<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------
FORM 10-K
(Mark One) /X/ Annual Report pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
for fiscal year ended December 31, 1996
or
/ / Transition Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act 1934
for the transaction period from __________to ___________
Commission File Number: 333-16397
---------
-------------
FDIC REMIC TRUST 1996-C1
------------------------
(Exact name of registrant as specified in its charter)
New York 04-334-2274
--------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o State Street Bank and Trust Company
Corporate Trust Department
225 Franklin Street
Boston, MA 02110
------------------------------------------- -------------------
(Address of Principal Executive Offices) Zip Code
(202) 664-5500
-----------------------------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes / / No /X/
Aggregate market value of voting stock held by non-affiliates of the registrant
as of March 25, 1998.
Not Applicable.
Number of shares of common stock outstanding as of March 25, 1998.
Not Applicable.
Registrant has not been involved in bankruptcy proceedings during the proceeding
five years, and is not reporting as a corporate issuer.
The following documents are incorporated by reference into this Form 10-K.
None.
<PAGE>
FDIC REMIC TRUST 1996 C-1
FORM 10-K
INDEX
<TABLE>
<CAPTION>
Page
PART I. ----
<S> <C> <C>
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 1
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . .. . . . . . . . . . . . . . . . . . . 1
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 1
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 1
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . 2
PART III.
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 2
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 2
Item 12. Security Ownership of Certain Beneficial Owners and Management. . 2
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 2
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . 2
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Supplemental Information to be Furnished with Reports Filed Pursuant
to Section 15(d) of the Securities Exchange Act of 1934 of Registrants
Which Have Not Registered Securities Pursuant to Section 12 of such Act.. 4
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
<PAGE>
PART I
Item 1. Business
Not Applicable.
Item 2. Properties
An Annual Statement of Compliance delivered by the servicer for the two pools of
mortgages or participation interests constituting the property of the FDIC REMIC
Trust 1996-C1 (referred to herein as the "Trust" or the "Registrant") is not
available currently but will be subsequently filed on Form 8-K.
Item 3. Legal Proceedings
The Registrant knows of no material pending legal proceedings involving
either of (i) the two pools of mortgages or participation interests sometimes
(referred to herein as the "pools") constituting the property of the Trust or
(ii) the Registrant, the Servicer or the Trustee with respect to the pools
other than ordinary routine litigation, if any, incidental to the Trustee's,
the Servicer's or the Registrant's duties under the Pooling and Servicing
Agreement dated as of December 1, 1996 and not material when taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote or consent of the holders of the
Registrant's Commercial Mortgage Pass-Through Certificates, Series 1996-C1
(the "Certificates") during the period covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Registrant does not issue stock. Presently, there is no established
trading market for the Certificates known to the Registrant. As of March 25,
1998, there are 9 registered holders of all Classes of the Certificates.
Item 6. Selected Financial Data
Not Applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Not Applicable.
Item 8. Financial Statements and Supplementary Data
Annual Statement of Compliance . . . . . . . . . . . . Not available currently.
Will be subsequently filed on Form 8-K.
Independent Accountant's Report on Servicer's Servicing Activities
Not available currently.
Will be subsequently filed on Form 8-K.
The following financial statements of the Bank Insurance Fund of the Federal
Deposit Insurance Corporation, as guarantor under a Limited Guaranty Agreement
dated as of December 1, 1996, are filed as part of this report on pages F-_
through F-_ hereto:
1
<PAGE>
Report of United States General Accounting Office
Statements of Income and the Fund Balance for the years ended December 31,
1997, 1996 and 1995
Statements of Financial Position for the years ended December 31, 1997 and
1996
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995
Notes to Financial Statements
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
The Registrant knows of no changes or disagreements with accountants on
accounting and financial disclosure.
Item 10. Directors and Executive Officers of the Registrant
Not Applicable.
Item 11. Executive Compensation
Not Applicable.
PART III
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item with respect to the security ownership of
certain beneficial owners of the Certificates is annexed hereto as Exhibit 99.
Item 13. Certain Relationships and Related Transactions
Not Applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The Annual Statement of Compliance by the Servicer and Independent
Accountant's Report on Servicer's Servicing Activities are not currently
available but will be filed subsequently on Form 8-K.
The following financial statements of the Bank Insurance Fund of the
Federal Deposit Insurance Corporation, the guarantor of certain
distributions on the Certificates, are filed as part of this report:
Report of United States General Accounting Office
Statements of Financial Position for the years ended December 31, 1997 and
1996
Statements of Income and the Fund Balance for the years ended December 31,
1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995
Notes to Financial Statements
(a)(2) Financial Statement Schedules
None.
2
<PAGE>
(a)(3) Exhibits
Unless otherwise indicated, the following exhibits required by Item 601 of
Regulation S-K and previously furnished to the Commission as exhibits to a
Report on Form 8-K with a Date of Report of December 20, 1996 and filed on
January 13, 1997, are incorporated into this Form 10-K by reference:
4. Pooling and Servicing Agreement dated as of December 1, 1996, by
and among the Federal Deposit Insurance Corporation in its
corporate capacity, and in its capacities as administrator of the
Bank Insurance Fund and as Receiver of certain state and
federally chartered depository institutions, Banc One Management
and Consulting Corporation, as Servicer, and State Street Bank
and Trust Company, as Trustee.
10. Limited Guaranty Agreement dated as of December 1, 1996, by and
between the Federal Deposit Insurance Corporation, solely in its
corporate capacity, and State Street Bank and Trust Company, not
in its individual capacity but solely as trustee of FDIC REMIC
Trust 1996-C1.
23.* Consent of United States General Accounting Office.
99.* Security Ownership of Certain Beneficial Owners and Management.
(b) It has come to the attention of the undersigned that reports on Form
8-K prepared by the undersigned for filing with the Commission during
the last quarter of the period covered by this report and believed to
have been so filed may not have been effectively filed on Edgar. The
Registrant intends to file all such reports with the Commission as
promptly as reasonably practicable.
__________________
* Filed herewith
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OF REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF SUCH ACT.
