This is the accessible text file for GAO report number GAO-05-281 
entitled 'Financial Audit: Federal Deposit Insurance Corporation Funds' 
2004 and 2003 Financial Statements' which was released on February 14, 
2005.

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Report to the Congress: 

February 2005: 

Financial Audit: 

Federal Deposit Insurance Corporation Funds' 2004 and 2003 Financial 
Statements: 

GAO-05-281: 

GAO Highlights: 

Highlights of GAO-05-281, a report to the Congress: 

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, and 
whether FDIC maintained effective internal control over financial 
reporting and compliance. Also, GAO is responsible for testing FDIC’s 
compliance 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 2004 and 2003 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 FDIC had effective internal control over financial 
reporting and compliance for each fund. GAO did not find reportable 
instances of noncompliance with the laws and regulations it tested. 

In prior years, GAO reported on weaknesses in FDIC’s information system 
controls, which were described as a reportable condition. Specifically, 
FDIC had not adequately restricted access to critical financial 
programs and data, provided sufficient network security, or established 
a comprehensive program to monitor access activities. A primary reason 
for FDIC’s information system control weaknesses was that the 
corporation had not established a comprehensive information security 
program to manage computer security. During the past several years, 
FDIC has made progress in correcting information system control 
weaknesses, and in 2004, FDIC made substantial progress in correcting 
most of the weaknesses that GAO identified in prior years, including 
taking steps to fully establish a comprehensive information security 
program. These improvements, combined with the progress reported last 
year, enabled GAO to conclude that the remaining issues related to 
information system controls no longer constitute a reportable 
condition.

FDIC’s implementation of new financial systems in the coming year will 
significantly change its information systems environment and the 
related information systems controls necessary for their effective 
operation. Consequently, continued management commitment to an 
effective information security program will be essential to ensure that 
the corporation’s financial and sensitive information will be 
adequately protected in this new environment.
 
GAO did not identify any reportable conditions during its 2004 audits. 
However, GAO noted other less significant matters involving FDIC’s 
internal controls, including information system controls. GAO will be 
reporting separately to FDIC management on these matters.

www.gao.gov/cgi-bin/getrpt?GAO-05-281.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Steven J. Sebastian at 
(202) 512-3406 or sebastians@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: 

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: 

Transmittal Letter February 11, 2005: 

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, 2004 and 2003. 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 over financial reporting and compliance for each of the funds 
as of December 31, 2004, and (2) our evaluation of FDIC's compliance 
with selected laws and regulations during 2004.

The provisions of section 17(d) of the Federal Deposit Insurance Act, 
as amended (12 U.S.C. 1827(d)), require GAO to conduct an annual audit 
of BIF, SAIF, and FRF in accordance with U.S. generally accepted 
government auditing standards. These provisions also stipulate that GAO 
report on the results of its annual audit of the three funds' financial 
statements no later than July 15 of the year following the year under 
audit, or 6 ½ months after the end of the reporting period. However, 
for the second consecutive year, and at the request of FDIC management, 
GAO completed its audits of the three funds' financial statements 
within 45 days of the end of the reporting period. The achievement of 
such a significant acceleration in the reporting time frames would not 
have been possible without the tremendous cooperation and dedicated 
efforts of both FDIC management and staff and the GAO team conducting 
the audits.

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].

This report was prepared under the direction of Steven J. Sebastian, 
Director, Financial Management and Assurance, who can be reached on 
(202) 512-3406 or [Hyperlink, sebastians@gao.gov]. If I can be of 
further assistance, please call me at (202) 512-5500.

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, 2004, and 2003, 
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;

* FDIC had effective internal control over financial reporting and 
compliance with laws and regulations for each fund; and: 

* no reportable noncompliance with laws and regulations we tested.

The following sections discuss our conclusions in more detail. They 
also present information on the scope of our audits and 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, 2004, and 2003, 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, 2004, and 2003, 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, 2004, and 2003, and the results of its operations and its cash 
flows for the years then ended.

Opinion on Internal Control: 

FDIC management maintained, in all material respects, effective 
internal control over financial reporting (including safeguarding 
assets) and compliance as of December 31, 2004, that provided 
reasonable but not absolute assurance that misstatements, losses, or 
noncompliance material in relation to FDIC's financial statements of 
each fund 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)].

In prior years, we reported on weaknesses we identified in FDIC's 
information system controls, which we described as a reportable 
condition.[Footnote 1] Specifically, FDIC had not adequately restricted 
access to critical financial programs and data, provided sufficient 
network security, or established a comprehensive program to monitor 
access activities. A primary reason for FDIC's information system 
control weaknesses was that the corporation had not established a 
comprehensive information security program to manage computer security. 
During the past several years, FDIC has made progress in correcting 
information system control weaknesses and in 2004, FDIC made 
substantial progress in correcting most of the weaknesses we identified 
in prior years, including taking steps to fully establish a 
comprehensive information security program. These improvements, 
combined with the progress we reported last year, enabled us to 
conclude that the remaining issues related to information system 
controls no longer constitute a reportable condition. FDIC's 
implementation of new financial systems[Footnote 2] in the coming year 
will significantly change its information systems environment and the 
related information systems controls necessary for their effective 
operation. Consequently, continued management commitment to an 
effective information security program will be essential to ensure that 
the corporation's financial and sensitive information will be 
adequately protected in this new environment.

We did not identify any reportable conditions during our 2004 audits. 
However, we noted other less significant matters involving FDIC's 
internal controls, including information system controls. We will be 
reporting separately to FDIC management on these matters.

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 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 applicable 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 the following: 

* 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 could 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 laws and regulations, including 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 laws and regulations 
that could have a direct and material effect on the financial 
statements for the year ended December 31, 2004. 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 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 2004 and 2003 financial statements and to note that there were no 
material weaknesses identified during the 2004 audits. FDIC's CFO also 
stated that FDIC management is committed to ensuring the continued 
success of an effective and strong information security program. The 
CFO said FDIC will remain focused on accomplishing the work needed to 
face the new security challenges in the coming year. The complete text 
of FDIC's comments is reprinted in appendix I.

Signed by: 

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

January 31, 2005: 

[End of section]

Bank Insurance Fund's Financial Statements: 

Balance Sheets:

Bank Insurance Fund:

Federal Deposit Insurance Corporation: Bank Insurance Fund Balance 
Sheet at December 31:

Dollars in Thousands.

Assets: Cash and cash equivalents; 
2004: $1,822,005; 
2003: $2,544,281.

Assets: Investment in U.S. Treasury obligations, net (Note 3): Held-to-
maturity securities; 
2004: $22,637,330; 
2003: $16,293,073.

Assets: Investment in U.S. Treasury obligations, net (Note 3): 
Available-for-sale securities; 
2004: $9,470,605; 
2003: $14,209,773.

Assets: Interest receivable on investments and other assets, net; 
2004: $601,498; 
2003: $550,999.

Assets: Receivables from bank resolutions, net (Note 4); 
2004: $375,303; 
2003: $511,089.

Assets: Property and equipment, net (Note 5); 
2004: $357,106; 
2003: $287,380.

Total Assets; 
2004: $35,263,847; 
2003: $34,396,595.

Liabilities: Accounts payable and other liabilities; 
2004: $268,680; 
2003: $231,441.

Liabilities: Contingent liabilities for anticipated failure of insured 
institutions (Note 6); 
2004: $8,261; 
2003: $178,266.

Liabilities: Contingent liabilities for litigation losses and other 
(Note 6); 
2004: $200,301; 
2003: $204,693.

Total Liabilities; 
2004: $477,242; 
2003: $614,400.

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

Fund Balance: Accumulated net income; 
2004: $34,096,676; 
2003: $32,979,898.

Fund Balance: Unrealized gain on available-for-sale securities, net 
(Note 3); 
2004: $689,929; 
2003: $802,297.

Total Fund Balance; 
2004: $34,786,605; 
2003: $33,782,195.

Total Liabilities and Fund Balance; 
2004: $35,263,847; 
2003: $34,396,595.

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

[End of table]

Statements of Income and Fund Balance:

Federal Deposit Insurance Corporation:

Bank Insurance Fund Statement of Income and Fund Balance for the Years 
Ended December 31:

Dollars in Thousands.

Revenue: Revenue: Interest on U.S. Treasury obligations; 
2004: $1,552,576; 
2003: $1,530,014.

Revenue: Revenue: Assessments (Note 7); 
2004: $95,268; 
2003: $80,159.

Other revenue; 
2004: $27,553; 
2003: $15,831.

Total Revenue; 
2004: $7,675,397; 
2003: $7,626,004.

Expenses and Losses: Expenses and Losses: Operating expenses (Note 8); 
2004: $822,381; 
2003: $805,496.

Expenses and Losses: Expenses and Losses: Provision for insurance 
losses (Note 9); 
2004: ($269,368); 
2003: ($931,164).

Expenses and Losses: Expenses and Losses: Insurance and other expenses; 
2004: $5,606; 
2003: $9,945.

Total Expenses and Losses; 
2004: $558,619; 
2003: ($115,723).

Net Income; 
2004: $7,116,778; 
2003: $7,741,727.

