1

Savings 

Association 

Insurance 

Fund

December 31, 2003

and 2002
SAIF

Savings Association Insurance Fund

63

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Balance Sheets at December 31

Dollars in Thousands 

2003 2002

Assets

Cash and cash equivalents $ 827,141 $ 1,907,353

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

(Includes cash and cash equivalents of $231.9 million and $187.7 million

at December 31, 2003 and 2002, respectively) 319,286 311,864

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

Held-to-maturity securities 6,823,709 5,726,840

Available-for-sale securities 4,152,048 3,769,576

Interest receivable on investments and other assets, net 188,189 153,320

Receivables from thrift resolutions, net (Note 5) 273,242 287,855

Total Assets $ 12,583,615 $ 12,156,808

Liabilities

Accounts payable and other liabilities $ 20,540 $ 7,100

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 3,192 90,493

Litigation losses 532 613

SAIF-member exit fees and investment proceeds held in escrow (Note 3) 319,286 311,864

Total Liabilities 343,550 410,070

Commitments and off-balance-sheet exposure (Note 11)

Fund Balance

Accumulated net income 11,965,776 11,465,716

Unrealized gain on available-for-sale securities, net (Note 4) 274,289 281,022

Total Fund Balance 12,240,065 11,746,738

Total Liabilities and Fund Balance $ 12,583,615 $ 12,156,808

The accompanying notes are an integral part of these financial statements.
64

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2003 2002

Revenue

Interest on U.S. Treasury obligations $ 532,474 $ 564,259 

Assessments (Note 7) 14,594 23,783 

Other revenue 192 779 

Total Revenue 547,260 588,821 

Expenses and Losses

Operating expenses (Note 8) 129,584 124,363 

Provision for insurance losses (Note 9) (82,489) (156,494) 

Insurance and other expenses 105 751 

Total Expenses and Losses 47,200 (31,380) 

Net Income 500,060 620,201 

Unrealized (loss)/gain on available-for-sale securities, net (6,733) 191,613

Comprehensive Income 493,327 811,814 

Fund Balance - Beginning 11,746,738 10,934,924 

Fund Balance - Ending $ 12,240,065 $ 11,746,738 

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

65

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 

2003 2002

Operating Activities

Provided by:

Interest on U.S. Treasury obligations $ 620,842 $ 576,192

Assessments 15,327 23,709

Entrance and exit fees, including interest on exit fees (Note 3) 4,305 15,811

Recoveries from thrift resolutions 13,419 1,126,940

Miscellaneous receipts 15,344 73

Used by:

Operating expenses (130,495) (125,159)

Disbursements for thrift resolutions (6,541) (119,993)

Miscellaneous disbursements (108) (103)

Net Cash Provided by Operating Activities (Note 13) 532,093 1,497,470

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 1,170,000 1,070,000

Maturity of U.S. Treasury obligations, available-for-sale 575,000 150,000

Used by:

Purchase of U.S. Treasury obligations, held-to-maturity (2,305,056) 0

Purchase of U.S. Treasury obligations, available-for-sale (1,008,066) (970,813)

