    Financial Audit: Federal Deposit Insurance Corporation Funds'
    2003 and 2002 Financial Statements (13-FEB-04, GAO-04-429).

    GAO is required to annually audit the financial statements of the
    Bank Insurance Fund (BIF), Savings Association Insurance Fund
    (SAIF), and FSLIC Resolution Fund (FRF), which are administered
    by the Federal Deposit Insurance Corporation (FDIC). GAO is
    responsible for obtaining reasonable assurance about whether
    FDIC's financial statements for BIF, SAIF, and FRF, are presented
    fairly in all material respects, in conformity with U.S.
    generally accepted accounting principles, whether it maintains
    effective internal controls, and whether FDIC has complied with
    selected laws and regulations. Created in 1933 to insure bank
    deposits and promote sound banking practices, FDIC plays an
    important role in maintaining public confidence in the nation's
    financial system. In 1989, legislation to reform the federal
    deposit insurance system created three funds to be administered
    by FDIC: BIF and SAIF, which protect bank and savings deposits,
    and FRF, which was created to close out the business of the
    former Federal Savings and Loan Insurance Corporation.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-429
        ACCNO:   A09258
      TITLE:     Financial Audit: Federal Deposit Insurance Corporation
    Funds' 2003 and 2002 Financial Statements
         DATE:   02/13/2004
      SUBJECT:   Financial statement audits
    	     Internal controls
    	     Reporting requirements
    	     Bank Insurance Fund
    	     FSLIC Resolution Fund
    	     Savings Association Insurance Fund

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    GAO-04-429

                        United States General Accounting Office

    GAO

                                 Report to the Congress

    February 2004

    FINANCIAL AUDIT

    Federal Deposit Insurance Corporation Funds' 2003 and 2002 Financial Statements

                                           a

    GAO-04-429

                                     February 2004

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

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

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

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

    FINANCIAL AUDIT

    Federal Deposit Insurance Corporation Funds' 2003 and 2002 Financial Statements

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

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

    As of September 30, 2003, FDIC insured deposits totaling over $3.4
    trillion.

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

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

    Contents

                                  Transmittal Letter 1

                                    Auditor's Report

    Opinion on BIF's Financial Statements
    Opinion on SAIF's Financial Statements
    Opinion on FRF's Financial Statements
    Opinion on Internal Control
    Compliance with Laws and Regulations
    Objectives, Scope, and Methodology
    Reportable Condition
    FDIC Comments and Our Evaluation

    3 3 4 4 4 4 5 6 7

    Bank Insurance Fund's Financial Statements

    Balance Sheets 9 Statements of Income and Fund Balance 10 Statements of
    Cash Flows 11 Notes to the Financial Statements 12

    Savings Association 24

    Balance Sheets 24Insurance Fund's Statements of Income and Fund Balance 25
    Financial Statements Statements of Cash Flows 26

    Notes to the Financial Statements 27

    FSLIC Resolution                                                        40
    Fund's Financial Balance Sheets Statements of Income and Accumulated 40 41
                                              Deficit
          Statements                 Statements of Cash Flows                  42
                                 Notes to the Financial Statements             43

    Appendixes

    Appendix I:	Comments from the Federal Deposit Insurance Corporation 51

    Appendix II:	GAO Contacts and Staff Acknowledgments 52 GAO Contacts 52
    Acknowledgments 52

    Contents

    Abbreviations

    BIF Bank Insurance Fund
    CFO Chief Financial Officer
    FDIC Federal Deposit Insurance Corporation
    FMFIA Federal Managers' Financial Integrity Act of 1982
    FRF FSLIC Resolution Fund
    FSLIC Federal Savings and Loan Insurance Corporation
    SAIF Savings Association Insurance Fund

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

    Comptroller General of the United States

    United States General Accounting Office Washington, D.C. 20548

    February 13, 2004

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

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

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

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

    David M. Walker
    Comptroller General
    of the United States

    Comptroller General of the United States

    United States General Accounting Office Washington, D.C. 20548

    To the Board of Directors
    The Federal Deposit Insurance Corporation

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

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

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

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

    The following sections discuss our conclusions in more detail. They also
    present information on (1) the scope of our audits, (2) a reportable
    condition1 related to information system control weaknesses, and (3) our
    evaluation of FDIC management's comments on a draft of this report.

    Opinion on BIF's Financial Statements

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

    1Reportable 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.

    Opinion on SAIF's	The financial statements, including the accompanying
    notes, present fairly, in all material respects, in conformity with U.S.
    generally accepted

    Financial Statements	accounting principles, SAIF's financial position as
    of December 31, 2003 and 2002, and the results of its operations and its
    cash flows for the years then ended.

    Opinion on FRF's 	The financial statements, including the accompanying
    notes, present fairly, in all material respects, in conformity with U.S.
    generally accepted

    Financial Statements	accounting principles, FRF's financial position as of
    December 31, 2003 and 2002, and the results of its operations and its cash
    flows for the years then ended.

    Opinion on Internal Control

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

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

    Compliance with Laws 	Our tests for compliance with selected provisions of
    laws and regulations disclosed no instances of noncompliance that would be
    reportable under

    and Regulations	U.S. generally accepted government auditing standards.
    However, the objective of our audits was not to provide an opinion on
    overall compliance with selected laws and regulations. Accordingly, we do
    not express such an opinion.

    Objectives, Scope, and Methodology

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

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

    o 	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

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

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

    In order to fulfill these responsibilities, we

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

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

    o  evaluated the overall presentation of the financial statements;

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

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

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

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

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

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

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

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

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

    development and change control, segregation of duties, and service
    continuity controls.

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

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

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

    FDIC Comments and 	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

    Our Evaluation FRF's 2003 and 2002 financial statements. FDIC's CFO also
    acknowledged

    both the current status as well as the substantial progress made during
    2003 on the information system weaknesses we identified. FDIC said it
    would continue efforts to strengthen its ongoing information security
    program during 2004.

