1

Savings 

Association 

Insurance 

Fund

December 31, 2002

and 2001
SAIF

Savings Association Insurance Fund

61

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Statements of Financial Position at December 31

Dollars in Thousands 

2002 2001

Assets

Cash and cash equivalents $ 1,907,353 $ 276,507

Cash and other assets: Restricted for SAIF-member exit fees (Note 3) 

(Includes cash and cash equivalents of $187.7 million and $71.9 million

at December 31, 2002 and December 31, 2001, respectively) 311,864 299,374

Investment in U.S. Treasury obligations, net: (Note 4)

Held-to-maturity securities 5,726,840 6,718,418

Available-for-sale securities 3,769,576 2,745,476

Interest receivable on investments and other assets, net 153,320 156,126

Receivables from thrift resolutions, net (Note 5) 287,855 1,285,150

Total Assets $ 12,156,808 $ 11,481,051

Liabilities

Accounts payable and other liabilities $ 7,100 $ 8,111

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 90,493 233,000

Litigation losses 613 5,642

SAIF-member exit fees and investment proceeds held in escrow (Note 3) 311,864 299,374

Total Liabilities 410,070 546,127

Commitments and off-balance-sheet exposure (Note 10)

Fund Balance

Accumulated net income 11,465,716 10,845,515

Unrealized gain on available-for-sale securities, net (Note 4) 281,022 89,409

Total Fund Balance 11,746,738 10,934,924

Total Liabilities and Fund Balance $ 12,156,808 $ 11,481,051

The accompanying notes are an integral part of these financial statements.
62

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Statements of Income and Fund Balance for the Years Ended December 31

Dollars in Thousands 

2002 2001

Revenue

Interest on U.S. Treasury obligations $ 564,259 $ 633,725

Assessments (Note 7) 23,783 35,402

Realized gain on sale of U.S.Treasury obligations 0 51,630

Other revenue 779 12,364

Total Revenue 588,821 733,121

Expenses and Losses

Operating expenses 124,363 101,591

Provision for insurance losses (Note 8) (156,494) 443,103

Other insurance expenses 751 19,389

Total Expenses and Losses (31,380) 564,083 

Net Income 620,201 169,038

Unrealized gain on available-for-sale securities, net (Note 4) 191,613 7,238

Comprehensive Income 811,814 176,276

Fund Balance - Beginning 10,934,924 10,758,648

Fund Balance - Ending $ 11,746,738 $ 10,934,924

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

63

Savings Association Insurance Fund

Federal Deposit Insurance Corporation

Savings Association Insurance 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 $ 576,192 $ 661,895

Assessments 23,709 35,554

Entrance and exit fees, including interest on exit fees (Note 3) 15,811 16,725

Recoveries from thrift resolutions 1,126,940 246,535

Miscellaneous receipts 73 2,615

Cash used by:

Operating expenses (125,159) (102,429)

Disbursements for thrift resolutions (119,993) (1,976,964)

Miscellaneous disbursements (103) (352)

Net Cash Provided by (Used by) Operating Activities (Note 13) 1,497,470 (1,116,421)

Cash Flows From Investing Activities

Cash provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 1,070,000 2,049,512

Maturity or sale U.S. Treasury obligations, available-for-sale 150,000 875,245

Cash used by:

Purchase of U.S. Treasury obligations, held-to-maturity 0 (826,788)

Purchase of U.S. Treasury obligations, available-for-sale (970,813) (823,265)

Net Cash Provided by Investing Activities 249,187 1,274,704

Net Increase in Cash and Cash Equivalents 1,746,657 158,283

Cash and Cash Equivalents - Beginning 348,424 190,141

Unrestricted Cash and Cash Equivalents - Ending 1,907,353 276,507

Restricted Cash and Cash Equivalents - Ending 187,728 71,917

Cash and Cash Equivalents - Ending $ 2,095,081 $ 348,424

The accompanying notes are an integral part of these financial statements.
1. Legislative History and Operations of the Savings Association

Insurance Fund

Legislative History

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 

(FIRREA) was enacted to reform, recapitalize, and consolidate the federal deposit

insurance system. The FIRREA created the Savings Association Insurance Fund

(SAIF), the Bank Insurance Fund (BIF), and the FSLIC Resolution Fund (FRF). 