The Registrant has not sent an annual report or proxy material to the holders of
its Certificates. The Registrant will not be sending an annual report or proxy
materials to the holders of its Certificates subsequent to the filing of this
Form 10-K.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FDIC REMIC TRUST 1996 C-1 (the "Trust Fund")
(Registrant)
Dated: March 27, 1998 By: State Street Bank and Trust Company,
solely in its capacity as Trustee of the
Trust Fund and not individually
By: /S/ Julie Kirby
--------------------------------------
Julie Kirby, Assistant Vice President
4
<PAGE>
INDEX OF EXHIBITS
4. Pooling and Servicing Agreement dated as of December 1, 1996, by and among
the Federal Deposit Insurance Corporation in its corporate capacity, and in
its capacities as administrator of the Bank Insurance Fund and as Receiver
of certain state and federally chartered depository institutions, Banc One
Management and Consulting Corporation, as Servicer, and State Street Bank
and Trust Company, as Trustee.
10. Limited Guaranty Agreement dated as of December 1, 1996, by and between the
Federal Deposit Insurance Corporation, solely in its corporate capacity,
and State Street Bank and Trust Company, not in its individual capacity but
solely as trustee of FDIC REMIC Trust 1996-C1.
23.* Consent of United States General Accounting Office.
99.* Security Ownership of Certain Owners, as of March 25, 1998 (with original
principal balances).
__________________
* Filed herewith
5
<PAGE>
INDEX TO INDEPENDENT ACCOUNTANT'S REPORT
AND FINANCIAL STATEMENTS OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION'S
BANK INSURANCE FUND
<TABLE>
<CAPTION>
Page of Sequentially
Numbered Pages
--------------------
<S> <C>
Report of United States General Accounting Office............. F-
Statements of Financial Position for the years ended
December 31, 1997, 1996..................................... F-
Statements of Income and the Fund Balance for the years ended
December 31, 1997, 1996 and 1995............................ F-
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995............................................... F-
Notes to Financial Statements................................. F-
</TABLE>
6
<PAGE>
FDIC REMIC TRUST 1996-C1
EXHIBIT 99
PAGE 1 OF 2
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
As of March 25, 1998, the following persons were known to the Registrant to be
the registered owners of more than 5% of the aggregate fractional undivided
interest evidenced by each Class of the Certificates referenced below:
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS AMOUNT OF BENEFICIAL
OF CLASS OF HOLDERS OF RECORD OWNERSHIP (ORIGINAL PRINCIPAL) % CLASS
- -------- -------------------- ----------------------------- -------
<S> <C> <C> <C>
Class I-A Cede & Co. $445,218,000 100%
55 Water Street
New York, New York 10041
Class I-B Cede & Co. $32,979,000 100%
55 Water Street
New York, New York 10041
Class I-C Cede & Co. $27,483,000 100%
55 Water Street
New York, New York 10041
Class I-D Cede & Co. $43,972,693 100%
55 Water Street
New York, New York 10041
Class II-A Cede & Co. $140,168,000 100%
55 Water Street
New York, New York 10041
Class II-B Cede & Co. $15,018,000 100%
55 Water Street
New York, New York 10041
Class II-C Cede & Co. $11,680,806 100%
55 Water Street
New York, New York 10041
Class I-XS Federal Deposit Insurance Corp. N/A 100%
Division of Finance
3501 N. Fairfax Drive
Arlington, VA 22226
Class II-XS Federal Deposit Insurance Corp. N/A 100%
Division of Finance
3501 N. Fairfax Drive
Arlington, VA 22226
</TABLE>
<PAGE>
PAGE 2 OF 4
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class R-UT Federal Deposit Insurance Corp. N/A 100%
Division of Finance
3501 N. Fairfax Drive
Arlington, VA 22226
Class R-LT Federal Deposit Insurance Corp. N/A 100%
Division of Finance
3501 N. Fairfax Drive
Arlington, VA 22226
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
GAO United States
General Accounting Office
Washington, D.C. 20548
- -------------------------------------------------------------------------------
Accounting and Information
Management Division
B-279515
To the Board of Directors
Federal Deposit Insurance Corporation
We have audited the accompanying statements of financial position of
the Bank Insurance Fund of the Federal Deposit Insurance Corporation
(FDIC) as of December 31, 1997 and 1996, and its statements of
income and fund balance and cash flows for each of the years ended
December 31, 1997, 1996, and 1995. These financial statements are
the responsibility of FDIC's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
government auditing standards. These standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Bank
Insurance Fund as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the years ended
December 31, 1997, 1996, and 1995, in conformity with generally
accepted accounting principles.
Our assessment of FDIC management's assertions regarding the
effectiveness of its system of internal accounting controls as of
December 31, 1997, and our evaluation of FDIC's compliance with
significant provisions of certain laws and regulations during 1997
will be presented in a separate report.
