II. Financial Highlights

Deposit Insurance Fund 

Performance 

The FDIC administers the Deposit 

Insurance Fund (DIF) and 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 DIF. (See the 

accompanying tables on FDIC-DIF

Insured Deposits on this page and 

DIF Insurance Fund Reserve Ratios 

on the following page.) 

For the year 2006, DIF’s comprehensive income totaled $1.6 billion 

compared to $1.1 billion in 2005, 

a year-over-year increase of approximately 44 percent. Excluding the 

recognition of exit fees earned of 

$345 million (a one-time adjustment), 

comprehensive income rose by 

$133 million from a year ago. This 

year-over-year increase is primarily 

due to a decrease in the unrealized 

loss on available-for-sale (AFS) securities of $348 million, which was offset 

by decreases in both interest earned 

on U.S. Treasury obligations of 

$101 million and the negative 

provision for loss of $108 million. 

(See the accompanying chart on 

Selected Statistics on page 32.)

The significantly lower unrealized loss 

on AFS securities primarily resulted 

from: 1) a smaller total market value 

of AFS securities, 2) a lower average 

duration for the AFS securities, and 

3) a smaller increase in the market 

yields of the AFS securities. However,

the lower unrealized loss was partially

offset by a decrease in interest 

revenue on U.S. Treasury obligations 

that resulted from lower inflation 

compensation on Treasury InflationProtected Securities.

 

 4,000

 3,500

 3,000

 2,500

 2,000

 1,500

 1,000

 500

 0

1960 1970 1980 1990 2000

FDIC-DIF Insured Deposits (estimated 1960-2006)●

Dollars in billions

2006

30

Federal Deposit Insurance Corporation

• All amounts are year-end except 2006 is at 9/30/06.

 From 1989 through 2005, amounts represent the sum of separate BIF and SAIF amounts.

 Source: Commercial Bank Call Reports and Thrift Financial Reports.
1.45

1.40

1.35

1.30

1.25

1.20

1.15

1.00

0

3/03 6/03 9/03 12/03 3/04 6/04 9/04 12/04 3/05 6/05 9/05 12/05 3/06 6/06 9/06 

DIF Insurance Fund Reserve Ratios (Fund Balances as a Percent of Insured Deposits)

Prior to 2006, amounts represent the sum of separate BIF and SAIF amounts.

31
the effects of inflation on the FDIC’s 

costs. That reduction was primarily 

attributable to significant reductions in 

staffing as well as a steady reduction

in resolutions and receivership activities resulting from the historically 

low number of bank failures.

Cost Reductions Realized 

through Staff Reductions

Salary and benefits costs represent 

more than 60 percent of the FDIC’s 

annual Corporate Operating Budget. 

Because compensation costs are so 

significant, the FDIC has engaged in 

a continuing effort to realign staffing 

Corporate Operating Budget 

Spending

The FDIC has had an exceptional 

record of controlling operating 

costs over the past five years, and 

2006 was no exception. Corporate 

Operating Budget expenses totaled 

$973 million in 2006, including $961 

million for ongoing operations and 

$12 million for receivership funding.

During the five-year period from 

2002 through 2006, the FDIC’s 

annual Corporate Operating Budget 

expenses declined from $1,189 million

to $973 million, a reduction of 

$216 million, or 18 percent, despite 

to reflect reduced workload requirements as it has moved past the 

banking and thrift crisis. Total FDIC 

staffing fell from 6,167 at the 

beginning of 2002 to 4,476 at yearend 2006, a 27 percent reduction 

over five years. As a result, spending 

for salaries and benefits decreased 

by 15 percent, from $737 million in 

2002 to $626 million in 2006, despite 

an increase of 17.7 percent in the 

salaries of individual employees 

during this period.

 For the years ended December 31

2006 2005 2004

Financial Results 

Revenue $ 2,644 $ 2,421 $ 2,240

Operating Expenses 951 966 941

Insurance and other expenses (46) (156) (334)

Net Income 1,739 1,611 1,633

Comprehensive Income 1,569 1,090 1,485

Insurance Fund Balance $ 50,165 $ 48,597 $ 47,507

Fund as a Percentage of Insured Deposits 1.22% 1.25% 1.31%

Selected Statistics

Total DIF-Member Institutions ●8,743 8,832 8,975

Problem Institutions 47 52 80

Total Assets of Problem Institutions $ 3,983 $ 6,607 $ 28,250

Institution Failures 0 0 4

Total Assets of Current Year Failed Institutions $ 0 $ 0 $ 166

Number of Active Failed Institution Receiverships 25 27 34

Selected Statistics Deposit Insurance Fund

Dollars in millions

▼

▼

▼

▼

▼ As of September 30, 2006.

● Commercial banks and savings institutions. Does not include U.S. branches of foreign banks.

