Message from the Chief Financial Offi cer • Steven O. App

2006 Annual Report

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I am pleased to join Chairman Bair in presenting our 2006 Annual Report. The 

report covers financial and program performance information and summarizes 

our successes for the year. The FDIC takes pride in providing timely, reliable 

and meaningful information to its many stakeholders. 

As a result of the passage of deposit insurance reform legislation, the Bank 

Insurance Fund and the Savings Association Insurance Fund were merged 

on March 31, 2006, to create the Deposit Insurance Fund (DIF). Overall, the 

combined fund remained financially sound throughout the year and I can proudly 

report that the U.S. Government Accountability Office (GAO), for the fifteenth 

consecutive year, issued unqualified audit opinions on the annual financial 

statements for both funds administered by the FDIC – the DIF and the 

Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund. 

These unqualified audit opinions validate our efforts to ensure that the financial 

statements of the funds for which we are stewards are fairly presented. This 

achievement also exemplifies the hard work and dedication of the FDIC staff.

FDIC’s financial highlights during 2006 include: 

In 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 insurance losses of $108 million.

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 Inflation-Protected Securities.

During 2006, we continued our efforts to control costs and to prudently manage 

the funds administered by the FDIC. Annual budgeted operating expenditures 

in 2006 totaled approximately $973 million, which represents a decline of 

$17 million (1.7 percent) from 2005. As Chairman Bair indicates in her message, 

the FDIC has an exceptional record of controlling its budgeted operational 

spending, which declined by $216 million (18 percent) from 2002 to 2006. The 

FDIC Board of Directors, on December 5, 2006, approved a 2007 Corporate 

Operating Budget totaling $1.1 billion, a modest 4.6 percent increase over 

the 2006 budget, largely due to the cost of employee pay increases negotiated 

for 2007. 

Capital investment spending also declined substantially in 2006 to $25 million. In 

2006, we completed two major investment projects, the Virginia Square Phase II 

building and the New Financial Environment (NFE) (an integrated state-of-the-art 

financial system), reducing to three the inventory of active investment projects. 

This is down from a high of ten active projects in 2003 and 2004. In late 2006, 
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the FDIC Board approved a new investment project, an insurance claims

determination system. It is the first new investment project approved since 

2003. Investment spending is projected to total between $19 million and 

$23 million in 2007. 

We are especially proud of our staff for the successful completion of Virginia 

Square Phase II – an outstanding facility that should serve the Corporation well 

for years to come. The project was completed on time and under budget, and 

has begun to yield substantial cost savings for the FDIC. We are also beginning 

to explore how to leverage the enhanced capabilities of the NFE to continue 

to improve our financial and cost management.

In accordance with the requirements of the Federal Managers’ Financial Integrity 

Act of 1982, the FDIC’s management conducted its annual 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.

Looking ahead to 2007, the FDIC will continue to work toward sound management 

of the Corporation’s financial and other resources.

Sincerely,

Steven O. App