/s/ Robert W. Gramling
Robert W. Gramling
Director, Corporate Audits
and Standards
March 16, 1998
<PAGE>
Federal Deposit Insurance Corporation
Bank Insurance Fund Statements of Financial Position
<TABLE>
<CAPTION>
(dollars in thousands) December 31
1997 1996
<S> <C> <C>
Assets
Cash and cash equivalents......................................... $ 219,207 $ 258,132
Investment in U.S. Treasury obligations, net (Note 3)............. 26,598,825 22,083,494
(Market value of investments at December 31, 1997 and
December 31, 1996 was $27.1 billion and $22.1 billion,
respectively)
Interest receivable on investments and other assets, net.......... 472,818 384,824
Receivables from bank resolutions, net (Note 4)................... 1,109,035 4,341,154
Assets acquired from assisted banks and terminated
receiverships, net (Note 5)..................................... 60,724 74,173
Property and buildings, net (Note 6).............................. 145,061 148,400
----------- -----------
Total Assets...................................................... $28,605,670 $27,290,177
----------- -----------
----------- -----------
Liabilities
Accounts payable and other liabilities............................ $ 228,955 $ 250,952
Estimated liabilities for: (Note 7)
Anticipated failure of insured institutions....................... 11,000 75,000
Assistance agreements............................................. 31,952 50,817
Litigation losses................................................. 13,500 14,750
Asset securitization guarantees................................... 27,715 44,279
----------- -----------
Total Liabilities................................................. $ 313,122 $ 435,798
----------- -----------
----------- -----------
Commitments and off-balance sheet exposure (Note 13)
Fund Balance
Accumulated Net Income............................................ 28,292,672 26,854,379
Unrealized loss on available-for-sale securities, net (Note 3).... (124) 0
Total Fund Balance 28,292,548 26,854,379
----------- -----------
Total Liabilities and Fund Balance................................ $28,605,670 $27,290,177
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BANK INSURANCE FUND STATEMENTS OF INCOME AND FUND BALANCE
<TABLE>
<CAPTION>
(dollars in thousands) FOR THE YEAR ENDED
--------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- -------------------- --------------------
<S> <C> <C> <C>
REVENUE
Assessments (Note 9).......................... $ 24,711 $ 72,662 $ 2,906,943
Interest on U.S. Treasury investments......... 1,519,276 1,267,134 1,068,395
Revenue from assets acquired from assisted
banks and terminated receiverships......... 38,000 69,879 58,585
Other revenue (Note 10)...................... 33,631 245,585 55,176
TOTAL REVENUE ............................... 1,615,618 1,655,260 4,089,099
EXPENSES AND LOSSES
Operating expenses........................... 605,214 505,299 470,625
Provision for insurance losses (Note 8)...... (503,714) (325,206) (33,167)
Expenses for assets acquired from assisted
banks and terminated receiverships......... 74,319 73,819 73,599
Interest and other insurance expenses........ 1,506 667 (27,874)
TOTAL EXPENSES AND LOSSES.................... 177,325 254,579 483,183
-------------------- -------------------- ------------------
NET INCOME................................... 1,438,293 1,400,681 3,605,916
-------------------- -------------------- ------------------
Unrealized loss on available-for-sale
securities, net (Note 3)................... (124) 0 0
-------------------- -------------------- ------------------
COMPREHENSIVE INCOME......................... 1,438,169 1,400,681 3,605,916
-------------------- -------------------- ------------------
FUND BALANCE - BEGINNING..................... 26,854,379 25,453,698 21,847,782
-------------------- -------------------- ------------------
FUND BALANCE - ENDING........................ $28,292,548 $26,854,379 $25,453,698
-------------------- -------------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Federal Deposit Insurance Corporation
Bank Insurance Fund Statements of Cash Flows
<TABLE>
<CAPTION>
(dollars in thousands) For the Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ------------------ -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Cash provided from:
Assessments................................................. $ 22,201 $ 73,961 $ 2,796,114
Interest on U.S. Treasury investments....................... 1,480,060 1,303,629 875,226
Recoveries from bank resolutions............................ 3,826,273 624,502 5,059,751
Recoveries from assets acquired from assisted
banks and terminated receiverships........................ 141,765 355,913 211,691
Miscellaneous receipts...................................... 24,951 34,329 36,084
Cash used for:
Operating expenses.......................................... (580,515) (489,372) (442,101)
Disbursements for bank resolutions.......................... (298,943) (632,930) (1,596,391)
Disbursements for assets acquired from assisted
banks and terminated receiverships........................ (67,231) (205,775) (159,299)
Miscellaneous disbursements................................. (11,771) (16,810) (23,929)
Net Cash Provided by Operating Activities (Note 15)........... 4,536,790 1,047,447 6,757,146
Cash Flows From Investing Activities
Cash provided from:
Maturity of U.S. Treasury obligations, held-to-maturity..... 6,300,000 7,550,000 3,830,000
Cash used for:
Purchase of U.S. Treasury obligations, held-to-maturity..... (10,373,695) (8,870,623) (11,675,925)
Purchase of U.S. Treasury obligations, available-for-sale... (502,020) 0 0
Net Cash Used by Investing Activities......................... (4,575,715) (1,320,623) (7,845,925)
Cash Flows From Financing Activities
Cash used for:
Repayments of indebtedness incurred from bank resolutions... 0 0 (1,369)
Net Cash Used by Financing Activities........................ 0 0 (1,369)
Net Decrease in Cash and Cash Equivalents.................... (38,925) (273,176) (1,090,148)
Cash and Cash Equivalents--Beginning......................... 258,132 531,308 1,621,456
Cash and Cash Equivalents--Ending............................ $ 219,207 $ 258,132 $ 531,308
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
December 31, 1997 and 1996
I. LEGISLATIVE HISTORY AND OPERATIONS OF THE BANK INSURANCE FUND
LEGISLATIVE HISTORY
The U.S Congress created the Federal Deposit Insurance Corporation (FDIC)
through enactment of the Banking Act of 1933. The FDIC was created to restore
and maintain public confidence in the nation's banking system.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA) was enacted to reform, recapitalize, and consolidate the fedral
deposit insurance system. The FIRREA created the Bank Insurance Fund (BIF),
the Savings Association Insurance Fund (SAIF), and the FSLIC Resolution Fund
(FRF). It also designated the FDIC as the administrator of these three funds.
All three funds are maintained separately to carry out their respective
mandates.
The BIF and the SAIF 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 FIRREA, an active institution's insurance fund membership and
primary federal supervisor are generally determined by the institution's
charter type. Deposits of BIF-member institutions are generally insured by
the BIF; BIF members are predominantly commercial and savings banks
supervised by the FDIC, the Office of the Comptroller of the Currency, or the
Federal Reserve. Deposits of SAIF-member institutions are generally insured
by the SAIF; SAIF members are predominantly thrifts supervised by the Office
of Thrift Supervision (OTS). The Oakar amendment to the Federal Deposit
Insurance Act (FDI Act) allows BIF and SAIF members to acquire deposits
insured by the other insurance fund without changing insurance fund coverage
for the acquired deposits. "Sasser" banks are SAIF members that have
converted to a bank charter in accordance with Section 5(d)(2)(G) of the FDI
Act.
OTHER SIGNIFICANT LEGISLATION
The Competitive Equality Banking Act of 1987 established the Financing
Corporation (FICO) as a mixed-ownership government corporation whose sole
purpose was to function as a financing vehicle for the FSLIC.
The Omnibus Budget Reconciliation Act of 1990 (1990 OBR Act) and the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) made changes
to the FDIC's assessment authority (see Note 9) and borrowing authority (see
"Operations of the BIF" 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.
