IV. Financial Statements and Notes

42

Bank Insurance Fund

December 31, 2005 and 2004
BIF

Bank Insurance Fund

Federal Deposit Insurance Corporation

Bank Insurance Fund Balance Sheet at December 31 

Dollars in Thousands 

2005 2004

Assets

Cash and cash equivalents $ 2,411,828 $ 1,821,776

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

Held-to-maturity securities 24,678,611 22,637,330

Available-for-sale securities 7,620,733 9,470,605

Interest receivable on investments and other assets, net 546,202 601,498

Receivables from bank resolutions, net (Note 4) 299,317 375,303

Property and equipment, net (Note 5) 378,064 357,106

Total Assets $ 35,934,755 $ 35,263,618

Liabilities 

Accounts payable and other liabilities $ 265,687 $ 268,451

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 1,591 8,261

Litigation losses and other 200,435 200,301

Total Liabilities 467,713 477,013

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

Fund Balance

Accumulated net income 35,168,698 34,096,676

Unrealized gain on available-for-sale securities, net (Note 3) 298,344 689,929

Total Fund Balance 35,467,042 34,786,605

Total Liabilities and Fund Balance $ 35,934,755 $ 35,263,618

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

43
Federal Deposit Insurance Corporation

Bank Insurance Fund Statement of Income and Fund Balance for the Years Ended December 31 

Dollars in Thousands 

2005 2004

Revenue

Interest on U.S. Treasury obligations $ 1,713,316 $ 1,552,576

Assessments (Note 7) 52,570 95,268

Other revenue 17,587 27,547

Total Revenue 1,783,473 1,675,391

Expenses and Losses

Operating expenses (Note 8) 846,183 821,341

Provision for insurance losses (Note 9) (138,181) (281,390)

Insurance and other expenses 3,449 18,662

Total Expenses and Losses 711,451 558,613

Net Income 1,072,022 1,116,778

Unrealized loss on available-for-sale securities, net (391,585) (112,368)

Comprehensive Income 680,437 1,004,410

Fund Balance - Beginning 34,786,605 33,782,195

Fund Balance - Ending $ 35,467,042 $ 34,786,605

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

44
Bank Insurance Fund

BIF

Federal Deposit Insurance Corporation

Bank Insurance Fund Statement of Cash Flows for the Years Ended December 31 

Dollars in Thousands 

2005 2004

Operating Activities

Net Income: $ 1,072,022 $ 1,116,778

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of U.S.Treasury obligations 613,971 737,439

Treasury inflation-protected securities (TIPS) inflation adjustment (257,829) (181,650)

Depreciation on property and equipment 55,989 54,424

Provision for insurance losses (138,181) (281,390)

Terminations/adjustments of work-in-process accounts 178 817

Change in Operating Assets and Liabilities:

(Increase) in interest receivable and other assets (3,398) (24,411)

Decrease in receivables from bank resolutions 211,955 218,693

Increase in accounts payable and other liabilities 21,860 15,590

(Decrease) in contingent liabilities for litigation losses and other (182) (1,047)

Net Cash Provided by Operating Activities 1,576,385 1,655,243

Investing Activities

Provided by:

Maturity of U.S. Treasury obligations, held-to-maturity 6,290,000 3,365,000

Maturity of U.S. Treasury obligations, available-for-sale 1,560,000 5,810,000

Used by:

Purchase of property and equipment (47,197) (104,502)

Purchase of U.S. Treasury obligations, held-to-maturity (8,789,136) (10,026,597)

Purchase of U.S. Treasury obligations, available-for-sale 0 (1,421,649)

Net Cash Used by Investing Activities (986,333) (2,377,748)

Net Increase/(Decrease) in Cash and Cash Equivalents 590,052 (722,505)

Cash and Cash Equivalents - Beginning 1,821,776 2,544,281

Cash and Cash Equivalents - Ending $ 2,411,828 $ 1,821,776 

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

45
11. Legislation and Operations of the Bank 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. The FDIC is the administrator of

the Bank Insurance Fund (BIF), the Savings Association Insurance Fund (SAIF), 

and the FSLIC Resolution Fund (FRF), which are maintained separately to 

carry out their respective mandates. The BIF and the SAIF are insurance funds

responsible for protecting insured bank and thrift depositors from loss due 

to institution failures. 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 BIF-member

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

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

Comptroller of the Currency, or the Federal Reserve Board. Deposits of SAIFmember 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. 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 BIF

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

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

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

possible cost to the BIF. In addition, the FDIC, acting on behalf of the BIF, 

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

System. 

