TFR Questions and Answers
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Q&A No. 001 Other-Than-Temporary Impairment of Securities
Q&A No. 002 Traveler's Express and Outstanding Drafts
Q&A No. 003 Risk Weighting Industrial Bonds
Q&A No. 004 Federal Funds Sold
Q&A No. 005 Commitments to Originate Consumer Loans
Q&A No. 006 Rescinded
Q&A No. 007 Deferred Taxes for Unrealized Gains and
Losses (Revised)
Q&A No. 008 Deleted -- Superceded
by Q&A No. 248
Q&A No. 009 Number of Full-time equivalent employees
Q&A No. 010 Rescinded
Q&A No. 011 Loan Classification
Q&A No. 012 Secured Personal Line of Credit
Q&A No. 013 ESOP Loan
Q&A No. 014 Consumer Loans (Revised)
Q&A No. 015 Deposits: Medical Savings Plans (Revised)
Q&A No. 016 Hierarchy of Risk-weighting
Q&A No. 017 Extensions of Credit to Officers
Q&A No. 018 Construction Participations
Q&A No. 019 Annual Listing of Service Corporations (Schedule
CSS)
Q&A No. 020 Calculation of Past Due
Q&A No. 021 Risk-weighting Receivables from Brokers
Q&A No. 022 Partial Use of an Office Building
Q&A No. 023 FHLB Dividends
Q&A No. 024 Loans Secured by Stock
Q&A No. 025 Other Asset and Liability Codes (Revised)
Q&A No. 026 Classification of Mobile Home Loans as
Mortgages
Q&A No. 027 Direct Credit Substitute (Revised)
Q&A No. 028 Qualified Thrift Lender (QTL) Test
Q&A No. 029 (Revised) Reconciling Total Assets (SC60) to
Assets to Riskweight (CCR64)
Q&A No. 030 Limited Partnership (Pass-through
Investment)
Q&A No. 031 Commitment Fee on a Letter of Credit
Q&A No. 032 Credit Balances in Mortgage Loans
Q&A No. 033 Purchased Receivables
Q&A No. 034 Deleted -- Superceded
by Q&A No. 248
Q&A No. 035 Troubled Debt Restructuring
Q&A No. 036 Minority Interest (Revised)
Q&A No. 037 Deductions for Assets of Consolidated Nonincludable Subsidiaries
Q&A No. 038 Multifamily and Nonresidential Mortgage
Loans
Q&A No. 039 Over-extended Home Equity Loans
Q&A No. 040 Risk weighting high LTV loans (Revised)
Q&A No. 041 Escrows as Demand Deposits
Q&A No. 042 Rescinded
Q&A No. 043 Cash Flow treatment of Mortgage loans
converted to MBS
Q&A No. 044 Table Funding (Originating Mortgages
Available-for-Sale)
Q&A No. 045 Check Processing and Computer Center Co-ops
on CSS
Q&A No. 046 Definition of Real Estate Loans (TB72)
Q&A No. 047 Trust Preferred Securities
Q&A No. 048 Rabbi Trusts
Q&A No. 049 Conversion Factors For LIP
Q&A No. 050 Rescinded
Q&A No. 051 Specific Reserves on Servicing Assets
Q&A No. 052 Hypothecated Deposits - Down Payments on
Construction Loans
Q&A No. 053 Unsolicited Brokered Deposits
Q&A No. 054 CMR Filing Exemption
Q&A No. 055 Grandfathered Qualifying Multifamily
Mortgage Loans
Q&A No. 056 Valuation of Foreclosed Assets
Q&A No. 057 QTL - Reorganized Entity
Q&A No. 058 Rescinded
Q&A No. 059 Securities Reclassified from
Available-for-Sale
Q&A No. 060 Mutual Funds (SFAS No. 115)
Q&A No. 061 Risk-Weighting of Unrealized Gains on Equity
Securities
Q&A No. 062 Small Business Loans Secured By Residential
Real Estate
Q&A No. 063 Risk-Weighting FHA-Insured Second Mortgages
Q&A No. 064 Automobile Financing Through Dealers
Q&A No. 065 Rescinded
Q&A No. 066 Pledged Securities in QTL
Q&A No. 067 Undisbursed Balance (LIP) Of Land
Development Loans
Q&A No. 068 Rescinded
Q&A No. 069 Assisted Living Facilities
Q&A No. 070 Preferred Deposits
Q&A No. 071 Set-Off of Negative Cash Account
Q&A No. 072 Loans Secured by Duplexes
Q&A No. 073 LTV Calculation when the First Lien is
FHA-Insured and the Second Lien is Conventional
Q&A No. 074 Risk Weighting Residual of a Loan
Participation
Q&A No. 075 Deposit Premium Assessment Base (Revised)
Q&A No. 076 Reserve for Uncollectable Interest
Q&A No. 077 Loans Collateralized by Account Receivables
Q&A No. 078 Floating Rate CMO Valuation
Q&A No. 079 Complex Securities (Revised)
Q&A No. 080 Servicing Escrows
Q&A No. 081 Bank-Owned Life Insurance (BOLI)
Q&A No. 082 Rescinded
Q&A No. 083 Aggregate Amount of all Extensions of Credit
Q&A No. 084 Participated Lines of Credit
Q&A No. 085 Complex Securities
Q&A No. 086 Loan-To-Value
Q&A No. 087 Accrued Interest Payable on Deposits
Included in Liquidity
Q&A No. 088 Commitments on CMR
Q&A No. 089 Calculation of LTV Ratios for Single-Family
Residential Mortgages
Q&A No. 090 Floating Rate Balloon Note
Q&A No. 091 Available-For-Sale Loans
Q&A No. 092 Rescinded
Q&A No. 093 Farm Loans
Q&A No. 094 Callable CDS
Q&A No. 095 Dollar Roll Clearing Account
Q&A No. 096 LTV-Deferred Loan Fees
Q&A No. 097 Leasing Activities
Q&A No. 098 Auto Leases
Q&A No. 099 Closed-End Home Equity Loans
Q&A No. 100 Uninsured Deposits
Q&A No. 101 QTL For Trust-Only Charters
Q&A No. 102 Fee Income on Individual Security Sales
Q&A No. 103 Mutual Fund Referrals
Q&A No. 104 Qualifying Multifamily Mortgage Loans
Q&A No. 105 Callable Bond Past Call Date
Q&A No. 106 Face Value of Liabilities with Options,
Edit R950
Q&A No. 107 Convertible FHLB Advances
Q&A No. 108 Balloon Loans
Q&A No. 109 Deferred Tax Credits
Q&A No. 110 FHLB Non-Interest-Earning Deposits
Q&A No. 111 Rescinded
Q&A No. 112 Rescinded
Q&A No. 113 QTL - Loans Pools
Q&A No. 114 Deleted -- Superceded
by Q&A No. 248
Q&A No. 115 Exchange Rate Contracts
Q&A No. 116 Risk-Weighting Accrued Interest
Q&A No. 117 Overdrafts in Cash Accounts
Q&A No. 118 Money Market Mutual Funds
Q&A No. 119 Risk Weighting Interest-Rate Contracts
Q&A No. 120 Qualifying Multifamily Loans - Assumption
Q&A No. 121 Write-Down of Beneficial Interests Pursuant
to EITF Issue No. 99-20
Q&A No. 122 SFAS No. 115 Adjustments in Cash Flow
Amounts
Q&A No. 123 Interpretation of Q&A No. 72 -
Single-Family Construction Loans
Q&A No. 124 Combining Junior and Senior Loans for LTV
Delinquency Reporting
Q&A No. 125 Partial PMI
Q&A No. 126 Original vs. Current LTV Calculation
Q&A No. 127 High LTV Loan Participations
Q&A No. 128 LTV - Decrease in Property Value (Revised)
Q&A No. 129 LTV - Additional Collateral
Q&A No. 130 Disbursements of Lines of Credit
Q&A No. 131 High LTV Past Due Loans
Q&A No. 132 High LTV Charge-offs and Sales
Q&A No. 133 Deleted -- Superceded
by Q&A No. 248
Q&A No. 134 Loans on Mixed Use Property or on Two
Properties
Q&A No. 135 Nonconstruction
Bridge Loans
Q&A No. 136 "Best Effort" Commitments to Sell
Loans
Q&A No. 137 Combined Loan to Value with New Appraisal
Q&A No. 138 Pass-Through Securities Backed by Home
Equity Loans
Q&A No. 139 Deleted -- Superceded
by Q&A No. 248
Q&A No. 140 SFAS No. 142 - Amortization of Goodwill
(Revised)
Q&A No. 141 Definition of Nonaccrual Status
Q&A No. 142 High LTV Loans Originated for Sale (Revised)
Q&A No. 143 High LTV Purchases
Q&A No. 144 High LTV Sales
Q&A No. 145 Small Business Loans Secured by Personal
Residence
Q&A No. 146 Liquidity in QTL
Q&A No. 147 CCR - Reporting GNMA Mutual Funds
Q&A No. 148 Combined Loan to Value with New Appraisal
Q&A No. 149 Matured CDs in CMR
Q&A No. 150 Recalculation of LTV (Revised)
Q&A No. 151 Construction Loans
Q&A No. 152 Construction Loans - Insured or Government
Guarantee
Q&A No. 153 FHA/VA Insurance Pending
Q&A No. 154 Private Mortgage Guarantee
Q&A No. 155 Commercial Loans Secured by Deposits
Q&A No. 156 Small Business Loan Limit for QTL
Q&A No. 157 Purchased Subordinated Securities
Q&A No. 158 Residual Interests
Q&A No. 159 Loans Held For Sale
Q&A No. 160 Servicing Escrows
Q&A No. 161 Qualifying Multifamily Residential Mortgage
Loans - Maturity Requirement
Q&A No. 162 Qualifying Multifamily Residential Mortage Loans - Payment History
Q&A No. 163 Investments in Nonoperating
Entities
Q&A No. 164 Qualifying Single Family Residential
Mortgage Loans
Q&A No. 165 Recourse Rule-120-Day Exception (Revised)
Q&A No. 166 Commercial Loans Secured By GNMA Securities
Q&A No. 167 Loan Classification
Q&A No. 168 Adjustments To Loan Documentation
Subsequent To Origination
Q&A No. 169 QTL Test - Mortgages Originated And Sold
Q&A No. 170 Credit Life Insurance On Consumer Loans
Q&A No. 171 Definition Of Outstanding Balance
Q&A No. 172 Construction Mezzanine (Bridge) Loans
Q&A No. 173 New Accounts-Name Change
Q&A No. 174 New Accounts-Acquisitions
Q&A No. 175 New Accounts-Maturity
Q&A No. 176 Definition Of Withdrawals
Q&A No. 177 Checking Account Sweeps
Q&A No. 178 Suspected Terrorists Deposits
Q&A No. 179 Loans Past Maturity
Q&A No. 180 LTV Calculation - Credit Life Insurance
Q&A No. 181 Loan Commitments
Q&A No. 182 Retirement Accounts
Q&A No. 183 Rescinded
Q&A No. 184 Trust Preferred Securities
Q&A No. 185 Intangibles
Q&A No. 186 Rescinded
Q&A No. 187 Offsetting Commitments to Sell and Purchase
Securities
Q&A No. 188 CMO Risk Weighting
Q&A No. 189 Derivative Instruments and Hedges
Q&A No. 190 Deleted -- Superceded
by Q&A No. 248
Q&A No. 191 Loans Sold with Recourse - 120 Day Limited
Recourse
Q&A No. 192 Rescinded
Q&A No. 193 Rescinded
Q&A No. 194 LTV - Other Credit Enhancement
Q&A No. 195 Best Effort Commitments
Q&A No. 196 Commercial Line of Credit Secured by Real
Estate
Q&A No. 197 Renovation Loans (Revised)
Q&A No. 198 Charge-off on Credit-Card Receivables
Q&A No. 199 Acquired Troubled Debt Restructured
Q&A No. 200 QTL - Life Insurance
Q&A No. 201 Insider Loans - Loans To Spouses
Q&A No. 202 CMR - Rounding Remaining Maturities
Q&A No. 203 CMR - Definition of Early Withdrawal
Q&A No. 204 CMR - Mortgage Pipeline
Q&A No. 205 Mortgages with Additional Collateral
Q&A No. 206 Foreclosed Property During Redemption
Period
Q&A No. 207 Retail Repurchase Agreements
Q&A No. 208 Mortgage Loan Commitments
Q&A No. 209 Brokered Deposits (Revised)
Q&A No. 210 QTL - Lot Loans
Q&A No. 211 QTL - Marketable Equity Securities
Q&A No. 212 Rescinded
Q&A No. 213 Federal Farm Credit Bank Bonds (FFCB)
Q&A No. 214 Callable Multifamily and Nonresidential
Mortgage Loans
Q&A No. 215 Deleted -- Superceded
by Q&A No. 248
Q&A No. 216 Intangible Pension Asset
Q&A No. 217 90% LTV
Q&A No. 218 Lines of Credit on Nonresidential Property
Q&A No. 219 Sub S Corp Dividends
Q&A No. 220 Reducing Low Level Recourse By Contingent Liability
Q&A No. 221 CD Maturity on a Nonbusiness
Day
Q&A No. 222 Construction/Permanent Loans
Q&A No. 223 Zero Coupon State/Municipal Bonds
Q&A No. 224 INTERCOMPANY RECEIVABLES/PAYABLES
Q&A No. 225 COMPUTER SOFTWARE
Q&A No. 226 Rescinded
Q&A No. 227 Including Subsidiary in Schedule FS
Q&A No. 228 Farm Services Agency (FSA) Guaranteed Loan
Q&A No. 229 Arms At Their Floor
Q&A No. 230 TFR Posting Schedule on FDIC Web Site
Q&A No. 231 Sallie Mae Pass-Through Securities
Q&A No. 232 Flexible Spending Accounts
Q&A No. 233 FHLB Advance Prepayment Penalities
Q&A No. 234 Internet Deposit Listings-Brokered Deposits
Q&A No. 235 Liabilities for Credit Losses for
Off-Balance-Sheet Exposures
Q&A No. 236 Excess Alll
Q&A No. 237 Boli Investment
Limitation, Definition of Total Capital
Q&A No. 238 Risk-Weighting Available-for-Sale Equity
Securities With Unrealized Losses
Q&A No. 239 Rescinded
Q&A No. 240 Revolving Lines Of Credit – As Refinancings
Q&A No. 241 Lines Of Credit To A Service Corporation
Q&A No. 242 Transactions With An Affiliated Bank
Q&A No. 243 Holding Company’s Dividends From Thrift
Subsidiary
Q&A No. 244 Trust Preferred Securities
Q&A No. 245 Net Deferred Tax Assets
Q&A No. 246 Interest-Only Mortgages
Q&A No. 247 FHLB Overdrafts
Q&A No. 248 Bounce Protection (Overdraft Protection)
Q&A No. 249 Thrift Holding Company Net Income
Q&A No. 250 Reporting Deposit Account Sweeps
Q&A No. 251 General Valuation Allowances Associated
with a Loan Portfolio Sale
Q&A No. 252 Commitments to Originate and Sell Mortgages
Loans
Q&A No. 253 Reporting Financing Arrangements Under the
Tobacco Transition Payment Program
Q&A No. 254 FAS123 (R) Charges
Q&A No. 255 Commercial Loans
Q&A No. 256 Defined Benefit Postretirement Plans and
FAS158 (Revised)
Q&A No. 257 FDIC One-Time Assessment Credit
Q&A No. 258 Fair Value Option Accounting
Q&A No. 259 Risk Weight for Assets with FDIC Assistance
Q&A No. 260 Push-Down Accounting
Q&A No. 261 TARP Funds / Capital Purchase Program
Q&A No. 262 Other-Than-Temporary-Impairment
Q&A No. 263 Risk Weighting Downgraded Securities
Q&A No. 264 Investment in the common
stock of a bankers’ bank
Q&A No. 265 Expenses on Cramdown
Loans
Q&A No. 001
SUBJECT:
Other-Than-Temporary Impairment of Securities
LINE(S): SO441
DATE: Revised April 22, 2009
Question: How is an other-than-temporary impairment of a security
reported on the TFR?
Answer: An other-than-temporary impairment of a security directly
reduces the recorded investment of the security on Schedule SC and should be
expensed on SO441 (Other-Than-Temporary Impairment charges on Debt and Equity
Securities).
[TOP]
Q&A No. 002
SUBJECT: Traveler's Express and Outstanding Drafts
LINE(S): SC110/710 DI620
DATE: Revised July 5, 2006
Question: An institution uses Traveler's Express for their check
clearing. Every time they need to have a check cut, the institution wires the
money to Traveler's Express, which then cuts the check for the institution.
Until the check clears, Traveler's has use of the money; however, the
institution also is paid a nominal rate on the float.
The institution argues that since they have wired money to Traveler's, they
have paid for the check and it does not fit the definition of a zero-balance
account. Use the example of paying your mortgage with a personal check versus a
cashier's check. A personal check creates a liability until the check clears. A
cashier's check does not, since you have "bought" the check with
money from your account.
Do the outstanding checks at Traveler's have to be included in the deposit
insurance assessment base and reported as deposits on SC710 or DI620?
Answer: No. The only amount that should be reported as a deposit in
SC710 would be any funds not yet remitted to Traveler’s. For example, if the
association wired the funds the following business day, the amount of the
liability at the close of business would be reported as a deposit. However, in
this case, the institution wires the funds the same day the checks are cut and
therefore, has no liability on their books. Some institutions have this same
arrangement with other money-order servicers such as American Express.
It is not reported on DI620 because the money-order servicer uses a commercial
bank to clear the checks and, thus, the deposit is in the commercial bank’s
deposit insurance assessment base.
[TOP]
Q&A No. 003
SUBJECT: Risk Weighting Industrial Bonds
LINE(S): CCR506
DATE: Revised July 5, 2006
Question: How are industrial revenue bonds risk-weighted on Schedule
CCR?
Answer: Industrial revenue bonds are risk-weighted in the 100%
risk-weight category because it is the obligation of the private company
issuing them to pay the amounts due on the bonds, and the investors need to
look to the private company's ability to honor the obligation. This is
illustrated by the fact that the municipality will not take over the obligation
to pay off the bonds if the private company goes bankrupt.
[TOP]
Q&A No. 004
SUBJECT: Federal Funds Sold
LINE(S): SC125 SI385
DATE: Revised July 5, 2006
Question: An institution considers their Fed Funds (SC125) as
available-for-sale. They classify these funds as available-for-sale and account
for them accordingly. Is this correct?
Answer: No. Federal Funds Sold are funds that are immediately available
and invested for only one business day. Typically they are treated as cash
equivalents and as such are not classified as available-for-sale or trading.
[TOP]
Q&A No. 005
SUBJECT: Commitments to Originate Consumer Loans
LINE(S): CC310
DATE: May 23, 1997
Question: If an institution has approved a consumer loan, but a
commitment letter has not been issued, is this a commitment? An institution has
an electronic application tracking process through which loans are approved or
denied. No commitment letter is sent to the applicants upon approval, although
some branch managers may call to notify the applicants that the loan was approved.
The borrowers can receive their funds within a few days; however, in some
cases, it may be weeks before the customer comes into the office to pick up his
check.
Answer: Yes, an approved loan is a commitment. The borrower does not
have to be notified. If the association intends to make the loan, they must
report it as a commitment for cash flow purposes, regardless of when the loan
will be closed or the funds disbursed.
[TOP]
Q&A No. 007
SUBJECT: Deferred Taxes for Unrealized Gains and Losses
LINE(S): CCR280
DATE: Revised December 1, 2006
Question: Should the amount on CCR280 (for unrealized gains and losses
on certain available-for-sale securities) be reported gross or net of income
taxes?
Answer: Generally, the amount on CCR280 should be reported before any
income tax effect. The amount reported on CCR280 is directly related to the
amount reported on CCR180.
The amount reported on CCR180 is an adjustment to equity capital to compute
regulatory capital. It is an amount that is included in equity capital on SC860
and is net of any associated current or deferred income taxes.
The amount reported on CCR280 is an adjustment to total assets to compute
adjusted total assets for regulatory capital purposes. Generally, this amount
should be reported before any income tax effect. However, as explained below,
if the income tax effect results in a change to assets (either current or
deferred tax assets), the amount on CCR280 should be reported after the effect
of income taxes. The current or deferred taxes from SFAS 115 adjustments are
netted with all other current or deferred taxes of the institution to determine
whether the result is a liability or asset. The CCR280 calculation can change
from quarter to quarter depending on whether deferred taxes result in an asset
or in a liability.
Example 1
Unrealized gains on CCR280 are reported after the effect of income taxes, only
where the associated current or deferred tax liability is a component of a net
tax asset.
Assume:
Mortgage pool securities on SC210 increased by unrealized gains on
available-for-sale securities of $100.
An associated deferred tax liability of $40, included as a component of a net
deferred tax liability on SC790.
Unrealized gains, net of income taxes, on available-for-sale securities of $60,
reported as a positive amount on SC860.
Report:
-$60 on CCR180 (the net amount included in SC860)
-$100 on CCR280 (the only amount included in assets)
Example 2
Unrealized losses on CCR280 are reported after the effect of income taxes, only
where the associated current or deferred tax asset is a component of a net tax
asset.
Assume:
U.S. Government securities on SC130 reduced by unrealized losses on
available-for-sale securities of $100.
An associated deferred tax asset of $40, is included as a component of a net
deferred tax asset, reported in other assets on SC690.
Unrealized losses, net of income taxes, on available-for-sale securities of $60
are reported as a negative amount on SC860.
Report:
$60 on CCR180 (the net amount included in SC860)
$60 on CCR280 (the deferred tax asset of $40 included in SC690 netted against
the loss of $100 in SC130)
[TOP]
Q&A No. 009
SUBJECT: Number of Full-time equivalent employees
LINE(S): SI370
DATE: July 1, 1997
Question: An institution either leases its employees or uses employees
who work for its holding company. The S&L itself has no employees. The
president works for the holding company. What should they put on SI370 (Number
of Full-time Equivalent Employees)?
Answer: SI370 should include all employees leased from affiliates and
all long-term contractual employees, who work primarily for the association.
That is, an association should not include short-term contract employees such
as those from a temporary employment agency, but should include employees
leased from affiliates and contractual employees such as loan officers employed
on a commission or fee basis. Additionally, contractual agreements with brokers
or agents who provide the same service to others should not be included. A zero
in SI370 is normally not acceptable.
[TOP]
Q&A No. 011
SUBJECT: Loan Classification
LINE(S): SC26/31
DATE: Revised July 5, 2006
Question 1: If an institution has commercial loans where the
underwriting focuses primarily on the creditworthiness rather than the collateral,
but the loan is fully secured by real estate, can they classify these loans as
nonmortgage since OTS Regulation 560 focuses on the underwriting rather than
the collateral?
Answer 1: If the loans are fully secured by real estate, they may elect to
classify them as either mortgage or nonmortgage loans.
Question 2: Can the institution take a nonmortgage commercial loan, and
break it out into a second loan for the real estate collateralized portion?
Answer 2: Yes, provided there are two separate loans and the real estate
loan is fully secured by the real estate collateral.
Question 3: What constitutes "fully secured," if a
loan-to-facilitate may exceed an 80% loan-to-value, but still qualify as
mortgage?
Answer 3: A loan is fully secured when the fair value of the collateral
minus costs to sell is no less than the carrying amount of the loan. However,
it would be desirable to have collateral in excess of fair value minus costs to
sell.
Question 4: Must SC300, Secured Commercial loans, reflect only fully
secured loans?
Answer 4: Yes, fully secured at origination. It should not include loans
secured by collateral taken as an "abundance of caution" where the
amount of the collateral is minimal in relation to the size of the loan.
[TOP]
Q&A No. 012
SUBJECT: Secured Personal Line of Credit
LINE(S): SC330/328
DATE: Revised July 5, 2006
Question: An institution has approved an open-ended personal line of
credit of approximately $2.8 million. It's secured by collateral consisting of
approximately 25% in automobiles, 15% in loans on deposits, 15% in various real
estate, with the balance in various other collateral. Approximately 5% is unsecured.
Where should this be reported on the TFR?
Answer: The disbursed amount should be reported on SC328, which was
redefined in the March 1997 TFR instructions as "Credit Cards and Related
Plans." The instructions say to report the disbursed portion of open-end
consumer credit, including both secured and unsecured credit. The undisbursed
portion should be reported as a commitment on CC423/CC425 (Unused Lines of
Credit).
[TOP]
Q&A No. 013
SUBJECT: ESOP Loan
LINE(S): SC760
DATE: May 23, 1997
Question: A thrift holding company established an ESOP for the employees
of a thrift and borrowed funds from a third party to fund the plan. The
financial institution, not the holding company, pays the interest expense of
$21,000 quarterly on this debt. Is the thrift required to reflect the debt
obligation associated with the ESOP on the TFR, line SC760, Other Borrowings,
or SC890, Other Components of Capital?
Answer: In some cases, yes. However, because not enough information is
provided and because of the complexity of this issue, it should be referred to
the Regional Accountant for resolution.
[TOP]
Q&A No. 014
SUBJECT: Consumer Loans
LINE(S): SC310-330
DATE: Revised December 1, 2006
Question: In reporting consumer loans in Schedule SC, is the collateral
or the stated use of the loan proceeds the key to proper reporting?
Answer: The loan should be categorized based on the collateral as long
as the collateral fully secures the loan. However, if the collateral is only
taken as an abundance of caution, then the purpose would be the key.
For example: A lender made a revolving line of credit to finance college
expenses for the borrower's child with a second lien on the borrower's home as
collateral. If the loan would otherwise qualify under the lenders' home
improvement loan program, it could be considered a 1-4 open-end mortgage loan.
However, if the institution wanted to report it as an education loan, OTS would
not object. On the other hand, if there was insufficient equity in the home to
cover the loan (the lender took a security interest in the loan as an abundance
of caution), then the loan should be reported as an education loan.
[TOP]
Q&A No. 015
SUBJECT: Deposits: Medical Savings Plans
LINE(S): SC710, DI610, DI200
DI120, DI130
CMR
DATE: Revised December 1, 2006
An institution has started to offer a medical savings plan account. The account
offers a pre-tax savings plan to provide for qualified medical expenses. The
individual customer deposits money for the medical savings plan up to their
maximum allowable amount.
Question 1: Should these medical savings plan accounts be reported as
passbook accounts?
Answer 1: In Schedule CMR these accounts should be reported as
fixed-maturity deposits, because they do not have the characteristics of a
passbook account. The original maturity would typically be 12 to 36 months
because they are 12-month accounts with an additional 3-month grace period for
filing claims. The remaining maturity would be based on the number of months
until the end of the year plus three months for the grace period.
In Schedule DI, these generally could be reported as demand deposits if they
are noninterest bearing and meet the other requirements of demand deposits.
They should not be reported with IRA/Keogh Accounts on DI200.
Question 2: If a customer has an unrelated $98,000 CD and a $9,000 MSA,
would the full $9,000 Medical Savings Account be insured?
Answer 2: No, only the aggregated amount up to $100,000 would be
insured. Medical Savings Accounts must be aggregated with other savings
accounts in determining deposit insurance.
[TOP]
Q&A No. 016
SUBJECT: Hierarchy of Risk-weighting
LINE(S): CCR450/480/506
DATE: Revised July 5, 2006
Question 1: Can 1-4 FHA/VA conditionally guaranteed, insured mortgage
loans, that are nonperforming be reported with performing loans in the 20%
risk-weight category, since they will eventually recover?
Answer 1: Yes, include the FHA/VA conditionally guaranteed part in 20%
risk-weight despite being nonperforming. Only the guaranteed portion should be
risk-weighted at 20% with the remainder in 100% risk-weight.
Question 2: Would the nonaccrual status of loans take precedence for
100% risk-weight classification, even if the loans were more than fully secured
by cash, where no risk would actually exist?
Answer 2: These loans would be risk-weighted at 20% if collateralized by
cash held in a segregated deposit account by the reporting savings association.
Question 3: Would a construction loan that is FHA/VA secured, but that
does not meet the test for a "qualifying residential construction
loan" qualify for less than 100% risk-weighting?
Answer 3: Yes, the portion of assets conditionally guaranteed by U.S.
government agencies (e.g., VA/FHA) is risk-weighted at 20%. Reminder: only the
guaranteed portion should be risk-weighted at 20%, with the remainder
risk-weighted at 100%.
[TOP]
Q&A No. 017
SUBJECT: Extensions of Credit to Officers
LINE(S): SI590/595
DATE: December 1, 1997
Question: Should the credit provided for employees before they become
officers be included as extensions of credit on lines SI590/595, in the quarter
that they actually become officers?
Answer: Yes, extensions of credit should be included in SI590/595 even
though they were made before the employee became an officer. Even if the loan
is beyond what is permitted by Regulation O, it may remain on the books.
However, if the extension of credit is modified or renewed in any way it must
conform to the regulation, since the individual is now an insider. In essence,
the extension of credit is reported, but grandfathered, under current terms.
The one exception would be a situation where the extension of credit was made
immediately before the appointment to circumvent the regulations.
[TOP]
Q&A No. 018
SUBJECT: Construction Participations
LINE(S): SC240, CC105
DATE: December 1, 1997
An institution has made a construction loan for a hotel and they are
participating out a portion of it. The institution has disbursed $700,000 to
date, of which $300,000 was contributed by the other participants. This leaves
a total of $300,000 as LIP.
Question 1: How is this accounted for? Does the institution show only
their share of the disbursed amount in Schedule SC? If so, how is CF completed?
Answer 1: All participants should report their proportionate share of
the construction loan on SC240. The increase in SC240 should be reported on
CF210.
Question 2: How is the LIP reported in Schedule CC? All, or only the reporting
institution's part? Will the participated amount be shown as loans serviced for
others by the lead lender?
Answer 2: If the participants are all liable on the construction loan,
they should all report their commitment on CC105. If only the lead lender is
liable on the construction loan, only the lead lender would report LIP on
CC105.
In either case the lead lender, as the servicer, should report the portion of
the outstanding balance of the loan that is owned by the other participants on
SI390.
[TOP]
Q&A No. 019
SUBJECT: Annual Listing of Service Corporations (Schedule CSS)
LINE(S): CSS110:150
DATE: December 1, 1997
Question 1: What is required on CSS120 through 160 to reflect the
"total assets of the entity?"
Answer 1: Data should be reported for a subsidiary on a stand-alone basis,
i.e., unconsolidated. It is not intended that extraordinary efforts be made to
obtain the financial data requested in CSS. An institution's best efforts,
within reason, should be made to present accurate data; however, reasonable
assumptions and estimates will be accepted.
Question 2: If all of the subsidiaries of the thrift parent are
sequentially listed, column-by-column, using the various business codes, then,
should each individual subsidiary be applying the equity method as they report
balances on CSS120:160?
Answer 2: In reporting assets they should include the investment in
lower tier subsidiary on the equity method; however, net income should be
stated for the subsidiary being reported on only. All subsidiaries of all tiers
should be listed.
Question 3: If a subsidiary has a fiscal year-end of June 30th, what
should be reported on line CSS150: Net Income for the calendar year?
Answer 3: Net income should be reported for the calendar year.
Exceptions can be made where data for the period from the fiscal year end to
the end of the calendar year are not available. However, this should be rare.
[TOP]
Q&A No. 020
SUBJECT: Calculation of Past Due
LINE: Schedule PD
DATE: December 1, 1997
Question 1: Are escrows included in the calculation of cycles past due?
Answer 1: Escrows are included in the calculation of cycles past due if
they are contractually required and legal.
Question 2: How are partial payments treated? For example: If a borrower
is paying $25 per month on a loan with payments due of $100 per month, at the
end of two months would the loan be two cycles past due and, therefore,
reported on Schedule PD, or would it be one cycle past due and not reported on
Schedule PD?
Answer 2: After the second payment, the loan is 15 days past due, and
is, therefore, less than one cycle (30 days) past due. After the third payment,
the loan is 37.5 days past due and is, therefore, more than one cycle (30 days)
past due. Note the computations below:
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* It is assumed that partial payments are applied first to the oldest components
of the balance. Accordingly, the unpaid portion of the current month is not yet
"past due."
[TOP]
Q&A No. 021
SUBJECT: Risk-weighting Receivables from Brokers
LINE: CCR
DATE: December 1, 1997
Question: When an association sells a security, it books a receivable in
Other Assets during the period between the trade date and the settlement date.
Are such receivables risk weighted at 100%? For instance, if the receivable is
created through the sale of a government security, that receivable would be
risk-weighted higher than the original security, even though settlement has not
taken place. Is this correct?