It also designated the Federal Deposit Insurance Corporation (FDIC) as the

administrator of these funds. All three funds are maintained separately 

to carry out their respective mandates. 

The SAIF and the BIF are insurance funds responsible for protecting insured

thrift and bank depositors from loss due to institution failures. The FRF is a 

resolution fund responsible for winding up the affairs of the former Federal

Savings and Loan Insurance Corporation (FSLIC) and liquidating the assets and

liabilities transferred from the former Resolution Trust Corporation (RTC).

Pursuant to the Resolution Trust Corporation Completion Act of 1993 (RTC

Completion Act), resolution responsibility transferred from the RTC to the SAIF

on July 1, 1995. Prior to that date, thrift resolutions were the responsibility of

the RTC (January 1, 1989 through June 30, 1995) or the FSLIC (prior to 1989). 

Pursuant to FIRREA, an active institution’s insurance fund membership and 

primary federal supervisor are generally determined by the institution’s charter

type. Deposits of SAIF-member institutions are generally insured by the SAIF;

SAIF members are predominantly thrifts supervised by the Office of Thrift

Supervision (OTS). Deposits of BIF-member institutions are generally insured 

by the BIF; BIF members are predominantly commercial and savings banks

supervised by the FDIC, the Office of the Comptroller of the Currency, or 

the Federal Reserve Board.

In addition to traditional thrifts and banks, several other categories of institutions

exist. The Federal Deposit Insurance Act (FDI Act), Section 5(d)(3), provides that

a member of one insurance fund may, with the approval of its primary federal

supervisor, merge, consolidate with, or acquire the deposit liabilities of an institution that is a member of the other insurance fund without changing insurance

fund status for the acquired deposits. These institutions with deposits insured

by both insurance funds are referred to as Oakar financial institutions. The FDI

Act, Section 5(d)(2)(G), allows SAIF-member thrifts to convert to a bank charter

and retain their SAIF membership. These institutions are referred to as Sasser

financial institutions. The Home Owners’ Loan Act (HOLA), Section 5(o), allows

BIF-member banks to convert to a thrift charter and retain their BIF membership.

These institutions are referred to as HOLA thrifts.

Other Significant Legislation

The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act), the Federal

Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), and the

Deposit Insurance Funds Act of 1996 (DIFA) made changes to the FDIC’s

Savings

Association

Insurance 

Fund

Notes to the 

Financial 

Statements 

December 31, 2002

and 2001

1
SAIF

Savings Association Insurance Fund

65

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 not less than 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 House acted on the FDIC’s recommendations 

by passing legislation, H.R. 3717, the Federal Deposit Insurance Reform Act of

2002, on May 22, 2002. Another reform bill, S. 1945, the Safe and Fair Deposit

Insurance Act of 2002, was introduced in the Senate on February 14, 2002. 

No further action was taken by the 107th Congress during the year on these

bills. In January and February 2003, however, similar deposit insurance reform

legislation was reintroduced in the Senate and House, respectively. Legislative

proposals during the 107th Congress included 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. Deposit insurance reform

provisions may have a significant impact on the SAIF and the BIF, if enacted into

law. FDIC management, however, cannot predict which provisions, if any, will

ultimately be enacted.

Operations of the SAIF

The primary purpose of the SAIF is to: 1) insure the deposits and protect the

depositors of SAIF-insured institutions and 2) resolve failed institutions, including

disposing of their assets. In this capacity, the SAIF has financial responsibility for

all SAIF-insured deposits held by SAIF-member institutions and by BIF-member

banks designated as Oakar financial institutions. 

The SAIF is primarily funded from: 1) interest earned on investments in 

U.S. Treasury obligations and 2) deposit insurance assessments. Additional 

funding sources are borrowings from the U.S. Treasury, the Federal Financing

Bank (FFB), and the Federal Home Loan Banks, if necessary. The 1990 OBR Act

established the FDIC’s authority to borrow from the FFB on behalf of the SAIF

and the BIF. The FDICIA increased the FDIC’s authority to borrow for insurance

purposes from the U.S. Treasury, on behalf of the SAIF and the BIF, from 

$5 billion to $30 billion. 
66

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, 2002

and December 31, 2001, the MOL for the SAIF was $19.9 billion and $18.8 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 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 primarily of Special U.S. Treasury

Certificates. 