Net Income: Net Income: Unrealized loss on available-for-sale 
securities, net; 
2004: ($112,368); 
2003: ($9,872).

Comprehensive Income; 
2004: $7,004,410; 
2003: $7,731,855.

Fund Balance-Beginning; 
2004: $33,782,195; 
2003: $32,050,340.

Fund Balance-Ending; 
2004: $34,786,605; 
2003: $33,782,195.

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

[End of table]

Statements of Cash Flow:

Bank Insurance Fund:

Federal Deposit Insurance Corporation:

Bank Insurance Fund Statement of Cash Flows for the Years Ended 
December 31:

Dollars in Thousands.

Operating Activities: Net Income:

2004: $1,116,778; 
2003: $1,741,727.

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Amortization of U.S. 
Treasury obligations; 
2004: $737,439; 
2003: $455,628.

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Treasury inflation-
indexed securities (TITS) inflation adjustment; 
2004: ($181,650); 
2003: ($115,150).

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Depreciation on property 
and equipment; 
2004: $54,424; 
2003: $54,947.

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Provision for losses; 
2004: ($269,368); 
2003: ($931,164).

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Terminations/adjustments 
of work-in-process accounts; 
2004: $817; 
2003: $92.

Operating Activities: Change in Operating Assets and Liabilities: 
(Increase) in interest receivable and other assets; 
2004: ($36,433); 
2003: ($69,826).

Operating Activities: Change in Operating Assets and Liabilities: 
Decrease in receivables from bank resolutions; 
2004: $218,693; 
2003: $102,663.

Operating Activities: Change in Operating Assets and Liabilities: 
Increase in accounts payable and other liabilities; 
2004: $15,819; 
2003: $85,577.

Operating Activities: Change in Operating Assets and Liabilities: 
(Decrease) in contingent liabilities for litigation losses and other; 
2004: ($1,047); 
2003: ($25,367).

Net Cash Provided by Operating Activities; 
2004: $1,655,472; 
2003: $1,299,127.

Investing Activities: Provided by maturity of U.S. Treasury 
obligations, held-to-maturity; 
2004: $3,365,000; 
2003: $3,890,000.

Investing Activities: Provided by maturity of U.S. Treasury 
obligations, available-for-sale; 
2004: $5,810,000; 
2003: $1,690,000.

Investing Activities: Used by purchase of property and equipment; 
2004: ($104,502); 
2003: ($41,804).

Investing Activities: Used by purchase of U.S. Treasury obligations, 
held-to-maturity; 
2004: ($10,026,597); 
2003: ($3,659,868).

Investing Activities: Used by purchase of U.S Treasury obligations, 
available-for-sale; 
2004: ($1,421,649); 
2003: ($5,240,070).

Net Cash Used by Investing Activities; 
2004: ($2,377,748); 
2003: ($3,361,742).

Net Decrease in Cash and Cash Equivalents; 
2004: ($722,276); 
2003: ($2,062,615).

Cash and Cash Equivalents-Beginning; 
2004: $2,544,281; 
2003: $4,606,896.

Cash and Cash Equivalents-Ending; 
2004: $1,822,005; 
2003: $2,544,281.

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

[End of table]

Notes to the Financial Statements:

1. Legislation and 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. 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 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 BIF:

The primary purpose of the BIF is to: 1) insure the deposits and 
protect the depositors of BIF-insured 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 MOIL for the BIF 
was $57.0 billion as of December 31, 2004 and 2003.

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. Accordingly, income and expenses attributable to 
receiverships are accounted for as transactions of those receiverships. 
Receiverships are billed by the FDIC for services provided on their 
behalf.

Recent Legislative Initiatives:

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 again considered deposit insurance 
reform legislation; however, Congress adjourned without enacting that 
legislation. Legislation similar to the deposit insurance reform 
proposals of the 107th and 108th Congress may be introduced in the 
109th Congress, which begins in January 2005. 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 Statement 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.

Disclosure about Recent Accounting Pronouncements:

Recent accounting pronouncements have been adopted or deemed to be not 
applicable to the financial statements as presented.

Related Parties:

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

Reclassifications:

Reclassifications have been made in the 2003 financial statements to 
conform to the presentation used in 2004.

In 2004, the BIF changed the format of its Statement of Cash Flows from 
the direct method to the indirect method for purposes of reporting cash 
flows from operating activities. Accordingly, the Statement of Cash 
Flows for 2003 contains certain reclassifications to conform to the 
BIF's current financial statement format. For 2003 and 2004, the 
reconciliation of net income to net cash provided by operating 
activities is included in the Statement of Cash Flows. Consequently, 
information pertaining to gross amounts of receipts and payments, not 
required for presentation of the indirect method, is available within 
other footnotes to these financial statements.

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

As of December 31, 2004 and 2003, the book value of investments in U.S. 
Treasury obligations, net, was $32.1 billion and $30.5 billion, 
respectively. As of December 31, 2004, the BIF held $6.6 billion of 
Treasury inflation-indexed securities (TITS). These securities are 
indexed to increases or decreases in the Consumer Price Index for All 
Urban Consumers (CPI-U). Additionally, the BIF held $6.6 billion of 
callable U.S. Treasury bonds at December 31, 2004. 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, 2004:

Dollars in Thousands:

Maturity[A]: Held-to-Maturity: Within 1 year:

Yield at Purchase[B]: 3.93%; 
Face Value: $6,290,000; 
Net Carrying Amount: $6,486,753; 
Unrealized Holding Gains: $50,757; 
Unrealized Holding Losses[C]: ($11,129); 
Market Value: $6,526,381.

Maturity[A]: Held-to-Maturity: After 1 year thru 5 years:

Yield at Purchase[B]: 4.94%; 
Face Value: $10,575,000; 
Net Carrying Amount: $11,135,043; 
Unrealized Holding Gains: $399,365; 
Unrealized Holding Losses[C]: ($10,104); 
Market Value: $11,524,304.

Maturity[A]: Held-to-Maturity: After 5 years thru 10 years:

Yield at Purchase[B]: 4.76%; 
Face Value: $4,360,000; 
Net Carrying Amount: $4,374,344; 
Unrealized Holding Gains: $197,842; 
Unrealized Holding Losses[C]: ($1,336); 
Market Value: $4,570,850.

Maturity[A]: Held-to-Maturity: Treasury Inflation-Indexed After 1 year 
thru 5 years:

Yield at Purchase[B]: 3.82%; 
Face Value: $640,107; 
Net Carrying Amount: $641,190; 
Unrealized Holding Gains: $76,255; 
Unrealized Holding Losses[C]: $0; 
Market Value: $717,445.

Maturity[A]: Held-to-Maturity: Total:

Face Value: $21,865,107; 
Net Carrying Amount: $22,637,330; 
Unrealized Holding Gains: $724,219; 
Unrealized Holding Losses[C]: ($22,569); 
Market Value: $23,338,980.

Maturity[A]: Available-for-Sale: Within 1 year:

Yield at Purchase[B]: 3.65%; 
Face Value: $1,560,000; 
Net Carrying Amount: $1,598,564; 
Unrealized Holding Gains: $10,129; 
Unrealized Holding Losses[C]: ($3,051); 
Market Value: $1,605,642.

Maturity[A]: Available-for-Sale: After 1 year thru 5 years:

Yield at Purchase[B]: 3.72%; 
Face Value: $1,685,000; 
Net Carrying Amount: $1,893,380; 
Unrealized Holding Gains: $31,116; 
Unrealized Holding Losses[C]: ($11,945); 
Market Value: $1,912,551.

Maturity[A]: Available-for-Sale: Treasury Inflation-Indexed After 1 
year thru 5 years:

Yield at Purchase[B]: 3.81%; 
Face Value: $2,270,854; 
Net Carrying Amount: $2,268,756; 
Unrealized Holding Gains: $236,566; 
Unrealized Holding Losses[C]: $0; 
Market Value: $2,505,322.

Maturity[A]: Available-for-Sale: After 5 years thru 10 years:

Yield at Purchase[B]: 3.75%; 
Face Value: $3,004,072; 
Net Carrying Amount: $3,019,976; 
Unrealized Holding Gains: $427,114; 
Unrealized Holding Losses[C]: $0; 
Market Value: $3,447,090.

Maturity[A]: Available-for-Sale: Total:

Face Value: $8,519,926; 
Net Carrying Amount: $8,780,676; 
Unrealized Holding Gains: $704,925; 
Unrealized Holding Losses[C]: ($14,996); 
Market Value: $9,470,605.

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

Face Value: $30,385,033; 
Net Carrying Amount: $31,418,006; 
Unrealized Holding Gains: $1,429,144; 
Unrealized Holding Losses[C]: ($37,565); 
Market Value: $32,809,585.

[A] For purposes of this table, all callable securities are assumed to 
mature on their first call dates. Their yields at purchase are reported 
as their yield to first call date.

[B] For TIIS, the yields in the above table are stated at their real 
yields at purchase, not their effective yields. Effective yields on 
TIIS include a long-term annual inflation assumption as measured by the 
CPI-U. The long-term CPI-U consensus forecast is 2.2%, based on figures 
issued by the Congressional Budget Office and Blue Chip Economic 
Indicators in early 2004.