Answer: Receivables are risk-weighted according to the debtor. For
example, if it is a claim on a domestic depository institution, it is
risk-weighted at 20%; if it is conditionally guaranteed by the United States,
it is also risk-weighted at 20%. If it is due from a broker/purchaser and
unsecured, it is risk-weighted at 100%, but may be risk-weighted at a lower
risk-weight if the claim is collateralized by lower risk-weighted assets as
explained below.
This receivable is risk-weighted differently than the original security because
the institution has a different asset than it did previously. The association
no longer has the U.S. Government's unconditional guarantee. Therefore, the
receivable must be risk-weighted at a higher level. However, if the reporting
association can legally enforce its claim, including taking legal possession of
the collateral free and clear of enforceable claims of others and the
securities under sale qualify for 0% or 20% risk-weighting, the amount due from
the broker/purchaser is risk-weighted at 20% and reported on CCR430 if the
collateral is a mortgage security, or CCR450 if the collateral is another U.S.
Government security.
[TOP]
Q&A No. 022
SUBJECT: Partial Use of an Office Building
LINE(S): SC45/55
CCR370/506
DATE: Revised July 5, 2006
Question: An institution owns property that it intends to develop into
an office building. The plans for the building are for a twelve-story building,
two floors of which will be occupied by retail businesses and ten will contain
offices. The institution intends to occupy five floors of the building. Because
the institution will only partially occupy the building, can they still include
it as "office premises" on SC55 and risk-weight it at 100%, or must
it be considered real estate held for investment reported on SC45, which they
must deduct from capital on CCR370? Should it be prorated?
Answer: The entire building may be included as "office
premises," risk-weighted at 100%, as long as 25% or more of the building
is used by the institution or is intended for future use.
[TOP]
Q&A No. 023
SUBJECT: FHLB Dividends
LINE(S): SO181
DATE: Revised June 8, 2005
Question: Must institutions report FHLB dividends in Other Noninterest
Income?/P>
Answer: FHLB dividends, either cash or stock, should be reported in
SO181. FHLB dividends, together with certain other income items reported in
SO185, fall under the general income category - Dividend Income on Equity
Investments Not Subject to FASB Statement No. 115.
[TOP]
Q&A No. 024
SUBJECT: Loans Secured by Stock
LINE(S): SC330
DATE: December 1, 1997
Question: A loan is secured by stock (traded on the New York Stock
Exchange) and is made to an individual for the purpose of buying more stock.
Where should this be reported on Schedule SC?
Answer: This loan should be reported on SC330 (Other Closed-end Consumer
Loans, Including Leases).
If the thrift has $200,000 or more in credit secured directly, or indirectly,
by margin stock extended in the last quarter, it must register with the Federal
Reserve Bank in its district and follow the requirements of Regulation G.
Regulation G requires the use of certain FRB forms for reporting such
transactions and also limits covered loans to 50% of the value of the stock at
the time of purchase. See OTS Thrift Activities Handbook Section 562, Margin
Securities (Regulation G).
[TOP]
Q&A No. 025
SUBJECT: Other Asset and Liability Codes
LINE(S): SC689/SC796
DATE: Revised December 1, 2006
Question: How should the detail lines under Other Assets and Other Liabilities
be reported? Should the institutions code all items in the other category, sum
them by code and report the three largest, or report the three largest without
summation. This could, of course, result in the same code being used for two or
even all three of the detail lines.
Answer: The accounts should be aggregated by code, so that a code only
appears once. Once they have been aggregated, the three largest items should be
reported. Code 99 is the only code that may appear more than once.
[TOP]
Q&A No. 026
SUBJECT: Classification of Mobile Home Loans as Mortgages
LINE(S): SC326
DATE: December 1, 1997
Question: An institution is building up a portfolio of mobile home
loans. Some are straightforward consumer loans. Others, however are loans on
the land as well as on the mobile home. The mobile homes are put on concrete
pads. Should these loans be reported as mortgage loans?
Answer: Mortgage loans secured by both a developed lot and a mobile home
on a fixed site (where the wheels are detached and the home is permanently
anchored to a foundation or pad) should be classified and risk-weighted as 1-4
family mortgage loans.
If, however, the mobile home is not fixed to the site, the loan could be
classified as either a nonmortgage, mobile home loan, or a mortgage on a
developed building lot, based on the relative values of each piece of
collateral relative to the loan. For example, if the mobile home was valued at
$20,000 and the land at $10,000, the loan generally would be classified as a
nonmortgage, mobile home loan. If the numbers were reversed, the loan would
generally be classified as a lot loan (mortgage). If the ratio was 50/50, then
the institution could classify the loan either way. The percentages are not
that critical, so we should let the institution classify the loans as they
want, as long as their classifications are reasonable. Of course, the
institution could make two separate loans, one on the mobile home, and one on
the developed lot.
[TOP]
Q&A No. 27
SUBJECT: Direct Credit Substitute
LINE(S): CC465
DATE: March 10, 1998 (Revised January 21, 2000)
Question: What is the definition of "Direct Credit Substitute"
to be reported on CC465?
Answer: A definition of direct credit substitute may be found in the OTS
Regulations at 12 CFR 567.1 (f). That definition is subsumed by a more
comprehensive definition contained in an interagency proposal on Recourse and
Direct Credit Substitutes as follows:
""Direct credit substitute means an arrangement in which a savings
association assumes, in form or in substance, any risk of credit loss directly
or indirectly associated with a third-party asset or other financial claim,
that exceeds the association's pro rata share of the asset or claim. If a
savings association has no claim on an asset, then the assumption of any risk
of credit loss is a direct credit substitute. Direct credit substitutes
include, but are not limited to:
1. Financial guarantee-type standby letters of credit that support financial
claims on the account party;
2. Guarantees, surety arrangements, and irrevocable guarantee-type instruments
backing financial claims;
3. Loans or lines of credit that provide credit enhancement for the financial
obligations of an account party;
4. Purchased loan servicing assets if the servicer is responsible for credit
losses associated with the loans being serviced, or if the servicer makes or
assumes certain representations and warranties on the loans other than standard
representation and warranties as defined in this section; and
5. Purchased subordinated interests or purchased residual interests in
financial assets sold (including both security and nonsecurity
forms) that absorb more than their pro rata share of losses from the underlying
assets.
[TOP]
Q&A No. 28
SUBJECT: Qualified Thrift Lender (QTL) Test
LINE(S): SI581-583
DATE: March 10, 1998
Question: Now that the liquidity regulation has been amended to permit
the inclusion of most mortgage-backed securities, should securities that are
eligible as liquidity be deducted from total assets to determine
"portfolio assets" on the QTL worksheet?
Answer: Any liquid mortgage-backed securities that are reported on line
12 of the QTL worksheet may not also be included on line 4, "regulatory
liquidity." Double counting is not permitted.
[TOP]
Q&A No. 29(Revised)
SUBJECT: Reconciling Total Assets (SC60) to Assets to Riskweight
(CCR64)
LINE(S): CCR64
DATE: March 1, 2004
Question: How can we reconcile total assets reported on Schedule SC to
assets to risk-weight on Schedule CCR?
Answer: As follows:
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[A] Include here any pretax unrealized gains net of losses included in assets
on SC60, where
any portion, up to 45 percent, of those gains are reported on CCR302.
[B] Include here the ALLL reported on SC283 and SC357, combined, and,
therefore, reflected
in SC60. However, this amount is not necessarily the same amount reported on
CCR350.
[C] Include here the amount of assets included in SC60 that are also reported on
CCR501
after being multiplied by a factor of 2.
[D] Include here off-balance-sheet assets to risk-weight not included in SC60.
[TOP]
Q&A No. 30
SUBJECT: Limited Partnership (Pass-through Investment)
LINE(S): SC540/SO488 Code 06
DATE: Revised July 5, 2006
Question: An association has an investment in a limited partnership that
had been reported on SC140 prior to the change in definition of this line. The
limited partnership is designated as pass-through per OTS regulations. The
institution is assuming that they should now be reported on SC540, is this
correct, and should the income generated be reported on SO488? If the income is
reported on SO488 what code should be used?
Answer: The instructions for SC140 state that equity investments that
are not subject to SFAS No. 115, including pass-through investments, should be
reported on SC540. The instructions for SC540 state that investments in
pass-through investments accounted for by either the equity or cost method
(i.e., not marked to fair value pursuant to SFAS 115) should be reported on
SC540. The key here is whether or not the equity investment is included in the
scope of SFAS 115. If it is, it is reported on SC140; if it is not, it is
reported on SC540. It appears from the above description that this partnership
is accounted for using the equity method and is not included in the scope of
SFAS 115 and, therefore, should be reported on SC540.
We prefer that income from all investments reported on SC540 accounted for
using the equity method be reported on SO488 using a 06 code in SO495 or 497.
[TOP]
Q&A No. 31
SUBJECT: Commitment Fee on a Letter of Credit
LINE(S): SC330
DATE: March 10, 1998
Question: An institution has a deferred commitment fee on a letter of
credit. Once the loan is funded (or the letter of credit is drawn on) the
unamortized yield adjustment will be netted against the loan, and reported on
line SC330. Where should this be reported on the TFR prior to the loan
disbursement?
Answer: It should be reported on line SC796, Other Liabilities and
Deferred Income, because it is a liability. To be reported as a contra-asset,
it must be identified with a specific asset. In this case there is no asset
until the letter of credit is drawn down.
[TOP]
Q&A No. 32
SUBJECT: Credit Balances in Mortgage Loans
LINE(S): SC26
DATE: Revised July 5, 2006
Question: An institution has a few mortgage loans for which the
borrowers have overpaid; these loans now carry credit balances. Overpaid credit
cards are reclassified as deposits; is this also the case with overpaid
mortgages?
Answer: Yes. Payments in excess of principal, accrued interest, and all
other fees should be reclassified as deposits.
[TOP]
Q&A No. 33
SUBJECT: Purchased Receivables
LINE(S): SC & CMR
DATE: March 10, 1998
Question: Where should account receivables purchased at a discount be
reported on Schedules SC and CMR?
Answer: Account receivables purchased at a discount (factored
receivables), should generally be reported as unsecured commercial loans and in
most cases may qualify as small business loans for QTL purposes. If the debtors
are consumers and the association has fully underwritten each of the
receivables and they meet the institution's underwriting requirements, they may
be reported as consumer loans.
[TOP]
Q&A No. 035
SUBJECT: Troubled Debt Restructuring
LINE(S): VA940, VA942
DATE: Revised July 5, 2006
Question: An old internal Q&A for Troubled Debt Restructured (TDR)
stated that "If there is a full settlement there would not
be a TDR, but if there is a loss it would be a TDR."
Does this rule still hold true for line VA942, TDR included in the statement of
condition, if the restructure is as REO?
Items # 3 & 4 in the new instructions for TDR say to include:
3. Foreclosed assets as TDR.
4. TDR even if no losses were recorded this quarter.
Answer: If there has been no loss on the original loan (i.e., the loan
and all interest payments have been or will be recovered), the transaction
normally would not be considered TDR. This applies to both loan restructuring
and REO. With REO, the fair value of the property less the costs to sell must
equal or exceed the full payments that would have been received under the loan.
The statement about including TDR even if no losses were recorded this quarter
means that if a transaction is TDR but the loss was taken as a charge off or
SVA in a prior period, it should still be reported as TDR. The circumstance
that no loss is taken during the accounting period in which restructuring takes
place does not avoid TDR reporting when full recovery of the original terms of
the loan is not effected.
The definition of TDR in the TFR is intended to be the same as the GAAP
definition of TDR.
[TOP]
Q&A No. 036
SUBJECT: Minority Interest
LINE(S): SC800
DATE: Revised December 1, 2006
Question 1: How is minority interest reported if an institution owns 90%
of a subsidiary and what is the offset of this transaction?
Answer 1: When an institution owns a controlling interest (typically
defined as more than 50% ownership) in another company, they must consolidate
100% of the assets and liabilities of that company. However, they report in the
equity section only their own equity. The amount of assets less liabilities
owned by others is called "minority interest" and is reported on
SC800 in order to balance. Likewise, 100% of the income and expense of the
subsidiary is consolidated on a line-by-line basis, and the minority share of net
income is deducted on SO488 or SO580, as applicable.
Question 2: An association is owned by a holding company that also owns
10% of a subsidiary of the association. In other words there are three tiers:
the savings and loan holding company, the savings association, and the
subsidiary. The holding company owns the savings association and 10% of the
subsidiary. The savings association owns 90% of the subsidiary. In the TFR of
the savings association, how much of the subsidiary is consolidated? If 100% of
the subsidiary is consolidated, how is the 10% owned by the holding company
reported?
Answer 2: One hundred percent of the subsidiary is consolidated. When
looking at the savings association’s report, the 10% owned by the holding
company is reported as minority interest in Schedule SC on SC800 and in
Schedule SO on SO488 or SO580, as applicable. The principle of minority
interest applies when the minority interest is held by an unconsolidated
affiliate or by an unrelated third party.
[TOP]
Q&A No. 037
SUBJECT: Deductions for Assets of Consolidated Nonincludable
Subsidiaries
LINE(S): CCR260
DATE: Revised July 5, 2006
Question: Should line CCR260 (Total Assets of Non-includable Subs) be
reduced by the amount of intercompany eliminations that are done during
consolidation?
Line CCR260 is a deduction from Total Assets on CCR205. CCR205 has already been
reduced by checking accounts that the sub has with the parent through the
equity method of consolidation.
It seems that without the reduction of line CCR260 for the intercompany
accounts that they would be reducing assets twice for the cash items. This
overstated deduction would result in an understatement of assets and an
understatement of capital reserves required.
Answer: The deduction for adjusted total assets related to consolidated nonincludable subsidiaries on line CCR260 should reduce
total assets by the amount of assets of the subsidiary included in consolidated
assets. This amount will equal the subsidiary’s total assets less those assets
eliminated in consolidation. We have found the easiest way to understand this
is to use T-accounts and work through examples. In every example that we used,
the amount reported on CCR260 equaled the difference in total assets between
the stand-alone parent thrift and the consolidated entity, plus the thrift’s
investment account and loans and advances to the subsidiary.
Example 1:
Assume a 100%-owned, consolidated nonincludable
subsidiary, with total assets of $100, total liabilities of $80, and capital of
$20.
Also assume total assets of the subsidiary include insured deposits of $10 with
the thrift parent. In consolidation, the insured deposits of $10 that are
included in the subsidiary’s total assets, and also in the thrift parent’s
total liabilities, are eliminated from consolidated total assets and from
consolidated total liabilities. Consolidated total assets, net of the
elimination entry, include $90 ($100 - $10) of the subsidiary’s total assets;
therefore, the amount reported on CCR260 is $90. The deduction on CCR105 for
"investments in and advances to" is $20.
Example 2:
Assume a 90%-owned, consolidated nonincludable
subsidiary, with total assets of $100 and total liabilities of $80.
Also assume total assets of the parent thrift include a loan to the subsidiary
of $10.
In consolidation, the loan of $10 that is included in the thrift’s total
assets, and also in the subsidiary’s total liabilities, is eliminated from
consolidated total assets and from consolidated total liabilities. Consolidated
total assets, after the elimination entry, include $100 of the subsidiary’s
assets.
The deduction on CCR260 is $100. The deduction on CCR105 is $28, which is
calculated as follows: $18 ($20 equity of subsidiary times 90% ownership
interest) plus $10 (loan to subsidiary).
Example 3:
Assume a 100%-owned subsidiary is nonincludable
because its stated purpose is an impermissible activity. It has not yet begun
operations, but has cash of $100 which has been deposited in the parent savings
association; additionally, the subsidiary has no liabilities. In consolidation,
the $100 of assets of the subsidiary has been eliminated against the deposit on
the parent’s books. Therefore, the amount of deduction on CCR260 is zero.
However, because the investment in the subsidiary is $100, the amount reported
on CCR105 is $100.
[TOP]
Q&A No. 038
SUBJECT: Multifamily and Nonresidential Mortgage Loans
LINE(S): CMR261
DATE: June 19, 1998
Question: Are multifamily and nonresidential ARMs, with rate changes greater
than 60 months reported as balloon loans? My understanding is that any
adjustable mortgage with a next rate change greater than 60 months would be
considered a balloon, until such time that the rate change period falls below 5
years. Is this correct, or does this rule only apply to single family
dwellings?
Answer: The short answer to your question is that the 60 month rule used
in classifying single family ARMs as balloons does not apply to multifamily and
nonresidential mortgages. The latter are classified as balloons if the
remaining maturity is a least ten years shorter than the remaining time to full
amortization.
With multifamily and nonresidential loans, the first thing to determine is if
the loan is fully amortizing or is a balloon. Balloon mortgages have a
remaining time to full amortization that is a least 10 years longer than their
remaining maturity; all others are considered to be fully amortizing. Once it
is established whether the loan is fully amortizing or a balloon, the next step
is to categorize it as fixed or adjustable rate. If the interest accrual rate
on the loan is ever scheduled to be reset (based on an index whose
future level is presently unknown), the loan is considered adjustable rate.
That is true regardless of when the coupon is scheduled to reset.
[TOP]
Q&A No. 039
SUBJECT: Over-extended Home Equity Loans
LINE(S): SC251:255
DATE: Revised July 5, 2006
Question: An association has home equity loans where disbursements have
been made on the loans over the contractual limit. These loans were made about
ten years ago and, although at the time they were made, the limit of the loans
was 80% of the value of the properties, the values of the properties have
decreased. Because these loans have been drawn down in excess of the
contractual limit, some of them are no longer fully secured. How must these
loans be reported on the TFR? If they are in excess of the contractual limit,
but still fully secured is the reporting different?
Answer: Home equity loans that are fully secured at origination (i.e.,
no greater than the value of the security property) should be reported as 1-4
family open-end or closed end residential loans provided the institution has
perfected a mortgage. If the collateral value is not fully documented with
either an appraisal or evaluation, the loan should be reported on SC316. The
categorization is made when the loan is originated or acquired. We would be
hesitant to make the institution re-categorize the loan because of declining
property value, unless the contract states that the line is to be renewed on a
regular basis and/or a reappraisal or evaluation is to be obtained.
[TOP]
Q&A No. 40
SUBJECT: Risk weighting high LTV loans
LINE(S): CCR460
CCR505
DATE: September 11, 1998 (Revised August 2, 1999)
Question: An institution has a new loan product whereby they make a conventional
80% loan to a borrower with excellent credit, and then issue a 2nd
deed of trust to cover the 20% down payment. The 2nd deed of trust
is recorded as a separate loan. If the loans are analyzed individually, the
first mortgage loan would be reported in the 50% category, since the LTV is 80%
or less, and the 2nd would be classified in the 100% category, since
it is based on creditworthiness. However, if you look at the loans on a
combined basis, they have exceeded the 80% LTV requirement, which would mean
that both loans should be reported in the 100% category.
What is the proper risk-weighting for these loan types?
Revised Answer: The federal banking agencies revised the risk-based
capital regulation in a rulemaking that took effect on April 1, 1999. The
revised rule requires institutions to combine certain junior liens with the
first lien. Because the institution holds the first and second liens and no
other party holds an intervening lien, the loans will be viewed as a single
extension of credit secured by a first lien on the underlying property for the
purpose of determining the LTV ratio, as well as for risk weighting. The
combined loan amount must be assigned to the 100% risk category, because the
combined loans have exceeded the 80% LTV limit.
The combined loans would also be aggregated with other high LTV loans reported
to the board of directors in accordance with the Interagency Guidelines
attached to 12 CFR 560.100-101. The guidelines also state that the
institution's aggregate investment in such loans should not exceed 100% of
capital.
[TOP]
Q&A No. 41
SUBJECT: Escrows as Demand Deposits
LINE(S): DI610
DATE: Revised July 5, 2006
Question: Examiners and management at an institution are having a
definitional problem with escrows as demand deposits. These are P&I and
T&I escrows established for their mortgage customers and placed in deposit
accounts from which payments are made on the borrowers’ behalf.
Escrows are included on DI610 if they meet the definition of a demand deposit.
But there are three criteria in the instructions for DI610 in order for the
deposit to be considered demand deposits. The third criteria states, "From
which the depositor is authorized to make…" In the case of loan escrows,
who is the depositor, the borrower or the institution?
The borrower is not authorized to make withdrawals or transfers; if the
depositor is the borrower, then these escrows are not demand deposits according
to the instructions.
The institution is authorized to make withdrawals on behalf of the borrower. If
the institution is the depositor, then are these accounts demand deposits?
Answer: In this example, the reporting institution maintains and
services escrow accounts for its mortgage customers. In this case, the
depositor of the escrow accounts is the borrower; the institution is merely
holding the funds for remittance to a third party. Therefore, we look to the
borrower to determine whether or not the escrow funds represent demand deposits
or time and savings deposits.
Escrows that meet the definition of demand deposits are to be reported on
DI610. However, the funds in question do not meet the definition of a demand
deposit because the depositor – the borrower – is not authorized to make
any transfers from the account. Therefore, these amounts must be reported on
SC783 as Escrows but they should not be reported on DI610 as demand
deposits.
[TOP]
Q&A No. 43
SUBJECT: Cash Flow treatment of Mortgage loans converted to MBS
LINE(S): CF143:330
DATE: Revised July 5, 2006
Question: An institution is originating mortgage loans, securitizing
them, then selling the transformed MBS to another institution.
On schedule CF, they are reporting a mortgage origination on CF230 and a MBS
sale on CF160.
Based on the instructions for Mortgage Pools, should the sale be reported on
CF310 in the loan category, and the purchase reflected on CF140:150, in the MBS
category in addition to CF160 and CF230, to reflect the full cycle of the
transaction? Or is it OK for to reflect an origination as a loan, and a sale as
a security?
Answer: In order to track and reconcile these transactions, they have to
be reported on four lines, CF230 for the origination, CF310 and CF140:150 for
the securitization, and CF160 for the sale of the security.
[TOP]
Q&A No. 44
SUBJECT: Table Funding (Originating Mortgages Available-for-Sale)
LINE(S): Schedules CF, CC, SI and SO
DATE: September 11 , 1998
An association originates mortgages loans and then immediately sells the loans,
using a table-funding arrangement with its investors. While the association is
the initial lender of record on the note and mortgage, it signs an assignment
at the borrower's loan closing and the association’s funds are never invested
in these loans. It is unclear whether the association would have an obligation
to originate the loans, if for any reason its investors failed to honor their
commitment.
Question 1: Should these loans appear on Schedule CF of the TFR as
originations, and of course sales, or should this production not appear at all
on CF?
Answer 1: All loans made in the name of the reporting savings
association or its subsidiaries should be reported as commitments and as loans
disbursed even if these loans are funded by and immediately transferred to a
third party. Loans for which the underwriting is done by the reporting savings
association but which are made in the name of a third party should not be
reported.
However, prior to loan closing, if the association has a clean legal opinion
that they would not be obligated if for any reason the investors failed to
honor their commitment, the loan commitment does not have to be reported on
Schedule CC.
Question 2: Should this production be includable in the thrift's QTL
calculation? Our compliance examiners have already determined that this
production does not count for the bank towards meeting its CRA
responsibilities. Instead, it counts for the investor.
Answer 2: As long as the mortgage loans are "residential,"
they should be included on line 20 (loans originated and sold) of the
association's QTL worksheet. HOLA Section 10(m)(4)(C)(iii)(I) provides that
"50 percent of the dollar amount of the residential mortgage loans
originated by...(a) savings association and sold within 90 days of
origination" are includable in QTL calculations, subject to the 20% of
assets cap.
Question 3: On which lines of Schedule SO should the revenues relating
to these loans be reported? Say for example that a $100,000 loan is originated
with a 1% origination fee, no discount points to the borrower, and is sold to
the investor at par with a 150 b.p. servicing release
premium (SRP). Further assume that the bank has 75 b.p.
of identifiable direct expenses associated with the loan. I believe that the
full 100 b.p. origination fee should be reported on
SO420 Other Fees and Charges. In turn, I believe the 150 b.p.
SRP should be reported on SO430 as a gain on sale of assets held for sale.
Since the sale occurred immediately, I believe the 75 b.p.
points of identifiable expenses gets reported on the appropriate categories
within SO51 Noninterest Expense. Do you agree with this reporting, or do I have
part or all of this wrong?
Answer 3: Yes, this reporting is acceptable. The identifiable expenses
may also be deducted from the origination fee if the association has its
records set up to accommodate it.
[TOP]
Q&A No. 45
SUBJECT: Check Processing and Computer Center Co-ops
LINE(S): Schedule CSS
DATE: December 10, 1998
Question: An institution owns small percentages (
<5%) of both a check processing center and a computer center. Many other financial institutions are also stockholders. Should these two organizations be reported on Schedule CSS? >Answer:
The answer to the question depends on what authority the thrift relies on
to make the investment. If the thrift relies on its service corporation
investment powers to make such investments, the entity must be included in
Schedule CSS regardless of the ownership level. Alternatively, if a thrift
relies on pass-through investment (§560.32) or its de minimis
investment authority (§560.36) or some other thrift powers for such
investments, then the entities are not considered subordinate organizations
and, therefore, should not be listed on Schedule CSS.
[TOP]
Q&A No. 46
SUBJECT: Definition of Real Estate Loans (TB72)
LINE(S): SC251:256, SC316, SC330
DATE: Revised July 5, 2006
Question: An institution is confused by the difference between the
definition of real estate loans in OTS Thrift Bulletin No. 72 (TB-72) and the
definition of mortgage loans in the TFR. The nonmortgage loan category in the
TFR Instruction Manual includes loans based primarily on the credit worthiness
of the borrower. However, the last paragraph on page 4 of TB-72, under the
section titled "Abundance of Caution," states, a loan based on the
creditworthiness of the borrower with an additional lien on the borrower’s real
estate (as an extra measure of protection), would be subject to real estate
lending standards. This would seem to also require loans covered by TB-72 to be
reported as mortgage loans. Are these loans to be reported as mortgage loans in
Schedule SC?
Answer: The TFR classification of loans does not follow the real estate
lending standards rule or TB-72. Therefore, a 1-4 family secured loan that does
not fully qualify as a mortgage loan because the lender decided not to get an
appraisal or because it is not fully secured by the real estate (i.e., has a
loan-to-value ratio in excess of 100%) is classified on the TFR on SC310
through SC348. But this loan would still be subject to the real estate lending
standards rule if it is secured by real estate as defined in 560.100-101.
All loans secured by, or financing the construction or improvement of, real
estate are subject to the real estate lending standards rule (12 CFR
560.100-101). That means, the institution must establish prudent written
lending standards that consider the interagency guidelines (attached to
560.101) and the supervisory loan-to-value (LTV) limits. If the institution
makes loans with LTVs in excess of the supervisory limits, it should report
them to their board of directors at least quarterly and limit such loans to
100% of capital for owner occupied 1-4 family mortgages and, within that limit,
30% of capital for all other high LTV loans.
[TOP]
Q&A No. 47
SUBJECT: Trust Preferred Securities
LINE(S): SC 185
DATE: December 10, 1998
Question: Where are Trust Preferred Securities reported on Schedule SC?
OTS’s TB-73 discusses these investment securities, and from reading it and the
TFR instructions, I think they would be reported in SC185. The institution is
currently reporting them on SC140. They have approximately $30 million of TPSs.
The bulletin is clear that they are 100% risk weighted on CCR.
Answer: The following is quoted from TB 73:
Investment authority and limits for TPSs. At this time, OTS believes
that TPSs that otherwise meet the requirements of corporate debt securities set
forth at 12 CFR 560.40 are permissible investments for federal savings
associations.
Since the only TPSs that savings associations can invest in must meet the
requirement of corporate debt securities, they should be reported on SC185,
Other Investment Securities.
[TOP]
Q&A No. 48
SUBJECT: Rabbi Trusts
LINE(S): SO510
SO580
DATE: December 10, 1998
Question: An institution has accounts set up for a trust that its
employees participate in. It is termed a "rabbi trust." Rabbi trusts
are deferred compensation arrangements where amounts earned by employees are
invested and placed in a trust. The institution is merely a conduit between the
brokerage and the employee, with the employees solely responsible for
contributions. The trust is reported by the institution in Other Assets. The
directors and employees can buy or sell stock which the institution must
mark-to-market, as a trading asset. The deferred compensation obligation is
reported in Other Liabilities.
The question is: where would the income and expense related to the trust be
classified in Schedule SO? SO510 refers to pensions "paid directly by the
reporting association", and, therefore, the institution felt that SO510 is
not appropriate.
Answer: Rabbi trusts are discussed in EITF Consensus No. 97-14. There
are four scenarios for deferred compensation arrangements covered by this
Consensus. This question relates to the type described in the Consensus as Plan
D. In this scenario assets and liabilities of a rabbi trust are consolidated
with the employer’s financial statements because in the case of liquidation,
the secured creditors would have rights to the trust assets. Assets held by the
rabbi trust should be accounted for in accordance with GAAP for the particular
asset (i.e., securities are accounted for under SFAS No. 115). The deferred
compensation obligation should be classified as a liability and adjusted with
corresponding charges (or credits) to expense (income) to reflect changes in
the fair value of amounts owed to employees. The EITF consensus states that the
income and expense as well as the asset and the liability should be reported
separately. We would like to have all of these accounts reported in their
appropriate "Other" categories on the TFR. Therefore, the expense
should be reported on SO580 (Code 99).
[TOP]
Q&A No. 49
SUBJECT: Conversion Factors For LIP
LINE(S): CCR460
DATE: December 10, 1998
Question 1: Page 163 of the TFR Instruction Manual provides that LIP
will be converted at the 0% conversion factor if - "(1.) LIP that
contractually must be disbursed or expire in one year or less".
It appears that in the absence of a contractual obligation to disburse funds
within a one-year period, the remaining term of a loan would generally
determine whether it meets criteria #1, that the LIP contractually must be
disbursed or expire in one year or less. For example, an 18-month construction
loan which was originated 8 months ago, thus having a remaining term of 10
months, would satisfy this criteria because in less than 12 months it will be
fully disbursed and if not, it would have to be repaid or renewed. In contrast,
the same loan with a remaining term of 13 months would not meet the criteria,
since the draws might not all be made until after one year had passed. Is this
consistent with the intent of this provision?
Answer 1: According to the regulation, if the original maturity of a
commitment is one year or less the conversion factor is zero. Generally, when
the original maturity of the commitment exceeds one year, the conversion factor
is zero only if (1) the institution has a contractual right to separately
underwrite each disbursement and the institution does so, or (2) the
institution has a contractual right to re-evaluate the lending relationship at
least annually and the institution does so. Additional circumstances, but very
limited circumstances in which a zero percent conversion credit factor apply
are set out in 567.6(a)(2)(iv).
Question 2: If LIP will not be completely disbursed within one year, is
the institution required to convert the entire balance at 50% or only that
portion that is to be disbursed after one year? For example, assume a $10
million loan with an 18-month term. There are 14 months remaining and $2
million has been disbursed, leaving a $8 million LIP balance. According to the
funding schedule, $7 million of the $8 million currently in LIP will be disbursed
within 12 months. Would the institution have to convert the full $8 million LIP
balance using the 50% factor because the entire amount will not be disbursed
within one year, or would it have to convert only $1 million, the amount which
will remain undisbursed after one year?
Answer 2: The regulation does not contemplate splitting a single loan
into a component which matures within one year and a component which matures
later than one year. Instead, the maturity date of the loan is determinative.
[TOP]
Q&A No. 51
SUBJECT: Specific Reserves on Servicing Assets
LINE(S): VA118
DATE: December 10, 1998
Question: An institution would like to know if it is appropriate to set
up specific reserves on servicing assets at the time the asset is established.
On their books they debit "Gain or Loss on Sale" and directly credit
the servicing asset. Conversely, on the TFR, Schedule SO, the Gain on Sale is
grossed up, and SO570, Provision for Loss, is debited and a specific reserve on
the servicing asset is credited. Hence, net Income is reported on the TFR in
accordance with GAAP, but the provision for loss is not.
Is this correct?
Answer: No. Under GAAP it is not appropriate to set up a specific
reserve at the time an asset is established; and, therefore, this would not be
appropriate reporting on the TFR.
[TOP]
Q&A No. 52
SUBJECT: Hypothecated Deposits - Down Payments on Construction Loans
LINE(S): SC230
SC710
DATE: December 10, 1998
Question: Assume an institution closes a construction loan for $80,000.
The borrower makes a $20,000 down payment to the institution, for which the
institution credits LIP for $20,000. This transaction results in a negative
$20,000 loan balance.
Is a down payment advanced by the borrower on a construction loan before any of
the funds are disbursed, considered a "hypothecated deposit"? If so,
should the hypothecated deposit be netted against the loan, or be classified on
the other side of the balance sheet, as a deposit or escrow? If it is not a
hypothecated deposit, where should the down payment be classified on the
balance sheet?
