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2001 Annual Report


Financial Statements


Savings Association Insurance Fund

Savings Association Insurance Fund Statements of Financial Position at December 31
Dollars in Thousands
ell 2001 2000
Cash and cash equivalents $276,507 $149,988
Cash and other assets: Restricted for SAIF-member exit fees (Note 3)
(Includes cash and cash equivalents of $71.9 million
and $40.2 million at December 31, 2001
and December 31, 2000, respectively)
299,374 283,780
Investment in U.S. Treasury obligations, net: (Note 4)
Held-to-maturity securities 6,718,418 7,950,849
Available-for-sale securities 2,745,476 2,708,965
Interest receivable on investments and other assets, net 156,126 188,473
Receivables from thrift resolutions, net (Note 5) 1,285,150 4,147
Total Assets $11,481,051 $11,286,202
Liabilities
Accounts payable and other liabilities $8,111 $7,748
Contingent liabilities for: (Note 6)
Anticipated failure of insured institutions 233,000 234,083
Litigation losses 5,642 1,943
SAIF-member exit fees and investment proceeds held in escrow (Note 3) 299,374 283,780
Total Liabilities 546,127 527,554
Commitments and off-balance-sheet exposure (Note 10)
Fund Balance
Accumulated net income 10,845,515 10,676,477
Unrealized gain on available-for-sale securities, net (Note 4) 89,409 82,171
Total Fund Balance 10,934,924 10,758,648
Total Liabilities and Fund Balance $11,481,051 $11,286,202
The accompanying notes are an integral part of these financial statements.

 

Savings Association Insurance Fund Statements of Income and Fund Balance for the Years Ended December 31
Dollars in Thousands
  2001 2000
Interest on U.S. Treasury obligations $633,725 $644,222
Assessments (Note 7) 35,402 19,237
Realized gain on sale of U.S. Treasury obligations 51,630 0
Other revenue 12,364 621
Total Revenue 733,121 664,080
Expenses and Losses
Operating expenses 101,591 110,920
Provision for insurance losses (Note 8) 443,103 180,805
Other insurance expenses 19,389 8,293
Total Expenses and Losses 564,083 300,018
Net Income 169,038 364,062
Unrealized gain on available-for-sale securities, net
(Note 4)
7,238 113,914
Comprehensive Income 176,276 477,976
Fund Balance - Beginning 10,758,648 10,280,672
Fund Balance - Ending $10,934,924 $10,758,648
The accompanying notes are an integral part of these financial statements.

 

Savings Association Insurance Fund Statements of Cash Flows for the Years Ended
December 31
Dollars in Thousands
  2001 2000
Cash provided by:
Interest on U.S. Treasury obligations $674,636 $606,521
Assessments 35,554 19,829
Entrance and exit fees, including interest on exit fees
(Note 3)
3,984 14,414
Recoveries from thrift resolutions 246,535 88,451
Miscellaneous receipts 2,615 60
Cash used by:
Operating expenses (102,429) (107,137)
Disbursements for thrift resolutions (1,976,964) (39,753)
Miscellaneous disbursements (352) (17)
Net Cash (Used by) Provided by Operating Activities (Note 13) (1,116,421) 582,368
Cash Flows From Investing Activities
Cash provided by:
Maturity of U.S. Treasury obligations, held-to-maturity 2,049,512 1,630,000
Maturity and sale of U.S. Treasury obligations, available-for-sale 875,245 150,000
Cash used by:
Purchase of U.S. Treasury obligations, held-to-maturity (826,788) (1,522,399)
Purchase of U.S. Treasury obligations, available-for-sale (823,265) (819,316)
Net Cash Provided by (Used by) Investing Activities 1,274,704 (561,715)
Net Increase in Cash and Cash Equivalents 158,283 20,653
Cash and Cash Equivalents - Beginning 190,141 169,488
Unrestricted Cash and Cash Equivalents - Ending 276,507 149,988
Restricted Cash and Cash Equivalents - Ending 71,917 40,153
Cash and Cash Equivalents - Ending $348,424 $190,141
The accompanying notes are an integral part of these financial statements.