[C] All unrealized losses occurred during the last 12 months as a 
result of changes in market interest rates. FDIC has the ability and 
intent to hold the related securities until maturity. As a result, all 
losses are considered temporary.

[End of table]

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

Dollars in Thousands:

Maturity[A]: Held-to-Maturity Within 1 year; 
Yield at Purchase[B]: 5.05%; 
Face Value: $3,365,000; 
Net Carrying Amount: $3,449,985; 
Unrealized Holding Gains: $65,110; 
Unrealized Holding Losses[C]: ($275); 
Market Value: $3,514,820.

Maturity[A]: Held-to-Maturity After 1 year thru 5 years; 
Yield at Purchase[B]: 5.66%; 
Face Value: $9,985,000; 
Net Carrying Amount: $10,244,862; 
Unrealized Holding Gains: $830,414; 
Unrealized Holding Losses[C]: $0; 
Market Value: $11,075,276.

Maturity[A]: Held-to-Maturity After 5 years thru 10 years; 
Yield at Purchase[B]: 5.42%; 
Face Value: $1,910,000; 
Net Carrying Amount: $1,976,450; 
Unrealized Holding Gains: $191,954; 
Unrealized Holding Losses[C]: $0; 
Market Value: $2,168,404.

Maturity[A]: Held-to-Maturity Treasury Inflation-Indexed After 5 years 
thru 10 years; 
Yield at Purchase[B]: 3.82%; 
Face Value: $620,450; 
Net Carrying Amount: $621,776; 
Unrealized Holding Gains: $78,947; 
Unrealized Holding Losses[C]: $0; 
Market Value: $700,723.

Maturity[A]: Held-to-Maturity Total; 
Face Value: $15,880,450; 
Net Carrying Amount: $16,293,073; 
Unrealized Holding Gains: $1,166,425; 
Unrealized Holding Losses[C]: ($275); 
Market Value: $17,459,223.

Maturity[A]: Available-for-Sale Within 1 year; 
Yield at Purchase[B]: 2.31%; 
Face Value: $5,810,000; 
Net Carrying Amount: $6,050,064; 
Unrealized Holding Gains: $32,642; 
Unrealized Holding Losses[C]: ($230); 
Market Value: $6,082,476.

Maturity[A]: Available-for-Sale After 1 year thru 5 years; 
Yield at Purchase[B]: 4.68%; 
Face Value: $1,995,000; 
Net Carrying Amount: $2,229,143; 
Unrealized Holding Gains: $114,071; 
Unrealized Holding Losses[C]: $0; 
Market Value: $2,343,214.

Maturity[A]: Available-for-Sale Treasury Inflation-Indexed After 1 
year thru 5 years; 
Yield at Purchase[B]: 3.88%; 
Face Value: $1,225,321; 
Net Carrying Amount: $1,215,319; 
Unrealized Holding Gains: $139,813; 
Unrealized Holding Losses[C]: $0; 
Market Value: $1,355,132.

Maturity[A]: Available-for-Sale After 5 years thru 10 years; 
Yield at Purchase[B]: 3.75%; 
Face Value: $3,887,611; 
Net Carrying Amount: $3,912,950; 
Unrealized Holding Gains: $516,001; 
Unrealized Holding Losses[C]: $0; 
Market Value: $4,428,951.

Maturity[A]: Available-for-Sale Total; 
Face Value: $12,917,932; 
Net Carrying Amount: $13,407,476; 
Unrealized Holding Gains: $802,527; 
Unrealized Holding Losses[C]: ($230); 
Market Value: $14,209,773.

Total Investment in U.S. Treasury Obligations, Net, Total; 
Face Value: $28,798,382; 
Net Carrying Amount: $29,700,549; 
Unrealized Holding Gains: $1,968,952; 
Unrealized Holding Losses[C]: ($505); 
Market Value: $31,668,996.

[A] For purposes of this table, all callable securities are assumed to 
mature on their first call dates. Their yields at purchase are reported 
as their yield to first call date.

[B] For TIIS, the yields in the above table are stated at their real 
yields at purchase, not their effective yields. Effective yields on 
TIIS include a long-term annual inflation assumption as measured by the 
CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures 
issued by the Office of Management and Budget and the Congressional 
Budget Office in early 2003.

[C] All unrealized losses occurred during the last 12 months as a 
result of changes in market interest rates. FDIC has the ability and 
intent to hold the related securities until maturity within the coming 
year. As a result, all losses are considered temporary and will be 
eliminated upon redemption of the securities.

[End of table]

As of December 31, 2004 and 2003, the unamortized premium, net of the 
unamortized discount, was $1 billion and $902 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, 2004, there were 31 active receiverships, including 3 failures in 
the current year, with assets at failure of $151 million and BIF 
outlays of $133 million.

As of December 31, 2004 and 2003, BIF receiverships held assets with a 
book value of $504 million and $756 million, respectively (including 
cash, investments, and miscellaneous receivables of $269 million and 
$436 million at December 31, 2004 and 2003, 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:

Dollars in Thousands.

Receivables from closed banks; 
2004: $4,621,702; 
2003: $4,914,901.

Allowance for losses; 
2004: ($4,246,399); 
2003: ($4,403,812).

Total; 
2004: $375,303; 
2003: $511,089.

[End of table]

As of December 31, 2004, an allowance for loss of $4.2 billion, or 92% 
of the gross receivable, was recorded. Of the remaining 8% of the gross 
receivable, the amount of credit risk is limited since almost two-
thirds of the receivable will be repaid from receivership cash and 
investments.

5. Property and Equipment, Net:

Property and Equipment, Net at December 31:

Dollars in Thousands; 
Land; 
2004: $37,352; 
2003: $37,352.

Buildings (includes construction-in-process); 
2004: $221,494; 
2003: $180,187.

Application software (includes work-in-process); 
2004: $223,149; 
2003: $177,111.

Furniture, fixtures, and equipment; 
2004: $133,556; 
2003: $97,682.

Accumulated depreciation; 
2004: ($258,445); 
2003: ($204,952).

Total; 
2004: $357,106; 
2003: $287,380.

[End of table]

The depreciation expense was $54 million and $55 million for 2004 and 
2003, respectively.

6. Contingent Liabilities for Anticipated Failure of Insured 
Institutions:

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

The contingent liability is derived by applying expected failure rates 
and loss rates to institutions based on supervisory ratings, balance 
sheet characteristics, and projected capital levels. In addition, 
institution-specific analysis is performed on those institutions where 
failure is imminent absent institution management resolution of 
existing problems, or where additional information is available that 
may affect the estimate of losses. As of December 31, 2004 and 2003, 
the contingent liabilities for anticipated failure of insured 
institutions were $8 million and $178 million, 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 results 
from the presence of various high-risk banking business activities that 
are particularly vulnerable to adverse economic and market conditions. 
Due to the uncertainty surrounding such conditions in the future, there 
are institutions other than those with losses included in the 
contingent liability for which the risk of failure is less certain, but 
still considered reasonably possible. As a result of these risks, the 
FDIC believes that it is reasonably possible that the BIF could incur 
additional estimated losses up to approximately $0.3 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 $51.5 
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 $3.8 
billion as of December 31, 2004. There were no contingent liabilities 
from any of the outstanding claims asserted in connection with 
representations and warranties at December 31, 2004 and 2003, 
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 out-standing 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 22 cents and 20 cents per $100 of assessable 
deposits for 2004 and 2003, respectively. During 2004 and 2003, $95 
million and $80 million were recognized as assessment income from BIF-
member institutions, respectively.

On November 15, 2004, 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 2005. 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, 2004, the BIF reserve ratio was 1.32 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, acts solely as a 
collection agent for the FICO. During 2004 and 2003, $631 million and 
$627 million, respectively, were collected from BIF-member institutions 
and remitted to the FICO.

8. Operating Expenses:

Operating expenses were $822 million for 2004, compared to $805 million 
for 2003. The chart below lists the major components of operating 
expenses.

Operating Expenses for the Years Ended December 31:

Dollars in Thousands.

Salaries and benefits; 
2004: $575,100; 
2003: $555,683.

Outside services; 
2004: $84,947; 
2003: $81,851.

Travel; 
2004: $36,089; 
2003: $41,773.

Buildings and leased space; 
2004: $60,693; 
2003: $61,582.

Equipment (not capitalized); 
2004: $11,595; 
2003: $15,111.

Depreciation of property and equipment; 
2004: $54,424; 
2003: $54,947.

Other; 
2004: $20,102; 
2003: $20,689.

Services billed to receiverships; 
2004: ($20,569); 
2003: ($26,140).

Total; 
2004: $822,381; 
2003: $805,496.

[End of table]

9. Provision for Insurance Losses:

Provision for insurance losses was a negative $269 million for 2004 and 
a negative $931 million for 2003. The following chart lists the major 
components of the provision for insurance losses.

Provision for Insurance Losses for the Years Ended December 31:

Dollars in Thousands.

Valuation Adjustments: Closed banks; 
2004: ($82,758); 
2003: ($108,309).

Valuation Adjustments: Open bank assistance and other assets; 
2004: ($13,260); 
2003: ($162).