Answer: Yes, this appears to be a hypothecated deposit. Since there is
no loan balance to offset, it must be reported as a deposit.
[TOP]
Q&A No. 53
SUBJECT: Unsolicited Brokered Deposits
LINE(S): DI100
DATE: Revised July 5, 2006
Question: An institution has unsolicited deposits from brokers, for
which they do not pay a fee. Must these be reported as brokered deposits on
DI100?
Answer: Yes. The deposits in question are brokered if the deposits meet
the definitions of brokered deposit at 12 CFR 337.6(a)(2) (2) and the broker
meets the definition of deposit broker at 12 CFR 337.6(a)(5). These cites are
attached to this Q&A.
The fact that the deposits were not actually solicited by the institution has
no bearing on whether the deposits should be classified as brokered deposits.
It is a factual determination to classify brokered deposits, and it is the
responsibility of each insured depository institution to accurately classify brokered
deposits.
FDIC Interpretive Letter 92-73 specifically addresses this issue: "The key
here is not whether the bank has solicited the funds, but whether the bank
knows or has reason to know that the funds are being placed by a broker. If so,
then the bank will be subject to any applicable restrictions on acceptance of
brokered deposits based on its capital category. . . Mere knowledge on the part
of your institution that it is accepting funds from a broker is sufficient to
require that [Bank] be subject to the appropriate restrictions on brokered
deposits for adequately capitalized banks.. . . In most instances, we would
anticipate that banks, in the normal course of business, will be able to
determine when funds are being placed by a broker."
[TOP]
Q&A No. 54
SUBJECT: CMR Filing Exemption
LINE(S): Schedule CMR
DATE: March 1, 1999
Question: I have completed and transmitted our December TFR. Our capital
ratio has just exceeded 12% and our assets continue to be under $300 million.
Do we have to file Schedule CMR for December?
Answer: Yes. As stated in the TFR General Instructions, an institution
must meet the exemption requirements (assets under $300 million and risk-based
capital ratio over 12%) for two consecutive quarters to be exempt from filing
CMR. The regional director also has the authority to exempt an institution from
filing CMR. See the TFR General Instructions for more information.
[TOP]
Q&A No. 55
SUBJECT: Grandfathered Qualifying Multifamily Mortgage Loans
LINE(S): CCR465
DATE: March 1, 1999
Question: Does the grandfathering right transfer to the purchaser of
multifamily mortgage loans? An institution is going to purchase a large amount
of these loans, and they would like to risk weight them at 50% rather than at
100 %.
Answer: The loans may be risk-weighted at 50% by the purchaser if, on
March 18, 1994, the loans qualified under the definition of a "qualifying
multi-family mortgage loan" as set forth in 12 C.F.R. 567.1 and (as per
the instructions at page 159 of the TFR Instruction Manual) the loans met and
continue to meet the qualifying criteria before, upon, and after purchase.
[TOP]
Q&A No. 56
SUBJECT: Valuation of Foreclosed Assets
LINE(S): SC40
DATE: March 1, 1999
Question: At acquisition, the initial carrying amount of foreclosed
assets should be established at "fair value less cost to sell". How
should the estimated future selling costs be treated - as a reduction in the
recorded investment, or as a specific valuation allowance?
Answer: We believe that the authoritative literature (SFAS No. 15 as
amended, and SFAS No. 121) requires that, at acquisition: (1) the recorded
investment of foreclosed assets be established at "fair value less cost to
sell", and therefore (2) no specific valuation allowance be established
for the selling costs. In other words, the selling costs are to be treated as a
reduction in the initial recorded investment of the foreclosed assets.
For example, assume a foreclosed asset with an estimated fair value of $90 is
received in full satisfaction of a delinquent loan (with a recorded investment
of $100). Also assume that estimated future selling costs related to the
foreclosed asset are $7, so that "fair value less cost to sell" is
$83. Under the approach we believe to be consistent with the authoritative
literature, at acquisition the initial carrying amount would be established at
$83, composed of a recorded investment of $83, with no specific valuation
allowance. Further assume that, subsequent to acquisition, the estimated fair
value increases by $5, to $95. This would not result in an increase in carrying
amount; that is, the carrying amount would continue to be $83, composed of the
recorded investment of $83, with no specific valuation allowance.
We recognize that some institutions treat the initial estimate of selling costs
as a specific valuation allowance. However, we believe that approach is
inconsistent with the authoritative literature. But, because the amount of
selling costs generally is not substantial in relation to the fair value, the
effect is not expected to be material.
Authoritative Literature
The following is paragraph 28, in its entirety, of SFAS No. 15, as amended by
paragraph 24 of SFAS No. 121.
A creditor that receives from a debtor in full satisfaction of a receivable
either (i) receivables from third parties, real
estate, or other assets, or (ii) shares of stock or other evidence of an equity
interest in the debtor, or both, shall account for those assets (including an
equity interest) at their fair value at the time of restructuring (see
paragraph 13 for how to measure fair value). A creditor that receives
long-lived assets that will be sold from a debtor in full satisfaction of a
receivable shall account for those assets at their fair value less cost to
sell, as that term is used in paragraphs 15-17 of FASB Statement No. 121.
The excess of (i) the recorded investment in the
receivable satisfied over (ii) the fair value of assets received (less cost
to sell, if required above) is a loss to be recognized. For purposes of
this paragraph, losses, to the extent they are not offset against allowances
for uncollectible amounts or other valuation accounts, shall be included in
measuring net income for the period.
[TOP]
Q&A No. 57
SUBJECT: QTL - Reorganized Entity
LINE(S): SI581, SI582, SI583
DATE: March 1, 1999
Question: An institution reorganized on 9/30/98 and because of the
circumstances, was given a new OTS docket number. The new institution reported
only one day of information on the TFR, and, therefore, reported its QTL as
zero. Do you think it would be more meaningful to have this TFR amended to
report the QTL of the former institution?
Answer: Yes. The HOLA does not provide for any exceptions due to an
institution’s "reorganization." Thus, for QTL purposes the OTS must
treat the institution as the same institution before and after its
reorganization, despite its different docket numbers.
For the OTS to monitor the institution’s QTL compliance, the institution should
have reported its ATIPs for July 31, 1998, August 31, 1998, and September 30,
1998, in its September 30, 1998 Thrift Financial Report. The July 31 and August
31 percentages should have been for the institution as it existed under the old
docket number, and the September 30 percentage for the new docket number.
[TOP]
Q&A No. 59
SUBJECT: Securities Reclassified from Available-for-Sale
LINE(S): SC860, SC865, CCR180, CCR280
DATE: Revised July 5, 2006
Question: An institution reclassified as held-to-maturity securities previously
classified as available-for-sale. The unrealized gain reported on SC860 is
being amortized over the remaining maturity of the securities. Since the
securities are no longer available-for-sale, is the remaining unrealized gain
included on CCR180 and CCR280?
Answer: As long as the institution continues to have unrealized gains or
losses included in capital (on SC860), the unrealized gains (losses) must be
deducted from (added to) regulatory capital on CCR180 and the amount included
in assets must be deducted from assets on CCR280.
[TOP]
Q&A No. 60
SUBJECT: Mutual Funds
LINE(S): SI387
DATE: March 1, 1999
Question: An institution has two mutual funds: one is a U.S. government
fund and the other is a mortgage-backed ARM fund. The institution holds these investments
to maturity; however, they were instructed by their auditors to adjust these
mutual funds to fair value on the TFR. These assets are not being held for
sale, but because the unrealized gains and losses, net of taxes, are reported
on SC860 and the mutual funds are not reported as available-for-sale on SI387,
an edit failure results. Is this OK?
Answer: No. Mutual funds are equity securities and as such are by
definition available-for-sale in accordance with SFAS No. 115. Mutual funds
should be reported on SC140 (Equity Securities) and on SI385
(Available-for-Sale Securities). The institution must adjust the mutual funds
to fair value through an adjustment to SC860.
[TOP]
Q&A No. 61
SUBJECT: Risk-Weighting of Unrealized Gains
LINE(S): CCR302 and CCR506
DATE: Revised July 5, 2006
Question: If an Institution adds back to Tier 2 capital 45% of the
unrealized gain of available-for-sale equity securities on CCR302, what portion
of the unrealized gains is included in risk-weighted assets?
An institution owns Freddie Mac stock on which there is an unrealized gain that
is included on CCR302. Because they risk-weight Freddie Mac stock at 100% on
CCR506, they would like to know if they should add back the unrealized gain
when risk-weighting the stock. And if so, how much of the unrealized gain
should be added back?
Answer: For those available-for-sale equity securities where up to 45%
of the unrealized gains, net of unrealized losses, before income taxes, are
included in Tier 2 capital (on CCR302), 100% of those unrealized gains should
be included in assets to risk-weight on CCR506. In other words, if a portion of
the unrealized gain, net of unrealized loss, is included in Tier 2 capital on
CCR302, then the fair value, not just the historical cost, of the equity
security should be risk-weighted. This applies to all equity securities that
are permissible for both savings associations and national banks, including
Freddie Mac stock, Fannie Mae stock, and mutual funds investing in permissible
equity investments.
[TOP]
Q&A No. 62
SUBJECT: SMALL BUSINESS LOANS SECURED BY RESIDENTIAL REAL ESTATE
Line: SC300
Schedule SB
Date: June 16, 1999
Question: Are loans secured by the borrower’s residence to finance small
businesses considered small business loans?
Answer: Loans that meet the definition of mortgage loans, for purposes
of reporting in Schedule SC, may be classified as mortgage loans or may be
classified as nonmortgage loans according to the purpose of the loan, at the
option of the reporting institution. However, once classified, these loans
should not be repeatedly switched between classifications. Loans secured by a
residence may be included in Schedule SB as small business loans only if they
are reported on the TFR as nonmortgage, commercial loans on SC300.
Loans that do not meet the definition of mortgage loans either because they are
not fully secured by real estate or because the security property is not
supported by an appraisal or qualifying evaluation, must be classified as
nonmortgage loans according to the purpose of the loan.
[TOP]
Q&A No. 63
SUBJECT: RISK-WEIGHTING FHA-INSURED SECOND MORTGAGES
Line: CCR460
Date: June 16, 1999
Question: In the revised instructions for March 1999, CCR460 now says to
combine first and second mortgage loans in determining the LTV for risk
weighting purposes, when both the first and second liens are held by the
institution and there are no intervening liens. How does this apply to second
mortgages that are 90% insured by the FHA under their "Title One Home
Improvement" program.
Answer: The portion of the home improvement loan that is guaranteed by
the FHA may be risk-weighted at 20%. It is not necessary to combine the
guaranteed portion of a home improvement loan with any other mortgage to the
same borrower.
[TOP]
Q&A No. 64
SUBJECT: AUTOMOBILE FINANCING THROUGH DEALERS
Lines: SC710
SC690
Date: June 16, 1999
Question: An institution contracts with auto dealers to originate auto
loans for the institution. The dealers run a credit report on the customer
purchasing a car and the dealers issue checks to themselves, drawn on the
institution, for the loan. Basically, the institution is advancing funds to the
dealer, upon the verification of the credit report of the customer. Since it takes
a few days for the loan application drawn up by the dealer to reach the bank,
the check payable to the dealer might clear the bank before the loan is put
on-line. Once the loan is on-line, the debit on the internal checking account
is funded.
If at report date this account has a debit balance, should the debit in deposit
accounts (SC710) be reclassified as an accounts receivable?
Answer: The instructions for SC710, under "Do Not Include",
Item 8, read as follows:
8. Deductions for customers’ overdrafts in NOW and demand accounts unless the
right of set-off under a valid cash management arrangement exists for accounts
of the same legal entity; report as loans on SC303 (Commercial Loans:
Unsecured) or SC345 (Consumer Loans: Open-End: Unsecured);
Therefore, unless a right of set-off against other deposit accounts of the same
auto dealership exists and until the consumer loan is approved and established
in the records of the savings association, the debit balance should be reported
as an unsecured commercial loan on SC303.
[TOP]
Q&A No. 66
SUBJECT: PLEDGED SECURITIES IN QTL
Lines: SI581 - SI583
Date: June 16,1999
Question: Does a mortgage-backed security that qualifies as a Qualified
Thrift Investment (QTI) for QTL remain a QTI if it is pledged against
borrowings? The TFR instructions state that pledged securities are not eligible
for inclusion in regulatory liquidity, but the instructions for QTL do not
address this question.
Answer: Yes. Qualified thrift investments are QTIs whether pledged or
not.
[TOP]
Q&A No. 67
SUBJECT: UNDISBURSED BALANCE (LIP) OF LAND DEVELOPMENT LOANS
Lines: CC115
CC105
SC265
Date: June 16,1999
Question: The instructions for CC115, Undisbursed balance of loans
closed, Other Mortgage Loans, state "Report the undisbursed balance of
permanent mortgage loans of the types reported on SC250 through SC265." An
institution has land loans on SC265 for the acquisition and development of
land. Funds are advanced over a nine-month period, for developing the land by
clearing trees and installing sewer lines, based on the completion status of
the project much like a construction loan. On schedule SC, Land is categorized
as a Permanent Mortgage. Should the LIP on land development loans be included
on CC105 (Mortgage Construction Loans) or CC115 (Other Mortgage Loans)?
Answer: The LIP on land development loans should be reported on CC115,
Undisbursed Balance of Other Mortgage Loans.
[TOP]
Q&A No. 69
SUBJECT: ASSISTED LIVING FACILITIES
Line: SC256, SC260, CCR465, CCR506
Date: Revised July 5, 2006
Question: An institution is planning to make a loan for a senior
assisted living facility, and wants to know how this will affect their capital.
How should this type of facility be reported on SC, which would determine its
risk-weight category on CCR? The instructions for SC256 (Mortgages on 5 or More
Dwelling Units) say to include retirement homes, while SC260 (Mortgages on
Nonresidential Property) includes nursing and convalescent homes. A senior
assisted living facility seems to be a hybrid of these two entities.
Answer: The key to the classification of assisted living facilities on
Schedule SC is whether the facility's primary function is residential. If the
facility's primary use is for permanent residents with separate living
quarters, and the revenue received is primarily for residential purposes, the
mortgage is properly reported on SC256 as a mortgage secured by multifamily
residential property. A change was made to the instructions for March 1999
which deleted assisted living from the definition of nonresidential mortgage
loans because certain assisted living complexes have permanent residents with
their own apartments and common areas including a dining hall. By definition,
these facilities provide "assistance" in the form of healthcare and
related services not normally an integral part of unassisted multifamily
residential living. If the primary function of an assisted living facility is
to house people on a temporary basis and/or the bulk of the revenue received is
derived from nonresidential health care activities, similar to a nursing or
convalescent home, the loan should be classified as a mortgage on
nonresidential property and reported on SC260.
For capital purposes, in order to be properly placed in the 50% risk weight, a
multifamily loan must meet the definition of "qualifying multifamily
mortgage loan" at 12 CFR 567.1. If so, it can be included on CCR465, in
the 50% risk-weight category (see instructions to CCR465), otherwise it would
be reported in the 100% category on CCR506. Among the many elements and
provisos within that definition, there is a requirement that the loan must be
secured by a first lien on multifamily residential properties consisting of
five or more dwelling units. The analysis above should be followed in making
that determination.
[TOP]
Q&A No. 70
SUBJECT: PREFERRED DEPOSITS
Line: DI220
Date: Revised July 5, 2006
Question: An institution has collateralized deposits from the local
school district. They are not required by state law to secure the uninsured
portion of these deposits, but they have done so anyway as a safety measure.
Are these reported on DI220 as preferred deposits, or are they included only if
the state requires that they be secured?
Answer: Deposits are reported as preferred deposits only if
collateralization is required by state law. Therefore, the deposits described
above should not be reported as preferred deposits.
[TOP]
Q&A No. 71
SUBJECT: SET-OFF OF NEGATIVE CASH ACCOUNT
Line: SC110
Date: Revised July 5, 2006
Question: If a cash account with a bank is in a net credit balance at
year end and we have federal funds sold to the same bank also at year end, how
should the credit balance be reported. Should it be setoff with the fed funds
or shown as a deposit liability or as a borrowing? There are no other accounts
between the thrift and the bank.
Answer: The deposit overdraft and Fed Funds sold can only be offset if
there is a right of set-off under a legally enforceable cash management
arrangement for accounts of the same legal entity. (See FASB Interpretation No.
39, paragraph 5). If the accounts meet all the requirements of set-off, the
remaining Fed Funds amount should be reported on SC125. If they cannot be
offset, the entire Fed Funds Sold should be reported on SC2125and the credit
balance should be reported on SC760 (Other Borrowings).
[TOP]
Q&A No. 72
SUBJECT: LOANS SECURED BY DUPLEXES
Line: SC251:256
Date: Revised July 5, 2006
Question: An institution has one borrower who owns six duplexes, with
one loan for all six duplexes. Based on property type this would be classified
as a 1-4. However, since there is only one loan on more than four units would
it be considered multifamily?
Answer: If there is one mortgage on several duplexes totaling 5 or more
units, it is classified as multifamily (5 or more). If there were individual
mortgages on each property, they would be classified as single family; that is,
each loan could have different terms and each could be foreclosed on or sold
separately.
[TOP]
Q&A No. 73
SUBJECT: LTV CALCULATION WHEN THE FIRST LIEN IS FHA-INSURED AND THE SECOND
LIEN IS CONVENTIONAL
Line: CCR460
Date: September 15, 1999
Question: Q&A No. 63 discussed the LTV calculation when the first
lien is conventional and the second lien is FHA-insured, but how is a mortgage
loan risk-weighted when the 1st mortgage lien is an FHA loan and a second lien
is a conventional loan?
Answer: The 1st mortgage loan is risk-weighted at 20% because it is
FHA-insured. However, when determining the risk-weight of the junior lien, the
first must be combined with all junior liens. If the combined LTV ratio does
not exceed 80% and the second mortgage meets the definition of a qualifying mortgage
loan, it may be risk-weighted at 50%. The second mortgage is risk-weighted at
100% when the combined LTV ratio exceeds 80%, the loan is more than 90 days
past due, or the loan is not prudently underwritten.
[TOP]
Q&A No. 74
SUBJECT: RISK WEIGHTING RESIDUAL OF A LOAN PARTICIPATION
Line: CCR460
Date: September 15, 1999
Question: An institution is considering selling a 90% participation in a
loan and retaining the remaining 10% principal balance. The participation
agreement would give the purchaser a senior position to that of the selling
institution. However, the total LTV is still only 70%, it is still a first
mortgage loan, and it qualifies in all other ways as a 50% risk-weighted asset.
Given the above circumstances, would the asset still qualify and be
risk-weighted at 50%?
Answer: No. The 10% retained by the institution must be risk-weighted at
100% because it is subordinate to the sold participation.
[TOP]
Q&A No. 75
SUBJECT: DEPOSIT PREMIUM ASSESSMENT BASE
Line: SC710
Date: Revised September 14, 2006
From time to time we get questions on the computation of the assessment base for
TFR filers. The computation is as follows:
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Total Assessment Base
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Q&A No. 76
SUBJECT: RESERVE FOR UNCOLLECTABLE INTEREST
Line: Schedules SC and VA
Date: September 15, 1999
Question: For tracking purposes, an institution prefers to utilize a
reserve for uncollected interest instead of placing severely delinquent loans
in nonaccrual status. On which line should the reserve for uncollected interest
be reported on TFR Schedule SC? Should the reserve for uncollected interest be
treated as a specific valuation allowance in completing TFR Schedule VA?
Answer: Interest income cannot be reported on Schedule SO and interest
receivable cannot be reported on Schedule SC that is not collectable at the
time of accrual. The institution may continue to accrue for tracking purposes,
but not for reporting purposes. Therefore, the reserve for uncollected interest
must be deducted from the accrued interest on the TFR; it is not a specific
valuation allowance or a charge-off, but rather a direct offset.
[TOP]
Q&A No. 77
SUBJECT: LOANS COLLATERALIZED BY ACCOUNT RECEIVABLES
Line: PD10 through PD30
Date: September 15, 1999
Question: An institution has revolving commercial loans (no maturity)
collateralized by account receivables. The amount of the loan is governed by
the size of the collateral. The receivables used for collateral can fluctuate
daily. If the debtor of the account receivable becomes past due on the monthly
payment, the interest and principal amount is automatically capitalized to the
loan. The commercial borrower can borrow additional funds to finance the past
due amounts, limited by the maximum loan amount specified in the loan agreement
with the institution. Should these loans be reported on PD, and would they be
considered TDR?
Answer: No. The loan would be reported on PD only if the commercial
borrower were delinquent. As long as the commercial borrower is meeting the
terms of its loan with the institution, the loan is not delinquent. This loan
would only be TDR if the loan between the institution and the commercial
borrower were TDR. The TDR status of the underlying collateral does not cause
the loan with the institution to be TDR.
[TOP]
Q&A No. 78
SUBJECT: FLOATING RATE CMO VALUATION
Line: CMR351, CMR352, CMR359, CMR361, CMR367, CMR368
Date: September 15, 1999
Question: When valuing floating-rate CMOs using Bloomberg, is the
pricing on the FMED screens acceptable for self-reporting on Schedule CMR?
Answer: No, the FMED screens help you to determine if derivative
mortgage securities are "high-risk." However, this screen does not
give accurate prices on floating-rate CMOs, since the prices do not properly
take account of the caps and floors embedded in these instruments. As an
alternative, Bloomberg's FSPM or FSPD screens should be used to price these
securities, since they explicitly account for the caps/floors.
The pricing methodology of either of the latter screens is consistent with OTS
requirements for Schedule CMR. However, the FSPM screen uses Bloomberg median
prepayment assumptions. The FSPD screen allows the user to customize prepayment
assumptions.
For more complete information, see CEO Letter Number 55, April 30, 1996,
Subject: CMO Floaters, and attachments, which is available on OTS' website at http://www.ots.treas.gov/docs/r.cfm?25055.pdf.
[TOP]
Q&A No. 79
SUBJECT: COMPLEX SECURITIES
Line: CMR485
Date: September 15, 1999 (Revised May 16, 2001)
Question: The CMR Instructions now classify Federal Home Loan Bank
(FHLB) callable securities as "complex securities," and they are now
reported on CMR485 rather than CMR473. Can a small institution use rate shock
valuations provided by the FHLB for these securities?
Answer: Yes, the institution can use valuations provided by FHLBs. For
other types of securities, the institution would have to get a valuation from a
source other than the issuer or the dealer from whom the security was
purchased.
NOTE: Effective with the March 2001 report, CMR485 was deleted. You must
report market value estimates of complex securities in the CMR section
Supplemental Reporting of Market Value Estimates.
[TOP]
Q&A No. 80
SUBJECT: SERVICING ESCROWS
Line: SC783, CMR777, CMR779, CMR786
Date: September 15, 1999
Question: An institution currently has $24 million of P&I and
T&I escrows on loans serviced for others. The institution deposits the
escrows in accounts at the Federal Home Loan Bank. Because the Federal Home
Loan Bank is a depository institution, should the $24 million be reported on
SC783 or SC796? If the answer is SC796, how should the amount be reported on
CMR? Should they be reported as escrows on loans serviced for others, or should
they be reported as Miscellaneous I liabilities?
Answer: Servicing escrows are held in safekeeping for others and as such
must be included in Escrows, on SC783. For deposit insurance purposes, escrows
are considered a subset of deposits; that is, they are insured as deposits and
are included in the deposit premium assessment base. It is irrelevant what the
institution does with the funds once they are deposited with them. The issue is
the relationship between the institution and the depositors of the escrows.
Servicing escrows should be reported on CMR as follows:
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Q&A No. 81
SUBJECT: Bank-Owned Life Insurance (BOLI)
Line: SC690
Date: December 1, 1999
Question: Question: Can bank-owned life insurance be reported in
"Other Investments" so that the income can be included in our net interest
margin?
Answer: It is only permissible for a savings association to hold BOLI if
it is incidental to banking. That is, if it is useful in connection with the
conduct of a saving association's business. This would include insurance for
key-persons, on borrowers, purchased in connection with employee compensation
and benefit plans, or the cash value of life insurance taken as security for a
loan. As such, it is more appropriately reported as an "other asset"
rather than an investment. Income from BOLI should be reported as noninterest
income.
[TOP]
Q&A No. 83
SUBJECT: Aggregate Amount of all Extensions of Credit
Line: SI590
Date: December 1, 1999
Question: An institution has made loans to executive officers and has
sold portions of the loans. Should the loans be reported net of the portion
sold or gross?
Answer: If the institution holds no recourse on the loans, they should
be reported net of the portion sold.
[TOP]
Q&A No. 84
SUBJECT: Participated Lines of Credit
Line: CC410 CC420
Date: December 1, 1999
Question: An institution is the issuer of credit card loans.
Approximately 20% of that is participated out to a bank. The thrift settles
daily with the bank on any changes in loans simultaneously with their credit
card processor. In other words, when the bank's loans increase, the thrift
initially funds that increase but immediately obtains funding from the bank as
their participating share.
The question is how to report the unfunded lines of credit on those accounts
for which the thrift is the issuer but the participating bank is the owner.
Should the thrift report the unfunded lines on just the accounts they own, or
do they report on the entire portfolio as the issuer?
Answer: As long as the thrift has a firm, noncancelable
contract with the bank for all of the unfunded lines, they should report only
their share of the unfunded lines. If they have a contract with the bank
covering only the funded lines or if the bank can cancel at any time, then they
should report the entire unfunded lines.
[TOP]
Q&A No. 85
SUBJECT: Complex Securities
Line: CMR485 CMR962:968
Date: December 1, 1999
Question: An institution has several securities from the FHLB with call
options that were reported as structured securities and rate-shocked on the
June TFR. However, some of these securities were callable once, have passed
their call date as of September 30, and are no longer callable. Should these
continue to be reported as structured securities, or can they be considered
simple securities now that the call option has lapsed?
Answer: Once the call option has expired and they are no longer
callable, they should be considered simple securities for Schedule CMR
purposes.
[TOP]
Q&A No. 86
SUBJECT: Loan-To-Value (LTV)
Line: CCR
Date: March 15, 2000
Question: When reporting loans on Schedule CCR, if the loan meets all
the criteria for 50% risk-weighting except the LTV, but we have a firm commitment
to sell, must the loan be risk-weighted at 100% or are there any exceptions?
Answer: If the LTV exceeds 80%, the loan must be risk-weighted at 100%.
There are no exceptions for loans with a firm commitment to sell.
[TOP]
Q&A No. 87
SUBJECT: Accrued Interest Payable on Deposits Included in Liquidity
Line: SI500
Date: March 15, 2000
Question: Can accrued interest payable on deposits that has not been
credited to the depositor's account be included in the liquidity base for
calculation of the liquidity ratio? It is reported on SC763, Accrued Interest
Payable - Deposits.
Answer: Yes. It is helpful for thrifts to add accrued interest to the
denominator as it lowers their liquidity ratio. Because the regulation
specifies that associations should add accrued interest to the numerator, we
consider it appropriate that the denominator be treated the same way. This
would apply to deposits and borrowings.
[TOP]
Q&A No. 88
SUBJECT: Commitments on CMR
Line: CMR-OBS
Date: March 15, 2000
Question: According to the CMR instructions, a commitment is considered
firm when there is a rate lock at the time of approval. If an institution sets
the rate at "LIBOR + 3" at approval, is that a rate lock and
therefore a firm commitment? On one hand, it would seem so, but the actual
numerical rate won't be set until the loan is closed. But if it is a firm
commitment, what do they use for the rate in column #4 when reporting the
off-balance-sheet item?
Answer: In the current CMR we don't consider this to be a reportable
rate lock because the interest rate is free to change prior to the loan's
closing. You should consider the commitment firm only if the rate is locked at
a specified numerical level (e.g., 7.5%).
[TOP]
Q&A No. 89
SUBJECT: Calculation of LTV Ratios for Single-Family Residential Mortgages
Line: CCR4460 and CCR 505
Date: March 15, 2000
Question: LTV ratios must be considered in determining whether or not
single-family residential mortgage loans qualify for 50 % risk weighting on
Schedule CCR. If an existing property is purchased at a price lower than the
appraised value, which value should be used in the calculation of the LTV
ratio? This distinction in the definition of "value" can be material
for institutions that routinely grant loans in which purchase prices are
significantly below the appraised values.
Answer: The value used in the LTV ratio for risk-weighting purposes
should be the lesser of the purchase price or the appraised value.
[TOP]
Q&A No. 90
SUBJECT: Floating Rate Balloon Note
Line: CMR
Date: March 15, 2000
Question: An institution has a first mortgage 1-4 family real estate
loan that floats daily with Wall Street prime - not a true ARM - and is also a
balloon note. Where is this reported on CMR?
Answer: The mortgage should be reported in the current market index,
"6 Month or Less" column. Because it's not indexed to Treasury,
LIBOR, or COFI, the instructions on page 183 for reporting its margin apply.
The WARM is based on the time until the balloon payment is due. The time until
the next payment reset is based on how often the payment changes. (Even though
the interest accrual rate changes daily, I assume the payment changes less
frequently, say monthly.)
[TOP]
Q&A No. 91
SUBJECT: Available-For-Sale Loans
Line: CMR
Date: March 15, 2000
Question: Can loans held for sale be reported in the 30 day repricing category in the appropriate CMR bucket? That is,
can the "next reset" be said to be at the end of the next month since
they are supposed to be priced to market each month until the sale date?
Answer: No, assets must be reported according to their actual
contractual characteristics, including interest rate reset date, not according
to when the institution plans to sell it. While assets available for sale are
reported on the balance sheet at fair value, on Schedule CMR we collect the
amount of outstanding principal and need the actual contractual terms to
estimate the market value of those assets in several different interest rate
environments.
[TOP]
Q&A No. 93
SUBJECT: Farm Loans
Line: SC250, SC260
Date: March 15, 2000
Question: The general instructions for real estate loans discuss the
issue of the collateral having more than one use. When the collateral has a residence
with more value than the remaining acreage, is this a farm loan or a
residential loan in spite of any farming activity? Is there any
"size" of acreage that would automatically make the loan a farm loan?
Answer: There are no hard and fast rules on the definition of farm land.
However, if the value of the home equals or exceeds the value of the remaining
acreage, the loan may be classified as residential. There is no size of acreage
that would automatically make the loan a farm loan.
[TOP]
Q&A No. 94
SUBJECT: Callable CDS
Line: CMR
Date: March 15, 2000
Question: A thrift offers a callable certificate of deposit product. The
customer may hold the CD at a fixed rate for 5 years but the thrift may call
the CD at anytime after 1 year. How is this reported on the CMR in terms of
original and remaining maturity (CMR Section Fixed Rate Fixed Maturity
Deposits)?
Answer: The preferred way to report this CD is to report the maturity as
5 years and report the value of the call option in the Reporting of Market
Value Estimates, in CMR942 through CMR948. However if you do not have the value
of the call option, you can report the CD as fixed rate, fixed maturity with
the call date as the maturity. Please note that providing the OTS with the
market value estimate of the call option will result in more accurate results
from the interest rate risk model.
[TOP]
Q&A No. 95
SUBJECT: Dollar Roll Clearing Account
Line: Schedule SC
Date: March 15, 2000
Question: An institution finances the purchase of MBSs with reverse
repos. Each month that the dollar roll is not settled, they either remit or
receive the difference between the buy and new sell prices. This amount is
recorded in a "Dollar Roll Clearing Account." Where is the clearing
account reported on the TFR?
Answer: The clearing account is a due to/from broker account and should
be reported in Other Assets or Other Liabilities, as appropriate.
[TOP]
Q&A No. 96
SUBJECT: LTV-Deferred Loan Fees
Line: Schedule CCR
Date: March 15, 2000
Question: When reporting loans on schedule CCR, if the loan meets all
the criteria for 50% risk-weighting except the LTV, but the deferred fees (e.g.
"points") would reduce the LTV from 81% to 79%, would this loan
qualify for 50% or 100% risk-weighting?
Answer: In this case, the loan would be risk-weighted at 50%. Loans may
be risk-weighted at recorded investment, which is the principal balance
adjusted for certain amounts, including deferred loan fees, premiums, and
discounts.
[TOP]
Q&A No. 97
SUBJECT: Leasing Activities
Line: SC306, SC330, and SC690
Date: June 5, 2000
Question: The Home Owners' Loan Act (HOLA) and OTS regulation 12 C.F.R.
560.41 authorize thrifts to engage in two types of leasing activities: finance
leasing and general leasing. Does the institution's elected HOLA investment
authority for a lease determine the classification for reporting purposes? For
example, could a general lease for HOLA investment authority purposes be one that
must be accounted for in the Thrift Financial Report (TFR) as a direct
financing lease?