Investment in U.S. Treasury Obligations

Section 13(a) of the FDI Act, as amended, (12 U.S.C.1823 (a)), states that SAIF

funds “shall be invested in obligations of the United States or in obligations guaranteed as to principal and interest by the United States.” The Act further requires that

the Secretary of the Treasury approve all such investments in excess of $100,000.

The Secretary has granted approval to invest SAIF funds only in U.S. Treasury 

obligations, provided that such obligations are purchased or sold through the

Bureau of the Public Debt’s Government Account Series (GAS) program.

2
SAIF

Savings Association Insurance Fund

67

SAIF’s investments in U.S. Treasury obligations are either classified as held-tomaturity 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 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. 

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.

Reclassifications

Reclassifications have been made in the 2001 financial statements to conform 

to the presentation used in 2002.

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

The SAIF collects entrance and exit fees for conversion transactions when an

insured depository institution converts from the BIF to the SAIF (resulting in an

entrance fee) or from the SAIF to the BIF (resulting in an exit fee). Regulations approved by the FDIC’s Board of Directors (Board) and published in the Federal Register

on March 21, 1990, directed that exit fees paid to the SAIF be held in escrow. 

The FDIC and the Secretary of the Treasury will determine when it is no longer

necessary to escrow such funds for the payment of interest on obligations 

previously issued by the FICO. These escrowed exit fees are invested in 

3
U.S. Treasury Obligations at December 31, 2001 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Within 1 year 5.95% $ 100,000 $ 100,027 $ 2,364 $ 0 $ 102,391

After 1 year thru 5 years 6.10% 75,000 76,764 3,814 0 80,578

After 5 years thru 10 years 5.03% 44,000 46,422 893 0 47,315

Total $ 219,000 $ 223,213 $ 7,071 $ 0 $ 230,284 

Cash and Other Assets: Restricted for SAIF-Member Exit Fees at December 31

Dollars in Thousands 

2002 2001

Cash and cash equivalents $ 187,728 $ 71,917

Investment in U.S. Treasury obligations, net 122,402 223,213

Interest receivable on U.S. Treasury obligations 1,734 4,244

Total $ 311,864 $ 299,374

68

U.S. Treasury securities pending determination of ownership. The interest

earned is also held in escrow. There were no conversion transactions during

2002 and 2001 that resulted in an exit fee to the SAIF.

U.S. Treasury Obligations at December 31, 2002 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Within 1 year 6.59% $ 35,000 $ 34,986 $ 222 $ 0 $ 35,208

After 1 year thru 5 years 5.45% 64,000 66,830 6,298 0 73,128

After 5 years thru 10 years 4.99% 20,000 20,586 2,108 0 22,694

Total $ 119,000 $ 122,402 $ 8,628 $ 0 $ 131,030 

The unamortized premium, net of the unamortized discount, was $3.4 million

and $4.2 million at December 31, 2002 and 2001, respectively.
4

69

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

As of December 31, 2002 and 2001, the book value of investments in 

U.S. Treasury Obligations, net, was $9.5 billion and, the FDIC held $2.1 billion 

of Treasury inflation-indexed securities (TIIS) for the SAIF. These securities are

indexed to increases or decreases in the Consumer Price Index for all Urban

Consumers (CPI-U). 

During 2002, FDIC purchased $639 million of callable U.S. Treasury securities 

for the SAIF. These securities are designated as either held-to-maturity or available-for-sale, with the premiums being amortized to the first call date. Callable

U.S. Treasury bonds may be called five years prior to the respective bonds’ 

stated maturity on their semi-annual coupon payment dates upon 120 days

notice. None of these securities were called during the year. 

There were no available-for-sale securities sold during 2002. 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.

Savings Association Insurance Fund

SAIF
Available-for-Sale

Within 1 year 5.77% $ 475,000 $ 473,317 $ 9,660 $ 0 $ 482,977

After 1 year thru 5 years 4.81% 1,235,000 1,342,263 82,983 0 1,425,246

Treasury Inflation-Indexed

After 5 years thru 10 years 3.84% 1,675,573 1,672,974 188,379 0 1,861,353

Total $ 3,385,573 $ 3,488,554 $ 281,022 $ 0 $ 3,769,576

Total Investment in U.S. Treasury Obligations, Net

Total $ 9,055,005 $ 9,215,394 $ 932,625 $ 0 $ 10,148,019

For purposes of this table, all callable securities are assumed to mature on their first call dates. Their yields at purchase are reported as their yield to first call date.