32
 

 

$ Millions 

 1,500

 1,000

 500

 0

 2002 2003 2004 2005 2006 

 $1,189 1,008 1,004 990 973 

 5,430 5,311 5,078 4,514 4,476 

 FDIC Staffing and Operating Expenses

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Staff

•

• • • • •

33

Operating Expenses

Staff

 

 

$ Millions 

 3,000

 2,000

 1,000

 0

 2002 2003 2004 2005 2006 

 $ 2,303 2,095 2,148 2,440 2,392 

 $ 1,190 1,035 1,112 1,052 998 

 Total Interest Revenue vs. Operating and Investment Budget Spending

Total Interest Revenue

Total Budget Spending

A Continuing Record 

of Prudent Stewardship

Two comparisons illustrate the FDIC’s 

prudent stewardship of the insurance 

and resolution funds over the past 

five years. 

The FDIC relies primarily upon 

interest earned on the investments 

of the insurance and resolution funds 

for its operations. It is notable that 

the Corporation has reduced its operational spending even as the interest 

earned on the funds has increased 

significantly. As a result, the FDIC’s 

annual spending has dramatically 

declined as a percentage of interest 

revenue on the DIF and FRF. The 

aggregate interest revenue of the 

DIF and FRF grew to $2,392 million 

in 2006, while combined operating 

and investment budget spending 

fell to 42 percent of interest revenue,

down from 52 percent in 2002.

The Corporation’s prudent stewardship of the funds can also be seen 

when operating budget spending 

is compared to the growth of the 

industry over the past five years. The 

banking and thrift industry’s deposit 

insurance assessment base rose by 

approximately 39 percent during this 

period, from $4.6 trillion in 2002 to 

approximately $6.4 trillion in 2006. 

During that same period, the FDIC’s 

operating budget spending decreased

by 18 percent. As a result, the FDIC’s

operating budget spending represented 
 

 

$ Trillions 

 7.0

 6.0

 5.0

 4.0

 

 3.0

 2.0

 1.0

 0

 2002 2003 2004 2005 2006 

 $4.6 5.1 5.4 5.9 6.4 

 As the Assessment Base Increased . . .

 

 

$ Biillions 

 1.400

 1.200

 1.000

 0.800

 

 0.600

 0.400

 0.200

 0.000

 2002 2003 2004 2005 2006 

 $1.189 1.008 1.004 0.990 0.973 

 Operating Budget Spending Declined, and as a Result . . .

 

 

 

Percentage

 0.300

 0.200 

 0.100

 0.000

 2002 2003 2004 2005 2006 

 0.0258% 0.0198 0.0186 0.0168 0.0152 

 Spending has Declined Significantly as a Percentage 

 of the Assessment Base.

34

Assessment 

Base (Average)

Operating Budget 

Spending

Percent Spending 

to Assessment Base
only 0.0152 percent of the average 

deposit insurance assessment base 

in 2006, compared to 0.0258 percent 

of the average deposit insurance 

assessment base in 2002. 

These comparisons demonstrate 

the good value provided to the 

banking industry through the FDIC’s 

continuing commitment to prudent 

stewardship of the DIF.

2007 Corporate Operating Budget

Although its staffing realignment 

was essentially completed in 2006, 

the FDIC will continue to emphasize 

control of spending in 2007 and 

future years. In December 2006, 

the Board of Directors approved a 

2007 Corporate Operating Budget 

of approximately $1.107 billion, 

including $1.032 billion for ongoing 

operations. The approved 2007 

budget is 4.6 percent higher than 

the 2006 Corporate Operating Budget.

This limited budget increase was 

required for negotiated employee 

pay increases and included funding 

for a number of major new initiatives,

including additional staff for compliance examinations and other 

supervision functions, as well as 

increased funding for employee training, enhanced IT security and privacy 

programs, and completion of system 

changes required to support the 

implementation of deposit insurance 

reform. The Corporation realigned its 

spending priorities and reduced costs 

in other areas to address these priority

initiatives while limiting the size of 

the overall 2007 budget increase. 

In 2007 and future years, the FDIC 

will continue to rigorously review 

its workload and staffing and seek 

operational efficiencies through 

continuous improvement of its 

business processes.

Investment Spending

The FDIC instituted a separate 

Investment Budget in 2003. It has 

a disciplined process for reviewing 

proposed new investment projects 

and managing the construction and 

implementation of approved projects. 

Most of the projects in the current 

investment portfolio are major IT 

system initiatives. Proposed IT projects 

are carefully reviewed to ensure 

that they are consistent with the 

Corporation’s enterprise architecture. 

The project approval and monitoring 

processes also enable the FDIC to 

be aware of risks to the major capital 

investment projects and facilitate 

appropriate, timely intervention to 

address these risks throughout the 

development process. An investment

portfolio performance review is 

provided to the FDIC’s Board of 

Directors quarterly.

35

The Corporation undertook significant 

capital investments during the 2003-

2006 period, including construction 

of a major expansion of its Virginia 

Square facility and the implementation of 11 major new IT systems. 

Investment spending totaled $222 

million during this period, peaking at 

$108 million in 2004. Spending for 

investment projects in 2006 totaled 

approximately $25 million. During 

2006, the Corporation completed 

both the New Financial Environment 

(NFE) and Virginia Square Phase II 

investment projects. 

In 2007, investment spending will 

total an estimated $19 million to 

$23 million. The Board of Directors 

approved one major new investment 

project for insurance determination, 

the Claims Administration System, 

in late 2006.