Financial Audit: Federal Deposit Insurance Corporation's 1998 and 1997
Financial Statements (Letter Report, 06/30/99, GAO/AIMD-99-202).
Pursuant to a legislative requirement, GAO reviewed the financial
statements of the Bank Insurance Fund (BIF), the Savings Association
Insurance Fund, and the Federal Savings and Loan Insurance Corporation
Resolution Fund for the years ended December 31, 1998 and 1997. GAO also
reviewed: (1) the Federal Deposit Insurance Corporation (FDIC)
management's assertions regarding the effectiveness of its internal
control as of December 31, 1998; and (2) FDIC's compliance with laws and
regulations during 1998.
GAO noted that: (1) the financial statements of each fund were fairly
presented in all material respects; (2) FDIC management fairly stated
that internal control in place on December 31, 1998, was effective in
ensuring that there were no material misstatements in the financial
statements of the three funds administered by FDIC, and ensuring
material compliance with selected laws and regulations; and (3) there
was no reportable noncompliance with laws and regulations GAO tested.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-99-202
TITLE: Financial Audit: Federal Deposit Insurance Corporation's
1998 and 1997 Financial Statements
DATE: 06/30/99
SUBJECT: Reporting requirements
Internal controls
Financial statement audits
Financial records
Audits
Federal corporations
Fund audits
Auditing standards
IDENTIFIER: Bank Insurance Fund
Savings Association Insurance Fund
FSLIC Resolution Fund
BIF
SAIF
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ai99202 GAO United States General Accounting Office
Report to the Congress
June 1999 FINANCIAL AUDIT Federal Deposit Insurance Corporation's
1998 and 1997 Financial Statements
GAO/AIMD-99-202
GAO/AIMD-99-202
Page 1 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
United States General Accounting Office
Washington, D. C. 20548
B-280808 Letter June 30, 1999 To the President of the Senate and
the Speaker of the House of Representatives
This report presents our opinions on the financial statements of
the Bank Insurance Fund, the Savings Association Insurance Fund,
and the FSLIC Resolution Fund (FRF) for the years ended December
31, 1998 and 1997. These financial statements are the
responsibility of the Federal Deposit Insurance Corporation
(FDIC), the administrator of the three funds. This report also
presents (1) our opinion on FDIC management's assertions regarding
the effectiveness of its internal control as of December 31, 1998,
and (2) our evaluation of FDIC's compliance with laws and
regulations during 1998. In addition, it discusses FDIC's progress
in correcting an internal control weakness detected during our
1997 audits. The report also provides information on the Year 2000
(Y2K) and insured financial institutions, ongoing litigation
affecting FRF, and the current status of
FRF's liquidation activities and funding. We conducted our audits
pursuant to the provisions of section 17( d) of the Federal
Deposit Insurance Act, as amended (12 U. S. C. 1827( d)), and in
accordance with generally accepted government auditing standards.
We are sending copies of this report to Senator Phil Gramm,
Chairman, and
Senator Paul Sarbanes, Ranking Minority Member, Senate Committee
on Banking, Housing and Urban Affairs and to Representative James
Leach, Chairman, and Representative John LaFalce, Ranking Minority
Member, House Committee on Banking and Financial Services. We are
also sending copies to the Honorable Donna Tanoue, Chairman of the
Board of Directors of the Federal Deposit Insurance Corporation;
the Honorable Alan Greenspan, Chairman of the Board of Governors
of the Federal Reserve System; the Honorable John Hawke Jr.,
Comptroller of the
Currency; the Honorable Ellen Seidman, Director of the Office of
Thrift Supervision; the Honorable Robert Rubin, Secretary of the
Treasury;
Comptroller General of the United States
B-280808 Page 2 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
the Honorable Jacob J. Lew, Director of the Office of Management
and Budget; and other interested parties.
David M. Walker Comptroller General
of the United States
B-280808 Page 3 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Page 4 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Contents Letter 1 Letter 6 Bank Insurance Fund's Financial
Statements 20
Statements of Financial Position 20 Statements of Income and Fund
Balance 21 Statements of Cash Flows 22 Notes to Financial
Statements 23
Savings Association Insurance Fund's Financial Statements
41 Statements of Financial Position 41 Statements of Income and
Fund Balance 42 Statements of Cash Flows 43 Notes to Financial
Statements 44
FSLIC Resolution Fund's Financial Statements
60 Statements of Financial Position 60 Statements of Income and
Accumulated Deficit 61 Statements of Cash Flows 62 Notes to
Financial Statements 63
Appendix I Comments From the Federal Deposit Insurance Corporation
84 Appendix II GAO Contacts and Staff Acknowledgements
85 Tables Table 1: FRF's Estimated Funds Available as of December
31, 1998 17
Contents Page 5 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Figures Figure 1: Y2K Ratings for FDIC- Insured Institutions as of
April 30, 1999 12 Figure 2: Y2K Assessment Ratings for Service
Providers and Software
Vendors, as of April 30, 1999 13
Abbreviations
BIF Bank Insurance Fund FDIC Federal Deposit Insurance Corporation
FFIEC Federal Financial Institutions Examination Council FIRREA
Financial Institutions Reform, Recovery, and Enforcement Act FMFIA
Federal Managers' Financial Integrity Act of 1982 FRF FSLIC
Resolution Fund FSLIC Federal Savings and Loan Insurance
Corporation REFCORP Resolution Funding Corporation RTC Resolution
Trust Corporation SAIF Savings Association Insurance Fund SAVE
Standard Asset Valuation Estimation Y2K Year 2000
Page 6 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
United States General Accounting Office
Washington, D. C. 20548
B-280808 Letter To the Board of Directors Federal Deposit
Insurance Corporation
We have audited the statements of financial position as of
December 31, 1998 and 1997, of the three funds administered by the
Federal Deposit Insurance Corporation (FDIC), the related
statements of income and fund
balance (accumulated deficit), and the statements of cash flows
for the years then ended. In our audits of the Bank Insurance Fund
(BIF), the Savings Association Insurance Fund (SAIF), and the
FSLIC Resolution Fund (FRF), we found
the financial statements of each fund were fairly presented in
all material respects; FDIC management fairly stated that
internal control in place on
December 31, 1998, was effective in assuring that there were no
material misstatements in the financial statements of the three
funds administered by FDIC (including safeguarding of assets from
material loss), and assuring material compliance with selected
laws and regulations; and
no reportable noncompliance with laws and regulations we tested.
The following sections discuss our conclusions in more detail.
They also present information on (1) the scope of our audits, (2)
Year 2000 (Y2K) and insured financial institutions, (3) the
current status of the goodwill litigation cases, (4) the current
status of FRF's liquidation activities and funding, (5) FDIC's
progress in addressing a reportable condition 1 identified during
our 1997 audits, and (6) our evaluation of the Corporation's
comments on a draft of this report.
1 Reportable conditions involve matters coming to the auditor's
attention relating to significant deficiencies in the design or
operation of internal control that, in the auditor's judgment,
could adversely affect an entity's ability to (1) properly record,
process, and summarize transactions to permit the preparation of
financial statements in accordance with generally accepted
accounting principles
(including safeguarding of assets) and (2) ensure the execution of
transactions in accordance with laws and regulations that could
have a direct and material effect on the financial statements.
Comptroller General of the United States
B-280808 Page 7 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Opinion on Bank Insurance Fund's Financial Statements
The financial statements and accompanying notes present fairly, in
all material respects, in conformity with generally accepted
accounting principles, the Bank Insurance Fund's financial
position as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended.
Opinion on Savings Association Insurance Fund's Financial
Statements
The financial statements and accompanying notes present fairly, in
all material respects, in conformity with generally accepted
accounting principles, the Savings Association Insurance Fund's
financial position as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years then
ended. Opinion on FSLIC Resolution Fund's Financial Statements
The financial statements and accompanying notes present fairly, in
all material respects, in conformity with generally accepted
accounting principles, the FSLIC Resolution Fund's financial
position as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended. As
discussed in note 10 of FRF's financial statements, a significant
contingency exists from approximately 120 lawsuits pending in the
United States Court of Federal Claims concerning the counting of
goodwill assets as part of regulatory capital. Based on
information currently available, a reasonable estimate cannot be
made regarding future losses and settlements related to these
cases. Information on the current status of the goodwill cases is
presented later in this report. Opinion on FDIC Management's
Assertions About the Effectiveness of Internal Control
For the three funds administered by FDIC, we evaluated FDIC
management's assertions about the effectiveness of its internal
control designed to provide reasonable assurance that the
following objectives are
met: reliability of financial reporting transactions are
properly recorded,
processed, and summarized to permit the preparation of financial
statements in accordance with generally accepted accounting
principles (including safeguarding of assets) and
B-280808 Page 8 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
compliance with applicable laws and regulations transactions are
executed in accordance with laws and regulations that could have a
direct and material effect on the financial statements.
FDIC management fairly stated that internal control in place on
December 31, 1998, provided reasonable assurance that
misstatements, losses, or noncompliance, material in relation to
the financial statements would be prevented or detected on a
timely basis. FDIC management made
this assertion based on criteria established under the Federal
Managers' Financial Integrity Act of 1982 (FMFIA). Compliance With
Laws and Regulations
Our tests for compliance with selected provisions of laws and
regulations disclosed no instances of noncompliance that would be
reportable under generally accepted government auditing standards.
However, the objective
of our audits was not to provide an opinion on overall compliance
with laws and regulations. Accordingly, we do not express such an
opinion. Objectives, Scope, and Methodology
FDIC's management is responsible for preparing the annual
financial statements in conformity with generally
accepted accounting principles; establishing, maintaining, and
assessing internal control to provide
reasonable assurance that the broad control objectives of FMFIA
are met; and complying with applicable laws and regulations. We
are responsible for obtaining reasonable assurance about whether
the financial statements are free of material misstatement and
presented
fairly, in all material respects, in conformity with generally
accepted accounting principles and FDIC management's assertion
about the effectiveness of internal control is fairly stated, in
all material respects, based upon the criteria
established under FMFIA. We are also responsible for testing
compliance with selected provisions of laws and regulations and
for performing limited procedures with respect to certain other
information appearing in FDIC's annual financial report.
B-280808 Page 9 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
In order to fulfill these responsibilities, we examined, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements; assessed the accounting
principles used and significant estimates made
by management; evaluated the overall presentation of the
financial statements; obtained an understanding of internal
control related to financial
reporting, including safeguarding of assets, compliance with laws
and regulations, including the execution of transactions in
accordance with management's authority; tested relevant internal
controls over financial reporting, including
safeguarding of assets, and compliance, and evaluated management's
assertion about the effectiveness of internal control; and tested
compliance with selected provisions of the Federal Deposit
Insurance Act, as amended; the Chief Financial Officers Act of
1990; and
the Federal Home Loan Bank Act, as amended. We did not evaluate
all internal controls relevant to operating objectives as broadly
defined by FMFIA, such as those controls relevant to preparing
statistical reports and ensuring efficient operations. We limited
our
internal control testing to those controls necessary to achieve
the objectives outlined in our opinion on management's assertion
about the effectiveness of internal control. Because of inherent
limitations in internal control, misstatements, losses, or
noncompliance may
nevertheless occur and not be detected. We also caution that
projecting our evaluation to future periods is subject to the risk
that controls may become inadequate because of changes in
conditions or that the degree of compliance with controls may
deteriorate.
We conducted our audits from July 1998 through May 1999. We did
our work in accordance with generally accepted government auditing
standards. FDIC provided comments on a draft of this report.
FDIC's comments are discussed and evaluated in the Corporation
Comments and Our Evaluation section and are reprinted in appendix
I.
B-280808 Page 10 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Information on Y2K and Insured Financial Institutions
Insured financial institutions face an unprecedented challenge in
preparing their computer systems for the Y2K date change. Banks
and thrifts are vulnerable to Y2K problems due to their widespread
reliance on computer systems to make loans, invest deposits,
transfer funds, issue credit cards,
calculate interest, and handle routine business functions. In
addition, many critical financial institution functions are
dependent on public infrastructure such as telecommunications and
electric power networks, which could also encounter difficulties
or interruptions in service due to the Y2K problem.
Addressing the Y2K problem on time has been and will continue to
be a tremendous challenge. FDIC, the Office of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve
System, and the Office of Thrift Supervision (the regulators),
have made considerable progress in assisting banks and thrifts in
their Y2K efforts, and identifying those institutions at a high
risk of not remediating their systems on time. Since June 1996,
when their Y2K oversight efforts began, FDIC and the other
regulators have taken many important steps to alert financial
institutions of the risks associated with the Y2K problem and to
assess institutions' progress in mitigating the risks. 2 To raise
awareness, FDIC and the other regulators issued letters to all
insured banks and thrifts describing the Y2K problem and special
risks facing financial institutions, and recommended approaches to
planning and managing effective Y2K programs. In addition, the
regulators provided extensive guidance to assist financial
institutions in critical Y2K tasks, including guidance on (1) Y2K
project management, (2) addressing Y2K business risks, (3)
assessing risk from customers, service providers, and software
vendors, (4) testing systems for Y2K readiness, (5) contingency
planning, and (6) establishing effective Y2K customer awareness
programs. FDIC and the other regulators have also undertaken
extensive outreach efforts to raise the Y2K awareness of insured
financial institutions and the public.
To assess institutions' progress in addressing Y2K issues, the
regulators have performed a series of high- level and more
detailed assessments 2 Year 2000 Computing Crisis: Federal
Depository Institution Regulators Are Making Progress, But
Challenges Remain (GAO/T-AIMD-98-305, September 17, 1998).
B-280808 Page 11 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
for each institution. 3 These supervisory efforts have generally
been divided into three phases. Phase I focused on institutions'
awareness, assessment, and renovation efforts. Phase II focused on
the institutions' testing efforts and credit risk assessments.
Phase III is currently in process and will continue throughout
1999, and will focus on implementation, business resumption and
contingency planning, customer awareness initiatives, and
liquidity planning. In addition, during Phase III the regulators
plan to pay particular attention to those institutions identified
as having risk for potential Y2K problems. Based on Y2K
assessments through April 30, 1999, the regulators have found that
the vast majority of financial institutions have acceptable
performance in key phases of the Y2K project management process,
including awareness, assessment, renovation, testing, and
implementation. As discussed in the notes to BIF's and SAIF's
financial statements,
97. 7 percent of insured financial institutions were rated by the
regulators as having made satisfactory progress in their Y2K
project management through Phase II. Those institutions held 98.7
percent of industry assets. Of the remaining 2.3 percent of
institutions rated by the regulators as less than satisfactory,
216 institutions are rated as needs improvement and
21 institutions are considered as having made unsatisfactory
progress. See figure 1.
3 As a result of these assessments, the regulators have assigned
each institution one of the following ratings: satisfactory, needs
improvement, or unsatisfactory. Generally, institutions are
considered satisfactory if they exhibit acceptable performance in
all key phases of the Y2K project management
process as set forth in the May 5, 1997, Federal Financial
Institutions Examination Council (FFIEC) Interagency Statement. A
needs improvement rating results from less than acceptable
performance under FFIEC guidelines; however, project weaknesses
can be readily corrected within the existing project management
framework. An unsatisfactory rating results from poor performance
under
FFIEC guidelines where weaknesses are serious and are not easily
corrected within the existing project management framework. See
note 7 to BIF's financial statements and note 6 to SAIF's
financial statements for additional information.
B-280808 Page 12 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Figure 1: Y2K Ratings for FDIC- Insured Institutions as of April
30, 1999
Source: FDIC Division of Supervision. Virtually all banks and
thrifts rely on service providers and software vendors for at
least a portion of their data processing services. The regulators
have also completed Phase II assessments of service providers and
software vendors that provide data processing services or software
to the industry. Of the 257 service providers and software vendors
examined,
as of April 30, 1999, the regulators reported that 97.3 percent
showed satisfactory progress. Of the remaining servicers rated by
the regulators as less than satisfactory, 5 were rated as needs
improvement and 2 were
rated as having made unsatisfactory progress. See figure 2.
0.2% 2.1% 97.7% Satisfactory (10,159 institutions) Needs
Improvement (216 institutions) Unsatisfactory (21 institutions)
B-280808 Page 13 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Figure 2: Y2K Assessment Ratings for Service Providers and
Software Vendors, as of April 30, 1999
Source: FDIC Division of Supervision.
The FDIC and the other regulators have stated that they will focus
additional attention throughout the remainder of 1999 on those
institutions and service providers not rated satisfactory. Due to
the short time frame remaining until the year 2000, the regulators
have stated that they will adopt a more aggressive stance to
achieve the necessary remedial action at institutions rated less
than satisfactory.
Although the regulators reported that the vast majority of
institutions, service providers, and software vendors had made
satisfactory progress on mitigating their Y2K risks through April
30, 1999, uncertainties still exist regarding the potential for
Y2K problems. Y2K assessment ratings do not
constitute certification of a financial institution's Y2K
readiness. They reflect an institution's ongoing progress in
addressing Y2K issues at a certain point in time. It is possible
that ratings could change over time. In addition, because of the
unprecedented nature of the Y2K problem, unanticipated events
could occur for which the institution was not prepared.
