in unamortized premium and discount of U.S. Treasury
in entrance and exit fees receivable, including interest
receivable on investments and other assets
in receivables from thrift resolutions
in accounts payable and other liabilities
in exit fees and investment proceeds held in escrow
Cash Provided by Operating Activities
of U.S. Treasury obligations, held-to-maturity
of U.S. Treasury obligations, available-for-sale
of U.S. Treasury obligations, held-to-maturity
of U.S. Treasury obligations, available-for-sale
Cash Used by Investing Activities
Net Decrease in Cash and
Cash and Cash Equivalents
Unrestricted Cash and Cash Equivalents
Restricted Cash and Cash Equivalents
Cash and Cash Equivalents
The accompanying notes are an integral
part of these financial statements.
1. Legislation and Operations of the Savings Association Insurance Fund
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
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
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.
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
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.
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,
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 institutionís 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. Summary of Significant Accounting Policies
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
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 are short-term, highly liquid investments with original maturities
of three months or less. Cash equivalents consist primarily of Special U.S.
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
in U.S. Treasury obligations that are purchased or sold exclusively through
Bureau of the Public Debt's Government Account Series (GAS) program.
SAIF's investments in U.S. Treasury obligations are either classified
as held-to-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
are included in Comprehensive Income. Realized gains and losses are
included in the Statement of Income and Fund Balance as components of
Income on both types of securities is calculated and recorded on a
daily basis using
the effective interest method.
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
Disclosure about Recent Accounting Pronouncements Recent accounting pronouncements have been adopted or deemed to be not applicable to the financial statements as presented.
The nature of related parties
and a description of related party transactions are discussed in Note 1 and
disclosed throughout the financial statements and
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
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
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.
4. 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
(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.
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. 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
and miscellaneous receivables of $119 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
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
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
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.
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
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
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
offered on certain loan sales. In general, the guarantees, representations,
and warranties on loans sold relate to the completeness and accuracy of
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
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.
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 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. 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)
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
included compensation of fifty percent of the current salary for
voluntary departures and severance pay for employees that left due
The total cost of the buyout program and the RIF to the FDIC was
with SAIF's share totaling $4.3 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
who have qualified due to: 1) immediate enrollment upon appointment or
five years of participation in the plan and 2) eligibility for an immediate
The life insurance program provides basic coverage at no cost to retirees
and allows converting optional coverages to direct-pay plans. Dental coverage
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 $917 thousand 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.
11. Commitments and Off-Balance-Sheet Exposure Commitments:
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
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,
As of September 30, 2005, deposits insured by the SAIF totaled approximately
$1.0 trillion. This would be the accounting loss if all depository institutions
were to fail and the acquired assets provided no recoveries.
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.
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.