Total Valuation Adjustments; 
2004: ($96,018); 
2003: ($108,471).

Contingent Liabilities Adjustments: Anticipated failure of insured 
institutions; 
2004: ($170,005); 
2003: ($829,831).

Contingent Liabilities Adjustments: Litigation losses; 
2004: ($3,998); 
2003: $345.

Contingent Liabilities Adjustments: Other contingencies; 
2004: $653; 
2003: $6,793.

Total Contingent Liabilities Adjustments; 
2004: ($173,350); 
2003: ($822,693).

Total; 
2004: ($269,368); 
2003: ($931,164).

[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.

In October 2004, the FDIC announced a voluntary employee buyout program 
to a majority of its employees in an effort to further reduce 
identified staffing excesses. The offer period for the buyout program 
is from November 1, 2004 to May 2, 2005. Termination benefits include 
compensation of fifty percent of the current salary for voluntary 
departures. The reasonably estimated total cost associated with 
employees expected to accept the buyout offer is $23.7 million, with 
BIF's pro rata share totaling $20.6 million. During 2004, 129 employees 
left the FDIC. The total cost of this buyout was $6.9 million for 2004, 
with BIF's pro rata share totaling $6 million, which is included in the 
"Operating expenses" and the "Accounts payable and other liabilities" 
line items.

In the event the FDIC does not meet its staffing reduction goal through 
the voluntary employee buyout program, the FDIC plans to conduct a 
reduction-in-force (RIF). Because of uncertainties regarding the number 
of employees that will be subject to the RIF, the FDIC is unable to 
reasonably estimate the related costs.

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

Dollars in Thousands.

Civil Service Retirement System; 
2004: $7,958; 
2003: $7,740.

Federal Employees Retirement System (Basic Benefit); 
2004: $33,638; 
2003: $29,477.

FDIC Savings Plan; 
2004: $19,604; 
2003: $17,397.

Federal Thrift Savings Plan; 
2004: $13,715; 
2003: $12,066.

Separation Incentive Payment; 
2004: $6,082; 
2003: $91.

Total; 
2004: $80,997; 
2003: $66,771.

[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 direct-pay 
plans. Dental coverage is provided to all retirees eligible for an 
immediate annuity.

As of January 1, 2003, the FDIC ceased funding for postretirement 
benefits and eliminated the separate entity in order to simplify the 
investment, accounting, and reporting for the obligation. The separate 
entity had been established to restrict the funds and to provide for 
the accounting and administration of these benefits. As a result, the 
BIF received $89 million as its proportionate share of the plan assets 
and recognized a liability of $90 million in the "Accounts payable and 
other liabilities" line item on its Balance Sheet.

At December 31, 2004 and 2003, the BIF's net postretirement benefit 
liability recognized in the "Accounts payable and other liabilities" 
line item in the Balance Sheet was $104 million and $98 million, 
respectively. In addition, the BIF's expense for these benefits in 2004 
and 2003 was $9.3 million and $11 million, respectively, which is 
included in the current and prior year's operating expenses. Key 
actuarial assumptions used in the accounting for the plan include the 
discount rate, the rate of compensation increase, and the dental 
coverage trend rate.

11. Commitments and Off-Balance-Sheet Exposure:

Commitments:

Leased Space:

The BIF's allocated share of the FDIC's lease commitments totals $105 
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 $36 million and $38 million for the 
years ended December 31, 2004 and 2003, respectively.

Leased Space Commitments:

Dollars in Thousands:

2005: $36,121; 
2006: $25,948; 
2007: $16,814; 
2008: $11,487; 
2009: $10,081; 
2010/Thereafter: $4,424.

[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. Currently, there 
is one limited guarantee deal remaining with a term of approximately 20 
years. This deal will be evaluated for possible termination in 2005. As 
of December 31, 2004 and 2003, the maximum off-balance-sheet exposure 
was $37 million and $81 million, respectively.

Deposit Insurance:

As of September 30, 2004, deposits insured by the BIF totaled 
approximately $2.6 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.

[End of section]

Savings Association Insurance Fund's Financial Statements

Balance Sheets:

Savings Association Insurance Fund:

Federal Deposit Insurance Corporation:

Savings Association Insurance Fund Balance Sheet at December 31:

Dollars in Thousands.

Assets: Cash and cash equivalents; 
2004: $644,346; 
2003: $827,141.

Assets: Cash and other assets: Restricted for SAIF-member exit fees 
(Note 3)(Includes cash and cash equivalents of $56.5 million and $231.9 
million at December 31, 2004 and 2003, respectively); 
2004: $328,394; 
2003: $319,286.

Assets: Investment in U. S. Treasury obligations, net (Note 4): Held-
to-maturity securities; 
2004: $8,835,964; 
2003: $6,823,709.

Assets: Investment in U. S. Treasury obligations, net (Note 4): 
Available-for-sale securities; 
2004: $2,720,315; 
2003: $4,152,048.

Assets: Interest receivable on investments and other assets, net; 
2004: $200,204; 
2003: $188,189.

Assets: Receivables from thrift resolutions, net (Note 5); 
2004: $346,923; 
2003: $273,242.

Total Assets; 
2004: $13,076,146; 
2003: $12,583,615.

Liabilities: Accounts payable and other liabilities; 
2004: $25,568; 
2003: $20,540.

Liabilities: Contingent liabilities for (Note 6): Anticipated failure 
of insured institutions; 
2004: $1,957; 
2003: $3,192.

Liabilities: Contingent liabilities for (Note 6): Litigation losses; 
2004: $39; 
2003: $532.

Liabilities: SAIF-member exit fees and investment proceeds held in 
escrow (Note 3); 
2004: $328,394; 
2003: $319,286.

Total Liabilities; 
2004: $355,958; 
2003: $343,550.

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

Fund Balance: Accumulated net income; 
2004: $12,482,227; 
2003: $11,965,776.

Fund Balance: Unrealized gain on available-for-sale securities, net 
(Note 4); 
2004: $237,961; 
2003: $274,289.

Total Fund Balance; 
2004: $12,720,188; 
2003: $12,240,065.

Total Liabilities and Fund Balance; 
2004: $13,076,146; 
2003: $12,583,615.

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

[End of table]

Statements of Income and Fund Balance:

Federal Deposit Insurance Corporation:

Savings Association Insurance Fund Statement of Income and Fund Balance 
for the Years Ended December 31:

Dollars in Thousands.

Revenue: Interest on U.S. Treasury obligations; 
2004: $555,592; 
2003: $532,474.

Revenue: Assessments (Note 7); 
2004: $8,891; 
2003: $14,594.

Other revenue; 
2004: $292; 
2003: $192.

Total Revenue; 
2004: $564,775; 
2003: $547,260.

Expenses and Losses: Operating expenses (Note 8); 
2004: $120,282; 
2003: $129,584.

Expenses and Losses: Provision for insurance losses (Note 9); 
2004: ($72,162); 
2003: ($82,489).

Expenses and Losses: Insurance and other expenses; 
2004: $204; 
2003: $105.

Total Expenses and Losses; 
2004: $48,324; 
2003: $47,200.

Net Income; 
2004: $516,451; 
2003: $500,060.

Net Income: Unrealized loss on available-for-sale securities, net; 
2004: ($36,328); 
2003: ($6,733).

Comprehensive Income; 
2004: $480,123; 
2003: $493,327.

Fund Balance-Beginning; 
2004: $12,240,065; 
2003: $11,746,738.

Fund Balance-Ending; 
2004: $12,720,188; 
2003: $12,240,065.

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

[End of table]

Statements of Cash Flows:

Savings Association Insurance Fund:

Federal Deposit Insurance Corporation:

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

Dollars in Thousands.

Operating Activities: Net Income:

2004: $516,451; 
2003: $500,060.

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Amortization of U.S. 
Treasury obligations; 
2004: $262,317; 
2003: $155,992.

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Treasury inflation-
indexed securities (TITS) inflation adjustment; 
2004: ($61,431); 
2003: ($38,943).

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Provision for losses; 
2004: ($72,162); 
2003: ($82,489).

Operating Activities: Change in Operating Assets and Liabilities: 
Decrease in unamortized premium and discount of U.S. Treasury 
Obligations (restricted); 
2004: $2,443; 
2003: $931.

Operating Activities: Change in Operating Assets and Liabilities: 
(Increase) in entrance and exit fees receivable, including interest 
receivable on investments and other assets; 
2004: ($16,288); 
2003: ($32,810).

Operating Activities: Change in Operating Assets and Liabilities: 
(Increase)/Decrease in receivables from thrift resolutions; 
2004: ($2,635); 
2003: $8,699.

Operating Activities: Change in Operating Assets and Liabilities: 
Increase in accounts payable and other liabilities; 
2004: $5,028; 
2003: $13,440.

Operating Activities: Change in Operating Assets and Liabilities: 
(Decrease) in contingent liabilities for litigation losses; 
2004: $0; 
2003: ($209).

Operating Activities: Change in Operating Assets and Liabilities: 
Increase in exit fees and investment proceeds held in escrow; 
2004: $9,107; 
2003: $7,422.

