[Federal Register: May 31, 2005 (Volume 70, Number 103)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE CORPORATION
Agency Information Collection Activities; Submission for OMB
Review; Comment Request
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Notice of information collection to be submitted to OMB for
review and approval under the Paperwork Reduction Act of 1995.
SUMMARY: In accordance with the requirements of the Paperwork Reduction
Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC
(the ``agencies'') may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number. On April 29, 2004, the agencies requested public
comment for 60 days on proposed revisions to the instructions for the
Consolidated Reports of Condition and Income (Call Report), which are
currently approved collections of information. After considering the
comments received, the Federal Financial Institutions Examination
Council (FFIEC), of which the agencies are members, has adopted the
proposed instructional revisions and also will add new items to the
Call Report based on suggestions by commenters. In addition, on March
11, 2005, the agencies requested public comment for 60 days on other
proposed revisions to the Call Report. The FFIEC and the agencies have
considered the comments received on these additional revisions, which
the FFIEC has adopted as proposed. The agencies are submitting the
revisions adopted by the FFIEC to OMB for review and approval.
DATES: Comments must be submitted on or before June 30, 2005.
ADDRESSES: Interested parties are invited to submit written comments to
any or all of the agencies. All comments, which should refer to the OMB
control number(s), will be shared among the agencies.
OCC: You may submit comments, identified by [Attention: 1557-0081],
by any of the following methods:
E-mail: firstname.lastname@example.org. Include [Attention:
1557-0081] in the subject line of the message.
Fax: (202) 874-4448.
Mail: Public Information Room, Office of the Comptroller
of the Currency, 250 E Street, SW., Mailstop 1-5, Washington, DC 20219;
Public Inspection: You may inspect and photocopy comments at the
Public Information Room. You can make an appointment to inspect the
comments by calling (202) 874-5043.
Board: You may submit comments, which should refer to
``Consolidated Reports of Condition and Income, 7100-0036,'' by any of
the following methods:
Agency Web Site: http://www.federalreserve.gov Follow the instructions
for submitting comments on the http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: email@example.com. Include docket
number in the subject line of the message.
Fax: 202-452-3819 or 202-452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
submitted, except as necessary for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or on
paper in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FDIC: You may submit comments, which should refer to ``Consolidated
Reports of Condition and Income, 3064-0052,'' by any of the following
E-mail: comments@FDIC.gov. Include ``Consolidated Reports
of Condition and Income, 3064-0052'' in the subject line of the
Mail: Steven F. Hanft (202-898-3907), Paperwork Clearance
Officer, Room MB-3064, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7 a.m. and 5 p.m.
Public Inspection: You may inspect comments at the FDIC Public
Information Center, Room 100, 801 17th Street, NW., between 9 a.m. and
4:30 p.m. on business days.
A copy of the comments may also be submitted to the OMB desk
officer for the agencies: Mark Menchik, Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 10235, Washington, DC 20503, or electronic mail
FOR FURTHER INFORMATION CONTACT: For further information about the
revisions discussed in this notice, please contact any of the agency
clearance officers whose names appear below. In addition, copies of
Call Report forms can be obtained at the FFIEC's Web site (http:// www.
ffiec. gov/ ffiec -- report -- forms.htm).
OCC: Mary Gottlieb, OCC Clearance Officer, or Camille Dixon, (202)
874-5090, Legislative and Regulatory Activities Division, Office of the
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
Board: Michelle E. Long, Clearance Officer, (202) 452-3829,
Division of Research and Statistics, Board of Governors of the Federal
Reserve System, 20th and C Streets, NW., Washington, DC 20551.
Telecommunications Device for the Deaf (TDD) users may call (202) 263-
FDIC: Steven F. Hanft, Paperwork Clearance Officer, (202) 898-3907,
Legal Division, Federal Deposit Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION: Request for OMB approval to revise the
currently approved collections of information identified below.
The effect of the proposed revisions to the reporting requirements
for the Call Report will vary from institution to institution depending
on the institution's involvement with the types of activities or
transactions to which the proposed changes apply. More specifically,
the agencies expect that the reporting changes that relate to certain
securitized U.S. government-guaranteed or -insured residential mortgage
loans will primarily affect the small percentage of institutions that
originate or purchase and then securitize these loans. The revisions to
the Call Report dealing with acquired loans with evidence of
deterioration of credit quality since origination, including
acquisitions of such loans in business combinations accounted for using
the purchase method, will generally apply only to the limited number of
institutions that are involved in purchase business combinations or
that engage in purchases of loans with credit quality problems as a
business activity. The agencies estimate that implementation of these
reporting changes will result in a small increase in the current
reporting burden imposed by the Call Report for those institutions
involved with these activities and transactions. The following burden
estimates include the effect of the proposed revisions.
