This is the accessible text file for GAO report number GAO-04-429 
entitled 'Financial Audit: Federal Deposit Insurance Corporation Funds' 
2003 and 2002 Financial Statements' which was released on February 13, 
2004.

This text file was formatted by the U.S. General Accounting Office 
(GAO) to be accessible to users with visual impairments, as part of a 
longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

Report to the Congress:

February 2004:

FINANCIAL AUDIT:

Federal Deposit Insurance Corporation Funds' 2003 and 2002 Financial 
Statements:

GAO-04-429:

GAO Highlights:

Highlights of GAO-04-429, a report to the President of the Senate and 
the Speaker of the House of Representatives 

Why GAO Did This Study:

GAO is required to annually audit the financial statements of the Bank 
Insurance Fund (BIF), Savings Association Insurance Fund (SAIF), and 
FSLIC Resolution Fund (FRF), which are administered by the Federal 
Deposit Insurance Corporation (FDIC). GAO is responsible for obtaining 
reasonable assurance about whether FDIC’s financial statements for 
BIF, SAIF, and FRF, are presented fairly in all material respects, in 
conformity with U.S. generally accepted accounting principles, whether 
it maintains effective internal controls, and whether FDIC has 
complied with selected laws and regulations. 

Created in 1933 to insure bank deposits and promote sound banking 
practices, FDIC plays an important role in maintaining public 
confidence in the nation’s financial system. In 1989, legislation to 
reform the federal deposit insurance system created three funds to be 
administered by FDIC: BIF and SAIF, which protect bank and savings 
deposits, and FRF, which was created to close out the business of 
the former Federal Savings and Loan Insurance Corporation. 

What GAO Found:

In GAO’s opinion, FDIC fairly presented the 2003 and 2002 financial 
statements for the three funds it administers—the Bank Insurance Fund, 
the Savings Association Insurance Fund, and the FSLIC Resolution Fund. 
GAO also found that, although certain controls should be improved, 
FDIC had effective control over financial reporting and compliance. 
GAO did not find reportable instances of noncompliance with the laws 
and regulations it tested. 

Although FDIC made substantial progress during the past year it has 
not yet fully implemented a comprehensive corporatewide security 
management program. FDIC only recently established a program to test 
and evaluate its computer control environment and the program did not 
adequately address all key areas. GAO continued to identify 
information system control weaknesses that increased the risk of 
unauthorized disclosure of critical FDIC financial and sensitive 
personnel and bank information, disruption of critical operations, and 
loss of assets. A mature comprehensive ongoing program of tests and 
evaluations of controls would enable FDIC to better identify and 
correct security problems, such as those found in our review. 

What GAO Recommends:

Because of the sensitive nature of the weaknesses in control over 
information systems, GAO will separately report the details, along 
with recommendations for corrective actions to FDIC management. 

www.gao.gov/cgi-bin/getrpt?GAO-04-429. 

To view the full report, including the scope and methodology, click on 
the link above. For more information, contact Jeanette M. Franzel at 
(202) 512-9406 or franzelj@gao.gov. 

[End of section]

Contents:

Transmittal Letter: 

Auditor's Report: 

Opinion on BIF's Financial Statements: 

Opinion on SAIF's Financial Statements: 

Opinion on FRF's Financial Statements: 

Opinion on Internal Control: 

Compliance with Laws and Regulations: 

Objectives, Scope, and Methodology: 

Reportable Condition: 

FDIC Comments and Our Evaluation: 

Bank Insurance Fund's Financial Statements:

Balance Sheets: 

Statements of Income and Fund Balance: 

Statements of Cash Flows: 

Notes to the Financial Statements: 

Savings Association Insurance Fund's Financial Statements:

Balance Sheets: 

Statements of Income and Fund Balance: 

Statements of Cash Flows: 

Notes to the Financial Statements: 

FSLIC Resolution Fund's Financial Statements:

Balance Sheets: 

Statements of Income and Accumulated Deficit: 

Statements of Cash Flows: 

Notes to the Financial Statements: 

Appendixes:

Appendix I: Comments from the Federal Deposit Insurance Corporation: 

Appendix II: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Acknowledgments: 

Abbreviations: 

BIF: Bank Insurance Fund:

CFO: Chief Financial Officer:

FDIC: Federal Deposit Insurance Corporation:

FMFIA: Federal Managers' Financial Integrity Act of 1982:

FRF: FSLIC Resolution Fund:

FSLIC: Federal Savings and Loan Insurance Corporation:

SAIF: Savings Association Insurance Fund:

Transmittal Letter February 13, 2004:

The President of the Senate: 
The Speaker of the House of Representatives:

This report presents our opinions on whether the financial statements 
of the Bank Insurance Fund (BIF), the Savings Association Insurance 
Fund (SAIF), and the FSLIC Resolution Fund (FRF) are presented fairly 
for the years ended December 31, 2003 and 2002. These financial 
statements are the responsibility of the Federal Deposit Insurance 
Corporation (FDIC), the administrator of the three funds. This report 
also presents (1) our opinion on the effectiveness of FDIC's internal 
control as of December 31, 2003, (2) our evaluation of FDIC's 
compliance with selected laws and regulations during 2003, and (3) 
weaknesses in information system controls detected during our 2003 
audits.

The provisions of section 17(d) of the Federal Deposit Insurance Act, 
as amended (12 U.S.C. 1827(d)), requires GAO to conduct an annual audit 
of BIF, SAIF, and FRF in accordance with U.S. generally accepted 
government auditing standards.

We are sending copies of this report to the Chairman and Ranking 
Minority Member of the Senate Committee on Banking, Housing and Urban 
Affairs; the Chairman and Ranking Minority Member of the House 
Committee on Financial Services; the Chairman of the Board of Directors 
of the Federal Deposit Insurance Corporation; the Chairman of the Board 
of Governors of the Federal Reserve System; the Comptroller of the 
Currency; the Director of the Office of Thrift Supervision; the 
Secretary of the Treasury; the Director of the Office of Management and 
Budget; and other interested parties. In addition, this report will be 
available at no charge on GAO's Web Site at 
[Hyperlink, http://www.gao.gov].

Signed by: 

David M. Walker: 
Comptroller General of the United States:

Auditor's Report To the Board of Directors The Federal Deposit 
Insurance Corporation:

We have audited the balance sheets as of December 31, 2003 and 2002, 
for the three funds administered by the Federal Deposit Insurance 
Corporation (FDIC), the related statements of income and fund balance 
(accumulated deficit), and the statements of cash flows for the years 
then ended. In our audits of the Bank Insurance Fund (BIF), the Savings 
Association Insurance Fund (SAIF), and the FSLIC Resolution Fund (FRF), 
we found:

* the financial statements of each fund are presented fairly, in all 
material respects, in conformity with U.S. generally accepted 
accounting principles;

* although certain internal controls should be improved, FDIC had 
effective internal control over financial reporting (including 
safeguarding of assets) and compliance with laws and regulations; and:

* no reportable noncompliance with the laws and regulations that we 
tested.

The following sections discuss our conclusions in more detail. They 
also present information on (1) the scope of our audits, (2) a 
reportable condition[Footnote 1] related to information system control 
weaknesses, and (3) our evaluation of FDIC management's comments on a 
draft of this report.

Opinion on BIF's Financial Statements:

The financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, BIF's financial position as of December 
31, 2003 and 2002, and the results of its operations and its cash flows 
for the years then ended.

Opinion on SAIF's Financial Statements:

The financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, SAIF's financial position as of 
December 31, 2003 and 2002, and the results of its operations and its 
cash flows for the years then ended.

Opinion on FRF's Financial Statements:

The financial statements, including the accompanying notes, present 
fairly, in all material respects, in conformity with U.S. generally 
accepted accounting principles, FRF's financial position as of December 
31, 2003 and 2002, and the results of its operations and its cash flows 
for the years then ended.

Opinion on Internal Control:

Although certain internal controls should be improved, FDIC management 
maintained, in all material respects, effective internal control over 
financial reporting (including safeguarding assets) and compliance as 
of December 31, 2003, that provided reasonable but not absolute 
assurance that misstatements, losses, or noncompliance material in 
relation to FDIC's financial statements would be prevented or detected 
on a timely basis. Our opinion is based on criteria established under 
31 U.S.C. 3512 (c), (d) [Federal Managers' Financial Integrity Act 
(FMFIA)].

Our work identified weaknesses in FDIC's information system controls, 
which we describe as a reportable condition in a later section of this 
report. The reportable condition in information system controls, 
although not considered material, represents a significant deficiency 
in the design or operation of internal control that could adversely 
affect FDIC's ability to meet its internal control objectives. Although 
the weaknesses did not materially affect the 2003 financial statements, 
misstatements may nevertheless occur in other FDIC-reported financial 
information as a result of the internal control weaknesses.

Compliance with Laws and Regulations:

Our tests for compliance with selected provisions of laws and 
regulations disclosed no instances of noncompliance that would be 
reportable under U.S. generally accepted government auditing standards. 
However, the objective of our audits was not to provide an opinion on 
overall compliance with selected laws and regulations. Accordingly, we 
do not express such an opinion.

Objectives, Scope, and Methodology:

FDIC management is responsible for (1) preparing the annual financial 
statements in conformity with U.S. generally accepted accounting 
principles; (2) establishing, maintaining, and assessing internal 
control to provide reasonable assurance that the broad control 
objectives of FMFIA are met; and (3) complying with selected laws and 
regulations.

We are responsible for obtaining reasonable assurance about whether (1) 
the financial statements are presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles, and (2) management maintained effective internal control, 
the objectives of which are:

* financial reporting--transactions are properly recorded, processed, 
and summarized to permit the preparation of financial statements in 
conformity with U.S. generally accepted accounting principles, and 
assets are safeguarded against loss from unauthorized acquisition, use, 
or disposition, and:

* compliance with laws and regulations--transactions are executed in 
accordance with laws and regulations that could have a direct and 
material effect on the financial statements.

We are also responsible for testing compliance with selected provisions 
of laws and regulations that have a direct and material effect on the 
financial statements.

In order to fulfill these responsibilities, we:

* examined, on a test basis, evidence supporting the amounts and 
disclosures in the financial statements;

* assessed the accounting principles used and significant estimates 
made by management;

* evaluated the overall presentation of the financial statements;

* obtained an understanding of internal control related to financial 
reporting (including safeguarding assets) and compliance with laws and 
regulations;

* tested relevant internal controls over financial reporting and 
compliance, and evaluated the design and operating effectiveness of 
internal control;

* considered FDIC's process for evaluating and reporting on internal 
control based on criteria established by FMFIA; and:

* tested compliance with selected provisions of the Federal Deposit 
Insurance Act, as amended, and the Chief Financial Officers Act of 
1990.

