and projected capital levels. In addition, institution-specific analysis is perform ed
on those institutions w here failure is im m inent absent institution m anagement
resolution of existing problems, or w here additional inform ation is available that
may affect the estim ate of losses. As o f Decem ber 31, 2004 and 2003, the
contingent liabilities fo r anticipated failure of insured institutions w ere $8 million
and $178 million, respectively.
In addition to these recorded c o n tin g e n t liabilities, th e 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 results from the presence of various high-risk banking business activities
that are particularly vulnerable to adverse econom ic and market conditions. Due
to the uncertainty surrounding such conditions in the future, there are institutions
other than those w ith losses included in the contingent liability for w hich the risk
of failure is less certain, but still considered reasonably possible. As a result of
these risks, the FDIC believes that it is reasonably possible th a t the BIF could
incur additional estim ated losses up to approximately $0.3 billion.

53




The accuracy o f these estim ates w ill largely depend on future econom ic and
market 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 BIF records an estim ated loss for 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 from
unresolved legal cases totaling $51.5 million are reasonably possible.

Other Contingencies

Representations and Warranties
As part of 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
docum entation, the quality o f the underw riting standards used, the accuracy
o f the delinquency status when sold, and the conform ity o f the loans w ith
characteristics o f 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
$3.8 billion as o f December 31, 2004. There w ere no contingent liabilities from
any o f the outstanding claims asserted in connection w ith representations and
warranties at December 31, 2004 and 2003, respectively.
In addition, fu tu re losses on representations and warranties, and guarantees
could be incurred over the rem aining 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 o f outstanding contracts
w ith unasserted representation and w arranty claims. However, because
of the uncertainties surrounding the tim in g o f w hen claim s may be asserted,
the FDIC is unable to reasonably estim ate a range o f loss to th e BIF from
outstanding contracts w ith unasserted representation and w arranty claims.

7 . A s s e s s m e n ts
In compliance w ith provisions of the FDI Act, as amended, the FDIC uses a riskbased assessm ent system that charges higher rates to those institutions that
pose greater risks to the BIF. To arrive at a risk-based assessm ent fo r a particular
institution, the FDIC places each institution in one of nine risk categories based
on capital ratios and supervisory examination data. The m ajority of the financial
institutions are not assessed. Of those assessed, the assessment rate averaged
approximately 22 cents and 20 cents per $100 of assessable deposits for 2004
and 2003, respectively. During 2004 and 2003, $95 million and $80 million w ere
recognized as assessm ent income from BIF-member institutions, respectively.

Bank Insurance Fund

On November 15, 2004, the Board voted to retain the BIF assessm ent schedule
at the annual rate of 0 to 27 cents per $100 of assessable deposits fo r the first
semiannual period of 2005. The Board reviews assessm ent rates semiannually
to ensure that funds are available to satisfy the BIF's obligations. If necessary,
the Board may impose more frequent rate adjustm ents or em ergency special
assessments.
The FDIC is required to maintain the insurance funds at a designated reserve ratio
(DRR) of not less than 1.25 percent of estim ated insured deposits (or a higher
percentage as circum stances warrant). If the reserve ratio 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 o f fifteen years or less.
As o f Septem ber 30, 2004, the BIF reserve ratio w as 1.32 percent of estimated
insured deposits.
A ssessm ents are also levied on in stitutions fo r paym ents o f the interest on
obligations issued by the Financing Corporation (FICO). The FICO was established
as a m ixed-ow nership governm ent corporation to function solely as a financing
vehicle fo r the FSLIC. The annual FICO interest obligation of approxim ately
$790 million is paid on a pro rata basis using the same rate fo r banks and thrifts.
The FICO assessm ent has no financial im pact on the BIF and is separate from
the regular assessm ents. The FDIC, as adm inistrator o f the BIF, acts solely
as a collection agent fo r the FICO. During 2004 and 2003, $631 m illion and
$627 million, respectively, w e re collected from BIF-m em ber in stitutions and
rem itted to the FICO.

8 . O p e ra tin g Expenses
Operating expenses w ere $822 million fo r 2004, compared to $805 million for
2003. The chart below lists the major com ponents of operating expenses.

Operating Expenses for th e Years Ended December 31
Dollars

in T h o u s a n d s

2004
Salaries and benefits

$

575,100

2003
$

555,683

Outside services

84,947

81,851

Travel

36,089

41,773

Buildings and leased space

60,693

61,582

Equipment (not capitalized)

11,595

15,111

Depreciation of property and equipment

54,424

54,947

Other

20,102

20,689

Services billed to receiverships

(20,569)

(26,140)

Total




$

822,381

$

805,496

55

9 . Provision fo r Insurance Losses
Provision for insurance losses was a negative $269 million for 2004 and a negative
$931 m illion fo r 2003. The fo llo w in g chart lists the m ajor com ponents o f the
provision for insurance losses.
1 Provision for Insurance Losses for the Years Ended December 31
Dollars

in T h o u s a n d s

2004

2003

Valuation Adjustments:
Closed banks

$

(82,758)

$

(108,309)

Open bank assistance and other assets

(13,260)

(162)

Total Valuation Adjustments

(96,018)

(108,471)

(170,005)

(829,831)

Contingent Liabilities Adjustments:
Anticipated failure of insured institutions
Litigation losses

(3,998)

Other contingencies

Total Contingent Liabilities Adjustments

6,793

(173,350)
$

Total




345

653

(269,368)

(822,693)
$

(931,164)

1 0 . E m p lo y e e B e n e fits
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 the federal government retirement plans, either
the Civil Service Retirement System (CSRS) or the Federal Employees Retirement
System (FERS). Although the BIF contributes a portion of pension benefits fo r
eligible employees, it does not account for the assets o f 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 up to five percent. The BIF pays
its share of the employer's portion of all related costs.
In October 2004, the FDIC announced a voluntary employee buyout program to
a m ajority o f its em ployees in an e ffo rt to fu rth e r reduce identified staffing
excesses. The o ffe r period fo r the buyout program is from Novem ber 1, 2004
to May 2, 2005. Termination benefits include compensation of fifty percent of
the current salary fo r voluntary departures. The reasonably estim ated total cost
associated w ith employees expected to accept the buyout o ffe r is $23.7 million,
w ith BIF's pro rata share totaling $20.6 million. During 2004, 129 employees
left the FDIC. The total cost of this buyout w as $6.9 million fo r 2004, w ith BIF's
pro rata share totaling $6 million, w hich is included in the "O perating expenses"
and the "A ccounts payable and other liabilities" line item s.

Bank Insurance Fund

In the event the FDIC does not m eet its staffing reduction goal through the
voluntary em ployee buyout program, the FDIC plans to conduct a reductionin-force (RIF). Because o f uncertainties regarding the num ber of em ployees
that w ill be subject to the RIF, the FDIC is unable to reasonably estim ate the
related costs.
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

2004
Civil Service Retirement System

$

7,958

Federal Employees Retirement System (Basic Benefit)

19,604

Federal Thrift Savings Plan

Total




17,397

13,715

Separation Incentive Payment

12,066

6,082
$

80,997

7,740
29,477

33,638

FDIC Savings Plan

2003
$

91

$

66,771

Postretirem ent Benefits O ther Than Pensions
The FDIC provides certain life and dental insurance coverage for 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) 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 to all retirees eligible fo r an
im m ediate annuity.
As of January 1, 2003, the FDIC ceased funding fo r postretirem ent benefits and
eliminated the separate entity in order to sim plify the investm ent, accounting,
and reporting fo r the obligation. The separate e ntity had been established to
restrict the funds and to provide fo r the accounting and administration o f these
benefits. As a result, the BIF received $89 million as its proportionate share
of the plan assets and recognized a liability of $90 m illion in the "Accounts
payable and other liabilities" line item on its Balance Sheet.
A t D ecem ber 31, 2004 and 2003, the BIF's net p o stre tire m e n t benefit liability
recognized in th e "Accounts payable and o ther liabilities" line item in the
Balance Sheet w as $104 m illion and $98 million, respectively. In addition,
the BIF's expense fo r these benefits in 2004 and 2003 w as $9.3 m illion and
$11 m illion, respectively, w hich is included in the current and prior year's
operating expenses. Key actuarial assum ptions used in the accounting fo r
the plan include the discount rate, the rate o f com pensation increase, and
the dental coverage trend rate.

57

1 1. C o m m itm e n ts an d O ff-B a la n c e -S h e e t E xp o su re
Com m itm ents:

Leased Space
The BIF's allocated share of the FDIC's lease com m itm ents totals $105 million
for future years. The lease agreem ents contain escalation clauses resulting in
adjustm ents, usually on an annual basis. The allocation to the BIF of the FDIC's
future lease com m itm ents is based upon current relationships o f the w orkloads
among the BIF and the SAIF. 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 million and $38 million
fo r the years ended December 31, 2004 and 2003, respectively.
I Leased Space C om m itm ents
Dollars

in T h o u s a n d s

2005

2006

2007

2008

2009

2010/Thereafter

$ 36,121

S 25,948

S 16,814

________ $ 11.487

S 10,081

S 4,424

Digitized 58 FRASER
for


Off-Balance-Sheet Exposure:

Asset Securitization Guarantees
As part of the FDIC's efforts to maximize the return from the sale or disposition
of assets from bank resolutions, the FDIC has securitized some receivership
assets. To facilitate the securitizations, the BIF provided lim ited guarantees to
cover certain losses on the securitized assets up to a specified maxim um . In
exchange fo r backing the limited guarantees, the BIF received assets from the
receiverships in an amount equal to the expected exposure under the guarantees.
Currently, there is one lim ited guarantee deal remaining w ith a term of approxi­
mately 20 years. This deal w ill be evaluated fo r possible term ination in 2005.
As of Decem ber 31, 2004 and 2003, the maximum off-balance-sheet exposure
was $37 million and $81 million, respectively.

Deposit Insurance
As o f S eptem ber 30, 2004, deposits insured by the BIF totaled approxim ately
$2.6 trillion. This w ould be the accounting loss if all depository institutions w ere
to fail and the acquired assets provided no recoveries.




Bank Insurance Fund

1 2 . D isclosures A b o u t th e Fair V a lu e o f F inancial In s tru m e n ts
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 market prices. The carrying amount
of interest receivable on investm ents, 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 paym ents 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
ultim ately a ffect the BIF's allowance fo r loss against the net receivables from
bank resolutions. Therefore, the corporate subrogated claim indirectly includes
the e ffe ct o f 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 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
p ro fit from these assets because o f credit and o ther risks. In addition, the
tim ing of receivership paym ents to the BIF on the subrogated claim does
not necessarily correspond w ith the tim ing of collections on receivership
assets. Therefore, th e e ffe c t of discounting used by receiverships should
not necessarily be view ed as producing an estim ate of m arket value fo r
the net receivables from bank resolutions.

59

Savings
Association
Insurance
Fund
December 31, 2004
and 2003




Savings A ssociation Insurance Fund

Federal

Deposit

Insurance

C o r p o r ation

1 Savings Association Insurance Fund Balance Sheet at December 31
Dol l ars

in T h o u s a n d s

2004

2003

Assets
Cash and cash equivalents

$

Cash and other assets: Restricted for SAIF-member exit fees (Note 3)
IIncludes cash and cash equivalents of $56.5 million and $231.9 million
at December 31, 2004 and 2003, respectively)

644,346

$

328,394

827,141

319,286

Investment in U.S. Treasury obligations, net: (Note 4)
Held-to-maturity securities

8,835,964

6,823,709

Available-for-sale securities

2,720,315

4,152,048

Interest receivable on investments and other assets, net

200,204

188,189

Receivables from thrift resolutions, net (Note 5)

346,923

273,242

Total Assets

$

13,076,146

$

12,583,615

$

25,568

$

20,540

Liabilities
Accounts payable and other liabilities
Contingent liabilities for: (Note 6)
Anticipated failure of insured institutions

1,957

Litigation losses

3,192

39

532

SAIF-member exit fees and investment proceeds held in escrow (Note 3)

328,394

319,286

Total Liabilities

355,958

343,550

12,482,227

11,965,776

237,961

274,289

12,720,188

12,240,065

Commitments and off-balance-sheet exposure (Note 111

Fund Balance
Accumulated net income
Unrealized gain on available-for-sale securities, net (Note 4)

Total Fund Balance

Total Liabilities and Fund Balance

s

13,076,146

$

12,583,615

The accompanying notes are an integral part o f these financial statements.




61

Federal

Deposit

Insurance

Corporation

1Savings Association Insurance Fund Statem ent of Income and Fund Balance for the Years Ended December 31
Dollars

j

in T h o u s a n d s

2004

2003

Revenue
Interest on U.S.Treasury obligations

$

Assessments (Note 7)
Other revenue

$

555,592

532,474
14,594

8,891
292

192

Total Revenue

564,775

547,260

Expenses and Losses
Operating expenses (Note 8)
Provision for insurance losses (Note 9)

120,282
(72,162)

Insurance and other expenses

204

Total Expenses and Losses
Net Income

129,584
(82,489)
105

48,324
516,451

47,200
500,060

Unrealized loss on available-for-sale securities, net

(36,328)

(6,733)

Comprehensive Income

480,123

493,327

12,240,065

11,746,738

Fund Balance - Beginning

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

Digitized 62 FRASER
for


$

12,720,188

$

12,240,065

Savings A ssociation Insurance Fund

F e d e r a I D e p o s it

I n s u ra n c e

Corporation

Savings Association Insurance Fund S tatem ent of Cash Flows for the Years Ended December 31
Dol l ars

in T h o u s a n d s

2004
Operating Activities
Net Income:

$

516,451

2003

$

500,060

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of U.S.Treasury obligations

262,317

155,992

Treasury inflation-indexed securities (TIIS) inflation adjustment

(61,431)

(38,943)

Provision for losses

(72,162)

(82,489)

2,443

931

(16,288)

(32,810)

Change in Operating Assets and Liabilities:
Decrease in unamortized premium and discount of U.S.Treasury Obligations (restricted)
(Increase) in entrance and exit fees receivable, including interest receivable
on investments and other assets

(2,635)

Increase in accounts payable and other liabilities
(Decrease) in contingent liabilities for litigation losses

8,699

5,028

(lncrease)/Decrease in receivables from thrift resolutions

13,440

0

(209)

9,107

7,422

642,830

532,093

Maturity of U.S.Treasury obligations, held-to-maturity

1,690,000

1,170,000

Maturity of U.S.Treasury obligations, available-for-sale

1,360,000

575,000

(4,051,084)

(2,305,056)

Increase in exit fees and investment proceeds held in escrow

Net Cash Provided by Operating Activities
Investing Activities
Provided by:

Used by:
Purchase of U.S.Treasury obligations, held-to-maturity
Purchase of U.S.Treasury obligations, available-for-sale

0

(1,008,066)

(1,001,084)

(1,568,122)

Net Decrease in Cash and Cash Equivalents

(358,254)

(1,036,029)

Cash and Cash Equivalents - Beginning

1,059,052

2,095,081

Net Cash Used by Investing Activities

644,346

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

S

827,141

56,452

Unrestricted Cash and Cash Equivalents - Ending

231,911

700,798

$

1,059,052

The accompanying notes are an integral part o f these financial statements.