    David M. Walker Comptroller General of the United States

    January 30, 2004

                       Bank Insurance Fund's Financial Statements

    Balance Sheets

                                  Bank Insurance Fund

    Federal Deposit Insurance Corporation

                   Bank Insurance Fund Balance Sheets at December 31

    Dollars in Thousands

    2003 2002

               Assets Total Assets $ 34,396,595 $ 33,432,307 Liabilities

                  Cash and cash equivalents             $  2,544,281 $  4,606,896
        Investment in U.S. Treasury obligations, net:
                           (Note 3)
                 Held-to-maturity securities              16,293,073   16,709,665
                Available-for-sale securities             14,209,773   10,823,593
         Interest receivable on investments and other        550,999      483,674
                         assets, net
    Receivables from bank resolutions, net (Note 4)       511,089      505,395
             Property and equipment, net (Note 5)            287,380      303,084

               Accounts payable and other liabilities $ 231,441 $ 148,573

                          Contingent liabilities for: (Note 6)

    Anticipated failure of insured institutions 178,266 1,008,097

    Litigation losses and other 204,693 225,297

    Total Liabilities 614,400 1,381,967

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

    Fund Balance

                    Accumulated net income                32,979,898   31,238,171
            Unrealized gain on available-for-sale            802,297      812,169
                   securities, net (Note 3)
                      Total Fund Balance                  33,782,195   32,050,340
              Total Liabilities and Fund Balance        $ 34,396,595 $ 33,432,307

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

                       Bank Insurance Fund's Financial Statements

                         Statements of Income and Fund Balance

                                  Bank Insurance Fund

                         Federal Deposit Insurance Corporation

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

    Dollars in Thousands

    2003 2002

                              Revenue Expenses and Losses

        Interest on U.S. Treasury obligations      $    1,530,014  $    1,692,381
                 Assessments (Note 7)                      80,159          84,030
                    Other revenue                          15,831          19,474
                    Total Revenue                       1,626,004       1,795,885

                   Operating expenses (Note 8)                 805,496    821,136
             Provision for insurance losses (Note 9)         (928,468)   (86,970)
                   Insurance and other expenses                  7,249     16,451
                    Total Expenses and Losses                (115,723)    750,617
                            Net Income                       1,741,727  1,045,268
           Unrealized (loss)/gain on available-for-sale        (9,872)    566,247
                         securities, net
                       Comprehensive Income                  1,731,855  1,611,515
                     Fund Balance -Beginning                32,050,340 30,438,825

    Fund Balance - Ending $ 33,782,195 $ 32,050,340

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

                       Bank Insurance Fund's Financial Statements

                                Statements of Cash Flows

                                  Bank Insurance Fund

                         Federal Deposit Insurance Corporation

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

    Dollars in Thousands

    2003 2002

                                  Operating Activities

    Provided by:

        Interest on U.S. Treasury obligations      $    1,794,002  $    1,858,852
           Recoveries from bank resolutions             1,034,311       1,116,406
                     Assessments                           80,496          81,971
                Miscellaneous receipts                    112,263          22,607

                             Used by: Investing Activities

                        Operating expenses                  (753,617)   (742,270)
                Disbursements for bank resolutions          (935,602) (2,168,187)
                   Miscellaneous disbursements               (31,861)    (38,311)
    Net Cash Provided by Operating Activities (Note 13)  1,299,992     131,068

    Provided by:

      Maturity of U.S. Treasury obligations, held-to-maturity 3,890,000 3,625,000

    Maturity of U.S. Treasury obligations, available-for-sale 1,690,000
    1,150,000

    Used by:

              Purchase of property and equipment           (42,669)      (49,647)
            Purchase of U.S. Treasury obligations,        (3,659,868)           0
                       held-to-maturity
            Purchase of U.S. Treasury obligations,        (5,240,070) (1,686,138)
                      available-for-sale
           Net Cash (Used by) Provided by Investing       (3,362,607)   3,039,215
                          Activities
           Net (Decrease)/Increase in Cash and Cash
                         Equivalents                      (2,062,615)   3,170,283
            Cash and Cash Equivalents - Beginning          4,606,896    1,436,613
              Cash and Cash Equivalents - Ending        $ 2,544,281 $   4,606,896

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

                       Bank Insurance Fund's Financial Statements

                           Notes to the Financial Statements

    Notes to the Financial Statements
    Bank Insurance Fund
    December 31, 2003 and 2002

    1. Operations of the Bank Insurance Fund

    Overview

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

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

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

    Operations of the BIF

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

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

                                        1 of 12

                       Bank Insurance Fund's Financial Statements

                                  Bank Insurance Fund

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

    Receivership Operations

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

    Recent Legislative Initiatives

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

    2. Summary of Significant Accounting Policies

    General

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

    Use of Estimates

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

                                        2 of 12

                       Bank Insurance Fund's Financial Statements

                                  Bank Insurance Fund

    Cash Equivalents

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

    Investment in U.S. Treasury Obligations

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

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

    Cost Allocations Among Funds

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

    Capital Assets and Depreciation

    The FDIC has designated the BIF as administrator of property and equipment
    used in its operations. Consequently, the BIF includes the cost of these
    assets in its financial statements and provides the necessary funding for
    them. The BIF charges the other funds usage fees representing an allocated
    share of its annual depreciation expense. These usage fees are recorded as
    cost recoveries, which reduce operating expenses.

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

                                        3 of 12

                       Bank Insurance Fund's Financial Statements

                                  Bank Insurance Fund

    Related Parties

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

    Reclassifications

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

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

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

                     U.S. Treasury Obligations at December 31, 2003

    Dollars in Thousands Total $ 12,917,932 $ 13,407,476 $ 802,527 $ (230) $
    14,209,773

                                              Net Unrealized Unrealized
                      Yield at   Face Carrying     Holding    Holding       Market
      Maturity (a)    Purchase    Value Amount      Gains     Losses (      Value
                        (b)                                      c)
                                Held-to-Maturity
      Within 1 year    5.05% $        3,365,000 $   65,110 $      (275) $  3,514,820
                                      3,449,985 $
    After 1 year       5.66%   9,985,000           830,414            0   11,075,276
    through 5 years            10,244,862
    After 5 years      5.42%   1,910,000           191,954            0    2,168,404
    through 10 years           1,976,450
        Treasury
    Inflation-Indexed
    After 5 years      3.82%   620,450 621,776      78,947            0      700,723
    through 10 years
          Total              $ 15,880,450 $       1,166,425       (275) $ 17,459,223
                               16,293,073 $           $
                               Available-for-Sale
      Within 1 year    2.31% $        5,810,000 $   32,642 $      (230) $  6,082,476
                                      6,050,064 $
    After 1 year       4.68%   1,995,000           114,071            0    2,343,214
    through 5 years            2,229,143
        Treasury
    Inflation-Indexed
    After 1 year       3.88%   1,225,321           139,813            0    1,355,132
    through 5 years            1,215,319
    After 5 years              3,887,611                              0
    through 10 years   3.75%   3,912,950           516,001                 4,428,951

    Total Investment in U.S. Treasury Obligations, Net Total $ 28,798,382 $
    29,700,549 $ 1,968,952 $ (505) $ 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.