Institutions are required, however, to design Y2K contingency
plans to mitigate the risks associated with unsuccessful
implementation of their Y2K efforts, and to provide assurance that
core business functions will continue if one or more computer
systems fail. Institutions could also encounter difficulties due
to the Y2K problems of third parties. Therefore, 97. 3%
1.9% 0.8% Satisfactory (250 companies) Needs Improvement (5
companies) Unsatisfactory (2 companies)
B-280808 Page 14 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
it is difficult to determine which institutions, if any, could
ultimately fail due to potential Y2K problems. As stated in the
notes to FDIC's financial statements, BIF and SAIF are subject to
potential loss from financial institutions that may fail due to
Y2K problems. In order to assess exposure to BIF and SAIF as a
result of potential Y2K failures, FDIC evaluated Y2K assessment
results, as well as
the financial condition and supervisory ratings for all
institutions. As of December 31, 1998, FDIC has not identified any
probable losses to BIF and SAIF from Y2K failures. Further, any
reasonably possible losses from Y2K failures were not estimable as
of December 31, 1998. During 1999, FDIC and the other regulators
are continuing to collect data on the impact of banks' and
thrifts' potential Y2K problems on the deposit insurance funds,
and plan to take supervisory action as necessary to minimize any
potential impact to the insurance funds. Current Status of the
Goodwill Litigation Cases
As discussed in note 10 of FRF's financial statements, a
significant contingency exists from approximately 120 lawsuits
pending against the United States government in the United States
Court of Federal Claims. These lawsuits assert that certain
agreements were breached when Congress enacted and the Office of
Thrift Supervision implemented the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA), which affected the thrift
industry. The legislation changed the computation for regulatory
capital requirements, thereby eliminating the special accounting
treatment previously allowed for goodwill assets acquired when
institutions merged with or acquired failing thrifts. The changes
in regulatory treatment of goodwill assets caused some
institutions to fall out of capital compliance. In such cases,
institutions had to take action to meet capital requirements or
they were subject to regulatory action.
On July 1, 1996, the United States Supreme Court concluded that
the government is liable for damages in three cases, consolidated
for appeal to the Supreme Court, in which the changes in
regulatory treatment required by FIRREA led the government to not
honor its contractual obligations related to the accounting
treatment of goodwill assets. The cases were then referred back to
the Court of Federal Claims for trials to determine the amount of
damages. On July 23, 1998, the Department of the Treasury
determined, based on an opinion of the Department of Justice, that
FRF is
legally available to satisfy all judgments and settlements in the
goodwill litigation involving supervisory action or assistance
agreements, in which FSLIC was a party to those agreements.
Treasury further determined that
B-280808 Page 15 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
FRF is the appropriate source of funds for payment of any such
judgments and settlements. During 1998, FDIC paid $103.3 million
in settlements for four cases. Two of the settlements were related
to cases that had been consolidated for appeal to the Supreme
Court. Subsequent to December 31, 1998, damage awards in two
goodwill- related cases have been decided. On April 9, 1999, the
Court of Federal Claims
ruled that the federal government must pay Glendale Federal Bank
$908.9 million for breaching the contract that allowed the thrift
to count goodwill toward regulatory capital. 4 The plaintiffs were
seeking up to
$2 billion in damages. Both the plaintiffs and the Department of
Justice are expected to appeal the decision. In another case the
Court of Federal Claims awarded $23 million in damages on April
16, 1999, to California Federal Bank, which had been seeking more
than $1 billion in damages.
California Federal is expected to appeal the decision. Because of
the expected appeals and the differences in awarding damages in
the above cases, the final outcome of both cases is uncertain.
With regard to the remaining cases, the outcome of each case and
the amount of any possible damages remain uncertain. However, FDIC
has concluded
that it is probable that FRF will be required to pay additional,
possibly substantial amounts as a result of future judgments and
settlements. Because of the uncertainties surrounding the cases,
such losses are currently not estimable.
Current Status of FRF's Liquidation Activities and Funding FDIC,
as administrator of FRF, is responsible for liquidating the assets
and liabilities of the former Resolution Trust Corporation (RTC),
5 as well as the
former FSLIC's assets and liabilities. As of December 31, 1998,
FRF held total assets valued at $10.5 billion. Of that total, $4.6
billion was held in cash and investments, with $5.9 billion
remaining to be liquidated. As of December 31, 1998, FRF's
liabilities had been reduced to $138 million. The reduction was
mainly due to FRF paying off the note to the Federal Financing
Bank, which was issued to RTC to provide working capital for
RTC's liquidation activities. In addition to the liabilities shown
on FRF's Statements of Financial Position, FRF is subject to
significant future
4 Glendale Federal Bank was one of the three cases consolidated
for appeal to the Supreme Court. 5 On January 1, 1996, FRF assumed
responsibility for all remaining assets and liabilities of the
former RTC.
B-280808 Page 16 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
contingent liabilities resulting from the goodwill litigation
cases, as noted in the previous section.
As of December 31, 1998, FRF's total accumulated deficit was
$125.2 billion. FRF's accumulated deficit represents the realized
losses to date for all RTC and FSLIC- related liquidation
activity, as well as future estimated losses from assets and
liabilities not yet liquidated. Uncertainties still exist with
regard to the unrealized losses, and the final amount of total
losses will not be known with certainty until all remaining assets
and liabilities are liquidated. In total, $135.5 billion was
received to cover liabilities and losses associated with the
former FSLIC and RTC resolution activities. Of the $135.5 billion
total, $91.3 billion 6 was received by RTC and $44.2 billion was
received by FRF to cover losses and expenses associated with
failed institutions from RTC's caseload and to cover losses
associated with the former FSLIC activities.
As shown in table 1, after reducing the total amount of funding
received by the amount of recorded accumulated deficit, an
estimated $10.3 billion in funds will remain available. FRF
consists of two distinct pools of assets and liabilities: one
composed of the assets and liabilities of FSLIC transferred to FRF
on August 9, 1989 (FRF- FSLIC) and the other composed of the RTC
assets and liabilities transferred to FRF on January 1, 1996 (FRF-
RTC). Of the $10.3 billion in funds available, $2.1 billion is
available to FRF- FSLIC and $8.2 billion is available to FRF- RTC.
6 FIRREA provided an initial $50 billion to RTC. The Resolution
Trust Corporation Funding Act of 1991 provided an additional $30
billion. The Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 provided $25 billion in
December 1991, of which $6. 7 billion was obligated prior to the
April 1, 1992, deadline. In December 1993, the RTC Completion Act
removed the April 1, 1992, deadline, thus making the remaining
$18.3 billion available to RTC for resolution activities. Prior to
RTC's termination on December 31, 1995, RTC drew down $4.6 billion
of the
$18. 3 billion that was made available by the RTC Completion Act.
B-280808 Page 17 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Table 1: FRF's Estimated Funds Available as of December 31, 1998
Funds available in FRF- FSLIC will be used to pay future
liabilities of the FRF- FSLIC, including the contingency related
to the goodwill litigation cases. Because additional and possibly
substantial amounts could be paid out of the FRF- FSLIC for the
goodwill cases, FRF has been provided with an indefinite
appropriation for the payment of judgments and settlements in the
goodwill litigation, without fiscal year limitation. 7 The RTC
Completion Act requires FDIC to deposit in the general fund of
the Treasury any funds transferred to RTC pursuant to the
Completion Act but not needed for RTC- related losses. In total,
RTC drew down $4. 6 billion of funding provided by the act. After
providing for all outstanding RTC liabilities, FDIC must transfer
to the Resolution Funding Corporation (REFCORP) the net proceeds
from the sale of RTC- related assets. Any such funds transferred
to REFCORP are to pay the interest on
REFCORP bonds issued to provide funding for the early RTC
resolutions. Any payments to REFCORP benefit the U. S. Treasury,
which is otherwise obligated to pay the interest on the bonds. The
final amount of unused funds will not be known with certainty
until all of FRF's remaining assets and liabilities are
liquidated.
(Dollars in billions)
FRF- FSLIC FRF- RTC Total FRF
Total funds received $44. 2 $91.3 $135.5 Less: accumulated deficit
42.1 83.1 125. 2
Estimated funds available $ 2. 1 $ 8. 2 $ 10. 3
7 Section 130 of the Department of Justice Appropriation Act,
1999, appropriates for paying judgments against the United States
and compromise settlements in the goodwill cases such sums as may
be necessary, to remain available until expended. We believe
section 130 establishes an indefinite, permanent appropriation.
FDIC has not expressed a view on the permanency of section 130 and
the President's budget proposes clarifying language for the fiscal
year 2000 appropriation act, which is designed to provide FDIC
with a permanent appropriation.
B-280808 Page 18 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
Progress on Prior Year's Reportable Condition
In our 1997 audit report 8 on the three funds administered by
FDIC, we identified one reportable condition that affected FDIC's
ability to ensure that internal control objectives were achieved.
The weakness related to FDIC's internal controls designed to
ensure that assets valued outside of FDIC's Standard Asset
Valuation Estimation (SAVE) process were accurately and
appropriately valued. During our 1997 audits, we found
significant errors in the estimated recoveries for a portfolio of
partnership interests, and we found unsupported recoveries and
other errors in the estimated recoveries for another portfolio of
debt and equity securities.
During 1998, FDIC developed standard valuation methodologies for
assets previously valued outside of its SAVE process. FDIC's
objective was to establish consistent asset valuation
methodologies for those assets. FDIC also clearly designated
responsibility for valuing those assets and for reviewing
completed valuations. While we continued to find some
instances where recovery estimates for FRF assets were not fully
supported, we concluded that they were isolated problems that were
not significant to FRF's financial statements. We will discuss
this matter further in a management letter.
We did not identify any reportable conditions during our 1998
audits. However, we noted other less significant matters involving
FDIC's internal accounting and electronic data processing general
controls that we will be reporting separately to FDIC in two
management letters.
Corporation Comments and Our Evaluation
In commenting on a draft of this report, FDIC acknowledged the
importance of an effective internal control program, and stated a
commitment to achieving corporate objectives by ensuring that the
Corporation operates within an environment conducive to strong
internal controls. FDIC also stated that it will continue to
monitor the other matters discussed in the audit report, including
the Y2K issues related to insured financial institutions, the
goodwill litigation cases, and FRF's
8 Financial Audit: Federal Deposit Insurance Corporation's 1997
and 1996 Financial Statements (GAO/AIMD-98-204, June 29, 1998).
B-280808 Page 19 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial
Statements
liquidation activities and funding. We also plan to monitor these
issues as a part of our audits of FDIC's 1999 financial
statements.
David M. Walker Comptroller General
of the United States May 14, 1999
Page 20 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Bank Insurance Fund's Financial Statements
Statements of Financial Position
Bank Insurance Fund Federal Deposit Insurance Corporation Bank
Insurance Fund Statements of Financial Position at December 31
Dollars in Thousands
Assets
Cash and cash equivalents $ 2,117,644 $ 219,207 Investment in U.
S. Treasury obligations, net (Note 3) 26,125,695 26,598,825
Interest receivable on investments and other assets, net 690,586
472,818 Receivables from bank resolutions, net (Note 4) 747,948
1,109,035 Assets acquired from assisted banks and terminated
receiverships, net (Note 5) 27,373 60,724 Property and equipment,
net (Note 6) 209,615 145,061
Total Assets $ 29,918,861 $ 28,605,670 Liabilities
Accounts payable and other liabilities $ 229,984 $ 228,955
Estimated liabilities for: ( Note 7)
Anticipated failure of insured institutions 32,000 11,000
Assistance agreements 15,125 31,952 Litigation losses 22,301
13,500 Asset securitization guarantees 7,141 27,715
Total Liabilities 306,551 313,122 Fund Balance
Accumulated net income 29,601,395 28,292,672 Unrealized gain/(
loss) on available- for- sale securities, net (Note 3) 10,915
(124)
Total Fund Balance 29,612,310 28,292,548 Total Liabilities and
Fund Balance $ 29,918,861 $ 28,605,670
The accompanying notes are an integral part of these financial
statements. (Market value of investments at December 31, 1998 and
December 31, 1997 was $27.5 billion and
$27.1 billion, respectively) Commitments and off- balance- sheet
exposure (Note 12)
1998 1997
Bank Insurance Fund's Financial Statements Page 21 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Statements of Income and Fund Balance Bank Insurance Fund
Federal Deposit Insurance Corporation Bank Insurance Fund
Statements of Income and Fund Balance for the Years Ended December
31
Dollars in Thousands
Revenue
Interest on U. S. Treasury obligations $ 1,674,344 $ 1,519,276
Interest on advances and subrogated claims 67,350 22,073 Gain on
conversion of benefit plan (Note 11) 200,532 0 Revenue from assets
acquired from assisted banks and terminated receiverships 20,926
38,000 Assessments (Note 8) 21,688 24,711 Other revenue 15,422
11,558
Total Revenue 2,000,262 1,615,618 Expenses and Losses
Operating expenses 697,604 605,214 (37,699) (495,296) Expenses for
assets acquired from assisted banks and terminated receiverships
29,803 65,901 Interest and other insurance expenses 1,831 1,506
Total Expenses and Losses 691,539 177,325 Net Income 1,308,723
1,438,293
Unrealized gain/( loss) on available- for- sale securities, net
(Note 3) 11,039 (124)
Comprehensive Income 1,319,762 1,438,169 Fund Balance - Beginning
28,292,548 26,854,379 Fund Balance - Ending $ 29,612,310 $
28,292,548
The accompanying notes are an integral part of these financial
statements.
1997
Provision for insurance losses (Note 9)
1998
Bank Insurance Fund's Financial Statements Page 22 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Statements of Cash Flows Bank Insurance Fund
Federal Deposit Insurance Corporation Bank Insurance Fund
Statements of Cash Flows for the Years Ended December 31
Dollars in Thousands
Cash Flows From Operating Activities Cash provided from:
Interest on U. S. Treasury obligations $ 1,788,937 $ 1,480,060
Recoveries from bank resolutions 881,802 3,826,273 Recoveries from
assets acquired from assisted banks and terminated receiverships
54,207 141,765 Assessments 22,931 22,201 Miscellaneous receipts
27,990 24,951
Cash used for:
Operating expenses (711,020) (580,515) Disbursements for bank
resolutions (420,691) (298,943) Disbursements for assets acquired
from assisted banks and terminated receiverships (37,391) (67,231)
Miscellaneous disbursements (7,959) (11,771)
Net Cash Provided by Operating Activities (Note 14) 1,598,806
4,536,790 Cash Flows From Investing Activities Cash provided from:
Maturity and sale of U. S. Treasury obligations, held- to-
maturity 5,850,000 6,300,000 Maturity and sale of U. S. Treasury
obligations, available- for- sale 185,456 0
Cash used for:
Purchase of property and equipment (51,058) 0 Purchase of U. S.
Treasury obligations, held- to- maturity (4,478,337) (10,373,695)
Purchase of U. S. Treasury obligations, available- for- sale
(1,206,430) (502,020)
Net Cash Provided From (Used by) Investing Activities 299,631
(4,575,715) Net Increase (Decrease) in Cash and Cash Equivalents
1,898,437 (38,925) Cash and Cash Equivalents - Beginning 219,207
258,132 Cash and Cash Equivalents - Ending $ 2,117,644 $ 219,207
The accompanying notes are an integral part of these financial
statements.
1998 1997
Bank Insurance Fund's Financial Statements Page 23 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Notes to Financial Statements
Notes to the Financial Statements Bank Insurance Fund December 31,
1998 and 1997
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 depositors in operating banks and thrift
institutions 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. 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 Oakars or Oakar banks. 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 Sassers. 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 HOLAs or HOLA thrifts.
Other Significant Legislation
The Competitive Equality Banking Act of 1987 established the
Financing Corporation (FICO) as a mixed- ownership government
corporation whose sole purpose was to function as a financing
vehicle for the FSLIC.
Bank Insurance Fund's Financial Statements Page 24 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and
the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) made changes to the FDIC's assessment authority (see Note
8) and borrowing authority. The FDICIA also requires the FDIC to:
1) resolve troubled institutions in a manner that will result in
the least possible cost to the deposit insurance funds and 2)
maintain the insurance funds at 1.25 percent of insured deposits
or a higher percentage as circumstances warrant.
The Deposit Insurance Funds Act of 1996 (DIFA) was enacted to
provide for: 1) the capitalization of the SAIF to its designated
reserve ratio (DRR) of 1. 25 percent by means of a one- time
special assessment on SAIF- insured deposits; 2) the expansion of
the assessment base for payments of the interest on obligations
issued by the FICO to include all FDIC- insured banks and thrifts;
3) beginning January 1, 1997, the imposition of a FICO assessment
rate on BIF- assessable deposits that is one- fifth of the rate
for SAIF- assessable deposits through the earlier of December
31,1999, or the date on which the last savings association ceases
to exist; 4) the payment of the annual FICO interest obligation of
approximately $790 million on a pro rata basis between banks and
thrifts on the earlier of January 1, 2000, or the date on which
the last savings association ceases to exist; 5) authorization of
BIF assessments only if needed to maintain the fund at the DRR; 6)
the refund of amounts in the BIF in excess of the DRR with such
refund not to exceed the previous semiannual assessment; and 7)
the merger of the BIF and the SAIF on January 1, 1999, if no
insured depository institution is a savings association on that
date. Subsequently, Congress did not enact legislation during 1998
to either merge the BIF and the SAIF or to eliminate the thrift
charter.
Recent Legislative Initiatives
Congress continues to focus on legislative proposals to achieve
modernization of the financial services industry. Some of these
proposals, if enacted into law, may have a significant impact on
the BIF and/ or the SAIF. However, these proposals continue to
vary and FDIC management 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 banks and 2) resolve failed
banks, including managing and liquidating 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 FDIC also provides assistance to troubled banks and
monitors compliance with the assistance agreements.
The BIF is primarily funded from the following sources: 1)
interest earned on investments in U. S. Treasury obligations and
2) BIF assessment premiums.