Net Cash (Used by) Provided by Investing Activities (1,568,122) 249,187

Net (Decrease)/Increase in Cash and Cash Equivalents (1,036,029) 1,746,657

Cash and Cash Equivalents - Beginning 2,095,081 348,424

Unrestricted Cash and Cash Equivalents - Ending 827,141 1,907,353

Restricted Cash and Cash Equivalents - Ending 231,911 187,728

Cash and Cash Equivalents - Ending $ 1,059,052 $ 2,095,081

The accompanying notes are an integral part of these financial statements.
1

1. Operations of the Savings Association Insurance Fund

Overview

The Federal Deposit Insurance Corporation (FDIC) is the independent deposit

insurance agency created by Congress in 1933 to maintain stability and public

confidence in the nation’s banking system. Provisions that govern the operations

of the FDIC are generally found in the Federal Deposit Insurance (FDI) Act, as

amended, (12 U.S.C. 1811, et seq). In carrying out the purposes of the FDI Act,

as amended, the FDIC insures the deposits of banks and savings associations,

and in cooperation with other federal and state agencies, promotes the safety

and soundness of insured depository institutions by identifying, monitoring and

addressing risks to the deposit insurance funds established in the FDI Act, as

amended. FDIC is the administrator of the Savings Association Insurance Fund

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

which are maintained separately to carry out their respective mandates. The

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

and bank depositors from loss due to institution failures. These insurance funds

must be maintained at not less than 1.25 percent of estimated insured deposits

or a higher percentage as circumstances warrant. The FRF is a resolution 

fund responsible for the sale of remaining assets and satisfaction of liabilities

associated with the former Federal Savings and Loan Insurance Corporation

(FSLIC) and the Resolution Trust Corporation. 

An active institution’s insurance fund membership and primary federal supervisor

are generally determined by the institution’s charter type. Deposits of SAIF-member

institutions are generally insured by the SAIF; SAIF members are predominantly

thrifts supervised by the Office of Thrift Supervision (OTS). Deposits of BIF-member

institutions are generally insured by the BIF; BIF members are predominantly

commercial and savings banks supervised by the FDIC, the Office of the

Comptroller of the Currency, or the Federal Reserve Board.

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

exist. A member of one insurance fund may, with the approval of its primary 

federal supervisor, merge, consolidate with, or acquire the deposit liabilities of

an institution that is a member of the other insurance fund without changing

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

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

In addition, SAIF-member thrifts can convert to a bank charter and retain their

SAIF membership. These institutions are referred to as Sasser financial institutions.

Likewise, BIF-member banks can convert to a thrift charter and retain their 

BIF membership. 

Operations of the SAIF

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

the depositors of SAIF-insured institutions and 2) resolve SAIF-insured failed

institutions upon appointment of FDIC as receiver in a manner that will result 

in the least possible cost to the SAIF.

Savings

Association

Insurance 

Fund

Notes to the 

Financial 

Statements 

December 31, 2003

and 2002
SAIF

Savings Association Insurance Fund

67

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

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

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

Bank (FFB), and the Federal Home Loan Banks, if necessary. The FDIC has 

borrowing authority from the U.S.Treasury up to $30 billion for insurance 

purposes on behalf of the SAIF and the BIF. 

A statutory formula, known as the Maximum Obligation Limitation (MOL), limits

the amount of obligations the SAIF can incur to the sum of its cash, 90% of the

fair market value of other assets, and the amount authorized to be borrowed

from the U.S.Treasury. The MOL for the SAIF was $20.3 billion and $19.9 billion

as of December 31, 2003 and 2002, respectively.

Receivership Operations 

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

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

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

assets and liabilities to ensure that receivership proceeds are distributed in

accordance with applicable laws and regulations. Also, the income and expenses

attributable to receiverships are accounted for as transactions of those receiverships. Receiverships are billed by the FDIC for services provided on their behalf.

Recent Legislative Initiatives

In April 2001, FDIC issued recommendations for deposit insurance reform. The

FDIC recommendations included merging SAIF and BIF and improving FDIC’s

ability to manage the merged fund by permitting the FDIC Board of Directors 

to price insurance premiums properly to reflect risk, to set the reserve ratio in a

range around 1.25 percent, establish a system for providing credits, rebates and

surcharges, and to eliminate the SAIF exit fee reserve. FDIC also recommended

that Congress consider indexing deposit insurance coverage for inflation. During

the 107th Congress (2001-2002), hearings were held in the House and Senate

and legislation was introduced containing major elements of FDIC’s deposit 

insurance reform proposals. The legislation was not enacted prior to congressional adjournment. During the 108th Congress (2003 - 2004), the House and

Senate are again considering deposit insurance reform legislation. If Congress

enacts deposit insurance reform legislation that contains the above recommendations, the new law would have a significant impact on the SAIF and BIF. 

