Financial Statements and Notes
1

Bank Insurance 

Fund

December 31, 2002

and 2001
41

BIF

Bank Insurance Fund

Federal Deposit Insurance Corporation

Bank Insurance Fund Statements of Financial Position at December 31 

Dollars in Thousands 

2002 2001

Assets

Cash and cash equivalents $ 4,606,896 $ 1,436,613

Investment in U.S. Treasury obligations, net: (Note 3)

Held-to-maturity securities 16,709,665 20,477,568

Available-for-sale securities 10,823,593 9,685,367

Interest receivable on investments and other assets, net 483,674 547,101

Receivables from bank resolutions, net (Note 4) 505,395 79,155

Property and equipment, net (Note 5) 303,084 303,969

Total Assets $ 33,432,307 $ 32,529,773

Liabilities 

Accounts payable and other liabilities $ 148,573 $ 134,990

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 1,008,097 1,911,000

Litigation losses 204,805 37,123

Other contingencies 20,492 7,835

Total Liabilities 1,381,967 2,090,948

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

Fund Balance

Accumulated net income 31,238,171 30,192,903

Unrealized gain on available-for-sale securities, net (Note 3) 812,169 245,922

Total Fund Balance 32,050,340 30,438,825

Total Liabilities and Fund Balance $ 33,432,307 $ 32,529,773

The accompanying notes are an integral part of these financial statements.
42

Federal Deposit Insurance Corporation

Bank 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 $ 1,692,381 $ 1,834,768

Assessments (Note 7) 84,030 47,777

Realized gain on sale of U.S.Treasury obligations 0 78,227

Other revenue 19,474 35,964

Total Revenue 1,795,885 1,996,736

Expenses and Losses

Operating expenses 821,136 785,855

Provision for insurance losses (Note 8) (86,970) 1,756,321

Interest and other insurance expenses 16,451 17,226

Total Expenses and Losses 750,617 2,559,402

Net Income/ (Loss) 1,045,268 (562,666)

Unrealized gain on available-for-sale securities, net (Note 3) 566,247 26,269

Comprehensive Income/(Loss) 1,611,515 (536,397)

Fund Balance - Beginning 30,438,825 30,975,222

Fund Balance - Ending $ 32,050,340 $ 30,438,825

The accompanying notes are an integral part of these financial statements.
Bank Insurance Fund

BIF

43

Federal Deposit Insurance Corporation

Bank 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 $ 1,858,852 $ 1,913,936

Recoveries from bank resolutions 1,116,406 368,603

Assessments 81,971 47,075

Miscellaneous receipts 22,607 38,422

Cash used by:

Operating expenses (742,270) (729,635)

Disbursements for bank resolutions (2,168,187) (84,651)

Miscellaneous disbursements (38,311) (21,696)

Net Cash Provided by Operating Activities (Note 13) 131,068 1,532,054

Cash Flows From Investing Activities

Cash provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 3,625,000 3,320,000

Maturity or sale of U.S. Treasury obligations, available-for-sale 1,150,000 2,398,572

Cash used by:

Purchase of property and equipment (49,647) (61,189)

Purchase of U.S. Treasury obligations, held-to-maturity 0 (1,418,875)

Purchase of U.S. Treasury obligations, available-for-sale (1,686,138) (4,490,345)

Net Cash Provided / (Used) by Investing Activities 3,039,215 (251,837)

Net Increase in Cash and Cash Equivalents 3,170,283 1,280,217

Cash and Cash Equivalents - Beginning 1,436,613 156,396

Cash and Cash Equivalents - Ending $ 4,606,896 $ 1,436,613

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

Legislative History

The U.S. Congress created the Federal Deposit Insurance Corporation (FDIC)

through enactment of the Banking Act of 1933. The FDIC was created to restore

and maintain public confidence in the nation’s banking system.

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 Bank Insurance Fund (BIF), the Savings

Association Insurance Fund (SAIF), and the FSLIC Resolution Fund (FRF). It also

designated the FDIC as the administrator of these funds. All three funds are

maintained separately to carry out their respective mandates.

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

and thrift 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 FIRREA, an active institution’s insurance fund membership and primary

federal supervisor are generally determined by the institution’s charter type.

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. Deposits

of SAIF-member institutions are generally insured by the SAIF; SAIF members 

are predominantly thrifts supervised by the Office of Thrift Supervision. 