Report Title: Consolidated Reports of Condition and Income (Call
Form Number: Call Report: FFIEC 031 (for banks with domestic and
foreign offices) and FFIEC 041 (for banks with domestic offices only).
Frequency of Response: Quarterly.
Affected Public: Business or other for-profit.
OMB Number: 1557-0081.
Estimated Number of Respondents: 2,000 national banks.
Estimated Time per Response: 46.45 burden hours.
Estimated Total Annual Burden: 371,633 burden hours.
OMB Number: 7100-0036.
Estimated Number of Respondents: 922 state member banks.
Estimated Time per Response: 52.38 burden hours.
Estimated Total Annual Burden: 193,177 burden hours.
OMB Number: 3064-0052.
Estimated Number of Respondents: 5,263 insured state nonmember
Estimated Time per Response: 37.10 burden hours.
Estimated Total Annual Burden: 781,029 burden hours.
The estimated time per response for the Call Report is an average
that varies by agency because of differences in the composition of the
institutions under each agency's supervision (e.g., size distribution
of institutions, types of activities in which they are engaged, and
existence of foreign offices). The average reporting burden for the
Call Report includes the effect on burden of the new Central Data
Repository (CDR) system that the agencies are developing for processing
Call Reports. The time per response for the Call Report is estimated to
range from 15 to 600 hours, depending on an individual institution's
circumstances, before considering the effect of voluntary testing and
global enrollment activities related to the CDR. The reporting burden
for testing and enrollment activities for an individual institution is
estimated to range from 16 to 69 hours, depending on the institution's
level of participation.
General Description of Reports
These information collections are mandatory: 12 U.S.C. 161 (for
national banks), 12 U.S.C. 324 (for state member banks), and 12 U.S.C.
1817 (for insured state nonmember commercial and savings banks). Except
for selected items, these information collections are not given
Institutions file Call Reports with the agencies each quarter for
the agencies' use in monitoring the condition, performance, and risk
profile of individual institutions and the industry as a whole. In
addition, Call Reports provide the most current statistical data
available for evaluating institutions' corporate applications such as
mergers, for identifying areas of focus for both on-site and off-site
examinations, and for monetary and other public policy purposes. Call
Reports are also used to calculate all institutions' deposit insurance
and Financing Corporation assessments and national banks' semiannual
On April 29, 2004, the agencies (together with the Office of Thrift
Supervision (OTS)) jointly published a notice soliciting comments for
60 days on proposed revisions to the Call Report (69 FR 23502). This
joint notice requested comment on two proposed instructional changes
that would affect how institutions report certain information in the
Call Report, but the notice did not propose to change the report forms
themselves. First, the agencies proposed to change and clarify the
reporting requirements related to certain U.S. Government-guaranteed or
-insured residential mortgage loans backing Government National
Mortgage Association (GNMA) securities that meet certain delinquency
criteria and are subject to seller buy-back provisions, i.e., ``GNMA
loans.'' These clarifications involved the reporting of GNMA loans as
delinquent and the balance sheet classification of property backing a
delinquent GNMA loan on which an institution has foreclosed. Second,
the agencies proposed to change the reporting requirements for ``when-
issued'' securities from settlement date accounting to trade date
The agencies received 13 comments on their April 2004 proposal, ten
from banks and banking organizations, two from bankers' associations,
and one from a trade group whose members include banking organizations.
Only two of the commenters addressed both of the subjects in the
agencies' April 2004 proposal. The FFIEC and the agencies have
considered these comments and have decided to proceed with the
instructional revisions pertaining to mortgage loans subject to buy-
back provisions, but with the addition of new items to the Call Report
schedules in which banks report information on past due loans and on
other real estate owned.\1\ The FFIEC and the agencies also have
decided against requiring trade date accounting for all ``when-issued''
securities. These decisions are discussed below.
\1\ The OTS joined with the agencies in the April 2004 proposal.
