Federal Deposit
Insurance Corporation

 
I. Management’s Discussion and Analysis
 

In its role as deposit insurer of banks and savings and loan associations, the FDIC promotes the safety and soundness of insured depository institutions. The financial highlights discussed below address the performance of the deposit insurance funds. It also includes a discussion of initiatives to restructure the internal budget to closely monitor operations and investments and the establishment of a Capital Investment Review Committee (CIRC) to better manage capital investments.

Deposit Insurance Fund Performance

The FDIC administers two deposit insurance funds – the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) – and manages the FSLIC Resolution Fund (FRF), which fulfills the obligations of the former Federal Savings and Loan Insurance Corporation (FSLIC) and the former Resolution Trust Corporation (RTC). The following summarizes the condition of the FDIC’s insurance funds.

D

The Corporation’s investment strategy for the BIF and the SAIF reflects prudent management, with interest earned on investment securities of approximately $1.69 billion for the BIF and $564 million for the SAIF. Successful investing of the funds during the year yielded total returns that surpassed Merrill Lynch’s (ML) 1-10 Year U.S. Treasury Index of 9.05 percent for calendar year 2002. The BIF and the SAIF portfolio investments yielded returns of 9.20 and 9.89 percent, which exceeded the ML Index by 15 and 84 basis points, respectively.

Deposit insurance assessment rates remained unchanged from 2001 for both the BIF and the SAIF, ranging from 0 to 27 cents annually per $100 of assessable deposits. Under the assessment rate schedule, 91.5 percent of BIF-member institutions and 90.1 percent of SAIF-member institutions were in the lowest risk-assessment category and paid no deposit insurance assessment for the first semiannual period of 2003.

Deposits insured by the FDIC approached $3.4 trillion in 2002, as the number of insured institutions fell below the 9,400 mark for the first time. Insured deposits rose by 1.2 percent during the fourth quarter, bringing the growth rate for the full year to 5.5 percent, the second-fastest annual growth rate in the past 16 years. Insured deposits of the 9,372 FDIC member institutions rose by $177 billion in 2002, including an $8.3 billion (4.3 percent) increase in insured brokered deposits.

During 2002, deposits insured by the BIF increased by 4.9 percent, to $2.5 trillion. The BIF balance was $32.1 billion at year-end 2002, or 1.27 percent of estimated insured deposits (compared to 1.25 percent at September 30, 2002). This was up from the year-end 2001 reserve ratio of 1.26 percent, as deposits insured by the BIF increased by $117.9 billion and the BIF fund balance increased by $1.6 billion.

The reserve ratio of the SAIF was 1.37 percent at year-end 2002 (compared to 1.38 percent at September 30, 2002), up from 1.36 percent at year-end 2001. The balance of the SAIF was $11.7 billion on December 31, 2002. SAIF-insured deposits were $860.4 billion at year-end 2002, having grown 7.4 percent for the year. (See the accompanying table on Insurance Fund Reserve Ratios.)

D

Despite the relatively rapid growth of insured deposits, insured institutions continued to rely increasingly on other funding alternatives. Insured deposits as a percentage of domestic liabilities continued a steady, 11-year decline, falling to 49.9 percent at the end of 2002, compared to 50.9 percent at the end of 2001. At year-end 2002, the ratio was 45 percent for institutions with total assets greater than $1 billion, and 71 percent for smaller institutions. (See the accompanying tables on FDIC-insured Deposits and Risk Related Premiums.)

During 2002, 11 FDIC-insured institutions failed. Ten of those institutions, with combined assets of $2.5 billion, were insured by the BIF. The other institution, with assets of $50 million, was insured by the SAIF. Losses for the 11 failures are estimated at $630 million. In 2001, there were four failures of insured institutions, with total assets of $2.2 billion and estimated losses of $445 million. The contingent liabilities for anticipated failures of BIF- and SAIF-insured institutions as of December 31, 2002, were $1.0 billion and $90 million, respectively.