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2000 Annual Report
|FSLIC Resolution Fund|
|Federal Deposit Insurance Corporation|
|FSLIC Resolution Fund Statements of Financial Position at December 31|
|Dollars in Thousands|
|Cash and cash equivalents||$3,514,541||$2,948,138|
|Receivables from thrift resolutions, net (Note 3)||416,376||1,366,755|
|Investment in securitization related
assets acquired from receiverships (Note 4)
|Assets acquired from assisted thrifts and
terminated receiverships, net (Note 5)
|Other assets, net (Note 6)||16,125||36,748|
|Accounts payable and other liabilities||$42,618||$73,621|
|Liabilities from thrift resolutions (Note 7)||74,872||296,817|
|Contingent liabilities for: (Note 8)|
|Commitments and concentration of credit risk (Note 14 and Note 15)|
|Resolution Equity (Note 11)|
|Unrealized gain on available-for-sale securities, net (Note 4)||455,417||380,170|
|Accumulated deficit, net||(128,812,361)||(124,619,430)|
|Total Resolution Equity||5,672,565||6,709,069|
|Total Liabilities and Resolution Equity||$5,793,100||$7,081,291|
|The accompanying notes are an integral part of these financial statements.|
Resolution Fund Statements of Income and Accumulated Deficit for the Years
|Dollars in Thousands|
|Interest on securitization related assets acquired from receiverships||$ 85,511||$104,232|
|Interest on U.S. Treasury obligations||145,063||108,001|
|Interest on advances and subrogated claims||158,865||19,033|
|Revenue from assets acquired from assisted thrifts
and terminated receiverships
|Limited partnership equity interests and other revenue||25,640||23,787|
|Realized gain on investment in securitization related assets acquired from receiverships (Note 4)||91,487||93,113|
|Expenses and Losses|
|Provision for losses (Note 10)||(438,642)||(278,267)|
|Expenses for goodwill settlements and litigation (Note 1)||94,159||80,921|
|Expenses for assets acquired from assisted thrifts and terminated receiverships||7,114||15,664|
|Interest expense on notes payable and other expenses||16,133||6,650|
|Realized loss on investment in securitization related assets acquired from receiverships (Note 4)||37,485||93,604|
|Total Expenses and Losses||(209,649)||1,889|
|Unrealized gain on available-for-sale securities, net (Note 4)||75,247||64,494|
|Accumulated Deficit - Beginning||(124,619,430)||(125,055,677)|
|Accumulated Deficit - Ending||$(123,812,361)||$(124,619,430)|
|The accompanying notes are an integral part of these financial statements.|
|FSLIC Resolution Fund Statements of Cash Flows for the Years Ended December 31|
|Dollars in Thousands|
|Cash Flows From Operating Activities|
|Cash provided by:|
|Interest on U.S. Treasury obligations||$145,063||$108,001|
|Interest on securitization related assets acquired from receiverships||89,417||111,159|
|Recoveries from thrift resolutions||1,392,486||592,198|
|Recoveries from limited partnership equity interests||35,616||80,046|
|Recoveries from assets acquired from assisted thrifts and terminated receiverships||51,474||103,699|
|Recoveries on conversion of benefit plan||0||28,332|
|Cash used by:|
|Disbursements for thrift resolutions||(121,176)||(82,069)|
|Disbursements for goodwill settlements and litigation expenses||(94,159)||(80,921)|
|Disbursements for assets acquired from assisted thrifts and
|Net Cash Provided by Operating Activities (Note 17)||1,381,985||730,616|
|Cash Flows From Investing Activities|
|Cash provided by:|
|Investment in securitization related assets acquired from receiverships||1,027,943||1,752,917|
|Net Cash Provided by Investing Activities||1,027,943||1,752,917|
|Cash Flows From Financing Activities|
|Cash provided by:|
|U.S. Treasury payments for goodwill settlements||25||1,000|
|Cash used for:|
|Return of U.S. Treasury payments (Note 11)||(394,593)||(4,167,774)|
|Payments to Resolution Funding Corporation (Note 11)||(1,448,957)||0|
|Net Cash Used by Financing Activities||(1,843,525)||(4,166,774)|
|Net Increase/(Decrease) in Cash and Cash Equivalents||566,403||(1,683,241)|
|Cash and Cash Equivalents - Beginning||2,948,138||4,631,379|
|Cash and Cash Equivalents - Ending||$3,514,541||$2,948,138|
|The accompanying notes are an integral part of these financial statements.|
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000 and 1999
1. Legislative History and Operations of the FSLIC Resolution Fund
The U.S. Congress created the Federal Savings and Loan Insurance Corporation (FSLIC) through the enactment of the National Housing Act of 1934. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC, created the FSLIC Resolution Fund (FRF), and transferred the assets and liabilities of the FSLIC to the FRF (except those assets and liabilities transferred to the Resolution Trust Corporation (RTC), effective on August 9, 1989. The FRF is responsible for winding up the affairs of the former FSLIC.