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 working capital from
the FFB on behalf of the BIF and the SAIF. The FDICIA increased
the FDIC's authority to borrow for insurance losses from the U. S.
Treasury, on behalf of the BIF and the SAIF, from $5 billion to
$30 billion. The FDICIA also established a limitation on
obligations that can be incurred by the BIF, known as the maximum
obligation limitation (MOL). At December 31, 1998, the MOL for the
BIF was $51.7 billion.
The VA, HUD and Independent Agencies Appropriations Acts of 1999
and 1998 appropriated $34.7 million for fiscal year 1999 (October
1, 1998, through September 30, 1999) and $34 million for
Bank Insurance Fund's Financial Statements Page 25 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
fiscal year 1998 (October 1, 1997, through September 30, 1998),
respectively, for operating expenses incurred by the Office of
Inspector General (OIG). These Acts mandate that the funds are to
be derived from the BIF, the SAIF, and the FRF.
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 accordance with 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 or
liquidating agent. Periodic and final accountability reports of
the FDIC's activities as receiver or liquidating agent are
furnished to courts, supervisory authorities, and others as
required.
Use of Estimates
FDIC management makes estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates. Where it
is reasonably possible that changes in estimates will cause a
material change in the financial statements in the near term, the
nature and extent of such changes in estimates have been
disclosed.
Cash Equivalents
Cash equivalents are short- term, highly liquid investments with
original maturities of three months or less. Cash equivalents
primarily consist of Special U. S. Treasury Certificates.
Investments in U. S. Treasury Obligations
Investments in U. S. Treasury obligations are recorded pursuant to
the provisions of the Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. SFAS No. 115 requires that securities be
classified in one of three categories: held- to- maturity,
available- for- sale, or trading. Securities designated as held-
to- maturity are intended to be held to maturity and 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. Beginning in 1997, the BIF
designated a portion of its securities as available- for- sale.
These securities are shown at fair value with unrealized gains and
losses included in the fund balance. Realized gains and losses are
included in other revenue when applicable. Interest on both types
of securities is calculated on a daily basis and recorded monthly
using the effective interest method. The BIF does not have any
securities classified as trading.
Allowance for Losses on Receivables From Bank Resolutions and
Assets Acquired From Assisted Banks and Terminated Receiverships
The BIF records a receivable for the amounts advanced and/ or
obligations incurred for resolving troubled and failed banks. The
BIF also records as an asset the amounts paid for assets acquired
from assisted banks and terminated receiverships. Any related
allowance for loss represents the difference between the funds
advanced and/ or obligations incurred and the expected repayment.
The latter is based on estimates of discounted cash recoveries
from the assets of assisted or failed banks, net of all estimated
liquidation costs.
Bank Insurance Fund's Financial Statements Page 26 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Receivership Operations
The FDIC is responsible for managing and disposing of the assets
of failed institutions in an orderly and efficient manner. The
assets, and the claims against them, are accounted for separately
to ensure that liquidation proceeds are distributed in accordance
with applicable laws and regulations. Also, the income and
expenses attributable to receiverships are accounted for as
transactions of those receiverships. Liquidation expenses incurred
by the BIF on behalf of the receiverships are recovered from those
receiverships.
Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated
to all funds administered by the FDIC. Workload- based- allocation
percentages are developed during the annual corporate planning
process and through supplemental functional analyses.
Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and
administration of postretirement benefits on behalf of the BIF,
the SAIF, and the FRF. Each fund pays its liabilities for these
benefits directly to the entity. The BIF's unfunded net
postretirement benefits liability for the plan is presented in the
BIF's Statements of Financial Position.
Disclosure About Recent Accounting Standard Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, Employers' Disclosures about Pension and
Other Postretirement Benefits. The Statement standardizes the
disclosure requirements for pensions and other postretirement
benefits to the extent practicable. Although changes in the BIF's
disclosures for postretirement benefits have been made, the impact
is not material.
In June 1998, the FASB also issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Statement
requires that all derivatives be recognized either as assets or
liabilities in the statements of financial position and to measure
those instruments at fair value. Based upon analysis, derivative
instruments of the BIF are immaterial to the financial statements.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98- 1, Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use. This Statement requires the development or purchase
cost of internal- use software to be treated as a capital asset.
The FDIC adopted this Statement effective January 1, 1998. This
asset is presented in the Property and equipment, net line item in
the BIF's Statements of Financial Position (see Note 6).
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. The FDIC adopted SFAS No. 130 effective on
January 1, 1997. Comprehensive income includes net income as well
as certain types of unrealized gain or loss. The only component of
SFAS No. 130 that impacts the BIF is unrealized gain or loss on
securities classified as available- for- sale, which is presented
in the BIF's Statements of Financial Position and the Statements
of Income and Fund Balance.
Other recent pronouncements are not applicable to the financial
statements.
Bank Insurance Fund's Financial Statements Page 27 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
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
rental and service fees representing an allocated share of its
annual depreciation expense.
Prior to January 1, 1998, only buildings owned by the Corporation
were depreciated. On January 1, 1998, FDIC began capitalizing the
development and purchase cost of internal- use software in
accordance with the requirements of SOP 98- 1. The FDIC also began
to capitalize the cost of furniture, fixtures, and general
equipment. These costs were expensed in prior years on the basis
that the costs were immaterial. The expanded capitalization policy
had no material impact on the financial position or operation of
the BIF.
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 will be
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 disclosed throughout the financial statements and
footnotes.
Reclassifications
Reclassifications have been made in the 1997 financial statements
to conform to the presentation used in 1998.
3. Investment in U. S. Treasury Obligations, Net
Cash received by the BIF is invested in U. S. Treasury obligations
with maturities exceeding three months unless cash is needed to
meet the liquidity needs of the fund. The BIF's current portfolio
includes securities classified as held- to- maturity and
available- for- sale. The BIF also invests in Special U. S.
Treasury Certificates that are included in the Cash and cash
equivalents line item.
For 1998, the gross realized gain on securities classified as
available- for- sale was $224 thousand. The gain is included in
the Other revenue line item. Proceeds from the sale were $186
million. The cost of the securities sold was determined on a
specific identification basis. There were no sales in 1997.
Bank Insurance Fund's Financial Statements Page 28 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
U. S. Treasury Obligations at December 31, 1998
Dollars in Thousands
Unrealized Unrealized Yield at Face Amortized Holding Holding
Market Maturity Purchase Value Cost Gains Losses Value
1- 3 years 6. 04% 5,525,000 5,564,524 148,112 0 5, 712,636 3- 5
years 6. 19% 5,965,000 6,345,044 322,126 0 6, 667,170 5- 10 years
6. 01% 10,295,000 10,566,047 864,116 0 11,430,163
Total $ 23,905,000 $ 24,609,063 $ 1, 344,951 $ 0 $ 25,954,014 1- 3
years 5. 63% 550,000 558,991 5,968 0 564,959 Total $ 1,490,000 $
1, 505,717 $ 10,915 $ 0 $ 1, 516,632
Total $ 25,395,000 $ 26,114,780 $ 1, 355,866 $ 0 $ 27,470,646 U.
S. Treasury Obligations at December 31, 1997
Dollars in Thousands
Unrealized Unrealized Yield at Face Amortized Holding Holding
Market Maturity Purchase Value Cost Gains Losses Value
1- 3 years 5. 83% 5,280,000 5,330,281 26,113 (7,413) 5,348,983 3-
5 years 6. 15% 5,490,000 5,685,279 89,744 (6,895) 5,768,128 5- 10
years 6. 57% 9,500,000 9,840,712 439,733 0 10,280,445
Total $ 25,520,000 $ 26,096,929 $ 560,959 $ (19,958) $ 26,637,931
1- 3 years 5. 67% 490,000 502,020 19 (143) 501,896
Total $ 26,010,000 $ 26,598,949 $ 560,978 $ (20,101) $ 27,139,827
0 $ 951,673 5.09% $ 940,000 $ 946,726 $ 4, 947 Less than one year
$
Total Investment in U. S. Treasury Obligations, Net Held- to-
Maturity
Less than one year 5.58% $ 5, 250,000 $ 5, 240,657 $ 5, 240,375
Available- for- Sale Total Investment in U. S. Treasury
Obligations, Net
$ 5, 369 $ (5,650)
Held- to- Maturity Available- for- Sale
$ 0 $ 2, 144,045 $ 2, 133,448 $ 10,597 Less than one year 5.57% $
2, 120,000 In 1998, the unamortized premium, net of unamortized
discount, was $720 million. In 1997, the unamortized premium, net
of the unamortized discount, was $589 million.
Bank Insurance Fund's Financial Statements Page 29 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
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 three bank failures
in 1998 and one in 1997, with assets of $370 and $26 million,
respectively.
As of December 31, 1998 and 1997, the FDIC, in its receivership
capacity for BIF- insured institutions, held assets with a book
value of $1. 6 billion and $2. 5 billion, respectively (including
cash and miscellaneous receivables of $480 million and $1 billion
at December 31, 1998 and 1997, respectively). These assets
represent a significant source of repayment of the BIF's
receivables from bank resolutions. 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. The sample was
constructed to produce a statistically valid result. These
estimated recoveries are regularly evaluated, but remain subject
to uncertainties because of potential changes in economic
conditions. These factors 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
1998 1997
Assets from open bank assistance $ 112, 045 $ 140, 035 Allowance
for losses (10,727) (38,497)
Net Assets From Open Bank Assistance 101, 318 101, 538
Receivables from closed banks 18,656, 746 23,268, 950 Allowance
for losses (18,010,116) (22,261,453)
Net Receivables From Closed Banks 646, 630 1, 007,497 Total $ 747,
948 $ 1, 109,035
5. Assets Acquired From Assisted Banks and Terminated
Receiverships, Net
The BIF has acquired assets from certain troubled and failed banks
by either purchasing an institution's assets outright or
purchasing the assets under the terms specified in each resolution
agreement. In addition, the BIF can purchase assets remaining in a
receivership to facilitate termination. The methodology to
estimate cash recoveries from these assets, which are used to
derive the related allowance for losses, is the same as that for
receivables from bank resolutions (see Note 4).
The BIF recognizes revenue and expenses on these acquired assets.
Revenue consists primarily of interest earned on performing
mortgages and commercial loans. Expenses are recognized for the
management and liquidation of these assets.
Bank Insurance Fund's Financial Statements Page 30 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Assets Acquired From Assisted Banks and Terminated Receiverships,
Net at December 31
Dollars in Thousands
1998 1997
Assets acquired from assisted banks and terminated receiverships $
169,712 $ 256,237 Allowance for losses (142,339) (195, 513)
Total $ 27, 373 $ 60,724 6. Property and Equipment, Net Property
and Equipment, Net at December 31
Dollars in Thousands
1998 1997
Land $ 29,631 $ 29,631 Buildings 152,078 151,443 PC/ LAN/ WAN
equipment 15,612 0 Application software 1,892 0 Mainframe
equipment 354 0 Furniture, fixtures, and general equipment 764 0
Telephone equipment 460 0 Work in Progress - Application Software
49,630 0 Accumulated depreciation (40,806) (36,013)
Total $ 209,615 $ 145,061 7. Estimated Liabilities for:
Anticipated Failure of Insured Institutions
The BIF records an estimated liability and a loss provision for
banks (including Oakar and Sasser financial institutions) that are
likely to fail, absent some favorable event such as obtaining
additional capital or merging, when the liability becomes probable
and reasonably estimable.
The estimated liabilities for anticipated failure of insured
institutions as of December 31, 1998 and 1997, were $32 million
and $11 million, respectively. The estimated liability is derived
in part from estimates of recoveries from the management and
disposition of the assets of these probable bank failures.
Therefore, they are subject to the same uncertainties as those
affecting the BIF's receivables from bank resolutions (see Note
4). This could affect the ultimate costs to the BIF from probable
failures.
There are other banks where the risk of failure is less certain,
but still considered reasonably possible. Should these banks fail,
the BIF could incur additional estimated losses of about $204
million.
The accuracy of these estimates will largely depend on future
economic conditions. The FDIC's Board of Directors (Board) has the
statutory authority to consider the estimated liability from
anticipated failures of insured institutions when setting
assessment rates.
Bank Insurance Fund's Financial Statements Page 31 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Year 2000 Anticipated Failures
The BIF is also subject to a potential loss from banks that may
fail if they are unable to become Year 2000 compliant in a timely
manner. In May 1997, the federal financial institution regulatory
agencies developed a program to conduct uniform reviews of all
FDIC- insured institutions' Year 2000 readiness. The program
assesses the five key phases of an institution's Year 2000
conversion efforts: 1) awareness, 2) assessment, 3) renovation, 4)
validation, and 5) implementation. The reviews classify each
institution as Satisfactory, Needs Improvement, or Unsatisfactory.
Satisfactory: Year 2000 efforts of financial institutions and
independent data centers are considered Satisfactory if they
exhibit acceptable performance in all key phases of the Year 2000
project management process as set forth in the May 5, 1997,
Federal Financial Institutions Examination Council (FFIEC)
Interagency Statement on the Year 2000 and subsequent guidance
documents. Performance is satisfactory when project weaknesses are
minor in nature and can be readily corrected within the existing
project management framework. The institution's remediation
progress to date meets or nearly meets expectations laid out in
its Year 2000 project plan. Senior management and the board
recognize and understand Year 2000 risk, are active in overseeing
institutional corrective efforts, and have ensured that the
necessary resources are available to address this risk area.
Needs Improvement: Year 2000 efforts of financial institutions and
independent data centers are evaluated as Needs Improvement if
they exhibit less than acceptable performance in all key phases of
the Year 2000 project management process. Project weaknesses are
evident, even if deficiencies are correctable within the existing
project management framework. The institution's remediation
progress to date is behind the schedule laid out in its Year 2000
project plan. Senior management or the board is not fully aware of
the status of Year 2000 correction efforts, may not have committed
sufficient financial or human resources to address this risk, or
may not fully understand Year 2000 implications.
Unsatisfactory: Year 2000 efforts of financial institutions and
independent data centers are considered Unsatisfactory if they
exhibit poor performance in any of the key phases of the Year 2000
project management process. Project weaknesses are serious in
nature and are not easily corrected within the existing project
management framework. The institution's remediation progress is
seriously behind the schedule laid out in its Year 2000 project
plan. Senior management and the board do not understand or
recognize the impact that the Year 2000 will have on the
institution. Management or the board commitment is limited or
their oversight activities are not evident.
Based on data updated through April 30, 1999, 10, 159 institutions
with $6.4 trillion in assets have received a Satisfactory rating,
216 institutions with $80 billion in assets a Needs Improvement
rating, and 21 institutions with $1 billion in assets an
Unsatisfactory rating (data includes BIF- and SAIF- insured
institutions). Although the initial results of the uniform reviews
are encouraging, the Year 2000 issue is unprecedented. Therefore,
it is difficult to determine which institutions, if any, will
ultimately fail. Further, estimates of the cost of resolving Year
2000 failures are complicated by the uncertain nature of
technological disruptions and the associated impact on the BIF, if
any. Failures caused solely by liquidity problems would pose
substantially less exposure to the BIF. Year 2000 failures could
conceivably be such liquidity failures. The possibility that any
such failure would occur is quite speculative in view of actions
taken by the Federal Reserve Board to ensure sufficient liquidity
and currency to meet the cash needs of insured banks.
Bank Insurance Fund's Financial Statements Page 32 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Failures could occur because of the familiar capital insolvency
(liabilities exceeding assets) if a substantial number of bank
borrowers were unable to repay loans due to their own lack of
preparedness for the Year 2000. Insured banks are required to be
aware of the measures taken by key customers to protect themselves
against adverse impact from the advent of Year 2000, and
compliance with such requirements is monitored via the regulatory
examination program. The extent to which insured institutions, if
any, ultimately experience this type of failure is not measurable.
Financial institutions are required to design a Year 2000
contingency plan to mitigate the risks associated with the failure
of systems at critical dates (Business Resumption Contingency
Planning). A business resumption contingency plan is designed to
provide assurance that core business functions will continue if
one or more systems fail.
In order to assess exposure to the BIF from Year 2000 potential
failures, the FDIC evaluated all information relevant to such an
assessment, to include Year 2000 on- site examination results,
institution capital levels and supervisory examination composite
ratings, and other institution past and current financial
characteristics. As a result of this assessment, we conclude that,
as of December 31, 1998, there are no probable losses to the BIF
from Year 2000 failures. Further, any reasonably possible losses
from Year 2000 failures were not estimable. During the remainder
of 1999, the regulatory agencies will continue their Year 2000
reviews and the FDIC will continue to assess this potential
liability.
Assistance Agreements
The estimated liabilities for assistance agreements resulted from
several large transactions where problem assets were purchased by
an acquiring institution under an agreement that calls for the
FDIC to absorb credit losses and pay related costs for funding and
asset administration, plus an incentive fee.
Litigation Losses
The BIF 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 $178 million are reasonably possible.
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. At December 31, 1998 and
1997, the BIF had an estimated liability under the guarantees of
$7 million and $28 million, respectively. The maximum off-
balance- sheet exposure under the limited guarantees is presented
in Note 12.
8. 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
Bank Insurance Fund's Financial Statements Page 33 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
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 1.25 percent of 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. In May 1995, the BIF reached the FDICIA
mandated capitalization level of 1.25 percent of insured deposits.
The DIFA (see Note 1) 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 FICO to include all FDICinsured institutions (including
banks, thrifts, and Oakar and Sasser financial institutions). On
January 1, 1997, BIF- insured banks began paying a FICO
assessment. The FICO assessment rate on BIF- assessable deposits
is one- fifth the rate for SAIF- assessable deposits. The annual
FICO interest obligation of approximately $790 million will be
paid on a pro rata basis between banks and thrifts on the earlier
of January 1, 2000, or the date on which the last savings
association ceases to exist.
