60

Savings Association Insurance Fund

December 31, 2005 and 2004

Financial Statements and Notes
SAIF

Savings Association Insurance Fund

61

Federal Deposit Insurance Corporation

Savings Association Insurance Fund Balance Sheet at December 31

Dollars in Thousands 

2005 2004

Assets

Cash and cash equivalents $ 797,616 $ 644,346

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

(Includes cash and cash equivalents of $20.9 million and $56.5 million

at December 31, 2005 and 2004, respectively) 341,656 328,394

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

Held-to-maturity securities 9,574,627 8,835,964

Available-for-sale securities 2,366,489 2,720,315

Interest receivable on investments and other assets, net 191,364 200,204

Receivables from thrift resolutions, net (Note 5) 234,157 346,923

Total Assets $ 13,505,909 $ 13,076,146

Liabilities

Accounts payable and other liabilities $ 30,854 $ 25,568

Contingent liabilities for: (Note 6)

Anticipated failure of insured institutions 3,775 1,957

Litigation losses 65 39

SAIF-member exit fees and investment proceeds held in escrow (Note 3) 341,656 328,394

Total Liabilities 376,350 355,958

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

Fund Balance

Accumulated net income 13,021,364 12,482,227

Unrealized gain on available-for-sale securities, net (Note 4) 108,195 237,961

Total Fund Balance 13,129,559 12,720,188

Total Liabilities and Fund Balance $ 13,505,909 $ 13,076,146

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 

2005 2004

Revenue

Interest on U.S. Treasury obligations $ 628,189 $ 555,592 

Assessments (Note 7) 8,315 8,891 

Other revenue 485 294 

Total Revenue 636,989 564,777

Expenses and Losses

Operating expenses (Note 8) 119,468 119,998 

Provision for insurance losses (Note 9) (21,988) (72,385) 

Insurance and other expenses 372 713 

Total Expenses and Losses 97,852 48,326 

Net Income 539,137 516,451 

Unrealized loss on available-for-sale securities, net (129,766) (36,328)

Comprehensive Income 409,371 480,123 

Fund Balance - Beginning 12,720,188 12,240,065 

Fund Balance - Ending $ 13,129,559 $ 12,720,188 

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

Savings Association Insurance Fund

63

Federal Deposit Insurance Corporation

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

Dollars in Thousands 

2005 2004

Operating Activities

Net Income: $ 539,137 $ 516,451

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

Amortization of U.S.Treasury obligations 220,147 262,317

Treasury inflation-protected securities (TIPS) inflation adjustment (87,194) (61,431)

Provision for losses (21,988) (72,385)

Amortization of prepaid FFIEC assets 17 0

Change in Operating Assets and Liabilities:

(Increase) /Decrease in unamortized premium and discount 

of U.S. Treasury Obligations (restricted) (6,565) 2,443

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

on investments and other assets 8,988 (16,065)

Decrease/(Increase) in receivables from thrift resolutions 136,218 (2,635)

Increase in accounts payable and other liabilities 5,285 5,028

Increase in exit fees and investment proceeds held in escrow 28,556 9,107

Net Cash Provided by Operating Activities 822,601 642,830

Investing Activities

Provided by:

Maturity of U.S.Treasury obligations, held-to-maturity 1,930,000 1,690,000

Maturity of U.S. Treasury obligations, available-for-sale 270,000 1,360,000

Used by:

Purchase of U.S. Treasury obligations, held-to-maturity (2,904,848) (4,051,084)

Net Cash Used by Investing Activities (704,848) (1,001,084)

Net Increase/(Decrease) in Cash and Cash Equivalents 117,753 (358,254)

Cash and Cash Equivalents - Beginning 700,798 1,059,052

Unrestricted Cash and Cash Equivalents - Ending 797,616 644,346

Restricted Cash and Cash Equivalents - Ending 20,935 56,452

Cash and Cash Equivalents - Ending $ 818,551 $ 700,798

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

64

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, 2005 and 2004

Financial Statements and Notes
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 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 SAIF was $21.0 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 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

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) requires the deposit

of funds into the DIF for SAIF-member exit fees that have been restricted and

held in escrow; 3) 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; 4) 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;

5) 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 6) immediately increases coverage

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

coverage every five years beginning January 1, 2011. 
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 

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. 
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 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 thrifts and terminated receiverships.