The Deposit Insurance Funds Act of 1996 (DIFA) 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 banks and thrifts;
3) beginning January 1, 1997, the imposition of a FICO assessment rate on
BIF-assessable deposits that is one-fifth of the rate for SAIF-assessable
deposits through the earlier of December 31, 1999, or the date on which the
last savings association ceases to exist; 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 BIF
assessment only if needed to maintain the fund at the designated reserve
ratio; 6) the refund of amounts in the BIF in excess of the designated
reserve ratio with such refund not to exceed the previous semi-annual
assessment; and 7) the merger of the BIF and the SAIF on January 1,
Page 1 of 12
<PAGE>
1999, if no insured depository institution is a savings
association on that date.
OPERATIONS OF THE BIF
The primary purpose of the BIF is to: 1) insure the
deposits and protect the depositors of BIF-insured
banks and 2) resolve failed banks, including
managing and liquidating their assets. In addition, the
FDIC, acting on behalf of the BIF, examines state-
chartered banks that are not members of the Federal
Reserve System and provides and monitors assistance
to troubled banks.
The BIF is primarily funded from the following
sources: 1) interest earned on investments in U.S.
Treasury obligations; 2) BIF assessment premiums;
3) income earned on and funds received from the
management and disposition of assets acquired from
failed banks; and 4) U.S. Treasury and Federal
Financing Bank (FFB) Borrowings, if necessary.
The 1990 OBR Act established the FDIC's authority
to borrow working capital from the FFB on behalf of
the BIF and the SAIF. The FDICIA increased the
FDIC's authority to borrow for insurance losses from
the U.S. Treasury, on behalf of the BIF and the SAIF,
from $5 billion to $30 billion. The FDICIA also
established a limitation on obligations that can be
incurred by the BIF, known as the maximum
obligation limitation (MOL). At December 31, 1997,
the MOL for the BIF was $50 billion.
The VA, HUD and Independent Agencies
Appropriations Act, 1998, Public Law 105-65,
appropriated $34 million for fiscal year 1998
(October 1, 1997, through September 30, 1998) for
operating expenses incurred by the Office of
Inspector General (OIG). The Act mandates that the
funds are to be derived from the BIF, the SAIF, and
the FRF. In prior years, the OIG funding was not
submitted to Congress as part of the appropriation
process.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
These financial statements pertain to the financial
position, results of operations, and cash flows of the
BIF and are presented in accordance with generally
accepted accounting principles (GAAP). These
statements do not include reporting for assets and
liabilities of closed banks for which the FDIC acts as
receiver or liquidating agent. Periodic and final
accountability reports of the FDIC's activities as
receiver or liquidating agent are furnished to courts,
supervisory authorities, and others as required.
USE OF ESTIMATES
FDIC 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.
CASH EQUIVALENTS
The BIF considers cash equivalents to be short-term,
highly liquid investments with original maturities of
three months or less.
INVESTMENTS IN U.S. TREASURY OBLIGATIONS
Investments in U.S. Treasury Obligations are
recorded pursuant to the provisions of the Statement
of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). SFAS 115 requires
that securities be classified in one of three categories;
held-to-maturity, available-for-sale, or trading.
Securities designated as held-to-maturity are intended
to be held to maturity and 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. Beginning in 1997, the BIF
designated a portion of its securities as available-for-
sale. These securities are shown at fair value with
unrealized gains and losses included in the fund
balance. Realized gains and losses are included in
other revenue when applicable. Interest on both types
of securities is calculated on a daily basis and
recorded monthly using the effective interest method.
The BIF does not have any securities classified as
trading.
Page 2 of 12
<PAGE>
ALLOWANCE FOR LOSSES ON RECEIVABLES FROM BANK RESOLUTIONS AND ASSETS ACQUIRED
FROM ASSISTED BANKS AND TERMINATED RECEIVERSHIPS
The BIF records as a receivable the amounts advanced and/or obligations
incurred for resolving troubled and failed banks. The BIF also records as an
asset the amounts paid for assets acquired from assisted banks and
terminated receiverships. 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 estimates of discounted cash
recoveries from the assets of assisted or failed banks, net of all estimated
liquidation costs.
RECEIVERSHIP OPERATIONS
The FDIC is responsible for managing 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
BIT 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 based on percentages developed during the business
planning process. 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 similar basis. The BIF 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 BIF, the SAIF, and the FRF.
Each fund pays its liabilities for these benefits directly to the entity.
The BIF's remaining net postretirement benefits liability for the plan is
recognized in the BIF's Statement of Financial Position.
DISCLOSURE ABOUT RECENT FINANCIAL ACCOUNTING STANDARDS BOARD PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." Comprehensive income includes net income as well as
certain types of unrealized gain or loss. The only component of SFAS No. 130
that impacts the BIF is unrealized gain or loss on securities classified as
available-for-sale, which is presented in the BIF's Statement of Financial
Position and the Statement of Income and Fund Balance. The FDIC adopted SFAS
No. 130 effective on January 1, 1997.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The FDIC intends to adopt SFAS
No. 131 effective on January 1, 1998; however, management anticipates that
the BIF, as a non-publicly held enterprise, will not be affected by SFAS No.
131.
Other Recent pronouncements issued by the FASB are not applicable to the
financial statements.
DEPRECIATION
The FDIC has designated the BIF as administrator of buildings owned and used
in its operations. Consequently, the BIF includes the cost of these assets in
its financial statements and provides the necessary funding for them. The
BIF charges the other funds a rental fee representing an allocated share of
its annual depreciation expense.
The Washington, D.C. office buildings and the L. William Seidman Center in
Arlington, Virginia, are depreciated on a straight-line basis over a 50-year
estimated life. The San Francisco condominium offices are depreciated on a
straight-line basis over a 35-year estimated life.
RELATED PARTIES
The nature of related parties and a description of related party transactions
are disclosed throughout the financial statements and footnotes.
RECLASSIFICATIONS
Reclassifications have been made in the 1995 and 1996 financial statements to
conform to the presentation used in 1997.
Page 3 of 12
<PAGE>
3. INVESTMENT IN U.S. TREASURY OBLIGATIONS, NET
All cash received by the BIF 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 assistance to banks and
liquidation activities; or 3) for investments in U.S. Treasury one-day special
certificates that are included in the cash and cash equivalents line item. Prior
to 1997, all investments were designated "held-to-maturity" (see Note 2).
