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FFIEC
Federal Financial Institutions Examination Council Washington, D.C. 20006 |
Call Report Date: September 30, 2005 |
| Third 2005 Call, Number 233 |
Supplemental Instructions
September 2005 Call Report Materials
A sample set of the September 30, 2005, report form applicable to your bank is enclosed. Banks with domestic offices only must file the FFIEC 041 report form. Banks with domestic and foreign offices must file the FFIEC 031 report form.
Please retain the enclosed sample report form for reference. Sample forms also are available on both the FFIEC's Web site ( http://www.ffiec.gov/ffiec_report_forms.htm ) and the FDIC's Web site ( http://www.fdic.gov/regulations/resources/call/index.html ). A paper copy of the Call Report forms, including the cover (signature) page, can be printed from the Web sites. In addition, banks that use Call Report software generally can print paper copies of blank forms from their software. Please note that, with the implementation this quarter of the FFIEC's Central Data Repository (CDR) and the availability of sample Call Report forms on the Internet and from Call Report software, the agencies plan to discontinue the regular quarterly mailing of sample Call Report forms to banks in the near future. The agencies will provide advance notice to banks as to when this change in policy will take effect.
Submission of Completed Reports
Beginning this quarter, all banks' Call Report data must be submitted to the FFIEC's Central Data Repository (CDR), an Internet-based system for data collection ( https://cdr.ffiec.gov/cdr/ ) using one of the two methods described in the banking agencies' cover letter for the September 30, 2005, report date. For technical assistance with submissions to the CDR, please contact the CDR Help Desk by telephone at (888) CDR 3111, by fax at (301) 495-7864, or by e-mail at CDR.Help@ffiec.gov .
Banks are required to maintain in their files a signed and attested hard-copy record of the Call Report data file submitted to the CDR. The appearance of this hard-copy record of the submitted data file need not match exactly the appearance of the FFIEC's sample report forms, but should show at least the caption of each Call Report item and the reported amount. Either the cover page of the enclosed sample set of report forms, a photocopy of the cover page, or a copy of the cover page printed from Call Report software or from the FFIEC's or the FDIC's Web site should be used to fulfill the signature and attestation requirement. The signed cover page should be attached to the hard-copy record of the Call Report data file that must be placed in the bank's files.
Currently, Call Report preparation software products marketed by DBI Financial Systems, Inc.; Fidelity Regulatory Solutions (previously The InterCept Group); Financial Architects US; FRS, an S1 Corporation Business; IDOM, Inc.; Information Technology, Inc.; and Jack Henry & Associates, Inc. (previously Sheshunoff Information Services) meet the technical specifications for producing Call Report data files that are able to be processed by the CDR. The addresses and telephone numbers of these vendors are listed at the end of these Supplemental Instructions.
Amending Previously Submitted Reports
Should your bank find that it needs to revise Call Report data in its report for June 30, 2005, or an earlier date, please contact your Call Report analyst at the FDIC (for national and FDIC-supervised banks) or your Federal Reserve District Bank (for state member banks) for instructions on how to submit amendments to prior period data. Corrections to prior period data will no longer be accepted by Electronic Data Systems Corporation (EDS), the agencies' pre-CDR electronic collection agent.
FFIEC Instruction Books
Enclosed with this quarter's Call Report materials is an update to your Call Report instruction book. Please follow the filing instructions on the inside of the cover page of the update package. Copies of the Call Report instructions may be obtained from the FDIC's Data Collection and Analysis Section (telephone toll free at 800-688-FDIC) or from your Federal Reserve District Bank. The Call Report instructions are also available on both the FFIEC's and the FDIC's Web sites.
FASB Statement No. 123 (Revised 2004) and Share-Based Payments
FASB Statement No. 123 (Revised 2004), Share-Based Payment (FAS 123(R)), requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments, e.g., stock options and restricted stock, granted to employees. Banks must adopt FAS 123(R) for Call Report purposes in accordance with the standard's effective date and transition provisions. Public companies other than small business issuers, including banks that are subsidiaries of such public companies, must adopt FAS 123(R) as of the beginning of their first fiscal year beginning after June 15, 2005. All other companies, including small business issuers and banks that are not subsidiaries of public companies, must adopt FAS 123(R) as of the beginning of their first fiscal year beginning after December 15, 2005. Thus, all banks with a calendar year fiscal year must implement FAS 123(R) as of January 1, 2006.
Under FAS 123(R), the "compensation cost for an award of share-based employee compensation classified as equity shall be recognized over the requisite service period," which is typically the same as the vesting period, "with a corresponding credit to equity (generally, paid-in capital)." The recording of the compensation cost also gives rise to deferred tax consequences, i.e., a deferred tax asset, that must be recognized (and evaluated for realizability). For Call Report purposes, the compensation expense should be included in Schedule RI, item 7.a., "Salaries and employee benefits," with the corresponding credit included in Schedule RC, item 25, "Surplus." In Schedule RI-A, Changes in Equity Capital, this credit should be included in item 5, "Sale, conversion, acquisition, or retirement of capital stock, net." This reporting treatment applies regardless of whether the shares awarded to the employee are shares of bank stock or shares of the bank's parent holding company.
Privatization of the Student Loan Marketing Association
On December 29, 2004, the Student Loan Marketing Association (SLMA), a government-sponsored enterprise created in 1972, was dissolved. On that date, SLMA defeased its remaining debt obligations by transferring them into a special and irrevocable trust and depositing U.S. Treasury securities with the trustee in amounts sufficient to pay the principal of and interest on its debt obligations. For Call Report purposes, banks should continue to report SLMA debt obligations held for purposes other than trading as securities issued by U.S. Government-sponsored agencies in Schedule RC-B, item 2.b. Similarly, SLMA debt obligations held for trading purposes (in domestic offices) should continue to be reported as U.S. Government agency obligations in Schedule RC-D, item 2. Banks should refer to the guidance in their primary federal regulator's risk-based capital standards on the treatment of collateralized claims to determine the appropriate risk weight for these SLMA debt securities.
SLM Corporation, the successor to SLMA, is a private-sector corporation that has issued debt securities, including commercial paper. Banks should report SLM Corporation debt securities held for purposes other than trading as "Other domestic debt securities" in Schedule RC-B, item 6.a. SLM Corporation debt securities held for trading purposes (in domestic offices) should be reported as "Other debt securities" in Schedule RC-D, item 5. Banks should report holdings of securitized student loans issued by SLM Corporation (or its affiliates) as asset-backed securities in Schedule RC-B, item 5, unless held for trading purposes. Holdings of SLM Corporation common stock and preferred stock should be reported in Schedule RC-B, item 7, unless held for trading purposes. SLM Corporation debt securities, common stock, and preferred stock should be risk-weighted 100 percent. Its asset-backed securities should be risk-weighted in accordance with the ratings-based approach described on page RC-R-16 of the Call Report instructions.
Agency Prepayment-Linked Notes
In 2004, the Federal National Mortgage Associations (Fannie Mae) and the Federal Home Loan Banks began to issue a type of fixed rate debt securities known as prepayment-linked or index amortizing notes. Principal and interest on the notes are paid monthly, with the principal payments indexed to the prepayment performance of a reference pool of mortgages or a reference mortgage-backed security. However, the notes are not collateralized by the mortgages or mortgage-backed security and they have stated final maturity dates that are generally 5 to 12 years from the date of issuance.
Because these securities are direct unsecured obligations of the issuing government-sponsored agency, banks should report their holdings of these prepayment-linked notes in Schedule RC-B, item 2.b, if they are not held for trading purposes. In addition, these securities are considered structured notes because of their repayment characteristics and, if not held for trading purposes, must also be reported in Schedule RC-B, Memorandum item 4. For risk-based capital purposes, these agency prepayment-linked notes are a claim on a U.S. government-sponsored agency and should be assigned a 20 percent risk weight.
Reporting the Number and Amount of Deposits and Uninsured Deposits in Schedule RC-O
Banks must report the number and amount of deposit accounts of $100,000 or less and of deposit accounts of more than $100,000 in Schedule RC-O, Memorandum item 1. In addition, banks must report their estimated uninsured deposits in Schedule RC-O, Memorandum item 2. These Memorandum items cover deposits in domestic offices of the bank (and in insured branches in Puerto Rico and U.S. territories and possessions). When completing Memorandum items 1 and 2, banks should exclude deposits of consolidated subsidiaries held in the domestic offices of the bank (and in insured branches in Puerto Rico and U.S. territories and possessions) that have been eliminated in consolidation in accordance with the "Rules of Consolidation" in the General Instructions section of the Call Report instructions.
Tobacco Transition Payment Program
The Fair and Equitable Tobacco Reform Act, commonly referred to as the "Tobacco Buyout," was enacted into law on October 22, 2004, as part of the American Jobs Creation Act of 2004. This Act established the Tobacco Transition Payment Program, which is administered by the U.S. Department of Agriculture (USDA). Under this program, the Commodity Credit Corporation (CCC) will make annual payments to eligible tobacco quota holders (i.e., landowners) and tobacco producers (i.e., farmers) beginning in 2005 and ending in 2014.
The CCC will not make a lump-sum payment to an individual quota holder or producer in lieu of annual payments. However, the statute and the rules implementing the tobacco buyout program permit a private party, such as a bank, to make a lump-sum payment to the quota holder or producer in return for the right to receive one or more of the annual payments to be made by the CCC under the buyout program. More specifically, a quota holder or producer can obtain a lump-sum payment from a bank or other party by executing an "assignment" of tobacco buyout payments or a "successor-in-interest" contract. Under both of these financing arrangements, the consideration paid to the quota holder or producer must be greater than or equal to the present value of the transferred annual payments discounted at the prime rate plus two percentage points rounded to the nearest whole number. Assignment contracts and successor-in-interest contracts become effective only upon the approval of the CCC. The annual payments by the CCC will be made directly to the assignee or successor party.
However, any annual payments to be made to a bank or other party under an assignment contract will be reduced if the quota holder or producer owes any debt to an agency of the United States at any time over the life of the contract, thereby exposing the assignee to credit risk. On the other hand, on a successor-in-interest contract, a successor party obtains all rights to the transferred payments and the annual payments cannot be reduced for any debt owed by the quota holder or producer to an agency of the United States subsequent to the CCC's approval of the successor-in-interest contract. Nevertheless, the CCC will reduce any annual payments to the successor party if the successor owes any debt to an agency of the United States. In addition, the CCC will not issue a payment to the successor to a producer contract if the successor is not in compliance with wetlands and highly erodible land provisions of the USDA's regulations or is convicted of trafficking in controlled substances.
Banks that enter into CCC-approved assignment contracts and successor-in-interest contracts and make lump-sum payments to tobacco quota holders or producers should report these financing arrangements as "Loans to finance agricultural production and other loans to farmers" in Schedule RC-C, part I, item 3. The discount reflected in these lump-sum payments should be recognized as interest income over the life of the contract using the interest method.
For risk-based capital purposes, assignment contracts should be risk weighted at 100 percent because of the potential exposure to payment reductions for any debt owed by the quota holder or producer to an agency of the United States as outlined above. Successor-in-interest contracts from quota holders are, in essence, unconditionally guaranteed by the U.S. Government and should be risk weighted at zero percent. In contrast, successor-in-interest contracts from producers are considered conditionally guaranteed and should be risk weighted at 20 percent. The agencies are reviewing recent actions taken by the CCC to determine whether a change is warranted in the risk weight for successor-in-interest contracts from producers.
Other-Than-Temporary Impairment of Securities and EITF Issue No. 03-1
Under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities , an institution must determine whether an impairment of an individual available-for-sale or held-to-maturity security is other than temporary. An impairment occurs whenever the fair value of a security is less than its (amortized) cost basis. If an impairment is judged to be other than temporary, the cost basis of the individual security must be written down to fair value through earnings, thereby establishing a new cost basis for the security.
In March 2004, the FASB ratified the consensus reached by its Emerging Issues Task Force (EITF) on EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments . The EITF's consensus applies to debt and equity securities accounted for under FASB Statement No. 115, i.e., held-to-maturity securities and available-for-sale securities, and to equity securities that do not have readily determinable fair values that are accounted for at cost. The consensus was intended to provide additional guidance for determining whether investments in these securities have incurred an other-than-temporary impairment.
The FASB has indefinitely delayed the effective date for the measurement and recognition guidance contained in EITF Issue No. 03-1. In the meantime, institutions should continue to apply relevant other-than-temporary impairment guidance as required by existing authoritative literature, including FASB Statement No. 115, EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets , and Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 59, Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities (Topic 5.M. in the Codification of Staff Accounting Bulletins).
AICPA Statement of Position 03-3 on Purchased Impaired Loans and Debt Securities
In December 2003, the AICPA issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer . In general, this Statement of Position applies to "purchased impaired loans and debt securities," i.e., loans and debt securities that a bank has purchased, including those acquired in a purchase business combination, when there is evidence of deterioration of credit quality since the origination of the loan or debt security and it is probable, at the purchase date, that the bank will be unable to collect all contractually required payments receivable. The Statement of Position applies to loans and debt securities acquired in fiscal years beginning after December 15, 2004. Banks must follow Statement of Position 03-3 for Call Report purposes. The Statement of Position does not apply to the loans that a bank has originated. For further information on this Statement of Position, please refer to the new Glossary entry for "Purchased Impaired Loans and Debt Securities" and the revised Glossary entry for "Allowance for Loan and Lease Losses," which were included in the update to the Call Report instruction book that was included in the June 30, 2005, Call Report materials. The June 30 update also included instructions for three items pertaining to purchased impaired loans that were added to the Call Report as of that date: Schedule RC-C, part I, Loans and Leases, Memorandum items 7.a and 7.b, and Schedule RI B, part II, Changes in Allowance for Loan and Lease Losses, Memorandum item 4.
Commitments to Originate and Sell Mortgage Loans
On May 3, 2005, the agencies issued an Interagency Advisory on Accounting and Reporting for Commitments to Originate and Sell Mortgage Loans. The advisory provides supplemental guidance on the appropriate accounting and reporting for commitments to originate mortgage loans that will be held for resale, which the advisory refers to as derivative loan commitments, and for commitments to sell mortgage loans under mandatory delivery and best efforts contracts. It also addresses the guidance that banks should consider in determining the fair value of derivatives, including SEC Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments , which applies to the recognition of derivative loan commitments. The interagency advisory can be accessed on each of the agencies' Web sites.
Commitments to originate mortgage loans that will be held for resale, i.e., derivative loan commitments, are derivatives and must be accounted for at fair value on the balance sheet by the issuer. All loan sales agreements, including both mandatory delivery and best efforts contracts, must be evaluated by both the seller and the purchaser to determine whether the agreements meet the definition of a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities , as amended by FASB Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities . Institutions should also account for loan sales agreements that meet the definition of a derivative, which the advisory refers to as forward loan sales commitments, at fair value on the balance sheet.
According to the advisory, under a typical derivative loan commitment, the borrower can choose to
(1) "lock-in" the current market rate for a fixed-rate loan, i.e., a fixed derivative loan commitment;
(2) "lock in" the current market rate for an adjustable-rate loan that has a specified formula for determining when and how the interest rate will adjust, i.e., an adjustable derivative loan commitment; or
(3) wait until a future date to set the interest rate and allow the interest rate to "float" with market interest rates until the rate is set, i.e., a floating derivative loan commitment.
Banks are expected to apply the guidance in the advisory when preparing their Call Reports. However, until certain questions that have been raised about floating derivative loan commitments are resolved, institutions should follow their existing reporting policies for floating derivative loan commitments and need not account for and report these commitments as derivatives for Call Report purposes. All other derivative loan commitments should be reported in the Call Report with a bank's over-the-counter written interest rate options in Schedule RC-L, Derivatives and Off-Balance Sheet Items, not as unused commitments in item 1 of Schedule RC-L. For further information on the reporting of these derivative loan commitments, please refer to the guidance on this subject in the Call Report Supplemental Instructions for June 30, 2005, which can be accessed via the FFIEC's Web site ( http://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200506.pdf ). Those Supplemental Instructions also address the reporting of commitments to originate mortgage loans that will be held for investment purposes and commitments to originate other types of loans, both of which are not considered derivatives.
GNMA Mortgage Loan Optional Repurchase Program
A seller-servicer must report all delinquent residential mortgage loans backing Government National Mortgage Association mortgage-backed securities that must be rebooked as assets in accordance with FASB Statement No. 140 (GNMA loans), whether they have been repurchased or are eligible for repurchase, as loans held for sale (Schedule RC, item 4.a) or loans held for investment (Schedule RC, item 4.b), based on facts and circumstances, in accordance with generally accepted accounting principles. In addition, if a bank services GNMA loans, but was not the transferor of the loans that have been securitized, and purchases individual delinquent loans out of the GNMA securitization, the bank must also report the purchased loans as loans held for sale or held for investment. All GNMA loans recognized as assets should be reported as past due in Schedule RC-N in accordance with their contractual repayment terms. Such delinquent GNMA loans should be reported in items 1.c, 10, and 10.b of Schedule RC-N. This reporting treatment for delinquent GNMA loans is discussed in the revised instructions for Schedules RC-C, part I, and RC-N that were included in the Call Report instruction book update in the June 30, 2005, Call Report materials.
In addition, an institution that forecloses on real estate backing a delinquent GNMA loan should report the property as "other real estate owned" and not as an "other asset" on the Call Report balance sheet. However, because this has not been the common reporting practice for these foreclosed properties, institutions should continue to report these properties in their Call Reports in accordance with their existing reporting policies for such properties through the December 31, 2005, report date. Thereafter, i.e., beginning with the March 31, 2006, report date, all institutions should report foreclosed real estate from GNMA loans as "other real estate owned" on the balance sheet. At that time, the agencies will add a new subitem to Schedule RC-M, item 3.b, "All other real estate owned," to enable institutions to separately disclose the amount of such foreclosed real estate.
FASB Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities
Banks should continue to follow the guidance provided on this subject in the Call Report Supplemental Instructions for June 30, 2005. These Supplemental Instructions can be accessed via the FFIEC's Web site ( http://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200506.pdf ).
Reporting Asset-Backed Commercial Paper Conduits in Schedule RC-R
Banks should continue to follow the guidance provided on this subject in the Call Report Supplemental Instructions for March 31, 2005. These Supplemental Instructions can be accessed via the FFIEC's Web site ( http://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200503.pdf ).
Reporting of Funds Invested Through Bentley Financial Services, Inc.
Banks should continue to follow the guidance provided on this subject in the Call Report Supplemental Instructions for June 30, 2003. These Supplemental Instructions can be accessed via the FFIEC's Web site ( http://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst0603.pdf ).
Call Report Software Vendors
For information on available Call Report preparation software products, banks should contact:
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DBI Financial Systems, Inc.
P.O. Box 14027 Bradenton, Florida 34280 Telephone: (800) 774-3279 www.e-dbi.com |
Fidelity Regulatory Solutions
(previously The InterCept Group) 27200 Agoura Road, Suite 100 Calabasas Hills, California 91301 Telephone: (800) 825-3772 www.callreporter.com |
Financial Architects US
12040 Provincetowne Drive Charlotte, North Carolina 28277 Telephone: (800) 763-7070 www.finarch.com |
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FRS, an S1 Corporation Business
2815 Coliseum Centre Drive, Suite 300 Charlotte, North Carolina 28217 Telephone: (704) 501-5619 www.frsglobal.com |
IDOM, Inc.
One Gateway Center, Third Floor Newark, New Jersey 07102 Telephone: (973) 648-0900 www.idomusa.com |
Information Technology, Inc.
1345 Old Cheney Road Lincoln, Nebraska 68512 Telephone: (402) 423-2682 www.itiwnet.com |
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Jack Henry & Associates, Inc.
Regulatory Filing Group (previously Sheshunoff Information Services) 7600B North Capital of Texas Highway, Suite 320 Austin, Texas 78731 Telephone: (800) 688-9191 filing.jackhenry.com |