2005 Annual Report
Chief Financial Officer
FDIC Chief Financial Officer
Steven O. App
I am pleased to report that overall, the deposit insurance funds remained
sound and exhibited healthy earnings throughout 2005. Additionally, estimated
losses from probable failures for both the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF) remain at or near historically low
for both deposit insurance funds.
For the fourteenth consecutive year, the U.S. Government Accountability Office
(GAO) issued unqualified audit opinions on the three funds administered by
FDIC (BIF, SAIF and the Federal Savings and Loan Insurance Corporation (FSLIC)
Resolution Fund). We are especially proud of this record and have dedicated
ourselves to ensuring that it continues in 2006 and beyond.
Financial highlights during 2005 include:
The BIF reported comprehensive income (net income plus current period unrealized
gains/losses on available-for-sale (AFS) securities) of $680 million in 2005
to $1.004 billion in 2004. This reduction of $324 million was primarily due
increase in unrealized losses on AFS securities of $279 million, lower recoveries
prior years' provisions for insurance losses of $143 million, an increase
expenses of $25 million, and a decrease in assessment revenues of $43 million,
offset by an increase of $161 million in interest revenue on U.S. Treasury
As of December 31, 2005, the fund balance was $35.5 billion, up from $34.8
at year-end 2004.
The SAIF reported comprehensive income of $409 million in 2005, compared
to $480 million in 2004. This reduction of $71 million was primarily due to
increase in unrealized losses on AFS securities of $93 million and lower recoveries
of prior years' provisions for insurance losses of $50 million, offset
by a $73 million
increase in interest revenue on U.S. Treasury obligations. As of December 31,
the fund balance was $13.1 billion, up from $12.7 billion at year-end 2004.
For both BIF and SAIF, higher interest revenue on U.S. Treasury obligations
stemmed from higher overnight and short-term Treasury yields, as well as
higher inflation compensation on Treasury Inflation-Protected Securities. However,
the higher interest revenue was more than offset by an increase in unrealized
losses that resulted from a rise in Treasury market yields on short- to intermediatematurity
AFS securities during 2005.
During 2005, we continued our efforts to provide effective stewardship of the
resources of the funds managed by the FDIC. The 2006 Corporate Operating
Budget, approved by the FDIC Board of Directors on December 5, 2005, is
5 percent less than the 2005 Corporate Operating budget. Projected savings
achieved primarily through significant staff reductions. Additionally, the
of a number of major capital investment projects will permanently reduce the
Corporation's cost base going forward. We are especially proud of our staff
successfully managing, to near completion, the Virginia Square facility expansion.
The project is expected to be completed in early 2006 both on time and under
budget and will result in substantial savings over our current leased space
The FDIC successfully implemented the New Financial Environment (NFE),
modernizing our aging, highly customized and complex financial systems
environment. This major systems modernization is part of our corporate-wide
initiative to achieve greater operational efficiencies, as well as to reduce
high costs of maintaining the expensive and outdated legacy systems that
were replaced or eliminated as a result of implementing NFE.
We successfully consolidated numerous existing information technology (IT)
contracts into fewer, longer-term strategic contracts. These ten -year agreements
encompass a broad range of IT services including infrastructure management,
application development and maintenance, organizational and management
support, data management and software process improvement. This IT contract
consolidation initiative is expected to reduce costs, improve services and
With respect to the requirements of the Federal Managers' Financial Integrity
Act of 1982, the FDIC's management made an assessment and concluded that
the system of internal controls, taken as a whole, complies with internal control
standards prescribed by the GAO and provides reasonable assurance that the
related objectives are being met.
During 2006, we will continue to work toward achieving the Corporation's
strategic goals and objectives. These include identifying and addressing risks
to the insurance funds, improving the deposit insurance system, and providing
Congress, other regulatory agencies, insured depository institutions, and the
public with critical and timely information and analysis on the financial condition
of both the banking industry and the FDIC-managed funds.
Steven O. App