U.S. TREASURY OBLIGATIONS AT DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
YIELD AT FACE AMORTIZED HOLDING HOLDING MARKET
MATURITY PURCHASE VALUE COST GAINS LOSSES VALUE
- --------- ------------- ---------- ---------- ----------- ----------- -----------
HELD-TO-MATURITY
<S> <C> <C> <C> <C> <C> <C>
Less than
one year..... 5.58% $ 5,250,000 $ 5,240,657 $ 5,369 $ (5,650) $ 5,240,375
1-3 years.... 5.83% 5,280,000 5,330,281 26,113 (7,413) 5,348,983
3-5 years.... 6.15% 5,490,000 5,685,279 89,744 (6,895) 5,768,128
5-10 years... 6.57% 9,500,000 9,840,712 439,733 0 10,280,445
----------- ----------- ---------- --------- -----------
Total...... $25,520,000 $26,096,929 $ 560,959 $ (19,958) $26,637,931
AVAILABLE-FOR-SALE
- ----------------------------------------------------------------------------------------
1-3 years.... 5.67% 490,000 502,020 19 (143) 501,896
TOTAL INVESTMENT IN U.S. TREASURY OBLIGATIONS, NET
- ----------------------------------------------------------------------------------------
Total.... $26,010,000 $26,598,949 $ 560,978 $ (20,101) $27,139,827
U.S. TREASURY OBLIGATIONS AT DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
UNREALIZED UNREALIZED
YIELD AT FACE AMORTIZED HOLDING HOLDING MARKET
MATURITY PURCHASE VALUE COST GAINS LOSSES VALUE
- --------- ------------- ---------- ---------- ----------- ----------- -----------
Less than
one-year..... 6.02% $ 5,800,000 $5,805,090 $ 15,032 $ (6,934) $ 5,813,188
1-3 years.... 5.62% 8,320,000 8,339,386 8,499 (37,429) 8,310,456
3-5 years.... 6.10% 4,770,000 4,811,582 21,306 (30,560) 4,802,328
5-10 years... 6.51% 3,100,000 3,127,436 38,415 (328) 3,165,523
----------- ----------- ---------- --------- -----------
Total...... $21,990,000 $22,083,494 $ 83,252 $ (75,251) $22,091,495
</TABLE>
In 1997, the unamortized premium, net of unamortized discount, was $589
million. In 1996, the unamortized premium, net of unamortized discount, was $93
million.
Page 4 of 12
<PAGE>
4. RECEIVABLES FROM BANK RESOLUTIONS, NET
The FDIC resolution process takes different forms 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 the institution's obligation to insured depositors and
represent a claim by the BIF against the receiverships' assets. There was
only one bank failure in 1997.
The FDIC, as receiver for failed banks, engages in a variety of strategies
at the time of failure to maximize the return from the sale or disposition of
assets. A failed bank 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, an allowance for loss is
established against the receivable from bank resolutions.
As of December 31, 1997 and 1996, the FDIC, in its receivership capacity
for BIF-insured institutions, held assets with a book value of $2.5 billion
and $7.3 billion, respectively (including cash and miscellaneous receivables
of $1 billion and $3.9 billion at December 31, 1997 and 1996, respectively).
These assets represent a significant source of repayment of the BIF's
receivables from bank resolutions. The estimated cash recoveries from the
management and disposition of these assets are used to derive the allowance
for losses based in part on a statistical sampling of receivership assets.
The sample was constructed to produce a statistically valid result. These
estimated recoveries are regularly evaluated, but remain subject to
uncertainties because of potential changes in economic conditions. These
factors could affect the BIF's and other claimants' actual recoveries from
the level currently estimated.
Receivables From Bank Resolutions, Net at December 31
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
- ---------------------- ------------ -----------
<S> <C> <C>
Assets from open bank assistance $ 140,035 $ 142,267
------------ -----------
Allowance for losses (38,497) (49,580)
Net Assets From Open Bank Assistance 101,538 92,687
------------ -----------
Receivables from closed banks 23,268,950 28,169,809
------------ -----------
Allowance for losses (22,261,453) (23,921,342)
Net Receivables from closed banks 1,007,497 4,248,467
------------ -----------
Total $ 1,109,035 $ 4,341,154
------------ -----------
</TABLE>
5. ASSETS ACQUIRED FROM ASSISTED BANKS AND TERMINATED RECEIVERSHIPS, NET
The BIF acquires assets from certain troubled and failed banks by either
purchasing an institution's assets outright or purchasing the assets under
the terms specified in each resolution agreement. In addition, the BIF can
purchase assets remaining in a receivership to facilitate termination. The
methodology used to derive the allowance for losses for assets acquired from
assisted banks and terminated receiverships is the same as that for
receivables from bank resolutions.
The BIF recognizes income and expenses on these assets. Income consists
primarily of the portion of collections on performing mortgages and
commercial loans related to interest earned. Expenses are recognized for
administering the management and liquidation of these assets.
Page 5 of 12
<PAGE>
Assets Acquired From Banks and Terminated Receiverships, Net at December 31
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
-------- --------
<S> <C> <C>
Assets acquired from assisted banks and
terminated receiverships................... $ 256,237 $ 423,151
--------- ---------
Allowance for losses....................... (195,513) (348,978)
--------- ---------
Assets Acquired From Assisted Banks and
Terminated Receiverships, Net.............. $ 60,724 $ 74,173
--------- ---------
--------- ---------
</TABLE>
6. PROPERTY AND BUILDINGS, NET AT DECEMBER 31
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
-------- --------
<S> <C> <C>
Land....................................... $ 29,631 $ 29,631
-------- --------
Office buildings........................... 151,443 151,442
-------- --------
Accumulated depreciation................... (36,013) (32,673)
-------- --------
Property and Buildings, Net................. $145,061 $148,400
-------- --------
-------- --------
</TABLE>
7. ESTIMATED LIABILITIES FOR:
ANTICIPATED FAILURE OF INSURED INSTITUTIONS
The BIF records an estimated liability and a loss provision for banks
(including Oakar and Sasser financial institutions) that are likely to fail,
absent some favorable event such as obtaining additional capital or merging,
in the period when the liability is considered probable and reasonably
estimable.