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 1998 and 1997, $341 million
and $338 million respectively, were collected from banks and
remitted to the FICO.
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 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 Board reviews premium rates
semiannually. The assessment rate averaged approximately 0.08
cents per $100 of assessable deposits for 1998 and 1997. On
October 27, 1998, the Board voted to retain the BIF assessment
schedule of 0 to 27 cents per $100 of assessable deposits (annual
rates) for the first semiannual period of 1999.
9. Provision for Insurance Losses
Provision for insurance losses was a negative $38 million and a
negative $495 million for 1998 and 1997, respectively. In 1998 and
1997, the negative provision resulted primarily from decreased
losses expected for assets in liquidation. The following chart
lists the major components of the negative provision for insurance
losses.
Bank Insurance Fund's Financial Statements Page 34 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Provision for Insurance Losses for the Years Ended December 31
Dollars in Thousands
1998 1997 Valuation adjustments:
Open bank assistance $ (2, 431) $ (12,180) Closed banks (53,926)
(356,347) Assets acquired from assisted banks and terminated
receiverships 2,222 (47,245)
Total (54,135) (415,772) Contingencies:
Anticipated failure of insured institutions 29,000 (59,000)
Assistance agreements (8, 322) (12,716) Asset securitization
guarantees (13,043) (6, 558) Litigation 8,801 (1, 250)
Total 16,436 (79,524) Reduction in Provision for Insurance Losses
$ (37,699) $ (495,296)
10. Pension Benefits, Savings Plans, and Accrued Annual Leave
Eligible FDIC employees (all permanent and temporary employees
with appointments exceeding one year) are covered by either the
Civil Service Retirement System (CSRS) or the Federal Employee
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.
During 1998, there was an open season that allowed employees to
switch from CSRS to FERS. This did not have a material impact on
BIF's operating expenses.
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 (OPM).
Eligible FDIC employees also may participate in a FDIC- sponsored
tax- deferred savings plan with matching contributions. The BIF
pays its share of the employer's portion of all related costs.
The BIF's pro rata share of the Corporation's liability to
employees for accrued annual leave is approximately $38.4 million
and $35.7 million at December 31, 1998 and 1997, respectively.
Bank Insurance Fund's Financial Statements Page 35 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Pension Benefits a nd Savings Plans Expenses for the Years Ended
December 31
Dollars in Thousands
1998 1997
CSRS/ FERS Disability Fund $ 1, 166 $ 488 Civil Service Retirement
System 10, 477 8, 708 Federal Employee Retirement System (Basic B
enefit) 27, 857 28, 661 FDIC Savings Plan 17,534 16,974 Federal
Thrift Savings P lan 10,991 10,568
Total $ 68,025 $ 65,399 11. Postretirement Benefits Other Than
Pensions
On January 2, 1998, BIF's obligation under SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions, for postretirement health benefits was reduced when over
6,500 employees enrolled in the Federal Employees Health Benefits
(FEHB) Program for their future health insurance coverage. The OPM
assumed the BIF's obligation for postretirement health benefits
for these employees at no initial enrollment cost.
In addition, legislation was passed that allowed the remaining
2,600 retirees and near- retirees (employees within five years of
retirement) in the FDIC health plan to also enroll in the FEHB
Program for their future health insurance coverage, beginning
January 1, 1999. The OPM assumed the BIF's obligation for
postretirement health benefits for retirees and near retirees for
a fee of $150 million. The OPM is now responsible for
postretirement health benefits for all employees and covered
retirees. The FDIC will continue to be obligated for dental and
life insurance coverage for as long as the programs are offered
and coverage is extended to retirees.
OPM's assumption of the health care obligation constitutes both a
settlement and a curtailment as defined by SFAS No. 106. This
conversion resulted in a gain of $201 million to the BIF.
Bank Insurance Fund's Financial Statements Page 36 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Postretirement Benefits Other Than Pensions
Dollars in Thousands
1998 1997 Funded Status at December 31
Fair value of plan assets (a) $ 67, 539 $ 356, 447 Less: Benefit
obligation 67, 539 378, 227
Under/( Over) Funded Status of the plans $ 0 $ 21, 780
Accrued benefit liability recognized in the Statements of
Financial Position $ 0 $ 39, 231
Expenses and Cash Flows for the Period Ended December 31
Net periodic benefit cost $ (1, 942) $ 3,305 Employer
contributions 6,299 4, 064 Benefits paid 6,299 4, 064
Weighted- Average Assumptions at December 31
Discount rate 4. 50% 5. 75% Expected return on plan assets 4.50%
5. 75% Rate of compensation increase 4. 00% 4.00%
(a) Invested in U. S. Treasury obligations.
For measurement purposes, the per capita cost of covered health
care benefits was assumed to increase by an annual rate of 8.75
percent for 1998. Further, the rate was assumed to decrease
gradually each year to a rate of 7.75 percent for the year 2000
and remain at that level thereafter.
12. Commitments and Off- Balance- Sheet Exposure Commitments
Leases
The BIF's allocated share of the FDIC's lease commitments totals
$177.2 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 FRF, and the SAIF. 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 $47.7 million and $43.6 million for the
years ended December 31, 1998 and 1997, respectively.
Lease Commitments
Dollars in Thousands
1999 2000 2001 2002 2003 2004 and Thereafter
$39,287 $34,699 $27,905 $24,423 $15,096 $35,765
Bank Insurance Fund's Financial Statements Page 37 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Asset Securitization Guarantees
As discussed in Note 7, the BIF provided certain limited
guarantees to facilitate securitization transactions. The table
below gives the maximum off- balance- sheet exposure the BIF has
under these guarantees.
Asset Securitization Guarantees at December 31
Dollars in Thousands
1998 1997
Maximum exposure under the limited guarantees $ 481,313 $ 481,313
Less: Guarantee claims paid (inception- to- date) (27, 253)
(19,231) Less: Amount of exposure recognized as an estimated
liability (see Note 7) (7, 141) (27,715)
Maximum Off- Balance- Sheet Exposure Under the Limited Guarantees
$ 446,919 $ 434,367
Concentration of Credit Risk
As of December 31, 1998, the BIF had $18.8 billion in gross
receivables from bank resolutions and $170 million in assets
acquired from assisted banks and terminated receiverships. An
allowance for loss of $18 billion and $142 million, respectively,
has been recorded against these assets. The liquidating entities'
ability to make repayments to the BIF is largely influenced by the
economy of the area in which they are located. The BIF's maximum
exposure to possible accounting loss for these assets is shown in
the table below.
Concentration of Credit Risk at December 31, 1998
Dollars in Millions
Southeast Southwest Northeast Midwest Central West Total
$9 $35 $575 $11 $2 $116 $748 0 21 5 0 0 1 27
Total $9 $56 $580 $11 $2 $117 $775
Receivables from bank resolutions, net Assets acquired from
assisted banks and terminated receiverships, net
Other Off- Balance- Sheet Risk
Deposit Insurance
As of December 31, 1998, deposits insured by the BIF totaled
approximately $2.1 trillion. This would be the accounting loss if
all depository institutions were to fail and the acquired assets
provided no recoveries.
13. 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. This is due to their short maturities or comparisons
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
Bank Insurance Fund's Financial Statements Page 38 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
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.
The majority of the net assets acquired from assisted banks and
terminated receiverships (except real estate) is comprised of
various types of financial instruments, including investments,
loans and accounts receivables. Like receivership assets, assets
acquired from assisted banks and terminated receiverships are
valued using discount rates that include consideration of market
risk. However, assets acquired from assisted banks and terminated
receiverships do not involve the unique aspects of the corporate
subrogated claim, and therefore the discounting can be viewed as
producing a reasonable estimate of fair market value.
Bank Insurance Fund's Financial Statements Page 39 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
14. 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 inThousands
1998 1997 Net Income $ 1,308, 723 $ 1, 438, 293
Income Statement Items:
Provision for insurance losses (37, 699) (495, 296) Amortization
of U. S. Treasury obligations 133,705 60, 261 Gain on sale of
investments (224) 0 Gain on conversion of benefit plan (200, 532)
0 Depreciation on property and equipment 3,745 3,339
Change in Assets and Liabilities:
(Increase) in interest receivable on investments and other assets
(39, 983) (87, 996) Decrease in receivables from bank resolutions
417,444 3,600, 647
Decrease in assets acquired from assisted banks and terminated
receiverships 31, 129 60, 693 Increase (Decrease) in accounts
payable and other liabilities 6, 534 (21,997) (Decrease) in
estimated liabilities for anticipated failure of insured
institutions (8, 000) (5, 000) (Decrease) in estimated liabilities
for assistance agreements (8, 505) (6, 147) (Decrease) in
estimated liabilities for asset securitization guarantees (7, 531)
(10, 007)
Net Cash Provided by Operating Activities $ 1, 598, 806 $ 4, 536,
790 Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
15. Year 2000 Issues State of Readiness
The FDIC, as administrator for the BIF, is conducting a corporate-
wide effort to ensure that all FDIC information systems are Year
2000 compliant. This means the systems must accurately process
date and time data in calculations, comparisons, and sequences
after December 31, 1999, and be able to correctly deal with leap-
year calculations in 2000. The Year 2000 Oversight Committee is
comprised of FDIC division management that oversees the Year 2000
effort.
The FDIC's Division of Information Resources Management (DIRM)
leads the internal Year 2000 effort, under the direction of the
Oversight Committee. DIRM used a five- phase approach for ensuring
that all FDIC systems and software are Year 2000 compliant. The
five phases are:
Awareness
The first phase of compliance focuses on defining the Year 2000
problem and gaining executivelevel support and sponsorship for the
effort.
Assessment
The second phase of compliance focuses on assessing the Year 2000
impact on the Corporation as a whole.
Bank Insurance Fund's Financial Statements Page 40 GAO/AIMD-99-202
FDIC's 1998 and 1997 Financial Statements
Renovation
The third phase of compliance focuses on converting, replacing or
eliminating selected platforms, applications, databases, and
utilities, while modifying interfaces as appropriate.
Platform is a broad term that encompasses computer hardware
(including mainframe computers, servers, and personal computers)
and software (including computer languages and operating systems).
Utility programs, or utilities, provide file management
capabilities, such as sorting, copying, comparing, listing and
searching, as well as diagnostic and measurement routines that
check the health and performance of the system.
Validation
The fourth phase of compliance focuses on testing, verifying and
validating converted or replaced platforms, applications,
databases, and utilities.
Implementation
The fifth phase of compliance focuses on implementing converted or
replaced platforms, applications, databases, utilities, and
interfaces.
The Awareness, Assessment, and Renovation phases are complete. The
Validation phase is scheduled to be completed during January 1999
when all production applications will be validated for Year 2000
readiness. Implementation of the majority of production
applications in Year 2000 ready status will be completed by March
31, 1999. Validation and implementation of new systems and
modifications to existing systems will continue throughout 1999.
Year 2000 Estimated Costs
Year 2000 compliance expenses for the BIF are estimated at $34.7
million and $1.6 million at December 31, 1998 and 1997,
respectively. These expenses are reflected in the Operating
expenses line item of the BIF's Statements of Income and Fund
Balance. Future expenses are estimated to be $49 million. Year
2000 estimated future costs are included in the FDIC's budget.
Risks of Year 2000 Issues
The FDIC's Division of Supervision has an ongoing aggressive
initiative to assess the BIF's supervised financial institutions
for Year 2000 compliance. Other BIF- insured institutions are
being assessed by their respective regulatory agencies. The BIF is
subject to a potential loss from financial institutions that may
fail as a result of Year 2000 related issues. Refer to Estimated
Liabilities for: Anticipated Failure of Insured Institutions Year
2000 Anticipated Failures (Note 7) for additional information.
No potential loss with internal system failure has been estimated
due to the extensive planning and validation that has occurred.
Contingency Plans
DIRM is currently developing a disaster recovery plan and
contingency plans specific to each mission- critical application.
Other divisions within the FDIC are working together to develop
contingency plans to be prepared if any FDIC- insured financial
institution fails as a result of lack of Year 2000 preparedness.
Page 41 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Savings Association Insurance Fund's Financial Statements
Statements of Financial Position
Savings Association Insurance Fund Federal Deposit Insurance
Corporation Savings Association Insurance Fund Statements of
Financial Position at December 31
Dollars in Thousands
Assets
Cash and cash equivalents $ 666,736 $ 141,392 Cash and other
assets: Restricted for SAIF- member exit fees (Note 3)
(Includes cash and cash equivalents of $55.248 thousand and
$48.752 thousand at December 31, 1998 and December 31, 1997,
respectively)
253,790 239,548 9,061,786 9,106,386 Interest receivable on
investments and other assets 140,699 122,678 Receivables from
thrift resolutions, net (Note 5) 8,857 5,176
Total Assets $ 10,131,868 $ 9,615,180 Liabilities
Accounts payable and other liabilities $ 7,247 $ 7,317 Estimated
liability for anticipated failure of insured institutions (Note 6)
31,000 0
SAIF- member exit fees and investment proceeds held in escrow
(Note 3) 253,790 239,548
Total Liabilities 292,037 246,865 Fund Balance
Accumulated net income 9,835,577 9,368,347
Unrealized gain/( loss) on available- for- sale securities, net
(Note 4) 4,254 (32)
Total Fund Balance 9,839,831 9,368,315 Total Liabilities and Fund
Balance $ 10,131,868 $ 9,615,180
The accompanying notes are an integral part of these financial
statements.
Investment in U. S. Treasury obligations, net (Note 4)
(Market value of investments at December 31, 1998 and December 31,
1997 was $9.4 billion and $9.2 billion, respectively)
Commitments and off- balance- sheet exposure (Note 10)
1998 1997
Savings Association Insurance Fund's Financial Statements Page 42
GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Statements of Income and Fund Balance
Savings Association Insurance Fund Federal Deposit Insurance
Corporation Savings Association Insurance Fund Statements of
Income and Fund Balance for the Years Ended December 31
Dollars in Thousands
Revenue
Interest on U. S. Treasury obligations $ 562,750 $ 535,463
Assessments (Note 7) 15,352 13,914 Gain on conversion of benefit
plan (Note 9) 5,464 0 Other revenue 293 535
Total Revenue 583,859 549,912 Expenses and Losses
Operating expenses 84,628 71,865 31,992 (1,879) Other insurance
expenses 9 0
Total Expenses and Losses 116,629 69,986 Net Income 467,230
479,926
Unrealized gain/( loss) on available- for- sale securities, net
(Note 4) 4,286 (32)
Comprehensive Income 471,516 479,894 Fund Balance - Beginning
9,368,315 8,888,421 Fund Balance - Ending $ 9,839,831 $ 9,368,315
The accompanying notes are an integral part of these financial
statements.
Provision for insurance losses
1997 1998
Savings Association Insurance Fund's Financial Statements Page 43
GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Statements of Cash Flows
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
Cash Flows From Operating Activities Cash provided from:
Interest on U. S. Treasury obligations $ 597,596 $ 544,094
Assessments 13,991 (146,766) Entrance and exit fees, including
interest on exit fees (Note 3) 10,306 13,596 Recoveries from
thrift resolutions 1,119 14,728 Miscellaneous receipts 67 (219)
Cash used for:
Operating expenses (85,248) (75,298) Disbursements for thrift
resolutions (5,732) (2,693) Disbursements for Oakar banks 318 0
Miscellaneous disbursements 0 (7)
Net Cash Provided by Operating Activities (Note 12) 532,417
347,435 Cash Flows From Investing Activities Cash provided from:
Maturity of U. S. Treasury obligations, held- to- maturity
1,840,000 1,740,000
Cash used for:
Purchase of U. S. Treasury obligations, held- to- maturity
(1,402,352) (2,133,119) Purchase of U. S. Treasury obligations,
available- for- sale (438,225) (152,125)
Net Cash Used by Investing Activities (577) (545,244) Net Increase
(Decrease) in Cash and Cash Equivalents 531,840 (197,809) Cash and
Cash Equivalents - Beginning 190,144 387,953 Cash and Cash
Equivalents - Ending $ 721,984 $ 190,144
The accompanying notes are an integral part of these financial
statements.
1998 1997
Savings Association Insurance Fund's Financial Statements Page 44
GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Notes to Financial Statements
Notes to the Financial Statements Savings Association Insurance
Fund December 31, 1998 and 1997
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 depositors in operating thrift institutions and
banks 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.
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 Oakars or Oakar banks. The
transactions specified in Section 5( d)( 3) can take place without
paying entrance and exit fees, under two principal conditions. One
condition is that although the acquiring institution continues to
belong to its own insurance fund (primary fund), the institution
becomes obliged to pay assessments to the fund that insured the
deposits of the acquired institution (secondary fund). The
secondary fund assessments are keyed to the amount of the
secondary fund deposits so acquired. The other condition is that
if the acquiring institution should fail, the losses resulting
from the failure are allocated between the two insurance funds
according to a formula that is likewise keyed to the amount of the
acquired secondary fund deposits. 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 Sassers. 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 HOLAs
or HOLA thrifts.
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Other Significant Legislation
The Competitive Equality Banking Act of 1987 established the
Financing Corporation (FICO) as a mixed- ownership government
corporation whose sole purpose was to function as a financing
vehicle for the FSLIC.
The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and
the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) made changes to the FDIC's assessment authority (see Note
7) and borrowing authority. The FDICIA also requires the FDIC to:
1) resolve troubled institutions in a manner that will result in
the least possible cost to the deposit insurance funds and 2)
maintain the insurance funds at 1.25 percent of insured deposits
or a higher percentage as circumstances warrant.
