1

FSLIC

Resolution 

Fund

December 31, 2002

and 2001
FRF

81

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Statements of Financial Position at December 31

Dollars in Thousands 

2002 2001

Assets

Cash and cash equivalents $ 3,618,330 $ 3,490,396

Investment in securitization- related assets acquired from receiverships (Note 3) 98,114 1,087,102

Receivables from thrift resolutions, net (Note 4) 131,304 286,455

Other assets, net (Note 5) 22,511 29,697

Total Assets $ 3,870,259 $ 4,893,650

Liabilities 

Accounts payable and other liabilities $ 14,408 $ 14,787

Contingent liabilities for litigation losses and other (Note 6) 546 5,304

Total Liabilities 14,954 20,091

Commitments and concentration of credit risk (Note 10 and Note 11)

Resolution Equity (Note 8)

Contributed capital 126,827,821 128,073,030

Accumulated deficit (123,015,273) (123,505,818)

Unrealized gain on available-for-sale securities, net (Note 3) 42,757 306,347

Accumulated deficit, net (122,972,516) (123,199,471)

Total Resolution Equity 3,855,305 4,873,559

Total Liabilities and Resolution Equity $ 3,870,259 $ 4,893,650

The accompanying notes are an integral part of these financial statements.
82

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Statements of Income and Accumulated Deficit for the Years Ended December 31

Dollars in Thousands 

2002 2001

Revenue

Interest on securitization-related assets acquired from receiverships $ 7,264 $ 32,758

Interest on U.S. Treasury obligations 46,835 99,488

Interest on advances and subrogated claims 1,394 18,447

Realized gain on investment in securitization-related assets acquired 

from receiverships (Note 3) 352,486 352,179

Other revenue 25,098 78,166

Total Revenue 433,077 581,038

Expenses and Losses

Operating expenses 45,684 74,683

Provision for losses (Note 7) (149,359) (368,987)

Expenses for goodwill settlements and litigation (Note 1) 40,351 62,542

Interest expense on notes payable and other expenses 4,804 27,299

Realized loss on investment in securitization-related assets acquired

from receiverships (Note 3) 1,052 23,541

Total Expenses and Losses (57,468) (180,922)

Net Income 490,545 761,960

Unrealized loss on available-for-sale securities, net (Note 3) (263,590) (149,070)

Comprehensive Income 226,955 612,890

Accumulated Deficit - Beginning (123,199,471) (123,812,361)

Accumulated Deficit - Ending $ (122,972,516) $ (123,199,471)

The accompanying notes are an integral part of these financial statements.
FRF

83

FSLIC Resolution Fund

Federal Deposit Insurance Corporation

FSLIC Resolution Fund Statements of Cash Flows for the Years Ended December 31

Dollars in Thousands 

2002 2001

Cash Flows From Operating Activities

Cash provided by:

Interest on U.S. Treasury obligations $ 46,835 $ 99,488

Interest on securitization-related assets acquired from receiverships 8,745 36,148

Recoveries from thrift resolutions 307,694 476,678

Miscellaneous receipts 32,607 53,351

Cash used by:

Operating expenses (44,421) (83,342)

Disbursements for thrift resolutions (30,373) (25,153)

Disbursements for goodwill settlements and litigation expenses (40,351) (62,542)

Miscellaneous disbursements (9,119) (9,279)

Net Cash Provided by Operating Activities (Note 13) 271,617 485,349

Cash Flows From Investing Activities

Cash provided by:

Investment in securitization -related assets acquired from receiverships 1,101,525 902,402

Net Cash Provided by Investing Activities 1,101,525 902,402

Cash Flows From Financing Activities

Cash provided by:

U.S.Treasury payments for goodwill settlements 21,459 0

Cash used for:

Return of U.S. Treasury payments (Note 8) 0 (5,300)

Payments to Resolution Funding Corporation (Note 8) (1,266,667) (1,406,596)

Net Cash Used by Financing Activities (1,245,208) (1,411,896)

Net Increase/(Decrease) in Cash and Cash Equivalents 127,934 (24,145)

Cash and Cash Equivalents - Beginning 3,490,396 3,514,541

Cash and Cash Equivalents - Ending $ 3,618,330 $ 3,490,396

The accompanying notes are an integral part of these financial statements.
1. Legislative History and Operations of the FSLIC Resolution Fund

Legislative History

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 RTC’s 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. This appropriation was fully repaid in 2000.