The estimated liabilities for anticipated failure of insured institutions as
of December 31, 1997 and 1996, were $11 million and $75 million,
respectively. The estimated liability is derived in part from estimates of
recoveries from the management and disposition of the assets of these
probable bank failures. Therefore, they are subject to the same uncertainties
as those affecting the BIF's receivables from bank resolutions (see Note 4).
This could affect the ultimate costs to the BIF from probable bank failures.
There are other banks where the risk of failure is less certain, but still
considered reasonably possible. Should these banks fail, the BIF could incur
additional estimated losses of about $197 million.
The accuracy of these estimates will largely depend on future economic
conditions. The FDIC Board has the statutory authority to consider the
estimated liability from anticipated failures of insured institutions when
setting assessment rates.
ASSISTANCE AGREEMENTS
The estimated liabilities for assistance agreements resulted from several
large transactions where problem assets were purchased by an acquiring
institution under an agreement that calls for the FDIC to absorb credit
losses and pay related costs for funding and asset administration, plus an
incentive fee.
LITIGATION LOSSES
The BIF records an estimated loss for unresolved legal cases to the extent
those losses are considered probable and reasonably estimable. The estimated
liability for litigation losses is $14 million and $15 million at December
31, 1997 and 1996, respectively. In addition to the amount recorded as
probable, the FDIC's Legal Division has determined that losses from
unresolved legal cases totaling $320 million are reasonably possible.
ASSET SECURITIZATION GUARANTEES
As part of the FDIC's efforts to maximize the return from the sale or
disposition of assets from bank resolutions, the FDIC has securitized some
receivership assets. To facilitate the securitizations, the BIF provided
limited guarantees to cover certain losses on the securitized assets up to a
specified maximum. In exchange for backing the limited guarantees, the BIF
received assets from the receiverships in an amount equal to the expected
exposure under the guarantees. At December 31, 1997 and 1996, the BIF had an
estimated liability
Page 6 of 12
<PAGE>
under the guarantees of $28 million and $44 million, respectively.
During 1996, the BIF refined its liability estimation process and returned to
receiverships $91.6 million in cash (including interest of $8.4 million)
received for backing the limited guarantee. The BIF made this one-time refund
as a result of lowering the estimate of expected exposure under one of the
guarantees. To determine the maximum exposure under the limited
guarantees, please refer to the chart in Note 13.
8. Provision for Insurance Losses
Provision for insurance losses was a negative $504 million, a negative $325
million and a negative $33 million for 1997, 1996 and 1995, respectively.
Reductions to various allowance for losses and estimated liabilities account
for the negative loss provision. The following chart lists the major
components of the reduction in provision for insurance losses.
Provision for Losses
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) FOR THE YEAR ENDED
-------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Valuation adjustments:
Open bank assistance.................................... $ (12,180) $ (3,605) $ (140,950)
Closed banks............................................ (356,347) (128,149) 411,680
Assets acquired from assisted banks and terminated
receiverships......................................... (55,663) 50,589 99,787
----------------- ----------------- -----------------
Total Valuation Adjustments............................. $ (424,190) $ (81,165) $ 370,517
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Contingencies:
Anticipated failure of insured institutions............. (59,000) (204,000) (439,000)
Assistance agreements................................... (12,716) (4,404) 14,420
Asset securitization guarantees......................... (6,558) (14,572) (211)
Litigation.............................................. (1,250) (21,065) 21,107
----------------- ----------------- -----------------
Total Contingencies..................................... $ (79,524) $ (244,041) $ (403,684)
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Reduction in Provision for Insurance Losses............. $ (503,714) $ (325,206) $ (33,167)
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
9. ASSESSMENTS
The 1990 OBR Act removed caps on assessment rate increases and authorized the
FDIC to set assessment rates for BIF 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 BIF-member institutions as needed to ensure that
funds are available to satisfy the BIF's obligations; 3) required the FDIC to
build and maintain 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.
In May 1995, the BIF reached the FDICIA mandated capitalization level of 1.25
percent of insured deposits.
The DIFA (see Note 1) provided, among other things, for the elimination of the
mandatory minimum assessment formerly provided for in the FDI Act. It also
provided for the expansion of the assessment base for payments of the interest
on obligations issued by the FICO to include all FDIC-insured institutions
(including banks, thrifts, Oakar and Sasser financial institutions). On
January 1, 1997, BIF-insured banks began paying a FICO assessment. The FICO
assessment rate on BIF-assessable deposits is one-fifth of the rate for
SAIF-assessable deposits. On the earlier of December 31, 1999, or the date on
which the last savings association ceases to exist, the approximately $790
million annual FICO interest
Page 7 of 12
<PAGE>
obligations will be paid on a pro rata basis between
banks and thrifts.
The FICO assessment has no financial impact on the
BIF since the FICO assessment is separate from the
regular assessment, and the FICO assessment is
imposed on banks and not on the BIF. The FDIC, as
administrator of the BIF, is acting solely as a
collection agent for the FICO. During 1997, $338
million was collected from banks and remitted to the
FICO.
The FDIC uses a risk-based assessment system that
charges higher rates to those institutions that pose
greater risks to the BIF. To arrive at a risk-based
assessment for a particular institution, the FDIC
places each institution in one of nine risk categories,
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. The average assessment rate for 1997
was 0.08 cents per $100 of assessable deposits.
On November 12, 1997, the Board voted to retain the
BIF assessment schedule of 0 to 27 cents per $100 of
Assessable deposits (annual rates) for the first
semiannual period of 1998.
10. OTHER REVENUE
Included in other revenue is interest on subrogated
claims and advances to financial institutions. This
interest totaled $22 million, $231 million and $38
million for 1997, 1996 and 1995, respectively
(including $10 million, $205 million and $5 million
in post-insolvency interest for 1997, 1996 and 1995,
respectively.) Certain BIF receiverships may have
residual funds remaining after paying all higher
priority claims. Once those claims have been paid,
the BIF and other claimants are eligible to receive
interest on their claims against the receivers to the
extent funds are available. Due to the uncertainty of
collection, post-insolvency interest is recognized as
income when received.