In addition to traditional banks and thrifts, 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 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.

Bank Insurance 

Fund

Notes to the 

Financial 

Statements 

December 31, 2002

and 2001

1
Bank Insurance Fund

45

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 services 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 BIF and SAIF, 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 BIF and the SAIF, if enacted into law. FDIC management, however, cannot predict which provisions, if any, will ultimately be enacted.

Operations of the BIF

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

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

managing and disposing of their assets. In addition, the FDIC, acting on behalf 

of the BIF, examines state-chartered banks that are not members of the Federal

Reserve System. 

The BIF is primarily funded from: 1) interest earned on investments in U.S. Treasury

obligations and 2) deposit insurance assessments. Additional funding sources

are U.S. Treasury and Federal Financing Bank (FFB) borrowings, if necessary.

The 1990 OBR Act established the FDIC’s authority to borrow from the FFB 

on behalf of the BIF and the SAIF. The FDICIA increased the FDIC’s authority 

to borrow for insurance purposes from the U.S. Treasury, on behalf of the BIF

and the SAIF, from $5 billion to $30 billion. 

The FDICIA established a limitation on obligations that can be incurred by the BIF,

known as the Maximum Obligation Limitation (MOL). As of December 31, 2002

and December 31, 2001, the MOL for the BIF was $56.7 billion and $55.4 billion,

respectively.

Receivership Operations

The FDIC is responsible for managing and disposing of the assets of failed 

institutions in an orderly and efficient manner. The assets held by receivership

entities, and the claims against them, are accounted for separately from BIF assets

BIF
46

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 BIF 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 BIF 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 banks 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 BIF

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 BIF 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.

BIF investments in U.S.Treasury obligations are either classified as held-to-maturity

or available-for-sale. Securities designated as held-to-maturity are shown at amortized cost. Amortized cost is the face value of securities plus the unamortized 

premium or less the unamortized discount. Amortizations are computed on a daily

basis from the date of acquisition to the date of maturity, except for callable U.S.

Treasury securities, which are amortized to the first anticipated call date. 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. 

2
Bank Insurance Fund

BIF

47

Allowance for Losses on Receivables From Bank Resolutions 

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

for resolving failing and failed banks. 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 banks, 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.

Depreciation

The FDIC has designated the BIF as administrator of property and equipment

used in its operations. Consequently, the BIF includes the cost of these assets

in its financial statements and provides the necessary funding for them. The BIF

charges the other funds usage fees representing an allocated share of its annual

depreciation expense. These usage fees are recorded as cost recoveries, which

reduce operating expenses.

The Washington, D.C. office buildings and the L. William Seidman Center in

Arlington, Virginia, are depreciated on a straight-line basis over a 50-year estimated

life. The San Francisco condominium offices are depreciated on a straight-line

basis over a 35-year estimated life. Leasehold improvements are capitalized and

depreciated over the lesser of the remaining life of the lease or the estimated

useful life of the improvements, if determined to be material. Capital assets

depreciated on a straight-line basis over a five-year estimated life include mainframe equipment; furniture, fixtures, and general equipment; and internal-use

software. Personal computer equipment is depreciated on a straight-line basis

over a three-year estimated life.

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.
48

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

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

in U.S. Treasury obligations, net, was $27.5 billion and $30.2 billion, respectively. 

As of December 31, 2002, the FDIC held $6.2 billion of Treasury inflation-indexed

securities (TIIS) for the BIF. These securities are indexed to increases or decreases

in the Consumer Price Index for All Urban Consumers (CPI-U). Additionally, FDIC

held $1.5 billion of callable U.S. Treasury bonds at December 31, 2002, 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. 