The FIRREA was enacted to reform, recapitalize, and consolidate the federal deposit insurance system. In addition to the FRF, FIRREA created the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). It also designated the Federal Deposit Insurance Corporation (FDIC) as the administrator of these funds. All three funds are maintained separately to carry out their respective mandates.
The FIRREA also created the RTC to manage and resolve all thrifts previously insured by the FSLIC for which a conservator or receiver was appointed during the period January 1, 1989, through August 8, 1992. The FIRREA established the Resolution Funding Corporation (REFCORP) to provide part of the initial funds used by the RTC for thrift resolutions. Additionally, funds were appropriated for RTC resolutions pursuant to FIRREA, the RTC Funding Act of 1991, the RTC Refinancing, Restructuring and Improvement Act of 1991, and the RTC Completion Act of 1993.
The RTCs resolution responsibility was extended through subsequent legislation from the original termination date of August 8, 1992. Resolution responsibility transferred from the RTC to the SAIF on July 1, 1995.
The RTC Completion Act of 1993 (RTC Completion Act) terminated the RTC as of December 31, 1995. All remaining assets and liabilities of the RTC were transferred to the FRF on January 1, 1996. Today, the FRF consists of two distinct pools of assets and liabilities: one composed of the assets and liabilities of the FSLIC transferred to the FRF upon the dissolution of the FSLIC on August 9, 1989 (FRF-FSLIC), and the other composed of the RTC assets and liabilities transferred to the FRF on January 1, 1996 (FRF-RTC). The assets of one pool are not available to satisfy obligations of the other.
The RTC Completion Act also made available approximately $18 billion worth of additional funding to the RTC, of which the RTC actually drew down $4.6 billion. The RTC Completion Act requires the FDIC to return to the U.S. Treasury any funds that were transferred to the RTC pursuant to the RTC Completion Act but not needed by the RTC. During 1999 and 2000, the FRF-RTC returned $4.2 billion and $391 million, respectively, to fully repay this appropriation.
The FDIC must transfer to the REFCORP the net proceeds from the FRFs sale of RTC assets, after providing for all outstanding RTC liabilities. Any such funds transferred to the REFCORP pay the interest on the REFCORP bonds issued to fund the early RTC resolutions. Any such payments benefit the U.S. Treasury, which would otherwise be obligated to pay the interest on the bonds. During 2000, the FRF-RTC paid $1.4 billion to the REFCORP.Operations of the FRF
The FRF will continue operations until all of its assets are sold or otherwise liquidated and all of its liabilities are satisfied. Any funds remaining in the FRF-FSLIC will be paid to the U.S. Treasury. Any remaining funds of the FRF-RTC will be distributed to the REFCORP to pay the interest on the REFCORP bonds.
The FRF has been primarily funded from the following sources: 1) U.S. Treasury appropriations; 2) amounts borrowed by the RTC from the Federal Financing Bank (FFB); 3) amounts received from the issuance of capital certificates to REFCORP; 4) funds received from the management and disposition of assets of the FRF; 5) the FRFs portion of liquidating dividends paid by FRF receiverships; and 6) interest earned on Special U.S. Treasury Certificates purchased with proceeds of 4) and 5). If these sources are insufficient to satisfy the liabilities of the FRF, payments will be made from the U.S. Treasury in amounts necessary, as appropriated by Congress, to carry out the objectives of the FRF.