11. PENSION BENEFITS, SAVINGS PLANS, POSTEMPLOYMENT BENEFITS AND ACCRUED
ANNUAL LEAVE
Eligible FDIC employees (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.
Although the BIF contributes a portion of pension
benefits for eligible employees, it does not account
for the assets of either retirement system. The BIF
also does not have actuarial data for accumulated
plan benefits or the unfunded liability relative to
eligible employees. These amounts are reported on
and accounted for by the U.S. Office of Personnel
Management (OPM).
Eligible FDIC employees also may participate in an
FDIC-sponsored tax-deferred savings plan with
matching contributions. The BIF pays its share of the
employer's portion of all related costs.
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. Corporate-wide
buyout plans have been offered to eligible
employees. The Buyouts have not had a material
effect on the BIF.
The BIF's pro rata share of the Corporation's liability
to employees for accrued annual leave is
approximately $35.7 million and $38.9 million at
December 31, 1997 and 1996, respectively.
Page 8 of 12
<PAGE>
Pension Benefits and Savings Plan Expenses
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997 December 31, 1996 December 1995
----------------- ----------------- -------------
<S> <C> <C> <C>
CSRS/FERS Disability Fund................................. $ 488 $ 1,127 $ 42
Civil Service Retirement System........................... 8,708 9,113 9,411
Federal Employee Retirements System (Basic Benefit)....... 28,661 34,989 36,741
FDIC Savings Plan......................................... 16,974 19,474 20,545
Federal Thrift Savings Plan............................... 10,568 12,195 10,264
--------- -------- --------
Total...................................................... $ 65,399 $ 76,898 $ 77,003
--------- -------- --------
--------- -------- --------
</TABLE>
12. 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 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 retires 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 BIF expensed $3.3 million, $6.1 million and $18.8 million for net
periodic postretirement benefit costs for the years ended December 31, 1997,
1996 and 1995, respectively. For measurement purposes for 1997, 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 (inclusive of general inflation of 2.5
percent), decreasing to an ultimate rate in the year 2000 and thereafter of
7.75 percent; and 4) an increase in dental costs for 1997 and thereafter of
4.5 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, 1997, would have
increased by 20.2 percent. The effect of this change on the aggregate of
service and interest cost for 1997 would be an increase of 23.5 percent.
Net Periodic Postretirement Benefit Cost
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Service cost (benefits attributed to employee service
during the year.......................................... $ 12,618 $ 15,575 $ 22,574
Interest cost on accumulated postretirement benefit
obligation............................................... 17,564 16,258 14,706
Net total of other components.............................. (5,868) (7,369) (3,567)
Return on plan assets...................................... (21,009) (18,402) (14,907)
-------- -------- --------
Total...................................................... $ 3,305 $ 6,062 $ 18,806
-------- -------- --------
-------- -------- --------
</TABLE>
As stated in Note 2, the FDIC established an entity to provide accounting
and administration on behalf of the BIF, the SAIF, and the FRF. The BIF funds
its liability and these funds are being managed as "plan assets".
Page 9 of 12
<PAGE>
Accumulated Postretirement Benefit Obligation and Funded Status at December 31
<TABLE>
<CAPTION>
(dollars in thousands) 1997 1996
---------- ------------
<S> <C> <C>
Retirees....................................................... $190,339 $136,730
Fully eligible active plan participants........................ 14,830 12,724
Other active participants...................................... 173,058 152,993
Total Obligation............................................... 378,227 302,447
Less: Plan assets at fair value (a)............................ 356,447 335,439
Under/(Over) Funded Status..................................... 21,780 (32,992)
Unrecognized prior service cost................................ 12,870 46,136
Unrecognized net gain.......................................... 4,581 26,846
Postretirement Benefit Liability Recognized in the Statement of
Financial Position............................................. $ 39,231 $ 39,990
</TABLE>
(a) Invested in U.S. Treasury Instruments
13. COMMITMENTS AND OFF-BALANCE-SHEET EXPOSURE
COMMITMENTS
LEASES
The BIF's allocated share of the FDIC's lease commitments totals $188.5
million for future years. The lease agreements contain escalation clauses
resulting in adjustments, usually on an annual basis. The allocation to the
BIF of the FDIC's future lease commitments is based upon current
relationships of the workloads among the BIF, the SAIF and the FRF. Changes
in the relative workloads among the three funds in future years could change
the amount of the FDIC's lease payments that will be allocated to the BIF.
The BIF recognized leased space expense of $43.6 million, $39.9 million and
$42.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Lease Commitments
<TABLE>
<CAPTION>
(dollars in thousands)
1998 1999 2000 2001 2002 2003 and Thereafter
------- ------- ------- ------- ------- -------------------
<C> <C> <C> <C> <C> <C>
$42,507 $35,337 $30,550 $23,950 $21,142 $35,029
------- ------- ------- ------- ------- -------
</TABLE>
ASSET SECURITIZATION GUARANTEES
As discussed in Note 7, the BIF provided certain limited guarantees to
facilitate securitization transactions. The table below gives the maximum
off-balance sheet exposure the BIF has under these guarantees.
Asset Securitization Guarantees at December 31
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
--------- ---------
<S> <C> <C>
Maximum exposure under the limited guarantees $481,313 $481,313
Less: Guarantee claims paid (inception-to-date) (19,231) (8,651)
Less: Amount of exposure recognized as an estimated
liability (see Note 7) (27,715) (44,279)
-------- --------
Maximum Off-Balance Sheet Exposure Under the Limited Guarantees $434,367 $428,383
-------- --------
-------- --------
</TABLE>
Page 10 of 12
<PAGE>
CONCENTRATION OF CREDIT RISK
As of December 31, 1997, the BIF had $23.4 billion in gross receivables
from bank resolutions and $256 million in assets acquired from assisted banks
and terminated receiverships. An allowance for loss of $22.3 billion and $195
million, respectively, has been recorded against these assets. The
liquidation entities' ability to make repayments to the BIF is largely
influenced by the economy of the area in which they are located. The BIF'S
maximum exposure to possible accounting loss for these assets is shown in the
table below.