 

NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001 and 2000

1. Legislative History and Operations of the Savings Association Insurance Fund

Legislative History

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) was enacted to reform, recapitalize, and consolidate the federal deposit insurance system. The FIRREA created the Savings Association Insurance Fund (SAIF), the Bank Insurance Fund (BIF), and the FSLIC Resolution Fund (FRF). It also designated the Federal Deposit Insurance Corporation (FDIC) as the administrator of these funds. All three funds are maintained separately to carry out their respective mandates.

The SAIF and the BIF are insurance funds responsible for protecting insured thrift and bank depositors from loss due to institution failures. The FRF is a resolution fund responsible for winding up the affairs of the former Federal Savings and Loan Insurance Corporation (FSLIC) and liquidating the assets and liabilities transferred from the former Resolution Trust Corporation (RTC).

Pursuant to the Resolution Trust Corporation Completion Act of 1993 (RTC Completion Act), resolution responsibility transferred from the RTC to the SAIF on July 1, 1995. Prior to that date, thrift resolutions were the responsibility of the RTC (January 1, 1989 through June 30, 1995) or the FSLIC (prior to 1989).

Pursuant to FIRREA, an active institution’s insurance fund membership and primary federal supervisor are generally determined by the institution’s charter type. Deposits of SAIF-member institutions are generally insured by the SAIF; SAIF members are predominantly thrifts supervised by the Office of Thrift Supervision (OTS). Deposits of BIF-member institutions are generally insured by the BIF; BIF members are predominantly commercial and savings banks supervised by the FDIC, the Office of the Comptroller of the Currency, or the Federal Reserve Board.

In addition to traditional thrifts and banks, several other categories of institutions exist. The Federal Deposit Insurance Act (FDI Act), Section 5(d)(3), provides that a member of one insurance fund may, with the approval of its primary federal supervisor, merge, consolidate with, or acquire the deposit liabilities of an institution that is a member of the other insurance fund without changing insurance fund status for the acquired deposits. These institutions with deposits insured by both insurance funds are referred to as Oakar financial institutions. The FDI Act, Section 5(d)(2)(G), allows SAIF-member thrifts to convert to a bank charter and retain their SAIF membership. These institutions are referred to as Sasser financial institutions. The Home Owners’ Loan Act (HOLA), Section 5(o), allows BIF-member banks to convert to a thrift charter and retain their BIF membership. These institutions are referred to as HOLA thrifts.


Other Significant Legislation

The Competitive Equality Banking Act of 1987 established the Financing Corporation (FICO) as a mixed-ownership government corporation whose sole purpose was to function as a financing vehicle for the FSLIC.

The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act), the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), and the Deposit Insurance Funds Act of 1996 (DIFA) made changes to the FDIC’s assessment authority (see Note 7) and borrowing authority. The FDICIA also requires the FDIC to: 1) resolve failing institutions in a manner that will result in the least possible cost to the deposit insurance funds and 2) maintain the insurance funds at 1.25 percent of estimated insured deposits or a higher percentage as circumstances warrant.

The Gramm Leach Bliley Act (GLBA) was enacted on November 12, 1999, in order to modernize the financial services industry (banks, brokerages, insurers, and other financial service providers). The GLBA lifts restrictions on affiliations among banks, securities firms, and insurance companies. It also expands the financial activities permissible for financial holding companies and insured depository institutions, their affiliates and subsidiaries.


Recent Legislative Initiatives


Legislation on deposit insurance reform was introduced during February 2002 in the House and Senate. The legislative proposals include merging SAIF and BIF, modifying restrictions on charging risk-based insurance premiums, implementing assessment credits and rebates, changing the designated reserve ratio from a fixed 1.25 percent of estimated insured deposits to a range, increasing deposit insurance coverage for all accounts (including higher coverage for retirement accounts), and indexing the insurance limit to inflation. These provisions may have a significant impact on the SAIF and the BIF, if enacted into law. FDIC management cannot predict which provisions, if any, will ultimately be enacted.