For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a long-term annual inflation

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures issued by the Office of Management and Budget and the

Congressional Budget Office in early 2002.

U.S. Treasury Obligations at December 31, 2002 (Unrestricted)

Dollars in Thousands

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity●

Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 6.23% $ 535,000 $ 541,662 $ 12,242 $ 0 $ 553,904

After 1 year thru 5 years 5.91% 2,880,000 2,941,199 317,167 0 3,258,366

After 5 years thru 10 years 5.78% 2,030,000 2,021,651 298,277 0 2,319,928

Treasury Inflation-Indexed

After 5 years thru 10 years 3.85% 224,432 222,328 23,917 0 246,245

Total $ 5,669,432 $ 5,726,840 $ 651,603 $ 0 $ 6,378,443

▼

●

▼

70
SAIF

U.S. Treasury Obligations at December 31, 2001 (Unrestricted)

Dollars in Thousands

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 5.91% $ 970,000 $ 973,252 $ 15,735 $ 0 $ 988,987

After 1 year thru 5 years 6.17% 2,540,000 2,592,612 162,155 0 2,754,767

After 5 years thru 10 years 5.65% 2,905,000 2,935,018 138,050 0 3,073,068

Treasury Inflation-Indexed

After 5 years thru 10 years 3.85% 220,012 217,536 4,813 0 222,349

Total $ 6,635,012 $ 6,718,418 $ 320,753 $ 0 $ 7,039,171 

Available-for-Sale

Within 1 year 6.44% $ 75,000 $ 74,412 $ 3,213 $ 0 $ 77,625

After 1 year thru 5 years 6.18% 930,000 942,448 55,065 0 997,513

Treasury Inflation-Indexed

After 5 years thru 10 years 3.84% 1,642,564 1,639,207 36,592 (5,461) 1,670,338

Total $ 2,647,564 $ 2,656,067 $ 94,870 $ (5,461) $ 2,745,476

Total Investment in U.S. Treasury Obligations, Net

Total $ 9,282,576 $ 9,374,485 $ 415,623 $ (5,461) $ 9,784,647

For TIIS, the yields in the above table are stated at their real yields at purchase, not their effective yields. Effective yields on TIIS include a weighted average of

Bloomberg’s calculation of yield with a long-term inflation assumption of 2.5% annually, as measured by the Consumer Price Index (CPI).

●

●

Savings Association Insurance Fund

71

As of December 31, 2002 and 2001, the unamortized premium, net of the

unamortized discount, was $160.4 million and $91.9 million, respectively.
5

72

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 2002 and 2001, with assets at failure of $50.2 million and $2.2 billion,

respectively, and SAIF outlays of $37 million and $1 billion, respectively. 

Receivables from thrift resolutions decreased by $997 million to $288 million at

December 31, 2002. This decrease was primarily due to: 1) recoveries totaling

$850 million of payments made to cover obligations to insured depositors for 

the Superior Bank, FSB receivership and 2) a final payment of $213 million from

the Superior conservatorship to repay the line of credit of $1.5 billion, which 

was extended to the conservatorship for liquidity purposes.

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, 2002 and 2001, SAIF receiverships held assets with

a book value of $490 million and $210 million, respectively (including cash,

investments, and miscellaneous receivables of $93 million and $16 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, primarily, on a non-representative sampling

of receivership assets. This non-representative sample, based primarily on asset

book values, provided 95% coverage of the entire portfolio’s book value for

the year ended December 31, 2002. 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.

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

thrift resolutions, representations and warranties, and guarantees were offered

on loan sales from the Superior resolution. In general, the guarantees, representations, and warranties 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 loans

sold subject to unexpired representations and warranties, and guarantees was

$4.8 billion as of December 31, 2002. SAIF did not establish a liability for all 

outstanding claims asserted in connection with representations and warranties

because the receivership has sufficient funds to pay for such claims. However,

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 SAIF 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 SAIF from outstanding contracts

with unasserted representation and warranty claims.
SAIF

6

Savings Association Insurance Fund

73

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, 2002 and 2001, the contingent liabilities for anticipated failure

of insured institutions were $90 million and $233 million, respectively.