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

ultimately be enacted.
2

68

2. Summary of Significant Accounting Policies

General

These financial statements pertain to the financial position, results of operations,

and cash flows of the SAIF and are presented in conformity with U.S. generally

accepted accounting principles (GAAP). These statements do not include reporting

for assets and liabilities of closed thrift institutions for which the FDIC acts as

receiver. Periodic and final accountability reports of the FDIC’s activities as

receiver are furnished to courts, supervisory authorities, and others as required.

Use of Estimates

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. The 

more significant estimates include allowance for loss on receivables from thrift

resolutions, the estimated losses for anticipated failures and litigation, and the

postretirement benefit obligation. 

Cash Equivalents

Cash equivalents are short-term, highly liquid investments with original maturities

of three months or less. Cash equivalents consist primarily of Special 

U.S.Treasury Certificates. 

Investment in U.S. Treasury Obligations

SAIF funds are required to be invested in obligations of the United States or 

in obligations guaranteed as to principal and interest by the United States; the

Secretary of the U.S.Treasury must approve all such investments in excess 

of $100,000. The Secretary has granted approval to invest SAIF funds only 

in U.S.Treasury obligations that are purchased or sold exclusively through the

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

SAIF’s investments in U.S. Treasury obligations are either classified as heldto-maturity or available-for-sale. Securities designated as held-to-maturity are

shown at amortized cost. Amortized cost is the face value of securities plus 

the unamortized premium or less the unamortized discount. Amortizations are

computed on a daily basis from the date of acquisition to the date of maturity,

except for callable U.S.Treasury securities, which are amortized to the first 

anticipated call date. Securities designated as available-for-sale are shown at

market value, which approximates fair value. Unrealized gains and losses are

included in Comprehensive Income. Realized gains and losses are included 

in the Statements of Income and Fund Balance as components of Net Income.

Interest on both types of securities is calculated on a daily basis and recorded

monthly using the effective interest method. 
3

SAIF

Savings Association Insurance Fund

69

Cost Allocations Among Funds

Operating expenses not directly charged to the SAIF, the BIF, and the FRF 

are allocated to all funds using workload-based allocation percentages. These

percentages are developed during the annual corporate planning process and

through supplemental functional analyses.

Related Parties

The nature of related parties and a description of related party transactions 

are discussed in Note 1 and disclosed throughout the financial statements and

footnotes.

Reclassifications

Reclassifications have been made in the 2002 financial statements to conform 

to the presentation used in 2003.

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

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

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

entrance fee) or from the SAIF to the BIF (resulting in an exit fee). Regulations

approved by the FDIC’s Board of Directors (Board) and published in the Federal

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

escrow. 

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

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

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

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

is also held in escrow. There were no conversion transactions during 2003 and

2002 that resulted in an entrance/exit fee to the SAIF.

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

Dollars in Thousands 

2003 2002

Cash and cash equivalents $ 231,911 $ 187,728

Investment in U.S. Treasury obligations, net 86,471 122,402

Interest receivable on U.S. Treasury obligations 904 1,734

Total $ 319,286 $ 311,864
U.S. Treasury Obligations at December 31, 2002 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized

Yield at Face Carrying Holding Market

Maturity Purchase Value Amount Gains Value

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

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

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

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

70

As of December 31, 2003 and 2002, the unamortized premium, net of the

unamortized discount, was $2.5 million and $3.4 million, respectively.

U.S. Treasury Obligations at December 31, 2003 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized

Yield at Face Carrying Holding Market

Maturity Purchase Value Amount Gains Value

Within 1 year 5.79% $ 20,000 $ 20,267 $ 683 $ 20,950

After 1 year thru 5 years 5.20% 64,000 66,204 5,349 71,553

Total $ 84,000 $ 86,471 $ 6,032 $ 92,503 
4

71

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

As of December 31, 2003 and 2002, the book value of investments in 

U.S.Treasury obligations, net, was $11.0 billion and $9.5 billion, respectively.

As of December 31, 2003, the SAIF held $2.2 billion of Treasury inflation-indexed

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

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

held $2.5 billion of callable U.S.Treasury bonds at December 31, 2003. Callable

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

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

notice.