46

Bank Insurance Fund

Notes to the Financial Statements December 31, 2005 and 2004

Financial Statements and Notes
Bank Insurance Fund

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

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

funding sources are U.S. Treasury and Federal Financing Bank (FFB) borrowings,

if necessary. The FDIC has borrowing authority from the U.S. Treasury up to 

$30 billion for insurance purposes on behalf of the BIF and the SAIF. 

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

the amount of obligations the BIF can incur to the sum of its cash, 90 percent of

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

from the U.S. Treasury. The MOL for the BIF was $57.2 billion and $57.0 billion

as of December 31, 2005 and 2004, respectively.

Receivership Operations

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

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

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

assets and liabilities to ensure that receivership proceeds are distributed in

accordance with applicable laws and regulations. Accordingly, 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

The Deposit Insurance Reform Act of 2005 (Title II of Public Law 109-171) was

enacted on February 8, 2006. The companion legislation, the Federal Deposit

Insurance Reform Conforming Amendments Act of 2005 (Public Law 109-173),

was enacted on February 15, 2006. The legislation: 1) merges the BIF and the

SAIF into a new fund, the Deposit Insurance Fund (DIF); 2) annually permits 

the designated reserve ratio to vary between 1.15 and 1.50 of estimated insured

deposits, thereby eliminating the fixed designated reserve ratio of 1.25; 

3) requires the declaration of dividends from the DIF for the full amount 

of the reserve ratio in excess of 1.50 percent or, if less than 1.50 percent, 

one-half of the amount between 1.35 and 1.50 percent; 4) grants a one-time

assessment credit for each eligible institution or its successor based on 

an institution’s proportionate share of the aggregate assessment base at

December 31, 1996; and 5) immediately increases coverage for certain 

retirement accounts to $250,000 and indexes all deposit insurance coverage

every five years beginning January 1, 2011. 

BIF

47
22. Summary of Significant Accounting Policies

General

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

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

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

reporting for assets and liabilities of closed banks for which the FDIC acts as

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

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

Use of Estimates

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 bank

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

BIF 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 BIF 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.

BIF’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 

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

Statement of Income and Fund Balance as components of Net Income. 

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

using the effective interest method. 

48
Bank Insurance Fund

BIF

Cost Allocations Among Funds

Operating expenses not directly charged to the BIF, the SAIF, 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.

Capital Assets and Depreciation

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

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

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

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

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

reduce operating expenses.

The FDIC buildings are depreciated on a straight-line basis over a 35 to 50 year

estimated life. Leasehold improvements are capitalized and depreciated over 

the lesser of the remaining life of the lease or the estimated useful life of the

improvements, if determined to be material. Capital assets depreciated on a

straight-line basis over a five-year estimated life include mainframe equipment;

furniture, fixtures, and general equipment; and internal-use software. Personal

computer equipment is depreciated on a straight-line basis over a three-year

estimated life.

Disclosure about Recent Accounting Pronouncements

Recent accounting pronouncements have been adopted or deemed to be not

applicable to the financial statements as presented.

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 2004 financial statements to conform 

to the presentation used in 2005. These reclassifications include the reallocation

of amounts from “Provision for insurance losses” to “Insurance and other

expenses” for assets acquired from assisted banks and terminated receiverships.

The reclassifications, which were based on the restructuring of accounts, had no

impact on the prior year's net income or fund balance.

49
U.S. Treasury Obligations at December 31, 2005 

Dollars in Thousands 

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity●

Purchase Value Amount Gains Losses Value

Held-to-Maturity

Within 1 year 5.30% $ 4,300,000 $ 4,313,711 $ 23,194 $ (13,557) $ 4,323,348

After 1 year thru 5 years 4.40% 13,150,000 14,028,186 123,794 (135,647) 14,016,333

After 5 years thru 10 years 4.51% 3,980,000 4,227,166 44,264 (10,065) 4,261,365

After 10 years 4.72% 1,105,000 1,440,710 24,669 0 1,465,379

Treasury Inflation-Protected

After 1 year thru 5 years 3.82% 668,008 668,838 33,252 0 702,090

Total $ 23,203,008 $ 24,678,611 $ 249,173 $ (159,269) $ 24,768,515 

▼

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

As of December 31, 2005 and 2004, the book value of investments in 

U.S. Treasury obligations, net, was $32.3 billion and $32.1 billion, respectively.

