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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

Home > About FDIC > Financial Reports > 1996 Annual Report

1996 Annual Report

Notes to Financial Statements
Savings Association Insurance Fund December 31, 1996 and 1995

[Graphic] 1. Legislative History and Operations of the Savings Association Insurance Fund

Legislative History
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) was enacted to reform, recapitalize and consolidate the federal deposit insurance system. The FIRREA created the Savings Association Insurance Fund (SAIF), the Bank Insurance Fund (BIF), and the FSLIC Resolution Fund (FRF). It also designated the Federal Deposit Insurance Corporation (FDIC) as the administrator of these three funds. All three funds are maintained separately to carry out their respective mandates.

The SAIF and the BIF are insurance funds responsible for protecting depositors in operating banks and thrift institutions from loss due to failure of the institution. The FRF is a resolution fund responsible for winding up the affairs of the former Federal Savings and Loan Insurance Corporation (FSLIC) and liquidating the assets and liabilities transferred from the former Resolution Trust Corporation (RTC).

Pursuant to the Resolution Trust Corporation Completion Act of 1993 (1993 RTC Act), resolution responsibility transferred from the RTC to the SAIF on July 1, 1995. Prior to that date, thrift resolutions were the responsibility of the RTC (January 1, 1989 through June 30, 1995) or the FSLIC (prior to 1989).

Pursuant to FIRREA, 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 mostly insured by the SAIF; SAIF members are predominantly thrifts supervised by the Office of Thrift Supervision (OTS). Deposits of BIF-member institutions are mostly 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.

The Financing Corporation (FICO), established under the Competitive Equality Banking Act of 1987, is a mixed-ownership government corporation whose sole purpose was to function as a financing vehicle for the FSLIC. Effective December 12, 1991, as provided by the Resolution Trust Corporation Refinancing, Restructuring and Improvement Act of 1991 (1991 RTC Act), the FICO’s ability to serve as a financing vehicle for new debt was terminated. Assessments paid on SAIF-insured deposits (excluding “Sasser” and BIF-member “Oakar” banks) are subject to draws by FICO for payment of interest on their outstanding debt through maturity of this debt in 2019. “Sasser” banks are SAIF members that converted to a state bank charter in accordance with Section 5(d)(2)(G) of the Federal Deposit Insurance Act (FDI Act). “Oakar” banks are described in a following section, “Operations of the SAIF”.

Other significant legislation includes the Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). These acts made changes to the FDIC’s assessment authority (see Note 7) and borrowing authority (see “Operations of the SAIF” below). The FDICIA also requires the FDIC to: 1) resolve troubled institutions in a manner that will result in the least possible cost to the deposit insurance funds; and 2) maintain the insurance funds at 1.25 percent of insured deposits or a higher percentage as circumstances warrant.

Recent Legislation
The Deposit Insurance Funds Act of 1996 (DIFA 1996) was enacted to provide for: 1) the capitalization of the SAIF to its designated reserve ratio of 1.25 percent by means of a one-time special assessment on SAIF-insured deposits; 2) the expansion of the assessment base for payments of the interest on obligations issued by the FICO to include all FDIC-insured institutions, i.e., banks and thrifts; 3) beginning January 1, 1997, the imposition of a FICO assessment rate for SAIF-assessable deposits that is five times the rate for BIF-assessable deposits; 4) the payment of the approximately $790 million annual FICO interest obligation on a pro rata basis between banks and thrifts on the earlier of December 31, 1999 or the date on which the last savings association ceases to exist; 5) authorization of assessments only if needed to maintain the SAIF at the designated reserve ratio; and 6) the merger of the BIF and the SAIF on January 1, 1999, if no insured depository institution is a savings association on that date.

Additionally, DIFA provides: 1) exemptions from the special assessment for certain institutions; 2) a 20 percent adjustment of the special assessment for certain Oakar banks and certain other institutions; and 3) assessment rates for SAIF members not lower than the assessment rates for BIF members with comparable risk.

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 failed SAIF-insured institutions. In this capacity, the SAIF has financial responsibility for all SAIF-insured deposits held by SAIF-member institutions and BIF-member banks designated as Oakar banks.