Savings Association Insurance Fund

SAIF
Available-for-Sale

Within 1 year 3.15% $ 1,360,000 $ 1,413,730 $ 16,265 $ (99) $ 1,429,896

After 1 year thru 5 years 4.43% 655,000 756,058 34,530 0 790,588

Treasury Inflation-Indexed

After 1 year thru 5 years 4.11% 280,564 276,009 34,278 0 310,287

After 5 years thru 10 years 3.79% 1,429,352 1,431,962 189,315 0 1,621,277

Total $ 3,724,916 $ 3,877,759 $ 274,388 $ (99) $ 4,152,048

Total Investment in U.S. Treasury Obligations, Net

Total $ 10,383,948 $ 10,701,468 $ 766,796 $ (221) $ 11,468,043

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

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

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

Congressional Budget Office in early 2003.

All unrealized losses occurred during the last 12 months as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until

maturity within the coming year. As a result, all losses are considered temporary and will be eliminated upon redemption of the securities.

●

▼

■

72

U.S. Treasury Obligations at December 31, 2003 (Unrestricted)

Dollars in Thousands

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 2.86% $ 1,670,000 $ 1,742,136 $ 12,009 $ (122) $ 1,754,023

After 1 year thru 5 years 5.59% 3,185,000 3,250,611 284,578 0 3,535,189

After 5 years thru 10 years 5.54% 1,575,000 1,603,674 169,813 0 1,773,487

Treasury Inflation-Indexed

After 1 year thru 5 years 3.86% 229,032 227,288 26,008 0 253,296

Total $ 6,659,032 $ 6,823,709 $ 492,408 $ (122) $ 7,315,995 

● ▼ ■
SAIF

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

Dollars in Thousands

Net Unrealized

Yield at Face Carrying Holding Market

Maturity Purchase Value Amount Gains Value

Held-to-Maturity

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

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

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

Treasury Inflation-Indexed

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

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

Available-for-Sale

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

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

Treasury Inflation-Indexed

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

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

Total Investment in U.S. Treasury Obligations, Net

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

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

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

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

Congressional Budget Office in early 2002.

●

▼

Savings Association Insurance Fund

73

As of December 31, 2003 and 2002, the unamortized premium, net of the

unamortized discount, was $317.5 million and $160.4 million, respectively.

● ▼
5

74

5. Receivables From Thrift Resolutions, Net

The receivables from thrift resolutions include payments made by the SAIF to

cover obligations to insured depositors, advances to receiverships for working

capital, and administrative expenses paid on behalf of receiverships. Any related

allowance for loss represents the difference between the funds advanced 

and/or obligations incurred and the expected repayment. Assets held by SAIF

receiverships are the main source of repayment of the SAIF’s receivables from

closed thrifts. During 2003, there were no thrift failures, leaving two active

receiverships. 

As of December 31, 2003 and 2002, SAIF receiverships held assets with 

a book value of $449 million and $490 million, respectively (including cash, 

investments, and miscellaneous receivables of $117 million and $93 million 

at December 31, 2003 and 2002, respectively). The estimated cash recoveries

from the management and disposition of these assets that are used to derive

the allowance for losses are based on a sampling of receivership assets. The

sampled assets are generally valued by estimating future cash recoveries, net 

of applicable liquidation cost estimates, and then discounting these net cash

recoveries using current market-based risk factors based on a given asset’s type

and quality. Resultant recovery estimates are extrapolated to the non-sampled

assets in order to derive the allowance for loss on the receivable. These estimated

recoveries are regularly evaluated, but remain subject to uncertainties because

of potential changes in economic and market conditions. Such uncertainties could

cause the SAIF’s actual recoveries to vary from the level currently estimated.

At December 31, 2003, about 99% of the SAIF’s $273 million net receivable 

will be repaid from assets related to the Superior receivership (which failed in

July 2001), primarily, cash, investments, and a promissory note arising from 

a settlement with the owners of the failed institution. The credit risk related to

the promissory note is limited since half of the outstanding note is secured by 

a letter of credit and the remaining half is subject to the creditworthiness of 

the payor of the note. Annual monitoring of the creditworthiness of the payor 

is performed and currently indicates a low risk of non-performance.