As of December 31, 2005, the BIF held $6.5 billion of Treasury inflation-protected

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

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

held $5.4 billion of callable U.S. Treasury bonds at December 31, 2005. 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. 

Available-for-Sale

Within 1 year 3.85% $ 675,000 $ 713,006 $ 629 $ (4,849) $ 708,786

After 1 year thru 5 years 3.64% 1,010,000 1,092,280 3,429 (16,448) 1,079,261

Treasury Inflation-Protected

After 1 year thru 5 years 3.94% 3,891,165 3,896,133 211,924 0 4,108,057

After 5 years thru 10 years 3.39% 1,613,689 1,620,970 103,659 0 1,724,629

Total $ 7,189,854 $ 7,322,389 $ 319,641 $ (21,297) $ 7,620,733

Total Investment in U.S. Treasury Obligations, Net

Total $ 30,392,862 $ 32,001,000 $ 568,814 $ (180,566) $ 32,389,248

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

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2%, based on figures issued by the Congressional Budget Office and Blue Chip

Economic Indicators in early 2005.

All unrealized losses occurred as a result of changes in market interest rates. FDIC has the ability and intent to hold the related securities until maturity. As a result, all

unrealized losses are considered temporary. However, of the $181 million reported as total unrealized losses, $86 million is recognized as unrealized losses occurring over 

a period of 12 months or longer with a market value of $3.7 billion applied to the affected securities.

●

▼

■

■

50
BIF

Bank Insurance Fund

As of December 31, 2005 and 2004, the unamortized premium, net of the

unamortized discount, was $1.6 billion and $1 billion, respectively.

U.S. Treasury Obligations at December 31, 2004 

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 3.93% $ 6,290,000 $ 6,486,753 $ 50,757 $ (11,129) $ 6,526,381

After 1 year thru 5 years 4.94% 10,575,000 11,135,043 399,365 (10,104) 11,524,304

After 5 years thru 10 years 4.76% 4,360,000 4,374,344 197,842 (1,336) 4,570,850

Treasury Inflation-Protected

After 1 year thru 5 years 3.82% 640,107 641,190 76,255 0 717,445

Total $ 21,865,107 $ 22,637,330 $ 724,219 $ (22,569) $ 23,338,980 

▼

Available-for-Sale

Within 1 year 3.65% $ 1,560,000 $ 1,598,564 $ 10,129 $ (3,051) $ 1,605,642

After 1 year thru 5 years 3.72% 1,685,000 1,893,380 31,116 (11,945) 1,912,551

Treasury Inflation-Protected

After 1 year thru 5 years 3.81% 2,270,854 2,268,756 236,566 0 2,505,322

After 5 years thru 10 years 3.75% 3,004,072 3,019,976 427,114 0 3,447,090

Total $ 8,519,926 $ 8,780,676 $ 704,925 $ (14,996) $ 9,470,605

Total Investment in U.S. Treasury Obligations, Net

Total $ 30,385,033 $ 31,418,006 $ 1,429,144 $ (37,565) $ 32,809,585

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

assumption as measured by the CPI-U. The long-term CPI-U consensus forecast is 2.2%, based on figures issued by the Congressional Budget Office and Blue Chip

Economic Indicators in early 2004.

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. As a result, all unrealized losses are considered temporary. 

●

▼

■

■

51
44. Receivables from Bank Resolutions, Net

The receivables from bank resolutions include payments made by the BIF 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 BIF receiverships

are the main source of repayment of the BIF’s receivables from closed banks.

As of December 31, 2005, there were 24 active receiverships, with no failures 

in the current year. 

As of December 31, 2005 and 2004, BIF receiverships held assets with 

a book value of $357 million and $504 million, respectively (including cash,

investments, and miscellaneous receivables of $251 million and $269 million 

at December 31, 2005 and 2004, 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 in 

liquidation. 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 BIF’s actual recoveries to vary

from the level currently estimated. 