    4 of 12

                       Bank Insurance Fund's Financial Statements

    Bank Insurance Fund's Financial Statements

    Bank Insurance Fund

    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

    2003 2002

    Receivables from closed banks $ 4,914,901 $ 6,055,613

    Allowance for losses (4,403,812) (5,550,218)

    Total $ 511,089 $ 505,395

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

    5. Property and Equipment, Net

                       Property and Equipment, Net at December 31

    Dollars in Thousands

    2003 2002

                              Land                $ 37,352 $     37,352
                       Buildings (includes           180,187    171,362
                    construction-in-process)
                 Application software (includes      177,111    155,196
                        work-in-process)
                    Furniture, fixtures, and         97,682      98,497
                            equipment
                    Accumulated depreciation        (204,952) (159,323)
                              Total               $ 287,380 $   303,084

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

    6. Contingent Liabilities for:

    Anticipated Failure of Insured Institutions

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

    The contingent liability is derived by applying expected failure rates and
    historical loss rates to groups of institutions with certain shared
    characteristics. In addition, institution-specific analysis is performed
    on those banks where failure is imminent absent institution management
    resolution of existing problems. As of December 31, 2003 and 2002, the
    contingent liabilities for anticipated failure of insured institutions
    were $178 million and $1.0 billion, respectively.

    6 of 12

                       Bank Insurance Fund's Financial Statements

                                  Bank Insurance Fund

    In addition to these recorded contingent liabilities, the FDIC has
    identified additional risk in the financial services industry that could
    result in a material loss to the BIF should potentially vulnerable
    financial institutions ultimately fail. This risk is evidenced by the
    level of problem bank assets and the presence of various high-risk banking
    business models that are particularly vulnerable to adverse economic and
    market conditions. Due to the uncertainty surrounding future economic and
    market conditions, there are other banks for which the risk of failure is
    less certain, but still considered reasonably possible. As a result of
    these risks, the FDIC believes that it is reasonably possible that the BIF
    could incur additional estimated losses up to $2.2 billion.

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

    Litigation Losses

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

    Other Contingencies

    Representations and Warranties

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

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

    7. Assessments

    In compliance with provisions of the FDI Act, as amended, the FDIC uses a
    risk-based assessment system that charges higher rates to those
    institutions that pose greater risks to the BIF. To arrive at a risk-based
    assessment for a particular institution, the FDIC places each institution
    in one of nine risk categories based on capital ratios and supervisory
    examination

                                        7 of 12

                       Bank Insurance Fund's Financial Statements

                                  Bank Insurance Fund

    data. The majority of the financial institutions are not assessed. Of
    those assessed, the assessment rate averaged approximately 20 cents and 22
    cents per $100 of assessable deposits for 2003 and 2002, respectively.
    During 2003 and 2002, $80 million and $84 million were collected from
    BIF-member institutions, respectively. On November 4, 2003, the Board
    voted to retain the BIF assessment schedule at the annual rate of 0 to 27
    cents per $100 of assessable deposits for the first semiannual period of
    2004. The Board reviews assessment rates semiannually to ensure that funds
    are available to satisfy the BIF's obligations. If necessary, the Board
    may impose more frequent rate adjustments or emergency special
    assessments.

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

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

    8. Operating Expenses

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

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

                                        8 of 12

                       Bank Insurance Fund's Financial Statements

                                  Bank Insurance Fund

    Operating Expenses for the Years Ended December 31

    Dollars in Thousands

    2003 2002

                      Salaries and benefits         $  555,683 $  599,930
                         Outside services               81,851     77,935
                              Travel                    41,773     37,880
                    Buildings and leased space          61,582     60,613
                   Equipment (not capitalized)          15,111     14,923
                   Depreciation of property and         54,947     47,042
                            equipment
                              Other                     20,689     20,560
                 Services billed to receiverships     (26,140)   (37,747)
                              Total                 $  805,496 $  821,136

    9. Provision for Insurance Losses

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

             Provision for Insurance Losses for the Years Ended December 31

    Dollars in Thousands

    2003 2002

                    Valuation Adjustments:
                         Closed banks             $ (108,309) $   616,844
                Open bank assistance and other         2,534        6,006
                            assets
                  Total Valuation Adjustments        (105,775)    622,850
              Contingent Liabilities Adjustments:
                Anticipated failure of insured       (829,831)  (902,903)
                         institutions
                       Litigation losses                345       180,458

    Other contingencies 6,793 12,625

    Total Contingent Liabilities Adjustments (822,693) (709,820) Total $
    (928,468) $ (86,970)

    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.

    9 of 12

                       Bank Insurance Fund's Financial Statements

                                  Bank Insurance Fund

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

    Dollars in Thousands

    2003 2002

                   Civil Service Retirement System       $ 7,740 $   13,365
             Federal Employees Retirement System (Basic     29,477   30,366
                              Benefit)
                          FDIC Savings Plan                 17,397   18,956
                     Federal Thrift Savings Plan            12,066   12,235
              Separation Incentive Payment (see Note 8)       91     29,085
                                Total                    $ 66,771 $ 104,007

    Postretirement Benefits Other Than Pensions

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

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

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

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

    10 of 12

    Bank Insurance Fund's Financial Statements

    Bank Insurance Fund

    11. Commitments and Off-Balance-Sheet Exposure

    Commitments:

    Leased Space

    The BIF's allocated share of the FDIC's lease commitments totals $124
    million for future years. The lease agreements contain escalation clauses
    resulting in adjustments, usually on an annual basis. The allocation to
    the BIF of the FDIC's future lease commitments is based upon current
    relationships of the workloads among the BIF and the SAIF. Changes in the
    relative workloads could cause the amounts allocated to the BIF in the
    future to vary from the amounts shown below. The BIF recognized leased
    space expense of $38 million and $37 million for the years ended December
    31, 2003 and 2002, respectively.

