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FIL-47-95 Attachment

[Federal Register: June 30, 1995 (Volume 60, Number 126)]

[Notices]

[Page 34252-34257]

From the Federal Register Online via GPO Access



 

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FEDERAL FINANCIAL INSTITUTIONS EXAMINATIONS COUNCIL


 

 

Proposed Schedule on Trust Income and Expense


 

AGENCY: Federal Financial Institutions Examination Council.


 

ACTION: Request for comment.


 

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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.

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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.)


 

FOR FURTHER INFORMATION CONTACT:

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)

906-5628.


 

SUPPLEMENTARY INFORMATION:


 

Background


 

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

requirement.


 

------------------------------------------------------------------------

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

industry.

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

institutions.

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

encouraged.


 

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

Council.


 

BILLING CODE 6210-01-M


 

[[Page 34255]]





 

BILLING CODE 6210-01-C


 

[[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

basis.

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

litigation.

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]

BILLING CODE 6210-01-M