(MA)-Reports of Condition and Income (Interagency Call Report)

Reports of Condition and Income (Interagency Call Report)

FFIEC031_FFIEC041_202009_i_updates

(MA)-Reports of Condition and Income (Interagency Call Report)

OMB: 1557-0081

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FFIEC 031 AND FFIEC 041
CALL REPORT
INSTRUCTION BOOK UPDATE
SEPTEMBER 2020

IMPORTANT NOTE
This September 2020 Call Report Instruction Book Update excludes updates pertaining to (1) interim final
rules (IFRs) and final rules published by one or all of the banking agencies that revise certain aspects of
the agencies’ regulatory capital rule, amend the Federal Reserve Board’s (Board) Regulation D on
reserve requirements, except certain insider loans from the Board’s Regulation O, and modify the Federal
Deposit Insurance Corporation’s (FDIC) deposit insurance assessment rules and (2) Section 4013 of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides optional temporary
relief from accounting for eligible loan modifications as troubled debt restructurings. The agencies have
received approvals from the U.S. Office of Management and Budget to implement changes to the Call
Report arising from these rulemakings and Section 4013 of the CARES Act.
Instructions for these Call Report changes are provided in the separate standalone September 2020
COVID-19 Related Supplemental Instructions (Call Report), which were attached to the agencies’
Financial Institution Letter for the Consolidated Reports of Condition and Income for Third Quarter 2020
and are available on the FFIEC Reporting Forms webpages for the Call Report and the FDIC Bank
Financial Reports webpage. The September 2020 COVID-19 Related Supplemental Instructions
(Call Report) include instructions for the new Call Report items that took effect June 30, 2020, in
Schedule RC-C, Part I, Loans and Leases, for eligible loan modifications under Section 4013 and in
Schedule RC-M, Memoranda, for U.S. Small Business Administration Paycheck Protection Program
(PPP) loans, borrowings under the Federal Reserve’s PPP Liquidity Facility, and holdings of assets
purchased under the Federal Reserve’s Money Market Mutual Fund Liquidity Facility.
The FFIEC 031-FFIEC 041 Call Report instruction book will be updated to incorporate relevant
information from the September 2020 COVID-19 Related Supplemental Instructions (Call Report) after
the agencies have completed the standard Paperwork Reduction Act (PRA) process for these Call Report
revisions. These revisions are discussed in the banking agencies’ initial PRA notice published in the
Federal Register on July 22, 2020. The notice is available on the FFIEC Reporting Forms webpages for
the Call Report.

FILING INSTRUCTIONS
NOTE: This update for the instruction book for the FFIEC 031 and FFIEC 041 Call Reports is designed
for two-sided (duplex) printing. The pages listed in the column below headed “Remove Pages” are no
longer needed in the Instructions for Preparation of Consolidated Reports of Condition and Income
(FFIEC 031 and FFIEC 041) and should be removed and discarded. The pages listed in the column
headed “Insert Pages” are included in this instruction book update and should be filed promptly in
your instruction book for the FFIEC 031 and FFIEC 041 Call Reports.

Remove Pages

Insert Pages

Cover Page (6-20)
iii – v (3-20)
1 – 2 (3-20)
RI-3 – RI-6 (3-11, 3-18)
RI-8a – RI-8b (3-19)
RI-16a – RI-20 (6-18, 3-20)
RI-24a – RI-24b (3-20)
RC-7 – RC-8 (6-20)
RC-C-19 – RC-C-20 (3-17)
RC-D-1 – RC-D-2 (6-20)
RC-D-9 – RC-D-10 (6-18)
RC-E-5 – RC-E-6a (3-08, 9-11)
RC-L-3 – RC-L-4 (3-20)
RC-L-17 – RC-L-18 (6-20)
RC-O-7 – RC-O-8 (3-19)
RC-Q-1 – RC-Q-2 (3-20)
RC-R-9 – RC-R-10 (6-20)
RC-R-93 – RC-R-94 (6-20)
RC-R-155 – RC-R-158 (3-20, 6-20)
RC-R-161 – RC-R-162 (3-20)
A-1 – A-89 (9-10, 3-12, 9-12, 3-13, 6-15, 3-16, 9-16,
3-17, 9-17, 9-18, 12-18, 6-19, 9-19, 3-20, 6-20)

Cover Page (9-20)
iii – v (9-20)
1 – 2 (9-20)
RI-3 – RI-6 (9-20)
RI-8a – RI-8b (9-20)
RI-16a – RI-20 (9-20)
RI-24a – RI-24b (9-20)
RC-7 – RC-8 (9-20)
RC-C-19 – RC-C-20a (9-20)
RC-D-1 – RC-D-2 (9-20)
RC-D-9 – RC-D-10 (9-20)
RC-E-5 – RC-E-6a (9-20)
RC-L-3 – RC-L-4 (9-20)
RC-L-17 – RC-L-18 (9-20)
RC-O-7 – RC-O-8 (9-20)
RC-Q-1 – RC-Q-2a (9-20)
RC-R-9 – RC-R-10 (9-20)
RC-R-93 – RC-R-94 (9-20)
RC-R-155 – RC-R-158 (9-20)
RC-R-161 – RC-R-162 (9-20)
A-1 – A-132 (9-20)

(9-20)

Instructions for Preparation of
Consolidated Reports of Condition and Income

FFIEC 031 and FFIEC 041

Updated September 2020

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FFIEC 031 and 041

CONTENTS

LINE ITEM INSTRUCTIONS FOR THE CONSOLIDATED REPORT OF CONDITION (cont.)
Schedule RC-S – Servicing, Securitization, and Asset Sale Activities

RC-S-1

Schedule RC-T – Fiduciary and Related Services

RC-T-1

Schedule RC-V – Variable Interest Entities

RC-V-1

Optional Narrative Statement Concerning the Amounts Reported in
the Consolidated Reports of Condition and Income

RC-X-1

GLOSSARY
Accounting Changes

A-1

Accrued Interest Receivable

A-4

Accrued Interest Receivable Related to Credit Card Securitizations

A-4

Acquisition, Development, or Construction (ADC) Arrangements

A-5

Allowance for Credit Losses

A-6

Allowance for Loan and Lease Losses

A-9

Amortized Cost Basis

A-11

Bankers Acceptances

A-11

Bank-Owned Life Insurance

A-14

Banks, U.S. and Foreign

A-15

Borrowings and Deposits in Foreign Offices

A-17

Brokered Deposits

A-17

Broker's Security Draft

A-19

Business Combinations

A-19

Capital Contributions of Cash and Notes Receivable

A-24

Capitalization of Interest Costs

A-25

Cash Management Arrangements

A-25

Commercial Paper

A-26

Commodity or Bill-of-Lading Draft

A-26

Coupon Stripping, Treasury Receipts, and STRIPS

A-27

Custody Account

A-27

Dealer Reserve Account

A-27

Debt Issuance Costs

A-28

Deferred Compensation Agreements

A-28

Defined Benefit Postretirement Plans

A-30

Depository Institutions in the U.S.

A-31

Deposits

A-31

Derivative Contracts

A-41

Dividends

A-47

Domestic Office

A-47

Domicile

A-48

FFIEC 031 and 041

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CONTENTS

FFIEC 031 and 041

CONTENTS

GLOSSARY (cont.)
Due Bills

A-48

Edge and Agreement Corporation

A-48

Equity-Indexed Certificates of Deposit

A-48

Equity Method of Accounting

A-50

Excess Balance Account

A-51

Extinguishments of Liabilities

A-52

Fails

A-52

Fair Value

A-52

Federal Funds Transactions

A-53

Federally-Sponsored Lending Agency

A-54

Foreclosed Assets

A-54

Foreign Currency Transactions and Translation

A-61

Foreign Debt Exchange Transactions

A-62

Foreign Governments and Official Institutions

A-63

Foreign Office

A-64

Goodwill

A-64

Hypothecated Deposit

A-67

Income Taxes

A-68

Internal-Use Computer Software

A-75

International Banking Facility (IBF)

A-76

Lease Accounting

A-78

Letter of Credit

A-86

Loan

A-87

Loan Fees

A-88

Loan Impairment

A-90

Loan Secured by Real Estate

A-91

Loss Contingencies

A-93

Mandatory Convertible Debt

A-93

Nonaccrual of Interest

A-93

Offsetting

A-96

Other-Than-Temporary Impairment

A-97

Overdraft

A-98

Pass-through Reserve Balances

A-98

Placements and Takings

A-99

Preferred Stock

A-99

Premiums and Discounts

A-100

Private Company

A-101

Public Business Entity

A-101

FFIEC 031 and 041

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CONTENTS

FFIEC 031 and 041

CONTENTS

GLOSSARY (cont.)
Purchased Credit-Deteriorated Assets

A-102

Purchased Credit-Impaired Loans and Debt Securities

A-103

Reciprocal Balances

A105

Repurchase/Resale Agreements

A-105

Revenue from Contracts with Customers

A-108

Securities Activities

A-108

Securities Borrowing/Lending Transactions

A-112

Servicing Assets and Liabilities

A-113

Shell Branches

A-115

Short Position

A-116

Start-Up Activities

A-116

Subordinated Notes and Debentures

A-117

Subsidiaries

A-117

Suspense Accounts

A-118

Syndications

A-118

Trade Date and Settlement Date Accounting

A-118

Trading Account

A-119

Transfers of Financial Assets

A-120

Treasury Stock

A-126

Troubled Debt Restructurings

A-127

Trust Preferred Securities

A-130

U.S. Territories and Possessions

A-130

Valuation Allowance

A-131

Variable Interest Entity

A-131

When-Issued Securities Transactions

A-132

FFIEC 031 and 041

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FFIEC 031 and 041

GENERAL INSTRUCTIONS

GENERAL INSTRUCTIONS
Schedules RC and RC-A through RC-V constitute the FFIEC 031 and FFIEC 041 versions of the
Consolidated Report of Condition and its supporting schedules. Schedules RI and RI-A through RI-E
constitute the FFIEC 031 and FFIEC 041 versions of the Consolidated Report of Income and its
supporting schedules. The Consolidated Reports of Condition and Income are commonly referred to as
the Call Report. For purposes of these General Instructions, the Financial Accounting Standards Board
(FASB) Accounting Standards Codification is referred to as “ASC.”
Unless the context indicates otherwise, the term “bank” in the Call Report instructions refers to both
banks and savings associations.

WHO MUST REPORT ON WHAT FORMS
Every national bank, state member bank, insured state nonmember bank, and savings association is
required to file a consolidated Call Report normally as of the close of business on the last calendar day of
each calendar quarter, i.e., the report date. The specific reporting requirements for a bank depend upon
the size of the bank, whether it has any "foreign" offices, and the capital standards applicable to the bank.
Banks must file the appropriate report form as described below:
(1) BANKS WITH FOREIGN OFFICES: Banks of any size that have any "foreign" offices (as defined
below) must file quarterly the Consolidated Reports of Condition and Income for a Bank with
Domestic and Foreign Offices (FFIEC 031). For purposes of these reports, all of the following
constitute "foreign" offices:
(a) An International Banking Facility (IBF);
(b) A branch or consolidated subsidiary in a foreign country; and
(c) A majority-owned Edge or Agreement subsidiary.
In addition, for banks chartered and headquartered in the 50 states of the United States and the
District of Columbia, a branch or consolidated subsidiary in Puerto Rico or a U.S. territory or
possession is a “foreign” office. However, for purposes of these reports, a branch at a U.S. military
facility located in a foreign country is a "domestic" office.
(2) BANKS WITHOUT FOREIGN OFFICES: Banks that have domestic offices only must file quarterly:
(a) The Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices
(FFIEC 031) if the bank:
(i) Is an advanced approaches institutions for regulatory capital purposes,1 regardless of asset
size; or

1

An advanced approaches institution as defined in the federal supervisor’s regulatory capital rules is (i) a subsidiary
of a global systemically important bank holding company, as identified pursuant to 12 CFR 217.402; (ii) a Category II
institution; (iii) a subsidiary of a depository institution that uses the advanced approaches pursuant to subpart E of
12 CFR part 3 (OCC), 12 CFR part 217 (Board), or 12 CFR part 324 (FDIC) to calculate its risk-based capital
requirements; (iv) a subsidiary of a bank holding company or savings and loan holding company that uses the
advanced approaches pursuant to subpart E of 12 CFR part 217 to calculate its risk-based capital requirements; or
(v) an institution that elects to use the advanced approaches to calculate its risk-based capital requirements.
Category II institutions include institutions that have (1) at least $700 billion in total consolidated assets or (2) at
least $75 billion in cross-jurisdictional activity and at least $100 billion in total consolidated assets. In addition,
depository institution subsidiaries of Category II institutions are considered Category II institutions.

FFIEC 031 and 041

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GENERAL INSTRUCTIONS

FFIEC 031 and 041

GENERAL INSTRUCTIONS

(ii) Has total consolidated assets of $100 billion or more,1 including a bank of this size that is
subject to Category III capital standards2;
(b) The Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only
(FFIEC 041) if the bank has total consolidated assets less than $100 billion, including a bank of
this size that is subject to Category III capital standards, but excluding a bank of this size that is
an advanced approaches institution; or
(c) The Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only and
Total Assets Less than $5 Billion (FFIEC 051) subject to the eligibility criteria discussed below,
as appropriate to the reporting institution. An institution eligible to file the FFIEC 051 report may
choose instead to file the FFIEC 041 report.
For banks chartered and headquartered in Puerto Rico or a U.S. territory or possession, a branch
or consolidated subsidiary in one of the 50 states of the United States, the District of Columbia,
Puerto Rico, or a U.S. territory or possession is a "domestic" office.
For those institutions filing the FFIEC 051, a separate instruction book covers this report form. Please
refer to this separate instruction book for the General Instructions for the FFIEC 051 report form.

Eligibility to File the FFIEC 051
Institutions with domestic offices only and total assets less than $5 billion, excluding (1) those that are
advanced approaches institutions or are subject to Category III capital standards for regulatory capital
purposes and (2) those that are large or highly complex institutions for deposit insurance assessment
purposes,3 are eligible to file the FFIEC 051 Call Report. An institution’s total assets are measured as of
June 30 each year to determine the institution’s eligibility to file the FFIEC 051 beginning in March of the
following year. Institutions are expected to file the same report form, either the FFIEC 051 or the
FFIEC 041, for each quarterly report date in a given year.
For an institution otherwise eligible to file the FFIEC 051, the institution’s primary federal regulatory
agency, jointly with the state chartering authority, if applicable, may require the institution to file the
FFIEC 041 instead based on supervisory needs. In making this determination, the appropriate agency
may consider criteria including, but not limited to, whether the eligible institution is significantly engaged in
one or more complex, specialized, or other higher risk activities, such as those for which limited
information is reported in the FFIEC 051 compared to the FFIEC 041 (trading; derivatives; mortgage
banking; fair value option usage; servicing, securitization, and asset sales; and variable interest entities).
The agencies anticipate making such determinations only in a limited number of cases.
Close of Business
The term "close of business" refers to the time established by the reporting bank as the cut-off time for
receipt of work for posting transactions to its general ledger accounts for that day. The time designated
as the close of business should be reasonable and applied consistently. The posting of a transaction to
the general ledger means that both debit and credit entries are recorded as of the same date. In addition,
entries made to general ledger accounts in the period subsequent to the close of business on the report
date that are applicable to the period covered by the Call Report (e.g., adjustments of accruals, posting of
1

The $100 billion asset-size test is based on the total assets reported as of June 30 each year to determine whether
the institution must file the FFIEC 031 report form beginning in March of the following year.

2

Category III institutions include institutions, which are not advanced approaches institutions, that have (1) at least
$250 billion in average total consolidated assets or (2) at least $100 billion in average total consolidated assets and at
least $75 billion in average total nonbank assets, average weighted short-term wholesale funding, or average
off-balance sheet exposure. In addition, depository institution subsidiaries of Category III institutions are considered
Category III institutions.

3

See 12 CFR § 327.8 and 12 CFR § 327.16(f).

FFIEC 031 and 041

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GENERAL INSTRUCTIONS

FFIEC 031 and 041

RI - INCOME STATEMENT

Item No.

Caption and Instructions

1.a
(cont.)

(4) Investigation and service charges, fees representing a reimbursement of loan processing
costs, renewal and past-due charges, prepayment penalties, and fees charged for the
execution of mortgages or agreements securing the bank's loans.
(5) Charges levied against overdrawn accounts based on the length of time the account has
been overdrawn, the magnitude of the overdrawn balance, or which are otherwise
equivalent to interest. See exclusion (6) below.
(6) Interest income earned on loans that are reported at fair value under a fair value option.
Exclude from interest and fee income on loans:
(1) Fees for servicing real estate mortgages or other loans that are not assets of the bank
(report in Schedule RI, item 5.f, "Net servicing fees").
(2) Charges to merchants for the bank's handling of credit card or charge sales when the
bank does not carry the related loan accounts on its books (report as "Other noninterest
income" in Schedule RI, item 5.l). Banks may report this income net of the expenses
(except salaries) related to the handling of these credit card or charge sales.
(3) Loan origination fees, direct loan origination costs, and purchase premiums and
discounts on loans held for sale, all of which should be deferred until the loan is sold
(rather than amortized). The net fees or costs and purchase premium or discount are
part of the recorded investment in the loan. When the loan is sold, the difference
between the sales price and the recorded investment in the loan is the gain or loss on the
sale of the loan. See exclusion (4) below.
(4) Net gains (losses) from the sale of all assets reportable as loans (report in Schedule RI,
item 5.i, “Net gains (losses) on sales of loans and leases”). Refer to the Glossary entry
for "transfers of financial assets."
(5) Reimbursements for out-of-pocket expenditures (e.g., for the purchase of fire insurance
on real estate securing a loan) made by the bank for the account of its customers. If the
bank's expense accounts were charged with the amount of such expenditures, the
reimbursements should be credited to the same expense accounts.
(6) Transaction or per item charges levied against deposit accounts for the processing of
checks drawn against insufficient funds that the bank assesses regardless of whether it
decides to pay, return, or hold the check, so-called "NSF check charges" (report as
"Service charges on deposit accounts (in domestic offices)," in Schedule RI, item 5.b, or,
if levied against deposit accounts in foreign offices, as “Other noninterest income” in
Schedule RI, item 5.l). See inclusion (5) above.
(7) Interchange fees earned from credit card transactions (report as “Other noninterest
income” in Schedule RI, item 5.l).

FFIEC 041 FFIEC 031
Item No. Item No. Caption and Instructions
-

1.a.(1)

1.a.(1)

Interest and fee income on loans in domestic offices. Report in the
appropriate subitem all interest, fees, and similar charges levied against or
associated with all loans in domestic offices reportable in Schedule RC-C, part I,
items 1 through 9, column B.

1.a.(1)(a)

Interest and fee income on loans secured by real estate:

FFIEC 031 and 041

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FFIEC 031 and 041

RI - INCOME STATEMENT

FFIEC 041 FFIEC 031
Item No. Item No. Caption and Instructions
1.a.(1)(a)

1.a.(1)(a)(1) Interest and fee income on loans secured by 1-4 family residential
properties. Report all interest, fees, and similar charges levied against or
associated with all loans secured by 1-4 family residential properties (in domestic
offices) reportable in Schedule RC-C, part I, item 1.c, column B.

1.a.(1)(b)

1.a.(1)(a)(2) Interest and fee income on all other loans secured by real estate. Report
all interest, fees, and similar charges levied against or associated with all loans
secured by real estate (in domestic offices) reportable in Schedule RC-C, part I,
items 1.a, 1.b, 1.d, and 1.e, column B. Include interest and fee income on loans
secured by 1-4 family residential construction loans, but exclude such income on
all other loans secured by 1-4 family residential properties.

-

1.a.(1)(b)

Interest and fee income on loans to finance agricultural production and
other loans to farmers. Report all interest, fees, and similar charges levied
against or associated with all loans (in domestic offices) reportable in
Schedule RC-C, part I, item 3, "Loans to finance agricultural production and
other loans to farmers."

1.a.(2)

1.a.(1)(c)

Interest and fee income on commercial and industrial loans. Report all
interest, fees, and similar charges levied against or associated with all loans
(in domestic offices) reportable in Schedule RC-C, part I, item 4, "Commercial
and industrial loans."

1.a.(3)

1.a.(1)(d)

Interest and fee income on loans to individuals for household, family, and
other personal expenditures. Report in the appropriate subitem all interest,
fees, and similar charges levied against or associated with all loans (in domestic
offices) reportable in Schedule RC-C, part I, item 6, "Loans to individuals for
household, family, and other personal expenditures."

1.a.(3)(a)

1.a.(1)(d)(1)Interest and fee income on credit cards. Report all interest, fees, and similar
charges levied against or associated with all extensions of credit to individuals for
household, family, and other personal expenditures arising from credit cards (in
domestic offices) reportable in Schedule RC-C, part I, item 6.a, "Credit cards."
Include in this item any reversals of uncollectible credit card fees and finance
charges and any additions to a contra-asset account for uncollectible credit card
fees and finance charges that the bank maintains and reports separately from its
allowance for loan and lease losses.
Exclude annual or other periodic fees paid by holders of credit cards issued by
the bank (report in Schedule RI, item 5.l, "Other noninterest income").

1.a.(3)(b)

1.a.(1)(d)(2)Interest and fee income on other loans to individuals for household, family,
and other personal expenditures. Report all interest, fees, and similar charges
levied against or associated with all other loans to individuals for household,
family, and other personal expenditures (in domestic offices) reportable in
Schedule RC-C, part I, item 6.b, "Other revolving credit plans," item 6.c,
“Automobile loans,” and item 6.d, “Other consumer loans.”

-

1.a.(1)(e)

FFIEC 031 and 041

Interest and fee income on loans to foreign governments and official
institutions. Report all interest, fees, and similar charges levied against or
associated with all loans (in domestic offices) reportable in Schedule RC-C,
Part I, item 7, "Loans to foreign governments and official institutions."

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RI - INCOME STATEMENT

FFIEC 031 and 041

RI - INCOME STATEMENT

FFIEC 041 FFIEC 031
Item No. Item No. Caption and Instructions
1.a.(5)

1.a.(1)(f)

Interest and fee income on all other loans. On the FFIEC 041, report interest,
fees, and similar charges levied against or associated with loans reportable in
Schedule RC-C, Part I, item 2, “Loans to depository institutions and acceptances
of other banks,” item 3, “Loans to finance agricultural production and other loans
to farmers,” item 8, “Obligations (other than securities and leases) of states and
political subdivisions in the U.S.,” and item 9, “Loans to nondepository financial
institutions and other loans.”
On the FFIEC 031, report interest, fees, and similar charges levied against or
associated with loans in domestic offices reportable in Schedule RC-C, Part I,
item 2, “Loans to depository institutions and acceptances of other banks,” item 8,
“Obligations (other than securities and leases) of states and political subdivisions
in the U.S.,” and item 9, “Loans to nondepository financial institutions and other
loans.”

-

1.a.(6)

1.a.(2)

Interest and fee income on loans in foreign offices, Edge and Agreement
subsidiaries, and IBFs. Report all interest, fees, and similar charges levied
against or associated with all loans in foreign offices, Edge and Agreement
subsidiaries, and IBFs reportable in Schedule RC-C, Part I, items 1 through 9.

1.a.(3)

Total interest and fee income on loans. On the FFIEC 041, report the sum of
items 1.a.(1) through 1.a.(5) in item 1.a.(6). On the FFIEC 031, report the sum of
items 1.a.(1)(a) through 1.a.(2) in item 1.a.(3).

FFIEC 031 and 041
Item No. Caption and Instructions
1.b

Income from lease financing receivables. Report all income from leases reportable in
Schedule RC-C, Part I, item 10, "Lease financing receivables (net of unearned income)."
(See the Glossary entry for "lease accounting.")
Include income from:
(1) Direct financing leases accounted for under ASC Topic 840, Leases, by an institution that
has not adopted ASC Topic 842, Leases;
(2) Direct financing and sales-type leases accounted for under ASC Topic 842 by an
institution that has adopted ASC Topic 842; and
(3) Leveraged leases accounted for under ASC Topic 840 (including leveraged leases that
were grandfathered upon the adoption of ASC Topic 842 and remain grandfathered).
Exclude from income from lease financing receivables:
(1) Any investment tax credits associated with leased property (include in Schedule RI,
item 9, "Applicable income taxes (on item 8.c)").
(2) Provisions for losses on leases (report in Schedule RI, item 4, "Provision for loan and
lease losses").
(3) Rental fees applicable to operating leases for furniture and equipment rented to others
(report as "Other noninterest income" in Schedule RI, item 5.l).

1.c

Interest income on balances due from depository institutions. Report all income on
assets reportable in Schedule RC, item 1.b, “Interest-bearing balances due from depository
institutions,” including interest-bearing balances maintained to satisfy reserve balance
requirements, excess balances, and term deposits due from Federal Reserve Banks. Include
interest income earned on interest-bearing balances due from depository institutions that are
reported at fair value under a fair value option.

FFIEC 031 and 041

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RI - INCOME STATEMENT

FFIEC 031 and 041

Item No.
1.d

RI - INCOME STATEMENT

Caption and Instructions
Interest and dividend income on securities. Report in the appropriate subitem all income
on assets that are reportable in Schedule RC-B, Securities. Include accretion of discount
and deduct amortization of premium on securities. Refer to the Glossary entry for
"premiums and discounts."
For institutions that have adopted FASB Accounting Standards Update No. 2016-01
(ASU 2016-01), which includes provisions governing the accounting for investments in equity
securities and eliminates the concept of available-for-sale equity securities (see the Note
preceding the instructions for Schedule RI, item 8.b), also include dividend income on equity
securities with readily determinable fair values not held for trading that are reportable in
Schedule RC, item 2.c.
Include interest and dividends on securities held in the bank's held-to-maturity and
available-for-sale portfolios, even if such securities have been lent, sold under agreements
to repurchase that are treated as borrowings, or pledged as collateral for any purpose.
Include interest received at the sale of securities to the extent that such interest had not
already been accrued on the bank's books.
Do not deduct accrued interest included in the purchase price of securities from income on
securities and do not charge to expense. Record such interest in a separate asset account
(to be reported in Schedule RC, item 11, "Other assets") to be offset upon collection of the
next interest payment.
Report income from detached U.S. Government security coupons and ex-coupon
U.S. Government securities not held for trading in Schedule RI, item 1.d.(3), as interest and
dividend income on "All other securities." Refer to the Glossary entry for "coupon stripping,
Treasury receipts, and STRIPS."
Exclude from interest and dividend income on securities:
(1) Realized gains (losses) on held-to-maturity securities and on available-for-sale securities
(report in Schedule RI, items 6.a and 6.b, respectively).
(2) Net unrealized holding gains (losses) on available-for-sale securities (include the amount
of such net unrealized holding gains (losses) in Schedule RC, item 26.b, “Accumulated
other comprehensive income,” and the calendar year-to-date change in such net
unrealized holding gains (losses) in Schedule RI-A, item 10, “Other comprehensive
income”).
(3) For institutions that have adopted ASU 2016-01, realized and unrealized gains (losses)
on equity securities with readily determinable fair values not held for trading (report in
Schedule RI, item 8.b).
(4) Income from advances to, or obligations of, majority-owned subsidiaries not consolidated,
associated companies, and those corporate joint ventures over which the bank exercises
significant influence (report as "Noninterest income" in the appropriate subitem of
Schedule RI, item 5).

1.d.(1)

Interest and dividend income on U.S. Treasury securities and U.S. Government agency
obligations (excluding mortgage-backed securities). Report income from all securities
reportable in Schedule RC-B, item 1, “U.S. Treasury securities,” and item 2,
“U.S. Government agency obligations.” Include accretion of discount on U.S. Treasury bills.

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Item No. Item No. Caption and Instructions
-

2.a.(1)

Interest on deposits in domestic offices:

2.a.(1)

2.a.(1)(a)

Interest on transaction accounts. Report interest expense on all
interest-bearing transaction accounts (interest-bearing demand deposits, NOW
accounts, ATS accounts, and telephone and preauthorized transfer accounts)
reportable in Schedule RC-E, (part I,) items 1 through 6, column A, "Total
transaction accounts." Exclude all costs incurred by the bank in connection with
noninterest-bearing demand deposits. See the Glossary entry for "deposits" for
the definitions of “interest-bearing deposit accounts,” “demand deposits,” "NOW
accounts," "ATS accounts," and "telephone or preauthorized transfer accounts."

2.a.(2)

2.a.(1)(b)

Interest on nontransaction accounts. Report in the appropriate subitem
interest expense on all deposits reportable in Schedule RC-E, (part I,) items 1
through 6, column C, "Total nontransaction accounts."

2.a.(2)(a)

2.a.(2)(b)(1)Interest on savings deposits. Report interest expense on all deposits
reportable in Schedule RC-E, (Part I,) Memorandum item 2.a.(1), "Money market
deposit accounts (MMDAs),” and Memorandum item 2.a.(2), "Other savings
deposits."

2.a.(2)(b)

2.a.(1)(b)(2)Interest on time deposits of $250,000 or less. Report interest expense on all
deposits reportable in Schedule RC-E, (Part I,) Memorandum item 2.b, "Total
time deposits of less than $100,000," and Memorandum item 2.c, "Total time
deposits of $100,000 through $250,000.”

2.a.(2)(c)

2.a.(1)(b)(3)Interest on time deposits of more than $250,000. Report interest expense on
all deposits reportable in Schedule RC-E, (Part I,) Memorandum item 2.d, "Total
time deposits of more than $250,000."

-

2.a.(2)

Interest on deposits in foreign offices, Edge and Agreement subsidiaries,
and IBFs. Report interest expense on all deposits in foreign offices reportable in
Schedule RC, item 13.b.(2), "Interest-bearing deposits in foreign offices, Edge
and Agreement subsidiaries, and IBFs."

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Item No. Caption and Instructions
2.b

Expense of federal funds purchased and securities sold under agreements to
repurchase. Report the gross expense of all liabilities reportable in Schedule RC, item 14,
"Federal funds purchased and securities sold under agreements to repurchase." Include
interest expense incurred on federal funds purchased and securities sold under agreements
to repurchase that are reported at fair value under a fair value option.
Report the income of federal funds sold and securities purchased under agreements to
resell in Schedule RI, item 1.f; do not deduct from the gross expense reported in this item.
However, if amounts recognized as payables under repurchase agreements have been
offset against amounts recognized as receivables under reverse repurchase agreements
and reported as a net amount in Schedule RC, Balance Sheet, in accordance with ASC
Subtopic 210-20, Balance Sheet – Offsetting (formerly FASB Interpretation No. 41,
“Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements”), the income and expense from these agreements may be reported on a net
basis in Schedule RI, Income Statement.

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Item No.
2.c

RI - INCOME STATEMENT

Caption and Instructions
Interest on trading liabilities and other borrowed money. Report the interest expense
on all liabilities reportable in Schedule RC, item 15, "Trading liabilities," and item 16, "Other
borrowed money." Include interest expense incurred on other borrowed money reported at
fair value under a fair value option.
Include amortization of debt issuance costs associated with other borrowed money (unless
the borrowed money is reported at fair value under a fair value option, in which case issuance
costs should be expensed as incurred).

2.d

Interest on subordinated notes and debentures. Report the interest expense on all
liabilities reportable in Schedule RC, item 19, "Subordinated notes and debentures." Include
interest expense incurred on subordinated notes and debentures reported at fair value under
a fair value option.
Include amortization of debt issuance costs associated with subordinated notes and
debentures (unless the notes and debentures are reported at fair value under a fair value
option, in which case issuance costs should be expensed as incurred).
Exclude dividends declared or paid on limited-life preferred stock (report dividends declared
in Schedule RI-A, item 8).

2.e

Total interest expense. Report the sum of Schedule RI, items 2.a through 2.d.

3

Net interest income. Report the difference between Schedule RI, item 2.e, “Total interest
expense,” and Schedule RI, item 1.h, “Total interest income.” If the amount is negative,
report it with a minus (-) sign.

4

Provision for loan and lease losses. Institutions that have not adopted FASB Accounting
Standards Update No. 2016-13 (ASU 2016-13), which governs the accounting for credit
losses, should report the amount needed to make the allowance for loan and lease losses, as
reported in Schedule RC, item 4.c, adequate to absorb estimated credit losses, based upon
management's evaluation of the reporting institution’s loans and leases held for investment,
excluding such loans and leases reported at fair value under a fair value option. Loans and
leases held for investment are those that the reporting institution has the intent and ability to
hold for the foreseeable future or until maturity or payoff. Also include in this item any
provision for allocated transfer risk related to loans and leases. The amount reported in this
item must equal Schedule RI-B, Part II, item 5, column A, “Provision for credit losses.”
Report negative amounts with a minus (-) sign.
Institutions that have adopted ASU 2016-13 should report amounts expensed as provisions
for credit losses (or reversals of provisions) during the calendar year to date on assets within
the scope of the ASU, i.e., financial assets measured at amortized cost (including loans held
for investment and held-to-maturity debt securities), net investments in leases, and availablefor-sale debt securities. Provisions for credit losses (or reversals of provisions) on financial
assets measured at amortized cost and net investments in leases represent the amounts
necessary to adjust the related allowances for credit losses at the quarter-end report date for
management’s current estimate of expected credit losses on these assets. Provisions for
credit losses (or reversals of provisions) on available-for-sale debt securities represent
changes during the calendar year to date in the amount of impairment related to credit losses
on individual available-for-sale debt securities. Exclude the initial allowance gross-up
amounts established upon the purchase of credit-deteriorated financial assets, which are
recorded at the date of acquisition as an addition to the purchase price to determine the initial
amortized cost basis of the assets. The amount reported in this item must equal the sum of
Schedule RI-B, Part II, item 5, columns A through C, plus Schedule RI-B, Part II,
Memorandum item 5. Report negative amounts with a minus (-) sign.

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Item No.

Caption and Instructions

6.b
(cont.)

Exclude from this item:

RI - INCOME STATEMENT

(1) (a) For institutions that have not adopted ASU 2016-01, the change in net unrealized
holding gains (losses) on available-for-sale debt and equity securities during the
calendar year to date (report in Schedule RI-A, item 10, “Other comprehensive
income”).
(b) For institutions that have adopted ASU 2016-01, the change in net unrealized holding
gains (losses) on available-for-sale debt securities during the calendar year to date
(report in Schedule RI-A, item 10, “Other comprehensive income”).
(2) Realized gains (losses) on held-to-maturity securities (report in Schedule RI, item 6.a,
above) and on trading securities (report in Schedule RI, item 5.c, “Trading revenue”).
(3) For institutions that have adopted ASU 2016-13, provisions for credit losses (and
reversals of provisions) that increase (and decrease) the allowance for credit losses on
available-for-sale debt securities (report in Schedule RI, item 4, “Provision for loan and
lease losses”).
7

Noninterest expense:

7.a

Salaries and employee benefits. Report salaries and benefits of all officers and
employees of the bank and its consolidated subsidiaries including guards and contracted
guards, temporary office help, dining room and cafeteria employees, and building department
officers and employees (including maintenance personnel). Include as employees individuals
who, in form, are employed by an affiliate but who, in substance, do substantially all of their
work for the reporting bank. However, banking organizations should not segregate the
compensation component of other intercompany cost allocations arising from arrangements
other than that described in the preceding sentence for purposes of this item.
Include as salaries and employee benefits:
(1) Gross salaries, wages, overtime, bonuses, incentive compensation, and extra
compensation.
(2) Social security taxes and state and federal unemployment taxes paid by the bank.
(3) Costs of the bank's retirement plan, pension fund, profit-sharing plan, employee stock
ownership plan, employee stock purchase plan, and employee savings plan. For
defined benefit pension plans and other postretirement plans, institutions that have
adopted Accounting Standards Update No. 2017-07, “Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-17),1
should report only the service cost component of net benefit cost for such plans in this
item 7.a; the other cost components of net benefit cost should be reported in
Schedule RI, item 7.d, “Other noninterest expense.”

1

For institutions that are public business entities, ASU 2017-07 was effective for fiscal years beginning after
December 15, 2017, including interim periods within those annual periods. For institutions that are not public
business entities, ASU 2017-07 is effective for fiscal years beginning after December 15, 2018, and interim periods
within annual periods beginning after December 15, 2019.

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Item No.

Caption and Instructions

7.a
(cont.)

(4) Premiums (net of dividends received) on health and accident, hospitalization, dental,
disability, and life insurance policies for which the bank is not the beneficiary.
(5) Cost of office temporaries whether hired directly by the bank or through an outside
agency.
(6) Workmen's compensation insurance premiums.
(7) The net cost to the bank for employee dining rooms, restaurants, and cafeterias.
(8) Accrued vacation pay earned by employees during the calendar year-to-date.
(9) The cost of medical or health services, relocation programs and reimbursements of
moving expenses, tuition reimbursement programs, and other so-called fringe benefits
for officers and employees.
(10) Compensation expense (service component and interest component) related to deferred
compensation agreements.
Exclude from salaries and employee benefits (report in Schedule RI, item 7.d, "Other
noninterest expense"):
(1) Amounts paid to attorneys, accountants, management consultants, investment
counselors, and other professionals who are not salaried officers or employees of the
bank (except if these professionals, in form, are employed by an affiliate of the reporting
bank but, in substance, do substantially all of their work for the reporting bank).
(2) Expenses related to the testing and training of officers and employees.
(3) The cost of bank newspapers and magazines prepared for distribution to bank officers
and employees.
(4) Expenses of life insurance policies for which the bank is the beneficiary. (However, when
these expenses relate to bank-owned life insurance policies with cash surrender values,
banks may report the net earnings on or the net increases in the value of these cash
surrender values in Schedule RI, item 5.l, above.)
(5) The cost of athletic activities in which officers and employees participate when the
purpose may be construed to be for marketing or public relations, and employee benefits
are only incidental to the activities.
(6) Dues, fees and other expenses associated with memberships in country clubs, social or
private clubs, civic organizations, and similar clubs and organizations.

7.b

Expenses of premises and fixed assets. Report all noninterest expenses related to the
use of premises, equipment, furniture, and fixtures reportable in Schedule RC, item 6,
"Premises and fixed assets," net of rental income. If this net amount is a credit balance,
report it with a minus (-) sign.
Deduct rental income from gross premises and fixed asset expense. Rental income includes
all rentals charged for the use of buildings not incident to their use by the reporting institution
and its consolidated subsidiaries, including rentals by regular tenants of the institution’s
buildings, income received from short-term rentals of other bank facilities, and income from
subleases. Also deduct income from stocks and bonds issued by nonmajority-owned
corporations and investments in limited partnerships or limited liability companies whose

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Item No.

Caption and Instructions

7.b
(cont.)

principal activity is the ownership of premises, equipment, furniture, or fixtures occupied or
used (or to be occupied or used) by the institution, its branches, or its consolidated
subsidiaries and are reportable in Schedule RC, item 6, "Premises and fixed assets."
Include as expenses of premises and fixed assets:
(1)

Normal and recurring depreciation and amortization charges against, and any
impairments on, assets reportable in Schedule RC, item 6, "Premises and fixed assets,"
including capital lease assets accounted for in accordance with ASC Topic 840,
Leases, and right-of-use (ROU) assets for finance leases accounted for in accordance
with ASC Topic 842, as applicable. Include depreciation and amortization charges
regardless of whether they represent direct reductions in the carrying value of the
assets or additions to accumulated depreciation or amortization accounts. Any method
of depreciation or amortization conforming to accounting principles that are generally
acceptable for financial reporting purposes may be used. However, depreciation for
premises and fixed assets may be based on a method used for federal income tax
purposes if the results would not be materially different from depreciation based on the
asset's estimated useful life.

(2)

For operating leases accounted for in accordance with:
(a) ASC Topic 840 by a lessee institution that has not adopted ASC Topic 842, rental
expense for leased premises (including parking lots), equipment (including data
processing equipment), furniture, and fixtures.
(b) ASC Topic 842 by a lessee institution that has adopted this topic, a single lease
cost for the expenses related to lease liabilities and the amortization of ROU assets
for leased premises, equipment, furniture, and fixtures; variable lease payments not
included in lease liabilities; and any impairments of ROU assets.

(3)

Cost of ordinary repairs to premises (including leasehold improvements), equipment,
furniture, and fixtures.

(4)

Cost of service or maintenance contracts for equipment, furniture, and fixtures.

(5)

Cost of leasehold improvements, equipment, furniture, and fixtures charged directly to
expense and not placed on the bank's books as assets.

(6)

Insurance expense related to the use of premises, equipment, furniture, and fixtures
including such coverages as fire, multi-peril, boiler, plate glass, flood, and public liability.

(7)

All property tax and other tax expense related to premises (including leasehold
improvements), equipment, furniture, and fixtures, including deficiency payments, net of
all rebates, refunds, or credits.

(8)

Any portion of a lessee institution’s payments to lessors representing executory costs
such as insurance, maintenance, and taxes.

(9)

Cost of heat, electricity, water, and other utilities connected with the use of premises
and fixed assets.

(10) Cost of janitorial supplies and outside janitorial services.
(11) Fuel, maintenance, and other expenses related to the use of the bank-owned
automobiles, airplanes, and other vehicles for bank business.

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Item No.

Caption and Instructions

7.b
(cont.)

Exclude from expenses of premises and fixed assets:
(1) Salaries and employee benefits (report such expenses for all officers and employees of
the bank and its consolidated subsidiaries in Schedule RI, item 7.a, "Salaries and
employee benefits").
(2) Interest on mortgages, liens, or other encumbrances on premises or equipment owned,
including the portion of lease payments representing interest expense for capital leases
accounted for in accordance with ASC Topic 840 and the interest expense on lease
liabilities for finance leases accounted for in accordance with ASC Topic 842 (report in
Schedule RI, item 2.c, "Interest on trading liabilities and other borrowed money").
(3) All expenses associated with other real estate owned (report in Schedule RI, item 7.d, "Other
noninterest expense").
(4) Gross rentals from other real estate owned and fees charged for the use of parking lots
properly reported as other real estate owned, as well as safe deposit box rentals and
rental fees applicable to operating leases for furniture and equipment rented to others
(report in Schedule RI, item 5.l).

7.c.(1)

Goodwill impairment losses. Report any impairment losses recognized during the period
on goodwill. Exclude goodwill impairment losses associated with discontinued operations
(report such losses on a net-of-tax basis in Schedule RI, item 11, "Discontinued operations,
net of applicable income taxes").
An institution that meets the definition of a private company in U.S. generally accepted
accounting principles and has elected the accounting alternative for the amortization of
goodwill in ASC Subtopic 350-20, Intangibles-Goodwill and Other – Goodwill (formerly FASB
Statement No. 142, “Goodwill and Other Intangible Assets”), as amended by Accounting
Standards Update No. 2014-02, “Accounting for Goodwill,” should report the amortization
expense of goodwill in this item. Exclude goodwill amortization expense associated with
discontinued operations (report such expense on a net-of-tax basis in Schedule RI, item 11,
“Discontinued operations, net of applicable income taxes”). A private company that elects the
accounting alternative for the subsequent measurement of goodwill should amortize each
amortizable unit of goodwill on a straight-line basis over ten years (or less than ten years if
the private company demonstrates that another useful life is more appropriate).
Except when the private company accounting alternative described above has been elected,
goodwill should not be amortized. However, regardless of whether goodwill is amortized, it
must be tested for impairment as described in the Glossary entry for “goodwill.”

7.c.(2)

Amortization expense and impairment losses for other intangible assets. Report the
amortization expense of and any impairment losses on intangible assets (other than goodwill
and servicing assets) reportable in Schedule RC-M, item 2.c. Under ASC Topic 350,
Intangibles-Goodwill and Other (formerly FASB Statement No. 142, “Goodwill and Other
Intangible Assets”), intangible assets that have indefinite useful lives should not be
amortized, but must be tested at least annually for impairment. Intangible assets that have
finite useful lives must be amortized over their useful lives and must be reviewed for
impairment in accordance with ASC Topic 360, Property, Plant, and Equipment (formerly
FASB Statement No. 144, “Accounting for the Impairment of Long-Lived Assets”).
Exclude the amortization expense of and any impairment losses on servicing assets, which
should be netted against the servicing income reported in Schedule RI, item 5.f, “Net
servicing fees,” above.

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Item No.
7.d

RI - INCOME STATEMENT

Caption and Instructions
Other noninterest expense. Report all operating expenses of the bank for the calendar
year-to-date not required to be reported elsewhere in Schedule RI.
Disclose in Schedule RI-E, items 2.a through 2.p, each component of other noninterest
expense, and the dollar amount of such component, that is greater than $100,000 and
exceeds 7 percent of the other noninterest expense reported in this item. If net gains have
been reported in this item for a component of “Other noninterest expense,” use the absolute
value of such net gains to determine whether the amount of the net gains is greater than
$100,000 and exceeds 7 percent of “Other noninterest expense” and should be reported in
Schedule RI-E, item 2. (The absolute value refers to the magnitude of the dollar amount
without regard to whether the amount represents net gains or net losses.)
For each component of other noninterest expense that exceeds the disclosure threshold in
the preceding paragraph and for which a preprinted caption has not been provided in
Schedule RI-E, items 2.a.through 2.m, describe the component with a clear but concise
caption in Schedule RI-E, items 2.n through 2.p. These descriptions should not exceed
50 characters in length (including spacing between words).
For disclosure purposes in Schedule RI-E, items 2.a through 2.m, when components of
“Other noninterest expense” reflect a single charge for separate “bundled services” provided
by third party vendors, disclose such amounts in the item with the preprinted caption that
most closely describes the predominant type of expense incurred, and this categorization
should be used consistently over time.
Include as other noninterest expense:
(1) Fees paid to directors and advisory directors for attendance at board of directors’ or
committee meetings (including travel and expense allowances). (Report the amount of
such fees in Schedule RI-E, item 2.c, if this amount is greater than $100,000 and
exceeds 7 percent of the amount reported in Schedule RI, item 7.d.)
(2) Cost of data processing services performed for the bank by others. (Report the amount of
such expenses in Schedule RI-E, item 2.a, if this amount is greater than $100,000 and
exceeds 7 percent of the amount reported in Schedule RI, item 7.d.)
(3) Advertising, promotional, public relations, marketing, and business development
expenses. Such expenses include the cost of athletic activities in which officers and
employees participate when the purpose may be construed to be for marketing or public
relations, and employee benefits are only incidental to the activities. (Report the amount
of such expenses in Schedule RI-E, item 2.b, if this amount is greater than $100,000 and
exceeds 7 percent of the amount reported in Schedule RI, item 7.d.)
(4) Cost of gifts or premiums (whether in the form of merchandise, credit, or cash) given to
depositors at the time of the opening of a new account or an addition to, or renewal of, an
existing account, if not included in advertising and marketing expenses above.
(5) Retainer fees, legal fees, and other fees and expenses paid to attorneys who are not
bank officers or employees and to outside law firms. (Report the amount of such
expenses in Schedule RI-E, item 2.f, if this amount is greater than $100,000 and exceeds
7 percent of the amount reported in Schedule RI, item 7.d.)

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RI - INCOME STATEMENT

Caption and Instructions

7.e

Total noninterest expense. Report the sum of items 7.a through 7.d.

8.a

Income (loss) before unrealized holding gains (losses) on equity securities not held for
trading, applicable income taxes, and discontinued operations. Report the institution’s
pretax income from continuing operations before unrealized holding gains (losses) on equity
securities not held for trading. This amount is determined by taking item 3, "Net interest
income," minus item 4, "Provision for loan and lease losses,"1 plus item 5.m, "Total
noninterest income," plus item 6.a, "Realized gains (losses) on held-to-maturity securities,"
plus item 6.b, "Realized gains (losses) on available-for-sale securities," minus item 7.e, "Total
noninterest expense." If the result is negative, report it with a minus (-) sign.