Receivables From Thrift Resolutions, Net at December 31 

Dollars in Thousands 

2003 2002

Receivables from closed thrifts $ 709,389 $ 721,572

Allowance for losses (436,147) (433,717) 

Total $ 273,242 $ 287,855 
SAIF

6

Savings Association Insurance Fund

75

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The SAIF records a contingent liability and a loss provision for thrifts (including

Oakar and Sasser financial institutions) that are likely to fail within one year of

the reporting date, absent some favorable event such as obtaining additional

capital or merging, when the liability becomes probable and reasonably estimable.

The contingent liability is derived by applying expected failure rates and 

historical loss rates to groups of institutions with certain shared characteristics. 

In addition, institution-specific analysis is performed on those thrifts where failure

is imminent absent institution management resolution of existing problems. 

As of December 31, 2003 and 2002, the contingent liabilities for anticipated 

failure of insured institutions were $3 million and $90 million, respectively. 

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

risk in the financial services industry that could result in a material loss to the

SAIF should potentially vulnerable financial institutions ultimately fail. This risk 

is evidenced by the level of problem thrift assets and the presence of various

high-risk banking business models that are particularly vulnerable to adverse 

economic and market conditions. Due to the uncertainty surrounding future 

economic and market conditions, there are other thrifts for which the risk 

of failure is less certain, but still considered reasonably possible. As a result 

of these risks, the FDIC believes that it is reasonably possible that the SAIF

could incur additional estimated losses up to $143 million.

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

market conditions. The FDIC’s Board of Directors has the statutory authority to

consider the contingent liability from anticipated failures of insured institutions

when setting assessment rates.

Litigation Losses

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

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

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

unresolved legal cases totaling $53.4 million are reasonably possible.

Other Contingencies

Representations and Warranties

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

thrift resolutions, representations and warranties, and guarantees were offered

on certain loan sales. In general, the guarantees, representations, and warranties

on loans sold relate to the completeness and accuracy of loan documentation,

the quality of the underwriting standards used, the accuracy of the delinquency

status when sold, and the conformity of the loans with characteristics of the

pool in which they were sold. The total amount of loans sold subject to 
7

76

unexpired representations and warranties, and guarantees was $5.2 billion 

as of December 31, 2003. SAIF did not establish a liability for all outstanding

claims asserted in connection with representations and warranties because 

the receiverships have sufficient funds to pay for such claims.

In addition, future losses on representations and warranties, and guarantees

could be incurred over the remaining life of the loans sold, which is generally 

20 years or more. Consequently, the FDIC believes it is possible that additional

losses may be incurred by the SAIF from the universe of outstanding contracts

with unasserted representation and warranty claims. However, because of the

uncertainties surrounding the timing of when claims may be asserted, the FDIC

is unable to reasonably estimate a range of loss to the SAIF from outstanding

contracts with unasserted representation and warranty claims.

7. Assessments

In compliance with provisions of the FDI Act, as amended, 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

based on capital ratios and supervisory examination data. The majority of the

financial institutions are not assessed. Of those assessed, the assessment rate

averaged approximately 14 cents and 26 cents per $100 of assessable deposits

for 2003 and 2002, respectively. During 2003 and 2002, $15 million and $24 million

were collected from SAIF-member institutions, respectively. On November 4, 2003,

the Board voted to retain the SAIF assessment schedule at the annual rate of 

0 to 27 cents per $100 of assessable deposits for the first semiannual period of

2004. The Board reviews assessment rates semiannually to ensure that funds

are available to satisfy the SAIF’s obligations. If necessary, the Board may

impose more frequent rate adjustments or emergency special assessments. 

The FDIC is required to maintain the insurance funds at a designated reserve

ratio (DRR) of not less than 1.25 percent of estimated insured deposits (or a

higher percentage as circumstances warrant). If the reserve ratio falls below 

the DRR, the FDIC is required to set semiannual assessment rates that are 

sufficient to increase the reserve ratio to the DRR not later than one year 

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

of fifteen years or less. As of September 30, 2003, the SAIF reserve ratio 

was 1.40 percent of estimated insured deposits.

