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2003 Annual Report

I. Management's Discussion and Analysis – Financial Highlights

Deposit Insurance Fund Performance
The FDIC administers two deposit insurance funds - the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) - and manages the FSLIC Resolution Fund (FRF), which fulfills the obligations of the former Federal Savings and Loan Insurance Corporation (FSLIC) and the former Resolution Trust Corporation (RTC). The following summarizes the condition of the FDIC's insurance funds. (See the accompanying tables on FDIC-Insured Deposits, Insurance Fund Reserve Ratios and Risk-Related Premiums on the following pages.)

The BIF reported comprehensive income (net income plus current period unrealized gains/losses on available-for-sale securities) of $1.7 billion for the twelve months ending December 31, 2003, compared to $1.6 billion for the same period in the prior year. During 2003, estimated losses for future and actual failures, as well as litigation, decreased by $832 million, and operating expenses decreased by $16 million. However, these decreases in losses and espenses were partially offset by significant reductions in unrealized gains on available-for-sale securities ($576 million) and lower interest revenue on U.S. Treasury obligations ($162 million). As of December 31, 2003, the fund balance was $33.8 billion, up from $32.1 billion at year-end 2002.

BIF's contingent liability for anticipated failures declined by $830 million, or 82 percent, to $178 million for the year. This overall reduction in the reserves is primarily the result of improvements in the loss reserve methodology, and an improvement in the financial condition of a few large troubled institutions.

The SAIF reported comprehensive income of $493 million for the twelve months, ending December 31, 2003, compared to $812 million for the same period in the prior year. This difference of $318 million was primarily due to a decrease in unrealized gains on available-for-sale securities of $198 million, a slight reduction in interest revenue of $32 million, and a reduction in the estimated losses for future failures of $55 million. As of December 31, 2003, the fund balance was $12.2 billion, up from $11.7 billion at year-end 2002.

FDIC-Insured Deposits (estimated 1960 -2003)D

SAIF's contingent liability for anticipated failures decreased by $87 million, or 96 percent, to $3 million for the year. The overall reduction is the result of improvements in the loss reserve methodology and the improved financial condition of a few large troubled institutions. As of December 31, 2003, SAIF's current liabilities totaled less than one percent of the fund balance.

Operating Expenses
Corporate Operating Budget expenses totaled $1,008.2 million in 2003, including $968.6 million for ongoing operations and $39.6 million for receivership funding. These expenses represented approximately 98 percent of the approved budget for ongoing operations and 53 percent of the approved budget for receivership funding. Receivership funding expenses were down significantly from 2002 because of the smaller number of insured institution failures.

The Board of Directors approved a 2004 Corporate Operating Budget of approximately $1.1 billion, including just over $1.0 billion for ongoing operations. The level of approved spending in the 2004 budget remains virtually the same as that in 2003 due to continuing efforts to identify operational efficiencies and control costs. The Corporate Operating Budget includes funding for a number of major new initiatives, including the Corporate University and the Center for Financial Research.

The 2004 budget includes, for the first time, estimated funding requirements ($35 million) for litigation expenses projected to be incurred on behalf of the FDIC by the U.S. Department of Justice. These expenses have not previously been included in the annual Corporate Operating Budget, but were expensed directly to the appropriate receivership accounts. This change will increase the transparency of the Corporation's financial reporting.

Insurance Fund Reserve Ratios Percent of Insured DepositsD

Investment Spending
The FDIC has a disciplined process for reviewing proposed new capital investment projects and managing the implementation of approved projects. Most of the projects in the current investment portfolio are major IT systems initiatives.

Proposed projects are carefully reviewed to ensure that they are consistent with the Corporation's enterprise architecture and include an appropriate return on investment for the insurance funds. The process also enables the FDIC to be aware of risks to the major capital investment projects and facilitates appropriate, timely intervention to address these risks throughout the development process. An investment portfolio performance review of the major capital investments is provided to the FDIC Board of Directors quarterly. During 2003, the Board of Directors approved two new investment projects: (1) Legal Information Management System - $3.2 million and (2) Asset Servicing Technology Enhancement Project - $31.8 million.


Risk-Related Premiums
The following tables show the number and percentage of institutions insured by the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF), according to risk classifications effective for the first semiannual assessment period of 2003. Each institution is categorized based on its capitalization and a supervisory subgroup rating (A, B, or C), which is generally determined by on-site examinations. Assessment rates are basis points, cents per $100 of assessable deposits, per year.
BIF Supervisory Subgroups 1
  A B C
Well Capitalized:
Assessment Rate 0 3 17
Number of Institutions 7,400 (91.8%) 470 (5.8%) 82 (1.0%)
Adequately Capitalized:
Assessment Rate 3 10 24
Number of Institutions 82 (1.0%) 8 (0.1%) 13 (0.2%)
Undercapitalized:
Assessment Rate 10 24 27
Number of Institutions 0 (0.0%) 2 (0.0%) 1 (0.0%)
SAIF Supervisory Subgroups 2
Well Capitalized:
Assessment Rate 0 3 17
Number of Institutions 1,092 (91.5%) 81 (6.8%) 13 (1.1%)
Adequately Capitalized:
Assessment Rate 3 10 24
Number of Institutions 4 (0.3%) 1 (0.1%) 3 (0.3%)
Undercapitalized:
Assessment Rate 10 24 27
Number of Institutions 0 (0.0%) 0 (0.0%) 0 (0.0%)
1 BIF data exclude SAIF-member “Oakar” institutions that hold BIF-insured deposits. The assessment rate reflects the rate for BIF-assessable deposits, which remained the same throughout 2002.

2 SAIF data exclude BIF-member “Oakar” institutions that hold SAIF-insured deposits. The assessment rate reflects the rate for SAIF-assessable deposits, which remained the same throughout 2002.



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Last Updated 02/27/2004 communications@fdic.gov