The Deposit Insurance Funds Act of 1996 (DIFA) was enacted to
provide for: 1) the capitalization of the SAIF to its designated
reserve ratio (DRR) of 1.25 percent by means of a one- time
special assessment on SAIF- insured deposits; 2) the expansion of
the assessment base for payments of the interest on obligations
issued by the FICO to include all FDIC- insured banks and thrifts;
3) beginning January 1, 1997, the imposition of a FICO assessment
rate for SAIFassessable deposits that is five times the rate for
BIF- assessable deposits through the earlier of December 31, 1999,
or the date on which the last savings association ceases to exist;
4) the payment of the annual FICO interest obligation of
approximately $790 million on a pro rata basis between banks and
thrifts on the earlier of January 1, 2000, or the date on which
the last savings association ceases to exist; 5) authorization of
SAIF assessments only if needed to maintain the fund at the DRR;
6) the refund of amounts in the SAIF in excess of the DRR with
such refund not to exceed the previous semiannual assessment; 7)
assessment rates for SAIF members not lower than the assessment
rates for BIF members with comparable risk; and 8) the merger of
the SAIF and the BIF on January 1, 1999, if no insured depository
institution is a savings association on that date. Subsequently,
Congress did not enact legislation during 1998 to either merge the
SAIF and the BIF or to eliminate the thrift charter.
Recent Legislative Initiatives
Congress continues to focus on legislative proposals to achieve
modernization of the financial services industry. Some of these
proposals, if enacted into law, may have a significant impact on
the SAIF and/ or the BIF. However, these proposals continue to
vary and FDIC management 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 SAIFinsured institutions and 2) resolve
failed SAIF- insured institutions including managing and
liquidating their assets. In this capacity, the SAIF has financial
responsibility for all SAIFinsured deposits held by SAIF- member
institutions and by BIF- member banks designated as Oakar banks.
The SAIF is primarily funded from the following sources: 1)
interest earned on investments in U. S. Treasury obligations and
2) SAIF assessment premiums. 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 working capital
from the FFB on behalf of the SAIF and the BIF. The FDICIA
increased the FDIC's authority to borrow for insurance losses from
the U. S. Treasury, on behalf of the SAIF and the BIF, from $5
billion to $30 billion. The FDICIA also established a limitation
on
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
obligations that can be incurred by the SAIF, known as the maximum
obligation limitation (MOL). At December 31, 1998, the MOL for the
SAIF was $17.3 billion.
The VA, HUD and Independent Agencies Appropriations Acts of 1999
and 1998 appropriated $34.7 million for fiscal year 1999 (October
1, 1998, through September 30, 1999) and $34 million for fiscal
year 1998 (October 1, 1997, through September 30, 1998),
respectively, for operating expenses incurred by the Office of
Inspector General (OIG). These Acts mandate that the funds are to
be derived from the SAIF, the BIF, and the FRF.
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 accordance with generally accepted accounting
principles (GAAP). These statements do not include reporting for
assets and liabilities of closed thrift institutions for which the
FDIC acts as receiver or liquidating agent. Periodic and final
accountability reports of the FDIC's activities as receiver or
liquidating agent are furnished to courts, supervisory
authorities, and others as required.
Use of Estimates
FDIC management makes estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates. Where it
is reasonably possible that changes in estimates will cause a
material change in the financial statements in the near term, the
nature and extent of such changes in estimates have been
disclosed.
Cash Equivalents
Cash equivalents are short- term, highly liquid investments with
original maturities of three months or less. Cash equivalents
primarily consist of Special U. S. Treasury Certificates.
Investments in U. S. Treasury Obligations
Investments in U. S. Treasury obligations are recorded pursuant to
the provisions of the Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. SFAS No. 115 requires that securities be
classified in one of three categories: held- to- maturity,
available- for- sale, or trading. Securities designated as held-
to- maturity are intended to be held to maturity and 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. Beginning in 1997, the SAIF
designated a portion of its securities as available- for- sale.
These securities are shown at fair value with unrealized gains and
losses included in the fund balance. Realized gains and losses are
included in other revenue when applicable. Interest on both types
of securities is calculated on a daily basis and recorded monthly
using the effective interest method. The SAIF does not have any
securities classified as trading.
Allowance for Losses on Receivables From Thrift Resolutions
The SAIF 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
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
is based on estimates of discounted cash recoveries from the
assets of assisted or failed thrifts, net of all estimated
liquidation costs.
Receivership Operations
The FDIC is responsible for managing and disposing of the assets
of failed institutions in an orderly and efficient manner. The
assets, and the claims against them, are accounted for separately
to ensure that liquidation proceeds are distributed in accordance
with applicable laws and regulations. Also, the income and
expenses attributable to receiverships are accounted for as
transactions of those receiverships. Liquidation expenses incurred
by the SAIF on behalf of the receiverships are recovered from
those receiverships.
Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated
to all funds administered by the FDIC. Workload- based- allocation
percentages are developed during the annual corporate planning
process and through supplemental functional analyses.
Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and
administration of postretirement benefits on behalf of the SAIF,
the BIF, and the FRF. Each fund pays its liabilities for these
benefits directly to the entity. The SAIF's unfunded net
postretirement benefits liability for the plan is presented in the
SAIF's Statements of Financial Position.
Disclosure About Recent Accounting Standards Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, Employers' Disclosures about Pension and
Other Postretirement Benefits. The Statement standardizes the
disclosure requirements for pensions and other postretirement
benefits to the extent practicable. Although changes in the SAIF's
disclosures for postretirement benefits have been made, the impact
is not material.
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. The FDIC adopted SFAS No. 130 effective on
January 1, 1997. Comprehensive income includes net income as well
as certain types of unrealized gain or loss. The only component of
SFAS No. 130 that impacts the SAIF is unrealized gain or loss on
securities classified as available- for- sale, which is presented
in the SAIF's Statements of Financial Position and the Statements
of Income and Fund Balance.
Other recent pronouncements are not applicable to the financial
statements.
Related Parties
The nature of related parties and a description of related party
transactions are disclosed throughout the financial statements and
footnotes.
Reclassifications
Reclassifications have been made in the 1997 financial statements
to conform to the presentation used in 1998.
3. Cash and Other Assets: Restricted for SAIF- Member Exit Fees
The SAIF receives 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
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
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 U. S. Treasury securities
pending determination of ownership. The interest earned is also
held in escrow. There were no conversion transactions during 1998
and 1997 that resulted in an exit fee to the SAIF.
Cash a nd O ther A ssets: R estr icted f or S AIF- M ember E xit F
ees a t Decem ber 3 1
Dollar s in T housands
1998 1997
Cash and cash eq uivalents $ 55, 2 48 $ 48, 7 52 Investmen ts in U
.S. T reasur y o b ligations, n et 193,350 185,390 Inte rest r
eceiv ab le o n U .S. T r easury o blig atio ns 4, 19 0 3, 98 1
Exit fees r eceivab le 1, 00 2 1, 42 5
To tal $ 253,790 $ 239,548 U. S. Treasury Obligations at December
31, 1998 (Restricted)
Dollars in Thousands
Unrealized Unrealized Yield at Face Amortized Holding Holding
Market Maturity Purchase Value Cost Gains Losses Value
1- 3 years 5. 52% $ 15, 000 $ 15, 359 $ 335 $ 0 $ 15, 694 3- 5
years 6. 12% 135,000 134, 722 6,550 0 141, 272 5- 10 years 5. 69%
40, 000 43, 269 2,156 0 45, 425
Total $ 190,000 $ 193,350 $ 9,041 $ 0 $ 202, 391 U. S. Treasury
Obligations at December 31, 1997 (Restricted) Dollars in Thousands
Unrealized Unrealized Yield at Face Amortized Holding Holding
Market Maturity Purchase Value Cost Gains Losses Value
3- 5 years 5. 95% 100,000 100, 182 833 0 101,015 5- 10 years 6.
46% 45, 000 45, 150 1,439 0 46, 589
Total $ 185,000 $ 185,390 $ 2,283 $ 0 $ 187, 673 Held- to-
Maturity Held- to- Maturity
Less than one year 5.68% $ 40, 000 $ 40, 058 $ 11 $ 0 $ 40, 069 In
1998, the unamortized premium, net of unamortized discount, was
$3.4 million. In 1997, the unamortized premium, net of the
unamortized discount, was $390 thousand.
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
4. Investment in U. S. Treasury Obligations, Net
Cash received by the SAIF is invested in U. S. Treasury
obligations with maturities exceeding three months unless cash is
needed to meet the liquidity needs of the fund. The SAIF's current
portfolio includes securities classified as held- to- maturity and
available- for- sale. The SAIF also invests in Special U. S.
Treasury Certificates that are included in the Cash and cash
equivalents line item.
U. S. Treasury Obligations at December 31, 1998 (Unrestricted)
Dollars in Thousands
Unrealized Unrealized Yield at Face Amortized Holding Holding
Market Maturity Purchase Value Cost Gains Losses Value
1- 3 years 5. 96% 3,585,000 3, 609,527 88, 035 0 3, 697,562 3- 5
years 6. 04% 1,640,000 1, 703,669 76, 027 0 1, 779,696 5- 10 years
6.00% 1, 615,000 1, 664,974 117, 633 0 1, 782,607
Total $ 8, 330,000 $ 8,474,949 $ 290,485 $ 0 $ 8,765,434 1- 3
years 5. 61% 205,000 208,743 2,082 0 210,825 Total $ 575, 000 $
582, 583 $ 4, 254 $ 0 $ 586, 837
Total $ 8, 905,000 $ 9,057,532 $ 294,739 $ 0 $ 9,352,271
$ 0 $ 376, 012 $ 373, 840 $ 2, 172 Less than one year 5.55% $
370,000
Total Investment in U. S. Treasury Obligations, Net Held- to-
Maturity
Less than one year 5.82% $ 1,490,000 $ 1,496,779 $ $ 0 $
Available- for- Sale
8,790 1, 505,569
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
U. S. Treasury Obligations at December 31, 1997 (Unrestricted)
Dollars in Thousands
Unrealized Unrealized Yield at Face Amortized Holding Holding
Market Maturity Purchase Value Cost Gains Losses Value
1- 3 years 5. 87% 3,415, 000 3,451, 362 16, 852 (3, 309) 3, 464,
905 3- 5 years 6. 03% 2,510, 000 2,541, 949 26, 808 (969) 2,567,
788 5- 10 years 6. 47% 1,265, 000 1,313, 739 49, 888 0 1, 363, 627
Total $ 8,840, 000 $ 8, 954, 261 $ 96, 299 $ (4, 597) $ 9,045, 963
1- 3 years 5. 67% $ 150, 000 $ 152, 157 $ 32 $ (64) $ 152, 125
Total $ 8,990, 000 $ 9, 106, 418 $ 96, 331 $ (4, 661) $ 9,198, 088
Held- to- Maturity
Less than one year 5.91% $ 1, 650, 000
Available- for- Sale Total Investment in U. S. Treasury
Obligations, Net
$ (319) $ 1, 649, 643 $ 1, 647, 211 $ 2, 751 In 1998, the
unamortized premium, net of unamortized discount, was $152.5
million. In 1997, the unamortized premium, net of the unamortized
discount, was $116.4 million.
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 were no thrift
failures in 1998, or in 1997.
As of December 31, 1998 and 1997, the FDIC, in its receivership
capacity for SAIF- insured institutions, held assets with a book
value of $46.1 million and $56.6 million, respectively (including
cash and miscellaneous receivables of $45.7 million and $40
million at December 31, 1998 and 1997, respectively). These assets
represent a significant source of repayment of the SAIF's
receivables from thrift resolutions. 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. The sample was
constructed to produce a statistically valid result. These
estimated recoveries are regularly evaluated, but remain subject
to uncertainties because of potential changes in economic
conditions. These factors could cause the SAIF's and other
claimants' actual recoveries to vary from the level currently
estimated.
6. Estimated Liabilities for: Anticipated Failure of Insured
Institutions
The SAIF records an estimated liability and a loss provision for
thrifts (including Oakar and Sasser financial institutions) that
are likely to fail, absent some favorable event such as obtaining
additional capital or merging, when the liability becomes probable
and reasonably estimable.
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
The estimated liabilities for anticipated failure of insured
institutions as of December 31, 1998 and 1997, were $31 million
and zero, respectively. The estimated liability is derived in part
from estimates of recoveries from the management and disposition
of the assets of these probable thrift failures. Therefore, they
are subject to the same uncertainties as those affecting the
SAIF's receivables from thrift resolutions (see Note 5). This
could affect the ultimate costs to the SAIF from probable
failures.
There are other thrifts where the risk of failure is less certain,
but still considered reasonably possible. Should these thrifts
fail, the SAIF could incur additional estimated losses of about
$77 million.
The accuracy of these estimates will largely depend on future
economic conditions. The Board has the statutory authority to
consider the estimated liability from anticipated failures of
insured institutions when setting assessment rates.
Year 2000 Anticipated Failures
The SAIF is also subject to a potential loss from thrifts that may
fail if they are unable to become Year 2000 compliant in a timely
manner. In May 1997, the federal financial institution regulatory
agencies developed a program to conduct uniform reviews of all
FDIC- insured institutions' Year 2000 readiness. The program
assesses the five key phases of an institution's Year 2000
conversion efforts: 1) awareness, 2) assessment, 3) renovation, 4)
validation, and 5) implementation. The reviews classify each
institution as Satisfactory, Needs Improvement, or Unsatisfactory.
Satisfactory: Year 2000 efforts of financial institutions and
independent data centers are considered Satisfactory if they
exhibit acceptable performance in all key phases of the Year 2000
project management process as set forth in the May 5, 1997,
Federal Financial Institutions Examination Council (FFIEC)
Interagency Statement on the Year 2000 and subsequent guidance
documents. Performance is satisfactory when project weaknesses are
minor in nature and can be readily corrected within the existing
project management framework. The institution's remediation
progress to date meets or nearly meets expectations laid out in
its Year 2000 project plan. Senior management and the board
recognize and understand Year 2000 risk, are active in overseeing
institutional corrective efforts, and have ensured that the
necessary resources are available to address this risk area.
Needs Improvement: Year 2000 efforts of financial institutions and
independent data centers are evaluated as Needs Improvement if
they exhibit less than acceptable performance in all key phases of
the Year 2000 project management process. Project weaknesses are
evident, even if deficiencies are correctable within the existing
project management framework. The institution's remediation
progress to date is behind the schedule laid out in its Year 2000
project plan. Senior management or the board is not fully aware of
the status of Year 2000 correction efforts, may not have committed
sufficient financial or human resources to address this risk, or
may not fully understand Year 2000 implications.
Unsatisfactory: Year 2000 efforts of financial institutions and
independent data centers are considered Unsatisfactory if they
exhibit poor performance in any of the key phases of the Year 2000
project management process. Project weaknesses are serious in
nature and are not easily corrected within the existing project
management framework. The institution's remediation progress is
seriously behind the schedule laid out in its Year 2000 project
plan.
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Senior management and the board do not understand or recognize the
impact that the Year 2000 will have on the institution. Management
or the board commitment is limited or their oversight activities
are not evident.
Based on data updated through April 30, 1999, 10,159 institutions
with $6.4 trillion in assets have received a Satisfactory rating,
216 institutions with $80 billion in assets a Needs Improvement
rating, and 21 institutions with $1 billion in assets an
Unsatisfactory rating (data includes SAIF- and BIF- insured
institutions). Although the initial results of the uniform reviews
are encouraging, the Year 2000 issue is unprecedented. Therefore,
it is difficult to determine which institutions, if any, will
ultimately fail. Further, estimates of the cost of resolving Year
2000 failures are complicated by the uncertain nature of
technological disruptions and the associated impact on the SAIF,
if any. Failures caused solely by liquidity problems would pose
substantially less exposure to the SAIF. Year 2000 failures could
conceivably be such liquidity failures. The possibility that any
such failure would occur is quite speculative in view of actions
taken by the Federal Reserve Board to ensure sufficient liquidity
and currency to meet the cash needs of insured thrifts.
Failures could occur because of the familiar capital insolvency
(liabilities exceeding assets) if a substantial number of thrift
borrowers were unable to repay loans due to their own lack of
preparedness for the Year 2000. Insured thrifts are required to be
aware of the measures taken by key customers to protect themselves
against adverse impact from the advent of Year 2000, and
compliance with such requirements is monitored via the regulatory
examination program. The extent to which insured institutions, if
any, ultimately experience this type of failure is not measurable.
Financial institutions are required to design a Year 2000
contingency plan to mitigate the risks associated with the failure
of systems at critical dates (Business Resumption Contingency
Planning). A business resumption contingency plan is designed to
provide assurance that core business functions will continue if
one or more systems fail.
In order to assess exposure to the SAIF from Year 2000 potential
failures, the FDIC evaluated all information relevant to such an
assessment, to include Year 2000 on- site examination results,
institution capital levels and supervisory examination composite
ratings, and other institution past and current financial
characteristics. As a result of this assessment, we conclude that,
as of December 31, 1998, there are no probable losses to the SAIF
from Year 2000 failures. Further, any reasonably possible losses
from Year 2000 failures were not estimable. During the remainder
of 1999, the regulatory agencies will continue their Year 2000
reviews and the FDIC will continue to assess this potential
liability.
Litigation Losses
The SAIF records an estimated loss for unresolved legal cases to
the extent those losses are considered probable and reasonably
estimable. For 1998 and 1997, no legal cases were deemed probable
in occurrence. In 1998, no unresolved legal cases were identified
as reasonably possible.