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 failed institutions, including disposing of their assets. In this capacity, the SAIF has financial responsibility for all SAIF-insured deposits held by SAIF-member institutions and by BIF-member banks designated as Oakar financial institutions.

The SAIF is primarily funded from: 1) interest earned on investments in U.S. Treasury obligations and 2) deposit insurance assessments. Additional funding sources are borrowings from the U.S. Treasury, the Federal Financing Bank (FFB), and the Federal Home Loan Banks, if necessary. The 1990 OBR Act established the FDIC’s authority to borrow working capital from the FFB on behalf of the SAIF and the BIF. The FDICIA increased the FDIC’s authority to borrow for insurance losses from the U.S. Treasury, on behalf of the SAIF and the BIF, from $5 billion to $30 billion.

The FDICIA established a limitation on obligations that can be incurred by the SAIF, known as the Maximum Obligation Limitation (MOL). As of December 31, 2001 and December 31, 2000, the MOL for the SAIF was $18.8 billion and $18.4 billion, respectively.


Receivership Operations


The FDIC is responsible for managing and disposing of the assets of failed institutions in an orderly and efficient manner. The assets held by receivership entities, and the claims against them, are accounted for separately from SAIF assets and liabilities to ensure that receivership proceeds are distributed in accordance with applicable laws and regulations. Also, the income and expenses attributable to receiverships are accounted for as transactions of those receiverships. Expenses paid by the SAIF on behalf of the receiverships are recovered from those receiverships.


2. Summary of Significant Accounting Policies

General

These financial statements pertain to the financial position, results of operations, and cash flows of the SAIF and are presented in accordance with generally accepted accounting principles (GAAP). These statements do not include reporting for assets and liabilities of closed thrift institutions for which the FDIC acts as receiver. Periodic and final accountability reports of the FDIC’s activities as receiver are furnished to courts, supervisory authorities, and others as required.


Use of Estimates


FDIC management makes estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Where it is reasonably possible that changes in estimates will cause a material change in the financial statements in the near term, the nature and extent of such changes in estimates have been disclosed.


Cash Equivalents


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


Investments in U.S. Treasury Obligations


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


Allowance for Losses on Receivables From Thrift Resolutions


The SAIF records a receivable for the amounts advanced and/or obligations incurred for resolving failing and failed thrifts. Any related allowance for loss represents the difference between the funds advanced and/or obligations incurred and the expected repayment. The latter is based on estimates of discounted cash recoveries from the assets of assisted or failed thrifts, net of all applicable estimated liquidation costs.


Cost Allocations Among Funds


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


Disclosure About Recent Accounting Pronouncements


Recent accounting pronouncements were evaluated and deemed to be not applicable to the financial statements 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 statements and footnotes.


3. Cash and Other Assets: Restricted for SAIF-Member Exit Fees

The SAIF collects entrance and exit fees for 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 Register on March 21, 1990, directed that exit fees paid to the SAIF be held in escrow.

The FDIC and the Secretary of the Treasury will determine when it is no longer necessary to escrow such funds for the payment of interest on obligations previously issued by the FICO. These escrowed exit fees are invested in U.S. Treasury securities pending determination of ownership. The interest earned is also held in escrow. There were no conversion transactions during 2001 and 2000 that resulted in an exit fee to the SAIF.