As of December 31, 2005, an allowance for loss of $4.1 billion, or 93 percent 

of the gross receivable, was recorded. Of the remaining seven percent of the

gross receivable, the amount of credit risk is limited since 71 percent of the

receivable will be repaid from receivership cash and investments.

Receivables From Bank Resolutions, Net at December 31 

Dollars in Thousands 

2005 2004

Receivables from closed banks $ 4,366,308 $ 4,621,702

Allowance for losses (4,066,991) (4,246,399) 

Total $ 299,317 $ 375,303 

52
5

6

Bank Insurance Fund

BIF

5. Property and Equipment, Net

The depreciation expense was $56 million and $54 million for December 31, 2005

and 2004, respectively.

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The BIF records a contingent liability and a loss provision for BIF-insured institutions

(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 loss

rates to institutions based on supervisory ratings, balance sheet characteristics,

and projected capital levels. In addition, institution-specific analysis is performed

on those institutions where failure is imminent absent institution management

resolution of existing problems, or where additional information is available that

may affect the estimate of losses. As of December 31, 2005 and 2004, the 

contingent liabilities for anticipated failure of insured institutions were $2 million

and $8 million, respectively. 

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

risk in the financial services industry that could result in an additional loss to 

the BIF should potentially vulnerable financial institutions ultimately fail. This risk

results from the presence of various high-risk banking business activities that are

particularly vulnerable to adverse economic and market conditions. Due to the

uncertainty surrounding such conditions in the future, there are institutions other

than those with losses included in the contingent liability 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 BIF could

incur additional estimated losses up to approximately $0.3 billion.

Property and Equipment, Net at December 31 

Dollars in Thousands 

2005 2004 

Land $ 37,352 $ 37,352 

Buildings (includes construction-in-process) 272,861 221,494

Application software (includes work-in-process) 241,424 223,149

Furniture, fixtures, and equipment 140,728 133,556 

Accumulated depreciation (273,789) (258,445)

Retirements (40,512) 0

Total $ 378,064 $ 357,106

53
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.

There remains uncertainty about the effect of the 2005 hurricane season on 

the deposit insurance fund balances. The economic dislocations as well as the

potential adverse effects on collateral values and the repayment capacity of 

borrowers resulting from the hurricanes may stress the balance sheets of a few,

small institutions that are located in the areas of greatest devastation. The FDIC

continues to evaluate the risks to affected institutions in light of economic 

conditions, the amount of insurance proceeds that will protect institution collateral,

and the level of government disaster relief. At this point, however, the FDIC 

cannot estimate the impact of such risks on the insurance funds.

Litigation Losses

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

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

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

unresolved legal cases totaling $1.2 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 bank 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 unexpired representations and warranties, and guarantees was

$3.4 billion as of December 31, 2005. There were no contingent liabilities from

any of the outstanding claims asserted in connection with representations and

warranties at December 31, 2005 and 2004, respectively.

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

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

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

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

with unasserted representation and warranty claims. However, because of 

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

the FDIC is unable to reasonably estimate a range of loss to the BIF from 

outstanding contracts with unasserted representation and warranty claims.

54
7

Bank Insurance Fund

BIF

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 BIF. 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. Due to the continuing health

of the banking industry, the majority of the financial institutions are not assessed.

Of those assessed, the assessment rate averaged approximately 11 cents and

22 cents per $100 of assessable deposits for 2005 and 2004, respectively. During

2005 and 2004, $53 million and $95 million were recognized as assessment

income from BIF-member institutions, respectively. On November 8, 2005, the

Board voted to retain the BIF assessment schedule at the annual rate of 0 to 

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

2006. The Board reviews assessment rates semiannually to ensure that funds

are available to satisfy the BIF’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, 2005, the BIF reserve ratio was 1.25 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 

BIF and is separate from the regular deposit insurance assessments. The

FDIC, as administrator of the BIF, acts solely as a collection agent for the

FICO. During 2005 and 2004, $620 million and $631 million, respectively, 

were collected from BIF-member institutions and remitted to the FICO.