The Oakar bank provisions are found in Section 5(d)(3) of the FDI Act. The provisions allow, with approval of the appropriate federal regulatory authority, any insured depository institution to merge, consolidate or transfer the assets and liabilities of an acquired institution without changing insurance coverage for the acquired deposits. Such acquired deposits continue to be either SAIF-insured deposits and assessed at the SAIF assessment rate or BIF-insured deposits and assessed at the BIF assessment rate. In addition, any losses resulting from the failure of these institutions are to be allocated between the BIF and the SAIF based on the respective dollar amounts of the institution’s BIF-insured and SAIF-insured deposits.

The SAIF is primarily funded from the following sources: 1) SAIF assessments from BIF-member Oakar banks; 2) other SAIF assessments that are not required for the FICO, including assessments from Sasser banks; 3) interest earned on unrestricted investments in U.S. Treasury obligations; 4) U.S. Treasury payments not to exceed $8 billion for losses for fiscal years 1994 through 1998 contingent upon appropriations from the U.S. Treasury; 5) U.S. Treasury payments from unused appropriations to the RTC for losses for two years after the date of the RTC termination, December 31, 1995; and 6) borrowings from Federal Home Loan Banks, the U.S. Treasury and the Federal Financing Bank (FFB).

The 1993 RTC Act places significant restrictions on funding from sources 4) and 5) above. Among other restrictions, before appropriated funds from either source are used, the FDIC must certify to Congress that: 1) SAIF-insured institutions are unable to pay premiums sufficient to cover insurance losses or to repay amounts borrowed from the U.S. Treasury without adversely affecting their ability to raise and maintain capital or to maintain the assessment base and 2) an increase in premiums could reasonably be expected to result in greater losses to the government.

The 1990 OBR Act established the FDIC’s authority to borrow working capital from the FFB on behalf of the SAIF and the BIF. FDICIA increased the FDIC’s authority to borrow for insurance losses from the U.S. Treasury, on behalf of the SAIF and the BIF, from $5 billion to $30 billion.

The FDICIA also established a limitation on obligations that can be incurred by the SAIF, known as the maximum obligation limitation (MOL). At December 31, 1996, the MOL for the SAIF was $16.9 billion.


[Graphic] 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 accordance with generally accepted accounting principles (GAAP). These statements do not include reporting for assets and liabilities of closed thrift institutions for which the SAIF acts as receiver or liquidating agent. Periodic and final accountability reports of the SAIF’s activities as receiver or liquidating agent are furnished to courts, supervisory authorities and others as required.

Use of Estimates
The preparation of the SAIF’s financial statements in conformity with GAAP require FDIC management to make 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.

Cash and Cash Equivalents
The SAIF considers cash and cash equivalents to be short-term, highly liquid investments with original maturities of three months or less.

U.S. Treasury Obligations
Securities are intended to be held to maturity and are shown at book value. Book value 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. Interest is calculated on a daily basis and recorded monthly using the effective interest method.

Allowance for Losses on Receivables from Thrift Resolutions
The SAIF records as a receivable the amounts advanced and/or obligations incurred for resolving troubled and failed thrifts. Any related allowance for loss represents the difference between the funds advanced and/or obligations incurred and the expected repayment. The latter is based on the estimates of discounted cash recoveries from assets of assisted or failed thrifts, net of all estimated liquidation costs.

Litigation Losses
The SAIF accrues, as a charge to current period operations, an estimate of probable losses from litigation. The FDIC’s Legal Division recommends these estimates on a case-by-case basis. Any litigation loss estimates related to the SAIF in its corporate capacity would be included in “Estimated liabilities for: Litigation losses.” Any litigation loss estimates related to receiverships would be included in the allowance for losses for “Receivables from thrift resolutions, net.”

Receivership Operations
The FDIC is responsible for controlling and disposing of the assets of failed institutions in an orderly and efficient manner. The assets, and the claims against them, are accounted for separately to ensure that liquidation proceeds are distributed in accordance with applicable laws and regulations. Also, the income and expenses attributable to receiverships are accounted for as transactions of those receiverships. Liquidation expenses incurred by the SAIF on behalf of the receiverships are recovered from those receiverships.