We did not evaluate all internal controls relevant to operating 
objectives as broadly defined by FMFIA, such as those controls relevant 
to preparing statistical reports and ensuring efficient operations. We 
limited our internal control testing to controls over financial 
reporting and compliance. Because of inherent limitations in internal 
control, misstatements due to error or fraud, losses, or noncompliance 
may nevertheless occur and not be detected. We also caution that 
projecting our evaluation to future periods is subject to the risk that 
controls may become inadequate because of changes in conditions or that 
the degree of compliance with controls may deteriorate.

We did not test compliance with all laws and regulations applicable to 
FDIC. We limited our tests of compliance to those deemed applicable to 
the financial statements for the year ended December 31, 2003. We 
caution that noncompliance may occur and not be detected by these tests 
and that such testing may not be sufficient for other purposes.

We performed our work in accordance with U.S. generally accepted 
government auditing standards.

FDIC management provided comments on a draft of this report. They are 
discussed and evaluated in a later section of this report and are 
reprinted in appendix I.

Reportable Condition:

In connection with the funds' financial statement audits, we reviewed 
FDIC's information system controls. Effective information system 
controls are essential to safeguarding financial data, protecting 
computer application programs, providing for the integrity of system 
software, and ensuring continued computer operations in case of 
unexpected interruption. These controls include the corporatewide 
security management program, access controls, system software, 
application development and change control, segregation of duties, and 
service continuity controls.

Although FDIC made substantial progress during the past year it has not 
yet fully implemented a comprehensive corporatewide security management 
program. An effective program includes establishing a central security 
function, assessing risk, establishing policies, raising user security 
awareness of prevailing risks, and routinely testing and evaluating the 
effectiveness of established controls. While FDIC has done much to 
establish a computer security management program, FDIC only recently 
established a program to test and evaluate its computer control 
environment, and the program did not adequately address all key areas. 
For example, the program did not include adequate provisions to ensure 
that (1) all key computer resources supporting FDIC's financial 
environment are routinely reviewed and tested as appropriate, (2) 
weaknesses detected are analyzed for systemic solutions, (3) corrective 
actions are independently tested, or (4) newly identified weaknesses or 
emerging security threats are incorporated into the test and evaluation 
process. A mature comprehensive ongoing program of tests and 
evaluations of controls would enable FDIC to better identify and 
correct security problems, such as those found in our review.

In our current review, we continued to identify information system 
control weaknesses that increased the risk of unauthorized disclosure 
of critical FDIC financial and sensitive personnel and bank 
information, disruption of critical operations, and loss of assets. 
Such weaknesses affected FDIC's ability to adequately ensure that users 
only had the access needed to perform their assigned duties and its 
network was sufficiently protected from unauthorized users. The risk 
created by these weaknesses are compounded because FDIC does not have a 
comprehensive monitoring program to identify unusual or suspicious 
access activities.

We determined that other management controls mitigated the effect of 
the information system control weaknesses on the preparation of the 
funds' financial statements. Because of their sensitive nature, the 
details surrounding these weaknesses are being reported separately to 
FDIC management, along with recommendations for corrective actions.

FDIC Comments and Our Evaluation:

In commenting on a draft of this report, FDIC's Chief Financial Officer 
(CFO) was pleased to receive unqualified opinions on BIF's, SAIF's, and 
FRF's 2003 and 2002 financial statements. FDIC's CFO also acknowledged 
both the current status as well as the substantial progress made during 
2003 on the information system weaknesses we identified. FDIC said it 
would continue efforts to strengthen its ongoing information security 
program during 2004.

Signed by: 

David M. Walker: 
Comptroller General of the United States:

January 30, 2004:

Bank Insurance Fund's Financial Statements:

[See PDF for image]

[End of table]

Balance Sheets:

[See PDF for image]

[End of table]

Statements of Income and Fund Balance:

[See PDF for image]

[End of table]

Statements of Cash Flows:

[See PDF for image]

[End of table]

Notes to the Financial Statements:

Bank Insurance Fund:

December 31, 2003 and 2002:

1. Operations of the Bank Insurance Fund:

Overview:

The Federal Deposit Insurance Corporation (FDIC) is the independent 
deposit insurance agency created by Congress in 1933 to maintain 
stability and public confidence in the nation's banking system. 
Provisions that govern the operations of the FDIC are generally found 
in the Federal Deposit Insurance (FDI) Act, as amended, (12 U.S.C. 
1811, et seq). In carrying out the purposes of the FDI Act, as amended, 
the FDIC insures the deposits of banks and savings associations, and in 
cooperation with other federal and state agencies promotes the safety 
and soundness of insured depository institutions by identifying, 
monitoring and addressing risks to the deposit insurance funds 
established in the FDI Act, as amended. The FDIC is the administrator 
of the Bank Insurance Fund (BIF), the Savings Association Insurance 
Fund (SAIF), and the FSLIC Resolution Fund (FRF), which are maintained 
separately to carry out their respective mandates. The BIF and the SAIF 
are insurance funds responsible for protecting insured bank and thrift 
depositors from loss due to institution failures. These insurance funds 
must be maintained at not less than 1.25 percent of estimated insured 
deposits or a higher percentage as circumstances warrant. The FRF is a 
resolution fund responsible for the sale of remaining assets and 
satisfaction of liabilities associated with the former Federal Savings 
and Loan Insurance Corporation (FSLIC) and the Resolution Trust 
Corporation.

An active institution's insurance fund membership and primary federal 
supervisor are generally determined by the institution's charter type. 
Deposits of BIF-member institutions are generally insured by the BIF; 
BIF members are predominantly commercial and savings banks supervised 
by the FDIC, the Office of the Comptroller of the Currency, or the 
Federal Reserve Board. Deposits of SAIF-member institutions are 
generally insured by the SAIF; SAIF members are predominantly thrifts 
supervised by the Office of Thrift Supervision.

In addition to traditional banks and thrifts, several other categories 
of institutions exist. A member of one insurance fund may, with the 
approval of its primary federal supervisor, merge, consolidate with, or 
acquire the deposit liabilities of an institut ion that is a member of 
the other insurance fund without changing insurance fund status for the 
acquired deposits. These institutions with deposits insured by both 
insurance funds are referred to as Oakar financial institutions. In 
addition, SAIF-member thrifts can convert to a bank charter and retain 
their SAIF membership. These institutions are referred to as Sasser 
financial institutions. Likewise, BIF-member banks can convert to a 
thrift charter and retain their BIF membership.

Operations of the BIF:

The primary purpose of the BIF is to: 1) insure the deposits and 
protect the depositors of BIFinsured institutions and 2) resolve BIF-
insured failed institutions upon appointment of FDIC as receiver in a 
manner that will result in the least possible cost to the BIF. In 
addition, the FDIC, acting on behalf of the BIF, examines state-
chartered banks that are not members of the Federal Reserve System.

The BIF is primarily funded from: 1) interest earned on investments in 
U.S. Treasury obligations and 2) deposit insurance assessments. 
Additional funding sources are U.S. Treasury and Federal Financing Bank 
(FFB) borrowings, if necessary. The FDIC has borrowing authority from 
the U.S. Treasury up to $30 billion for insurance purposes on behalf of 
the BIF and the SAIF.

A statutory formula, known as the Maximum Obligation Limitation (MOL), 
limits the amount of obligations the BIF can incur to the sum of its 
cash, 90% of the fair market value of other assets, and the amount 
authorized to be borrowed from the U.S. Treasury. The MOL for the BIF 
was $57.0 billion and $56.7 billion as of December 31, 2003 and 2002, 
respectively.

Receivership Operations:

The FDIC is responsible for managing and disposing of the assets of 
failed institutions in an orderly and efficient manner. The assets held 
by receivership entities, and the claims against them, are accounted 
for separately from BIF assets and liabilities to ensure that 
receivership 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. 
Receiverships are billed by the FDIC for services provided on their 
behalf.

Recent Legislative Initiatives:

In April 2001, FDIC issued recommendations for deposit insurance 
reform. The FDIC recommendations included merging BIF and SAIF and 
improving FDIC's ability to manage the merged fund by permitting the 
FDIC Board of Directors to price insurance premiums properly to reflect 
risk, to set the reserve ratio in a range around 1.25 percent, 
establish a system for providing credits, rebates and surcharges, and 
to eliminate the SAIF exit fee reserve. FDIC also recommended that 
Congress consider indexing deposit insurance coverage for inflation. 
During the 107th Congress (2001-2002), hearings were held in the House 
and Senate and legislation was introduced containing major elements of 
FDIC's deposit insurance reform proposals. The legislation was not 
enacted prior to congressional adjournment. During the 108th Congress 
(2003 - 2004), the House and Senate are again considering deposit 
insurance reform legislation. If Congress enacts deposit insurance 
reform legislation that contains the above recommendations, the new law 
would have a significant impact on the BIF and SAIF. FDIC management, 
however, cannot predict which provisions, if any, will ultimately be 
enacted.

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 
conformity with U.S. 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. Periodic and final 
accountability reports of the FDIC's activities as receiver are 
furnished to courts, supervisory authorities, and others as required.

Use of Estimates:

Management makes estimates and assumptions that affect the amounts 
reported in the financial statements and accompanying notes. Actual 
results could differ from these estimates. Where it is reasonably 
possible that changes in estimates will cause a material change in the 
financial statements in the near term, the nature and extent of such 
changes in estimates have been disclosed. The more significant 
estimates include allowance for loss on receivables from bank 
resolutions, the estimated losses for anticipated failures and 
litigation, and the postretirement benefit obligation.

Cash Equivalents:

Cash equivalents are short-term, highly liquid investments with 
original maturities of three months or less. Cash equivalents consist 
primarily of Special U.S. Treasury Certificates.

Investment in U.S. Treasury Obligations:

BIF funds are required to be invested in obligations of the United 
States or in obligations guaranteed as to principal and interest by the 
United States; the Secretary of the U.S. Treasury must approve all such 
investments in excess of $100,000. The Secretary has granted approval 
to invest BIF funds only in U.S. Treasury obligations that are 
purchased or sold exclusively through the Bureau of the Public Debt's 
Government Account Series (GAS) program.