The OTS intends to follow a course of action similar to the agencies
with respect to mortgage loans subject to buy-back provisions in the
future when updating the reporting requirements for the Thrift
In addition, on March 11, 2005, the agencies jointly published a
notice requesting comment on proposed revisions to the Call Report in
response to Statement of Position 03-3, Accounting for Certain Loans or
Debt Securities Acquired in a Transfer (SOP 03-3), which was issued by
the American Institute of Certified Public Accountants (70 FR 12269).
SOP 03-3 applies to loans acquired in fiscal years beginning after
December 15, 2004. The agencies proposed to add three items to the Call
Report relating to loans within the scope of SOP 03-3. The agencies
also proposed a revision to the Call Report instructions to explain how
the delinquency status of loans within the scope of SOP 03-3 should be
determined for purposes of disclosing past due loans in the Call
The agencies received three comments in response to their March
2005 proposal, one from a community bank trade association, one from a
large banking organization, and another from a trade group outside the
banking industry. The FFIEC and the agencies have considered these
comments and, as discussed below, have decided to proceed with the SOP
03-3 changes as proposed.
The revisions to the Call Report have been approved for publication
by the FFIEC. The agencies will implement the proposed Call Report
changes as of the June 30, 2005, report date, except for the revisions
pertaining to foreclosed properties backing delinquent GNMA loans.
Nonetheless, as is customary for Call Report changes, if the
information to be reported in accordance with the revised reporting
requirements is not readily available, institutions are advised that
they may report reasonable
estimates of this information for the report date as of which the
proposed changes first take effect, i.e., June 30, 2005. With respect
to the reporting of foreclosed properties backing GNMA loans,
institutions should report these properties in their Call Reports in
accordance with their existing reporting policies for such properties
through the December 31, 2005, report date. Effective with the March
31, 2006, report date, all institutions should report these properties
as other real estate owned on the balance sheet and disclose the amount
in a new subitem that will be added to the Call Report schedule in
which information on the composition of other real estate owned is
Type of Review: Revision of currently approved collections.
II. Revisions to the Call Report
A. GNMA Buy-Back Option
Under the GNMA Mortgage-Backed Securities Guide, the issuer of GNMA
securities has the option to repurchase individual Federal Housing
Administration (FHA), Department of Veterans Affairs/Veterans
Administration (VA), and Farmers Home Administration (FmHA) mortgage
loans backing the securities when these GNMA loans meet certain
delinquency criteria. Because of this option, if and when individual
loans that have been accounted for as sold in accordance with Statement
of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (FAS
140), later meet GNMA's specified delinquency criteria and are eligible
for repurchase, FAS 140 requires these individual delinquent GNMA loans
to be brought back onto the issuer's books as assets, along with an
offsetting liability. This rebooking of the GNMA loans is required
regardless of whether the issuer intends to exercise the buy-back
The agencies proposed that all delinquent rebooked GNMA loans
(including those for which the institution is taking steps to foreclose
on the real estate collateral at the time of repurchase, but for which
the sheriff's sale has not yet taken place) should be reported as past
due on Call Report Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets, in accordance with their contractual terms.
As part of this change, the agencies proposed to eliminate an existing
provision in the Call Report instructions that permits institutions not
to report delinquent GNMA loans that are repurchased when they are ``in
foreclosure status'' at the time of repurchase as past due loans in
Schedule RC-N, provided the government reimbursement process is
proceeding normally. In proposing this reporting change, the agencies
noted that delinquent rebooked GNMA loans would also be reported in
supplemental items 10 and 10.a of Schedule RC-N, which disclose amounts
for past due loans wholly or partially guaranteed or insured by the
U.S. Government. These items supplement the main body of the past due
loans schedule by providing information that enables users of the Call
Report to determine the amount of an institution's total delinquent
loans that are not protected by a U.S. Government guarantee or
In addition, the agencies proposed that, when an institution
forecloses on real estate backing a delinquent GNMA loan that it has
rebooked as an asset, it should report the property as ``other real
estate owned'' and not as an ``other asset'' on the Call Report balance
sheet. The foreclosed property should be reported in this manner
beginning at the time of foreclosure until it has been sold,
transferred to HUD, or otherwise disposed of.
The agencies received ten comments addressing the portion of the
April 2004 proposal on GNMA loan reporting issues. With one exception,
commenters disagreed with the agencies' proposed reporting treatment
for past due GNMA loans and foreclosed property.\2\ One commenter did
``not object to the proposal that all delinquent rebooked GNMA loans
should be treated consistently and reported as past due'' in the
schedule for past due loans, observing that users of this schedule
``will have a method to identify the amount of loans that are not
guaranteed by the U.S. Government.'' However, this commenter did not
favor the proposed treatment of foreclosed property.
