FFIEC Federal Financial Institutions Examination Council
Washington, D.C. 20006
CALL REPORT DATE: June 30, 2002
SECOND 2002 CALL, NUMBER 220
June 2002 Call Report Materials
A sample set of the June 30, 2002, 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 (www.ffiec.gov) and the FDIC's Web site (www.fdic.gov). 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.
Submission of Completed Reports
All banks must submit their Call Reports electronically to the banking agencies' electronic collection agent, Electronic Data Systems Corporation (EDS), using one of the two methods described in the agencies' cover letter for the June 30, 2002, report date. For assistance in submitting Call Reports to EDS, contact EDS toll free at (800) 255-1571.
Banks are required to maintain in their files a signed and attested record of the completed Call Report that has been submitted to EDS showing at least the title 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 Call Report that is placed in the bank's files.
Currently, Call Report preparation software products marketed by DBI Financial Systems, Inc.; Financial Architects US; FRS, an S1 Corporation Business; Information Technology, Inc.; The InterCept Group; Jack Henry & Associates, Inc. (Banker-II Data Center); Milas LLC; and Sheshunoff Information Services have been certified for electronic submission by EDS. The addresses and telephone numbers of the vendors with EDS-certified Call Report software are listed at the end of these Supplemental Instructions.
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 Reports Analysis and Quality Control 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.
Reporting Estimated Uninsured Deposits
Beginning with the March 2002 Call Report, all banks were required to report the estimated amount of their uninsured deposits in Schedule RC-O, Memorandum item 2. Banks should note that they are not expected to modify their information systems or acquire new systems solely for purposes of making this estimate. Rather, to limit reporting burden, the instructions for Memorandum item 2 indicate that a bank should base its estimate of the uninsured portion of its deposits on data that are readily available from the information systems and other records the bank has in place, particularly for fiduciary deposit accounts and employee benefit and deferred compensation plan accounts with balances of $100,000 or more that are insured on a "pass-through" basis. Furthermore, a bank with brokered deposits must use the information it develops for reporting its "Fully insured brokered deposits" in Schedule RC-E, Memorandum item 1.c, to determine its best estimate of the uninsured portion of its brokered deposits. A bank must also include the entire amount of any benefit-responsive "Depository Institution Investment Contracts," which must be reported in Schedule RC-O, item 10, in its estimated uninsured deposits.
For those segments of a bank's deposits for which the data needed to estimate the uninsured deposits within the segment are not readily available from in-place information systems or other records, the bank may use nonautomated information such as paper files or less formal knowledge of its depositors if such information provides reasonable estimates of the uninsured portions of these deposits. For any remaining segments of its deposits, the bank would need to consider the number and amount of deposit accounts in these segments that have balances of more than $100,000 in order to estimate the uninsured portion of these deposits. However, as indicated above, this latter approach may not be used for brokered deposits and "Depository Institution Investment Contracts."
Final Rule on Recourse and Direct Credit Substitutes
On November 29, 2001, the agencies published a final rule revising the regulatory capital treatment of recourse arrangements and direct credit substitutes, including residual interests and credit-enhancing interest-only strips, as well as asset-backed and mortgage-backed securities. This final rule took effect on January 1, 2002. Any transactions settled on or after that date are subject to the rule. However, for transactions settled before January 1, 2002, that result in increased capital requirements under the final rule, banks may delay the application of the final rule to those transactions until December 31, 2002.
Included in this quarter's Call Report instruction book update is a revised Glossary entry for "Sales of Assets for Risk-Based Capital Purposes," which incorporates the provisions of this final rule. Revised instructions for Schedule RC-R, Regulatory Capital, were included in the March 2002 instruction book update. For transactions settled before January 1, 2002, that would be subject to higher capital requirements under the final rule, each bank should decide whether to apply the revised instructions or the previous reporting requirements to these transactions during the transition period that runs until December 31, 2002.
