[Federal Register: June 30, 1995 (Volume 60, Number 126)]
From the Federal Register Online via GPO Access
FEDERAL FINANCIAL INSTITUTIONS EXAMINATIONS COUNCIL
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
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)
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
published annually in an FFIEC publication entitled ``Trust Assets of
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
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
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
BILLING CODE 6210-01-M
BILLING CODE 6210-01-C
Annual Report of Trust Assets--Form FFIEC 001
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(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
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]
BILLING CODE 6210-01-M