NOTE: Item 8.b is to be completed only by institutions that are required to have adopted FASB
Accounting Standards Update No. 2016-01 (ASU 2016-01), as discussed below. ASU 2016-01 includes
provisions governing the accounting for investments in equity securities and eliminates the concept of
available-for-sale equity securities. ASU 2016-01 requires holdings of equity securities (except those
accounted for under the equity method or that result in consolidation), including other ownership interests
(such as partnerships, unincorporated joint ventures, and limited liability companies), to be measured at
fair value with changes in the fair value recognized through net income. However, an institution may
choose to measure equity securities and other equity investments that do not have readily determinable
fair values at cost minus impairment, if any, plus or minus changes resulting from observable price
changes in orderly transactions for the identical or a similar investment of the same issuer.
Institutions that are not yet required to have adopted ASU 2016-01, as discussed below, should leave
item 8.b blank and report their unrealized gains (losses) on available-for-sale equity securities during the
year-to-date reporting period in Schedule RI-A, item 10, “Other comprehensive income.”
All institutions that are public business entities, as defined in U.S. GAAP, were required to have adopted
ASU 2016-01 for Call Report purposes as of the beginning of their 2018 fiscal year. For all other
institutions, ASU 2016-01 is effective for fiscal years beginning after December 15, 2018, and interim
periods within fiscal years beginning after December 15, 2019. Thus, an institution with a fiscal year that
ended between December 15, 2019, and September 30, 2020, and is not a public business entity is
required to have adopted ASU 2016-01 for Call Report purposes. An institution with a fiscal year that
ends after September 30, 2020, but before December 15, 2020 (and did not early adopt ASU 2016-01),
must begin to apply ASU 2016-01 in its Call Report for December 31, 2020.

8.b

Change in net unrealized holding gains (losses) on equity securities not held for
trading. Report the year-to-date change in net unrealized holding gains (losses) on equity
securities with readily determinable fair values not held for trading. Include the year-to-date
change in net unrealized holding gains (losses) on equity securities and other equity
investments without readily determinable fair values not held for trading that are measured at
fair value through earnings. Also include impairment, if any, plus or minus changes resulting
from observable price changes during the year-to-date reporting period on equity securities
and other equity investments without readily determinable fair values not held for trading for
which this measurement election is made.
Include realized gains (losses) on equity securities and other equity investments during the
year-to-date reporting period. A realized gain (loss) arises if an institution sells an equity
security or other equity investment, but had not yet recorded in earnings the change in value
to the point of sale since the last value change was recorded.

1

Note: Institutions that have adopted ASU 2016-13 should report provisions for credit losses on all assets within the
scope of the ASU in Schedule RI, item 4.

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Caption and Instructions

8.c

Income (loss) before applicable income taxes and discontinued operations. Report the
institution’s pretax income from continuing operations as the sum of Schedule RI, item 8.a,
"Income (loss) before unrealized holding gains (losses) on equity securities not held for
trading, applicable income taxes, and discontinued operations," and Schedule RI, item 8.b,
"Change in net unrealized holding gains (losses) on equity securities not held for trading."
If the amount is negative, report it with a minus (-) sign.

9

Applicable income taxes (on item 8.c). Report the total estimated federal, state and local,
and foreign income tax expense applicable to item 8.c, "Income (loss) before applicable
income taxes and discontinued operations." Include both the current and deferred portions of
these income taxes. If the amount is a tax benefit rather than tax expense, report it with a
minus (-) sign.
Include as applicable income taxes all taxes based on a net amount of taxable revenues
less deductible expenses. Exclude from applicable income taxes all taxes based on gross
revenues or gross receipts (report such taxes in Schedule RI, item 7.d, "Other noninterest
expense").

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Item No.
5

RC - BALANCE SHEET

Caption and Instructions
Trading assets. Trading activities typically include (a) regularly underwriting or dealing in
securities; interest rate, foreign exchange rate, commodity, equity, and credit derivative
contracts; other financial instruments; and other assets for resale; (b) acquiring or taking
positions in such items principally for the purpose of selling in the near term or otherwise with
the intent to resell in order to profit from short-term price movements; or (c) acquiring or
taking positions in such items as accommodations to customers, provided that acquiring or
taking such positions meets the definition of “trading” in ASC Topic 320, Investments–Debt
Securities, and ASC Topic 815, Derivatives and Hedging, and the definition of “trading
purposes” in ASC Topic 815. Assets and other financial instruments held for trading shall be
consistently valued at fair value as defined by ASC Topic 820, Fair Value Measurement.
For purposes of the Consolidated Reports of Condition and Income, all debt securities within
the scope of ASC Topic 320, Investments–Debt Securities, that a bank has elected to report
at fair value under a fair value option with changes in fair value reported in current earnings
should be classified as trading securities. In addition, for purposes of these reports, banks
may classify assets (other than debt securities within the scope of ASC Topic 320 for which a
fair value option is elected) as trading if the bank applies fair value accounting, with changes
in fair value reported in current earnings, and manages these assets as trading positions,
subject to the controls and applicable regulatory guidance related to trading activities. For
example, a bank would generally not classify a loan to which it has applied the fair value
option as a trading asset unless the bank holds the loan, which it manages as a trading
position, for one of the following purposes: (1) for market making activities, including such
activities as accumulating loans for sale or securitization; (2) to benefit from actual or
expected price movements; or (3) to lock in arbitrage profits.
Do not include in this item the carrying value of any available-for-sale securities, any loans
that are held for sale (and are not classified as trading in accordance with the preceding
instruction), and any leases that are held for sale. Available-for-sale debt securities are
reported in Schedule RC, item 2.b, and in Schedule RC-B, columns C and D. Loans (not
classified as trading) and leases held for sale should be reported in Schedule RC, item 4.a,
"Loans and leases held for sale," and in Schedule RC-C.
Trading assets also include derivatives with a positive fair value resulting from the "marking to
market" of interest rate, foreign exchange rate, commodity, equity, and credit derivative
contracts held for trading purposes as of the report date. Derivative contracts with the same
counterparty that have positive fair values and negative fair values and meet the criteria for a
valid right of setoff contained in ASC Subtopic 210-20, Balance Sheet – Offsetting
(e.g., those contracts subject to a qualifying master netting agreement), may be reported on a
net basis using this item and Schedule RC, item 15, "Trading liabilities," as appropriate.
(See the Glossary entry for "offsetting.")
For those banks that must complete Schedule RC-D, this item must equal Schedule RC-D,
item 12, "Total trading assets," and Schedule RC-Q, sum of items 5.a and 5.b, column A.

6

Premises and fixed assets. Report on a consolidated basis the book value, less
accumulated depreciation or amortization and any impairment losses, of all premises,
equipment, furniture, and fixtures purchased directly or acquired by means of a capital lease
accounted for in accordance with ASC Topic 840, Leases, or in the form of a right-of-use
(ROU) asset accounted for in accordance with ASC Topic 842, Leases, as applicable.
Any method of depreciation or amortization conforming to accounting principles that are
generally acceptable for financial reporting purposes may be used. However, depreciation
for premises and fixed assets may be based on a method used for federal income tax
purposes if the results would not be materially different from depreciation based on the
asset's estimated useful life.

FFIEC 031 and 041

RC-7
(9-20)

RC - BALANCE SHEET

FFIEC 031 and 041

RC - BALANCE SHEET

Item No.

Caption and Instructions

6
(cont.)

Do not deduct mortgages or other liens on such property (report in Schedule RC, item 16,
"Other borrowed money").
Include as premises and fixed assets:
(1) Premises that are actually owned and occupied (or to be occupied, if under construction)
by the institution, its branches, or its consolidated subsidiaries.
(2) Leasehold improvements, vaults, and fixed machinery and equipment.
(3) Capitalized remodeling costs to existing premises.
(4) Real estate acquired and intended to be used for future expansion.
(5) Parking lots owned by the institution that are used by customers or employees of the
institution, its branches, and its consolidated subsidiaries.
(6) Furniture, fixtures, and movable equipment of the institution, its branches, and its
consolidated subsidiaries.
(7) Automobiles, airplanes, and other vehicles owned by the institution and used in the
conduct of its business.
(8) For a lessee institution that has not adopted ASC Topic 842, the amount of capital lease
property, and for a lessee institution that has adopted ASC Topic 842, the amount of
ROU assets that represents premises, equipment, furniture, and fixtures.
In general, under ASC Topic 842 for an institution as lessee, the ROU asset for a finance
lease should be reported at cost less any accumulated amortization and any
accumulated impairment losses; the ROU asset for an operating lease (not previously
impaired) should be reported at the book value of the related lease liability adjusted for
the remaining balance of any lease incentives received, any prepaid or accrued lease
payments, any unamortized initial direct costs, and any current period impairment. After
an ROU asset for an operating lease is impaired, it should be reported at its carrying
amount immediately after the impairment less any accumulated amortization. See the
discussion of accounting by an institution as lessee in the Glossary entry for "lease
accounting."
(9) (a) Stocks and bonds issued by nonmajority-owned corporations and
(b) Investments in limited partnerships or limited liability companies (other than
investments so minor that the institution has virtually no influence over the
partnership or company)
whose principal activity is the ownership of land, buildings, equipment, furniture, or
fixtures occupied or used (or to be occupied or used) by the institution, its branches, or its
consolidated subsidiaries. For institutions that have adopted ASU 2016-01 (see the Note
preceding the instructions for Schedule RC, item 2.c), report such stocks and
investments at (i) fair value or (ii) if chosen by the reporting institution for an equity
investment that does not have a readily determinable fair value, at cost minus
impairment, if any, plus or minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of the same issuer.

FFIEC 031 and 041

RC-8
(9-20)

RC - BALANCE SHEET

FFIEC 031 and 041

RC-C - LOANS AND LEASES

Part I. (cont.)
Item No.

Caption and Instructions

9
(cont.)

(2)

Loans (other than those that meet the definition of a “loan secured by real estate”) to
nonprofit organizations (e.g., churches, hospitals, educational and charitable
institutions, clubs, and similar associations) except those collateralized by production
payments where the proceeds ultimately go to a commercial or industrial organization
(which are to be reported in Schedule RC-C, part I, item 4).

(3)

Loans to individuals for investment purposes (as distinct from commercial, industrial, or
professional purposes), other than those that meet the definition of a “loan secured by
real estate.”

(4)

On the FFIEC 041, loans to foreign governments, their official institutions, and
international and regional institutions, other than those that meet the definition of a “loan
secured by real estate”.

(5)

On the FFIEC 041, bankers acceptances accepted by the reporting bank and held in its
portfolio when the account party is a foreign government or official institution, including
such acceptances for the purpose of financing dollar exchange (except acceptances
held for trading, which are to be reported in Schedule RC, item 5).

Exclude from all other loans extensions of credit initially made in the form of planned or
"advance agreement" overdrafts other than those made to borrowers of the types whose
obligations are specifically reportable in this item (report such planned overdrafts in other
items of Schedule RC-C, part I, as appropriate). For example, report advances to banks in
foreign countries in the form of "advance agreement" overdrafts as loans to depository
institutions in Schedule RC-C, part I, item 2, and overdrafts under consumer check-credit
plans as “Other revolving credit plans” to individuals in Schedule RC-C, part I, item 6.b.
Report both planned and unplanned overdrafts on "due to" deposit accounts of depository
institutions in Schedule RC-C, part I, item 2.
9.a

Loans to nondepository financial institutions. Report in column B all loans to
nondepository financial institutions (on the FFIEC 031, in domestic offices) as described
above.

NOTE: Item 9.b is not applicable to banks filing the FFIEC 031 report forms.
9.b

Other loans. On the FFIEC 041, report in column B other loans as described above.

NOTE: Items 9.b.(1) and 9.b.(2) are not applicable to banks filing the FFIEC 041 report forms that have
less than $300 million in total assets.
9.b.(1)

Loans for purchasing or carrying securities. Report (on the FFIEC 041, in column A;
on the FFIEC 031, in column B) all loans for purchasing or carrying securities (on the
FFIEC 031, in domestic offices) as described above.

9.b.(2)

All other loans. Report (on the FFIEC 041, in column A; on the FFIEC 031, in column B) all
other loans (on the FFIEC 031, in domestic offices) as described above.

FFIEC 031 and 041

RC-C-19
(9-20)

RC-C - LOANS AND LEASES

FFIEC 031 and 041

RC-C - LOANS AND LEASES

Part I. (cont.)
Item No.
10

Caption and Instructions
Lease financing receivables (net of unearned income). Report the net investments in all:
(1) Direct financing leases accounted for under ASC Topic 840, Leases, by an institution that
has not adopted ASC Topic 842, Leases, including the estimated residual value of leased
property and any unamortized initial direct costs, net of unearned income;
(2) Direct financing and sales-type leases accounted for under ASC Topic 842 by an
institution that has adopted ASC Topic 842, including the lease receivable, unamortized
initial direct costs (if applicable), and the unguaranteed residual asset, net of any deferred
selling profit on a direct financing lease; and
(3) Leveraged leases accounted for under ASC Topic 840 (including leveraged leases that
were grandfathered upon the adoption of ASC Topic 842 and remain grandfathered).
On the FFIEC 041, all banks should report the total amount of these leases in column B, and
banks with $300 million or more in total assets should also report in the appropriate subitems
of column A a breakdown of these leases between leases to individuals for household, family,
and other personal expenditures and all other leases. On the FFIEC 031, all banks should
report the total amount of these leases in domestic offices in column B and a breakdown of
these leases for the fully consolidated bank between leases to individuals for household,
family, and other personal expenditures and all other leases in column A. For further
discussion of leases where the bank is the lessor, refer to the Glossary entry for "lease
accounting."
Include all leases to states and political subdivisions in the U.S. in this item.

NOTE: Items 10.a and 10.b are not applicable to banks filing the FFIEC 041 report forms that have less
than $300 million total assets.
10.a

Leases to individuals for household, family, and other personal expenditures. Report
in column A the net investments in all leases to individuals for household, family, and other
personal expenditures (i.e., consumer leases). Include direct financing leases accounted for
under ASC Topic 840, Leases, by an institution that has not adopted ASC Topic 842, Leases;
direct financing and sales-type leases accounted for under ASC Topic 842 by an institution
that has adopted this topic; and leveraged leases accounted for under ASC Topic 840
(including those that were grandfathered upon the adoption of ASC Topic 842 and remain
grandfathered). For further information on extending credit to individuals for consumer
purposes, refer to the instructions for Schedule RC-C, part I, items 6.c, “Automobile loans,”
and 6.d, “Other consumer loans.”

10.b

All other leases. Report in column A the net investments in all leases to lessees other than
for household, family, and other personal expenditure purposes. Include direct financing
leases accounted for under ASC Topic 840, Leases, by an institution that has not adopted
ASC Topic 842, Leases; direct financing and sales-type leases accounted for under
ASC Topic 842 by an institution that has adopted this topic; and leveraged leases accounted
for under ASC Topic 840 (including those that were grandfathered upon the adoption of
ASC Topic 842 and remain grandfathered).

FFIEC 031 and 041

RC-C-20
(9-20)

RC-C - LOANS AND LEASES

FFIEC 031 and 041

RC-C - LOANS AND LEASES

Part I. (cont.)
Item No.
11

Caption and Instructions
LESS: Any unearned income on loans reflected in items 1-9 above. To the extent
possible, the preferred treatment is to report the specific loan categories net of both unearned
income and net unamortized loan fees. A reporting bank should enter (on the FFIEC 041, in
column B; on the FFIEC 031, in columns A and B, as appropriate) unearned income and net
unamortized loan fees only to the extent that these amounts are included in (i.e., not
deducted from) the various loan items of this schedule (Schedule RC-C, part I, items 1
through 9). If a bank reports each loan item of this schedule net of both unearned income
and net unamortized loan fees, enter a zero in this item.
Do not include net unamortized direct loan origination costs in this item; such costs must be
added to the related loan balances reported in Schedule RC-C, part I, items 1 through 9. In
addition, do not include unearned income on lease financing receivables in this item. Leases
should be reported net of unearned income in Schedule RC-C, part I, item 10.

12

Total loans and leases held for investment and held for sale. On the FFIEC 041, report
in column B the sum of items 1.a.(1) through 10, column B, less item 11, column B. On the
FFIEC 031, for large institutions and highly complex institutions – as defined for assessment
purposes – with foreign offices, report in column A the sum of items 1.a.(1) through 10.b,
column A, less item 11, column A; report in column B the sum of items 1.a.(1) through 10,
column B, less item 11, column B. On the FFIEC 031, for all other institutions with foreign
offices, report in column A the sum of item 1 and items 2.a.(1) through 10.b, column A, less
item 11, column A; report in column B the sum of items 1.a.(1) through 10, column B, less
item 11, column B.
The amount reported for this item (on the FFIEC 041, in column B; on the FFIEC 031 must
equal Schedule RC, item 4.a, plus item 4.b.

FFIEC 031 and 041

RC-C-20a
(9-20)

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FFIEC 031 and 041

RC-D – TRADING

SCHEDULE RC-D – TRADING ASSETS AND LIABILITIES
General Instructions
Schedule RC-D is to be completed by banks that:
(1) Reported total trading assets of $10 million or more in any of the four preceding calendar quarters, or
(2) Meet the FDIC’s definition of a large or highly complex institution for deposit insurance assessment
purposes.1
Memorandum items 2 through 10 of Schedule RC-D are not applicable to banks filing the FFIEC 041
report form. On the FFIEC 031 report form, Memorandum items 2 through 10 of Schedule RC-D are to
be completed by banks with $10 billion or more in total trading assets.
Trading activities typically include (a) regularly underwriting or dealing in securities; interest rate, foreign
exchange rate, commodity, equity, and credit derivative contracts; other financial instruments; and other
assets for resale, (b) acquiring or taking positions in such items principally for the purpose of selling in the
near term or otherwise with the intent to resell in order to profit from short-term price movements, and
(c) acquiring or taking positions in such items as accommodations to customers, provided that acquiring
or taking such positions meets the definition of “trading” in ASC Topic 320, Investments–Debt Securities,
and ASC Topic 815, Derivatives and Hedging, and the definition of “trading purposes” in ASC Topic 815.
For purposes of the Consolidated Reports of Condition and Income, all debt securities within the scope of
ASC Topic 320, Investments–Debt Securities, that a bank has elected to report at fair value under a fair
value option with changes in fair value reported in current earnings should be classified as trading
securities. In addition, for purposes of these reports, banks may classify assets (other than debt
securities within the scope of ASC Topic 320) and liabilities (other than deposit liabilities required to be
reported in Schedule RC-E) as trading if the bank applies fair value accounting, with changes in fair value
reported in current earnings, and manages these assets and liabilities as trading positions, subject to the
controls and applicable regulatory guidance related to trading activities. For example, a bank would
generally not classify a loan to which it has applied the fair value option as a trading asset unless the
bank holds the loan, which it manages as a trading position, for one of the following purposes: (a) for
market making activities, including such activities as accumulating loans for sale or securitization; (b) to
benefit from actual or expected price movements; or (c) to lock in arbitrage profits. When reporting loans
classified as trading in Schedule RC-D, banks should include only the fair value of the funded portion of
the loan in item 6 of this schedule. If the unfunded portion of the loan, if any, is classified as trading (and
does not meet the definition of a derivative), the fair value of the commitment to lend should be reported
as an “Other trading asset” or an “Other trading liability,” as appropriate, in Schedule RC-D, item 9 or
item 13.b, respectively.
Assets, liabilities, and other financial instruments classified as trading shall be consistently valued at fair
value as defined by ASC Topic 820, Fair Value Measurement.
Exclude from this schedule all available-for-sale securities and all loans and leases that do not satisfy
the criteria for classification as trading as described above. (Also see the Glossary entry for “trading
account.”) Available-for-sale securities are generally reported in Schedule RC, item 2.b, and in
Schedule RC-B, columns C and D. However, a bank may have certain assets that fall within the
definition of "securities" in ASC Topic 320 (e.g., nonrated industrial development obligations) that the
bank has designated as "available-for-sale" which are reported for purposes of the Consolidated Report
of Condition in a balance sheet category other than "Securities" (e.g., "Loans and lease financing
receivables"). Loans and leases that do not satisfy the criteria for the trading account should be reported
in Schedule RC, item 4.a or item 4.b, and in Schedule RC-C.

1

See 12 CFR § 327.8 and 12 CFR § 327.16(f).

FFIEC 031 and 041

RC-D-1
(9-20)

RC-D – TRADING

FFIEC 031 and 041

RC-D – TRADING

Item Instructions
Item No.

Caption and Instructions

ASSETS
1

U.S. Treasury securities. Report the total fair value of securities issued by the U.S.
Treasury (as defined for Schedule RC-B, item 1, "U.S. Treasury securities") held for trading.

2

U.S. Government agency obligations. Report the total fair value of all obligations of U.S.
Government agencies (as defined for Schedule RC-B, item 2, “U.S. Government agency and
sponsored agency obligations") held for trading. Exclude mortgage-backed securities.

3

Securities issued by states and political subdivisions in the U.S. Report the total fair
value of all securities issued by states and political subdivisions in the United States (as
defined for Schedule RC-B, item 3, "Securities issued by states and political subdivisions in
the U.S.") held for trading.

4

Mortgage-backed securities. Report in the appropriate subitem the total fair value of all
mortgage-backed securities held for trading.

4.a

Residential mortgage pass-through securities issued or guaranteed by FNMA, FHLMC,
or GNMA. Report the total fair value of all residential mortgage pass-through securities
issued or guaranteed by FNMA, FHLMC, or GNMA (as defined for Schedule RC-B,
item 4.a.(1), Residential mortgage pass-through securities "Guaranteed by GNMA," and
item 4.a.(2), Residential pass-through securities "Issued by FNMA and FHLMC") held for
trading.

4.b

Other residential MBS issued or guaranteed by U.S. Government agencies or
sponsored agencies. Report the total fair value of all other residential mortgage-backed
securities issued or guaranteed by U.S. Government agencies or U.S. Governmentsponsored agencies (as defined for Schedule RC-B, item 4.b.(1), Other residential mortgagebacked securities "Issued or guaranteed by U.S. Government agencies or sponsored
agencies") held for trading.
U.S. Government agencies include, but are not limited to, such agencies as the Government
National Mortgage Association (GNMA), the Federal Deposit Insurance Corporation (FDIC),
and the National Credit Union Administration (NCUA). U.S. Government-sponsored agencies
include, but are not limited to, such agencies as the Federal Home Loan Mortgage
Corporation (FHLMC) and the Federal National Mortgage Association (FNMA).

4.c

All other residential MBS. Report the total fair value of all other residential mortgagebacked securities (as defined for Schedule RC-B, item 4.a.(3), "Other [residential mortgage]
pass-through securities," item 4.b.(2), Other residential mortgage-backed securities
"Collateralized by MBS issued or guaranteed by U.S. Government agencies or sponsored
agencies," and item 4.b.(3), "All other residential MBS") held for trading.

4.d

Commercial MBS issued or guaranteed by U.S. Government agencies or sponsored
agencies. Report the total fair value of all commercial mortgage-backed securities (as
defined for Schedule RC-B, item 4.c, “Commercial MBS”) issued or guaranteed by U.S.
Government agencies or U.S. Government-sponsored agencies that are held for trading.
Also include commercial mortgage pass-through securities guaranteed by the Small Business
Administration.

FFIEC 031 and 041

RC-D-2
(9-20)

RC-D – TRADING

FFIEC 031 and 041

RC-D – TRADING

Memoranda
Item No.

Caption and Instructions

4.a
(cont.)

(2) Securities held for trading by consolidated variable interest entities (VIEs) that can be
used only to settle obligations of the same consolidated VIEs (the amount of which is also
reported in Schedule RC-V, item 1.e).
(3) Securities held for trading owned by consolidated insurance subsidiaries and held in
custodial trusts that are pledged to insurance companies external to the consolidated bank.

4.b

Pledged loans. Report the total fair value of all loans held for trading included in
Schedule RC-D above that are pledged to secure deposits, repurchase transactions, or other
borrowings (regardless of the balance of the deposits or other liabilities against which the
loans are pledged) or for any other purpose. Include loans held for trading that have been
transferred in transactions that are accounted for as secured borrowings with a pledge of
collateral because they do not qualify as sales under ASC Topic 860, Transfers and Servicing
(formerly FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,” as amended). Also include loans held for trading
by consolidated variable interest entities (VIEs) that can be used only to settle obligations of
the same consolidated VIEs (the amount of which is also reported in Schedule RC-V,
item 1.h). In general, the pledging of loans is the act of setting aside certain loans to secure
or collateralize bank transactions with the bank continuing to own the loans unless the bank
defaults on the transaction.

5

Asset-backed securities. Report in the appropriate subitem the total fair value of all assetbacked securities (other than mortgage-backed securities), including asset-backed
commercial paper, held for trading that are included in Schedule RC-D, item 5.b, above.

5.a

Credit card receivables. Report the total fair value of all asset-backed securities
collateralized by credit card receivables, i.e., extensions of credit to individuals for household,
family, and other personal expenditures arising from credit cards as defined for
Schedule RC-C, part I, item 6.a.

5.b

Home equity lines. Report the total fair value of all asset-backed securities collateralized by
home equity lines of credit, i.e., revolving, open-end lines of credit secured by 1-to-4 family
residential properties as defined for Schedule RC-C, part I, item 1.c.(1).

5.c

Automobile loans. Report the total fair value of all asset-backed securities collateralized by
automobile loans, i.e., loans to individuals for the purpose of purchasing private passenger
vehicles, including minivans, vans, sport-utility vehicles, pickup trucks, and similar light trucks
for personal use as defined for Schedule RC-C, part I, item 6.c.

5.d

Other consumer loans. Report the total fair value of all asset-backed securities
collateralized by other consumer loans, i.e., loans to individuals for household, family, and
other personal expenditures as defined for Schedule RC-C, part I, items 6.b and 6.d.

5.e

Commercial and industrial loans. Report the total fair value of all asset-backed securities
collateralized by commercial and industrial loans, i.e., loans for commercial and industrial
purposes to sole proprietorships, partnerships, corporations, and other business enterprises,
whether secured (other than by real estate) or unsecured, single-payment or installment, as
defined for Schedule RC-C, part I, item 4.

FFIEC 031 and 041

RC-D-9
(9-20)

RC-D – TRADING

FFIEC 031 and 041

RC-D – TRADING

Memoranda
Item No.

Caption and Instructions

5.f

Other. Report the total fair value of all asset-backed securities collateralized by loans
other than those included in Schedule RC-D, Memorandum items 5.a through 5.e, above,
i.e., loans as defined for Schedule RC-C, part I, items 2, 3, 7 (on the FFIEC 031 only), 8,
and 9, and lease financing receivables as defined for Schedule RC-C, part I, item 10.

6

Not applicable.

7

Equity securities. Report in the appropriate subitem the total fair value of all equity
securities held for trading that are included in Schedule RC-D, item 9, above.

7.a

Readily determinable fair values. Report the total fair value of all equity securities held for
trading that have readily determinable fair values, as defined by ASC Topic 321, Investments–
Equity Securities, regardless of whether such equity securities are within or outside the scope
of ASC Topic 321.

7.b

Other. Report the total fair value of all equity securities held for trading not included in
Schedule RC-D, Memorandum item 7.a, above.

8

Loans pending securitization. Report the total fair value of all loans included in
Schedule RC-D, items 6.a through 6.d, that are held for securitization purposes. Report such
loans in this item only if the bank expects the securitization transaction to be accounted for as
a sale under ASC Topic 860, Transfers and Servicing (formerly FASB Statement No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” as amended).

9

Other trading assets. Disclose in Memorandum items 9.a through 9.c each component of
Schedule RC-D, item 9, “Other trading assets,” and the fair value of such component, that is
greater than $1,000,000 and exceeds 25 percent of the amount reported for this item.
Exclude equity securities reported in Schedule RC-D, Memorandum items 7.a and 7.b. For
each component of other trading assets that exceeds the disclosure threshold for this
Memorandum item, describe the component with a clear but concise caption in Memorandum
items 9.a through 9.c. These descriptions should not exceed 50 characters in length
(including spacing between words).

10

Other trading liabilities. Disclose in Memorandum items 10.a through 10.c each
component of Schedule RC-D, item 13.b, “Other trading liabilities,” and the fair value of such
component, that is greater than $1,000,000 and exceeds 25 percent of the amount reported
for this item. For each component of other trading liabilities that exceeds this disclosure
threshold, describe the component with a clear but concise caption in Memorandum
items 10.a through 10.c. These descriptions should not exceed 50 characters in length
(including spacing between words).

FFIEC 031 and 041

RC-D-10
(9-20)

RC-D – TRADING

FFIEC 031 and 041

RC-E - DEPOSITS

Column Instructions
Deposits as summarized above are divided into two general categories, "Transaction Accounts"
(columns A and B) and "Nontransaction Accounts (including MMDAs)" (column C).
Column A - Total transaction accounts. Report in column A the total of all transaction accounts as
summarized above and fully defined in the Glossary entry for "deposits." With the exceptions noted in the
item instructions and the Glossary entry, the term "transaction account" is defined as a deposit or account
from which the depositor or account holder is permitted to make transfers or withdrawals by negotiable or
transferable instruments, payment orders of withdrawal, telephone transfers, or other similar devices for
the purpose of making third party payments or transfers to third persons or others, or from which the
depositor may make third party payments at an automated teller machine (ATM), a remote service unit
(RSU), or another electronic device, including by debit card.
Column B - Memo: Total demand deposits. Report in item 7, column B, the total of all demand deposits,
both interest-bearing and noninterest-bearing. Also include any matured time or savings deposits without
automatic renewal provisions, unless the deposit agreement specifically provides for the funds to be
transferred at maturity to another type of account (i.e., other than a demand deposit). (See the Glossary
entry for "deposits.")
NOTE: Demand deposits are, of course, one type of transaction account. Therefore, the amount
reported in item 7, column B, should be included by category of depositor in the breakdown of transaction
accounts by category of depositor that is reported in column A.
Column C - Total nontransaction accounts (including MMDAs). Report in column C all deposits other
than transaction accounts as summarized above and defined in the Glossary entry for "deposits." Include
in column C all interest-bearing and noninterest-bearing savings deposits and time deposits together with
all interest paid by crediting savings and time deposit accounts.

Item Instructions
In items 1 through 6 of Schedule RC-E, banks report separate breakdowns of their transaction and
nontransaction accounts by category of depositor. When reporting brokered deposits in these items, the
funds should be categorized as deposits of “Individuals, partnerships, and corporations,” “States and
political subdivisions in the U.S.,” or “Commercial banks and other depository institutions in the U.S.” based
on the beneficial owners of the funds that the broker has placed in the bank. However, if this information is
not readily available to the issuing bank for certain brokered deposits because current deposit insurance
rules do not require the deposit broker to provide information routinely on the beneficial owners of the
deposits and their account ownership capacity to the bank issuing the deposits, these brokered deposits
may be rebuttably presumed to be deposits of “Individuals, partnerships, and corporations” and reported
in Schedule RC-E, item 1, below. For further information, see the Glossary entry for "brokered deposits."

Item No.
1

Caption and Instructions
Deposits of individuals, partnerships, and corporations (include all certified and official
checks). Report in the appropriate column all deposits of individuals, partnerships, and
corporations, wherever located, and all certified and official checks.

FFIEC 031 and 041

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RC-E - DEPOSITS

FFIEC 031 and 041

RC-E - DEPOSITS

Item No.

Caption and Instructions

1
(cont.)

Include in this item:
(1) Deposits related to the personal, household, or family activities of both farm and nonfarm
individuals and to the business activities of sole proprietorships.
(2) Deposits of corporations and organizations (other than depository institutions), regardless
of whether they are operated for profit, including but not limited to:
(a) mutual funds and other nondepository financial institutions;
(b) foreign government-owned nonbank commercial and industrial enterprises; and
(c) quasi-governmental organizations such as post exchanges on military posts and
deposits of a company, battery, or similar organization (unless the reporting bank has
been designated by the U.S. Treasury as a depository for such funds and appropriate
security for the deposits has been pledged, in which case, report in Schedule RC-E,
item 2).
(3) Dealer reserve accounts (see the Glossary entry for "dealer reserve accounts" for the
definition of this term).
(4) Deposits of U.S. Government agencies and instrumentalities such as the:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)

Banks for Cooperatives,
Export-Import Bank of the U.S.,
Federal Deposit Insurance Corporation,
Federal Financing Bank,
Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks,
Federal Land Banks,
Federal National Mortgage Association,
National Credit Union Administration Central Liquidity Facility, and
National Credit Union Share Insurance Fund.

(5) Deposits of trust funds standing to the credit of other banks and all trust funds held or
deposited in any department (except the trust department) of the reporting bank if the
beneficiary is an individual, partnership, or corporation.
(6) Credit balances on credit cards and other revolving credit plans as a result of customer
overpayments.
(7) Deposits of a federal or state court held for the benefit of individuals, partnerships, or
corporations, such as bankruptcy funds and escrow funds.
(8) Deposits of a pension fund held for the benefit of individuals.

FFIEC 031 and 041

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RC-E - DEPOSITS

FFIEC 031 and 041

RC-E - DEPOSITS

Item No.

Caption and Instructions

1
(cont.)

(9) Certified and official checks, which include the following:
(a) Unpaid depositors' checks that have been certified.
(b) Cashiers' checks, money orders, and other officers' checks issued for any purpose
including those issued in payment for services, dividends, or purchases that are
drawn on the reporting bank by any of its duly authorized officers and that are
outstanding on the report date.
(c) Funds received or held in connection with checks or drafts drawn by the reporting
bank and drawn on, or payable at or through, another depository institution either on a
zero-balance account or on an account that is not routinely maintained with sufficient
balances to cover checks drawn in the normal course of business (including accounts
where funds are remitted by the reporting bank only when it has been advised that
the checks or drafts have been presented).
(d) Funds received or held in connection with traveler's checks and money orders sold
(but not drawn) by the reporting bank, until the proceeds of the sale are remitted to
another party, and funds received or held in connection with other such checks used
(but not drawn) by the reporting bank, until the amount of the checks is remitted to
another party.
(e) Checks drawn by the reporting bank on, or payable at or through, a Federal Reserve
Bank or a Federal Home Loan Bank.

FFIEC 031 and 041

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FFIEC 031 and 041

RC-L – DERIVATIVES AND OFF-BALANCE SHEET

Item No.

Caption and Instructions

1.e.(3)

All other unused commitments. Report the unused portions of commitments not reportable
in Schedule RC-L, items 1.a through 1.e.(2), above.
Include commitments to extend credit secured by 1-4 family residential properties, except
(a) revolving, open-end lines of credit secured by 1-4 family residential properties (e.g., home
equity lines), which should be reported in Schedule RC-L, item 1.a, above, (b) commitments
for 1-4 family residential construction and land development loans (that are secured by such
properties), which should be reported in Schedule RC-L, item 1.c.(1), above, and
(c) commitments that meet the definition of a derivative and must be accounted for in
accordance with ASC Topic 815, Derivatives and Hedging (formerly FASB Statement
No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended),
which should be reported in Schedule RC-L, item 12.

2 and 3

General Instructions for Standby Letters of Credit – Originating banks must report in
items 2 and 3 the full amount outstanding and unused of financial and performance standby
letters of credit, respectively. Include those standby letters of credit that are collateralized by
cash on deposit, that have been acquired from others, and in which participations have been
conveyed to others where (a) the originating and issuing bank is obligated to pay the full
amount of any draft drawn under the terms of the standby letter of credit and (b) the
participating banks have an obligation to partially or wholly reimburse the originating bank,
either directly in cash or through a participation in a loan to the account party.
For syndicated standby letters of credit where each bank has a direct obligation to the
beneficiary, each bank must report only its share in the syndication. Similarly, if several banks
participate in the issuance of a standby letter of credit under a bona fide binding agreement
which provides that (a) regardless of any event, each participant shall be liable only up to a
certain percentage or to a certain amount and (b) the beneficiary is advised and has agreed
that each participating bank is only liable for a certain portion of the entire amount, each bank
shall report only its proportional share of the total standby letter of credit.
For a financial or performance standby letter of credit that is in turn backed by a financial
standby letter of credit issued by another bank, each bank must report the entire amount of the
standby letter of credit it has issued in either item 2 or item 3 below, as appropriate. The
amount of the reporting bank's financial or performance standby letter of credit that is backed
by the other bank's financial standby letter of credit must also be reported in either item 2.a
or 3.a, as appropriate, since the backing of standby letters of credit has substantially the same
effect as the conveying of participations in standby letters of credit.
On the FFIEC 031, also include all financial and performance guarantees issued by
foreign offices of the reporting bank pursuant to Federal Reserve Regulation K or
Section 347.103(a)(1) of the FDIC Rules and Regulations.

2

Financial standby letters of credit (and foreign office guarantees – for the FFIEC 031).
Report the amount outstanding and unused as of the report date of all financial standby letters
of credit (and all legally binding commitments to issue financial standby letters of credit) issued
by any office of the bank. A financial standby letter of credit irrevocably obligates the bank to
pay a third-party beneficiary when a customer (account party) fails to repay an outstanding
loan or debt instrument. (See the Glossary entry for "letter of credit" for further information.)
Exclude from financial standby letters of credit:
(1) Financial standby letters of credit where the beneficiary is a consolidated subsidiary of
the reporting bank.
(2) Financial standby letters of credit issued by another depository institution (such as a
correspondent bank), a Federal Home Loan Bank, or any other entity on behalf of the

FFIEC 031 and 041

RC-L-3
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FFIEC 031 and 041

Item No.

RC-L – DERIVATIVES AND OFF-BALANCE SHEET

Caption and Instructions

2
(cont.)

reporting bank, which is the account party on the letters of credit and therefore is
obligated to reimburse the issuing entity for all payments made under the standby letters
of credit (report such standby letters of credit in Schedule RC-L, item 9).
(3) Performance standby letters of credit (report such standby letters of credit in
Schedule RC-L, item 3).
(4) Signature or endorsement guarantees of the type associated with the clearing of
negotiable instruments or securities in the normal course of business.

2.a

Amount of financial standby letters of credit conveyed to others. Item 2.a is to be
completed by banks with $1 billion or more in total assets.
Report that portion of the bank's total contingent liability for financial standby letters of credit
reported in Schedule RC-L, item 2, above, that the bank has conveyed to others. Also
include that portion of the reporting bank's financial standby letters of credit that are backed
by other banks' financial standby letters of credit, as well as the portion that participating
banks have reparticipated to others. Participations and backings may be for any part or all of
a given obligation.

3

Performance standby letters of credit (and foreign office guarantees – for the
FFIEC 031). Report the amount outstanding and unused as of the report date of all
performance standby letters of credit (and all legally binding commitments to issue
performance standby letters of credit) issued by any office of the bank. A performance
standby letter of credit irrevocably obligates the bank to pay a third-party beneficiary when a
customer (account party) fails to perform some contractual non-financial obligation. (See the
Glossary entry for "letter of credit" for further information.)
Exclude from performance standby letters of credit:
(1) Performance standby letters of credit where the beneficiary is a consolidated subsidiary
of the reporting bank.
(2) Financial standby letters of credit.
(3) Signature or endorsement guarantees of the type associated with the clearing of
negotiable instruments or securities in the normal course of business.

3.a

Amount of performance standby letters of credit conveyed to others. Item 3.a is to be
completed by banks with $1 billion or more in total assets.
Report that portion of the bank's total contingent liability for performance standby letters of
credit reported in Schedule RC-L, item 3, above, that the bank has conveyed to others. Also
include that portion of the reporting bank's performance standby letters of credit that are
backed by other banks' financial standby letters of credit, as well as the portion that
participating banks have reparticipated to others. Participations and backings may be for any
part or all of a given obligation.

4

Commercial and similar letters of credit. Report the amount outstanding and unused as of
the report date of issued or confirmed commercial letters of credit, travelers' letters of credit
not issued for money or its equivalent, and all similar letters of credit, but excluding standby
letters of credit (which are to be reported in Schedule RC-L, items 2 and 3, above). (See the
Glossary entry for "letter of credit.") Legally binding commitments to issue commercial letters
of credit are to be reported in this item.
Travelers' letters of credit and other letters of credit issued for money or its equivalent by the
reporting bank or its agents should be reported as demand deposit liabilities in Schedule RC-E.

FFIEC 031 and 041

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FFIEC 031 and 041

Item No.
13

RC-L – DERIVATIVES AND OFF-BALANCE SHEET

Caption and Instructions
Total gross notional amount of derivative contracts held for trading. Report, in the
appropriate column, the total notional amount or par value of those derivative contracts
reported in Schedule RC-L, item 12, above that are held for trading purposes. Contracts held
for trading purposes include those used in dealing and other trading activities. Derivative
instruments used to hedge trading activities should also be reported in this item.
Derivative trading activities include (a) regularly dealing in interest rate contracts, foreign
exchange contracts, equity derivative contracts, and commodity and other contracts meeting
the definition of a “derivative instrument” in, and accounted for in accordance with, ASC
Topic 815, Derivatives and Hedging, (b) acquiring or taking positions in such items principally
for the purpose of selling in the near term or otherwise with the intent to resell (or repurchase)
in order to profit from short-term price movements, and (c) acquiring or taking positions in
such items as accommodations to customers, provided that acquiring or taking such positions
meets the definitions of “trading” and “trading purposes” in ASC Topic 815. The notional
amount of those derivative positions acquired or taken as accommodations to customers not
meeting the definitions of “trading” and “trading purposes” in ASC Topic 815 should be
reported in Schedule RC-L, item 14, “Total gross notional amount of derivative contracts held
for purposes other than trading.”
The reporting bank's trading department may have entered into a derivative contract with
another department or business unit within the consolidated bank (and which has been
reported on a net basis in accordance with the instructions to Schedule RC-L, item 12,
above). If the trading department has also entered into a matching contract with a
counterparty outside the consolidated bank, the contract with the outside counterparty should
be designated as held for trading or as held for purposes other than trading consistent with
the contract's designation for other financial reporting purposes.

14

Total gross notional amount of derivative contracts held for purposes other than
trading. Report, in the appropriate column, the total notional amount or par value of those
contracts reported in Schedule RC-L, item 12, above, that are held for purposes other than
trading, including those contracts acquired or taken as accommodations to customers not
reported in Schedule RC-L, item 13, above.

14.a

Interest rate swaps where the bank has agreed to pay a fixed rate. Report the notional
amount of all outstanding interest rate swaps included in Schedule RC-L, item 14, column A,
above, on which the reporting bank is obligated to pay a fixed rate. The interest rate swaps
that are reported in this item will also have been reported in Schedule RC-L, item 12.e,
column A. Interest rate swaps that are held for trading should not be reported in this
item 14.a.
A fixed interest rate is a rate that is specified at the origination of the transaction, is fixed and
invariable during the term of the interest rate swap, and is known to both the bank and the
swap counterparty. Also treated as a fixed interest rate is a predetermined interest rate which
is a rate that changes during the term of the interest rate swap on a predetermined basis,
with the exact rate of interest over the life of the swap known with certainty to both the bank
and the swap counterparty at the origination of the transaction.

15

Gross fair values of derivative contracts. Report in the appropriate column and subitem
the fair value of all derivative contracts reported in Schedule RC-L, items 13 and 14, above.
For each of the four types of underlying risk exposure in columns A through D, the gross
positive and gross negative fair values will be reported separately for (i) contracts held for
trading purposes (in item 15.a) and (ii) contracts held for purposes other than trading (in
item 15.b). Guidance for reporting by type of underlying risk exposure is provided in the
instructions for Schedule RC-L, item 12, above. Guidance for reporting by purpose is
provided in the instructions for Schedule RC-L, items 13 and 14, above.

FFIEC 031 and 041

RC-L-17
(9-20)

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FFIEC 031 and 041

RC-L – DERIVATIVES AND OFF-BALANCE SHEET

Item No.

Caption and Instructions

15
(cont.)

All transactions within the consolidated bank should be reported on a net basis. No other
netting of contracts is permitted for purposes of this item. Therefore, do not net
(1) obligations of the reporting bank to buy against the bank's obligations to sell, (2) written
options against purchased options, (3) positive fair values against negative fair values, or
(4) contracts subject to bilateral netting agreements.
According to ASC Topic 820, Fair Value Measurement, fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants in the asset’s or liability’s principal (or most advantageous)
market at the measurement date. For purposes of item 15, the reporting bank should
determine the fair value of its derivative contracts in the same manner that it determines the
fair value of these contracts for other financial reporting purposes, consistent with the
guidance in ASC Topic 820.

15.a

Contracts held for trading. Report in the appropriate column and subitem the gross
positive and gross negative fair values of those contracts held for trading that are reported in
Schedule RC-L, item 13, above.

15.a.(1)

Gross positive fair value. Report in the appropriate column the total fair value of those
contracts reported in Schedule RC-L, item 13, above, with positive fair values.

15.a.(2)

Gross negative fair value. Report in the appropriate column the total fair value of those
contracts reported in Schedule RC-L, item 13, above, with negative fair values. Report the
total fair value as an absolute value, do not report with a minus (-) sign.

15.b

Contracts held for purposes other than trading. Report in the appropriate column and
subitem the gross positive and gross negative fair values of those contracts held for purposes
other than trading that are reported in Schedule RC-L, item 14, above.

15.b.(1)

Gross positive fair value. Report in the appropriate column the total fair value of those
contracts reported in Schedule RC-L, item 14, above, with positive fair values.

15.b.(2)

Gross negative fair value. Report in the appropriate column the total fair value of those
contracts reported in Schedule RC-L, item 14, above, with negative fair values. Report the
total fair value as an absolute value, do not report with a minus (-) sign.

FFIEC 031 and 041

RC-L-18
(9-20)

RC-L – DERIVATIVES AND OFF-BALANCE SHEET

FFIEC 031 and 041

Item No.
7

RC-O - ASSESSMENTS

Caption and Instructions
Unsecured "Other borrowings" with a remaining maturity of. Report on an
unconsolidated single FDIC certificate number basis the amount of the bank’s unsecured
“Other borrowings” (as defined for Schedule RC-M, item 5.b) in the appropriate subitems
according to the amount of time remaining until their final contractual maturities. Include both
fixed rate and floating rate “Other borrowings” that are unsecured. In general, “Other
borrowings” are unsecured if the bank (or a consolidated subsidiary) has not pledged
securities, loans, or other assets as collateral for the borrowing.
The sum of Schedule RC-O, items 7.a through 7.d, must be less than or equal to
Schedule RC-M, items 5.b.(1)(a) through (d) minus item 10.b.
Exclude from items 7.a through 7.d all borrowings reported in Schedule RC-M, item 10.b,
“Amount of ‘Other borrowings’ that are secured,” including all obligations under capital leases
accounted for under ASC Topic 840, Leases, and lease liabilities for finance leases
accounted for under ASC Topic 842, Leases, as applicable. Also exclude from items 7.a
through 7.d all lease liabilities for operating leases accounted for under ASC Topic 842,
which are reported in Schedule RC-G, item 4, “All other liabilities.”

7.a

One year or less. Report on an unconsolidated single FDIC certificate number basis all
unsecured “Other borrowings” with a remaining maturity of one year or less. Include
unsecured “Other borrowings” with a remaining maturity of over one year for which the holder
has the option to redeem the debt instrument within one year of the report date. Except for
such optionally redeemable borrowings, the unsecured “Other borrowings” that should be
included in this item will also have been reported in Schedule RC-M, item 5.b.(2), “Other
borrowings with a remaining maturity of one year or less.”

7.b

Over one year through three years. Report on an unconsolidated single FDIC certificate
number basis all unsecured “Other borrowings” with a remaining maturity of over one year
through three years.

7.c

Over three years through five years. Report on an unconsolidated single FDIC certificate
number basis all unsecured “Other borrowings” with a remaining maturity of over three years
through five years.

7.d

Over five years. Report on an unconsolidated single FDIC certificate number basis all
unsecured “Other borrowings” with a remaining maturity of over five years.

8

Subordinated notes and debentures with a remaining maturity of. Report on an
unconsolidated single FDIC certificate number basis the amount of the bank’s subordinated
notes and debentures (as defined for Schedule RC, item 19, and in the Glossary entry for
“subordinated notes and debentures”) in the appropriate subitems according to the amount of
time remaining until their final contractual maturities. Include both fixed rate and floating rate
subordinated notes and debentures.
The sum of Schedule RC-O, items 8.a through 8.d, must be less than or equal to
Schedule RC, item 19, “Subordinated notes and debentures.”

8.a

One year or less. Report on an unconsolidated single FDIC certificate number basis all
subordinated notes and debentures with a remaining maturity of one year or less. Include
subordinated notes and debentures with a remaining maturity of over one year for which the
holder has the option to redeem the subordinated debt within one year of the report date.

8.b

Over one year through three years. Report on an unconsolidated single FDIC certificate
number basis all subordinated notes and debentures with a remaining maturity of over one
year through three years.

