1

Savings 

Association 

Insurance 

Fund

December 31, 2004

and 2003
SAIF

Savings Association Insurance Fund

61

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Balance Sheet at December 31

Dollars in Thousands 

2004 2003

Assets

Cash and cash equivalents $ 644,346 $ 827,141

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

(Includes cash and cash equivalents of $56.5 million and $231.9 million

at December 31, 2004 and 2003, respectively) 328,394 319,286

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

Held-to-maturity securities 8,835,964 6,823,709

Available-for-sale securities 2,720,315 4,152,048

Interest receivable on investments and other assets, net 200,204 188,189

Receivables from thrift resolutions, net (Note 5) 346,923 273,242

Total Assets $ 13,076,146 $ 12,583,615

Liabilities

Accounts payable and other liabilities $ 25,568 $ 20,540

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 1,957 3,192

Litigation losses 39 532

SAIF-member exit fees and investment proceeds held in escrow (Note 3) 328,394 319,286

Total Liabilities 355,958 343,550

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

Fund Balance

Accumulated net income 12,482,227 11,965,776

Unrealized gain on available-for-sale securities, net (Note 4) 237,961 274,289

Total Fund Balance 12,720,188 12,240,065

Total Liabilities and Fund Balance $ 13,076,146 $ 12,583,615

The accompanying notes are an integral part of these financial statements.
62

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Revenue

Interest on U.S. Treasury obligations $ 555,592 $ 532,474 

Assessments (Note 7) 8,891 14,594 

Other revenue 292 192 

Total Revenue 564,775 547,260 

Expenses and Losses

Operating expenses (Note 8) 120,282 129,584 

Provision for insurance losses (Note 9) (72,162) (82,489) 

Insurance and other expenses 204 105 

Total Expenses and Losses 48,324 47,200 

Net Income 516,451 500,060 

Unrealized loss on available-for-sale securities, net (36,328) (6,733)

Comprehensive Income 480,123 493,327 

Fund Balance - Beginning 12,240,065 11,746,738 

Fund Balance - Ending $ 12,720,188 $ 12,240,065 

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

63

Savings Association Insurance Fund

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2004 2003

Operating Activities

Net Income: $ 516,451 $ 500,060

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

Amortization of U.S.Treasury obligations 262,317 155,992

Treasury inflation-indexed securities (TIIS) inflation adjustment (61,431) (38,943)

Provision for losses (72,162) (82,489)

Change in Operating Assets and Liabilities:

Decrease in unamortized premium and discount of U.S. Treasury Obligations (restricted) 2,443 931

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

on investments and other assets (16,288) (32,810)

(Increase)/Decrease in receivables from thrift resolutions (2,635) 8,699

Increase in accounts payable and other liabilities 5,028 13,440

(Decrease) in contingent liabilities for litigation losses 0 (209)

Increase in exit fees and investment proceeds held in escrow 9,107 7,422

Net Cash Provided by Operating Activities 642,830 532,093

Investing Activities

Provided by:

Maturity of U.S.Treasury obligations, held-to-maturity 1,690,000 1,170,000

Maturity of U.S. Treasury obligations, available-for-sale 1,360,000 575,000

Used by:

Purchase of U.S. Treasury obligations, held-to-maturity (4,051,084) (2,305,056)

Purchase of U.S. Treasury obligations, available-for-sale 0 (1,008,066)

Net Cash Used by Investing Activities (1,001,084) (1,568,122)

Net Decrease in Cash and Cash Equivalents (358,254) (1,036,029)

Cash and Cash Equivalents - Beginning 1,059,052 2,095,081

Unrestricted Cash and Cash Equivalents - Ending 644,346 827,141

Restricted Cash and Cash Equivalents - Ending 56,452 231,911

Cash and Cash Equivalents - Ending $ 700,798 $ 1,059,052

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

1. Legislation and 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. 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, 2004

and 2003
SAIF

Savings Association Insurance Fund

65

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 $21.0 billion and $20.3 billion as 

of December 31, 2004 and 2003, 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. 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

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 again considered deposit insurance reform legislation; however,

Congress adjourned without enacting that legislation. Legislation similar to the

deposit insurance reform proposals of the 107th and 108th Congress may be

introduced in the 109th Congress, which begins in January, 2005. If Congress

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

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

ultimately be enacted.
2

66

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 Statement 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

67

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.

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 2003 financial statements to conform 

to the presentation used in 2004.