Public Law 103-327 provided $827 million in funding to be available until expended to facilitate efforts to wind up the resolution activity of the FRF-FSLIC. The FRF received $165 million under this appropriation on November 2, 1995. In addition, Public Law 104-208 and Public Law 105-61 authorized the use by the U.S. Department of Justice (DOJ) of $26.1 million and $33.7 million, respectively, from the original $827 million in funding, thus reducing the amount available to be expended to $602.2 million. The funding made available to DOJ covers the reimbursement of reasonable expenses of litigation incurred in the defense of claims against the United States arising from the goodwill litigation cases.
Additional goodwill litigation expenses incurred by DOJ are paid directly from the FRF-FSLIC based on a Memorandum of Understanding (MOU) dated October 2, 1998, between the FDIC and DOJ. Under the terms of the MOU, the FRF-FSLIC paid $96.9 million and $79.1 million to DOJ for fiscal years 2001 and 2000, respectively. Subsequently, DOJ returns any unused fiscal year funding to the FRF-FSLIC. Separate funding for goodwill judgments and settlements is available through Public Law 106-113 (see Note 8).Receivership Operations
The FDIC is responsible for managing and disposing of the assets of failed institutions in an orderly and efficient manner. The assets held by receivership entities, and the claims against them, are accounted for separately from FRF assets and liabilities to ensure that liquidation 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. Liquidation expenses incurred by the FRF on behalf of the receiverships are recovered from those receiverships.
These financial statements pertain to the financial position, results of operations, and cash flows of the FRF 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 or liquidating agent. Periodic and final accountability reports of the FDICs activities as receiver or liquidating agent 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 of Special U.S. Treasury Certificates. Investment in Securitization Related Assets Acquired from Receiverships
The investment in securitization related assets acquired from receiverships is classified as available-for-sale and is shown at fair value with unrealized gains and losses included in Resolution Equity. Realized gains and losses are included in the Statements of Income and Accumulated Deficit as components of Net Income. Allowance for Losses on Receivables from Thrift Resolutions and Assets Acquired from Assisted Thrifts and Terminated Receiverships
The FRF records a receivable for the amounts advanced and/or obligations incurred for resolving troubled and failed thrifts. The FRF also records as an asset the amounts paid for assets acquired from assisted thrifts and terminated receiverships. 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 thrift institutions, net of all applicable estimated liquidation costs. Estimated cash recoveries also include dividends and gains on sales from equity instruments acquired in resolution transactions. 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. Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and administration of postretirement benefits on behalf of the FRF, the BIF, and the SAIF. Each fund has fully paid its liability for these benefits directly to the entity. The FRFs prepaid or accrued postretirement benefit cost is presented in the FRFs Statements of Financial Position. Disclosure About Recent Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No.138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133," was issued in June 2000. For entities that adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" prior to June 15, 2000, Statement 138 is effective for all fiscal quarters beginning after June 15, 2000. SFAS No.138 amends Statement 133 principally for certain issues relating to hedging transactions. The adoption of these statements has no material quantitative or qualitative impact on the Corporations Statements of Financial Position, Income and Accumulated Deficit, and Cash Flows.
In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities; a replacement of SFAS No. 125." This statement applies to securitization transactions where the transferor has continuing involvement with the transferred assets or the transferee. SFAS No. 140 is effective for transfers occurring after March 31, 2001. However, disclosure requirements for existing securitizations are effective for fiscal years ending after December 15, 2000. FRFs disclosures for its securitization transactions, which conform to the SFAS No. 140 requirements, are discussed in Note 4.
Other recent accounting pronouncements were evaluated and deemed to be not applicable to the financial statements.Related Parties
Limited Partnership Equity Interests. Former RTC receiverships were holders of limited partnership equity interests as a result of various RTC sales programs that included the National Land Fund, Multiple Investor Fund, N-Series, and S-Series programs. The majority of the limited partnership equity interests have been transferred from the receiverships to the FRF. These assets are included in the "Other Assets" line item in the FRFs Statements of Financial Position.
The nature of related parties and a description of related party transactions are discussed in Footnote 1 and disclosed throughout the financial statements and footnotes.
Additionally, corrections were made to the "Contingent liability for assistance agreements" to reverse amounts that were erroneously calculated. The impact of this restatement on the January 1, 1999 accumulated deficit is a reduction of $4.4 million.
|3. Receivables from Thrift Resolutions, Net
The thrift resolution process took different forms depending on the unique facts and circumstances surrounding each failing or failed institution. Payments for institutions that failed were made to cover obligations to insured depositors and represent claims by the FRF against the receiverships' assets. Payments to prevent a failure were made to operating institutions when cost and other criteria were met.