U.S. Treasury Obligations at December 31, 2002 

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 5.98% $ 2,690,000 $ 2,737,188 $ 63,325 $ 0 $ 2,800,513

After 1 year thru 5 years 6.24% 10,265,000 10,401,894 1,169,295 0 11,571,189

After 5 years thru 10 years 5.39% 2,895,000 2,961,035 370,281 0 3,331,316

Treasury Inflation-Indexed

After 5 years thru 10 years 3.82% 607,987 609,548 68,169 0 677,717

Total $ 16,457,987 $ 16,709,665 $ 1,671,070 $ 0 $ 18,380,735 

Available-for-Sale

Within 1 year 5.31% $ 1,390,000 $ 1,389,723 $ 27,614 $ 0 $ 1,417,337

After 1 year thru 5 years 4.91% 3,355,000 3,595,734 235,538 0 3,831,272

Treasury Inflation-Indexed

After 5 years thru 10 years 3.78% 5,010,245 5,025,967 549,017 0 5,574,984

Total $ 9,755,245 $ 10,011,424 $ 812,169 $ 0 $ 10,823,593

Total Investment in U.S. Treasury Obligations, Net

Total $ 26,213,232 $ 26,721,089 $ 2,483,239 $ 0 $ 29,204,328

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.

▼

●

▼

3

There were no available-for-sale securities sold during 2002. In 2001, the BIF reported

a gross realized gain of $78 million on the sale of securities designated as availablefor-sale. Proceeds from the sales were $1.5 billion. Specific identification was used

to determine cost of the securities sold in computing the realized gain.
49

BIF

Bank Insurance Fund

U.S. Treasury Obligations at December 31, 2001 

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 5.77% $ 3,625,000 $ 3,666,801 $ 71,147 $ (25) $ 3,737,923

After 1 year thru 5 years 6.40% 10,345,000 10,516,639 752,344 (2,193) 11,266,790

After 5 years thru 10 years 5.39% 5,505,000 5,696,333 196,238 0 5,892,571

Treasury Inflation-Indexed

After 5 years thru 10 years 3.82% 596,008 597,795 11,807 0 609,602

Total $ 20,071,008 $ 20,477,568 $ 1,031,536 $ (2,218) $ 21,506,886

Available-for-Sale

Within 1 year 4.57% $ 1,050,000 $ 1,056,197 $ 10,721 $ 0 $ 1,066,918

After 1 year thru 5 years 5.54% 3,385,000 3,454,666 156,271 0 3,610,937

Treasury Inflation-Indexed

After 5 years thru 10 years 3.78% 4,911,545 4,928,582 103,950 (25,020) 5,007,512

Total $ 9,346,545 $ 9,439,445 $ 270,942 $ (25,020) $ 9,685,367

Total Investment in U.S. Treasury Obligations, Net

Total $ 29,417,553 $ 29,917,013 $ 1,302,478 $ (27,238) $ 31,192,253

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 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).

▼

●

▼

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

unamortized discount, was $508 million and $499 million, respectively.
4

50

4. Receivables From Bank Resolutions, Net

The bank 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 BIF against the receiverships’ assets. There were ten

bank failures in 2002 and three in 2001, with assets at failure of $2.5 billion and

$54 million, respectively, and BIF outlays of $2.1 billion and $49.5 million,

respectively.

Assets held by the FDIC in its receivership capacity for closed BIF-insured institutions are the main source of repayment of the BIF’s receivables from closed

banks. As of December 31, 2002 and 2001, BIF receiverships held assets with 

a book value of $1.1 billion and $154.6 million, respectively (including cash,

investments, and miscellaneous receivables of $479 million and $71.9 million at

December 31, 2002 and 2001, respectively). Generally, the estimated cash 

recoveries from the management and disposition of these assets that are used 

to derive the allowance for losses are based in part on a statistical sampling 

of receivership assets. For certain recent and significant failures, a separate 

evaluation was performed, based on non-representative sampling, to estimate

cash recoveries on the majority of receivership assets in order to determine 

the appropriate allowance for losses. These estimated recoveries are regularly

evaluated, but remain subject to uncertainties because of potential changes 

in economic conditions. Such uncertainties could cause the BIF’s and other

claimants’ actual recoveries to vary from the level currently estimated.

Receivables From Bank Resolutions, Net at December 31 

Dollars in Thousands 

2002 2001

Receivables from closed banks $ 6,055,613 $ 5,368,970

Allowance for losses (5,550,218) (5,289,815) 

Total $ 505,395 $ 79,155
6

5

Bank Insurance Fund

BIF

5. Property and Equipment, Net

The depreciation expense was $47 million and $45 million for 2002 and 2001,

respectively.

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The BIF records a contingent liability and a loss provision for banks (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 banks 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 $1.0 billion and $1.9 billion, respectively.