Answer: Regardless of which HOLA investment authority the institution
elects, it must report leases in the TFR in accordance with generally accepted
accounting principles (GAAP). Under SFAS No. 13, "Accounting for
Leases," a savings association as a lessor will
generally account for a lease as either an operating lease or direct financing
lease (sometimes referred to as a capital lease), depending on the lease terms.
For an operating lease, the institution should report the property leased to
others on TFR line SC690, "Other Assets", using code 10. In contrast,
for a direct financing lease, the institution should not report the property
leased to others as an asset. Rather, the institution should report the lease
receivable as an asset, because the accounting for a direct financing lease is
similar to that for a loan. Specifically, for a direct financing lease, the
institution should report the lease receivable on either TFR line SC306,
"Commercial Loans: Direct Financing Leases", or TFR line SC330,
"Closed-end, Consumer Loans: Other, Including Leases". The
institution's elected HOLA investment authority for a lease will not
necessarily determine the classification for reporting purposes. For example, a
general lease for HOLA investment authority purposes could be a lease that must
be accounted for under GAAP as a direct financing lease.
[TOP]
Q&A No. 98
SUBJECT: Auto Leases
Line: SC330
Date: June 5, 2000
Question: An institution is planning to start an auto lease program. It
appears that these leases will be reported as direct financing leases on SC330
- Other Consumer Loans, Including Leases. What happens if a lessee returns an
auto either at the maturity of the lease or prior to term after paying off the
lease contract? It is not repossessed, but returned. Should it be reported in
Other Assets, SC690, or Other Repossessed Assets, SC430?
Answer: If the terms of the lease are met, the auto should be reported
in Other Assets, SC690, as Code 10. However, if the institution assumes
physical possession of an auto because the terms of the lease are not met, the
auto should be reported as Other Repossessed Assets on SC430.
[TOP]
Q&A No. 99
SUBJECT: Closed-End Home Equity Loans
Line: SC316
Date: June 5, 2000
Question: An institution has a closed-end home equity loan. The car for
which the loan proceeds were used also collateralizes the loan. Is this loan
categorized on the TFR by purpose as an automobile loan or as a home equity
loan?
Answer: If the auto substantially secures the loan, and the lien on the
home is taken merely as an "abundance of caution," the loan should be
reported as an auto loan on SC323.
[TOP]
Q&A No. 100
SUBJECT: Uninsured Deposits
Line: DI210
Date: Revised July 5, 2006
Question: An institution has CDs over $100,000 that are structured as
follows:
1. Public funds secured by stand-by letters of credit issued by FHLB;
2. Public and private funds Insured by private deposit guaranty bonds; or
3. CDs used for loan collateral, which if the bank were closed, would be netted
against the loans and would not create a claim against the FDIC.
Are any of these reported as "uninsured deposits" on DI210?
Answer: Yes, all three of these should be reported on DI210. While it is
correct that there may be some special treatment of these deposits in the event
of the institution's failure, the amounts of these deposits in excess of
$100,000 are uninsured under the deposit insurance laws and regulations.
[TOP]
Q&A No. 101
SUBJECT: QTL for Trust-Only Charters
Line: SI581, 582, 583
Date: June 5, 2000
Question: Are institutions with trust-only charters required to
calculate QTL?
Answer: Yes. All OTS chartered savings associations must comply with QTL
regulations unless they have a specific statutory exemption.
[TOP]
Q&A No. 102
SUBJECT: Fee Income on Individual Security Sales
Line: SI860
Date: June 5, 2000
Question: An institution maintains a financial services office that sells
mutual funds to customers as well as individual equity securities. The
financial services office receives a commission on every securities
transaction. Should this income be included on line SI860 (Fee Income from the
Sale and Servicing of Mutual Funds and Annuities), even though the sale is of
an individual stock rather than a mutual fund or annuity as the instructions
refer? Evidently, several stock transactions have occurred, but obtaining a
query of the individual commissions from the customers is burdensome.
Answer: No, do not include commissions on sales of individual equity
securities. Only fee income from mutual fund and annuity sales and servicing
should be reported on SI860.
[TOP]
Q&A No. 103
SUBJECT: Mutual Fund Referrals
Line: Schedule FS, SI805:860
Date: Revised July 5, 2006
An institution has a financial services department as a subsidiary. This
department receives fees for setting up stock and equity mutual fund accounts
for walk-in customers. The assets are entrusted to a third party corporation.
The consolidated subsidiary of the institution receives a 20% commission for
the referral. The customer makes the investment decision, while the financial
services department acts as a conduit. They do not file an ARTA report with the
FDIC.
Question 1: Should accounts such as that described above be reported as
trust assets on Schedule FS?
Answer 1: The type of activity described does not appear to be an
activity requiring trust powers; therefore, it would not be included on the TFR
or the ARTA.
Question 2: Should these accounts be reported with mutual fund and
annuity sales on SI810:860 even though the association is merely a conduit for
the third party?
Answer 2: Yes. The amount of sales should be reported on SI810:860. In
addition they should report the amount of income (referral fee) on SI860.
[TOP]
Q&A No. 104
SUBJECT: Qualifying Multifamily Mortgage Loans
Line: CCR465
Date: June 5, 2000
Question: The CCR instructions for qualifying multifamily mortgage loans
require three criteria to be met for grandfathered loans (from March 18, 1994
forward) to qualify for 50% risk-weighting. Assume that the LTV ratio is
satisfied but that the occupancy rate has fallen below the minimum 80%
requirement since 3-18-94. Can the institution include these loans in the 50%
risk-weight category if the average annual occupancy rate has increased over
time to exceed 80% for the past year?
Answer: Yes. If a multifamily property does not qualify for 50% risk
weight one year, it can still qualify in future years. It does not have to
continuously qualify.
[TOP]
Q&A No. 105
SUBJECT: Callable Bond Past Call Date
Line: CMR485
Date: June 5, 2000
Question: An institution has a bond that was callable that they reported
on CMR485. The call date passed without the bond being called. Should it be
moved out of the structured securities line and reported as if it were now a
fixed-maturity bond?
Answer: Yes, if the security is no longer callable, it should be moved
out of CMR485.
[TOP]
Q&A No. 106
SUBJECT: Face Value of Liabilities with Options, Edit R960
Line: CMR950
Date: June 5, 2000
Question: The CMR instructions state: "reporting of market value
estimates is optional for liabilities such as callable bonds". The
instructions also state: "If the reporting savings association chooses to
report its estimates of the market value of options on liabilities, it should
also report, in CMR950, the principal value of the liabilities in which those
options are embedded. Otherwise, leave CMR950 blank."
If the institution does decide to rate shock their FHLB callable bonds, is it
mandatory that CMR950 be completed for the principal value of the underlying
liabilities? If so, must CMR945 always be less than 40% of the base case value
on CMR950, as indicated in the TFR edits?
Answer: Yes, CMR950 should be completed if anything is reported in
CMR942 through CMR948. There might be cases where CMR945 exceeds 40% of CMR950,
but it would be unusual for the value of the embedded option to reach that
large a size. The most likely reason for an edit to be triggered for a callable
bond is that the institution may be reporting the estimated market value of the
bond in CMR942-948, rather than the value just of the embedded call option.
[TOP]
Q&A No. 107
SUBJECT: Convertible FHLB Advances
Line: CMR942:948
Date: June 5, 2000
Question: How should a ten-year convertible advance from the Federal
Home Loan Bank be reported on CMR where a call option exists? The FHLB may call
the bonds on any quarterly payment date. If the market interest rates should
rise by over 25 basis points from the current levels, the bonds would probably
be called. Q&A No. 94 refers to callable CD's, but would convertible
advances be treated in a similar manner?
Answer: To report callable FHLB advances follow the instructions for
Schedule CMR on page 216.
Callable borrowings: Callable borrowings are fixed-rate, fixed maturity
borrowings that can be called by the issuer at certain dates before the
borrowings' maturity date. Report the remaining maturity of callable borrowings
using either Option 1 or Option 2, below.
Option 1: Report the remaining maturity of the borrowings based on their
stated maturity, and report in CMR942 through CMR948 the market value of the
call option in the seven interest rate scenarios.
Option 2: Report the remaining maturity of the borrowings based on their
next call date.
In addition refer to the guidance in Thrift Bulletin 13a-1 concerning market
value estimates for structured advances.
[TOP]
Q&A No. 108
SUBJECT: Balloon Loans
Line: CMR
Date: June 5, 2000
Question: The loan review of an institution discloses that they
originate single-family balloon loans; however, these loans are reported on
section CMR as adjustable mortgage loans. I am not positive if these should be
reported as balloon loans or adjustable mortgage loans on CMR.
An example of one of these loans is as follows:
$72,000 Loan - 7.75% fixed for a one-year term, with a 20-year amortization.
The note calls for the entire indebtedness to be paid in full in one year.
After each year the loan extends for another year at the institution's current
loan rate. The note also states that if the borrower makes any prepayments
within the first 5 years of the loan a prepayment penalty will apply. My
understanding is that management is not charging customers a prepayment penalty
if they pay off the loan at the renewal period each year. However, if they
prepay during midyear, in the first 5 years, then a prepayment penalty will be
charged.
At each yearly renewal, the loan is given the then-current loan rate for new
loans. The managing officer states that they have always renewed these loans
each year; however, they reserve the right to refuse to renew a loan.
Where should these loans be reported?
Answer: The loan described here is referred to in the Schedule CMR
instructions as a "call loan" (page 179, item 4 near the bottom of
the page). A call loan is categorized as fixed or adjustable rate based on the
frequency with which it may be called. If it is subject to call (and thus
potential coupon reset) at least every 5 years, it is reported as an ARM (see
item 3 under "Include" on page 181); otherwise as a fixed rate
mortgage.
[TOP]
Q&A No. 109
SUBJECT: Defered Tax Credits
Line: SC50, SC690/SC790
Date: September 11, 2000
Question: An institution receives tax credits for investing in a joint
venture partnership with limited liability. The participating parties comprise
other financial institutions that are investing in the California Affordable
Housing Fund. Tax credits are received as a benefit for participating in this
fund. Where should this investment be reported on the TFR? Where should the
deferred tax credits be reported?
Answer: The investment should be reported on SC50, Equity Investments
Not Subject to SFAS No. 115. The deferred tax credits should be reported as a
deferred tax asset component of the institution's deferred taxes.
[TOP]
Q&A No. 110
SUBJECT: FHLB Non-Interest-Earning Deposits
Line: SC162
Date: September 11, 2000
Question: An institution is reporting FHLB non-interest-earning accounts
on line SC162 (Interest-earning Deposits in FHLBs) and on CMR461 (Cash,
Non-interest-earning Demand Deposits, Overnight Fed Funds, Overnight Repos).
These deposits are used to compensate for money needed to pay for wires, ACH
drafts, sweep transfer funds, swap pools, regular deposits from branches, lock
box fees, direct deposit transfers and in-clearing check processing. If any
money remains after clearing items are paid, then the extra funds are
transferred to an interest-earning account. The institution is classifying the
non-interest-earning account on line SC162, because it is a deposit with the
Federal Home Loan Bank.
Typically, items reported on SC162 should also be reported on line CMR476, with
interest-earning deposits. However, because the time deposits are
non-interest-earning, the institution is reporting them on line CMR461. Should
line SC162 include non-interest-earning FHLB deposits even though the title of
the TFR line is "Interest-earning Deposits in FHLBs"?
Answer: It is acceptable to report this account on SC162; although, if
the account is material, it should be reviewed by an examiner. The reporting in
CMR with cash items on CMR461 is also appropriate.
[TOP]
Q&A No. 113
SUBJECT: QTL - Loan Pools
Line: SI581, 582, 583
Date: September 11, 2000
Question: Are investments in pools of loans or securities backed by or
representing an interest in education loans or small business loans eligible to
be included as qualified thrift investments?
Answer: Yes. Since education loans and small business loans count
without limit, investments in pools of loans or securities backed by such loans
also count without limit.
[TOP]
Q&A No. 115
SUBJECT: Exchange Rate Contracts
Line: CMR Off-Balance Sheet Positions
Date: September 11, 2000
Question: If an institution is involved in exchange rate contracts, what
contract code should be used to report these off-balance sheet items on CMR?
Answer: Exchange rate contracts are not reported on Schedule CMR because
they are not interest rate sensitive.
[TOP]
Q&A No. 116
SUBJECT: Risk-Weighting Accrued Interest
Line: CCR
Date: December 19, 2000
Question: How should we risk-weight accrued interest? Should we include
it with the asset or risk-weight it at 100%?
Answer: You may risk-weight accrued interest with the asset against
which it was accrued. However, if you cannot easily break out your accrued
interest by asset type, you may risk-weight it at 100%.
[TOP]
Q&A No. 117
SUBJECT: Overdrafts in Cash Accounts
Line: CMR675
Date: December 19, 2000
Question: Where should we report an overdraft in the thrift's cash
account (negative cash balances) on Schedule CMR?
Answer: In Schedule CMR you should report negative cash balances on
CMR675. If this is the only amount for which you report a WAC on CMR678, you
should report a WAC of one basis point (0.01%). Likewise, if this is the only
amount for which you report a WARM on CMR711, you should report a WARM of one
month.
[TOP]
Q&A No. 118
SUBJECT: Money Market Mutual Funds
Line: SC140
CMR461
Date: December 19, 2000
Question: Where should we report Money Market Mutual Funds owned by the
savings association in Schedule SC and CMR?
Answer: Report money market mutual funds as follows:
Schedule SC on SC140 (Equity Securities Subject to SFAS No. 115)
Schedule CMR on CMR461 (Cash, Non-interest-earning Demand Deposits, Overnight
Fed Funds, Overnight Repurchase Agreements) - see the instructions for CMR464.
Because you do not report money market mutual funds on CMR464, you do not
report them on CMR582 (Equity Security & Non-mortgage-related Mutual
Funds).
[TOP]
Q&A No. 119
SUBJECT: Risk Weighting Interest-Rate Contracts
Line: CCR
Date: December 19, 2000
Question: Per CCR instructions, under Credit Equivalent Amount of
Interest-Rate and Exchange-Rate Contracts, we require an association to risk
weight the replacement cost of interest-rate contracts. Does this pertain to
interest-rate contracts entered into, but not yet effective?
Answer: Yes. If they are entered into, they are off-balance-sheet items,
and therefore are a part of the savings institution's risk-weighted assets. You
should follow the instructions for off-balance-sheet assets 12 CFR
567.6(a)(2)(v). You may also look at the instructions for the conversion of
off-balance-sheet assets in Schedule CCR in the Thrift Financial Report
Instruction Manual.
[TOP]
Q&A No. 120
SUBJECT: Qualifying Multifamily Loans - Assumption
Line: CCR465
Date: December 19, 2000
Question 1: If a different borrower assumes a "grandfathered"
qualifying multifamily mortgage loan, can the institution continue to
risk-weight the loan at 50 percent? ("Grandfathered" is an informal
term that refers to a multifamily mortgage loan that met the definition of
Qualifying Multifamily Mortgage on March 18, 1994, and continues to meet those
requirements. March 18, 1994 was the effective date of a change in the
definition for Qualifying Multifamily Mortgage.)
Answer 1: Yes, provided that: (a) OTS examiners do not take exception to
the underwriting or the assumption transaction, and (b) there is no adverse
information about the new borrower or the security property. If the savings
institution advances new funds at the time of the assumption, OTS will
generally view the assumption as a new loan for this purpose, in which case it
will not receive the capital treatment of a grandfathered loan. There may be
some exceptions for an immaterial amount of new funds.
Question 2: If a multifamily loan qualifies for a 50 percent risk-weight
under the current rule and a different borrower assumes the loan, can the
institution continue to risk-weight the loan at 50 percent using the loan and
property history prior to assumption, as long as it continues to meet the
qualifying criteria?
Answer 2: Yes, provided that, (a) OTS examiners do not take exception to
the underwriting or assumption transaction, and (b) that there is no adverse
information about the new borrower or the security property.
[TOP]
Q&A No. 121
SUBJECT: Write-Down of Beneficial Interessts
Pursuant to EITF Issue No. 99-20
Line: Schedule SO
Date: March 27, 2001
Question: As a result of applying the consensus in EITF Issue No. 99-20,
"Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets," we will recognize
an other-than-temporary impairment of our beneficial interests in securitized
financial assets. We will report this impairment by writing down the beneficial
interests to fair value, with a corresponding charge to earnings. Where on Schedule
SO should we report this charge?
Answer: If, prior to the impairment charge, you treated the beneficial
interests as interest-bearing assets, then you should include the charge to
earnings on line SO321, Net Provision for Losses on Interest-Bearing Assets.
You treated an asset as interest bearing if you included the related income on
line SO11, Total Interest Income. On the other hand, if you treated the
beneficial interests as non-interest-bearing assets, then you should include
the charge to earnings on line SO570, Net Provision for Losses on
Noninterest-Bearing Assets. You treated an asset as noninterest bearing if you
included the related income in line SO40, Total Noninterest Income.
[TOP]
Q&A No. 122
SUBJECT: SFAS No. 115 Adjustments in Cash Flow Amounts
Line: CF148 and CF158
Date: Revised July 5, 2006
Question: When calculating the cash repayment of principal on CF148 and
CF158 should we include adjustments we make to the balances for the mortgage
pool securities for unrealized gain and losses?
Answer: Yes. We determined that most institutions are including SFAS No.
115 adjustments with the cash repayments on CH148 and CF 158 and have amended
the instructions for March 2001 to reflect actual practice. We will change the
caption of CF148 and CF 158 on the March 2002 form.
[TOP]
Q&A No. 123
SUBJECT: Interpretation of Q&A No. 72 - Single-Family Construction Loans
Line: SC230, SC235
Date: March 27, 2001
Question: We are having an interpretation problem with Q&A No. 72.
In our construction loans we have 20 houses in the same subdivision on one
mortgage issuing partial releases as each home is sold and closed. The purpose
of the loan is clear, as well as, use of its proceeds - funds are used to build
free-standing, single-family detached houses that are for sale to the general
public. Should we classify these as multi-family or as single-family
construction loans?
Answer: Q&A No. 72 applies to permanent mortgage loans. It was not
intended to apply to construction loans. The instructions for SC230,
Construction Loans on 1-4 Dwelling Units, respond to your question. Item number
1 under Include states: "Construction loans to developers secured by
tracts of land on which single-family houses, including town houses, are being
constructed." A master loan to a builder to build single-family homes
should be classified on the TFR as a single-family construction loan.
[TOP]
Q&A No. 124
SUBJECT: Combining Junior and Senior Loans for LTV Delinquency Reporting
Line: LD210 through LD260
Date: June 13, 2001
Question: Schedule LD instructions state:
"In determining the LTV ratio, you must combine all loans secured by
the same property regardless of whether you classify the loan as a mortgage or
consumer loan in Schedule SC. If you hold a junior lien, you must include all
liens senior to your lien in the LTV calculation, even if you do not hold all
the senior liens."
Must we combine a junior loan that is delinquent with a senior loan that is
current in reporting the amount of delinquent high LTV on Schedule LD?
Answer: No. You report only the loan that is delinquent in the past due
and nonaccrual section. However, you must report the combined loans in the high
LTV balances if combined they meet the criteria for high LTV loans.
[TOP]
Q&A No. 125
SUBJECT: Partial PMI
Line: Schedule LD
Date: June 13, 2001
Question: Certain insurances and government guarantees do not cover the
entire recorded investment. Is it correct that any level of insurance on
loans originated at greater than 90% LTV will exempt them from being reported
on this schedule?
Answer: No. For loans insured by PMI, the loan does not have to be
reported provided the insurance will cover first loss down through 90% LTV. For
example, if a loan is originated for 95,000 on a 100,000 property and it is
covered by 75% PMI, the PMI will cover the loss down to $71,250 (75% of
95,000). This brings the uninsured loan down to 71% LTV, a level less than 90%,
and the loan does not have to be reported. However, if the loan is covered by
other insurance where the lender takes the first loss, then the entire loan balance
must be reported. An example of this is when the insurer covers 75% of the loss
of a high LTV loan and the lender must cover the first 25% of the loss. In this
situation the entire loan balance must be reported as high LTV.
[TOP]
Q&A No. 126
SUBJECT: Original vs. Current LTV Calculation
Line: Schedule LD
Date: June 13, 2001
Question: Should we report all outstanding recorded investments in loans
that had been originated at LTVs in excess of 90% regardless of their current
calculated LTV?
Answer: No, report only loans where the current balance is equal to or
greater than 90% LTV based on the appraisal or evaluation at origination. A
more recent appraisal or evaluation may be used if available and if it meets
your institution's own appraisal standards and the appraisal standards of OTS
regulations.
[TOP]
Q&A No. 127
SUBJECT: High LTV Loan Participations
Line: Schedule LD
Date: June 13, 2001
Question: If a high LTV loan is participated out and the institution
retains a portion of the loan, would the sale and the remaining participation
be reported as high LTV?
Answer: Yes, the portion retained by the institution would be reported
on Schedule LD and the sold participation would be reported as a sale in the
quarter in which it was sold.
[TOP]
Q&A No. 128
SUBJECT: LTV - Decrease in Property Value
Line: Schedule LD
Date: June 13, 2001 (Revised November 6, 2001)
Question: If an institution is aware of a decrease in the value of
property securing a loan, even though the bank has not changed the terms of the
loan or received a new appraisal, should they change the appraisal value in the
system and report the loan as a high LTV loan?
Answer: No. LTV is typically calculated at origination, based on the
total loan commitment divided by the value of the collateral. If the LTV
increases to in excess of 90% solely due to a decline in the value of the
collateral, you do not have to report the loan on Schedule LD as a
high LTV loan.
However, where either (1) the LTV exceeds 90% at origination, or (2) subsequent
to origination the loan exceeds 90% LTV because you advance additional funds or
you release part of the collateral, then you must report the loan on Schedule
LD as a high LTV loan.
[TOP]
Q&A No. 129
SUBJECT: LTV - Additional Collateral
Line: Schedule LD
Date: June 13, 2001
Question: If a loan does not have PMI or Government guarantee, but has
other collateral pledged (such as a certificate of deposit), would it be
reported on Schedule LD?
Answer: If the institution or another institution issues a CD to the
borrower and you have a validated hypothecation agreement, the CD amount may be
reported as additional collateral. Other acceptable collateral is defined in
the real estate lending regulations as:
"any collateral in which the lender has a perfected security interest,
that has a quantifiable value, and is accepted by the lender in accordance with
safe and sound lending practices. Other acceptable collateral should be
appropriately discounted by the lender consistent with the lender's usual
practices for making loans secured by such collateral. Other acceptable
collateral includes, among other items, unconditional irrevocable standby
letters of credit for the benefit of the lender."
After appropriate discounting, the other acceptable collateral may be used in
the calculation of loan-to-value.
[TOP]
Q&A No. 130
SUBJECT: Disbursements of Lines of Credit
Line: Schedule LD
Date: June 13, 2001
Question: If a revolving home equity line of credit was underwritten
with an LTV greater than 90%, should we report every draw over the entire life
of the loan in the origination section?
Answer: Yes, report each disbursement, the same as you report them in
Schedule CF.
[TOP]
Q&A No. 131
SUBJECT: High LTV Past Due Loans
Line: LD210 - LD260
Date: June 13, 2001
Question: In reporting Past Due and Non-Accrual Balances where multiple
extensions of credit have been made on the same property, should we report the
entire recorded investment or only the loan that is overdue?
Answer: You report only the loans that are past due.
[TOP]
Q&A No. 132
SUBJECT: High LTV Charge-offs and Sales
Line: LD310 - LD320
Date: June 13, 2001
Question: Should charge-offs and sales be reported if the loan has an
LTV greater than or equal to 90% at the time of charge-off, at the beginning of
the quarter, or does the LTV calculation revert back to point of origination?
Answer: Charge-offs and sales should be reported on Schedule LD if the
loan was reported on schedule LD either in the prior or current quarter.
[TOP]
Q&A No. 134
SUBJECT: Loans on Mixed Use Property or on Two Properties
Line: SC250, SC260
Date: June 13, 2001
Question 1: We have loans secured by both the commercial and residential
real estate of a borrower. The residential real estate is a single-family
house. Do I report this loan on the TFR, as a non-residential or residential
loan?
Answer 1: You should report loans secured by property with more than one
use or secured by several properties with different uses, such as residential
and commercial, in the data field that describes the property type comprising
the largest percentage of the value of the properties securing the loan. If you
make a loan secured by commercial property, but take a second on the borrower's
home as additional collateral on the loan, the loan should be reported as a
nonresidential property loan.
Loans secured by single-family housing with incidental commercial use should be
classified as a 1-4 family mortgage loan. However, a house used almost
exclusively for commercial purposes in a neighborhood of single-family homes
should be classified as a nonresidential real estate loan. For example, a structure
originally built as a single-family house that is used as a doctor's office but
also has an apartment leased out for living quarters would be classified as
nonresidential if the commercial use generates a higher proportion of income
than the residential apartment.
Question 2: Would the risk-weighting for capital calculations be the
same?
Answer 2: In general, yes. Such loans should be risk weighted based on
the classification of the loan in Schedule SC. However, residential loans are
100% risk weight unless they meet either the definition of Qualifying Mortgage
Loan or Qualifying Multifamily Mortgage Loan in 12 CFR section 567.1.
[TOP]
Q&A No. 135
SUBJECT: Nonconstruction Bridge Loans
Line: Schedules SC, LD, CCR, and CMR
Date: June 13, 2001
Question: An institution is making nonconstruction
"bridge" loans where they provide financing between the purchase of a
new home and the sale of the old home. The customer pays interest-only (no
principal) until the sale of the old home is closed, at which time the bridge
loan is paid off. Where should these bridge loans be reported?
Answer: Typically these loans are secured by a junior lien on one of the
residences. If this is the case, the loan should be reported with second
mortgages. In Schedule SC these would be reported on SC250, and in Schedule
CMR, these would be reported on CMR311 or CMR312. During the time that the
bridge loan is outstanding, it must be combined with all other liens on the
same property to determine high LTV for reporting on Schedule LD and in
determining risk weight for Schedule CCR of the bridge loan and all other liens
on the same property held by the institution.
[TOP]
Q&A No. 136
SUBJECT: "Best Effort" Commitments to Sell Loans
Line: CC330
Date: June 13, 2001
Question: Should CC330, Commitments To Sell Loans, include loan sales
that are "best effort" commitments? None of the loans that we sell
are mandatory commitments. The loans are identified in our system, but if the
loan sale is not consummated, there is no exposure for our institution. The TFR
Instruction Manual reads, "Report outstanding commitments to sell whole
mortgage and nonmortgage loans and participating interests."
Answer: You should report as commitments the amount of loans that you
expect to sell pursuant to a "best effort" commitment. This expectation
may be based on your past performance and on knowledge of your current
portfolio and your existing commitments to originate and purchase loans.
[TOP]
Q&A No. 137
SUBJECT: Combined Loan to Value with New Appraisal
Line: CCR460
Date: June 13, 2001
Question: How would an institution report the combined carrying value
when there is a disparity in the appraisal amount on the two loans being
combined? For example, a first lien was written for $100,000 five years ago on
a property appraised at 150,000. Its outstanding balance is now $90,000. A
second lien is written for $50,000, when the new appraisal amount is $200,000.
The combined carrying value is now 140,000, which is less than 80% of the value
at the origination of the junior lien, but exceeds 80% of the value at
origination of the first lien.
Answer: In general, you should use the more current appraisal in this
type of situation. However, the appraisal must meet your institution's own
appraisal standards and the appraisal standards of OTS regulations. Appraisals
are subject to review by OTS examiners. Note that in order to combine liens for
risk weighting purposes, there must be no intervening lien. If there is an
intervening lien, you must risk weight the two loans separately.
[TOP]
Q&A No. 138
SUBJECT: Pass-through Securities Backed by Home Equity Loans
Lines: SC185, SC210, SC215
Date: September 10, 2001
Question: On Schedule SC where should we report pass-through securities
backed by mortgages that are home equity loans? Some of the home equity loans
may not have an appraisal or evaluation, but all are secured by a lien on
residential real estate. Prior to securitization, most of these loans would
have been classified as nonmortgage, home equity loans.
Answer: Because the loans are evidenced by a lien on the underlying real
estate and the securities are pass-through securities, the securities should be
reported with pass-through mortgage securities on SC210 or SC215.
[TOP]
Q&A No. 140
SUBJECT: SFAS No. 142 - Amortization of Goodwill
Line: SO560
Date: September 10, 2001 REVISED September 20, 2001
Question: Is it correct that, upon adoption of SFAS No. 142,
"Goodwill and Other Intangible Assets", in 2002, we will no longer
amortize goodwill?
Answer: Yes, however, not all unidentifiable intangible assets are
goodwill for purposes of SFAS No. 142. Most importantly, the unidentifiable
intangible asset established pursuant to SFAS No. 72, "Accounting for
Certain Acquisitions of Banking and Thrift Institutions", although
commonly referred to as goodwill, is not goodwill. Therefore, this asset must
continue to be amortized after adoption of SFAS No. 142 in 2002, in accordance
with the specialized amortization requirements of SFAS No. 72. (The exact
adoption date of SFAS No. 142 in 2002 will depend on your fiscal year-end.)
This amortization should be included in line SO560, "Amortization of
goodwill". This is significant because all the unidentifiable intangible
assets created in most branch acquisitions are SFAS No. 72 unidentifiable
intangible assets, and therefore are not goodwill.
Pursuant to paragraph 8 of SFAS No. 142, that Statement does not change the
accounting prescribed in SFAS No. 72. Paragraph B19 of SFAS 142 reads:
"The Board decided that this Statement should not change the accounting
for an unidentifiable intangible asset recognized in an acquisition of a bank or
thrift institution that is prescribed in SFAS No. 72, "Accounting for
Certain Acquisitions of Banking and Thrift Institutions". The Board noted
that SFAS No. 72 does not refer to the unidentifiable intangible asset as
goodwill, and concluded that it would not be appropriate to account for that
intangible asset as if it were goodwill without a full reconsideration of the
issues associated with that industry, which is beyond the issues addressed in
this Statement."
SFAS No. 72 applies to the purchase method acquisition of a depository
institution, including branches of a depository institution, where the fair
value of the liabilities assumed exceed the fair value of the tangible and
identifiable intangible assets acquired. Under SFAS No. 72, that excess constitutes
an unidentifiable intangible asset. However, that asset is not referred to in
the Statement as goodwill. SFAS No. 72 goes on to specify an amortization
method for the unidentifiable intangible asset.
[TOP]
Q&A No. 141
SUBJECT: Definition of Nonaccrual Status
Lines: Schedule PD
Date: September 10, 2001
Question: Should delinquent loans that management establishes a reserve
for uncollected interest be reported as "nonaccrual" on Schedule PD?
Is there some technical difference that would not require these loans to be
reported as nonaccrual since management uses a reserve instead of placing the
loan on nonaccrual on their loan system?
Answer: If interest on a loan is accrued and in the same reporting
period the interest is reversed on the income statement by establishment of a
reserve, the loan is in nonaccrual status. If a portion of the interest remains
on the income statement after establishment of the reserve, then the
institution could consider the loan still in accrual status. It does not matter
whether they no longer accrue or if they accrue and reverse the accrual; either
way they are not reporting income from the loan. If they are not reporting
income from the loan, the loan is in nonaccrual status.
[TOP]
Q&A No. 142 Revised
SUBJECT: High LTV Loans Originated
for Sale
Lines: Schedule LD
Date: September 10, 2001 (Revised October 25, 2001)
Question: The TB72a, "Interagency Guidance on High Loan-to-value
Residential Real Estate Lending" states that loans that are to be sold
promptly (defined as 90 days from origination), without recourse, to a
financially responsible third party may be excluded from supervisory LTV
limits. Do these loans need to be reported on Schedule LD if they equal or
exceed 90% LTV?
Answer: Thrift Bulletin 72a states:
"As set forth in the Interagency High LTV Statement, the Agencies will
generally determine that when a lender sells a newly originated loan within 90
days, it has demonstrated its intent to sell the loan 'promptly' after
origination. Conversely, when a lender holds a loan for more than 90 days, an
institution has not demonstrated the intent to sell 'promptly.'"
"The Guidelines state that loans that are to be sold promptly after
origination, without recourse, to a financially responsible third party may be
excluded from supervisory LTV limits."
Therefore, if these loans have been originated for sale without recourse within
90 days of origination and you have a history of selling loans within 90 days
of origination, you are not required to include these loans in Schedule LD.
However, any uninsured, high LTV loans originated for sale that are more than
90 days old on the TFR reporting date, must be reported on Schedule LD.
