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Message 

from the 

Chief 

Financial

Officer

Steven O. App

I am pleased to report that the funds

managed by the FDIC maintained their

strong financial condition in 2004 and to

highlight some of our accomplishments 

in this area.

The U.S. Government Accountability Office

(GAO) again issued unqualified audit opinions

for all three funds administered by the

Corporation (Bank Insurance Fund, Savings

Association Insurance Fund, and the Federal

Savings and Loan Insurance Corporation

(FSLIC) Resolution Fund). This marks the

13th consecutive year that we received

unqualified opinions, and demonstrates 

our continued dedication to sound financial management and the reliability of the

financial data upon which we make critical decisions. I would like to extend my

sincere appreciation to the many individuals whose hard work allowed the FDIC

to achieve this milestone.

Financial highlights during 2004 include: ● The Bank Insurance Fund (BIF) increased by $1.0 billion to $34.8 billion, and 

the Savings Association Insurance Fund (SAIF) increased by $480 million 

to $12.7 billion, compared to increases of $1.7 billion and $493 million 

respectively, in 2003.

● Comprehensive income for BIF was $1 billion. This was substantially lower 

than the $1.7 billion reported last year. This reduction was primarily due to a 

significant deceleration in the rate at which the provision for insurance losses 

declined during 2004 when compared to 2003. For 2003, the reduction in the 

provision for insurance losses added $931 million to comprehensive income, 

while for 2004 it added only $269 million – a $662 million difference. Earnings 

on U.S.Treasury obligations were also $80 million lower than in 2003. 

● Comprehensive income for SAIF was $480 million. This was slightly lower 

than the $493 million reported last year. This reduction was primarily due 

to lower earnings on U.S. Treasury obligations of $6 million in 2004 compared 

to 2003. 

● Both the BIF and the SAIF reported unrealized losses on available-for-sale 

securities in 2004 of $112 million and $36 million, respectively. The deposit 

insurance funds experienced such unrealized losses two years in a row. 

These unrealized losses were largely due to the fact that U.S.Treasury 

yields generally increased throughout much of the latter half of 2003 and 

2004, after dropping sharply in 2002 and early 2003. Despite the modest 

unrealized losses in 2004, cumulative unrealized gains in the funds remained 

high at $690 million in the BIF and $238 million in the SAIF.

We continued our efforts to reduce operating costs in 2004. The Board of Directors

approved a 2005 Corporate Operating Budget that was virtually unchanged from

the 2004 Corporate Operating Budget, despite absorbing higher salary and 

benefits cost and inflation in non-personnel costs. Total estimated 2005 spending

(including 2005 spending for previously approved multi-year investment projects)

is estimated to be about $36 million or 2.9 percent lower than in 2004. The

FDIC’s Capital Investment Review Committee (CIRC) also continued to focus 
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on sound development of large-scale IT-related projects as well as improvements

in the management of investment spending. Several major IT projects were 

re-baselined in 2004, and the Corporation is committed to completing these 

projects within their revised schedules and budgets. 

The FDIC also made considerable progress in 2004 in enhancing its information

security programs, taking positive actions in a number of key security program

areas. The FDIC provided security awareness training to its employees and 

contractors, and is working diligently to address recent and emerging IT security

standards and guidelines developed by the National Institute of Standards and

Technology (NIST). Information technology and systems security remain high 

priorities at the FDIC, and we are continuously working to strengthen controls in

these areas. The Office of Inspector General (OIG) recently completed its annual

evaluation of information systems security at the FDIC, as mandated by the

Federal Information Security Management Act of 2002, and identified no 

significant deficiencies that warrant consideration as potential material 

weaknesses.

The FDIC 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. We have 

identified no material weaknesses that would affect the accuracy of the financial

statements. This report describes our continuing efforts to provide timely and

useful performance information to FDIC managers, OMB, and the Congress.

Based on these internal management evaluations, and in conjunction with the

results of GAO’s independent financial statements audits, I can certify with 

reasonable assurance that the FDIC's risk management and internal control

systems, taken as a whole, are in conformance with the standards prescribed 

by GAO and that we are in compliance with the requirements of FMFIA. 

In 2005, the FDIC will continue to focus on effective cost management, produce

timely and reliable financial information, and maintain a strong enterprise-wide

risk management and internal control program. 

Sincerely,

Steven O. App