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FFIEC 031 and 041

Item No.

RC-O - ASSESSMENTS

Caption and Instructions

8.c

Over three years through five years. Report on an unconsolidated single FDIC certificate
number basis all subordinated notes and debentures with a remaining maturity of over three
years through five years.

8.d

Over five years. Report on an unconsolidated single FDIC certificate number basis all
subordinated notes and debentures with a remaining maturity of over five years.

9

Brokered reciprocal deposits. Report on an unconsolidated single FDIC certificate number
basis the amount of brokered reciprocal deposits included in the amount of brokered deposits
reported in Schedule RC-E, Memorandum item 1.b, “Total brokered deposits.” Exclude
reciprocal deposits that are not brokered reciprocal deposits. The amount reported in this
item for brokered reciprocal deposits should be less than or equal to Schedule RC-E,
Memorandum item 1.g, “Total reciprocal deposits.”
As defined in Section 327.8(q) of the FDIC’s regulations, “brokered reciprocal deposits” are
“reciprocal deposits as defined in Section 337.6(e)(2)(v) of the FDIC’s regulations that are not
excepted from the institution’s brokered deposits pursuant to Section 337.6(e)” of the FDIC’s
regulations.
As defined in Section 337.6(e)(2)(v) of the FDIC’s regulations, “reciprocal deposits” means
“deposits received by an agent institution through a deposit placement network with the same
maturity (if any) and in the same aggregate amount as covered deposits placed by the agent
institution in other network member banks.” All reciprocal deposits, whether they are
brokered reciprocal deposits or not, should be reported in Schedule RC-E, Memorandum
item 1.g. The definitions of the terms “covered deposit,” “deposit placement network,” and
“network member bank” are included in the instructions for Schedule RC-E, Memorandum
item 1.g.
Limited Exception for Reciprocal Deposits
An “agent institution,” as defined in Section 337.6(b)(2)(ii)(e)(1) of FDIC regulations, can
except reciprocal deposits from being classified (and reported in Schedule RC-E,
Memorandum item 1.b) as brokered deposits up to its applicable statutory caps, described
below.
Under the general cap, an agent institution may except reciprocal deposits from treatment as
brokered deposits up to the lesser of $5 billion or an amount equal to 20 percent of the agent
institution’s total liabilities. Reciprocal deposits in excess of the general cap, as well as those
reciprocal deposits that do not meet the definition of “covered deposit” under
Section 337.6(b)(2)(ii)(e)(2)(ii) of the FDIC’s regulations, are brokered deposits and must
be reported in Schedule RC-E, Memorandum item 1.b.
Definition of Special Cap ‒ A special cap applies if the institution is either not well rated or not
well capitalized.1 The special cap is defined as:
“the average amount of reciprocal deposits held by the agent institution on the last day of
each of the 4 calendar quarters preceding the calendar quarter in which the agent
institution was found not to have a composite condition of outstanding or good or was
determined to be not well capitalized.”
In no event, however, can an institution’s non-brokered reciprocal deposits exceed the
general cap.

1

See generally, 12 CFR Part 324, Subpart H (FDIC); 12 CFR Part 208, Subpart D (Federal Reserve Board); 12 CFR
Part 6 (OCC). 12 U.S.C. 1831o. ‘‘Well capitalized’’ is defined in 12 CFR 337.6(a)(3)(i).
FFIEC 031 and 041

RC-O-8
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RC-O - ASSESSMENTS

RC-Q – FAIR VALUE

FFIEC 031 and 041

SCHEDULE RC-Q – ASSETS AND LIABILITIES MEASURED AT FAIR
VALUE ON A RECURRING BASIS
General Instructions
Schedule RC-Q is required to be completed only by institutions that:
(1) Have elected to report financial instruments or servicing assets and liabilities at fair value under a
fair value option with changes in fair value recognized in earnings, or
(2) Are required to complete Schedule RC-D, Trading Assets and Liabilities, i.e., institutions that:
(a) Reported total trading assets of $10 million or more in any of the four preceding calendar quarters,
or
(b) Meet the FDIC’s definition of a large or highly complex institution for deposit insurance
assessment purposes.1
Your institution is not required to complete Schedule RC-Q if the only financial instruments that your
institution measures at fair value in the financial statements on a recurring basis are:
(1) Available-for-sale securities (reported in Schedule RC, item 2.b), and
(2) For institutions that have adopted FASB Accounting Standards Update No. 2016-01 (ASU 2016-01),
which includes provisions governing the accounting for investments in equity securities,
(a) Equity securities with readily determinable fair values not held for trading (reported in
Schedule RC, item 2.c), and
(b) Equity securities and other equity investments that do not have readily determinable fair values
that your institution measures at fair value (i.e., equity securities and other equity investments that
do not have readily determinable values that your institution has not elected to measure at cost
minus impairment, if any, plus or minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of the same issuer) (reported in
Schedule RC, item 9, or Schedule RC-F, item 4, as appropriate).
An institution that is required to complete Schedule RC-Q should report all assets and liabilities that are
measured at fair value in the financial statements on a recurring basis. Exclude from Schedule RC-Q
those assets and liabilities that are measured at fair value on a nonrecurring basis. Recurring fair value
measurements of assets or liabilities are those fair value measurements that applicable accounting
standards and these instructions require or permit in the balance sheet at the end of each reporting
period. In contrast, nonrecurring fair value measurements of assets or liabilities are those fair value
measurements that applicable accounting standards and these instructions require or permit in the
balance sheet in particular circumstances (for example, when an institution subsequently measures
foreclosed real estate at the lower of cost or fair value less estimated costs to sell).

Column Instructions
Column A, Total Fair Value Reported on Schedule RC
Report in Column A the total fair value, as defined by ASC Topic 820, Fair Value Measurement (formerly
FASB Statement No. 157, “Fair Value Measurements”), of those assets and liabilities reported on
Schedule RC, Balance Sheet, that the bank reports at fair value on a recurring basis.

1

See 12 CFR § 327.8 and 12 CFR § 327.16(f).

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FFIEC 031 and 041

Column Instructions (cont.)
Columns B through E, Fair Value Measurements and Netting Adjustments
For items reported in Column A, report in Columns C, D, and E the fair value amounts which fall in their
entirety in Levels 1, 2, and 3, respectively. The level in the fair value hierarchy within which a fair value
measurement in its entirety falls should be determined based on the lowest level input that is significant to
the fair value measurement in its entirety. Thus, for example, if the fair value of an asset or liability has
elements of both Level 2 and Level 3 measurement inputs, report the entire fair value of the asset or
liability in Column D or Column E based on the lowest level measurement input with the most significance
to the fair value of the asset or liability in its entirety as described in ASC Topic 820. For assets and
liabilities that the bank has netted under legally enforceable master netting agreements in accordance
with ASC Subtopic 210-20, Balance Sheet – Offsetting (formerly FASB Interpretation No. 39, “Offsetting
of Amounts Related to Certain Contracts,” and FASB Interpretation No. 41, “Offsetting of Amounts
Related to Certain Repurchase and Reverse Repurchase Agreements”), report the gross amounts in
Columns C, D, and E and the related netting adjustment in Column B. For more information on Level 1,
2, and 3 measurement inputs, see the Glossary entry for “fair value.”
ASC Topic 820 permits an institution, as a practical expedient, to measure the fair value of investments in
investment companies and real estate funds that meet criteria specified in this topic using the
investment’s net asset value (NAV) per share (or its equivalent). When an institution has elected to
measure the fair value of such an investment using the NAV per share practical expedient and the fair
value is measured on a recurring basis, the institution should report the investment’s fair value in
column A of the appropriate asset item of Schedule RC-Q. However, the institution should exclude the
investment from the Level 1, 2, and 3 disclosures in columns C, D, and E of Schedule RC-Q.1 Instead,
the institution should report the fair value measured using the NAV per share practical expedient in
column B along with the netting adjustments reported in column B. In contrast, for an investment
measured at fair value on a recurring basis that meets the criteria specified in Topic 820, if the institution
does not elect to measure fair value using the NAV per share practical expedient, it should report the
investment’s fair value in column A of Schedule RC-Q and disclose this fair value in column C, D, or E, as
appropriate, based on the lowest level input that is significant to the fair value measurement in its entirety.

Item Instructions
For each item in Schedule RC-Q, the sum of columns C, D, and E less column B must equal column A.
Item No.
1

Caption and Instructions
Available-for-sale debt securities and equity securities with readily determinable fair
values not held for trading.
For institutions that have adopted FASB Accounting Standards Update No. 2016-01
(ASU 2016-01), which includes provisions governing the accounting for investments in equity
securities, including investment in mutual funds, and eliminates the concept of available-forsale equity securities (see the Note preceding the instructions for Schedule RC, item 2.c),
report in column A the sum of Schedule RC, items 2.b and 2.c.
For institutions that have not adopted ASU 2016-01, report in column A the amount reported
in Schedule RC, item 2.b.

Refer to FASB Accounting Standards Update (ASU) No. 2015-07, “Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent),” which removes the requirement to categorize within
the fair value hierarchy all investments for which fair value is measured using the NAV per share (or its equivalent)
practical expedient described in ASC Topic 820.
1

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FFIEC 031 and 041

Item No.

Caption and Instructions

1
(cont.)

Report in columns B through E, as appropriate, the fair values of the debt and equity
securities reported in column A determined using Level 1, Level 2, and Level 3 measurement
inputs and any netting adjustments.

2

Federal funds sold and securities purchased under agreements to resell. Report in the
appropriate column the total fair value of those federal funds sold and securities purchased
under agreements to resell reported in Schedule RC, items 3.a and 3.b, that the bank has

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Part I. (cont.)
Item No.

Caption and Instructions

Common Equity Tier 1 Capital: Adjustments and Deductions
General Instructions for Common Equity Tier 1 Capital: Adjustments and Deductions
Note 1: As described in section 22(b) of the regulatory capital rules, regulatory adjustments to common
equity tier 1 capital must be made net of associated deferred tax effects.
Note 2: As described in section 22(e) of the regulatory capital rules, netting of deferred tax liabilities
(DTLs) against assets that are subject to deduction is permitted if the following conditions are met:
(i) The DTL is associated with the asset;
(ii) The DTL would be extinguished if the associated asset becomes impaired or is derecognized under
GAAP; and
(iii) A DTL can only be netted against a single asset.
The amount of deferred tax assets (DTAs) that arise from net operating loss and tax credit carryforwards,
net of any related valuation allowances, and of DTAs arising from temporary differences that the
institution could not realize through net operating loss carrybacks, net of any related valuation
allowances, may be offset by DTLs (that have not been netted against assets subject to deduction)
subject to the following conditions:
(i) Only the DTAs and DTLs that relate to taxes levied by the same taxation authority and that are
eligible for offsetting by that authority may be offset for purposes of this deduction.
(ii) The amount of DTLs that the institution nets against DTAs that arise from net operating loss and tax
credit carryforwards, net of any related valuation allowances, and against DTAs arising from
temporary differences that the institution could not realize through net operating loss carrybacks, net
of any related valuation allowances, must be allocated in proportion to the amount of DTAs that arise
from net operating loss and tax credit carryforwards (net of any related valuation allowances, but
before any offsetting of DTLs) and of DTAs arising from temporary differences that the institution
could not realize through net operating loss carrybacks (net of any related valuation allowances, but
before any offsetting of DTLs), respectively.

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Part I. (cont.)
General Instructions for Common Equity Tier 1 Capital: Adjustments and Deductions (cont.)
An institution may offset DTLs embedded in the carrying value of a leveraged lease portfolio acquired in a
business combination (whether accounted for under ASC Topic 840, Leases, or grandfathered and
accounted for under ASC Topic 842, Leases, as applicable) that are not recognized under GAAP against
DTAs that are subject to section 22(d) of the regulatory capital rules in accordance with section 22(e).
An institution must net DTLs against assets subject to deduction in a consistent manner from reporting
period to reporting period. An institution may change its DTL netting preference only after obtaining the
prior written approval of the primary federal supervisor.
In addition, note that even though certain deductions may be net of associated DTLs, the risk-weighted
portion of those items may not be reduced by the associated DTLs.

Item Instructions for Common Equity Tier 1 Capital: Adjustments and Deductions
Item No.
6

Caption and Instructions
LESS: Goodwill net of associated deferred tax liabilities (DTLs). Report the amount of
goodwill included in Schedule RC-M, item 2.b.
However, if the institution has a DTL that is specifically related to goodwill that it chooses to
net against the goodwill, the amount of disallowed goodwill to be reported in this item should
be reduced by the amount of the associated DTL.
If an advanced approaches institution has significant investments in the capital of
unconsolidated financial institutions in the form of common stock, the institution should report
in this item goodwill embedded in the valuation of a significant investment in the capital of an
unconsolidated financial institution in the form of common stock (embedded goodwill). Such
deduction of embedded goodwill would apply to investments accounted for under the equity
method. Under GAAP, if there is a difference between the initial cost basis of the investment
and the amount of underlying equity in the net assets of the investee, the resulting difference
should be accounted for as if the investee were a consolidated subsidiary (which may include
imputed goodwill).

7

LESS: Intangible assets (other than goodwill and mortgage servicing assets (MSAs)),
net of associated DTLs. Report all intangible assets (other than goodwill and MSAs)
included in Schedule RC-M, item 2.c, that do not qualify for inclusion in common equity tier 1
capital based on the regulatory capital rules of the institution’s primary federal supervisor.
Generally, all purchased credit card relationships (PCCRs), nonmortgage servicing assets,
and all other intangibles reported in Schedule RC-M, item 2.c, do not qualify for inclusion in
common equity tier 1 capital and should be included in this item.
However, if the institution has a DTL that is specifically related to an intangible asset (other
than goodwill and MSAs) that it chooses to net against the intangible asset for regulatory
capital purposes, the amount of disallowed intangibles to be reported in this item should be

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Part II. (cont.)
Item No.

Caption and Instructions
○

2.b
(cont.)

Significant investments in the capital of unconsolidated financial institutions in the
form of common stock reported in Schedule RC, item 2.b (for a bank that is not
yet required to adopt ASU 2016-01) or item 2.c (for a bank that is required to have
adopted ASU 2016-01), that are subject to the 10 percent and 15 percent common
equity tier 1 capital threshold limitations and have been deducted for risk-based
capital purposes in Schedule RC-R, Part I, items 13.b and 16, column B, on the
FFIEC 031.

•

In column C–0% risk weight, the zero percent risk weight applies to exposures to the
U.S. government, a U.S. government agency, or a Federal Reserve Bank, and those
exposures otherwise unconditionally guaranteed by the U.S. government. Include
exposures to or unconditionally guaranteed by the FDIC or the NCUA. Certain foreign
government exposures and certain entities listed in §.32 of the regulatory capital rules
may also qualify for zero percent risk weight. Include the exposure amounts of those
debt securities reported in Schedule RC-B, column C, that do not qualify as securitization
exposures that qualify for the zero percent risk weight. Such debt securities may include
portions of, but may not be limited to:
○ Item 1, "U.S. Treasury securities,"
o Item 2, those obligations issued by U.S. Government agencies,
o Item 4.a.(1), Residential mortgage pass-through securities "Guaranteed by GNMA,”
o Portions of item 4.b.(1), Other residential mortgage-backed securities (MBS) "Issued
or guaranteed by U.S. Government agencies or sponsored agencies," such as
GNMA exposures,
o Item 4.c.(1)(a), certain portions of commercial MBS “Issued or guaranteed by FNMA,
FHLMC, or GNMA” that represent GNMA securities, and
o Item 4.c.(2)(a), certain portions of commercial MBS “Issued or guaranteed by U.S.
Government agencies or sponsored agencies” that represent GNMA securities.
o The portion of any exposure reported in Schedule RC, item 2.b, that is secured by
collateral or has a guarantee that qualifies for the zero percent risk weight.

•

In column G–20% risk weight, the 20 percent risk weight applies to general obligations of
U.S. states, municipalities, and U.S. public sector entities. It also applies to exposures to
U.S. depository institutions and credit unions, exposures conditionally guaranteed by the
U.S. government, as well as exposures to U.S. government sponsored enterprises.
Certain foreign government and foreign bank exposures may qualify for the 20 percent
risk weight as indicated in §.32 of the regulatory capital rules. Include the exposure
amounts of those debt securities reported in Schedule RC-B, column C, that do not
qualify as securitization exposures that qualify for the 20 percent risk weight. Such debt
securities may include portions of, but may not be limited to:
o Item 2, those obligations issued by U.S. Government-sponsored agencies (exclude
interest-only securities),
o Item 3, "Securities issued by states and political subdivisions in the U.S." that
represent general obligation securities,
o Item 4.a.(2), Residential mortgage pass-through securities "Issued by FNMA and
FHLMC" (exclude interest-only securities),
o Item 4.b.(1), Other residential MBS "Issued or guaranteed by U.S. Government
agencies or sponsored agencies," (exclude interest-only securities),
o Item 4.c.(1)(a), those commercial MBS “Issued or guaranteed by FNMA, FHLMC, or
GNMA” that represent FHLMC and FNMA securities (exclude interest-only
securities),
o Item 4.c.(2)(a), those commercial MBS “Issued or guaranteed by U.S. Government
agencies or sponsored agencies” that represent FHLMC and FNMA securities
(exclude interest-only securities),

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Part II. (cont.)
Item No.

Caption and Instructions
○

2.b
(cont.)

o

o

Item 4.b.(2), Other residential MBS "Collateralized by MBS issued or guaranteed by
U.S. Government agencies or sponsored agencies" (exclude interest-only securities),
and
Any securities categorized as “structured financial products” on Schedule RC-B that
are not securitization exposures and qualify for the 20 percent risk weight. Note:
Many of the structured financial products would be considered securitization
exposures and must be reported in Schedule RC-R, Part II, item 9.b, for purposes of
calculating risk-weighted assets. Exclude interest-only securities.
The portion of any exposure reported in Schedule RC, item 2.b, that is secured by
collateral or has a guarantee that qualifies for the 20 percent risk weight.

•

In column H–50% risk weight, include the exposure amounts of those debt securities
reported in Schedule RC-B, column C, that do not qualify as securitization exposures that
qualify for the 50 percent risk weight. Such debt securities may include portions of, but
may not be limited to:
o Item 3, "Securities issued by states and political subdivisions in the U.S.," that
represent revenue obligation securities,
o Item 4.a.(3), "Other [residential mortgage] pass-through securities," (that represent
residential mortgage exposures that qualify for the 50 percent risk weight. (Passthrough securities that do not qualify for the 50 percent risk weight should be
assigned to the 100 percent risk weight category.)
o Item 4.b.(2), Other residential MBS "Collateralized by MBS issued or guaranteed by
U.S. Government agencies or sponsored agencies" (exclude portions subject to an
FDIC loss-sharing agreement and interest-only securities) that represent residential
mortgage exposures that qualify for the 50 percent risk weight, and
o Item 4.b.(3), “All other residential MBS.” Include only those MBS that qualify for the
50 percent risk weight. Refer to §.32(g), (h) and (i) of the regulatory capital rules.
Note: Do not include MBS that are tranched for credit risk; those should be reported
as securitization exposures in Schedule RC-R, Part II, item 9.b. Do not include
interest-only securities.
o The portion of any exposure reported in Schedule RC, item 2.b, that is secured by
collateral or has a guarantee that qualifies for the 50 percent risk weight.

•

In column I–100% risk weight, include the exposure amounts of those debt securities
reported in Schedule RC-B, column C, that do not qualify as securitization exposures that
qualify for the 100 percent risk weight. Such debt securities may include portions of, but
may not be limited to:
o Item 4.a.(3), "Other [residential mortgage] pass-through securities," that represent
residential mortgage exposures that qualify for the 100 percent risk weight,
o Item 4.b.(2), Other residential MBS "Collateralized by MBS issued or guaranteed by
U.S. Government agencies or sponsored agencies" (excluding portions subject to an
FDIC loss-sharing agreement) that represent residential mortgage exposures that
qualify for the 100 percent risk weight,
o Item 4.b.(3), "All other residential MBS." Include only those MBS that qualify for the
100 percent risk weight. Refer to §.32(g), (h) and (i) of the regulatory capital rules.
Note: Do not include MBS portions that are tranched for credit risk; those should be
reported as securitization exposures in Schedule RC-R, Part II, item 9.b.
o Item 4.c.(1)(b), “Other [commercial mortgage] pass-through securities,”
o Item 4.c.(2)(b), “All other commercial MBS,”
o Item 5.a, "Asset-backed securities,"

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Part II. (cont.)
Item No.

Caption and Instructions

21
(cont.)

•

In column G–20% risk weight, include the credit equivalent amount of centrally cleared
derivative contracts with CCPs and other counterparties who meet, or that have
guarantees or collateral that meets, the criteria for the 20 percent risk-weight category as
described in the instructions for Risk-Weighted Assets and for Schedule RC-R, Part II,
items 1 through 8, above.

•

In column H–50% risk weight, include the credit equivalent amount of centrally cleared
derivative contracts with CCPs and other counterparties who meet, or that have
guarantees or collateral that meets, the criteria for the 50 percent risk-weight category as
described in the instructions for Risk-Weighted Assets and for Schedule RC-R, Part II,
items 1 through 8, above.

•

In column I–100% risk weight, include the credit equivalent amount of centrally cleared
derivative contracts with CCPs and other counterparties who meet, or that have
guarantees or collateral that meets, the criteria for the 100 percent risk-weight category
as described in the instructions for Risk-Weighted Assets and for Schedule RC-R, Part II,
items 1 through 8, above. Also include the portion of the credit equivalent amount
reported in column B that is not included in columns C through H and J.

•

In column J–150% risk weight, include the credit equivalent amount of centrally cleared
derivative contracts with CCPs and other counterparties who meet, or that have
guarantees or collateral that meets, the criteria for the 150 percent risk-weight category
as described in the instructions for Risk-Weighted Assets and for Schedule RC-R, Part II,
items 1 through 8, above.

22

Unsettled transactions (failed trades). NOTE: This item includes unsettled transactions in
the reporting bank’s trading book and in its banking book. Report as unsettled transactions
all on- and off-balance sheet transactions involving securities, foreign exchange instruments,
and commodities that have a risk of delayed settlement or delivery, or are already delayed,
and against which the reporting bank must hold risk-based capital as described in §.38 of the
regulatory capital rules.
For delivery-versus-payment (DvP) transactions1 and payment-versus-payment (PvP)
transactions,2 report in column A the positive current exposure of those unsettled transactions
with a normal settlement period in which the reporting bank’s counterparty has not made
delivery or payment within five business days after the settlement date, which are the DvP
and PvP transactions subject to risk weighting under §.38 of the regulatory capital rules.
Positive current exposure is equal to the difference between the transaction value at the
agreed settlement price and the current market price of the transaction, if the difference
results in a credit exposure of the bank to the counterparty.

1

DvP transaction means a securities or commodities transaction in which the buyer is obligated to make payment
only if the seller has made delivery of the securities or commodities and the seller is obligated to deliver the securities
or commodities only if the buyer has made payment.
2

PvP transaction means a foreign exchange transaction in which each counterparty is obligated to make a final
transfer of one or more currencies only if the other counterparty has made a final transfer of one or more currencies.

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Part II. (cont.)
Item No.

Caption and Instructions

22
(cont.)

For delayed non-DvP/non-PvP transactions,1 also include in column A the current fair value
of the deliverables owed to the bank by the counterparty in those transactions with a normal
settlement period in which the reporting bank has delivered cash, securities, commodities, or
currencies to its counterparty, but has not received its corresponding deliverables, which are
the non-DvP/non-PvP transactions subject to risk weighting under §.38 of the regulatory
capital rules.
Do not include in this item: (1) cleared transactions that are marked-to-market daily and
subject to daily receipt and payment of variation margin; (2) repo-style transactions, including
unsettled repo-style transactions; (3) one-way cash payments on over-the-counter
derivatives; and (4) transactions with a contractual settlement period that is longer than the
normal settlement period (generally greater than 5 business days).
•

In column C–0% risk weight, include the fair value of deliverables owed to the bank by a
counterparty that qualifies for a zero percent risk weight under §.32 of the regulatory
capital rules that have been delayed one to four business days for non-DvP/non-PvP
transactions.

•

In column G–20% risk weight, include the fair value of deliverables owed to the bank by a
counterparty that qualifies for a 20 percent risk weight under §.32 of the regulatory capital
rules that have been delayed one to four business days for non-DvP/non-PvP
transactions.

•

In column H–50% risk weight, include the fair value of deliverables owed to the bank by a
counterparty that qualifies for a 50 percent risk weight under §.32 of the regulatory capital
rules that have been delayed one to four business days for non-DvP/non-PvP
transactions.

•

In column I–100% risk weight, include:
○ The fair value of deliverables owed to the bank by a counterparty that qualifies for a
100 percent risk weight under §.32 of the regulatory capital rules that have been
delayed one to four business days for non-DvP/non-PvP transactions.
o The positive current exposure of DvP and PvP transactions in which the counterparty
has not made delivery or payment within 5 to 15 business days after the contractual
settlement date.

•

In column J–150% risk weight, include the fair value of deliverables owed to the bank by
a counterparty that qualifies for a 150 percent risk weight under §.32 of the regulatory
capital rules that have been delayed one to four business days for non-DvP/non-PvP
transactions.

•

In column O–625% risk weight, include the positive current exposure of DvP and PvP
transactions in which the counterparty has not made delivery or payment within 16 to 30
business days after the contractual settlement date.

•

In column P–937.5% risk weight, include the positive current exposure of DvP and PvP
transactions in which the counterparty has not made delivery or payment within 31 to 45
business days after the contractual settlement date.

1 Non-DvP/non-PvP transaction means any other delayed or unsettled transaction that does not meet the definition of
a DvP or a PvP transaction.

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Part II. (cont.)
Item No.

Caption and Instructions

22
(cont.)

•

In column Q–1250% risk weight, include:
○ The positive current exposure of DvP and PvP transactions in which the counterparty
has not made delivery or payment within 46 or more business days after the
contractual settlement date.
o The fair value of the deliverables in Non-DvP/non-PvP transactions in which the bank
has not received deliverables from the counterparty five or more business days after
which the delivery was due.

Totals
Item No.

Caption and Instructions

23

Total assets, derivatives, off-balance sheet items, and other items subject to risk
weighting by risk weight category. For each of columns C through P, report the sum of
items 11 through 22. For column Q, report the sum of items 10 through 22.

24

Risk weight factor.

25

Risk-weighted assets by risk weight category. For each of columns C through Q, multiply
the amount in item 23 by the risk weight factor specified for that column in item 24.

26

Risk-weighted assets base for purposes of calculating the allowance for loan and
lease losses 1.25 percent threshold. Report the sum of:
• Schedule RC-R, Part II:
o Items 2.b through 20, column S,
o Items 9.a, 9.b, 9.c, 9.d, and 10, columns T and U, and
o Item 25, columns C through Q
• Schedule RC-R, Part I:
o The portion of item 10.b composed of “Investments in the institution’s own shares to
the extent not excluded as part of treasury stock,”
o The portion of item 10.b composed of “Reciprocal cross-holdings in the capital of
financial institutions in the form of common stock,”
o Item 11 (advanced approaches institutions only),
o Items 13.a, 14.a, and 15.a, column A, on the FFIEC 031 for non-advanced
approaches institutions; items 13.b, 14.b, 15.b, and 16, column B, for advanced
approaches institutions; and items 13 through 15 on the FFIEC 041,

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Part II. (cont.)
Item No.

Caption and Instructions
○

26
(cont.)

o

Item 24, excluding the portion of item 24 composed of tier 2 capital deductions
reported in Part I, item 45, for which the institution does not have a sufficient amount
of tier 2 capital before deductions reported in Part I, item 44.a on the FFIEC 031;
item 44 on the FFIEC 041, to absorb these deductions, and
Item 45.

For institutions that have adopted the current expected credit losses methodology (CECL),
the risk-weighted assets base reported in this item 26 is for purposes of calculating the
adjusted allowances for credit losses (AACL) 1.25 percent threshold.
NOTE: Item 27 is applicable only to banks that are subject to the market risk capital rule.
27

Standardized market risk-weighted assets. Report the amount of the bank's standardized
market risk-weighted assets. This item is applicable only to those banks covered by
Subpart F of the regulatory capital rules (i.e., the market risk capital rule), as provided in
§.201 of the regulatory capital rules.
A bank’s measure for market risk for its covered positions is the sum of its value-at-risk
(VaR)-based, stressed VaR-based, incremental risk, and comprehensive risk capital
requirements plus its specific risk add-ons and any capital requirement for de minimis
exposures. A bank's market risk-weighted assets equal its measure for market risk multiplied
by 12.5 (the reciprocal of the minimum 8.0 percent capital ratio).
A covered position is a trading asset or trading liability (whether on- or off-balance sheet), as
reported on Schedule RC-D, that is held for any of the following reasons:
(1) For the purpose of short-term resale;
(2) With the intent of benefiting from actual or expected short-term price movements;
(3) To lock in arbitrage profits; or
(4) To hedge another covered position.
Additionally, the trading asset or trading liability must be free of any restrictive covenants on
its tradability or the bank must be able to hedge the material risk elements of the trading
asset or trading liability in a two-way market. A covered position also includes a foreign
exchange or commodity position, regardless of whether the position is a trading asset or
trading liability (excluding structural foreign currency positions if supervisory approval has
been granted to exclude such positions).
A covered position does not include:
(1) An intangible asset (including any servicing asset);
(2) A hedge of a trading position that is outside the scope of the bank’s hedging strategy;
(3) Any position that, in form or substance, acts as a liquidity facility that provides support to
asset-backed commercial paper;
(4) A credit derivative recognized as a guarantee for risk-weighted asset calculation
purposes under the regulatory capital rules for credit risk;
(5) An equity position that is not publicly traded (other than a derivative that references a
publicly traded equity);
(6) A position held with the intent to securitize; or
(7) A direct real estate holding.

28

Risk-weighted assets before deductions for excess allowance for loan and lease
losses and allocated transfer risk reserve. Report the sum of items 2.b through 20,
column S; items 9.a, 9.b, 9.c, 9.d, and 10, columns T and U; item 25, columns C through Q;

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Part II. (cont.)
Memoranda
Item No.

Caption and Instructions

1
(cont.)

Do not include derivative contracts that meet the definition of a securitization exposure as
described in §.2 of the regulatory capital rules; such derivative contracts must be reported in
Schedule RC-R, Part II, item 10.
Current credit exposure, when using CEM, or replacement cost, when using SA-CCR, should
be derived as follows: Determine whether a qualifying master netting agreement, as defined
in §.2 of the regulatory capital rules, is in place between the reporting bank and a
counterparty. If such an agreement is in place, the fair values of all applicable derivative
contracts with that counterparty that are included in the netting agreement are netted to a
single amount.
Next, for all other derivative contracts covered by the regulatory capital rules that have
positive fair values, the total of the positive fair values is determined. Then, report in this item
the sum of (i) the net positive fair values of applicable derivative contracts subject to
qualifying master netting agreements and (ii) the total positive fair values of all other contracts
covered by the regulatory capital rules for both OTC and centrally cleared contracts. The
current credit exposure reported in this item is a component of the credit equivalent amount
of derivative contracts that is to be reported in Schedule RC-R, items 20 or 21, column B,
depending on whether the contracts are centrally cleared.

2

Notional principal amounts of over-the-counter derivative contracts. Report in the
appropriate subitem and column the notional amount or par value of all over-the-counter
(OTC) derivative contracts, including credit derivatives, that are subject to §.34 or §.132 of
the regulatory capital rules.1 Such contracts include swaps, forwards, and purchased
options. Do not include OTC derivative contracts that meet the definition of a securitization
exposure as described in §.2 of the regulatory capital rules; such derivative contracts must be
reported in Schedule RC-R, Part II, item 10. Report notional amounts and par values in the
column corresponding to the OTC derivative contract's remaining term to maturity from the
report date. Remaining maturities are to be reported as (1) one year or less in column A,
(2) over one year through five years in column B, or (3) over five years in column C.
Regardless of whether an institution uses the standardized approach for counterparty credit
risk (SA-CCR) or the current exposure methodology (CEM) to calculate exposure amounts
for its derivative contracts, report in Memorandum items 2.a through 2.g the notional amounts
of the contracts, as this term is defined in U.S. generally accepted accounting principles,
unless a derivative contract has a multiplier component as discussed in the following
paragraph.
The notional amount or par value to be reported under SA-CCR and CEM for an OTC
derivative contract with a multiplier component is the contract's effective notional amount or
par value. (For example, a swap contract with a stated notional amount of $1,000,000 whose
terms call for quarterly settlement of the difference between 5 percent and LIBOR multiplied
by 10 has an effective notional amount of $10,000,000.)
The notional amount to be reported under SA-CCR and CEM for an amortizing OTC
derivative contract is the contract's current (or, if appropriate, effective) notional amount. This
notional amount should be reported in the column corresponding to the contract's remaining
term to final maturity.

1

See the instructions for Schedule RC-R, Part II, item 20, for the definition of an OTC derivative contract.

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Part II. (cont.)
Memoranda
Item No.

Caption and Instructions

2
(cont.)

For descriptions of "interest rate contracts," "foreign exchange contracts," "commodity
and other contracts," and "equity derivative contracts," refer to the instructions for
Schedule RC-L, item 12. For a description of “credit derivative contracts,” refer to the
instructions for Schedule RC-L, item 7.
Exclude from this item the notional amount of OTC written option contracts, including
so-called “derivative loan commitments,” which are not subject to §.34 of the regulatory
capital rules.
When using SA-CCR, include gold in the metals category for Memorandum item 2.f and
exclude gold from the exchange rate category for Memorandum item 2.b.
When using SA-CCR, a bank may elect to treat a credit or equity derivative contract that
references an index as if it were multiple derivative contracts each referencing one
component of the index. Thus, under this election, a banking organization would apply the
SA-CCR methodology to each decomposed component of the index instead of applying the
SA-CCR methodology to the index derivative contract.
When using SA-CCR, a bank may elect to treat a commodity derivative contract that
references an index as if it were multiple derivative contracts each referencing one
component of the index.

3

Notional principal amounts of centrally cleared derivative contracts. Report in the
appropriate subitem and column the notional amount or par value of all derivative contracts,
including credit derivatives, that are cleared transactions (as described in §.2 of the
regulatory capital rules) and are subject to §.35 or §.133 of the regulatory capital rules.1
Such centrally cleared derivative contracts include swaps, forwards, and purchased options.
Do not include centrally cleared derivative contracts that meet the definition of a securitization
exposure as described in §.2 of the regulatory capital rules; such derivative contracts must be
reported in Schedule RC-R, Part II, item 10. Report notional amounts and par values in the
column corresponding to the centrally cleared derivative contract's remaining term to maturity
from the report date. Remaining maturities are to be reported as (1) one year or less in
column A, (2) over one year through five years in column B, or (3) over five years in
column C.
Regardless of whether an institution uses the standardized approach for counterparty credit
risk (SA-CCR) or the current exposure methodology (CEM) to calculate exposure amounts
for its derivative contracts, report in Memorandum items 3.a through 3.g the notional amounts
of the contracts, as this term is defined in U.S. generally accepted accounting principles,
unless a derivative contract has a multiplier component as discussed in the following
paragraph.
The notional amount or par value to be reported under SA-CCR and CEM for a centrally
cleared derivative contract with a multiplier component is the contract's effective notional
amount or par value. (For example, a swap contract with a stated notional amount of
$1,000,000 whose terms call for quarterly settlement of the difference between 5 percent and
LIBOR multiplied by 10 has an effective notional amount of $10,000,000.)

1

See the instructions for Schedule RC-R, Part II, item 21, for the description of derivative contracts that are cleared
transactions, referred to hereafter as centrally cleared derivative contracts.

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GLOSSARY

GLOSSARY
The definitions in this Glossary apply to the Consolidated Reports of Condition and Income and are not
necessarily applicable for other regulatory or legal purposes. Similarly, the accounting discussions in this
Glossary are those relevant to the preparation of these reports and are not intended to constitute a
comprehensive presentation on bank accounting. For purposes of this Glossary, the Financial
Accounting Standards Board (FASB) Accounting Standards Codification is referred to as the “ASC.”
Acceptances: See "Bankers Acceptances."
Accounting Changes: Changes in accounting principles – The accounting principles that banks have
adopted for the preparation of their Consolidated Reports of Condition and Income should be changed
only if (a) the change is required by a newly issued accounting pronouncement or (b) the bank can
justify the use of an allowable alternative accounting principle on the basis that it is preferable when
there are two or more generally accepted accounting principles for a type of event or transaction. If a
bank changes from the use of one acceptable accounting principle to one that is more preferable at
any time during the calendar year, it must report the income or expense item(s) affected by the change
for the entire year on the basis of the newly adopted accounting principle regardless of the date when
the change is actually made. However, a change from an accounting principle that is neither accepted
nor sanctioned by bank supervisors to one that is acceptable to supervisors is to be reported as a
correction of an error as discussed below.
New accounting pronouncements that are adopted by the FASB (or such other body officially
designated to establish accounting principles) generally include transition guidance on how to initially
apply the pronouncement. In general, the pronouncements require (or allow) a bank to use one of the
following approaches, collectively referred to as “retrospective application”:
•
•

Apply a different accounting principle to one or more previously issued financial statements; or
Make a cumulative-effect adjustment to retained earnings, assets, and/or liabilities at the beginning
of the period as if that principle had always been used.

Because each Consolidated Report of Income covers a single discrete period, only the second
approach under retrospective application is permitted in the Consolidated Reports of Condition and
Income. Therefore, when an accounting pronouncement requires the application of either of the
approaches under retrospective application, banks must report the effect on the amount of retained
earnings at the beginning of the year in which the new pronouncement is first adopted for purposes of
the Consolidated Reports of Condition and Income (net of applicable income taxes, if any) as a direct
adjustment to equity capital in Schedule RI-A, item 2, and describe the adjustment in Schedule RI-E,
item 4.
In the Consolidated Reports of Condition and Income in which a change in accounting principle is first
reflected, the bank is encouraged to include an explanation of the nature and reason for the change in
accounting principle in Schedule RI-E, item 7, “Other explanations,” or in the “Optional Narrative
Statement Concerning the Amounts Reported in the Consolidated Reports of Condition and Income.”
Changes in accounting estimates – Accounting and the preparation of financial statements involve the
use of estimates. As more current information becomes known, estimates may be changed. In
particular, accruals are derived from estimates based on judgments about the outcome of future events
and changes in these estimates are an inherent part of accrual accounting.
Reasonable changes in accounting estimates do not require the restatement of amounts of income and
expenses and assets, liabilities, and capital reported in previously submitted Consolidated Reports of
Condition and Income. Computation of the cumulative effect of these changes is also not ordinarily
necessary. Rather, the effect of such changes is handled on a prospective basis. That is, beginning in

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Accounting Changes (cont.):
the period when an accounting estimate is revised, the related item of income or expense for that
period is adjusted accordingly. For example, if the bank's estimate of the remaining useful life of
certain bank equipment is increased, the remaining undepreciated cost of the equipment would be
spread over its revised remaining useful life. Similarly, immaterial accrual adjustments to items of
income and expenses, including provisions for loan and lease losses and income taxes, are
considered changes in accounting estimates and would be taken into account by adjusting the affected
income and expense accounts for the year in which the adjustments were found to be appropriate.
However, large and unusual changes in accounting estimates may be more properly treated as
constituting accounting errors, and if so, must be reported accordingly as described below.
Corrections of accounting errors – A bank may become aware of an error in a Consolidated Report of
Condition or Consolidated Report of Income after it has been submitted to the appropriate federal bank
regulatory agency through either its own or its regulator's discovery of the error. An error in the
recognition, measurement, or presentation of an event or transaction included in a report for a prior
period may result from:
•
•
•

A mathematical mistake;
A mistake in applying accounting principles; or
The oversight or misuse of facts that existed when the Consolidated Reports of Condition and
Income for prior periods were prepared.

According to SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108)
(Topic 1.N. in the Codification of Staff Accounting Bulletins), the effects of prior year errors or
misstatements (“carryover effects”) should be considered when quantifying misstatements identified in
current year financial statements. SAB 108 describes two methods for accumulating and quantifying
misstatements. These methods are referred to as the “rollover” and “iron curtain” approaches:
•

The rollover approach “quantifies a misstatement based on the amount of the error originating in
the current year income statement” only and ignores the “carryover effects” of any related prior
year misstatements. The primary weakness of the rollover approach is that it fails to consider the
effects of correcting the portion of the current year balance sheet misstatement that originated in
prior years.

•

The iron curtain approach “quantifies a misstatement based on the effects of correcting the
misstatement existing in the balance sheet at the end of the current year, irrespective of the
misstatement’s year(s) of origination.” The primary weakness of the iron curtain approach is that it
does not consider the correction of prior year misstatements in the current year financial
statements to be errors because the prior year misstatements were considered immaterial in the
year(s) of origination. Thus, there could be a material misstatement in the current year income
statement because the correction of the accumulated immaterial amounts from prior years is not
evaluated as an error.

Because of the weaknesses in these two approaches, SAB 108 states that the impact of correcting all
misstatements on current year financial statements should be accomplished by quantifying an error
under both the rollover and iron curtain approaches and by evaluating the error measured under each
approach. When either approach results in a misstatement that is material, after considering all
relevant quantitative and qualitative factors, an adjustment to the financial statements would be
required. Guidance on the consideration of all relevant factors when assessing the materiality of
misstatements is provided in SEC Staff Accounting Bulletin No. 99, Materiality (SAB 99) (Topic 1.M. in
the Codification of Staff Accounting Bulletins).

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Accounting Changes (cont.):
For purposes of the Consolidated Reports of Condition and Income, all banks should follow the sound
accounting practices described in SAB 108 and SAB 99. Accordingly, banks should quantify the
impact of correcting misstatements, including both the carryover and reversing effects of prior year
misstatements, on their current year reports by applying both the “rollover” and “iron curtain”
approaches and evaluating the impact of the error measured under each approach. When the
misstatement that exists after recording the adjustment in the current year Consolidated Reports of
Condition and Income is material (considering all relevant quantitative and qualitative factors), the
appropriate prior year report(s) should be amended, even though such revision previously was and
continues to be immaterial to the prior year report(s). If the misstatement that exists after recording the
adjustment in the current year Consolidated Reports of Condition and Income is not material, then
amending the immaterial errors in prior year reports would not be necessary.
When a bank's primary federal bank regulatory agency determines that the bank's Consolidated
Reports of Condition and Income contain a material accounting error, the bank may be directed to file
amended condition and/or income report data for each prior period that was significantly affected by
the error. Normally, such refilings will not result in restatements of reports for periods exceeding five
years. If amended reports are not required, the bank should report the effect of such corrections on
retained earnings at the beginning of the year, net of applicable income taxes, in Schedule RI-A, item
2, "Cumulative effect of changes in accounting principles and corrections of material accounting
errors," and in Schedule RI-E, item 4. The effect of such corrections on income and expenses since
the beginning of the year in which the error is discovered should be reflected in each affected income
and expense account on a year-to-date basis in the next quarterly Consolidated Report of Income to be
filed and not as a direct adjustment to retained earnings.
In addition, a change from an accounting principle that is neither accepted nor sanctioned by bank
supervisors to one that is acceptable to supervisors is to be reported as a correction of an error. When
such a change is implemented, the cumulative effect that applies to prior periods, calculated in the
same manner as described above for other changes in accounting principles, should be reported in
Schedule RI-A, item 2, "Cumulative effect of changes in accounting principles and corrections of
material accounting errors," and in Schedule RI-E, item 4. In most cases of this kind undertaken
voluntarily by the reporting bank in order to adopt more acceptable accounting practices, such a
change will not result in a request for amended reports for prior periods unless substantial distortions in
the bank's previously reported results are in evidence.
In the Consolidated Reports of Condition and Income in which the correction of an error is first
reflected, the bank is encouraged to include an explanation of the nature and reason for the correction
in Schedule RI-E, item 7, “Other explanations,” or in the “Optional Narrative Statement Concerning the
Amounts Reported in the Consolidated Reports of Condition and Income.”
For further information on these three topics, see ASC Topic 250, Accounting Changes and Error
Corrections.
Accounting Errors, Corrections of: See "Accounting Changes."
Accounting Estimates, Changes in: See "Accounting Changes."
Accounting Principles, Changes in: See "Accounting Changes."

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Accrued Interest Receivable: Accrued interest receivable is the recorded amount of interest that has
been earned in current or prior periods on interest-bearing assets that has not yet been collected.
For institutions that have not adopted ASC Topic 326, Financial Instruments–Credit Losses, refer to
the Glossary entry on “Nonaccrual Status” for the treatment of previously accrued interest. Accrued
interest receivable that is not reported elsewhere on Schedule RC, Balance Sheet, as a component of
the balance sheet amount of the associated financial asset should be reported in Schedule RC-F,
item 1, “Accrued interest receivable.”
For institutions that have adopted ASC Topic 326, ASC Topic 326 permits a series of accounting policy
elections related to accrued interest receivable. These elections are made upon adoption of ASC
Topic 326 and may differ by class of financing receivable or major security-type level. The available
accounting policy elections are:
(1) Institutions may elect to separately present accrued interest receivable from the associated
financial asset. The accrued interest receivable is presented net of an allowance for credit losses
(ACL), if any. An institution that elects to present accrued interest receivable separately from the
amount reported for the related financial asset (e.g., loans, leases, debt securities, and other
interest-bearing assets) on Schedule RC, Balance Sheet (rather than as a component of the
balance sheet amount reported for the related financial asset), should report the accrued interest
receivable in Schedule RC-F, item 1, “Accrued interest receivable.”
(2) Institutions that charge off uncollectible accrued interest receivable in a timely manner, i.e., in
accordance with the Glossary entry for “Nonaccrual Status,” may elect to not measure an ACL for
accrued interest receivable. For purposes of these reports, if an institution makes this policy
election, the institution should debit (i.e., reduce) the appropriate category of interest income on
Schedule RI, Income Statement, for the amount of uncollectible accrued interest receivable being
charged off. If an institution does not make this policy election, the institution should measure an
allowance for credit losses on accrued interest receivable and should charge off any uncollectible
accrued interest receivable against the allowance for credit losses.
See also the Glossary entries for “Allowance for Loan and Lease Losses” or “Allowance for Credit
Losses,” as applicable, “Amortized Cost Basis,” and “Nonaccrual Status.”
Accrued Interest Receivable Related to Credit Card Securitizations: In a typical credit card
securitization, an institution transfers a pool of receivables and the right to receive the future collections
of principal (credit card purchases and cash advances), finance charges, and fees on the receivables
to a trust. If a securitization transaction qualifies as a sale under ASC Topic 860, Transfers and
Servicing, the selling institution removes the receivables that were sold from its reported assets and
continues to carry any retained interests in the transferred receivables on its balance sheet. The
“accrued interest receivable” (AIR) asset typically consists of the seller’s retained interest in the
investor’s portion of (1) the accrued fees and finance charges that have been billed to customer
accounts, but have not yet been collected (“billed but uncollected”), and (2) the right to finance charges
that have been accrued on cardholder accounts, but have not yet been billed (“accrued but unbilled”).
While the selling institution retains a right to the excess cash flows generated from the fees and
finance charges collected on the transferred receivables, the institution generally subordinates its right
to these cash flows to the investors in the securitization. If and when cash payments on the accrued
fees and finance charges are collected, they flow through the trust, where they are available to satisfy
more senior obligations before any excess amount is remitted to the seller. Only after trust expenses
(such as servicing fees, investor certificate interest, and investor principal charge-offs) have been paid
will the trustee distribute any excess fee and finance charge cash flow back to the seller. Since
investors are paid from these cash collections before the selling institution receives the amount of AIR
that is due, the seller may or may not realize the full amount of its AIR asset.

