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 [email protected].

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.

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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

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

GAO's Mission	The General Accounting Office, the audit, evaluation and
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