The FDIC must transfer to the REFCORP the net proceeds from the FRF’s 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

FSLIC

Resolution 

Fund

Notes to the 

Financial 

Statements 

December 31, 2002

and 2001

1
FRF

FSLIC Resolution Fund

85

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

2002, the FRF-RTC transferred $1.3 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 FRFFSLIC 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.

FDIC has conducted an extensive review and cataloging of FRF’s residual

assets and liabilities and is continuing to explore approaches for concluding

FRF’s activities. Some of the issues and items that remain open in FRF are: 

1) criminal restitution orders (generally have from 5 to 10 years remaining); 

2) litigation claims and judgments obtained against officers and directors and

other professionals responsible for causing thrift losses (judgments generally

vary from 5 to 10 years); 3) numerous assistance agreements entered into by

the former FSLIC (FRF could continue to receive tax sharing benefits through

year 2020); 4) goodwill litigation (no final date for resolution has been established;

see Note 6); and 5) representations and warranties made to support the sale of

assets including loans and servicing rights (these liabilities could be incurred over

the remaining life of the loans, which is generally 20 years or more; see Note 6).

FDIC is considering whether enabling legislation or other measures may be

needed to liquidate the remaining FRF assets and liabilities.

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 FRF’s 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 $17.5 million and $66.8 million to DOJ for fiscal years 2003

and 2002, respectively. DOJ returns any unused fiscal year funding to the 
2

86

FRF unless special circumstances warrant these funds be carried over and

applied against current fiscal year charges. At September 30, 2002, DOJ had

$68.6 million in unused funds that were applied against FY 2003 charges of

$86.1 million. Separate funding for goodwill judgments and settlements is 

available through Public Law 106-113 (see Note 6).

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 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 FRF 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 FRF and are presented in conformity with U.S. 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 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. Unrealized gains and losses are computed on a quarterly basis using a cash flow model that calculates the estimated
FRF

FSLIC Resolution Fund

87

fair value of the assets at termination. This model is updated with current data

supplied by the trustees, which includes prepayment speed, delinquency rates,

and market pricing. Realized gains and losses are recorded based upon the 

difference between the proceeds at termination of the deal and the book value

of the investment on both the escrow account and the related residual certificate,

and are included as components of Net Income. 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.

Allowance for Losses on Receivables From Thrift Resolutions 

The FRF records a receivable for the amounts advanced and/or obligations

incurred for resolving troubled 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 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.

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; S-Series;

and Judgements, Deficiencies, and Charge-offs 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, net” line item in 

the FRF’s Statements of Financial Position. 

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.

Reclassifications

Reclassifications have been made in the 2001 financial statements to conform to

the presentation used in 2002.
3

88

3. Investment in Securitization-Related Assets Acquired From

Receiverships 

In 2002, the investment in securitization-related assets decreased by $989 million

to $98 million primarily due to the termination of 15 securitization deals. The FRF

received $1.1 billion in proceeds from terminations during 2002 and $851 million

during 2001. The one remaining deal that is active as of December 31, 2002, 

is expected to terminate in 2003.

The RTC engaged in numerous securitization transactions in order to maximize

the return from the sale or disposition of assets. The RTC sold $42.4 billion of

receivership, conservatorship, and corporate loans to various trusts that issued

regular pass-through certificates through its mortgage-backed securities program. 