Cash and Other Assets: Restricted for SAIF-Member Exit Fees at December 31
Dollars in Thousands
  2001 2000
Cash and cash equivalents $71,917 $40,154
Investment in U.S. Treasury obligations, net 223,213 239,088
Interest receivable on U.S. Treasury obligations 4,244 4,535
Exit fees receivable 0 3
Total $299,374 $283,780

U.S. Treasury Obligations at December 31, 2001 (Restricted for SAIF-Member Exit Fees)
Dollars in Thousands
Held-to-Maturity
Maturity Yield at Purchase Face Value Net Carrying Amount Unrealized Holding Gains Unrealized Holding Losses Market Value
Within 1 year 5.95% $100,000 $100,027 $2,364 $0 $102,391
After 1 year through 5 years 6.10% 75,000 76,764 3,814 0 80,578
After 5 years through 10 years 5.03% 44,000 46,422 893 0 47,315
Total   $219,000 $223,213 $7,071 $0 $230,284

U.S. Treasury Obligations at December 31, 2000 (Restricted for SAIF-Member Exit Fees)
Dollars in Thousands
Held-to-Maturity
Maturity Yield at Purchase Face Value Net Carrying Amount Unrealized Holding Gains Unrealized Holding Losses Market Value
Within 1 year 5.52% $15,000 $15,093 $0 $(20) $15,073
After 1 year through 5 years 6.07% 155,000 156,020 2,467 0 158,487
After 5 years through 10 years 5.20% 64,000 67,975 454 (373) 68,056
Total empty cell $234,000 $239,088 $2,921 $(393) $241,616

The unamortized premium, net of the unamortized discount, was $4.2 million and $5.1 million at December 31, 2001 and 2000, respectively.


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

Cash not required to meet the liquidity needs of the SAIF is invested in U.S. Treasury obligations with maturities exceeding three months. As of December 31, 2001 and December 31, 2000, the book value of investments in U.S. Treasury Obligations, net, was $9.5 billion and $10.7 billion, respectively. The book value is computed by adding the amortized cost of the held-to-maturity securities to the market value of the available-for-sale securities. In 2001, the FDIC held $1.9 billion of Treasury inflation-indexed securities (TIIS) for the SAIF. These securities are indexed to increases or decreases in the Consumer Price Index (CPI).

In 2001, the SAIF reported a gross realized gain of $52 million on the sale of securities designated as available-for-sale. Proceeds from the sales were $795 million. Specific identification was used to determine cost of the securities sold in computing the realized gain.

U.S. Treasury Obligations, Net at December 31, 2001 (Unrestricted)
Dollars in Thousands
Maturity Yield at Purchase (a) Face Value Net Carrying Amount Unrealized Holding Gains Unrealized Holding Losses Market Value
Held-to-Maturity
Within 1 year 5.91% $970,000 $973,251 $15,735 $0 $988,986
After 1 year through 5 years 6.17% 2,540,000 2,592,612 162,155 0 2,754,767
After 5 years through 10 years 5.53% 3,125,012 3,152,554 142,863 0 3,295,417
Total empty cell $6,635,012 $6,718,417 $320,753 $0 $7,039,170
Available-for-Sale
Within 1 year 6.44% $75,000 $74,412 $3,213 $0 $77,625
After 1 year through 5 years 6.18% 930,000 942,449 55,065 0 997,514
After 5 years through 10 years 3.84% 1,642,564 1,639,207 36,592 (5,461) 1,670,338
Total empty cell $2,647,564 $2,656,068 $94,870 $(5,461) $2,745,477
Total Investment in U.S. Treasury Obligations, Net
Total empty cell $9,282,576 $9,374,485 $415,623 $(5,461) $9,784,647
(a) For TIIS, the yields in the above table include their real yields at purchase, not their effective yields. Effective yields on TIIS include a weighted average of Bloomberg’s calculation of yield with a long-term inflation assumption of 2.5% annually, as measured by the Consumer Price Index (CPI).