Assets held by the FDIC in its receivership capacity for the former FSLIC and SAIF-insured institutions are the main source of repayment of the FRFs receivables from thrift resolutions. As of December 31, 2000 and 1999, FRF receiverships held assets with a book value of $712 million and $2.1 billion, respectively (including cash and miscellaneous receivables of $493 million and $1.5 billion at December 31, 2000 and 1999, respectively). 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. These estimated recoveries are regularly evaluated, but remain subject to uncertainties because of potential changes in economic conditions. These factors could cause the FRFs and other claimants actual recoveries to vary from the level currently estimated.
Representations and Warranties
The RTC provided guarantees, representations, and warranties on approximately $108 billion in unpaid principal balance of loans sold and approximately $125 billion in unpaid principal balance of loans under servicing right contracts that had been sold. In general, the guarantees, representations, and warranties on loans sold related to the completeness and accuracy of loan documentation, the quality of the underwriting standards used, the accuracy of the delinquency status when sold, and the conformity of the loans with characteristics of the pool in which they were sold. The representations and warranties made in connection with the sale of servicing rights were limited to the responsibilities of acting as a servicer of the loans. Future losses on representations and warranties could be incurred over the remaining life of the loans sold and could be in effect as long as 20 years.
The FRF includes estimates of corporate losses related to the receiverships representations and warranties as part of the FRFs allowance for loss valuation. The allowance for these estimated losses was $1.6 million and $30 million as of December 31, 2000 and 1999, respectively. The contingent liability for representations and warranties associated with loan sales that involved assets acquired from assisted thrifts and terminated receiverships is included in "Accounts payable and other liabilities" ($1.5 million and $4 million for 2000 and 1999, respectively). Based on recent evaluations of the payment history associated with these obligations and the number of contract expirations anticipated in the near future, the estimate of the allowance indicated above, should be sufficient to cover future exposure from these obligations.
|4. Investment in Securitization Related Assets Acquired
Through 1995, the RTC sold, through its mortgage-backed securities securitization program, $42.4 billion of receivership, conservatorship, and corporate loans. These loans were secured by various types of real estate including residential homes, multi-family dwellings and commercial properties. Each securitization transaction was accomplished through the creation of a trust which purchased these loans and issued regular pass-through certificates to the public through licensed brokerage houses. The receiverships retained residual pass-through certificates that were entitled to any remaining cash flows from the trusts after satisfying the expenses of the trusts and the obligations to regular pass-through holders.
To increase the likelihood of full and timely distributions of principal and interest to regular certificate holders and increase the marketability of the certificates, the various rating agencies required the RTC to place a portion of the proceeds from the sale of the regular certificates in credit enhancement reserve or escrow accounts to cover future losses from the loans underlying the regular certificates. Additional protection for the regular certificate holders from these losses was provided by a clause included in certain Pooling and Servicing Agreements (PSA) stipulating that losses experienced by the credit enhancement reserve over the life of the transactions would be reimbursed from proceeds expected from the residual certificates. At the end of 2000, 15 deals that were structured with PSA clauses stipulating reimbursement from the proceeds of the residual certificates.
In 1996 and 1998, the escrow accounts and residual certificates were transferred from the receiverships to the FRF for $5.7 billion and $1.4 billion, respectively. Both transfers were offset by amounts owed by the receiverships to the FRF. During 2000, the FRF received $413 million in proceeds from terminated securitization deals and $910 million during 1999. Interest income earned on investments in securitization related assets during 2000 was $85.5 million and $104.2 million during 1999.
Realized gains and losses are recorded based upon the difference between the proceeds at termination of the deal and the cost basis of the investment. This calculation is performed for both the residual certificates and the credit enhancement reserves. Additionally, realized losses are recognized on the credit enhancement reserve for a decline in fair value that is judged to be an other-than-temporary impairment. Unrealized gains and losses are computed quarterly using a cash flow model that projects the estimated fair values for each transaction based on a forecast of the projected termination of each deal. This model is updated with current data supplied by the trustees, which includes prepayment speed, delinquency rates, and market pricing.
|5. Assets Acquired from Assisted Thrifts and Terminated Receiverships, Net
The FRF's assets acquired from assisted thrifts and terminated receiverships include: 1) assets the former FSLIC and the former RTC purchased from failing or failed thrifts and 2) assets the FRF acquired from receiverships and purchased under assistance agreements. The methodology to estimate cash recoveries from these assets, which is used to derive the related allowance for losses, is similar to that for receivables from thrift resolutions (see Note 3). The estimated cash recoveries are based upon a statistical sampling of the assets but only include expenses for the disposition of the assets to represent liquidating value.
