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2003 Annual Report
I. Management's Discussion and Analysis – Financial Highlights
Deposit Insurance Fund Performance
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.
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.
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.
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.
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