Net Cash Provided by Operating Activities; 
2004: $642,830; 
2003: $532,093.

Investing Activities: Provided by: Maturity of U.S. Treasury 
obligations, held-to-maturity; 
2004: $1,690,000; 
2003: $1,170,000.

Investing Activities: Provided by: Maturity of U.S. Treasury 
obligations, available-for-sale; 
2004: $1,360,000; 
2003: $575,000.

Investing Activities: Used by: Purchase of U.S. Treasury obligations, 
held-to-maturity; 
2004: ($4,051,084); 
2003: ($2,305,056).

Investing Activities: Used by: Purchase of U.S. Treasury obligations, 
available-for-sale; 
2004: $0; 
2003: ($1,008,066).

Net Cash Used by Investing Activities; 
2004: ($7,001,084); 
2003: ($7,568,122).

Net Decrease in Cash and Cash Equivalents; 
2004: ($358,254); 
2003: ($7,036,029).

Cash and Cash Equivalents-Beginning; 
2004: $1,059,052; 
2003: $2,095,081.

Unrestricted Cash and Cash Equivalents-Ending; 
2004: $644,346; 
2003: $827,141.

Restricted Cash and Cash Equivalents-Ending; 
2004: $56,452; 
2003: $231,911.

Cash and Cash Equivalents-Ending; 
2004: $700,798; 
2003: $1,059,052.

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

[End of table]

1. Legislation and Operations of the Savings Association Insurance 
Fund:

Overview:

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

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

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

Operations of the SAIF:

The primary purpose of the SAIF is to: 1) insure the deposits and 
protect the depositors of SAIF-insured institutions and 2) resolve 
SAIF-insured failed institutions upon appointment of FDIC as receiver 
in a manner that will result in the least possible cost to the SAIF.

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 MOIL for the SAIF 
was $21.0 billion and $20.3 billion as of December 31, 2004 and 2003, 
respectively.

Receivership Operations:

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

Recent Legislative Initiatives:

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 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 again considered deposit insurance 
reform legislation; however, Congress adjourned without enacting that 
legislation. Legislation similar to the deposit insurance reform 
proposals of the 107th and 108th Congress may be introduced in the 
109th Congress, which begins in January, 2005. 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 Statement 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.

Disclosure about Recent Accounting Pronouncements:

Recent accounting pronouncements have been adopted or deemed to be not 
applicable to the financial statements as presented.

Related Parties:

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

Reclassifications:

Reclassifications have been made in the 2003 financial statements to 
conform to the presentation used in 2004.

In 2004, the SAIF changed the format of its Statement of Cash Flows 
from the direct method to the indirect method for purposes of reporting 
cash flows from operating activities. Accordingly, the Statement of 
Cash Flows for 2003 contains certain reclassifications to conform to 
the SAIF's current financial statement format. For 2003 and 2004, the 
reconciliation of net income to net cash provided by operating 
activities is included in the Statement of Cash Flows. Consequently, 
information pertaining to gross amounts of receipts and payments, not 
required for presentation of the indirect method, is available within 
other footnotes to these financial statements.

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 2004 and 2003 that resulted in an 
entrance/exit fee to the SAIF.

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

Dollars in Thousands.

Cash and cash equivalents; 
2004: $56,452; 
2003: $231,911.

Investment in U.S. Treasury obligations, net; 
2004: $267,375; 
2003: $86,471.

Interest receivable on U.S. Treasury obligations; 
2004: $4,567; 
2003: $904.

Total; 
2004: $328,394; 
2003: $319,286.

[End of table]

U.S. Treasury Obligations at December 31, 2004 (Restricted for SAIF-
Member Exit Fees):

Dollars in Thousands:

Maturity: Held-to-Maturity: Within 1 year; 
Yield at Purchase: 2.36%; 
Face Value: $70,000; 
Net Carrying Amount: $73,879; 
Unrealized Holding Gains: $0; 
Unrealized Holding Losses*: ($162); 
Market Value: $.$73,717.

Maturity: Held-to-Maturity: After 1 year thru 5 years; 
Yield at Purchase: 4.40%; 
Face Value: $104,000; 
Net Carrying Amount: $115,725; 
Unrealized Holding Gains: $2,852; 
Unrealized Holding Losses*: ($60); 
Market Value: $.$118,517.

Maturity: Held-to-Maturity: After 5 years thru 10 years; 
Yield at Purchase: 4.67%; 
Face Value: $80,000; 
Net Carrying Amount: $77,771; 
Unrealized Holding Gains: $3,184; 
Unrealized Holding Losses*: $0; 
Market Value: $.$80,955.

Total; 
Face Value: $254,000; 
Net Carrying Amount: $267,375; 
Unrealized Holding Gains: $6,036; 
Unrealized Holding Losses*: ($222); 
Market Value: $.$273,189.

[*] All unrealized losses occurred during the last 12 months as a 
result of changes in market interest rates. FDIC has the ability and 
intent to hold the related securities until maturity. As a result, all 
losses are considered temporary.

[End of table]

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

Dollars in Thousands:

Maturity: Held-to-Maturity: Within 1 year; 
Yield at Purchase: 5.79%; 
Face Value: $20,000; 
Net Carrying Amount: $20,267; 
Unrealized Holding Gains: $683; 
Unrealized Holding Losses: $0; 
Market Value: $20,950.

Maturity: Held-to-Maturity: After 1 year thru 5 years; 
Yield at Purchase: 5.20%; 
Face Value: $64,000; 
Net Carrying Amount: $66,204; 
Unrealized Holding Gains: $5,349; 
Unrealized Holding Losses: $0; 
Market Value: $71,553.

Maturity: Held-to-Maturity: Total; 
Face Value: $84,000; 
Net Carrying Amount: $86,471; 
Unrealized Holding Gains: $6,032; 
Unrealized Holding Losses: $0; 
Market Value: $92,503.

[End of table]

As of December 31, 2004 and 2003, the unamortized premium, net of the 
unamortized discount, was $13.4 million and $2.5 million, respectively.

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

As of December 31, 2004 and 2003, the book value of investments in:

U.S. Treasury obligations, net, was $11.6 billion and $11.0 billion, 
respectively. As of December 31, 2004, the SAIF held $2.2 billion of 
Treasury inflation-indexed securities (THIS). These securities are 
indexed to increases or decreases in the Consumer Price Index for All 
Urban Consumers (CPI-U). Additionally, the SAIF held $2.4 billion of 
callable U.S. Treasury bonds at December 31, 2004. 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, 2004 (Unrestricted):

Dollars in Thousands:

Maturity: Held-to-Maturity[A]: Within 1 year; 
Yield at Purchase[B] 3.13%; 
Face Value: $1,860,000; 
Net Carrying Amount: $1,935,365; 
Unrealized Holding Gains: $9,296; 
Unrealized Holding Losses[C]: ($4,608); 
Market Value: $1,940,053.

Maturity: Held-to-Maturity[A]: After 1 year thru 5 years; 
Yield at Purchase[B}: $4.93%; 
Face Value: $4,540,000; 
Net Carrying Amount: $4,755,416; 
Unrealized Holding Gains: $200,907; 
Unrealized Holding Losses[C]: ($6,373); 
Market Value: $4,949,950.

Maturity: Held-to-Maturity[A]: After 5 years thru 10 years; 
Yield at Purchase[B}: $4.97%; 
Face Value: $1,900,000; 
Net Carrying Amount: $1,910,232; 
Unrealized Holding Gains: $107,408; 
Unrealized Holding Losses[C]: ($401); 
Market Value: $2,017,239.

Maturity: Held-to-Maturity[A]: Treasury Inflation-Indexed After 1 year 
thru 5 years; 
Yield at Purchase[B}: $3.86%; 
Face Value: $236,288; 
Net Carrying Amount: $234,951; 
Unrealized Holding Gains: $22,428; 
Unrealized Holding Losses[C]: $0; 
Market Value: $257,379.

Maturity: Held-to-Maturity[A]: Total; 
Face Value: $8,536,288; 
Net Carrying Amount: $8,835,964; 
Unrealized Holding Gains: $340,039; 
Unrealized Holding Losses[C]: ($11,382); 
Market Value: $9,164,621.

Maturity[A]: Available-for-Sale: Within 1 year; 
Yield at Purchase[B}: $5.00%; 
Face Value: $270,000; 
Net Carrying Amount: $275,656; 
Unrealized Holding Gains: $1,831; 
Unrealized Holding Losses[C]: $0; 
Market Value: $277,487.

Maturity[A]: Available-for-Sale: After 1 year thru 5 years; 
Yield at Purchase[B}: $4.10%; 
Face Value: $385,000; 
Net Carrying Amount: $443,689; 
Unrealized Holding Gains: $10,916; 
Unrealized Holding Losses[C]: ($1,034); 
Market Value: $453,571.

Maturity[A]: Available-for-Sale: Treasury Inflation-Indexed After 1 
year thru 5 years; 
Yield at Purchase[B}: $4.07%; 
Face Value: $859,729; 
Net Carrying Amount: $853,047; 
Unrealized Holding Gains: $101,420; 
Unrealized Holding Losses[C]: $0; 
Market Value: $954,467.