In addition to these recorded contingent liabilities, the FDIC has identified 

additional risk in the financial services industry that could result in a material 

loss to the BIF should potentially vulnerable financial institutions ultimately fail.

This risk is evidenced by the level of problem bank assets and the presence 

of various high-risk banking business models that are particularly vulnerable 

to adverse economic and market conditions.

Due to the uncertainty surrounding future economic and market conditions,

there are other banks for which the risk of failure is less certain, but still considered reasonably possible. Should these banks fail, the BIF could incur additional

estimated losses up to $6.0 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.

51

Property and Equipment, Net at December 31 

Dollars in Thousands 

2002 2001 

Land $ 37,352 $ 29,631

Buildings 171,362 175,265

Application software (includes work-in-process) 155,196 131,104

Furniture, fixtures, and equipment 98,497 93,593

Accumulated depreciation (159,323) (125,624)

Total $ 303,084 $ 303,969
7

52

Litigation Losses

The BIF records an estimated loss for unresolved legal cases to the extent that

those losses are considered probable and reasonably estimable. In addition to

the amount recorded as probable, the FDIC has determined that losses totaling

$53.8 million from unresolved legal cases are reasonably possible.

Other Contingencies

Representations and Warranties

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

from bank resolutions, representations and warranties, and guarantees are

offered on certain loan sales. 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 $6.7 billion 

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

asserted in connection with representations and warranties was $11.6 million

and $1.5 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 BIF 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 BIF from outstanding

contracts with unasserted representation and warranty claims.

7. Assessments

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

the FDIC to set assessment rates for BIF 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 BIF-member institutions as needed to ensure that

funds are available to satisfy the BIF’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 BIF. To arrive at a risk-based
8

Bank Insurance Fund

BIF

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

22 cents and 14 cents per $100 of assessable deposits for 2002 and 2001,

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

As stated above, the FDICIA requires the FDIC to maintain the insurance funds

at a designated reserve ratio (DRR) of not less than 1.25 percent of estimated

insured deposits (or a higher percentage as circumstances warrant). As of

September 30, 2002, the BIF reserve ratio was 1.25 percent of estimated

insured deposits. The FDICIA authorizes and mandates BIF assessments if

needed to maintain the fund at the DRR or to return the fund to the DRR if it

falls below the DRR. The FDIC is required to set semiannual assessment rates

that are sufficient to increase the reserve ratio to the DRR not later than one 

year after such rates are set, or in accordance with a recapitalization schedule 

of fifteen years or less.

The DIFA provided, among other things, 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 rate for banks and thrifts. The FICO assessment

has no financial impact on the BIF. The FICO assessment is separate from the

regular assessments and is imposed on banks and thrifts, not on the insurance

funds. The FDIC, as administrator of the BIF and the SAIF, is acting solely 

as a collection agent for the FICO. During 2002 and 2001, $621 million and

$627 million, respectively, was collected from BIF-member institutions and

remitted to the FICO.

8. Provision for Insurance Losses

Provision for insurance losses was a negative $87 million for 2002 and $1.8 billion

for 2001. The following chart lists the major components of the provision for

insurance losses.

53
9

54

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 BIF contributes a portion of pension benefits for eligible employees,

it does not account for the assets of either retirement system. The BIF 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 BIF pays its share of the

employer’s portion of all related costs.

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2002 2001

Valuation Adjustments:

Closed banks $ 616,844 $ (41,106)

Open bank assistance and other assets 6,006 (928)

Total Valuation Adjustments 622,850 (42,034)

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (902,903) 1,776,645

Litigation losses 190,572 16,095

Other contingencies 2,511 5,615

Total Contingent Liabilities Adjustments (709,820) 1,798,355

Total $ (86,970) $ 1,756,321
Bank Insurance Fund

BIF

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 BIF’s pro rata share totaling $28.9 million, which is included in the

“Operating expenses” line item. In 2002, BIF paid $10.1 million of this compensation benefit and the remaining unpaid amount is recorded as a liability in the

“Accounts payable and other liabilities” line item.

Accrued Annual Leave

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

annual leave is approximately $34.1 million and $35.3 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 and 2001, the BIF’s net 

postretirement benefit asset recognized in the “Interest receivable on investments and other assets, net” line item in the Statements of Financial Position

was $130 thousand and $3.6 million, respectively.