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Accrued Interest Receivable Related to Credit Card Securitizations (cont.):
Accounting at Inception of the Securitization Transaction – Generally, if a securitization transaction
meets the criteria for sale treatment and the AIR is subordinated either because the asset has been
isolated from the transferor1 or because of the operation of the cash flow distribution (or “waterfall”)
through the securitization trust, the total AIR asset (both the “billed and uncollected” and “accrued and
unbilled”) should be considered one of the components of the sale transaction. Thus, when accounting
for a credit card securitization, an institution should allocate the previous carrying amount of the AIR
(net of any related allowance for uncollectible amounts) and the other transferred assets between the
assets that are sold and the retained interests, based on their relative fair values at the date of transfer.
As a result, after a securitization, the allocated carrying amount of the AIR asset will typically be lower
than its face amount.
Subsequent Accounting – After securitization, the AIR asset should be accounted for at its allocated
cost basis (as discussed above). In addition, an institution should treat the AIR asset as a retained
(subordinated) beneficial interest. Accordingly, it should be reported as an “All other asset” in
Schedule RC-F, item 6, and in Schedule RC-S, item 2, column C on the FFIEC 031; column G on the
FFIEC 041, (if reported as a stand-alone asset) and not as a loan receivable.
Although the AIR asset is a retained beneficial interest in transferred assets, it is not required to be
subsequently measured like an investment in debt securities classified as available for sale or trading
under ASC Topic 320, Investments–Debt Securities and ASC Topic 860 because the AIR asset cannot
be contractually prepaid or settled in such a way that the holder would not recover substantially all of
its recorded investment. Rather, institutions should follow existing applicable accounting standards,
including ASC Subtopic 450-20, Contingencies–Loss Contingencies, in subsequent accounting for the
AIR asset. ASC Subtopic 450-20 addresses the accounting for various loss contingencies, including
the collectibility of receivables.
For further guidance, banks should refer to the Interagency Advisory on the Accounting Treatment of
Accrued Interest Receivable Related to Credit Card Securitizations dated December 4, 2002. See also
the Glossary entry for “Transfers of Financial Assets.”
Acquisition, Development, or Construction (ADC) Arrangements: An ADC arrangement is an
arrangement in which a bank provides financing for real estate acquisition, development, or
construction purposes and participates in the expected residual profit resulting from the ultimate sale or
other use of the property. ADC arrangements should be reported as loans, real estate joint ventures,
or direct investments in real estate in accordance with ASC Subtopic 310-10, Receivables – Overall.
12 USC 29 limits the authority of national banks to hold real estate. National banks should review real
estate ADC arrangements carefully for compliance. State member banks are not authorized to invest
in real estate except with the prior approval of the Federal Reserve Board under Federal Reserve
Regulation H (12 CFR Part 208). In certain states, nonmember banks may invest in real estate.
Under the agencies’ regulatory capital rules, the term high volatility commercial real estate (HVCRE)
exposure is defined, in part, to mean a credit facility that, prior to conversion to permanent financing,
finances or has financed the acquisition, development, or construction of real property. (See §.2 of
the regulatory capital rules and the instructions for Schedule RC-R, Part II, item 4.b.) Institutions
should note that the meaning of the term ADC as used in the definition of HVCRE exposure in the
regulatory capital rules differs from the meaning of ADC arrangement for accounting purposes in
ASC Subtopic 310-10 as described above in this Glossary entry. For example, an institution’s
participation in the expected residual profit from a property is part of the accounting definition of an
ADC arrangement, but whether the institution participates in the expected residual profit is not a

1

See ASC Subtopic 860-10.

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Acquisition, Development, or Construction (ADC) Arrangements (cont.):
consideration for purposes of determining whether a credit facility is an HVCRE exposure for regulatory
capital purposes. Thus, a loan can be treated as an HVCRE exposure for regulatory capital purposes
even though it does not provide for the institution to participate in the property’s expected residual
profit.
Agreement Corporation: See "Edge and Agreement Corporation."
Allowance for Credit Losses: This entry applies to institutions that have adopted ASC Topic 326
(introduced by Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13)). Institutions that
have not adopted ASC Topic 326 should continue to refer to the Glossary entry for “Allowance for Loan
and Lease Losses.” For more information on the allowance for credit losses (ACL), institutions should
also refer to the Interagency Policy Statement on Allowances for Credit Losses issued in May 2020.
Standards for accounting for an ACL for financial assets measured at amortized cost and net
investments in leases (hereafter referred to collectively as financial assets measured at amortized
cost), as well as certain off-balance sheet credit exposures, are set forth in ASC Subtopic 326-20,
Financial Instruments–Credit Losses–Measured at Amortized Cost. For financial assets measured at
amortized cost, the ACL is a valuation account that is deducted from, or added to, the amortized cost
basis of financial assets to present the net amount expected to be collected over the contractual term
of the financial assets.
For institutions that have adopted ASC Topic 326, standards for measuring credit losses on availablefor-sale (AFS) debt securities are set forth in ASC Subtopic 326-30, Financial Instruments—Credit
Losses—Available-for-Sale Debt Securities. See the Glossary entry for “Securities Activities” for
guidance on allowances for credit losses on AFS debt securities.
The following sections of this Glossary entry apply to financial assets measured at amortized cost and
also to off-balance sheet credit exposures within the scope of ASC Subtopic 326-20.
Measurement – An ACL shall be established upon the origination or acquisition of a financial asset(s)
measured at amortized cost. A separate ACL shall be reported for each type of financial asset
measured at amortized cost (e.g., loans and leases held for investment, held-to-maturity (HTM) debt
securities, and receivables that relate to repurchase agreements and securities lending agreements) as
of the end of each reporting period.
As of the end of each quarter, or more frequently if warranted, each institution must evaluate the
collectability of its financial assets measured at amortized cost, including, if applicable, any recorded
accrued interest receivable (i.e., not already reversed or charged off, as applicable), and make
adjusting entries to maintain the balance of each of the separate ACLs reported on the balance sheet
at an appropriate level.
An institution shall measure expected credit losses on a collective or pool basis when financial assets
share similar risk characteristics. If a financial asset does not share similar risk characteristics with
other assets, expected credit losses for that asset should be evaluated individually. Individually
evaluated assets should not be included in a collective assessment of expected credit losses. If a
financial asset ceases to share similar risk characteristics with other assets in its pool, it should be
moved to a different pool with assets sharing similar risk characteristics, if such a pool exists.
ASC Subtopic 326-20 does not require the use of a specific loss estimation method for purposes of
determining ACLs. Various methods may be used to estimate the expected collectibility of financial
assets measured at amortized cost, with those methods generally applied consistently over time. The
same loss estimation method does not need to be applied to all financial assets. An institution is not
precluded from selecting a different method when it determines the method will result in a better
estimate of ACLs.

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Allowance for Credit Losses (cont.):
ASC Subtopic 326-20 requires an institution to measure estimated expected credit losses over the
contractual term of its financial assets, considering expected prepayments. Renewals, extensions, and
modifications are excluded from the contractual term of a financial asset for purposes of estimating the
ACL unless there is a reasonable expectation of executing a troubled debt restructuring or the renewal
and extension options are part of the original or modified contract and are not unconditionally
cancellable by the institution. If such renewal or extension options are present, an institution must
evaluate the likelihood of a borrower exercising those options when determining the contractual term.
In estimating the net amount expected to be collected on financial assets measured at amortized cost,
an institution should consider the effects of past events, current conditions, and reasonable and
supportable forecasts on the collectibility of the institution’s financial assets. Under ASC Subtopic
326-20, an institution is required to use relevant forward-looking information and expectations drawn
from reasonable and supportable forecasts when estimating expected credit losses.
Expected recoveries, prior to collection, are a component of management’s estimate of the net amount
expected to be collected for a financial asset. Expected recoveries of amounts previously charged off
or expected to be charged off that are included in ACLs may not exceed the aggregate amounts
previously charged off or expected to be charged off.
Changes in the ACL – Additions to, or reductions of, the ACL to adjust its level to management’s
current estimate of expected credit losses are to be made through charges or credits to the "provision
for credit losses on financial assets" (provision) in item 4 of Schedule RI, Income Statement, except for
changes to adjust the level of the ACL for off-balance-sheet credit exposures. When available
information confirms that specific financial assets measured at amortized cost, or portions thereof, are
uncollectible, these amounts should be promptly charged off against the related ACL in the period in
which the financial assets are deemed uncollectible. Under no circumstances can expected credit
losses on financial assets measured at amortized cost be charged directly to "Retained earnings" after
the initial adoption of ASC Topic 326, for which the change from the incurred loss to the current
expected credit losses methodology is required to be recorded through a cumulative-effect adjustment
to retained earnings. This cumulative-effect adjustment is reported in Schedule RI-A, item 2,
“Cumulative effect of changes in accounting principles and corrections of material accounting errors,”
and disclosed in Schedule RI-E, item 4.a, “Effect of adoption of current expected credit losses
methodology – ASU 2016-13.”
Recoveries on financial assets measured at amortized cost represent collections on amounts that were
previously charged off against the related ACL. Recoveries shall be credited to the ACL, provided that
the total amount credited to the ACL as recoveries on a financial asset (which may include amounts
representing principal, interest, and fees) is limited to the amount previously charged off against the
ACL on that financial asset. Any amounts collected in excess of this limit should generally be
recognized as noninterest income upon collection.
Charge-Offs and Establishment of a New Amortized Cost Basis – When an institution makes a full or
partial charge-off of a financial asset measured at amortized cost that is deemed uncollectible, the
institution establishes a new cost basis for that financial asset. Consequently, once a new cost basis
has been established for a financial asset through a charge-off, this amortized cost basis may not be
directly "written up" at a later date. Reversing the previous charge-off and "re-booking" the charged-off
asset after the institution concludes that the prospects for recovering the charge-off have improved,
regardless of whether the institution assigns a new account number to the asset or the borrower signs
a new note, is not an acceptable accounting practice. Nevertheless, as stated above, management’s
estimate of the net amount expected to be collected for a financial asset, as reflected in the related
ACL, considers expected recoveries.

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Allowance for Credit Losses (cont.):
If losses charged off against an ACL exceed the amount of the ACL, a provision expense sufficient to
restore the ACL to an appropriate level must be charged to a provision for credit losses on the income
statement during the reporting period in which the charge-off is recorded. An institution shall not
increase an ACL by transferring an amount from retained earnings or any segregation thereof to the
ACL.
Collateral-Dependent Financial Assets – A collateral-dependent financial asset is a financial asset for
which repayment is expected to be provided substantially through the operation or sale of the collateral
when the borrower, based on management’s assessment, is experiencing financial difficulty as of the
reporting date.
For purposes of these reports, the ACL for a collateral-dependent loan is measured using the fair value
of collateral, regardless of whether foreclosure is probable. This application of this requirement for
purposes of these reports is limited to collateral-dependent loans; it does not apply to other financial
assets such as held-to-maturity debt securities that are collateral dependent.
When estimating the ACL for a collateral-dependent loan, the fair value of collateral should be adjusted
to consider estimated costs to sell if repayment or satisfaction of the loan depends on the sale of the
collateral. ACL adjustments for estimated costs to sell are not appropriate when the repayment of a
collateral-dependent loan is expected from the operation of the collateral.
The fair value of collateral securing a collateral-dependent loan may change over time. If the fair value
of the collateral as of the ACL evaluation date has decreased since the previous ACL evaluation date,
the ACL should be increased to reflect the additional decrease in the fair value of the collateral.
Likewise, if the fair value of the collateral has increased as of the ACL evaluation date, the increase in
the fair value of the collateral is reflected through a reduction in the ACL. Any negative ACL that
results is capped at the amount previously charged off. In general, any portion of the amortized cost
basis in excess of the fair value of collateral less estimated costs to sell, if applicable, that can be
identified as uncollectible should be promptly charged off against the ACL.
Financial Assets with Collateral Maintenance Agreements – Institutions may have financial assets that
are secured by collateral (such as debt securities) and are subject to collateral maintenance
agreements requiring the borrower to continuously replenish the amount of collateral securing the
asset. If the fair value of the collateral declines, the borrower is required to provide additional collateral
as specified by the agreement.
ASC Topic 326 includes a practical expedient for financial assets with collateral maintenance
agreements where the borrower is required to provide collateral greater than or equal to the amortized
cost basis of the asset and is expected to continuously replenish the collateral. In those cases, the
institution may elect the collateral maintenance practical expedient and measure expected credit losses
for these qualifying assets based on the fair value of the collateral. If the fair value of the collateral is
greater than the amortized cost basis of the financial asset and the institution expects the borrower to
replenish collateral as needed, the institution may record an ACL of zero for the financial asset when
the collateral maintenance practical expedient is applied. Similarly, if the fair value of the collateral is
less than the amortized cost basis of the financial asset and the institution expects the borrower to
replenish collateral as needed, the ACL is limited to the difference between the fair value of the
collateral and the amortized cost basis of the asset as of the reporting date when applying the collateral
maintenance practical expedient.
Off-Balance-Sheet Credit Exposures – Each institution should also estimate, as a separate liability
account, expected credit losses for off-balance-sheet credit exposures not accounted for as insurance,
over the contractual period during which the institution is exposed to credit risk. The estimate of
expected credit losses should take into consideration the likelihood that funding will occur as well as

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Allowance for Credit Losses (cont.):
the amount expected to be funded over the estimated remaining contractual term of the off-balancesheet credit exposures. Off-balance sheet credit exposures include loan commitments, financial
standby letters of credit, and financial guarantees not accounted for as insurance, and other similar
instruments except for those within the scope of ASC Topic 815 on derivatives and hedging. This
separate allowance should be reported in Schedule RC-G, item 3, "Allowance for credit losses on offbalance-sheet credit exposures," not as part of the "Allowance for credit losses on loans and leases" in
Schedule RC, item 4.c. Additions to, or reductions of, the allowance for credit losses on off-balance
sheet credit exposures to adjust the balance of the allowance to an appropriate level are reported in
net income.
Institutions should not record an estimate of expected credit losses for off-balance-sheet credit
exposures that are unconditionally cancellable by the issuer. For example, for an institution that has
unfunded commitments (i.e., available credit) on credit cards, the institution should not record an
allowance for expected credit losses for unfunded commitments for which the institution has the ability
to unconditionally cancel the available line of credit. In contrast, home equity lines of credit may be
deemed unconditionally cancellable for regulatory capital purposes. However, unfunded commitments
under home equity lines of credit are not considered unconditionally cancellable by the issuer for
purposes of estimating expected credit losses under ASC Topic 326, because the lender may not
unilaterally refuse to extend credit under the commitment.
Recourse Liability Accounts – Recourse liability accounts that arise from recourse obligations for any
transfers of financial assets that are reported as sales should not be included in an ACL. These
accounts are considered separate and distinct from ACLs and from the allowance for credit losses on
off-balance sheet credit exposures. Recourse liability accounts should be reported in Schedule RC-G,
item 4, "All other liabilities."
See also the Glossary entries for “Accrued Interest Receivable,” “Amortized Cost Basis,” “Business
Combinations,” “Foreclosed Assets,” “Loan,” “Loan Fees,” “Nonaccrual Status,” “Purchased CreditDeteriorated Assets,” “Securities Activities,” “Transfers of Financial Assets,” and “Troubled Debt
Restructurings.”
Allowance for Loan and Lease Losses: This Glossary entry applies to institutions that have not
adopted ASC Topic 326, Financial Instruments–Credit Losses. Institutions that have adopted
ASC Topic 326 should refer to the Glossary entry for “Allowance for Credit Losses.”
Each bank must maintain an allowance for loan and lease losses (allowance) at a level that is
appropriate to cover estimated credit losses associated with its loan and lease portfolio, i.e., loans and
leases that the bank has intent and ability to hold for the foreseeable future or until maturity or payoff.
Each bank should also maintain, as a separate liability account, an allowance at a level that is
appropriate to cover estimated credit losses associated with off-balance sheet credit instruments such
as off-balance sheet loan commitments, standby letters of credit, and guarantees. This separate
allowance should be reported in Schedule RC-G, item 3, "Allowance for credit losses on off-balance
sheet credit exposures," not as part of the "Allowance for loan and lease losses" in Schedule RC,
item 4.c.
With respect to the loan and lease portfolio, the term "estimated credit losses" means an estimate of
the current amount of loans and leases that it is probable the bank will be unable to collect given facts
and circumstances as of the evaluation date. Thus, estimated credit losses represent net charge-offs
that are likely to be realized for a loan or pool of loans. These estimated credit losses should meet the
criteria for accrual of a loss contingency (i.e., through a provision to the allowance) set forth in
generally accepted accounting principles (GAAP).
As of the end of each quarter, or more frequently if warranted, the management of each bank must
evaluate, subject to examiner review, the collectibility of the loan and lease portfolio, including any
recorded accrued and unpaid interest (i.e., not already reversed or charged off), and make entries to

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Allowance for Loan and Lease Losses (cont.):
maintain the balance of the allowance for loan and lease losses on the balance sheet at an appropriate
level. Management must maintain reasonable records in support of their evaluations and entries.
Furthermore, each bank is responsible for ensuring that controls are in place to consistently determine
the allowance for loan and lease losses in accordance with GAAP (including ASC Subtopic 450-20,
Contingencies – Loss Contingencies, and ASC Topic 310, Receivables), the bank's stated policies and
procedures, management’s best judgment and relevant supervisory guidance.
Additions to, or reductions of, the allowance account resulting from such evaluations are to be made
through charges or credits to the "provision for loan and lease losses" (provision) in the Consolidated
Report of Income. When available information confirms that specific loans and leases, or portions
thereof, are uncollectible, these amounts should be promptly charged off against the allowance. All
charge-offs of loans and leases shall be charged directly to the allowance. Under no circumstances
can loan or lease losses be charged directly to "Retained earnings." Recoveries on loans and leases
represent collections on amounts that were previously charged off against the allowance. Recoveries
shall be credited to the allowance, provided, however, that the total amount credited to the allowance
as recoveries on an individual loan (which may include amounts representing principal, interest, and
fees) is limited to the amount previously charged off against the allowance on that loan. Any amounts
collected in excess of this limit should be recognized as income.
ASC Subtopic 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit
Quality, prohibits a bank from "carrying over" or creating loan loss allowances in the initial accounting
for "purchased credit-impaired loans," i.e., loans that a bank has purchased where there is evidence of
deterioration of credit quality since the origination of the loan and it is probable, at the purchase date,
that the bank will be unable to collect all contractually required payments receivable. This prohibition
applies to the purchase of an individual impaired loan, a pool or group of impaired loans, and impaired
loans acquired in a purchase business combination. However, if, upon evaluation subsequent to
acquisition, based on current information and events, it is probable that the bank is unable to collect all
cash flows expected at acquisition (plus additional cash flows expected to be collected arising from
changes in estimate after acquisition) on a purchased credit-impaired loan (not accounted for as a debt
security), the loan should be considered impaired for purposes of establishing an allowance pursuant
to ASC Subtopic 450-20 or ASC Topic 310, as appropriate. For further information, see the Glossary
entry for “Purchased Credit-Impaired Loans and Debt Securities.”
When a bank makes a full or partial direct write-down of a loan or lease that is uncollectible, the bank
establishes a new cost basis for the asset. Consequently, once a new cost basis has been established
for a loan or lease through a direct write-down, this cost basis may not be "written up" at a later date.
Reversing the previous write-down and "re-booking" the charged-off asset after the bank concludes
that the prospects for recovering the charge-off have improved, regardless of whether the bank
assigns a new account number to the asset or the borrower signs a new note, is not an acceptable
accounting practice.
The allowance account must never have a debit balance. If losses charged off exceed the amount of
the allowance, a provision sufficient to restore the allowance to an appropriate level must be charged
to expense on the income statement immediately. A bank shall not increase the allowance account by
transferring an amount from undivided profits or any segregation thereof to the allowance for loan and
lease losses.
To the extent that a bank's reserve for bad debts for tax purposes is greater than or less than its
"allowance for loan and lease losses" on the balance sheet of the Consolidated Report of Condition,
the difference is referred to as a temporary difference. See the Glossary entry for "Income Taxes" for
guidance on how to report the tax effect of such a temporary difference.

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Allowance for Loan and Lease Losses (cont.):
Recourse liability accounts that arise from recourse obligations for any transfers of loans that are
reported as sales for purposes of these reports should not be included in the allowance for loan and
lease losses. These accounts are considered separate and distinct from the allowance account and
from the allowance for credit losses on off-balance sheet credit exposures. Recourse liability accounts
should be reported in Schedule RC-G, item 4, "All other liabilities."
For comprehensive guidance on the maintenance of an appropriate allowance for loan and lease
losses, banks should refer to the Interagency Policy Statement on the Allowance for Loan and Lease
Losses dated December 13, 2006. For guidance on the design and implementation of allowance
methodologies and supporting documentation practices, banks should refer to the interagency Policy
Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and
Savings Associations, which was published on July 6, 2001. National banks should also refer to the
Office of the Comptroller of the Currency's Handbook for National Bank Examiners discussing the
allowance for loan and lease losses. Information on the application of ASC Topic 310, Receivables, to
the determination of an allowance for loan and lease losses on those loans covered by that accounting
standard is provided in the Glossary entry for "Loan Impairment."
For information on reporting on foreclosed and repossessed assets, see the Glossary entry for
"Foreclosed Assets."
Amortized Cost Basis: The amortized cost basis is the amount at which a financing receivable or
investment is originated or acquired, adjusted for applicable accrued interest, accretion, or amortization
of premium, discount and net deferred fees or costs, collection of cash, write-offs,1 foreign exchange,
and fair hedge accounting adjustments.
See also the Glossary entries for “Accrued Interest Receivable,” “Loan,” “Loan Fees,” “Nonaccrual
Status,” and “Securities Activities.”
Applicable Income Taxes: See "Income Taxes."
Associated Company: See "Subsidiaries."
ATS Account: See "Deposits."
Bankers Acceptances: A banker's acceptance, for purposes of these reports, is a draft or bill of
exchange that has been drawn on and accepted by a banking institution (the "accepting bank") or its
agent for payment by that institution at a future date that is specified in the instrument. Funds are
advanced to the drawer of the acceptance by the discounting of the accepted draft either by the
accepting bank or by others; the accepted draft is negotiable and may be sold and resold subsequent
to its original discounting. At the maturity date specified, the holder or owner of the acceptance at that
date, who has advanced funds either by initial discount or subsequent purchase, presents the
accepted draft to the accepting bank for payment.
The accepting bank has an unconditional obligation to put the holder in funds (to pay the holder the
face amount of the draft) on presentation on the specified date. The account party (customer) has an
unconditional obligation to put the accepting bank in funds at or before the maturity date specified in
the instrument.

1 The FASB’s term “write-off” is used interchangeably with the term “charge-off” in these instructions. These terms
can refer to both full and partial write-offs or charge-offs.

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Bankers Acceptances (cont.):
The following description covers the treatment in the Consolidated Report of Condition of
(1) acceptances that have been executed by the reporting bank, that is, those drafts that have been
drawn on and accepted by it; (2) "participations" in acceptances, that is, "participations" in the
accepting bank's obligation to put the holder of the acceptance in funds at maturity, or participations in
the accepting bank's risk of loss in the event of default by the account party; and (3) acceptances
owned by the reporting bank, that is, those acceptances – whether executed by the reporting bank or
by others – that the bank has discounted or purchased.
(1) Acceptances executed by the reporting bank – With the exceptions described below, the accepting
bank must report on its balance sheet the full amount of the acceptance in both (1) the liability
item, "Other liabilities" (Schedule RC, item 20), reflecting the accepting bank's obligation to put the
holder of the acceptance in funds at maturity, and (2) the asset item, "Other assets" (Schedule RC,
item 11), reflecting the account party's liability to put the accepting bank in funds at or before
maturity. The acceptance liability and acceptance asset must also be reported in both
Schedule RC-G, item 4, “All other liabilities,” and Schedule RC-F, item 6, “All other assets,”
respectively.
Exceptions to the mandatory reporting by the accepting bank of the full amount of all outstanding
drafts accepted by the reporting bank in both “Other liabilities” (Schedule RC, item 20) and
“Other assets” (Schedule RC, item 11) on the balance sheet of the Consolidated Report of
Condition occur in the following situations:
(a) One exception occurs in situations where the accepting bank acquires – through initial
discounting or subsequent purchase – and holds its own acceptance (i.e., a draft that it has
itself accepted). In this case, the reporting bank's own acceptances that are held by it should
not be reported in the ”Other liabilities” and “Other assets” items noted above. The bank's
holdings of its own acceptances should be reported in "Loans and leases held for sale"
(Schedule RC, item 4.a), "Loans and leases held for investment" (Schedule RC, item 4.b), or
"Trading assets" (Schedule RC, item 5), as appropriate.
(b) Another exception occurs in situations where the account party anticipates its liability to the
reporting bank on an acceptance outstanding by making a payment to the bank that reduces
the customer's liability in advance of the maturity of the acceptance. In this case, the reporting
bank should decrease ”Other assets” (Schedule RC, item 11) by the amount of such
prepayment; the prepayment will not affect the bank’s “Other liabilities” (Schedule RC,
item 20), which would continue to reflect the full amount of the acceptance until the bank has
repaid the holder of the acceptance at the maturity date specified in the instrument. If the
account party's payment to the accepting bank before the maturity date is not for the purpose
of immediate reduction of its indebtedness to the reporting bank or if receipt of the payment
does not immediately reduce or extinguish that indebtedness, such advance payment will not
reduce item 11 of Schedule RC, but should be reflected in the bank's deposit liabilities.
In all situations other than these two exceptions just described, the accepting bank must report the
full amount of its acceptances in “Other liabilities” (Schedule RC, item 20) and in ”Other assets”
(Schedule RC, item 11). There are no other circumstances in which the accepting bank can report
as a balance sheet liability anything less than the full amount of the obligation to put the holder of
the acceptance in funds at maturity. Moreover, there are no circumstances in which the reporting
bank can net its acceptance assets against its acceptance liabilities.
NOTE: The amount of a reporting member (both national and state) bank's acceptances that are
subject to statutory limitations on eligible acceptances as set forth in federal statute 12 USC 372
and in Federal Reserve regulation 12 CFR Part 250 may differ from the required reporting of

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Bankers Acceptances (cont.):
acceptances on the balance sheet of the Consolidated Report of Condition, as described above.
These differences are mainly attributable to ineligible acceptances, to participations in the reporting
bank's acceptances conveyed to others, to participations acquired by the reporting bank in other
banks' acceptances, and to the effect of the consolidation of subsidiaries in the Consolidated
Report of Condition.
(2) "Participations" in acceptances – The general requirement for the accepting bank to report on its
balance sheet the full amount of the total obligation to put the holder of the acceptance in funds
applies also, in particular, to any situation in which the accepting bank enters into any kind of
arrangement with others for the purpose of having the latter share, or participate, in the obligation
to put the holder of the acceptance in funds at maturity or in the risk of loss in the event of default
on the part of the account party.1 In any such sharing arrangement or participation
agreement -- regardless of its form or its contract provisions, regardless of the terminology (e.g.,
"funded," "risk," "unconditional," or "contingent") used to describe it and the relationships under it,
regardless of whether it is described as a participation in the customer's liability or in the accepting
bank's obligation or in the risk of default by the account party, and regardless of the system of
debits and credits used by the accepting bank to reflect the participation arrangement -- the
existence of the participation or other agreement does not reduce the accepting bank's obligation
to honor the full amount of the acceptance at maturity nor change the requirement for the
accepting bank to report the full amount of the acceptance in the liability and asset items described
above.
The existence of such participations is not to be recorded on the balance sheet (Schedule RC) of
the accepting bank that conveys shares in its obligation to put the holder of the acceptance in
funds or shares in its risk of loss in the event of default on the part of the account party, and
similarly is not to be recorded on the balance sheets (Schedule RC) of the other banks that are
party to, or acquire, such participations. However, in such cases of agreements to participate, the
nonaccepting bank acquiring the participation will report the participation in Schedule RC-R, Part II,
item 17, “All other off-balance sheet liabilities.” This same reporting treatment applies to a bank
that acquires a participation in an acceptance of another (accepting) bank and subsequently
conveys the participation to others and to a bank that acquires such a participation. Moreover, the
bank that both acquires and conveys a participation in another bank's acceptance must report the
amount of the participation in the “All other off-balance sheet liabilities” item in Schedule RC-R,
Part II.
(3) Acceptances owned by the reporting bank – The treatment of acceptances owned or held by the
reporting bank (whether acquired by initial discount or subsequent purchase) depends upon
whether the acceptances are held for trading, for sale, or in portfolio and upon whether the
acceptances held have been accepted by the reporting bank or by other banks.
All acceptances held for trading by the reporting bank (whether acceptances of the reporting bank
or of other banks) are to be reported in Schedule RC, item 5, "Trading assets." Banks that must
complete Schedule RC-D, Trading Assets and Liabilities, should report other banks’ acceptances
held for trading in item 6.d, "Other loans,” and its own acceptances held for trading according to
the account party of the draft, generally in item 6.b, “Commercial and industrial loans,” or item 6.d,
“Other loans,” as appropriate.
The reporting bank's holdings of acceptances other than those held for trading (whether
acceptances of the reporting bank or of other banks) are to be reported in Schedule RC, item 4.a,
"Loans and leases held for sale," or in item 4.b, "Loans and leases held for investment," as
appropriate, and in Schedule RC-C, Part I, Loans and Leases.

1

This discussion does not deal with participations in holdings of bankers acceptances, which are reportable as loans.
Such participations are treated like any participations in loans as described in the Glossary entry for "Transfers of
Financial Assets."

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Bankers Acceptances (cont.):
In Schedule RC-C, Part I, the reporting bank's holdings of other banks' acceptances, other than
those held for trading, are to be reported in "Loans to depository institutions and acceptances of
other banks" (item 2). On the other hand, the bank's holdings of its own acceptances, other than
those held for trading, are to be reported in Schedule RC-C, Part I, according to the account party
of the draft. Thus, holdings of own acceptances for which the account parties are commercial or
industrial enterprises are to be reported in Schedule RC-C, Part I, in "Commercial and industrial
loans" (item 4); holdings of own acceptances for which the account parties are other banks (e.g., in
connection with the refinancing of another acceptance or for the financing of dollar exchange) are
to be reported in Schedule RC-C, Part I, in "Loans to depository institutions and acceptances of
other banks" (item 2); and holdings of own acceptances for which the account parties are foreign
governments or official institutions (e.g., for the financing of dollar exchange) are to be reported in
Schedule RC-C, Part I, "Loans to foreign governments and official institutions" (item 7) on the
FFIEC 031 and in Schedule RC-C, Part I, “Other loans” (item 9.b) on the FFIEC 041.
The difference in treatment between holdings of own acceptances and holdings of other banks'
acceptances reflects the fact that, for other banks' acceptances, the holding bank's immediate
claim is on the accepting bank, regardless of the account party or of the purpose of the loan.
On the other hand, for its holdings of its own acceptances, the bank's immediate claim is on the
account party named in the accepted draft.
If the account party prepays its acceptance liability on an acceptance of the reporting bank that is
held by the reporting bank (in the held-for-sale account, in the loan portfolio, or as trading assets)
so as to immediately reduce its indebtedness to the reporting bank, the recording of the holding –
in "Commercial and industrial loans," "Loans to depository institutions and acceptances of other
banks," or "Trading assets," as appropriate – is reduced by the prepayment.
Bank-Owned Life Insurance: ASC Subtopic 325-30, Investments-Other – Investments in Insurance
Contracts, addresses the accounting for bank-owned life insurance. According to ASC Subtopic
325-30, only the amount that could be realized under the insurance contract as of the balance sheet
date should be reported as an asset. In general, this amount is the cash surrender value reported to
the institution by the insurance carrier less any applicable surrender charges not reflected by the
insurance carrier in the reported cash surrender value, i.e., the net cash surrender value. An institution
should also consider any additional amounts included in the contractual terms of the policy in
determining the amount that could be realized under the insurance contract in accordance with
ASC Subtopic 325-30.
Because there is no right of offset, an investment in bank-owned life insurance should be reported as
an asset separately from any related deferred compensation liability.
Banks that have entered into split-dollar life insurance arrangements should follow the guidance on the
accounting for the deferred compensation and postretirement benefit aspects of such arrangements in
ASC Subtopic 715-60, Compensation-Retirement Benefits – Defined Benefit Plans-Other
Postretirement. In general, in an endorsement split-dollar arrangement, a bank owns and controls the
insurance policy on the employee, whereas in a collateral assignment split-dollar arrangement, the
employee owns and controls the insurance policy. According to ASC Subtopic 715-60, a bank should
recognize a liability for the postretirement benefit related to a split-dollar life insurance arrangement if,
based on the substantive agreement with the employee, the bank has agreed to maintain a life
insurance policy during the employee's retirement or provide the employee with a death benefit. This
liability should be measured in accordance with either ASC Topic 715, Compensation-Retirement
Benefits (if, in substance, a postretirement benefit plan exists) or ASC Subtopic 710-10,
Compensation-General – Overall (if the arrangement is, in substance, an individual deferred
compensation contract), and reported on the balance sheet in Schedule RC, item 20, “Other liabilities,”
and in Schedule RC-G, item 4, "All other liabilities." In addition, for a collateral assignment split-dollar

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Bank-Owned Life Insurance (cont.):
arrangement, ASC Subtopic 715-60 states that an employer such as a bank should recognize and
measure an insurance asset based on the nature and substance of the arrangement.
The amount that could be realized under bank-owned life insurance policies as of the report date
should be reported on the balance sheet in Schedule RC, item 11, “Other assets,” and in
Schedule RC-F, item 5, “Life insurance assets.” The net earnings (losses) on or the net increases
(decreases) in the bank’s life insurance assets should be reported in the income statement in
Schedule RI, item 5.l, "Other noninterest income." Alternatively, the gross earnings (losses) on or
increases (decreases) in these life insurance assets may be reported in Schedule RI, item 5.l, and the
life insurance policy expenses may be reported in Schedule RI, Item 7.d, "Other noninterest expense."
If the absolute value of the earnings (losses) on or the increases (decreases) in the bank’s life
insurance assets reported in Schedule RI, item 5.l, “Other noninterest income,” is greater than
$100,000 and exceeds 7 percent of “Other noninterest income,” this amount should be reported in
Schedule RI-E, item 1.b.
Banks, U.S. and Foreign: In the classification of banks as customers of the reporting bank, distinctions
are drawn for purposes of the Consolidated Reports of Condition and Income between "U.S. banks"
and "commercial banks in the U.S." and between "foreign banks" and "banks in foreign countries."
Some report items call for one set of these categories and other items call for the other set. The
distinctions center around the inclusion or exclusion of foreign branches of U.S. banks and U.S.
branches and agencies of foreign banks. For purposes of describing the office location of banks as
customers of the reporting bank, the term "United States" covers the 50 states of the United States, the
District of Columbia, Puerto Rico, and U.S. territories and possessions. (This is in contrast to the
usage with respect to the offices of the reporting bank, where U.S.-domiciled Edge and Agreement
subsidiaries and IBFs are included in "foreign" offices. Furthermore, for banks chartered and
headquartered in the 50 states of the United States and the District of Columbia, offices of the reporting
bank in Puerto Rico and U.S. territories and possessions are also included in “foreign” offices, but, for
banks chartered and headquartered in Puerto Rico and U.S. territories and possessions, offices of the
reporting bank in Puerto Rico and U.S. territories and possessions are included in “domestic” offices.)
U.S. banks – The term "U.S. banks" covers both the U.S. and foreign branches of banks chartered and
headquartered in the U.S. (including U.S.-chartered banks owned by foreigners), but excluding U.S.
branches and agencies of foreign banks. On the other hand, the term "banks in the U.S." or
"commercial banks in the U.S." (the institutional coverage of which is described in detail later in this
entry) covers the U.S. offices of U.S. banks (including their IBFs) and the U.S. branches and agencies
of foreign banks, but excludes the foreign branches of U.S. banks.
Foreign banks – Similarly, the term "foreign banks" covers all branches of banks chartered and
headquartered in foreign countries (including foreign banks owned by U.S. nationals and institutions),
including their U.S.-domiciled branches and agencies, but excluding the foreign branches of U.S.
banks. In contrast, the term "banks in foreign countries" covers foreign-domiciled branches of banks,
including the foreign branches of U.S. banks, but excluding the U.S. branches and agencies of foreign
banks.

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Banks, U.S. and Foreign (cont.):
The following table summarizes these contrasting categories of banks considered as customers as
used in the Consolidated Reports of Condition and Income ("X" indicates inclusion; no entry indicates
exclusion.)

"U.S.
banks"

U.S. branches
of U.S. banks
(including IBFs)

X

Foreign branches
of U.S. banks

X

"Commercial
banks in
the U.S."

"Banks in
foreign
countries"

X

X

Foreign branches
of foreign banks
U.S. branches and
agencies of foreign
banks

"Foreign
banks"

X

X

X

X

Commercial banks in the U.S. – The detailed institutional composition of "commercial banks in the
U.S." includes:
(1) the U.S.-domiciled head offices and branches of:
(a)
(b)
(c)
(d)
(e)
(f)
(g)

national banks;
state-chartered commercial banks;
trust companies that perform a commercial banking business;
industrial banks;
private or unincorporated banks;
International Banking Facilities (IBFs) of U.S. banks;
Edge and Agreement corporations; and

(2) the U.S.-domiciled branches and agencies of foreign banks (as defined below).
This coverage includes the U.S. institutions listed above that are owned by foreigners. Excluded from
commercial banks in the U.S. are branches located in foreign countries of U.S. banks.
U.S. savings and loan associations and savings banks are treated as "other depository institutions in
the U.S." for purposes of the Consolidated Reports of Condition and Income.
U.S. branches and agencies of foreign banks – U.S. branches of foreign banks include any offices or
places of business of foreign banks that are located in the United States at which deposits are
accepted. U.S. agencies of foreign banks include any offices or places of business of foreign banks
that are located in the United States at which credit balances are maintained incidental to or arising out
of the exercise of banking powers but at which deposits may not be accepted from citizens or residents
of the United States.

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Banks, U.S. and Foreign (cont.):
For purposes of the Consolidated Reports of Condition and Income, the term "U.S. branches and
agencies of foreign banks" covers:
(1) the U.S. branches and agencies of foreign banks;
(2) the U.S. branches and agencies of foreign official banking institutions, including central banks,
nationalized banks, and other banking institutions owned by foreign governments; and
(3) investment companies that are chartered under Article XII of the New York State banking law and
that are majority-owned by one or more foreign banks.
Banks in foreign countries –The institutional composition of "banks in foreign countries" includes:
(1) the foreign-domiciled head offices and branches of:
(a) foreign commercial banks (including foreign-domiciled banking subsidiaries of U.S. banks and
Edge and Agreement corporations);
(b) foreign savings banks or discount houses;
(c) nationalized banks not functioning either as central banks, as foreign development banks, or
as banks of issue;
(d) other similar foreign institutions that accept short-term deposits; and
(2) the foreign-domiciled branches of U.S. banks.
See also "International Banking Facility (IBF)."
Banks in Foreign Countries: See "Banks, U.S. and Foreign."
Bill-of-Lading Draft: See "Commodity or Bill-of-Lading Draft."
Borrowings and Deposits in Foreign Offices: Borrowings in foreign offices include assets
rediscounted with central banks, certain participations sold in loans and securities, government
fundings of loans, borrowings from the Export-Import Bank, and rediscounted trade acceptances.
Federal funds sold and repurchase agreements in foreign offices should be reported in accordance
with the Glossary entries for "Federal Funds Transactions" and "Repurchase/Resale Agreements."
Liability accounts such as accruals and allocated capital shall not be reported as borrowings. Deposits
consist of such other short-term and long-term liabilities issued or undertaken as a means of obtaining
funds to be used in the banking business and include those liabilities generally characterized as
placements and takings, call money, and deposit substitutes.
Brokered Deposits: As defined in Section 337.6(a) of the FDIC’s regulations, the term “brokered
deposit” means “any deposit that is obtained, directly or indirectly, by or through any deposit broker.”
Brokered deposits include both those in which the entire beneficial interest in a given bank deposit
account or instrument is held by a single depositor and those in which the deposit broker sells
participations in a given bank deposit account or instrument to one or more investors.
The meaning of the term “brokered deposit” depends on the meaning of the term “deposit broker.”
The term “deposit broker” is defined broadly in Section 29(g) of the Federal Deposit Insurance Act
and Section 337.6(a) of the FDIC’s regulations and means:
(1) any person engaged in the business of placing deposits, or facilitating the placement of deposits,
of third parties with insured depository institutions, or the business of placing deposits with insured
depository institutions for the purpose of selling interests in those deposits to third parties, and
(2) an agent or trustee who establishes a deposit account to facilitate a business arrangement with an
insured depository institution to use the proceeds of the account to fund a prearranged loan.

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Brokered Deposits (cont.):
Section 337.6(a) of the FDIC’s regulations further provides that the definition of “deposit broker” is
subject to a list of exceptions. According to the list of exceptions, the following parties are not treated
as a deposit broker:
(1) an insured depository institution, with respect to funds placed with that depository institution;
(2) an employee of an insured depository institution, with respect to funds placed with the employing
depository institution;
(3) a trust department of an insured depository institution, if the trust or other fiduciary relationship in
question has not been established for the primary purpose of placing funds with insured
depository institutions;
(4) the trustee of a pension or other employee benefit plan, with respect to funds of the plan;
(5) a person acting as a plan administrator or an investment adviser in connection with a pension plan
or other employee benefit plan provided that that person is performing managerial functions with
respect to the plan;
(6) the trustee of a testamentary account;
(7) the trustee of an irrevocable trust (other than a trustee who establishes a deposit account to
facilitate a business arrangement with an insured depository institution to use the proceeds of the
account to fund a prearranged loan), as long as the trust in question has not been established for
the primary purpose of placing funds with insured depository institutions;
(8) a trustee or custodian of a pension or profit-sharing plan qualified under Section 401(d) or 403(a)
of the Internal Revenue Code of 1986;
(9) an agent or nominee whose primary purpose is not the placement of funds with depository
institutions;1 or
(10) an insured depository institution acting as an intermediary or agent of a U.S. government
department or agency for a government sponsored minority or women-owned depository
institution deposit program.
Notwithstanding these ten exceptions, the term “deposit broker” (as amended on September 23, 1994,
by the Riegle Community Development and Regulatory Improvement Act of 1994) includes any insured
depository institution that is not well capitalized (as defined in Section 38 of the Federal Deposit
Insurance Act, Prompt Corrective Action), and any employee of any such institution, which engages,
directly or indirectly, in the solicitation of deposits by offering rates of interest (with respect to such
deposits) which are significantly higher than the prevailing rates of interest on deposits offered by other
insured depository institutions in such depository institution's normal market area.2 Only those deposits
accepted, renewed, or rolled over on or after June 16, 1992, in connection with this form of deposit
solicitation are to be reported as brokered deposits. For further information on the solicitation and
acceptance of brokered deposits by insured depository institutions, see Section 337.6(b) of the FDIC's
regulations.
In addition, deposit instruments of the reporting bank that are sold to brokers, dealers, or underwriters
(including both bank affiliates of the reporting bank and nonbank subsidiaries of the reporting bank's
parent holding company) who then reoffer and/or resell these deposit instruments to one or more
investors, regardless of the minimum denomination which the investor must purchase, are considered
brokered deposits.

1

For purposes of applying this ninth exception from the definition of deposit broker, "primary purpose" does not mean
"primary activity," but should be construed as "primary intent." Whether the “primary purpose” exception applies
should be determined based on the meaning of this exception as stated in the FDIC’s regulations and as interpreted
in the FDIC’s guidance.

2 Any deposit accepted, renewed, or rolled over by a well capitalized institution before September 23, 1994, in
connection with this form of deposit solicitation should continue to be reported as a brokered deposit as long as the
deposit remains outstanding under the terms in effect before September 23, 1994. Notwithstanding the amendment
to the "deposit broker" definition, all institutions that obtain deposits, directly or indirectly, by or through any other
deposit broker must report such funds as brokered deposits in the Consolidated Report of Condition.

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Brokered Deposits (cont.):
In some cases, brokered deposits are issued in the name of the depositor whose funds have been
placed in a bank by a deposit broker. In other cases, a bank’s deposit account records may indicate
that the funds have been deposited in the name of a third party custodian for the benefit of others
(e.g., “XYZ Corporation as custodian for the benefit of others,” or “Custodial account of XYZ
Corporation”). Unless the custodian meets one of the specific exceptions from the “deposit broker”
definition in Section 29 of the Federal Deposit Insurance Act and Section 337.6(a) of the FDIC’s
regulations, these custodial accounts should be reported as brokered deposits in Schedule RC-E,
Deposit Liabilities.
A deposit listing service whose only function is to provide information on the availability and terms of
accounts is not facilitating the placement of deposits and therefore is not a deposit broker per se.
However, if a deposit broker uses a deposit listing service to identify an institution offering a high rate on
deposits and then places its customers’ funds at that institution, the deposits would be brokered deposits
and the institution should report them as such in Schedule RC-E. The designation of these deposits as
brokered deposits is based not on the broker’s use of the listing service but on the placement of the
deposits in the institution by the deposit broker.
Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted on
May 24, 2018, amends Section 29 of the Federal Deposit Insurance Act to except a capped amount of
reciprocal deposits from treatment as, and from being reported as, brokered deposits for qualifying
institutions. The FDIC has amended its regulations to conform to the treatment of reciprocal deposits
set forth in Section 202. As defined in Section 337.6(e)(2)(v) of the FDIC’s regulations, “reciprocal
deposits” means “deposits received by an agent institution through a deposit placement network with
the same maturity (if any) and in the same aggregate amount as covered deposits placed by the agent
institution in other network member banks.” As defined in Section 327.8(q) of the FDIC’s regulations,
“brokered reciprocal deposits” are “reciprocal deposits as defined in Section 337.6(e)(2)(v) of the
FDIC’s regulations that are not excepted from an institution’s brokered deposits pursuant to
Section 337.6(e)” of the FDIC’s regulations. Brokered reciprocal deposits should be reported as
(1) brokered deposits and included in Schedule RC-E, Memorandum item 1.b, and, if applicable,
Memorandum items 1.c and 1.d, and (2) brokered reciprocal deposits and included in Schedule RC-O,
item 9 and, if applicable, item 9.a. An institution should report its total reciprocal deposits,
including any reciprocal deposits that are reported as brokered deposits, in Schedule RC-E,
Memorandum item 1.g. For further information on reciprocal deposits and brokered reciprocal
deposits, see the instructions for Schedule RC-E, Memorandum items 1.b and 1.g, and the examples
after the instructions for Schedule RC-E, Memorandum item 7.
Fully insured brokered deposits are brokered deposits (including brokered deposits that represent
retirement deposit accounts as defined in Schedule RC-O, Memorandum item 1) with balances of
$250,000 or less or with balances of more than $250,000 that have been participated out by the
deposit broker in shares of $250,000 or less. As more fully described in the instructions for
Schedule RC-E, (Part I on the FFIEC 031), Memorandum item 1.c, fully insured brokered deposits also
include (a) certain brokered certificates of deposit issued in $1,000 amounts under a master certificate
of deposit issued by a bank to a deposit broker in an amount that exceeds $250,000 and (b) certain
brokered transaction accounts and money market deposit accounts denominated in amounts of $0.01
and established and maintained by the deposit broker (or its agent) as agent, custodian, or other
fiduciary for the broker’s customers.
For additional information on brokered deposits, refer to the FDIC’s “Identifying, Accepting and Reporting
Brokered Deposits: Frequently Asked Questions” at
https://www.fdic.gov/news/news/financial/2016/fil16042b.pdf.