Maturity[A]: Available-for-Sale: After 5 years thru 10 years; 
Yield at Purchase[B}: $3.63%; 
Face Value: $904,362; 
Net Carrying Amount: $909,962; 
Unrealized Holding Gains: $124,828; 
Unrealized Holding Losses[C]: $0; 
Market Value: $1,034,790.

Maturity[A]: Available-for-Sale: Total; 
Face Value: $2,419,091; 
Net Carrying Amount: $2,482,354; 
Unrealized Holding Gains: $238,995; 
Unrealized Holding Losses[C]: ($1,034); 
Market Value: $2,720,315.

Total Investment in U.S. Treasury Obligations, Net.

Face Value: $10,955,379; 
Net Carrying Amount: $11,318,318; 
Unrealized Holding Gains: $579,034; 
Unrealized Holding Losses[C]: ($12,416); 
Market Value: $11,884,936.

[A] For purposes of this table, all callable securities are assumed to 
mature on their first call dates. Their yields at purchase are reported 
as their yield to first call date.

[B] For TIIS, the yields in the above table are stated at their real 
yields at purchase, not their effective yields. Effective yields on 
TIIS include a long-term annual inflation assumption as measured by the 
CPI-U. The long-term CPI-U consensus forecast is 2.2%, based on figures 
issued by the Congressional Budget Office and Blue Chip Economic 
Indicators in early 2004.

[C] All unrealized losses occurred during the last 12 months as a 
result of changes in market interest rates. FDIC has the ability and 
intent to hold the related securities until maturity. As a result, all 
losses are considered temporary.

[End of table]

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

Dollars in Thousands:

Maturity[A]: Held-to-Maturity: Within 1 year; 
Yield at Purchase[B] 2.86%; 
Face Value: $1,670,000; 
Net Carrying Amount: $1,742,136; 
Unrealized Holding Gains: $12,009; 
Unrealized Holding Losses[C]: (122); 
Market Value: $1,754,023.

Maturity[A]: Held-to-Maturity: After 1 year thru 5 years; 
Yield at Purchase[B}: $5.59%; 
Face Value: $3,185,000; 
Net Carrying Amount: $3,250,611; 
Unrealized Holding Gains: Unrealized Holding Gains: $284,578; 
Unrealized Holding Losses[C]: $0; 
Market Value: $3,535,189.

Maturity[A]: Held-to-Maturity: After 5 years thru 10 years; 
Yield at Purchase[B}: $5.54%; 
Face Value: $1,575,000; 
Net Carrying Amount: $1,603,674; 
Unrealized Holding Gains: Unrealized Holding Gains: $169,813; 
Unrealized Holding Losses[C]: $0; 
Market Value: $1,773,487.

Maturity[A]: Held-to-Maturity: Treasury Inflation-Indexed After 1 year 
thru 5 years; 
Yield at Purchase[B}: $3.86%; 
Face Value: $229,032; 
Net Carrying Amount: $227,288; 
Unrealized Holding Gains: Unrealized Holding Gains: $26,008; 
Unrealized Holding Losses[C]: $0; 
Market Value: $253,296.

Maturity[A]: Held-to-Maturity: Total; 
Face Value: $6,659,032; 
Net Carrying Amount: $6,823,709; 
Unrealized Holding Gains: Unrealized Holding Gains: $492,408; 
Unrealized Holding Losses[C]: ($122); 
Market Value: $7,315,995.

Maturity[A]: Available-for-Sale: Within 1 year; 
Yield at Purchase[B}: $3.15%; 
Face Value: $1,360,000; 
Net Carrying Amount: $1,413,730; 
Unrealized Holding Gains: Unrealized Holding Gains: $16,265; 
Unrealized Holding Losses[C]: ($99); 
Market Value: $1,429,896.

Maturity[A]: Available-for-Sale: After 1 year thru 5 years; 
Yield at Purchase[B}: $4.43%; 
Face Value: $655,000; 
Net Carrying Amount: $756,058; 
Unrealized Holding Gains: Unrealized Holding Gains: $34,530; 
Unrealized Holding Losses[C]: $0; 
Market Value: $790,588.

Maturity[A]: Available-for-Sale: Treasury Inflation-Indexed After 1 
year thru 5 years; 
Yield at Purchase[B}: $4.11%; 
Face Value: $280,564; 
Net Carrying Amount: $276,009; 
Unrealized Holding Gains: Unrealized Holding Gains: $34,278; 
Unrealized Holding Losses[C]: $0; 
Market Value: $310,287.

Maturity[A]: Available-for-Sale: After 5 years thru 10 years; 
Yield at Purchase[B}: $3.79%; 
Face Value: $1,429,352; 
Net Carrying Amount: $1,431,962; 
Unrealized Holding Gains: Unrealized Holding Gains: $189,315; 
Unrealized Holding Losses[C]: $0; 
Market Value: $1,621,277.

Maturity[A]: Available-for-Sale: Total; 
Face Value: $3,724,916; 
Net Carrying Amount: $3,877,759; 
Unrealized Holding Gains: Unrealized Holding Gains: $274,388; 
Unrealized Holding Losses[C]: ($99); 
Market Value: $4,152,048.

Total Investment in U.S. Treasury Obligations, Net;.

Face Value: Total $10,383,948; 
Net Carrying Amount: $10,701,468; 
Unrealized Holding Gains: Unrealized Holding Gains: $766,796; 
Unrealized Holding Losses[C]: ($221); 
Market Value: $11,468,043.

[A] For purposes of this table, all callable securities are assumed to 
mature on their first call dates. Their yields at purchase are reported 
as their yield to first call date.

[B] For TIIS, the yields in the above table are stated at their real 
yields at purchase, not their effective yields. Effective yields on 
TIIS include a long-term annual inflation assumption as measured by the 
CPI-U. The long-term CPI-U consensus forecast is 2.4%, based on figures 
issued by the Office of Management and Budget and the Congressional 
Budget Office in early 2003.

[C] All unrealized losses occurred during the last 12 months as a 
result of changes in market interest rates. FDIC has the ability and 
intent to hold the related securities until maturity within the coming 
year. As a result, all losses are considered temporary and will be 
eliminated upon redemption of the securities.

As of December 31, 2004 and 2003, the unamortized premium, net of the 
unamortized discount, was $362.9 million and $317.5 million, 
respectively.

[End of table]

5. Receivables From Thrift Resolutions, Net:

The receivables from thrift resolutions include payments made by the 
SAIF to cover obligations to insured depositors, advances to 
receiverships for working capital, and administrative expenses paid on 
behalf of receiverships. Any related allowance for loss represents the 
difference between the funds advanced and/or obligations incurred and 
the expected repayment. Assets held by SAIF receiverships are the main 
source of repayment of the SAIF's receivables from closed thrifts. As 
of December 31, 2004, there were 3 active receiverships, including 1 
thrift failure in the current year, with assets at failure of $15.3 
million and SAIF outlays of $5.6 million.

As of December 31, 2004 and 2003, SAIF receiverships held assets with a 
book value of $483 million and $449 million, respectively (including 
cash, investments, and miscellaneous receivables of $182 million and 
$117 million at December 31, 2004 and 2003, 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 
SAIF's actual recoveries to vary from the level currently estimated.

Receivables From Thrift Resolutions, Net at December 31:

Dollars in Thousands.

Receivables from closed thrifts; 
2004: $710,217; 
2003: $709,389.

Allowance for losses; 
2004: ($363,294); 
2003: ($436,147).

Total; 
2004: $346,923; 
2003: $273,242.

[End of table]

At December 31, 2004, about 99% of the SAIF's $347 million net 
receivable will be repaid from assets related to the Superior 
receivership (which failed in July 2001). These assets primarily 
consist of cash, investments, and a promissory note arising from a 
settlement with the owners of the failed institution. The credit risk 
related to the promissory note is limited since half of the outstanding 
note is secured by a letter of credit and the remaining half is subject 
to the creditworthiness of the payor of the note. Annual monitoring of 
the credit-worthiness of the payor is performed and currently indicates 
a low risk of non-performance.

6. Contingent Liabilities for Anticipated Failure of Insured 
Institutions:

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

The contingent liability is derived by applying expected failure rates 
and loss rates to institutions based on supervisory ratings, balance 
sheet characteristics, and projected capital levels. In addition, 
institution-specific analysis is performed on those institutions where 
failure is imminent absent institution management resolution of 
existing problems, or where additional information is available that 
may affect the estimate of losses. As of December 31, 2004 and 2003, 
the contingent liabilities for anticipated failure of insured 
institutions were $2 million and $3 million, 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 SAIF should potentially 
vulnerable financial institutions ultimately fail. This risk results 
from the presence of various high-risk banking business activities that 
are particularly vulnerable to adverse economic and market conditions. 
Due to the uncertainty surrounding such conditions in the future, there 
are institutions other than those with losses included in the 
contingent liability for which the risk of failure is less certain, but 
still considered reasonably possible. As a result of these risks, the 
FDIC believes that it is reasonably possible that the SAIF could incur 
additional estimated losses up to approximately $0.1 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 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 $206.5 thousand 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 delinquency status 
when sold, and the conformity of the loans with characteristics of the 
pool in which they were sold. The total amount of loans sold subject to 
unexpired representations and warranties, and guarantees was $4.7 
billion as of December 31, 2004. 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 8 cents and 14 cents per $100 of assessable 
deposits for 2004 and 2003, respectively. During 2004 and 2003, $9 
million and $15 million were recognized as assessment income from SAIF-
member institutions, respectively. On November 15, 2004, 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 2005. 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, 2004, the SAIF reserve ratio was 1.33 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 Savings 
Association Insurance Fund the regular assessments. The FDIC, as 
administrator of the SAIF, acts solely as a collection agent for the 
FICO. During 2004 and 2003, $161 million and $162 million, 
respectively, were collected from SAIF-member institutions and remitted 
to the FICO.