[TOP]
Q&A No. 143
SUBJECT: High LTV Purchases
Lines: LD410, LD420
Date: September 10, 2001
Question: For Purchases (LD 410 and 420) the instructions read:
"Report the cost of all high LTV loans...purchased from other
entities." What is included in the definition of "cost"?
Also, are purchases reported one time only, not cumulatively, or the total
value of purchased loans or pools carried by an institution?
Answer: The cost is the institution's cost to acquire the loans. This
would include adjustments for the discount, premium, etc. Purchases are
reported for the quarter only; they are not cumulative.
[TOP]
Q&A No. 144
SUBJECT: High LTV Sales
Lines: LD450, LD460
Date: September 10, 2001
Question: When reporting loan data where the loans have been sold, does
this mean sold servicing released, sold on the secondary market, or both?
Answer: Sold means any type of sale or other disbursement (other than a
charge-off) that removes the loan from the balance sheet, even if servicing or
a residual is retained.
[TOP]
Q&A No. 145
SUBJECT: Small Business Loans Secured by Personal Residence
Lines: Schedule LD
Date: September 10, 2001
Question: We have commercial loans that have 1-4 family residential
properties as collateral. They have no other collateral. The loans are for
small businesses collateralized with their home. Should these loans be
considered mortgages for purposes of Schedule LD?
Answer: In schedule SC they may be reported either as single-family
mortgages or as secured commercial loans on SC300. However, because 1-4
dwelling units secure these loans, they must be reported on Schedule LD if the
LTV of all loans secured by the property equals 90% or more.
[TOP]
Q&A No. 146
SUBJECT: Liquidity in QTL
Lines: SI581, 582 and 583
Date: September 10, 2001
Question: Line 4 of the QTL worksheet is for Regulatory Liquidity. Since
OTS rescinded the regulation for regulatory liquidity, should we disregard this
line in the QTL calculation?
Answer: OTS is in the process of revising the QTL worksheet. Line 4 will
be recaptioned: Liquidity (cash and marketable
securities). The calculation of line 4 is based on the lesser of the thrift's
liquid assets or 20% of total assets. We define liquid assets as cash plus
marketable securities excluding mortgage-backed securities included on line 12
of the worksheet.
[TOP]
Q&A No. 147
SUBJECT: CCR - Reporting GNMA Mutual Funds
Lines: CCR302, CCR405, CCR450
Date: September 10, 2001
Question: A bank holds $16 million in a mutual fund that is secured by
80% GNMA securities and 20% Treasuries. The investment is available for sale,
with a SFAS No. 115 unrealized gain of $300 thousand reported on CCR302. The
mutual funds are risk weighted on line CCR40, 0% risk weighting, along with
other GNMA securities held. Is this reporting correct?
Answer: Mutual funds, regardless of the portfolio of the fund, may be
included with equity securities in determining the amount of the unrealized
gain to report in supplemental capital on CCR302. However, mutual funds may not
be risk weighted at less than 20%, including those invested in GNMA and
Treasury securities. The mutual fund should be reported on CCR450 in 20% risk
weight.
[TOP]
Q&A No. 148
SUBJECT: Combined Loan to Value with New Appraisal
Line: CCR460
Date: September 10, 2001
Question: How would an institution report the combined carrying value
when there is a disparity in the appraisal amount on the two loans being
combined? For example, a first lien was written for $100,000 five years ago on
a property appraised at 150,000. Its outstanding balance is now $90,000. A second
lien is written for $50,000 and the new appraisal amount is $200,000.
The combined carrying value is now 140,000, which is less than 80% of the value
at the origination of the junior lien, but exceeds 80% of the value at
origination of the first lien.
Answer: In general, you should use the more current appraisal in this
type of situation. However, the appraisal must meet your institution's own
appraisal standards and the appraisal standards of OTS regulations. Appraisals
are subject to review by OTS examiners.
[TOP]
Q&A No. 149
SUBJECT: Matured CDs in CMR
Line: CMR771
Date: September 10, 2001
Question: Where should we report CDs that have matured, but have not yet
been rolled over in Schedule CMR? They earn no interest.
Answer: You should report them temporarily with demand deposits on
CMR771.
[TOP]
Q&A No. 150
SUBJECT: Recalculation of LTV
Line: Schedule LD
Date: December 3, 2001 (Revised May 29, 2003)
Question 1: Are we required to continuously recalculate the LTV based
upon current loan balance so that one quarter a loan may be 100 or greater and
the next it is 90-99% LTV depending upon the balance at the end of the quarter,
or does it stay in one category for life until paid off?
Answer 1: You are not required to recalculate LTV unless the loan is
negatively amortizing. However, it may be to your advantage to recalculate when
you project the loan might no longer be a high LTV loan. You may move the loan
to a lower category as the balance of the loan decreases. If you do not wish to
go through the expense of recalculating the LTV, you may continue to report it
as a high LTV loan.
Question 2: If we hold a second mortgage where another institution holds
the first lien, the LTV calculation only includes the original first mortgage
balance at time the second was taken. Do we need get updates from the other
institution on what the balance of the first mortgage is each quarter-end for
our LTV calculation?
Answer 2: Generally no, you are not required to get the balance of the
first mortgage each quarter. You need the balance of the senior mortgage held
by another institution only if you wish to recalculate LTV. For example, if the
LTV at origination is 98%, it may take some time before the loan falls below
90% with normal amortization. Therefore, you may want to update the balance of
the senior lien for LTV calculation only when you project the combined LTV will
be below 90%. You are not required to recalculate LTV quarterly unless either
the senior or junior liens permit negative amortization and you have reason to
believe one of these loans is negatively amortizing and could potentially put
the LTV above 90 percent.
[TOP]
Q&A No. 151
SUBJECT: Construction Loans
Line: Schedule LD
Date: December 3, 2001
Question: Should we include construction loans on 1-4 dwelling unit
properties in Schedule LD?
Answer: Yes. You should include all loans, both permanent and
construction, secured by 1-4 family residential properties in Schedule LD if
they meet the requirements for reporting.
[TOP]
Q&A No. 152
SUBJECT: Construction Loans - Insured or Government Guarantee
Line: Schedule LD
Date: December 3, 2001
Question: Please further define "insured" and "government
guarantee" as they relate to FHA/VA underwritten, closed construction
loans that are under construction at the reporting date. These loans have not
converted to permanent loans. They will not be submitted for final insurance
from FHA or VA until rolled over to a permanent loan.
The same scenario applies to conventional construction loans, where as the loan
has been underwritten and approved for PMI. The final insurance certificate is
effective when the loan rolls over to a permanent end loan.
Answer: Yes. If the loans are not FHA/VA insured and do not have PMI at
the date of the report because they have not yet met insurance standards (such
as completion of construction and conversion to a permanent loan) and their LTV
is 90% or more, they must be included in Schedule LD. They should be included
in the balances outstanding, and if originated, purchased, and/or sold during
the quarter, they must be reported on the corresponding activity lines. See
also Q&A No. 153 for qualifying loans pending FHA/VA insurance.
[TOP]
Q&A No. 153
SUBJECT: FHA/VA Insurance Pending
Line: Schedule LD
Date: December 3, 2001
Question: We originate permanent FHA/VA loans that exceed 90% LTV.
However, at the date of the TFR although all papers have been filed, we may not
have received the insurance certificate. Should we include these on Schedule
LD?
Answer: If the institution has a history of obtaining FHA/VA approval
and fully expects to obtain it for the pending loans, the loans do not have to
be included in Schedule LD. See also Q&A No. 152.
[TOP]
Q&A No. 154
SUBJECT: Private Mortgage Guarantee
Line: Schedule LD
Date: December 3, 2001
Question: We have several loans where we have a private party guarantee
the portion of the loan exceeding 80%. Do these loans have to be reported on
Schedule LD?
Answer: Yes, if the loans have an LTV of 90% or more, they are still
high LTV loans, and must be reported on schedule LD.
We only accept guarantees from federal government agencies and only certain PMI
policies from established PMI insurance companies. Generally, we will recognize
only those insurance companies whose PMI insurance is accepted by Fannie Mae or
Freddie Mac.
[TOP]
Q&A No. 155
SUBJECT: Commercial Loans Secured by Deposits
Line: SC300, SC310
Date: December 3, 2001
Question: We have a commercial loan that is secured by a certificate of
deposit. Should we report the loan on the TFR as a secured commercial loan on
SC300 or elsewhere?
Answer: For the purposes of compliance with HOLA, you can designate the
loan as either a secured commercial loan or a loan on deposits, to the extent
that it is fully secured by the deposit and you have a lien or a pledge on the
deposit securing the loan. Any amount that is unsecured must be designated as
an unsecured commercial loan.
For purposes of the TFR, you may report the loan as either a loan on deposit or
a commercial loan, but do not split up the loan. If the loan is fully secured
by the deposit, you may report it on SC310, Loans on Deposits, or on SC300,
Secured Commercial Loans. Otherwise it should be reported on SC303, Unsecured
Commercial Loans.
If you want to be able to include this loan in Schedule SB, Small Business
Loans, you must report it as a commercial loan on either SC300 or SC303.
[TOP]
Q&A No. 156
SUBJECT: Small Business Loan Limit for QTL
Line: SI581, 582 and 583
Date: March 20, 2002
Question: According to an OTS release from Thursday, December 20, 2001
on the Internet at http://www.ots.treas.gov/docs/r.cfm?77187.html,
OTS has raised the dollar limit in the definition of small business loans under
(HOLA) from $1 million to $2 million. For purposes of reporting the Qualified
Thrift Lender Test on TFR Schedule SI lines SI581 through SI583, should we now
consider "Small Business Loans" as commercial loans that are $2
million or less?
Answer: Yes, for QTL purposes, small business loans are now $2 million
or less. However, the definition of small business loans in Schedule SB will
remain unchanged from previous periods.
[TOP]
Q&A No. 157
SUBJECT: Purchases Subordinated Securities
Line: Schedules SC, CC, and CCR
Date: March 20, 2002
Question: We recently purchased a $200 subordinated "second
loss" mortgage-backed security. Our security is part of a $1,000 security
structure, along with a $700 senior security and a $100 "first loss"
position, both which are owned by unaffiliated third parties. With respect to
risk-based capital, the $200 subordinated security is rated "BB"
under the specific criteria of the ratings-based approach in 12 CFR part 567.
The security qualifies for the ratings-based approach pursuant to 12 CFR Part
567.6, and the 200% risk-weight applies. How do we report amounts related to
the security on the TFR?
Answer: An instrument such as this provides credit enhancement to other
instruments, and is subject to specialized regulatory capital treatment.
Therefore, in addition to reporting on Schedule SC, you should report amounts
related to this instrument on Schedules CC, SI, and CCR, as follows.
Schedule SC
You should report the $200 subordinated security on line SC150, "Mortgage Derivative
Securities".
Schedule CC
You should report the $200 subordinated security on line CC465, "Amount of
Direct Credit Substitutes on Assets in CC455". In addition, you should
report $900 ($200 + $700) on line CC455, "Total Principal Amount of Off-Balance-Sheet
Assets Covered by Recourse Obligations or Direct Credit Substitutes".
Schedule SI
You should report the $200 subordinated security on line SI404.
Schedule CCR
You should report $400 ($200 x 2) for the $200 subordinated security on line CCR505,
"100% Risk-Weight: All Other Assets", to reflect a risk-weighting of
200%.
[TOP]
Q&A No. 158
SUBJECT: Residual Interests
Line: Schedules SC, CC, SI and CCR
Date: March 20, 2002
Question: We own a $100 nonsecuritized
residual interest in the form of a credit-enhancing interest-only strip, as
defined in 12 CFR Part 567.1. We recently acquired the residual interest in
connection with the origination and securitization of a $1,000 pool of mortgage
loans. All of the other beneficial interests in the securitized loans were sold
to investors. In addition, we service the $1,000 in loans for the investors.
Our Tier 1 capital, prior to any adjustment for this instrument, is $300. As a
result, the $100 credit-enhancing interest-only strip exceeds 25% of Tier 1 capital
of $75 ($300 x 25%). So, for Tier 1 leverage (core) capital, pursuant to 12 CFR
Part 567.12, we must deduct $25 ($100 - $75). In addition, for risk-based
capital, pursuant to 12 CFR Part 567.6, we must deduct or otherwise adjust for
the remaining $75 ($100 - $25). How do we report amounts related to the
residual interest in the TFR?
Answer: An instrument such as this provides credit enhancement to other
instruments, is related to an obligation to service loans for others, and is
subject to specialized regulatory capital treatment. Therefore, in addition to
reporting the residual on your balance sheet on Schedule SC, you should report
this instrument on Schedules CC, SI, and CCR, as follows:
Schedule SC, Statement of Condition
You should report the $100 interest-only strip on line SC655,
"Interest-Only Strip Receivables and Certain Other Instruments".
Schedule CC, Commitments and Contingencies
You should report the $100 interest-only strip on line CC468, "Amount of
Recourse Obligations on Assets in CC455". In addition, you should report
$1,000 on line CC455, "Total Principal Amount of Off-Balance-Sheet Assets
Covered by Recourse Obligations or Direct Credit Substitutes".
Schedule SI, Supplemental Information
You should report $1,000 on line SI390, "Loans Serviced for Others".
(Note: The full $1,000 security is reported as loans serviced for others. See
Item 2 in the instructions for SI390.) Also, you should report the $100
interest-only strip on line SI402, "Residual Interests in the Form of
Interest-Only Strips".
Schedule CCR, Consolidated Capital Requirement
For Tier 1 leverage (core) capital purposes, you should report $25 (net of any
corresponding deferred tax liability) of the interest-only strip on line
CCR133, "Disallowed Servicing Assets, Disallowed Deferred Tax Assets,
Disallowed Residual Interests, and Other Disallowed Assets". The $25
reported here represents a deduction for Tier 1 capital. Also, you should
report $25 of the interest-only strip on line CCR170, "Disallowed Servicing
Assets, Disallowed Deferred Tax Assets, Disallowed Residual Interests, and
Other Disallowed Assets". The $25 reported here represents a deduction for
adjusted total assets (the denominator in the Tier 1 leverage (core) ratio).
In addition, for risk-based capital purposes, you may elect one of the
following methods:
a. Under the "simplified" method, you should report $75 (net of any
corresponding deferred tax liability) of the interest-only strip on line
CCR375, "Deduction for Low-Level Recourse and Residual Interests".
Under this method, CCR64, "Assets to Risk Weight," will not include
any amount related to this residual interest. The $75 reported on CCR375
represents a deduction for Tier 1 risk-based and total risk-based capital (the
numerators in the risk-based capital ratios), in addition to the $25 deduction
reflected on line CCR133.
b. If you elect the "super risk-weight" method, you should report $75
(net of any corresponding deferred tax liability) of the interest-only strip on
line CCR605, "Amount of Low-Level Recourse and Residual Interests Before
Risk-Weighting". On line CCR62, "Risk-Weighted Assets for Low-Level
Recourse and Residual Interests", the electronic filing software will
compute $938 ($75 x 12.5). The $938 reported here represents an adjustment for
risk-weighted assets (the denominator in the risk-based capital ratios), in
addition to the $25 deduction reflected on line CCR133.
[TOP]
Q&A No. 159
SUBJECT: Loans Held For Sale
Line: Schedules SC
Date: March 20, 2002
Question: We recently decided to sell certain mortgage loans 1) that were
not originated or otherwise acquired with the intent to sell, and 2) where the
fair value has declined below the recorded investment, due to a decline in
credit quality. At the time of transfer into the held-for-sale (HFS) account,
we reduced the carrying amount of the loans to fair value. Consistent with the
March 2001 "Interagency Guidance on Certain Loans Held for Sale"
(TR-240), we reflected this reduction as a write-down of the recorded
investment, with a corresponding reduction in the allowance for loan and lease
losses (ALLL). Accordingly, line SC283, Allowance for Loan and Lease Losses on
Mortgage Loans, does not include any amount related to these HFS loans.
However, this treatment appears to be inconsistent with the guidance in the
December 2001 AICPA Statement of Position 01-6, "Accounting by Certain
Entities (Including Entities with Trade Receivables) That Lend to or Finance
the Activities of Others". Paragraph 8.c. of SOP 01-6 appears to prohibit
a write-down prior to the transfer to the HFS account. Is the required
treatment for TFR purposes consistent with generally accepted accounting
principles (GAAP)?
Answer: Yes. We believe that the required treatment for TFR purposes
spelled out clearly in TR-240 is consistent with GAAP. However, we acknowledge
that the language in paragraph 8.c. of SOP 01-6 could be interpreted to
prohibit the treatment required by TR-240 referred to above. Paragraph 8.c. of
the SOP reads: "At the time of the transfer [of the loans] into the
held-for-sale classification, any amount by which cost exceeds fair value
should be accounted for as a valuation allowance." It is unfortunate that
the words "valuation allowance" were used in the statement quoted
above from the SOP, rather than the words "reduction in carrying amount".
Most GAAP authoritative pronouncements regarding credit loss allowances on
loans do not address the timing of write-downs or charge-offs. Unfortunately,
the SOP appears to do just that. However, as a result of our discussions with
certain AICPA representatives, we understand the following: 1) the statement
quoted above from the SOP was not intended to prohibit or prescribe write-downs
of the recorded investment (resulting in a new cost basis), prior to the
transfer into the held-for-sale classification; and 2) this clarification will
be included in the AICPA's revised industry accounting and auditing guide that
applies to savings associations (and various other forms of financial
institutions). Accordingly, follow the guidance in TR-240.
[TOP]
Q&A No. 160
SUBJECT: Servicing Escrows
Line: SC783
Date: March 20, 2002
Question: We have demand deposit accounts for tax and insurance escrows
and principal and interest custodial accounts that we hold for loans that are
serviced by our parent holding company. Should these be reported as deposits or
as escrows?
Answer: Because it is your holding company and not the institution
itself that has the escrow agreement with the owners of the loans, these
accounts should be reported on your balance sheet as deposits. Escrows reported
on SC783 should be accounts where the institution is a party to the escrow
agreement.
[TOP]
Q&A No. 161
SUBJECT: Qualifying Multifamily Residential Mortgage Loans - Maturity
Requirement
Line: CCR465
Date: March 20, 2002
Question: CCR465, 50% Risk Weight of Qualifying Multifamily Residential Mortgage
Loans, requires that loans meet all seven of the criteria listed in our TFR
instruction manual. Criteria #2 is "Original minimum maturity for
repayment of principal on the loan is not less than seven years." Would a
loan with a 5 year balloon loan and a 20 year period to full amortization
qualify?
Answer: This multifamily residential mortgage loan would not meet the
criteria to qualify for 50% risk weighting. The criteria track a federal
statute and are very specific as to minimum term.
[TOP]
Q&A No. 162
SUBJECT: Qualifying Multifamily Residential Mortgage Loans - Payment History
Line: CCR465
Date: March 20, 2002
Question: Re: 12 CFR 567.1, Qualifying multifamily mortgage
loan.(1)(iii) "When considering the loan for placement in a lower
risk-weight category, all principal and interest payments have been made on a
timely basis in accordance with its terms for the preceding year;. . ."
We would appreciate your guidance in regard to whether or not loans that have
been on the books less than twelve months, and paid timely, also qualify for
the 50% risk-weight.
Answer: We generally look for one year of history because this is in
keeping with the statute.
[TOP]
Q&A No. 163
SUBJECT: Investments in Nonoperating Entities
Line: Schedule CMR
Date: March 20, 2002
Question: We recently made an investment in an SBIC (small business
investment company). We report it with other investments on Schedule SC, line
SC185. How should I report it on CMR? If it is considered a security, then I
have to provide a rate and a WAM. However, the SBIC was just created and has
not made any loans. We will share on a pro-rata basis in the gains/losses, once
the SBIC is up and running. But at this time a yield is indeterminable.
Answer: You may report the SBIC as an other asset (CMR543 - Misc I) until
the SBIC is up and going.
[TOP]
Q&A No. 164
SUBJECT: Qualifying Single Family Residential Mortgage Loans
Line(S): CCR460
Date: June 10, 2002
Question: On 5/10/02, a final rule was published in the Federal Register
that removed the 80% LTV limit for Qualifying Mortgage Loans. The new
definition of Qualifying Mortgage Loans in 12 CFR part 567.1 lists several
criteria, including prudent underwriting, relating to the LTV ratio (See the
Interagency Real Estate Lending Guidelines at 12 CFR 560.101.)
Would loans with LTV ratios over 90% still qualify for 50% risk weight as long
as they conform to the underwriting standards found in the Interagency
Guidelines for Real Estate Lending?
Answer: The Real Estate Lending Guidelines urge savings associations as
well as other types of banking organizations, to require appropriate credit
enhancement if a mortgage exceeds 90% LTV. See 12 CFR 560.101, and the footnote
in the section on supervisory loan-to-value limits. While not prescribed by
regulation, these guidelines constitute a supervisory presumption of safety and
soundness. To overcome that presumption a bank or thrift must demonstrate to
the examiners' satisfaction that a loan over 90% LTV is both prudently
underwritten, and that it qualifies for the 50% risk weight in spite of the
absence of private mortgage insurance or other appropriate credit enhancement.
Such a loan would not typically qualify for the 50% risk weight.
[TOP]
Q&A No. 165
SUBJECT: Recourse Rule - 120-Day Exception
Lines(S): Schedule CCR
Date: Revised December 1, 2006
Question: How does the November 2001 Recourse Capital Rule apply to 1-4
family loan sales? And what is the 120-day exception?
Answer: In general, Recourse involves selling assets where:
· You agree to buy the assets back if there is a problem
· You sell the assets with credit-enhancing representations and warranties that
reduce credit risk for the purchaser while retaining credit risk for the seller
· You retain servicing and you have an agreement to absorb or otherwise be
responsible for losses on the assets you service (with the exception of
Servicer Cash Advances as defined)
· You retain a subordinate interest in the assets you have sold
In a simple example where you have sold 1-4 family loans with recourse, you
would have to multiply the full amount of the assets you have sold by a 100%
conversion factor, effectively bringing them back on your balance sheet for
risk-based capital purposes. (See 567.6 for complete detail.)
The 120-day exception allows a contract period during which qualifying
single-family mortgage loans may be returned to the seller, without the selling
institution having to treat the loan sale as a recourse sale. The return period
stipulated in the contract must not exceed 120 days. A sale that allows a
return period of 180 days is a recourse sale immediately from the first day.
Therefore if you wish to take advantage of the exception, it is important that
your contract return periods do not exceed 120 days. The 120-day
exception applies only to 1-4 family loans originated within one year prior to
the sale. The loans must meet the criteria for 50% risk weight according to the
definition of "qualifying mortgage loan."
Refer to the definition of Recourse in 12 CFR 567.1 for a more detailed
description. In section 567.1 you will also find the definitions of
"credit-enhancing representations and warranties," "qualifying
mortgage loan", and "servicer cash advance." Note that recourse
which qualifies for exclusion on CCR (due to the 120 day exemption rule) must
still be reported on CC455 and CC468. Please see Q&A 191.
[TOP]
Q&A No. 166
SUBJECT: Commercial Loans Secured By GNMA Securities
Line: SC300, CCR450, CMR325
Date: June 10, 2002
Question : We have a commercial loan that is 105% secured by GNMA
securities. When I read the TFR instructions my interpretation is this loan
should be reported on SC300 Secured Commercial Loans. On Schedule CCR I am
interpreting that this loan should be reported on CCR405, Securities Backed by
Full Faith and Credit of US Government, since the collateral is GNMA
securities. On CMR I will record it on CMR325.
Answer 1: SC: Yes, you are correct, the loan should be reported on
SC300, Secured Commercial Loans, as long as the loan is fully secured.
Answer 2: CCR: The capital regulations include in the 20% risk
weight category, "That portion of assets collateralized by the current
market value of securities issued or guaranteed by the United States government
or its agencies...". You should report an asset fully collateralized by
GNMAs on CCR 450, "Other 20% Risk Weight Assets". This
treatment only applies to assets issued or guaranteed by the United States
government or its agencies and does not apply if the collateral is FNMA or
FHLMC securities.
We recommend that you monitor the value of the collateral and require the
borrower to provide additional collateral should the value of the securities
fall or the loan balance increase. To the extent the loan is not fully
collateralized by the by the securities, the remainder of the asset would not
be 20% risk weighted. It would be risk weighted as an unsecured commercial loan
at 100% on CCR505.
Answer 3: CMR: You are correct. This loan should be reported on CMR325
or CMR326, depending on whether it is fixed-rate or adjustable-rate.
[TOP]
Q&A No. 167
SUBJECT: Loan Classification
LINE(S): Schedule SC
DATE: June 10, 2002
Question: We have both consumer and business loans that are secured
by real estate with both a first and second lien. We do not have information
available concerning the use of the proceeds of the loan and we do not always
get an appraisal (particularly for consumer loans). We look at a recent tax
assessment to value the property and to determine the loanable
amount. The loan-to-value would be no greater than 80%. Should we classify
these loans as mortgage loans?
Answer: It depends on the size of the loan. If the loan is $250,000 or
more, a tax assessment generally would not be sufficient. If the loan is under
$250,000, you may use an evaluation pursuant to TB 55a, in which the property's
value is determined by market information, including property tax assessments.
However, someone in your institution needs to make a determination of the
assessment, determine the condition of the property and whether it accurately
reflects market value, and then sign and date the evaluation report. You may
want to review TB55a, Interagency Appraisal and Evaluation Guidelines, at http://www.ots.treas.gov/docs/84042.pdf
and it might be advisable for you to contact your OTS examiner to assist you in
determining the classification of your loans.
[TOP]
Q&A No. 168
SUBJECT: Adjustments To Loan Documentation Subsequent To Origination
LINE(S): Schedule LD
DATE: June 10, 2002
Question: On Schedule LD, if subsequent to origination, but before
the reporting date, a correction or amendment is posted to a loan, should we
report the loan net of this adjustment, such as PMI added to the loan or a
correction of appraisal or purchase price that was entered incorrectly?
Answer: Yes, you should include corrections and amendments such as the
ones you have listed when calculating LTV and report only loans without PMI or
government guarantee where the current balance of the loan is equal to or
greater than 90% LTV. See also Q&A No. 126.
[TOP]
Q&A No. 169
SUBJECT: QTL Test - Mortgages Originated And Sold
LINE(S): SI581, SI582, SI583
DATE: June 10, 2002
Question: Please clarify QTL line 20 - 50% of Residential Mortgage
loans originated and sold within 90 days. Regarding "originated and
sold," must the term "originated" be narrowly interpreted, or
can it also include loans purchased?
Answer: The QTL worksheet instructions for that line item read:
"Enter 50% of loans on domestic residential housing that the association
originated and sold within 90 days of origination, provided that the
association sold these mortgage loans during the quarter for which this
calculation is being made."
Loan originations could include loans purchased as long as the purchasing
institution's name appears on the mortgage documents. That is, where the residential
mortgage loans are originated by another entity in the name of the reporting
institution and then purchased or transferred to the reporting institution they
may be considered originated by the reporting institution.
[TOP]
Q&A No. 170
SUBJECT: Credit Life Insurance On Consumer Loans
LINE(S): CMR513
DATE: June 10, 2002
Question: We have consumer loans on which we sell credit life
insurance up front; this insurance is added to the principal balance and
amortized over the life of the loan. Are we supposed to report these loans NET
of this unearned insurance on CMR? If not, where is the unearned insurance
amount reported?
Answer: You should report these loans net of the unearned insurance on
Schedule SC, but on Schedule CMR, you should report the unamortized amount of
the insurance on CMR513.
[TOP]
Q&A No. 171
SUBJECT: Definition Of Outstanding Balance
LINE(S): Schedule CMR
DATE: June 10, 2002
Question 1: Does "Outstanding Balance" in CMR (pg 1602)
mean the same thing as "Recorded Balance" in SC (pg. 208)? Schedule
SC has 11 items by which the principal balance must be adjusted for, but CMR
instructions just say "outstanding balance". Should balances on SC
and CMR be calculated in the same manner?
Answer 1: "Outstanding Balance" for Schedule CMR is defined on
page 1602 as: "the principal balance, net of LIP and before any yield
adjustments or deductions for valuation allowances." In most cases,
outstanding balance as reported in Schedule CMR is face value less
charge-offs." Therefore "outstanding balance" in CMR is not the
same as "recorded balance" in SC because outstanding balances in CMR
are not adjusted for yield adjustments or specific valuation allowances. In
Schedule CMR yield adjustments are reported on CMR504 and CMR513, and specific
and general valuation allowances are reported on CMR507 and CMR516.
Question 2: Does an "outstanding balance" for CMR include
late charges that have not yet been paid and finance charges (interest) that
have been billed but not paid? For that matter, should the "outstanding balance"
include any fees that are outstanding or should these unpaid fees be netted
from the principal balance for CMR purposes? Also in the case of Mortgage Loans
that capitalize interest, should this capitalized interest be netted from the
principal balance on SC or CMR?
Answer 2: The outstanding balance reported in CMR should include late
charges and interest only if they are capitalized to the loan. That is, if the
loan contract permits late charges and unpaid interest to accrue to principal
and permits the accrual of interest after the addition of these charges, then
they become part of the principal balance that would be reported as outstanding
balance. However, in most cases late charges, unpaid interest, and other fees
do not become part of the principal balance unless the loan is restructured.
Late charges, accrued interest, and other fees that are not part of the
principal balance are reported on CMR502 and CMR512. In Schedule SC you can
report accrued interest and other fees either with the loan balance or
separately on SC272, Accrued Interest Receivable. Only interest for which
collection is probable should be accrued.
[TOP]
Q&A No. 172
SUBJECT: Construction Mezzanine (Bridge) Loans
LINE(S): Schedules CMR And SC
DATE: June 10, 2002
Question: Can you please advise as to whether SC250 is the correct
place to put the following loans and also let me know where they should go on
CMR?
Here are the details of the loans:
The builder sells the model homes to an investor with whom we have a loan.
The loans are on single-family model homes in developments throughout our
lending area. The loans are fully secured by the model home and its contents.
The loans have maturities between 6 and 18 months, with an extension provision.
They are interest-only, fixed-rate loans.
Answer: If the loans require a new loan contract once the houses are
sold to individuals, these loans are mezzanine construction loans and should be
reported as construction loans on SC230 and in CMR.
If there are separate loans for each residence and if the loans automatically
roll over to permanent loans after the units are sold to individuals, they
could be reported as permanent mortgages on 1-4 dwelling units on SC250. In CMR
they should be reported as fixed-rate, single-family balloon mortgages until
they transfer to the individual and begin amortization.
[TOP]
Q&A No. 173
SUBJECT: New Accounts-Name Change
LINE(S): Schedule CMR
DATE: June 10, 2002
Question 1: If an account is held in a joint tenancy and one of the
joint owners passes away, we remove the decedent from the account without any
modification to the rate, type, term, balance, or maturity date of the account.
Does this constitute a new account?
Answer 1: Yes, it would be considered a new account.
Question 2: Would an ownership change to the individual (beneficiary)
who may have assumed the funds as a result of an owner's death be a new
account?
Answer 2: Yes, as would an ownership change mandated by a divorce or
lawsuit.
Question 3: In determining whether there was a matured CD during the
quarter that rolled over into a new CD, do we need to look for matches for all
owners on both the new and matured CD's?
Answer 3: Yes you need to look at all owners. If the ownership is not
exactly the same, the certificate would be considered new.
[TOP]
Q&A No. 174
SUBJECT: New Accounts-Acquisitions
LINE(S): Schedule CMR
DATE: June 10, 2002
Question: Are deposits acquired via Bank acquisitions reported as new
deposits?
Answer: Yes, deposits acquired as part of an acquisition are considered
new deposits.
[TOP]
Q&A No. 175
SUBJECT: New Accounts-Maturity
LINE(S): Schedule CMR
DATE: June 10, 2002
Question 1: Does the term "Original Maturity" refer to the
original maturity of the opening of the account, or most recent maturity date
from most recent term. For example: Mary Smith opened her first CD with the Bank
on January 23, 1985 for a one-year term. At it's maturity, her account was
rolled over and continued to be rolled over each year for the same term. Her
most recent maturity date was January 23, 2002. Which maturity date is
considered the 'original maturity date' for CMR calculation purposes
Answer 1: The original maturity is the maturity of the most recent
(current) account, January 23, 2002.
Question 2: Many customers have multiple certificates and in some
cases they could come due simultaneously. Which one do you use to compare to
any new CD's opened during that quarter?
Answer 2: We prefer that you use the maturing CD with the longest term,
thus you would be reporting the fewest new accounts.