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Broker's Security Draft: A broker's security draft is a draft with securities or title to securities attached
that is drawn to obtain payment for the securities. This draft is sent to a bank for collection with
instructions to release the securities only on payment of the draft.
Business Combinations: The accounting and reporting standards for business combinations are set
forth in ASC Topic 805, Business Combinations. ASC Topic 805 requires that all business
combinations, which are defined as the acquisition of assets and assumption of liabilities that constitute
a business, be accounted for using the acquisition method of accounting. The formation of a joint
venture, the acquisition of a group of assets that do not constitute a business, and a transfer of net
assets or exchange of equity interests between entities under common control are not considered
business combinations and therefore are not accounted for using the acquisition method of accounting.
Acquisition method – Under the acquisition method, the acquirer in a business combination shall
measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at their acquisition-date fair values (with limited exceptions specified in ASC Topic 805)
using the definition of fair value in ASC Topic 820, Fair Value Measurement. The acquisition date is
generally the date on which the acquirer legally transfers the consideration, acquires the assets, and
assumes the liabilities of the acquiree, i.e., the closing date. ASC Topic 805 requires the acquirer to
measure acquired receivables, including loans, at their acquisition-date fair values. If ASC Topic 326,
Financial Instruments–Credit Losses, has not been adopted, the acquirer may not recognize a
separate valuation allowance (e.g., allowance for loan and lease losses) for the contractual cash flows
that are deemed to be uncollectible as of that date.
If ASC Topic 326 has been adopted, an institution is required to determine whether any acquired
financial assets meet the definition of a purchased credit-deteriorated (PCD) asset. For a financial
asset that meets the definition of a PCD asset, the institution applies the gross-up approach and
records the acquired financial asset at its purchase price plus acquisition-date allowance for credit
losses, which establishes the initial amortized cost basis of the PCD asset. For acquired financial
assets that are not PCD assets, the acquirer records the purchased financial assets at their acquisitiondate fair values. Additionally, for those acquired financial assets within the scope of ASC Subtopic
326-20 that are not PCD financial assets, an allowance is initially recorded with a corresponding
charge to the provision for credit losses expense in the reporting period that includes the acquisition
date. See also the Glossary entries for “Allowance for Credit Losses” and “Purchased CreditDeteriorated Assets."
The consideration transferred in a business combination shall be calculated as the sum of the
acquisition-date fair values of the assets (including any cash) transferred by the acquirer, the liabilities
incurred by the acquirer to former owners of the acquiree, and the equity interests issued by the
acquirer. Acquisition-related costs are costs the acquirer incurs to effect a business combination such
as finder’s fees; advisory, legal, accounting, valuation, and other professional or consulting fees; and
general administrative costs. The acquirer shall account for acquisition-related costs as expenses in
the periods in which the costs are incurred and the services received. The cost to register and issue
debt or equity securities shall be recognized in accordance with other applicable generally accepted
accounting principles.
At the acquisition date, an acquirer generally will not have obtained all of the information necessary to
measure the fair values of the identifiable assets acquired, liabilities assumed, any noncontrolling
interest in the acquiree, and consideration transferred for the acquiree. Under ASC Topic 805, if the
initial accounting for a business combination is incomplete by the end of the reporting period in which
the combination occurs, the acquirer should report provisional amounts in its Consolidated Reports of
Condition and Income for the items for which the accounting is incomplete. Provisional amounts
should be based on the best information available. During the measurement period, the acquirer is
required to adjust the provisional amounts recognized at the acquisition date, with a corresponding
adjustment to goodwill, to reflect new information obtained about facts and circumstances that existed

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Business Combinations (cont.):
as of the acquisition date that, if known, would have affected the measurement of the amounts
recognized as of that date. Topic 805 further requires an acquirer to recognize adjustments to
provisional amounts identified during the measurement period in the reporting period in which
adjustment amounts are determined. The acquirer also must recognize in the income statement for the
same reporting period the effect on earnings, if any, resulting from the adjustments to the provisional
amounts as if the accounting for the business combination had been completed as of the acquisition
date. See ASC Topic 805 for additional guidance on the measurement period and adjustments to
provisional amounts during this period.
ASC Topic 805 provides guidance for recognizing particular assets acquired and liabilities assumed in
a business combination. Acquired assets may be tangible (such as securities or fixed assets) or
intangible, as discussed in the following paragraph. An acquiring entity must not recognize the
goodwill, if any, or the deferred income taxes recorded by an acquired entity before the business
combination. However, a deferred tax liability or asset must be recognized for differences between the
carrying values assigned in the business combination and the tax bases of the recognized assets
acquired and liabilities assumed, in accordance with ASC Topic 740, Income Taxes. (For further
information, see the Glossary entry for "Income Taxes.")
Under ASC Topic 805, an intangible asset must be recognized separately from goodwill if it arises
from contractual or other legal rights, regardless of whether the rights are transferable or separable.
Otherwise, an intangible asset must be recognized separately from goodwill only if it is capable of
being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged
individually or together with a related contract, identifiable asset, or liability. Examples of intangible
assets that must be recognized separately from goodwill are core deposit intangibles, purchased
credit card relationships, servicing assets, favorable leasehold rights, trademarks, trade names,
internet domain names, and noncompetition agreements. However, an institution that is a private
company, as defined in U.S. GAAP, may elect the private company accounting alternative for the
recognition of certain identifiable intangible assets acquired in a business combination provided by
ASC Subtopic 805-20, Business Combinations – Identifiable Assets and Liabilities, and Any
Noncontrolling Interest, if it also has adopted the private company goodwill accounting alternative
provided by ASC Subtopic 350-20, Intangibles–Goodwill and Other – Goodwill. Intangible assets that
are recognized separately from goodwill must be reported in Schedule RC, item 10, "Intangible assets,"
and in Schedule RC-M, item 2.a or 2.c, as appropriate. Refer to the Glossary entry for “Goodwill” for
further information on the private company accounting alternative for identifiable intangible assets.
See also the Glossary entries for “Private Company” and “Public Business Entity.”
In general, the amount recognized as goodwill in a business combination is the excess of the sum of
the consideration transferred and the fair value of any noncontrolling interest in the acquiree over the
net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Goodwill is reported in Schedule RC, item 10, and in Schedule RC-M, item 2.b. An acquired intangible
asset that does not meet the criteria described in the preceding paragraph must be treated as goodwill.
After initial recognition, goodwill must be accounted for in accordance with ASC Topic 350, IntangiblesGoodwill and Other, and the Glossary entry for “Goodwill.”
In contrast, if the total acquisition-date amount of the identifiable net assets acquired exceeds the
consideration transferred plus the fair value of any noncontrolling interest in the acquiree (i.e., a

1

In general, the measurement period in a business combination is the period after the acquisition date during which
the acquirer may adjust provisional amounts recognized for a business combination. The measurement period ends
as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the
acquisition date or learns that more information is not obtainable. However, the measurement period shall not
exceed one year from the acquisition date.

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Business Combinations (cont.):
bargain purchase), the acquirer shall reassess whether it has correctly identified all of the assets
acquired and all the liabilities assumed and shall recognize any additional assets or liabilities that are
identified in that review. If that excess remains after the review, the acquirer shall recognize that
excess in earnings as a gain attributable to the acquirer on the acquisition date and report the amount
in Schedule RI, item 5.l, "Other noninterest income."
Under the acquisition method, the historical equity capital balances of the acquired business are not to
be carried forward to the acquirer’s consolidated balance sheet. The operating results of the acquiree
are to be included in the income and expenses of the acquirer only from the acquisition date. In
addition, if the ownership interests in the acquiree were obtained in a series of purchase transactions,
the equity interest in the acquiree previously held by the acquirer is remeasured at its acquisition-date
fair value and any resulting gain or loss is recognized in the acquirer’s earnings.
Pushdown accounting – Pushdown accounting is an acquiree’s establishment of a new accounting
basis in its separate financial statements when an acquirer obtains control of the acquired entity. On
November 18, 2014, the FASB issued ASU No. 2014-17, “Pushdown Accounting,” which amended
ASC Subtopic 805-50, Business Combinations–Related Issues, and took effect upon issuance. Under
ASU 2014-17, an acquiree (e.g., an acquired institution) that retains its separate corporate existence
may apply pushdown accounting upon a change-in-control event. A change-in-control event occurs
when an acquirer obtains a controlling financial interest, as defined by ASC Subtopic 810-10,
Consolidation–Overall, in the acquiree. A controlling financial interest typically requires ownership of
more than 50 percent of the voting rights in an acquired entity.
An acquired institution that retains its separate corporate existence may, for purposes of its
Call Report, elect pushdown accounting in accordance with ASU 2014-17 if the change-in-control
event for the business combination occurred on or after October 1, 2014. Prior to the issuance of
ASU 2014-17, pushdown accounting for business combinations, including those involving collaborative
groups, was permitted for Call Report purposes when 80 percent or more voting control was obtained
and required when voting control was 95 percent or more. An institution acquired in a business
combination before October 1, 2014, that retained its separate legal existence should not change the
pushdown treatment applied to the acquisition because of the issuance of ASU 2014-17. It should be
noted that after a parent obtains a controlling financial interest in an entity through a business
combination, any subsequent increase in the parent’s ownership interest in the acquiree is not a
change in control. However, if a parent’s ownership becomes a noncontrolling interest and the parent
later regains control of the acquiree, the latter transaction would be a change-in-control event at which
a new pushdown election could be made in accordance with ASC Subtopic 805-50.
When an acquired institution that retains its separate corporate existence elects pushdown accounting,
it must report in its Call Report the new basis of accounting established by the acquirer under which the
acquired institution’s identifiable assets, liabilities, and noncontrolling interests are restated to their
acquisition-date fair values (with limited exceptions specified in ASC Topic 805) using the definition of
fair value in ASC Topic 820. The assets acquired, including goodwill, and liabilities assumed,
measured at their acquisition-date fair values, are reported in the Call Report balance sheet
(Schedule RC) of the acquired institution and the consolidated financial statements of the institution's
parent.
In addition, the pushdown adjusting entries must zero out the acquired institution’s retained earnings
account (Schedule RC, item 26.a). Therefore, the retained earnings of the acquired institution before
the change-in-control event will not be available for the payment of dividends after the change-incontrol event. When recording the pushdown adjusting entries, the acquired institution's common
stock account should reflect the par value of its issued common shares. The acquired institution’s
surplus (additional paid-in capital) account should represent the difference between the restated
amount of the institution’s net assets (i.e., its assets less its liabilities) and the sum of the par value of
its issued common shares and the amount of any perpetual preferred stock outstanding. The effect of

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Business Combinations (cont.):
any bargain purchase gain recognized by the acquirer should be reflected in the acquisition-date
measurement of the acquired institution’s surplus (additional paid-in capital) account, not in the
acquired institution’s income statement (Schedule RI).
In the Call Report for the remainder of the year in which an acquired institution elects to apply
pushdown accounting, the institution shall report the initial increase or decrease in its equity capital that
results from the application of pushdown accounting in item 7, "Changes incident to business
combinations, net," of Schedule RI-A, Changes in Bank Equity Capital. In addition, in the year an
acquired institution elects pushdown accounting, its income statements (Schedule RI) for periods after
its acquisition should only include amounts from the acquisition date through the end of the calendar
year-to-date reporting period. No income or expense for the portion of the calendar year prior to the
date of the change-in-control event should be included in these income statements. Also, when
pushdown accounting is elected, the acquired institution should report the date of its acquisition in
Schedule RI, Memoranda item 7, for each report date on or after the date of the change-in-control
event through the end of the calendar year in which the acquisition took place.
The agencies note that the pushdown accounting election available under ASU 2014-17 can be used
to produce a particular result in the Call Report that may not be reflective of the economic substance of
the underlying business combination. Therefore, an institution’s primary federal regulator reserves the
right to require or prohibit the institution’s use of pushdown accounting for Call Report purposes based
on the regulator’s evaluation of whether the election best reflects the facts and circumstances of the
business combination.
Transactions between entities under common control – A transaction in which net assets or equity
interests (e.g., voting shares) that constitute a business are transferred between entities under
common control is not accounted for as a business combination. The method used to account for such
transactions is similar to the pooling-of-interests method. In accordance with ASC Subtopic 805-50,
when applying a method similar to the pooling-of-interests method to a transfer of net assets or an
exchange of equity interests between entities under common control, the entity that receives the net
assets or equity interests shall initially measure the recognized assets and liabilities transferred at their
carrying amounts in the accounts of the transferring entity at the date of transfer. If the carrying
amounts of the assets and liabilities transferred differ from the historical cost of the parent of the
entities under common control, for example, because pushdown accounting had not been applied, then
the financial statements of the receiving entity shall reflect the transferred assets and liabilities at the
historical cost of the parent of the entities under common control. Consequently, and without regard to
the pushdown accounting election made by the acquiree, if a parent transfers the acquiree to another
entity under common control or merges the acquiree with another entity under common control, the
receiving entity accounts for the acquiree using the parent’s historical cost for the net assets or
equity interests in the acquiree. The parent’s historical cost includes the values of the acquiree’s
assets (including goodwill) and liabilities that were remeasured at fair value on the acquisition date
of the business combination. If there has been a change in reporting entity as defined by ASC
Subtopic 250-10, Accounting Changes and Error Corrections–Overall, for the year in which a
transaction between entities under common control occurs, income and expenses must be reported in
Schedule RI, Income Statement, as though the entities had combined at the beginning of the year.
The portion of the adjustment necessary to conform the accounting methods applicable to the current
period must also be allocated to income and expense for the period.
Call Option: See "Derivative Contracts."

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Capital Contributions of Cash and Notes Receivable: An institution may receive cash or a note
receivable as a contribution to its equity capital. The transaction may be a sale of capital stock or
a contribution to paid-in capital (surplus), both of which are referred to hereafter as capital
contributions. The accounting for capital contributions in the form of notes receivable is set forth in
ASC Subtopic 505-10, Equity – Overall, and SEC Staff Accounting Bulletin No. 107 (Topic 4.E.,
Receivables from Sale of Stock, in the Codification of Staff Accounting Bulletins). This Glossary entry
does not address other forms of capital contributions, for example, nonmonetary contributions to equity
capital such as a building.
A capital contribution of cash should be recorded in an institution’s financial statements and
Consolidated Reports of Condition and Income when received. Therefore, a capital contribution of
cash prior to a quarter-end report date should be reported as an increase in equity capital in the
institution’s reports for that quarter (in Schedule RI-A, item 5 or 11, as appropriate). A contribution of
cash after quarter-end should not be reflected as an increase in the equity capital of an earlier reporting
period.
When an institution receives a note receivable rather than cash as a capital contribution, ASC
Subtopic 505-10 states that it is generally not appropriate to report the note as an asset. As a
consequence, the predominant practice is to offset the note and the capital contribution in the equity
capital section of the balance sheet, i.e., the note receivable is reported as a reduction of equity capital.
In this situation, the capital stock issued or the contribution to paid-in capital should be reported in
Schedule RC, item 23, 24, or 25, as appropriate, and the note receivable should be reported as a
deduction from equity capital in Schedule RC, item 26.c, “Other equity capital components.” No net
increase in equity capital should be reported in Schedule RI-A, Changes in Bank Equity Capital. In
addition, when a note receivable is offset in the equity capital section of the balance sheet, accrued
interest receivable on the note also should be offset in equity (and reported as a deduction from equity
capital in Schedule RC, item 26.c), consistent with the guidance in ASC Subtopic 505-10. Because a
nonreciprocal transfer from an owner or another party to an institution does not typically result in the
recognition of income or expense, the accrual of interest on a note receivable that has been reported
as a deduction from equity capital should be reported as additional paid-in capital rather than interest
income.
However, ASC Subtopic 505-10 provides that an institution may record a note received as a capital
contribution as an asset, rather than a reduction of equity capital, only if the note is collected in cash
“before the financial statements are issued.” The note receivable must also satisfy the existence
criteria described below, along with any applicable laws and regulations.1 When these conditions are
met, the note receivable should be reported separately from an institution’s other loans and receivables
in Schedule RC-F, item 6, “All other assets,” and individually itemized and described in accordance
with the instructions for item 6, if appropriate.
For purposes of these reports, the financial statements are considered issued at the earliest of the
following dates:
(1) The submission deadline for the Consolidated Reports of Condition and Income (30 calendar days
after the quarter-end report date, except for an institution that has more than one foreign office,
other than a “shell” branch or an International Banking Facility, for which the deadline is 35
calendar days after quarter-end);
(2) Any other public financial statement filing deadline to which the institution or its parent holding
company is subject; or
(3) The actual filing date of the institution’s public financial reports, including the filing of its
Consolidated Reports of Condition and Income or a public securities filing by the institution or its
parent holding company.

1

For example, for national banks, 12 U.S.C. § 57 and 12 CFR § 5.46.

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Capital Contributions of Cash and Notes Receivable (cont.):
To be reported as an asset, rather than a reduction of equity capital, as of a quarter-end report date,
a note received as a capital contribution (that is collected in cash as described above) must meet the
definition of an asset under generally accepted accounting principles by satisfying all of the following
existence criteria:
(1) There must be written documentation providing evidence that the note was contributed to the
institution prior to the quarter-end report date by those with authority to make such a capital
contribution on behalf of the issuer of the note (e.g., if the contribution is by the institution’s parent
holding company, those in authority would be the holding company’s board of directors or its chief
executive officer or chief financial officer);
(2) The note must be a legally binding obligation of the issuer to fund a fixed and stated dollar amount
by a specified date; and
(3) The note must be executed and enforceable before quarter-end.
Although an institution’s parent holding company may have a general intent to, or may have entered
into a capital maintenance agreement with the institution that calls for it to, maintain the institution’s
capital at a specified level, this general intent or agreement alone would not constitute evidence that a
note receivable existed at quarter-end. Furthermore, if a note receivable for a capital contribution
obligates the note issuer to pay an amount that is variable or otherwise not specifically stated, the
institution must offset the note and equity capital. Similarly, an obligor’s issuance of several notes
having fixed face amounts, taken together, would be considered a single note receivable having a
variable payment amount, which would require all the notes to be offset in equity capital as of the
quarter-end report date.
Capitalization of Interest Costs: Interest costs associated with the construction of a building shall, if
material, be capitalized as part of the cost of the building. Such interest costs include both the actual
interest incurred when the construction funds are borrowed and the interest costs imputed to internal
financing of a construction project.
The interest rate utilized to capitalize interest on internally financed projects in a reporting period shall
be the rate(s) applicable to the bank's borrowings outstanding during the period. For this purpose, a
bank's borrowings include interest-bearing deposits and other interest-bearing liabilities.
The interest capitalized shall not exceed the total amount of interest cost incurred by the bank during
the reporting period.
For further information, see ASC Subtopic 835-20, Interest – Capitalization of Interest.
Carrybacks and Carryforwards: See "Income Taxes."
Cash Management Arrangements: A cash management arrangement is a group of related transaction
accounts of a single type maintained in the same right and capacity by a customer (a single legal
entity), whereby the customer and the financial institution understand that payments from one account
will be honored so long as a net credit balance exists in the group of related transaction accounts taken
as a whole. Such accounts function as, and will be regarded for reporting and deposit insurance
assessment purposes as, one account rather than separate accounts, provided adequate
documentation of the arrangement is maintained as discussed below. (Note: For reporting and
deposit insurance assessment purposes, transaction accounts of affiliates and subsidiaries of a parent
company that are separate legal entities may not be offset because accounts of separate legal entities
are not permitted within a bona fide cash management arrangement.)
“Transaction accounts of a single type" means demand deposit accounts or NOW accounts, but not a
combination thereof. For purposes of cash management arrangements, the terms "right" and

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Cash Management Arrangements (cont.):
"capacity" relate to the form of legal ownership such as being held in an agency or trust capacity, as a
joint tenant, or as an individual. "Single legal entity" means a natural person, partnership, corporation,
trust, or estate.
The reporting bank must maintain readily available records that will allow for the verification of cash
management arrangements. Such documentation must provide account numbers, account titles,
ownership of accounts, and the terms and conditions surrounding the management of the accounts,
and must also clearly show that both the customer and the reporting bank have agreed to such terms
and conditions. These terms and conditions must clearly indicate the understanding that payments
from one account will be honored as long as a net credit balance exists within the group of related
transaction accounts taken as a whole and maintained in the same right and capacity. A written cash
management agreement, signed by both the customer (a single legal entity) and the reporting bank,
accurately maintained and incorporating the above information, will be acceptable evidence of a bona
fide cash management arrangement. In addition, the reporting bank must maintain readily available
records that will allow for the verification of account balances within cash management arrangements.
See "Deposits" for the definitions of transaction account, demand deposit, and NOW account. See
also "Overdraft."
Certificate of Deposit: See "Deposits."
Changes in Accounting Estimates: See "Accounting Changes."
Changes in Accounting Principles: See "Accounting Changes."
Clearing Accounts: See "Suspense Accounts."
Commercial Banks in the U.S.: See "Banks, U.S. and Foreign."
Commercial Letter of Credit: See "Letter of Credit."
Commercial Paper: Commercial paper consists of short-term negotiable promissory notes issued in the
United States by commercial businesses, including finance companies and banks. Commercial paper
usually matures in 270 days or less and is not collateralized. Commercial paper may be backed by a
standby letter of credit from a bank, as in the case of documented discounted notes. Holdings of
commercial paper are to be reported as "securities" in Schedule RC-B, normally in item 6, "Other debt
securities," unless held for trading and therefore reportable in Schedule RC, item 5, "Trading assets."
Commodity or Bill-of-Lading Draft: A commodity or bill-of-lading draft is a draft that is issued in
connection with the shipment of goods. If the commodity or bill-of-lading draft becomes payable only
when the shipment of goods against which it is payable arrives, it is an arrival draft. Arrival drafts are
usually forwarded by the shipper to the collecting depository institution with instructions to release the
shipping documents (e.g., bill of lading) conveying title to the goods only upon payment of the draft.
Payment, however, cannot be demanded until the goods have arrived at the drawee's destination.
Arrival drafts provide a means of insuring payment of shipped goods at the time that the goods are
released.
Common Stock of Unconsolidated Subsidiaries, Investments in: See “Equity Method of Accounting”
and "Subsidiaries."
Continuing Contract: See "Federal Funds Transactions."

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Corporate Joint Venture: See "Subsidiaries."
Corrections of Accounting Errors: See "Accounting Changes."
Coupon Stripping, Treasury Receipts, and STRIPS: Coupon stripping occurs when a security holder
physically detaches unmatured coupons from the principal portion of a security and sells either the
detached coupons or the ex-coupon security separately. (Such transactions are generally considered
by federal bank supervisory agencies to represent "improper investment practices" for banks.) In
accounting for such transactions, the carrying amount of the security must be allocated between the
ex-coupon security and the detached coupons based on their relative fair values at the date of the sale
in accordance with ASC Topic 860, Transfers and Servicing. (See the Glossary entry for "Transfers of
Financial Assets.")
Detached U.S. Government security coupons and ex-coupon U.S. Government securities that are held
for purposes other than trading, whether resulting from the coupon stripping activities of the reporting
bank or from its purchase of stripped securities, shall be reported as "Other domestic debt securities" in
Schedule RC-B, item 6.a. The amount of any discount or premium relating to the detached coupons or
ex-coupon securities must be amortized. (See the Glossary entry for "Premiums and Discounts.")
A variation of coupon stripping has been developed by several securities firms which have marketed
instruments with such names as CATS (Certificates of Accrual on Treasury Securities),
TIGR (Treasury Investment Growth Receipts), COUGAR (Certificates on Government Receipts),
LION (Lehman Investment Opportunity Notes), and ETR (East Treasury Receipts). A securities dealer
purchases U.S. Treasury securities, delivers them to a trustee, and sells receipts representing the
rights to future interest and/or principal payments on the U.S. Treasury securities held by the trustee.
Such Treasury receipts are not an obligation of the U.S. Government and, when held for purposes
other than trading, shall be reported as "Other domestic debt securities" in Schedule RC-B, item 6.a.
The discount on these Treasury receipts must be accreted.
Under a program called Separate Trading of Registered Interest and Principal of Securities (STRIPS),
the U.S. Treasury has issued certain long-term note and bond issues that are maintained in the
book-entry system operated by the Federal Reserve Banks in a manner that permits separate trading
and ownership of the interest and principal payments on these issues. Even after the interest or
principal portions of U.S. Treasury STRIPS have been separately traded, they remain obligations of the
U.S. Government. STRIPS held for purposes other than trading shall be reported as U.S. Treasury
securities in Schedule RC-B, item 1. The discount on separately traded portions of STRIPS must be
accreted.
Detached coupons, ex-coupon securities, Treasury receipts, and U.S. Treasury STRIPS held for
trading purposes shall be reported at fair value in Schedule RC, item 5.
Custody Account: A custody account is one in which securities or other assets are held by a bank on
behalf of a customer under a safekeeping arrangement. Assets held in such capacity are not to be
reported in the balance sheet of the reporting bank nor are such accounts to be reflected as a liability.
Assets of the reporting bank held in custody accounts at other banks are to be reported on the reporting
bank's balance sheet in the appropriate asset categories as if held in the physical custody of the
reporting bank.
Dealer Reserve Account: A dealer reserve account arises when a bank purchases at full face value a
dealer's installment note receivables, but credits less than the full face value directly to the dealer's
account. The remaining amount is credited to a separate dealer reserve account. That account is held
by the bank as collateral for the installment notes and, for reporting purposes, is treated as a deposit in
the appropriate items of Schedule RC-E. The bank will subsequently disburse to the dealer
predetermined portions of the reserve as the purchased notes are paid in a timely manner.

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Dealer Reserve Account (cont.):
For example, if a bank purchases $100,000 in notes from a dealer for the full face amount ($100,000)
and pays to the dealer $90,000 in cash or credits to his/her deposit account, the remaining $10,000,
which is held as collateral security, would be credited to the dealer reserve account.
See also "Deposits."
Debt Issuance Costs: Debt issuance costs include the underwriting, legal, accounting, printing, and
other direct costs incurred in connection with the issuance of debt. ASC Subtopic 835-30, Interest −
Imputation of Interest, requires debt issuance costs associated with a recognized debt liability (not
measured at fair value under a fair value option) to be presented as a direct deduction from the face
amount of the related debt liability, similar to debt discounts. Debt issuance costs, like debt discounts,
in effect reduce the proceeds of the borrowing, thereby increasing the effective interest rate on the
debt.
For purposes of these reports, institutions should report debt issuance costs as a direct deduction from
the appropriate balance sheet liability category in Schedule RC, e.g., item 16, “Other borrowed money,”
or item 19, “Subordinated notes and debentures.” However, debt issuance costs associated with a
recognized liability reported at fair value under a fair value option should be expensed as incurred.
Debt issuance costs should be amortized using the effective interest method. The amortization of debt
issuance costs should be reported as interest expense in the income statement category appropriate to
the related liability in Schedule RI, e.g., item 2.c, “Interest on trading liabilities and other borrowed
money,” or item 2.d, “Interest on subordinated notes and debentures.”
The guidance in ASC Subtopic 835-30 does not address the presentation or subsequent measurement
of debt issuance costs related to line-of-credit arrangements. The agencies would not object to an
institution deferring and presenting debt issuance costs related to a line-of-credit arrangement as an
“Other asset” and subsequently amortizing the deferred debt issuance costs ratably over the term of
the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit
arrangement.
Deferred Compensation Agreements: Institutions often enter into deferred compensation agreements
with selected employees as part of executive compensation and retention programs. These
agreements are generally structured as nonqualified retirement plans for federal income tax purposes
and are based upon individual agreements with selected employees. Institutions purchase life
insurance in connection with many of these agreements. Bank-owned life insurance may produce
attractive tax-equivalent yields that offset some or all of the costs of the agreements.
Deferred compensation agreements with select employees under individual contracts generally do not
constitute postretirement income plans (i.e., pension plans) or postretirement health and welfare
benefit plans. The accounting for individual contracts that, when taken together, do not represent a
postretirement plan should follow ASC Subtopic 710-10, Compensation-General – Overall. If the
individual contracts, taken together, are equivalent to a plan, the plan should be accounted for under
ASC Topic 715, Compensation-Retirement Benefits.
ASC Subtopic 710-10 requires that an employer’s obligation under a deferred compensation
agreement be accrued according to the terms of the individual contract over the required service period
to the date the employee is fully eligible to receive the benefits, i.e., the “full eligibility date.” Depending
on the individual contract, the full eligibility date may be the employee’s expected retirement date, the
date the employee entered into the contract, or a date between these two dates. ASC Subtopic 710-10
does not prescribe a specific accrual method for the benefits under deferred compensation contracts,
stating only that the “cost of those benefits shall be accrued over that period of the employee’s service

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Deferred Compensation Agreements (cont.):
in a systematic and rational manner.” The amounts to be accrued each period should result in a
deferred compensation liability at the full eligibility date that equals the then present value of the
estimated benefit payments to be made under the individual contract.
ASC Subtopic 710-10 does not specify how to select the discount rate to measure the present value of
the estimated benefit payments. Therefore, other relevant accounting literature must be considered in
determining an appropriate discount rate. For purposes of these reports, an institution’s incremental
borrowing rate1 and the current rate of return on high-quality fixed-income debt securities2 are
acceptable discount rates to measure deferred compensation agreement obligations. An institution
must select and consistently apply a discount rate policy that conforms with generally accepted
accounting principles.
For each deferred compensation agreement to be accounted for in accordance with ASC Subtopic
710-10, an institution should calculate the present value of the expected future benefit payments under
the agreement at the employee’s full eligibility date. The expected future benefit payments can be
reasonably estimated and should be based on reasonable and supportable assumptions. The
estimated amount of these benefit payments should be discounted because the benefits will be paid in
periodic installments after the employee retires.
For deferred compensation agreements commonly referred to as revenue neutral or indexed retirement
plans,3 the expected future benefits should include both the "primary benefit" and, if the employee is
entitled to "excess earnings" that are earned after retirement, the "secondary benefit." The number of
periods the primary and any secondary benefit payments should be discounted may differ because the
discount period for each type of benefit payment should be based upon the length of time during which
each type of benefit will be paid as specified in the deferred compensation agreement.
After the present value of the expected future benefit payments has been determined, an institution
should accrue an amount of compensation expense and a liability each year from the date the
employee enters into the deferred compensation agreement until the full eligibility date. The amount of

1 ASC Subtopic 835-30, Interest – Imputation of Interest, states in part that “the rate used for valuation purposes will
normally be at least equal to the rate at which the debtor can obtain financing of a similar nature from other sources
at the date of the transaction.”
2

Paragraph 186 in the Basis for Conclusions of former FASB Statement No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” states that “[t]he objective of selecting assumed discount rates is to
measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments,
would provide the necessary future cash flows to pay the accumulated benefits when due.”

3

Revenue neutral and indexed retirement plans are deferred compensation agreements that are typically designed
so that the spread each year, if any, between the tax-equivalent earnings on bank-owned life insurance covering an
individual employee and a hypothetical earnings calculation is deferred and paid to the employee as a postretirement
benefit. This spread is commonly referred to as “excess earnings.” The hypothetical earnings are computed based
on a pre-defined variable index rate (e.g., cost of funds or federal funds rate) times a notional amount. The
agreement for this type of plan typically requires the excess earnings that accrue before an employee’s retirement to
be recorded in a separate liability account. Once the employee retires, the balance in the liability account is generally
paid to the employee in equal annual installments over a set number of years (e.g., 10 or 15 years). These payments
are commonly referred to as the “primary benefit” or “preretirement benefit.” The employee may also receive the
excess earnings that are earned after retirement. This benefit may continue until his or her death and is commonly
referred to as the “secondary benefit” or “postretirement benefit.” The secondary benefit is paid annually, once the
employee has retired, in addition to the primary benefit.

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Deferred Compensation Agreements (cont.):
these annual accruals should be sufficient to ensure that a deferred compensation liability equal to the
present value of the expected benefit payments is recorded by the full eligibility date. Any method of
deferred compensation accounting that does not recognize some expense in each year from the date
the employee enters into the agreement until the full eligibility date is not systematic and rational. (For
indexed retirement plans, some expense should be recognized for the primary benefit and any
secondary benefit in each of these years.)
Vesting provisions should be reviewed to ensure that the full eligibility date is properly determined
because this date is critical to the measurement of the liability estimate. Because ASC Subtopic
710-10 requires that the present value of the expected benefit payments be recorded by the full
eligibility date, institutions also need to consider changes in market interest rates to appropriately
measure deferred compensation liabilities. Therefore, institutions should periodically review their
estimates of the expected future benefits under deferred compensation agreements and the discount
rates used to compute the present value of the expected benefit payments and revise the estimates
and rates, when appropriate.
Deferred compensation agreements may include noncompete provisions or provisions requiring
employees to perform consulting services during postretirement years. If the value of the noncompete
provisions cannot be reasonably and reliably estimated, no value should be assigned to the
noncompete provisions in recognizing the deferred compensation liability. Institutions should allocate a
portion of the future benefit payments to consulting services to be performed in postretirement years
only if the consulting services are determined to be substantive. Factors to consider in determining
whether postretirement consulting services are substantive include, but are not limited to, whether the
services are required to be performed, whether there is an economic benefit to the institution, and
whether the employee forfeits the benefits under the agreement for failure to perform such services.
Deferred compensation liabilities should be reported on the balance sheet in Schedule RC, item 20,
“Other liabilities,” and in Schedule RC-G, item 4, “All other liabilities.” If this amount is greater than
$100,000 and exceeds 25 percent of the amount reported in Schedule RC-G, item 4, it should be
reported in Schedule RC-G, item 4.b. The annual compensation expense (service component and
interest component) related to deferred compensation agreements should be reported in the income
statement in Schedule RI, item 7.a, "Salaries and employee benefits."
See also "Bank-Owned Life Insurance."
Deferred Income Taxes: See "Income Taxes."
Defined Benefit Postretirement Plans: The accounting and reporting standards for defined benefit
postretirement plans, such as pension plans and health care plans, are set forth in ASC Topic 715,
Compensation-Retirement Benefits. ASC Topic 715 requires an institution that sponsors a singleemployer defined benefit postretirement plan to recognize the funded status of each such plan on its
balance sheet. The funded status of a benefit plan is measured as of the end of an institution’s fiscal
year as the difference between plan assets at fair value (with limited exceptions) and the benefit
obligation. An overfunded plan is recognized as an asset, which should be reported in Schedule RC-F,
item 6, “All other assets,” while an underfunded plan is recognized as a liability, which should be
reported in Schedule RC-G, item 4, “All other liabilities.”
An institution should measure the net period benefit cost of a defined benefit plan for a reporting period
in accordance with ASC Subtopic 715-30 for pension plans and ASC Subtopic 715-60 for other
postretirement benefit plans. This cost should be reported in Schedule RI, item 7.a, “Salaries and
employee benefits.” However, an institution must recognize certain gains and losses and prior service
costs or credits that arise on a defined benefit plan during each reporting period, net of tax, as a

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Defined Benefit Postretirement Plans (cont.):
component of other comprehensive income (Schedule RI-A, item 10) and, hence, accumulated other
comprehensive income (AOCI) (Schedule RC, item 26.b). Postretirement plan amounts carried in
AOCI are adjusted as they are subsequently recognized in earnings as components of a plan’s net
periodic benefit cost.
For further information on accounting for defined benefit postretirement plans, institutions should refer
to ASC Topic 715.
Impact on Regulatory Capital – An institution that has made the AOCI opt-out election in
Schedule RC-R, Part I, item 3.a, should reverse the effects on AOCI of ASC Topic 715 for purposes
of reporting and measuring the numerators and denominators for the leverage and risk-based capital
ratios. The intent of the reversal is to neutralize for regulatory capital purposes the effects on AOCI
of the application of ASC Topic 715. The instructions for Schedule RC-R, Part I, items 9.d and 26,
and Schedule RC-R, Part II, item 8, provide guidance on how to report adjustments to Tier 1 capital
and risk-weighted and total assets to reverse the effects of applying ASC Topic 715 for regulatory
capital purposes.
Demand Deposits: See "Deposits."
Depository Institutions in the U.S.: Depository institutions in the U.S. consist of:
(1) U.S. branches and agencies of foreign banks;
(2) U.S.-domiciled head offices and branches of U.S. banks, i.e.,
(a) national banks,
(b) state-chartered commercial banks,
(c) trust companies that perform a commercial banking business,
(d) industrial banks,
(e) private or unincorporated banks,
(f) Edge and Agreement corporations, and
(g) International Banking Facilities (IBFs) of U.S. banks; and
(3) U.S.-domiciled head offices and branches of other depository institutions in the U.S., i.e.,
(a) mutual or stock savings banks,
(b) savings or building and loan associations,
(c) cooperative banks,
(d) credit unions,
(e) homestead associations,
(f) other similar depository institutions in the U.S., and
(g) International Banking Facilities (IBFs) of other depository institutions in the U.S.
Deposits: The basic statutory and regulatory definitions of "deposits" are contained in Section 3(l) of the
Federal Deposit Insurance Act (FDI Act) and in Federal Reserve Regulation D. The definitions in these
two legal sources differ in certain respects. Furthermore, for purposes of these reports, the reporting
standards for deposits specified in these instructions do not strictly follow the precise legal definitions in
these two sources. The definitions of deposits to be reported in the deposit items of the Consolidated
Reports of Condition and Income are discussed below under the following headings:
(I) FDI Act definition of deposits.
(II) Transaction-nontransaction deposit distinction.
(III) Interest-bearing-noninterest-bearing deposit distinction.

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Deposits (cont.):
(I) FDI Act definition of deposits – Section 3(l) states that the term “deposit” means –
(1) the unpaid balance of money or its equivalent received or held by a bank or savings
association in the usual course of business and for which it has given or is obligated to give
credit, either conditionally or unconditionally, to a commercial, checking, savings, time, or
thrift account, or which is evidenced by its certificate of deposit, thrift certificate, investment
certificate, certificate of indebtedness, or other similar name, or a check or draft drawn
against a deposit account and certified by the bank or savings association, or a letter of credit
or a traveler's check on which the bank or savings association is primarily liable: Provided,
That, without limiting the generality of the term "money or its equivalent", any such account or
instrument must be regarded as evidencing the receipt of the equivalent of money when
credited or issued in exchange for checks or drafts or for a promissory note upon which the
person obtaining any such credit or instrument is primarily or secondarily liable, or for a
charge against a deposit account, or in settlement of checks, drafts, or other instruments
forwarded to such bank or savings association for collection,
(2) trust funds as defined in this Act received or held by such bank or savings association,
whether held in the trust department or held or deposited in any other department of such
bank or savings association,
(3) money received or held by a bank or savings association, or the credit given for money or its
equivalent received or held by a bank or savings association, in the usual course of business
for a special or specific purpose, regardless of the legal relationship thereby established,
including without being limited to, escrow funds, funds held as security for an obligation due
to the bank or savings association or others (including funds held as dealers reserves) or for
securities loaned by the bank or savings association, funds deposited by a debtor to meet
maturing obligations, funds deposited as advance payment on subscriptions to United States
Government securities, funds held for distribution or purchase of securities, funds held to
meet its acceptances or letters of credit, and withheld taxes: Provided, That there shall not
be included funds which are received by the bank or savings association for immediate
application to the reduction of an indebtedness to the receiving bank or savings association,
or under condition that the receipt thereof immediately reduces or extinguishes such an
indebtedness,
(4) outstanding draft (including advice or authorization to charge a bank's or a savings
association's balance in another bank or savings association), cashier's check, money order,
or other officer's check issued in the usual course of business for any purpose, including
without being limited to those issued in payment for services, dividends, or purchases, and
(5) such other obligations of a bank or savings association as the Board of Directors [of the
Federal Deposit Insurance Corporation], after consultation with the Comptroller of the
Currency and the Board of Governors of the Federal Reserve System, shall find and
prescribe by regulation to be deposit liabilities by general usage, except that the following
shall not be a deposit for any of the purposes of this Act or be included as part of the total
deposits or of an insured deposit:
(A) any obligation of a depository institution which is carried on the books and records of an
office of such bank or savings association located outside of any State, unless –
(i) such obligation would be a deposit if it were carried on the books and records of the
depository institution, and would be payable at, an office located in any State; and
(ii) the contract evidencing the obligation provides by express terms, and not by
implication, for payment at an office of the depository institution located in any State;
and

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Deposits (cont.):
(B) any international banking facility deposit, including an international banking facility time
deposit, as such term is from time to time defined by the Board of Governors of the
Federal Reserve System in regulation D or any successor regulation issued by the
Board of Governors of the Federal Reserve System; and
(C) any liability of an insured depository institution that arises under an annuity contract, the
income of which is tax deferred under section 72 of title 26 [the Internal Revenue Code].
(II) Transaction-nontransaction deposit distinction – The Monetary Control Act of 1980 and the current
Federal Reserve Regulation D, "Reserve Requirements of Depository Institutions," establish, for
purposes of federal reserve requirements on deposit liabilities, a category of deposits designated
as "transaction accounts." All deposits that are not transaction accounts are "nontransaction
accounts."
(1) Transaction accounts – With the exceptions noted below, a "transaction account," as defined
in Regulation D and in these instructions, is a deposit or account from which the depositor or
account holder is permitted to make transfers or withdrawals by negotiable or transferable
instruments, payment orders of withdrawal, telephone transfers, or other similar devices for
the purpose of making payments or transfers to third persons or others or from which the
depositor may make third party payments at an automated teller machine (ATM), a remote
service unit (RSU), or another electronic device, including by debit card.
Excluded from transaction accounts are savings deposits (both money market deposit
accounts (MMDAs) and other savings deposits) as defined below in the nontransaction
account category, even though such deposits permit some third-party transfers. However, an
account that otherwise meets the definition of a savings deposit but that authorizes or permits
the depositor to exceed the transfer limitations specified for that account shall be reported as
a transaction account. (Please refer to the definition of savings deposits for further detail.)
NOTE: Under the Federal Reserve's current Regulation D, no transaction account,
regardless of its other characteristics, is classified either as a savings deposit or as a time
deposit. Thus, those transaction accounts that are not demand deposits – NOW accounts,
ATS (Automatic Transfer Service) accounts, and telephone and preauthorized transfer
accounts – are excluded from Regulation D time and savings deposits. For all items in the
Consolidated Reports of Condition and Income involving time or savings deposits, a strict
distinction, based on Regulation D definitions, is to be maintained between transaction
accounts and time and savings accounts.
Transaction accounts consist of the following types of deposits: (a) demand deposits;
(b) NOW accounts; (c) ATS accounts; and (d) telephone and preauthorized transfer
accounts, all as defined below. Interest that is paid by the crediting of transaction accounts is
also included in transaction accounts.
(a) Demand deposits are deposits that are payable immediately on demand, or that are
issued with an original maturity or required notice period of less than seven days, or that
represent funds for which the depository institution does not reserve the right to require
at least seven days' written notice of an intended withdrawal. Demand deposits include
any matured time deposits without automatic renewal provisions, unless the deposit
agreement provides for the funds to be transferred at maturity to another type of
account. Effective July 21, 2011, demand deposits may be interest-bearing or
noninterest-bearing. Demand deposits do not include: (i) money market deposit
accounts (MMDAs) or (ii) NOW accounts, as defined below in this entry.
(b) NOW accounts are interest-bearing deposits (i) on which the depository institution has
reserved the right to require at least seven days' written notice prior to withdrawal or
transfer of any funds in the account and (ii) that can be withdrawn or transferred to third
parties by issuance of a negotiable or transferable instrument.
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Deposits (cont.):
NOW accounts, as authorized by federal law, are limited to accounts held by:
(i)

Individuals or sole proprietorships;

(ii)

Organizations that are operated primarily for religious, philanthropic, charitable,
educational, or other similar purposes and that are not operated for profit. These
include organizations, partnerships, corporations, or associations that are not
organized for profit and are described in section 501(c)(3) through (13) and (19)
and section 528 of the Internal Revenue Code, such as church organizations;
professional associations; trade associations; labor unions; fraternities, sororities
and similar social organizations; and nonprofit recreational clubs; or

(iii) Governmental units including the federal government and its agencies and
instrumentalities; state governments; county and municipal governments and their
political subdivisions; the District of Columbia; the Commonwealth of Puerto Rico,
American Samoa, Guam, and any territory or possession of the United States and
their political subdivisions.
Also included are the balances of all NOW accounts of certain other nonprofit
organizations that may not fall within the above description but that had established
NOW accounts with the reporting institution prior to September 1, 1981.

NOTE: There are no regulatory requirements with respect to minimum balances to be
maintained in a NOW account or to the amount of interest that may be paid on a NOW
account.
(c) ATS accounts are deposits or accounts of individuals or sole proprietorships on which
the depository institution has reserved the right to require at least seven days' written
notice prior to withdrawal or transfer of any funds in the account and from which,
pursuant to written agreement arranged in advance between the reporting institution and
the depositor, withdrawals may be made automatically through payment to the
depository institution itself or through transfer of credit to a demand deposit or other
account in order to cover checks or drafts drawn upon the institution or to maintain a
specified balance in, or to make periodic transfers to, such other accounts.
Some institutions may have entered into agreements with their customers providing that
in the event the customer should overdraw a demand deposit (checking) or
NOW account, the institution will transfer from that customer's savings account an
amount sufficient to cover the overdraft. The availability of the overdraft protection plan
would not in and of itself require that such a savings account be regarded as a
transaction account provided that the overall transfer and withdrawal restrictions of a
savings deposit are not exceeded. Please refer to the definition of savings deposit for
further detail.
(d) Telephone or preauthorized transfer accounts consist of deposits or accounts, other
than savings deposits, (1) in which the entire beneficial interest is held by a party eligible
to hold a NOW account, (2) on which the reporting institution has reserved the right to
require at least seven days' written notice prior to withdrawal or transfer of any funds in
the account, and (3) under the terms of which, or by practice of the reporting institution,
the depositor is permitted or authorized to make more than six withdrawals per month or

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Deposits (cont.):
statement cycle (or similar period) of at least four weeks for purposes of transferring
funds to another account of the depositor at the same institution (including a transaction
account) or for making payment to a third party by means of preauthorized transfer, or
telephonic (including data transmission) agreement, order or instruction. An account
that permits or authorizes more than six such withdrawals in a "month" (a calendar
month or any period approximating a month that is at least four weeks long, such as a
statement cycle) is a transaction account whether or not more than six such
withdrawals actually are made in the "month."
A "preauthorized transfer" includes any arrangement by the reporting institution to pay a
third party from the account of a depositor (1) upon written or oral instruction (including
an order received through an automated clearing house (ACH)), or (2) at a
predetermined time or on a fixed schedule.
Telephone and preauthorized transfer accounts also include:
(i)

Deposits or accounts maintained in connection with an arrangement that permits
the depositor to obtain credit directly or indirectly through the drawing of a
negotiable or nonnegotiable check, draft, order or instruction or other similar
device (including telephone or electronic order or instruction) on the issuing
institution that can be used for the purpose of making payments or transfers to third
parties or others, or to another deposit account of the depositor.

(ii)

The balance of deposits or accounts that otherwise meet the definition of time
deposits, but from which payments may be made to third parties by means of a
debit card, an automated teller machine, remote service unit or other electronic
device, regardless of the number of payments made.

However, an account is not a transaction account merely by virtue of arrangements that
permit the following types of transfers or withdrawals, regardless of the number:
(i)

Transfers for the purpose of repaying loans and associated expenses at the same
depository institution (as originator or servicer).

(ii)

Transfers of funds from this account to another account of the same depositor at
the same depository institution when made by mail, messenger, automated teller
machine, or in person.

(iii) Withdrawals for payment directly to the depositor when made by mail, messenger,
automated teller machine, in person, or by telephone (via check mailed to the
depositor).
(2) Nontransaction accounts – All deposits that are not transaction accounts (as defined above)
are nontransaction accounts. Nontransaction accounts include: (a) savings deposits
((i) money market deposit accounts (MMDAs) and (ii) other savings deposits) and (b) time
deposits ((i) time certificates of deposit and (ii) time deposits, open account). Regulation D
no longer distinguishes between money market deposit accounts (MMDAs) and other
savings deposits. However, these two types of accounts are defined below for purposes of
these reports, which call for separate data on each in Schedule RC-E, (Part I,) Memorandum
items 2.a.(1) and (2).
NOTE: Under the Federal Reserve's current Regulation D, no transaction accounts,
regardless of other characteristics, are defined as savings or time deposits. Thus, savings
deposits as defined here, under the heading nontransaction accounts, constitute the entire
savings deposit category. Likewise, time deposits, also defined here under nontransaction
accounts, constitute the entire time deposits category.

