Executive Summary - Fourth Quarter 2005

This report highlights the Corporation's financial activities and results for the twelve-month period ending December 31, 2005.

• Recently enacted deposit insurance reform legislation calls for the merger of the BIF and SAIF no later than July 1, 2006. The FDIC will merge the funds on March 31, 2006, and begin reporting on the combined fund—the Deposit Insurance Fund (DIF)—at that time. If deposit insurance reform legislation had already been in effect on September 30, 2005, the reserve ratio for the DIF would have been 1.27 percent.

• In 2005, BIF and SAIF reported comprehensive income of $680 million and $409 million, respectively, which represent year-over-year declines of 32 percent (BIF) and 15 percent (SAIF). These reductions in earning are part of a multi-year trend: BIF's comprehensive income has decreased by 61 percent since 2003, whereas SAIF's has declined by 50 percent since 2002. These earnings reductions are largely the result of higher unrealized losses on available-for-sale (AFS) securities and lower recoveries of prior years’ provisions for insurance losses.

• Increases in overnight and short-term Treasury yields and the inflation compensation on Treasury Inflation-Protection Securities (TIPS) resulted in higher interest revenue on U.S. Treasury obligations for both BIF and SAIF. However, the rise in Treasury market yields on short- to intermediate-maturity available-for-sale securities resulted in an increase to unrealized losses.

• For the twelve months ending December 31, 2005, operating- and investment-related expenditures ran below budget by 10 percent and 20 percent, respectively. The variance with respect to the operating budget expenditures was primarily the result of limited resolutions and receivership activities in the Receivership Funding component of the operating budget during 2005.
  

On the pages following is an assessment of each of the three major finance areas: financial statements, investments, and budget.