                                Lease Space Commitments

    Dollars in Thousands

                        2004 2005 2006 2007 2008 2009/Thereafter

    $37,345 $32,666 $22,484 $13,652 $8,887 $9,052

    Off-Balance-Sheet Exposure:

    Asset Securitization Guarantees

    As part of the FDIC's efforts to maximize the return from the sale or
    disposition of assets from bank resolutions, the FDIC has securitized some
    receivership assets. To facilitate the securitizations, the BIF provided
    limited guarantees to cover certain losses on the securitized assets up to
    a specified maximum. In exchange for backing the limited guarantees, the
    BIF received assets from the receiverships in an amount equal to the
    expected exposure under the guarantees. One deal terminated in 2003 with a
    cumulative gain to the BIF of $6 million. Although the remaining term of
    the limited guaranty for the last deal is 23 years, this deal will be
    evaluated for possible termination in 2004. As of December 31, 2003 and
    2002, the maximum off-balance-sheet exposure was $81 million and $202
    million, respectively.

    Deposit Insurance

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

    12. Disclosures About the Fair Value of Financial Instruments

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

    The net receivables from bank resolutions primarily include the BIF's
    subrogated claim arising from payments to insured depositors. The
    receivership assets that will ultimately be used to pay

    11 of 12

    Bank Insurance Fund's Financial Statements

    Bank Insurance Fund

    the corporate subrogated claim are valued using discount rates that
    include consideration of market risk. These discounts ultimately affect
    the BIF's allowance for loss against the net receivables from bank
    resolutions. Therefore, the corporate subrogated claim indirectly includes
    the effect of discounting and should not be viewed as being stated in
    terms of nominal cash flows.

    Although the value of the corporate subrogated claim is influenced by
    valuation of receivership assets (see Note 4), such receivership valuation
    is not equivalent to the valuation of the corporate claim. Since the
    corporate claim is unique, not intended for sale to the private sector,
    and has no established market, it is not practicable to estimate its fair
    market value.

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

    13. Supplementary Information Relating to the Statements of Cash Flows

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

    Dollars in Thousands

    2003 2002

                           Net Income $ 1,741,727 $ 1,045,268

    Adjustments to Reconcile Net Income to Net Cash Provided by Operating
    Activities

                                Income Statement Items:

                 Amortization of U.S. Treasury         455,628     217,742
                          obligations
                   TIIS inflation adjustment          (115,150)  (110,679)
                 Depreciation on property and          54,947       47,484
                           equipment
             Retirement of property and equipment        852         2,149
               Change in Assets and Liabilities:
                (Increase) Decrease in interest
              receivable on investments and other     (67,460)      63,688
                            assets
              (Increase) in receivables from bank      (5,694)   (426,239)
                          resolutions
               Increase in accounts payable and        85,577       14,218
                       other liabilities
             (Decrease) in contingent liabilities
              for anticipated failure of insured      (829,831)  (902,903)
                         institutions
               (Decrease) Increase in contingent
             liabilities for litigation losses and    (20,604)     180,340
                             other
                Net Cash Provided by Operating     $
                          Activities                 1,299,992 $   131,068

                                        12 of 12

    Savings Association Insurance Fund's Financial Statements

    Balance Sheets

    Savings Association Insurance Fund

                         Federal Deposit Insurance Corporation

    Savings Association Insurance Fund Balance Sheets at December 31

    Dollars in Thousands

    2003 2002

               Assets Total Assets $ 12,583,615 $ 12,156,808 Liabilities

                   Cash and cash equivalents              $   827,141 $ 1,907,353
    Cash and other assets: Restricted for SAIF-member
                       exit fees (Note 3)
         (Includes cash and cash equivalents of $231.9        319,286     311,864
        million and $187.7 million at December 31, 2003
                    and 2002, respectively)
         Investment in U.S. Treasury obligations, net:
                            (Note 4)
                  Held-to-maturity securities               6,823,709   5,726,840
                 Available-for-sale securities              4,152,048   3,769,576
          Interest receivable on investments and other        188,189     153,320
                          assets, net
    Receivables from thrift resolutions, net (Note 5)      273,242     287,855

                Accounts payable and other liabilities $ 20,540 $ 7,100

                          Contingent liabilities for: (Note 6)

    Anticipated failure of insured institutions 3,192 90,493

    Litigation losses 532 613

        SAIF-member exit fees and investment proceeds held     319,286    311,864
                        in escrow (Note 3)
                        Total Liabilities                      343,550    410,070
    Commitments and off-balance-sheet exposure (Note 11)
                           Fund Balance
                      Accumulated net income                11,965,776 11,465,716
        Unrealized gain on available-for-sale securities,
                           net (Note 4)                      274,289      281,022

     Total Fund Balance 12,240,065 11,746,738 Total Liabilities and Fund Balance $
                                12,583,615 $ 12,156,808

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

    Savings Association Insurance Fund's Financial Statements

                         Statements of Income and Fund Balance

                           Savings Association Insurance Fund

    Federal Deposit Insurance Corporation

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

    Dollars in Thousands

    2003 2002

                              Revenue Expenses and Losses

         Interest on U.S. Treasury obligations       $    532,474  $      564,259
                 Assessments (Note 7)                      14,594          23,783
                     Other revenue                            192             779
                     Total Revenue                        547,260         588,821

                   Operating expenses (Note 8)                 129,584    124,363
             Provision for insurance losses (Note 9)          (82,489)  (156,494)
                   Insurance and other expenses                    105        751
                    Total Expenses and Losses                   47,200   (31,380)
                            Net Income                         500,060    620,201
           Unrealized (loss)/gain on available-for-sale        (6,733)    191,613
                         securities, net
                       Comprehensive Income                    493,327    811,814
                     Fund Balance -Beginning                11,746,738 10,934,924

    Fund Balance - Ending $ 12,240,065 $ 11,746,738

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

    Savings Association Insurance Fund's Financial Statements

                                Statements of Cash Flows

                           Savings Association Insurance Fund

    Federal Deposit Insurance Corporation

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

    Dollars in Thousands

    2003 2002

                                  Operating Activities

    Provided by:

              Interest on U.S. Treasury obligations         $ 620,842 $   576,192
                           Assessments                         15,327      23,709
        Entrance and exit fees, including interest on exit      4,305      15,811
                          fees (Note 3)
                Recoveries from thrift resolutions             13,419   1,126,940
                      Miscellaneous receipts                   15,344          73

                             Used by: Investing Activities

                        Operating expenses                   (130,495)  (125,159)
               Disbursements for thrift resolutions            (6,541)  (119,993)
                   Miscellaneous disbursements                   (108)      (103)
    Net Cash Provided by Operating Activities (Note 13)     532,093  1,497,470