63

Savings
Association
Insurance
Fund
Notes to the
Financial
Statements
December 31,
and 2003




Legislation and O perations o f th e Savings A sso ciatio n Insurance
Fund

Overview
The Federal Deposit Insurance Corporation (FDIC) is the independent deposit
insurance agency created by Congress in 1933 to maintain stability and public
confidence in the nation's banking system . Provisions that govern the operations
of the FDIC are generally found in the Federal Deposit Insurance (FDI) Act, as
amended, (12 U.S.C. 1811, etse q ). In carrying out the purposes of the FDI Act,
as amended, the FDIC insures the deposits of banks and savings associations,
and in cooperation w ith other federal and state agencies prom otes the safety
and soundness of insured depository institutions by identifying, monitoring and
addressing risks to the deposit insurance funds. FDIC is the adm inistrator of
the Savings Association Insurance Fund (SAIF), the Bank Insurance Fund (BIF),
and the FSLIC Resolution Fund (FRF), w hich are maintained separately to carry
out th e ir respective m andates. The SAIF and the BIF are insurance funds
responsible for protecting insured th rift and bank depositors from loss due
to institution failures. These insurance funds m ust be maintained at not less
than 1.25 percent of estim ated insured deposits or a higher percentage as
circum stances warrant. The FRF is a resolution fund responsible fo r the sale
of remaining assets and satisfaction of liabilities associated w ith the form er
Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution
Trust Corporation.
An active in stitu tio n 's insurance fund m em bership and prim ary 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 T hrift Supervision (OTS).
D eposits o f B IF-m em ber in stitu tio n s are generally insured by the BIF; BIF
m em bers are predom inantly commercial and savings banks supervised by the
FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve Board.
In addition to traditional th rifts and banks, several other categories o f institutions
exist. 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 fo r the acquired deposits. These institutions w ith deposits
insured by both insurance funds are referred to as Oakar financial institutions.
In addition, SAIF-member th rifts can convert to a bank charter and retain their
SAIF membership. These institutions are referred to as Sasser financial institutions.
Likewise, BIF-member banks can convert to a th rift charter and retain their BIF
membership.

Operations of the SAIF
The primary purpose of the SAIF is to: 1) insure the deposits and protect
the depositors of SAIF-insured institutions and 2) resolve SAIF-insured failed
institutions upon appointm ent of FDIC as receiver in a manner that w ill result
in the least possible cost to the SAIF.




Savings A ssociation Insurance Fund

The SAIF is prim arily funded fro m : 1) in te re st earned on inve stm e n ts in
U.S. Treasury obligations and 2) deposit insurance assessm ents. Additional
funding sources are borrowings from the U.S. Treasury, the Federal Financing Bank
(FFB), and the Federal Home Loan Banks, if necessary. The FDIC has borrowing
a uthority fro m th e U.S. Treasury up to $30 billion fo r insurance purposes on
behalf of the SAIF and the BIF.
A statutory formula, known as the M axim um Obligation Limitation (MOL), limits
the am ount of obligations the SAIF can incur to the sum of its cash, 90% of the
fair market value of other assets, and the amount authorized to be borrowed from
the U.S. Treasury. The M O L fo r the SAIF was $21.0 billion and $20.3 billion as
o f Decem ber 31, 2004 and 2003, respectively.

Receivership Operations
The FDIC is responsible fo r managing and disposing of the assets of failed
institutions in an orderly and efficient manner. The assets held by receivership
entities, and the claims against them , are accounted fo r separately from SAIF
assets and liabilities to ensure that receivership proceeds are distributed in
accordance w ith applicable laws and regulations. Accordingly, incom e and
expenses attributable to receiverships are accounted fo r as transactions
of those receiverships. Receiverships are billed by the FDIC fo r services
provided on th e ir behalf.

Recent Legislative Initiatives
In April 2001, FDIC issued recom m endations for deposit insurance reform. The
FDIC recom m endations included merging SAIF and BIF and improving FDIC's
ability to manage the merged fund by perm itting the FDIC Board of Directors
to price insurance prem ium s properly to reflect risk, to set the reserve ratio in a
range around 1.25 percent, establish a system fo r providing credits, rebates and
surcharges, and to elim inate the SAIF exit fee reserve. FDIC also recom mended
that Congress consider indexing deposit insurance coverage fo r inflation.
During the 107th Congress (2001-2002), hearings w ere held in the House and
Senate and legislation w as introduced containing major elem ents of FDIC's
deposit insurance reform proposals. The legislation w as not enacted prior to
congressional adjournment. During the 108th Congress (2003 - 2004), the House
and Senate again considered deposit insurance reform legislation; however,
Congress adjourned w ith o u t enacting that legislation. Legislation similar to the
deposit insurance reform proposals of the 107th and 108th Congress may be
introduced in the 109th Congress, w hich begins in January, 2005. If Congress
enacts deposit insurance reform legislation that contains the above recom m en­
dations, the new law w ould have a significant im pact on the SAIF and the BIF.
FDIC management, however, cannot predict w hich provisions, if any, w ill
ultim ately be enacted.

65




2 . S u m 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 of the SAIF and are presented in conform ity w ith U.S. generally
accepted accounting principles (GAAP). These s ta te m e n ts 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
M anagement makes estimates and assumptions that affect the amounts reported
in the financial statem ents and accompanying notes. Actual results could d iffe r
from these estimates. W here it is reasonably possible that changes in estimates
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. The
more significant estim ates include allowance fo r loss on receivables from th rift
resolutions, the estim ated losses fo r anticipated failures and litigation, and the
postretirem ent benefit obligation.

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
SAIF funds are required to be invested in obligations of the United States or
in obligations guaranteed as to principal and interest by the United States; the
Secretary of the U.S. Treasury m ust approve all such investm ents in excess of
$100,000. The Secretary has granted approval to invest SAIF funds only in
U.S. Treasury obligations th a t are purchased or sold exclusively through the
Bureau of the Public Debt's G overnm ent A ccount Series (GAS) program.
SAIF's investm ents in U.S. Treasury obligations are either classified as heldto-m aturity or available-for-sale. Securities designated as held-to-maturity are
shown at amortized cost. Am ortized cost is the face value o f securities plus
the unamortized prem ium or less the unamortized discount. Am ortizations are
com puted on a daily basis from the date of acquisition to the date o f maturity,
except fo r callable U.S. Treasury securities, w hich are amortized to the first
anticipated call date. Securities designated as available-for-sale are show n at
m arket value, w hich approxim ates fair value. Unrealized gains and losses are
included in Comprehensive Income. Realized gains and losses are included
in the Statem ent of Incom e and Fund Balance as com ponents o f Net Income.
Interest on both types of securities is calculated on a daily basis and recorded
m onthly using the e ffective interest method.




Savings A ssociation Insurance Fund

Cost Allocations Am ong Funds
Operating expenses not directly charged to the SAIF, the BIF, and the FRF
are allocated to all funds using w orkload-based allocation percentages. These
percentages are developed during the annual corporate planning process and
through supplem ental functional analyses.

Disclosure about Recent Accounting Pronouncements
Recent accounting pronouncem ents have been adopted or deemed to be not
applicable to the financial statem ents as presented.

Related Parties
The nature o f related parties and a description o f related party transactions
are discussed in Note 1 and disclosed th ro u g h o u t the financial statem ents
and footnotes.

Reclassifications
Reclassifications have been made in the 2003 financial statem ents to conform
to the presentation used in 2004.
In 2004, the SAIF changed the form at of its S tatem ent of Cash Flows from the
direct method to the indirect method fo r purposes of reporting cash flo w s from
operating activities. Accordingly, the S tatem ent o f Cash Flows fo r 2003 contains
certain reclassifications to conform to the SAIF's current financial statem ent
form at. For 2003 and 2004, the reconciliation of net income to net cash provided
by operating activities is included in the S tatem ent of Cash Flows. Consequently,
inform ation pertaining to gross amounts of receipts and payments, not required
fo r presentation o f the indirect method, is available w ithin other footnotes to
these financial statem ents.

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 Federal
R egister 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 e scro w such funds fo r th e paym ent o f interest on obligations
previously issued by the FICO. These escrow ed e xit fees are invested in
U.S. Treasury securities pending determ ination of ow nership. The interest
earned is also held in escrow. There w e re no conversion transactions during
2004 and 2003 that resulted in an e n tra n ce /e xit fee to the SAIF.

67

Cash and Other Assets: Restricted for S A IF-M em b er Exit Fees at December 31
Dollars

I

in T h o u s a n d s

2003

2004
Cash and cash equivalents

56,452

$

$

231,911

267,375

Interest receivable on U.S. Treasury obligations

Total

86,471

4,567

Investment in U.S. Treasury obligations, net

904

328,394

S

$

319,286

U.S. Treasury Obligations at December 31, 2004 (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

Net
Carrying
Amount

Face
Value

2.36%
4.40%

104,000

115,725

2,852

(60)

118,517

After 5 years thru 10 years

4.67%

80,000

77,771

3,184

0

80,955

6,036

S (222)

$ 273,189

$

254,000

$

73,879

Market
Value

After 1 year thru 5 years

Total

$

Unrealized
Holding
Losses

Within 1 year

$

70,000

Unrealized
Holding
Gains

267,375

$

0

S

$

(162)

$

73,717

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until
maturity. As a result, all losses are considered temporary.

U.S. Treasury Obligations at December 31, 2003 (Restricted for S AIF-M em ber Exit Fees)
Dollars

in T h o u s a n d s

Held-to-Maturity
Net
Maturity
Within 1 year

5.79%

After 1 year thru 5 years

5.20%

Total

Digitized 68 FRASER
for


Unrealized

Carrying

Holding

Holding

Market

Value
$

Unrealized

Face

Yield at
Purchase

Amount

Gains

Losses

Value

20,000

$

84,000

$

66,204

64,000
$

20,267

$

86,471

683

$

5,349

$

6,032

0

$

0

S

o

20,950
71,553

$

As o f December 31, 2004 and 2003, the unamortized prem ium, net of the
unamortized discount, was $13.4 million and $2.5 million, respectively.

92,503




Savings A ssociation Insurance Fund

4 . In v es tm e n t in U .S. Treasury O b ligatio ns, N e t
As of D ecem ber 31, 2004 and 2003, the book value o f inve stm e n ts in
U.S. Treasury obligations, net, w as $11.6 billion and $11.0 billion, respectively.
As o f Decem ber 31, 2004, the SAIF held $2.2 billion of Treasury inflationindexed securities (TIIS). These securities are indexed to increases or decreases
in the Consumer Price Index fo r All Urban Consumers (CPI-U). Additionally,
the SAIF held $2.4 billion of callable U.S. Treasury bonds at December 31, 2004.
Callable U.S. Treasury bonds may be called five years prior to the respective
bonds' stated m a tu rity on th e ir sem i-annual coupon paym ent dates upon
120 days notice.

69

U.S. Treasury Obligations at December 31, 2004 (Unrestricted)
Dol l ars

in T h o u s a n d s

Maturity *

Yield at
Purchase''

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

Unrealized
Holding
Losses ■

Market
Value

Heid-to-Maturity
Within 1 year

3.13%

After 1 year thru 5 years

4.93%

$

4,540,000

1,860,000

4,755,416

200,907

(6,373)

4,949,950

After 5 years thru 10 years

4.97%

1,900,000

1,910,232

107,408

(401)

2,017,239

$

1,935,365

$

9,296

$

(4,608)

$

1,940,053

Treasury Inflation-Indexed
After 1 year thru 5 years

3.86%

236,288

S

Total

234,951

8,536,288

s

270,000

$

22,428

8,835,964

$

275,656

$

0

340,039

$

1,831

$

257,379

(11,382)

$

0

$

9,164,621

Available-for-Sale

$

Within 1 year

5.00%

After 1 year thru 5 years

4.10%

385,000

Treasury Inflation-Indexed
After 1 year thru 5 years

4.07%

859,729

After 5 years thru 10 years

3.63%

904,362

Total

S

2,419,091

443,689

277,487

10,916

(1,034)

853,047

101,420

0

954,467

_ 909.962

124,828

0

1,034,790

$

2,482,354

$

238,995

S

11,318,318

s

579,034

S

453,571

(1,034)

S

2,720,315

(12,416)

s

11,884,936

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

Total

s

10,955,379

$

* For purposes of this table, all callable securities are assumed to mature on th e ir firs t call dates. Their yields at purchase are reported as th e ir 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 long-term annual inflation
assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2%, based on figures issued by the Congressional Budget Office and Blue Chip
Economic Indicators in early 2004.
■ A ll unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ab ility and intent to hold the related securities
until maturity. As a result, all losses are considered temporary.

Digitized 70 FRASER
for


Savings A ssociation Insurance Fund

U.S. Treasury Obligations at December 31, 2003 (Unrestricted)
Dollars

in T h o u s a n d s

Maturity *

Yield at
Purchase’

Net
Carrying
Amount

Face
Value

Unrealized
Holding
Gains

Unrealized
Holding
Losses ■

Market
Value

I Held-to-Maturity
Within 1 year

2.86%

After 1 year thru 5 years

5.59%

$

3,185,000

1,670,000

$

3,250,611

1,742,136

$

284,578

12,009

$

(122)
0

3,535,189

After 5 years thru 10 years

5.54%

1,575,000

1,603,674

169,813

0

1,773,487

$

1,754,023

Treasury Inflation-Indexed
After 1 year thru 5 years

229,032

3.86%

227,288

26,008

S

Total

6,659,032

$

6,823,709

S

$

1,360,000

$

1,413,730

$

0

253,296

492,408

S

(122)

$

7,315,995

16,265

$

(99)
0

$

1,429,896

1Available-for-Sale
Within 1 year

3.15%

After 1 year thru 5 years

4.43%

655,000

756,058

34,530

790,588

Treasury Inflation-Indexed
After 1 year thru 5 years

4.11%

280,564

276,009

34,278

0

310,287

After 5 years thru 10 years

3.79%

1,429,352

1,431,962

189,315

0

1,621,277

Total

$

3,724,916

$

3,877,759

$

274,388

$

(99)

S 10,701,468

S

766,796

$

(221)

$

4,152,048

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

$

10,383,948

S 11,468,043

* 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 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 2003.
■ A ll unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the a b ility and intent to hold the related securities until
m aturity w ith in the coming year. As a result, all losses are considered temporary and w ill be elim inated upon redemption of the securities.




As of December 31, 2004 and 2003, the unamortized prem ium, net of the
unamortized discount, was $362.9 million and $317.5 million, respectively.

71

5. R eceivables From T h rift R esolutions, N et
The receivables from th rift resolutions include payments made by the SAIF to
cover obligations to insured depositors, advances to receiverships fo r working
capital, and administrative expenses paid on behalf of receiverships. Any related
allowance fo r loss represents the difference betw een the funds advanced
and/or obligations incurred and the expected repayment. A ssets held by SAIF
receiverships are the main source o f repaym ent of the SAIF's receivables from
closed th rifts . As o f D ecem ber 31, 2004, there w e re 3 active receiverships,
including 1 th rift failure in the current year, w ith assets at failure of S15.3 million
and SAIF outlays of $5.6 million.
As of D ecem ber 31, 2004 and 2003, SAIF receiverships held assets w ith
a book value of $483 m illion and $449 million, respectively (including cash,
investm ents, and miscellaneous receivables of $182 million and $117 million
at December 31, 2004 and 2003, respectively). The estim ated cash recoveries
from the management and disposition o f these assets that are used to derive
the allowance fo r losses are based on a sampling o f receivership assets. The
sampled assets are generally valued by estim ating future cash recoveries, net
of applicable liquidation cost estim ates, and then discounting these net cash
recoveries using current market-based risk factors based on a given asset's type
and quality. Resultant recovery estim ates are extrapolated to the non-sampled
assets in order to derive the allowance for loss on the receivable. These estimated
recoveries are regularly evaluated, but remain subject to uncertainties because of
potential changes in economic and market conditions. Such uncertainties could
cause the SAIF's actual recoveries to vary from the level currently estimated.
1 Receivables From Thrift Resolutions, N et at December 31
Dollars

in T h o u s a n d s

2004
Receivables from closed thrifts

$

72



$

(363,294)

Allowance for losses

Total

710,217

2003

$

346,923

709,389
(436,147)

$

273,242

A t December 31, 2004, about 99% of the SAIF's $347 million net receivable
w ill be repaid from assets related to the Superior receivership (which failed in
July 2001). These assets primarily consist of cash, investments, and a promissory
note arising fro m a se ttle m e n t w ith the o w ners o f the failed institution. The
credit risk related to the prom issory note is lim ited since half o f the outstanding
note is secured by a le tte r of credit and the rem aining half is subject to the
cre d itw o rth in e ss of the payor o f the note. Annual m onitoring o f th e credit­
w o rth in e ss o f the payor is perform ed and currently indicates a lo w risk of
non-perform ance.