A portion of the proceeds from the sale of the certificates was placed in credit

enhancement reserves (escrow accounts) to cover future credit losses with

respect to the loans underlying the certificates. In addition, the escrow accounts

were established to increase the likelihood of full and timely distributions of

interest and principal to the certificate holders and thus increase the marketability

of the certificates. The FRF’s exposure from credit losses on loans sold through

the program is limited to the balance of the escrow accounts. The FRF is entitled

to any proceeds remaining in the escrow accounts at termination of the securitization transactions. As part of the securitization transactions, the receiverships

received a participation in the residual pass-through certificates (residual certificates) issued through its mortgage-backed securities program. The residual 

certificates entitle the holder to any cash flow from the sale of collateral remaining in the trust after the regular pass-through certificates and actual termination

expenses are paid. 

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.

Investment in Securitization-Related Assets Acquired From Receiverships at December 31, 2002

Dollars in Thousands

Unrealized Unrealized

Holding Holding Fair

Cost Gains Losses Value

Credit enhancement reserve $ 47,101 $ 40,092 $ (13,084) $ 74,109

Residual certificates 8,256 15,749 0 24,005

Total $ 55,357 $ 55,841 $ (13,084) $ 98,114
4

89

4. 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 a significant source of repayment of the FRF’s

receivables from thrift resolutions. As of December 31, 2002 and 2001, FRF

receiverships held assets with a book value of $290 million and $448 million,

respectively (including cash, investments, and miscellaneous receivables of 

$146 million and $264 million at December 31, 2002 and 2001, respectively).

The estimated cash recoveries from the management and disposition of these

assets that are used to derive the allowance for losses are based on a nonrepresentative sampling of receivership assets. This non-representative sample,

based primarily on asset book values, provided 97% coverage of the entire 

portfolio’s book value. These estimated recoveries are regularly evaluated, 

but remain subject to uncertainties because of potential changes in economic

conditions. Such uncertainties could cause the FRF’s and other claimants’ 

actual recoveries to vary from the level currently estimated.

FSLIC Resolution Fund

FRF

Investment in Securitization-Related Assets Acquired From Receiverships at December 31, 2001

Dollars in Thousands

Unrealized Unrealized

Holding Holding Fair

Cost Gains Losses Value

Credit enhancement reserve $ 553,673 $ 153,567 $ (20,686) $ 686,554

Residual certificates 227,082 173,466 0 400,548

Total $ 780,755 $ 327,033 $ (20,686) $ 1,087,102 

Receivables From Thrift Resolutions, Net at December 31

Dollars in Thousands 

2002 2001

Assets from open thrift assistance $ 15,000 $ 384,885

Allowance for losses (15,000) (374,885)

Net Assets From Open Thrift Assistance 0 10,000

Receivables from closed thrifts 27,636,213 32,534,350

Allowance for losses (27,504,909) (32,257,895)

Net Receivables From Closed Thrifts 131,304 276,455

Total $ 131,304 $ 286,455
6

5

90

5. Other Assets, Net

6. Contingent Liabilities for:

Litigation Losses

The FRF 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 $43.3 million are reasonably possible.

Additional Contingency 

Goodwill Litigation

In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme Court held

that when it became impossible following the enactment of FIRREA in 1989 for

the federal government to perform certain agreements to count goodwill toward

regulatory capital, the plaintiffs were entitled to recover damages from the 

United States. To date, approximately 120 lawsuits have been filed against 

the United States based on alleged breaches of these agreements (Goodwill

Litigation). During 2002, the trial court entered orders finally dismissing 

22 Goodwill Litigation cases.

On July 22, 1998, DOJ’s Office of Legal Counsel (OLC) concluded that the 

FRF is legally available to satisfy all judgments and settlements in the Goodwill

Litigation involving supervisory action or assistance agreements. OLC determined

that 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 FRFFSLIC, 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. On July 23, 1998, the U.S. Treasury determined, based on OLC’s 

opinion, that the FRF is the appropriate source of funds for payments of any

such judgments and settlements.