U.S. Treasury Obligations, Net at December 31, 2000 (Unrestricted)
Dollars in Thousands
Maturity Yield at Purchase (a) Face Value Net Carrying Amount Unrealized Holding Gains Unrealized Holding Losses Market Value
Held-to-Maturity
Within 1 year 6.00% $ 2,034,500 (b) $2,036,981 $3,172 $(52) $2,040,101
After 1 year through 5 years 6.25% 2,435,000 2,473,164 70,074 0 2,543,238
After 5 years through 10 years 5.64% 3,380,394 3,440,704 117,935 (5,768) 3,552,871
Total empty cell $7,849,894 $7,950,849 $191,181 $(5,820) $8,136,210
Available-for-Sale
Within 1 year 5.17% $80,000 $80,269 $0 $(181) $80,088
After 1 year through 5 years 6.29% 1,255,000 1,275,120 44,860 0 1,319,980
After 5 years through 10 years 4.43% 1,288,270 1,271,405 37,492 0 1,308,897
Total empty cell $2,623,270 $2,626,794 $82,352 $(181) $2,708,965
Total Investment in U.S. Treasury Obligations, Net
Total empty cell $10,473,164 $10,577,643 $273,533 $(6,001) $10,845,175
(a) For TIIS, the yields in the above table include their real yields at purchase, not their effective yields. Effective yields on TIIS include a weighted average of Bloomberg’s calculation of yield with a long-term inflation assumption of 2.5% annually, as measured by the Consumer Price Index (CPI).

(b) Includes two Treasury notes totaling $150 million which matured on Sunday, December 31, 2000. Settlement occurred on the next business day, January 2, 2001.

As of December 31, 2001 and 2000, the unamortized premium, net of the unamortized discount, was $91.9 million and $104.5 million, respectively.


5. Receivables from Thrift Resolutions, Net


The thrift resolution process takes different forms depending on the unique facts and circumstances surrounding each failing or failed institution. Payments for institutions that fail are made to cover obligations to insured depositors and represent claims by the SAIF against the receiverships' assets. There was one thrift failure in both 2001 and 2000, with assets at failure of $2.2 billion and $30 million, respectively, and SAIF outlays of $1 billion and $29 million, respectively. In addition, as part of the FDIC’s efforts to maximize the return from the sale of assets from thrift resolutions, representations and warranties, and guarantees were offered on loan sales. The total amount of loans sold subject to representations and warranties, and guarantees were $373 million as of December 31, 2001.

Receivables from thrift resolutions increased by $1.281 billion due to the failure of Superior Bank, FSB, Hinsdale, Illinois. On July 27, 2001, the FDIC was named receiver of this failed institution and conservator of a newly chartered, full-service mutual savings bank. The Superior resolution represented a new liquidation approach for the SAIF by establishing a conservatorship to enhance franchise value and to liquidate assets as a going concern. When the majority of the assets are sold, the conservatorship will terminate and the proceeds will transfer back to the Superior receivership.

As part of this transaction, the FDIC extended a $1.5 billion line of credit to the conservatorship for liquidity purposes. As of December 31, 2001, the conservatorship had drawn $1.0 billion from this line of credit and repaid $859 million, leaving $163 million of the line of credit unpaid. The FDIC estimated a loss of $440 million to the SAIF for this institution as of year end 2001.

Assets held by the FDIC in its receivership capacity for closed SAIF-insured institutions are the main source of repayment of the SAIF's receivables from closed thrifts. As of December 31, 2001 and 2000, SAIF receiverships held assets with a book value of $210 million and $56.1 million, respectively (including cash and miscellaneous receivables of $16 million and $48.2 million at December 31, 2001, and 2000, respectively). Generally, the estimated cash recoveries from the management and disposition of these assets that are used to derive the allowance for losses are based, in part, on a statistical sampling of receivership assets. For recent and significant failures, such as Superior, a separate evaluation is performed on the majority of assets within the conservatorship and receivership to determine an appropriate allowance for loss estimate to the SAIF. These estimated recoveries are regularly evaluated, but remain subject to uncertainties because of potential changes in economic conditions. Such uncertainties could cause the SAIF's and other claimants' actual recoveries to vary from the level currently estimated.


6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The SAIF records a contingent liability and a loss provision for thrifts (including Oakar and Sasser financial institutions) that are likely to fail within one year of the reporting date, absent some favorable event such as obtaining additional capital or merging, when the liability becomes probable and reasonably estimable.