Additionally, amounts were reallocated from “Operating expenses” to “Insurance

and other expenses” for SAIF’s share of the loss on the retirement of capital

assets. The reclassifications, which were based on the restructuring of accounts,

had no impact on the prior year’s net income or fund balance.

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 Financing Corporation (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 2005 and 2004 that resulted in an entrance/exit fee to the SAIF.
U.S. Treasury Obligations at December 31, 2005 (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 4.55% $ 35,000 $ 35,446 $ 87 $ (88) $ 35,445

After 1 year thru 5 years 4.08% 146,000 157,004 475 (1,689) 155,790

After 5 years thru 10 years 4.66% 85,000 85,423 1,475 0 86,898

After 10 years 4.69% 30,000 38,067 587 0 38,654

Total $ 296,000 $ 315,940 $ 2,624 $ (1,777) $ 316,787

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

unamortized discount, was $19.9 million and $13.4 million, respectively.

68

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

Dollars in Thousands 

2005 2004

Cash and cash equivalents $ 20,935 $ 56,452

Investment in U.S. Treasury obligations, net 315,940 267,375

Interest receivable on U.S. Treasury obligations 4,781 4,567

Total $ 341,656 $ 328,394

●

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

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 $1.8 million reported as total unrealized losses, $829 thousand is recognized as unrealized losses occurring

over a period of 12 months or longer with a market value of $35.6 million applied to the affected securities. 

●

●

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. 

●
44. 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 $11.9 billion and $11.6 billion, respectively. As of

December 31, 2005, the SAIF held $2.2 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 SAIF

held $2.1 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.

Savings Association Insurance Fund

SAIF

69
Available-for-Sale

Within 1 year 3.14% $ 170,000 $ 185,714 $ 66 $ (2,021) $ 183,759

After 1 year thru 5 years 4.87% 215,000 231,775 1,538 0 233,313

Treasury Inflation-Protected

After 1 year thru 5 years 4.05% 1,228,700 1,226,281 68,755 0 1,295,036

After 5 years thru 10 years 3.41% 612,286 614,524 39,857 0 654,381

Total $ 2,225,986 $ 2,258,294 $ 110,216 $ (2,021) $ 2,366,489

Total Investment in U.S. Treasury Obligations, Net

Total $ 11,307,574 $ 11,832,921 $ 245,492 $ (61,794) $ 12,016,619

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 $61.8 million reported as total unrealized losses, $30.0 million is recognized as unrealized losses occurring

over a period of 12 months or longer with a market value of $1.3 billion applied to the affected securities. 

70

●

▼

■

U.S. Treasury Obligations at December 31, 2005 (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 4.93% $ 1,620,000 $ 1,628,688 $ 6,360 $ (4,630) $ 1,630,418

After 1 year thru 5 years 4.65% 5,530,000 5,844,665 96,071 (52,025) 5,888,711

After 5 years thru 10 years 4.57% 1,370,000 1,447,787 18,314 (3,118) 1,462,983

After 10 years 4.72% 315,000 407,813 6,999 0 414,812

Treasury Inflation-Protected

After 1 year thru 5 years 3.86% 246,588 245,674 7,532 0 253,206

Total $ 9,081,588 $ 9,574,627 $ 135,276 $ (59,773) $ 9,650,130 

● ▼ ■
SAIF

Savings Association Insurance Fund

71

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-Protected

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 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.

●

▼

■

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-Protected

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 

● ▼ ■

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

unamortized discount, was $525.3 million and $362.9 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, 2005, there were three active receiverships,

with no failures in the current year. 