The FRF recognizes revenue and expenses on these acquired assets. Revenue consists primarily of proceeds from interest earned on assets in liquidation, professional liability claims, proceeds and/or settlements from conflicts and criminal restitutions, and other liquidation income. Expenses are recognized for the disposition and administration of these assets.
|6. Other Assets, Net|
|7. Liabilities from Thrift Resolutions
Liabilities from thrift resolutions decreased by $223.5 million as a result of eliminating the reserve estimated for the future costs associated with liquidating the assets of failed thrifts. In prior years, this reserve was appropriate because of large amounts of assets held in liquidation and funding concerns faced by the former RTC in the mid and latter 1990s. Because of the rapid wind-down of the FRF-RTC activity over the past years, funding concerns have diminished. The net effect in 2000 of this change in estimate is a decrease to the accumulated deficit of $223.5 million.
In addition, the FSLIC issued promissory notes and entered into assistance agreements to prevent the default and subsequent liquidation of certain insured thrift institutions. These notes and agreements required the FSLIC to provide financial assistance over time. Pursuant to FIRREA, the FRF assumed these obligations. Notes payable and obligations for assistance agreements are presented in the "Liabilities from thrift resolutions" line item.
|8. Contingent Liabilities for:
On July 23, 1998, the U.S. Treasury determined, based on an opinion of the DOJs Office of Legal Counsel (OLC) dated July 22, 1998, that the FRF is legally available to satisfy all judgments and settlements in the Goodwill Litigation involving supervisory action or assistance agreements. The U.S. Treasury further determined that the FRF is the appropriate source of funds for payments of any such judgments and settlements.
The OLC opinion concluded that the nonperformance of these agreements was a contingent liability that was transferred to the FRF on August 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 for future nonperformance of prior agreements with respect to supervisory goodwill were transferred to the FRF-FSLIC, which is that portion of the FRF encompassing the obligations of the former FSLIC. The FRF-RTC, which encompasses the obligations of the former RTC and was created upon the termination of the RTC on December 31, 1995, is not available to pay any settlements or judgments arising out of the Goodwill Litigation.
The lawsuits comprising the Goodwill Litigation are against the United States and as such are defended by the DOJ. On January 18, 2001, the DOJ again informed the FDIC that it is "unable at this time to provide a reasonable estimate of the aggregate loss to the FRF from the 120 Winstar-related cases." The DOJ notes that this uncertainty arises, in part, from the existence of significant unresolved issues pending at the appellate or trial court level, as well as the unique circumstances of each case.
The FDIC believes that it is probable that additional amounts, possibly substantial, may be paid from the FRF-FSLIC as a result of judgments and settlements in the Goodwill Litigation. However, based on the response from the DOJ, the FDIC is unable to estimate a range of loss to the FRF-FSLIC from the Goodwill Litigation, or determine whether any such loss would have a material effect on the financial condition of the FRF-FSLIC.Section 110 of the Department of Justice Appropriations Act, 2000 (Public Law 106-113, Appendix A,
Title I, 113 Stat. 1501A-3, 1501A-20) provides to the FRF-FSLIC such sums as may be necessary for the payment of judgments and compromise settlements in the Goodwill Litigation, to remain available until expended. Even if the Goodwill Litigation judgments and compromise settlements were to exceed other available resources of the FRF-FSLIC, an appropriation is available to pay such judgments and settlements. In these circumstances, any liabilities for the Goodwill Litigation should have no material impact on the financial condition of the FRF-FSLIC.
|9. Interest on Advances and Subrogated Claims|
During 2000, the FRF received $68.8 million in cash from RTC receiverships for interest on claims owed RTC arising out of thrift failures. No accrual was previously recognized on these amounts due to the uncertainty surrounding the receiverships ability to pay the interest due on the Corporate claim. At year end 2000, the FRF accrued $90.0 million for interest deemed likely to be received within the next year from receiverships that have paid higher priority claims in full.