Cost Allocations Among Funds
Certain operating expenses (including personnel, administrative and other indirect expenses) not directly charged to each fund under the FDIC’s management are allocated on the basis of the relative degree to which the operating expenses were incurred by the funds.

The FDIC includes the cost of buildings used in operations in the BIF’s financial statements. The BIF charges SAIF a rental fee representing an allocated share of its annual depreciation. The cost of furniture, fixtures and equipment purchased by the FDIC on behalf of the three funds under its administration is allocated among these funds on a pro rata basis. The SAIF expenses its share of these allocated costs at the time of acquisition because of their immaterial amounts.

Postretirement Benefits Other Than Pensions
The FDIC established an entity to provide the accounting and administration of postretirement benefits on behalf of the SAIF, the BIF and the FRF. The SAIF funds its liabilities for these benefits directly to the entity.

Disclosure about Recent Financial Accounting Standards Board Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” in June 1996, effective for transactions occurring after December 31, 1996. The SAIF will generally be unaffected by its provisions since most transactions subject to SFAS 125 occur at the receivership level and not at the fund level. To the extent that the SAIF may be affected, the FDIC’s current accounting practices are consistent with the rules contained in SFAS 125. Other recent pronouncements issued by the FASB have been adopted or are either not applicable or not material to the financial statements.

Related Parties
The nature of related parties and descriptions of related party transactions are disclosed throughout the financial statements and footnotes.

Reclassifications have been made in the 1995 financial statements to conform to the presentation used in 1996.

[Graphic] 3. Investment in U.S. Treasury Obligations, Net

All cash received by the SAIF is invested in U.S. Treasury obligations with maturities exceeding three months unless the cash is used: 1) to defray operating expenses; 2) for outlays related to liquidation activities; or 3) for investments in U.S. Treasury one-day special certificates which are cash equivalents. In both 1996 and 1995, $190 million were restricted and invested in U.S. Treasury notes (see Note 4). The related interest earned on these invested funds was also held as restricted funds.


[Graphic] U.S. Treasury Obligations at December 31, 1996

"Dollars in Thousands"
Maturity Yield

Less than one year 5.7% $ 1,740,792 $ 3,276 $ 0 $ 1,744,069 $ 1,740,000
1-3 years 5.9% 3,305,270 6,930 8,326 3,303,873 3,290,000
3-5 years 6.0% 3,718,030 0 21,546 3,696,484 3,670,000
Total $ 8,764,092 $ 10,206 $ 29,872 $ 8,744,426 $ 8,700,000


[Graphic] U.S. Treasury Obligations at December 31, 1995

"Dollars in Thousands"
Maturity Yield

Less than one year 5.8% $1,785,035 $ 6,708 $ 535 $ 1,791,208 $ 1,785,000
1-3 years 5.7% 588,968 5,744 0 594,712 590,000
3-5 years 5.4% 458,916 1,584 0 460,500 450,000
Total $2,832,919 $ 14,036 $ 535 $ 2,846,420 $ 2,825,000

In 1996, the unamortized premium, net of unamortized discount, was $64.1 million. In 1995, the unamortized premium, net of unamortized discount, was $7.9 million.


[Graphic] 4. Entrance and Exit Fees Receivable, Net

The SAIF receives 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 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. Interest on these investments was $11.1 million and $9.1 million for 1996 and 1995, respectively. Restricted assets included: $31 million in cash and cash equivalents, $190 million of investments in U.S. Treasury obligations, net, and $7 million in exit fees and interest receivable. For 1995, restricted assets included: $12.5 million in cash and cash equivalents, $190 million of investments in U.S. Treasury obligations, net, and $13 million in exit fees and interest receivable.

Within specified parameters, the regulations allow an institution to pay its entrance/exit fees interest free, in equal annual installments over a maximum period of not more than five years. When an institution elects such a payment plan, the SAIF records the entrance or exit fee receivable at its present value. The discount rate used to determine the present value of the funds for 1996 and 1995 was 5 percent and 3 percent, respectively.