\2\ Only eight of the ten commenters specifically addressed
With respect to delinquency reporting, nine commenters did not
support reporting rebooked past due GNMA loans in the main body of Call
Report Schedule RC-N. These commenters recommended that if these
delinquent loans must be reported in this schedule, they should be
reported only in a Memorandum section of the schedule and should not be
aggregated with other past due loans. They favored segregated reporting
for the GNMA loans because these loans have a different risk profile
than other past due loans due to their guarantees or insurance. These
commenters stated that reporting these delinquent rebooked GNMA loans
with the other past due loans will skew analytical ratios used to
evaluate credit risk, which will lead to misinterpretation of the past
due data and cause banks to have to respond to questions regarding
these data. One commenter specifically suggested that if the agencies
decided to proceed with the proposed inclusion of delinquent rebooked
GNMA loans in the body of the past due schedule, ``a separate line
should be added for past due GNMA loans.'' Nevertheless, this commenter
also expressed concern that the agencies' proposed past due reporting
treatment in Schedule RC-N would produce disparities between the Call
Report past due schedule and the past due reporting by public banking
organizations in their filings with the Securities and Exchange
The agencies do not believe that their proposal to include
delinquent rebooked GNMA loans in the body of the past due schedule
should lead to inconsistencies in the disclosure of these loans in the
Call Report and in SEC filings. Accounting staff members in the SEC's
Division of Corporation Finance prepared guidance on ``Current
Accounting and Disclosure Issues in the Division of Corporation
Finance'' dated November 30, 2004, and updated on March 4, 2005. Both
versions of this guidance discuss ``Accounting for Loans or Other
Receivables Covered by Buyback Provisions,'' including, but not limited
to, loans securitized through GNMA.\3\ (See Section II.K.1. of the SEC
staff's November 2004 guidance, which was carried forward without
revision to Section II.N.1. of the March 2005 guidance.) The SEC
staff's discussion of this topic states the following concerning loans,
including GNMA loans, that have been ``re-recognized,'' i.e., rebooked
as assets in accordance with FAS 140:
\3\ This guidance can be accessed at http:// www. sec. gov/
divisions/ corpfin/ acctdis030405.htm.
In the event that loans re-recognized by the transferor have the
risk elements contemplated by Item III.C.1. of Industry Guide 3
(i.e., nonaccrual, past due, restructured), the amount of such loans
should be included in the disclosures required by that Item.
Supplemental disclosures may be made to facilitate understanding of
the aggregate amounts reported pursuant to Item III.C.1. These
disclosures may include, for example, information as to the nature
of the loans, any guarantees, the extent of collateral, or amounts
in process of collection. For example, if a loan re-recognized by a
transferor is accruing, but it is contractually
past due 90 days or more as to principal or interest, that loan
should be included in the disclosure required by Item III.C.1(b)
even if the loan is guaranteed through a government program, such as
the Veterans Administration (VA) or Federal Housing Authority (FHA).
As recognized by the SEC staff, delinquent rebooked GNMA loans are
to be included in the aggregate past due disclosures required by
Industry Guide 3. However, public banking organizations may provide
supplemental disclosure of the fact that these loans are guaranteed or
insured by the U.S. Government to assist users in understanding the
aggregate amounts of past due loans. The agencies' proposal for
reporting past due rebooked GNMA loans in Call Report Schedule RC-N
parallels the SEC staff's guidance because this schedule includes items
that permit the ``supplemental disclosure'' of the amount of past due
loans wholly or partially guaranteed or insured by the U.S. Government.
Nevertheless, the agencies and other users of the supplemental Schedule
RC-N items on past due government-guaranteed or -insured loans would
benefit from having delinquent rebooked GNMA loans identified
separately from other past due government-guaranteed or -insured loans,
especially for institutions that have securitized and sold a
significant volume of GNMA loans.
Accordingly, the agencies have decided to proceed with their
original proposal that would require rebooked GNMA loans that are past
due to be reported in the main body of Call Report Schedule RC-N and in
supplemental item 10, ``Loans and leases reported in items 1 through 8
above which are wholly or partially guaranteed by the U.S.