Savings A ssociation Insurance Fund

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

A nticipated Failure of Insured Institutions
The SAIF records a contingent liability and a loss provision fo r SAIF-insured
institutions (including Oakar and Sasser financial institutions) that are likely
to fail w ithin one year of the reporting date, absent som e favorable event such
as obtaining additional capital or merging, w hen the liability becomes probable
and reasonably estimable.
The contingent liability is derived by applying expected failure rates and loss
rates to institutions based on supervisory ratings, balance sheet characteristics,
and projected capital levels. In addition, institution-specific analysis is performed
on those institutions w here failure is im m inent absent institution m anagement
resolution o f existing problems, or w here additional inform ation is available that
may a ffect the estim ate of losses. As of Decem ber 31, 2004 and 2003, the
contingent liabilities fo r anticipated failure o f insured institutions w ere $2 million
and $3 million, respectively.
In addition to these recorded contingent liabilities, the FDIC has identified additional
risk in the financial services industry th a t could result in a material loss to the
SAIF should potentially vulnerable financial institutions ultim ately fail. This risk
results from the presence of various high-risk banking business activities that
are particularly vulnerable to adverse econom ic and market conditions. Due to
the uncertainty surrounding such conditions in the future, there are institutions
other than those w ith losses included in the contingent liability for w hich the risk
of failure is less certain, but still considered reasonably possible. As a result of
these risks, the FDIC believes that it is reasonably possible that the SAIF could
incur additional estim ated losses up to approximately $0.1 billion.
The accuracy o f these estim ates w ill largely depend on fu tu re 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 $206.5 thousand are reasonably possible.

Other Contingencies

Representations and Warranties
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 certain loan sales. In general, the guarantees, representations, and warranties
on loans sold relate to the com pleteness and accuracy of loan documentation,

73




the quality of the underw riting standards used, the accuracy of the delinquency
status w hen sold, and the co n fo rm ity o f the loans w ith characteristics of
th e pool in w hich th e y w e re sold. The total am ount o f loans sold subject
to unexpired representations and warranties, and guarantees w as $4.7 billion
as of D ecem ber 31, 2004. SAIF did not establish a liability fo r all outstanding
claims asserted in connection w ith representations and w arranties because
the receiverships have su fficie n t funds to pay fo r such claims.
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 SAIF from the universe of outstanding contracts
w ith unasserted representation and warranty claims. However, because of the
uncertainties surrounding the tim ing of w hen 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.

7. A ssessm ents
In compliance w ith provisions of the FDI Act, as amended, 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 for
a particular in stitu tio n , th e FDIC places each in stitu tio n in one of nine risk
categories based on capital ratios and supervisory examination data. The majority
of the financial institutions are not assessed. Of those assessed, the assessment
rate averaged approxim ately 8 cents and 14 cents per $100 o f assessable
deposits fo r 2004 and 2003, respectively. During 2004 and 2003, $9 million
and $15 million w ere recognized as assessm ent income from SAIF-member
institutions, respectively. On November 15, 2004, the Board voted to retain
the SAIF assessm 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 2005. The Board
review s assessm ent rates sem iannually to ensure th a t funds are available
to satisfy th e SAIF's obligations. If necessary, th e Board may im pose m ore
fre q u e n t rate adjustm ents or em ergency special assessm ents.
The FDIC is required to maintain the insurance funds at a designated reserve
ratio (DRR) of not less than 1.25 percent of estim ated insured deposits (or a
higher percentage as circumstances warrant). If the reserve ratio 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. As of September 30, 2004, the SAIF reserve ratio was 1.33 percent
of estim ated insured deposits.
Assessm ents are also levied on institutions fo r payments o f the interest on
obligations issued by the Financing Corporation (FICO). The FICO was established
as a m ixed-ownership governm ent corporation to function solely as a financing
vehicle fo r the FSLIC. The annual FICO interest obligation of approximately
$790 million is 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 SAIF and is separate from

Savings A ssociation Insurance Fund

the regular assessm ents. The FDIC, as adm inistrator o f the SAIF, acts solely
as a collection agent fo r the FICO. During 2004 and 2003, $161 m illion and
$162 m illion, respectively, w ere collected from SAIF-m em ber institu tio n s and
rem itted to the FICO.

8 . O peratin g Expenses
Operating expenses totaled $120 million fo r 2004, compared to $130 million for
2003. The chart below lists the major com ponents of operating expenses.
Operating Expenses for the Years Ended December 31
Dollars

in T h o u s a n d s

2004
$

Salaries and benefits

81,649

4,357

15,038

10,662

Equipment

9,649

12,132
9,374

2,920

3,189

Services billed to receiverships

(3,412)

Total

87,963

5,801

Buildings and leased space
Other

$

14,457

Outside services
Travel

2003

S

(3,913)

S

120,282

129,584

9 . P ro v is io n fo r In s u ra n c e Losses
Provision fo r insurance losses w a s a negative $72 m illion fo r 2004 and a negative
$82 m illio n fo r 2003. The fo llo w in g c h a rt lis ts th e m a jo r c o m p o n e n ts o f th e
provision fo r insurance losses.

Provision for Insurance Losses for th e Years Ended December 31
Dol l ars

in T h o u s a n d s

2004

2003

Valuation Adjustments:
Closed thrifts

$

(70,435)

Total Valuation Adjustments

$

4,684

(70,435)

4,684

(1,235)

(87,301)

(1,727)

(87,173)

Contingent Liabilities Adjustments:
Anticipated failure of insured institutions
Litigation losses

(492)

Total Contingent Liabilities Adjustments
Total



S

128

(72,162)

$

(82,489)

75

10. Em ployee B enefits

Pension Benefits, Savings Plans and Postem ploym ent Benefits
Eligible FDIC employees (permanent and term em ployees w ith appointm ents
exceeding one year) are covered by the federal governm ent retirem ent plans,
either the Civil Service R etirem ent System (CSRS) or the Federal Employees
R etirem ent System (FERS). Although the SAIF contributes a portion of pension
benefits fo r eligible em ployees, it does not account fo r th e 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 em ployees. 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 up to five percent. The SAIF
pays its share of the em ployer's portion of all related costs.
In October 2004, the FDIC announced a voluntary employee buyout program
to a m ajority of its em ployees in an e ffo rt to fu rth e r reduce identified staffing
excesses. The offer period for the buyout program is from November 1, 2004
to May 2, 2005. Termination benefits include compensation of fifty percent of
the current salary fo r voluntary departures. The reasonably estim ated total cost
associated w ith employees expected to accept the buyout offer is $23.7 million,
w ith SAIF's pro rata share totaling $3.1 million. During 2004, 129 employees
left the FDIC. The total cost of this buyout was $6.9 million for 2004, w ith
SAIF's pro rata share totaling $903 thousand, w hich is included in the "Operating
expenses" and the "A ccounts payable and other liabilities" line items.
In the event the FDIC does not m eet its staffing reduction goal through the
voluntary em ployee buyout program, the FDIC plans to conduct a reductionin-force (RIF). Because of uncertainties regarding the num ber o f em ployees
that w ill be subject to the RIF, the FDIC is unable to reasonably estim ate the
related costs.

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

in T h o u s a n d s

2004
Civil Service Retirement System

$

Federal Employees Retirement System (Basic Benefit)
FDIC Savings Plan

2,788
1,934

1,900

909

S

1,258
4,682

2,813

Separation Incentive Payment

Digitized 76 FRASER
for


$

4,793

Federal Thrift Savings Plan

Total

1,182

2003

11,631

14
$

10,642




Savings A ssociation Insurance Fund

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 mediate
enrollm ent upon appointm ent or five years o f participation in the plan and
2) eligibility for an immediate annuity. The life insurance program provides basic
coverage at no cost to retirees and allow s converting optional coverages to
direct-pay plans. Dental coverage is provided to all retirees eligible fo r an
im m ediate annuity.
As o f January 1, 2003, the FDIC ceased funding fo r postretirem ent benefits
and eliminated the separate entity in order to sim plify the investment, accounting,
and reporting fo r the obligation. The separate e n tity had been established to
restrict the funds and to provide fo r the accounting and adm inistration o f these
benefits. As a result, the SAIF received $14 million as its proportionate share
o f the plan assets and recognized a liability of $14 million in the "Accounts
payable and other liabilities" line item on its Balance Sheet.
A t December 31, 2004 and 2003, the SAIF's net postretirement benefit liability
recognized in the "Accounts payable and other liabilities" line item in the Balance
Sheet w as $15.7 m illion and $15 million, respectively. In addition, the SAIF's
expense fo r these benefits in 2004 and 2003 w as $1.4 million and $1 million,
respectively, which is included in the current and prior year's operating expenses.
Key actuarial assumptions used in the accounting for the plan include the discount
rate, the rate o f compensation increase, and the dental coverage trend rate.

77

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

C om m itm ents:

Leased Space
The SAIF's allocated share of the FDIC's lease com m itm ents totals $14.4 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 and the BIF. Changes in the relative workloads could cause
the am ounts allocated to the SAIF in the future to vary from the am ounts shown
below. The SAIF recognized leased space expense of $6.9 million and $7.9 million
fo r the years ended December 31, 2004 and 2003, respectively.
I Leased Space C om m itm ents
Dollars

in T h o u s a n d s

2005

2006

2007

2008

2009

2010/Thereafter

$ 4,963

$ 3,559

$ 2,308

$ 1,579

S 1,380

S 603

Digitized 78 FRASER
for


Off-Balance-Sheet Exposure:

Deposit Insurance
As of Septem ber 30, 2004, deposits insured by the SAIF totaled approximately
$944 billion. This w ould be the accounting loss if all depository institutions w ere
to fail and the acquired assets provided no recoveries.




Savings A ssociation Insurance Fund

12. D isclosures A b o u t th e Fair V alue o f Financial In stru m en ts
Cash equivalents are short-term , highly liquid investm ents and are show n at
current value. The fair market value o f the investm ent in U.S.Treasury obligations
is disclosed in Note 3 and 4 and is based on current market prices. The carrying
amount of interest receivable on investments, short-term receivables, and accounts
payable and other liabilities approxim ates th e ir fair m arket value, due to their
short maturities and/or comparability w ith current interest rates.
The net receivables from thrift 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 m arket risk. These discounts
ultim ately affect the SAIF'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.
Although the value of the corporate subrogated claim is influenced by valuation
of 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 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 SAIF on the subrogated claim does not necessarily
correspond w ith the tim ing o f collections on receivership assets. Therefore, the
effe 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 th rift
resolutions.

79

FSLIC
Resolution
Fund
December 31, 2004
and 2003




Federal

Deposit

Insurance

Corporation

FSLIC R e s o lu tio n F un d B a la n c e S h e e t a t D e c e m b e r 31
Dollars

in T h o u s a n d s

2004

2003

Assets
Cash and cash equivalents

$

Receivables from thrift resolutions and other assets, net (Note 3)

3,501,387

$

82,275

Total Assets

3,278,532
198,432

3,583,662

3,476,964

Liabilities
Accounts payable and other liabilities

5,606

Contingent liabilities for litigation losses and other (Note 4)

19,381

410

1,169

6,016

Total Liabilities

20,550

Resolution Equity (Note 6)
Contributed capital

126,382,877

Accumulated deficit
Unrealized (loss)/gain on available-for-sale securities, net

(122,962,936)

(73)

$

(122,921,437)

3,577,646

Total Resolution Equity

41,499

(122,805,231)

Accumulated deficit, net

Total Liabilities and Resolution Equity

126,377,851

(122,805,158]

3,456,414

3,583,662

S

3,476,964

The accompanying notes are an integral part o f these financial statements.




81

Federal

Deposit

Insurance

Corporation

1FSLIC R eso lu tio n Fund S ta te m e n t o f In c o m e an d A c c u m u la te d D e fic it fo r th e Years E nded D e c e m b e r 31
Dollars

in T h o u s a n d s

2004

2003

Revenue
Interest on U.S. Treasury obligations

$

40,076

$

32,902

Realized gain on investment in securitization-related assets acquired
from receiverships (Note 3)

66,708

756

Other revenue

21,114

16,849

127,898

50,507

Total Revenue
Expenses and Losses
Operating expenses

22,932

27,828

Provision for losses (Note 5)

(6,911)

(33,306)

Expenses for goodwill settlements and litigation (Note 4)

31,632

15,324

(82,937)

(19,609)

5,404

7,933

Total Expenses and Losses

(29,880)

(1.830)

Net Income

157,778

52,337

Unrealized loss on available-for-sale securities, net (Note 3)

(41,572)

(1,258)

Comprehensive Income

116,206

51,079

(122,921,437)

(122,972,516)

Recovery of tax benefits
Other expenses

Accumulated Deficit - Beginning

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

82




$

(122,805,231)

$

(122,921,437)

FSLIC Resolution Fund

Federal

Deposit

Insurance

Corporation

FSLIC R e s o lu tio n F un d S ta te m e n t o f C ash F lo w s fo r th e Y ears E n d e d D e c e m b e r 31
Dollars

in T h o u s a n d s

2004
Operating Activities
Net Income:

$

157,778

2003
$

52,337

Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses

(6,911)

(33,306)

(lncrease)/Decrease in receivables from thrift resolutions and other assets

(35,238)

80,339

(Decrease)/lncrease in accounts payable and other liabilities

(13,775)

4,973

101,854

104,343

115,975

5,829

115,975

5,829

5,026

30

Change in Assets and Liabilities:

Net Cash Provided by Operating Activities
Investing Activities
Investment in securitization-related assets acquired from receiverships

Net Cash Provided by Investing Activities
Financing Activities
Provided by:
U.S.Treasury payments for goodwill settlements

Used by:
Payments to Resolution Funding Corporation (Note 6)

0

Cash and Cash Equivalents - Beginning
Cash and Cash Equivalents - Ending

(449,970)

222,855

Net lncrease/(Decrease) in Cash and Cash Equivalents

(450,000)

5,026

Net Cash Provided/(Used) by Financing Activities

(339,798)

3,278,532
$

3,501,387

3,618,330
$

3,278,532

The accompanying notes are an integral part o f these financial statements.




83

FSLIC
Resolution
Fund
Notes to the
Financial
Statements
December 31,2004
and 2003




1. L egislative H istory and O p e ratio n s/D iss o lu tio n
o f th e FSLIC R esolution Fund

Legislative History
The Federal Deposit Insurance Corporation (FDIC) is the independent deposit
insurance agency created by Congress in 1933 to maintain stability and public
confidence in the nation's banking system . Provisions that govern the operations
o f the FDIC are generally found in the Federal Deposit Insurance (FDI) Act, as
amended, (12 U.S.C. 1811, e t seq). In carrying out the purposes o f the FDI Act,
as amended, the FDIC insures the deposits o f banks and savings associations,
and in cooperation w ith other federal and state agencies prom otes the safety
and soundness of insured depository institutions by identifying, m onitoring
and addressing risks to the deposit insurance funds established in the FDI Act,
as amended. In addition, FDIC is charged w ith responsibility fo r the sale of
remaining assets and satisfaction o f liabilities associated w ith the form er
Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution
Trust Corporation (RTC).
The U.S. Congress created the FSLIC through the enactm ent of the National
Housing A ct o f 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
RTC-effective on A ugust 9, 1989.
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 FDIC as the adm inistrator of these funds. All three
funds are maintained separately to carry out their respective mandates.
The FIRREA created the RTC to manage and resolve all th rifts previously
insured by the FSLIC fo r w hich a conservator or receiver w as appointed during
the period January 1, 1989, through August 8, 1992. Resolution responsibility
was subsequently extended and ultim ately transferred from the RTC to the SAIF
on July 1, 1995. The FIRREA established the Resolution Funding Corporation
(REFCORP) to provide part of the initial funds used by the RTC for thrift resolutions.
The RTC Completion A ct of 1993 (RTC Completion Act) term inated the RTC
as o f 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 composed o f the assets and liabilities o f the
FSLIC transferred to the FRF upon the dissolution of the FSLIC (FRF-FSLIC),
and the other com posed of the RTC assets and liabilities (FRF-RTC). The assets
of one pool are not available to satisfy obligations of the other.