8. Operating Expenses:

Operating expenses totaled $120 million for 2004, compared to $130 
million for 2003. The chart below lists the major components of 
operating expenses.

Operating Expenses for the Years Ended December 31:

Dollars in Thousands.

Salaries and benefits; 
2004: $81,649; 
2003: $87,963.

Outside services; 
2004: $14,457; 
2003: $15,038.

Travel; 
2004: $4,357; 
2003: $5,801.

Buildings and leased space; 
2004: $10,662; 
2003: $12,132.

Equipment; 
2004: $9,649; 
2003: $9,374.

Other; 
2004: $2,920; 
2003: $3,189.

Services billed to receiverships; 
2004: ($3,412); 
2003: ($3,913).

Total; 
2004: $120,282; 
2003: $129,584.

[End of table]

9. Provision for Insurance Losses:

Provision for insurance losses was a negative $72 million for 2004 and 
a negative $82 million for 2003. The following chart lists the major 
components of the provision for insurance losses.

Provision for Insurance Losses for the Years Ended December 31:

Dollars in Thousands.

Valuation Adjustments: Closed thrifts; 
2004: ($70,435); 
2003: $4,684.

Total Valuation Adjustments; 
2004: ($70,435); 
2003: $4,684.

Contingent Liabilities Adjustments: Anticipated failure of insured 
institutions; 
2004: ($1,235); 
2003: ($87,301).

Contingent Liabilities Adjustments: Litigation losses; 
2004: ($492); 
2003: $128.

Total Contingent Liabilities Adjustments; 
2004: ($7,727); 
2003: ($87,173).

Total; 
2004: ($72,162); 
2003: ($82,489).

[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.

In October 2004, the FDIC announced a voluntary employee buyout program 
to a majority of its employees in an effort to further reduce 
identified staffing excesses. The offer period for the buyout program 
is from November 1, 2004 to May 2, 2005. Termination benefits include 
compensation of fifty percent of the current salary for voluntary 
departures. The reasonably estimated total cost associated with 
employees expected to accept the buyout offer is $23.7 million, with 
SAIF's pro rata share totaling $3.1 million. During 2004, 129 employees 
left the FDIC. The total cost of this buyout was $6.9 million for 2004, 
with SAIF's pro rata share totaling $903 thousand, which is included in 
the "Operating expenses" and the "Accounts payable and other 
liabilities" line items.

In the event the FDIC does not meet its staffing reduction goal through 
the voluntary employee buyout program, the FDIC plans to conduct a 
reduction-in-force (RIF). Because of uncertainties regarding the number 
of employees that will be subject to the RIF, the FDIC is unable to 
reasonably estimate the related costs.

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

Dollars in Thousands.

Civil Service Retirement System; 
2004: $1,182; 
2003: $1,258.

Federal Employees Retirement System (Basic Benefit); 
2004: $4,793; 
2003: $4,682.

FDIC Savings Plan; 
2004: $2,813; 
2003: $2,788.

Federal Thrift Savings Plan; 
2004: $1,934; 
2003: $1,900.

Separation Incentive Payment; 
2004: $909; 
2003: $14.

Total; 
2004: $11,631; 
2003: $10,642.

[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 direct-pay plans. Dental coverage is provided to 
all retirees eligible for an immediate annuity.

As of January 1, 2003, the FDIC ceased funding for postretirement 
benefits and eliminated the separate entity in order to simplify the 
investment, accounting, and reporting for the obligation. The separate 
entity had been established to restrict the funds and to provide for 
the accounting and administration of these benefits. As a result, the 
SAIF received $14 million as its proportionate share of the plan assets 
and recognized a liability of $14 million in the "Accounts payable and 
other liabilities" line item on its Balance Sheet.

At December 31, 2004 and 2003, the SAIF's net postretirement benefit 
liability recognized in the "Accounts payable and other liabilities" 
line item in the Balance Sheet was $15.7 million and $15 million, 
respectively. In addition, the SAIF's expense for these benefits in 
2004 and 2003 was $1.4 million and $1 million, respectively, which is 
included in the current and prior year's operating expenses. Key 
actuarial assumptions used in the accounting for the plan include the 
discount rate, the rate of compensation increase, and the dental 
coverage trend rate.

11. Commitments and Off-Balance-Sheet Exposure:

Commitments:

Leased Space:

The SAIF's allocated share of the FDIC's lease commitments totals $14.4 
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 $6.9 million and $7.9 million for 
the years ended December 31, 2004 and 2003, respectively.

Leased Space Commitments:

Dollars in Thousands:

2005: $4,963; 
2006: $3,559; 
2007: $2,308; 
2008: $1,579; 
2009: $1,380; 
2010/Thereafter: $603.

[End of table]

Off-Balance-Sheet Exposure:

Deposit Insurance:

As of September 30, 2004, deposits insured by the SAIF totaled 
approximately $944 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.

[End of section]

FSLIC Resolution Fund's Financial Statements: 

Balance Sheet:

FSLIC Resolution Fund:

Federal Deposit Insurance Corporation:

FSLIC Resolution Fund Balance Sheet at December 31:

Dollars in Thousands.

Assets: Cash and cash equivalents; 
2004: $3,501,387; 
2003: $3,278,532.

Assets: Receivables from thrift resolutions and other assets, net (Note 
3); 
2004: $82,275; 
2003: $198,432.

Total Assets; 
2004: $3,583,662; 
2003: $3,476,964.

Liabilities: Accounts payable and other liabilities; 
2004: $5,606; 
2003: $19,381.

Liabilities: Contingent liabilities for litigation losses and other 
(Note 4); 
2004: $410; 
2003: $1,169.

Total Liabilities; 
2004: $6,016; 
2003: $20,550.

Resolution Equity (Note 6): Contributed capital; 
2004: $126,382,877; 
2003: $126,377,851.

Resolution Equity (Note 6): Accumulated deficit; 
2004: ($122,805,158); 
2003: ($122,962,936).

Resolution Equity (Note 6): Unrealized (loss)/gain on available-for-
sale securities, net; 
2004: ($73); 
2003: $41,499.

Resolution Equity (Note 6): Accumulated deficit, net; 
2004: ($122,805,231); 
2003: ($122,921,437).

Total Resolution Equity; 
2004: $3,577,646; 
2003: $3,456,414.

Total Liabilities and Resolution Equity; 
2004: $3,583,662; 
2003: $3,476,964.

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

[End of table]

Statements of Income and Accumulated Deficit:

Federal Deposit Insurance Corporation:

FSLIC Resolution Fund Statement of Income and Accumulated Deficit for 
the Years Ended December 31:

Dollars in Thousands.

Revenue: Interest on U.S. Treasury obligations; 
2004: $40,076; 
2003: $32,902.

Revenue: Realized gain on investment in securitization-related assets 
acquired from receiverships (Note 3); 
2004: $66,708; 
2003: $756.

Other revenue; 
2004: $21,114; 
2003: $16,849.

Total Revenue; 
2004: $127,898; 
2003: $50,507.

Expenses and Losses: Operating expenses; 
2004: $22,932; 
2003: $27,828.

Expenses and Losses: Provision for losses (Note 5); 
2004: ($6,911); 
2003: ($33,306).

Expenses and Losses: Expenses for goodwill settlements and litigation 
(Note 4); 
2004: $31,632; 
2003: $15,324.

Expenses and Losses: Recovery of tax benefits; 
2004: ($82,937); 
2003: ($19,609).

Other expenses; 
2004: $5,404; 
2003: $7,933.

Total Expenses and Losses; 
2004: ($29,880); 
2003: ($1,830).

Net Income; 
2004: $157,778; 
2003: $52,337.

Net income: Unrealized loss on available-for-sale securities, net (Note 
3); 
2004: ($41,572); 
2003: ($1,258).

Comprehensive Income; 
2004: $116,206; 
2003: $51,079.

Accumulated Deficit - Beginning; 
2004: ($122,921,437); 
2003: ($122,972,516).

Accumulated Deficit-Ending; 
2004: ($122,805,231); 
2003: ($122,921,437).

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

[End of table]

Statements of Cash Flows:

FSLIC Resolution Fund:

Federal Deposit Insurance Corporation:

FSLIC Resolution Fund Statement of Cash Flows for the Years Ended 
December 31:

Dollars in Thousands.

Operating Activities: Net Income:

2004: $157,778; 
2003: $52,337.