The contingent liability is derived by applying expected failure rates and historical loss rates to groups of institutions with certain shared characteristics. In addition, institution-specific analysis is performed on those thrifts where failure is imminent absent institution management resolution of existing problems. As of December 31, 2001 and 2000, the contingent liabilities for anticipated failure of insured institutions were $233 million and $234 million, respectively.

In addition to these recorded contingent liabilities, the FDIC has identified increasing risk in the financial services industry that could result in a material loss to the SAIF should the potentially vulnerable financial institutions ultimately fail. This risk is evidenced by higher levels of problem thrift assets, deteriorating credit quality, weaker supervisory ratings, and the increased presence of various new thrift business models that have not been tested in a recession.

Due to increased risk in the industry and uncertainty surrounding future economic and financial conditions, there are other thrifts for which the risk of failure is less certain, but still considered reasonably possible. Should these thrifts fail, the SAIF could incur additional estimated losses up to $1.8 billion.

The accuracy of these estimates will largely depend on future economic conditions. The FDIC's Board of Directors has the statutory authority to consider the contingent liability from anticipated failures of insured institutions when setting assessment rates.


Litigation Losses


The SAIF records an estimated loss for unresolved legal cases to the extent those losses are considered probable and reasonably estimable. In addition to the amount recorded as probable, the FDIC has determined that losses from unresolved legal cases totaling $921 thousand are reasonably possible.

In addition, two cases are currently pending in the U.S. District Court against the FDIC alleging that the FDIC’s calculation of a special assessment exceeded the amounts due pursuant to the Deposit Insurance Funds Act of 1996 (DIFA). The DIFA authorized the FDIC to make a one-time special assessment for the purpose of fully capitalizing the SAIF to its designated reserve ratio (DRR) of 1.25%. The plaintiffs seek refunds of special assessment overpayments and interest from the date of the overpayments. The FDIC believes the probability of refunds is remote and therefore no estimate of loss is recorded or disclosed.


7. Assessments

The 1990 OBR Act removed caps on assessment rate increases and authorized the FDIC to set assessment rates for SAIF members semiannually, to be applied against a member’s average assessment base. The FDICIA: 1) required the FDIC to implement a risk-based assessment system; 2) authorized the FDIC to increase assessment rates for SAIF-member institutions as needed to ensure that funds are available to satisfy the SAIF’s obligations; 3) required the FDIC to build and maintain the reserves in the insurance funds to 1.25 percent of estimated insured deposits; and 4) authorized the FDIC to increase assessment rates more frequently than semiannually and impose emergency special assessments as necessary to ensure that funds are available to repay U.S. Treasury borrowings.

The FDIC uses a risk-based assessment system that charges higher rates to those institutions that pose greater risks to the SAIF. To arrive at a risk-based assessment for a particular institution, the FDIC places each institution in one of nine risk categories, using a two-step process based first on capital ratios and then on other relevant information. The assessment rate averaged approximately 0.41 cents and 0.24 cents per $100 of assessable deposits for 2001 and 2000, respectively. On October 23, 2001, the Board voted to retain the SAIF assessment schedule at the annual rate of 0 to 0.27 cents per $100 of assessable deposits for the first semiannual period of 2002. The Board reviews premium rates semiannually.

The DIFA provided, among other things, for the capitalization of the SAIF to its DRR of 1.25 percent by means of a one-time special assessment on SAIF-insured deposits. The SAIF achieved its required capitalization by means of a $4.5 billion special assessment effective October 1, 1996. Since October 1996, the SAIF has maintained a capitalization level at or higher than the DRR of 1.25 percent of insured deposits. As of December 31, 2001, the capitalization level for the SAIF is 1.36 percent of estimated insured deposits.

The DIFA provided for the elimination of the mandatory minimum assessment formerly provided for in the FDI Act. It also provided for the expansion of the assessment base for payments of the interest on obligations issued by the FICO to include all FDIC-insured institutions (including thrifts, banks, and Oakar and Sasser financial institutions), and it made the FICO assessment separate from regular assessments, effective on January 1, 1997.