BIF's investments in U.S. Treasury obligations are either classified as 
held-to-maturity or available-for-sale. Securities designated as held-
to-maturity are shown at amortized cost. Amortized cost is the face 
value of securities plus the unamortized premium or less the 
unamortized discount. Amortizations are computed on a daily basis from 
the date of acquisition to the date of maturity, except for callable 
U.S. Treasury securities, which are amortized to the first anticipated 
call date. Securities designated as available-for-sale are shown at 
market value, which approximates fair value. Unrealized gains and 
losses are included in Comprehensive Income. Realized gains and losses 
are included in the Statements of Income and Fund Balance as components 
of Net Income. Interest on both types of securities is calculated on a 
daily basis and recorded monthly using the effective interest method.

Cost Allocations Among Funds:

Operating expenses not directly charged to the BIF, the SAIF, and the 
FRF are allocated to all funds using workload-based allocation 
percentages. These percentages are developed during the annual 
corporate planning process and through supplemental functional 
analyses.

Capital Assets and Depreciation:

The FDIC has designated the BIF as administrator of property and 
equipment 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 usage fees 
representing an allocated share of its annual depreciation expense. 
These usage fees are recorded as cost recoveries, which reduce 
operating expenses.

The FDIC buildings are depreciated on a straight-line basis over a 35 
to 50 year estimated life. Leasehold improvements are capitalized and 
depreciated over the lesser of the remaining life of the lease or the 
estimated useful life of the improvements, if determined to be 
material. Capital assets depreciated on a straight-line basis over a 
five-year estimated life include mainframe equipment; furniture, 
fixtures, and general equipment; and internal-use software. Personal 
computer equipment is depreciated on a straight-line basis over a 
three-year estimated life.

Related Parties:

The nature of related parties and a description of related party 
transactions are discussed in Note 1 and disclosed throughout the 
financial statements and footnotes.

Reclassifications:

Reclassifications have been made in the 2002 financial statements to 
conform to the presentation used in 2003.

3. Investment in U.S. Treasury Obligations, Net:

As of December 31, 2003 and 2002, the book value of investments in U.S. 
Treasury obligations, net, was $30.5 billion and $27.5 billion, 
respectively. As of December 31, 2003, the BIF held $6.4 billion of 
Treasury inflation-indexed securities (TIIS). These securities are 
indexed to increases or decreases in the Consumer Price Index for All 
Urban Consumers (CPI-U). Additionally, the BIF held $6.8 billion of 
callable U.S. Treasury bonds at December 31, 2003. Callable U.S. 
Treasury bonds may be called five years prior to the respective bonds' 
stated maturity on their semi-annual coupon payment dates upon 120 days 
notice.

U.S. Treasury Obligations at December 31, 2003:

[See PDF for image]

[End of table]

U.S. Treasury Obligations at December 31, 2002:

[See PDF for image]

[End of table]

As of December 31, 2003 and 2002, the unamortized premium, net of the 
unamortized discount, was $902 million and $508 million, respectively.

4. Receivables From Bank Resolutions, Net:

The receivables from bank resolutions include payments made by the BIF 
to cover obligations to insured depositors, advances to receiverships 
for working capital, and administrative expenses paid on behalf of 
receiverships. Any related allowance for loss represents the difference 
between the funds advanced and/or obligations incurred and the expected 
repayment. Assets held by BIF receiverships are the main source of 
repayment of the BIF's receivables from closed banks. As of December 
31, 2003, there were 31 active receiverships, including three failures 
in the current year, with assets at failure of $1.1 billion and BIF 
outlays of $889 million.

As of December 31, 2003 and 2002, BIF receiverships held assets with a 
book value of $756 million and $1.1 billion, respectively (including 
cash, investments, and miscellaneous receivables of $436 million and 
$479 million at December 31, 2003 and 2002, respectively). The 
estimated cash recoveries from the management and disposition of these 
assets that are used to derive the allowance for losses are based on a 
sampling of receivership assets. The sampled assets are generally 
valued by estimating future cash recoveries, net of applicable 
liquidation cost estimates, and then discounting these net cash 
recoveries using current market-based risk factors based on a given 
asset's type and quality. Resultant recovery estimates are extrapolated 
to the non-sampled assets in order to derive the allowance for loss on 
the receivable. These estimated recoveries are regularly evaluated, but 
remain subject to uncertainties because of potential changes in 
economic and market conditions. Such uncertainties could cause the 
BIF's actual recoveries to vary from the level currently estimated.

Receivables From Bank Resolutions, Net at December 31:

[See PDF for image]

[End of table]

As of December 31, 2003, an allowance for loss of $4.4 billion, or 90% 
of the gross receivable, was recorded. Of the remaining 10% of the 
gross receivable, the amount of credit risk is limited since over 
three-fourths of the receivable will be repaid from receivership cash 
and investments.

5. Property and Equipment, Net:

Property and Equipment, Net at December 31:

[See PDF for image]

[End of table]

The depreciation expense was $55 million and $47 million for 2003 and 
2002, respectively.

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions:

The BIF records a contingent liability and a loss provision for banks 
(including Oakar and Sasser financial institutions) that are likely to 
fail within one year of the reporting date, absent some favorable event 
such as obtaining additional capital or merging, when the liability 
becomes probable and reasonably estimable.

The contingent liability is derived by applying expected failure rates 
and historical loss rates to groups of institutions with certain shared 
characteristics. In addition, institution-specific analysis is 
performed on those banks where failure is imminent absent institution 
management resolution of existing problems. As of December 31, 2003 and 
2002, the contingent liabilities for anticipated failure of insured 
institutions were $178 million and $1.0 billion, respectively. In 
addition to these recorded contingent liabilities, the FDIC has 
identified additional risk in the financial services industry that 
could result in a material loss to the BIF should potentially 
vulnerable financial institutions ultimately fail. This risk is 
evidenced by the level of problem bank assets and the presence of 
various high-risk banking business models that are particularly 
vulnerable to adverse economic and market conditions. Due to the 
uncertainty surrounding future economic and market conditions, there 
are other banks for which the risk of failure is less certain, but 
still considered reasonably possible. As a result of these risks, the 
FDIC believes that it is reasonably possible that the BIF could incur 
additional estimated losses up to $2.2 billion.

The accuracy of these estimates will largely depend on future economic 
and market conditions. The FDIC's Board of Directors has the statutory 
authority to consider the contingent liability from anticipated 
failures of insured institutions when setting assessment rates.

Litigation Losses:

The BIF records an estimated loss for unresolved legal cases to the 
extent that those losses are considered probable and reasonably 
estimable. In addition to the amount recorded as probable, the FDIC has 
determined that losses from unresolved legal cases totaling $111.3 
million are reasonably possible.

Other Contingencies:

Representations and Warranties:

As part of the FDIC's efforts to maximize the return from the sale of 
assets from bank resolutions, representations and warranties, and 
guarantees are offered on certain loan sales. In general, the 
guarantees, representations, and warranties on loans sold relate to the 
completeness and accuracy of loan documentation, the quality of the 
underwriting standards used, the accuracy of the delinquency status 
when sold, and the conformity of the loans with characteristics of the 
pool in which they were sold. The total amount of loans sold subject to 
unexpired representations and warranties, and guarantees was $7.4 
billion as of December 31, 2003. The contingent liability from all 
outstanding claims asserted in connection with representations and 
warranties was zero and $11.6 million at December 31, 2003 and 2002, 
respectively.

In addition, future losses on representations and warranties, and 
guarantees could be incurred over the remaining life of the loans sold, 
which is generally 20 years or more. Consequently, the FDIC believes it 
is possible that additional losses may be incurred by the BIF from the 
universe of outstanding contracts with unasserted representation and 
warranty claims. However, because of the uncertainties surrounding the 
timing of when claims may be asserted, the FDIC is unable to reasonably 
estimate a range of loss to the BIF from outstanding contracts with 
unasserted representation and warranty claims.

7. Assessments:

In compliance with provisions of the FDI Act, as amended, the FDIC uses 
a risk-based assessment system that charges higher rates to those 
institutions that pose greater risks to the BIF. To arrive at a risk-
based assessment for a particular institution, the FDIC places each 
institution in one of nine risk categories based on capital ratios and 
supervisory examination data. The majority of the financial 
institutions are not assessed. Of those assessed, the assessment rate 
averaged approximately 20 cents and 22 cents per $100 of assessable 
deposits for 2003 and 2002, respectively. During 2003 and 2002, $80 
million and $84 million were collected from BIF-member institutions, 
respectively. On November 4, 2003, the Board voted to retain the BIF 
assessment schedule at the annual rate of 0 to 27 cents per $100 of 
assessable deposits for the first semiannual period of 2004. The Board 
reviews assessment rates semiannually to ensure that funds are 
available to satisfy the BIF's obligations. If necessary, the Board may 
impose more frequent rate adjustments or emergency special assessments.

The FDIC is required to maintain the insurance funds at a designated 
reserve ratio (DRR) of not less than 1.25 percent of estimated insured 
deposits (or a higher percentage as circumstances warrant). If the 
reserve ratio falls below the DRR, the FDIC is required to set 
semiannual assessment rates that are sufficient to increase the reserve 
ratio to the DRR not later than one year after such rates are set, or 
in accordance with a recapitalization schedule of fifteen years or 
less. As of September 30, 2003, the BIF reserve ratio was 1.31 percent 
of estimated insured deposits.

Assessments are also levied on institutions for payments of the 
interest on obligations issued by the Financing Corporation (FICO). The 
FICO was established as a mixed-ownership government corporation to 
function solely as a financing vehicle for the FSLIC. The annual FICO 
interest obligation of approximately $790 million is paid on a pro rata 
basis using the same rate for banks and thrifts. The FICO assessment 
has no financial impact on the BIF and is separate from the regular 
assessments. The FDIC, as administrator of the BIF and the SAIF, acts 
solely as a collection agent for the FICO. During 2003 and 2002, $627 
million and $621 million, respectively, were collected from BIF-member 
institutions and remitted to the FICO.

8. Operating Expenses:

Operating expenses were $805 million for 2003, compared to $821 million 
for 2002. The decrease of $16 million is primarily attributable to 
lower salary/benefit expenses resulting from the workforce reduction 
programs in 2002.

During 2002, the FDIC offered voluntary employee buyout incentives to a 
majority of its employees and conducted a reduction-in-force (RIF) in 
2002 and 2003 in an effort to reduce identified staffing excesses and 
skill imbalances. As a result, approximately 750 employees left by 
December 31, 2003. Termination benefits included compensation of fifty 
percent of the employee's current base salary and locality adjustment 
for voluntary departures. The total cost of this buyout was $33.1 
million for 2002, with BIF's pro rata share totaling $28.9 million, 
which is included in the "Salaries and benefits" category in the chart 
below, as well as the "Separation Incentive Payment" line item in Note 
10. Through 2003, BIF paid $20.8 million of this compensation benefit 
and the remaining unpaid amount is recorded as a liability in the 
"Accounts payable and other liabilities" line item.