Question 3: In the case of a nonrenewable CD, is a rollover of the
funds to another CD automatically "new" or do we still look at the
term of the maturing CD compared to that of the new CD?
Answer 3: You should look at the term of the maturing CD compared to the
new CD, regardless of whether the CD was renewable or nonrenewable.
Question 4: If a customer has a 6-month CD that matures and is rolled
over for the same term (6 months) during the quarter and this same customer
comes in and opens a new 3-month CD during the quarter, would we report nothing
as "New", because there was no change in the maturity bucket for this
customer.
Answer 4: Yes, you are correct; the example you gave would not be a new
account.
Question 5: If a customer opened a 3-month CD during the quarter and
rolled over another CD from a 24-month term to a 6-month term during the same
quarter, would there be no "new" account, because both terms now fall
under the 0-12 month category and one of the accounts is not new? Or would the
6-month CD be considered new this quarter, because the renewed CD had an
original term of 24 months? Or would both CDs be new because one is actually
new, and the other changed from 13-36 months to less than 13 months (a change
in maturity bucket).
Answer 5: In a rollover, any change in maturity bucket would be considered
a new account, if the account holder did not previously hold a CD of that
maturity bucket. Therefore, both of these accounts would be "new"
accounts.
[TOP]
Q&A No. 176
SUBJECT: Definitions Of Withdrawals
LINE(S): Schedule CMR
DATE: June 10, 2002
Question 1: Is the criterion for "withdrawals" those where the
CD holders were actually penalized during the quarter or is it all withdrawals
on CDs (including the ones with waived penalties) during the quarter?
Answer 1: The criterion is withdrawals during the quarter where contract
stated that the customer would incur a penalty and the customer withdrew
prematurely knowing (or should have known) that they would incur a penalty.
Question 2: Assume a customer has a $10,000 5-year CD. The CD is
scheduled to mature on December 31, 2006. On January 1, 2003, the customer
withdraws $2,000.00. The bank imposes an early withdrawal penalty but allows
the remaining $8,000 balance to continue to maturity. What should be reported
on CMR 604, 618, 633, & 642 for the March 2003 quarter - $2,000 or $10,000?
Answer 2: $2,000
Question 3: Same as Question 2 above except that the bank imposes an
early withdrawal penalty and closes the CD. What should be reported on CMR 604,
618, 633, & 642 for the March 2003 quarter?
Answer 3: $10,000
[TOP]
Q&A No. 177
SUBJECT: Checking Account Sweeps
LINE(S): SC730
DATE: September 5, 2002
Question: We offer a sweep account for commercial checking accounts.
The entire amount of the account is swept into a repo with a higher rate at
night. The customer is informed that the entire amount is not insured. Should
this amount be reported on SC730?
Answer: If the sweep occurs before close of business, the customer's
funds that are removed from the deposit account are not insured and should be
reported on SC730. If the sweep occurs after close of business, all of the
customer's funds remain in deposits.
[TOP]
Q&A No. 178
SUBJECT: Suspected Terrorists Deposits
LINE(S): SC710, Deposits
DATE: September 5, 2002
Question: Do financial institutions continue to report deposits that
belong to a suspected terrorist and have been seized by the financial
institution on SC710?
Answer: As long as there is no reason to believe that the institution
itself will ultimately be the owner of the funds, they would continue to report
the deposits on SC710 of the TFR.
[TOP]
Q&A No. 179
SUBJECT: Loans Past Maturity
LINE(S): Schedule PD
DATE: September 5, 2002
Question: We have a portfolio of construction loans that require
interest-only payments due monthly with the principal due at maturity. Some of
these loans are past their maturity date. The borrowers have continued to pay
the contractual monthly interest payments. Should these loans be excluded from
Schedule PD?
Answer: If management has restructured or extended a loan - formally or
informally, then the loan would not be past due. An informal extension (not the
same as a restructuring) is when the bank has agreed to accept interest
payments until the property is rented or sold. The extension should be for a
limited and reasonable length of time and the bank should get the extension in
writing. From the borrower's perspective, if he is doing what the bank has told
him, the loan is not in default and does not have to be reported in Schedule
PD.
[TOP]
Q&A No. 180
SUBJECT: LTV Calculation - Credit Life Insurance
LINE(S): Schedule LD
DATE: September 5, 2002
Question: When calculating high loan-to-value on a junior lien that
has credit life or accident insurance, should I include the premium of the
policy in the loan principal amount?
Answer: Yes. The life insurance is part of the recorded investment in
the loan and should be included in calculating LTV.
[TOP]
Q&A No. 181
SUBJECT: Loan Commitments
LINE(S): Schedule CC
DATE: September 5, 2002
Question: We have some confusion regarding whether the balance
reported as commitments should contain the total loan commitments made to
customers as of the reporting date, or if the balance should be reduced by an
estimated "fall out" percentage of the loan commitments.
For example, if we have $20 million in outstanding loan commitments and we
project a fall out balance of $5 million, should we report the total $20
million, or should we report $15 million on line CC280?
Answer: You should report the entire $20 million on CC280 because that
is your commitment. The $15 million is a projection.
[TOP]
Q&A No. 182
SUBJECT: Retirement Accounts
LINE(S): SI210, IRA/Keogh Accounts
DATE: September 5, 2002
Question: Should SEP and SIM accounts should be included in Line
SI210, IRA & KEOGH Deposits?
Answer: Yes, you should include SEP and SIM accounts in SI210. The only
retirement accounts we would not want included are 401K accounts and similar
plans.
[TOP]
Q&A No. 184
SUBJECT: Trust Preferred Securities
LINE(S): HC520 and HC530
DATE: September 5, 2002
Question: Are Trust Preferred Securities that are reported as
Liabilities on HC 300 also included on lines HC520 and HC530 as debt?
Answer: Yes. Trust Preferred Securities, along with other
"mezzanine" type securities such as convertible debt securities and
redeemable preferred stock should be included as debt on HC520 or HC530, as
appropriate. The dividends on these instruments should also be included on
HC560, Interest Expense for the Quarter.
[TOP]
Q&A No. 185
SUBJECT: Intangibles
LINE(S): HC510
DATE: September 5, 2002
Question: I am looking for clarification regarding Schedule HC line
510. The instructions state to include intangible assets and includes as items
#6 and #7 computer software costs and loan servicing contracts. The
instructions further state that these examples of intangible assets are taken
from FASB Statement No. 141. I am unable to find a reference to them in FASB
Statement No. 141. Could you please supply a reference?
Answer: You can find the reference in FASB Statement No. 141, Appendix
A, paragraph number A14, "Examples of Intangible Assets that Meet the
Criteria for Recognition [as Intangible Assets] Apart from Goodwill." Item
d.(8) is "Servicing contracts such as mortgage servicing contracts"
and item e.(2) is "Computer software and mask works." Paragraph A23
further defines contract-based intangible assets, and paragraph A26 defines
computer software and mask works.
[TOP]
Q&A No. 187
SUBJECT: Offsetting Commitments to Sell and Purchase Securities
LINE(S): Schedule CCR
DATE: September 5, 2002
Question: May firm commitments to sell and to purchase
mortgage-backed securities be offset prior to on-balance-sheet conversion?
Answer: There is no specific provision in our capital rule allowing for
offset of sales and purchases in this circumstance. It would have to be
reviewed on a case-by-case basis by your OTS examiner. However, as with
bilateral netting of contracts, the commitments on both sides would have to be
with the same counter party, probably with some type of netting contract in
place, with the same type of security on both sides of the transaction, and the
transaction differing only in amount where one side could be subtracted from
the other.
[TOP]
Q&A No. 188
SUBJECT: CMO Risk Weighting
LINE(S): Schedule CCR
DATE: September 5, 2002
Question: If a private CMO as well as a Fannie Mae or Freddie Mac CMO
were AAA rated, would it qualify for 20% risk weighting? Are there any
circumstances (other than stripped CMOs and MBS's with recourse) whereby a AAA
CMO would not qualify for 20% risk weighting?
Answer: For a private-issue CMO to receive 20% risk weight, it must meet
the criteria for 20% risk weight under the ratings-based approach in 12 CFR
567.6(b)(3). Refer to the rule for the specific criteria. In general, the criteria
will depend upon whether the CMO is a traded CMO or a nontraded
CMO.
· A traded CMO must have a long-term rating by a nationally recognized
statistical rating organization (NRSRO) in the highest or second highest
investment grade. If rated by two or more NRSROs, you must use the lower
rating; and no NRSRO may have rated the CMO worse than one grade below
investment grade.
· A nontraded CMO must be rated by more than
one NRSRO, and the lower rating must be used. Again, it must be in the highest
or second highest investment grade. No NRSRO may have rated the CMO worse than
one grade below investment grade.
Refer to the rule for additional criteria.
A Fannie Mae or Freddie Mac CMO would typically be 20% risk weight. There are
some exceptions. For example, Fannie and Freddie POs and IOs that are not
credit enhancing are risk weighted at 100%. If a Fannie or Freddie CMO were
found to, in substance, have IO or PO characteristics, even though not a pure
IO or PO, you could also use the 100% risk weight category.
Furthermore, whether a GSE-issued CMO, or a private-issued CMO, OTS reserves
the right to look to the substance of the security, and require an appropriate
amount of capital for the risk, regardless of how the risk is characterized by
others.
[TOP]
Q&A No. 189
SUBJECT: Derivative Instruments and Hedges
LINE(S): Schedules SC and SO
DATE: December 10, 2002
The following information was included in the December 2000 Financial
Reporting Bulletin. We repeat it here to answer many questions we have received
concerning reporting derivatives in the TFR.
Schedule SC, Statement of Condition
· You must report all derivative instruments as defined in SFAS No. 133
either as assets or liabilities at fair value, and include them in line SC690,
"Other Assets", or line SC796, "Other Liabilities and Deferred
Income." Where derivative instruments represent one of the three largest
items comprising the total other assets or other liabilities, report them as
code 20.
· For a fair value hedge, reflect the effective portion of the
accumulated fair value gain or loss on the hedged assets or liabilities as an
adjustment to the carrying amount of the hedged assets or liabilities. Most
interest-rate sensitive assets and liabilities are "eligible" for a
qualifying fair value hedge, including loans, securities, servicing assets,
deposits, FHLB advances, and other borrowings.
· For a cash flow hedge, the effective portion of the accumulated fair
value gain or loss on the derivative instruments is considered
"accumulated other comprehensive income (loss)", which is reported on
SC890, "Other components of equity capital".
Schedule SO, Statement of Operations
Report all changes in the fair value of derivative instruments not reflected in
the second and third items above, including the ineffective portion of the fair
value gain or loss related to fair value and cash flow hedges, as either income
or expense. OTS has not taken a position as to where on the income statement
such amounts should be reported; that is, as interest income or expense, or
noninterest income or expense. Report such amounts on the TFR in a manner
consistent with that reflected in the institution's audited financial
statements.
[TOP]
Q&A No. 191
SUBJECT: Loans Sold with Recourse - 120 Day Limited Recourse
LINE(S): CC455, CC468
DATE: December 10, 2002
Question: When we report our loans sold with recourse balance on
Schedule CC, should it be adjusted by loans that meet the 120-day exception
rule? On Schedule CCR, we can deduct loans that meet the 120-day exception from
our loans sold with recourse total.
Answer: No, you cannot reduce loans sold with recourse reported on CC455
by loans for which recourse is limited to 120 days. You should report all
recourse in effect as of the end of the quarter in Schedule CC including
recourse that is for a limited period. The definition of recourse on Schedule
CC does not follow the capital rules. If an institution has recourse liability
at the date of the report, they should report the amount of recourse in CC468
and the total amount of the principal on CC455, regardless of how long the
recourse lasts.
[TOP]
Q&A No. 194
SUBJECT: LTV - Other Credit Enhancement
LINE(S): CCR460
DATE: December 10, 2002
Question: In the TFR instruction manual for 50% risk weight, for
CCR460, it states "report the carrying value...if such loans meet all of
the following criteria". Our question concerns 3b: "The extension of
credit is insured to at least a 90 percent LTV by private mortgage insurance,
or there is other appropriate credit enhancement to bring the effective LTV
down to 90 percent or less." Could you please clarify the meaning of
"other appropriate credit enhancement" and if possible include some
examples?
Answer: The answer to this question may be found in the preamble to the
new regulation that raised from 80% to 90% the LTV to get the lower risk weight
of 50%. That preamble was published in the Federal Register on May 10, 2002. In
pertinent part it says appropriate credit enhancements include PMI and
"readily marketable collateral." That term is defined in a footnote
as "insured deposits, financial instruments, and bullion in which the
lender has a perfected security interest...salable under ordinary circumstances
with reasonable promptness at a fair market value...appropriate(ly) discounted".
First key point: None of this is new. It is only reiterated now because
we raised the LTV, but it has existed in the Real Estate Lending Guidelines for
years (12 CFR 560.101).
Second key point: The overwhelming credit enhancement of choice, because
of its acceptance and ease of use, will still be traditional PMI. Any other of
these more esoteric credit enhancements will need to pass supervisory muster.
[TOP]
Q&A No. 195
SUBJECT: Best Effort Commitment
LINE(S): CMR Optional Commitments
DATE: December 10, 2002
Question: Do our best effort commitments, which are commitments to sell
the loan at a fixed rate, fixed price, if and only if the loan closes, meet the
definition of an optional commitment to sell loans? And thus, should they be
included in Schedule CMR, Optional Commitments to Purchase or Sell MBS?
Answer: Yes, the best effort commitments should be reported as optional
commitments. The time for expiry (maturity) should be based on the expected
time for closing based on your best guess, and the reported notional amount
should be based on your best guess as to the percentage of commitments that
normally close.
[TOP]
Q&A No. 196
SUBJECT: Commercial Line of Credit Secured by Real Estate
LINE(S): SC260, SC300
DATE: March 14, 2003
Question: We have a new product, which is a business revolving line
of credit fully secured by nonresidential real estate. The line of credit is
underwritten as a mortgage loan meeting the requirements of a fully secured
mortgage loan.
Should we report this loan on SC260, Nonresidential Mortgage Loan? Or can we
elect either SC260 or SC300, Secured Commercial Loan.
Answer: If you have underwritten the loan as a mortgage; that is with an
appraisal or evaluation and the LTV when combined with any more senior liens
the line of credit can never exceed 100% LTV, you should report it as a
nonresidential mortgage loan on SC260. Otherwise the loan should be reported on
SC300.
[TOP]
Q&A No. 197
SUBJECT: Renovation Loans
LINE(S): SC254, SC255
DATE: Revised June 12, 2007
Question: Should the following loan be classified as a
permanent loan or a construction loan? Facts: Approved a loan of $500 thousand.
Of this balance, $150 thousand will be held back and disbursed at a scheduled
time. The purpose of the holdback is to make substantial improvements to the
property. The payment terms of the loan are interest-only for 24 months, after
which time, the entire loan balance is due.
Based on our review of the TFR Instruction Manual, Schedule SC, SC 230,
loans to be reported as construction loans include:
Combination construction-permanent loans on 1-4 dwelling units until
construction is completed or principal amortization payments begin, whichever
comes first.
Our interpretation of this guidance is that renovation/rehabilitation does
not constitute construction. Is this correct?
Answer: You are correct. Because this is an occupied, existing building,
you should classify the loan as a permanent, single-family mortgage, reported
on SC254 or SC255, depending upon whether the loan is a first lien or a junior
lien. However, if the estimated cost of repairs exceeded the purchase price, we
would have to reevaluate our answer on a case-by-case basis.
[TOP]
Q&A No. 198
SUBJECT: Charge-Offs on Credit-Card Receivables
LINE(S): VA145, VA155, Va580
DATE: March 14, 2003
Question: During the most recent quarter, we wrote off $1,000 in
uncollectable credit card receivables. This amount consisted of $700 in principal
and $300 of capitalized finance charges and fees. Therefore, consistent with
our accounting policy, 1) the $700 write-off of principal is reported on VA580,
Charge-offs of Credit Cards, and 2) interest income on line SO170 has been
reduced by $300. Is this correct?
Answer: You must report the full charge-off on credit-card receivables
of $1,000 on VA580. However, to permit the reconciliation of valuation
allowances to balance, you should report $300 on line VA145, Adjustments,
because the $300 reduced interest income and did not reduce valuation
allowances. As a result, the net reduction of valuation allowances included in
the reconciliation will be $700 ($1,000 - $300).
[TOP]
Q&A No. 199
SUBJECT: Acquired Troubled Debt Restructured
LINE(S): VA941-VA955
DATE: March 14, 2003
Question: Our institution acquired another institution through a
merger. One of the loans acquired from them was a performing TDR loan. At the
time of the acquisition, the loan had been performing for more than one year.
Therefore, we considered this loan as a performing loan at the time of
acquisition, not as a TDR. Is this correct?
Answer: You do not have to report acquired TDR loans as new TDR, since
you did not restructure them. However, you should report it in VA941 unless it
was restructured at a rate equal to or exceeding the market rate at the time of
restructuring and after the first year the borrower is in compliance with the
terms of the restructured contract.
[TOP]
Q&A No. 200
SUBJECT: QTL - Life Insurance
LINE(S): SI581-SI583
DATE: March 14, 2003
Question: Is the cash surrender value of life insurance policies on
senior management includable for QTL purposes.
Answer: No. The cash surrender value on life insurance policies on
senior management of an institution is not includable for QTL purposes.
[TOP]
Q&A No. 201
SUBJECT: Insider Loans - Loans to Spouses
LINE(S): SI590
DATE: March 14, 2003
Question: TFR instructions indicate that a related interest is
defined by Regulation O as either:
1. A company, other than an insured depository institution or a foreign
bank, that is controlled by an executive officer, director, or a principal
shareholder.
2. A political or campaign committee that is controlled by or the funds or
services of which will benefit an executive officer, director, or principal
shareholder.
That definition does not include relatives of an executive officer,
director, or principal shareholder. Therefore, presumably loans to executive
officers’ spouses do not need to be included with Insider Loans on the TFR. Is
this a correct interpretation or is it addressed elsewhere?
Answer: Although spouses of executive officers are not 'related
interests' under Reg O, loans to spouses may be subject
to Regulation O under the 'tangible economic benefit' rule (12 CFR 215.3(f)).
This rule states: "an extension of credit is considered to be made to an
insider to the extent that the proceeds are transferred to the insider or are
used for the tangible economic benefit of the insider." There is guidance
to when such a loan to a spouse would not be covered by 215.3(f):
1. The spouse is creditworthy;
2. The proceeds of the loan are not transferred, or used for the direct benefit
of, the executive officer; and
3. The loan is repaid from the separate income of the spouse.
This guidance is found in a Staff Opinion of the Federal Reserve dated May 23,
1980. Under the Federal Reserve Regulatory Service (FRRS), it can be found as
citation FRRS 3-1081.1
[TOP]
Q&A No. 202
SUBJECT: CMR - Rounding Remaining Maturities
LINE(S): CMR
DATE: March 14, 2003
Question: When calculating the remaining maturity for the fixed-rate,
fixed-maturity deposits section, should the remaining maturities, shown below,
be categorized as 4 to 12 months or 13 to 36 months?
Remaining maturity of 12 months 5 days??
Remaining maturity of 12 months 15 days??
Remaining maturity of 12 months 16 days??
Remaining maturity of 12 months 25 days?
Currently, if the remaining maturity is 12 months 15 days, we put it in the
13 to 36 month bucket. If the remaining maturity is 12 months 14 days, we put
it in the 4 to 12 month bucket.
Answer: You are correct. Months should be rounded based on a 30-day
month. Round down with fourteen days or less and round up with fifteen or more
days.
[TOP]
Q&A No. 203
SUBJECT: CMR - Definition of Early Withdrawal
LINE(S): Schedule CMR
DATE: March 14, 2003
Question: If we have a $10,000.00 fixed-rate, fixed-maturity CD
subject to a penalty for early withdrawal that is automatically renewable and
matured on 2-10-03 but was not redeemed until 2-15-03, would the $10,000.00 be
reported in one of fields CMR604, CMR618, CMR633 or CMR642? There was a 10 day
grace period.
Answer: You do not have to report this CD as an early withdrawal,
because it was withdrawn during the grace period and, therefore, would not be
subject to a penalty
[TOP]
Q&A No. 204
SUBJECT: CMR - Mortgage Pipeline
LINE(S): Schedule CMR - Financial Derivatives and Off-Balance-Sheet
Derivatives
DATE: March 14, 2003
Question: We have an agreement with a third party for the origination
of mortgage loans. At year-end, we will have a pipeline of approved borrowers
of $50 million in approved loans. These loans are not on our balance sheet as
of year-end.
As soon as a loan funds, we have an agreement with the third party to sell
the loan to them in two weeks at par. Therefore, we have no interest rate
exposure in the transaction as the funding price and subsequent loan sale
price are identical (par). The third party is exposed to interest rate changes
between the origination commitment date through to the loan resale date. We
earn a fee for each loan that funds. This fee is not impacted in any way by
changing interest rates.
Must we report firm commitments to originate mortgages and a commitment to
sell the same mortgages?
Answer: No you do not have to report the commitments to originate and
commitments to sell the same mortgages, provided you never have any interest
rate risk exposure associated with those loans.
[TOP]
Q&A No. 205
SUBJECT: Mortgages with Additional Collateral
LINE(S): SC260
DATE: June 6, 2003
Question: How would you report (on schedule SC) a loan secured by a
nonresidential (doctor’s office) property, when the LTV is 105% with real
estate only and a securities account is taken as additional collateral?
The instructions for the category say to only report loans fully secured by
real estate in the mortgage category. The loan is supported by an appraisal.
Answer: We consider a 105% LTV mortgage loan with sufficient additional
collateral to bring it to a 100% LTV to be "fully secured."
Therefore, you may report the entire loan as a mortgage loan.
[TOP]
Q&A No. 206
SUBJECT: Foreclosed Property During Redemption Period
LINE(S): SC415
DATE: June 6, 2003
Question: After the court has issued a foreclosure judgment, the
borrower has a certain time period in which they can reinstate the loan and pay
it off. During this redemption period, the borrower can live in the property.
Is the property is considered a "repossessed asset" for TFR
reporting at the point in time when (1) the foreclosure judgment is made (even
though the borrower can still redeem the loan), (2) after the sheriff's sale
(even though in some states the redemption period continues), or (3) after the
redemption period has expired and the bank has marketable title.
Answer: You may consider the transfer from loan to repossessed property
to occur at the time the judgment is made.
At the time the judgment is made, the bank has control of the property. The
borrower's interest in the property is contingent on their reinstating the
loan. An exception would be made if it appears likely that the borrower will
reinstate the loan. However, if that were the case, the bank would probably not
have foreclosed on it.
[TOP]
Q&A No. 207
SUBJECT: Retail Repurchase Agreements
LINE(S): SC710
DATE: June 6, 2003
Question: I would like to get your input on the classification of
retail repurchase agreements on Schedule SC. The OTS examiners are currently
reviewing our TFR. Based on Q&A no. 177, they indicate that the repos
should be reported on SC710, Deposits, if the sweep occurs after close of
business, or reported on SC730 if the sweep occurs before close of business. In
our situation, it appears that the sweep occurs after close of business and
therefore, should be reported in deposits on SC710.
However, the sweep account agreements clearly state that the funds are not
FDIC insured. Where should the retail repurchase agreements be reported? If
they were included in SC710, the repos would be included in our FDIC assessment
base.
Answer: The instructions for Schedule SC710 state that SC710 must
include ALL deposits (as further described in the instructions). The matter of
insurance coverage is a separate issue that does not impact whether or not
deposits are subject to assessment or included in your assessment base.
Insurance coverage is not necessarily dependent upon an "agreement"
with the customer; insurance coverage is determined by the Federal Deposit
Insurance Act. Therefore, the sweep account retail repurchase agreements that
you described should be reported on SC710, Deposits.
[TOP]
Q&A No. 208
SUBJECT: Mortgage Loan Commitments
LINE(S): CC280 - CC300
DATE: June 6, 2003
Question: We hold mortgage loans in our pipeline for which we have a
legally binding rate lock commitment, but the underlying loans have not yet
been approved (i.e., they are in the process of being underwritten). We were
required to report these commitments as outstanding commitments in a recent SEC
filing because of the legally binding rate lock commitment. Should these
commitments be reported on Schedule CC of the TFR as an outstanding commitment?
Answer: Generally you would not need to report these commitments in
CC280 through CC300 because the loans have not been approved.
[TOP]
Q&A No. 209
SUBJECT: Brokered Deposits
LINE(S): SI100-110
DATE: June 6, 2003 (Revised June 30, 2003)
Question: Are deposits from the following two sources considered
brokered deposits?
Source 1: The deposit broker initiates the transaction between the bank and
the customer; however, the actual transfer of the cash is direct from the
customer to the bank. Are these Brokered Deposits?
Source 2. A Consolidated sub of the Bank is a Deposit Broker. This sub
originated deposits for the Bank. Fee are paid to the Sub but eliminated
through Consolidation. Are these Brokered Deposits?
Answer: Source 1 is a brokered deposit under 12 CFR 337.6. A deposit
broker can facilitate the deposits; it doesn't matter if the customer transfers
the cash directly to the thrift rather than the broker.
Source 2 is not as clear-cut. Under the statute, an “employee” of the insured
depository institution is not a “deposit broker” (12 U.S.C.
1831f(g)(2)(B)). But an “employee” does not qualify unless he is “employed
exclusively by the insured depository institution” (12 U.S.C. 1831f(g)(4)).
Therefore, if the individual is an employee of both the subsidiary and
the thrift, then he is not an “exclusive” employee of the thrift, and any
deposits procured by him are brokered deposits. In addition, if an individual
procuring deposits were an employee of the holding company or an affiliate,
then the deposits would also be brokered deposits. For deposits not to be
considered brokered deposits, an individual acting as a deposit broker must be
exclusively employed by the thrift. Consolidation (for accounting purposes) of
a subsidiary that employs an individual acting as a deposit broker typically
does not make such an employee an "exclusive" employee of the thrift
[TOP]
Q&A No. 210
SUBJECT: QTL - Lot Loans
LINE(S): SI581-583
DATE: June 6, 2003
Question: Is a loan that is used to develop and improve land (Lot
Loans) includable as a mortgage loan for QTL purposes if the loan will, at a
later time, be converted to a mortgage loan when an additional loan is provided
to build a dwelling on the land for which the original lot loan was given.
Answer: The Thrift Activities Handbook Section 270, Qualified Thrift
Lender Status, states on page 270.3 that:
"Associations may include ADC loans in QTI without limit provided the
association is reasonably certain the property will become domestic residential
housing. Moreover, to count as QTI, an ADC loan must meet at least one
of the following criteria:
· The loan is for property zoned exclusively for residential use.
· The loan is for property zoned to permit residential use and there are
restrictions in the deed to the property that limit its use to primarily
residential dwellings.
· The borrower will construct dwelling immediately on nearly all the
residentially zoned property."
[TOP]
Q&A No. 211
SUBJECT: QTL - Marketable Equity Securities
LINE(S): SI581-583
DATE: June 6, 2003
Question: Are there any restrictions for counting marketable
securities as liquid assets?
Answer: You may consider any marketable security as a liquid asset for
QTL purposes. A security is marketable if it may be sold with reasonable promptness
at a price that corresponds reasonably to its fair value.
[TOP]
Q&A No. 213
SUBJECT: Federal Farm Credit Bank Bonds (FFCB)
LINE(S): Schedule CCR
DATE: June 6, 2003
Question: We recently purchased Federal Farm Credit Bank Bonds
(FFCB). Should we risk weight these bonds at 100%?
Answer: You may risk weight Federal Farm Credit Bank Bonds at 20%
because the Federal Farm Credit Bank is a government-sponsored enterprise.
[TOP]
Q&A No. 214
SUBJECT: Callable Multifamily and Nonresidential Mortgage Loans
LINE(S): CMR281
DATE: June 6, 2003
Question: The CMR instructions are clear for Single-Family first
mortgage loans that are callable. They should be included in CMR096-CMR120
(Balloon Mortgages and MBS). How should multifamily and nonresidential mortgage
loans that are callable be handled? Should they be reported on CMR 281 (Balloon
Mortgage)?
Answer: Yes, we concur that callable multifamily and nonresidential
mortgage loans should be reported as balloon loans on CMR281.
[TOP]
Q&A No. 216
SUBJECT: Intangible Pension Asset
LINE(S): SC660
DATE: September 4, 2003
Question: Per FASB 87, "Employer's Accounting for
Pensions," we have recognized on our balance sheet an intangible asset and
accumulated other comprensive income.
Should we report the intangible asset on SC 660, "Goodwill and Other Intangible
Assets?"
Answer: Yes, you should report this intangible asset on SC660.
[TOP]
Q&A No. 217
SUBJECT: 90% LTV
LINE(S): Schedules LD and CCR
DATE: September 4, 2003
Question: Why does LD require the reporting of loans 90% and above and
CCR460 require 100% risk weighting of mortgages on single-family dwellings with
an LTV higher than 90%? If LTV equals 90%, then the institution must classify
the loan on LD. However, the same loan would escape 100% risk-weight on CCR.
CCR provides a capital treatment differing from the treatment on schedule LD.
Answer: Any difference between the treatment in LD and CCR in almost all
cases should be immaterial. The requirements are comparable except for an LTV
of exactly 90%, which may occur at origination, but would be exactly at 90% LTV
only until the first payment is received, and then, unless it negatively
amortizes, it will be lower than 90%. Consequently, the instructions for
Schedule CCR were recently re-written to include loans in the beneficial 50%
risk weight up to and including 90%.
[TOP]
Q&A No. 218
SUBJECT: Lines of Credit on Nonresidential Property
LINE(S): CC300/CC420
DATE: September 4, 2003
Question: Should we report all unused line of credits on CC420,"
Commercial Lines" regardless of where the funded loan is reported on Schedule
SC? We have a commitment to fund a revolving line of credit on a mortgage loan
on nonresidential property, reported on line SC260. During the quarter we
disbursed amounts to the borrower, which I will report on line CF260, Mortgage
Loans Disbursed: Nonresidential. Should I report the remaining commitment to
fund the revolving line of credit on line CC420?
Answer: You are correct to report the disbursements on CF260; however,
you should report the unused line on CC300, Mortgage commitments on All Other
Real Estate. CC420 contains lines of credit on commercial loans that are not
secured by real estate.
[TOP]
Q&A No. 219
SUBJECT: Sub S Corp Dividends
LINE(S): SI630
DATE: September 4, 2003
Question: I have a Subchapter S corporation that reports it's distributions
to stockholders on SI670 Other Adjustments to Equity. Their rationale is that
the IRS defines these distributions as "distributions" rather than
"dividends". Therefore, they do not believe the distributions fit the
definition of cash dividends to be reported on line SI 630.
Answer: For regulatory reporting purposes distributions from a Sub S
Corporation are considered dividends and should be reported on SI630.
[TOP]
Q&A No. 220
SUBJECT: Reducing Low Level Recourse By Contingent Liability
LINE(S): CCR375
DATE: September 4, 2003
Question: We sell loans to FannieMae under
an arrangement whereby we retain limited recourse of 4%. At the time of sale,
based on our historical loss experience, we record a liability of 0.35% for
this off balance sheet credit exposure. For purposes of the regulatory capital
deduction for low-level recourse on line CCR375, may we reduce the limited
recourse of 4% by the recorded liability of 0.35%?
Answer: Yes, assuming no other relevant facts. Note that capital before
the deduction for low level recourse has already been reduced for the recorded
liability.
[TOP]
Q&A No. 221
SUBJECT: CD Maturity on a Nonbusiness Day
LINE(S): CMR
DATE: September 4, 2003
Question: The last calendar day of a quarter falls on a Saturday or
Sunday, and the last business day is Friday. Would an 18 month fixed-rate,
fixed-maturity CD that is automatically renewable and matures on the last day
of the quarter, be reported in the 13 to 36 Original Maturity In Months column
and on the line for Balances Maturing in 13 to 36 months rather than the line
for Balances Maturing in 3 Months or Less?
Answer: You should treat the CD as if it rolled over on Friday, the last
business day of the quarter, and automatically renewed. Therefore, it would
have an 18-month maturity.
[TOP]
Q&A No. 222
SUBJECT: Construction/Permanent Loans
LINE(S): CMR
DATE: September 4, 2003
Question: Could you please tell me if I am reporting the following
loan correctly on schedule CMR? Assume the following loan:
A construction/permanent loan on a multi-family residential building having
a commitment of $1,000,000. The loan has a 1 year construction period and then
rolls to a 30 year permanent loan. The loan has a known fixed rate for the
first three years and then will become a variable rate loan thereafter. The
loan has a prepayment penalty if paid off within the fixed rate period. At
quarter end, $600,000 has been disbursed and $400,000 remains in LIP.