The FICO assessment has no financial impact on the SAIF. The FICO assessment is separate from the regular assessments and is imposed on thrifts and banks, not on the insurance funds. The FDIC, as administrator of the SAIF and the BIF, is acting solely as a collection agent for the FICO. During 2001 and 2000, $164 million and $158 million, respectively, was collected from SAIF-member institutions and remitted to the FICO.


8. Provision for Insurance Losses

Provision for insurance losses was $443.1 million and $180.8 million for December 31, 2001 and December 31, 2000, respectively. The following chart lists the major components of the provision for insurance losses.

Provision for Insurance Losses for the Years Ended December 31
Dollars in Thousands
  2001 2000
Closed thrifts $440,487 $(7,221)
Total Valuation Adjustments 440,487 (7,221)
Contingent Liabilities Adjustments
Anticipated failure of insured institutions (1,083) 186,083
Litigation losses 3,699 1,943
Total Contingent Liabilities Adjustments 2,616 188,026
Total $443,103 $180,805


9. Employee Benefits

Pension Benefits and Savings Plan

Eligible FDIC employees (permanent and term employees with appointments exceeding one year) are covered by either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). The CSRS is a defined benefit plan, which is offset with the Social Security System in certain cases. Plan benefits are determined on the basis of years of creditable service and compensation levels. The CSRS-covered employees also can contribute to the tax-deferred Federal Thrift Savings Plan (TSP).

The FERS is a three-part plan consisting of a basic defined benefit plan that provides benefits based on years of creditable service and compensation levels, Social Security benefits, and the TSP. Automatic and matching employer contributions to the TSP are provided up to specified amounts under the FERS.

Although the SAIF contributes a portion of pension benefits for eligible employees, it does not account for the assets of either retirement system. The SAIF also does not have actuarial data for accumulated plan benefits or the unfunded liability relative to eligible employees. These amounts are reported on and accounted for by the U.S. Office of Personnel Management.

Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred 401(k) savings plan with matching contributions. The SAIF pays its share of the employer’s portion of all related costs.

Pension Benefits and Savings Plans Expenses for the Years Ended December 31
Dollars in Thousands
  2001 2000
Civil Service Retirement System $1,561 $1,603
Federal Employees Retirement System (Basic Benefit) 4,043 4,092
FDIC Savings Plan 2,508 2,594
Federal Thrift Savings Plan 1,622 1,631
Total $9,734 $9,920


Accrued Annual Leave


The SAIF’s pro rata share of the Corporation’s liability to employees for accrued annual leave is approximately $4.6 million and $5.0 million at December 31, 2001 and 2000, respectively.


Postretirement Benefits Other Than Pensions


The FDIC provides certain dental and life insurance coverage for its eligible retirees, the retirees' beneficiaries, and covered dependents. Retirees eligible for life insurance coverage are those who have qualified due to: 1) immediate enrollment upon appointment or five years of participation in the plan and 2) eligibility for an immediate annuity. Dental coverage is provided to all retirees eligible for an immediate 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 for an immediate annuity and at no cost to retirees. At December 31, 2001 and 2000, the SAIF's prepaid postretirement benefit cost recognized in the "Interest receivable on investment and other assets, net" line item in the Statements of Financial Position was $148 thousand and $101 thousand, respectively.


10. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leases


The SAIF's allocated share of the FDIC's lease commitments totals $17.1 million for future years. The lease agreements contain escalation clauses resulting in adjustments, usually on an annual basis. The allocation to the SAIF of the FDIC's future lease commitments is based upon current relationships of the workloads among the SAIF, the BIF, and the FRF. Changes in the relative workloads could cause the amounts allocated to the SAIF in the future to vary from the amounts shown below. The SAIF recognized leased space expense of $5.8 million and $5.7 million at December 31, 2001 and 2000, respectively.