Operating Expenses for the Years Ended December 31:

[See PDF for image]

[End of table]

9. Provision for Insurance Losses:

Provision for insurance losses was a negative $928 million for 2003 and 
a negative $87 million for 2002. The following chart lists the major 
components of the provision for insurance losses.

Provision for Insurance Losses for the Years Ended December 31:

[See PDF for image]

[End of table]

10. Employee Benefits:

Pension Benefits, Savings Plans and Postemployment Benefits:

Eligible FDIC employees (permanent and term employees with appointments 
exceeding one year) are covered by the federal government retirement 
plans, either the Civil Service Retirement System (CSRS) or the Federal 
Employees Retirement System (FERS). Although the 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.

Eligible FDIC employees also may participate in a FDIC-sponsored tax-
deferred 401(k) savings plan with matching contributions up to five 
percent. The BIF pays its share of the employer's portion of all 
related costs.

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

[See PDF for image]

[End of table]

Postretirement Benefits Other Than Pensions:

The FDIC provides certain life and dental insurance coverage for its 
eligible retirees, the retirees' beneficiaries, and covered dependents. 
Retirees eligible for life insurance coverage are those who have 
qualified due to: 1) immediate enrollment upon appointment or five 
years of participation in the plan and 2) eligibility for an immediate 
annuity. The life insurance program provides basic coverage at no cost 
to retirees and allows converting optional coverages to directpay 
plans. Dental coverage is provided to all retirees eligible for an 
immediate annuity.

Prior to 2003, the BIF funded its liability for postretirement benefits 
other than pensions directly to a separate entity, which was 
established to restrict the funds and to provide for the accounting and 
administration of these benefits. As of January 1, 2003, the FDIC 
changed its funding policy for these benefits and eliminated the 
separate entity in order to simplify the investment, accounting, and 
reporting for the obligation. The change does not impact any benefit 
entitlements to employees and retirees or the accrual of this liability 
pursuant to the provisions of SFAS No. 106. The BIF received $89 
million, of the total $103 million, as its proportionate share of the 
plan assets and recognized a liability of $90 million, of the total 
$104 million, in the "Accounts payable and other liabilities" line item 
on its Balance Sheets.

The net cumulative effect of this accounting change for the periods 
prior to 2003 was $787 thousand which is included in the "Insurance and 
other expenses" line item on BIF's Statements of Income and Fund 
Balance. In addition to the cumulative effect, the BIF's expense for 
such benefits in 2003 was $11 million, which is included in the current 
year operating expenses. In the absence of the accounting change, BIF 
would have recognized an expense of $6 million.

At December 31, 2003, the BIF's net postretirement benefit liability 
recognized in the "Accounts payable and other liabilities" line item in 
the Balance Sheet was $98 million. At December 31, 2002, the BIF's net 
postretirement benefit asset recognized in the "Interest receivable on 
investments and other assets, net" line item in the Balance Sheet was 
$130 thousand. Key actuarial assumptions used in the accounting for the 
plan include the discount rate, the rate of compensation increase, and 
the dental coverage trend rate.

11. Commitments and Off-Balance-Sheet Exposure:

Commitments:

Leased Space:

The BIF's allocated share of the FDIC's lease commitments totals $124 
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 and the SAIF. 
Changes in the relative workloads could cause the amounts allocated to 
the BIF in the future to vary from the amounts shown below. The BIF 
recognized leased space expense of $38 million and $37 million for the 
years ended December 31, 2003 and 2002, respectively.

Lease Space Commitments:

[See PDF for image]

[End of table]

Off-Balance-Sheet Exposure:

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. One deal 
terminated in 2003 with a cumulative gain to the BIF of $6 million. 
Although the remaining term of the limited guaranty for the last deal 
is 23 years, this deal will be evaluated for possible termination in 
2004. As of December 31, 2003 and 2002, the maximum off-balance-sheet 
exposure was $81 million and $202 million, respectively.

Deposit Insurance:

As of September 30, 2003, deposits insured by the BIF totaled 
approximately $2.5 trillion. This would be the accounting loss if all 
depository institutions were to fail and the acquired assets provided 
no recoveries.

12. Disclosures About the Fair Value of Financial Instruments:

Cash equivalents are short-term, highly liquid investments and are 
shown at current value. The fair market value of the investment in U.S. 
Treasury obligations is disclosed in Note 3 and is based on current 
market prices. The carrying amount of interest receivable on 
investments, short-term receivables, and accounts payable and other 
liabilities approximates their fair market value, due to their short 
maturities and/or comparability with current interest rates.

The net receivables from bank resolutions primarily include 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 receivables 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 (see Note 4), 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 
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.

13. Supplementary Information Relating to the Statements of Cash Flows:

Reconciliation of Net Income to Net Cash Provided by Operating 
Activities for the Years Ended December 31:

[See PDF for image]

[End of table]

[End of section]

Savings Association Insurance Fund's Financial Statements:

Balance Sheets:

[See PDF for image]

[End of table]

Statements of Income and Fund Balance:

[See PDF for image]

[End of table]

Statements of Cash Flows:

[See PDF for image]

[End of table]

Notes to the Financial Statements:
Savings Association Insurance Fund: 
December 31, 2003 and 2002:

1. Operations of the Savings Association Insurance Fund:

Overview:

The Federal Deposit Insurance Corporation (FDIC) is the independent 
deposit insurance agency created by Congress in 1933 to maintain 
stability and public confidence in the nation's banking system. 
Provisions that govern the operations of the FDIC are generally found 
in the Federal Deposit Insurance (FDI) Act, as amended, (12 U.S.C. 
1811, et seq). In carrying out the purposes of the FDI Act, as amended, 
the FDIC insures the deposits of banks and savings associations, and in 
cooperation with other federal and state agencies promotes the safety 
and soundness of insured depository institutions by identifying, 
monitoring and addressing risks to the deposit insurance funds 
established in the FDI Act, as amended. FDIC is the administrator of 
the Savings Association Insurance Fund (SAIF), the Bank Insurance Fund 
(BIF), and the FSLIC Resolution Fund (FRF), which are maintained 
separately to carry out their respective mandates. The SAIF and the BIF 
are insurance funds responsible for protecting insured thrift and bank 
depositors from loss due to institution failures. These insurance funds 
must be maintained at not less than 1.25 percent of estimated insured 
deposits or a higher percentage as circumstances warrant. The FRF is a 
resolution fund responsible for the sale of remaining assets and 
satisfaction of liabilities associated with the former Federal Savings 
and Loan Insurance Corporation (FSLIC) and the Resolution Trust 
Corporation.

An active institution's insurance fund membership and primary federal 
supervisor are generally determined by the institution's charter type. 
Deposits of SAIF-member institutions are generally insured by the SAIF; 
SAIF members are predominantly thrifts supervised by the Office of 
Thrift Supervision (OTS). Deposits of BIF-member institutions are 
generally insured by the BIF; BIF members are predominantly commercial 
and savings banks supervised by the FDIC, the Office of the Comptroller 
of the Currency, or the Federal Reserve Board.

In addition to traditional thrifts and banks, several other categories 
of institutions exist. A member of one insurance fund may, with the 
approval of its primary federal supervisor, merge, consolidate with, or 
acquire the deposit liabilities of an institution that is a member of 
the other insurance fund without changing insurance fund status for the 
acquired deposits. These institutions with deposits insured by both 
insurance funds are referred to as Oakar financial institutions. In 
addition, SAIF-member thrifts can convert to a bank charter and retain 
their SAIF membership. These institutions are referred to as Sasser 
financial institutions. Likewise, BIF-member banks can convert to a 
thrift charter and retain their BIF membership.

Operations of the SAIF:

The primary purpose of the SAIF is to: 1) insure the deposits and 
protect the depositors of SAIFinsured institutions and 2) resolve SAIF-
insured failed institutions upon appointment of FDIC as receiver in a 
manner that will result in the least possible cost to the SAIF. The 
SAIF is primarily funded from: 1) interest earned on investments in 
U.S. Treasury obligations and 2) deposit insurance assessments. 
Additional funding sources are borrowings from the U.S. Treasury, the 
Federal Financing Bank (FFB), and the Federal Home Loan Banks, if 
necessary. The FDIC has borrowing authority from the U.S. Treasury up 
to $30 billion for insurance purposes on behalf of the SAIF and the 
BIF.

A statutory formula, known as the Maximum Obligation Limitation (MOL), 
limits the amount of obligations the SAIF can incur to the sum of its 
cash, 90% of the fair market value of other assets, and the amount 
authorized to be borrowed from the U.S. Treasury. The MOL for the SAIF 
was $20.3 billion and $19.9 billion as of December 31, 2003 and 2002, 
respectively.

Receivership Operations:

The FDIC is responsible for managing and disposing of the assets of 
failed institutions in an orderly and efficient manner. The assets held 
by receivership entities, and the claims against them, are accounted 
for separately from SAIF assets and liabilities to ensure that 
receivership proceeds are distributed in accordance with applicable 
laws and regulations. Also, the income and expenses attributable to 
receiverships are accounted for as transactions of those receiverships. 
Receiverships are billed by the FDIC for services provided on their 
behalf.

Recent Legislative Initiatives:

In April 2001, FDIC issued recommendations for deposit insurance 
reform. The FDIC recommendations included merging SAIF and BIF and 
improving FDIC's ability to manage the merged fund by permitting the 
FDIC Board of Directors to price insurance premiums properly to reflect 
risk, to set the reserve ratio in a range around 1.25 percent, 
establish a sys tem for providing credits, rebates and surcharges, and 
to eliminate the SAIF exit fee reserve. FDIC also recommended that 
Congress consider indexing deposit insurance coverage for inflation. 
During the 107th Congress (2001-2002), hearings were held in the House 
and Senate and legislation was introduced containing major elements of 
FDIC's deposit insurance reform proposals. The legislation was not 
enacted prior to congressional adjournment. During the 108th Congress 
(2003 - 2004), the House and Senate are again considering deposit 
insurance reform legislation. If Congress enacts deposit insurance 
reform legislation that contains the above recommendations, the new law 
would have a significant impact on the SAIF and BIF. FDIC management, 
however, cannot predict which provisions, if any, will ultimately be 
enacted.

2. Summary of Significant Accounting Policies:

General:

These financial statements pertain to the financial position, results 
of operations, and cash flows of the SAIF and are presented in 
conformity with U.S. generally accepted accounting principles (GAAP). 
These statements do not include reporting for assets and liabilities of 
closed thrift institutions for which the FDIC acts as receiver. 
Periodic and final accountability reports of the FDIC's activities as 
receiver are furnished to courts, supervisory authorities, and others 
as required.