55
8

9

8. Operating Expenses

Operating expenses were $846 million for 2005, compared to $821 million for

2004. The chart below lists the major components of operating expenses.

9. Provision for Insurance Losses

Provision for insurance losses was a negative $138 million for 2005 and a negative

$281 million for 2004. The following chart lists the major components of the

provision for insurance losses.

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2005 2004

Valuation Adjustments:

Closed banks $ (136,305) $ (82,758)

Other assets 4,479 (25,282)

Total Valuation Adjustments (131,826) (108,040)

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (6,670) (170,005)

Litigation losses 174 (3,998)

Other contingencies 141 653

Total Contingent Liabilities Adjustments (6,355) (173,350)

Total $ (138,181) $ (281,390)

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2005 2004

Salaries and benefits $ 567,936 $ 575,100

Outside services 97,863 84,947

Travel 40,918 36,089

Buildings and leased space 62,807 60,693

Software/Hardware maintenance 21,803 10,778

Depreciation of property and equipment 55,989 54,424

Other 19,093 19,879

Services billed to receiverships (20,226) (20,569)

Total $ 846,183 $ 821,341

56
10

Bank Insurance Fund

BIF

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 BIF contributes a portion of pension

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

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

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

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

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

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

pays its share of the employer’s portion of all related costs.

The FDIC offered a voluntary employee buyout program to a majority of its

employees during 2004 and conducted a reduction-in-force (RIF) during 2005 

in an effort to further reduce identified staffing excesses. Consequently, 578

employees left or will leave the FDIC as a result of the buyout program and 

an additional 62 employees left due to the RIF. Termination benefits included

compensation of fifty percent of the current salary for voluntary departures 

and severance pay for employees that left due to the RIF. The total cost of 

the buyout program and the RIF to the FDIC was $32.6 million, with BIF’s 

share totaling $28 million, which is included in the “Operating expenses” 

line item for 2005 and 2004.

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.

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

Dollars in Thousands 

2005 2004

Civil Service Retirement System $ 6,659 $ 7,958

Federal Employees Retirement System (Basic Benefit) 33,867 33,638

FDIC Savings Plan 18,358 19,604

Federal Thrift Savings Plan 13,421 13,715

Separation Incentive Payment 19,463 6,082

Severance Pay 2,301 198

Total $ 94,069 $ 81,195

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At December 31, 2005 and 2004, the BIF’s net postretirement benefit liability

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

Balance Sheet was $110 million and $104 million, respectively. In addition, 

the BIF’s expense for these benefits in 2005 and 2004 was $9.0 million and

$9.3 million, respectively, which is included in the current and prior year’s

operating expenses. 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. Commitments and Off-Balance-Sheet Exposure

Commitments

Leased Space

The BIF’s allocated share of the FDIC’s lease commitments totals $78.6 million

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

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

future lease commitments is based upon current relationships of the workloads

among the BIF 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 $34 million and $36 million

for the years ended December 31, 2005 and 2004, respectively.

Off-Balance-Sheet Exposure

Deposit Insurance

As of September 30, 2005, the estimated insured deposits for BIF were

$2.8 trillion. This would be the accounting loss if all depository institutions 

were to fail and the acquired assets provided no recoveries.

Leased Space Commitments

Dollars in Thousands 

2006 2007 2008 2009 2010 2011/Thereafter

$ 27,412 $ 18,392 $ 13,159 $ 11,445 $ 5,019 $ 3,189

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Bank Insurance Fund

BIF

12. Disclosures About the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at 

current value. The fair market value of the investment in U.S. Treasury obligations

is disclosed in Note 3 and is based on current market prices. The carrying amount

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

payable and other liabilities approximates their fair market value, due to their

short maturities and/or comparability with current interest rates.

The net receivables from bank resolutions primarily include the BIF’s subrogated

claim arising from payments to insured depositors. The receivership assets 

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

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

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

bank resolutions. Therefore, the corporate subrogated claim indirectly includes

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

of nominal cash flows.

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

of receivership assets (see Note 4), such receivership valuation is not equivalent

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

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

practicable to estimate its fair market value.

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

would require indeterminate, but substantial, discounts for an interested party

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

timing of receivership payments to the BIF on the subrogated claim does not

necessarily correspond with the timing of collections on receivership assets.

Therefore, the effect of discounting used by receiverships should not necessarily

be viewed as producing an estimate of market value for the net receivables

from bank resolutions.

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