The Corporation’s postretirement benefits plan curtailment loss resulting from

the voluntary employee buyout programs and reduction-in-force was $1.6 million

in 2002, with BIF’s pro rata share totaling $1.3 million.

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

Dollars in Thousands 

2002 2001

Separation Incentive Payment $ 29,085 $ 3,304

Civil Service Retirement System 13,365 11,205

Federal Employees Retirement System (Basic Benefit) 30,366 29,562

FDIC Savings Plan 18,956 18,254

Federal Thrift Savings Plan 12,235 11,871

Total $ 104,007 $ 74,196
10

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10. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The BIF’s allocated share of the FDIC’s lease commitments totals $138.6 million

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

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

future lease commitments is based upon current relationships of the workloads

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

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

shown below. The BIF recognized leased space expense of $36.9 million and

$38.5 million for the years ended December 31, 2002 and 2001, respectively.

Off-Balance-Sheet Exposure:

Asset Securitization Guarantees

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

of assets from bank resolutions, the FDIC has securitized some receivership

assets. To facilitate the securitizations, the BIF provided limited guarantees to

cover certain losses on the securitized assets up to a specified maximum. In

exchange for backing the limited guarantees, the BIF received assets from the

receiverships in an amount equal to the expected exposure under the guarantees.

The remaining term of the limited guarantee is 24 years. The table below gives

the maximum off-balance-sheet exposure the BIF has under these guarantees. 

Deposit Insurance

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

$2.5 trillion. This would be the accounting loss if all depository institutions were

to fail and the acquired assets provided no recoveries.

Leased Space Commitments

Dollars in Thousands 

2003 2004 2005 2006 2007 2008/Thereafter

$ 38,318 $ 34,487 $ 28,780 $ 19,309 $ 11,076 $ 6,667

Asset Securitization Guarantees at December 31

Dollars in Thousands 

2002 2001

Maximum exposure under the limited guarantees $ 243,764 $ 330,936

Less: Guarantee claims paid (inception-to-date) (35,034) (34,756)

Less: Amount of exposure recognized as a contingent liability (6,508) (3,966)

Maximum Off-Balance-Sheet Exposure Under the Limited Guarantees $ 202,222 $ 292,214
12

11

Bank Insurance Fund

BIF

11. Concentration of Credit Risk

Financial instruments that potentially subject the BIF to credit risk consist primarily

of gross receivables from bank resolutions totaling $6.1 billion. The receivables

from bank resolutions include payments made to cover obligations to insured

depositors, advances to receiverships to provide working capital, and receivables

for expenses paid by the BIF on behalf of receiverships. Assets held by the 

FDIC in its receivership capacity for closed BIF-insured institutions are the main

source of repayment of the BIF’s receivables from closed banks. An allowance

for loss of $5.6 billion, or 92% of the gross receivable, was recorded as of

December 31, 2002. Of the remaining eight percent of the gross receivable, 

the amount of credit risk is limited since 77% of the receivable will be repaid

from receivership cash and cash equivalents.

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 Note 3 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 bank resolutions primarily include the BIF’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 BIF’s allowance for loss against the net receivables from bank 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 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 BIF 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 bank 

resolutions.

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58

13. Supplementary Information Relating to the Statements

of Cash Flows

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

Dollars in Thousands 

2002 2001

Net Income/ (Loss) $ 1,045,268 $ (562,666)

Adjustments to Reconcile Net Income/(Loss) to Net Cash Provided 

by Operating Activities

Income Statement Items:

Amortization of U.S. Treasury obligations 217,742 160,763 

TIIS inflation adjustment (110,679) (96,064)

Gain on sale of U.S.Treasury obligations 0 (78,227) 

Depreciation on property and equipment 47,484 44,723

Retirement of property and equipment 2,149 1,568

Change in Assets and Liabilities:

Decrease in interest receivable on investments and other assets 63,688 17,273

(Increase) Decrease in receivables from bank resolutions (426,239) 270,434

Increase (Decrease) in accounts payable and other liabilities 14,218 (16,591)

(Decrease) Increase in contingent liabilities for anticipated failure of insured institutions (902,903) 1,769,645

Increase in other contingencies 12,658 5,995

Increase in contingent liabilities for litigation losses 167,682 15,201

Net Cash Provided by Operating Activities $ 131,068 $ 1,532,054