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Deposits (cont.):
(a) Savings deposits are deposits with respect to which the depositor is not required by the
deposit contract but may at any time be required by the depository institution to give
written notice of an intended withdrawal not less than seven days before withdrawal is
made, and that is not payable on a specified date or at the expiration of a specified time
after the date of deposit.
The term savings deposit also means a deposit or account, such as an account
commonly known as a passbook savings account, a statement savings account, or a
money market deposit account (MMDA), that otherwise meets the requirements of the
preceding paragraph and from which, under the terms of the deposit contract or by
practice of the depository institution, the depositor is permitted or authorized to make no
more than six transfers and withdrawals, or a combination of such transfers and
withdrawals, per calendar month or statement cycle (or similar period) of at least four
weeks, to another account (including a transaction account) of the depositor at the same
institution or to a third party by means of a preauthorized or automatic transfer, or
telephonic (including data transmission) agreement, order, or instruction; or by check,
draft, debit card, or similar order made by the depositor and payable to third parties.
Transfers from savings deposits for purposes of covering overdrafts (overdraft protection
plans) are included under the withdrawal limits specified for savings deposits.
There are no regulatory restrictions on the following types of transfers or withdrawals
from a savings deposit account, regardless of the number:
(1) Transfers for the purpose of repaying loans and associated expenses at the same
depository institution (as originator or servicer).
(2) Transfers of funds from this account to another account of the same depositor at
the same institution when made by mail, messenger, automated teller machine, or
in person.
(3) Withdrawals for payment directly to the depositor when made by mail, messenger,
automated teller machine, in person, or by telephone (via check mailed to the
depositor).
Further, for a savings deposit account, no minimum balance is required by regulation,
there is no regulatory limitation on the amount of interest that may be paid, and no
minimum maturity is required (although depository institutions must reserve the right to
require at least seven days' written notice prior to withdrawal as stipulated above for a
savings deposit).
Any depository institution may place restrictions and requirements on savings deposits
in addition to those stipulated above. In the case of such further restrictions, the
account would still be reported as a savings deposit.
On the other hand, an account that otherwise meets the definition of a savings deposit
but that authorizes or permits the depositor to exceed the six-transfer/withdrawal rule
shall be reported as a transaction account, as follows:
(1) If the depositor is ineligible to hold a NOW account, such an account is considered
a demand deposit.
(2) If the depositor is eligible to hold a NOW account, the account will be considered
either a NOW account, a telephone or preauthorized transfer account, or an ATS
account:
(a) If withdrawals or transfers by check, draft, or similar instrument are permitted
or authorized, the account is considered a NOW account.
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Deposits (cont.):
(b) If withdrawals or transfers by check, draft, or similar instrument are not
permitted or authorized, the account is considered either an ATS account or a
telephone or preauthorized transfer account.
Regulation D no longer distinguishes between money market deposit accounts
(MMDAs) and other savings deposits. However, these two types of accounts are
defined as follows for purposes of these reports, which call for separate data on each.
(1) Money market deposit accounts (MMDAs) are deposits or accounts that meet the
above definition of a savings deposit and that permit up to (but no more than) six
allowable transfers to be made by check, draft, debit card or similar order made by
the depositor and payable to third parties.
(2) Other savings deposits are deposits or accounts that meet the above definition of a
savings deposit but that permit no transfers by check, draft, debit card, or similar
order made by the depositor and payable to third parties. Other savings deposits
are commonly known as passbook savings or statement savings accounts.
Examples illustrating distinctions between MMDAs and other savings deposits for
purposes of these reports are provided at the end of this Glossary entry.
(b) Time deposits are deposits that the depositor does not have a right, and is not
permitted, to make withdrawals from within six days after the date of deposit unless the
deposit is subject to an early withdrawal penalty of at least seven days' simple interest
on amounts withdrawn within the first six days after deposit. A time deposit from which
partial early withdrawals are permitted must impose additional early withdrawal penalties
of at least seven days' simple interest on amounts withdrawn within six days after each
partial withdrawal. If such additional early withdrawal penalties are not imposed, the
account ceases to be a time deposit. The account may become a savings deposit if it
meets the requirements for a savings deposit; otherwise it becomes a demand deposit.
NOTE: The above prescribed penalties are the minimum required by Federal Reserve
Regulation D. Institutions may choose to require penalties for early withdrawal in
excess of the regulatory minimums.
Time deposits take two forms:
(i)

Time certificates of deposit (including rollover certificates of deposit) are deposits
evidenced by a negotiable or nonnegotiable instrument, or a deposit in book entry
form evidenced by a receipt or similar acknowledgement issued by the bank, that
provides, on its face, that the amount of such deposit is payable to the bearer, to
any specified person, or to the order of a specified person, as follows:
(1) on a certain date not less than seven days after the date of deposit,
(2) at the expiration of a specified period not less than seven days after the date
of the deposit, or
(3) upon written notice to the bank which is to be given not less than seven days
before the date of withdrawal.

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Deposits (cont.):
(ii) Time deposits, open account are deposits (other than time certificates of deposit) for
which there is in force a written contract with the depositor that neither the whole
nor any part of such deposit may be withdrawn prior to:
(1) the date of maturity which shall be not less than seven days after the date of
the deposit, or
(2) the expiration of a specified period of written notice of not less than seven
days.
These deposits include those club accounts, such as Christmas club and vacation
club accounts, that are made under written contracts that provide that no withdrawal
shall be made until a certain number of periodic deposits has been made during a
period of not less than three months, even though some of the deposits are made
within six days of the end of such period.
Time deposits do not include the following categories of liabilities even if they have an
original maturity of seven days or more:
(1) Any deposit or account that otherwise meets the definition of a time deposit but that
allows withdrawals within the first six days after deposit and that does not require an
early withdrawal penalty of at least seven days' simple interest on amounts
withdrawn within those first six days. Such deposits or accounts that meet the
definition of a savings deposit shall be reported as savings deposits; otherwise they
shall be reported as demand deposits.
(2) The remaining balance of a time deposit if a partial early withdrawal is made and the
remaining balance is not subject to additional early withdrawal penalties of at least
seven days' simple interest on amounts withdrawn within six days after each partial
withdrawal. Such time deposits that meet the definition of a savings deposit shall be
reported as savings deposits; otherwise they shall be reported as demand deposits.
Reporting of Retail Sweep Arrangements Affecting Transaction and Nontransaction Accounts –
In an effort to reduce their reserve requirements, some banks have established “retail sweep
arrangements” or “retail sweep programs.” In a retail sweep arrangement, a depository
institution transfers funds between a customer’s transaction account(s) and that customer’s
nontransaction account(s) (usually savings deposit account(s)) by means of preauthorized or
automatic transfers, typically in order to reduce transaction account reserve requirements
while providing the customer with unlimited access to the funds.
There are three key criteria for retail sweep programs to comply with the Federal Reserve
Regulation D definitions of “transaction account” and “savings deposit:”
(1) A depository institution must establish by agreement with its transaction account
customer two legally separate accounts: a transaction account (a NOW account or
demand deposit account) and a savings deposit account, including those sometimes
called a “money market deposit account” or “MMDA”;
(2) The swept funds must actually be moved from the customer’s transaction account to the
customer’s savings deposit account on the official books and records of the depository
institution as of the close of the business on the day(s) on which the depository
institution intends to report the funds in question as savings deposits and not transaction
accounts, and vice versa. In addition to actually moving the customer’s funds between
accounts and reflecting this movement at the account level:

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Deposits (cont.):
(a) If the depository institution’s general ledger is sufficiently disaggregated to
distinguish between transaction and savings deposit accounts, the aforementioned
movement of funds between the customer’s transaction account and savings
deposit account must be reflected on the general ledger.
(b) If the depository institution’s general ledger is not sufficiently disaggregated, the
distinction may be reflected in supplemental records or systems, but only if such
supplemental records or systems constitute official books and records of the
institution and are subject to the same prudent managerial oversight and controls as
the general ledger.
A retail sweep program may not exist solely in records or on systems that do not
constitute official books and records of the depository institution and that are not used
for any purpose other than generating its Report of Transaction Accounts, Other
Deposits and Vault Cash (FR 2900) for submission to the Federal Reserve; and
(3) The maximum number of preauthorized or automatic funds transfers (“sweeps”) out of a
savings deposit account and into a transaction account in a retail sweep program is
limited to not more than six per month. Transfers out of the transaction account and into
the savings deposit account may be unlimited in number.
If any of the three criteria is not met, all swept funds must continue to be reported as
transaction accounts, both for purposes of these reports and of FR 2900 deposit reports.
All three criteria must be met in order to report the nontransaction account component of a
retail sweep program as a nonreservable savings deposit account.
Further, for purposes of the Consolidated Reports of Condition and Income, if all three of
the criteria above are met, a bank must report the transaction account and nontransaction
account components of a retail sweep program separately when it reports its quarter-end
deposit information in Schedules RC, RC-E, and RC-O; its quarterly averages in
Schedule RC-K; and its interest expense (if any) in Schedule RI. Thus, when reporting
quarterly averages in Schedule RC-K, a bank should include the amounts held in the
transaction account (if interest-bearing) and the nontransaction savings account components
of retail sweep arrangements each day or each week in the appropriate separate items for
average deposits. In addition, if the bank pays interest on accounts involved in retail sweep
arrangements, the interest expense reported in Schedule RI should be allocated between
the transaction account and the nontransaction (savings) account based on the balances in
these accounts during the reporting period.
For additional information, refer to the Federal Reserve Board staff guidance relating to the
requirements for a retail sweep program under Regulation D at
http://www.federalreserve.gov/boarddocs/legalint/FederalReserveAct/2007/20070501/200705
01.pdf.
(III) Interest-bearing-noninterest-bearing deposit distinction –
(a) Interest-bearing deposit accounts consist of deposit accounts on which the issuing depository
institution makes any payment to or for the account of any depositor as compensation for the
use of funds constituting a deposit. Such compensation may be in the form of cash,
merchandise, or property or as a credit to an account. An institution’s absorption of
expenses incident to providing a normal banking function or its forbearance from charging a
fee in connection with such a service is not considered a payment of interest.

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Deposits (cont.):
Deposits with a zero percent interest rate that are issued on a discount basis are to be
treated as interest-bearing. Deposit accounts on which the interest rate is periodically
adjusted in response to changes in market interest rates and other factors should be reported
as interest-bearing even if the rate has been reduced to zero, provided the interest rate on
these accounts can be increased as market conditions change.
(b) Noninterest-bearing deposit accounts consist of deposit accounts on which the issuing
depository institution makes no payment to or for the account of any depositor as
compensation for the use of funds constituting a deposit. An institution’s absorption of
expenses incident to providing a normal banking function or its forbearance from charging a
fee in connection with such a service is not considered a payment of interest.
Noninterest-bearing deposit accounts include (i) matured time deposits that are not
automatically renewable (unless the deposit agreement provides for the funds to be
transferred at maturity to another type of account) and (ii) deposits with a zero percent stated
interest rate that are issued at face value.
See also "Brokered Deposits" and "Hypothecated Deposits."

Examples Illustrating Distinctions Between
MONEY MARKET DEPOSIT ACCOUNTS (MMDAs) and OTHER SAVINGS DEPOSITS
Example 1
A savings deposit account permits no transfers of any type to other accounts or to third parties.
Report this account as an other savings deposit.
Example 2
A savings deposit permits up to six, but no more than six, "preauthorized, automatic, or
telephonic" transfers to other accounts or to third parties. None of the third-party payments may be
made by check, draft, or similar order (including debit card).
Report this account as an other savings deposit.
Example 3
A savings deposit permits no more than six "preauthorized, automatic, or telephonic" transfers to
other accounts or to third parties, any or all which may be by check, draft, debit card or similar order
made by the depositor and payable to third parties.
Report this account as an MMDA.

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Derivative Contracts: Banks commonly use derivative instruments for managing (positioning or
hedging) their exposure to market risk (including interest rate risk and foreign exchange risk), cash flow
risk, and other risks in their operations and for trading. The accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in other contracts, and for
hedging activities are set forth in ASC Topic 815, Derivatives and Hedging, which banks must follow for
purposes of these reports. ASC Topic 815 requires all derivatives to be recognized on the balance
sheet as either assets or liabilities at their fair value. A summary of the principal provisions of ASC
Topic 815 follows. For further information, see ASC Topic 815, which includes the implementation
guidance issued by the FASB's Derivatives Implementation Group.
Definition of Derivative
ASC Topic 815 defines a "derivative instrument" as a financial instrument or other contract with all
three of the following characteristics:
(1) It has one or more underlyings (i.e., specified interest rate, security price, commodity price, foreign
exchange rate, index of prices or rates, or other variable) and one or more notional amounts
(i.e., number of currency units, shares, bushels, pounds, or other units specified in the contract) or
payment provisions or both. These terms determine the amount of the settlement or settlements,
and in some cases, whether or not a settlement is required.
(2) It requires no initial net investment or an initial net investment that is smaller than would be
required for other types of contracts that would be expected to have similar response to changes in
market factors.
(3) Its terms require or permit net settlement, it can be readily settled net by a means outside the
contract, or it provides for delivery of an asset that puts the recipient in a position not substantially
different from net settlement.
Certain contracts that may meet the definition of a derivative are specifically excluded from the scope
of ASC Topic 815, including:
•
•
•
•

"Regular-way" securities trades, which are trades that are completed within the time period
generally established by regulations and conventions in the marketplace or by the exchange on
which the trade is executed;
Normal purchases and sales of an item other than a financial instrument or derivative instrument
(e.g., a commodity) that will be delivered in quantities expected to be used or sold by the reporting
entity over a reasonable period in the normal course of business;
Traditional life insurance and property and casualty contracts; and
Certain financial guarantee contracts.

ASC Topic 815 has special criteria for determining whether commitments to originate loans meet the
definition of a derivative. Commitments to originate mortgage loans that will be held for sale are
accounted for as derivatives. Commitments to originate mortgage loans that will be held for investment
are not accounted for as derivatives. Also, all commitments to originate loans other than mortgage
loans are not accounted for as derivatives. Commitments to purchase loans must be evaluated to
determine whether the commitment meets the definition of a derivative under ASC Topic 815.
Types of Derivatives
The most common types of freestanding derivatives are forwards, futures, swaps, options, caps, floors,
and collars.
Forward contracts are agreements that obligate two parties to purchase (long) and sell (short) a
specific financial instrument, foreign currency, or commodity at a specified price with delivery and
settlement at a specified future date.

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Derivative Contracts (cont.):
Futures contracts are standardized forward contracts that are traded on organized exchanges.
Exchanges in the U.S. are registered with and regulated by the Commodity Futures Trading
Commission. The deliverable financial instruments underlying interest-rate future contracts are
specified investment-grade financial instruments, such as U.S. Treasury securities or mortgage-backed
securities. Foreign currency futures contracts involve specified deliverable amounts of a particular
foreign currency. The deliverable products under commodity futures contracts are specified amounts
and grades of commodities such as gold bullion. Equity futures contracts are derivatives that have a
portion of their return linked to the price of a particular equity or to an index of equity prices, such as
the Standard and Poor's 500.
Other forward contracts are traded over the counter and their terms are not standardized. Such
contracts can only be terminated, other than by receipt of the underlying asset, by agreement of both
buyer and seller. A forward rate agreement is a forward contract that specifies a reference interest rate
and an agreed on interest rate (one to be paid and one to be received), an assumed principal amount
(the notional amount), and a specific maturity and settlement date.
Swap contracts are forward-based contracts in which two parties agree to swap streams of payments
over a specified period. The payments are based on an agreed upon notional principal amount. An
interest rate swap generally involves no exchange of principal at inception or maturity. Rather, the
notional amount is used to calculate the payment streams to be exchanged. However, foreign
exchange swaps often involve the exchange of principal.]
Option contracts (standby contracts) are traded on exchanges and over the counter. Option contracts
grant the right, but do not obligate, the purchaser (holder) to buy (call) or sell (put) a specific or
standard commodity, financial, or equity instrument at a specified price during a specified period or at a
specified date. A purchased option is a contract in which the buyer has paid compensation (such as a
fee or premium) to acquire the right to sell or purchase an instrument at a stated price on a specified
future date. A written option obligates the option seller to purchase or sell the instrument at the option
of the buyer of the contract. Option contracts may relate to purchases or sales of securities, money
market instruments, futures contracts, other financial instruments, or commodities.
Interest rate caps are option contracts in which the cap seller, in return for a premium, agrees to limit
the cap holder's risk associated with an increase in interest rates. If rates go above a specified
interest-rate level (the strike price or cap rate), the cap holder is entitled to receive cash payments
equal to the excess of the market rate over the strike price multiplied by the notional principal amount.
For example, an issuer of floating-rate debt may purchase a cap to protect against rising interest rates,
while retaining the ability to benefit from a decline in rates.
Interest rate floors are option contracts in which the floor seller, in return for a premium, agrees to limit
the risk associated with a decline in interest rates based on a notional amount. If rates fall below an
agreed rate, the floor holder will receive cash payments from the floor writer equal to the difference
between the market rate and an agreed rate, multiplied by the notional principal amount.
Interest rate collars are option contracts that combine a cap and a floor (one held and one written).
Interest rate collars enable a user with a floating rate contract to lock into a predetermined interest-rate
range often at a lower cost than a cap or a floor.
Embedded Derivatives
Contracts that do not in their entirety meet the definition of a derivative instrument, such as bonds,
insurance policies, and leases, may contain “embedded” derivative instruments. Embedded
derivatives are implicit or explicit terms within a contract that affect some or all of the cash flows or

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Derivative Contracts (cont.):
the value of other exchanges required by the contract in a manner similar to a derivative instrument.
The effect of embedding a derivative instrument in another type of contract (“the host contract”) is that
some or all of the cash flows or other exchanges that otherwise would be required by the host contract,
whether unconditional or contingent upon the occurrence of a specified event, will be modified based
on one or more of the underlyings.
An embedded derivative instrument shall be separated from the host contract and accounted for as a
derivative instrument, i.e., bifurcated, if and only if all three of the following conditions are met:
(1) The economic characteristics and risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the host contract,
(2) The contract (“the hybrid instrument”) that embodies the embedded derivative and the host contract
is not remeasured at fair value under otherwise applicable generally accepted accounting principles
with changes in fair value reported in earnings as they occur, and
(3) A separate instrument with the same terms as the embedded derivative instrument would be a
considered a derivative.
An embedded derivative instrument in which the underlying is an interest rate or interest rate index that
alters net interest payments that otherwise would be paid or received on an interest-bearing host
contract is considered to be clearly and closely related to the host contract unless either of the
following conditions exist:
(1) The hybrid instrument can contractually be settled in such a way that the investor (holder) would
not recover substantially all of its initial recorded investment,
or
(2) The embedded derivative could at least double the investor’s initial rate of return on the host
contract and could also result in a rate of return that is at least twice what otherwise would be the
market return for a contract that has the same terms as the host contract and that involves a debtor
with a similar credit quality.
Examples of hybrid instruments (not held for trading purposes) with embedded derivatives which meet
the three conditions listed above and must be accounted for separately include debt instruments
(including deposit liabilities) whose return or yield is indexed to: changes in an equity securities index
(e.g., the Standard & Poor's 500); changes in the price of a specific equity security; or changes in the
price of gold, crude oil, or some other commodity. For purposes of these reports, when an embedded
derivative must be accounted for separately from the host contract under ASC Topic 815, the carrying
value of the host contract and the fair value of the embedded derivative may be combined and
presented together on the balance sheet in the asset or liability category appropriate to the host
contract.
Under ASC Subtopic 815-15, Derivatives and Hedging – Embedded Derivatives, a bank with a hybrid
instrument for which bifurcation would otherwise be required is permitted to irrevocably elect to initially
and subsequently measure the hybrid instrument in its entirety at fair value with changes in fair value
recognized in earnings. In addition, ASC Subtopic 815-15 subjects all but the simplest forms of
interest-only and principal-only strips and all forms of beneficial interests in securitized financial assets
to the requirements of ASC Topic 815. Thus, a bank must evaluate such instruments to identify those
that are freestanding derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation. However, a beneficial interest that contains a concentration of credit
risk in the form of subordination to another financial instrument and certain securitized interests in
prepayable financial assets are not considered to contain embedded derivatives that must be
accounted for separately from the host contract. For further information, see ASC Subtopic 815-15.

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Derivative Contracts (cont.):
Except in limited circumstances, interest-only and principal-only strips and beneficial interests in
securitized assets that were recognized prior to the effective date (or early adoption date) of
ASC Subtopic 815-15 are not subject to evaluation for embedded derivatives under ASC Topic 815.
Recognition of Derivatives and Measurement of Derivatives and Hedged Items
A bank should recognize all of its derivative instruments on its balance sheet as either assets or
liabilities at fair value. As defined in ASC Topic 820, Fair Value Measurement, fair value is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. For further information, see the Glossary entry for “Fair
Value.”
The accounting for changes in the fair value (that is, gains and losses) of a derivative depends on
whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason
for holding it. Either all or a proportion of a derivative may be designated as a hedging instrument.
The proportion must be expressed as a percentage of the entire derivative. Gains and losses on
derivative instruments are accounted for as follows:
(1) No hedging designation – The gain or loss on a derivative instrument not designated as a hedging
instrument, including all derivatives held for trading purposes, is recognized currently in earnings.
(2) Fair value hedge – For a derivative designated as hedging the exposure to changes in the fair
value of a recognized asset or liability or a firm commitment, which is referred to as a fair value
hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item
attributable to the risk being hedged should be recognized currently in earnings.
(3) Cash flow hedge – For a derivative designated as hedging the exposure to variable cash flows of
an existing recognized asset or liability or a forecasted transaction, which is referred to as a cash
flow hedge, the effective portion of the gain or loss on the derivative should initially be reported
outside of earnings as a component of other comprehensive income and subsequently reclassified
into earnings in the same period or periods during which the hedged transaction affects earnings.
The remaining gain or loss on the derivative instrument, if any, (i.e., the ineffective portion of the
gain or loss and any component of the gain or loss excluded from the assessment of hedge
effectiveness) should be recognized currently in earnings.
(4) Foreign currency hedge – For a derivative designated as hedging the foreign currency exposure of
a net investment in a foreign operation, the gain or loss is reported outside of earnings in other
comprehensive income as part of the cumulative translation adjustment. For a derivative
designated as a hedge of the foreign currency exposure of an unrecognized firm commitment or an
available-for-sale security, the accounting for a fair value hedge should be applied. Similarly, for a
derivative designated as a hedge of the foreign currency exposure of a foreign-currency
denominated forecasted transaction, the accounting for a cash flow hedge should be applied.
To qualify for hedge accounting, the risk being hedged must represent an exposure to an institution’s
earnings. In general, if the hedged item is a financial asset or liability, the designated risk being
hedged can be (1) all risks, i.e., the risk of changes in the overall fair value of the hedged item or the
risk of overall changes in the hedged cash flows; (2) the risk of changes in the fair value or cash flows

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Derivative Contracts (cont.):
of the hedged item attributable to changes in the benchmark interest rate;1 (3) the risk of changes in
the fair value or cash flows of the hedged item attributable to changes in foreign exchange rates; or
(4) the risk of changes in the fair value or cash flows of the hedged item attributable to changes in the
obligor's creditworthiness. For held-to-maturity securities, only credit risk, foreign exchange risk, or
both may be hedged.
Designated hedging instruments and hedged items qualify for fair value or cash flow hedge accounting
if all of the criteria specified in ASC Topic 815 are met. These criteria include:
(1) At inception of the hedge, there is formal documentation of the hedging relationship and the
institution’s risk management objective and strategy for undertaking the hedge, including
identification of the hedging instrument, the hedged item or transaction, the nature of the risk being
hedged, and how the hedging instrument’s effectiveness will be assessed. There must be a
reasonable basis for how the institution plans to assess the hedging instrument’s effectiveness.
(2) Both at inception of the hedge and on an ongoing basis, the hedging relationship is expected to be
highly effective in achieving offsetting changes in fair value or offsetting cash flows attributable to
the hedged risk during the period that the hedge is designated or the term of the hedge. An
assessment of effectiveness is required whenever financial statements or earnings are reported,
and at least every three months. All assessments of effectiveness shall be consistent with the risk
management strategy documented for that particular hedging relationship.
In a fair value hedge, an asset or a liability is eligible for designation as a hedged item if the hedged
item is specifically identified as either all or a specific portion of a recognized asset or liability or of an
unrecognized firm commitment, the hedged item is a single asset or liability (or a specific portion
thereof) or is a portfolio of similar assets or a portfolio of similar liabilities (or a specific portion thereof),
and certain other criteria specified in ASC Topic 815 are met. If similar assets or similar liabilities are
aggregated and hedged as a portfolio, the individual assets or individual liabilities must share the risk
exposure for which they are designated as being hedged. The change in fair value attributable to the
hedged risk for each individual item in a hedged portfolio must be expected to respond in a generally
proportionate manner to the overall change in fair value of the aggregate portfolio attributable to the
hedged risk.

1 The benchmark interest rate is a widely recognized and quoted rate in an active financial market that is broadly
indicative of the overall level of interest rates attributable to high-credit-quality obligors in that market. In theory, this
should be a risk-free rate. In the U.S., interest rates on U.S. Treasury securities and the LIBOR swap rate are
considered benchmark interest rates.

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Derivative Contracts (cont.):
In a cash flow hedge, the individual cash flows related to a recognized asset or liability and the cash
flows related to a forecasted transaction are both referred to as a forecasted transaction. Thus, a
forecasted transaction is eligible for designation as a hedged transaction if the forecasted transaction is
specifically identified as a single transaction or a group of individual transactions, the occurrence of the
forecasted transaction is probable, and certain other criteria specified in ASC Topic 815 are met. If the
hedged transaction is a group of individual transactions, those individual transactions must share the
same risk exposure for which they are designated as being hedged.
An institution should discontinue prospectively its use of fair value or cash flow hedge accounting for an
existing hedge if any of the qualifying criteria for hedge accounting is no longer met; the derivative
expires or is sold, terminated, or exercised; or the institution removes the designation of the hedge.
When this occurs for a cash flow hedge, the net gain or loss on the derivative should remain in
“Accumulated other comprehensive income” and be reclassified into earnings in the periods during
which the hedged forecasted transaction affects earnings. However, if it is probable that the forecasted
transaction will not occur by the end of the originally specified time period (as documented at the
inception of the hedging relationship) or within an additional two-month period of time thereafter
(except as noted in ASC Topic 815), the derivative gain or loss reported in “Accumulated other
comprehensive income” should be reclassified into earnings immediately.
For a fair value hedge, in general, if a periodic assessment of hedge effectiveness indicates
noncompliance with the highly effective criterion that must be met in order to qualify for hedge
accounting, an institution should not recognize adjustment of the carrying amount of the hedged item
for the change in the item’s fair value attributable to the hedged risk after the last date on which
compliance with the effectiveness criterion was established.
With certain limited exceptions, a nonderivative instrument, such as a U.S. Treasury security, may not
be designated as a hedging instrument.
Reporting Derivative Contracts in the Call Report
When an institution enters into a derivative contract, it should classify the derivative as either held for
trading or held for purposes other than trading (end-user derivatives) based on the reasons for entering
into the contract. All derivatives must be reported at fair value on the balance sheet (Schedule RC).
Trading derivatives with positive fair values should be reported as trading assets in Schedule RC,
item 5. Trading derivatives with negative fair values should be reported as trading liabilities in
Schedule RC, item 15. Changes in the fair value (that is, gains and losses) of trading derivatives
should be recognized currently in earnings and included in Schedule RI, item 5.c, “Trading revenue.”
Freestanding derivatives held for purposes other than trading (and embedded derivatives that are
accounted for separately under ASC Topic 815, which the bank has chosen to present separately
from the host contract on the balance sheet) that have positive fair values should be included in
Schedule RC-F, item 6, "All other assets." If the total fair value of these derivatives is greater than
$100,000 and exceeds 25 percent of "All other assets," this amount should be disclosed in
Schedule RC-F, item 6.c. Freestanding derivatives held for purposes other than trading (and embedded
derivatives that are accounted for separately under ASC Topic 815, which the bank has chosen to
present separately from the host contract on the balance sheet) that have negative fair values should be
included in Schedule RC-G, item 4, "All other liabilities." If the total fair value of these derivatives is
greater than $100,000 and exceeds 25 percent of "All other liabilities," this amount should be disclosed in
Schedule RC-G, item 4.d. Net gains (losses) on derivatives held for purposes other than trading that are
not designated as hedging instruments in hedging relationships that qualify for hedge accounting in
accordance with ASC Topic 815 should be recognized currently in earnings and reported consistently as
either “Other noninterest income” or “Other noninterest expense” in Schedule RI, item 5.l or item 7.d,
respectively.

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Derivative Contracts (cont.):
Netting of derivative assets and liabilities is prohibited on the balance sheet except as permitted under
ASC Subtopic 210-20, Balance Sheet – Offsetting. See the Glossary entry for "Offsetting."
Banks must report the notional amounts of their derivative contracts (both freestanding derivatives
and embedded derivatives that are accounted for separately from their host contract under ASC
Topic 815) by risk exposure in Schedule RC-L, first by type of contract in Schedule RC-L, item 12, and
then by purpose of contract (i.e., trading, other than trading) in Schedule RC-L, items 13 and 14.
Banks must then report the gross fair values of their derivatives, both positive and negative, by risk
exposure and purpose of contract in Schedule RC-L, item 15. However, these items exclude credit
derivatives, the notional amounts and gross fair values of which must be reported in Schedule RC-L,
item 7.
Discounts: See "Premiums and Discounts."
Dividends: Cash dividends are payments of cash to stockholders in proportion to the number of shares
they own. Cash dividends on preferred and common stock are to be reported on the date they are
declared by the bank's board of directors (the declaration date) by debiting "retained earnings" and
crediting "dividends declared not yet payable," which is to be reported in other liabilities. Upon
payment of the dividend, "dividends declared not yet payable" is debited for the amount of the cash
dividend with an offsetting credit, normally in an equal amount, to "dividend checks outstanding" which
is reportable in the "demand deposits" category of the bank's deposit liabilities.
A liability for dividends payable may not be accrued in advance of the formal declaration of a dividend
by the board of directors. However, the bank may segregate a portion of retained earnings in the form
of a net worth reserve in anticipation of the declaration of a dividend.
Stock dividends are distributions of additional shares to stockholders in proportion to the number of
shares they own. Stock dividends are to be reported by transferring an amount equal to the fair value
of the additional shares issued from retained earnings to a category of permanent capitalization
(common stock and surplus). However, the amount transferred from retained earnings must be
reduced by the amount of any mandatory and discretionary transfers previously made (such as those
from retained earnings to surplus for increasing the bank's legal lending limit) provided such transfers
have not already been used to record a stock dividend. In any event, the amount transferred from
retained earnings may not be less than the par or stated value of the additional shares being issued.
Property dividends, also known as dividends in kind, are distributions to stockholders of assets other
than cash. The transfer of securities of other companies, real property, or any other asset owned by
the reporting bank to a stockholder or related party is to be recorded at the fair value of the asset on
the declaration date of the dividend. A gain or loss on the transferred asset must be recognized in the
same manner as if the property had been disposed of in an outright sale at or near the declaration
date. In those instances where a bank transfers bank premises to a parent holding company in the
form of a property dividend and the parent immediately enters into a sale-leaseback transaction with a
third party, the gain must be deferred by the bank and amortized over the life of the lease.
Domestic Office: For purposes of these reports, a domestic office of the reporting bank is a branch or
consolidated subsidiary (other than an Edge or Agreement subsidiary) located in the 50 states of the
United States or the District of Columbia or a branch on a U.S. military facility wherever located.
However, if the reporting bank is chartered and headquartered in Puerto Rico or a U.S. territory or
possession, a branch or consolidated subsidiary located in the 50 states of the United States, the
District of Columbia, Puerto Rico, or a U.S. territory or possession is a domestic office. The domestic
offices of the reporting bank exclude all International Banking Facilities (IBFs); all offices of Edge and
Agreement subsidiaries, including their U.S. offices; and all branches and other consolidated
subsidiaries of the bank located in foreign countries.

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Domicile: Domicile is used to determine the foreign (non-U.S. addressee) or domestic (U.S. addressee)
status of a customer of the reporting bank for the purposes of these reports. Domicile is determined
by the principal residence address of an individual or the principal business address of a corporation,
partnership, or sole proprietorship. If other addresses are used for correspondence or other purposes,
only the principal address, insofar as it is known to the reporting bank, should be used in determining
whether a customer should be regarded as a U.S. or non-U.S. addressee.
For purposes of defining customers of the reporting bank, U.S. addressees include residents of
the 50 states of the United States, the District of Columbia, Puerto Rico, and U.S. territories and
possessions. Non-U.S. addressees includes residents of any foreign country. The term
non-U.S. addressee generally includes foreign-based subsidiaries of other U.S. banks.
For customer identification purposes, the IBFs of other U.S. depository institutions are
U.S. addressees. (This is in contrast to the treatment of the IBFs of the reporting bank, which
are treated as foreign offices of the reporting bank.)
Due Bills: A due bill is an obligation that results when a bank sells an asset and receives payment, but
does not deliver the security or other asset. A due bill can also result from a promise to deliver an
asset in exchange for value received. In both cases, the receipt of the payment creates an obligation
regardless of whether the due bill is issued in written form. Outstanding due bill obligations shall be
reported as borrowings in Schedule RC, item 16, "Other borrowed money," by the issuing bank.
Conversely, when the reporting bank is the holder of a due bill, the outstanding due bill obligation of the
seller shall be reported as a loan to that party.
Edge and Agreement Corporation: An Edge corporation is a federally-chartered corporation organized
under Section 25A of the Federal Reserve Act and subject to Federal Reserve Regulation K. Edge
corporations are allowed to engage only in international banking or other financial transactions related
to international business.
An Agreement corporation is a state-chartered corporation that has agreed to operate as if it were
organized under Section 25 of the Federal Reserve Act and has agreed to be subject to Federal
Reserve Regulation K. Agreement corporations are restricted, in general, to international banking
operations. Banks must apply to the Federal Reserve for permission to acquire stock in an Agreement
corporation.
A reporting bank's Edge or Agreement subsidiary, i.e., the bank's majority-owned Edge or Agreement
corporation, is treated for purposes of these reports as a "foreign" office of the reporting bank.
Equity-Indexed Certificates of Deposit: Under ASC Topic 815, Derivatives and Hedging, a certificate
of deposit that pays "interest" based on changes in an equity securities index is a hybrid instrument
with an embedded derivative that must be accounted for separately from the host contract, i.e., the
certificate of deposit. For further information, see the Glossary entry for "Derivative Contracts."
Examples of equity-indexed certificates of deposit include the "Index Powered® CD" and the “Dow
Jones Industrials Indexed Certificate of Deposit.”
At the maturity date of a typical equity-indexed certificate of deposit, the holder of the certificate of
deposit receives the original amount invested in the deposit plus some or all of the appreciation, if any,
in an index of stock prices over the term of the certificate of deposit. Thus, the equity-indexed
certificate of deposit contains an embedded equity call option. To manage the market risk of its equityindexed certificates of deposit, a bank that issues these deposits normally enters into one or more
separate freestanding equity derivative contracts with an overall term that matches the term of the
certificates of deposit. At maturity, these separate derivatives are expected to provide the bank with a
cash payment in an amount equal to the amount of appreciation, if any, in the same stock price index
that is embedded in the certificates of deposit, thereby providing the bank with the funds to pay the

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Equity-Indexed Certificates of Deposit (cont.):
"interest" on the equity-indexed certificates of deposit. During the term of the separate freestanding
equity derivative contracts, the bank will periodically make either fixed or variable payments to the
counterparty on these contracts.
When a bank issues an equity-indexed certificate of deposit, it must either account for the written
equity call option embedded in the deposit separately from the certificate of deposit host contract or
irrevocably elect to account for the hybrid instrument (the equity-indexed certificate of deposit) in its
entirety at fair value.
•

If the bank accounts for the written equity call option separately from the certificate of deposit, the
fair value of this embedded derivative on the date the certificate of deposit is issued must be
deducted from the amount the purchaser invested in the deposit, creating a discount on the
certificate of deposit that must be amortized to interest expense over the term of the deposit using
the effective interest method. This interest expense should be reported in the income statement in
the appropriate subitem of Schedule RI, item 2.a, "Interest on deposits." The equity call option
must be "marked to market" at least quarterly with any changes in the fair value of the option
recognized in earnings. On the balance sheet, the carrying value of the certificate of deposit host
contract and the fair value of the embedded equity derivative may be combined and reported
together as a deposit liability on the balance sheet (Schedule RC) and in the deposit schedule
(Schedule RC-E).

•

If the bank elects to account for the equity-indexed certificate of deposit in its entirety at fair value,
no discount is to be recorded on the certificate of deposit. Rather, the equity-indexed certificate of
deposit must be “marked to market” at least quarterly, with changes in the instrument’s fair value
reported in the income statement consistently in either item 5.l, "Other noninterest income," or
item 7.d, "Other noninterest expense”, excluding interest expense incurred that is reported in the
appropriate subitem of Schedule RI, item 2.a, "Interest on deposits."

As for the separate freestanding derivative contracts the bank enters into to manage its market risk,
these derivatives must be carried on the balance sheet as assets or liabilities at fair value and "marked
to market" at least quarterly with changes in their fair value recognized in earnings. The fair value of
the freestanding derivatives should not be netted against the fair value of the embedded equity
derivatives for balance sheet purposes because these two derivatives have different counterparties.
The periodic payments to the counterparty on these freestanding derivatives must be accrued with the
expense reported in earnings along with the change in the derivative's fair value. In the income
statement (Schedule RI), the changes in the fair value of the embedded and freestanding derivatives,
including the effect of the accruals for the payments to the counterparty on the freestanding derivatives,
should be netted and reported consistently in either item 5.l, "Other noninterest income," or item 7.d,
"Other noninterest expense."
Unless the bank that issues the equity-indexed certificate of deposit elects to account for the certificate
of deposit in its entirety at fair value, the notional amount of the embedded equity call option must be
reported in Schedule RC-L, item 12.d.(1), column C, and item 14, column C, and its fair value (which
will always be negative or zero, but not positive) must be reported in Schedule RC-L, item 15.b.(2),
column C. The notional amount of the freestanding equity derivative must be reported in the appropriate
subitem of Schedule RC-L, item 12, column C (e.g., item 12.e, column C, if it is an equity swap), and in
Schedule RC-L, item 14, column C. The fair value of the freestanding equity derivative must be included
in the appropriate subitem of Schedule RC-L, item 15.b, column C. The equity derivative embedded in
the equity-indexed certificate of deposit is a written option, which is not covered by the agencies' riskbased capital standards. However, the freestanding equity derivative is covered by these standards.
For deposit insurance assessment purposes, if the carrying value of the certificate of deposit host
contract and the fair value of the embedded equity derivative are combined and reported together as a
deposit liability on the balance sheet, the difference between these combined amounts and the face
amount of the certificate of deposit should be treated as an unamortized premium or discount, as

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Equity-Indexed Certificates of Deposit (cont.):
appropriate, for purposes of reporting total deposit liabilities in Schedule RC-O, item 1. If these two
amounts are not combined and only the carrying value of the certificate of deposit host contract is
reported as a deposit liability on the balance sheet, the difference between the carrying value and the
face amount of the certificate of deposit should be treated as an unamortized discount in
Schedule RC-O, item 1. If the bank elects to account for the equity-indexed certificate of deposit in its
entirety at fair value, the difference between the fair value and the face amount of the certificate of
deposit should be treated as an unamortized premium or discount, as appropriate, in Schedule RC-O,
item 1.
A bank that purchases an equity-indexed certificate of deposit for investment purposes must either
account for the embedded purchased equity call option separately from the certificate of deposit host
contract or irrevocably elect to account for the hybrid instrument (the equity-indexed certificate of
deposit) in its entirety at fair value.
•

If the bank accounts for the purchased equity call option separately from the certificate of deposit,
the fair value of this embedded derivative on the date of purchase must be deducted from the
purchase price of the certificate, creating a discount on the deposit that must be accreted into
income over the term of the deposit using the effective interest method. This accretion should be
reported in the income statement in Schedule RI, item 1.c. The embedded equity derivative must
be "marked to market" at least quarterly with any changes in its fair value recognized in earnings.
These fair value changes should be reported consistently in Schedule RI in either item 5.l, "Other
noninterest income," or item 7.d, "Other noninterest expense." The carrying value of the certificate
of deposit host contract and the fair value of the embedded equity derivative may be combined and
reported together as interest-bearing balances due from other depository institutions on the
balance sheet in Schedule RC, item 1.b.

•

If the bank elects to account for the equity-indexed certificate of deposit in its entirety at fair value,
no discount is to be recorded on the certificate of deposit. Rather, the equity-indexed certificate of
deposit must be “marked to market” at least quarterly, with changes in the instrument’s fair value
reported in the income statement consistently in either item 5.l, "Other noninterest income," or
item 7.d, "Other noninterest expense,” excluding interest income that is reported in Schedule RI,
item 1.c.

Unless the bank that purchases the equity-indexed certificate of deposit elects to account for the
certificate of deposit in its entirety at fair value, the notional amount of the embedded derivative must
be reported in Schedule RC-L, item 12.d.(2), column C, and item 14, column C, and its fair value
(which will always be positive or zero, but not negative) must be reported in Schedule RC-L,
item 15.b.(1), column C. The embedded equity derivative in the equity-indexed certificate of deposit is
a purchased option, which is subject to the agencies' risk-based capital standards unless the fair value
election has been made.
Equity Method of Accounting: The equity method of accounting shall be used to account for:
(1) Investments in subsidiaries that have not been consolidated; associated companies; and corporate
joint ventures, unincorporated joint ventures, and general partnerships over which the bank
exercises significant influence; and
(2) Noncontrolling investments in:
(a) Limited partnerships; and
(b) Limited liability companies that maintain “specific ownership accounts” for each investor and
are within the scope of ASC Subtopic 323-30, Investments-Equity Method and Joint Ventures –
Partnerships, Joint Ventures, and Limited Liability Entities.
unless the investment in the limited partnership or limited liability company is so minor that the
limited partner or investor may have virtually no influence over the operating and financial policies
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Equity Method of Accounting (cont.):
of the partnership or company. Consistent with guidance in ASC Subtopic 323-30, InvestmentsEquity Method and Joint Ventures – Partnerships, Joint Ventures, and Limited Liability Entities,
noncontrolling investments of more than 3 to 5 percent are considered to be more than minor.
The entities in which these investments have been made are collectively referred to as “investees.”
Under the equity method, the carrying value of a bank’s investment in an investee is originally recorded
at cost but is adjusted periodically to record as income the bank’s proportionate share of the investee’s
earnings or losses and decreased by the amount of cash dividends or similar distributions received
from the investee. For purposes of these reports, the date through which the carrying value of the
bank’s investment in an investee has been adjusted should, to the extent practicable, match the report
date of the Consolidated Report of Condition, but in no case differ by more than 93 days from the
report.
See also "Subsidiaries."
Excess Balance Account: An excess balance account (EBA) is a limited-purpose account at a Federal
Reserve Bank established for maintaining the excess balances of one or more depository institutions
(participants) that are eligible to earn interest on balances held at the Federal Reserve Banks. An EBA
is managed by another depository institution that has its own account at a Federal Reserve Bank (such
as a participant’s pass-through correspondent) and acts as an agent on behalf of the participants.
Balances in an EBA represent a liability of a Federal Reserve Bank directly to the EBA participants and
not to the agent. The Federal Reserve Banks pay interest on the average balance in the EBA over a
7-day maintenance period and the agent disburses that interest to each participant in accordance with
the instructions of the participant. Only a participant’s excess balances may be placed in an EBA; the
account balance cannot be used to satisfy the participant’s reserve balance requirement.
The reporting of an EBA by participants and agents differs from the required reporting of a passthrough reserve relationship, which is described in the Glossary entry for “Pass-through Reserve
Balances.”
A participant’s balance in an EBA is to be treated as a claim on a Federal Reserve Bank (not as a
claim on the agent) and, as such, should be reported on the balance sheet in Schedule RC, item 1.b,
“Interest-bearing balances” due from depository institutions, and, for a participant with foreign offices or
with $300 million or more in total assets, in Schedule RC-A, item 4, “Balances due from Federal
Reserve Banks.” For risk-based capital purposes, the participant’s balance in an EBA is accorded a
zero percent risk weight and should be reported in Schedule RC-R, Part II, item 1, “Cash and balances
due from depository institutions,” column C. A participant should not include its balance in an EBA in
Schedule RC, item 3.a, “Federal funds sold.”
The balances in an EBA should not be reflected as an asset or a liability on the balance sheet of
the depository institution that acts as the agent for the EBA. Thus, the agent should not include the
balances in the EBA in Schedule RC, item 1.b, “Interest-bearing balances” due from depository
institutions; Schedule RC, item 13.a.(2), “Interest-bearing” deposits (in domestic offices);
Schedule RC-A, item 4, “Balances due from Federal Reserve Banks”; or Schedule RC-R, Part II,
item 1, “Cash and balances due from depository institutions.”

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Extinguishments of Liabilities: The accounting and reporting standards for extinguishments of
liabilities are set forth in ASC Subtopic 405-20, Liabilities – Extinguishments of Liabilities. Under
ASC Subtopic 405-20, a bank should remove a previously recognized liability from its balance sheet
if and only if the liability has been extinguished. A liability has been extinguished if either of the
following conditions is met:
(1) The bank pays the creditor and is relieved of its obligation for the liability. Paying the creditor
includes delivering cash, other financial assets, goods, or services or the bank's reacquiring its
outstanding debt.
(2) The bank is legally released from being the primary obligor under the liability, either judicially or by
the creditor.
Banks should aggregate their gains and losses from the extinguishment of liabilities (debt), including
losses resulting from the payment of prepayment penalties on borrowings such as Federal Home Loan
Bank advances, and consistently report the net amount in item 7.d, "Other noninterest expense," of the
income statement (Schedule RI). Only if a bank's debt extinguishments normally result in net gains
over time should the bank consistently report its net gains (losses) in Schedule RI, item 5.l, "Other
noninterest income."
In addition, under ASC Subtopic 470-50, Debt – Modifications and Extinguishments, the accounting for
the gain or loss on the modification or exchange of debt depends on whether the original and the new
debt instruments are substantially different. If they are substantially different, the transaction is treated
as an extinguishment of debt and the gain or loss on the modification or exchange is reported
immediately in earnings as discussed in the preceding paragraph. If the original and new debt
instruments are not substantially different, the gain or loss on the modification or replacement of the
debt is deferred and recognized over time as an adjustment to the interest expense on the new
borrowing. ASC Subtopic 470-50 provides guidance on how to determine whether the original and the
new debt instruments are substantially different.
Fails: When a bank has sold an asset and, on settlement date, does not deliver the security or other
asset and does not receive payment, a sales fail exists. When a bank has purchased a security or
other asset and, on settlement date, does not receive the asset and does not pay for it, a purchase fail
exists. Fails do not affect the way securities are reported in the Consolidated Reports of Condition and
Income.
Fair Value: ASC Topic 820, Fair Value Measurement, defines fair value and establishes a framework for
measuring fair value. ASC Topic 820 should be applied when other accounting topics require or permit
fair value measurements. For further information, refer to ASC Topic 820.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants in the asset’s or liability’s principal (or most
advantageous) market at the measurement date. This value is often referred to as an “exit” price.
An orderly transaction is a transaction that assumes exposure to the market for a period prior to the
measurement date to allow for marketing activities that are usual and customary for transactions
involving such assets or liabilities; it is not a forced liquidation or distressed sale.
ASC Topic 820 establishes a three level fair value hierarchy that prioritizes inputs used to measure
fair value based on observability. The highest priority is given to Level 1 (observable, unadjusted) and
the lowest priority to Level 3 (unobservable). The broad principles for the hierarchy follow.
Level 1 fair value measurement inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities that a bank has the ability to access at the measurement date. In addition, a
Level 1 fair value measurement of a liability can also include the quoted price for an identical liability
when traded as an asset in an active market when no adjustments to the quoted price of the asset are
required.