Government.'' However, based on suggestions from commenters, the
agencies will add a new supplemental item 10.b to Schedule RC-N
effective June 30, 2005, in which banks would report ``Rebooked ``GNMA
loans'' that have been repurchased or are eligible for repurchase
included in item 10 above.''. \4\
\4\ In addition, if a bank services but did not originate
mortgage loans backing a GNMA security, i.e., where the bank was not
the transferor of the losses that have been securitized, the
servicing bank should also include any government-guaranteed or -
insured mortgage ooans that it has purchased out of the
securitization in Schedule RC-R, items 10 and 10b, even if the bank
was not required to record the delinquent loans as assets prior to
purchasing the loans.
In this regard, the agencies note that banks that originate and
hold FHA, VA, and FmHA mortgage loans in their loan portfolios, rather
than securitizing and selling them in the form of GNMA securities,
currently report these loans as past due in the main body of Call
Report Schedule RC-N if and when these loans become delinquent. These
past due loans are also reported in existing supplemental items 10 and
10.a for past due loans wholly or partially guaranteed or insured by
the U.S. Government in Call Report Schedule RC-N. The reporting
treatment of these guaranteed and insured loans in Schedule RC-N will
Foreclosed Real Estate
Commenters on the portion of the agencies' April 2004 proposal on
GNMA loans objected to the proposed balance sheet classification of
foreclosed real estate collateral backing delinquent GNMA loans as
``other real estate owned.'' Commenters recommended that institutions
report such real estate as ``other assets'' because they do not believe
that institutions are exposed to the underlying risk of the real
estate, despite the foreclosure, due to the insurance or guarantee by
the U.S. Government. They also observed that, in contrast to foreclosed
real estate arising from other types of loans, institutions do not
intend to sell foreclosed properties resulting from GNMA loans in order
to recover the value of these assets. Instead, institutions look to
their claim on the U.S. Government for recovery.
The agencies have reviewed and considered these comments. As stated
in the April 2004 proposal, the U.S. Department of Housing and Urban
Development (HUD), the federal entity that administers the GNMA
program, cannot accept a foreclosed property nor can the government
guarantee or insurance be honored until all legal actions related to
the foreclosure process have been completed. Commenters confirmed that
certain conditions must be met before a property can be conveyed to
HUD. While these conditions normally will be met, whether they will
ultimately be met for an individual property is not known at the time
of foreclosure. For example, the servicing guide for VA loans indicates
the circumstances in which foreclosed property would not be conveyed,
including when the VA issues ``no-bid'' advice (because the VA's cost
of paying its guarantee is less than its estimated cost of taking
possession of the property and selling it) and when there has been a
failure to follow the regulations upon which the VA's guarantee is
Although the existence of insurance or a guarantee from the U.S.
Government on a particular foreclosed loan will aid in determining
whether the carrying value of the asset is recoverable, it does not
determine the classification of the asset upon foreclosure. Because an
institution's claim against the U.S. Government is effectively
conditional until all the conditions have been met for the conveyance
of a foreclosed property to HUD, the asset resulting from an
institution's foreclosure on a delinquent GNMA loan has more of the
characteristics of real estate than a receivable from the U.S.
Government. Accordingly, the agencies believe that, for Call Report
balance sheet purposes, it is more appropriate to view this asset as
other real estate owned than as a receivable at foreclosure.
The agencies recognize that the more common practice is for
institutions that foreclose on delinquent GNMA loans to report the
resulting asset as an ``other asset'' rather than ``other real estate
owned'' on the Call Report balance sheet. In this regard, some
commenters recommended that if the agencies concluded that these assets
should not be reported as ``other assets,'' there should be separate
disclosure of these assets in the Call Report because of the difference
in their risk profile compared to other types of foreclosed real
estate. The agencies see merit in enabling institutions with foreclosed
properties from GNMA loans to distinguish the amount of these
properties from other foreclosed properties. Therefore, the agencies
will delay the implementation date for institutions to report
foreclosed real estate from GNMA loans as ``other real estate owned''
on the balance sheet until the March 31, 2006, report date. The
agencies will also add a new subitem to Schedule RC-M, item 3.b, ``All
other real estate owned,'' to enable institutions to disclose the
amount of such real estate in the March 2006 Call Report. Until then,
i.e., through the December 31, 2005, report date, institutions should
continue to report these foreclosed properties in their Call Reports in
accordance with their existing reporting policies for such properties.