FSLIC Resolution Fund

O perations/Dissolution of the FRF
The FRF w ill continue operations until all of its assets are sold or otherw ise
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.
In addition, the FRF-FSLIC has available until expended $602.2 million in appro­
priations to facilitate, if required, e fforts to w ind up the resolution activity o f the
FRF-FSLIC.
The FDIC has conducted an extensive review and cataloging of FRF's remaining
assets and liabilities and is continuing to explore approaches fo r concluding FRF's
activities. An executive-level Steering C om m ittee was established in 2003 to
facilitate the FRF dissolution. 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 and Guarini litigation (no final date for resolution
has been established; see Note 4); and 5) environmentally impaired owned
real estate assets. The FDIC is considering w hether enabling legislation or
other measures may be needed to accelerate liquidation of the remaining FRF
assets and liabilities. The FRF could realize substantial recoveries from the
aforem entioned tax-sharing benefits ranging from $170 million to $672 million;
however, any associated recoveries are not reflected in FRF's financial state­
m ents given the significant uncertainties surrounding the ultim ate outcom e.

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 claim s against them , are accounted fo r separately from FRF
assets and liabilities to ensure th a t receivership proceeds are distributed
in accordance w ith applicable laws and regulations. Also, the incom e and
expenses attributable to receiverships are accounted fo r as transactions of
those receiverships. Receiverships are billed by the FDIC fo r services provided
on their behalf.

2 . S u m m a ry o f S ig n ific a n t A c c o u n tin g P o lic ie s
General
These financial statem ents pertain to the financial position, results of operations,
and cash flo w s of the FRF 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 institu tio n s 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.

85




Use of Estimates
Management makes estimates and assumptions that affect the amounts reported
in the financial statem ents and accompanying notes. Actual results could differ
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. The more
significant estim ates include allowance fo r losses on receivables from th rift
resolutions and the estim ated losses fo r litigation.

Fair Value of Financial Instrum ents
Cash equivalents, w hich consist o f Special U.S. Treasury Certificates, are short­
term , highly liquid investm ents w ith original m aturities of three m onths or less
and are shown at fair value. The carrying am ount of short-term receivables and
accounts payable and other liabilities approximates their fair market value, due
to their short maturities.
The investm ent in securitization-related assets acquired from receiverships
consists of credit enhancem ent reserves. The credit enhancem ent reserves,
w hich resulted from swap transactions, are valued by performing projected
cash flo w analyses using market-based assum ptions (see Note 3).
The net receivable from th rift resolutions is influenced by the underlying valuation
of receivership assets. This corporate receivable is unique and the estim ate
presented is not indicative of the am ount th a t could be realized in a sale to
the private sector. Such a sale w ould require indeterm inate, but substantial,
discounts fo r an interested party to profit from these assets because of credit
and other risks. Consequently, it is not practicable to estim ate its fair market
value.

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

Disclosure about Recent Accounting Pronouncements
Recent accounting pronouncem ents have been adopted or deemed to be not
applicable to the financial statem ents as presented.

Related Parties
The nature of related parties and a description of related party transactions are
discussed in Note 1 and disclosed throughout the financial statem ents and
footnotes.




FSLIC Resolution Fund

Reclassifications
Reclassifications have been made in the 2003 financial statem ents to conform
to the presentation used in 2004.
In 2004, the FRF changed the form at of its S tatem ent of Cash Flows from
the direct method to the indirect method fo r purposes of reporting cash flow s
from operating activities. Accordingly, the S tatem ent of Cash Flows fo r 2003
contains certain reclassifications to conform to the Corporation's current financial
statem ent form at. For 2003 and 2004, the reconciliation of net income to net
cash provided by operating activities is included in the S tatem ent o f Cash
Flows. Consequently, inform ation pertaining to gross am ounts o f receipts and
payments, not required fo r presentation of the indirect method, is available
w ithin other footnotes to these financial statem ents.

3 . R eceivables From T h rift R esolutions and O th e r A ssets, N e t
Receivables From Thrift Resolutions
The receivables from th rift resolutions include payments made by the FRF to
cover obligations to insured depositors, advances to receiverships fo r working
capital, and administrative expenses paid on behalf of receiverships. Any related
allowance fo r loss represents the difference between the funds advanced and/or
obligations incurred and the expected repayment. Assets held by the FDIC in
its receivership capacity fo r the form er FSLIC and SAIF-insured institutions are
a significant source of repayment of the FRF's receivables from th rift resolutions.
As of December 31,2004, 36 of the 850 FRF receiverships remain active primarily
due to unresolved litigation, including Goodwill matters.
As of December 31, 2004 and 2003, FRF receiverships held assets w ith
a book value of $175 million and $215 million, respectively (including cash,
investm ents, and miscellaneous receivables of $142 million and $114 million
at December 31, 2004 and 2003, 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 sampling o f receivership assets. The
sampled assets are generally valued by estim ating future cash recoveries, net
o f applicable liquidation cost estim ates, and then discounting these net cash
recoveries using current m arket-based risk factors based on a given asset's type
and quality. Resultant recovery estim ates are extrapolated to the non-sampled
assets in order to derive the allowance for loss on the receivable. These estimated
recoveries are regularly evaluated, but remain subject to uncertainties because
of potential changes in economic and market conditions. Such uncertainties could
cause the FRF's actual recoveries to vary from the level currently estimated.

87

Investm ent in Securitization-Related Assets Acquired from Receiverships
This investm ent is classified as available-for-sale w ith unrealized gains and losses
included in Resolution Equity. Realized gains and losses are recorded based upon
the difference between the proceeds at termination of the deal and the book value
of the investm ent and are included as com ponents of Net Income. As expected,
the last securitization deal term inated in March 2004. A t Decem ber 31, 2004,
this investm ent includes credit enhancem ent reserves valued at $15.6 million.
The credit enhancem ent reserves resulted from swap transactions w here the
fo rm e r RTC received mortgage-backed securities in exchange fo r single-family
mortgage loans. The fo rm e r RTC supplied credit enhancem ent reserves fo r the
mortgage loans in the form o f cash collateral to cover future credit losses over
the remaining life of the loans. These reserves may cover future credit losses
through 2020.
The FRF received $97.8 million in proceeds from term inations in 2004.

[R e c e iv a b le s F ro m T h r ift R e s o lu tio n s an d O th e r A s s e ts , N e t a t D e c e m b e r 31
Dollars

in T h o u s a n d s

2004
Receivables from closed thrifts

$

22,940,793

Investment in securitization-related assets acquired from receiverships

$

Other assets

(22,846,309)

58,478

Receivables from Thrift Resolutions, Net

88



2003
$

(19,894,023)

Allowance for losses

Total

19,952,501

94,484

15,643

$

8,154

$

82,275

90,272
13,676

$

198,432

Gross receivables from th rift resolutions and the investm ent in securitizationrelated assets subject the FRF to credit risk. An allowance for loss o f $19.9 billion,
or 99.7% of the gross receivable, w as recorded as of Decem ber 31, 2004. Of
the remaining 0.3% of the gross receivable, approximately three-fourths of the
receivable is expected to be repaid from receivership cash and investm ents.




FSLIC Resolution Fund

4 . C o n tin g e n t L ia b ilitie s fo r:
Litigation Losses
The FRF 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 $32.7 million are reasonably possible.

Additional Contingency

Goodwill Litigation
In U nited States v. W instar Corp., 518 U.S. 839 (1996), the Supreme Court held
that w hen it became im possible follow ing the enactm ent of FIRREA in 1989
fo r the federal governm ent to perform certain agreem ents to count goodwill
tow ard regulatory capital, the plaintiffs w ere entitled to recover damages from
the United States. Approximately 49 cases are pending against the United States
based on alleged breaches of these agreements.
On July 22, 1998, the Departm ent of Justice's (DOJ's) Office 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
agreem ents. OLC determ ined that nonperformance of these agreem ents was
a contingent liability that w as 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 August 9,1989, these contingent liabilities fo r future
nonperformance of prior agreem ents w ith respect to supervisory goodwill w ere
transferred to the FRF-FSLIC, w hich is that portion of the FRF encompassing
the obligations of the fo rm e r FSLIC. The FRF-RTC, w hich encompasses the
obligations of the fo rm e r RTC and w as created upon the term ination of the RTC
on December 31, 1995, is not available to pay any settlem ents or judgments arising
out of the Goodwill Litigation. On July 23,1998, the U.S.Treasury determined,
based on O L C s opinion, th a t the FRF is the appropriate source of funds for
payments of any such judgm ents and settlem ents.
The lawsuits comprising the Goodwill Litigation are against the United States
and as such are defended by the DOJ. On Novem ber 17, 2004, 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 Winstar-related cases."
This uncertainty arises, in part, from the existence of significant unresolved issues
pending at the appellate or trial court level, as w ell 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. Based on the response from the DOJ, the FDIC is
unable to estim ate a range of loss to the FRF-FSLIC from the Goodwill Litigation.
However, the FRF can draw from an appropriation provided by Section 110 of the
Department of Justice Appropriations Act, 2000 (Public Law 106-113, Appendix A,
Title 1,113 Stat. 1501A -3, 1501A-20) 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.
This appropriation is 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 im pact on the financial condition o f the FRF-FSLIC.
In addition, the FRF-FSLIC pays the goodwill litigation expenses incurred by
DOJ based on a M em orandum of Understanding (MOU) dated October 2, 1998,
betw een the FDIC and DOJ. Under the term s of the MOU, the FRF-FSLIC
paid $30.1 million and $33.3 million to DOJ fo r fiscal years 2005 and 2004,
respectively. DOJ returns any unused fiscal year funding to the FRF unless
special circumstances w arrant these funds be carried over and applied against
current fiscal year charges. In March 2004, DOJ returned $8.2 million of unused
fiscal year funds. A t September 30, 2004, DOJ had $12.7 million in unused
funds that w ere applied against FY 2005 charges of $42.8 million.

Guarini Litigation
Paralleling the goodwill cases are similar cases alleging that the government
breached agreem ents regarding tax ben e fits associated w ith certain FSLICassisted acquisitions. These agreem ents allegedly contained the prom ise of tax
deductions fo r losses incurred on the sale o f certain th rift assets purchased by
plaintiffs, from the FSLIC, even though the FSLIC provided the plaintiffs 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 for these losses.
Eight "Guarini" cases w ere filed seeking damages. Two "Guarini" cases have
concluded. In one, no damages w e re awarded and the second w as settled
fo r $20,000. The U.S. Court o f Federal Claims has entered ju d g m e n ts fo r
the p la in tiffs in five o f the rem aining cases aggregating approxim ately
$180 million. One judgm ent fo r $28.1 million has been affirm ed by a panel
of the U.S. Court of Appeals fo r the Federal Circuit, but is not yet final. Three
cases are on appeal, and one w ill likely be appealed. One case is still pending
in the U.S. Court o f Federal Claims and seeks damages in the approximate
am ount of $247 million.
The FDIC believes that it is possible that substantial am ounts may be paid
from the FRF-FSLIC as a result o f the judgm ents and settlem ents from the
"Guarini litigation." However, because the litigation of damages com putation
is still ongoing, the am ount o f the damages is not estimable at this tim e.
Representations and W arranties
As part o f the RTC's efforts to maximize the return from the sale o f assets from
th rift resolutions, representations and warranties, and guarantees w ere offered
on certain loan sales. The majority of loans subject to these agreem ents have
m ost likely been paid o ff or refinanced due to the current interest rate climate
or the period fo r filing claims has expired. However, there is no reporting
mechanism to determ ine the aggregate am ount of remaining loans. Therefore,
the FDIC is unable to provide an estim ate o f m axim um exposure to the FRF.
Based on the above and our history of claims processed, the FDIC believes that
any future representation and warranty liability to the FRF w ould be minimal.

FSLIC Resolution Fund

5. P ro v is io n fo r Losses
The provision for losses was a negative $7 million and a negative $33 million
fo r 2004 and 2003, respectively. In 2004 and 2003, the negative provision was
primarily due to low er estim ated losses fo r assets in liquidation.

6 . R e s o lu tio n E q u ity
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 fo rm e r 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.

I R e s o lu tio n E q u ity a t D e c e m b e r 3 1 , 2 0 0 4
Dollars

in T h o u s a n d s

FRF-FSLIC
Contributed capital - beginning

$

Add: U.S. Treasury payments for goodwill settlements

82,199,337

$

*126,377,851

126,382,877

(81,656,826)

(122,805,158)

0

$

5,026

82,199,337

(41,148,332)

Add: Unrealized loss on available-for-sale securities

0

44,183,540

Accumulated deficit




$

5,026

Contributed capital-ending

Accumulated deficit, net
Total

44,178,514

FRF
Consolidated

FRF-RTC

(73)

(73)

(41,148,332)
3,035,208

(81,656,899)
$
542,438

(122,805,231)
3,577,646

$

91




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 e re 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 REFCORR FIRREA prohibited the paym ent of
dividends on any of these capital certificates. Through December 31, 2004, the
FRF-RTC has returned $4,556 billion to the U.S.Treasury and made payments
of $4,572 billion to the REFCORR These actions serve to reduce contributed
capital.

Accum ulated Deficit
The accumulated deficit represents the cum ulative excess of expenses over
revenue fo r activity related to the FRF-FSLIC and the FRF-RTC. Approxim ately
$29.8 billion and $87.9 billion w ere brought forw ard from the fo rm e r FSLIC
and the form er RTC on A ugust 9, 1989, and January 1, 1996, respectively. The
FRF-FSLIC accum ulated de ficit has increased by $11.4 billion, w hereas the
FRF-RTC accumulated deficit has decreased by $6.3 billion, since their dissolution
dates.




FSLIC Resolution Fund

7. Em ployee Benefits
Pension Benefits
Eligible FDIC employees (permanent and term employees w ith appointm ents
exceeding one year) are covered by the federal governm ent retirem ent plans,
either the Civil Service R etirem ent System (CSRS) or the Federal Employees
Retirement System (FERS). Although the FRF contributes a portion of pension
benefits fo r eligible em ployees, 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 o f Personnel
Management.
The FRF's pro rata share of pension-related expenses was $2.8 million and
$2.2 million, as o f December 31,2004 and 2003, respectively.

Postretirem ent Benefits Other Than Pensions
Beginning in 2003, the FRF no longer recorded a liability for the postretirement
benefits o f life and dental insurance as a result of FDIC's change in funding
policy fo r these benefits and elimination of the separate entity. In im plem enting
this change, management decided not to allocate either the plan assets or the
revised net accumulated postretirem ent benefit obligation (a long-term liability)
to FRF due to the expected dissolution of the Fund in the short-term . However,
FRF does continue to pay its proportionate share of the yearly claim expenses
associated w ith these benefits.

93

G A O

Comptroller General
o f the United States

Accountability * Integrity * Reliability

United States Government Accountability Office
W ashington, D.C. 20548

To the Board of Directors
The Federal Deposit Insurance Corporation

We have audited the balance sheets as o f December 31, 2004, and 2003,
for the three funds administered by the Federal Deposit Insurance Corporation
(FDIC), the related statements of income and fund balance (accumulated
deficit), and the statements of cash flows for 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), we found
• the financial statements of each fund are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting principles;
•

FDIC had effective internal control over financial reporting and compliance
with laws and regulations for each fund; and

• no reportable noncompliance with laws and regulations we tested.
The following sections discuss our conclusions in more detail. They also present
information on the scope of our audits and our evaluation of FDIC management’s
comments on a draft of this report.

O i n io n o n BIF’s
.

. . _

inancia

a emen S

O inion on SAIF’s
.

. . .

inancia

a emen S

94



The financial statements, including the accompanying notes, present fairly,
in all material respects, in conformity with U.S. generally accepted accounting
principles, BIF’s financial position as of December 31, 2004, and 2003, and
the results of its operations and its cash flows for the years then ended.

The financial statements, including the accompanying notes, present fairly,
in all material respects, in conformity with U.S. generally accepted accounting
principles, SAIF’s financial position as of December 31, 2004, and 2003, and
the results of its operations and its cash flows for the years then ended.