Use of Estimates:

Management makes estimates and assumptions that affect the amounts 
reported in the financial statements and accompanying notes. Actual 
results could differ from these estimates. Where it is reasonably 
possible that changes in estimates will cause a material change in the 
financial statements in the near term, the nature and extent of such 
changes in estimates have been disclosed. The more significant 
estimates include allowance for loss on receivables from thrift 
resolutions, the estimated losses for anticipated failures and 
litigation, and the postretirement benefit obligation.

Cash Equivalents:

Cash equivalents are short-term, highly liquid investments with 
original maturities of three months or less. Cash equivalents consist 
primarily of Special U.S. Treasury Certificates.

Investment in U.S. Treasury Obligations:

SAIF funds are required to be invested in obligations of the United 
States or in obligations guaranteed as to principal and interest by the 
United States; the Secretary of the U.S. Treasury must approve all such 
investments in excess of $100,000. The Secretary has granted approval 
to invest SAIF funds only in U.S. Treasury obligations that are 
purchased or sold exclusively through the Bureau of the Public Debt's 
Government Account Series (GAS) program. SAIF's investments in U.S. 
Treasury obligations are either classified as held-to-maturity or 
available-for-sale. Securities designated as held-to-maturity are 
shown at amortized cost. Amortized cost is the face value of securities 
plus the unamortized premium or less the unamortized discount. 
Amortizations are computed on a daily basis from the date of 
acquisition to the date of maturity, except for callable U.S. Treasury 
securities, which are amortized to the first anticipated call date. 
Securities designated as available-for-sale are shown at market value, 
which approximates fair value. Unrealized gains and losses are included 
in Comprehensive Income. Realized gains and losses are included in the 
Statements of Income and Fund Balance as components of Net Income. 
Interest on both types of securities is calculated on a daily basis and 
recorded monthly using the effective interest method.

Cost Allocations Among Funds:

Operating expenses not directly charged to the SAIF, the BIF, and the 
FRF are allocated to all funds using workload-based allocation 
percentages. These percentages are developed during the annual 
corporate planning process and through supplemental functional 
analyses.

Related Parties:

The nature of related parties and a description of related party 
transactions are discussed in Note 1 and disclosed throughout the 
financial statements and footnotes.

Reclassifications:

Reclassifications have been made in the 2002 financial statements to 
conform to the presentation used in 2003.

3. Cash and Other Assets: Restricted for SAIF-Member Exit Fees:

The SAIF collects entrance and exit fees for conversion transactions 
when an insured depository institution converts from the BIF to the 
SAIF (resulting in an entrance fee) or from the SAIF to the BIF 
(resulting in an exit fee). Regulations approved by the FDIC's Board of 
Directors (Board) and published in the Federal Register on March 21, 
1990, directed that exit fees paid to the SAIF be held in escrow.

The FDIC and the Secretary of the Treasury will determine when it is no 
longer necessary to escrow such funds for the payment of interest on 
obligations previously issued by the FICO. These escrowed exit fees are 
invested in U.S. Treasury securities pending determination of 
ownership. The interest earned is also held in escrow. There were no 
conversion transactions during 2003 and 2002 that resulted in an 
entrance/exit fee to the SAIF.

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

[See PDF for image]

[End of table]

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

[See PDF for image]

[End of table]

U.S. Treasury Obligations at December 31, 2002 (Restricted for SAIF-
Member Exit Fees):

[See PDF for image]

[End of table]

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

As of December 31, 2003 and 2002, the book value of investments in U.S. 
Treasury obligations, net, was $11.0 billion and $9.5 billion, 
respectively. As of December 31, 2003, the SAIF held $2.2 billion of 
Treasury inflation-indexed securities (TIIS). These securities are 
indexed to increases or decreases in the Consumer Price Index for All 
Urban Consumers (CPI-U). Additionally, the SAIF held $2.5 billion of 
callable U.S. Treasury bonds at December 31, 2003. Callable U.S. 
Treasury bonds may be called five years prio r to the respective bonds' 
stated maturity on their semi-annual coupon payment dates upon 120 days 
notice.

U.S. Treasury Obligations at December 31, 2003 (Unrestricted):

[See PDF for image]

[End of table]

U.S. Treasury Obligations at December 31, 2002 (Unrestricted):

[See PDF for image]

[End of table]

As of December 31, 2003 and 2002, the unamortized premium, net of the 
unamortized discount, was $317.5 million and $160.4 million, 
respectively.

5. Receivables From Thrift Resolutions, Net:

The receivables from thrift resolutions include payments made by the 
SAIF to cover obligations to insured depositors, advances to 
receiverships for working capital, and administrative expenses paid on 
behalf of receiverships. Any related allowance for loss represents the 
difference between the funds advanced and/or obligations incurred and 
the expected repayment. Assets held by SAIF receiverships are the main 
source of repayment of the SAIF's receivables from closed thrifts. 
During 2003, there were no thrift failures, leaving two active 
receiverships. As of December 31, 2003 and 2002, SAIF receiverships 
held assets with a book value of $449 million and $490 million, 
respectively (including cash, investments, and miscellaneous 
receivables of $117 million and $93 million at December 31, 2003 and 
2002, respectively). The estimated cash recoveries from the management 
and disposition of these assets that are used to derive the allowance 
for losses are based on a sampling of receivership assets. The sampled 
assets are generally valued by estimating future cash recoveries, net 
of applicable liquidation cost estimates, and then discounting these 
net cash recoveries us ing current market-based risk factors based on a 
given asset's type and quality. Resultant recovery estimates are 
extrapolated to the non-sampled assets in order to derive the allowance 
for loss on the receivable. These estimated recoveries are regularly 
evaluated, but remain subject to uncertainties because of potential 
changes in economic and market conditions. Such uncertainties could 
cause the SAIF's actual recoveries to vary from the level currently 
estimated.

Receivables From Thrift Resolutions, Net at December 31:

[See PDF for image]

[End of table]

At December 31, 2003, about 99% of the SAIF's $273 million net 
receivable will be repaid from assets related to the Superior 
receivership (which failed in July 2001), primarily, cash, investments, 
and a promissory note arising from a settlement with the owners of the 
failed institution. The credit risk related to the promissory note is 
limited since half of the outstanding note is secured by a letter of 
credit and the remaining half is subject to the creditworthiness of the 
payor of the note. Annual monitoring of the creditworthiness of the 
payor is performed and currently indicates a low risk of non-
performance.

6. Contingent Liabilities for:

Anticipated Failure of Insured Institutions:

The SAIF records a contingent liability and a loss provision for 
thrifts (includ ing Oakar and Sasser financial institutions) that are 
likely to fail within one year of the reporting date, absent some 
favorable event such as obtaining additional capital or merging, when 
the liability becomes probable and reasonably estimable.

The contingent liability is derived by applying expected failure rates 
and historical loss rates to groups of institutions with certain shared 
characteristics. In addition, institution-specific analysis is 
performed on those thrifts where failure is imminent absent institution 
management resolution of existing problems. As of December 31, 2003 and 
2002, the contingent liabilities for anticipated failure of insured 
institutions were $3 million and $90 million, respectively. In addition 
to these recorded continge nt liabilities, the FDIC has identified 
additional risk in the financial services industry that could result in 
a material loss to the SAIF should potentially vulnerable financial 
institutions ultimately fail. This risk is evidenced by the level of 
problem thrift assets and the presence of various high-risk banking 
business models that are particularly vulnerable to adverse economic 
and market conditions. Due to the uncertainty surrounding future 
economic and market conditions, there are other thrifts for which the 
risk of failure is less certain, but still considered reasonably 
possible. As a result of these risks, the FDIC believes that it is 
reasonably possible that the SAIF could incur additional estimated 
losses up to $143 million.

The accuracy of these estimates will largely depend on future economic 
and market conditions. The FDIC's Board of Directors has the statutory 
authority to consider the contingent liability from anticipated 
failures of insured institutions when setting assessment rates.

Litigation Losses:

The SAIF records an estimated loss for unresolved legal cases to the 
extent those losses are considered probable and reasonably estimable. 
In addition to the amount recorded as probable, the FDIC has determined 
that losses from unresolved legal cases totaling $53.4 million are 
reasonably possible.

Other Contingencies:

Representations and Warranties:

As part of the FDIC's efforts to maximize the return from the sale of 
assets from thrift resolutions, representations and warranties, and 
guarantees were offered on certain loan sales. In general, the 
guarantees, representations, and warranties on loans sold relate to the 
completeness and accuracy of loan documentation, the quality of the 
underwriting standards used, the accuracy of the delinquenc y status 
when sold, and the conformity of the loans with characteristics of the 
pool in which they were sold. The total amount of loans sold subject to 
unexpired representations and warranties, and guarantees was $5.2 
billion as of December 31, 2003. SAIF did not establish a liability for 
all outstanding claims asserted in connection with representations and 
warranties because the receiverships have sufficient funds to pay for 
such claims.

In addition, future losses on representations and warranties, and 
guarantees could be incurred over the remaining life of the loans sold, 
which is generally 20 years or more. Consequently, the FDIC believes it 
is possible that additional losses may be incurred by the SAIF from the 
universe of outstanding contracts with unasserted representation and 
warranty claims. However, because of the uncertainties surrounding the 
timing of when claims may be asserted, the FDIC is unable to reasonably 
estimate a range of loss to the SAIF from outstanding contracts with 
unasserted representation and warranty claims.

7. Assessments:

In compliance with provisions of the FDI Act, as amended, the FDIC uses 
a risk-based assessment system that charges higher rates to those 
institutions that pose greater risks to the SAIF. To arrive at a risk-
based assessment for a particular institution, the FDIC places each 
institution in one of nine risk categories based on capital ratios and 
supervisory examination data. The majority of the financial 
institutions are not assessed. Of those assessed, the assessment rate 
averaged approximately 14 cents and 26 cents per $100 of assessable 
deposits for 2003 and 2002, respectively. During 2003 and 2002, $15 
million and $24 million were collected from SAIF-member institutions, 
respectively. On November 4, 2003, the Board voted to retain the SAIF 
assessment schedule at the annual rate of 0 to 27 cents per $100 of 
assessable deposits for the first semiannual period of 2004. The Board 
reviews assessment rates semiannually to ensure that funds are 
available to satisfy the SAIF's obligations. If necessary, the Board 
may impose more frequent rate adjustments or emergency special 
assessments. The FDIC is required to maintain the insurance funds at a 
designated reserve ratio (DRR) of not less than 1.25 percent of 
estimated insured deposits (or a higher percentage as circumstances 
warrant). If the reserve ratio falls below the DRR, the FDIC is 
required to set semiannual assessment rates that are sufficient to 
increase the reserve ratio to the DRR not later than one year after 
such rates are set, or in accordance with a recapitalization schedule 
of fifteen years or less. As of September 30, 2003, the SAIF reserve 
ratio was 1.40 percent of estimated insured deposits.