Reported on CMR as:
$600,000 is reported on line CMR 262 (MFR - fully amortizing - adjustable
rate loan)
$400,000 is reported on CMR 802 (Off B/S - firm commitment to originate ARM
loan).
Answer: The suggested reporting is incorrect. Instead, this
construction/permanent multifamily loan should be reported on CMR as follows:
(1) The disbursed part ($600,000) should be reported as fixed-rate Construction
Loan in CMR292 with WARM of 12 months,
(2) The undisbursed part ($400,000) should be reported as Construction LIP in
OBS part of CMR using code 9502 with WAM less than one year since construction
phase is partially completed, and
(3) The permanent commitment should be reported as a firm commitment to
originate a $1,000,000 mortgage using contract code 2216 in OBS part.
[TOP]
Q&A No. 223
SUBJECT: Zero Coupon State/Municipal Bonds
LINE(S): Schedule CMR
DATE: September 4, 2003
Question: Are zero coupon state/municipal bonds that do not feature a
call option reported in schedule CMR on lines 479-481 with the other municipal
bonds or are they reported lines 470-472 under zero coupon securities?
Answer: You should report them as zero coupon securities.
[TOP]
Q&A No. 224
SUBJECT: INTERCOMPANY RECEIVABLES/PAYABLES
LINE(S): Schedule SC
DATE: December 5, 2003
Question: We have placements to other entities within our holding
company corporate structure. We have reported these intercompany borrowings in
SC760 as Other Borrowings. This quarter our intercompany account is a
receivable. Should we report this receivable as a negative amount in Other
Borrowings or reclassify it to Other Assets? that do not feature a call option
reported in schedule CMR on lines 479-481 with the other municipal bonds or are
they reported lines 470-472 under zero coupon securities?
Answer: If the account is a non-interest-bearing receivable from the
holding company or affiliates, it should be reported in Other Assets (SC690)
using code 13. Non-interest-bearing payables to the holding company or
affiliates are reported in Other Liabilities (SC796) using code 17.
However, interest-bearing receivables should be reported in Commercial Loans
(SC303) and interest-bearing payables should be reported in Other Borrowings
(SC760).
[TOP]
Q&A No. 225
SUBJECT: COMPUTER SOFTWARE
LINE(S): SC660 and SO560, Goodwill and Other Intangibles
DATE: December 5, 2003
Question: We have purchased computer software that is included with
fixed assets and is included in our depreciation schedule. Should we report the
purchased computer software on line SC55, “Office Premises and Equipment, or on
line SC660, ”Goodwill and Other Intangible Assets”? Also, where should we
report its depreciation or amortization?
Answer: Pursuant to FASB Statement No. 141, computer software is a
technology-based intangible asset. Accordingly, you should report computer
software on line SC660. In addition, you should report the amortization of
computer software on line SO560, “Goodwill and Other Intangibles Expense”.
[TOP]
Q&A No. 227
SUBJECT: Including Subsidiary in Schedule FS
LINE(S): Schedule FS
DATE: December 5, 2003
Question: We have a majority-owned subsidiary of our Bank that
provides investment advisory services (for a fee) for customers. The subsidiary
does not have trust powers or custody of the assets. They strictly provided
investment advice. In Schedule FS, do we need to report the fiduciary assets of
this investment advisory subsidiary or do we just report the fiduciary assets
related to the segment of our Trust Department that has trust powers and
custody of the assets.
Answer: You should include the fiduciary related assets and the
fiduciary related fee income of the subsidiary that renders investment advice
for a fee in Schedule FS. Schedule FS is completed on a consolidated basis.
Therefore, fiduciary or related services of a GAAP consolidated subsidiary
should be reported.
[TOP]
Q&A No. 228
SUBJECT: Farm Services Agency (FSA) Guaranteed Loan
LINE(S): Schedule CCR
DATE: December 5, 2003
Question: A thrift purchases a participation interest in the
guaranteed portion of a Farm Services Agency (FSA) guaranteed loan. What is the
proper risk weighting?
Answer: The Farm Services Agency is a federal agency under the United
States Department of Agriculture. Since it provides conditional guarantees on
various types of agricultural related loans, the 20% risk weighting is
appropriate. However, this 20% is dependent on the thrift owning a
participation interest in only the guaranteed portion of an FSA loan.
The FSA is authorized to provide loan guarantees of up to 95% of the principal
amount of various agricultural related loans. However, the FSA encourages a
secondary market in the guaranteed portions of such loans, noting “The
existence of the secondary market makes guaranteed loans more liquid. By
reselling the guaranteed portion, lenders reduce interest rate exposure,
increase their lending capabilities, and generate fees.” As long as the thrift
purchases only an interest in the guaranteed portion of such loans, the 20%
risk weighting is appropriate.
However, if the thrift purchases whole loans, only the guaranteed portion of
the loans would qualify for the 20% risk weighting.
[TOP]
Q&A No. 229
SUBJECT: Arms At Their Floor
LINE(S): Schedule CMR
DATE: December 5, 2003
Question: Our home equity loans are tied to prime rate, but have a
floor of 6%. These loans are at their floor rate (6%), and have been for
sometime. The instructions tell us to report ARMs with coupons that are
currently at their lifetime caps, as fixed rate mortgages. Does the same hold
true for ARMs at their floor?
Answer: Yes, they should be reported as fixed rate, 2nd mortgage loans,
if the loans will remain at their 6% floor even after a 200 basis point upward
shock. Should rates rise considerably in the future, the loans should once
again be reported as ARMs.
[TOP]
Q&A No. 230
SUBJECT: TFR Posting Schedule on FDIC Web Site
LINE(S):N/A
DATE: March 1, 2004
Question: What is the estimated turnaround time between the date of
submission of the TFR and when it is posted on the FDIC website?
Answer: The first TFRs are posted on the FDIC web site the Friday
following the tenth day after the due date (40th days after the report date).
TFRs must pass all OTS Preliminary Edits prior to posting. The data is updated
every week, and new TFRs passing all preliminary edits are added. TFRs for the
prior quarter are updated twice in the quarter, approximately 125 and 150 days
after its report date. A final TFR is last updated approximately 150 days after
its report date.
[TOP]
Q&A No. 231
SUBJECT: Sallie Mae Pass-Through Securities
LINE(S):SC182
DATE: March 1, 2004
Question: We have two types of Sallie Mae investments. One type is a
Sallie Mae corporate bond, which, as a nonmortgage debt instrument, clearly
would be reported on SC130, U.S. Government, Agency, and Sponsored Enterprise
Securities. The other type is a Sallie Mae pass-through security,
collateralized by the underlying student loans. Since this second type is not
actually a debt instrument, would we report the investment on SC182, Securities
Backed by Nonmortgage Loans?
Answer: Yes. Report Sallie Mae pass-through securities on SC182,
Securities Backed by Nonmortgage Loans. In Schedule CMR Sallie Mae pass-
through securities should be reported as nonmortgage loans and in Supplemental
Reporting using code 182, Education Loans.
[TOP]
Q&A No. 232
SUBJECT: Flexible Spending Accounts
LINE(S):SC712
DATE: March 1, 2004
Question: Our bank is offering a flexible spending account (FSA) in the
Medical portion of its benefits plan. These funds will be held in a general
ledger account. As the administrator disburses funds for the FSA
reimbursements, we will transfer amounts to cover them to the internal checking
account that is being utilized by the administrator. Prior to transfer to the
checking account, we hold the funds withheld from the employee, which will
eventually be paid to the administrator. Where should we report these on the
TFR?
Answer: The funds withheld from employees for flexible spending accounts
should be reported with other employee withholdings in Escrows on SC712.
[TOP]
Q&A No. 233
SUBJECT: FHLB Advance Prepayment Penalties
LINE(S):SC720, SO230, and SO580
DATE: March 1, 2004
Question: How should we report prepayment penalties on FHLB advances?
Should we always report these penalties as an expense? Are there any
circumstances under which we should capitalize the penalties and amortize them
as a yield adjustment
Answer: Generally, prepayment penalties will be expensed as part of the
cost of extinguishing the original FHLB advance. This is true even when there
is an exchange of one advance for another if the new terms are substantially
different from those of the original advance. In some limited circumstances,
the penalty may be deferred and amortized if the modification of terms is relatively
minor, although this is less common. In the reporting of FHLB advance
prepayment penalties, an institution must follow GAAP, including EITF Issue No.
96-19, Debtor's Accounting for a Modification or Exchange of Debt Instruments.
Under this consensus, the accounting treatment for prepayment penalties in the
situation where a new advance replaces an existing advance depends on whether
the change is considered a:
1. Prepayment of a FHLB Advance (Exchange of Debt):
· Description: A more substantive change that is viewed for accounting
purposes as the extinguishment of the existing debt and the creation of new
debt.
· Accounting: The penalty is immediately expensed as a cost of the
extinguishment of the original FHLB advance.
· TFR Reporting: The penalty should be taken as an immediate charge to
SO580, Other Noninterest Expense.
-or-
2. Modification of an existing FHLB Advance:
· Description:A minor modification to the
existing debt
· Accounting: The penalty is deferred and treated as a yield adjustment
to be recognized over the remaining life of the modified advance.
· TFR Reporting:
o Schedule SC - The unamortized deferred penalty is netted against the par
amount of the advance and reported in SC720, Borrowings: Advances from FHLBank.
o Schedule SO - The penalty should be amortized using the level yield method
over the remaining term of the replacement advance by periodic charges to
SO230, Interest Expense: Advances from FHLBank.
A new advance is considered substantially different from the original advance
if the present value of the cash flows under the terms of the new advance is at
least 10 percent different from the present value of the remaining cash
flows under the terms of the original advance. The discount rate to be used to
calculate the present value of the cash flows for both the new and original
advance is the effective interest rate, for accounting purposes, of the
original advance. EITF 96-19 gives additional guidance to be used in the
present value calculations for purposes of applying the 10 percent test.
Thus, if the difference in the present value of the new and original advance is
10 percent or more, the transaction is viewed as the extinguishment of the
original advance with the prepayment penalty included in determining the loss
on extinguishment (i.e., immediate charge). If the difference in present values
is less than 10 percent, the penalty is amortized as an adjustment of interest
expense over the remaining term of the replacement or modified advance.
The above Q&A summarizes the accounting for FHLB prepayment penalties.
We recommend you fully review the GAAP literature (including EITF 96-19) and
consult with your external auditors. Your OTS Regional Accountant may also be
contacted for additional assistance.The above Q&A
summarizes the accounting for FHLB prepayment penalties. We recommend you fully
review the GAAP literature (including EITF 96-19) and consult with your
external auditors. Your OTS Regional Accountant may also be contacted for
additional assistance.
[TOP]
Q&A No. 234
SUBJECT: Internet Deposit Listings-Brokered Deposits
LINE(S):DI100
DATE: March 1, 2004
Question: A company operates a website at which our institution posts
interest rates on CDs. In order to post our rates, we must pay a subscription
fee. Are deposits obtained through this web site brokered deposits?
Answer: A paid posting on an Internet website is equivalent to a paid
advertisement in a newspaper. Whether the Internet company should be classified
as a deposit broker depends upon (1) whether the company provides assistance to
the depositor in placing the deposit or communicating with the depository
institution; or (2) whether the company charges a fee based upon the number or
volume of deposits placed at the depository institution.
A listing service is not a deposit broker if the following requirements
are satisfied:
1. The person or entity providing the listing service is compensated solely by
means of subscription fees (i.e., the fees paid by subscribers as payment for
their opportunity to see the rates gathered by the listing service) and/or
listing fees (i.e., the fees paid by depository institutions as payment for
their opportunity to list or post their rates). Further, the listing service
does not require a depository institution to pay for other services offered by
the listing service or its affiliates as a condition precedent to being listed.
2. The fees paid by depository institutions are flat fees; they are not
calculated on the basis of the number or dollar amount of deposits accepted by
the depository institution as a result of the listing or posting of the
depository institution's rates.
3. In exchange for these fees, the listing service performs no service except
the gathering and transmission of information concerning the availability of
deposits. This information may include an insured depository institution's
name, address (including e-mail address), telephone number and interest rates.
Except for providing this information, the listing service does not serve as a
liaison between depositors and depository institutions. For example, the
listing service does not pass information about a depositor (or potential
depositor) to a depository institution.
4. The listing service is not involved in placing deposits or confirming the
placement of deposits. Any funds to be invested in deposit accounts are remitted
directly by the depositor to the insured depository institution and not,
directly or indirectly, by or through the listing service.
[TOP]
Q&A No. 235
SUBJECT: Liabilities for Credit Losses for Off-Balance-Sheet Exposures
LINE(S):Schedule CCR
DATE: March 1, 2004
Question: On Schedule SC, we report a liability of $70,000 (on line
SC796) for credit losses associated with off-balance-sheet exposures. It is
comprised of $50,000 associated with letters of credit and $20,000 associated
with sales of loans with recourse. May some of the $70,000 potentially be
included in Tier 2 capital, as part of the allowance for loan and lease losses
(ALLL) reported on CCR350?
Answer: Yes. For Tier 2 capital purposes, you may potentially report
ALLL on CCR350 up to $50,000 - the amount associated with letters of credit.
You may not include any portion of the liability related to transfers of loans
or other assets reported as sales with recourse. In addition, the amount you
ultimately report on CCR350 is limited to 1.25% of gross risk-weighted assets.
[TOP]
Q&A No. 236
SUBJECT: Excess Alll
LINE(S):Schedule CCR
DATE: March 1, 2004
Question: On Schedule SC, our allowance for loan and lease losses (ALLL)
of $150,000 is comprised of $100,000 associated with mortgage and nonmortgage
loans on SC283 and SC357 and $50,000 associated with letters of credit on
SC796. However we include only $90,000 of the total ALLL in Tier 2 capital on
SC350, as this amount represents 1.25% of our risk-weighted assets reported on
CCR75. Therefore may we reduce our risk-weighted assets by $60,000 ($150,000
less $90,000) by reporting this amount as excess ALLL on CCR530?
Answer: No. You may report excess ALLL on CCR530 of only $10,000
($100,000 less $90,000). Excess ALLL may include only those amounts
appropriately reported as contra-assets on SC283 and SC357. Therefore, CCR530
may not include an amount reported as a liability on SC796. You have excess
ALLL to report on CCR530 only if the amounts on SC283 and SC357, combined,
exceed the amount reported on CCR350.
In addition to the facts you provided, assume the following: Tier 1 capital of
$800,000 and subtotal risk-weighted assets of $7,200,000. The table below shows
the relevant computations.
First, you compute includable ALLL of $90,000 ($7,200,000 times 1.25%). Second,
you compute total risk-based capital of $890,000 ($800,000 plus $90,000).
Third, you compute excess ALLL of $10,000 ($100,000 less $90,000). Note that
includable ALLL of $90,000 is less than the $100,000 of ALLL associated with
loans; that is, the ALLL reported as contra-assets. Fourth, you compute
risk-weighted assets total of $7,190,000 ($7,200,000 less $10,000).
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Q&A No. 237
SUBJECT: Boli Investment Limitation, Definition of
Total Capital
LINE(S):CCR39, SC615, and SC625
DATE: March 1, 2004
Question: OTS Regulatory Bulletin 32-26 states that savings associations
may not invest more than 25 percent of their total capital in bank-owned life
insurance (BOLI). Is total capital the same as Total Risk-based Capital?
Answer: Yes. Total capital is the same as Total Risk-based Capital. Use
the amount that you report on Schedule CCR39, Total Risk-based Capital. Follow
the TFR Instructions for Schedule CCR to calculate the amount on CCR39, which
(as indicated in the instructions) is net of any deductions you make on Lines
CCR370 and CCR375.
In summary:
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[TOP]
Q&A No. 238
SUBJECT: Risk-Weighting Available-for-Sale Equity Securities with Unrealizes Losses
LINE(S):CCR506
DATE: March 1, 2004
Question: On SC860 we report net unrealized losses (after deducting
unrealized gains and adjusting for taxes) on available-for-sale equity
securities. How should we risk-weight these securities, since we cannot add
back the net loss on CCR180 or CCR302?
Answer: If these equity securities are permissible for savings
associations and therefore qualify to be risk-weighted at 100%, report on
CCR506 the fair value (rather than the cost) of these securities.
[TOP]
Q&A No. 240
SUBJECT: Revolving Lines Of Credit – As Refinancings
LINE(S):CF361
DATE: June 4, 2004
Question: We have revolving lines of credit secured by 1-4 dwellings
and some secured by commercial property that expire in one year. If we renew
these lines with the same terms at the end of the one-year expiration period,
must we report them as refinancings on CF361? We
continue these loans with the same loan number.
Answer: Yes. If the term of a loan is extended, the loan is modified and
should be reported as a refinancing on CF361.
[TOP]
Q&A No. 241
SUBJECT: Lines Of Credit To A Service Corporation
LINE(S):SI588
DATE: June 4, 2004
Question: Must a savings association report on SI588 available lines
of credit that the association has granted to its service corporation? While
these are not loan balances outstanding currently, they may become outstanding
balances in the future if drawn upon by the service corporation.
Answer: No. If the line of credit is unfunded or it is not otherwise
recognized as a balance sheet asset, then the savings association is not required
to include the amount of the line for purposes of calculating its aggregate
investment (both debt and equity) in service corporations. Therefore, the
association is not required to report the line of credit on SI588 (Aggregate
Investment in Service Corporations).
[TOP]
Q&A No. 242
SUBJECT: Transactions With An Affiliated Bank
LINE(S):SI760
DATE: June 4, 2004
Question: An institution under a bank holding company buys and sells
participations with its sister bank. Would these be reported on SI760?
Answer: No.
Under 12 CFR 223.52 (the Federal Reserve’s 23B reg),
sister bank transactions are not covered by 23B. It states that all
transactions are covered except for transactions cited under 223.41, which
cites the sister bank exception
[TOP]
Q&A No. 243
SUBJECT: Holding Company’s Dividends From Thrift Subsidiary
LINE(S):HC525
DATE: June 4, 2004
Question: Our holding company, in its parent only financial
statements, does not treat dividends from its wholly-owned thrift subsidiary as
income. Using the equity method of accounting, the holding company records the thrift
subsidiary’s net income as an increase in its investment in subsidiary (an
asset), and as equity in net income of thrift subsidiary (an item of income).
The holding company records dividends from the thrift subsidiary as an increase
in cash or intercompany receivable, and as a reduction in its investment in
subsidiary. Therefore, in the parent only column of Schedule HC, the holding
company reports zero on HC525, Reflected in Net Income for the Quarter:
Dividends: From Thrift Subsidiaries. Is this reporting correct?
Answer: No. In the parent only column of Schedule HC, your holding
company should report dividends from its thrift subsidiary on HC525. Typically,
under the equity method of accounting used for parent only financial
statements, a holding company’s equity in the net income or loss of its
subsidiaries is presented as two separate components: (1) dividends from
subsidiaries – that is, the distributed income component; and (2) equity in
undistributed income or loss of subsidiaries – the undistributed income or loss
component. Accordingly, your holding company should report on HC525 the
distributed income component of the holding company’s equity in income or loss
of its thrift subsidiary.
For example, assume that the holding company’s equity in the net income of its
thrift subsidiary is $10 million; and that dividends declared by, and received
from, the subsidiary are $3 million. The holding company’s net income on a
parent only basis reported on HC250, “Net Income for the Quarter”, would include
the $10 million. The holding company would report the $3 million on HC525. Note
that the holding company’s $7 million ($10 million - $3 million) undistributed
income component of its equity in income of the thrift subsidiary would not be
reported separately on Schedule HC.
[TOP]
Q&A No. 244
SUBJECT: Trust Preferred Securities
LINE(S):HC445/HC670
DATE: June 4, 2004
Question: Our holding company (a) has a $3 million investment in all
the common stock of an entity that issued trust preferred securities of $97 million
to third parties, and (b) has borrowed $100 million from that entity, which is
all of the proceeds from that entity’s issuance of common stock and trust
preferred securities ($3 million + $97 million). During the quarter, our
holding company incurred $2 million in interest on the borrowing (which was
equal to the dividends paid by the investee entity on the trust preferred
securities). Pursuant to FASB Interpretation No. 46 and other relevant sources
of GAAP, our holding company does not consolidate this investee entity. How
should our holding company report these amounts on Schedule HC?
Answer: We understand that, for most financial institution holding
companies, under GAAP, it is appropriate not to consolidate the investee entity
that issues trust preferred securities. Accordingly, the holding company, on
both a parent-only and a consolidated basis, reports separately: (a) its
investment in the common stock of the entity (an asset); (b) its borrowing from
the entity (a liability); and (c) its interest incurred on the borrowing (an
expense).
Your holding company should report the amounts above as follows:
1. Include its $3 million investment in the common stock of the entity on both
HC210 (for parent only) and HC600 (for consolidated), “Total Assets”.
2. Include the balance of its borrowing of $100 million on both HC220 (for
parent only) and HC610 (for consolidated), “Total Liabilities”.
3. Report the balance of its borrowing of $100 million on both HC445 (for
parent only) and HC670 (for consolidated), “Included in Total Liabilities
(Excluding Deposits): Trust Preferred Instruments”.
4. Reflect the interest of $2 million on the borrowing on both HC250 (for
parent only) and HC640 (for consolidated), “Net Income for the Quarter”.
5. Report the interest of $2 million on the borrowing on both HC545 (for parent
only) and HC710 (for consolidated), “Reflected in Net Income for the Quarter:
Interest Expense: Trust Preferred Instruments”.
[TOP]
Q&A No. 245
SUBJECT: Net Deferred Tax Assets
LINE(S):CCR133/CCR270
DATE: June 4, 2004
Question 1: We have included in other assets on SC689 a net deferred
tax asset (that is, deferred tax asset components, net of deferred tax
liability components) of $2.4 million. Is this the amount that is subject to
the regulatory capital limitation for deferred tax assets outlined in TB 56?
Answer 1: Not necessarily. The net deferred tax asset subject to the regulatory
capital limitation is not simply the amount included on SC689. Rather, that
amount should be adjusted for any additions or subtractions to the net deferred
tax asset related to intangible assets, disallowed servicing assets, disallowed
residual interests, other disallowed assets, and accumulated gains and losses
on certain available-for-sale securities and cash flow hedges included on
CCR265, CCR270, and CCR280, in computing adjusted total assets on CCR25.
For example, assume also that (1) available-for-sale (AFS) debt securities
reflect unrealized losses of $1.0 million; (2) the net deferred tax asset of
$2.4 million includes a deferred tax asset component of $0.4 million associated
with the unrealized losses on AFS securities; and (3) equity capital reflects a
reduction of $0.6 million for the unrealized losses on AFS securities of $1
million net of the associated deferred tax benefit of $0.4 million.
In this case, the net deferred tax asset subject to the regulatory capital
limitation is $2.0 million (not $2.4 million). This $2.0 million is computed as
$2.4 million less $0.4 million. The $0.4 million adjustment represents the
deferred tax asset component associated with the unrealized losses on AFS
securities of $1.0 million. You report $0.6 million on CCR180, representing the
unrealized loss on AFS debt securities. This adds the unrealized losses on AFS
securities, net of income taxes, to equity capital in computing Tier 1 (core)
capital on CCR20. You also report $0.6 million on CCR280 to compute adjusted
total assets on CCR27. The total amount included on CCR280 related to
unrealized losses on AFS securities is a net addition of $0.6 million, representing
a gross addition to AFS securities of $1.0 million for the pretax amount, net
of a subtraction from the net deferred tax asset of $0.4 million for the
associated income taxes.
Note the table as follows ($ in millions):
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Or, for example, assume instead that (1) AFS debt securities reflect unrealized
gains of $1.0 million; (2) the net deferred tax asset of $2.4 million includes
a deferred tax asset liability component of $0.4 million associated with the
unrealized gains on AFS securities; and (3) equity capital reflects an increase
of $0.6 million for the unrealized gains on AFS securities of $1 million net of
the associated deferred tax liability of $0.4 million.
In this case, the net deferred tax asset subject to the regulatory capital
limitation is $2.8 million (not $2.4 million). This $2.8 million is computed as
$2.4 million plus $0.4 million. The $0.4 million adjustment represents the
deferred tax liability component associated with the unrealized gains on AFS
securities of $1.0 million. You report $0.6 million on CCR180. This deducts the
unrealized gains on AFS securities, net of income taxes, from equity capital to
compute Tier 1 (core) capital on CCR20. You also report $0.6 million on CCR280
to compute adjusted total assets on CCR27. The total amount included on CCR280
related to unrealized gains on AFS securities is a net reduction of $0.6
million, representing a gross reduction to AFS securities of $1.0 million for
the pretax amount, net of an addition of the net deferred tax liability of $0.4
million for the associated income taxes.
Note the table as follows ($ in millions):
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As you can see, the net deferred tax asset subject to the regulatory capital limitation
depends on the additions or subtractions to the net deferred tax asset related
to various items, including accumulated gains and losses on certain AFS
securities.
Question 2: We have included in other assets on SC689 a net deferred
tax asset (that is, deferred tax asset components, net of deferred tax
liability components) of $2.4 million. As we made regulatory capital
adjustments to this amount, the net deferred tax asset subject to the
regulatory capital limitation outlined in TB 56 is $2.0 million. How do we
determine the portion of this amount that is includable in Tier 1 (core)
capital?
Answer 2: TB 56 requires you to limit the amount of net deferred assets
under FASB Statement No. 109 that may count toward regulatory capital.
Application of the limit depends on the possible sources of taxable income
available to you. In other words, there may be sources of deferred tax assets
that are not generally limited. These assets are:
· Taxes paid in prior carryback years
· Future reversals of existing taxable temporary differences.
To the extent that realization of deferred tax assets depends on an
institution’s future taxable income generally, deferred tax assets (other than
the ones listed above) are limited for regulatory capital purposes to the
lesser of:
· The amount you can realize within one year, or
· 10% of core capital
For example, with respect to the net deferred tax asset that is subject to the
limitation of $2.0 million, assume that (1) the amount that can be realized
from taxes paid in prior carryback years is $0.9
million, and (2) realization of the remaining amount of $1.1 million ($2.0
million less $0.9 million) depends on your future taxable income - all of which
can be realized within one year. Assume also that your Tier 1 (core) capital
before the deduction for disallowed deferred tax assets is $10 million.
In this example, the net deferred tax asset includable in Tier 1 (core) capital
is $1.9 million, computed as $0.9 million plus $1.0 million. The $1.0 million
is computed as the Tier 1 (core) capital subtotal of $10 million times 10%.
Note that the $0.9 million whose realization is not dependent on future taxable
income is not subject to the limit, but that the $1.1 million whose realization
is dependent on future taxable income is limited. With respect to the latter,
the amount you can realize within one year of $1.1 million exceeds the 10% of
Tier 1 (core) capital subtotal of $1.0 million, and therefore you must use the
lower $1.0 million number.
Question 3: We have included in other assets on SC689 a net deferred
tax asset (that is, deferred tax asset components, net of deferred tax
liability components) of $2.4 million. As we made regulatory capital
adjustments to this amount, the net deferred tax asset subject to the regulatory
capital limitation outlined in TB 56 is $2.0 million. In addition, we have
determined that the net deferred tax asset that is includable in Tier 1 (core)
capital) is $1.9 million. What is the amount of the deduction for disallowed
deferred tax assets that we should include on CCR133 and CCR270?
Answer 3: The amount of the deduction is $0.1 million, computed as $2.0
million less $1.9 million.
[TOP]
Q&A No. 246
SUBJECT: Interest-Only Mortgages
LINE(S): CMR Assets
DATE: August 31, 2004
Question Our institution is engaging in new lending products that
provide an interest-only payment term. This feature can be for up to 10 or 15
years and applies to fixed- and adjustable-rate 1-4 family first mortgage
loans. Principal amortizes over the remaining period (20 or 15 years,
respectively) after the interest-only term. Pre-payment of principal is at the
borrower’s option for the entire 30-year loan term. Where on Schedule CMR
should these new loan types be reported?
Answer Until further notice, these loans should be reported in CMR as if
they are amortizing loans. For example, if the loans you describe had a coupon
of 6.25%, the dollar balance should be reported in CMR003, the WARM in CMR008,
the WAC in CMR013, and any portion that is FHA/VA guaranteed in CMR018.
[TOP]
Q&A No. 247
SUBJECT: FHLB Overdrafts
LINE(S): SC760, CMR Liabilities
DATE: August 31, 2004
Question We have an overdraft at the FHLB of $575,000 and reported
this in SC760--Other Borrowed Money. Where in Schedule CMR should this amount
be reported?
Answer FHLB overdrafts should be reported in the CMR section –
“Fixed-Rate, Fixed-Maturity FHLB Advances, Other Borrowings, Redeemable
Preferred Stock, and Subordinated Debt” under the appropriate maturity and
coupon lines. For example, assuming these overdrafts have a remaining maturity
of 0 to 3 months and a coupon under 3%, the amount would be reported in CMR675
[TOP]
Q&A No. 248
SUBJECT: Bounce Protection (Overdraft Protection)
LINE(S): SC303/330/689
DATE: April 5, 2005
Question: Our thrift recently began offering checking account
customers “bounce protection” where we will honor overdrafts up to $1,000 for a
fee of $20 for each overdraft occurrence. This saves the customer merchant
overdraft fees and the hassle and embarrassment of returned checks. Should
these overdrafts be included in SC330 - “Other Loans?”
Answer: From your description, the overdrafts should be reported on the
TFR in SC689 - “Other Assets” since the overdrafts are a service to account
holders rather than a line of credit (loan) established using typical
underwriting procedures.
In general, overdraft protection extended to customers under prearranged credit
lines where you review and consider the customer’s credit history, account
history, employment, and other usual loan underwriting considerations, should
be reported in SC330 - Other Loans (if an individual) or SC303 - Unsecured
Commercial Loans. These lines are typically established through an application
submitted by the customer and have a stated rate of interest that will be
applied to the outstanding balance until repaid. Overdrafts added to a
customer’s existing line of credit - such as a credit card - should be reported
in that line item (in this example SC328 - Credit Cards) when the overdraft
occurs.
In contrast, overdraft protection offered as part of an account “package”
should be reported in SC689 - Other Assets. These account services known as
“bounce protection” or “courtesy overdrafts” among other names, are offered to
customers opening accounts with such features. No customer loan underwriting is
performed for these overdraft packages and accounts, there is no stated
interest rate, and the overdrafts are generally due immediately or in less than
30 days.
Q&A No. 249
SUBJECT: Thrift Holding Company Net Income
LINE: HC250
DATE: June 1, 2005
Question: Should I include a parent holding company's proportionate
share of any thrift institution subsidiary's quarterly net income in line
HC250?
Answer: Yes. Including the proportionate share of any subsidiary income
in line HC250 is in accordance with GAAP (APB No. 18).
[TOP]
Q&A No. 250
SUBJECT: Reporting Deposit Account Sweeps
LINE(S): SO215, DI310, DI320, DI610, SI890, CMR Deposits
DATE: August 8, 2005
Question: How should sweep accounts be reported between transaction
accounts and savings accounts? Should Schedule DI match Form FR2900 for these
accounts?
Answer: Sweep account reporting should generally reflect the position of
the swept funds at the end of the reporting period. Funds swept into a savings
account should be reported as savings accounts. This reporting matches that of
the Federal Reserve Form 2900 -"Report of Transaction Accounts, Other
Deposits and Vault Cash." Schedule DI should tie to Form 2900.
Sweep account reporting may also affect reporting for SO215 - "Interest
Expense", SI890 - "Average Interest-Earning Deposits and
Escrows", as well as reporting of CMR deposits. Deposits reported in CMR
need not match those reported in Schedule DI. For reporting swept funds in CMR,
you should generally choose the line item that best describes the type of
account from which funds are swept from an ongoing economic perspective, not an
accounting point-in-time perspective. The OTS Interest Rate Risk Model uses
different modeling assumptions for different deposit accounts in CMR.
Therefore, it is more important that CMR deposit reporting reflect overall
account behavior and characteristics while Schedule DI reflects a point-in-time
accounting of deposit balances.
[TOP]
Q&A No. 251
SUBJECT: General Valuation Allowances Associated with a Loan Portfolio Sale
LINE: VA145
DATE: July 6, 2005
Question: We recently sold the majority portion of our auto loan
portfolio for which there is a general valuation allowance associated with this
portfolio. What is the proper reporting on the VA schedule to remove the
general allowance which is no longer required?
Answer: The reduction of general valuation allowances associated with a
loan portfolio sale should be reported as a negative amount on line VA145 -
"Adjustments."