Opinion on FRF’s
Financial Statements

Opinion on Internal
Control




The financial statements, including the accompanying notes, present fairly,
in all material respects, in conformity with U.S. generally accepted accounting
principles, FR F’s financial position as of December 31, 2004, and 2003, and
the results of its operations and its cash flows for the years then ended.
FDIC management maintained, in all material respects, effective internal control
over financial reporting (including safeguarding assets) and compliance as of
December 31, 2004, that provided reasonable but not absolute assurance that
misstatements, losses, or noncompliance material in relation to FD IC’s financial
statem ents of each fund would 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 M anagers’ Financial Integrity Act (FMFIA)].
In prior years, we reported on weaknesses we identified in FD IC’s information
system controls, which we described as a reportable condition.1 Specifically,
FDIC had not adequately restricted access to critical financial programs and
data, provided sufficient network security, or established a comprehensive
program to monitor access activities. A primary reason for FD IC’s information
system control weaknesses was that the corporation had not established a
comprehensive information security program to manage computer security.
During the past several years, FDIC has made progress in correcting information
system control weaknesses and in 2004, FDIC made substantial progress in
correcting most of the weaknesses we identified in prior years, including taking
steps to fully establish a comprehensive information security program. These
improvements, combined with the progress we reported last year, enabled us
to conclude that the remaining issues related to information system controls
no longer constitute a reportable condition. FDIC’s implementation of new
financial systems2 in the coming year will significantly change its information
systems environment and the related information systems controls necessary
for their effective operation. Consequently, continued management commitment
to an effective information security program will be essential to ensure that the
corporation’s financial and sensitive information will be adequately protected
in this new environment.

'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.
^ During 2005 FDIC anticipates implementing a new, integrated financial environment to support the
financial management needs of the corporation.

95

We did not identify any reportable conditions during our 2004 audits. However,
we noted other less significant matters involving FD IC ’s internal controls,
including information system controls. We will be reporting separately to FDIC
management on these matters.

Compliance with Laws
and Regulations

Our tests for compliance with selected provisions of laws and regulations
disclosed no instances of noncompliance that would be reportable under
U.S. generally accepted government auditing standards. However, the objective
of our audits was not to provide an opinion on overall compliance with laws
and regulations. Accordingly, we do not express such an opinion.

Objectives, Scope, and
Methodology

FDIC management is responsible for (1) preparing the annual financial statements
in conformity with U.S. generally accepted accounting principles; (2) establishing,
maintaining, and assessing internal control to provide reasonable assurance
that the broad control objectives of FMFIA are met; and (3) complying with
applicable laws and regulations.

Digitized 9 6 FRASER
for


We are responsible for obtaining reasonable assurance about whether (1) the
financial statements are presented fairly, in all material respects, in conformity
with U.S. generally accepted accounting principles; and (2) management maintained
effective internal control, the objectives of which are the following:
• financial reporting— transactions are properly recorded, processed, and
summarized to permit the preparation of financial statements in conformity
with U.S. generally accepted accounting principles, and assets are safeguarded
against loss from unauthorized acquisition, use, or disposition; and
• compliance with laws and regulations—transactions are executed in accordance
with laws and regulations that could have a direct and material effect on the
financial statements.
We are also responsible for testing com pliance with selected provisions of
laws and regulations that could have a direct and material effect on the financial
statements.




In order to fulfill these responsibilities, we
• examined, on a test basis, evidence supporting the amounts and disclosures
in the financial statements;
• assessed the accounting principles used and significant estimates made
by management;
• evaluated the overall presentation of the financial statements;
• obtained an understanding of internal control related to financial reporting
(including safeguarding assets) and compliance with 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 for evaluating and reporting on internal control
based on criteria established by FMFIA; and
• tested compliance with laws and regulations, including selected provisions
of the Federal Deposit Insurance Act, as amended, and the Chief Financial
Officers Act of 1990.
We 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. We limited our internal
control testing to controls over financial reporting and compliance. Because of
inherent limitations in internal control, misstatements due to error or fraud, losses,
or noncompliance may nevertheless occur and not be detected. We 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 with controls may deteriorate.
We did not test compliance with all laws and regulations applicable to FDIC.
We limited our tests of compliance to those laws and regulations that could
have a direct and material effect on the financial statements for the year ended
December 31, 2004. We caution that noncompliance may occur and not be
detected by these tests and that such testing may not be sufficient for other
purposes.
We performed our work in accordance with U.S. generally accepted government
auditing standards.

97

FDIC Comments and
Our Evaluation




In commenting on a draft of this report, FDIC’s Chief Financial Officer (CFO)
was pleased to receive unqualified opinions on BIF’s, SAIF’s, and FRF’s 2004
and 2003 financial statements and to note that there were no material weaknesses
identified during the 2004 audits. FDIC’s CFO also stated that FDIC management
is committed to ensuring the continued success of an effective and strong
information security program. The CFO said FDIC will remain focused on
accomplishing the work needed to face the new security challenges in the coming
year. The complete text of FDIC’s comments is reprinted in appendix I.

David M. Walker
Comptroller General
of the United States
January 31, 2005




A p p e n d i x

I

FDM

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

Deputy to the Chairman & Chief Financial Officer

February 7, 2005
Mr. David M. Walker
Comptroller General of the United States
U. S. Government Accountability Office
441 G Street, NW
Washington, DC 20548
Re: FDIC Management Response on the
GAO 2004 Financial Statements Audit Report
Dear Mr. Walker:
Thank you for the opportunity to comment on the U.S. Government Accountability Office’s
(GAO) draft audit report titled, Financial Audit: Federal Deposit Insurance Corporation
Funds’ 2004 and 2003 Financial Statements, GAO-05-281. The report presents GAO’s
opinions on the calendar year 2004 financial statements of the Bank Insurance Fund (BIF),
the Savings Association Insurance Fund (SAIF), and the Federal Savings and Loan
Insurance Corporation Resolution Fund (FRF). The report also presents GAO’s opinion
on the effectiveness of FDIC’s internal controls as of December 31, 2004, and GAO’s
evaluation of FDIC’s compliance with applicable 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 2004
audits. The GAO reported that the funds’ financial statements were presented fairly,
in all material respects, in conformity with U.S. generally accepted accounting principles;
FDIC had effective internal control over financial reporting and compliance with laws and
regulations; and there were no instances of noncompliance with laws and regulations that
were tested.
Also, we are pleased that GAO recognized the significant improvements that have
been made during the past year and acknowledged our progress in fully implementing
a comprehensive information security (IS) program. As always, management is committed
to ensuring the continued success of an effective and strong IS program. We will remain
focused on accomplishing the work needed to face the new security challenges in the
coming year.
If you have any questions or concerns, please let me know.

Sincerely,

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

O v e rv ie w o f th e In d u s try
The 9,025 com m ercial banks and
savings institu tion s insured by the
FDIC reported total earnings of
$91.8 billion for the first three quarters
o f 2004, an increase o f $2.0 billion
(2.3 percent) over the same period of
2003. The industry set new earnings
records in tw o of the firs t three quar­
ters of the year, as a strengthening
econom y and positive interest rate
conditions boosted loan demand and
helped reduce the level o f troubled
loans. N et in te re st incom e, (the
difference betw een the interest that
institutions earn on their loans and
other investm ents and the interest
they pay on deposits and other
interest-bearing liabilities), registered
strong grow th, and low er provisions
fo r loan losses also contributed
to the im provem ent in earnings.
Insured comm ercial banks reported
$78.1 billion in net income fo r the first
three quarters of 2004, $2.0 billion
(2.6 percent) more than they reported
fo r the firs t three quarters of 2003.
The im provem ent w ould have been
greater, except th a t a fe w large
mergers caused m ore than $3 billion
in income to be excluded from yearto-date reported earnings fo r 2004.
A lm ost tw o out of every three of
the nation's 7,660 comm ercial banks
(62.3 percent) reported higher earnings

1 00



than a year earlier. Loan-loss provisions
w ere $6.7 billion (25.2 percent) lower,
w hile net interest income increased
by $5.6 billion (3.2 percent). These
w ere the tw o largest factors con­
tributing to the improved earnings.
In contrast, noninterest income
w as $2.6 billion (1.9 percent) low er
than a year earlier, and gains on sales
o f securities and other assets w ere
$1.8 billion (33.9 percent) smaller.
The average return on assets (ROA)
fo r the firs t three quarters of 2004
w as 1.31 percent, compared to
1.39 percent fo r the same period
of 2003.
An overall strengthening in loan
demand was evident in 2004. Through
the firs t three quarters o f the year,
total loans and leases g re w by
$386.2 billion (8.7 percent), w hile
during the firs t three quarters of
2003, loans increased by $194.8
billion (4.7 percent). Accelerating
grow th in home equity and other
consum er loans and a return
to grow th in loans to commercial
and industrial (C&l) borrowers out­
w eighed the e ffe ct of a slow dow n
in residential mortgage lending. Home
equity loans increased by $90.6 billion
(31.9 percent) in the first nine months
of 2004, compared to an increase
of $46.1 billion (21.4 percent)
in the firs t nine m onths o f 2003.
Commercial and Industrial (C&l) loans
increased by $19.5 billion in the first
three quarters of 2004; in the first
three quarters o f 2003, C&l loans
declined by $32.8 billion (3.6 percent).
Reduced mortgage refinancing activity
in 2004 was reflected in som ew hat
slower grow th in mortgage assets.

Banks' holdings o f residential
m ortgage-related assets, including
hom e mortgage loans and mortgagebacked securities, increased by
$126.3 billion (7.1 percent) during
the firs t three quarters of 2004,
compared to an increase o f $137.3
billion (8.3 percent) during the same
period in 2003.
The strong grow th in total loans
w as responsible fo r the increase in
banks' net interest income, since the
average net interest margin fo r the
firs t three quarters o f 2004 was
3.59 percent, w ell below the 3.83
percent average in the firs t three
quarters of 2003. Asset-quality
indicators, w hich began improving
in 2003 follow ing three years of
deterioration, continued to improve
in 2004. During the firs t nine months
of the year, the amount of commercial
banks' loans that w ere 90 days or
more past due or in nonaccrual
status declined by $9.0 billion
(17.0 percent). The am ount of loans
that banks charged-off in the first
three quarters of 2004 was $6.9 billion
(24.6 percent) less than their chargeo ffs in the firs t three quarters of
2003.

Insured savings institutions reported
slightly higher net income during
the first three quarters compared to
a year earlier, thanks to strong loan
grow th, but reduced gains on sales
of securities and other assets limited
the im provem ent. Net incom e
increased by only $79 million
(0.6 percent), as a $2.2 billion
(7.0 percent) im provem ent in net
interest income and a $3.2 billion
(28.5 percent) increase in noninterest
income w ere o ffse t by a $3.5 billion
(14.0 percent) rise in noninterest
expenses and a $2.4 billion (43.8 per­
cent) decline in gains on securities
sales. The average ROA fo r the
1,365 insured savings institutions
was 1.19 percent, down from 1.29
percent in the first three quarters of
2003. Fewer than half of all savings
institutions (46.6 percent) had higher
earnings than a year earlier. The
average net interest margin fo r the
firs t three quarters of 2004 was
3.20 percent, down from 3.29 percent
fo r the firs t three quarters of 2003.
Asset quality indicators registered
modest improvement. Net charge-offs
w ere $85 million (3.9 percent) low er
than a year earlier, and loan-loss
provisions w ere $179 m illion
(8.4 percent) lower.




o

V. Management
Controls




The FDIC's control standards
incorporate the GAO's Standards
for Internal Controls In the Federal
Government. Good internal control
system s are essential fo r ensuring
the proper con d u ct o f FDIC
business and the accom plishm ent
of management objectives by serving
as checks and balances against
undesirable actions or outcom es.
As part of the Corporation's continued
co m m itm e n t to establish and
m aintain e ffe ctive and e ffic ie n t
internal controls, FDIC management
routinely conducts reviews of internal
control systems. The results of these
reviews, as w ell as consideration
of audits, evaluations and reviews
conducted by the U.S. Government
Accountability O ffice (GAO), the
Office 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 control activities. The FDIC's
m anagem ent concludes that the
system of internal controls, taken
as a w hole, com plies w ith internal
control standards prescribed by
the GAO and provides reasonable
assurance that the related objectives
are being met.
The C orporation's evaluation
processes, the OIG audits and
evaluations, and the GAO financial
statem ents audits have identified
certain areas w here existing internal
controls should be improved. These
areas are listed below.

M a te ria l W eakn esse s
To d e term ine the existence of
material weaknesses, the FDIC has
assessed the results of management
evaluations and external audits of
the Corporation's risk management
and internal control system s
conducted in 2004, as w e ll as
m anagem ent actions taken to
address issues identified in these
audits and evaluations. Based on this
assessm ent and application of other
criteria, the FDIC concludes that no
material weaknesses existed w ithin
the Corporation's operations for 2004.
This is the seventh consecutive year
that the FDIC has not had a material
weakness.

H igh V u ln e r a b ility Issues
FDIC management has designated
high vulnerability issues as areas
requiring heightened attention of
management. Although GAO did
not identify a reportable condition
fo r 2004, the FDIC identified
Inform ation S ystem s Security
as an area o f high vulnerability.
The FDIC has made significant
progress in the last year to improve
inform ation system s security, but
w ork remains to tighten and improve
these controls. This assessm ent
was confirm ed by our independent
auditors w ho reported that "FDIC
made significant progress in
improving its inform ation security
controls and practices; (however,
these) controls provided limited
assurance of adequate security
over (FDIC) resources." The FDIC
m ust ensure that processes and
system s keep pace w ith new
technologies and the grow th in
the types and range of attacks on
system s throughout the industry.

M a tte r s fo r
C o n tin u e d M o n ito rin g
FDIC m anagem ent has identified
four m atters that w arrant continued
m onitoring. The m atters listed below
are areas that are kept in the forefront
of m anagem ent's a ttention and
proactively assessed throughout
the year.

1. Bank Secrecy Act
The FDIC is engaged in several
initiatives to strengthen its
anti-m oney laundering (AML)
supervisory program. As stated
in the M anagem ent Discussion
and Analysis section of this report,
the Corporation has participated
in interagency working groups,
issued guidance and incorporated
changes in examination procedures
to assist in efforts to identify
money laundering and terrorist
financing risks. The FDIC w ill
continue to engage in progressive
initiatives, working closely w ith
other Federal and State Regulators,
FinCEN, Federal law enforcement,
the Departm ent of Homeland
Security, and the State Department.
A fe w of the initiatives include
issuing comprehensive BSA /AM L
examination procedures; conducting
nationwide industry outreach
sessions focused on BSA, AM L,
and counter-financing of terrorism
issues; increasing the number of
B S A /A M L subject m atter experts;
and providing advanced training
to these subject m atter experts.

Information system security is an
inherently high-risk area due to its
com plexity and the existence of
constant technological change.
Controls need to improve to keep
pace w ith change. Consequently,
the FDIC is keeping Information
Systems Security in the forefront
and thus classified it as high
vulnerability fo r 2004, despite
the many accom plishm ents made
in this area.




103

2. Project M anagem ent
and Contractor Oversight
The FDIC manages a variety
of projects, including system s
developm ent and renovation
projects. Because of the size
(multi-million dollar) and complexity
of som e o f these projects,
it is im perative th a t the FDIC
em phasize strong internal
controls over project management
and contractor oversight. Large,
agency-wide, and com plex
projects pose a greater risk to
the Corporation if not efficiently
and effectively managed. As
stated in the Message from the
CFO, (pages 6-7) the FDIC's CIRC
focuses on system atic review and
monitoring of large-scale projects
and im provem ents. As the FDIC
is transitioning to utilizing more
perform ance-based contracts,
the Corporation is keeping a
heightened level of attention
on project m anagem ent and
contractor oversight, w hich
is a good business practice.