In 2004, the SAIF changed the format of its Statement of Cash Flows from the

direct method to the indirect method for purposes of reporting cash flows from

operating activities. Accordingly, the Statement of Cash Flows for 2003 contains

certain reclassifications to conform to the SAIF’s current financial statement 

format. For 2003 and 2004, the reconciliation of net income to net cash provided

by operating activities is included in the Statement of Cash Flows. Consequently,

information pertaining to gross amounts of receipts and payments, not required

for presentation of the indirect method, is available within other footnotes to

these financial statements.

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

2004 and 2003 that resulted in an entrance/exit fee to the SAIF.
U.S. Treasury Obligations at December 31, 2004 (Restricted for SAIF-Member Exit Fees)

Dollars in Thousands

Held-to-Maturity

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Within 1 year 2.36% $ 70,000 $ 73,879 $ 0 $ (162) $ 73,717

After 1 year thru 5 years 4.40% 104,000 115,725 2,852 (60) 118,517

After 5 years thru 10 years 4.67% 80,000 77,771 3,184 0 80,955

Total $ 254,000 $ 267,375 $ 6,036 $ (222) $ 273,189

68

As of December 31, 2004 and 2003, the unamortized premium, net of the

unamortized discount, was $13.4 million and $2.5 million, respectively.

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

Dollars in Thousands 

2004 2003

Cash and cash equivalents $ 56,452 $ 231,911

Investment in U.S. Treasury obligations, net 267,375 86,471

Interest receivable on U.S. Treasury obligations 4,567 904

Total $ 328,394 $ 319,286

●

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

Dollars in Thousands

Held-to-Maturity

Net Unrealized Unrealized

Yield at Face Carrying Holding Holding Market

Maturity Purchase Value Amount Gains Losses Value

Within 1 year 5.79% $ 20,000 $ 20,267 $ 683 $ 0 $ 20,950

After 1 year thru 5 years 5.20% 64,000 66,204 5,349 0 71,553

Total $ 84,000 $ 86,471 $ 6,032 $ 0 $ 92,503 

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 losses are considered temporary.

●
4

69

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

As of December 31, 2004 and 2003, the book value of investments in 

U.S. Treasury obligations, net, was $11.6 billion and $11.0 billion, respectively.

As of December 31, 2004, the SAIF held $2.2 billion of Treasury inflationindexed 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 $2.4 billion of callable U.S. Treasury bonds at December 31, 2004.

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 5.00% $ 270,000 $ 275,656 $ 1,831 $ 0 $ 277,487

After 1 year thru 5 years 4.10% 385,000 443,689 10,916 (1,034) 453,571

Treasury Inflation-Indexed

After 1 year thru 5 years 4.07% 859,729 853,047 101,420 0 954,467

After 5 years thru 10 years 3.63% 904,362 909,962 124,828 0 1,034,790

Total $ 2,419,091 $ 2,482,354 $ 238,995 $ (1,034) $ 2,720,315

Total Investment in U.S. Treasury Obligations, Net

Total $ 10,955,379 $ 11,318,318 $ 579,034 $ (12,416) $ 11,884,936

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 2.2%, 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 losses are considered temporary.

●

▼

■

70

U.S. Treasury Obligations at December 31, 2004 (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 3.13% $ 1,860,000 $ 1,935,365 $ 9,296 $ (4,608) $ 1,940,053

After 1 year thru 5 years 4.93% 4,540,000 4,755,416 200,907 (6,373) 4,949,950

After 5 years thru 10 years 4.97% 1,900,000 1,910,232 107,408 (401) 2,017,239

Treasury Inflation-Indexed

After 1 year thru 5 years 3.86% 236,288 234,951 22,428 0 257,379

Total $ 8,536,288 $ 8,835,964 $ 340,039 $ (11,382) $ 9,164,621 

● ▼ ■
SAIF

Savings Association Insurance Fund

71

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.

●

▼

■

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 

● ▼ ■

As of December 31, 2004 and 2003, the unamortized premium, net of the

unamortized discount, was $362.9 million and $317.5 million, respectively.
5

72

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. As of December 31, 2004, there were 3 active receiverships,

including 1 thrift failure in the current year, with assets at failure of $15.3 million

and SAIF outlays of $5.6 million. 

As of December 31, 2004 and 2003, SAIF receiverships held assets with 

a book value of $483 million and $449 million, respectively (including cash,

investments, and miscellaneous receivables of $182 million and $117 million 

at December 31, 2004 and 2003, 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, 2004, about 99% of the SAIF’s $347 million net receivable 

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

July 2001). These assets primarily consist of 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 

2004 2003

Receivables from closed thrifts $ 710,217 $ 709,389

Allowance for losses (363,294) (436,147) 

Total $ 346,923 $ 273,242 
SAIF

6

Savings Association Insurance Fund

73

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions

The SAIF records a contingent liability and a loss provision for SAIF-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, 2004 and 2003, the 

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

and $3 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

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 SAIF could

incur additional estimated losses up to approximately $0.1 billion.