B. ``When-Issued'' Securities
The agencies also proposed in April 2004 to revise the Call Report
Glossary entry for ``When-Issued Securities Transactions,'' which
currently indicates that institutions should follow settlement date
accounting for when-issued securities, by replacing it with one that
calls for trade date accounting for such securities. In addition, the
agencies proposed to remove the references to commitments to purchase
and sell when-issued securities from the instructions for Schedule RC-
L, item 9,
``All other off-balance sheet liabilities,'' and item 10, ``All other
off-balance sheet assets,'' respectively. Furthermore, the agencies
proposed to revise the Call Report Glossary entry for ``Trade Date and
Settlement Date Accounting'' to clarify that institutions should follow
trade date accounting for all securities, including when-issued
Five commenters on the agencies' April 2004 proposal addressed the
reporting of when-issued securities, two of whom supported using trade
date accounting for such securities. The other three commenters
disagreed with the agencies' proposal. These commenters noted that,
under paragraph 59(a) of Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended (FAS 133), when-issued securities that meet certain criteria
should be accounted for as derivatives rather than securities and,
therefore, this derivatives accounting treatment should be followed in
the Call Report.
The agencies have reviewed relevant portions of FAS 133 and agree
that, in appropriate circumstances, banks should report when-issued
securities as derivatives and not as securities. Accordingly, the FFIEC
and the agencies have concluded that they should not proceed with the
three elements of their April 2004 proposal related to when-issued
securities. However, the agencies will clarify the Call Report
instructions addressing when-issued securities, where necessary, to
ensure that they are in conformity with FAS 133.
C. Loans Within the Scope of SOP 03-3
SOP 03-3 applies to ``purchased impaired loans,'' i.e., loans \5\
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 and it is probable, at the
purchase date, that the bank will be unable to collect all
contractually required payments receivable. To assist the agencies in
understanding the relationship between the allowance for loan and lease
losses and the carrying amount of the loan portfolios of those banks
whose portfolios include purchased impaired loans, the agencies
proposed to add three items to the Call Report. All three of these
items represent information included in the disclosures required by SOP
03-3. The agencies proposed to add two Memorandum items to Schedule RC-
C, part I--Loans and Leases: (1) The outstanding balance \6\ and (2)
the carrying amount (before any loan loss allowances) as of the report
date of the purchased impaired loans held for investment \7\ that are
included in Schedule RC-C. In addition, the agencies proposed to add a
Memorandum item to Schedule RI-B, part II--Changes in Allowance for
Loan and Lease Losses, in which banks would report the amount of post-
acquisition loan loss allowances for purchased impaired loans held for
investment that is included in the total amount of the allowance for
loan and lease losses as of the report date.
\5\ As defined in SOP 03-3, the term ``loans'' includes ``debt
\6\ The outstanding balance is the undiscounted sum of all
amounts, including amounts deemed principal, interest, fees,
penalties, and other under the loan, owed to the bank at the report
date, whether or not currently due and whether or not any such
amounts have been charged off by the bank. However, the outstanding
balance does not include amounts that would be accrued under the
contract as interest, fees, penalties, and other after the report
\7\ Loans held for investment are those loans that the bank has
the intent and ability to hold for the foreseeable future or until
maturity or payoff. Thus, the outstanding balance and carrying
amount of any purchased impaired loans that are held for sale would
not be reported in these proposed Memorandum items.
The agencies also stated that they planned to revise the
instructions to Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets, to explain how purchased impaired loans should be
reported in this schedule. SOP 03-3 does not prohibit placing loans on
nonaccrual status and any nonaccrual purchased impaired loans should be
reported accordingly in Schedule RC-N. For those purchased impaired
loans that are not on nonaccrual status, banks should determine the
loans' delinquency status in accordance with the contractual repayment
terms of the loans without regard to the purchase price of (initial
investment in) these loans or the amount and timing of the cash flows
expected at acquisition.
As previously mentioned, the agencies received three comments in
response to their March 2005 proposed reporting revisions related to
SOP 03-3, one from a community bank trade association, one from a large
banking organization, and another from a trade group outside the
banking industry. In its comment letter, the community bank trade
association advised that, although most community banks it surveyed are
not purchasers of impaired loans, the proposed items would add clarity
to the Call Report for those that are. The association also stated that
the additional time needed by bankers to report the proposed items may
range from 10 minutes to one hour once the process for automating the
reporting of this information has been created, which can be
burdensome. The agencies note that the need for a bank that purchases
impaired loans to establish a process to account for and track these
loans is a result of SOP 03-3 becoming part of generally accepted
accounting principles, which are the foundation for the Call Report,
and would be necessary even if no new items were added to the Call
Report for purchased impaired loans. The new items for purchased
impaired loans produce only a small increase in the overall reporting
burden for the Call Report because the overall burden represents an
average across all institutions, including the vast majority that will
not be purchasers of impaired loans.