[TOP]
Q&A No. 252
SUBJECT: Commitments to Originate and Sell Mortgages Loans
LINE: SC689, SC796, CC280-300, CC330, CMR801-880, CCR506
DATE: July 6, 2005
Question: We read the May 3, 2005, Interagency Advisory on Accounting
and Reporting for Commitments to Originate and Sell Mortgage Loans. When is the
advisory effective for TFR reporting purposes?
Answer: Generally, savings associations are expected to immediately
apply the guidance in the advisory when preparing their TFRs. The advisory is
not a new requirement but rather provides additional guidance on the
application and regulatory reporting under FAS 133. It was issued to clarify
previously existing requirements. However, certain questions have been raised
about floating derivative loan commitments. Until those questions are resolved,
savings associations should follow their existing reporting policies for
floating derivative loan commitments and need not account for and report these
commitments as derivatives for TFR purposes.
The advisory can be accessed at (http://www.ots.treas.gov/docs/r.cfm?25220.pdf).
[TOP]
Q&A No. 253
SUBJECT: Reporting Financing Arrangements Under the Tobacco Transition
Payment Program
LINE: SC300, Schedule CCR
DATE: August 10, 2005
REVISED: January 3, 2006
Question: Our savings association is considering financing
arrangements with farmers in our area for which we will make a discounted
lump-sum payment in exchange for their assignment of tobacco buyout payments
from the USDA / Commodity Credit Corporation (CCC). Should we report these
arrangements in SC689--"Other Assets?"
Answer: Reporting these arrangements in TFR line SC300, "Secured
Commercial Loans", is more appropriate.
The Fair and Equitable Tobacco Reform Act, commonly referred to as the
"Tobacco Buyout," was enacted into law on October 22, 2004, as part
of the American Jobs Creation Act of 2004. This Act established the Tobacco
Transition Payment Program, which is administered by the U.S. Department of
Agriculture (USDA). Under this program, the Commodity Credit Corporation (CCC)
will make annual payments to eligible tobacco quota holders (i.e., landowners)
and tobacco producers (i.e., farmers) beginning in 2005 and ending in 2014.
The CCC will not make a lump-sum payment to an individual quota holder or
producer in lieu of annual payments. However, the statute and the rules
implementing the tobacco buyout program permit a private party, such as a bank
or savings association, to make a lump-sum payment to the quota holder or
producer in return for the right to receive one or more of the annual payments
to be made by the CCC under the buyout program. More specifically, a quota
holder or producer can obtain a lump-sum payment from a savings association or
other party by executing an "assignment" of tobacco buyout payments
or a "successor-in-interest" contract. Under both of these financing
arrangements, the consideration paid to the quota holder or producer must be
greater than or equal to the present value of the transferred annual payments
discounted at the prime rate plus two percentage points rounded to the nearest
whole number. Assignment contracts and successor-in-interest contracts become
effective only upon the approval of the CCC. The annual payments by the CCC
will be made directly to the assignee or successor party.
However, any annual payments to be made to a savings association or other party
under an assignment contract will be reduced if the quota holder or producer
owes any debt to an agency of the United States at any time over the life of
the contract, thereby exposing the assignee to credit risk. On the other hand,
on a successor-in-interest contract, a successor party obtains all rights to
the transferred payments and the annual payments cannot be reduced for any debt
owed by the quota holder or producer to an agency of the United States
subsequent to the CCC's approval of the successor-in-interest contract.
Nevertheless, the CCC will reduce any annual payments to the successor party if
the successor owes any debt to an agency of the United States. In addition, the
CCC will not issue a payment to the successor to a producer contract if the
successor is not in compliance with wetlands and highly erodible land
provisions of the USDA's regulations or is convicted of trafficking in
controlled substances.
Savings associations that enter into CCC-approved assignment contracts and
successor-in-interest contracts and make lump-sum payments to tobacco quota
holders or producers should report these financing arrangements on TFR line
SC300, "Secured Commercial Loans". The discount reflected in these
lump-sum payments should be recognized as interest income over the life of the
contract using the interest method.
For risk-based capital purposes, assignment contracts should be risk weighted
at 100 percent because of the potential exposure to payment reductions for any
debt owed by the quota holder or producer to an agency of the United States as
outlined above. Successor-in-interest contracts from producers or quota holders
are, in essence, unconditionally guaranteed by the U.S. Government and should
be risk weighted at zero percent.
[TOP]
Q&A No. 254
SUBJECT: FAS123 (R) Charges
LINE(S): SO510
DATE: December 15, 2005
Question: Where on the TFR Schedule SO should FAS123 (R) charges be
recorded?
Answer: FAS 123 (R) charges should be reported in SO510 - Personnel
Compensation and Benefits.
[TOP]
Q&A No. 255
SUBJECT: Commercial Loans
LINE(S): SC300/303/306
DATE: August 21, 2006
Question: We currently report on the TFR in Commercial Loans loans for which the ultimate collateral are single-family
liens. Are these appropriately reported as Commercial Loans?
Answer: Institutions have flexibility in categorizing loans with
characteristics of different loan types. (See OTS Regulation 12 CFR 560.31 and
OTS Thrift Bulletin TB-78a for detail on this flexibility.) Categorizing and
reporting on the TFR the described loans in SC254 "Permanent Mortgages on
1-4 Dwelling Units" is also appropriate given that 1-4 family liens are
available as collateral. Any change in TFR reporting should be discussed with
your OTS regional supervisors and you should maintain documentation supporting
the change.
[TOP]
Q&A No. 256
SUBJECT: Defined Benefit Postretirement Plans and FAS158
LINE(S): CCR20, CCR25, CCR195, CCR290, and SC870
DATE: Revised March 20, 2007
Question: How do I report FASB Statement No. 158 on Defined Benefit
Postretirement Plans?
Answer: Financial institutions that sponsor single-employer defined
benefit postretirement plans must adopt FAS158 for TFR purposes in accordance
with the standard’s effective date and transition provisions. Note that FAS158
adjustments should be reversed on Schedule CCR. Similarly, Tier 1 capital
(CCR20), total assets (CCR25), and risk-based assets should not include FAS158
adjustments.
On December 14, 2006, the OTS along with the other federal banking agencies
announced that financial institutions should exclude, on an interim basis, any
amount recorded in AOCI resulting from the adoption and application of FAS 158
from regulatory capital. This excluded amount should be reported on CCR 195
(net of applicable income taxes). For example, if the amount included in AOCI
on line SC 870 for defined benefit postretirement plans under FAS 158 is a
credit, this amount should be reported as a negative value on CCR 195. If the
amount is a debit, it should be reported as a positive value on CCR 195.
Savings associations should also “reverse” FAS158 adjustments from regulatory
tangible assets. Report on CCR 290, FAS 158 adjustments included in total
assets for defined benefit postretirement plans and any related components of
income tax assets. Do not report FAS 158 adjustment amounts on CCR290 for
defined benefit postretirement plan liabilities.
Report the results on CCR290 as follows:
When the amount on this line represents a net amount that increased assets
reported on Schedule SC, report a negative number that will deduct this amount
from total assets for regulatory capital purposes.
When the amount on this line represents a net amount that decreased assets
reported on Schedule SC, report a positive number that will add this amount
back to total assets for regulatory capital purposes.
As stated in <http://www.ots.treas.gov/docs/7/776058.html>,
FAS 158 will require, as early as December 31, 2006, a banking organization
that sponsors a single-employer defined benefit postretirement plan, such as a
pension plan or health care plan, to recognize the over funded or under funded
status of each such plan as an asset or liability on its balance sheet with
corresponding adjustments recognized in AOCI, a component of equity capital.
After a banking organization initially applies FAS 158, changes in the benefit
plan asset or liability reported on the organization’s balance sheet will be
recognized in the year in which the changes occur and will result in an
increase or decrease in AOCI.
[TOP]
Q&A No. 257
SUBJECT: FDIC One-Time Assessment Credit
LINE(S): SO580
DATE: March 20, 2007
Question: How should thrifts account for the FDIC One-Time Assessment
Credit?
Answer: The FDIC has issued insurance assessment credits to certain
institutions. These credits may be offset against future FDIC assessments
beginning in 2007. The FDIC generally invoices assessments within 90-days of
the calendar year quarter-end date. For example, an assessment invoice for
January 1, 2007 through March 31, 2007 (2007Q1) would be received in June 2007.
Institutions holding credits would accrue 2007Q1 assessment estimates net of
available credits. For example, assume the institution estimates its 2007Q1
assessment to total $10,000 and the institution holds credits in the amount of
$100,000. No assessment expense would be recorded for 2007Q1.
Assessment credit may not be recorded as assets; however, institutions selling
their credits may record income for cash received. Purchasing institutions
would record an asset in the amount paid for the credit.
Additional information related to accounting for the FDIC One-Time Assessment
Credit is available in the FDIC’s Supplemental Instructions for December 2006
Call Report posted on the FFIEC web site at the following address:
http://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200612.pdf
[TOP]
Q&A No. 258
SUBJECT: Fair Value Option Accounting
LINE(S): SO485, SI375, SI376, SI377
DATE: April 16, 2007
Question: We hold various assets and liabilities that are accounted
for at fair value with the changes in fair value reflected in current earnings,
as required or permitted (under a fair value option) by GAAP. These assets and
liabilities, and the related income and expense, are as follows:
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(1) Includes $30,000 of securities held for trading purposes; that is,
securities for which it is management’s intent to actively buy and sell to
generate profits in the short term.
(2) Fair value option elected.
How do we report these assets and liabilities and the related income and
expense in the TFR?
Answer: For balance sheet purposes, report the assets and liabilities in
the appropriate lines on Schedule SC along with other assets and liabilities
not carried at fair value. For example, report the FHLB advances of $80,000 on
line SC720, along with any other FHLB advances that you do not carry at fair
value.
In addition, report certain amounts on Schedule SI. Report the balance of
financial assets carried at fair value of $160,000 on line SI376, and report
the balance of financial liabilities carried at fair value of $90,000 on
Schedule SI377. Also, report the balance of securities held for trading
purposes of $30,000 on line SI375.
Available-for-sale securities are financial assets carried at fair value.
However for available-for-sale securities, the changes in fair value are not
reflected in current earnings, but rather in other comprehensive income.
Accordingly, do not include the balance of available-for-sale securities of
$50,000 on line SI376. Rather, report the balance on line SI385.
As you have elected a fair value option for servicing assets of $40,000, they
are assets carried at fair value with the changes in fair value reflected in
current earnings. However, servicing assets are not financial assets.
Accordingly, do not include servicing assets on Schedule SI lines SI376 and
SI377. Rather report the fees, and fair value adjustments on the servicing
assets of $800 ($300 + $500) separately on lines SO410 and SO411, as
appropriate.
Similarly available-for-sale securities are not reported on Schedule SI as
financial assets carried at fair value. Do not include the loss on
available-for-sale securities of $700 on line SO485. Rather, include the loss
on available-for-sale securities of $700 on line SI662.
For income statement purposes, report interest income (excluding interest on
nonaccrual assets), interest expense, and other income and expense amounts in
the appropriate lines on Schedule SO. For example, report the interest expense
on FHLB advances of $1,000 on Schedule SO line SO230, along with the interest
expense on any other FHLB advances that you do not carry at fair value.
In addition, report the net loss in fair value on financial assets and
liabilities of $200 on Schedule SO line SO485.
At the effective date or early adoption date of SFAS 159, report the difference
between the carrying value of items for which fair value option was elected and
their fair value as a cumulative-effect adjustment to the opening balance of
retained earnings on Schedule SI line SI668, Prior Period Adjustments.
[TOP]
Q&A
No. 259
SUBJECT: Risk
Weight for Assets with FDIC Assistance
LINE(S): CCR409,
445, 450
DATE: December
18, 2008
Question:
What
risk weight is assigned to assets with an FDIC guarantee or subject to an FDIC
assistance agreement?
Answer:
The FDIC has various programs that
provide assistance.
o
Senior unsecured bank debt that is
guaranteed under the Temporary Liquidity Guarantee Program receives a risk
weight of 20 percent. (Report on CCR445
– Claims on Domestic Depository Institutions)
o
For recent assets sales and acquisitions
where the FDIC provides assistance, the assistance provided may vary from
transaction to transaction, and it may be limited or tiered, i.e. it does not
cover the full amount of the assets.
Only the portion of losses covered by the FDIC would ordinarily qualify
for 20% risk weight (report on CCR450 – 20% risk weight: other). The remainder would be the ordinary risk
weight for the asset type (reported on the appropriate risk weight line) except
where the OTS determines that a different risk weight is commensurate with the
risk of the transaction.
o
For older existing transactions with
FDIC assistance, continue to follow the instructions for CCR409 for risk
weighting the assets (CCR409 - Notes and obligations of FDIC, Including Covered
Assets)
Q&A
No. 260
SUBJECT:
Push-Down Accounting
LINE(S): SC
DATE: March 17, 2009
Question: What percentage of a change in control
triggers push-down accounting? And how is push-down accounting reported
on the TFR?
Answer: SEC Staff Accounting Bulletin (SAB) No. 54, issued in 1983,
requires “push-down” accounting when the acquired company has become
“substantially wholly-owned”. SEC staff has stated that the threshold for
“substantially wholly-owned” should be at a control level of 95%.
Accordingly, with certain limited exceptions, SEC has stated that “push-down”
accounting should be required at 95% or more control, and “push-down”
accounting should be permitted at 80% to 95% control. In general, the OTS
and the other Federal Banking Agencies follow the SEC guidance regarding
“push-down” accounting.
For the acquisition of a savings association by a holding company, the
accounting for business combinations requires that, at the date of acqusition, the holding company’s consolidated financial
statements include the subsidiary savings association’s assets and liabilities
at fair value. When “push-down” accounting is applied, at the date of acqusition, the savings association’s assets and
liabilities are reported at fair value in the savings association’s TFR (and
other separately-issued financial statements). In contrast, when
“push-down” accounting is not applied, the savings association’s assets
and liabilities are reported at their pre-acquisition carrying amounts (book
value) in the savings association’s TFR.
By way of illustration, assume a savings association with a book value of
$1,000 was acquired for $600, based on the following:
Book
Value Fair
Value
Total
Assets
$10,000
$9,700
Total
Liabilities
(9,000)
(9,100)
Stockholder’s
equity
$1,000
$600
At the date of acquisition, in
its TFR, the savings association would report stockholder’s equity of:
a. $1,000 (book value) without
"push-down" accounting, or
b. $600 (fair value) with "push-down" accounting.
Q&A No. 261
SUBJECT: TARP Funds / Capital Purchase Program
LINE(S): SC736, SC814, SC830, SC80, CCR100, CCR310
DATE: April 21, 2009 (Revised June 25, 2009)
Question: An institution received funds under the U. S.
Treasury Department Capital Purchase Program in exchange for TARP senior
preferred stock and warrants or other securities; which line item should be
used to report the credit side of the transaction?
Answer: The credit representing the senior preferred stock and
warrants of the institution should be reported on line item SC814:
Noncumulative Preferred Stock. Both the stock and warrants will be
included 1) in total equity on SC80 Equity Capital, and 2) on Schedule CCR,
line item CCR100 in the calculation of Tier 1 Core Capital.
Note that TARP funds received by institution
holding companies are in the form of cumulative
preferred stock. Proceeds from this
preferred stock downstreamed to the institution in
the form of cash should be reported on SC830 Paid in Excess of Par.
For thrifts that
have elected to be taxed under Subchapter S or are organized in mutual form,
the full amount of all subordinated debt securities issued to the Treasury
Department under the CPP should be reported in SC736 Subordinated Debentures
(Including Mandatory Convertible Securities and Limited-Life Preferred
Stock). For regulatory capital purposes,
report on CCR310 Qualifying Subordinated Debt and Redeemable Preferred Stock,
the portion of such subordinated debt securities that qualify for inclusion in
Tier 2 capital according to the regulatory capital regulations as described in
the introductory instructions to CCR.
SUBJECT:
Other-than-temporary-impairment
LINES(S): SC860, SI671, SO441,
CCR180, CCR280
Date: May 11, 2009
Question: How do I report the impact of the April 9,
2009 issuance of FASB Staff Position (FSP) FAS 115-2, Recognition and Presentation of Other Than Temporary Impairment
(FSP 115-2)?
Answer:
Effective date and transition
FSP 115-2 is effective for interim and
annual periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. If
FSP 115-2 is adopted early, FSP FAS 157-4 (FSP 157-4) Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly must also be adopted at the same time.
Note also that FSP 115-2 must also be
adopted at the same time if (1) FSP FAS 157-4, or (2) FSP FAS 107-1 and APB
28-1 Interim Disclosures about Fair Value
of Financial Instruments are adopted early,
Institutions may choose early adoption
of FSP 115-2 in their March 31, 2009 TFR (2009Q1), and the FSP must be adopted
no later than the June 30, 2009 TFR (2009Q2).
At initial adoption
Schedule
SC Line 860, “Unrealized Gains (Losses) on Available-for-Sale Securities” under Accumulated Other Comprehensive Income (AOCI), and Schedule SI Line 671, “Other Adjustments”- Report the cumulative impacts of OTTI on
debt securities classified as AFS and HTM related to all factors other than
credit (“non-credit losses”) previously recognized in earnings, and therefore,
included in beginning retained earnings.
At initial adoption, FSP 115-2 requires
that the cumulative impacts of OTTI on debt securities classified as AFS or HTM
related to non-credit factors previously recognized in earnings should be
reclassified from the beginning retained earnings balance into the appropriate
Accumulated Other Comprehensive Income account.
Subsequent accounting for these reclassified amounts is consistent with
the guidance established in the FSP for OTTI related to non-credit factors.
Institutions should refer to the FSP
for guidance on how to determine the OTTI related to credit losses and losses
related to non-credit factors.
At initial adoption and on-going reporting
Schedule SO Line 441,
“Other-Than-Temporary Impairment on Debt and Equity Securities.” - Savings
associations should report the appropriate OTTI losses that must be recognized
in earnings on AFS and HTM debt securities determined in accordance with the
FSP, as well as OTTI losses on AFS equity securities.
Schedule SC Line 860, “Unrealized Gains
(Losses) on Available-for-Sale Securities”
under AOCI – Savings associations should report OTTI losses related to
non-credit factors for both AFS and HTM securities that are
reported as a component of other comprehensive income along with the net
Unrealized Gains (Losses) on AFS securities that are otherwise reported in this
item.
Schedule CCR Line 180, “Accumulated
Losses (Gains) on Certain Available-for-Sale Securities and Cash Flow Hedges,
Net of Taxes” – Report the amount included in equity
capital for OTTI losses related to non-credit factors on AFS and HTM debt
securities, net of tax, not previously reported in AOCI, along with the net
Unrealized Gains (Losses) on AFS securities, net of tax, that are otherwise
reported in this item.
Schedule CCR Line 280, “Accumulated
Losses (Gains) on Certain Available-for-Sale Securities and Cash Flow Hedges – Report the amount included in total assets for OTTI losses
related to non-credit factors on AFS or HTM debt securities not previously
reported in AOCI, along with the net Unrealized Gains (Losses)
on AFS securities that are otherwise reported in this item.
Background
On April 9, 2009, the FASB released FSP
115-2 which amends the existing guidance for the recognition and presentation
of other than temporary impairment (OTTI) on debt securities classified as either available-for-sale (AFS) or
held-to-maturity (HTM). It does not
amend existing recognition and measurement guidance related to OTTI of equity securities. It also does not apply to either debt or
equity securities classified as trading or for which the fair value option
(FVO) has been elected.
FSP FAS 115-2
When the fair value of a security is
less than its amortized cost basis, the impairment is either temporary or
other-than-temporary. If the loss is
determined to be other-than-temporary, the security’s cost basis is adjusted
with a corresponding loss recognized in earnings. The amount of loss recognized in earnings is
dependent on an institution’s intent and ability to hold the security to
recovery.
Full
fair value loss (credit and non-credit losses) through earnings:
If the fair value of a debt security
classified as AFS or HTM is less than its amortized cost basis, and the
institution:
(1) intends
to sell the security, or
(2)
it is “more likely than not” that
the institution will be required to sell the debt security before recovery of
its amortized cost basis (less any current period credit loss),
OTTI exists and the entire
amount of the impairment (both credit losses and non-credit losses) must be
recognized in earnings. The fair value
of the investment becomes its new cost basis at the date OTTI is
recognized.
Credit
loss through earnings/Non-credit loss through AOCI:
If the fair value of a debt security
classified as AFS or HTM is less than its amortized cost basis and the present
value of the expected future cash flows for the security, discounted at the
security’s effective interest rate, (“present value of expected future cash
flows) is less than its amortized cost basis, an OTTI credit loss exists if
the institution:
(1) does not intend to sell the debt
security and
(2)
it is not “more likely than not”
that the institution will be required
to sell the debt security before recovery of its amortized cost basis (less any
current-period credit loss.)
AFS securities
The
amount of the impairment related to credit losses must be recognized in
earnings. The debt security’s new cost
basis is its previous cost basis less the credit losses recognized in
earnings. The difference between the new
amortized cost basis and the cash flows expected to be collected shall be
accreted in accordance with existing guidance (for example, SFAS No. 91) as
interest income and reported on Schedule SO, either Line SO115 or Line SO125.
The
amount of the impairment related to non-credit losses must be recognized as a component of other
comprehensive income, net of tax, similar to the Unrealized Gains and (Losses)
on AFS securities. The contra-asset
account established for non-credit losses is included in the total Unrealized
Gains/Losses on AFS securities such that the carrying value of the security is
equal to fair value.
HTM securities
The
amount of the impairment related to non-credit must be recognized as a new
component of other comprehensive income, net of tax, similar to the Unrealized
Gains/Losses on AFS securities. A
corresponding contra-asset account is established for the full amount of
non-credit impairment, such that the carrying value of the security is fair
value at the time OTTI is recognized.
Subsequently, this new component of other comprehensive income and the
corresponding contra-asset account are each amortized over the remaining life
of the HTM debt security, resulting in an increase in the carrying value of the
security and AOCI with no effect on
earnings.
Example:
During
2008, OTTI charges of $500 were recorded through earnings on certain AFS and
HTM debt securities, as follows:
AFS HTM Total
Face amount $1,000 $1,000
OTTI amount
(300) (200) $(500)
Fair value $ 700
$ 800
For
the AFS and HTM securities, respectively, the OTTI amount attributable to
credit losses is $120 and $80 (for a total of $200), based on the present value
of expected future cash flows, discounted at the implicit interest rates for
the securities. Therefore, the OTTI loss
amount attributable to non-credit is $300 ($500 - $200) in the aggregate.
Upon
adoption of FSP FAS 115-2 in 2009, what adjustment(s) are recorded?
Note: For simplicity, income taxes will be ignored.
Upon
adoption of FSP FAS 115-2 in 2009, the OTTI amounts not attributable to
credit losses, on a retrospective
basis, should be charged to AOCI. This
can be accomplished with the following journal entry:
Debit
(Credit)
AOCI – securities $300
Retained
earnings (300)
Accordingly,
beginning with the quarter of adoption in 2009 of FSP FAS 115-2, the ending
balance of the following lines on Schedules SC and CCR will reflect the
adjustments to the equity capital accounts above: Line
No.
Accumulated other comprehensive
income:
Unrealized gains (losses)
on certain securities SC860
Retained earnings SC880
Tier 1 (core) capital:
Add: Accumulated losses
(gains) on certain securities CCR180
Adjusted total assets:
Add: Accumulated losses
(gains) on certain securities CCR280
In
addition, in the quarter of adoption in 2009 of FSP FAS 115-2, the amount
reported on Schedule SI, Line SI662, will include the adjustment to AOCI –
securities above. Accordingly, in order
for the “Summary of Changes in Savings Association Equity Capital” on Schedule
SI to reconcile, the adjustment to AOCI – securities above should also be
reported on SI Line SI671, “Other Adjustments”.
Q&A No. 263
SUBJECT: Risk Weighting Downgraded Securities
LINE(S): CCR
DATE: June 25, 2009
Question: If a mortgage or
asset backed security is downgraded more than one category below investment
grade (e.g., below BB-), and therefore no longer eligible for the ratings based
approach, how is it reported on Schedule CCR?
Answer: In November 2001, the Office of Thrift
Supervision, the Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve, and the Federal Deposit Insurance Corporation
issued a joint rule addressing regulatory capital standards including two
methods for risk weighting certain mortgage and asset backed securities, the
default approach and an optional ratings based approach (RBA)[1].
Many institutions have utilized the optional
RBA to risk weight senior and mezzanine positions in securitizations rated by
one of the nationally recognized statistical rating organizations (NRSRO). However, in times of stress on the financial
markets, there may be numerous and sometimes dramatic changes in the ratings
for many of these positions. Thus, the
default treatment for risk weighting certain mortgage and asset backed
securities takes on increasing importance.
To
be eligible for the RBA,[2] the asset or exposure must be rated by an NRSRO
no lower than one category below investment grade with risk weights assigned as
follows:
|
Long Term Rating
Category |
Example |
Risk Weight |
|
Highest
or second highest investment
grade |
AAA or AA |
20% |
|
Third
highest investment grade |
A |
50% |
|
Lowest
investment grade |
BBB |
100% |
|
One
category below investment
grade |
BB |
200% |
If
the security is below BB-, first look to whether the security is the most
senior position in the structure. If the
security is in the most senior position in terms of credit risk, generally use
the risk weight appropriate for the underlying assets. If there is a portion of a senior security
composed of underlying loans that are delinquent, that portion should not be assigned
a risk-weight lower than 100%. For
example, if an investment in a senior security backed by 1-4 family Qualifying
Mortgage Loans[3]
is $100, and 40% of the underlying loans are delinquent, then at most $60 could
be eligible for the 50% risk weight. The
remaining $40 would generally be placed in the 100% risk weight category. For reporting on Schedule CCR using this
example, report $60 on line CCR470 for mortgage and asset-backed securities
eligible for 50% risk weight, and $40 on CCR506 for all other 100% risk weight
assets.
For
regulatory capital purposes, a security is considered “mezzanine” if it is not, functionally for
credit risk purposes, the most senior in the structure—regardless of how it may
be named, and if it is also not an equity tranche/residual interest that
absorbs losses before any other tranche in a structure. Generally, for a mezzanine position, use the
“gross-up” approach that is required by 12 CFR 567.6(b)(1).[4] In the gross-up approach, calculate the
capital required for both the security and the pro rata portion
of all more senior securities, that is, those securities in the structure
deriving credit support from the particular mezzanine security subject to
risk-weighting.
For
example, assume a $10 par value interest in a mezzanine security that is part
of a $100 asset-backed security structure shown below. This structure is composed of a $75 par value
senior tranche, a $20 par value mezzanine tranche, and a $5 par value equity
(or first loss) tranche. Assume that the
assets underlying this asset-backed security are subject to a 100% risk
weight. Although the securities in the
senior and mezzanine tranches were originally rated AAA and BBB, respectively,
when the bank purchased its interest in the mezzanine security, assume both
tranches have been downgraded to ratings of A and CCC respectively.
For
this example, assume the face value of the savings association’s mezzanine
security is $9.50.[5]
Securitization
Structure (Par Values) for Available-for-Sale or
Held-to-Maturity Securities (Pro-Rata)
|
Pro Rata Gross Up Amount |
|
|
SENIOR TRANCHE TOTAL $75 par value |
|
|
Mezzanine
position owned by savings association Par value = $10 Face Value =
$9.50 |
Mezzanine
position owned by others Par value = $10 |
|
Residual position
owned by others $5 |
|
Use
the following formula to calculate assets to risk weight and capital for
Available-for Sale or Held-to-Maturity Securities
Assume:
A
= M + (S x P)
C
= A * 8%
C
= Capital charge
A
= Assets to risk weight under the gross-up approach
M
= Face value (amortized cost) of the savings association’s mezzanine security
($9.50 in the example)
S
= Par value of all more senior securities ($75 in the example)
P
= Proportion of the par value of the savings association’s mezzanine security
relative to all other equally positioned mezzanine securities (This is 0.50 in
the example because the $10 par value of savings association’s mezzanine
security is 50% of $20 total par value of all equally positioned mezzanine
securities)
Capital Requirement =
A
= $9.50 + ($75 x 0.50)
A
= $47
C = $47*.08 = $3.76
If
the underlying assets are, appropriately categorized as 100% risk weight
assets, report the $47 on line CCR506 for 100% risk weight—“All Other
Assets”. (If the underlying assets are
eligible for the 50% risk weight, report $47 on line CCR470 for mortgage and
asset-backed securities eligible for the 50% risk weight. If some portion of the underlying assets is
delinquent, the portion of the $47 that is delinquent should be reported
separately on CCR506.)
Securitization Structure (Par Values) for
Trading Securities (Pro Rata)
Use
the following formula to calculate assets to risk weight and capital for
Trading Securities:
Assume:
|
Pro Rata Gross Up Amount |
|
|
SENIOR TRANCHE TOTAL $75 par value |
|
|
Mezzanine
position owned by savings association Par value = $10 Fair Value = $4 |
Mezzanine
position owned by others Par value = $10 |
|
Residual position
owned by others $5 |
|
A
= M + (S x P)
C
= A * 8%
C
= Capital charge
A
= Assets to risk weight under the gross-up approach
M
= Face amount (fair value) of the savings association’s mezzanine security
($4.00 in the example)
S
= Par value of all more senior securities ($75 in the example)
P
= Proportion of the par value of the savings association’s mezzanine security
relative to all other equally positioned mezzanine securities (This is 0.50 in
the example because the $10 par value of savings association’s mezzanine
security is 50% of $20 total par value of all equally positioned mezzanine
securities)
Capital Requirement =
A
= $4.00 + ($75 x 0.50)
A
= $41.50
C
= $41.50*.08 = $3.32
If
the underlying assets are, appropriately categorized as 100% risk weight
assets, report the $41.50 on line CCR506 for 100% risk weight—“All Other
Assets”. (If the underlying assets are
eligible for the 50% risk weight, report $41.50 on line CCR470 for mortgage and
asset-backed securities eligible for the 50% risk weight. If some portion of the underlying assets is
delinquent, the portion of the $41.50 that is delinquent should be reported
separately on CCR506.)
Low Level Exposure
Rule
Under
the OTS capital regulations, if the maximum contractual exposure to loss is
less than the effective risk-based capital requirement for the assets supported
by the savings association’s position, the risk-based capital requirement is
limited to that contractual exposure.[6]
In that case, there are two optional
methods to enter the low level exposure capital requirement on schedule CCR:
either on CCR375, or on CCR605.
Securitization Structure (Par Values) - Low
Level Recourse
|
Pro Rata Gross Up Amount |
|
|
SENIOR TRANCHE TOTAL $75 par value |
|
|
Mezzanine
position owned by savings association Par value = $3 Face Value =
$2.75 |
Mezzanine
position owned by others Par value = $2 |
|
Residual position
owned by others $15 |
|
Use
the following formula to determine the applicability of low level exposure
rule:
Assume:
A
= M + (S x P)
C
= A * 8%
C
= Capital charge
A
= Assets to risk weight under the gross-up approach
M
= Face amount of the savings association’s mezzanine security ($2.75 in the
example)
S
= Par value of all more senior securities ($80 in the example)
P
= Proportion of the par value of the savings association’s mezzanine security
relative to all other equally positioned mezzanine securities (This is 0.60 in
the example because the $3 par value of savings association’s mezzanine
security is 60% of $5 total par value of all equally positioned mezzanine
securities)
Capital Requirement =
A
= $2.75 + ($80 x 0.60)
A
= $50.75
C=
$50.75 *.08 = $4.06
$4.06
is greater than the face amount of the institution’s exposure of $2.75. Therefore, the low level exposure rule
applies and the risk based capital charge is capped at $2.75.
SUBJECT: Investment in the common stock of a bankers’
bank
LINES: SC & CCR
DATE:
Question: Our institution plans to do business with a
bankers’ bank. Consequently, we are
required to invest in the common stock of the bankers’ bank. Where should the common stock investment in
the bankers’ bank be reported on the TFR Schedules SC and CCR?
Answer: OTS thrifts may invest in the stock of a bankers’
bank because national banks are allowed such investments. The investment amount should be reported in
the TFR as follows:
SC540:
Equity
Investments Not Carried at Fair Value: Other
CCR506: All
Other Assets
SUBJECT: Expenses on Cramdown Loans
LINE: SO580
DATE: May 11, 2011
Question: If we accept a short
sale on a borrower’s loan is there any special instructions for where expenses
on the sale should be reported on the TFR?
We
have charged off the loan down to the expected sale value.
If
we pick up additional expenses such as at closing would these be included in
SO580 Other Noninterest Expense?
Answer: Yes, expenses associated with facilitating the sale of cram
down loans should be reported on SO580 as Other Noninterest Expense.