Assessments are also levied on institutions for payments of the 
interest on obligations issued by the Financing Corporation (FICO). The 
FICO was established as a mixed-ownership government corporation to 
function solely as a financing vehicle for the FSLIC. The annual FICO 
interest obligation of approximately $790 million is paid on a pro rata 
basis using the same rate for banks and thrifts. The FICO assessment 
has no financial impact on the SAIF and is separate from the regular 
assessments. The FDIC, as administrator of the SAIF and the BIF, acts 
solely as a collection agent for the FICO. During 2003 and 2002, $162 
million and $161 million, respectively, were collected from SAIF-member 
institutions and remitted to the FICO.

8. Operating Expenses:

Operating expenses totaled $130 million for 2003 compared to $124 
million for 2002. Salaries and benefits expenses are lower due to the 
workforce reduction programs in 2002. The chart below lists the major 
components of operating expenses.

During 2002, the FDIC offered voluntary employee buyout incentives to a 
majority of its employees and conducted a reduction-in-force (RIF) in 
2002 and 2003 in an effort to reduce identified staffing excesses and 
skill imbalances. As a result, approximately 750 employees left by 
December 31, 2003. Termination benefits included compensation of fifty 
percent of the employee's current base salary and locality adjustment 
for voluntary departures. The total cost of this buyout was $33.1 
million for 2002, with SAIF's pro rata share totaling $4.2 million, 
which is included in the "Salaries and benefits" category in the chart 
below, as well as the "Separation Incentive Payment" line item in Note 
10.

Operating Expenses for the Years Ended December 31:

[See PDF for image]

[End of table]

9. Provision for Insurance Losses:

Provision for insurance losses was a negative $82 million for 2003 and 
a negative $156 million for 2002. In both 2003 and 2002, the negative 
provision was primarily due to lower estimated losses for anticipated 
failures which resulted from the improved financial condition of a few 
large thrifts. The following chart lists the major components of the 
provision for insurance losses.

Provision for Insurance Losses for the Years Ended December 31:

[See PDF for image]

[End of table]

10. Employee Benefits:

Pension Benefits, Savings Plans and Postemployment Benefits:

Eligible FDIC employees (permanent and term employees with appointments 
exceeding one year) are covered by the federal government retirement 
plans, either the Civil Service Retirement System (CSRS) or the Federal 
Employees Retirement System (FERS). Although the SAIF contributes a 
portion of pension benefits for eligible employees, it does not account 
for the assets of either retirement system. The SAIF also does not have 
actuarial data for accumulated plan benefits or the unfunded liability 
relative to eligible employees. These amounts are reported on and 
accounted for by the U.S. Office of Personnel Management.

Eligible FDIC employees also may participate in a FDIC-sponsored tax-
deferred 401(k) savings plan with matching contributions up to five 
percent. The SAIF pays its share of the employer's portion of all 
related costs.

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

[See PDF for image]

[End of table]

Postretirement Benefits Other Than Pensions:

The FDIC provides certain life and dental insurance coverage for its 
eligible retirees, the retirees' beneficiaries, and covered dependents. 
Retirees eligible for life insurance coverage are those who have 
qualified due to: 1) immediate enrollment upon appointment or five 
years of participation in the plan and 2) eligibility for an immediate 
annuity. The life insurance program provides basic coverage at no cost 
to retirees and allows converting optional coverages to directpay 
plans. Dental coverage is provided to all retirees eligible for an 
immediate annuity. Prior to 2003, the SAIF funded its liability for 
postretirement benefits other than pensions directly to a separate 
entity, which was established to restrict the funds and to provide for 
the accounting and administration of these benefits. As of January 1, 
2003, the FDIC changed its funding policy for these benefits and 
eliminated the separate entity in order to simplify the investment, 
accounting, and reporting for the obligation. The change does not 
impact any benefit entitlements to employees and retirees or the 
accrual of this liability pursuant to the provisions of SFAS No. 106. 
The SAIF received $14 million, of the total $103 million, as its 
proportionate share of the plan assets and recognized a liability of 
$14 million, of the total $104 million, in the "Accounts payable and 
other liabilities" line item on its Balance Sheets. The net cumulative 
effect of this accounting change for the periods prior to 2003 was a 
negative $43 thousand which is included in the "Insurance and other 
expenses" line item on the SAIF's Statements of Income and Fund 
Balance. In addition to the cumulative effect, the SAIF's expense for 
such benefits in 2003 was $1 million, which is included in the current 
year operating expenses. In the absence of the accounting change, the 
SAIF would have recognized an expense of $925 thousand.

At December 31, 2003 and 2002, the SAIF's net postretirement benefit 
liability recognized in the "Accounts payable and other liabilities" 
line item in the Balance Sheet was $15 million and $145 thousand, 
respectively. Key actuarial assumptions used in the accounting for the 
plan include the discount rate, the rate of compensation increase, and 
the dental coverage trend rate.

11. Commitments and Off-Balance-Sheet Exposure:

Commitments:

Leased Space:

The SAIF's allocated share of the FDIC's lease commitments totals $19.4 
million for future years. The lease agreements contain escalation 
clauses resulting in adjustments, usually on an annual basis. The 
allocation to the SAIF of the FDIC's future lease commitments is based 
upon current relationships of the workloads among the SAIF and the BIF. 
Changes in the relative workloads could cause the amounts allocated to 
the SAIF in the future to vary from the amounts shown below. The SAIF 
recognized leased space expense of $7.9 million and $6.5 million for 
the years ended December 31, 2003 and 2002, respectively.

Leased Space Commitments:

[See PDF for image]

[End of table]

Off-Balance-Sheet Exposure:

Deposit Insurance:

As of September 30, 2003, deposits insured by the SAIF totaled 
approximately $868 billion. This would be the accounting loss if all 
depository institutions were to fail and the acquired assets provided 
no recoveries.

12. Disclosures About the Fair Value of Financial Instruments:

Cash equivalents are short-term, highly liquid investments and are 
shown at current value. The fair market value of the investment in U.S. 
Treasury obligations is disclosed in Note 3 and 4 and is based on 
current market prices. The carrying amount of interest receivable on 
investments, short-term receivables, and accounts payable and other 
liabilities approximates their fair market value, due to their short 
maturities and/or comparability with current interest rates.

The net receivables from thrift resolutions primarily include the 
SAIF's subrogated claim arising from payments to insured depositors. 
The receivership assets that will ultimately be used to pay the 
corporate subrogated claim are valued using discount rates that include 
consideration of market risk. These discounts ultimately affect the 
SAIF's allowance for loss against the net receivables from thrift 
resolutions. Therefore, the corporate subrogated claim indirectly 
includes the effect of discounting and should not be viewed as being 
stated in terms of nominal cash flows.

Although the value of the corporate subrogated claim is influenced by 
valuation of receivership assets (see Note 5), such receivership 
valuation is not equivalent to the valuation of the corporate claim. 
Since the corporate claim is unique, not intended for sale to the 
private sector, and has no established market, it is not practicable to 
estimate its fair market value.

The FDIC believes that a sale to the private sector of the corporate 
claim would require indeterminate, but substantial, discounts for an 
interested party to profit from these assets because of credit and 
other risks. In addition, the timing of receivership payments to the 
SAIF on the subrogated claim does not necessarily correspond with the 
timing of collections on receivership assets. Therefore, the effect of 
discounting used by receiverships should not necessarily be viewed as 
producing an estimate of market value for the net receivables from 
thrift resolutions.

13. Supplementary Information Relating to the Statements of Cash Flows:

Reconciliation of Net Income to Net Cash Provided by Operating 
Activities for the Years Ended December 31:

[See PDF for image]

[End of table]

[End of section]

FSLIC Resolution Fund's Financial Statements:

Balance Sheets:

[See PDF for image]

[End of table]

Statements of Income and Accumulated Deficit:

[See PDF for image]

[End of table]

Statements of Cash Flows:

[See PDF for image]

[End of table]

Notes to the Financial Statements:
FSLIC Resolution Fund:
December 31, 2003 and 2002:

1. Legislative History and Operations /Dissolution of the FSLIC 
Resolution Fund Legislative History:

The Federal Deposit Insurance Corporation (FDIC) is the independent 
deposit insurance agency created by Congress in 1933 to maintain 
stability and public confidence in the nation's banking system. 
Provisions that govern the operations of the FDIC are generally found 
in the Federal Deposit Insurance (FDI) Act, as amended, (12 U.S.C. 
1811, et seq). In carrying out the purposes of the FDI Act, as amended, 
the FDIC insures the deposits of banks and savings associations, and in 
cooperation with other federal and state agencies promotes the safety 
and soundness of insured depository institutions by identifying, 
monitoring and addressing risks to the deposit insurance funds 
established in the FDI Act, as amended. In addition, FDIC is charged 
with responsibility for the sale of remaining assets and satisfaction 
of liabilities associated with the former Federal Savings and Loan 
Insurance Corporation (FSLIC) and the Resolution Trust Corporation 
(RTC).

The U.S. Congress created the FSLIC through the enactment of the 
National Housing Act of 1934. The Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (FIRREA) abolished the insolvent 
FSLIC, created the FSLIC Resolution Fund (FRF), and transferred the 
assets and liabilities of the FSLIC to the FRF-except those assets and 
liabilities transferred to the RTC-effective on August 9, 1989.

The FIRREA was enacted to reform, recapitalize, and consolidate the 
federal deposit insurance system. In addition to the FRF, FIRREA 
created the Bank Insurance Fund (BIF) and the Savings Association 
Insurance Fund (SAIF). It also designated the FDIC as the administrator 
of these funds. All three funds are maintained separately to carry out 
their respective mandates.

The FIRREA created the RTC to manage and resolve all thrifts previously 
insured by the FSLIC for which a conservator or receiver was appointed 
during the period January 1, 1989, through August 8, 1992. Resolution 
responsibility was subsequently extended and ultimately transferred 
from the RTC to the SAIF on July 1, 1995. The FIRREA established the 
Resolution Funding Corporation (REFCORP) to provide part of the initial 
funds used by the RTC for thrift resolutions.

