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2001 Annual Report


Overview of the Industry and the Deposit Insurance Funds


Insured commercial banks and savings institutions took advantage of lower interest rates to post record earnings in 2001. The improvement in earnings was limited by rising expenses for loan losses and sluggish growth in noninterest revenues as the U.S. economy slid into recession in the second quarter.

Commercial banks reported $74.3 billion in net income in 2001, a 4.7 percent increase from the $71.0 billion they earned in 2000. The record earnings were made possible by $4.5 billion in gains on sales of securities, as lower interest rates caused the values of banks’ fixed-rate securities to appreciate. If these gains and other nonrecurring items are omitted, commercial banks’ earnings would have been $1.1 billion lower than in 2000. The main source of weakness in operating earnings was record expenses for loan losses. Banks set aside $43.1 billion in provisions for loan losses in 2001, an increase of $13.1 billion (43.6 percent) from the previous year. The average return on assets (ROA), a fundamental yardstick of earnings performance, declined to 1.16 percent from 1.19 percent in 2000, as the industry registered its ninth consecutive year with an ROA above the benchmark 1 percent level. Fewer than half of all insured commercial banks—44.1 percent—reported higher ROAs in 2001.

As was the case in 2000, commercial and industrial (C&I) loans at large banks remained the focus of asset-quality concerns in 2001. Total loan losses for the year were $36.5 billion, up $11.6 billion (47.1 percent) from 2000. Banks charged off $14.6 billion in C&I loans during 2001, an increase of $6.4 billion (77.6 percent) from the previous year’s total.


Selected Statistics 1999-2001

Bank Insurance Fund (BIF)
Dollars in Millions For the year ended December 31
  2001 2000 1999
Financial Results
Revenue $ 1,997 $ 1,906 $ 1,816
Operating Expenses 786 773 730
Insurance Losses and Expenses 1,774 (128) 1,192
Net (Loss)/Income (563) 1,261 (106)
Comprehensive (Loss)/Income 1 (536) 1,561 (198)
Insurance Fund Balance $ 30,439 $ 30,975 $ 29,414
Fund as a Percentage of Insured Deposits 1.26% 1.35% 1.36%
Selected Statistics
Total BIF-Member Institutions 2 8,326 8,572 8,834
Problem Institutions 90 74 66
Total Assets of Problem Institutions $ 32,000 $ 11,000 $ 4,000
Institution Failures 3 6 7
Total Assets of Current Year Failed Institutions $ 54,470 $ 378 $ 1,424
Number of Active Failed Institution Receiverships 36 51 101
 
Savings Association Insurance Fund (SAIF)
Dollars in Millions For the year ended December 31
  2001 2000 1999
Financial Results
Revenue $ 733 $ 664 $ 601
Operating Expenses 102 111 93
Insurance Losses and Expenses 462 189 31
Net Income 169 364 477
Comprehensive Income 1 176 478 441
Insurance Fund Balance $ 10,935 $ 10,759 $ 10,281
Fund as a Percentage of Insured Deposits 1.36% 1.43% 1.45%
Selected Statistics
Total SAIF-Member Institutions 3 1,287 1,333 1,387
Problem Institutions 24 20 13
Total Assets of Problem Institutions $ 8,000 $ 13,000 $ 6,000
Institution Failures 1 1 1
Total Assets of Current Year Failed Institutions $ 2,180 $ 30 $ 63
Number of Active Failed Institution Receiverships 3 3 3
1 Comprehensive Income added to conform with SFAS No. 130, "Comprehensive Income."

2 Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.

3 Savings institutions and commercial banks.

Insured savings institutions also benefited from lower interest rates in 2001. Net income rose to a record $13.3 billion, from $10.7 billion in 2000. Sales of securities yielded gains of $4.2 billion, a $3.4 billion improvement over the previous year. The widening spread between short-term and longer-term interest rates helped boost the industry’s net interest margin to 3.23 percent, from 2.96 percent in 2000. Lower interest rates also stimulated mortgage refinancing activity in 2001, helping thrifts grow their assets by 6.7 percent. As a result, net interest income increased by $4.8 billion (15.2 percent) in 2001. The industry’s ROA of 1.08 percent was the highest since 1946. The improvement in earnings was limited by slow growth in noninterest income, which was only 3 percent higher than in 2000, by a 12.5 percent ($3.3 billion) increase in noninterest expenses, and by a $770 million (37.9 percent) jump in loan-loss provisions. The performance gap between large and small savings institutions persisted in 2001. The average ROA at savings institutions with less than $100 million in assets was only 0.64 percent, and one out of every six of these small thrifts posted a net loss for the year.