Other Assets, Net at December 31

Dollars in Thousands

2002 2001

Accounts receivable, net $ 735 $ 1,555

Due from FDIC funds 0 500

Assets acquired by the Corporation, net 16,428 21,784

Limited partnership equity interests 5,348 5,858

Total $ 22,511 $ 29,697
FRF

FSLIC Resolution Fund

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. Because an appropriation is available to pay such judgments 

and settlements, any liabilities for the Goodwill Litigation should have no material

impact on the financial condition of the FRF-FSLIC. Nevertheless, the Civil

Division of the DOJ has taken the position that all resources of the FRF must be

exhausted before the appropriation may be utilized. The FDIC and the Department

of the Treasury disagree with the position advocated by the Civil Division of the

DOJ. OLC is considering this question, but has not issued an opinion.

The lawsuits comprising the Goodwill Litigation are against the United States and

as such are defended by the DOJ. On January 6, 2003, the DOJ again informed

the FDIC that it is “unable at this time to provide a reasonable estimate of the likely

aggregate contingent liability resulting from the Winstar-related cases.” This uncertainty arises, in part, from the existence of significant unresolved issues pending at

the appellate or trial court level, as 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 if the FRF must be exhausted before 

the Section 110 appropriation may be utilized.

Guarini Litigation

Paralleling the goodwill cases are eight similar cases alleging that the government breached agreements regarding tax benefits associated with certain

FSLIC-assisted acquisitions. These agreements allegedly contained the promise

of tax deductions for losses incurred on the sale of certain thrift assets purchased

by plaintiffs, from the FSLIC, even though the FSLIC provided the plantiffs with

tax-exempt reimbursement. A provision in the Omnibus Budget Reconciliation

Act of 1993 (popularly referred to as the “Guarini legislation”) eliminated the tax

deductions for these losses.

To date, there have been liability determinations in five of the “Guarini” cases. 

In one of these cases, damages of approximately $28 million were recently

awarded by the Court of Federal Claims subsequent to the date of the financial

statements. As the time for filing an appeal has not yet lapsed, there may be

appeals. Decisions on liability have not been made in the other two pending

cases. An eighth case was settled during 2002 for $20 thousand.

The FDIC believes that it is possible that substantial amounts may be paid from

the FRF-FSLIC as a result of the judgments and settlements from the “Guarini

litigation”. However, because the litigation of damages computation is still 

ongoing, the amount of the damages is not estimable at this time.

Representations and Warranties

As part of the RTC’s efforts to maximize the return from the sale of assets from

thrift resolutions, representations and warranties, and guarantees were offered

on certain loan sales. In general, the guarantees, representations, and warranties 91
7

92

on loans sold relate 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 total amount of the loans sold subject to

unexpired representations and warranties, and guarantees was $173 billion 

as of December 31, 2002. The contingent liability from all outstanding claims

asserted in connection with representations and warranties was $77 thousand

and $2.3 million at December 31, 2002 and 2001, respectively.

In addition, future losses on representations and warranties, and guarantees

could be incurred over the remaining life of the loans sold, which is generally 

20 years or more. Consequently, the FDIC believes it is possible that additional

losses may be incurred by the FRF from the universe of outstanding contracts

with unasserted representation and warranty claims. However, because of the

uncertainties surrounding the timing of when claims may be asserted, the FDIC

is unable to reasonably estimate a range of loss to the FRF from outstanding

contracts with unasserted representation and warranty claims.

7. Provision for Losses

The provision for losses was a negative $149 million and a negative $369 million

for 2002 and 2001, respectively. In 2002, the negative provision was primarily

due to: 1) recoveries of $95 million of net tax benefits sharing from assistance

agreements, 2) lower estimated losses of $26 million to the credit enhancement

reserve, and 3) lower estimated losses of $20 million for assets in liquidation. 