The RTC Completion Act of 1993 (RTC Completion Act) terminated the RTC 
as of December 31, 1995. All remaining assets and liabilities of the 
RTC were transferred to the FRF on January 1, 1996. Today, the FRF 
consists of two distinct pools of assets and liabilities: one composed 
of the assets and liabilities of the FSLIC transferred to the FRF upon 
the dissolution of the FSLIC (FRF-FSLIC), and the other composed of the 
RTC assets and liabilities (FRF-RTC). The assets of one pool are not 
available to satisfy obligations of the other.

Operations/Dissolution of the FRF:

The FRF will continue operations until all of its assets are sold or 
otherwise liquidated and all of its liabilities are satisfied. Any 
funds remaining in the FRF-FSLIC will be paid to the U.S. Treasury. Any 
remaining funds of the FRF-RTC will be distributed to the REFCORP to 
pay the interest on the REFCORP bonds. In addition, the FRF-FSLIC has 
available until expended $602.2 million in appropriations to 
facilitate, if required, efforts to wind up the resolution activity of 
the FRF-FSLIC.

The FDIC has conducted an extensive review and cataloging of FRF's 
remaining assets and liabilities and is continuing to explore 
approaches for concluding FRF's activities. An executive-level Steering 
Committee was established in 2003 to facilitate the FRF dissolution. 
Some of the issues and items that remain open in FRF are: 1) criminal 
restitution orders (generally have from 5 to 10 years remaining); 2) 
litigation claims and judgments obtained against officers and directors 
and other professionals responsible for causing thrift losses 
(judgments generally vary from 5 to 10 years); 3) numerous assistance 
agreements entered into by the former FSLIC (FRF could continue to 
receive tax sharing benefits through year 2020); 4) goodwill and 
Guarini litigation (no final date for resolution has been established; 
see Note 4); and 5) environmentally impaired owned real estate assets. 
FDIC is considering whether enabling legislation or other measures may 
be needed to accelerate liquidation of the remaining FRF assets and 
liabilities. The FRF could realize substantial recoveries from item 3 
ranging from $235 million to $760 million; however, any associated 
recoveries are not reflected in FRF's financial statements given the 
significant uncertainties surrounding the ultimate outcome.

Receivership Operations:

The FDIC is responsible for managing and disposing of the assets of 
failed institutions in an orderly and efficient manner. The assets held 
by receivership entities, and the claims against them, are accounted 
for separately from FRF assets and liabilities to ensure that 
receivership 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. 
Receiverships are billed by the FDIC for services provided on their 
behalf.

2. Summary of Significant Accounting Policies:

General:

These financial statements pertain to the financial position, results 
of operations, and cash flows of the FRF and are presented in 
conformity with U.S. generally accepted accounting principles (GAAP). 
These statements do not include reporting for assets and liabilities of 
closed thrift institutions for which the FDIC acts as receiver. 
Periodic and final accountability reports of the FDIC's activities as 
receiver are furnished to courts, supervisory authorities, and others 
as required.

Use of Estimates:

Management makes estimates and assumptions that affect the amounts 
reported in the financial statements and accompanying notes. Actual 
results could differ from these estimates. Where it is reasonably 
possible that changes in estimates will cause a material change in the 
financial statements in the near term, the nature and extent of such 
changes in estimates have been disclosed. The more significant 
estimates include allowance for losses on receivables from thrift 
resolutions and the estimated losses for litigation.

Fair Value of Financial Instruments:

Cash equivalents, which consist of Special U.S. Treasury Certificates, 
are short-term, highly liquid investments with original maturities of 
three months or less and are shown at fair value. The carrying amount 
of short-term receivables and accounts payable and other liabilities 
approximates their fair market value, due to their short maturities.

The investment in securitization-related assets acquired from 
receiverships is adjusted to fair value at each reporting date using a 
valuation model that estimates the present value of estimated expected 
future cash flows discounted for market and credit risks. Additionally, 
the credit enhancement reserves, which resulted from swap transactions, 
are valued by applying a historical loss rate to estimate loss amounts 
(see Note 3).

The net receivable from thrift resolutions is influenced by the 
underlying valuation of receivership assets. This corporate receivable 
is unique and the estimate presented is not indicative of the amount 
that could be realized in a sale to the private sector. Such a sale 
would require indeterminate, but substantial, discounts for an 
interested party to profit from these assets because of credit and 
other risks. Consequently, it is not practicable to estimate its fair 
market value.

Cost Allocations Among Funds:

Operating expenses not directly charged to the FRF, the BIF, and the 
SAIF are allocated to all funds using workload-based allocation 
percentages. These percentages are developed during the annual 
corporate planning process and through supplemental functional 
analyses.

Related Parties:

The nature of related parties and a description of related party 
transactions are discussed in Note 1 and disclosed throughout the 
financial statements and footnotes.

Reclassifications:

Reclassifications have been made in the 2002 financial statements to 
conform to the presentation used in 2003.

3. Receivables From Thrift Resolutions and Other Assets, Net:

Receivables From Thrift Resolutions:

The receivables from thrift resolutions include payments made by the 
FRF to cover obligations to insured depositors, advances to 
receiverships for working capital, and administrative expenses paid on 
behalf of receiverships. Any related allowance for loss represents the 
difference between the funds advanced and/or obligations incurred and 
the expected repayment. Assets held by the FDIC in its receivership 
capacity for the former FSLIC and SAIF-insured institutions are a 
significant source of repayment of the FRF's receivables from thrift 
resolutions. As of December 31, 2003, 52 of the 850 FRF receiverships 
remain active primarily due to unresolved litigation, including 
Goodwill and Guarini matters.

As of December 31, 2003 and 2002, FRF receiverships held assets with a 
book value of $215 million and $290 million, respectively (including 
cash, investments, and miscellaneous receivables of $114 million and 
$146 million at December 31, 2003 and 2002, respectively). The 
estimated cash recoveries from the management and disposition of these 
assets that are used to derive the allowance for losses are based on a 
sampling of receivership assets. The sampled assets are generally 
valued by estimating future cash recoveries, net of applicable 
liquidation cost estimates, and then discounting these net cash 
recoveries using current market-based risk factors based on a given 
asset's type and quality. Resultant recovery estimates are extrapolated 
to the non-sampled assets in order to derive the allowance for loss on 
the receivable. These estimated recoveries are regularly evaluated, but 
remain subject to uncertainties because of potential changes in 
economic and market conditions. Such uncertainties could cause the 
FRF's actual recoveries to vary from the level currently estimated.

Investment in Securitization-Related Assets Acquired from 
Receiverships:

This investment is classified as available-for-sale with unrealized 
gains and losses included in Resolution Equity. Realized gains and 
losses are recorded based upon the difference between the proceeds at 
termination of the deal and the book value of the investment and are 
included as components of Net Income. As of December 31, 2003, this 
investment includes credit enhancement reserves valued at $69 million 
and residual certificates valued at $21 million.

The last securitization deal, valued at $60 million (including $39 
million in credit enhancement reserves and $21 million in residual 
certificates), is expected to terminate in 2004. The remaining $30 
million in credit enhancement reserves resulted from swap transactions 
where the former RTC received mortgage-backed securities in exchange 
for single-family mortgage loans. The former RTC supplied credit 
enhancement reserves for the mortgage loans in the form of cash 
collateral to cover future credit losses over the remaining life of the 
loans. These reserves may cover future credit losses through 2018.

Receivables From Thrift Resolutions and Other Assets, Net at December 
31:

[See PDF for image]

[End of table]

Gross receivables from thrift resolutions and the investment in 
securitization-related assets subject the FRF to credit risk. An 
allowance for loss of $22.8 billion, or 99.6% of the gross receivable, 
was recorded as of December 31, 2003. Of the remaining 0.4% of the 
gross receivable, over three-fourths of the receivable is expected to 
be repaid from receivership cash, investments, and pledged cash 
reserves. The credit risk related to the pledged cash reserves is 
limited since the majority of these assets are evaluated annually and 
have experienced minimal losses.

The value of the investment in securitization-related assets is 
influenced by the economy of the area relating to the underlying loans. 
Of this investment, $42.4 million of the underlying mortgages are 
located in California and $27.2 million of loans are located in New 
Jersey. No other state accounted for a material portion of the 
investment.

4. Contingent Liabilities for:

Litigation Losses:

The FRF records an estimated loss for unresolved legal cases to the 
extent those losses are considered probable and reasonably estimable. 
In addition to the amount recorded as probable, the FDIC has determined 
that losses from unresolved legal cases totaling $39 million are 
reasonably possible.

Additional Contingency:

Goodwill Litigation:

In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme 
Court held that when it became impossible following the enactment of 
FIRREA in 1989 for the federal government to perform certain agreements 
to count goodwill toward regulatory capital, the plaintiffs were 
entitled to recover damages from the United States. Approximately 61 
cases are pending against the United States based on alleged breaches 
of these agreements.

On July 22, 1998, the Department of Justices (DOJ's) Office of Legal 
Counsel (OLC) concluded that the FRF is legally available to satisfy 
all judgments and settlements in the Goodwill Litigation involving 
supervisory action or assistance agreements. OLC determined that 
nonperformance of these agreements was a contingent liability that was 
transferred to the FRF on August 9, 1989, upon the dissolution of the 
FSLIC. Under the analysis set forth in the OLC opinion, as liabilities 
transferred on August 9, 1989, these contingent liabilities for future 
nonperformance of prior agreements with respect to supervisory goodwill 
were transferred to the FRF-FSLIC, which is that portion of the FRF 
encompassing the obligations of the former FSLIC. The FRF-RTC, which 
encompasses the obligations of the former RTC and was created upon the 
termination of the RTC on December 31, 1995, is not available to pay 
any settlements or judgments arising out of the Goodwill Litigation. On 
July 23, 1998, the U.S. Treasury determined, based on OLC's opinion, 
that the FRF is the appropriate source of funds for payments of any 
such judgments and settlements.

The lawsuits comprising the Goodwill Litigation are against the United 
States and as such are defended by the DOJ. On December 1, 2003, the 
DOJ again informed the FDIC that it is "unable at this time to provide 
a reasonable estimate of the likely aggregate contingent liability 
resulting from the Winstar-related cases." This uncertainty arises, in 
part, from the existence of significant unresolved issues pending at 
the appellate or trial court level, as well as the unique circumstances 
of each case.