    Provided by:

      Maturity of U.S. Treasury obligations, held-to-maturity 1,170,000 1,070,000
    Maturity of U.S. Treasury obligations, available-for-sale 575,000 150,000

    Used by:

             Purchase of U.S. Treasury obligations,         (2,305,056)         0
                        held-to-maturity
             Purchase of U.S. Treasury obligations,         (1,008,066) (970,813)
                       available-for-sale
            Net Cash (Used by) Provided by Investing        (1,568,122)   249,187
                           Activities
            Net (Decrease)/Increase in Cash and Cash
                          Equivalents                       (1,036,029) 1,746,657
             Cash and Cash Equivalents - Beginning           2,095,081    348,424
        Unrestricted Cash and Cash Equivalents - Ending       827,141   1,907,353
         Restricted Cash and Cash Equivalents - Ending        231,911     187,728
               Cash and Cash Equivalents - Ending         $ 1,059,052 $ 2,095,081

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

    Savings Association Insurance Fund's Financial Statements

                           Notes to the Financial Statements

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

    1. Operations of the Savings Association Insurance Fund

    Overview

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

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

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

    Operations of the SAIF

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

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

                                      Page 1 of 13

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

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

    Receivership Operations

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

    Recent Legislative Initiatives

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

                                      Page 2of 13

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

    Cash Equivalents

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

    Investment in U.S. Treasury Obligations

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

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

    Cost Allocations Among Funds

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

    Related Parties

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

    Reclassifications

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

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

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

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

                                      Page 3of 13

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

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

    Dollars in Thousands

    2003 2002

                     Cash and cash equivalents        $ 231,911 $ 187,728
                    Investment in U.S. Treasury          86,471   122,402
                          obligations, net
                Interest receivable on U.S. Treasury        904     1,734
                            obligations
                               Total                  $ 319,286 $ 311,864

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

    Dollars in Thousands

                                    Held-to-Maturity

                                     Net Unrealized

                           Yield at    Face    Carrying   Holding   Market
               Maturity    Purchase   Value     Amount     Gains    Value
             Within 1 year  5.79%   $ 20,000 $   20,267 $     683 $ 20,950
             After 1 year
               through 5    5.20%     64,000     66,204     5,349   71,553
                 years
                 Total              $ 84,000 $   86,471 $   6,032 $ 92,503

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

    Dollars in Thousands

                                    Held-to-Maturity

                                     Net Unrealized

                           Yield at     Face    Carrying   Holding Market
               Maturity    Purchase     Value    Amount     Gains   Value
             Within 1 year  6.59%   $  35,000 $   34,986 $   222 $  35,208
             After 1 year
               through 5    5.45%      64,000     66,830    6,298   73,128
                 years
             After 5 years
              through 10    4.99%      20,000     20,586    2,108   22,694
                 years
                 Total              $ 119,000 $  122,402 $ 8,628 $ 131,030

    As of December 31, 2003 and 2002, the unamortized premium, net of the
    unamortized discount, was $2.5 million and $3.4 million, respectively.

    Page 4of 13

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

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

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

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

    Dollars in Thousands

                                              Net   Unrealized Unrealized
                      Yield at Face Carrying         Holding    Holding      Market
    Maturity(a)    Purchase Value Amount           Gains     Losses (      Value
                        (b)                                        c)
                                 Held-to-Maturity
      Within 1 year   2.86% $  1,670,000 $        $   12,009 $      (122) $ 1,754,023
                               1,742,136
    After 1 year       5.59%   3,185,000             284,578            0   3,535,189
    through 5 years            3,250,611
    After 5 years      5.54%   1,575,000             169,813            0   1,773,487
    through 10 years           1,603,674
        Treasury
    Inflation-Indexed
    After 1 year       3.86%      229,032 227,288       26,008          0     253,296
    through 5 years
          Total              $ 6,659,032 $        $  492,408 $      (122) $ 7,315,995
                               6,823,709
                               Available-for-Sale
      Within 1 year   3.15% $  1,360,000 $        $   16,265 $       (99) $ 1,429,896
                               1,413,730
    After 1 year       4.43%      655,000 756,058       34,530          0     790,588
    through 5 years
        Treasury
    Inflation-Indexed
    After 1 year       4.11%                                            0
    through 5 years               280,564 276,009       34,278                310,287

    After 5 years through 10 years 3.79% 1,429,352 1,431,962 189,315 0
    1,621,277 Total $ 3,724,916 $ 3,877,759 $ 274,388 $ (99) $ 4,152,048

                   Total Investment in U.S. Treasury Obligations, Net

    Total $ 10,383,948 $ 10,701,468 $ 766,796 $ (221) $ 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.

    Page 5of 13

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

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

    Dollars in Thousands

                                     Net Unrealized

    Yield at Face Carrying Holding Market Maturity (a) Purchase (b) Value
    Amount Gains Value

                                    Held-to-Maturity

            Within 1 year   6.23% $   535,000 $   541,662 $ 12,242    553,904
                                                               $
            After 1 year    5.91%   2,880,000   2,941,199   317,167 3,258,366
           through 5 years
            After 5 years   5.78%   2,030,000   2,021,651   298,277 2,319,928
          through 10 years
              Treasury
          Inflation-Indexed
            After 5 years   3.85%     224,432     222,328   23,917    246,245
          through 10 years
                Total             $           $           $ 651,603
                                    5,669,432   5,726,840      $    6,378,443

                                   Available-for-Sale

            Within 1 year   5.77% $   475,000 $   473,317 $ 9,660 $   482,977
            After 1 year    4.81%
           through 5 years          1,235,000   1,342,263   82,983  1,425,246
              Treasury
          Inflation-Indexed
            After 5 years   3.84%   1,675,573   1,672,974   188,379 1,861,353
          through 10 years
                Total             $           $           $ 281,022
                                    3,385,573   3,488,554      $    3,769,576

                   Total Investment in U.S. Treasury Obligations, Net

    Total $ 9,055,005 $ 9,215,394 $ 932,625 $ 10,148,019

    (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 2002.

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

    5. Receivables From Thrift Resolutions, Net

    The receivables from thrift resolutions include payments made by the SAIF
    to cover obligations to insured depositors, advances to receiverships for
    working capital, and administrative expenses paid on behalf of
    receiverships. Any related allowance for loss represents the difference
    between the funds advanced and/or obligations incurred and the expected
    repayment. Assets held by SAIF receiverships are the main source of
    repayment of the SAIF's receivables from closed thrifts. During 2003,
    there were no thrift failures, leaving two active receiverships.