Concentration of Credit Risk at December 31, 1997
<TABLE>
<CAPTION>
(dollars in millions) Southeast Southwest Northeast Midwest Central West Total
- --------------------- --------- --------- --------- ------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Receivables from bank
resolutions, net and
Assets acquired from
assisted banks and
terminated receiverships,
net....................... $11 $98 $904 $50 $20 $87 $1,170
--------- --------- --------- ------- ------- ---- ------
</TABLE>
OTHER OFF-BALANCE-SHEET RISK
DEPOSIT INSURANCE
As of December 31, 1997, the total deposits, insured by the BIF is
approximately $2.1 trillion. This would be the accounting loss if all
depository institutions were to fail and the acquired assets provided no
recoveries.
14. 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 comparisons with
current interest rates.
The net receivable from bank resolutions primarily involves the BIF's
subrogated claim arising from payments to insured depositors. The
receivership assets that will ultimately be used to pay the corporate
subrogated claim are valued using discount rates that include consideration
of market risk. These discounts ultimately affect the BIF's allowance for
loss against the net receivable from bank resolutions. Therefore, the
corporate subrogated claim indirectly includes the effect of discounting and
should not be viewed as being stated in terms of nominal cash flows.
Although the value of the corporate subrogated claim is influenced by
valuation of receivership assets, 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 private sector of the corporate claim
would require indeterminate, but substantial discounts for an interested
party to profit from these assets because of credit and other risks. In
addition, the timing of receivership payments to the BIF on the subrogated
claim does not necessarily correspond with the timing of collections on
receivership assets. Therefore, the effect of discounting used by
receiverships should not necessarily be viewed as producing an estimate of
market value for the net receivables from bank resolutions.
The majority of the net assets acquired from assisted banks and terminated
receiverships (except real estate) is comprised of various types of financial
instruments (investments, loans, accounts receivable, etc.) acquired from
failed banks. Like receivership assets, assets acquired from assisted banks
and terminated receiverships are valued using discount rates that include
consideration of market risk. However, assets acquired from assisted banks and
Page 11 of 12
<PAGE>
terminated receiverships do not involve the unique aspects of the corporate
subrogated claim, and therefore the discounting can be viewed as producing a
reasonable estimate of fair market value.
15. SUPPLEMENTARY INFORMATION RELATING TO THE STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities
<TABLE>
<CAPTION>
(dollars in thousands) For the Year Ended
-------------------------------------------------------
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Income
Adjustment to Reconcile Net Income to Net Cash Provided
by Operating Activities............................... $ 1,438,293 $ 1,400,681 $ 3,605,916
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Income Statement Items:
Reduction in provision for insurance losses............. (503,714) (325,206) (33,167)
Amortization of U.S. Treasury securities................ 60,261 (826) (19,266)
Depreciation on buildings............................... 3,339 3,339 3,339
----------------- ----------------- -----------------
Change in Assets and Liabilities:
(Increase) Decrease in interest receivable on
investments and other assets.......................... (87,996) 21,981 (146,102)
Decrease (increase) in receivables from bank
resolutions........................................... 3,600,646 (66,359) 3,659,128
Decrease (Increase) in assets acquired from assisted
banks and terminated receiverships.................... 69,112 55,531 (37,452)
(Decrease) Increase in accounts payable and other
liabilities........................................... (21,997) 26,327 (112,148)
(Decrease) in estimated liabilities for anticipated
failure of insured institutions....................... (5,000) 0 (157,000)
(Decrease) in estimated liabilities for assistance
agreements............................................ (6,147) (721) (4,048)
(Decrease) in estimated liabilities for asset
securitization guarantees............................. (10,007) (67,300) (2,054)
----------------- ----------------- -----------------
Net Cash Provided by Operating Activities............... $ 4,536,790 $ 1,047,447 $ 6,757,146
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
16. YEAR 2000 COMPLIANCE
As part of its operations, the FDIC as administrator of the BIF is assessing,
testing, modifying or replacing as necessary its automated systems to ensure
that these systems are Year 2000 compliant. As of December 31, 1997, the BIF
has not incurred, nor does management anticipate that the BIF will incur, a
material charge to earnings to ensure that its systems are Year 2000
compliant.
The BIF is also subject to a potential loss from banks that may fail if they
are unable to become Year 2000 compliant in a timely manner. As of December
31, 1997, the potential liability, if any, is not estimable. During 1998, the
FDIC will assess this potential liability.
17. SUBSEQUENT EVENTS
Effective on January 4, 1998, all employees with five or more years until
retirement were converted from the FDIC health plan to the Federal Employees
Health Benefits (FEHB) program. This conversion resulted in a gain to the
BIF. Assuming enabling legislation is passed in the future, this conversion
will also affect all retirees and employees within five years of retirement.
As part of this conversion, the OPM will become responsible for postretirement
health benefits for employees with five or more years until retirement at no
cost to the BIF. If retirees and employees within five years of retirement
are also converted in the future, the OPM will assume the BIF's obligation for
postretirement health benefits for those individuals at a fee to be negotiated
between the FDIC and the OPM.
Assuming enabling legislation is passed, management does not expect there will
be a material gain or loss upon disposition of the BIF's postretirement health
benefits obligation for retirees or employees within five years of retirement.
Page 12 of 12
<PAGE>
GAO United States
General Accounting Office
Washington, D.C. 20548
[LETTERHEAD]
Accounting and Information
Management Division
March 27, 1998
State Street Bank and Trust Company
Corporate Trust Department
225 Franklin Street
Boston, MA 02110
We consent to the inclusion of our report, dated March 16, 1998, on our audit
of the financial statements of the Federal Deposit Insurance Corporation's
Bank Insurance Fund, in State Street Bank and Trust's December 31, 1997, Form
10-K for FDIC's REMIC Trust 1996-C1. It should be noted that we have not
performed additional audit procedures on the Bank Insurance Fund's financial
statements subsequent to March 16, 1998. Furthermore, we have not audited any
financial statements of the Bank Insurance Fund as of any date or for any
period subsequent to December 31, 1997.
If you have any questions, please call me at (202) 512-9406 or Jeanette M.
Franzel, Assistant Director, at (202) 736-3095.
/s/ Robert W. Gramling
- ------------------------------
Robert W. Gramling
Director, Corporate Audits
and Standards