The negative provision in 2001 resulted primarily from: 1) recoveries of $163 million

of net tax benefits sharing from assistance agreements and 2) recoveries of

$120 million from receiverships with positive equity where the FRF is entitled 

to the positive value of the receivership to reduce the overall cost of resolving

the institutions. 

Provision for Losses for the Years Ended December 31

Dollars in Thousands 

2002 2001

Valuation Adjustments:

Open thrift assistance $ (3,072) $ (23,652)

Tax benefits sharing recoveries (95,079) (163,111)

Closed thrifts (20,164) (93,710)

Miscellaneous receivables (28,776) (88,758)

Total Valuation Adjustments (147,091) (369,231)

Contingent Liabilities Adjustments:

Litigation losses (86) (2,015)

Representations and warranties (2,182) 2,259

Total Contingent Liabilities Adjustments (2,268) 244

Total $ (149,359) $ (368,987)
FRF

8

FSLIC Resolution Fund

8. 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.

93

Resolution Equity at December 31, 2002

Dollars in Thousands 

FRF

FRF-FSLIC FRF-RTC Consolidated

Contributed capital - beginning $ 44,157,025 $ 83,916,004 $ 128,073,029

Add: U.S. Treasury payments for goodwill settlements 21,459 0 21,459

Less: REFCORP payments 0 (1,266,667) (1,266,667)

Contributed capital-ending 44,178,484 82,649,337 126,827,821

Accumulated deficit (41,282,541) (81,732,732) (123,015,273)

Less: Unrealized gain on available-for-sale securities 0 42,757 42,757

Accumulated deficit, net (41,282,541) (81,689,975) (122,972,516)

Total $ 2,895,943 $ 959,362 $ 3,855,305

Resolution Equity at December 31, 2001

Dollars in Thousands 

FRF

FRF-FSLIC FRF-RTC Consolidated

Contributed capital - beginning $ 44,157,025 $ 85,327,901 $ 129,484,926

Less: U.S. Treasury repayments 0 (5,300) (5,300)

Less: REFCORP payments 0 (1,406,596) (1,406,596)

Contributed capital-ending 44,157,025 83,916,005 128,073,030

Accumulated deficit (41,372,610) (82,133,208) (123,505,818)

Less: Unrealized gain on available-for-sale securities 0 306,347 306,347

Accumulated deficit, net (41,372,610) (81,826,861) (123,199,471)

Total $ 2,784,415 $ 2,089,144 $ 4,873,559
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Contributed Capital

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, 2002, 

as described in Note 1, the FRF-RTC has returned $4.556 billion to the 

U.S.Treasury and made payments of $4.122 billion to the REFCORP. These

actions serve to reduce contributed capital.

Accumulated Deficit

The accumulated deficit represents the cumulative excess of expenses over 

revenue for activity related to the FRF-FSLIC and the FRF-RTC. Approximately

$29.7 billion and $87.9 billion were brought forward from the former FSLIC 

and the former RTC on August 9, 1989, and January 1, 1996, respectively. The

FRF-FSLIC accumulated deficit has increased by $11.5 billion, whereas the 

FRF-RTC accumulated deficit has decreased by $6.2 billion, since their dissolution

dates.

9. Employee Benefits

Pension Benefits, Savings Plans and Postemployment Benefits

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.
FRF

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FSLIC Resolution Fund

Accrued Annual Leave

The FRF’s pro rata share of the Corporation’s liability to employees for accrued

annual leave is approximately $2.5 million and $4.1 million at December 31, 2002

and 2001, respectively.

Postretirement Benefits Other Than Pensions

The FDIC provides certain life and dental 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. 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 at no cost to all retirees eligible 

for an immediate annuity. At December 31, 2002, the FRF’s net postretirement

benefit liability recognized in the ”Accounts payable and other liabilities”

line item in the Statement of Financial Position was $466 thousand. At

December 31, 2001, the FRF’s net postretirement benefit asset recognized 

in the “Other assets, net” line item in the Statement of Financial Position was

$232 thousand.