    As of December 31, 2003 and 2002, SAIF receiverships held assets with a
    book value of $449 million and $490 million, respectively (including cash,
    investments, and miscellaneous receivables of $117 million and $93 million
    at December 31, 2003 and 2002, respectively). The estimated cash
    recoveries from the management and disposition of these assets that are
    used to derive the allowance for losses are based on a sampling of
    receivership assets. The sampled

    Page 6of 13

    Savings Association Insurance Fund's Financial Statements

    Savings Association Insurance Fund

    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

    2003 2002

    Receivables from closed thrifts $ 709,389 $ 721,572

                        Allowance for losses (436,147) (433,717)

    Total $ 273,242 $ 287,855

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

    6. Contingent Liabilities for:

    Anticipated Failure of Insured Institutions

    The SAIF records a contingent liability and a loss provision for thrifts
    (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 cont ingent liability is derived by applying expected failure rates
    and historical loss rates to groups of institutions with certain shared
    characteristics. In addition, institution-specific analysis is performed
    on those thrifts where failure is imminent absent institution management
    resolution of existing problems. As of December 31, 2003 and 2002, the
    contingent liabilities for anticipated failure of insured institutions
    were $3 million and $90 million, respectively.

    In addition to these recorded continge nt liabilities, the FDIC has
    identified additional risk in the financial services industry that could
    result in a material loss to the SAIF should potentially vulnerable
    financial institutions ultimately fail. This risk is evidenced by the
    level of problem thrift assets and the presence of various high-risk
    banking business models that are particularly vulnerable to adverse
    economic and market conditions. Due to the uncertainty surrounding future
    economic and market conditions, there are other thrifts for which the risk
    of failure is less certain, but still considered reasonably possible. As a
    result of these risks, the FDIC believes that it is reasonably possible
    that the SAIF could incur additional estimated losses up to $143 million.

    Page 7of 13

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

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

    Litigation Losses

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

    Other Contingencies

    Representations and Warranties

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

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

    7. Assessments

    In compliance with provisions of the FDI Act, as amended, the FDIC uses a
    risk-based assessment system that charges higher rates to those
    institutions that pose greater risks to the SAIF. To arrive at a
    risk-based assessment for a particular institution, the FDIC places each
    institution in one of nine risk categories based on capital ratios and
    supervisory examination data. The majority of the financial institutions
    are not assessed. Of those assessed, the assessment rate averaged
    approximately 14 cents and 26 cents per $100 of assessable deposits for
    2003 and 2002, respectively. During 2003 and 2002, $15 million and $24
    million were collected from SAIF-member institutions, respectively. On
    November 4, 2003, the Board voted to retain the SAIF assessment schedule
    at the annual rate of 0 to 27 cents per $100 of assessable deposits for
    the first semiannual period of 2004. The Board reviews assessment rates
    semiannually to ensure that funds are available to satisfy the SAIF's
    obligations. If necessary, the Board may impose more frequent rate
    adjustments or emergency special assessments.

    The FDIC is required to maintain the insurance funds at a designated
    reserve ratio (DRR) of not less than 1.25 percent of estimated insured
    deposits (or a higher percentage as circumstances

                                      Page 8of 13

    Savings Association Insurance Fund's Financial Statements

    Savings Association Insurance Fund

    warrant). If the reserve ratio falls below the DRR, the FDIC is required
    to set semiannual assessment rates that are sufficient to increase the
    reserve ratio to the DRR not later than one year after such rates are set,
    or in accordance with a recapitalization schedule of fifteen years or
    less. As of September 30, 2003, the SAIF reserve ratio was 1.40 percent of
    estimated insured deposits.

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

    8. Operating Expenses

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

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

    Operating Expenses for the Years Ended December 31

    Dollars in Thousands

    2003 2002

                       Salaries and benefits        $  87,963 $  92,192
                         Outside services              15,038    12,196
                              Travel                    5,801     5,473
                    Buildings and leased space         12,132    10,163
                             Equipment                  9,374     7,858
                               Other                    3,189     2,254
                 Services billed to receiverships     (3,913)   (5,773)
                               Total                $ 129,584 $ 124,363

    9. Provision for Insurance Losses

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

    Page 9of 13

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

             Provision for Insurance Losses for the Years Ended December 31

    Dollars in Thousands

    2003 2002

                     Valuation Adjustments:
                         Closed thrifts            $  4,684 $    (10,113)
                  Total Valuation Adjustments          4,684     (10,113)
              Contingent Liabilities Adjustments:
                 Anticipated failure of insured       (87,301)  (142,507)
                          institutions
                       Litigation losses                128       (3,874)
                  Total Contingent Liabilities        (87,173)  (146,381)
                          Adjustments
                             Total                 $ (82,489) $ (156,494)

    10. Employee Benefits

    Pension Benefits, Savings Plans and Postemployment Benefits

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

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

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

    Dollars in Thousands

    2003 2002

                   Civil Service Retirement System        $  1,258 $  1,715
              Federal Employees Retirement System (Basic     4,682    4,765
                               Benefit)
                          FDIC Savings Plan                  2,788    2,951
                     Federal Thrift Savings Plan             1,900    1,913
              Separation Incentive Payment (see Note 8)         14    4,276
                                Total                     $ 10,642 $ 15,620

    Postretirement Benefits Other Than Pensions

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

    Prior to 2003, the SAIF funded its liability for postretirement benefits
    other than pensions directly to a separate entity, which was established
    to restrict the funds and to provide for the accounting and administration
    of these benefits. As of January 1, 2003, the FDIC changed its

    Page 10 of 13

    Savings Association Insurance Fund's Financial Statements

    Savings Association Insurance Fund's Financial Statements

                           Savings Association Insurance Fund

    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.