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
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
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 1.25 percent of 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 DIFA (see Note 1) 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 SAIF- insured deposits. The SAIF
achieved its required capitalization by means of a $4.5 billion
special assessment effective October 1, 1996.
Prior to January 1, 1997, the FICO had priority over the SAIF for
receiving and utilizing SAIF assessments to ensure availability of
funds for interest on the FICO's debt obligations. Accordingly,
the SAIF recognized as assessment revenue only that portion of
SAIF assessments not required by the FICO. Assessments on the
SAIF- insured deposits held by BIF- member Oakar or SAIF- member
Sasser institutions prior to January 1, 1997, were not subject to
draws by the FICO and, thus, were retained in SAIF in their
entirety.
The DIFA expanded the assessment base for payments of the interest
on obligations issued by the FICO to include all FDIC- insured
institutions (including banks, thrifts, and Oakar and Sasser
financial institutions) and made the FICO assessment separate from
regular assessments, effective on January 1, 1997.
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 1998 and 1997, $446 million
and $454 million respectively, were collected from savings
associations and remitted to the FICO.
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 Board reviews
premium rates semiannually. The assessment rate averaged
approximately 0.21 cents and 0.39 cents per $100 of assessable
deposits for 1998 and 1997, respectively. On October 27, 1998, the
Board voted to retain the SAIF assessment schedule of 0 to 27
cents per $100 of assessable deposits (annual rates) for the first
semiannual period of 1999.
8. Pension Benefits, Savings Plans, and Accrued Annual Leave
Eligible FDIC employees (all permanent and temporary employees
with appointments exceeding one year) are covered by either the
Civil Service Retirement System (CSRS) or the Federal Employee
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).
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
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.
During 1998, there was an open season that allowed employees to
switch from CSRS to FERS. This did not have a material impact on
SAIF's operating expenses.
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 (OPM).
Eligible FDIC employees also may participate in a FDIC- sponsored
tax- deferred savings plan with matching contributions. The SAIF
pays its share of the employer's portion of all related costs.
The SAIF's pro rata share of the Corporation's liability to
employees for accrued annual leave is approximately $4.4 million
and $3 million at December 31, 1998 and 1997, respectively.
Pension B enefits a nd Savings Plans Expenses f or the Y ears
Ended D ecember 31
Dollars in T housand
1998 1997
CSRS/ FERS D isability Fund $ 140 $ 44 Civil Service R etirement
System 1,242 855 Federal Employee R etirement System (Basic B
enefit) 3,002 2,242 FDIC Savings P lan 1,947 1,446 Federal Thrift
S avings P lan 1,176 840
Total $ 7,507 $ 5,427 9. Postretirement Benefits Other Than
Pensions
On January 2, 1998, SAIF's obligation under SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions, for postretirement health benefits was reduced when over
6,500 employees enrolled in the Federal Employees Health Benefits
(FEHB) Program for their future health insurance coverage. The OPM
assumed the SAIF's obligation for postretirement health benefits
for these employees at no initial enrollment cost.
In addition, legislation was passed that allowed the remaining
2,600 retirees and near- retirees (employees within five years of
retirement) in the FDIC health plan to also enroll in the FEHB
Program for their future health insurance coverage, beginning
January 1, 1999. The OPM assumed the SAIF's obligation for
postretirement health benefits for retirees and near retirees for
a fee of $3.7 million. The OPM is now responsible for
postretirement health benefits for all employees and covered
retirees. The FDIC will continue to be obligated for dental and
life insurance coverage for as long as the programs are offered
and coverage is extended to retirees.
OPM's assumption of the health care obligation constitutes both a
settlement and a curtailment as defined by SFAS No. 106. This
conversion resulted in a gain of $5.5 million to the SAIF.
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GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Postretirement Benefits Other Than Pensions
Dollars in Thousands
1998 1997 Funded Status at December 31
Fair value of plan assets (a) $ 5,048 $ 10, 011 Less: Benefit
obligation 5, 048 9, 411
Under/( Over) Funded Status of the plans $ 0 $ (600)
Accrued benefit liability recognized in the Statements of
Financial Position $ 0 $ 867
Expenses and Cash Flows for the Period Ended December 31
Net periodic benefit cost $ 1, 516 $ 451
Employer contributions 718 342 Benefits paid 718 342
Weighted- Average Assumptions at December 31
Discount rate 4.50% 5.75% Expected return on plan assets 4.50%
5.75% Rate of compensation increase 4.00% 4.00%
(a) Invested in U. S. Treasury obligations.
For measurement purposes, the per capita cost of covered health
care benefits was assumed to increase by an annual rate of 8.75
percent for 1998. Further, the rate was assumed to decrease
gradually each year to a rate of 7.75 percent for the year 2000
and remain at that level thereafter.
10. Commitments and Off- Balance- Sheet Exposure Commitments
Leases
The SAIF's allocated share of the FDIC's lease commitments totals
$20.2 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 $4.8 million and $3.3 million for the
years ended December 31, 1998 and 1997, respectively.
Lease Commitments
Dollars in Thousands
1999 2000 2001 2002 2003 2004 and Thereafter
$4,488 $3,963 $3,187 $2,788 $1,723 $4,079
Savings Association Insurance Fund's Financial Statements Page 56
GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Other Off- Balance- Sheet Risk
Deposit Insurance
As of December 31, 1998, deposits insured by the SAIF totaled
approximately $709 billion. This would be the accounting loss if
all depository institutions were to fail and the acquired assets
provided no recoveries.
11. 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. This is due to their short maturities or comparisons
with current interest rates. As explained in Note 3, entrance and
exit fees receivable are net of discounts calculated using an
interest rate comparable to U. S. Treasury Bill or Government
bond/ note rates at the time the receivables are accrued.
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.
Savings Association Insurance Fund's Financial Statements Page 57
GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
12. 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
1998 1997 Net Income $ 467, 230 $ 479, 926 Adjustments to
Reconcile Net Income to Net Cash Provided by Operating Activities
Income Statement Items:
Provision for insurance losses 31, 992 (1,879) Amortization of U.
S. Treasury obligations (unrestricted) 41, 198 17, 675 Gain on
conversion of benefit plan 5,464 0
Change in Assets and Liabilities:
Decrease (Increase) in amortization of U. S. Treasury obligations
(restricted) 304 (147) (Increase) in entrance and exit fees
receivable, including interest receivable on investments and other
assets (20,187) (33)
(Increase) Decrease in receivables from thrift resolutions (4,
700) 11, 652 (Decrease) in accounts payable and other liabilities
(3,126) (171, 732) Increase in exit fees and investment proceeds
held in escrow 14, 242 11, 973
Net Cash Provided by Operating Activities $ 532, 417 $ 347, 435
13. Year 2000 Issues State of Readiness
The FDIC, as administrator for the SAIF, is conducting a
corporate- wide effort to ensure that all FDIC information systems
are Year 2000 compliant. This means the systems must accurately
process date and time data in calculations, comparisons, and
sequences after December 31, 1999, and be able to correctly deal
with leap- year calculations in 2000. The Year 2000 Oversight
Committee is comprised of FDIC division management that oversees
the Year 2000 effort.
The FDIC's Division of Information Resources Management (DIRM)
leads the internal Year 2000 effort, under the direction of the
Oversight Committee. DIRM used a five- phase approach for ensuring
that all FDIC systems and software are Year 2000 compliant. The
five phases are:
Awareness
The first phase of compliance focuses on defining the Year 2000
problem and gaining executivelevel support and sponsorship for the
effort.
Assessment
The second phase of compliance focuses on assessing the Year 2000
impact on the Corporation as a whole.
Renovation
The third phase of compliance focuses on converting, replacing or
eliminating selected platforms, applications, databases, and
utilities, while modifying interfaces as appropriate.
Savings Association Insurance Fund's Financial Statements Page 58
GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Platform is a broad term that encompasses computer hardware
(including mainframe computers, servers, and personal computers)
and software (including computer languages and operating systems).
Utility programs, or utilities, provide file management
capabilities, such as sorting, copying, comparing, listing and
searching, as well as diagnostic and measurement routines that
check the health and performance of the system.
Validation
The fourth phase of compliance focuses on testing, verifying and
validating converted or replaced platforms, applications,
databases, and utilities.
Implementation
The fifth phase of compliance focuses on implementing converted or
replaced platforms, applications, databases, utilities, and
interfaces.
The Awareness, Assessment, and Renovation phases are complete. The
Validation phase is scheduled to be completed during January 1999
when all production applications will be validated for Year 2000
readiness. Implementation of the majority of production
applications in Year 2000 ready status will be completed by March
31, 1999. Validation and implementation of new systems and
modifications to existing systems will continue throughout 1999.
Year 2000 Estimated Costs
Year 2000 compliance expenses for the SAIF are estimated at $4.4
million and $191 thousand at December 31, 1998 and 1997,
respectively. These expenses are reflected in the Operating
expenses line item of the SAIF's Statements of Income and Fund
Balance. Future expenses are estimated to be $6.2 million. Year
2000 estimated future costs are included in the FDIC's budget.
Risks of Year 2000 Issues
The OTS has an ongoing aggressive initiative to assess the SAIF's
insured financial institutions for Year 2000 compliance. The SAIF
is subject to a potential loss from financial institutions that
may fail as a result of Year 2000 related issues. Refer to
Estimated Liabilities for: Anticipated Failure of Insured
Institutions Year 2000 Anticipated Failures (Note 6) for
additional information.
No potential loss with internal system failure has been estimated
due to the extensive planning and validation that has occurred.
Contingency Plans
DIRM is currently developing a disaster recovery plan and
contingency plans specific to each mission- critical application.
Other divisions within the FDIC are working together to develop
contingency plans to be prepared if any FDIC- insured financial
institution fails as a result of lack of Year 2000 preparedness.
Savings Association Insurance Fund's Financial Statements Page 59
GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
14. Subsequent Events SAIF Special Reserve
DIFA requires the establishment of a Special Reserve of the SAIF
if, on January 1, 1999, the reserve ratio exceeds the DRR of 1. 25
percent. The reserve ratio exceeded the DRR by approximately 0.14
percent on January 1, 1999. As a result, $978 million was placed
in a Special Reserve of the SAIF and is being administered by the
FDIC.
The Corporation may, in its sole discretion, transfer amounts from
the Special Reserve to the SAIF for an emergency use. An emergency
use is authorized only if the reserve ratio of the SAIF is less
than 50 percent of the DRR and is expected to remain at less than
50 percent for each of the next four calendar quarters. The
Special Reserve must be excluded when calculating the reserve
ratio of the SAIF.
Page 60 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
FSLIC Resolution Fund's Financial Statements
Statements of Financial Position
FSLIC Resolution Fund Federal Deposit Insurance Corporation FSLIC
Resolution Fund Statements of Financial Position at December 31
Dollars in Thousands
Assets
Cash and cash equivalents $ 4,631,379 $ 2,107,171 Receivables from
thrift resolutions, net (Note 3) 1,388,579 2,570,486
Securitization funds held by trustee, net (Note 4) 2,796,646
4,890,568 Investment in securitization residual certificates (Note
5) 1,538,339 Assets acquired from assisted thrifts and terminated
receiverships,
net (Note 6) 64,101 73,051 Other assets, net (Note 7) 40,721 7,391
Total Assets $ 10,459,765 $ 9,648,667 Liabilities
Accounts payable and other liabilities $ 40,396 $ 164,401 Notes
payable - Federal Financing Bank borrowings (Note 8) 0 849,294
Liabilities from thrift resolutions (Note 9) 74,336 105,168
Estimated liabilities for: (Note 10)
Assistance agreements 4,852 6,328 Litigation losses 18,340 2,634
Total Liabilities 137,924 1,127,825 Resolution Equity (Note 12)
Contributed capital 135,490,741 135,493,762 Accumulated deficit
(125,243,229) (126,972,920) Unrealized gain on available- for-
sale securities, net (Note 5) 74,329 Accumulated deficit, net
(125,168,900) (126,972,920)
Total Resolution Equity 10,321,841 8,520,842 Total Liabilities and
Resolution Equity $ 10,459,765 $ 9,648,667
The accompanying notes are an integral part of these financial
statements. Commitments and concentration of credit risks (Note
15)
1998 1997
FSLIC Resolution Fund's Financial Statements
Page 61 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Statements of Income and Accumulated Deficit
FSLIC Resolution Fund Federal Deposit Insurance Corporation FSLIC
Resolution Fund Statements of Income and Accumulated Deficit for
the Years Ended December 31
Dollars in Thousands
Revenue
Interest on securitization funds held by trustee $ 262,962 $
299,854 Interest on U. S. Treasury obligations 109,045 86,959
Interest on advances and subrogated claims 212,645 (28,348) Gain
on conversion of benefit plan (Note 14) 39,297 0 Revenue from
assets acquired from assisted thrifts and terminated receiverships
40,124 74,286 Limited partnership equity interests and other
revenue 31,593 22,600
Total Revenue 695,666 455,351 Expenses and Losses
Operating expenses 56,336 16,732 (1,290,752) (1,741,639)
154,492 33,833 Interest expense on FFB debt and other notes
payable 22,413 130,435 Expenses for assets acquired from assisted
thrifts and terminated receiverships 19,652 65,175 Other expenses
3,834 4,412
Total Expenses and Losses (1,034,025) (1,491,052) Net Income
1,729,691 1,946,403
Unrealized gain on available- for- sale securities, net (Note 5)
74,329 0 Comprehensive Income 1,804,020 1,946,403 Accumulated
Deficit - Beginning (126,972,920) (128,919,323) Accumulated
Deficit - Ending $ (125,168,900) $ (126,972,920)
The accompanying notes are an integral part of these financial
statements.
Provision for losses (Note 11) Expenses for goodwill settlements
and litigation
1998 1997
FSLIC Resolution Fund's Financial Statements
Page 62 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Statements of Cash Flows
FSLIC Resolution Fund Federal Deposit Insurance Corporation FSLIC
Resolution Fund Statements of Cash Flows for the Years Ended
December 31
Dollars in Thousands
Cash Flows From Operating Activities Cash provided from:
Interest on U. S. Treasury obligations $ 109,045 $ 86,966
Recoveries from thrift resolutions 890,566 3,791,256 Recoveries
from securitization funds held by trustee 2,390,945 1,078,815
Recoveries from limited partnership equity interests 188,801
121,369 Recoveries from assets acquired from assisted thrifts and
terminated receiverships 48,580 483,524
Miscellaneous receipts 1,383 13,962
Cash used for: Operating expenses (78,526) (41,268) Interest paid
on notes payable (29,997) (173,981) Disbursements for thrift
resolutions (177,365) (390,632) Disbursements for goodwill
settlements and litigation expenses (154,492) (26,610)
Disbursements for assets acquired from assisted thrifts and
terminated receiverships (26,952) (176,933) Miscellaneous
disbursements (220) (4,913)
Net Cash Provided by Operating Activities (Note 17) 3,161,768
4,761,555 Cash Flows From Investing Activities Cash provided from:
Redemption of Securitization Residual Certificates, available-
for- sale 260,856 Cash used for:
Purchase of Residual Certificates, available- for- sale (25,425)
Net Cash Provided from Investing Activities 235,431 Cash Flows
From Financing Activities Cash used for:
Return of U. S. Treasury payments (3,020) (8,053) Repayments of
Federal Financing Bank borrowings (838,412) (3,718,692) Repayments
of indebtedness from thrift resolutions (31,559) (31,560)
Net Cash Used by Financing Activities (872,991) (3,758,305) Net
Increase in Cash and Cash Equivalents 2,524,208 1,003,250 Cash and
Cash Equivalents - Beginning 2,107,171 1,103,921 Cash and Cash
Equivalents - Ending $ 4,631,379 $ 2,107,171
The accompanying notes are an integral part of these financial
statements.
1998 1997
FSLIC Resolution Fund's Financial Statements
Page 63 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Notes to Financial Statements
Notes to the Financial Statements FSLIC Resolution Fund December
31, 1998 and 1997
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.
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 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. The RTC
Completion Act made available approximately $18 billion worth of
additional funding. The RTC actually drew down $4. 556 billion.
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
FSLIC Resolution Fund's Financial Statements
Page 64 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
the REFCORP pay the interest on the REFCORP bonds issued to fund
the early RTC resolutions. Any such payments benefit the U. S.
Treasury, which would otherwise be obligated to pay the interest
on the bonds (see Note 12).
Operations of the FRF
The FRF will continue operations until all of its assets are sold
or otherwise liquidated and all of its liabilities are satisfied.
Any funds remaining in the FRF- FSLIC will be paid to the U. S.
Treasury. Any remaining funds of the FRF- RTC will be distributed
to the U. S. Treasury to repay RTC Completion Act appropriations
and to the REFCORP to pay the interest on the REFCORP bonds.
The FRF has been primarily funded from the following sources: 1)
U. S. Treasury appropriations; 2) amounts borrowed by the RTC from
the Federal Financing Bank (FFB); 3) amounts received from the
issuance of capital certificates to REFCORP; 4) funds received
from the management and disposition of assets of the FRF; 5) the
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 are
appropriated by Congress, to carry out the objectives of the FRF.
Public Law 103- 327 provides $827 million in funding to be
available until expended to facilitate efforts to wind up the
resolution activity of the FRF. 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
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 U. S. arising from the goodwill litigation
cases.
Additional goodwill litigation expenses incurred by DOJ will be
paid directly from the FRF- FSLIC based on a Memorandum of
Understanding (MOU) dated October 2, 1998, between FDIC and DOJ.
