Table 16. ASSETS ACQUIRED BY THE FEDERAL DEPOSIT INSURANCE CORPORATI THROUGH BANK SUSPENSIONS AND ABSORPTIONS FROM BEGINNING OF OPERATIONS TO DECEMBER 31, 1950 1 Assets purchased outright from liquidating officers in receivership and absorption cases in order to facilita the termination of the liquidations. Subrogated claims represent the amounts of insured deposits in closed banks paid to depositors for whi amounts the depositors transferred their claims against the bank receiverships to the Federal Deposit Insuran Corporation. Loans to absorbed insured banks are supported by collateral and are evidenced by demand notes bearin interest at the rate of 4 percent per annum. Recoveries in excess of Corporation disbursements and intere allowances are returned to stockholders of closed banks. Assets purchased under agreements with absorbed insured banks are evidenced by purchase agreement allowing an interest return of 4 percent per annum on Corporation advances. Any excess recoveries are returne to the stockholders of the selling bank in the form of an additional cash purchase price. Assets purchased from absorbed insured banks without refund agreements. Does not include operating income from the assets held by the Corporation, nor interest earned or a lowable return on loans and assets purchased to protect depositors. ? Collections in excess of disbursements. • Net profit. Total liabilities of the Corporation increased from $8 million on December 31, 1949, to $70 million on December 30, 1950. This increase was caused by a new account appearing on the balance sheet for the first time; namely, net assessment income credited to insured banks. This account constitutes nearly 98 percent of total liabilities. Pursuant to Public Laws 363 and 813, 80th Congress, approved August 5, 1947, and June 29, 1948, respectively, the Corporation retired all of the capital stock originally issued to the United States Treasury and the Federal Reserve banks. Retirement was completed on August 30, 1948. In addition, the first instalment of interest for the use of this capital was made on December 30, 1950, in compliance with provisions of the Federal Deposit Insurance Act of September 21, 1950. The second and final interest instalment of $40 million is to be paid prior to July 1, 1951. At the end of 1950 the deposit insurance fund was equivalent to approximately 3/4 of 1 percent of all deposits and about 1-1/3 percent of insured deposits. Both of these percentages are smaller than the corresponding figures at the beginning of the year because deposits in insured banks increased by 7 percent, while the deposit insurance fund increased by only 3 percent. The ratio of the fund to insured deposits was also made smaller by the increase in insurance coverage from $5,000 to $10,000 for each depositor. Table 17 shows the total deposits, the estimated insured deposits, and the ratios of the deposit insurance fund to deposits, at the end of each year since beginning operations. Table 17. RELATION OF THE DEPOSIT INSURANCE FUND TO THE DEPOSITS OF INSURED BANKS 1 Estimated. For method, see Annual Report of the Corporation for 1949, page 61. Audit. The audit of the Corporation for the year ended June 30, 1950, was made by the Comptroller General of the United States. The short form of the audit report has been furnished to the Corporation by the Comptroller General and is given in Table 18. The auditor's opinion is shown on page 32. Table 18. FINANCIAL STATEMENTS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION-FROM AUDITORS' REPORT FOR YEAR ENDED June 30, 1950 Accounts payable and accrued liabilities. Earnest money, escrow funds, and collections held for others. Employees' accrued annual leave. Deferred credits (note 4). Deposit insurance reserve, representing accumulated income from inception to June 30, 1950, available for future losses and related expenses (notes 5, 6, and 7, and exhibit 2). 472,805 250,325 21,449 1,002,332 3,093,707 1,277,375,939 $1,282,216,557 The notes following exhibit 2 are an integral part of this statement. Exhibit 2-STATEMENT ON INCOME AND DEPOSIT INSURANCE RESERVE Notes 4, 5, 6, 7, and 8 on the following page are an integral part of this statement. Table 18. FINANCIAL STATEMENTS OF THE FEDERAL DEPOSIT INSURANCE NOTES TO THE FINANCIAL STATEMENTS-JUNE 30, 1950 1. Subrogated claims represent the amounts paid to depositors on insured deposits for which the depositors had transferred to FDIC their claims against banks in receivership. The balance of subrogated claims at June 30, 1950, represents claims paid and uncollected on six receiverships not terminated at that date. Any recoveries made on these claims are in the nature of liquidating dividends paid by the receiverships from funds realized in disposition of bank assets. 2. Loans to merged insured banks are supported by collateral and are evidenced by demand notes bearing interest at the rate of 4 percent per annum on the principal and any subsequent amounts expended by the Corporation. Under this arrangement, notes are dishonored immediately by the closed banks and the Corporation acquires and proceeds to liquidate the collateral assets until it has collected the principal and any subsequent amounts expended plus interest. Any excess recoveries and residual unliquidated assets are returned to the stockholders of the closed banks involved. Assets purchased under agreements with merged insured banks are evidenced by purchase agreements allowing a return at the rate of 4 percent per annum on the principal purchase price and any subsequent amounts expended by the Corporation. Under this arrangement the Corporation acquires title to the assets which it liquidates, returning any excess recoveries to the stockholders of the closed banks involved. 