Assessments are also levied on institutions for payments of the interest 

on obligations issued by the Financing Corporation (FICO). The FICO was 

established as a mixed-ownership government corporation to function solely 

as a financing vehicle for the FSLIC. The annual FICO interest obligation of

approximately $790 million is paid on a pro rata basis using the same rate for

banks and thrifts. The FICO assessment has no financial impact on the SAIF 

and is separate from the regular assessments. The FDIC, as administrator 

of the SAIF and the BIF, acts solely as a collection agent for the FICO. During 

2003 and 2002, $162 million and $161 million, respectively, were collected 

from SAIF-member institutions and remitted to the FICO.
SAIF

8

Savings Association Insurance Fund

77

8. Operating Expenses

Operating expenses totaled $130 million for 2003 compared to $124 million for

2002. Salaries and benefits expenses are lower due to the workforce reduction

programs in 2002. The chart below lists the major components of operating

expenses.

During 2002, the FDIC offered voluntary employee buyout incentives to a majority

of its employees and conducted a reduction-in-force (RIF) in 2002 and 2003 

in an effort to reduce identified staffing excesses and skill imbalances. As a

result, approximately 750 employees left by December 31, 2003. Termination

benefits included compensation of fifty percent of the employee’s current 

base salary and locality adjustment for voluntary departures. The total cost 

of this buyout was $33.1 million for 2002, with SAIF’s pro rata share totaling

$4.2 million, which is included in the “Salaries and benefits” category in the

chart below, as well as the “Separation Incentive Payment” line item in Note 10.

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2003 2002

Salaries and benefits $ 87,963 $ 92,192

Outside services 15,038 12,196

Travel 5,801 5,473

Buildings and leased space 12,132 10,163

Equipment 9,374 7,858

Other 3,189 2,254

Services billed to receiverships (3,913) (5,773)

Total $ 129,584 $ 124,363
78

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2003 2002

Valuation Adjustments:

Closed thrifts $ 4,684 $ (10,113)

Total Valuation Adjustments 4,684 (10,113)

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (87,301) (142,507)

Litigation losses 128 (3,874)

Total Contingent Liabilities Adjustments (87,173) (146,381)

Total $ (82,489) $ (156,494)

99. Provision for Insurance Losses

Provision for insurance losses was a negative $82 million for 2003 and a negative

$156 million for 2002. In both 2003 and 2002, the negative provision was 

primarily due to lower estimated losses for anticipated failures which resulted

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

lists the major components of the provision for insurance losses.
SAIF

10

Savings Association Insurance Fund

79

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

Dollars in Thousands 

2003 2002

Civil Service Retirement System $ 1,258 $ 1,715

Federal Employees Retirement System (Basic Benefit) 4,682 4,765

FDIC Savings Plan 2,788 2,951

Federal Thrift Savings Plan 1,900 1,913

Separation Incentive Payment (see Note 8) 14 4,276

Total $ 10,642 $ 15,620

10. Employee Benefits

Pension Benefits, Savings Plans and Postemployment Benefits

Eligible FDIC employees (permanent and term employees with appointments

exceeding one year) are covered by the federal government retirement plans,

either the Civil Service Retirement System (CSRS) or the Federal Employees

Retirement System (FERS). Although the SAIF contributes a portion of pension

benefits for eligible employees, it does not account for the assets of either

retirement system. The SAIF also does not have actuarial data for accumulated

plan benefits or the unfunded liability relative to eligible employees. These

amounts are reported on and accounted for by the U.S. Office of Personnel

Management. 