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Fair Value (cont.):
Level 2 fair value measurement inputs are inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly. If the asset or liability has a
specified (contractual) term, a Level 2 input must be observable for substantially the full term of the
asset or liability. Depending on the specific factors related to an asset or a liability, certain adjustments
to Level 2 inputs may be necessary to determine the fair value of the asset or liability. If those
adjustments are significant to the asset or liability’s fair value in its entirety, the adjustments may render
the fair value measurement to a Level 3 measurement.
Level 3 fair value measurement inputs are unobservable inputs for the asset or liability. Although these
inputs may not be readily observable in the market, the fair value measurement objective is,
nonetheless, to develop an exit price for the asset or liability from the perspective of a market
participant. Therefore, Level 3 fair value measurement inputs should reflect the bank’s own
assumptions about the assumptions that a market participant would use in pricing an asset or liability
and should be based on the best information available in the circumstances.
Refer to ASC Topic 820 for additional fair value measurement guidance, including considerations
related to holding large positions (blocks), the existence of multiple active markets, and the use of
practical expedients.
Measurement of Fair Values in Stressed Market Conditions – The measurement of various assets and
liabilities on the balance sheet – including trading assets and liabilities, available-for-sale securities,
loans held for sale, assets and liabilities accounted for under the fair value option, and foreclosed
assets – involves the use of fair values. During periods of market stress, the fair values of some
financial instruments and nonfinancial assets may be difficult to determine. Institutions are reminded
that, under such conditions, fair value measurements should be determined consistent with the
objective of fair value set forth in ASC Topic 820.
ASC Topic 820 provides guidance on determining fair value when the volume and level of activity for
an asset or liability have significantly decreased when compared with normal market activity for the
asset or liability (or similar assets or liabilities). According to ASC Topic 820, if there has been such a
significant decrease, transactions or quoted prices may not be determinative of fair value because, for
example, there may be increased instances of transactions that are not orderly. In those
circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment
to the transactions or quoted prices may be necessary to estimate fair value in accordance with ASC
Topic 820.
Federal Funds Transactions: For purposes of the Consolidated Reports of Condition and Income,
federal funds transactions involve the reporting bank's lending (federal funds sold) or borrowing
(federal funds purchased) in domestic offices of immediately available funds under agreements or
contracts that have an original maturity of one business day or roll over under a continuing contract.
However, funds lent or borrowed in the form of securities resale or repurchase agreements, due bills,
borrowings from the Discount and Credit Department of a Federal Reserve Bank, deposits with and
advances from a Federal Home Loan Bank, and overnight loans for commercial and industrial
purposes are excluded from federal funds. Transactions that are to be reported as federal funds
transactions may be secured or unsecured or may involve an agreement to resell loans or other
instruments that are not securities.
Immediately available funds are funds that the purchasing bank can either use or dispose of on the
same business day that the transaction giving rise to the receipt or disposal of the funds is executed.
The borrowing and lending of immediately available funds has an original maturity of one business day
if the funds borrowed on one business day are to be repaid or the transaction reversed on the next
business day, that is, if immediately available funds borrowed today are to be repaid tomorrow (in
tomorrow's immediately available funds). Such transactions include those made on a Friday to mature

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Federal Funds Transactions (cont.):
or be reversed the following Monday and those made on the last business day prior to a holiday (for
either or both of the parties to the transaction) to mature or be reversed on the first business day
following the holiday.
A continuing contract is a contract or agreement that remains in effect for more than one business day,
but has no specified maturity and does not require advance notice of either party to terminate. Such
contracts may also be known as rollovers or as open-ended agreements.
Federal funds may take the form of the following two types of transactions in domestic offices provided
that the transactions meet the above criteria (i.e., immediately available funds with an original maturity
of one business day or under a continuing contract):
(1) Unsecured loans (federal funds sold) or borrowings (federal funds purchased). (In some market
usage, the term "fed funds" or "pure fed funds" is confined to unsecured loans of immediately
available balances.)
(2) Purchases (sales) of financial assets (other than securities) under agreements to resell
(repurchase) that have original maturities of one business day (or are under continuing contracts)
and are in immediately available funds.
Any borrowing or lending of immediately available funds in domestic offices that has an original
maturity of more than one business day, other than securities repurchase or resale agreements, is to
be treated as a borrowing or as a loan, not as federal funds. Such transactions are sometimes referred
to as "term federal funds."
Federally-Sponsored Lending Agency: A federally-sponsored lending agency is an agency or
corporation that has been chartered, authorized, or organized as a result of federal legislation for the
purpose of providing credit services to a designated sector of the economy. These agencies include
Banks for Cooperatives, Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, the Federal National Mortgage Association,
and the Student Loan Marketing Association.
Fees, Loan: See "Loan Fees."
Foreclosed Assets: The accounting and reporting standards for the receipt and holding of foreclosed
assets are set forth in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors,
and ASC Topic 360, Property, Plant, and Equipment. Subsequent to the issuance of FASB Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (the predecessor of ASC
Topic 360), AICPA Statement of Position (SOP) No. 92-3, "Accounting for Foreclosed Assets," was
rescinded. Certain provisions of SOP 92-3 are not present in Statement No. 144, but the application of
these provisions represents prevalent practice in the banking industry and is consistent with safe and
sound banking practices and the accounting objectives set forth in Section 37(a) of the Federal Deposit
Insurance Act. These provisions of SOP 92-3 have been incorporated into this Glossary entry, which
institutions must follow for purposes of preparing their Consolidated Reports of Condition and Income.
An institution that receives from a borrower in full satisfaction of a loan either receivables from a third
party, an equity interest in the borrower, or another type of asset (except a long-lived asset that will be
sold) shall initially measure the asset received at its fair value at the time of the restructuring. When an
institution receives a long-lived asset, such as real estate, from a borrower in full satisfaction of a loan,
the long-lived asset is rebuttably presumed to be held for sale and the institution shall initially measure
this asset at its fair value less cost to sell. The fair value (less cost to sell, if applicable) of the asset
received in full satisfaction of the loan becomes the "cost" of the asset. The amount, if any, by which
the recorded investment in the loan (or the amortized cost basis of the loan, if the institution has

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Foreclosed Assets (cont.):
adopted ASC Topic 326, Financial Instruments–Credit Losses)1 exceeds the fair value (less cost to
sell, if applicable) of the asset is a loss which must be charged to the allowance for loan and lease
losses (or allowance for credit losses, if the institution has adopted ASC Topic 326) at the time of
restructuring, foreclosure, or repossession. In those cases where property is received in full
satisfaction of an asset other than a loan (e.g., a debt security), the loss should be reported on the
income statement in a manner consistent with the balance sheet classification of the asset satisfied.
If an asset is sold shortly after it is received in a restructuring, foreclosure, or repossession, it would
generally be appropriate to substitute the value received in the sale (net of the cost to sell for a longlived asset, such as real estate, that has been sold) for the fair value (less cost to sell for a long-lived
asset, such as real estate, that will be sold) that had been estimated at the time of restructuring,
foreclosure, or repossession. Any adjustments should be made to the loss charged against the
allowance.
An asset received in partial satisfaction of a loan should be initially measured as described above and
the recorded investment in, or amortized cost basis of, the loan, as applicable, should be reduced by
the fair value (less cost to sell, if applicable) of the asset at the time of restructuring, foreclosure, or
repossession.
The measurement and accounting subsequent to acquisition for real estate received in full or partial
satisfaction of a loan, including through foreclosure or repossession, is discussed below in this
Glossary entry. For other types of assets that an institution receives in full or partial satisfaction of a
loan, the institution generally should subsequently measure and account for such assets in accordance
with other applicable generally accepted accounting principles and regulatory reporting instructions for
such assets.
For purposes of these reports, foreclosed assets include loans (other than residential real estate
property collateralizing a consumer mortgage loan) where an institution, as creditor, has received
physical possession of a borrower's assets, regardless of whether formal foreclosure proceedings take
place. An institution, as creditor, is considered to have received physical possession (resulting from an
in-substance repossession or foreclosure) of residential real estate property collateralizing a consumer
mortgage loan only upon the occurrence of either of the following:
(1) The institution obtains legal title to the residential real estate property upon completion of a
foreclosure even if the borrower has redemption rights that provide the borrower with a legal right
for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts
specified by law, or
(2) The borrower conveys all interest in the residential real estate property to the bank to satisfy the
loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The
deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and
conditions have been satisfied by both the borrower and the creditor.
In situations where physical possession is received, the secured loan should be recategorized on the
balance sheet in the asset category appropriate to the underlying collateral (e.g., as other real estate
owned for real estate collateral) and accounted for as described above, except for foreclosures on
certain fully and partially government-guaranteed mortgage loans, which are to be reported in
Schedule RC-F, item 6, “All other assets,” as discussed below in this Glossary entry.

1

The recorded investment in the loan is the loan balance adjusted for any unamortized premium or discount
and unamortized loan fees or costs, less any amount previously charged off, plus recorded accrued interest.
For institutions that have adopted ASC Topic 326, the term “amortized cost basis” is used in place of “recorded
investment.” See the Glossary entry for “Amortized Cost Basis.”

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Foreclosed Assets (cont.):
The amount of any senior debt (principal and accrued interest) to which foreclosed real estate is
subject at the time of foreclosure must be reported as a liability in Schedule RC-M, item 5.b, "Other
borrowings."
After foreclosure, each foreclosed real estate asset (including any real estate for which the institution
receives physical possession) must be carried at the lower of (1) the fair value of the asset minus the
estimated costs to sell the asset or (2) the cost of the asset (as defined in the preceding paragraphs).
This determination must be made on an asset-by-asset basis. If the fair value of a foreclosed real
estate asset minus the estimated costs to sell the asset is less than the asset's cost, the deficiency
must be recognized as a valuation allowance against the asset which is created through a charge to
expense. The valuation allowance should thereafter be increased or decreased (but not below zero)
through charges or credits to expense for changes in the asset's fair value or estimated selling costs.
If a foreclosed real estate asset is held for more than a short period of time, any declines in value after
foreclosure and any gain or loss from the sale or disposition of the asset shall not be reported as a loan
or lease loss or recovery and shall not be debited or credited to the allowance for loan and lease
losses (or allowance for credit losses, if the institution has adopted ASC Topic 326). Such additional
declines in value and the gain or loss from the sale or disposition shall be reported net on the income
statement in Schedule RI, item 5.j, “Net gains (losses) on sales of other real estate owned.”
Reporting Certain Government-Guaranteed Mortgage Loans upon Foreclosure – ASC Subtopic 310-40
clarifies the conditions under which a creditor must derecognize a government-guaranteed mortgage
loan and recognize a separate “other receivable” upon foreclosure (that is, when a creditor receives
physical possession of real estate property collateralizing a mortgage loan). When these conditions
are met, other real estate owned should not be recognized by an institution.
An institution should derecognize a mortgage loan and record a separate other receivable upon
foreclosure of the real estate collateral if all of the following conditions are met:
•
•
•

The loan has a government guarantee that is not separable from the loan before foreclosure.
At the time of foreclosure, the institution has the intent to convey the property to the guarantor
and make a claim on the guarantee and it has the ability to recover under that claim.
At the time of foreclosure, any amount of the claim that is determined on the basis of the fair
value of the real estate is fixed (that is, the real estate property has been appraised for purposes
of the claim and thus the institution is not exposed to changes in the fair value of the property).

This guidance is applicable to fully and partially government-guaranteed mortgage loans provided the
three conditions identified above have been met. In such situations, upon foreclosure, the separate
other receivable should be measured based on the amount of the loan balance (principal and interest)
expected to be recovered from the guarantor. This other receivable should be reported in
Schedule RC-F, item 6, “All other assets.” Any interest income earned on the other receivable should
be reported in Schedule RI, item 1.g, “Other interest income.”
Dispositions of Foreclosed Real Estate – Until the effective date of ASU 2014-09 “Revenue from
Contracts with Customers,” which includes amendments to ASC Subtopic 610-20, Other Income –
Gains and Losses from the Derecognition of Nonfinancial Assets, the primary accounting guidance for
sales of foreclosed real estate is ASC Subtopic 360-20, Property, Plant, and Equipment – Real Estate
Sales. When it takes effect, ASC Subtopic 610-20 supersedes ASC Subtopic 360-20 for real estate
sales not accompanied by a leaseback and becomes the primary accounting guidance for sales of
foreclosed real estate.
This Glossary entry presents a summary of the methods included in ASC Subtopic 360-20 for
institutions that have not yet adopted ASC 610-20. For institutions that have adopted ASC Subtopic
610-20, this Glossary entry also presents a summary of the provisions of ASC Subtopic 610-20, which
requires the application of specified portions of ASC Topic 606, Revenue from Contracts with

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Foreclosed Assets (cont.):
Customers, to an institution’s sale of repossessed nonfinancial assets such as foreclosed real estate
(also referred to as other real estate owned or OREO).
Effective Date of ASU 2014-09, including ASC Subtopic 610-20 (and ASC Topic 606) – For institutions
that are public business entities, these standards are effective for fiscal years beginning after
December 15, 2017, including interim reporting periods within those fiscal years. For institutions that
are not public business entities (i.e., that are private companies), the standards are effective for fiscal
years beginning after December 15, 2018, and interim reporting periods within fiscal years beginning
after December 15, 2019. For further information, see the Glossary entries for “Public Business Entity”
and “Private Company.” Early application of these standards is permitted for all institutions for fiscal
years beginning after December 15, 2016, and interim reporting periods as prescribed in the standards.
An institution that early adopts these standards must apply them (including all of ASC Topic 606 on
revenue recognition) in their entirety. If an institution chooses to early adopt these standards for
financial reporting purposes, the institution should implement them in its Call Report for the same
quarter-end report date.
Accounting under ASC Subtopic 360-20 – This subtopic, which applies to all transactions in which the
seller provides financing to the buyer of the real estate, establishes the following methods to account
for dispositions of real estate. If a profit is involved in the sale of real estate, each method sets forth
the manner in which the profit is to be recognized. Regardless of which method is used, however, any
losses on the disposition of real estate should be recognized immediately.
(1) Full Accrual Method – Under the full accrual method, the disposition is recorded as a sale. Any
profit resulting from the sale is recognized in full and the asset resulting from the seller's financing
of the transaction is reported as a loan. This method may be used when the following conditions
have been met:
(a) A sale has been consummated;
(b) The buyer's initial investment (down payment) and continuing investment (periodic payments)
are adequate to demonstrate a commitment to pay for the property;
(c) The receivable is not subject to future subordination; and
(d) The usual risks and rewards of ownership have been transferred.
Guidelines for the minimum down payment that must be made in order for a transaction to qualify
for the full accrual method are set forth in ASC Subtopic 360-20. These vary from five percent to
25 percent of the property's sales value. These guideline percentages vary by type of property and
are primarily based on the inherent risk assumed for the type and characteristics of the property.
To meet the continuing investment criteria, the contractual loan payments must be sufficient to
repay the loan over the customary loan term for the type of property involved. Such periods may
range up to 30 years for loans on single family residential property.
(2) Installment Method – Dispositions of foreclosed real estate that do not qualify for the full accrual
method may qualify for the installment method. This method recognizes a sale and the
corresponding loan. Any profits on the sale are only recognized as the institution receives
payments from the purchaser/borrower. Interest income is recognized on an accrual basis, when
appropriate.
The installment method is used when the buyer's down payment is not adequate to allow use of
the full accrual method but recovery of the cost of the property is reasonably assured if the buyer
defaults. Assurance of recovery requires careful judgment on a case-by-case basis. Factors
which should be considered include: the size of the down payment, loan-to-value ratios, projected
cash flows from the property, recourse provisions, and guarantees.

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Foreclosed Assets (cont.):
Since default on the loan usually results in the seller's reacquisition of the real estate, reasonable
assurance of cost recovery may often be achieved with a relatively small down payment. This is
especially true in situations involving loans with recourse to borrowers who have verifiable net
worth, liquid assets, and income levels. Reasonable assurance of cost recovery may also be
achieved when the purchaser/borrower pledges additional collateral.
(3) Cost Recovery Method – Dispositions of foreclosed real estate that do not qualify for either the
full accrual or installment methods are sometimes accounted for using the cost recovery method.
This method recognizes a sale and the corresponding loan, but all income recognition is deferred.
Principal payments are applied as a reduction of the loan balance and interest increases the
unrecognized gross profit. No profit or interest income is recognized until either (1) the aggregate
payments by the borrower exceed the recorded investment in, or the amortized cost basis of, the
loan, as applicable, or (2) a change to another accounting method is appropriate (e.g., installment
method). Consequently, the loan is maintained in nonaccrual status while this method is being
used.
(4) Reduced-Profit Method – This method is used in certain situations where the institution receives an
adequate down payment, but the loan amortization schedule does not meet the requirements for
use of the full accrual method. The method recognizes a sale and the corresponding loan.
However, like the installment method, any profit is apportioned over the life of the loan as
payments are received. The method of apportionment differs from the installment method in that
profit recognition is based on the present value of the lowest level of periodic payments required
under the loan agreement.
Since sales with adequate down payments are generally not structured with inadequate loan
amortization requirements, this method is seldom used in practice.
(5) Deposit Method – The deposit method is used in situations where a sale of the foreclosed real
estate has not been consummated. It may also be used for dispositions that could be accounted
for under the cost recovery method. Under this method a sale is not recorded and the asset
continues to be reported as foreclosed real estate. Further, no profit or interest income is
recognized. Payments received from the borrower are reported as a liability in Schedule RC-G,
item 4, “All other liabilities,” until sufficient payments or other events have occurred which allow the
use of one of the other methods.
Accounting under ASC Subtopic 610-20 (and ASC Topic 606) – The amendments to ASC Subtopic
610-20, when effective as a result of ASU 2014-09 (as discussed above), eliminate the prescriptive
criteria and methods for sale accounting and gain recognition for dispositions of OREO set forth in
ASC Subtopic 360-20. Under ASC Subtopic 610-20, if the buyer of the OREO is a legal entity, an
institution should first assess whether it has a controlling financial interest in the legal entity buying the
OREO by applying the guidance in ASC Topic 810, Consolidation. If an institution determines that it
has a controlling financial interest in the buying legal entity, it should not derecognize the OREO and
should apply the guidance in ASC Subtopic 810-10. When an institution does not have a controlling
financial interest in the buying legal entity or the OREO buyer is not a legal entity, which is expected to
be the case for most sales of OREO, the institution will recognize the entire gain or loss, if any, and
derecognize the OREO at the time of sale if the transaction meets certain requirements of ASC
Topic 606. Otherwise, the institution generally will continue reporting the OREO as an asset, with any
cash payments or other consideration received from the individual or entity acquiring the OREO
(i.e., any down payment and any subsequent payments of principal or interest) reported as a liability in
Schedule RC-G, item 4, “All other liabilities,” until it becomes appropriate to recognize the revenue and
the sale of the OREO in accordance with ASC Subtopic 610-20 and ASC Topic 606.1

1

Although ASC Topic 606 describes the consideration received (including any cash payments) using such terms a
“liability,” “deposit,” and “deposit liability,” for regulatory reporting purposes these amounts should be reported in
Schedule RC-G, item 4, and not as a deposit in Schedule RC, item 13.

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Foreclosed Assets (cont.):
When applying ASC Subtopic 610-20 and Topic 606, an institution will need to exercise judgment in
determining whether a contract (within the meaning of Topic 606) exists for the sale or transfer of
OREO, whether the institution has performed its obligations identified in the contract, and what the
transaction price is for calculation of the amount of gain or loss. These standards apply to all sales or
transfers of real estate by institutions, but greater judgment will generally be required for seller-financed
sales of OREO.
Under ASC Subtopic 610-20, when an institution does not have a controlling financial interest in the
buying legal entity or the OREO buyer is not a legal entity, the institution’s first step in assessing
whether it can derecognize an OREO asset and recognize revenue upon the sale or transfer of the
OREO is to determine whether a contract exists under the provisions of Topic 606. In the context of an
OREO sale or transfer, in order for an institution’s transaction with the party acquiring the property to
be a contract under ASC Topic 606, it must meet all the following criteria:
(a) The parties to the contract have approved the contract (in writing, orally, or in accordance with
other customary business practices) and are committed to perform their respective obligations;
(b) The institution can identify each party’s rights regarding the OREO to be transferred;
(c) The institution can identify the payment terms for the OREO to be transferred;
(d) The contract has commercial substance (that is, the risk, timing, or amount of the institution’s
future cash flows is expected to change as a result of the contract); and
(e) It is probable that the institution will collect substantially all of the consideration to which it will be
entitled in exchange for OREO that will be transferred to the buyer, i.e. the transaction price. In
evaluating whether collectability of an amount of consideration is probable, an institution shall
consider only the buyer’s ability and intention to pay that amount of consideration when it is due.
These five criteria require careful analysis for seller-financed sales of OREO. In particular, criteria (a)
and (e) may require significant judgment. When determining whether the buyer is committed to
perform its obligations under criterion (a) and collectability under criterion (e), a selling institution
should consider all facts and circumstances related to the buyer’s ability and intent to pay the
transaction price, which may include:
•
•
•
•
•
•
•
•
•
•
•

•

Amount of cash paid as a down payment;
Existence of recourse provisions;
Credit standing of the buyer;
Age and location of the property;
Cash flow from the property;
Payments by the buyer to third parties;
Other amounts paid to the selling institution, including current or future contingent payments;
Transfer of noncustomary consideration (i.e., consideration other than cash and a note receivable);
Other types of financing involved with the property or transaction;
Financing terms of the loan (reasonable and customary terms, amortization, any graduated
payments, any balloon payment);
Underwriting inconsistent with the institution’s underwriting policies for loans not involving OREO
sales; and
Future subordination of the selling institution’s receivable.

Although ASC Subtopic 610-20 does not include the prescriptive minimum down payment
requirements in ASC Subtopic 360-20, the amount and character of a buyer’s equity (typically the down
payment) and recourse provisions remain important factors when evaluating criteria (a) and (e).
Specifically, the buyer’s initial equity in the property immediately after the sale is an important
consideration in determining whether a buyer is committed to perform its obligations under criterion (a).
Furthermore, the buyer’s initial equity is a factor to consider under criterion (e) when evaluating the
collectability of consideration that the institution is entitled to receive from the buyer.

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Foreclosed Assets (cont.):
In applying the revenue recognition principles in ASC Topic 606, all relevant factors are to be weighed
collectively in evaluating whether the five contract criteria have been met as the first step in
determining the appropriate accounting for a seller-financed OREO transaction. However, the
agencies consider the down payment and financing terms to be of particular importance when making
this determination. A transaction with an insignificant down payment and nonrecourse financing
generally would not meet the definition of a contract (within the meaning of Topic 606) unless there is
considerable support from other factors. The need for support from other factors recedes in
importance for a transaction with a substantial down payment and recourse financing to a buyer with
adequate capacity to repay.
If the five contract criteria in ASC Topic 606 have not been met, the institution generally may not
derecognize the OREO asset or recognize revenue (gain or loss) as an accounting sale has not
occurred. The institution should continue to assess the transaction to determine whether the contract
criteria have been met in a later period. Until that time, any consideration the institution has received
from the buyer should generally be recorded as a deposit liability. In addition, if the transaction price is
less than the carrying amount of the OREO, the institution should consider whether this indicates a
decline in fair value of the OREO that should be recognized as a valuation allowance, or an increase in
an existing valuation allowance, and through a charge to expense as discussed above in this Glossary
entry.
If an institution determines the contract criteria in ASC Topic 606 have been met, it must then
determine whether it has satisfied its performance obligations as identified in the contract by
transferring control of the asset to the buyer. Control of an asset refers to the ability to direct the use
of, and obtain substantially all of the remaining benefits from, the asset. As it relates to an institution’s
sale of OREO, ASC Topic 606 includes the following indicators of the transfer of control:
(a)
(b)
(c)
(d)
(e)

The institution has a present right to payment for the asset;
The buyer has legal title to the asset;
The institution has transferred physical possession of the asset;
The buyer has the significant risks and rewards of ownership of the asset; and
The buyer has accepted the asset.

For seller-financed sales of OREO, the transfer of control generally occurs on the closing date of the
sale when the institution obtains the right to receive payment for the property and transfers legal title to
the buyer. However, an institution must consider all relevant facts and circumstances to determine
whether control of the OREO has transferred, which may include the selling institution’s:
•
•
•
•

Involvement with the property following the transaction;
Obligation to repurchase the property in the future;
Obligation to provide support for the property following the sale transaction; and
Retention of an equity interest in the property.

In particular, if an institution has the obligation or right to repurchase the OREO, the buyer does not
obtain control of the OREO because the buyer is limited in its ability to direct the use of, and obtain
substantially all of the remaining benefits from, the asset even though it may have physical possession.
In this situation, an institution should account for the contract as either (1) a lease in accordance with
ASC Topic 840, Leases, or ASC Topic 842, Leases, as applicable, or (2) a financing arrangement in
accordance with ASC Topic 606. In addition, situations may exist where the selling institution has legal
title to the OREO, while the borrower whose property was foreclosed upon under the original loan still
has redemption rights to reclaim the property in the future. If such redemption rights exist, the selling
institution may not be able to transfer control to the buyer of the OREO and recognize revenue until the
redemption period expires.

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Foreclosed Assets (cont.):
When a contract exists and an institution has transferred control of the property, the institution should
derecognize the OREO asset and recognize a gain or loss for the difference between the transaction
price and the carrying amount of the OREO asset. Generally, the transaction price in a sale of OREO
will be the contract amount in the purchase/sale agreement, including for a seller-financed sale
financed at market terms. However, the transaction price may differ from the amount stated in the
contract due to the existence of a significant financing component. Under the new standard, a
significant financing component exists if the timing of the buyer’s payments explicitly or implicitly
provides the selling institution or the buyer with a significant benefit of financing the transfer of the
OREO. A seller-financed transaction of OREO at off-market terms generally indicates the existence of
a significant financing component. If a significant financing component exists, the contract amount
should be adjusted for the time value of money to reflect what the cash selling price of the OREO
would have been at the time of its transfer to the buyer. The discount rate used in adjusting for the
time value of money should be a market rate of interest considering the credit characteristics of the
buyer and the terms of the financing.
Foreign Banks: See "Banks, U.S. and Foreign."
Foreign Currency Transactions and Translation: Foreign currency transactions are transactions
occurring in the ordinary course of business (e.g., purchases, sales, borrowings, and lendings)
denominated in a currency other than the office's functional currency (as described below).
Foreign currency translation, on the other hand, is the process of translating financial statements from
the foreign office's functional currency into the reporting currency. Such translation normally is
performed only at reporting dates.
A functional currency is the currency of the primary economic environment in which an office operates.
For most banks, the functional currency will be the U.S. dollar. However, if a bank has foreign offices,
one or more foreign offices may have a functional currency other than the U.S. dollar.
Accounting for foreign currency transactions – A change in exchange rates between the functional
currency and the currency in which a transaction is denominated will increase or decrease the amount
of the functional currency expected to be received or paid. These increases or decreases in the
expected functional currency cash flow are foreign currency transaction gains and losses and are to be
included in the determination of the income of the period in which the transaction takes place, or if the
transaction has not yet settled, the period in which the rate change takes place.
Except for foreign currency derivatives and transactions described in the following section, banks
should consistently report net gains (losses) from foreign currency transactions other than trading
transactions in Schedule RI, item 5.l, "Other noninterest income," or item 7.d, "Other noninterest
expense." Net gains (losses) from foreign currency trading transactions should be reported in
Schedule RI, item 5.c, "Trading revenue."
Foreign currency transaction gains or losses to be excluded from the determination of net income –
Gains and losses on the following foreign currency transactions shall not be included in "Noninterest
income" or "Noninterest expense," but shall be reported in the same manner as translation adjustments
(as described below):
(1) Foreign currency transactions that are designated as, and are effective as, economic hedges of a
net investment in a foreign office.
(2) Intercompany foreign currency transactions that are of a long-term investment nature (i.e.,
settlement is not planned or anticipated in the foreseeable future), when the parties to the
transaction are consolidated, combined, or accounted for by the equity method in the bank's
Consolidated Reports of Condition and Income.

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Foreign Currency Transactions and Translation (cont.):
In addition, the entire change in the fair value of foreign-currency-denominated available-for-sale debt
securities should not be included in “Realized gains (losses) on available-for-sale debt securities”
(Schedule RI, item 6.b), but should be reported in Schedule RI-A, item 10, "Other comprehensive
income." These fair value changes should be accumulated in the "Net unrealized holding gains
(losses) on available-for-sale securities” component of "Accumulated other comprehensive income" in
Schedule RC, item 26.b. However, if a decline in fair value of a foreign-currency-denominated
available-for-sale debt security is judged to be other than temporary, the cost basis of the individual
security shall be written down to fair value as a new cost basis and the amount of the write-down shall
be included in earnings (Schedule RI, item 6.b).
See the Glossary entry for "Derivative Contracts" for information on the accounting and reporting for
foreign currency derivatives.
Accounting for foreign currency translation (applicable only to banks with foreign offices) – The
Consolidated Reports of Condition and Income must be reported in U.S. dollars. Balances of foreign
subsidiaries or branches of the reporting bank denominated in a functional currency other than
U.S. dollars shall be converted to U.S. dollar equivalents and consolidated into the reporting bank's
Consolidated Reports of Condition and Income. The translation adjustments for each reporting period,
determined utilizing the current rate method, should be reported in Schedule RI-A, item 10, "Other
comprehensive income." Amounts accumulated in the "Cumulative foreign currency translation
adjustments" component of "Accumulated other comprehensive income" in Schedule RC, item 26.b,
will not be included in the bank's results of operations until such time as the foreign office is disposed
of, when they will be used as an element to determine the gain or loss on disposition.
For further guidance, refer to ASC Topic 830, Foreign Currency Matters.
Foreign Debt Exchange Transactions: Foreign debt exchange transactions generally fall into three
categories: (1) loan swaps, (2) debt/equity swaps, and (3) debt-for-development swaps. These
transactions are to be reported in the Consolidated Reports of Condition and Income in accordance
with generally accepted accounting principles as summarized below. The accounting pronouncements
mentioned below should be consulted for more detailed reporting guidance in these areas.
Generally accepted accounting principles require that these transactions be reported at their fair value.
There is a significant amount of precedent in the accounting for exchange transactions to consider both
the fair value of the consideration given up as well as the fair value of the assets received in arriving at
the most informed valuation, especially if the value of the consideration given up is not readily
determinable or may not be a good indicator of the value received. It is the responsibility of
management to make the valuation considering all of the circumstances. Such valuations are subject
to examiner review.
Among the factors to consider in determining fair values for foreign debt exchange transactions are:
(1) Similar transactions for cash;
(2) Estimated cash flows from the debt or equity instruments or other assets received;
(3) Market values, if any, of similar instruments; and
(4) Currency restrictions, if any, affecting payments on or sales of the debt or equity instruments, local
currency, or other assets received, including where appropriate those affecting the repatriation of
capital.
Losses arise from swap transactions when the fair value determined for the transaction is less than the
recorded investment in the sovereign debt and other consideration paid, if any. Such losses should

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Foreign Debt Exchange Transactions (cont.)
generally be charged to the allowance for loan and lease losses or the allowance for credit losses, as
applicable (or allocated transfer risk reserve, if appropriate), and must include any discounts from
official exchange rates that are imposed by sovereign obligors as transaction fees. All other fees and
transaction costs involved in such transactions must be charged to expense as incurred.
Loss recoveries or even gains might be indicated in a swap transaction as a result of the valuation
process. However, due to the subjective nature of the valuation process, such loss recoveries or gains
ordinarily should not be recorded until the debt or equity instruments, local currency, or other assets
received in the exchange transaction are realized in unrestricted cash or cash equivalents.
Loan swaps – Foreign loan swaps, or debt/debt swaps, involve the exchange of one foreign loan for
another. This type of transaction represents an exchange of monetary assets that must be reported at
current fair value. Normally, when monetary assets are exchanged, with or without additional cash
payments, and the parties have no remaining obligations to each other, the earnings process is
complete.
Debt/equity swaps – The reporting treatment for this type of transaction is presented in ASC
Subtopic 942-310, Financial Services-Depository and Lending – Receivables.
A foreign debt/equity swap represents an exchange of monetary for nonmonetary assets that must
be measured at fair value. This type of swap is typically accomplished when holders of U.S.
dollar-denominated sovereign debt agree to convert that debt into approved local equity investments.
The holders are generally credited with local currency at the official exchange rate. A discount from the
official exchange rate is often imposed as a transaction fee. The local currency is generally not
available to the holders for any purposes other than approved equity investments. Restrictions may be
placed on dividends on the equity investments and capital usually cannot be repatriated for several
years.
In arriving at the fair value of the transaction, both the secondary market price of the debt given up and
the fair value of the equity investment or assets received should be considered.
Debt-for-development swaps – In this type of exchange, sovereign debt held by a bank is generally
purchased by a nonprofit organization or contributed to the nonprofit the nonprofit organization. When
the sovereign debt is purchased by or donated to a nonprofit organization, the organization may enter
into an agreement with the debtor country to cancel the debt in return for the country's commitment to
provide local currency or other assets for use in connection with specific projects or programs in that
country. Alternatively, a bank may exchange the sovereign debt with the country and receive local
currency. In this alternative, the local currency will be donated or sold to the nonprofit organization for
use in connection with specific projects or programs in that country.
These transactions, including amounts charged to expense as donations, must be reported at their fair
values in accordance with generally accepted accounting principles applicable to foreign debt
exchange transactions. This includes appropriate consideration of the market value of the instruments
involved in the transaction and the fair value of any assets received, taking into account any restrictions
that would limit the use of the assets. In debt-for-development swaps where a bank receives local
currency in exchange for the sovereign loan it held and the local currency has no restrictions on its use
and is freely convertible, it is generally appropriate for fair value to be determined by valuing the local
currency received at its fair market exchange value.
Foreign Governments and Official Institutions: Foreign governments and official institutions are
central, state, provincial, and local governments in foreign countries and their ministries, departments,
and agencies. These include treasuries, ministries of finance, central banks, development banks,
exchange control offices, stabilization funds, diplomatic establishments, fiscal agents, and nationalized
banks and other banking institutions that are owned by central governments and that have as an

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Foreign Governments and Official Institutions (cont.):
important part of their function activities similar to those of a treasury, central bank, exchange control
office, or stabilization fund. For purposes of these reports, other government-owned enterprises are
not included.
Also included as foreign official institutions are international, regional, and treaty organizations, such
as the International Monetary Fund, the International Bank for Reconstruction and Development
(World Bank), the Bank for International Settlements, the Inter-American Development Bank, and the
United Nations.
Foreign Office: For purposes of these reports, a foreign office of the reporting bank is a branch or
consolidated subsidiary located in a foreign country; an Edge or Agreement subsidiary, including both
its U.S. and its foreign offices; or an IBF. In addition, if the reporting bank is chartered and
headquartered in the 50 states of the United States and the District of Columbia, a branch or
consolidated subsidiary located in Puerto Rico or a U.S. territory or possession is a foreign office.
Branches on U.S. military facilities wherever located are treated as domestic offices, not foreign offices.
Forward Contracts: See "Derivative Contracts."
Functional Currency: See "Foreign Currency Transactions and Translation."
Futures Contracts: See "Derivative Contracts."
Goodwill: According to ASC Topic 805, Business Combinations, goodwill is an asset representing the
future economic benefits arising from other assets acquired in a business combination that are not
individually identified and separately recognized. The private company accounting alternative for
identifiable intangible assets acquired in a business combination is discussed in a subsection of this
Glossary entry. In addition, see "Acquisition method" in the Glossary entry for "Business
Combinations" for guidance on the recognition and initial measurement of goodwill acquired in a
business combination.
Subsequent Measurement of Goodwill – Goodwill should not be amortized, but must be tested for
impairment at the reporting unit level at least annually, unless an institution meets the definition of a
private company, as defined in U.S. GAAP, and elects the goodwill amortization accounting alternative
described below. Any impairment losses recognized on goodwill during the year-to-date reporting
period should be reported in Schedule RI, item 7.c.(1), “Goodwill impairment losses,” except those
impairment losses associated with discontinued operations, which should be reported on a net-of-tax
basis in Schedule RI, item 11. Goodwill, net of any impairment losses, should be reported on the
balance sheet in Schedule RC, item 10, and in Schedule RC-M, item 2.b.
Private Company Accounting Alternative for Goodwill – ASC Subtopic 350-20, Intangibles-Goodwill
and Other – Goodwill, generally permits a private company, as defined in U.S. GAAP, to elect an
accounting alternative for goodwill under which goodwill is amortized on a straight-line basis over a
period of ten years (or less than ten years if more appropriate) and a simplified impairment model is
applied to goodwill. In addition, if a private company chooses to adopt the goodwill accounting
alternative, the private company is required make an accounting policy election to test goodwill for
impairment at either the entity level or the reporting unit level. Goodwill must be tested for impairment
when a triggering event occurs that indicates that the fair value of an entity or a reporting unit, as
appropriate under the private company’s accounting policy election, may be below its carrying amount.
U.S. GAAP for a public business entity does not permit goodwill to be amortized, instead requiring
goodwill to be tested for impairment at the reporting unit level annually and between annual tests in
certain circumstances. For information on the distinction between a private company and a public
business entity, see the Glossary entry for “Public Business Entity.”

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Goodwill (cont.):
A bank or savings association that meets the definition of a private company is permitted, but not
required to adopt the goodwill amortization accounting alternative. If a private institution issues U.S.
GAAP financial statements and chooses to adopt the private company alternative, it should apply the
goodwill accounting alternative in its Call Report in a manner consistent with its reporting of goodwill in
its financial statements.
Goodwill amortization expense should be reported in item 7.c.(1) of the Call Report income statement
(Schedule RI) unless the amortization is associated with a discontinued operation, in which case
the goodwill amortization should be included within the results of discontinued operations and reported
in Schedule RI, item 11.
Goodwill Impairment Testing – ASC Subtopic 350-20 provides guidance for testing and reporting
goodwill impairment losses, a summary of which follows. Impairment is the condition that exists when
the carrying amount of goodwill exceeds its implied fair value. Because the fair value of goodwill can
be measured only as a residual and cannot be measured directly, ASC Subtopic 350-20 includes a
methodology for estimating the implied fair value of goodwill for impairment measurement purposes.
Whether or not the reporting institution is a subsidiary of a holding company or other company, the
institution’s goodwill must be tested for impairment using the institution’s reporting units (unless the
institution is a private company that has elected the goodwill accounting alternative and has made an
accounting policy election to test goodwill for impairment at the entity level). Goodwill should be
assigned to reporting units in accordance with ASC Subtopic 350-20. The institution itself may be a
reporting unit.
Goodwill of a reporting unit must be tested for impairment annually and between annual tests upon the
occurrence of a triggering event, i.e., if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount. However, if an institution is
a private company that has elected the goodwill accounting alternative, goodwill must be tested for
impairment only upon the occurrence of a triggering event. Examples of such events or circumstances
include a significant adverse change in the business climate, unanticipated competition, a loss of key
personnel, and a more-likely-than-not expectation that a reporting unit or a significant portion of a
reporting unit will be sold or otherwise disposed of. In addition, goodwill must be tested for impairment
after a portion of goodwill has been allocated to a business to be disposed of.
When testing the goodwill of a reporting unit1 for impairment, an institution has the option of first
assessing qualitative factors to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test described in ASC Subtopic 350-20. If determined to be necessary, the twostep impairment test shall be used to identify potential goodwill impairment and measure the amount of
a goodwill impairment loss to be recognized (if any). However, an institution may choose to bypass the
qualitative assessment option for any reporting unit in any period and proceed directly to performing
the two-step quantitative goodwill impairment test described below.
Qualitative Assessment – If an institution performs a qualitative assessment and, after considering all
relevant events and circumstances, determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount (including goodwill), then the institution does not need to
perform the two-step quantitative goodwill impairment test. In other words, if it is more likely than not
that the fair value of a reporting unit is greater than its carrying amount; an institution would not have to
quantitatively test the unit’s goodwill for impairment.

1

For purposes of the discussions of goodwill impairment testing, the qualitative assessment, and the quantitative
impairment test, if an institution is a private company that has elected the goodwill accounting alternative and also
has elected to test goodwill for impairment at the entity level, references to the reporting unit should be read as
references to the entity.

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Goodwill (cont.):
However, if the institution instead concludes that the opposite is true (that is, it is more likely than not
that the fair value of a reporting unit is less than its carrying amount), then it is required to perform the
two-step quantitative goodwill impairment test described below.
ASC Subtopic 350-20 includes examples of events and circumstances that an institution should
consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. Because the examples are not all-inclusive, other relevant events and
circumstances also must be considered.
Quantitative Impairment Test –
•

•

Step 1: The first step of the goodwill impairment test compares the fair value of a reporting unit1
with its carrying amount, including goodwill. If the carrying amount of a reporting unit is greater
than zero2 and its fair value exceeds its carrying amount, the reporting unit’s goodwill is
considered not impaired and the second step of the impairment test is unnecessary. However, if
the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill
impairment test must be performed to measure the amount of impairment loss, if any.
Step 2: The second step of the goodwill impairment test compares the implied fair value of the
reporting unit’s goodwill3 with the carrying amount of that goodwill. If the implied fair value of the
reporting unit’s goodwill exceeds the carrying amount of that goodwill, the goodwill is considered
not impaired. In contrast, if the carrying amount of the reporting unit’s goodwill exceeds the
implied fair value of that goodwill, an impairment loss must be recognized in earnings in an
amount equal to that excess. The loss recognized cannot exceed the carrying amount of the
reporting unit’s goodwill.

After an impairment loss is recognized on a reporting unit’s goodwill, the adjusted carrying amount of
that goodwill (i.e., the carrying amount of the goodwill before recognizing the impairment loss less the
amount of the impairment loss) shall be its new accounting basis. Subsequent reversal of a previously
recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.
Disposal of a Reporting Unit or a Business – When a reporting unit is to be disposed of in its entirety,
goodwill of that reporting unit must be included in the carrying amount of the reporting unit when
determining the gain or loss on disposal. When a portion of a reporting unit (or a portion of the entity if
the institution is a private company that has elected the goodwill accounting alternative and also has
elected to test goodwill for impairment at the entity level) that constitutes a business is to be disposed
of, goodwill associated with that business must be included in the carrying amount of the business in
determining the gain or loss on disposal. Otherwise, an institution may not remove goodwill from its
balance sheet, for example, by "selling" or "dividending" this asset to its parent holding company or
another affiliate.
Accounting by Private Companies for Identifiable Intangible Assets Acquired in a Business
Combination – ASC Subtopic 805-20, Business Combinations – Identifiable Assets and Liabilities, and
Any Noncontrolling Interest, provides an accounting alternative that permits a private company, as
defined in U.S. GAAP, to simplify the accounting for certain intangible assets. This accounting

1 The fair value of a reporting unit is the price that would be received to sell the unit as a whole in an orderly
transaction between market participants at the measurement date.
2

An institution should refer to ASC Subtopic 350-20 for guidance on applying the quantitative impairment test if the
carrying amount of a reporting unit is zero or negative.
3

The implied fair value of goodwill should be determined in the same manner as the amount of goodwill recognized
in a business combination is determined. That is, an institution must assign the fair value of a reporting unit to all of
the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been
acquired in a business combination.

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Goodwill (cont.):
alternative applies when a private company is required to recognize or otherwise consider the fair value
of intangible assets as a result of certain transactions, including when applying the acquisition method
to a business combination under ASC Topic 805. A private company that elects the accounting
alternative for identifiable intangible assets should no longer recognize separately from goodwill:
•
•

Customer-related intangible assets unless they are capable of being sold or licensed
independently from the other assets of a business, and
Noncompetition agreements.

However, because mortgage servicing rights and core deposit intangibles are regarded as capable of
being sold or licensed independently, a private company that elects this accounting alternative must
recognize these intangible assets separately from goodwill, initially measure them at fair value, and
subsequently measure them in accordance with ASC Topic 350.
A private company that elects the accounting alternative for identifiable intangible assets in ASC
Subtopic 805-20 also must adopt the private company goodwill accounting alternative in ASC Subtopic
350-20, which is described above in this Glossary entry. However, a private company that elects the
goodwill accounting alternative in ASC Subtopic 350-20 is not required to adopt the accounting
alternative for identifiable intangible assets.
A private company’s decision to adopt the accounting alternative for identifiable intangible assets must
be made upon the occurrence of the first business combination (or other transaction within the scope
of the alternative) in fiscal years beginning after December 15, 2015. The effective date of the private
company’s decision to adopt the accounting alternative for identifiable intangible assets depends on
the timing of that first transaction as described in the applicable transition guidance in ASC Subtopic
805-20.1 Customer-related intangible assets and noncompetition agreements that exist as of the
beginning of the period of adoption should continue to be accounted for separately from goodwill,
i.e., such existing intangible assets should not be combined with goodwill.
If an institution that is a private company issues U.S. GAAP financial statements and adopts the
accounting alternative for identifiable intangible assets, it should apply this accounting alternative in its
Call Report in a manner consistent with its reporting of intangible assets in its financial statements.
Hypothecated Deposit: A hypothecated deposit is the aggregation of periodic payments on an
installment contract received by a reporting institution in a state in which, under law, such payments
are not immediately used to reduce the unpaid balance of the installment note, but are accumulated
until the sum of the payments equals the entire amount of principal and interest on the contract, at
which time the loan is considered paid in full. For purposes of these reports, hypothecated deposits
are to be netted against the related loans.
Deposits that simply serve as collateral for loans are not considered hypothecated deposits for
purposes of these reports.
See also "Deposits."
IBF: See "International Banking Facility (IBF)."

1

If the first transaction occurs in the private company’s first fiscal year beginning after December 15, 2015, the
adoption of the accounting alternative will be effective for that fiscal year’s annual financial reporting period and all
interim and annual periods thereafter. If the first transaction occurs in a fiscal year beginning after December 15,
2016, the adoption of the accounting alternative will be effective in the interim period that includes the date of the
transaction and subsequent interim and annual periods thereafter. Early application of the intangibles accounting
alternative is permitted for any annual or interim period for which a private company’s financial statements have not
yet been made available for issuance.

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Income Taxes: All banks, regardless of size, are required to report income taxes (federal, state and
local, and foreign) in the Consolidated Reports of Condition and Income on an accrual basis. Note
that, in almost all cases, applicable income taxes as reported on the Consolidated Report of Income
will differ from amounts reported to taxing authorities. The applicable income tax expense or benefit
that is reflected in the Consolidated Report of Income should include both taxes currently paid or
payable (or receivable) and deferred income taxes. The following discussion of income taxes is based
on ASC Topic 740, Income Taxes.
Applicable income taxes in the year-end Consolidated Report of Income shall be the sum of the
following:
(1) Taxes currently paid or payable (or receivable) for the year determined from the bank's federal,
state, and local income tax returns for that year. Since the bank's tax returns will not normally be
prepared until after the year-end Consolidated Reports of Condition and Income have been
completed, the bank must estimate the amount of the current income tax liability (or receivable)
that will ultimately be reported on its tax returns. Estimation of this liability (or receivable) may
involve consultation with the bank's tax advisers, a review of the previous year's tax returns, the
identification of significant expected differences between items of income and expense reflected on
the Consolidated Report of Income and on the tax returns, and the identification of expected tax
credits.)
and
(2) Deferred income tax expense or benefit measured as the change in the net deferred tax assets or
liabilities for the period reported. Deferred tax liabilities and assets represent the amount by which
taxes payable (or receivable) are expected to increase or decrease in the future as a result of
"temporary differences" and net operating loss or tax credit carryforwards that exist at the reporting
date.
The actual tax liability (or receivable) calculated on the bank's tax returns may differ from the estimate
reported as currently payable or receivable on the year-end Consolidated Report of Income. An
amendment to the bank's year-end and subsequent Consolidated Reports of Condition and Income
may be appropriate if the difference is significant. Minor differences should be handled as accrual
adjustments to applicable income taxes in Reports of Income during the year the differences are
detected. The reporting of applicable income taxes in the Consolidated Report of Income for report
dates other than year-end is discussed below under "interim period applicable income taxes."
When determining the current and deferred income tax assets and liabilities to be reported in any
period, a bank’s income tax calculation contains an inherent degree of uncertainty surrounding the
realizability of the tax positions included in the calculation. The term “tax position” refers to a position
in a previously filed tax return or a position expected to be taken in a future tax return that is reflected
in measuring current or deferred income tax assets and liabilities. A tax position can result in a
permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable
to future years, or a change in the expected realizability of deferred tax assets. For each tax position
taken or expected to be taken in a tax return, a bank must evaluate whether the tax position is more
likely than not, i.e., more than a 50 percent probability, to be sustained upon examination by the
appropriate taxing authority, including resolution of any related appeals or litigation processes, based
on the technical merits of the position. In evaluating whether a tax position has met the more-likelythan-not recognition threshold, a bank should presume that the taxing authority examining the position
will have full knowledge of all relevant information. A bank’s assessment of the technical merits of a
tax position should reflect consideration of all relevant authoritative sources, e.g., tax legislation and
statutes, legislative intent, regulations, rulings, and case law, and reflect the bank’s determination of
the applicability of these sources to the facts and circumstances of the tax position. A bank must
evaluate each tax position without consideration of the possibility of an offset or aggregation with other
positions. No tax benefit can be recorded for a tax position that fails to meet the more-likely-than-not
recognition threshold.