3. Assets purchased outright represent collateral assets which have been purchased by the Corporation from receivership and merger cases in order to facilitate the termination of the liquidations. These assets are the absolute property of the Corporation and are not subject to any agreements with the closed banks from which the assets were originally obtained. 4. The Corporation follows the practice of taking into income only such amounts of interest or allowable return as are realized after recovery in full of its investments (including recoverable expenses) in the respective loan and assets-purchased-under-agreement cases when they are closed. Deferred credits at June 30, 1950, include interest of $3,063,736 and allowable return of $5,967, a total of $3,069,703, representing recoveries in excess of the Corporation's total investment on four of the merger cases not yet closed at that date. 5. The Corporation may borrow from the Treasury such funds as in the judgment of the board of directors of the Corporation are required from time to time for insurance purposes, not exceeding, in the aggregate, three billion dollars outstanding at any time. The Corporation has never used this borrowing power. 6. The original capital investment of the Corporation amounting to $289,299,557 consisted of non-dividend-bearing capital stock which was purchased by the United States Treasury and the Federal Reserve banks. In accordance with the act of August 5, 1947 (12 U.S.C. 264 supp.), the Corporation retired this stock by making payments totaling $289,299,557 to the Secretary of the Treasury. Final payment was made on August 30, 1948. No interest or dividends were ever paid by the Corporation on the Government's investment. However, the Federal Deposit Insurance Act, approved September 21, 1950, provides that, "Prior to July 1, 1951, the Corporation shall pay out of its capital account to the Secretary of the Treasury an amount equal to 2 per centum simple interest per annum on amounts advanced to the Corporation on stock subscriptions by the Secretary of the Treasury and the Federal Reserve banks, from the time of such advances until the amounts thereof were repaid. The amount payable hereunder shall be paid in two equal installments, the first installment to be paid prior to December 31, 1950." The total interest amounts to $80,562,312. The first installment was paid on December 30, 1950. 7. Section 7(d) of the Federal Deposit Insurance Act provides that as of December 31, 1950, and December 31 of each calendar year thereafter, the Corporation shall credit pro rata to the insured banks 60 percent of the net assessment income (as defined in the act) for the calendar year, such credit to be applied toward the payment of assessments becoming due for the semiannual period beginning the next ensuing July 1, and any excess credit applied to the assessment of the following period. At June 30, 1950, the part of the net income for the first half of the calendar year 1950, included in the deposit insurance reserve, to be used in computing the assessment credit as of December 31, 1950, was not determinable. 8. Under existing law the Corporation is not required to bear the Government's share of the cost of furnishing retirement, disability, and compensation benefits to the Corporation's employees. These costs are estimated to be approximately $260,000 for the fiscal year 1950. COMPTROLLER GENERAL OF THE UNITED STATES WASHINGTON 25 February 21, 19. Board of Directors, Federal Deposit Insurance Corporation, Washington 25, D.C. Gentlemen: An audit of the affairs of Federal Deposit Insurance Corporation for the fisca year ended June 30, 1950, has been made by the General Accounting Office in accord ance with provisions of section 17(b) of the Federal Deposit Insurance Act, approved September 21, 1950. There is transmitted herewith a short form report including statements of financial position and operations, together with explanatory notes and auditors' opinion, all of which will be included in the detailed report to be submitted by the Comptroller General to the Congress. Very truly yours, E. L. FISHER Acting Comptroller General of the United States AUDITORS' OPINION We have examined the balance sheet of Federal Deposit Insurance Corporation as of June 30, 1950, and the related statement of income and deposit insurance reserve for the year then ended. Our examination was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances and appropriate in view of the effectiveness of the system of internal control, including the work performed by the Corporation's internal auditors. In our opinion, the accompanying balance sheet and statement of income and deposit insurance reserve present fairly the financial position of Federal Deposit Insurance Corporation at June 30, 1950, and the results of its operations for the year then ended in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year and with applicable Federal laws. During our examination we observed no program, expenditure, or other financial transaction or undertaking which, in our opinion, was carried on or made without authority of law. STEPHEN B. IVES Director Corporation Audits Division |