                                     Page 12 of 13

    Savings Association Insurance Fund's Financial Statements

    Savings Association Insurance Fund

    13. Supplementary Information Relating to the Statements of Cash Flows

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

    Dollars in Thousands

    2003 2002

                             Net Income $ 500,060 $ 620,201

    Adjustments to Reconcile Net Income to Net Cash Provided by Operating
    Activities Income Statement Items:

                  Amortization of U.S. Treasury          155,993     47,333
                    obligations (unrestricted)
                    TIIS inflation adjustment           (38,943)   (37,429)
                Change in Assets and Liabilities:
                 Decrease in amortization of U.S.          931          811
                Treasury obligations (restricted)
             (Increase) Decrease in entrance and exit
               fees receivable, including interest      (34,040)      5,317
               receivable on investments and other
                              assets
               Decrease in receivables from thrift       14,613     997,295
                           resolutions
             Increase (Decrease) in accounts payable     13,440     (1,011)
                      and other liabilities
              (Decrease) in contingent liability for
                  anticipated failure of insured        (87,301)  (142,507)
                           institutions
              (Decrease) in contingent liability for      (82)      (5,029)
                        litigation losses
               Increase in exit fees and investment       7,422      12,489
                     proceeds held in escrow
                  Net Cash Provided by Operating      $
                            Activities                  532,093 $ 1,497,470

                                     Page 13 of 13

                      FSLIC Resolution Fund's Financial Statements

    Balance Sheets

    FSLIC Resolution Fund

    Federal Deposit Insurance Corporation

                  FSLIC Resolution Fund Balance Sheets at December 31

    Dollars in Thousands

    2003 2002

                                         Assets

                    Cash and cash equivalents $3,278,532 $3,618,330

    Receivables from thrift resolutions and other assets, net (Note 3) 198,432
                                        251,929

                     Total Assets $3,476,964 $3,870,259 Liabilities

         Accounts payable and other liabilities   $      19,381 $        14,408
          Contingent liabilities for litigation         1,169               546
                losses and other (Note 4)
                    Total Liabilities                  20,550            14,954
               Resolution Equity (Note 6)
                   Contributed capital               126,377,851    126,827,821
                   Accumulated deficit              (122,962,936) (123,015,273)
          Unrealized gain on available-for-sale        41,499            42,757
                securities, net (Note 3)
                Accumulated deficit, net            (122,921,437) (122,972,516)
                 Total Resolution Equity              3,456,414       3,855,305
         Total Liabilities and Resolution Equity  $  3,476,964 $      3,870,259
         The accompanying notes are an integral
           part of these financial statements.

    FSLIC Resolution Fund's Financial Statements

                      Statements of Income and Accumulated Deficit

    FSLIC Resolution Fund

                         Federal Deposit Insurance Corporation

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

    Dollars in Thousands

    2003 2002

                              Revenue Expenses and Losses

               Interest on U.S. Treasury obligations         $ 32,902 $  46,835
                   Realized gain on investment in
               securitization-related assets acquired
                    from receiverships (Note 3)                   756   352,486
                           Other revenue                       16,849    33,756
                           Total Revenue                       50,507   433,077

                  Operating expenses                  27,828             45,684
             Provision for losses (Note 5)           (57,832)         (149,359)
         Expenses for goodwill settlements and        15,324             40,351
                  litigation (Note 4)
                    Other expenses                    12,850              5,856
               Total Expenses and Losses              (1,830)          (57,468)
                      Net Income                      52,337            490,545
         Unrealized loss on available-for-sale        (1,258)         (263,590)
               securities, net (Note 3)
                 Comprehensive Income                 51,079            226,955
            Accumulated Deficit -Beginning         (122,972,516)  (123,199,471)
             Accumulated Deficit - Ending       $ (122,921,437) $ (122,972,516)
        The accompanying notes are an integral
          part of these financial statements.

    FSLIC Resolution Fund's Financial Statements

    Statements of Cash Flows

    FSLIC Resolution Fund

                         Federal Deposit Insurance Corporation

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

    Dollars in Thousands

    2003 2002

                  Operating Activities
                      Provided by:
         Interest on U.S. Treasury obligations      $     32,902  $      46,835
           Recoveries from thrift resolutions            115,437        316,439
                 Miscellaneous receipts                   39,079         32,607

                             Used by: Investing Activities

                         Operating expenses                   (31,643) (44,421)
                Disbursements for thrift resolutions          (11,842) (30,373)
        Disbursements for goodwill settlements and judgments      (30) (21,459)
           Disbursements for goodwill litigation expenses     (35,274) (18,892)
                     Miscellaneous disbursements               (4,286)  (9,119)
         Net Cash Provided by Operating Activities (Note 8)    104,343  271,617

     Investment in securitization-related assets acquired from receiverships 5,829
                                       1,101,525

     Net Cash Provided by Investing Activities 5,829 1,101,525 Financing Activities

    Provided by:

               U.S. Treasury payments for goodwill settlements 30 21,459

    Used by:

         Payments to Resolution Funding Corporation      (450,000)  (1,266,667)
                          (Note 6)
            Net Cash Used by Financing Activities        (449,970)  (1,245,208)
          Net (Decrease)/Increase in Cash and Cash
                         Equivalents                     (339,798)      127,934
            Cash and Cash Equivalents - Beginning        3,618,330    3,490,396
             Cash and Cash Equivalents - Ending       $ 3,278,532 $   3,618,330

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

    FSLIC Resolution Fund's Financial Statements

                           Notes to the Financial Statements

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

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

    Legislative History

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

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

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

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

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

    Operations/Dissolution of the FRF

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

                                      Page 1 of 8

    FSLIC Resolution Fund's Financial Statements

                                 FSLIC Resolution Fund

    activity of the FRF-FSLIC.

    The FDIC has conducted an extensive review and cataloging of FRF's
    remaining assets and liabilities and is continuing to explore approaches
    for concluding FRF's activities. An executive-level Steering Committee was
    established in 2003 to facilitate the FRF dissolution. Some of the issues
    and items that remain open in FRF are: 1) criminal restitution orders
    (generally have from 5 to 10 years remaining); 2) litigation claims and
    judgments obtained against officers and directors and other professionals
    responsible for causing thrift losses (judgments generally vary from 5 to
    10 years); 3) numerous assistance agreements entered into by the former
    FSLIC (FRF could continue to receive tax sharing benefits through year
    2020);

    4) goodwill and Guarini litigation (no final date for resolution has been
    established; see Note 4); and 5) environmentally impaired owned real
    estate assets. FDIC is considering whether enabling legislation or other
    measures may be needed to accelerate liquidation of the remaining FRF
    assets and liabilities. The FRF could realize substantial recoveries from
    item 3 ranging from $235 million to $760 million; however, any associated
    recoveries are not reflected in FRF's financial statements given the
    significant uncertainties surrounding the ultimate outcome.