[Graphic] Entrance and Exit Fees Receivable, Net - 1996

"Dollars in Thousands"
Collections Net Change

Entrance fees $      11 $     0 $        (8) $      0 $        3
Exit fees 8,810 442 (5,992) 254 3,514
Total $ 8,821 $ 442 $ (6,000) $ 254 $ 3,517


[Graphic] Entrance and Exit Fees Receivable, Net - 1995

"Dollars in Thousands"
Collections Net Change

Entrance fees $          6 $       11 $          (6) $        0 $      11
Exit fees 35,686 1,117 (29,751) 1,758 8,810
Total $ 35,692 $ 1,128 $ (29,757) $ 1,758 $ 8,821


[Graphic] 5. Receivables from Thrift Resolutions, Net

The FDIC resolution process results in different types of transactions depending on the unique facts and circumstances surrounding each failing or failed institution. Payments to prevent a failure are made to operating institutions when cost and other criteria are met. Such payments may facilitate a merger or allow a troubled institution to continue operations. Payments for institutions that fail are made to cover insured depositors’ claims and represent a claim against the receiverships’ assets. For 1996, one thrift failed, and was resolved in a transaction whereby an acquirer purchased certain assets and assumed the insured deposits of the failed thrift.

The FDIC, as receiver for failed thrifts, engages in a variety of strategies at the time of failure to maximize the return from the management and disposition of assets and to minimize realized losses. A failed thrift acquirer can purchase selected assets at the time of resolution and assume full ownership, benefit and risk related to such assets. The receiver may also engage in other types of transactions as circumstances warrant. As described in Note 2, the allowance for losses is established against the receivable from thrift resolutions.

As of December 31, 1996 and 1995, the SAIF, in its receivership capacity, held assets with a book value of $78.2 and $37.2 million, respectively. These assets represent a significant source of repayment of receivables from thrift resolutions. The estimated cash recoveries from the management and disposition of these assets (excluding cash and miscellaneous receivables of $42.3 million at December 31,1996 and $30.9 million at December 31,1995) used to derive the allowance for losses are based in part on a statistical sampling of receivership assets. The potential sampling error is not material to the SAIF’s financial statements. These estimated recoveries are regularly evaluated, but remain subject to uncertainties because of changing economic conditions. These factors could affect the SAIF’s and other claimants’ actual recoveries from the level currently estimated.


[Graphjic] 6. Estimated Liabilities for:

Anticipated Failure of Insured Institutions
The SAIF records an estimated liability and loss provision for thrifts as well as Oakar and Sasser banks that are likely to fail in the foreseeable future (absent some favorable event such as obtaining additional capital or merging). The estimated liability and corresponding reduction in the fund balance are recorded in the period when the liability is deemed probable and reasonably estimable.

The estimated liabilities for anticipated failure of insured institutions as of December 31, 1996 and 1995, were $4 million and $111 million, respectively. The estimated liability is derived in part from estimates of recoveries from the sale of the assets of these probable failures. Therefore, they are subject to the same uncertainties as those affecting the SAIF’s receivables from thrift resolutions (see Note 5). This could affect the ultimate costs to the SAIF from probable failures.

There are other institutions where the risk of failure is less certain, but still considered reasonably possible. Should these institutions fail the SAIF would incur additional losses of about $20 million.

The accuracy of these estimates will largely depend on future economic conditions. In addition, FDIC considers probable losses in setting assessment rates and, as circumstances warrant, may increase assessment rates to recover some or all losses due to anticipated thrift failures.

Litigation Losses
As stated in Note 2, the SAIF records an estimated loss for unresolved legal cases to the extent those losses are considered to be probable in occurrence and reasonably estimable in amount. For 1996 and 1995, FDIC identified no legal cases that met the criteria for recognition in the financial statements. The FDIC’s Legal Division has determined that losses from unresolved legal cases totaling $7 million and $11 million are reasonably possible at December 31, 1996 and 1995, respectively.