For further information, please refer to the revised instructions and to the agencies' final capital rule.
Reporting of Funds Invested Through Bentley Financial Services, Inc.
On October 30, 2001, the agencies issued a joint release advising depository institutions that the Securities and Exchange Commission (SEC) had filed suit against Robert L. Bentley, Entrust Group, and Bentley Financial Services, Inc. Specifically, the SEC alleged that the defendants were representing to investors that they were selling federally-insured certificates of deposit when, in fact, they were selling uninsured securities issued by the defendants. In addition, a temporary restraining order was issued against the defendants, freezing the defendants' accounts and appointing a receiver to exercise control over the defendants' assets.
In light of these events and other developments, banks that have invested funds through Bentley Financial Services should report these funds as "Other" assets in Schedule RC-F, item 5, not as "Interest-bearing balances" due from depository institutions in Schedule RC, item 1.b. In addition, these Bentley-related assets should be placed in nonaccrual status and reported as nonaccrual assets in Schedule RC-N, item 9, column C. Previously accrued but uncollected interest on these assets should be reversed through a charge to interest income (for any amounts accrued in 2002) and a charge to other noninterest expense (for amounts accrued prior to 2002) in Schedule RI, Income Statement. Any write-downs of Bentley-related assets and charges to establish valuation allowances against these assets should be reported as other noninterest expense. In addition, these assets should be risk-weighted at 100 percent in item 42, column F, in Schedule RC-R, Regulatory Capital.
FASB Statements Nos. 141 and 142
In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 supersedes the previous accounting standard on business combinations (i.e., mergers and acquisitions), Accounting Principles Board (APB) Opinion No. 16, and requires that all business combinations initiated after June 30, 2001, (except for combinations between two or more mutual enterprises) must be accounted for by the purchase method. The use of the pooling-of-interests method for those business combinations is prohibited. Statement No. 141 also changes the requirements for recognizing intangible assets as assets apart from goodwill in business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001, or later. The statement specifically identifies core deposit intangibles as one type of intangible that must be recognized as an asset separate from goodwill.
Statement No. 142 supersedes the previous accounting standard on intangible assets, APB Opinion No. 17. This new standard addresses how intangible assets that are acquired individually or with a group of other assets (but not in a business combination) should be accounted for upon their acquisition. It also explains how goodwill and other intangible assets should be accounted for after they have been acquired.
Under Statement No. 142, goodwill acquired in a business combination for which the acquisition date is after June 30, 2001, should not be amortized, but should be tested for impairment in accordance with the provisions of this accounting standard. Goodwill acquired in a business combination for which the acquisition date is before July 1, 2001, should continue to be amortized until an institution first applies all of the provisions of Statement No. 142 in accordance with the effective date of the standard. Statement No. 142 is effective for fiscal years beginning after December 15, 2001. For banks with a calendar year fiscal year, Statement No. 142 took effect January 1, 2002.
Banks must adopt FASB Statements No. 141 and 142 for Call Report purposes in accordance with the effective dates of these standards based on their fiscal years. The Call Report instruction book update distributed with the March 2002 Call Report materials included revised instructions that incorporated relevant provisions of these new standards. For a bank that is a subsidiary of a holding company or other company, this includes applying the provisions of Statement No. 142 on goodwill impairment testing by a subsidiary. These provisions require all goodwill recognized by such a bank on its Call Report balance sheet to be accounted for in accordance with Statement No. 142 and to be tested for impairment at the bank level.
Banks should also note that any unidentifiable intangible assets recorded in accordance with FASB Statement No. 72 should not be reported as "Goodwill" on the Call Report balance sheet (Schedule RC). Rather, these unidentifiable intangible assets should be reported in Schedule RC, item 10.b, "Other intangible assets," and must continue to be amortized. The amortization expense should be reported in item 7.c.(2) of the Call Report income statement (Schedule RI).