Due to the uncertainty surrounding future economic and market 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 $1.3 billion.

The accuracy of these estimates will largely depend on future economic and

market 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 $1.6 million are reasonably possible.

In addition, two cases are currently pending in the U.S. District Court against 

the FDIC alleging that the FDIC’s calculation of a special assessment exceeded

the amounts due pursuant to the 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

74

7. Assessments

The 1990 OBR Act removed caps on assessment rate increases and authorized

the FDIC to set assessment rates for SAIF members semiannually, to be applied

against a member’s average assessment base. The FDICIA: 1) required the 

FDIC to implement a risk-based assessment system; 2) authorized the FDIC 

to increase assessment rates for SAIF-member institutions as needed to ensure

that funds are available to satisfy the SAIF’s obligations; 3) required the FDIC to

build and maintain the reserves in the insurance funds to not less than 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

26 cents and 41 cents per $100 of assessable deposits for 2002 and 2001,

respectively. On November 12, 2002, the Board voted to retain the SAIF 

assessment schedule at the annual rate of 0 to 27 cents per $100 of assessable

deposits for the first semiannual period of 2003. 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 SAIFinsured 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 reserve ratio at or higher than the DRR of 1.25 percent

of insured deposits. As of September 30, 2002, the SAIF reserve ratio was 

1.38 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

Financing Corporation (FICO) to include all FDIC-insured institutions, and it 

made the FICO assessment separate from regular assessments, effective on

January 1, 1997. The FICO was established by the Competitive Equality Banking

Act of 1987 as a mixed-ownership government corporation whose sole purpose

was to function as a financing vehicle for the FSLIC.

The annual FICO interest obligations of approximately $790 million are paid on a

pro rata basis using the same rates for thrifts and banks. 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 2002 and 2001, $161 million and

$164 million, respectively, was collected from SAIF-member institutions and

remitted to the FICO.
SAIF

9

8

Savings Association Insurance Fund

75

8. Provision for Insurance Losses

Provision for insurance losses was a negative $156.5 million and $443.1 million

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

due to lower estimated losses for anticipated failures which resulted from the

improved financial condition of a few large thrifts. The following chart lists the

major components of the provision for insurance losses.

9. Employee Benefits

Pension Benefits, Savings Plan 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 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. 

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2002 2001

Valuation Adjustments:

Closed thrifts $ (10,113) $ 440,487

Total Valuation Adjustments (10,113) 440,487

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (142,507) (1,083)

Litigation losses (3,874) 3,699

Total Contingent Liabilities Adjustments (146,381) 2,616

Total $ (156,494) $ 443,103
76

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

Dollars in Thousands 

2002 2001

Separation Incentive Payment $ 4,276 $ 494

Civil Service Retirement System 1,715 1,561

Federal Employees Retirement System (Basic Benefit) 4,765 4,043

FDIC Savings Plan 2,951 2,508

Federal Thrift Savings Plan 1,913 1,622

Total $ 15,620 $ 10,228

Eligible FDIC employees also may participate in a FDIC-sponsored tax-deferred

401(k) savings plan with matching contributions. The SAIF pays its share of the

employer’s portion of all related costs.

During 2002, the Corporation offered voluntary employee buyout programs to 

a majority of its employees and conducted a reduction-in-force (RIF) in an effort

to reduce identified staffing excesses. As a result, over 700 employees left or

will leave the Corporation by December 31, 2003. Approximately 91 percent of

the affected employees have left their positions in 2002. Termination benefits

included compensation of fifty percent of the current salary for voluntary 

departures. The total cost of this benefit to the Corporation was $33.1 million 

for 2002, with SAIF’s pro rata share totaling $4.2 million, which is included in the

“Operating expenses” line item. All of this amount was paid by SAIF in 2002. 