[Graphic] 7. Assessments

1990 OBR Act removed caps on assessment rate increases and authorized the FDIC to set assessment rates for SAIF members semiannually, to be applied against a member’s average assessment base. The FDICIA: 1) required the FDIC to implement a risk-based assessment system; 2) authorized the FDIC to increase assessment rates for SAIF-member institutions as needed to ensure that funds are available to satisfy the SAIF’s obligations; 3) required the FDIC to build the reserves in the insurance funds to 1.25 percent of insured deposits; and 4) authorized the FDIC to increase assessment rates more frequently than semiannually and impose emergency special assessments as necessary to ensure that funds are available to repay U.S. Treasury borrowings.

The DIFA 1996 (see Note 1) provided, among other things, for the capitalization of the SAIF to its designated reserve ratio of 1.25 percent by means of a one-time special assessment on SAIF-insured deposits. Effective October 1, 1996, SAIF achieved its required capitalization by means of a $4.5 billion special assessment.

Prior to January 1, 1997, the FICO had priority over the SAIF for receiving and utilizing SAIF assessments to ensure availability of funds for interest on FICO’s debt obligations. Accordingly, the SAIF recognized as assessment revenue only that portion of SAIF assessments not required by the FICO. Assessments on the SAIF-insured deposits held by BIF-member Oakar or SAIF-member Sasser institutions prior to January 1, 1997 were not subject to draws by FICO and, thus, were retained in SAIF in their entirety. FICO assessments collected during 1996 and 1995 were $808 million and $718 million, respectively.

The DIFA 1996 expanded the assessment base for payments of the interest on obligations issued by the FICO to include all FDIC-insured institutions, (including banks, thrifts, Oakars and Sassers), and made the FICO assessment separate from regular assessments, effective January 1, 1997.

Beginning in 1997, the FICO assessment will have no financial effect on the SAIF since the FICO claim will be assessed separately from the regular assessment, and the FICO assessment is imposed on thrifts and not on the SAIF. The FDIC as administrator of the SAIF is acting solely as an agent for the FICO to collect and remit the FICO assessment to the FICO.

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 using a two-step process based first on capital ratios and then on other relevant information. The FDIC Board of Directors (Board) reviews premium rates semiannually.

From 1993 through 1995, each thrift paid an assessment rate of between 23 and 31 cents per $100 of domestic deposits, depending on risk classification.

In December, 1996, the Board lowered SAIF assessment rates to a range of 0 to 27 cents per $100 of insured deposits (annual rates). The new rates, which are identical to those previously approved for BIF members, were effective October 1, 1996 for Sasser and Oakar institutions, and effective on January 1, 1997 for all other SAIF-insured institutions. For calendar year 1996, the assessment rate averaged approximately 20.4 cents per $100 of domestic deposits. As of December 31, 1996, the SAIF’s reserve ratio is 1.30 percent of insured deposits.

The SAIF refunded $219 million (includes $2.9 million in interest) to Sasser/Oakar banks during the fourth quarter of 1996. Refunds were necessary because fourth quarter assessment rates were set prior to SAIF’s capitalization. Total assessment revenue for 1996 and 1995 was $5.2 billion and $970 million, respectively. 1996 assessment revenue includes the one-time special assessment of $4.5 billion required to capitalize SAIF.


[Graphic] 8. Other Revenue

"Dollars in Thousands"
For the Year Ended
December 31, 1996
For the Year Ended
December 31, 1995

Interest on subrogated claims $ 24,476 $ ... 0
Other miscellaneous income 1,780 788
Total $ 26,256 $ 788

The interest on subrogated claims represents post-insolvency interest. There is an Oakar bank receivership that has residual funds remaining after paying all claimants. Once claimants have been paid, the SAIF and other claimants are eligible to receive interest on their claims against the receivers on a pro rata basis. Due to the uncertainty of collection, post-insolvency interest is recognized when received.


[Graphic] 9. Pension Benefits, Savings Plans, Postemployment Benefits and Accrued Annual Leave

Eligible FDIC employees (i.e., all permanent and temporary employees with appointments exceeding one year) are covered by either the Civil Service Retirement System (CSRS) or the Federal Employee Retirement System (FERS). The CSRS is a defined benefit plan, which is offset with the Social Security System in certain cases. Plan benefits are determined on the basis of years of creditable service and compensation levels. The CSRS-covered employees also can contribute to the tax-deferred Federal Thrift Savings Plan (TSP).