Upon the adoption of Statement No. 142, banks should report any impairment losses on goodwill and other intangible assets that must be recognized as a result of the standard's required transitional impairment testing as the effect of a change in accounting principle. The effect of the accounting change and related income tax effects should be reported in the Call Report income statement, Schedule RI, item 11, "Extraordinary items and other adjustments, net of income taxes," and disclosed in Schedule RI-E, item 3.
Although the accounting rules for goodwill and other intangible assets have changed, there has been no change in the regulatory capital treatment of these assets. The existing regulatory capital limits on servicing assets and purchased credit card relationships remain in effect, and goodwill and other intangible assets continue to be deducted from capital and assets in determining a bank's capital ratios.
Questions about the application of Statement Nos. 141 and 142 for Call Report purposes should be directed to your primary federal regulator. Banks also are encouraged to consult with their outside accountants concerning their implementation of these two new accounting standards.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Since 1996, the Audit and Accounting Guide - Banks and Savings Institutions, published by the American Institute of Certified Public Accountants, has stated that credit losses related to off-balance sheet financial instruments should be accrued and reported separately as liabilities "if the conditions of FASB Statement No. 5 are met." Consistent with this accounting guidance, the Call Report instructions state (on Glossary page A-3) that "each bank should also maintain, as a separate liability account, an allowance sufficient to absorb estimated credit losses associated with off-balance sheet credit instruments." Off-balance sheet credit instruments include off-balance sheet loan commitments, standby letters of credit, and guarantees.
On the Call Report, a bank must report its "Allowance for credit losses on off-balance sheet credit exposures" in item 3 of Schedule RC-G, Other Liabilities, not as part of its "Allowance for loan and lease losses" in Schedule RC, item 4.c. However, for risk-based capital purposes, the "Allowance for credit losses on off-balance sheet credit exposures" is combined with the "Allowance for loan and lease losses" and the total of these two allowances is included in Tier 2 capital up to a limit of 1.25 percent of a bank's gross risk-weighted assets. For further information on the inclusion of these allowances in Tier 2 capital, please refer to the instructions for Call Report Schedule RC-R, item 14.
Optional Tax Worksheet
For assistance in calculating year-to-date applicable income taxes in accordance with FASB Statement No. 109, Accounting for Income Taxes, an optional worksheet geared toward smaller banks is available upon request. For a copy of this worksheet, state member banks should contact their Federal Reserve District Bank. National and FDIC-supervised banks should telephone the FDIC's Reports Analysis and Quality Control Section in Washington, D.C., toll free at (800) 688-FDIC or call (202) 898-6607. The optional tax worksheet for June 30, 2002, also is expected to be available on the FDIC's Web site by that date.
Call Report Software Vendors
For information on available Call Report software, banks should contact:
DBI Financial Systems, Inc.
P.O. Box 90360
Santa Barbara, California 93190
Telephone: (800) 774-3279 www.e-dbi.com
Financial Architects US
80 Slocum Avenue
Bronxville, New York 10708
Telephone: (914) 376-5405 www.finarch.com
FRS, an S1 Corporation Business
2815 Coliseum Centre Drive,
Charlotte, North Carolina 28217
Telephone: (704) 423-0394 www.frsglobal.com
Information Technology, Inc.
1345 Old Cheney Road
Lincoln, Nebraska 68512
Telephone: (402) 423-2682 www.itiwnet.com
The InterCept Group
27200 Agoura Road, Suite 100
Calabasas Hills, California 91301
Telephone: (800) 825-3772 www.intercept.net
Jack Henry & Associates, Inc.
Banker-II Data Center
2405 Schneider Avenue, Suite A
Menomonie, Wisconsin 54751
Telephone: (715) 235-8420
1317 26th Street, Suite 1
Santa Monica, California 90404
Telephone: (888) 862-7610
Sheshunoff Information Services
P.O. Box 13203 Capitol Station
Austin, Texas 78711
Telephone: (800) 456-2340 www.sheshunoff.com