104



3. Workforce M anagem ent
Substantial progress has been
made in realigning the FDIC's
w orkforce to reflect changes in
the industry. The FDIC w ill be
reducing staff in certain areas
and increasing staff in other areas
during 2005 and 2006. In addition,
it w ill be taking the initial steps
to im plem ent the new Corporate
Employee Program, w hich w ill
become the foundation fo r a
smaller, more flexible perm anent
w o rk fo rc e in the fu tu re . The
Corporation w ill continue to
m o n ito r on an ongoing basis
changes in the w orkload,
technology, and the structure
o f the financial services industry
and w ill adjust its human capital
strategy, as appropriate, to
address these changes.

4. Business Continuity Plan
The FDIC has developed an
Emergency Preparedness Program
(Program) w h ich is com prised
of an Emergency Response Plan
(which addresses employee safety
and security) and a Business
Continuity Plan. This Corporatew ide Program continues to be
refined to ensure FDIC can
respond to any disruption,
w h e th e r natural or man-made.

In te rn a l C o n tro ls an d R isk
M a n a g e m e n t P ro g ra m
Enterprise Risk M anagem ent
The FDIC is adopting an Enterprise
Risk M anagem ent (ERM) approach
to identifying and analyzing risks on
an integrated corporate-wide basis.
During 2004, the FDIC redesignated
the form er O ffice of Internal Control
M anagem ent as the O ffice of
Enterprise Risk Management. This
change was intended to facilitate
a s h ift to a m ore proactive and
enterprise-w ide approach to risk
m anagem ent. The focus w ill be
on directing resources to areas
of greatest risk.
The FDIC has risk managers for
certain Capital Investm ent Review
C om m ittee (CIRC) projects. The
role of these risk managers includes
m onitoring the schedule and budget
of CIRC projects more frequently
and at a more detailed level than the
CIRC, interjecting risk-management
concepts w here needed, attending
project Steering Committee meetings,
and adding value as decisions are
being made. Additionally, m onthly
risk evaluations are conducted
and the results are reported to the
CIRC and the Corporation's senior
management.




The FDIC's circular on FDIC Internal
Control Programs and Systems is
being updated to include the concepts
of ERM. The circular w ill provide
corporate-wide guidance on risk
management and internal controls
from an enterprise-w ide perspective.
The FDIC's ERM process will continue
to provide reasonable assurance
that the objectives of the Federal
Managers' Financial Integrity Act
of 1982 (FMFIA) are met.

A p p e n d ix A K ey S ta tis tic s

S e le c te d S ta tis tic s

D o l l a r s

in

m i l l i o n s

For the year ended D ecem ber 31
2004

VI. Appendixes




2003

2002

B ank Insurance Fund
Financial Results

Revenue

S

/ .Operating Expenses

Insurance and other expenses
jl N e t Income
Comprehensive Income
■ Insurance Fund Balance
Fund as a Percentage of Insured Deposits

1,676

$

1,626
805
(921)
1,742
1.732—
33,782
1.32%

822
(263)
1,117
1,005

s

34,787

$

1.32%T

1,796
821 ! ■
(70)
1,045
1,611
$ 32,050 p
1.27%
$

Selected Statistics

■ Total BIF-Mem ber Institutions*
Problem Institutions
S T o ta l Assets of Problem Institutions
$
Institution Failures
Total Assets of Current Year Failed Institutions
$
Number of Active Failed Institution Receiverships

7,995
102

7,875 ▼
86 T
24,446 T

$

28,812
3
1,097
31

3
151

$

31

1

8,125
116
$ 32,176
10
$ 2,508
37

»:
|

1
Savings A ssociation Insurance Fund
Financial Results

Revenue
‘ Operating Expenses
Insurance and other expenses
pSiNet Income
Comprehensive Income
■ Insurance Fund Balance
Fund as a Percentage of Insured Deposits

s

564
120
(72)
516
480

$

12,720
1.33%T

in

547
130
(83)
500
493
$ 12,240
1.37%

I

$

589
124

(155)
620
812
$ 11,747
1.37%

1
Selected Statistics

Total SAIF-M em ber Institutions"
1,150 T
9 T
Problem Institutions
625 T
gfTotal Assets of Problem Institutions
$
Institution Failures
1
■ Total Assets of Current Year Failed Institutions
s
15
4 H 3 WM
Number of Active Failed Institution Receiverships

$
$

1,186
14
1,105
0
0
2

▼ As of September 30,2004.
•
Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.
■ Savings institutions and commercial banks.

$
$

1,229
20
6,751
1
50
’ 1® 3

i?

N u m b er and Deposits 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 4 1
Dollars

in

Thousands
D e p o s its o f In su red Banks

N u m b e r o f In sured Banks
W ithout
Disbursements
by FDIC

Year

W ith
Disbursements
by FDIC

19

2,097

Total

2,116

2004

3

2003
2002
2001
2000
1999
1998
1997

3
10
3
6
7
3
1

1996
1995
1994
1993
1992
1991
1990

5
6
13
41
120
124
168

1989
1988
1987
1986
1985
1984
1983

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

3
4
7
5
7
2

1

1

1961
1960
1959
1958
1957
1956
1955

5
1
3
4
2
2
5

-

1954
1953
1952
1951
1950
1949
1948

2
4
3
2
4
5
3

1947
1946
1945
1944
1943
1942
1941

5
1
1
2
5
20
15

1940
1939
1938
1937
1936
1935
1934

43
60
74
77
69
26
9

_
_
-

1
-

10
_
_
_
_
-

-

1
_

2
-

1
-

_
_
-

2
-

1
-

Total

$

217,856,719

3

132,880

3
10
3
6
7
3
1

903,504
2,124,501
49,926
311,9 50
1,268,151
335,076
26,800

5
6
12
41
110
124
168

168,228
632,700
1,236,488
3 ,13 2,17 7
41,150,898
53,751,763
14,473,300

206
200
184
138
120
79
48

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

42
10
10
10
7
6
16

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

13
4
6
1
6
7
9

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

3
4
7
5
7
2
0

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

5
1
3
4
1
2
5

8,936
6,930
2,593
8,240
11,24 7
11,330
11,9 53

2
2
3
2
4
4
3

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

5
1
1
2
5
20
15

7,040
347
5,695
1,9 15
12,525
19,185
29,717

43
60
74
75
69
25
9

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

W ithout
Disbursements
Total
by FDIC

$

4,298,814

_
_
-

4,257,667
-

_
_
_
-

3,011
_
-

10,084
_

26,449
-

1,190
_
_
-

328
-

85
-

W ith
Disbursements
by FDIC

$

213,557,905

Assets

$

408,937,918

132,880

150,519,500

903,504
2,124,501
49,926
311,950
1,268,151
335,076
26,800

1,096,724
2,507,565
54,470
378,088
1,423,819
370,400
25,921

168,228
632,700
1,236,488
3 ,13 2,17 7
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

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

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

11,632,4 15
4,859,060
236,164
132,988
994,035
232,612
1,039,293

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

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

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

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

7,040
347
5,695
1,9 15
12,525
19,185
29,717

6,798
351
6,392
2,098
14,058
22,254
34,804

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

161,898
18 1,5 14
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.




107

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 4 ______________________________________________________________________________________
Dollars

in

Thousands
A ll Cases

1

D e p o s it P a y o ff Cases

2

Year

Number
of
Banks

Disbursements

Recoveries

Estimated
Additional
Recoveries

Estimated
Losses

Number
of
Banks

Disbursements

Recoveries

Estimated
Additional
Recoveries

Estimated
Losses

Total

2,224

111,269,132

72,628,327

362,681

38,278,124

608

16,131,723

11,303,684

96,052

4,731,987

2004

3

132,781

121,446

1,965

9,370

0

0

0

0

0

2003
2002
2001
2000
1999
1998
1997

3
10
3
6
7
3
1

883,797
2,019,523
25,080
268,730
1,244,450
286,598
25,546

680,186
1,345,196
19,288
235,925
494,612
52,821
20,520

127,272
127,395
0
1,359
94,155
8,545
0

76,339
546,932
5,792
31,446
655,683
225,232
5,026

0
5
0
0
0
0
0

0
1,573,393
0
0
0
0
0

0
1,076,675
0
0
0
0
0

0
96,052
0
0
0
0
0

0
400,666
0
0
0
0
0

1996
1995
1994
1993
1992
1991
1990

5
6
13
41
122
127
169

169,386
609,045
1,224,769
1,79 7,312
14 ,172,9 17
21,4 13,224
10,817,419

130,727
524,573
1,045,718
1,15 1,12 8
10,504,048
15,402,252
8,040,426

0
0
0
82
839
3,034
0

38,659
84,472
179,051
646,102
3,668,030
6,007,938
2,776,993

0
0
0
5
25
21
20

0
0
0
261,203
1,890,869
1,468,407
2,183,400

0
0
0
159,268
1,398,731
1,000,733
1,647,044

0
0
0
0
0
0
0

0
0
0
101,935
492,138
467,674
536,356

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

5,248,247
5,244,866
3,0 15,215
3,015,252
1,913,452
6,056,061
2,400,044

0
0
0
0
0
0
0

6,197,582
6,918,140
2,022,656
1,7 7 5 ,7 17
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
1,401,000
739,659
4 1 1 ,1 7 5
699,483
122,484

0
0
0
0
0
0
0

854,416
429,548
702,792
416,322
112 ,6 14
92,355
25,939

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

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
11,4 16

206,247
34,598
11,4 2 7
9,003
613
0
9,660

0
0
0
0
0
0
0

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

1975
1974
1973
1972
1971
1970
1969

13
5
6
2
7
7
9

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

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

1968
1967
1966
1965
1964
1963
1962

3
4
7
5
7
2
0

6,476
8,097
10,020
11,479
13,7 12
19 ,172
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 ,7 12
19 ,172
0

0
7,087
735
10,391
12 ,17 1
18,886
0

0
0
0
0
0
0
0

0
1,010
0
5 17
1,541
286
0

1961
1960
1959
1958
1957
1956
1955

5
1
3
4
1
2
5

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

6,464
7,087
9,541
10,816
12,171
18,886
o
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
2 13
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
2 13
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
2 13

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
7,15 2
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
1,18 4
2,647
1,338
1,752
207

108



continued on next page

Recoveries and Losses by th e Bank Insurance Fund on D isbursem ents fo r th e P ro te c tio n o f D epo sito rs,
1 9 3 4 th ro ug h 2 0 0 4 (continued)
Dollars

in

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

A s sis ta n c e Tran s actio n s

Year

Number
of
Banks

Disbursements

Recoveries

Estimated
Additional
Recoveries

Estimated
Losses

Total

1,475

83,507,053

55,124,768

266,629

28,115,656

2004

3

132,781

121,446

1,965

9,370

2003
2002
2001
2000
1999
1998
1997

3
5
3
6
7
3
1

883,797
446,130
25,080
268,730
1,244,450
286,598
25,546

680,186
268,521
19,288
235,925
494,612
52,821
20,520

127,272
31,343
0
1,359
94,155
8,545
0

1996
1995
1994
1993
1992
1991
1990

5
6
13
36
95
103
148

169,386
609,045
1,224,769
1,536,109
12,280,562
19,938,700
8,629,084

130,727
524,573
1,045,718
991,860
9,104,081
14,398,426
6,390,785

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

1982
1981
1980
1979
1978
1977
1976

25
5
7
7
6
6
13

1975
1974
1973
1972
1971
1970
1969

Number
of
Banks

i

Disbursements

Recoveries

Estimated
Additional
Recoveries

141

11,630,356

6,199,875

0

5,430,481

0

0

0

0

0

76,339
146,266
5,792
31,446
655,683
225,232
5,026

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
82
839
3,034
0

38,659
84,472
179,051
544,167
3,175,642
5,537,240
2,238,299

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

3,985,855
4,232,545
1,613,502
2,209,924
1,095,601
941,674
1,850,553

0
0
0
0
0
0
0

5,340,870
4,947,950
1,159,700
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
7 13
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 ,27 5
337,683

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

213,578
71,358
110,248
65,369
5 12,314
20,654
551,872

0
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
0
0
0
0
0

0
0
0
0
0
0
0

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

10
4
3
0
1
3
5

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

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
o
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

1968
1967
1966
1965
1964
1963
1962

3
0
6
2
0
0
0

6,476
0
9,285
571
0
0
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
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

0
0
0
0
0
0
0

1961
1960
1959
1958
1957
1956
1955

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

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
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
1,12 8
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

0

Estimated
Losses

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.
Includes insured deposit transfer cases.
Note: Beginning with 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 were reclassified.




Incom e and Expenses, Bank Insurance Fund, fro m B eginning o f O peratio ns,
S ep tem b e r 11, 1 9 3 3 , th ro ug h D ecem b er 3 1 , 2 0 0 4
Dollars

in

Millions
In c o m e

Year

Total

Assessment
Income

Expenses and Losses

Assessment
Credits

Investment
and Other
Sources

Effective
Assessment
Rate1

Total

Provision
for
Losses

Administrative
and Operating
Expenses2

Interest and
Other Insur.
Expenses

N et Incom e/
(Loss)

Total

$ 88,804.5

$ 53,520.1

$ 6,709.1

$ 41,993.5

$ 54,707.5

$ 35,923.1

$ 11,788.5

$ 7,001.9

$ 34,097.0

2004

1,675.4

95.3

0.0

1,580.1

0.0022%

558.6

(269.4)

822.4

5.6

1,116.8

2003
2002
2001
2000
1999
1998
1997

1,626.0
1,795.9
1,996.7
1,905.9
1,815.6
2,000.3
1,615.6

80.2
84.0
47.8
45.1
33.3
21.7
24.7

0.0
0.0
0.0
0.0
0.0
0.0
0.0

1,545.8
1,7 11.9
1,948.9
1,860.8
1,782.3
1,978.6
1,590.9

0.0020%
0.0 0 22%
0 .0 0 14 %
0 .0 0 14 %
0.0011 %
0.0008%
0.0008%

(115.7)
750.6
2,559.4
645.2
1,922.0
691.5
177.3

(928.5)
(87.0)
1,756.3
(153.0)
1,168.7
(37.7)
(503.7)

805.5
821.1
785.9
772.9
730.4
697.6
605.2

7.3
16.5
17.2
25.3
22.9
31.6
75.8

1,74 1.7
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
7 13 .7
629.5
983.0

0.0024%
0 .12 4 0 %
0 .2360%
0.2440%
0 .2300%
0 .2 12 5 %
0 .12 0 0 %

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
388.5
570.8 3
284.1
219.6

74.5
45.8
19 1.1
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
1,32 1.5
1,214.9

0.0
0.0
0.0
0.0
0.0
0.0
164.0

1609.6
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 .0 7 14 %

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

3,8 11.3
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
1 5 1.2
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
4 11.9
379.6

1,5 11.9
1,152.8
879.6
734.0
585.1
518.4
468.4

0.0769%
0 .0 7 14 %
0.0370%
0 .0 333%
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

129.9
127.2
118 .2
106.8
103.3
89.3
180.4 4

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
4 17.2
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

0.0 357%
0.0435%
0 .0385%
0 .0 333%
0 .0 345%
0 .0 357%
0 .0 333%

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
6.0 5
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
16 1.1

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 .0 333%
0 .0 333%
0 .0 323%
0 .0 323%
0 .0 323%
0 .0 3 13 %
0 .0 3 13 %

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
2 2 1.1
19 1.7
178.7
166.8
147.3

110



continued on next page

Incom e and Expenses, Bank Insurance Fund, fro m Beginning o f O peratio ns,
S ep tem b e r 11, 1 9 3 3 , th ro u g h D ecem b er 3 1 , 2 0 0 4 (continued)
Dollars

in

Millions
In c o m e

Assessment
Income

Expenses and Losses

Assessment
Credits

Investment
and Other
Sources

Year

Total

Total

$ 88,804.5

$ 53,520.1

$ 6,709.1

$ 41,993.5

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
15 1.5

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

1954
1953
1952
1951
1950
1949
1948

99.7
94.2
88.6
83.5
84.8
15 1.1
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

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

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

Effective
Assessment
Rate1

1940
1939
1938
1937
1936
1935
1933/4

Total

Provision
for
Losses

Administrative
and Operating
Expenses2

Interest and
Other Insur.
Expenses

Net Incom e/
(Loss)

$ 54,707.5

$ 35,923.1

$ 11,788.5

$7,001.9

$34,097.0

0 .0 323%
0.0 370 %
0.0 370 %
0.0370%
0.0 357%
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

37.3
34.0
3 1.3
29.2
30.6
28.4
26.3

0.0 357%
0 .0 357%
0.0370%
0.0 370 %
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
6.3

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

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
1 1 1 .6
90.0
76.8
59.0
51.9

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)

61 6

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 minimum 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 .2 5 % . 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 Balance Sheets. The narrative and graph presented in the 'Corporate Planning and Budget’ section of this report (next page) show the aggregate (corporate and receivership)
expenditures of the FDIC.
3 Includes $2 10 million for the cumulative effect of an accounting change for certain postretirement benefits.
4 Includes $105.6 million net loss on government 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.