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

a book value of $388 million and $483 million, respectively (including cash,

investments, and miscellaneous receivables of $118 million and $182 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 SAIF’s actual recoveries to vary

from the level currently estimated. 

At December 31, 2005, about 99 percent of the SAIF’s $234 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 

2005 2004

Receivables from closed thrifts $ 574,113 $ 710,217

Allowance for losses (339,956) (363,294) 

Total $ 234,157 $ 346,923 
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, 2005 and 2004, the 

contingent liabilities for anticipated failure of insured institutions were $4 million

and $2 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 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 $0.2 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.

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 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 $140 thousand are reasonably possible.
7

74

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 

unexpired representations and warranties, and guarantees was $4.7 billion 

as of December 31, 2005. 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. Due to the continuing

health of the thrift industry, the majority of the financial institutions are not

assessed. Of those assessed, the assessment rate averaged approximately

7 cents and 8 cents per $100 of assessable deposits for 2005 and 2004, 

respectively. During 2005 and 2004, $8 million and $9 million were recognized 

as assessment income from SAIF-member institutions, respectively. On

November 8, 2005, 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 2006. 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
SAIF

Savings Association Insurance Fund

75

Operating Expenses for the Years Ended December 31

Dollars in Thousands 

2005 2004

Salaries and benefits $ 77,482 $ 81,649

Outside services 15,553 14,457

Travel 4,814 4,357

Buildings and leased space 8,673 10,662

Software/Hardware maintenance 11,563 9,404

Other 2,865 2,881

Services billed to receiverships (1,482) (3,412)

Total $ 119,468 $ 119,998

8

are set, or in accordance with a recapitalization schedule of fifteen years or less.

As of September 30, 2005, the SAIF reserve ratio was 1.30 percent of estimated

insured deposits.

Assessments are also levied on institutions for payments of the interest on 

obligations issued by the 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 deposit

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

as a collection agent for the FICO. During 2005 and 2004, $160 million and 

$161 million, respectively, were collected from SAIF-member institutions and

remitted to the FICO.

8. Operating Expenses

Operating expenses totaled $119 million for 2005, compared to $120 million 

for 2004. The chart below lists the major components of operating expenses.
9

10

76

9. Provision for Insurance Losses

Provision for insurance losses was a negative $22 million for 2005 and a negative

$72 million for 2004. The following chart lists the major components of the 

provision for insurance losses.

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.

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 SAIF’s share

totaling $4.3 million, which is included in the “Operating expenses” line item 

for 2005 and 2004. 

Provision for Insurance Losses for the Years Ended December 31

Dollars in Thousands 

2005 2004

Valuation Adjustments:

Closed thrifts $ (23,832) $ (70,658)

Total Valuation Adjustments (23,832) (70,658)

Contingent Liabilities Adjustments:

Anticipated failure of insured institutions 1,818 (1,235)

Litigation losses 26 (492)

Total Contingent Liabilities Adjustments 1,844 (1,727)

Total $ (21,988) $ (72,385)
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.

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

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

Balance Sheet was $16.7 million and $15.7 million, respectively. In addition, 

the SAIF’s expense for these benefits in 2005 and 2004 was $1.3 million 

and $1.4 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.

SAIF

Savings Association Insurance Fund

77

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

Dollars in Thousands 

2005 2004

Civil Service Retirement System $ 973 $ 1,182

Federal Employees Retirement System (Basic Benefit) 4,591 4,793

FDIC Savings Plan 2,528 2,813

Federal Thrift Savings Plan 1,807 1,934

Separation Incentive Payment 2,908 909

Severance Pay 432 40

Total $ 13,239 $ 11,671
11

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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 $11.7 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 $5.0 million and $6.9 million

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

Off-Balance-Sheet Exposure

Deposit Insurance

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

$1.0 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

$ 4,096 $ 2,748 $ 1,966 $ 1,710 $ 750 $ 477
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 Notes 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.