The community bank trade association also identified certain Call
Report schedules that its member banks consider most burdensome because
of the level of detail required. The agencies recognize these bankers'
concerns and are evaluating potential revisions to the Call Report that
would reduce the level of detail for small institutions.
The large banking organization that commented on the SOP 03-3
revisions agreed with the proposed addition of items for the
outstanding balance and carrying amount of purchased impaired loans and
with the proposed use of contractual terms for determining the
delinquency status of such loans for Call Report purposes. The
organization also did not object to the proposed item for reporting
amounts included in the allowance for loan and lease losses related to
purchased impaired loans, but disagreed with the agencies' statement in
the March 2005 proposal that all post-acquisition impairments recorded
under SOP 03-3 should be included in the allowance account. The
organization stated that it plans to recognize impairments resulting
from decreases in forecasted cash flows through interest income and
only recognize impairments through the allowance for loan and lease
losses when undiscounted forecasted cash flows decrease below the
amortized cost of the purchased impaired loan or pool of loans.
The agencies have considered the banking organization's comment on
post-acquisition impairments. After reviewing the relevant portions of
SOP 03-3 and discussing this comment with persons involved in the
development of SOP 03-3, the agencies do not believe the interest
income approach advocated by the banking organization is an appropriate
application of this accounting standard. Such an approach will result
in the recognition of interest
income at an inappropriate percentage yield under the Statement of
Position. Therefore, the agencies have decided against revising their
statement in the March 2005 proposal that decreases in originally
expected cash flows on a purchased impaired loan should be recognized
as an impairment through an addition to the loan loss allowance.
In its comment letter, the trade group from outside the banking
industry did not address the SOP 03-3 revisions, but requested that the
agencies revise several other items in the Call Report. The agencies
will consider these suggested Call Report changes at a later date.
D. Other Matters
Call Report Schedule RC-R--``Regulatory Capital, does not currently
allow a bank to report an amount in column B, ``Items Not Subject to
Risk-Weighting,'' of item 34, ``Cash and balances due from depository
institutions,'' because such items were not expected to exist within
this asset category when this schedule was originally designed.
However, when amounts are included in column A, ``Totals (from Schedule
RC \8\),'' of item 34 for certain embedded derivatives, these embedded
derivatives should be risk-weighted under the rules for derivatives
rather than the rules that apply to the cash and due from asset
account. As a result, banks contacted the agencies upon finding that
they could not properly report the carrying amount of these derivatives
in column B when allocating the total carrying amount of their ``Cash
and balances due from depository institutions'' across the columns of
item 34. In response to banks' comments about this reporting
difficulty, the agencies are revising Schedule RC-R to permit the use
of column B of item 34.
\8\ Schedule RC of the Call Report is the balance sheet.
A number of banks have requested that they be permitted to provide
USA PATRIOT Act Section 314(a) Anti-Money Laundering contact
information for more than two contact persons at their institutions.
The agencies are adding text fields for two additional contact persons
that will enable a bank, at its option, to supply information for a
third and fourth anti-money laundering contact person. This contact
information is not released to the public.
III. Request for Comment
Public comment is requested on all aspects of this joint notice. In
addition, comments are invited on:
(a) Whether the proposed revisions to the Call Report collections
of information are necessary for the proper performance of the
agencies' functions, including whether the information has practical
(b) The accuracy of the agencies' estimates of the burden of the
information collections as they are proposed to be revised, including
the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments submitted in response to this joint notice will be shared
among the agencies and will be summarized or included in the agencies'
requests for OMB approval. All comments will become a matter of public
record. Written comments should address the accuracy of the burden
estimates and ways to minimize burden as well as other relevant aspects
of the information collection request.
Dated: May 25, 2005.
Stuart E. Feldstein,
Assistant Director, Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency.
Board of Governors of the Federal Reserve System, May 24, 2005.
Robert deV. Frierson,
Deputy Secretary of the Board.
Dated at Washington, DC, this 25th day of May, 2005.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
[FR Doc. 05-10778 Filed 5-27-05; 8:45 am]