Lease Commitments
Dollars in Thousands
2002 2003 2004 2005 2006 2007/Thereafter
$4,965 $3,806 $2,654 $1,948 $1,710 $2,044

Off-Balance-Sheet Exposure:

Deposit Insurance


As of December 31, 2001, deposits insured by the SAIF totaled approximately $802 billion. This would be the accounting loss if all depository institutions were to fail and the acquired assets provided no recoveries.

Asset Putbacks

Certain asset sales from the Superior conservatorship have been sold with agreement that specific assets may be resold, or "putback," to the receivership. The values and time limits for these assets to be putback are defined within each agreement. It is possible that the SAIF could be called upon to fund the purchase of any or all of the "unexpired putbacks" at any time prior to expiration. The FDIC's estimate of the volume of assets subject to repurchase under existing agreements is $488 million. The actual amount subject to repurchase should be significantly lower because the estimate does not reflect subsequent collections on or sales of assets kept by the acquirer. It also does not reflect any decrease due to acts by the acquirers which might disqualify assets from repurchase eligibility. Repurchase eligibility is determined by the FDIC when the purchaser initiates the asset putback procedures. The FDIC projects that a total of $5.5 million in book value of assets will be putback.


11. Concentration of Credit Risk

Financial instruments that potentially subject the SAIF to credit risk consist primarily of gross receivables from bank resolutions totaling $1.7 billion. The receivables from thrift resolutions include payments made to cover obligations to insured depositors, advances to receiverships/conservatorships to provide working capital, and receivables for expenses paid by the SAIF on behalf of receiverships. Assets held by the FDIC in its receivership or conservatorship capacity for closed SAIF-insured institutions are the main source of repayment of the SAIF's receivables from resolutions. Most of the gross receivable and related allowance for loss of $446 million is attributable to the failure of Superior Bank. The credit risk related to the Superior resolution is limited because most of the net receivable is expected to be paid in the second quarter of 2002.


12. Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at current value. The fair market value of the investment in U.S. Treasury obligations is disclosed in Notes 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 approximates their fair market value, due to their short maturities and/or comparability with 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 will ultimately be used to pay the corporate subrogated claim are valued using discount rates that include consideration of market risk. These discounts ultimately affect the SAIF’s allowance for loss against the net receivables from thrift resolutions. Therefore, the corporate subrogated claim indirectly includes the effect of discounting and should not be viewed as being stated in terms of nominal cash flows.

Although the value of the corporate subrogated claim is influenced by valuation of 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 for sale to the private sector, and has no established market, it is not practicable to estimate its fair market value.

The FDIC believes that a sale to the private sector of the corporate claim would require indeterminate, but substantial, discounts for an interested party to profit from these assets because of credit and other risks. In addition, the timing of receivership payments to the SAIF on the subrogated claim does not necessarily correspond with the timing of collections on receivership assets. Therefore, the effect of discounting used by receiverships should not necessarily be viewed as producing an estimate of market value for the net receivables from thrift resolutions.


13. Supplementary Information Relating to the Statements of Cash Flows

Reconciliation of Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31
Dollars in Thousands
  2001 2000
Net Income $169,038 $364,062
Adjustments to Reconcile Net Income to Net Cash
(Used by) Provided by Operating Activities
Amortization of U.S. Treasury obligations (unrestricted) 32,503 32,317
TIIS inflation adjustment (37,407) (36,930)
Gain on sale of U.S. Treasury obligations (51,630) 0
Change in Assets and Liabilities:
Decrease in amortization of U.S. Treasury obligations (restricted) 863 887
Decrease (Increase) in entrance and exit fees receivable,
including interest receivable on investments and other assets
32,641 (34,240)
(Increase) Decrease in receivables from thrift resolutions (1,281,002) 58,096
Increase in accounts payable and other liabilities 362 2,860
(Decrease) Increase in contingent liability for anticipated failure of
insured institutions
(1,083) 178,083
Increase in contingent liability for litigation losses 3,699 1,943
Increase in exit fees and investment proceeds held in escrow 15,595 15,290
Net Cash (Used by) Provided by Operating Activities $(1,116,421) $582,368


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Last Updated 11/8/2002

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