The FDIC believes that it is probable that additional amounts, possibly 
substantial, ma y be paid from the FRF-FSLIC as a result of judgments 
and settlements in the Goodwill Litigation. Based on the response from 
the DOJ, the FDIC is unable to estimate a range of loss to the FRF-
FSLIC from the Goodwill Litigation. However, the FRF can draw from an 
appropriation provided by Section 110 of the Department of Justice 
Appropriations Act, 2000 (Public Law 106-113, Appendix A, Title I, 113 
Stat. 1501A-3, 1501A-20) such sums as may be necessary for the payment 
of judgments and compromise settlements in the Goodwill Litigation. 
This appropriation is to remain available until expended. Because an 
appropriation is available to pay such judgments and settlements, any 
liabilities for the Goodwill Litigation should have no impact on the 
financial condition of the FRF-FSLIC.

In addition, the FRF-FSLIC pays the goodwill litigation expenses 
incurred by DOJ based on a Memorandum of Understanding (MOU) dated 
October 2, 1998, between the FDIC and DOJ. Under the terms of the MOU, 
the FRF-FSLIC paid $33.3 million and $17.5 million to DOJ for fiscal 
years 2004 and 2003, respectively. DOJ returns any unused fiscal year 
funding to the FRF unless special circumstances warrant these funds be 
carried over and applied against current fiscal year charges. In April 
2003, DOJ returned $20 million of unused fiscal year funds. At 
September 30, 2003, DOJ had $19.9 million in unused funds that were 
applied against FY 2004 charges of $53.2 million.

Guarini Litigation:

Paralleling the goodwill cases are eight similar cases alleging that 
the government breached agreements regarding tax benefits associated 
with certain FSLIC-assisted acquisitions. These agreements allegedly 
contained the promise of tax deductions for losses incurred on the sale 
of certain thrift assets purchased by plaintiffs, from the FSLIC, even 
though the FSLIC provided the plaintiffs with tax-exempt reimbursement. 
A provision in the Omnibus Budget Reconciliation Act of 1993 (popularly 
referred to as the "Guarini legislation") eliminated the tax deductions 
for these losses.

To date, there have been liability determinations in six of the eight 
"Guarini" cases. The United States Court of Federal Claims has entered 
an award for the plaintiffs in three of these cases and appeals have 
been filed by DOJ. A decision on liability has not been made in the 
seventh case, and the eighth case was settled during 2002 for $20 
thousand.

The FDIC believes that it is possible that substantial amounts may be 
paid from the FRF-FSLIC as a result of the judgments and settlements 
from the "Guarini litigation." However, because the litigation of 
damages computation is still ongoing, the amount of the damages is not 
estimable at this time.

Representations and Warranties:

As part of the RTC's efforts to maximize the return from the sale of 
assets from thrift resolutions, representations and warranties, and 
guarantees were offered on certain loan sales. The majority of loans 
subject to these agreements have most likely been paid off or 
refinanced due to the current interest rate climate or the period for 
filing claims has expired. However, there is no reporting mechanism to 
determine the aggregate amount of remaining loans. Therefore, the FDIC 
is unable to provide an estimate of maximum exposure to the FRF. Based 
on the above and our history of claims processed, the FDIC believes 
that any future representation and warranty liability to the FRF would 
be minimal.

5. Provision for Losses:

The provision for losses was a negative $58 million and a negative $149 
million for 2003 and 2002, respectively. In 2003, the negative 
provision was primarily due to lower estimated losses for assets in 
liquidation and recoveries of net tax benefits sharing from assistance 
agreements. The negative provision in 2002 was primarily due to the 
recoveries of net tax benefits sharing from assistance agreements.

6. Resolution Equity:

As stated in the Legislative History section of Note 1, the FRF is 
comprised of two distinct pools: the FRF-FSLIC and the FRF-RTC. The 
FRF-FSLIC consists of the assets and liabilities of the former FSLIC. 
The FRF-RTC consists of the assets and liabilities of the former RTC. 
Pursuant to legal restrictions, the two pools are maintained separately 
and the assets of one pool are not available to satisfy obligations of 
the other.

The following table shows the contributed capital, accumulated deficit, 
and resulting resolution equity for each pool.

Resolution Equity at December 31, 2003:

[See PDF for image]

[End of table]

Contributed Capital:

To date, the FRF-FSLIC and the former RTC received $43.5 billion and 
$60.1 billion from the U.S. Treasury, respectively. These payments were 
used to fund losses from thrift resolutions prior to July 1, 1995. 
Additionally, the FRF-FSLIC issued $670 million in capital certificates 
to the FICO and the RTC issued $31.3 billion of these instruments to 
the REFCORP. FIRREA prohibited the payment of dividends on any of these 
capital certificates. Through December 31, 2003, the FRF-RTC has 
returned $4.556 billion to the U.S. Treasury and made payments of 
$4.572 billion to the REFCORP. These actions serve to reduce 
contributed capital.

Accumulated Deficit:

The accumulated deficit represents the cumulative excess of expenses 
over revenue for activity related to the FRF-FSLIC and the FRF-RTC. 
Approximately $29.8 billion and $87.9 billion were brought forward from 
the former FSLIC and the former RTC on August 9, 1989, and January 1, 
1996, respectively. The FRF-FSLIC accumulated deficit has increased by 
$11.4 billion, whereas the FRF-RTC accumulated deficit has decreased by 
$6.3 billion, since their dissolution dates.

7. Employee Benefits:

Pension Benefits:

Eligible FDIC employees (permanent and term employees with appointments 
exceeding one year) are covered by the federal government retirement 
plans, either the Civil Service Retirement System (CSRS) or the Federal 
Employees Retirement System (FERS). Although the FRF contributes a 
portion of pension benefits for eligible employees, it does not account 
for the assets of either retirement system. The FRF 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. The FRF's pro 
rata share of pension-related expenses was $2.2 million and $4.6 
million, as of December 31, 2003 and 2002, respectively.

Postretirement Benefits Other Than Pensions:

Beginning in 2003, the FRF no longer records a liability for the 
postretirement benefits of life and dental insurance as a result of 
FDIC's change in funding policy for these benefits and elimination of 
the separate entity. In implementing this change, management decided 
not to allocate either the plan assets or the revised net accumulated 
postretirement benefit obligation (a long-term liability) to FRF due to 
the expected dissolution of the Fund in the short-term. However, FRF 
does continue to pay its proportionate share of the yearly claim 
expenses associated with these benefits.

8. Supplementary Information Relating to the Statements of Cash Flows:

Reconciliation of Net Income to Net Cash Provided by Operating 
Activities for the Years Ended December 31:

[See PDF for image]

[End of table]

[End of section]

Appendixes: 

Appendix I: Comments from the Federal Deposit Insurance Corporation:

FDIC:

Federal Deposit Insurance Corporation:

550 17th St. NW 
Washington DC, 20429	
Deputy to the Chairman & Chief Financial Officer:

February 9, 2004:

Mr. David M. Walker:

Comptroller General of the United States: 
U. S. General Accounting Office:

441 G Street, NW 
Washington, DC 20548:

Re: FDIC Management Response on the GAO 2003 Financial Statements Audit 
Report:

Dear Mr. Walker:

Thank you for the opportunity to comment on the U. S. General 
Accounting Office's (GAO) draft audit report titled, Financial Audit 
Federal Deposit Insurance Corporation Funds' 2003 and 2002 Financial 
Statements, GAO-04-429. The report presents GAO's opinions on the 
calendar year 2003 financial statements of the Bank Insurance Fund 
(BIF), the Savings Association Insurance Fund (SAIF), and the Federal 
Savings and Loan Insurance Corporation Resolution Fund (FRF). The 
report also presents GAO's opinion on the effectiveness of FDIC's 
internal controls as of December 31, 2003 and GAO's evaluation of 
FDIC's compliance with applicable laws and regulations.

We are pleased to accept GAO's unqualified opinions on the BIF, SAIF, 
and FRF financial statements and to note that there were no material 
weaknesses identified during the 2003 audits. The GAO reported that: 
the funds' financial statements were presented fairly and in conformity 
with U. S. 
generally accepted accounting principles; FDIC had effective internal 
control over financial reporting (including safeguarding of assets) and 
compliance with laws and regulations; and there were no instances of 
noncompliance with selected provisions of laws and regulations.

GAO identified the need to improve internal control over FDIC's 
information systems (IS) and issued a reportable condition. Although 
GAO identified weaknesses in FDIC's IS controls, the audit team noted 
that significant improvements had been made during the past year, and 
that the weaknesses did not materially affect the 2003 financial 
statements. We acknowledge GAO's assessment of both the status and the 
substantial progress made in addressing the IS control environment. 
During 2003, FDIC's accomplishments included implementation of a 
recurring IS controls self assessment program, implementation of more 
stringent contractor personnel clearance and site security policies and 
procedures, and establishment of an aggressive patch management 
program. The FDIC will continue efforts to strengthen its ongoing, 
comprehensive information security program during 2004.

If you have any questions or concerns, please let me know.

Sincerely,

Signed by: 

Steven O. App:

Deputy to the Chairman and Chief Financial Officer: 

[End of section]

Appendix II: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Jeanette M. Franzel, (202) 512-9471 Julia B. Duquette, (202) 512-5131:

Acknowledgments:

In addition to those named above, the following staff made key 
contributions to this report: Ronald A. Bergman, Gary P. Chupka, John 
C. Craig, Anh Dang, Kristen A. Kociolek, Wing Y. Lam, Timothy J. 
Murray, Saurav B. Prasad, Lori Ryza, Ed Tanaka, Stacey L. Volis, and 
Gregory J. Ziombra.

(194229):

FOOTNOTES

[1] Reportable conditions involve matters coming to the auditor's 
attention that in the auditor's judgment, should be communicated 
because they represent significant deficiencies in the design or 
operation of internal control and could adversely affect FDIC's ability 
to meet the control objectives described in this report.

GAO's Mission:

The General Accounting Office, the investigative arm of Congress, 
exists to support Congress in meeting its constitutional 
responsibilities and to help improve the performance and accountability 
of the federal government for the American people. GAO examines the use 
of public funds; evaluates federal programs and policies; and provides 
analyses, recommendations, and other assistance to help Congress make 
informed oversight, policy, and funding decisions. GAO's commitment to 
good government is reflected in its core values of accountability, 
integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains 
abstracts and full-text files of current reports and testimony and an 
expanding archive of older products. The Web site features a search 
engine to help you locate documents using key words and phrases. You 
can print these documents in their entirety, including charts and other 
graphics.

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading.

Order by Mail or Phone:

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to:

U.S. General Accounting Office

441 G Street NW,

Room LM Washington,

D.C. 20548:

To order by Phone: 

 Voice: (202) 512-6000:

 TDD: (202) 512-2537:

 Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470:

Public Affairs:

Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.

General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.

20548: