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Inactive Financial Institution Letters 

[Federal Register: June 30, 1995 (Volume 60, Number 126)]
[Page 34252-34257]
From the Federal Register Online via GPO Access 



Proposed Schedule on Trust Income and Expense

AGENCY: Federal Financial Institutions Examination Council.

ACTION: Request for comment.


SUMMARY: The Federal Financial Institutions Examination Council (FFIEC) 
\1\ proposes to add Schedule E--Fiduciary Income Statement (Schedule) 
to the Annual Report of Trust Assets (FFIEC 001). The agencies 
currently have no other source which provides trust income and expense 
data in a consistent and timely manner from those institutions engaged 
in fiduciary activities that are supervised by the agencies. The 
information requested would help the agencies monitor and evaluate the 
performance of and risks associated with the fiduciary industry.

    \1\ The FFIEC consists of representatives from the Board of 
Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), the Office of the Comptroller of the 
Currency (OCC), the Office of Thrift Supervision (OTS) (referred to 
as the ``agencies''), and the National Credit Union Administration. 
However, this request for comment is not directed to credit unions. 
Section 1006(c) of the Federal Financial Institutions Examination 
Council Act requires the FFIEC to develop uniform reporting 
standards for federally-supervised financial institutions.

    The proposed Schedule would be required to be filed by all trust 
institutions with $100 million or more in total trust assets as 
reported on Schedule A, Annual Report of Trust Assets, on Form FFIEC 
001. In addition, all non-deposit trust companies, whether or not they 
report any assets on Schedule A, would be required to file this 
Schedule. The proposed Schedule would be prepared on a calendar year 
basis beginning with the year ending December 31, 1996.

DATES; Comments must be received by August 29, 1995.

ADDRESSES: Comments should be directed to Joe M. Cleaver, Executive 
Secretary, Federal Financial Institutions Examination Council, 2100 
Pennsylvania Avenue, NW, Suite 200, Washington, D.C. 20037. (Fax number 
(202) 634-6556.)

    Board: Donald R. Vinnedge, Manager, Trust Activities Program, (202) 
452-2717; William R. Stanley, Supervisory Trust Analyst, Trust 
Activities Program, (202) 452-2744.
    FDIC: James D. Leitner, Examination Specialist, Division of 
Supervision, 202 898-6790; Robert F. Storch, Chief, Accounting Section, 
Division of Supervision, (202) 898-8906.
    OCC: William L. Granovsky, National Bank Examiner, Compliance 
Management, (202) 874-4447.
    OTS: Larry A. Clark, Program Manager, Compliance and Trust, (202) 



    The FFIEC is proposing to add a schedule to the Annual Report of 
Trust Assets to annually collect limited trust income and expense 
information. Since this information generally pertains to only a 
portion of the reporting organization's total operations, the data 
reported by individual institutions would be regarded as confidential 
by the FFIEC and the agencies. Aggregate information, however, would be 

[[Page 34253]]
published annually in an FFIEC publication entitled ``Trust Assets of 
Financial Institutions.''
    The off-balance sheet nature of fiduciary activities presents 
certain impediments to the agencies in the development and 
implementation of fiduciary and related supervision policy. The lack of 
uniform, consistent and industry-wide information on fiduciary income 
and expenses precludes effective analysis of fiduciary profitability 
and risk management for an individual institution, a peer group, and 
the entire industry. In addition, trust profitability is one of the 
rating factors in the Uniform Interagency Trust Rating System and the 
new schedule would enable the agencies to monitor trust income and 
losses between trust examinations.
    Presently, the information collected on trust activities is limited 
to an annual reporting requirement for banks, savings associations, and 
trust companies showing discretionary and nondiscretionary trust assets 
by various types of accounts. Without income-related information from 
the same set of reporters, the agencies' ability to measure the risk 
associated with particular lines of fiduciary business and to evaluate 
the functional activities causing losses is hampered.
    There are approximately 3,000 banks, savings associations, and 
trust companies that actively engage in trust activities. These 
institutions administered $10.6 trillion of assets as of December 31, 
1993, or more than three times the banking industry's on-balance sheet 
assets. As proposed, less than one third of these institutions would be 
required to report their income and expenses on the new schedule.\2\ 
These reporting institutions would account for approximately 99 percent 
of all trust assets. The size distribution of institutions engaging in 
trust activities as of December 31, 1993, was as follows:

    \2\ Although data for 1994 show that assets grew by one trillion 
dollars and the number of institutions engaged in fiduciary 
activities decreased by about 100, no significant change was noted 
in the number of institutions subject to the proposed reporting 

                                                 Number of      Trust   
             Size of institution               institutions     assets  
$1 billion or more in trust assets...........           314      $10,400
$100 million to less than $1 billion in trust                           
 assets......................................           545          165
Less than $100 million in trust assets.......         1,960           33
    Totals...................................         2,819      $10,598

    The fiduciary business has continued to grow substantially both in 
terms of assets administered and the variety and sophistication of 
investment services offered. Trust assets administered have grown by 61 
percent over five years from $6.6 trillion in 1988 to $10.6 trillion in 
1993. During this time, the proportion of these assets subject to the 
investment discretion of trust management has increased from 17 percent 
to 19 percent of trust assets.
    Similarly, based on bank holding company reports to the Board on 
form FR Y-9C, it is estimated that gross fees from fiduciary activities 
for the 50 largest bank holding companies (in asset size) during this 
five year period has increased by 87 percent from $5.2 billion in 1988 
to $9.7 billion in 1993. For these 50 organizations, these fees rose 
from 16 percent of total non-interest income in 1988 to 18 percent in 
1993. The five year growth in trust assets and gross fee income 
supports the need for the agencies to collect and evaluate uniform 
information on income and expenses for individual institutions as an 
element of their supervisory oversight over these institutions and the 
Description of Proposed Schedule E--Fiduciary Income Statement

    The proposed Schedule would be prepared on a calendar year basis 
beginning with the year ending December 31, 1996. Individual agencies, 
at their own discretion, may request that institutions under their 
supervision voluntarily file this Schedule for the year ending December 
31, 1995.
    The proposal calls for institutions to provide a breakdown of 
fiduciary income along six categories that correspond to the existing 
account classifications on Schedule A, Annual Report of Trust Assets, 
and Schedule C, Corporate Trusts, of the FFIEC 001. This would permit 
the agencies to compare income data with information on assets managed 
and to enhance their understanding of the operations of individual 
    Expense information is proposed to be broken out by three 
categories: (1) Salaries and Employee Benefits; (2) Other Direct 
Expense; and (3) Allocated Indirect Expense. This would permit the 
development of efficiency or overhead ratios comparable to those 
commonly used in the analysis of commercial bank operations.
    The proposed Schedule includes two types of breakdowns of losses 
resulting from surcharges and settlements (e.g., replenishment of 
losses incurred by fiduciary customers). For the first breakdown, these 
losses would be separately reported for ten categories of fiduciary 
activities: (1) Employee Benefit Trusts--Discretionary; (2) Employee 
Benefit Trusts--Non-Discretionary; (3) Personal Trusts and Estates--
Discretionary; (4) Personal Trusts and Estates--Non-Discretionary; (5) 
Employee Benefit Agencies--Discretionary; (6) Employee Benefit 
Agencies--Non-Discretionary; (7) Other Agency Accounts--Discretionary; 
(8) Other Agency Accounts--Non-Discretionary; (9) Corporate Trusts and 
Agencies; and (10) All Other Activities. The losses for the first eight 
of the preceding categories can be measured against the dollar amount 
of trust assets held by that type of account as reported on Schedule A 
of the Annual Report of Trust Assets. Corporate trusts can be compared 
against information collected on Schedule C of the Annual Report of 
Trust Assets where the number of issues and principal amount of 
outstanding securities are shown.
    In addition to collecting loss information by type of account, 
these data would be reported by type of loss: (1) Investment; (2) 
Administrative; and (3) Operational. This breakdown will provide the 
agencies with information on the types of losses that can adversely 
affect an institution's condition. Consequently, if an institution or a 
group of institutions show data or trends in data for certain types of 
losses, this form of reporting will help the agencies develop and 
implement appropriate supervisory policies and examination emphasis. 
Further, this information will help examiners determine ratings for the 
Earnings, Volume Trends and Prospects components of the Uniform 
Interagency Trust Rating System for an institution under examination.

Request for Comment

    The FFIEC is requesting comment on all aspects of the proposed 
Schedule. In particular, the FFIEC requests comment on the availability 
of the information to be collected in the Schedule and the cost and 
time required to implement any needed changes in the institution's 
recordkeeping systems to provide the requested information. Comment is 
also requested on the cost and time required to complete the proposed 
Schedule each year thereafter. Institutions addressing availability, 
cost, and time should 

[[Page 34254]]
indicate the total amount of their trust assets.
    The FFIEC also requests comment on the feasibility of providing 
such data for the calendar year ending December 31, 1996. If the 
proposed effective date for this reporting is not feasible, please 
explain why it is not feasible and comment on how soon thereafter such 
data would be available.
    In order to limit the reporting burden of the new schedule, banks 
and savings associations with less than $100 million in total trust 
assets (as reported on line 18, column F, of Schedule A of the FFIEC 
001) would not be required, but would be encouraged, to complete the 
schedule. The FFIEC requests comment on this reporting threshold for 
filing the Schedule. Also, the FFIEC requests comment on the proposed 
requirement that nondeposit trust companies with less than $100 million 
in total trust assets on Schedule A of the Annual Report of Trust 
Assets file this Schedule.
    Finally, the FFIEC requests comment on the adequacy and clarity of 
the proposed instructions. Suggested improvements are welcome and are 

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1980 (Pub. L. 96-
511), the current Annual Report of Trust Assets required from those 
institutions with trust powers and under the supervision of one of the 
agencies has been submitted to, and approved by, the U.S. Office of 
Management and Budget (OMB). (OMB Control Numbers: for the Board, 7100-
0031; for the OCC, 1557-0127; for the FDIC, 3064-0024; and for the OTS, 
1550-0026.) The final version of the proposed changes that are the 
subject of this request for comment, which will be developed after 
consideration of the comments received, will be submitted by each 
agency to OMB for its review.
    The proposed Schedule E and its accompanying instructions are 
illustrated as follows:

    Dated: June 26, 1995.
Joe M. Cleaver,
Executive Secretary, Federal Financial Institutions Examination 


[[Page 34255]]


[[Page 34256]]

Annual Report of Trust Assets--Form FFIEC 001

Specific Instructions

Schedule E--Fiduciary Income Statement

    Who Must Report: This Schedule must be completed by each financial 
institution with more than $100 million in Total Trust Assets as 
reported on Schedule A (Line 18, Column F). In addition, all non-
deposit trust companies, whether or not they report any assets on 
Schedule A, must also file Schedule E. Institutions which are not 
required to file Schedule E are encouraged to file it on a voluntary 
    Public Availability of Schedule E: The information on Schedule E is 
confidential and will not be publicly available. The aggregate 
information will be included in the annual FFIEC publication, Trust 
Assets of Financial Institutions.
    Instructions: Institutions filing Schedule E must complete all 
portions of the Schedule. Enter a zero on any line item that does not 
apply to your institution.

1. Gross Fees, Commissions and Other Fiduciary Income

1(a through e) Trust and Agency Accounts
    Gross fees, commissions and other fiduciary income data is to be 
reported by line of business. Please refer to the instructions for 
Schedules A and C for guidance in defining these lines of business. For 
employee benefit trust accounts, see Schedule A, column A; for personal 
trust & estate accounts, see Schedule A, columns B and C; for other 
agency accounts, see Schedule A, column E; and for corporate trust and 
agency accounts, see Schedule C.
    Fees received for IRA, Keogh Plan or other accounts that are not 
administered by the trust department should be excluded from this 
Schedule. If these accounts require the bank to have trust powers, then 
their fees should be reported on this Schedule.
1(f) All Other Fiduciary Income
    Report all other direct income derived from other fiduciary sources 
not included in any of the above categories (e.g. 12b-1 fees and income 
from providing fiduciary services under agreement with another 
institution). Include all internal allocations of income to the trust 
function (such as transfer agent or pension plan administration 
credits), except for credits for deposits held in own or affiliated 
institutions, which are to be reported on line 5.
1(g) Total Fiduciary Income
    The total of lines 1(a) through 1(f). (It should be noted that 
banks with more than $100 million in commercial bank assets are 
required to itemize ``Income from fiduciary activities'' in the 
quarterly FFIEC Report of Condition and Income (``Call Report'') on 
line 5(a) of Schedule RI. Instructions for fiduciary income to be 
reported on line 5(a) of Call Report Schedule RI differ from those for 
line 1(g) of this Schedule with respect to allocated income. 
Consequently, banks should be aware that the amounts reported in these 
two items will differ by the amount of such allocated income.)