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 $206.5 thousand 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,
7

74

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 $4.7 billion 

as of December 31, 2004. 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 8 cents and 14 cents per $100 of assessable

deposits for 2004 and 2003, respectively. During 2004 and 2003, $9 million 

and $15 million were recognized as assessment income from SAIF-member

institutions, respectively. On November 15, 2004, 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 2005. 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, 2004, the SAIF reserve ratio was 1.33 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
9

SAIF

8

Savings Association Insurance Fund

75

the regular assessments. The FDIC, as administrator of the SAIF, acts solely 

as a collection agent for the FICO. During 2004 and 2003, $161 million and

$162 million, respectively, were collected from SAIF-member institutions and

remitted to the FICO.

8. Operating Expenses

Operating expenses totaled $120 million for 2004, compared to $130 million for

2003. The chart below lists the major components of operating expenses.

9. Provision for Insurance Losses

Provision for insurance losses was a negative $72 million for 2004 and a negative

$82 million for 2003. The following chart lists the major components of the 

provision for insurance losses.

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2004 2003

Salaries and benefits $ 81,649 $ 87,963

Outside services 14,457 15,038

Travel 4,357 5,801

Buildings and leased space 10,662 12,132

Equipment 9,649 9,374

Other 2,920 3,189

Services billed to receiverships (3,412) (3,913)

Total $ 120,282 $ 129,584

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2004 2003

Valuation Adjustments:

Closed thrifts $ (70,435) $ 4,684

Total Valuation Adjustments (70,435) 4,684

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions (1,235) (87,301)

Litigation losses (492) 128

Total Contingent Liabilities Adjustments (1,727) (87,173)

Total $ (72,162) $ (82,489)
10

76

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.

In October 2004, the FDIC announced a voluntary employee buyout program 

to a majority of its employees in an effort to further reduce identified staffing

excesses. The offer period for the buyout program is from November 1, 2004 

to May 2, 2005. Termination benefits include compensation of fifty percent of 

the current salary for voluntary departures. The reasonably estimated total cost

associated with employees expected to accept the buyout offer is $23.7 million,

with SAIF’s pro rata share totaling $3.1 million. During 2004, 129 employees 

left the FDIC. The total cost of this buyout was $6.9 million for 2004, with 

SAIF’s pro rata share totaling $903 thousand, which is included in the “Operating

expenses”and the “Accounts payable and other liabilities”line items.

In the event the FDIC does not meet its staffing reduction goal through the 

voluntary employee buyout program, the FDIC plans to conduct a reductionin-force (RIF). Because of uncertainties regarding the number of employees 

that will be subject to the RIF, the FDIC is unable to reasonably estimate the

related costs.

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

Dollars in Thousands 

2004 2003

Civil Service Retirement System $ 1,182 $ 1,258

Federal Employees Retirement System (Basic Benefit) 4,793 4,682

FDIC Savings Plan 2,813 2,788

Federal Thrift Savings Plan 1,934 1,900

Separation Incentive Payment 909 14

Total $ 11,631 $ 10,642
SAIF

Savings Association Insurance Fund

77

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.

As of January 1, 2003, the FDIC ceased funding for postretirement benefits 

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

and reporting for the obligation. The separate entity had been established to

restrict the funds and to provide for the accounting and administration of these

benefits. As a result, the SAIF received $14 million as its proportionate share 

of the plan assets and recognized a liability of $14 million in the ”Accounts

payable and other liabilities” line item on its Balance Sheet. 

At December 31, 2004 and 2003, the SAIF’s net postretirement benefit liability

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

Sheet was $15.7 million and $15 million, respectively. In addition, the SAIF’s

expense for these benefits in 2004 and 2003 was $1.4 million and $1 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.
1111. Commitments and Off-Balance-Sheet Exposure

Commitments:

Leased Space

The SAIF’s allocated share of the FDIC’s lease commitments totals $14.4 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 $6.9 million and $7.9 million

for the years ended December 31, 2004 and 2003, respectively. 

Off-Balance-Sheet Exposure:

Deposit Insurance

As of September 30, 2004, deposits insured by the SAIF totaled approximately

$944 billion. This would be the accounting loss if all depository institutions were

to fail and the acquired assets provided no recoveries.

78

Leased Space Commitments

Dollars in Thousands 

2005 2006 2007 2008 2009 2010/Thereafter

$ 4,963 $ 3,559 $ 2,308 $ 1,579 $ 1,380 $ 603
12

SAIF

Savings Association Insurance Fund

79

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 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.