Savings Association Insurance Fund
Savings
Association Insurance Fund Statements of Financial
Position at December 31 |
Dollars in Thousands |
ell |
2001 |
2000 |
Assets |
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 |
Revenue |
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 Flows
From Operating Activities |
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 institutions
insurance fund membership and primary federal supervisor are generally
determined by the institutions 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 FDICs
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 FDICs authority to borrow working capital from
the FFB on behalf of the SAIF and the BIF. The FDICIA increased the FDICs
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 FDICs 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
SAIFs 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 FDICs 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 Bloombergs 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 Bloombergs 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 FDICs 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 FDICs 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 members 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 SAIFs 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 |
Valuation
Adjustments: |
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 employers 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 SAIFs pro rata share of the Corporations 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 SAIFs
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 SAIFs 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 |
Income
Statement Items: |
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 |
|