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

401(k) savings plan with matching contributions up to five percent. The SAIF

pays its share of the employer’s portion of all related costs.
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Postretirement Benefits Other Than Pensions

The FDIC provides certain life and dental insurance coverage for its eligible

retirees, the retirees’ beneficiaries, and covered dependents. Retirees eligible 

for life insurance coverage are those who have qualified due to: 1) immediate

enrollment upon appointment or five years of participation in the plan and 

2) eligibility for an immediate annuity. The life insurance program provides 

basic coverage at no cost to retirees and allows converting optional coverages 

to direct-pay plans. Dental coverage is provided to all retirees eligible for an

immediate annuity.

Prior to 2003, the SAIF funded its liability for postretirement benefits other 

than pensions directly to a separate entity, which was established to restrict 

the funds and to provide for the accounting and administration of these benefits. 

As of January 1, 2003, the FDIC changed its funding policy for these benefits

and eliminated the separate entity in order to simplify the investment, accounting,

and reporting for the obligation. The change does not impact any benefit entitlements to employees and retirees or the accrual of this liability pursuant to 

the provisions of SFAS No.106. The SAIF received $14 million, of the total 

$103 million, as its proportionate share of the plan assets and recognized 

a liability of $14 million, of the total $104 million, in the “Accounts payable 

and other liabilities” line item on its Balance Sheets. 

The net cumulative effect of this accounting change for the periods prior to 

2003 was a negative $43 thousand which is included in the “Insurance and

other expenses” line item on the SAIF’s Statements of Income and Fund

Balance. In addition to the cumulative effect, the SAIF’s expense for such 

benefits in 2003 was $1 million, which is included in the current year operating

expenses. In the absence of the accounting change, the SAIF would have 

recognized an expense of $925 thousand. 

At December 31, 2003 and 2002, the SAIF’s net postretirement benefit liability

recognized in the “Accounts payable and other liabilities” line item in the

Balance Sheet was $15 million and $145 thousand, respectively. Key actuarial

assumptions used in the accounting for the plan include the discount rate, the

rate of compensation increase, and the dental coverage trend rate.
11

SAIF

Savings Association Insurance Fund

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11. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The SAIF’s allocated share of the FDIC’s lease commitments totals $19.4 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 and the BIF. 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 $7.9 million and

$6.5 million for the years ended December 31, 2003 and 2002, respectively. 

Off-Balance-Sheet Exposure:

Deposit Insurance

As of September 30, 2003, deposits insured by the SAIF totaled approximately

$868 billion. This would be the accounting loss if all depository institutions were

to fail and the acquired assets provided no recoveries.

Leased Space Commitments

Dollars in Thousands 

2004 2005 2006 2007 2008 2009/Thereafter

$ 5,849 $ 5,117 $ 3,522 $ 2,138 $ 1,392 $ 1,418
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1212. 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 4 and is based on current market prices. The carrying

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

accounts payable and other liabilities approximates their fair market value, 

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

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

claim arising from payments to insured depositors. The receivership assets

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

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

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

thrift resolutions. Therefore, the corporate subrogated claim indirectly includes

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

of nominal cash flows.

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

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

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

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

practicable to estimate its fair market value.

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

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

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

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

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

effect of discounting used by receiverships should not necessarily be viewed 

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

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

Dollars in Thousands 

2003 2002

Net Income $ 500,060 $ 620,201

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities

Income Statement Items:

Amortization of U.S. Treasury obligations (unrestricted) 155,993 47,333

TIIS inflation adjustment (38,943) (37,429)

Change in Assets and Liabilities:

Decrease in amortization of U.S. Treasury obligations (restricted) 931 811

(Increase) Decrease in entrance and exit fees receivable, including interest receivable 

on investments and other assets (34,040) 5,317

Decrease in receivables from thrift resolutions 14,613 997,295

Increase (Decrease) in accounts payable and other liabilities 13,440 (1,011)

(Decrease) in contingent liability for anticipated failure of insured institutions (87,301) (142,507)

(Decrease) in contingent liability for litigation losses (82) (5,029)

Increase in exit fees and investment proceeds held in escrow 7,422 12,489

Net Cash Provided by Operating Activities $ 532,093 $ 1,497,470

1313. Supplementary Information Relating to the Statements of

Cash Flows

Savings Association Insurance Fund

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