111

C o rp o ra te Planning and Budget
Dollars

in

Millions

FDIC Expenditures 1995-2004
FDIC
RTC

-2J-QS-

L5QQ_

i.ono

500

1995

96

97

98

99

2000

01

02

03

04

Note:
Resolution Trust Corporation (RTC) expenditures became the responsibility of the FDIC on January 1,1996.

1 for
Digitized12 FRASER


The FDIC's Strategic Plan and Annual Performance Plan provide
the basis for annual planning and budgeting for needed resources.
The 2004 aggregate budget (for corporate, receivership and
investm ent spending) was $1.21 billion, w hile actual expenditures
fo r th e year w e re $1.11 billion, about $77 m illion m ore than
2003 expenditures.
Over the past 10 years, the FDIC's expenditures have varied
in response to workload. During the past decade, expenditures
generally declined due to decreasing resolution and receivership
activity, although they temporarily increased in 1996 in conjunction
w ith the absorption of the Resolution Trust Corporation (RTC) and
its residual operations and workload. Total expenditures increased
in 2002 due to an increase in receivership-related expenses.
The largest component of FDIC spending is the costs associated
w ith staffing. Staffing decreased by ju st over 4 percent in 2004,
from 5,311 employees at the beginning of the year to 5,078 at
the end o f the year.

E stim ated Insured D eposits 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 4 1

D e p o s its in Insured B anks ($ millions)

Year2

Insurance
Coverage

Total
Domestic
Deposits

2004

$ 100,000

$ 4,387,949

2003
2002
2001
2000
1999
1998
1997

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

4,139,287
3,867,096
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

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

Percentage
of Insured
Deposits

Deposit
Insurance
Fund

Total
Domestic
Deposits

Estimated
Insured
Deposits

$ 2,612,740

59.5

$ 34,467.1

0.79

1.32

2,554,624
2,527,948
2,408,878
2,301,604
2,157,536
2,141,268
2,055,874

61.7
65.4
67.2
69.2
71.0
7 1.5
73.8

33,782.2
32,050.3
30,438.8
30,975.2
29,414.2
29,612.3
28,292.5

0.82
0.83
0.85
0.93
0.97
0.99
1.02

1.32
1.27
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 ,12 1.6
(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
11,0 19 .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

49 1,513
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
15 7 ,17 4
134,662
111,6 5 0
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
1934 4

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 2004, the numbers are as of September 30, and prior years reflect December 31 data.
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 estimated using percentages
determined from the June 30 Call Reports.
Initial coverage was $2,500 from January 1 to June 30, 1934.




113

Income and Expenses, Savings Association Insurance Fund, by Year,
from Beginning of O perations, A ugust 9, 1989, th ro u g h December 31, 2004
Dollars

in

Thousands
Expenses a n d Losses

In co m e

Year

Total

Assessment
Income

Investment
and
Other
Sources

Total

$ 13,906,514

$ 8,651,474

Total

Provision
for
Losses

Interest
and Other
Insurance
Expenses

Administrative
and
Operating
Expenses

Funding
Transfer
from
the FSLIC
Resolut. Fund

Net Income/
(Loss)

$ 1,563,784

$ 5,255,040

Effective
Assessment
Rate

$ 396,588

$ 30,109

$ 1,137,087

$ 139,498

$ 12.482,228

2004

564,775

8,891

555,884

0.001%

48,324

(72,162)

204

120,282

0

516,451

2003
2002
2001
2000
1999

14,594
23,783
35,402
19,237
15 ,116
15,352
13,914
5,221,560
970,027
1,13 2 ,10 2

0.001 %
0.003%
0.004%
0.0 0 2%
0.0 0 2%
0.0 0 2%
0.004%
0 .20 4%
0 .2 3 4 %
0 .24 4 %

129,584
124,363
101,591
110,920
92,882

0
0
0
0

9
0
128
0
0

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

0
0
0
0
0
0

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

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

47,200
(31,380)
564,083
300,018
124,156
116,629
69,986
(28,890)
(281,216)
434,303
46,814
28,982
63,085
56,088
5,602

(82,489)
(156,494)
443,103
180,805
30,648
31,992
(1,879)
(91,636)
(321,000)
414,000

1993
1992
1991
1990
1989

532,666
565,038
697,719
644,843
585,879
568,507
535,998
280,124
169,889
83,187
25,824
6,564
2,916
0
2

105
751
19,389
8,293
626

1998
1997
1996
1995
1994

547,260
588,821
733,121
664,080
600,995
583,859
549,912
5,501,684
1,139,916
1,215,289

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

500,060
620,201
169,038
364,062
476,839
467,230
479,926
5,530,574
1,4 2 1,13 2
780,986
876,702
185,107
75,723
18,195
2

0 .2 5 0 %
0 .2 30 %
0 .2 30 %
0 .20 8%
0 .20 8%

F D IC -In s u re d In s titu tio n s Closed D u rin g 2 0 0 4
Dollars

Codes for
Bank Class:

in

Thousands

NNational bank

NM State-chartered bank that is not
a member of the Federal Reserve System

SB Savings Bank

SM State-chartered bank that is a member
of the Federal Reserve System

Estim ated losses are as of December 3 1, 2004. Estimated losses are routinely adjusted with updated information from new appraisals and asset sales, which ultimately affect the asset
values and projected recoveries.
2The buyer purchased essentially all the assets and liabilities of the bank.
^The buyer bids one price for the deposit franchise and then bids for optional asset pools for the bank.

114



E stim ated Insured D epo sits and th e Savings A sso ciatio n Insurance Fund,
D ecem b er 3 1 , 1 9 8 9 , th ro u g h S ep tem b e r 3 0 , 2 0 0 4 1
D e p o s its in In sured 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

2004

$ 100,000

$ 1,127,884

$ 943,881

83.7

$ 12,522.7

1.11

1.33

2003
2002
2001
2000
1999

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

1,042,729
990,231
897,278
822,610
764,359

896,493
860,351
801,849
752,756
7 11,3 4 5

86.0
86.9
89.4
91.5
93.1

12,240.1
11,746.7
10,935.0
10,758.6
10,280.7

1.17
1.19
1.22
1.31
1.35

1.37
1.37
1.36
1.43
1.45

1998
1997
1996
1995
1994

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

7 51,4 13
721,503
708,749
742,547
720,823

708,959
690,132
683,090
7 11,0 17
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

1,15 5 .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 2004, 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 were estimated using percentages
determined from the June 30 Call Reports.

N um 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 4
Dollars

in

Thousands

Year2

Estimated
Receivership
Loss 3

4
Loss to Funds

Total

Assets

Deposits

Total

754

397,387,543

320,185,772

75,137,917

2004

1

15,346

13,005

0

0

2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989 5

0
1
1
1

0
50,246
2,179,783
29,530
62,956

0
50,542
1,670,802
28,583
63,427

0
0
36 3,119
1,322
1,194

0
0
32,576
423,819
136,815
7,178,794
44,196,946
78,898,704
129,662,398
134,519,630

0
0
32,745
414,692
127,508
5,708,253
34,773,224
6 5,173,122
98,963,960
113,165,909

0
0
36 3,119
1,322
1,19 4
0
0
21,921
28,192
11,4 72
268,760
3 ,12 1 ,1 1 6
8,429,888
16,025,234
46,865,699

........................ 1...
0
0
1
2
2
10
59
144
213
318

82,051,424

0
0
21,921
27,784
16,277
66,468
3,674,655
9,027,005
19,220,753
49,630,926

1 Prior to July 1, 1995, all thrift closings were the responsibility of the Resolution Trust Corporation (RTC). Since the RTC was terminated on December 3 1, 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 six such failures. Additionally, SAIF was appointed receiver of 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 for unreimbursed subrogated claims of the FRF/SAIF and unpaid advances to receiverships from
the FRF
4The 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 estimated losses for receiverships.
5

Total for 1989 excludes nine failures of the former FSLIC.




115




FDIC Actions on Financial Institutions Applications 2002-2004

D eposit Insurance

Approved
Denied
N e w Branches

Approved
Denied
M ergers

Approved
Denied
Requests for Consent to S erve*

Approved
Section 19
Section 32
Denied
Section 19
Section 32
N otices of Change in Control

Letters of Intent Not to Disapprove
Disapproved
Brokered D eposit W aivers

Approved
Denied
Savings A ssociation A c tiv itie s '

Approved
Denied
S tate B ank A c tiv itie s/In v e s tm e n ts ’

Approved
Denied
Conversions of M u tu a l Institutions

Non-Objection
Objection

2004
176
176
0
1,447
1,447
0
311
311
0
301
301
13
288
0
0
0
18
18
0
32
32
0
70
70
0
27
27
0
12
12
0

2003

2002

141
140
1
1,227
1,227
0
'304
304
0
369
368
13
355
1
0
1
30
30
0
28
28
0
56
56
0
19
19
0
7
7
0

112
112
0
1,285
1,285
0
201
201
0
295
295
12
283
0
0
0
31
31
0
3 3
33
0
69
69
0
26
26
0
4
4
0

• Under Section 19 of the Federal Deposit Insurance (FDI) Act. an insured institution must receive FDIC approval before
employing a person convicted of dishonesty or breach of trust. Under Section 32, the FDIC must also approve any change
of directors or senior executive officers at a state nonmember bank that is not in compliance with capital requirements
or is otherwise in troubled condition.
• Amendments to Part 303 of the FDIC Rules and Regulations changed FDIC oversight responsibility in October 1998.
▼ Section 24 of the FDI Act, in general, precludes an insured state bank from engaging in an activity not permissible for
a national bank and requires notices to be filed with the FDIC.

f

I

j

1

l




Compliance, Enforcement and Other Related Legal Actions 2002 2004
2002

2004
217

174

Term ination of Insurance
Involuntary Term ination
Sec. 8a For Violations, Unsafe/Unsound Practices or Condition
Voluntary Term ination
Sec.8a By Order Upon Request
0
2
Sec.8p No Deposits
38
Sec.8q Deposits Assumed

12

Total Num ber of A ctions Initia te d by the FDIC

162

Sec. 8 b C ease-and -D esist Actions
Notices of Charges Issued
Consent Orders

28

44

Sec. 8e R em oval/P rohibition of D ire c to r or Officer
Notices of Intention to Remove/Prohibit
Consent Orders

3
58

4
15

4*

0

Sec. 8g S uspension/Rem oval W h e n Charged W ith Crime
C ivil M oney P en alties Issued
Sec.7a Call Report Penalties
Sec.8i Civil M oney Penalties
Sec. 10c Orders of Investigation
Sec. 19 D enials of S ervice A fter Crim inal Conviction
Sec. 32 Notices Disapproving Officer/Director's Request for Review 0
T ru th -in -L e n d in g A ct R eim bursem ent Actions
Denials of Requests for Relief
Grants of Relief
Banks M aking Reim bursem ent"
Suspicious A ctivity Reports (Open and closed institutions)"
Other A ctions N ot Listed

0
0
73

0

0
0

96

106

83,453
3

4 2, 1 23

11

• Two actions included Sec.8 (c) temporary orders
■ These actions do not constitute the initiation of a formal enforcement action and, therefore, are not included in the total
number of actions initiated.

A p p e n d ix B M o re A b o u t th e F D IC

James Ksgley

FDIC Board of Directors
Donald E. Powell, Chairman, John M. Reich (seated),
James E. Gilleran, Thomas L. Curry, and John D. Hawke, Jr., (standing, left to right)

Donald E. Powell
Don Powell w as sw orn in as the
18th Chairman o f the FDIC in
August 2001. During his tenure he
has w orked to m aintain the FDIC's
reputation o f excellence w hile
positioning the organization to
m eet the needs of a rapidly evolving
banking industry.
Prior to being named Chairman of
the FDIC by President George W. Bush,
Mr. Powell - a life-long Texan was 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.
Of note, Mr. Powell has served as
the Chairman of the Board of Regents
of the Texas A &M University System,
which has more than 90,000 students,
the Chairman of the Amarillo Chamber
of Commerce, and currently serves
on the A dvisory Board of the
George Bush School of Government
and Public Service.

Mr. Powell has also served on the
boards o f m any o ther 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 of Banking at
Southern M e th o d ist University.

John M. Reich
Mr. Reich became Vice Chairman
of the FDIC Board o f Directors
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 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, the last 10 years of
w hich w ere as President and CEO
of the National Bank of Sarasota,
Sarasota, FL.
Before joining the FDIC, Mr. Reich
served for 12 years on the staff of
U.S. Senator Connie Mack (R-FL).
From 1998 through 2000, he was
Senator Mack's Chief of 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 of Directors
o f the Sarasota Family YMCA. He
has also served as a Board m em ber
for a number of civic organizations,
and was active for 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.




Thom as J. Curry
Mr. Curry took office as a m em ber
of the FDIC Board of Directors on
January 12, 2004. Previously, he
had served five M assachusetts
Governors as the C om m onw ealth's
C om m issioner of Banks, from
1995 to 2003. He served as Acting
Com m issioner from 1994 to 1995,
and as First Deputy Commissioner
from 1987 to 1994.
Mr. Curry currently serves on
the Board of D irectors of the
N eighborhood R einvestm ent
Corporation.
Mr. Curry was also Chairman of the
Conference of State Bank Supervisors
from 2000 to 2001, and a m em ber
of the State Liaison Com m ittee
of the Federal Financial Institutions
Examination Council from 1996
to 2003.
Mr. Curry joined the Commonwealth's
Division of Banks in 1986. He entered
state governm ent in 1982 as an
a ttorney w ith the M assachusetts
Secretary of State's Office.
Mr. Curry is a graduate of Manhattan
College (summa cum laude), w here
he was elected to Phi Beta Kappa.
He received his law degree from
the New England School of Law.

Jam es E. Gilleran
Mr. Gilleran became Director of the
O ffice of T hrift Supervision (OTS)
on D ecem ber 7, 2001. As OTS
Director, Mr. Gilleran is an ex-officio
m em ber of the FDIC Board.
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
of 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 as managing partner of the
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 of the U.S. He w as w ith
KPMG from 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 both the
Am erican Red Cross of the
San Francisco Bay Area and
the M e tropolitan YMCA.
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.

119

John D. Haw ke, Jr.
Mr. Hawke w as sw orn 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 served as an FDIC Board
m em ber until his resignation on
October 13, 2004. Mr. Hawke's suc­
cessor to the Board is Julie W illiams,
Acting Com ptroller of the Currency.
Prior to his appointment as Comptroller,
Mr. Hawke served fo r three and
a half years as Under Secretary of
the Treasury fo r Dom estic Finance.
Before joining Treasury, Mr. Hawke
w as a senior partner at the
W ashington, DC, law firm of Arnold
& Porter, w h ere he began as an
associate in 1962. W hile there,
he headed th e financial institutions
practice, and fro m 1987 to 1995,
served as the firm 's Chairman. In
1975, he le ft the firm to serve as
General Counsel to the Board of
Governors o f the Federal Reserve
System, returning in 1978.
Mr. H awke graduated fro m Yale
U niversity in 1954 w ith a B.A.
in English. From 1955 to 1957,
he served on active du ty w ith the
U.S. Air Force. A fte r graduating in
1960 from Columbia U niversity
School of Law, w h ere he was
Editor-in-Chief o f the Columbia Law
Review, Mr. Hawke w as a law clerk
fo r Judge E. Barrett Prettyman on
the U.S. Court of Appeals fo r the
D istrict of Columbia Circuit. From
1961 to 1962, he served as counsel
to the Select Subcom m ittee on
Education in the House of
R epresentatives.