Under the terms of the MOU, the FRF- FSLIC paid $51.2 million to
DOJ during 1998. Separate funding for goodwill judgments and
settlements is available through Public Law 105- 277 (see Note
10).
The VA, HUD and Independent Agencies Appropriations Acts of 1999
and 1998 appropriated $34.7 million for fiscal year 1999 (October
1, 1998, through September 30, 1999) and $34 million for fiscal
year 1998 (October 1, 1997, through September 30, 1998),
respectively, for operating expenses incurred by the Office of
Inspector General (OIG). These Acts mandate that the funds are to
be derived from the FRF, the BIF, and the SAIF.
FSLIC Resolution Fund's Financial Statements
Page 65 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
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 accordance with generally accepted accounting principles
(GAAP). These statements do not include reporting for assets and
liabilities of closed thrift institutions for which the FDIC acts
as receiver or liquidating agent. Periodic and final
accountability reports of the FDIC's activities as receiver or
liquidating agent are furnished to courts, supervisory
authorities, and others as required.
Use of Estimates
FDIC management makes estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates. Where it
is reasonably possible that changes in estimates will cause a
material change in the financial statements in the near term, the
nature and extent of such changes in estimates have been
disclosed.
Cash Equivalents
Cash equivalents are short- term, highly liquid investments with
original maturities of three months or less. Cash equivalents
primarily consist of Special U. S. Treasury Certificates.
Investment in Securitization Residual Certificates
The Investment in Securitization Residual Certificates is recorded
pursuant to the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 requires
that securities be classified in one of three categories: held-
to- maturity, available- for- sale, or trading. The Investment in
Securitization Residual Certificates is classified as available-
for- sale and is shown at fair value with unrealized gains and
losses included in Resolution Equity. Realized gains are included
in the Limited partnership equity interests and other revenue line
item with realized losses included in the Provision for losses
line item when applicable. The FRF does not have any securities
classified as held- to- maturity or trading.
Allowance for Losses on Receivables From Thrift Resolutions and
Assets Acquired From Assisted Thrifts and Terminated Receiverships
The FRF records a receivable for the amounts advanced and/ or
obligations incurred for resolving troubled and failed thrifts.
The FRF also records as an asset the amounts paid for assets
acquired from assisted thrifts and terminated receiverships. Any
related allowance for loss represents the difference between the
funds advanced and/ or obligations incurred and the expected
repayment. The latter is based on estimates of discounted cash
recoveries from the assets of assisted or failed thrift
institutions, net of all estimated liquidation costs. Estimated
cash recoveries also include dividends and gains on sales from
equity instruments acquired in resolution transactions.
FSLIC Resolution Fund's Financial Statements
Page 66 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Receivership Operations
The FDIC is responsible for managing and disposing of the assets
of failed institutions in an orderly and efficient manner. The
assets, and the claims against them, are accounted for separately
to ensure that liquidation proceeds are distributed in accordance
with applicable laws and regulations. Also, the income and
expenses attributable to receiverships are accounted for as
transactions of those receiverships. Liquidation expenses incurred
by the FRF on behalf of the receiverships are recovered from those
receiverships.
Cost Allocations Among Funds
Operating expenses not directly charged to the funds are allocated
to all funds administered by the FDIC. Workload- based- allocation
percentages are developed during the annual corporate planning
process and through supplemental functional analyses.
Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and
administration of postretirement benefits on behalf of the FRF,
the BIF, and the SAIF. Each fund pays its liabilities for these
benefits directly to the entity. The FRF's unfunded net
postretirement benefits liability for the plan is presented in
FRF's Statements of Financial Position.
Disclosure About Recent Accounting Standard Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, Employers' Disclosures about Pension and
Other Postretirement Benefits. The Statement standardizes the
disclosure requirements for pensions and other postretirement
benefits to the extent practicable. Although changes in the FRF's
disclosures for postretirement benefits have been made, the impact
is not material.
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. The FDIC adopted SFAS No. 130 effective on
January 1, 1997. Comprehensive income includes net income as well
as certain types of unrealized gain or loss. The only component of
SFAS No. 130 that impacts the FRF is unrealized gain or loss on
the securitization residual certificates that are classified as
available- for- sale, which is presented in the FRF's Statements
of Financial Position and the Statements of Income and Accumulated
Deficit.
Other recent pronouncements are not applicable to the financial
statements.
Wholly Owned Subsidiary
The Federal Asset Disposition Association (FADA) is a wholly owned
subsidiary of the FRF. The FADA was placed in receivership on
February 5, 1990. Final judgment on the remaining litigation was
made on December 16, 1998. However, a final liquidating dividend
to the FRF was still pending at year- end. This liquidating
dividend will be disbursed during 1999. The investment in the FADA
is accounted for using the equity method and is included in the
Other assets, net line item (see Note 7).
FSLIC Resolution Fund's Financial Statements
Page 67 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Related Parties
National Judgments, Deficiencies, and Charge- offs Joint Venture
Program. The former RTC purchased assets from receiverships,
conservatorships, and their subsidiaries to facilitate the sale
and/ or transfer of selected assets to several joint ventures in
which the former RTC retained a financial interest. These assets
are presented in Assets acquired from assisted thrifts and
terminated receiverships, net line item in the FRF's Statements of
Financial Position.
Limited Partnership Equity Interests. Former RTC receiverships
were holders of limited partnership equity interests as a result
of various RTC sales programs that included the National Land
Fund, Multiple Investor Fund, N- Series, and S- Series programs.
Over the past two years, the majority of the limited partnership
equity interests were transferred from the receiverships to the
FRF. These assets are included in the Receivables from thrift
resolutions, net line item in the FRF's Statements of Financial
Position.
The nature of related parties and a description of related party
transactions are disclosed throughout the financial statements and
footnotes.
Reclassifications
Reclassifications have been made in the 1997 financial statements
to conform to the presentation used in 1998.
3. Receivables From Thrift Resolutions, Net
The thrift resolution process took different forms depending on
the unique facts and circumstances surrounding each failing or
failed institution. Payments to prevent a failure were made to
operating institutions when cost and other criteria were met.
These payments resulted in acquiring Assets from open thrift
assistance, which are various types of financial instruments from
the assisted institutions.
As of December 31, 1998 and 1997, the FDIC, in its receivership
capacity for the former FSLIC and SAIF insured institutions, held
assets with a book value of $2.6 billion and $3. 6 billion,
respectively (including cash and miscellaneous receivables of $1.
7 billion and $1.4 billion at December 31, 1998 and 1997,
respectively). These assets represent a significant source of
repayment of the FRF's receivables from thrift resolutions. 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.
The sample was constructed to produce a statistically valid
result. These estimated recoveries are regularly evaluated, but
remain subject to uncertainties because of potential changes in
economic conditions. These factors could cause the FRF's and other
claimants' actual recoveries to vary from the level currently
estimated.
FSLIC Resolution Fund's Financial Statements
Page 68 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Receivables From Thrift Resolutions, Net at December 31 Dollars in
Thousands
1998 1997
Assets from open thrift assistance $ 529, 123 $ 804, 217 Allowance
for losses (386, 935) (446, 064)
Net Assets From Open Thrift Assistance 142, 188 358,153
Receivables from closed thrifts 72,727,268 76,680,026 Allowance
for losses (71,480,877) (74,467,693)
Net Receivables From Closed Thrifts 1, 246, 391 2, 212, 333 Total
$ 1,388,579 $ 2,570,486
Representations and Warranties
The FRF estimated corporate losses related to the receiverships'
representations and warranties as part of the FRF's allowance for
loss valuation. The allowance for these losses was $81 million and
$90 million as of December 31, 1998 and 1997, respectively. There
are additional amounts of representation and warranty claims that
are considered reasonably possible. As of December 31, 1998, the
amount is estimated at $330 million. The RTC provided guarantees,
representations, and warranties on approximately $115 billion in
unpaid principal balance of loans sold and approximately $141
billion in unpaid principal balance of loans under servicing right
contracts that had been sold. In general, the guarantees,
representations and warranties on loans sold related to the
completeness and accuracy of loan documentation, the quality of
the underwriting standards used, the accuracy of the delinquency
status when sold, and the conformity of the loans with
characteristics of the pool in which they were sold. The
representations and warranties made in connection with the sale of
servicing rights were limited to the responsibilities of acting as
a servicer of the loans. Future losses on representations and
warranties could significantly increase or decrease over the
remaining life of the loans that were sold, which could be as long
as 20 years.
The estimated liability for representations and warranties
associated with loan sales that involved assets acquired from
assisted thrifts and terminated receiverships are included in
Accounts payable and other liabilities ($ 5 million and $18
million for 1998 and 1997, respectively).
4. Securitization Funds Held by Trustee, Net
In order to maximize the return from the sale or disposition of
assets, the RTC engaged in numerous securitization transactions.
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 escrow accounts
(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.
FRF's exposure from credit losses on loans sold through the
program is limited to the balance of the escrow accounts. The
escrow
FSLIC Resolution Fund's Financial Statements
Page 69 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
account balance is reduced for claims paid and when the trustee
releases the funds at the termination of a securitization deal.
Funds are also released if the trustee deems the escrow account
balance to be excessive.
Through December 1998, the amount of claims paid was approximately
19 percent of the initial escrow accounts. At December 31, 1998
and 1997, escrow accounts totaled $2.9 billion and $5.2 billion,
respectively. At December 31, 1998 and 1997, the allowance for
estimated future losses which would be paid from the escrow
accounts totaled $0.1 billion and $0. 3 billion, respectively.
The FRF earned interest income from the securitization funds held
by trustee of $263 million during 1998 and $300 million during
1997.
5. Investment in Securitization Residual Certificates
As part of the securitization transactions described in Note 4,
receivership and conservatorship loans were sold to various
trusts. In return, 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 October 1998, the residual certificates were transferred from
the receiverships to the FRF. The $1.8 billion transferred to the
FRF was offset by amounts owed by the receiverships to the FRF.
The residual certificates were adjusted to fair market value for
this transaction and as a result, FRF's provision for losses
decreased by $0.5 billion and FRF's resolution equity increased by
$0. 5 billion.
Realized gains and losses are recorded based on the difference
between the proceeds at termination and the cost of the original
investment. In 1998, the FDIC received $241.3 million in proceeds
from deals terminated by December 31, 1998. Additionally, at
termination, $48.8 million was deposited into the securitization
funds held by trustee. The realized gains are included in Limited
partnership equity interests and other revenue line item and the
realized losses are included in the Provision for losses line
item. At December 31, 1998, realized gains were $2.7 million and
realized losses were $47.1 million.
Investment in S ecuritization R esidual C ertificates at D ecember
3 1, 1 998
Dollars in M illio ns
Unrealized Unrealized Holding Holding Market Cost Gains Losses
Value
$1, 464 $81 $7 $1, 538
FSLIC Resolution Fund's Financial Statements
Page 70 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
6. Assets Acquired From Assisted Thrifts and Terminated
Receiverships, Net
The FRF's assets acquired from assisted thrifts and terminated
receiverships includes: 1) assets the former FSLIC and the former
RTC purchased from troubled or failed thrifts and 2) assets the
FRF acquired from receiverships and purchased under assistance
agreements. The methodology to estimate cash recoveries from these
assets, which are used to derive the related allowance for losses,
is the same as that for receivables from thrift resolutions (see
Note 3).
The FRF recognizes revenue and expenses on these acquired assets.
Revenue consists primarily of interest earned on mortgage loans
and proceeds from professional liability claims. Expenses are
recognized for the management and liquidation of these assets.
Assets Acquired From Assisted Thrifts and Terminated
Receiverships, Net at December 31
Dollars in Thousands
1998 1997
Assets acquired from assisted thrifts and terminated receiverships
$ 216, 006 $ 277, 607 Allowance for losses (151,905) (204,556)
Total $ 64,101 $ 73,051 7. Other Assets, Net Other Assets, Net at
December 31
Dollars in Thousands
1998 1997
Investment in FADA (Note 2) $ 15, 000 $ 15, 000 Allowance for loss
(11,074) (11,074)
Investment in FADA, Net 3, 926 3, 926
Accounts receivable 33,200 607 Due from other government entities
3,595 2, 858
Other Receivables 36,795 3,465 Total $ 40,721 $ 7,391
8. Notes Payable Federal Financing Bank Borrowings
Working capital was made available to the RTC under an agreement
with the FFB to fund the resolution of thrifts and for use in the
RTC's high- cost funds replacement and emergency liquidity
programs. The outstanding note was due to mature on January 1,
2010; however, the entire principal and interest amounts were paid
on August 10, 1998. The FFB borrowing authority ceased upon the
termination of the RTC.
The note payable carried a floating rate of interest that was
adjusted quarterly. The FFB established the interest rate and
during 1998 these rates ranged between 5.487 percent and 5.228
percent.
FSLIC Resolution Fund's Financial Statements
Page 71 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
9. Liabilities From Thrift Resolutions
The FSLIC issued promissory notes and entered into assistance
agreements to prevent the default and subsequent liquidation of
certain insured thrift institutions. These notes and agreements
required the FSLIC to provide financial assistance over time.
Pursuant to FIRREA, the FRF assumed these obligations. Notes
payable and obligations for assistance agreements are presented in
the "Liabilities from thrift resolutions line item. Estimated
future assistance payments are included in the "Estimated
liabilities for: Assistance agreements" line item (see Note 10).
Liabilities From Thrift Resolutions at December 31 Dollars in
Thousands
1998 1997
Capital instruments $ 0 $ 725 Assistance agreement notes payable
62, 360 94, 680 Interest payable 994 1, 419 Other liabilities to
thrift institutions 10, 982 8, 344 Total $ 74,336 $ 105, 168 10.
Estimated Liabilities for: Assistance Agreements
The estimated liabilities for assistance agreements are $5 million
and $6 million at December 31, 1998 and 1997, respectively. The
liability represents an estimate of future assistance payments to
acquirers of troubled thrift institutions. The balances for both
years were not discounted because the remaining assistance
agreements will terminate within the next two years, and the
discount adjustment was deemed to be immaterial.
There were 33 assistance agreements outstanding as of December 31,
1998 and 1997. The last agreement is scheduled to expire in July
2000.
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's Legal Division has determined that losses from unresolved
legal cases totaling $144 million are reasonably possible.
Additional Contingency
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 Home Loan Bank Board
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).
FSLIC Resolution Fund's Financial Statements
Page 72 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
On July 23, 1998, the U. S. Treasury determined, based on an
opinion of the DOJ's Office of Legal Counsel (OLC) dated July 22,
1998, that the FRF is legally available to satisfy all judgments
and settlements in the Goodwill Litigation involving supervisory
action or assistance agreements. The U. S. Treasury further
determined that the FRF is the appropriate source of funds for
payment of any such judgments and settlements.
The OLC opinion concluded that the nonperformance of these
agreements was a contingent liability that was transferred to the
FRF on August 9, 1989, upon the dissolution of the FSLIC. Under
the analysis set forth in the OLC opinion, as liabilities
transferred on August 9, 1989, these contingent liabilities for
future nonperformance of prior agreements with respect to
supervisory goodwill were transferred to the FRFFSLIC, which is
that portion of the FRF encompassing the obligations of the former
FSLIC. On July 31, 1998, the FDIC Board of Directors authorized
the payment of four settlements in the Goodwill Litigation
aggregating $103.3 million. This payment was made from the FRF-
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 and
judgments arising out of the Goodwill Litigation.
The lawsuits comprising the Goodwill Litigation are against the
United States and as such are defended by the DOJ. On March 19,
1999, DOJ informed the FDIC that, "as a practical matter, there
are likely to be substantial recoveries against the government as
these matters proceed to resolution." DOJ also advised that
"variations among the cases [are] so great, including [the
government's] possible recovery of fraud related damages and
penalties against various plaintiffs, [that] it is simply
impossible to predict what the overall outcome is likely to be."
The FDIC believes that it is probable that additional amounts,
possibly substantial, may be paid from the FRF- FSLIC as a result
of future 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 FRFFSLIC.
Section 130 of the Department of Justice Appropriations Act, 1999
(Section 130), as amended, provides to the FRF- FSLIC such sums as
may be necessary for the payment of judgments and settlements in
the Goodwill Litigation, to remain available until expended. In
the Budget for Fiscal Year 2000, the President has requested a
permanent appropriation to the FRF- FSLIC of such sums as may be
necessary for the payment of judgments and settlements in the
Goodwill Litigation, to remain available until expended. It is
anticipated that such an appropriation for the Goodwill Litigation
judgments and settlements will be adopted. As a consequence, the
FDIC believes that even if the Goodwill Litigation judgments and
settlements were to exceed other available resources of the FRF-
FSLIC, an appropriation is currently available and, it is
anticipated, will be available in the future to pay such judgments
and settlements. In these circumstances any liabilities for the
Goodwill Litigation should have no material impact on the
financial condition of the FRF- FSLIC. If an appropriation to the
FRF- FSLIC were not available to pay the Goodwill Litigation
judgments and settlements, the liabilities of the FRF- FSLIC
FSLIC Resolution Fund's Financial Statements
Page 73 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
in respect of the Goodwill Litigation would be material and
adversely affect the financial condition of the FRF- FSLIC.
11. Provision for Losses
The provision for losses was a negative $1.3 billion and a
negative $1.7 billion for 1998 and 1997, respectively. In both
years, the negative provision resulted primarily from decreased
losses expected for assets in liquidation. The following chart
lists the major components of the negative provision for losses.