10. Commitments 

Leased Space

The FRF’s allocated share of the FDIC’s lease commitments totals $8.7 million

for future years. The lease agreements contain escalation clauses resulting in

adjustments, usually on an annual basis. The allocation to the FRF of the FDIC’s

future lease commitments is based upon current relationships of the workloads

among the FRF, the BIF, and the SAIF. Changes in the relative workloads could

cause the amounts allocated to the FRF in the future to vary from the amounts

shown below. The FRF recognized leased space expense of $4.0 million and

$5.5 million for the years ended December 31, 2002 and 2001, respectively.

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Pension Benefits, Savings Plans Expenses and Postemployment Benefits for the Years Ended December 31

Dollars in Thousands 

2002 2001

Civil Service Retirement System $ 711 $ 1,055

Federal Employees Retirement System (Basic Benefit) 1,987 2,966

FDIC Savings Plan 1,186 1,748

Federal Thrift Savings Plan 756 1,131

Total $ 4,640 $ 6,900
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11. Concentration of Credit Risk

Financial instruments that potentially subject the FRF to credit risk consist 

primarily of: 1) gross receivables from thrift resolutions totaling $27.7 billion

and 2) an investment in securitization-related assets acquired from receiverships

totaling $98.1 million. The receivables from thrift resolutions include payments

made to cover obligations to insured depositors, advances to receiverships to

provide working capital, and receivables for expenses paid by the FRF on behalf

of receiverships. 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

FRF’s receivables from thrift resolutions. An allowance for loss of $27.5 billion,

or 99.5% of the gross receivable, was recorded as of December 31, 2002. 

Of the remaining 0.5 percent of the gross receivable, 85% of the receivable 

is expected to be repaid from receivership cash, cash equivalents, and pledged

cash reserves. The credit risk related to the pledged cash reserves is limited

since the majority of these assets are evaluated annually and have experienced

minimal losses.

The value of the investment in securitization-related assets is influenced by 

the economy of the area relating to the underlying loans. Of this investment,

$130.5 million of the underlying mortgages are located in California and 

$44.3 million of loans are located in New Jersey. No other state accounted 

for a material portion of the investment.

12. 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, due to their

short maturities and/or comparability with current interest rates.

The net receivables from thrift resolutions primarily include the FRF’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 FRF’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.

Leased Space Commitments

Dollars in Thousands 

2003 2004 2005 2006 2007 2008/Thereafter

$ 2,064 $ 2,039 $ 1,898 $ 1,378 $ 811 $ 474
FRF

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FSLIC Resolution Fund

Although the value of the corporate subrogated claim is influenced by valuation

of receivership assets (see Note 4), such receivership valuation is not equivalent

to the valuation of the corporate claim. Since the corporate claim is unique, not

intended 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 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 3).

13. Supplementary Information Relating to the Statements of 

Cash Flows

14. Subsequent Events

On January 10, 2003, FRF paid REFCORP $400 million from excess FRF-RTC

cash, bringing total payments to REFCORP to $4.5 billion.

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Reconciliation of Net Income to Net Cash Provided by Operating Activities for the Years Ended December 31

Dollars in Thousands 

2002 2001

Net Income $ 490,545 $ 761,960

Adjustments to Reconcile Net Income to Net Cash 

Provided by Operating Activities

Change in Assets and Liabilities:

Decrease in receivables from thrift resolutions 155,151 129,921

(Increase) in securitization-related assets acquired from receiverships (376,127) (327,132)

Decrease in other assets 7,185 21,044

(Decrease) in accounts payable and other liabilities (379) (26,301)

(Decrease) in liabilities from thrift resolutions 0 (74,872)

(Decrease) Increase in contingent liabilities for litigation losses (4,758) 729

Net Cash Provided by Operating Activities $ 271,617 $ 485,349

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