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Message 

from the 

Chief 

Financial

Officer

Steven O. App 

I am pleased to report that, for the

eleventh consecutive year, the FDIC has

received unqualified “clean” opinions from

the U.S. General Accounting Office (GAO)

on audits of its 2002 financial statements 

for the Bank Insurance Fund (BIF), Savings

Association Insurance Fund (SAIF), 

and Federal Savings and Loan Insurance

Corporation Resolution Fund (FRF). These

clean opinions attest to the fact that our

financial statements are fairly presented and

demonstrate discipline and accountability 

in the execution of our responsibilities as

stewards of these funds.

The Corporation’s investment strategy reflects prudent management of the

$32.1 billion BIF and $11.7 billion SAIF. It is noteworthy that the interest earned

on investment securities last year accounted for 94.2 percent of revenues for

the BIF and 95.8 percent of revenues for the SAIF, with $2.26 billion in combined

interest earned. Another noteworthy result in 2002 was the large accumulation

of unrealized gains on Available for Sale (AFS) securities, particularly in the BIF.

For 2002, the BIF accumulated unrealized gains of $566 million, and the SAIF

accumulated unrealized gains of $192 million. In part, the large balances of 

unrealized gains helped to maintain the reserve ratios of the funds above the

Designated Reserve Ratio (DRR), which benefited the industry by avoiding 

insurance assessment premium payments. These two factors combined – strong

earnings on the investment portfolio and unrealized gains – helped to boost the

BIF by $1.6 billion, the largest calendar year increase since 1995.

Several initiatives focused on reengineering business processes to improve cost

measurement and containment. The FDIC budget was restructured to reflect an

ongoing operations component, a receivership operations component, and an

investment component to help better manage expenses. As a result of aggressive efforts to streamline corporate operations during 2002, the 2003 budget

includes estimated spending of $1.1 billion, which is seven percent lower than

2002 spending. The FDIC also established new and more rigorous procedures

for reviewing proposed capital investments. The centerpiece of this new

process is the Capital Investment Review Committee (CIRC), which will be

responsible for reviewing all major proposed information technology and other

investment initiatives before they are funded. The CIRC will carefully assess the

projected return on investment of each proposed project, and ensure that there is

a sound business case for each project.
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The Corporation initiated work on two major investment projects during 2002:

● In March, the Board of Directors unanimously approved the expansion of our 

Seidman Center office complex in Northern Virginia. The expanded facility will

house an additional 1,100 employees who are now working in leased space 

in downtown Washington, DC. We expect to break ground for the expanded 

facility in 2003, with completion scheduled for 2006. This expansion will 

reduce future facility costs by an estimated $78 million (net present value) 

over the next 20 years.

● During the fourth quarter, we began development of an integrated financial 

system, scheduled to be implemented in July 2004. This “New Financial 

Environment” will improve business processes by adopting the best business

practices built into software packages, simplify and consolidate financial 

systems and data, and enhance the Corporation’s ability to address its future 

financial management and information needs. It will also substantially reduce 

the costs of financial management and reporting.

The FDIC continues to focus on information technology challenges. During 2002,

we conducted a self assessment, with an emphasis on information security, to

evaluate our progress in addressing prior audit findings. The FDIC information

security program will continue to be strengthened in 2003 to ensure that key

management tools are in place to support the Corporation’s mission and strategic

goals.

The FDIC has evaluated its risk management and internal control systems in

accordance with the reporting requirements of the Federal Managers’ Financial

Integrity Act of 1982 (FMFIA) and GAO internal control standards. Based on

these assessments, I can provide you with reasonable assurance that the

Corporation’s risk management and internal control systems, taken as a 

whole, are in conformance with the standards prescribed by GAO and that 

the objectives of FMFIA have been achieved.

Finally, this year’s Annual Report has been redesigned to help streamline our

reporting process by combining the Chief Financial Officers Act Report, the

Program Performance Report, and the traditional Annual Report. The performance

results contained in this combined report summarize our success in achieving

the goals we established for 2002. Our priority is to provide timely, reliable and

useful data to our stakeholders. To that end, the FDIC will continue to employ

sound financial management techniques and emphasize the importance of 

a strong risk management and internal control program to meet its statutory,

regulatory and fiduciary responsibilities.

Sincerely,

Steven O. App