Provision for Losses for the Years Ended December 31
Dollars in Thousands
1998 1997 Valuation adjustments:
Open thrift assistance $ 12, 514 $ (77,900) Recovery of tax
benefits (115, 401) (39,126) Closed thrifts (1, 125, 523)
(1,481,702) Assets acquired from assisted thrifts and terminated
receiverships (66,709) (242, 253) Securitization funds held by
trustee (58,207) 134,424 Investment in securitization residual
certificates 47, 076 Miscellaneous receivables (42) (88)
Total (1, 306, 292) (1,706,645) Contingencies:
Assistance agreements 0 1,961 Litigation 15, 540 (36,955)
Total 15, 540 (34,994) Reduction in Provision for Losses $ (1,
290, 752) $ (1, 741, 639)
12. Resolution Equity
As stated in 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.
FSLIC Resolution Fund's Financial Statements
Page 74 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Resolution Equity at December 31, 1998
Dollars in Thousands
FRF FRF- FSLIC FRF- RTC Consolidated
Contributed capital $ 44, 156,000 $ 91, 334,741 $ 135,490,741
Accumulated deficit (42, 057,685) (83,185,544) (125,243, 229)
Less: Unrealized gain on
AFS securities 0 74, 329 74, 329 Accumulated deficit, net (42,
057,685) (83,111,215) (125,168, 900)
Total Resolution Equity $ 2, 098,315 $ 8, 223,526 $ 10, 321,841
Resolution Equity at December 31, 1997
Dollars in Thousands
FRF FRF- FSLIC FRF- RTC Consolidated
Contributed capital $ 44, 156,000 $ 91, 337,762 $ 135,493,762
Accumulated deficit (42, 194,200) (84,778,720) (126,972, 920)
Total Resolution Equity $ 1, 961,800 $ 6, 559,042 $ 8, 520,842
Contributed Capital
To date, the former RTC and the FRF- FSLIC received $60.1 billion
and $43.5 billion from the U. S. Treasury, respectively. These
payments were used to fund losses from thrift resolutions prior to
July 1, 1995. Additionally, the RTC issued $31.3 billion in
capital certificates to the REFCORP and the FRF- FSLIC issued $670
million of these instruments to the FICO. FIRREA prohibited the
payment of dividends on any of these capital certificates.
Accumulated Deficit
The accumulated deficit represents the cumulative excess of
expenses over revenue for liquidation activity related to the
former FSLIC and the former RTC ($ 29.7 billion and $87.9 billion
were brought forward from the FSLIC and RTC, respectively).
Resolution Equity Restrictions FRF- FSLIC: The FRF- FSLIC has
unrecorded, pending judgments and settlements that are inestimable
at this time and that could substantially reduce or eliminate the
FRFFSLIC Resolution Equity (see Note 10).
FRF- RTC: The former RTC drew down $4.556 billion of the
approximately $18 billion made available by the RTC Completion
Act. The RTC Completion Act requires the FDIC to deposit in the
general fund of the U. S. Treasury any funds transferred to the
RTC but not needed by the RTC. The FDIC will return these funds to
the U. S. Treasury pursuant to the RTC Completion Act. In
addition, the FDIC must transfer net proceeds from the sale of RTC
assets to pay interest on the REFCORP bonds, after providing for
all outstanding RTC liabilities. Any such payments benefit the U.
S. Treasury, which would otherwise be obligated to pay the
interest on the bonds (see Note 1).
FSLIC Resolution Fund's Financial Statements
Page 75 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
13. Pension Benefits, Savings Plans, and Accrued Annual Leave
Eligible FDIC employees (all permanent and temporary employees
with appointments exceeding one year) are covered by either the
Civil Service Retirement System (CSRS) or the Federal Employee
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.
During 1998, there was an open season that allowed employees to
switch from CSRS to FERS. This did not have a material impact on
FRF's operating expenses.
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 (OPM).
Eligible FDIC employees also may participate in a FDIC- sponsored
tax- deferred savings plan with matching contributions. The FRF
pays its share of the employer's portion of all related costs.
The FRF's pro rata share of the Corporation's liability to
employees for accrued annual leave is approximately $5.4 million
and $11.2 million at December 31, 1998 and 1997, respectively.
Pension Benefits and Savings Plans Expenses for the Years Ended
December 31
Dollars in Thousands
1998 1997
CSRS/ FERS Disability Fund $ 308 $ 168 Civil Service Retirement
System 1,382 2,047 Federal Employee Retirement System (Basic
Benefit) 4,438 9,473 FDIC Savings Plan 2,619 4,893 Federal Thrift
Savings Plan 1,675 3,264
Total $ 10,422 $ 19,845 14. Postretirement Benefits Other Than
Pensions
On January 2, 1998, FRF's obligation under SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions, for postretirement health benefits was reduced when over
6,500 employees enrolled in the Federal Employees Health Benefits
FSLIC Resolution Fund's Financial Statements
Page 76 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
(FEHB) Program for their future health insurance coverage. The OPM
assumed the FRF's obligation for postretirement health benefits
for these employees at no initial enrollment cost.
In addition, legislation was passed that allowed the remaining
2,600 retirees and nearretirees (employees within five years of
retirement) in the FDIC health plan to also enroll in the FEHB
Program for their future health insurance coverage, beginning
January 1, 1999. The OPM assumed the FRF's obligation for
postretirement health benefits for retirees and near retirees for
a fee of $32 million. The OPM is now responsible for
postretirement health benefits for all employees and covered
retirees. The FDIC will continue to be obligated for dental and
life insurance coverage for as long as the programs are offered
and coverage is extended to retirees.
OPM's assumption of the health care obligation constitutes both a
settlement and a curtailment as defined by SFAS No. 106. This
conversion resulted in a gain of $39 million to the FRF.
Postretirement Benefits Other Than Pensions
Dollars in Thousands
1998 1997 Funded Status at December 31
Fair value of plan assets (a) $ 14, 337 $ 68, 010 Less: Benefit
obligation 14, 337 81, 614
Under/( Over) Funded Status of the plans $ 0 $ 13, 604
Accrued benefit liability recognized in the Statements of
Financial Position $ 0 $ 19, 099
Expenses and Cash Flows for the Period Ended December 31
Net periodic benefit cost $ (919) $ 1,150 Employer contributions
886 1, 280 Benefits paid 886 1, 280
Weighted- Average Assumptions at December 31
Discount rate 4. 50% 5. 75% Expected return on plan assets 4.50%
5. 75% Rate of compensation increase 4. 00% 4.00%
(a) Invested in U. S. Treasury obligations.
For measurement purposes, the per capita cost of covered health
care benefits was assumed to increase by an annual rate of 8.75
percent for 1998. Further, the rate was assumed to decrease
gradually each year to a rate of 7.75 percent for the year 2000
and remain at that level thereafter.
FSLIC Resolution Fund's Financial Statements
Page 77 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
15. Commitments and Concentration of Credit Risk Commitments
Letters of Credit
The RTC had adopted special policies that included honoring
outstanding conservatorship and receivership collateralized
letters of credit. This enabled the RTC to minimize the impact of
its actions on capital markets. In most cases, these letters of
credit were issued by thrifts that later failed and were used to
guarantee tax exempt bonds issued by state and local housing
authorities or other public agencies to finance housing projects
for low and moderate income individuals or families. As of
December 31, 1998 and 1997, securities pledged as collateral to
honor these letters of credit totaled $21.4 million and $51.4
million, respectively. The FRF estimated corporate losses related
to the receiverships' letters of credit as part of the allowance
for loss valuation. The allowance for these losses was $7.6
million and $41.1 million as of December 31, 1998 and 1997,
respectively.
Leases
The FRF's allocated share of the FDIC's lease commitments totals
$22.8 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 amount shown below. The FRF recognized
leased space expense of $6.3 million and $18.2 million for the
years ended December 31, 1998 and 1997, respectively.
Lease Commitments
Dollars in Thousands
1999 2000 2001 2002 2003 2004 and Thereafter
$4, 776 $4, 313 $3, 520 $3, 149 $2, 035 $5, 013
Concentration of Credit Risk
As of December 31, 1998, the FRF had gross receivables from thrift
resolutions totaling $73.3 billion, gross assets acquired from
assisted thrifts and terminated receiverships totaling $216
million, gross securitization funds held by trustee totaling $2.9
billion, and an investment in securitization residual certificates
totaling $1. 5 billion. The allowance for loss against receivables
from thrift resolutions totaled $71.9 billion, the allowance
against the assets acquired from assisted thrifts and terminated
receiverships totaled $152 million, and the allowance against the
securitization funds held by trustee totaled $0.1 billion.
Cash recoveries may be influenced by economic conditions.
Similarly, the value of the investment in securitization residual
certificates can be influenced by the economy of the
FSLIC Resolution Fund's Financial Statements
Page 78 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
area relating to the underlying loans and other assets.
Accordingly, the FRF's maximum exposure to possible accounting
loss is the recorded (net of allowance) value and is also shown in
the table below.
Concentration of Credit Risk at December 31, 1998
Dollars in Millions
Southeast Southwest Northeast Midwest Central West Total
Receivables from thrift resolutions, net $313 $165 $200 $127 $72
$512 $1, 389 Assets acquired from assisted thrifts and
terminated receiverships, net 0 42 1 0 0 21 64
Securitization funds held by trustee 436 320 376 87 80 1, 498
2,797 Investment in securitization residual certificates 319 192
200 68 55 704 1,538
Total $1, 068 $719 $777 $282 $207 $2, 735 $5, 788 16. Disclosures
About the Fair Value of Financial Instruments
Cash equivalents are short- term, highly liquid investments and
are shown at current value. The carrying amount of short- term
receivables and accounts payable and other liabilities
approximates their fair market value. This is due to their short
maturities or comparisons with current interest rates.
The net receivables from thrift resolutions primarily include the
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.
Although the value of the corporate subrogated claim is influenced
by valuation of receivership assets (see Note 3), such
receivership valuation is not equivalent to the valuation of the
corporate claim. Since the corporate claim is unique, not intended
for sale to the private sector, and has no established market, it
is not practicable to estimate its fair market value.
The FDIC believes that a sale to the private sector of the
corporate claim would require indeterminate, but substantial
discounts for an interested party to profit from these assets
because of credit and other risks. In addition, the timing of
receivership payments to the FRF on the subrogated claim does not
necessarily correspond with the timing of collections on
receivership assets. Therefore, the effect of discounting used by
FSLIC Resolution Fund's Financial Statements
Page 79 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
receiverships should not necessarily be viewed as producing an
estimate of market value for the net receivables from thrift
resolutions.
Like the corporate subrogated claim, the securitization credit
enhancement reserves involve an asset that is unique and is not
intended for sale to the private sector. Therefore, it is not
practicable to estimate the fair market value of the
securitization credit enhancement reserves. These reserves are
carried at net realizable value, which is the book value of the
reserves less the related allowance for loss (see Note 4).
The majority of the net assets acquired from assisted thrifts and
terminated receiverships (except real estate) is comprised of
various types of financial instruments, including investments,
loans and accounts receivables. Like receivership assets, assets
acquired from assisted thrifts and terminated receiverships are
valued using discount rates that include consideration of market
risk. However, assets acquired from assisted thrifts and
terminated receiverships do not involve the unique aspects of the
corporate subrogated claim, and therefore the discounting can be
viewed as producing a reasonable estimate of fair market value.
The investment in securitization residual certificates is adjusted
to its fair value at each reporting date using a valuation model
which 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.
FSLIC Resolution Fund's Financial Statements
Page 80 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
17. 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
1998 1997 Net Income $ 1, 729, 691 $ 1, 946, 403 Adjustments to
Reconcile Net Income to Net Cash Provided by Operating Activities
Income Statement Items:
Interest on Federal Financing Bank borrowings 18,068 124, 322
Provision for losses (1, 290,752) (1, 744,690) Gain on conversion
of benefit plan (39,297) 0 OIG income recognized 0 792
Change in Assets and Liabilities:
Decrease in receivables from thrift resolutions 663, 799 3,360,072
Decrease in securitization funds held by trustee 2, 152, 129 779,
071 Decrease in assets acquired from assisted thrifts and
terminated receiverships 61,928 335, 624 Decrease in other assets
5,982 8, 480 (Decrease) Increase in accounts payable and other
liabilities (125,545) 20,772 (Decrease) in accrued interest on
notes payable (28,950) (173,484) Increase (Decrease) in
liabilities from thrift resolutions 2,294 (6, 998) Increase in
estimated liabilities for litigation losses 13,897 0 (Decrease)
Increase in estimated liabilities for assistance agreements (1,
476) 111, 191
Net Cash Provided by Operating Activities $ 3, 161, 768 $ 4, 761,
555 Noncash Investing Activity
In October 1998, the FRF acquired securitization residual
certificates through a noncash purchase from its receiverships.
This noncash transaction valued at $1.8 billion was applied to
amounts owed by FRF receiverships which resulted in a reduction to
the Receivable from thrift resolutions, net line item and the
creation of the Investment in securitization residual certificates
line item (see Note 5).
18. Year 2000 Issues State of Readiness
The FDIC, as administrator for the FRF, is conducting a corporate-
wide effort to ensure that all FDIC information systems are Year
2000 compliant. This means the systems must accurately process
date and time data in calculations, comparisons, and sequences
after December 31, 1999, and be able to correctly deal with leap-
year calculations in 2000. The Year 2000 Oversight Committee is
comprised of FDIC division management that oversees the Year 2000
effort.
The FDIC's Division of Information Resources Management (DIRM)
leads the internal Year 2000 effort, under the direction of the
Oversight Committee. DIRM used a five-
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Page 81 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
phase approach for ensuring that all FDIC systems and software are
Year 2000 compliant. The five phases are:
Awareness
The first phase of compliance focuses on defining the Year 2000
problem and gaining executive- level support and sponsorship for
the effort.
Assessment
The second phase of compliance focuses on assessing the Year 2000
impact on the Corporation as a whole.
Renovation
The third phase of compliance focuses on converting, replacing or
eliminating selected platforms, applications, databases, and
utilities, while modifying interfaces as appropriate.
Platform is a broad term that encompasses computer hardware
(including mainframe computers, servers, and personal computers)
and software (including computer languages and operating systems).
Utility programs, or utilities, provide file management
capabilities, such as sorting, copying, comparing, listing and
searching, as well as diagnostic and measurement routines that
check the health and performance of the system.
Validation
The fourth phase of compliance focuses on testing, verifying and
validating converted or replaced platforms, applications,
databases, and utilities.
Implementation
The fifth phase of compliance focuses on implementing converted or
replaced platforms, applications, databases, utilities, and
interfaces.
The Awareness, Assessment, and Renovation phases are complete. The
Validation phase is scheduled to be completed during January 1999
when all production applications will be validated for Year 2000
readiness. Implementation of the majority of production
applications in Year 2000 ready status will be completed by March
31, 1999. Validation and implementation of new systems and
modifications to existing systems will continue throughout 1999.
Year 2000 Estimated Costs
Year 2000 compliance expenses for the FRF are estimated at $2.1
million and $201 thousand at December 31, 1998 and 1997,
respectively. These expenses are reflected in the Operating
expenses line item of the FRF's Statements of Income and
Accumulated Deficit. Future expenses are estimated to be $2.6
million. Year 2000 estimated future costs are included in the
FDIC's budget.
FSLIC Resolution Fund's Financial Statements
Page 82 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Risks of Year 2000 Issues
No potential loss with internal system failure has been estimated
due to the extensive planning and validation that has occurred.
Contingency Plans
DIRM is currently developing a disaster recovery plan and
contingency plans specific to each mission- critical application.
19. Subsequent Events
On April 9, 1999, the United States Court of Federal Claims ruled
that the federal government must pay Glendale Federal Bank $908.9
million for breaching a contract that allowed the thrift to count
goodwill toward regulatory capital. Both the plaintiffs and the
DOJ are expected to appeal the decision. Additionally, on April
16, 1999, in a similar case, another judge of the U. S. Court of
Federal Claims, using a different analysis than the one used by
the judge in the Glendale Federal case, awarded California Federal
Bank $23 million. The California Federal Bank was seeking more
than $1.0 billion in damages and is expected to appeal the
decision. The analyses of the damage issues in the two cases
appear to be irreconcilable. Due to the expected appeals and the
conflicting analyses in the two cases, the final outcome is
uncertain.
FSLIC Resolution Fund's Financial Statements
Page 83 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Page 84 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Appendix I Comments From the Federal Deposit Insurance Corporation
Appendi x I
Page 85 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
Appendix II GAO Contacts and Staff Acknowledgements Appendi x I I
GAO Contacts Robert W. Gramling (202) 512- 9406 Jeanette M.
Franzel (202) 512- 9471
Lynda E. Downing (202) 512- 9168 Acknowledgements In addition to
those named above, the following staff made key
contributions to this report: Wendy M. Albert, Gary P. Chupka,
Dennis L. Clarke, John C. Craig, Diane B. Davis, Norman C. Poage,
James V. Rinaldi, Miguel A. Salas, and Dale W. Seeley.
The following staff from the FDIC Office of Inspector General also
contributed to this report: Robert W. Allmang, James J. Ballenger,
Arlene S. Boateng, Warren V. Bush, H. Kenneth Copeland,
Christopher P. Dodd, W. Kevin Hainsworth, R. William Harrington,
Paul S. Johnston, Dan Kolb, Foxhall A. Parker, Michael L. Rexrode,
Duane H. Rosenberg, Titus S. Simmons, Ross E. Simms, Charles E.
Thompson, Joseph E. Uricheck, and R. Leon Wellons.
(917708) Let t er
Appendix II GAO Contacts and Staff Acknowledgements
Page 86 GAO/AIMD-99-202 FDIC's 1998 and 1997 Financial Statements
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