2. Expenses

2(a) Salaries and Employee Benefits
    Include salaries, bonuses, hourly wages, overtime pay, and 
incentive pay for officers and employees of the trust department. If 
officers or employees spend only a portion of their time in the trust 
department, allocate that proportional share of their salaries and 
employee benefits. Expenses associated with employee benefit plans 
(pension, profit-sharing, 401(k), ESOP, etc.), health and life 
insurance, Social Security and unemployment taxes, tuition 
reimbursement, and all other so-called fringe benefits, should be 
included on this line.
2(b) Other Direct Expense
    In general, direct expenses are immediately identifiable as costs 
expended for and under the control of the trust function. These include 
expenses related to the use of trust premises, furniture, fixtures, and 
equipment, as well as depreciation/amortization, ordinary repairs and 
maintenance, service or maintenance contracts, utilities, lease or 
rental payments, insurance coverage, and real estate and other property 
taxes if they are directly chargeable to the trust function.
2(c) Allocated Indirect Expense
    Allocated indirect expenses are those charged to the trust function 
from other departments of the institution. These include any allocation 
for the trust functions' proportionate share of corporate expenses that 
cannot be directly charged to particular departments or functions. If 
the institution's accounting system is not able to provide this 
information, the institution may use a reasonable alternate method.
    Indirect expenses include audit and examination fees, marketing, 
charitable contributions, customer parking, holding company overhead, 
and, in many cases, functions such as personnel, corporate planning, 
and corporate financial staff. Other indirect expenses include the 
trust function's proportionate share of building rent or depreciation, 
utilities, real estate taxes, and insurance.
    If no direct expense is shown for occupancy on line 2(b), an 
allocated occupancy expense based on proportionate floor space used by 
the trust function should be shown on line 2(c).
2(d) Total Expense
    The total of lines 2(a) through 2(c).
3. Settlements, Surcharges and Other Losses

    See the instructions for line 7 for information about the reporting 
of settlements, surcharges and other losses.
3(a) Gross Settlements, Surcharges & Other Losses
    Report the total losses prior to any adjustments for recoveries. 
The amount shown on this line should agree to the total of the details 
shown in the box on line 7.
3(b) Recoveries to Reported Losses
    Show all recoveries received on reported losses.
3(c) Net Settlements, Surcharges & Losses
    Line 3(a) less 3(b).

4. Net Operating Income (Loss)

    Line 1 (g) minus line 2(d) and 3. If the result is less than zero, 
the figure should be shown in parentheses.

5. Credit For Own-Institution Deposits

    Uninvested cash belonging to fiduciary accounts is available to the 
commercial banking side of the institution for investment, trust 
functions are often given credit for the use of these monies. When this 
credit is given to the trust department or trust company as part of the 
bank's profit tracking system, it should be reported on line 5. Do not 
include actual interest earned on fiduciary funds on deposit, as this 
income would normally belong to the fiduciary account.

6. Net Trust Income (Loss)

    Report the total amount of trust income or loss, prior to any 
income taxes, experienced by the trust function for the full year. The 
number for this line is the result of adding line 5 to the 

[[Page 34257]]
sub-total shown on line 4. If the total on line 6 is less than zero, 
the resulting figure should be shown in parentheses.

7. Settlements, Surcharges & Other Losses

    Report gross losses resulting from charge-offs, settlements, 
judgments, or other claims which are included in the total shown on 
line 3. These amounts should not be shown net of any recoveries or 
insurance payments. Legal expenses should be included on line 2(b) or 
2(c). Do not include contingent liabilities related to outstanding 
Account Definitions--Lines 7(a) through 7(j)
    Report settlements, surcharges, and other losses arising from 
errors, misfeasance or malfeasance according to the type of account and 
capacity. The sum of lines 7(a) through 7(j) should equal the total 
shown on line 3(a) above.
Risk Definitions--Lines 7(k) through 7(m)
    Settlements, surcharges, and other losses should also be reported 
by the functional activity which gave rise to the payment. The sum of 
the amounts reported by such functional activity on lines 7(k) through 
7(m) should equal the total shown on line 3(a), ``Settlements, 
Surcharges and Other Losses.''
    Investment Losses: The amount paid or credited to accounts or 
account holders for losses arising from the investment management of 
account assets in situations where the bank exercises discretion in the 
selection, purchase, retention, or sale of an account's assets.
    Administration Losses: The amount paid or credited to accounts or 
account holders as reimbursement for losses arising from the management 
of the accounts. Such losses generally arise from the failure to 
fulfill responsibilities established by the agreement under which the 
bank is acting or failure to fulfill the duties inherent in the 
fiduciary capacity under which the bank is authorized to act.
    Operational Losses: The amount paid or credited to accounts or 
account holders as restitution for losses arising from accounting and 
other support activities, such as securities trade processing. 
Operational losses include all activities which support investment and 
account administration functions.
Memo Item to Be Completed by Non-Deposit Trust Companies Only

8. Non-Fiduciary Income

    Stand alone or non-deposit trust companies, whose activities area 
limited to providing fiduciary services, may have income not directly 
attributable to the furnishing of fiduciary services. This income 
should be reported on this line 8 as a memo figure and should not be 
included in the data shown on lines 1 through 6.
[FR Doc. 95-16090 Filed 6-29-95; 8:45 am]

Last Updated 07/17/1999

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