The FERS is a three-part plan consisting of a basic defined benefit plan that provides benefits based on years of creditable service and compensation levels, Social Security benefits and the TSP. Automatic and matching employer contributions to the TSP are provided up to specified amounts under the FERS.

Eligible FDIC employees also may participate in an FDIC-sponsored tax-deferred savings plan with matching contributions. The SAIF pays its share of the employer’s portion of all related costs.

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

Due to a substantial decline in the FDIC’s workload, the Corporation developed a staffing reduction program, a component of which is a voluntary separation incentive plan, or buyout. To date, two corporate-wide buyout plans have been offered to eligible employees. The first buyout plan did not have a material financial effect on the SAIF, and management believes the second buyout plan will also not have a material financial effect on the fund.

The liability to employees for accrued annual leave is approximately $4,031 million and $757 thousand at December 31, 1996 and 1995, respectively.

[Graphic] Pension Benefits and Savings Plans Expenses

"Dollars in Thousands"
For the Year Ended
December 31, 1996
For the Year Ended
December 31, 1995

Civil Service Retirement System $ .. 613 $ ... 549
Federal Employee Retirement System (Basic Benefit) 1,821 1,394
FDIC Savings Plan 1,111 895
Federal Thrift Savings Plan 641 486
Total $ 4,186 $ 3,324


[Graphic] 10. Postretirement Benefits Other Than Pensions

The FDIC provides certain health, dental and life insurance coverage for its eligible retirees, the retirees’ beneficiaries and covered dependents. Retirees eligible for health and/or 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. Dental coverage is provided to all retirees eligible for an immediate annuity.

The FDIC is self-insured for hospital/medical, prescription drug, mental health and chemical dependency coverage. Additional risk protection was purchased from Aetna Life Insurance Company through stop-loss and fiduciary liability insurance. All claims are administered on an administrative services only basis with the hospital/medical claims administered by Aetna Life Insurance Company, the mental health and chemical dependency claims administered by OHS Foundation Health Psychcare Inc., and the prescription drug claims administered by Caremark.

The life insurance program, underwritten by Metropolitan Life Insurance Company, provides basic coverage at no cost to retirees and allows converting optional coverages to direct-pay plans. Dental care is underwritten by Connecticut General Life Insurance Company and provides coverage at no cost to retirees.

The SAIF expensed $168 thousand and $226 thousand for net periodic postretirement benefit costs for the years ended December 31, 1996 and 1995, respectively. For measurement purposes, the FDIC assumed the following: 1) a discount rate of 5.75 percent; 2) an average long-term rate of return on plan assets of 5.75 percent; 3) an increase in health costs in 1997 of 9.75 percent, decreasing to an ultimate rate in the year 2000 of 7.75 percent; and 4) an increase in dental costs in 1996 and thereafter of 4 percent (in addition to general inflation). Both the assumed discount rate and health care cost rate have a significant effect on the amount of the obligation and periodic cost reported.

If the health care cost rate was increased one percent, the accumulated postretirement benefit obligation as of December 31, 1996, would have increased by 20.4 percent. The effect of this change on the aggregate of service and interest cost for 1996 would be an increase of 26.2 percent.

[Graphic] Net Periodic Postretirement Benefit Cost

"Dollars in Thousands"
For the Year Ended
December 31, 1996
For the Year Ended December 31, 1995

Service cost (benefits attributed to employee service during the year) $ 432 $ 431
Interest cost on accumulated postretirement benefit obligation 457 281
Net total of other components (204) (68)
Return on plan assets (517) (418)
Total $ 168 $ 226

As stated in Note 2, the FDIC established an entity to provide accounting and administration on behalf of the SAIF, the BIF and the FRF. The SAIF funds its liability and these funds are being managed as “plan assets.”