Accrued Annual Leave

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

annual leave is approximately $5.5 million and $4.6 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 SAIF’s net postretirement

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

line item in the Statement of Financial Position was $145 thousand. At

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

in the “Interest receivable on investments and other assets, net” line item 

in the Statement of Financial Position was $148 thousand.
11

SAIF

10

Savings Association Insurance Fund

77

10. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The SAIF’s allocated share of the FDIC’s lease commitments totals $22.3 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 

$6.5 million and $5.8 million at December 31, 2002 and 2001, respectively. 

Off-Balance-Sheet Exposure:

Deposit Insurance

As of September 30, 2002, deposits insured by the SAIF totaled approximately

$838 billion. This would be the accounting loss if all depository institutions were

to fail and the acquired assets provided no recoveries.

11. Concentration of Credit Risk

Financial instruments that potentially subject the SAIF to credit risk consist 

primarily of gross receivables from thrift resolutions totaling $722 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 SAIF on behalf of receiverships. 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 resolutions.

Most of the gross receivables and related allowance for losses of $434 million are

attributable to the failure of Superior Bank. Of SAIF’s $288 million net receivable,

$282 million is estimated to be repaid by Superior receivership assets, primarily,

cash and a promissory note arising from a settlement with the owners of the

failed institution. The credit risk related to the promissory note is limited since

Leased Space Commitments

Dollars in Thousands 

2003 2004 2005 2006 2007 2008/Thereafter

$ 6,150 $ 5,535 $ 4,619 $ 3,099 $ 1,777 $ 1,070
12

78

half of the outstanding note is secured by a letter of credit and the remaining

half is subject to the creditworthiness of the payor of the note. Annual monitoring of the creditworthiness of the payor is performed and currently indicates a

low risk of non-performance.

12. Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at 

current value. The fair market value of the investment in U.S. Treasury obligations

is disclosed in Notes 3 and 4 and is based on current market prices. The carrying

amount of interest receivable on investments, short-term receivables, and

accounts payable and other liabilities approximates their fair market value, 

due to their short maturities and/or comparability with current interest rates. 

The net receivables from thrift resolutions primarily include the SAIF’s subrogated

claim arising from payments to insured depositors. The receivership assets that

will ultimately be used to pay the corporate subrogated claim are valued using

discount rates that include consideration of market risk. These discounts ultimately

affect the SAIF’s allowance for loss against the net receivables from thrift 

resolutions. Therefore, the corporate subrogated claim indirectly includes the

effect of discounting and should not be viewed as being stated in terms of 

nominal cash flows.

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

of receivership assets (see Note 5), such receivership valuation is not equivalent

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

intended for sale to the private sector, and has no established market, it is not

practicable to estimate its fair market value.

The FDIC believes that a sale to the private sector of the corporate claim would

require indeterminate, but substantial, discounts for an interested party to profit

from these assets because of credit and other risks. In addition, the timing of

receivership payments to the SAIF on the subrogated claim does not necessarily

correspond with the timing of collections on receivership assets. Therefore, 

the effect of discounting used by receiverships should not necessarily be viewed

as producing an estimate of market value for the net receivables from thrift 

resolutions. 
13

SAIF

Savings Association Insurance Fund

13. Supplementary Information Relating to the Statements of 

Cash Flows

79

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

Dollars in Thousands 

2002 2001

Net Income $ 620,201 $ 169,038

Adjustments to Reconcile Net Income to Net Cash 

Provided by (Used by) Operating Activities

Income Statement Items:

Amortization of U.S. Treasury obligations (unrestricted) 47,333 32,503

TIIS inflation adjustment (37,429) (37,407)

Gain on sale of U.S. Treasury obligations 0 (51,630)

Change in Assets and Liabilities:

Decrease in amortization of U.S. Treasury obligations (restricted) 811 863

Decrease in entrance and exit fees receivable, including interest receivable 

on investments and other assets 5,317 32,641

Decrease (Increase) in receivables from thrift resolutions 997,295 (1,281,002)

(Decrease) Increase in accounts payable and other liabilities (1,011) 362

(Decrease) in contingent liability for anticipated failure of insured institutions (142,507) (1,083)

(Decrease) Increase in contingent liability for litigation losses (5,029) 3,699

Increase in exit fees and investment proceeds held in escrow 12,489 15,595

Net Cash Provided by (Used by) Operating Activities $ 1,497,470 $ (1,116,421)