    Receivership Operations

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

    2. Summary of Significant Accounting Policies

    General

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

    Use of Estimates

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

    Fair Value of Financial Instruments

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

                                         2 of 8

    FSLIC Resolution Fund's Financial Statements

                                 FSLIC Resolution Fund

    approximates their fair market value, due to their short maturities.

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

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

    Cost Allocations Among Funds

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

    Related Parties

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

    Reclassifications

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

    3. Receivables From Thrift Resolutions and Other Assets, Net

    Receivables From Thrift Resolutions

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

    As of December 31, 2003 and 2002, FRF receiverships held assets with a
    book value of $215 million and $290 million, respectively (including cash,
    investments, and miscellaneous receivables of $114 million and $146
    million at December 31, 2003 and 2002, respectively). The estimated cash
    recoveries from the management and disposition of these assets that are
    used to derive the allowance for losses are based on a sampling of
    receivership assets. The sampled assets are generally valued by estimating
    future cash recoveries, net of applicable liquidation cost estimates, and
    then discounting these net cash recoveries using current market

                                         3 of 8

    FSLIC Resolution Fund's Financial Statements

    FSLIC Resolution Fund

    based risk factors based on a given asset's type and quality. Resultant
    recovery estimates are extrapolated to the non-sampled assets in order to
    derive the allowance for loss on the receivable. These estimated
    recoveries are regularly evaluated, but remain subject to uncertainties
    because of potential changes in economic and market conditions. Such
    uncertainties could cause the FRF's actual recoveries to vary from the
    level currently estimated.

    Investment in Securitization-Related Assets Acquired from Receiverships

    This investment is classified as available-for-sale with unrealized gains
    and losses included in Resolution Equity. Realized gains and losses are
    recorded based upon the difference between the proceeds at termination of
    the deal and the book value of the investment and are included as
    components of Net Income. As of December 31, 2003, this investment
    includes credit enhancement reserves valued at $69 million and residual
    certificates valued at $21 million. The last securitization deal, valued
    at $60 million (including $39 million in credit enhancement reserves and
    $21 million in residual certificates), is expected to terminate in 2004.
    The remaining $30 million in credit enhancement reserves resulted from
    swap transactions where the former RTC received mortgage-backed securities
    in exchange for single-family mortgage loans. The former RTC supplied
    credit enhancement reserves for the mortgage loans in the form of cash
    collateral to cover future credit losses over the remaining life of the
    loans. These reserves may cover future credit losses through 2018.

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

    Dollars in Thousands

    2003 2002

               Receivables from closed thrifts $ 22,940,793 $ 27,636,213

                     Allowance for losses (22,846,309) (27,504,909)

                Receivables from Thrift Resolutions, Net 94,484 131,304

    Investment in securitization-related assets acquired from receiverships $ 90,272
                          $ 98,114 Other assets 13,676 22,511

                               Total $ 198,432 $ 251,929

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

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

    4 of 8

    FSLIC Resolution Fund's Financial Statements

                                 FSLIC Resolution Fund

    4. Contingent Liabilities for:

    Litigation Losses

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

    Additional Contingency

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

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

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

    The FDIC believes that it is probable that additional amounts, possibly
    substantial, 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.

                                         5 of 8

    FSLIC Resolution Fund's Financial Statements

                                 FSLIC Resolution Fund

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

    Guarini Litigation

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

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

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

    Representations and Warranties

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

    5. Provision for Losses

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

                                         6 of 8

    FSLIC Resolution Fund's Financial Statements

                                 FSLIC Resolution Fund

    6. Resolution Equity

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

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

    Resolution Equity at December 31, 2003

    Dollars in Thousands

                                          FRF

                                   FRF-FSLIC     FRF-RTC      Consolidated
                Contributed
                 capital -      $ 44,178,484 $  82,649,337  $   126,827,821
                 beginning
             Add: U.S. Treasury
                payments for           30                 0              30
                  goodwill
                 settlement
               Less: REFCORP                 0    (450,000)       (450,000)
                  payments
                Contributed        44,178,514   82,199,337      126,377,851
              capital -ending
                Accumulated       (41,241,633) (81,721,303)   (122,962,936)
                  deficit
              Less: Unrealized
                  gain on                    0       41,499          41,499
             available-for-sale
                 securities
                Accumulated       (41,241,633) (81,679,804)   (122,921,437)
                deficit, net
                   Total        $  2,936,881 $      519,533 $     3,456,414

    Contributed Capital

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

    Accumulated Deficit

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

    7. Employee Benefits

    Pension Benefits

    Eligible FDIC employees (permanent and term employees with appointments
    exceeding one year) are covered by the federal government retirement
    plans, either the Civil Service Retirement System (CSRS) or the Federal
    Employees Retirement System (FERS). Although the FRF contributes a portion
    of pension benefits for eligible employees, it does not account for the
    assets of either retirement system. The FRF also does not have actuarial
    data for

    7 of 8

    FSLIC Resolution Fund's Financial Statements

    FSLIC Resolution Fund

    accumulated plan benefits or the unfunded liability relative to eligible
    employees. These amounts are reported on and accounted for by the U.S.
    Office of Personnel Management.

    The FRF's pro rata share of pension-related expenses was $2.2 million and
    $4.6 million, as of December 31, 2003 and 2002, respectively.

    Postretirement Benefits Other Than Pensions

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

    8. Supplementary Information Relating to the Statements of Cash Flows

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

    Dollars in Thousands

    2003 2002

     Net Income $ 52,337 $ 490,545 Adjustments to Reconcile Net Income to Net Cash
                            Provided by Operating Activities

    Change in Assets and Liabilities:

             Decrease (Increase) in receivables from     46,410   (213,791)
               thrift resolutions and other assets
             Increase (Decrease) in accounts payable      4,973       (379)
                      and other liabilities
                Increase (Decrease) in contingent
              liabilities for litigation losses and         623     (4,758)
                              other
            Net Cash Provided by Operating Activities $ 104,343 $   271,617

    8 of 8

    Appendix I

    Comments from the Federal Deposit Insurance Corporation

    Appendix II

                         GAO Contacts and Staff Acknowledgments

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

    Acknowledgments	In addition to those named above, the following staff made
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    C. Craig, Anh Dang, Kristen A. Kociolek, Wing Y. Lam, Timothy J. Murray,
    Saurav B. Prasad, Lori Ryza, Ed Tanaka, Stacey L. Volis, and Gregory J.
    Ziombra.

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