1 for
Digitized 20 FRASER


From 1970 to 1987, Mr. Hawke
taught courses on federal regulation
of banking at G eorgetown 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 M orin Center fo r Banking Law
Studies in Boston. Mr. Hawke also
has w ritte n extensively on matters
relating to the regulation of financial
institutions.

Julie L. W illiam s
Ms. W illiam s is currently serving as
Acting Com ptroller of the Currency,
succeeding John D. Hawke, Jr. and
is also his successor on the FDIC
Board of Directors. Ms. W illiam s has
been First Senior Deputy Comptroller
since 1999 and also Chief Counsel
since 1994. She was also Acting
Com ptroller from April to Decem ber
1998.
As Chief Counsel, Ms. W illiam s was
responsible fo r all o f the agency's
legal activities and also supervised
the Licensing Departm ent and the
C om m unity Affairs Department.
Ms. W illiam s served as a m em ber
of the OCC's Executive Com m ittee.
She has led the Executive Committee
in providing policy and strategic
direction to the agency.
Previously, Ms. W illiam s had been
Senior D eputy Chief Counsel at
the Office of Thrift Supervision, and
served since 1983 at that agency
and its predecessor, the Federal
Home Loan Bank Board. She w orked
on securities and banking law issues
at Fried, Frank, Harris, Shriver and
Kampelman in W ashington from
1975 to 1983.
M s. W illiam s is a graduate of
Goddard College, V erm ont, and
graduated first in her class at Antioch
School o f Law, W ashington, DC.
She is th e author o f num erous
articles on banking, securities and
financial institutions law.

FDIC Organization Chart/Officials
as of December 31, 2004

Board of Directors

Donald E. Powell
John M. Reich
Thomas J. Curry
James E. Gilleran
Julie L. Williams (acting]
Office of the Chairman

Donald E. Powell
Chairman

Deputy
to the Chairman

Vice Chairman

John M. Reich

Chief of Staff

Office of Inspector
General

Jodey C. Arrington

Gaston L. Gianni, Jr.
Inspector General

■

John M. Brennan

1
Office of
Public Affairs

*

Stan Ivie
Interim Director

V

Chief
Information Officer

Michael E. Bartell

Office of
Legislative Affairs

Alice C. Goodman
Director
.

Deputy to the Chairman
and Chief Financial Officer

Deputy to the Chairman
and Chief Opei ating Officer

General
Counsel

Steven 0. App

John F Bovenzi
.

William F Kroener,
.

Division of
Finance

Division of Supervision
and Consumer Protection

Division of Insurance
and Research

Legal

Frederick S. Selby
Director

Michael J. Zamorski
Director

Arthur J. Murton
Director

William F Kroener,
.
General Counsel

Office of Enterprise
Risk Management

Division of Information
Resources Management

Division of Resolutions
and Receiverships

James H. Angel, Jr.
Director

Michael E. Bartell
Director

Mitchell L. Glassman
Director

Office of Diversity and
Economic Opportunity

Division of
Administration

D. Michael Collins
Director

Arleas Upton Kea
Director

Office of the
Ombudsman

Corporate
University

Cottrell L. Webster
Ombudsman

David C. Cooke
Chief, Learning Officer




Division

121

Corporate Staffing

S ta ffin g T re n d s 1 9 9 5 -2 0 0 4

1 5 ,0 0 0

12,000

RTC

2,043

FDIC

9,813

9,151

7,793

7,359

7,266

6,452

6,167

5,430

5,311

5,078

Total Staffing

11,856

9,151

7,793

7,359

7,266

6,452

6,167

5,430

5,311

5,078

Note:
All staffing totals reflect year-end balances.
The Resolution Trust Corporation (RTC) was fully staffed with FDIC employees and, until February 1992, the RTC was managed
by the FDIC Board of Directors. Upon the RTC sunset at year-end 1995, all of its remaining workload and employees were
transferred to the FDIC.

122



N u m b e r of O f fic ia ls and E m p lo y e e s o f th e FD IC 2003-2004 (year-end)
W ashington

Total

2004

2004

2003

R eg ion al/Field
2003

2003

42

41

42

40

0

1

2,604

2 ,7 9 7

179

188

2,425

2 .6 0 9

D iv is io n o f R e s o lu tio n s a n d R e c e iv e rs h ip s

504

520

99

100

405

420

Legal Division

488

506

303

315

185

191

D iv is io n o f F in an ce

195

205

195

205

0

0

Division of Information Resources Management

386

391

324

331

62

60

D iv is io n o f In s u ra n c e a n d R e se arch

191

186

157

156

34

30

^D ivision of Adm inistration’

415

424

274

281

141

143

O ffic e o f In s p e c to r G e n e ra l

157

150

111

107

46

43

34

33

34

33

0

0 j

15

15

3

3

E x e c u tiv e O ffic e s *

Division of Supervision and Consumer Protection

■Office of Diversity and Economic Opportunity
O ffic e o f th e O m b u d sm a n

18

~

Office of Enterprise Risk M anagem ent"

12

14

12

14

0

C o rp o ra te U n iv e rs ity ’

32

26

32

26

0

5,311

1,777

1,811

3,301

|
|
1

0

„ ... 5,078

|

3,500

—

0 |

* Includes the Offices of the Chairman, Vice Chairman, Director (Appointive), Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Legislative Affairs, and
Public Affairs.
T Corporate University w as established on February 3, 2003. The Corporate training function was previously in the Division of Administration.
■ The Office of Internal Control Management w as renamed to the Office of Enterprise Risk Management on April 2, 2004.




123

Sources of Inform ation
Hom e Page on th e Internet

FDIC Call Center

w w w .fdic.gov

Phone:

A w ide range o f banking, consumer
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
dep osit insurance coverage; the
Institutio n Directory, financial
profiles o f FDIC-insured in stitu tio n s;
C om m u nity Reinvestm ent A ct
evaluations and ratings fo r institutions
supervised by the FDIC; Call Reports,
banks' reports o f condition and
incom e; and M o n e y Smart, a
training program to help individuals
outside the financial mainstream
enhance their money management
skills and create positive banking
relationships. Readers also can
access a variety of consum er
pamphlets, FDIC press releases,
speeches and other updates on
the agency's activities, as w ell as
corporate databases and customized
reports of FDIC and banking industry
information.


124


877-275-3342
(877-ASK FDIC)
202-736-0000

Hearing
Impaired: 800-925-4618
The FDIC Call Center in Washington, DC,
is the prim ary telephone point of
contact fo r general questions from
the banking community, the public and
FDIC employees. The Call Center
directly, or in concert w ith o ther FDIC
subject m a tte r experts, responds to
questions about deposit insurance and
other consumer issues and concerns,
as w e ll as questions about FDIC
programs and activities. The Call
Center also makes referrals to other
federal and state agencies as needed.
Hours o f 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.

Public Inform ation Center
801 17th S treet, NW
Room 100
W ashington, DC 20434
Phone: 877-275-3342
(877-ASK FDIC), or
202-416-6940
Fax:

202-416-2076

E-mail:

publicinfo@fdic.gov

FDIC publications, press releases,
speeches and Congressional
testim ony, d ire ctive s 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, FDIC C onsum er
N ew s and a variety o f deposit
insurance and consumer pamphlets.

Office of the Om budsman
550 17th S treet, N W
W ashington, DC 20429
Phone: 877-275-3342
(8 7 7 -ASK FDIC)
Fax:

202-942-3040, or
202-942-3041

E-mail: ombudsm an@ fdic.gov
The O ffice o f th e O m budsm an
responds to inquiries about the
FDIC in a fair, impartial and tim ely
manner. It researches questions and
com plaints fro m bankers and the
public. The office also recom m ends
ways to improve FDIC operations,
regulations and custom er service.

Regional and Area Offices

A tla n ta R egional O ffic e
10 Tenth Street, NE
Suite 800
Atlanta, Georgia 30309
(678) 916-2200
Alabama
Florida
Georgia
North Carolina
South Carolina

Virginia
West Virginia

C hicago R egional O ffic e

D allas R egional O ffice

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

Illinois
Indiana
Kentucky
Michigan
Ohio

Colorado
New Mexico
Oklahoma
Texas

Wisconsin

Kansas C ity Regional 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
4th Floor
New York, N ew York 10005
(917) 320-2500

Iowa
Kansas
Minnesota
Missouri
Nebraska

Delaware
District of Columbia
Mar/land
New Jersey
New York
Pennsylvania




North Dakota
South Dakota

Arkansas
Louisiana
Mississippi
Tennessee

Puerto Rico
Virgin Islands

B o s to n Area Office
15 Braintree Hill O ffice Park
Suite 100
Braintree, M assachusetts 02184
(781) 794-5500_______________
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont

M e m p h is Area Office
5100 Poplar Avenue
Suite 1900
M em phis, Tennessee 38137
(901) 685-1603____________

San Francisco Regional O ffice
25 Ecker Street
Suite 2300
San Francisco, California 94105
(415) 546-0160
Alaska
Arizona
California
Guam
Hawaii
Idaho

Montana
Nevada
Oregon
Utah
Washington
Wyoming

125

A p p e n d ix C - O ffic e o f In s p e c to r G e n e ra l's A s s e s s m e n t o f th e M a n a g e m e n t
an d P e rfo rm a n c e C h a lle n g e s F acin g th e FD IC
The follow ing chart show s the FDIC's m ost significant management and performance challenges as identified by the
O ffice of Inspector General (OIG):
No.

Challenge

Brief Description

1.

Corporate Governance in
Insured Depository Institutions

Corporate governance is generally defined as the fu lfillm e n t o f the broad
stew ardship responsibilities entrusted to the board of directors, officers,
and external and internal auditors of a corporation. A number of well-publicized
announcem ents o f business and accountability failings, including those
of financial institutions, have raised questions about the credibility
of management oversight and accounting practices in the United States.
In certain cases, board m em bers and senior m anagem ent engaged in highrisk activities w ith o u t proper risk-managem ent processes, did not maintain
adequate loan policies and procedures, and circum vented or disregarded
various laws and banking regulations. In an increasingly consolidated financial
industry, effective corporate governance is needed to ensure adequate stress
testing and risk-management processes covering the entire organization.
Adequate corporate governance protects the depositor, institution, nation's
financial system , and FDIC in its role as deposit insurer. A lapse in corporate
governance can lead to a rapid decline in public confidence, w ith potentially
disastrous results to the institution. The FDIC's e ffo rts in achieving sound
corporate governance w ithout undue regulatory burden remain a management
challenge.

2.

M anagem ent and Analysis of
Risks to th e Insurance Funds

A primary goal o f the FDIC under its insurance program is to ensure that its
deposit insurance funds do not require augmentation by the U.S. Treasury.
Achieving this goal is a considerable challenge that requires effective com ­
munication and coordination w ith the other federal banking agencies. The
FDIC engages in an ongoing process of proactively identifying risks to the
deposit insurance funds and adjusting the risk-based deposit insurance
prem ium s charged to the institutions. The consolidations that have occurred
among banks, securities firm s, insurance companies, and other financial
services providers resulting from the Gramm-Leach-Bliley A ct (GLBA) pose
additional risks to the FDIC's insurance funds. Large banks may pose greater
risks to the insurance funds as a result of the Basel II capital accord, w hich
aims to align capital reserves more closely w ith the risks faced by banks
and th rifts operating internationally. Basel II can result in reduced capital
requirem ents at large in stitutions and increase co m p e titive pressure on
smaller institutions. Basel II w ill have far-reaching effects on the management
and supervision of the largest, m ost com plex banking organizations in the
w orld. The United States has an im portant role in Basel II im plem entation
because it supervises more bank assets than the other accord participants.

126



■■■M M I

A p p e n d ix C - O ffic e o f In s p e c to r G e n e ra l's A s s e s s m e n t o f th e M a n a g e m e n t
an d P e rfo rm a n c e C h a lle n g e s F acin g th e F D IC (continued)

Challenge

5.

Security M anagem ent

The FDIC relies heavily upon autom ated information system s to collect,
process, and store vast amounts of banking information. This inform ation
is used by financial regulators, academia, and the public to assess market
and institution conditions, develop regulatory policy, and conduct research
and analysis on im portant banking issues. Ensuring the confidentiality,
integrity, and availability of this inform ation in an environm ent of increasingly
sophisticated security threats requires a strong, enterprise-wide information
security program at the FDIC and insured depository institutions. Additional
security-related threats include those focusing on disrupting the economic
security of our nation. The FDIC and insured depository institutions need
to ensure that sound disaster recovery and business continuity planning
is present to safeguard depositors, investors, and others w ho depend
on the financial services.

M oney Laundering and
Terrorist Financing

3.

Brief Description

The nation faces a new and changing threat unlike any w e have faced
b e fo re — the global threat o f terrorism . In response to this threat, the
Congress enacted the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56 (USA PATRIOT Act), w hich expands the Treasury
Departm ent's authority initially established under the Bank Secrecy A ct
of 1970 (BSA) to regulate the activities o f U.S. financial institutions,
particularly their relations w ith individuals and entities w ith foreign ties.
Specifically, the USA PATRIOT A ct expands the BSA beyond its original
purpose o f deterring and detecting money laundering to also address
terrorist financing activities. In today's global banking environment, w here
funds are transferred instantly and com m unication system s make services
available internationally, a lapse at even a small financial institution outside
of a major metropolitan area can have significant implications across the
nation. The reality today is that all institutions are at risk o f being used
to facilitate criminal activities, including terrorist financing.

Protection of
Consumers' Interests

In addition to its mission of maintaining public confidence in the nation's
financial system , the FDIC also serves as an advocate fo r consumers
through its oversight of a variety of statutory and regulatory requirements
aimed at protecting consumers from unfair and unscrupulous banking
practices. The FDIC is legislatively mandated to enforce various statutes
and regulations regarding consum er protection and civil rights w ith respect
to state-chartered, non-m ember banks and to encourage com m unity
investm ent initiatives by these institutions. Ensuring the protection of
consum er interests is a major challenge in an environm ent of increasingly
large financial institutions that lack the historic geographic boundaries or
operations and offer an increasing array of consum er products. One key
concern is identity protection. It is essential that custom er inform ation is
safeguarded in order to maintain confidence in our nation's financial system.




A p p e n d ix C - O ffic e o f In s p e c to r G e n e ra l's A s s e s s m e n t o f th e M a n a g e m e n t
an d P e rfo rm a n c e C h a lle n g e s F acin g th e F D IC (co n tin u e d )

Brief Description

6.

Corporate Governance
in th e FDIC

Corporate governance w ithin the FDIC is the responsibility o f the Board
of Directors, officers, and operating managers in fulfilling the Corporation's
broad mission functions. It also provides the structure fo r setting goals and
objectives, the means to attaining those goals and objectives, and ways
of m onitoring performance. M anagem ent o f the FDIC's corporate resources
is essential fo r efficiently achieving the FDIC's program goals and objectives.
In the spirit of the President's M anagem ent Agenda, the FDIC is undertaking
a num ber of initiatives to improve operational efficiency and effectiveness,
including major new procurement initiatives related to information technology,
numerous new projects to field state-of-the-art inform ation system s, and
increasing security requirem ents to protect FDIC personnel and resources.
Along w ith the recent announcem ents concerning corporate downsizing,
effective corporate governance is a significant challenge.

7.

Resolution and Receivership
Activities

One of the FDIC's 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 . Functions
related to pre-closing, closing, and post-closing of failed financial institutions
are accom panied by sig n ifica n t challenges to ensure th e least-costly
strategies are used to achieve the FDIC's mission.

128



Design: FDIC/DOA/CSB/Design a d Printing Unit
n

Challenge




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:
Sam Collicchio
Pearline Crosland
Jannie F Eaddy
.
Terry Ferril
Barbara Glasby
Addie Hargrove
Patricia Hughes
Mia Jordan
Joan Spirtas