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

Deposit insurance assessment rates remained unchanged from 2000 for both the BIF and the SAIF, ranging from 0 to 27 cents annually per $100 of assessable deposits. Under the assessment rate schedule, 92.3 percent of BIF-member institutions and 90.3 percent of SAIF-member institutions were in the lowest risk-assessment category and paid no deposit insurance assessments for the first semiannual period of 2002.


FDIC-Insured Deposits (estimated 1960-2001)
 
Dollars in Billions
Bar chart showing FDIC-Insured Deposits (estimated 1960 through 2001)D
 
Source: Commercial Bank Call Reports and Thrift Financial Reports
Note:  For more details, see BIF and SAIF.

Deposits insured by the FDIC moved past $3.2 trillion in 2001, as the number of insured institutions fell below the 9,700 mark for the first time. Insured deposits rose by 1 percent during the fourth quarter bringing the growth rate for the full year to 5.1 percent. This was slower than the 6.5 percent increase for 2000; however, the annual growth rate for 2001 was still the second-fastest in the past 15 years. Insured deposits of the 9,631 FDIC member institutions rose by $156 billion in 2001, including a $40 billion increase (24 percent) in insured brokered deposits. About 30 percent of the increase in insured deposits was attributable to institutions whose brokerage affiliates sweep cash management account balances into FDIC-insured deposit accounts.

During 2001, deposits insured by BIF increased 4.7 percent, to $2.4 trillion. The BIF balance was $30.4 billion at year-end 2001, or 1.26 percent of estimated insured deposits. This was down from the year-end 2000 reserve ratio of 1.35 percent as deposits insured by BIF increased by $108 billion and the BIF fund balance decreased by $536 million.

The reserve ratio of SAIF was 1.36 percent at year-end 2001, down from 1.43 percent at year-end 2000. The balance of the SAIF was $10.9 billion on December 31, 2001. SAIF-insured deposits were $802 billion at year-end 2001, having grown 6.2 percent for the year. This was the highest growth rate of insured deposits since the inception of SAIF in 1989.


Risk-Related Premiums
The following tables show the number and percentage of institutions insured by the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF), according to risk classifications effective for the first semiannual assessment period of 2002. Each institution is categorized based on its capitalization and a supervisory subgroup rating (A,B, or C), which is generally determined by on-site examinations. Assessment rates are basis points, cents per $100 of assessable deposits, per year.
BIF Supervisory Subgroups 1
  A B C
Well Capitalized:
Assessment Rate 0 3 17
Number of Institutions 7,722 (92.5%) 387 (4.6%) 62 (0.7%)
Adequately Capitalized:
Assessment Rate 3 10 24
Number of Institutions 134 (1.6%) 17 (0.2%) 11 (0.1%)
Undercapitalized:
Assessment Rate 10 24 27
Number of Institutions 3 (0.0%) 1 (0.0%) 7 (0.1%)
SAIF Supervisory Subgroups 2
Well Capitalized:
Assessment Rate 0 3 17
Number of Institutions 1,163 (90.4%) 80 (6.2%) 18 (1.4%)
Adequately Capitalized:
Assessment Rate 3 10 24
Number of Institutions 11 (0.9%) 9 (0.7%) 3 (0.2%)
Undercapitalized:
Assessment Rate 10 24 27
Number of Institutions 0 (0.0%) 1 (0.1%) 2 (0.2%)
1 BIF data exclude SAIF-member "Oakar" institutions that hold BIF-insured deposits. The assessment rate reflects the rate for BIF-assessable deposits, which remained the same through 2001.

2 SAIF data exclude BIF-member "Oakar" institutions that hold SAIF-insured deposits. The assessment rate reflects the rate for SAIF-assessable deposits, which remained the same through 2001.

Despite the relatively rapid growth of insured deposits, insured institutions continued to rely increasingly on other funding alternatives. Insured deposits as a percentage of domestic liabilities continued a steady, ten-year decline, falling to 50.9 percent at the end of 2001, compared to 51.7 percent at the end of 2000. At year-end 2001 the ratio was 46 percent for institutions with total assets greater than $1 billion, and 73 percent for smaller institutions.

During 2001, four FDIC-insured institutions failed. Three of those institutions, with combined assets of $54 million, were insured by the BIF. The other institution, with assets of $2.2 billion, was insured by the SAIF. Losses for the four failures are estimated at $445 million. In 2000, there were seven failures of insured institutions, with total assets of $408 million and estimated losses of $40 million. The contingent liability for anticipated failures of BIF- and SAIF-insured institutions as of December 31, 2001, was $1.9 billion and $233 million, respectively.



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Last Updated 11/20/2002

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