[Graphic] Accumulated Postretirement Benefit Obligation and Funded Status

"Dollars in Thousands"
For the Year Ended December 31, 1996 For the Year Ended December 31, 1995

Retirees $ 3,686 $ 2,230
Fully eligible active plan participants 343 629
Other active participants 4,125 5,124
Total Obligation 8,154 7,983
Less: Plan assets at fair value (a) 9,421 8,904
(Over) Funded Status (1,267) (921)
Unrecognized prior service cost 1,280 1,305
Unrecognized net gain 745 273
Postretirement Benefit Liability Recognized in the Statements of Financial Position $    758 $    657

(a) Invested in U.S. Treasury instruments


[Graphic] 11. Commitments

The SAIF’s allocated share of FDIC’s lease commitments totals $10.1 million for future years. The lease agreements contain escalation clauses resulting in adjustments, usually on an annual basis. The allocation to the SAIF of FDIC’s future lease commitments is based upon current relationships of the workloads among SAIF, BIF and FRF. Changes in the relative workloads among the three funds in future years could change the amount of the FDIC’s lease payments which will be allocated to SAIF. The SAIF recognized leased space expense of $2.2 million and $1.6 million for the years ended December 31, 1996 and 1995, respectively.


[Graphic] Leased Space Fees

"Dollars in Thousands"
1997 1998 1999 2000 2001 2002/Thereafter

$2,862 $1,982 $1,468 $1,225 $1,119 $1,492


[Graphic] 12. Concentration of Credit Risk

Insured Deposits
As of December 31, 1996, the total deposits insured by the SAIF is approximately $682 billion. This would be the accounting loss if all the depository institutions fail and the assets acquired as a result of the resolution process provided no recoveries.


[Graphic] 13. Disclosures about the Fair Value of Financial Instruments

Cash equivalents are short-term, highly liquid investments and are shown at current value. The fair market value of the investment in U.S. Treasury obligations is disclosed in Note 3 and is based on current market prices. The carrying amount of interest receivable on investments, short-term receivables, and accounts payable and other liabilities approximates their fair market value. This is due to their short maturities or comparison with current interest rates. As explained in Note 4, entrance and exit fees receivable are net of discounts calculated using an interest rate comparable to U.S. Treasury Bill or Government bond/note rates at the time the receivables are accrued.

The net receivable from thrift resolutions primarily involves the SAIF’s subrogated claim arising from payments to insured depositors. The receivership assets which will ultimately be used to pay the corporate subrogated claim are valued using discount rates which include consideration of market risk. These discounts ultimately affect the SAIF’s allowance for loss against the net receivable 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, 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 do 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.

[Graphic] 14. Supplementary Information Relating to the Statements of Cash Flows

[Graphic] Reconciliation of Net Income to Net Cash Provided by Operating Activities

"Dollars in Thousands"
For the Year Ended December 31, 1996 For the Year Ended December 31, 1995

Net Income $ 5,530,574 $ 1,421,132
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Income Statement Items:
Provision for insurance losses (91,636) (321,000)
Amortization of U.S. Treasury securities (unrestricted) 4,788 (8,114)
Change in Assets and Liabilities:
(Increase) in amortization of U.S. Treasury securities (restricted) (157) (450)
Decrease in entrance and exit fees receivable 5,305 26,871
(Increase) in interest receivable on investments and other assets (75,900) (9,771)
(Increase) Decrease in receivables from thrift resolutions (33,260) 6,841
Increase in accounts payable and other liabilities 60,419 105,198a
Increase in exit fees and investment proceeds held in escrow 11,814 13,027
Net Cash Provided by Operating Activities $ 5,411,947 $ 1,233,734

(a) SAIF Transferred $169 million to the FRF


[Graphic] 15. Subsequent Events

In the first quarter of 1997, management negotiated with the National Treasury Employees Union (NTEU) a change in employee health benefits. This change involves a conversion from the FDIC health plan to the Federal Employees Health Benefits (FEHB) plan. This conversion will involve all employees with five or more years until retirement eligibility. Assuming enabling legislation is also passed, the conversion will also affect all retirees and employees within five years of retirement. Management does not expect the conversion, which will become effective on January 1, 1998, to result in an accounting loss to the SAIF.


Last Updated 07/09/99

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