Provision for Losses
The provision for losses was a negative $439 million and a negative $278 million for 2000 and 1999, respectively. In 2000, the negative provision was primarily due to: 1) the elimination of the reserve for the estimated future costs associated with liquidating the assets of failed thrifts of $223.5 million (see Note 7) and 2) cash recoveries from assistance agreements of $86 million for net tax benefits sharing collections and $36 million for the redemption of stock warrants. The negative provision in 1999 resulted primarily from decreased losses expected for assets in liquidation. The following chart lists the major components of the negative provision for losses.
|11. Resolution Equity
As stated in the Legislative History section of Note 1, the FRF is comprised of two distinct pools: the FRF-FSLIC and the FRF-RTC. The FRF-FSLIC consists of the assets and liabilities of the former FSLIC. The FRF-RTC consists of the assets and liabilities of the former RTC. Pursuant to legal restrictions, the two pools are maintained separately and the assets of one pool are not available to satisfy obligations of the other.
The following table shows the contributed capital, accumulated deficit, and resulting resolution equity for each pool.
To date, the FRF-FSLIC and the former RTC received $43.5 billion and $60.1 billion from the U.S. Treasury, respectively. These payments were used to fund losses from thrift 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 instruments to the REFCORP. FIRREA prohibited the payment of dividends on any of these capital certificates. Through December 31, 2000, as described in Note 1, the FRF-RTC has returned $4.556 billion to the U.S. Treasury and made payments of $1.4 billion to the REFCORP. These actions serve to reduce contributed capital.
|12. Pension Benefits, Savings Plans, and Accrued Annual Leave
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 FRF contributes a portion of pension benefits for eligible employees, it does not account for the assets of either retirement system. The FRF 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 FRF pays its share of the employer's portion of all related costs.
The FRFs pro rata share of the Corporations liability to employees for accrued annual leave is approximately $5.2 million and $6.9 million at December 31, 2000 and 1999, respectively.
|13. 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, underwritten by Metropolitan Life Insurance Company, provides basic coverage at no cost to retirees and allows converting optional coverages to direct-pay plans. Dental care is underwritten by Connecticut General Life Insurance Company and provides coverage at no cost to retirees.
Total dental coverage trend rates were assumed
to be 7% per year, inclusive of general inflation. Dental costs were assumed to be subject
to an annual cap of $2,000.
Letters of Credit
|15. Concentration of Credit Risk|
As of December 31, 2000, the FRF had gross receivables from thrift resolutions totaling $38.3 billion, gross assets acquired from assisted thrifts and terminated receiverships totaling $107.6 million, and an investment in securitization related assets acquired from receiverships totaling $1.8 billion. The allowance for loss against receivables from thrift resolutions totaled $37.8 billion, and the allowance against the assets acquired from assisted thrifts and terminated receiverships totaled $73 million.
Cash recoveries may be influenced by economic conditions. Similarly, the value of the investment in securitization related assets acquired from receiverships can be influenced by the economy of the area relating to the underlying loans and other assets. Accordingly, the FRFs maximum exposure to possible accounting loss is the recorded (net of allowance) value and is also shown in the table below.
16. Disclosures About the Fair Value of Financial Instruments
Cash equivalents are short-term, highly liquid investments and are shown at current value. The carrying amount of short-term receivables and accounts payable and other liabilities approximates their fair market value. This is due to their short maturities or comparisons with current interest rates.
The net receivables from thrift resolutions primarily include the FRFs 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 FRFs 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 3), 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 FRF 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.
The majority of the net assets acquired from assisted thrifts and terminated receiverships (except real estate) is comprised of various types of financial instruments, including investments, loans, and accounts receivable. Like receivership assets, assets acquired from assisted thrifts and terminated receiverships are valued using discount rates that include consideration of market risk. However, assets acquired from assisted thrifts and terminated receiverships do not involve the unique aspects of the corporate subrogated claim, and therefore the discounting can be viewed as producing a reasonable estimate of fair market value.
The investment in securitization related assets acquired from receiverships is adjusted to fair value at each reporting date using a valuation model that estimates the present value of estimated expected future cash flows discounted for the various risks involved, including both market and credit risks, as well as other attributes of the underlying assets (see Note 4).
|17. Supplementary Information Relating to the Statements of Cash Flows