Operating Activities: Net Income: Adjustments to reconcile net income 
to net cash provided by operating activities: Provision for losses; 
2004: ($6,911); 
2003: ($33,306).

Operating Activities: Change in Assets and Liabilities: (Increase)/
Decrease in receivables from thrift resolutions and other assets; 
2004: ($35,238); 
2003: $80,339.

Operating Activities: Change in Assets and Liabilities: (Decrease)/
Increase in accounts payable and other liabilities; 
2004: ($13,775); 
2003: $4,973.

Net Cash Provided by Operating Activities; 
2004: $101,854; 
2003: $104,343.

Investing Activities: Investment in securitization-related assets 
acquired from receiverships; 
2004: $115,975; 
2003: $5,829.

Net Cash Provided by Investing Activities; 
2004: $115,975; 
2003: $5,829.

Financing Activities: Provided by: U.S. Treasury payments for goodwill 
settlements; 
2004: $5,026; 
2003: $30.

Financing Activities: Used by: Payments to Resolution Funding 
Corporation (Note 6); 
2004: $0; 
2003: ($450,000).

Net Cash Provided/(Used) by Financing Activities; 
2004: $5,026; 
2003: ($449,970).

Net Increase/(Decrease) in Cash and Cash Equivalents; 
2004: $222,855; 
2003: ($339,798).

Cash and Cash Equivalents - Beginning; 
2004: $3,278,532; 
2003: $3,618,330.

Cash and Cash Equivalents - Ending; 
2004: $3,501,387; 
2003: $3,278,532.

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

[End of table]

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.

FSLIC Resolution Fund:

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. The 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 the aforementioned tax-sharing benefits 
ranging from $170 million to $672 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 consists of credit enhancement reserves. The credit 
enhancement reserves, which resulted from swap transactions, are valued 
by performing projected cash flow analyses using market-based 
assumptions (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.

Disclosure about Recent Accounting Pronouncements:

Recent accounting pronouncements have been adopted or deemed to be not 
applicable to the financial statements as presented.

Related Parties:

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

Reclassifications:

Reclassifications have been made in the 2003 financial statements to 
conform to the presentation used in 2004.

In 2004, the FRF changed the format of its Statement of Cash Flows from 
the direct method to the indirect method for purposes of reporting cash 
flows from operating activities. Accordingly, the Statement of Cash 
Flows for 2003 contains certain reclassifications to conform to the 
Corporation's current financial statement format. For 2003 and 2004, 
the reconciliation of net income to net cash provided by operating 
activities is included in the Statement of Cash Flows. Consequently, 
information pertaining to gross amounts of receipts and payments, not 
required for presentation of the indirect method, is available within 
other footnotes to these financial statements.

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, 2004, 36 of the 850 FRF receiverships 
remain active primarily due to unresolved litigation, including 
Goodwill matters.

As of December 31, 2004 and 2003, FRF receiverships held assets with a 
book value of $175 million and $215 million, respectively (including 
cash, investments, and miscellaneous receivables of $142 million and 
$114 million at December 31, 2004 and 2003, 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 expected, 
the last securitization deal terminated in March 2004. At December 31, 
2004, this investment includes credit enhancement reserves valued at 
$15.6 million. The 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 2020.

The FRF received $97.8 million in proceeds from terminations in 2004.

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

Dollars in Thousands.

Receivables from closed thrifts; 
2004: $19,952,501; 
2003: $22,940,793.

Allowance for losses; 
2004: ($19,894,023); 
2003: ($22,846,309).

Receivables from Thrift Resolutions, Net; 
2004: $58,478; 
2003: $94,484.

Investment in securitization-related assets acquired from 
receiverships; 
2004: $15,643; 
2003: $90,272.

Other assets; 
2004: $8,154; 
2003: $13,676.

Total; 
2004: $82,275; 
2003: $198,432.

[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 $19.9 billion, or 99.7% of the gross receivable, 
was recorded as of December 31, 2004. Of the remaining 0.3% of the 
gross receivable, approximately three-fourths of the receivable is 
expected to be repaid from receivership cash and investments.

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 $32.7 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 49 
cases are pending against the United States based on alleged breaches 
of these agreements.

On July 22, 1998, the Department of Justice's (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 November 17, 2004, 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, may 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 $30.1 million and $33.3 million to DOJ for fiscal 
years 2005 and 2004, 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 March 
2004, DOJ returned $8.2 million of unused fiscal year funds. At 
September 30, 2004, DOJ had $12.7 million in unused funds that were 
applied against FY 2005 charges of $42.8 million.

Guarini Litigation:

Paralleling the goodwill cases are 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.

Eight “Guarini" cases were filed seeking damages. Two “Guarini" cases 
have concluded. In one, no damages were awarded and the second was 
settled for $20,000. The U. S. Court of Federal Claims has entered 
judgments for the plaintiffs in five of the remaining cases aggregating 
approximately $180 million. One judgment for $28.1 million has been 
affirmed by a panel of the U.S. Court of Appeals for the Federal 
Circuit, but is not yet final. Three cases are on appeal, and one will 
likely be appealed. One case is still pending in the U. S. Court of 
Federal Claims and seeks damages in the approximate amount of $247 
million.

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 $7 million and a negative $33 
million for 2004 and 2003, respectively. In 2004 and 2003, the negative 
provision was primarily due to lower estimated losses for assets in 
liquidation.

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, 2004:

Dollars in Thousands:

Contributed capital - beginning; 
FRF-FSLIC: $44,178,514;
FRF-RTC: $82,199,337;
FRF Consolidated: $126,377,851.

Add: U.S. Treasury payments for goodwill settlements; 
FRF-FSLIC: $5,026;
FRF-RTC: $0;
FRF Consolidated: $5,026.

Contributed capital-ending; 
FRF-FSLIC: $44,183,540; 
FRF-RTC: $52,199,337; 
FRF Consolidated: $126,382,877.

Accumulated deficit; 
FRF-FSLIC: ($41,148,332); 
FRF-RTC: ($81,656,826); 
FRF Consolidated: ($122,805,158).

Add: Unrealized loss on available-for-sale securities; 
FRF-FSLIC: $0; 
FRF-RTC: ($73); 
FRF Consolidated: ($73).

Accumulated deficit, net; 
FRF-FSLIC: ($41,148,332); 
FRF-RTC: ($81,656,899); 
FRF Consolidated: ($122,805231).

Total; 
FRF-FSLIC: $3,035,208; 
FRF-RTC: $542,438; 
FRF Consolidated: $3,577,646.

[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. Fl RREA prohibited the payment of dividends on any of 
these capital certificates. Through December 31, 2004, 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 $2.8 million 
and $2.2 million, as of December 31, 2004 and 2003, respectively.

Postretirement Benefits Other Than Pensions:

Beginning in 2003, the FRF no longer recorded 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. 

[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 7, 2005:

Mr. David M. Walker:
Comptroller General of the United States: 
U.S. Government Accountability Office: 
441 G Street, NW:
Washington, DC 20548:

Re: FDIC Management Response on the GAO 2004 Financial Statements Audit 
Report:

Dear Mr. Walker:

Thank you for the opportunity to comment on the U.S. Government 
Accountability Office's (GAO) draft audit report titled, Financial 
Audit: Federal Deposit Insurance Corporation Funds' 2004 and 2003 
Financial Statements, GAO-05-281. The report presents GAO's opinions on 
the calendar year 2004 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, 2004, 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 2004 audits. The GAO reported that the 
funds' financial statements were presented fairly, in all material 
respects, in conformity with U.S. generally accepted accounting 
principles; FDIC had effective internal control over financial 
reporting and compliance with laws and regulations; and there were no 
instances of noncompliance with laws and regulations that were tested.

Also, we are pleased that GAO recognized the significant improvements 
that have been made during the past year and acknowledged our progress 
in fully implementing a comprehensive information security (IS) 
program. As always, management is committed to ensuring the continued 
success of an effective and strong IS program. We will remain focused 
on accomplishing the work needed to face the new security challenges in 
the coming year.

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: 

Steven J. Sebastian, (202) 512-3406: 
Julia B. Duquette, (202) 512-5131: 

Acknowledgments: 

In addition to those named above, the following staff made key 
contributions to this report: Edward R. Alexander Jr., Gerald L. 
Barnes, Ronald A. Bergman, Teressa M. Broadie-Gardner, Sharon O. Byrd, 
Mark J. Canter, Jason A. Carroll, Lon C. Chin, Gary P. Chupka, Debra M. 
Conner, John C. Craig, Anh Dang, Kristi C. Dorsey, Danielle T. Free, 
Edward M. Glagola Jr., Rosanna Guerrero, David B. Hayes, David W. 
Irvin, Wing Y. Lam, Harold E. Lewis, Leena A. Mathew, Kevin C. 
Metcalfe, Timothy J. Murray, Duc M. Ngo, Eugene E. Stevens, Charles M. 
Vrabel, Christopher J. Warweg, LaShawnda K. Wilson, and Gregory J. 
Ziombra.

Paul S. Johnston from the FDIC Office of Inspector General also 
contributed to this report.

(196016): 

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.

[2] During 2005 FDIC anticipates implementing a new, integrated 
financial environment to support the financial management needs of the 
corporation.

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