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Income Taxes (cont.):
Each tax position that meets the more-likely-than-not recognition threshold should be measured to
determine the amount of benefit to recognize in the Consolidated Reports of Condition and Income.
The tax position is measured as the largest amount of tax benefit that is greater than 50 percent likely
of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant
information. When measuring the tax benefit, a bank must consider the amounts and probabilities of
the outcomes that could be realized upon ultimate settlement using the facts, circumstances, and
information available at the reporting date. A bank may not use the valuation allowance associated
with any deferred tax asset as a substitute for measuring this tax benefit or as an offset to this amount.
If a bank’s assessment of the merits of a tax position subsequently changes, the bank should adjust
the amount of tax benefit it has recognized and accrue interest and penalties for any underpayment of
taxes in accordance with the tax laws of each applicable jurisdiction. In this regard, a tax position that
previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first
subsequent quarterly reporting period in which the threshold is met. A previously recognized tax
position that no longer meets the more-likely-than-not recognition threshold should be derecognized in
the first subsequent quarterly reporting period in which the threshold is no longer met.
Temporary differences result when events are recognized in one period on the bank's books but are
recognized in another period on the bank's tax return. These differences result in amounts of income
or expense being reported in the Consolidated Report of Income in one period but in another period in
the tax returns. There are two types of temporary differences. Deductible temporary differences
reduce taxable income in future periods. Taxable temporary differences result in additional taxable
income in future periods.
For example, a bank's provision for loan and lease losses is expensed for financial reporting purposes
in one period. However, for some banks, this amount may not be deducted for tax purposes until the
loans are actually charged off in a subsequent period. This deductible temporary difference
"originates" when the provision for loan and lease losses is recorded in the financial statements and
"turns around" or "reverses" when the loans are subsequently charged off, creating tax deductions.
Other deductible temporary differences include writedowns of other real estate owned, the recognition
of loan origination fees, and other postemployment benefits expense.
Depreciation can result in a taxable temporary difference if a bank uses the straight-line method to
determine the amount of depreciation expense to be reported in the Consolidated Report of Income but
uses an accelerated method for tax purposes. In the early years, tax depreciation under the
accelerated method will typically be larger than book depreciation under the straight-line method.
During this period, a taxable temporary difference originates. Tax depreciation will be less than book
depreciation in the later years when the temporary difference reverses. Therefore, in any given year,
the depreciation reported in the Consolidated Report of Income will differ from that reported in the
bank's tax returns. However, total depreciation taken over the useful life of the asset will be the same
under either method. Other taxable temporary differences include the undistributed earnings of
unconsolidated subsidiaries and associated companies and amounts funded to pension plans that
exceed the recorded expense.
Some events do not have tax consequences and therefore do not give rise to temporary differences.
Certain revenues are exempt from taxation and certain expenses are not deductible. These events
were previously known as "permanent differences." Examples of such events (for federal income tax
purposes) are interest received on certain obligations of states and political subdivisions in the U.S.,
premiums paid on officers' life insurance policies where the bank is the beneficiary, and 50 percent1 of
cash dividends received on the corporate stock of domestic U.S. corporations owned less than
20 percent.

1

The percentage is 70 percent for tax years beginning before January 1, 2018.

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Income Taxes (cont.):
Deferred tax assets shall be calculated at the report date by applying the "applicable tax rate" (defined
below) to the bank's total deductible temporary differences and operating loss carryforwards. A
deferred tax asset shall also be recorded for the amount of tax credit carryforwards available to the
bank. Based on the estimated realizability of the deferred tax asset, a valuation allowance should be
established to reduce the recorded deferred tax asset to the amount that is considered "more likely
than not" (i.e., greater than 50 percent chance) to be realized.
Deferred tax liabilities should be calculated by applying the "applicable tax rate" to total taxable
temporary differences at the report date.
Net operating loss carrybacks and carryforwards and tax credit carryforwards ‒ When a bank's
deductions exceed its income for income tax purposes, it has sustained a net operating loss. To the
extent permitted under a taxing authority’s laws and regulations, a net operating loss that occurs in a
year following periods when the bank had taxable income may be carried back to recover income taxes
previously paid. The tax effects of any loss carrybacks that are realizable through a refund of taxes
previously paid is recognized in the year the loss occurs. In this situation, the applicable income taxes
on the Consolidated Report of Income will reflect a credit rather than an expense. For tax years
beginning before January 1, 2018, a bank may carry back operating losses for two years for federal
income tax purposes. However, in general, for tax years beginning on or after January 1, 2018, a bank
may no longer carry back operating losses to recover taxes paid in prior tax years.
Generally, a net operating loss that occurs when loss carrybacks are not available becomes a net
operating loss carryforward. For tax years beginning before January 1, 2018, a bank may carry
operating losses forward 20 years for federal income tax purposes. For tax years beginning on or after
January 1, 2018, net operating losses can be carried forward indefinitely for federal income tax
purposes; however, for net operating losses arising in such tax years, the amount of loss that can be
carried forward and deducted in a particular year is limited to 80 percent of a bank’s taxable income in
that year.
Tax credit carryforwards are tax credits which cannot be used for tax purposes in the current year, but
which can be carried forward to reduce taxes payable in a future period.
Deferred tax assets are recognized for net operating loss and tax credit carryforwards just as they are
for deductible temporary differences. As a result, a bank can recognize the benefit of a net operating
loss for tax purposes or a tax credit carryforward to the extent the bank determines that a valuation
allowance is not considered necessary (i.e., if the realization of the benefit is more likely than not).
Applicable tax rate -- The income tax rate to be used in determining deferred tax assets and liabilities is
the rate under current tax law that is expected to apply to taxable income in the periods in which the
deferred tax assets or liabilities are expected to be realized or paid. For tax years beginning on or after
January 1, 2018, the federal corporate tax rate is a flat 21 percent rate. This flat rate replaced the
graduated federal corporate tax rate structure that applied in prior tax years. If a bank is subject to
graduated tax rates and the bank's income level is such that graduated tax rates are a significant
factor, then the bank shall use the average graduated tax rate applicable to the amount of estimated
taxable income in the period in which the deferred tax asset or liability is expected to be realized or
settled.
When the tax law changes, banks shall determine the effect of the change, adjust the deferred tax
asset or liability and include the effect of the change in Schedule RI, item 9, "Applicable income taxes
(on item 8.c)."
Valuation allowance – A valuation allowance must be recorded, if needed, to reduce the amount of
deferred tax assets to an amount that is more likely than not to be realized. Changes in the valuation
allowance generally shall be reported in Schedule RI, item 9, "Applicable income taxes (on item 8.c)."
The following discussion of the valuation allowance relates to the allowance, if any, included in the

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Income Taxes (cont.):
amount of net deferred tax assets or liabilities to be reported on the balance sheet (Schedule RC) and
in Schedule RC-F, item 2, or Schedule RC-G, item 2. This discussion does not address the
determination of the amount of deferred tax assets, if any, that is disallowed for regulatory capital
purposes and reported in Schedule RC-R, Part I, item 8; items 15, 15.a, and 15.b, as applicable; and,
for advanced approaches institutions, item 16.
Banks must consider all available evidence, both positive and negative, in assessing the need for a
valuation allowance. The future realization of deferred tax assets ultimately depends on the existence
of sufficient taxable income of the appropriate character in either the carryback or carryforward period.
Four sources of taxable income may be available to realize the deferred tax assets:
(1) Taxable income in carryback years (which can be offset to recover taxes previously paid),
(2) Reversing taxable temporary differences,
(3) Future taxable income (exclusive of reversing temporary differences and carryforwards.
(4) Tax-planning strategies.
In general, positive evidence refers to the existence of one or more of the four sources of taxable
income. To the extent evidence about one or more sources of income is sufficient to support a
conclusion that a valuation allowance is not necessary (i.e., the bank can conclude that the deferred
tax asset is more likely than not to be realized), other sources need not be considered. However, if a
valuation allowance is needed, each source of income must be evaluated to determine the appropriate
amount of the allowance needed.
Evidence used in determining the valuation allowance should be subject to objective verification. The
weight given to evidence when both positive and negative evidence exist should be consistent with the
extent to which it can be verified. Sources (1) and (2) listed above are more susceptible to objective
verification and, therefore, may provide sufficient evidence regardless of future events.
The consideration of future taxable income (exclusive of reversing temporary differences and
carryforwards) as a source for the realization of deferred tax assets will require subjective estimates
and judgments about future events which may be less objectively verifiable.
Examples of negative evidence include:
•
•
•
•
•

Cumulative losses in recent years.
A history of operating loss or tax credit carryforwards expiring unused.
Losses expected in early future years by a presently profitable bank.
Unsettled circumstances that, if unfavorably resolved, would adversely affect future profit levels.
A brief carryback or carryforward that would limit the ability to realize the deferred tax asset.

Examples of positive evidence include:
•
•
•

A strong earnings history exclusive of the loss that created the future deductible amount (tax loss
carryforward or deductible temporary difference) coupled with evidence indicating that the loss is
an aberration rather than a continuing condition.
Existing contracts that will generate significant income.
An excess of appreciated asset value over the tax basis of an entity's net assets in an amount
sufficient to realize the deferred tax asset.

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Income Taxes (cont.):
When realization of a bank's deferred tax assets is dependent upon future taxable income, the
reliability of a bank's projections is very important. The bank's record in achieving projected results
under an actual operating plan will be a strong measure of this reliability. Other factors a bank should
consider in evaluating evidence about its future profitability include but are not limited to current and
expected economic conditions, concentrations of credit risk within specific industries and geographical
areas, historical levels and trends in past due and nonaccrual assets, historical levels and trends in
loan loss reserves, and the bank's interest rate sensitivity.
When strong negative evidence, such as the existence of cumulative losses, exists, it is extremely
difficult for a bank to determine that no valuation allowance is needed. Positive evidence of significant
quality and quantity would be required to counteract such negative evidence.
For purposes of determining the valuation allowance, a tax-planning strategy is a prudent and feasible
action that would result in realization of deferred tax assets and that management ordinarily might not
take, but would do so to prevent an operating loss or tax credit carryforward from expiring unused. For
example, a bank could accelerate taxable income to utilize carryforwards by selling or securitizing loan
portfolios, selling appreciated securities, or restructuring nonperforming assets. Actions that
management would take in the normal course of business are not considered tax-planning strategies.
Significant expenses to implement the tax-planning strategy and any significant losses that would result
from implementing the strategy shall be considered in determining any benefit to be realized from the
tax-planning strategy. Also, banks should consider all possible consequences of any tax-planning
strategies. For example, loans pledged as collateral would not be available for sale.
The determination of whether a valuation allowance is needed for deferred tax assets should be made
for total deferred tax assets, not for deferred tax assets net of deferred tax liabilities. In addition, the
evaluation should be made on a jurisdiction-by-jurisdiction basis. Separate analyses should be
performed for amounts related to each taxing authority (e.g., federal, state, and local).
Deferred tax assets (net of the valuation allowance) and deferred tax liabilities related to a particular
tax jurisdiction (e.g., federal, state, and local) may be offset against each other for reporting purposes.
A resulting debit balance shall be included in "Other assets" and reported in Schedule RC-F, item 2.
A resulting credit balance shall be included in "Other liabilities" and reported in Schedule RC-G, item 2.
(A bank may report a net deferred tax debit, or asset, for one tax jurisdiction (e.g., federal taxes) and
also report a net deferred tax credit, or liability, for another tax jurisdiction (e.g., state taxes).
Interim period applicable income taxes – When preparing its year-to-date Consolidated Report of
Income as of the end of March, June, and September ("interim periods"), a bank generally should
determine its best estimate of its effective annual tax rate for the full year, including both current and
deferred portions and considering all tax jurisdictions (e.g., federal, state and local). To arrive at its
estimated effective annual tax rate, a bank should divide its estimated total applicable income taxes
(current and deferred) for the year by its estimated pretax income for the year (excluding discontinued
operations). This rate would then be applied to the year-to-date pretax income to determine the
year-to-date applicable income taxes at the interim date.
Intraperiod allocation of income taxes – When the Consolidated Report of Income for a period includes
the results of "Discontinued operations" that are reportable in Schedule RI, item 11, the total amount of
the applicable income taxes for the year to date shall be allocated in Schedule RI between item 9,
"Applicable income taxes (on item 8.c)," and item 11, "Discontinued operations, net of applicable
income taxes."
The applicable income taxes on operating income (item 9) shall be the amount that the total applicable
income taxes on pretax income, including both current and deferred taxes (calculated as described
above), would have been for the period had the results of "Discontinued operations" been zero.

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Income Taxes (cont.):
The difference between item 9, "Applicable income taxes (on item 8.c)," and the total amount of the
applicable taxes shall then be reflected in item 11 as applicable income taxes on discontinued
operations.
Tax calculations by tax jurisdiction – Separate calculations of income taxes, both current and deferred
amounts, are required for each tax jurisdiction. However, if the tax laws of the state and local
jurisdictions do not significantly differ from federal income tax laws, then the calculation of deferred
income tax expense can be made in the aggregate. The bank would calculate both current and
deferred tax expense considering the combination of federal, state and local income tax rates. The
rate used should consider whether amounts paid in one jurisdiction are deductible in another
jurisdiction. For example, since state and local taxes are deductible for federal purposes, the
aggregate combined rate would generally be (1) the federal tax rate plus (2) the state and local tax
rates minus (3) the federal tax effect of the deductibility of the state and local taxes at the federal tax
rate.
Income taxes of a bank subsidiary of a holding company – A bank should generally report income tax
amounts in its Consolidated Reports of Condition and Income as if it were a separate entity. A bank's
separate entity taxes include taxes of subsidiaries of the bank that are included with the bank in a
consolidated tax return. In other words, when a bank has subsidiaries of its own, the bank and its
consolidated subsidiaries are treated as one separate taxpayer for purposes of computing the bank's
applicable income taxes. This treatment is also applied in determining net deferred tax asset
limitations for regulatory capital purposes.
During profitable periods, a bank subsidiary of a holding company that files a consolidated tax return
should record current tax expense for the amount that would be due on a separate entity basis.
Certain adjustments resulting from the consolidated status may, however, be made to the separate
entity calculation as long as these adjustments are made on a consistent and equitable basis. For
example, the consolidated group's single surtax exemption may be allocated among the holding
company affiliates if such an allocation is equitable and applied consistently. Such allocations should
be reflected in the bank's applicable income taxes, rather than as "Other transactions with stockholders
(including a parent holding company)" in Schedule RI-A, Changes in Bank Equity Capital.
In addition, bank subsidiaries should first compute their taxes on a separate entity basis without
considering the alternative minimum tax (AMT).1 The AMT should be determined on a consolidated
basis, and if it exceeds the regular tax on a consolidated basis, the holding company should allocate
that excess to its affiliates on an equitable and consistent basis. The allocation method must be based
upon the portion of tax preferences, adjustments, and other items causing the AMT to be applicable at
the consolidated level that are generated by the parent holding company and each bank and nonbank
subsidiary. In no case should amounts be allocated to bank subsidiaries that have not generated any
tax preference or positive tax adjustment items. Furthermore, the AMT allocated to banks within the
consolidated group should not exceed the consolidated AMT in any year.
In future years when a consolidated AMT credit carryforward is utilized, the credit must be reallocated
to the subsidiary banks. The allocation should be done on an equitable and consistent basis based
upon the amount of AMT giving rise to the credit that had been previously allocated. In addition, the
amount of AMT credit reallocated to affiliates within the consolidated group should not exceed the
consolidated AMT credit in any year. All AMT allocations should be reflected in the bank's applicable
income taxes, rather than as "Other transactions with stockholders (including a parent holding
company)" in Schedule RI-A, Changes in Bank Equity Capital.

1

The 2017 federal tax law known as the Tax Cuts and Jobs Act eliminates the corporate AMT for tax years beginning
on or after January 1, 2018. The law also provides for the use of existing AMT credits to offset a bank’s regular tax
liability for tax years beginning in 2018, 2019, and 2020, with any remaining AMT credit carryforwards fully refundable
in the tax year beginning in 2021.

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Income Taxes (cont.):
Similarly, bank subsidiaries incurring a loss should record an income tax benefit and receive an
equitable refund from their parent, if appropriate. The refund should be based on the amount they
would have received on a separate entity basis, adjusted for statutory tax considerations, and shall be
made on a timely basis.
An exception to this rule is made when the bank, on a separate entity basis, would not be entitled to a
current refund because it has exhausted benefits available through carryback on a separate entity
basis, yet the holding company can utilize the bank's tax loss to reduce the consolidated liability for the
current year. In this situation, realization of the tax benefit is assured. Accordingly, the bank may
recognize a current tax benefit in the year in which the operating loss occurs, provided the holding
company reimburses the bank on a timely basis for the amount of benefit recognized. Any such tax
benefits recognized in the loss year should be reflected in the bank's applicable income taxes. If timely
reimbursement is not made, the bank cannot recognize the tax benefit in the current year. Rather, the
tax loss becomes a net operating loss carryforward for the bank.
A parent holding company shall not adopt an arbitrary tax allocation policy within its consolidated group
if it results in a significantly different amount of subsidiary bank applicable income taxes than would
have been provided on a separate entity basis. If a holding company forgives payment by the
subsidiary of all or a significant portion of the current portion of the applicable income taxes computed
in the manner discussed above, such forgiveness should be treated as a capital contribution and
reported in Schedule RI-A, item 11, "Other transactions with stockholders (including a parent holding
company)," and in Schedule RI-E, item 5.
Further, if the subsidiary bank pays an amount greater than its separate entity current tax liability
(calculated as previously discussed), the excess should be reported as a cash dividend to the holding
company in Schedule RI-A, item 9. Payment by the bank of its deferred tax liability, in addition to its
current tax liability, is considered an excessive payment of taxes. As a result, the deferred portion
should likewise be reported as a cash dividend. Failure to pay the subsidiary bank an equitable refund
attributable to the bank's net operating loss should also be considered a cash dividend paid by the
bank to the parent holding company.
Purchase business combinations -- In purchase business combinations (as described in the Glossary
entry for "Business Combinations"), banks shall recognize as a temporary difference the difference
between the tax basis of acquired assets or liabilities and the amount of the purchase price allocated to
the acquired assets and liabilities (with certain exceptions specified in ASC Topic 740). As a result, the
acquired asset or liability shall be recorded gross and a deferred tax asset or liability shall be recorded
for any resulting temporary difference.
In a purchase business combination, a deferred tax asset shall generally be recognized at the date of
acquisition for deductible temporary differences and net operating loss and tax credit carryforwards of
either company in the transaction, net of an appropriate valuation allowance. The determination of the
valuation allowance should consider any provisions in the tax law that may restrict the use of an
acquired company's carryforwards.
Subsequent recognition (i.e., by elimination of the valuation allowance) of the benefit of deductible
temporary differences and net operating loss or tax credit carryforwards not recognized at the
acquisition date will depend on the source of the benefit. If the valuation allowance relates to
deductible temporary differences and carryforwards of the acquiring company established before the
acquisition, then subsequent recognition is reported as a reduction of income tax expense. If the
benefit is related to the acquired company's deductible temporary differences and carryforwards, then
the benefit is subsequently recognized by first reducing any goodwill related to the acquisition, then by
reducing all other noncurrent intangible assets related to the acquisition, and finally, by reducing
income tax expense.

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Income Taxes (cont.):
Alternative Minimum Tax1 – Any taxes a bank must pay in accordance with the alternative minimum tax
(AMT) shall be included in the bank's current tax expense. Amounts of AMT paid can be carried
forward in certain instances to reduce the bank's regular tax liability in future years. The bank may
record a deferred tax asset for the amount of the AMT credit carryforward, which shall then be
evaluated in the same manner as other deferred tax assets to determine whether a valuation allowance
is needed.
Other tax effects – A bank may have transactions or items that are reportable in particular items in
Schedule RI-A of the Consolidated Report of Income such as "Restatements due to corrections of
material accounting errors and changes in accounting principles," and, on the FFIEC 031 only,
"Foreign currency translation adjustments" that are included in “Other comprehensive income.” These
transactions or other items may enter into the determination of taxable income in some year (not
necessarily the current year), but are not included in the pretax income reflected in Schedule RI of the
Consolidated Report of Income. They shall be reported in Schedule RI-A net of related income tax
effects. These effects may increase or decrease the bank's total tax liability calculated on its tax
returns for the current year or may be deferred to one or more future periods.
For further information, see ASC Topic 740.
Intangible Assets: See "Business Combinations" and the instructions to Consolidated Report of
Condition Schedule RC-M, item 2.
Interest-Bearing Account: See "Deposits."
Interest Capitalization: See "Capitalization of Interest Costs."
Interest Rate Swaps: See "Derivative Contracts."
Internal-Use Computer Software: Guidance on the accounting and reporting for the costs of
internal-use computer software is set forth in ASC Subtopic 350-40, Intangibles-Goodwill and Other –
Internal-Use Software. A summary of this accounting guidance follows. For further information, see
ASC Subtopic 350-40.
Internal-use computer software is software that meets both of the following characteristics:
(1) The software is acquired, internally developed, or modified solely to meet the bank's internal
needs; and
(2) During the software's development or modification, no substantive plan exists or is being
developed to market the software externally.
ASC Subtopic 350-40 identifies three stages of development for internal-use software: the preliminary
project stage, the application development stage, and the post-implementation/operation stage. The
processes that occur during the preliminary project stage of software development are the conceptual
formulation of alternatives, the evaluation of alternatives, the determination of the existence of needed
technology, and the final selection of alternatives. The application development stage involves the
design of the chosen path (including software configuration and software interfaces), coding,
installation of software to hardware, and testing (including the parallel processing phase). Generally,
training and application maintenance occur during the post-implementation/operation stage. Upgrades
of and enhancements to existing internal-use software, i.e., modifications to software that result in
additional functionality, also go through the three aforementioned stages of development.

1

See the footnote on the alternative minimum tax in the section of this Glossary entry on “Income taxes of a bank
subsidiary of a holding company,” above.

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Internal-Use Computer Software (cont.):
Computer software costs that are incurred in the preliminary project stage should be expensed as
incurred.
Internal and external costs incurred to develop internal-use software during the application
development stage should be capitalized. Capitalization of these costs should begin once
(a) the preliminary project stage is completed and (b) management, with the relevant authority,
implicitly or explicitly authorizes and commits to funding a computer software project and it is probable
that the project will be completed and the software will be used to perform the function intended.
Capitalization should cease no later than when a computer software project is substantially complete
and ready for its intended use, i.e., after all substantial testing is completed. Capitalized internal-use
software costs generally should be amortized on a straight-line basis over the estimated useful life of
the software.
Only the following application development stage costs should be capitalized:
(1) External direct costs of materials and services consumed in developing or obtaining internal-use
software;
(2) Payroll and payroll-related costs for employees who are directly associated with and who devote
time to the internal-use computer software project (to the extent of the time spent directly on the
project); and
(3) Interest costs incurred when developing internal-use software.
Costs to develop or obtain software that allows for access or conversion of old data by new systems
also should be capitalized. Otherwise, data conversion costs should be expensed as incurred.
General and administrative costs and overhead costs should not be capitalized as internal-use
software costs.
During the post-implementation/operation stage, internal and external training costs and maintenance
costs should be expensed as incurred.
Impairment of capitalized internal-use computer software costs should be recognized and measured in
accordance with ASC Topic 360, Property, Plant, and Equipment.
The costs of internally developed computer software to be sold, leased, or otherwise marketed as a
separate product or process should be reported in accordance with ASC Subtopic 985-20, Software –
Costs of Software to Be Sold, Leased or Marketed. If, after the development of internal-use software is
completed, a bank decides to market the software, proceeds received from the license of the software,
net of direct incremental marketing costs, should be applied against the carrying amount of the
software.
International Banking Facility (IBF): General definition – An International Banking Facility (IBF) is a set
of asset and liability accounts, segregated on the books and records of the establishing entity, which
reflect international transactions. An IBF is established in accordance with the terms of Federal
Reserve Regulation D and after appropriate notification to the Federal Reserve. The establishing entity
may be a U.S. depository institution, a U.S. office of an Edge or Agreement corporation, or a U.S.
branch or agency of a foreign bank pursuant to Federal Reserve Regulation D. An IBF is permitted to
hold only certain assets and liabilities. In general, IBF accounts are limited, as specified in the paragraphs
below, to non-U.S. residents of foreign countries, residents of Puerto Rico and U.S. territories and
possessions, other IBFs, and U.S. and non-U.S. offices of the establishing entity.

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International Banking Facility (IBF) (cont.):
Permissible IBF assets include extensions of credit to the following:
(1) non-U.S. residents (including foreign branches of other U.S. banks);
(2) other IBFs; and
(3) U.S. and non-U.S. offices of the establishing entity.
Credit may be extended to non-U.S. nonbank residents only if the funds are used in their operations
outside the United States. IBFs may extend credit in the form of a loan, deposit, placement, advance,
security, or other similar asset.
Permissible IBF liabilities include (as specified in Federal Reserve Regulation D) liabilities to non-U.S.
nonbank residents only if such liabilities have a minimum maturity or notice period of at least two
business days. IBF liabilities also may include overnight liabilities to:
(1)
(2)
(3)
(4)
(5)

non-U.S. offices of other depository institutions and of Edge or Agreement corporations;
non-U.S. offices of foreign banks;
foreign governments and official institutions;
other IBFs; and
the establishing entity.

IBF liabilities may be issued in the form of deposits, borrowings, placements, and other similar
instruments. However, IBFs are prohibited from issuing negotiable certificates of deposit, bankers
acceptances, or other negotiable or bearer instruments.
Treatment of the reporting bank's IBFs in the Consolidated Reports of Condition and Income – IBFs
established by the reporting bank (i.e., by the bank or by its Edge or Agreement subsidiaries) are to be
consolidated in the Consolidated Reports of Condition and Income. In the consolidated balance sheet
(Schedule RC) and income statement (Schedule RI), transactions between the IBFs of the reporting
bank and between these IBFs and other offices of the bank are to be eliminated. (See the discussion
of consolidation in the General Instructions section of this book.)
For purposes of these reports, the reporting bank's IBFs are to be treated as foreign offices of the
bank. Thus, a bank with an IBF, even if it has no other foreign offices, must submit the Consolidated
Reports of Condition and Income applicable to banks with foreign offices (FFIEC 031). Similarly, the
reporting bank's IBFs are to be treated as foreign offices where, in the supporting schedules, a
distinction is made between foreign and domestic offices of the reporting bank.
Assets of the reporting bank's IBFs should be reported in the asset categories of the report by type of
instrument and customer, as appropriate. For example, IBFs are to report their holdings of securities in
Schedule RC, item 2, and in the appropriate items of Schedule RC-B; their holdings of loans that the
IBF has the intent and ability to hold for the foreseeable future or until maturity or payoff (including
loans of immediately available funds that have an original maturity of one business day or roll over
under a continuing contract that are not securities resale agreements) in Schedule RC, item 4.b, and in
the appropriate items of Schedule RC-C, Part I; and securities purchased under agreements to resell in
Schedule RC, item 3.b.
For purposes of these reports, all liabilities of the reporting bank's IBFs to outside parties are classified
under four headings:
(1) Securities sold under agreements to repurchase, which are to be reported in Schedule RC,
item 14.b;
(2) Borrowings of immediately available funds that have an original maturity of one business day or roll
over under a continuing contract that are not securities repurchase agreements, which are to be
reported in Schedule RC-M, item 5.b;

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International Banking Facility (IBF) (cont.):
(3) Accrued liabilities, which are to be reported in Schedule RC, item 20; and
(4) All other liabilities, including deposits, placements, and borrowings, which are to be treated as
deposit liabilities in foreign offices and reported in Schedule RC, item 13.b, and by customer detail
in Schedule RC-E, Part II, if applicable.
In addition to being included in the appropriate items of the balance sheet, the total assets and total
liabilities of the reporting bank's IBFs are to be reported separately in Schedule RC-I, Assets and
Liabilities of IBFs, by banks with IBFs and other "foreign" offices. For a bank whose only foreign offices
are IBFs, the total assets and liabilities of the reporting bank's IBFs are not reported separately in
Schedule RC-I, but are derived from Schedule RC-H, Selected Balance Sheet Items for Domestic
Offices.
Treatment of transactions with IBFs of other depository institutions – Transactions between the
reporting bank and IBFs outside the scope of the reporting bank's Consolidated Reports of
Condition and Income are to be reported as transactions with depository institutions in the U.S., as
appropriate. (Note, however, that only foreign offices of the reporting bank and the reporting bank's
IBFs are permitted to have transactions with other IBFs.)
Interoffice Accounts: See "Suspense Accounts."
Investments in Common Stock of Unconsolidated Subsidiaries: See “Equity Method of Accounting”
and “Subsidiaries.”
Joint Venture: See "Subsidiaries."
Lease Accounting: A lease is an agreement that transfers the right to use land, buildings, or equipment
for a specified period of time. This financing device is essentially an extension of credit evidenced by
an obligation between a lessee and a lessor.
Since the creation of the ASC by the FASB, standards for lease accounting have been set forth in
ASC Topic 840, Leases. In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which added
ASC Topic 842, Leases. The FASB has since issued various codification improvements for leases in
ASU 2018-10, “Codification Improvements to Topic 842, Leases”; ASU 2018-11, “Leases (Topic 842):
Targeted Improvements”; ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for
Lessors”; and ASU 2019-01, “Leases (Topic 842): Codification Improvements”; hereafter referred to
collectively as the “Standard” or ASC Topic 842. Upon an institution’s adoption of the Standard, based
on the effective dates below, ASC Topic 842 supersedes ASC Topic 840, Leases. Accordingly,
institutions that are required to adopt or have elected to early adopt ASC Topic 842 should follow the
guidance in that section of this Glossary entry.
For institutions that are public business entities as defined in U.S. GAAP, ASC Topic 842 is effective
for fiscal years beginning after December 15, 2018, including interim reporting periods within those
fiscal years. Thus, for institutions that are public business entities, ASC Topic 842 is currently in effect.
(For further information, see the Glossary entry for “Public Business Entity.”) For institutions that are
not public business entities, the FASB issued ASU 2020-05, “Effective Dates for Certain Entities,” on
June 3, 2020, to defer the effective date of ASC Topic 842 by one year. As amended by ASU 2020-05,
ASC Topic 842 will take effect for entities that are not public business entities for fiscal years
beginning after December 15, 2021, and interim reporting periods within fiscal years beginning after
December 15, 2022. Early application of the Standard is permitted for all institutions. An institution
that early adopts the Standard must apply it in its entirety to all lease-related transactions. If an
institution chooses to early adopt the Standard for financial reporting purposes, the institution should
implement the new Standard in its Call Report for the same quarter-end report date.

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Lease Accounting (cont.):
ASC Topic 842 does not fundamentally change the lessor accounting in ASC Topic 840; however,
ASC Topic 842 aligns terminology between lessee and lessor accounting and brings key aspects of
lessor accounting into alignment with the FASB’s new revenue recognition guidance in ASC Topic 606,
Revenue from Contracts with Customers. As a result, the classification difference between direct
financing leases and sales-type leases for lessors in ASC Topic 840 moves from a risk-and-rewards
principle to a transfer-of-control principle. There is no longer a distinction in the treatment of real estate
and non-real estate leases by lessors in ASC Topic 842.
The most significant change that ASC Topic 842 makes, upon its adoption by an institution, is to lessee
accounting. Under the predecessor accounting standard (ASC Topic 840), lessees recognize lease
assets and lease liabilities on the balance sheet for capital leases, but do not recognize operating
leases on the balance sheet. ASC Topic 842 instead requires institutions that lease premises and
other fixed assets as lessees to recognize a right-of-use (ROU) asset and a lease liability on its
balance sheet for most operating leases. When preparing to implement ASC Topic 842, institutions will
need to analyze their existing lease contracts to determine the cumulative-effect adjustment and other
balance sheet entries to record as of the effective date of the adoption of ASC Topic 842.
Accounting for Leases under ASC Topic 840
This section of this Glossary entry applies to institutions that have not adopted ASC Topic 842. For
institutions that have adopted ASC Topic 842, Leases, this section is no longer applicable. Refer to the
“Accounting for Leases under ASC Topic 842” section below.
Accounting and Reporting by an Institution as Lessee – Any lease entered into by a lessee institution
that meets certain criteria (defined in the following paragraph) shall be accounted for as a property
acquisition financed with a debt obligation. The property shall be amortized according to the
institution's normal depreciation policy (except, if appropriate, the amortization period shall be the lease
term) unless the lease involves land only. The interest expense portion of each lease payment shall be
calculated to result in a constant rate of interest on the balance of the debt obligation. In the
Consolidated Report of Condition, the property "asset" is to be reported in Schedule RC, item 6,
“Premises and fixed assets,” and the liability for capitalized leases in Schedule RC-M, items 5.b, “Other
borrowings,” and 10.b, “Amount of ‘Other borrowings’ that are secured.” In the Consolidated Report of
Income, the interest expense portion of the capital lease payments is to be reported in Schedule RI,
item 2.c, “Interest on trading liabilities and other borrowed money,” and the amortization expense on
the asset is to be reported in Schedule RI, item 7.b, “Expenses of premises and fixed assets.”
If any one of the following criteria is met, a lease must be accounted for as a capital lease:
(1) Ownership of the property is transferred to the lessee at the end of the lease term; or
(2) The lease contains a bargain purchase option; or
(3) The lease term represents at least 75 percent of the estimated economic life of the leased
property; or
(4) The present value of the minimum lease payments at the beginning of the lease term is 90 percent
or more of the fair value of the leased property to the lessor at the inception of the lease less any
related investment tax credit retained by and expected to be realized by the lessor.
If none of the above criteria is met, the lease should be accounted for as an operating lease. Normally,
rental payments should be charged to expense over the term of the operating lease as they become
payable.
NOTE: If a lease involves land only, the lease must be capitalized if either of the first two criteria
above is met. Where a lease that involves land and building meets either of these two criteria, the land

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Lease Accounting (cont.):
and building must be separately capitalized by the lessee. The accounting for a lease involving land
and building that meets neither of the first two criteria should conform to the standards prescribed by
ASC Topic 840.
Accounting for Sales with Leasebacks – Sale-leaseback transactions involve the sale of property by
the owner and a lease of the property back to the seller. If an institution sells premises or fixed assets
and leases back the property, the lease shall be treated as a capital lease if it meets any one of the
four criteria above for capitalization. Otherwise, the lease shall be accounted for as an operating lease.
As a general rule, the institution shall defer any gain resulting from the sale. For capital leases, this
deferred gain is amortized in proportion to the depreciation taken on the leased asset. For operating
leases, the deferred gain is amortized in proportion to the rental payments the institution will make over
the lease term. The unamortized deferred gain is to be reported in Schedule RC-G, item 4, "All other
liabilities.” (Exceptions to the general rule on deferral that permit full or partial recognition of a gain at
the time of the sale may occur if the leaseback covers less than substantially all of the property that
was sold or if the total gain exceeds the minimum lease payments.)
If the fair value of the property at the time of the sale is less than the book value of the property, the
difference between these two amounts shall be recognized as a loss immediately. In this case, if the
sales price is less than the fair value of the property, the additional loss shall be deferred since it is in
substance a prepayment of rent. Similarly, if the fair value of the property sold is greater than its book
value, any loss on the sale shall also be deferred. Deferred losses shall be amortized in the same
manner as deferred gains as described above.
For further information, see ASC Subtopic 840-40, Leases – Sale-Leaseback Transactions.
Accounting and Reporting by an Institution as Lessor – Unless a long-term creditor is also involved in
the transaction, a lease entered into by a lessor institution that meets one of the four criteria above for
a capital lease plus two additional criteria (as defined below) shall be treated as a direct financing
lease. The unearned income (minimum lease payments plus estimated residual value plus initial direct
costs less the cost of the leased property) shall be amortized to income over the lease term in a
manner which produces a constant rate of return on the net investment (minimum lease payments plus
estimated residual value plus initial direct costs less unearned income). Other methods of income
recognition may be used if the results are not materially different.
The following two additional criteria must be met for a lease to be classified as a direct financing lease:
(1) Collectability of the minimum lease payments is reasonably predictable.
(2) No important uncertainties surround the amount of unreimbursable costs yet to be incurred by the
lessor under the lease.
When a lessor institution enters into a lease that has all the characteristics of a direct financing lease
but where a long-term creditor provides nonrecourse financing to the lessor, the transaction shall be
accounted for as a leveraged lease. The lessor's net investment in a leveraged lease shall be
recorded in a manner similar to that for a direct financing lease but net of the principal and interest on
the nonrecourse debt. Based on a projected cash flow analysis for the lease term, unearned and
deferred income shall be amortized to income at a constant rate only in those years of the lease term in
which the net investment is positive. In the years in which the net investment is not positive, no income
is to be recognized on the leveraged lease.
If a lease is neither a direct financing lease nor a leveraged lease, the lessor institution shall account
for it as an operating lease. The leased property shall be reported as "Other assets" and depreciated
in accordance with the institution's normal policy. Rental payments are generally credited to income
over the term of an operating lease as they become receivable.

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Lease Accounting (cont.):
Accounting for Leases under ASC Topic 842
This section of this Glossary entry applies to institutions that have adopted ASC Topic 842. Institutions
that have not adopted ASC Topic 842 should continue to refer to the “Accounting for Leases under
ASC Topic 840” section above.
Lease Term – The Standard defines lease term as the noncancellable period for which a lessee has
the right to use an underlying asset, together with all of the following:
(1) Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that
option;
(2) Periods covered by an option to terminate the lease if the lessee is reasonably certain not to
exercise that option; and
(3) Periods covered by an option to extend (or not to terminate) the lease in which exercise of the
option is controlled by the lessor.
Reasonable certainty is based on an assessment of factors at the commencement date of the lease
that would create an economic incentive for the lessee either to exercise or not exercise an option to
extend, terminate, or purchase. The commencement date of the lease is the date on which the lessor
makes the underlying asset available for use by the lessee. Examples of factors that could create
economic incentives that should be considered include (1) a lease renewal option priced below market
rates and (2) significant leasehold improvements that would be impaired, business interruption costs,
and relocation costs if the lease term were not extended. For additional information on the lease term,
reasonable certainty, and commencement date, refer to ASC Topic 842.
Accounting and Reporting by an Institution as Lessee – ASC Topic 842 distinguishes between an
operating lease and a finance lease (formerly classified as a capital lease under ASC Topic 840). The
Standard requires all lessees to report an ROU asset and a lease liability on the balance sheet for most
operating and finance leases. The ROU asset reflects the lessee’s control over the leased item’s
economic benefits during the lease term.
While most leases will be reported on a lessee’s balance sheet, the Standard permits a lessee to make
an accounting policy election to exempt leases from balance sheet recognition as long as the lease, as
of its commencement date, has a lease term, as defined above, of 12 months or less and does not
include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
This accounting policy election for short-term leases must be made by class of underlying asset.
In the Consolidated Report of Condition, ROU assets for operating leases and finance leases should
be reported in Schedule RC, item 6, “Premises and fixed assets.” Lease liabilities for finance leases
should be reported in Schedule RC-M, items 5.b, “Other borrowings,” and 10.b, “Amount of ‘Other
borrowings’ that are secured.” Lease liabilities for operating leases should be reported in
Schedule RC-G, item 4, “All other liabilities.”
In the Consolidated Report of Income, the interest expense on lease liabilities for finance leases
(measured using the effective interest method) should be reported in Schedule RI, item 2.c, “Interest
on trading liabilities and other borrowed money.” The amortization expense (typically straight-line) on
the ROU asset for a finance lease should be reported in Schedule RI, item 7.b, “Expenses of premises
and fixed assets.” The ROU asset for a finance lease generally should be amortized on a straight-line
basis from the commencement date of the lease to the earlier of the end of the useful life of the ROU
asset or the end of the lease term.

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Lease Accounting (cont.):
In the Consolidated Report of Income, operating lease expenses are to be reported in Schedule RI,
item 7.b, “Expenses of premises and fixed assets,” as a single lease cost calculated so that this cost
(i.e., the interest on the lease liability and the amortization of the ROU asset) is allocated over the lease
term, generally on a straight-line basis.
Lease Classification - Lessee – A lessee classifies a lease as a finance lease1 when the terms of the
lease effectively transfer control of the underlying asset and the substance of the transaction is
reflective of a sale. This occurs when any of the following five criteria are met:
(1) The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
(2) The lease grants the lessee an option to purchase the underlying asset that the lessee is
reasonably certain to exercise.
(3) The lease term is for the major part of the remaining economic life of the underlying asset.
However, if the commencement date of the lease falls at or near the end of the economic life of the
underlying asset, this criterion shall not be used for the purpose of classifying the lease.
(4) The present value of the sum of the lease payments, as defined in ASC Topic 842, and any
residual value guaranteed by the lessee that is not already reflected in the lease payments equals
or exceeds substantially all of the fair value of the underlying asset.
(5) The underlying asset is such a specialized nature that it is expected to have no alternative use to
the lessor at the end of the lease term.
If none of the finance lease criteria are met and the lease is not a short-term lease for which the
institution has elected the short-term lease policy election, the lease is classified as an operating lease.
Lease Measurement – Lessee – The determination of whether a contract is or contains a lease is
performed at its inception (the date the contract is agreed upon) and is reassessed only if the terms
and conditions of the contract are changed. The classification and measurement of a lease are
determined at the commencement date of the lease.
At the commencement date, the ROU asset consists of:
(1) The amount of the initial measurement of the lease liability;
(2) Any lease payments made to the lessor at or before the commencement date, minus any lease
incentives received; and
(3) Any initial direct costs incurred by the lessee.
At the commencement date, the lease liability equals the present value of the lease payments not yet
paid, discounted using the discount rate for the lease.2 The lease payments consist of:
(1) Fixed lease payments, less any lease incentives payable to the lessee;

1 ASC

Topic 842 requires that land be considered a separate lease component in a contract involving land and other
assets, unless the effect of separately accounting for the land portion of the contract is insignificant.
2

As defined in ASC Topic 842, the discount rate for the lease for a lessee is the rate implicit in the lease (see the
footnote in the “Lease Measurement – Lessor – Sales-Type and Direct Financing Leases” section below) unless that
rate cannot be readily determined, in which case the lessee is required to use its incremental borrowing rate. The
lessee’s incremental borrowing rate is the rate of interest that the lessee would have to pay to borrow on a
collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

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Lease Accounting (cont.):
(2) Variable lease payments tied to an index or a rate, measured using the index or rate at lease
commencement;
(3) The exercise price of an option to purchase the leased asset, if that option is reasonably certain of
being exercised;
(4) Payments for penalties to terminate the lease, if it is reasonably certain that such penalties will be
incurred;
(5) Fees owed by the lessee to the owners of a special-purposes entity for structuring the transaction;
and
(6) Amounts probable of being owed by the lessee under residual value guarantees.
Regulatory Capital Treatment of Leases for a Lessee – To the extent an ROU asset arises due to a
lessee’s lease of a tangible asset (e.g., building or equipment), the lessee institution should treat the
ROU asset as a tangible asset not subject to deduction from regulatory capital. ROU assets must be
risk weighted at 100 percent in accordance with the agencies’ regulatory capital rules and included in
the lessee institution’s calculation of total risk-weighted assets, except for an institution subject to the
community bank leverage ratio (CBLR) framework. In addition, the lessee institution should include its
ROU assets in its total assets for leverage ratio calculation purposes.
Accounting and Reporting by an Institution as Lessor – ASC Topic 842 does not significantly change
the lessor’s accounting under ASC Topic 840. ASC Topic 842 clarifies that, for sales-type and direct
financing leases, the lessor assesses its net investment in the lease (described below under “Lease
Measurement – Lessor”) for impairment under ASC Topic 310, Receivables, or ASC Subtopic 326-20,
Financial Instruments – Credit Losses – Measured at Amortized Cost, as applicable.1 Operating lease
assets remain on the lessor’s balance sheet and shall be assessed for impairment under ASC
Topic 360, Property, Plant, and Equipment.
In the Consolidated Report of Condition, the lessor should report the net investment in the lease in
Schedule RC-C, Part I, item 10, “Lease financing receivables.” In the Consolidated Report of Income,
the income on the lease should be reported in Schedule RI, item 1.b, “Income from lease financing
receivables.”
For operating leases, the lessor shall depreciate the leased property in accordance with the institution’s
normal policy and reports the property (net of depreciation) in Schedule RC-F, item 6, “All other
assets.” Rental income is reported in Schedule RI, item 5.l, “Other noninterest income," over the term
of an operating lease.
Lease Classification – Lessor – Accounting by an institution as a lessor results in classifying a lease as
a sales-type, direct financing, or operating lease based on an assessment of the criteria described in
the following paragraphs at the commencement date of the lease.
A lessor classifies a lease as a sales-type lease if any one of the five criteria described above under
“Lease Classification – Lessee” is met, subject to the clarification of criterion (4) described below.
Otherwise, the lessor is required to assess whether the lease is a direct financing lease or an operating
lease.

1 The guidance in ASC Subtopic 326-20, which introduces the current expected credit losses methodology (CECL),
should be applied to the net investment in the lease once this Subtopic is adopted.

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Lease Accounting (cont.):
A lease that does not meet any of the five criteria for a sales-type lease, but meets the following two
criteria, shall be classified as a direct financing lease.
(1) The present value of the sum of the lease payments and any residual value guaranteed by the
lessee that is not already reflected in the lease payments and/or any other third party unrelated to
the lessor equals or exceeds substantially all of the fair value of the underlying asset; and
(2) It is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a
residual value guarantee.
If a lease does not meet the criteria for a sales-type or a direct financing lease, the lessor institution
shall account for the lease as an operating lease.
For purposes of assessing criterion (4) above under “Lease Classification – Lessee” for a sales-type
lease and criterion (1) above for a direct financing lease, the codification improvements in ASU
2019-01 clarified that, for a lessor that is not a manufacturer or a dealer (e.g., a financial institution),
the fair value of the underlying asset at lease commencement is ordinarily its cost, reflecting any
volume or trade discounts that may apply, instead of fair value as defined in ASC Topic 820, Fair
Value Measurement. However, if significant time lapses between the acquisition of the underlying
asset and lease commencement, a lessor institution is required to apply the definition of fair value in
ASC Topic 820.
Lease Measurement – Lessor – Sales-Type and Direct Financing Leases – At the commencement
date of the lease, the net investment in a sales-type or a direct financing lease is measured at the
present value of the following amounts, discounted using the rate implicit in the lease:1
(1) The lease payments not yet received by the lessor;
(2) The amount the lessor expects to derive from the underlying asset following the end of the lease
term that is guaranteed by the lessee or any other third party unrelated to the lessor; and
(3) The amount the lessor expects to derive from the underlying asset following the end of the lease
term that is not guaranteed by the lessee or any other third party unrelated to the lessor (i.e., the
unguaranteed residual asset).
In a direct financing lease, selling profit, if any, and initial direct costs are deferred at the
commencement date and included in the net investment in the lease, but any selling loss arising from
the lease must be recognized. When no selling profit or loss is recognized in a sales-type lease, initial
direct costs are deferred at the commencement date and recognized over the lease term as part of the
net investment in the lease.
In addition, at the lease commencement date, the lessor should derecognize the carrying amount of
the underlying asset (if previously recognized) unless the lease is a sales-type lease and collectibility of
the lease payments is not probable as discussed below.
Collectibility – Lessor – Sales-Type and Direct Financing Leases – In recording either a sales-type
lease or a direct financing lease, the collectibility of amounts due under the lease, including any
amount necessary to satisfy a residual value guarantee, must be probable at the lease commencement

1

As defined in ASC Topic 842, the rate implicit in the lease is the rate of interest that, at a given date, causes the
aggregate present value of (a) the lease payments and (b) the amount that a lessor expects to derive from the
underlying asset following the end of the lease term to equal the sum of (1) the fair value of the underlying asset
minus any related investment tax credit retained and expected to be realized by the lessor and (2) any deferred initial
direct costs of the lessor.

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Lease Accounting (cont.):
date. If collectibility is not probable, a lease that would otherwise be classified as a direct financing
lease should be accounted for as an operating lease. For a sales-type lease, if collectibility of amounts
due under the lease is not probable at the lease commencement date, the institution, as lessor, should
neither derecognize the underlying asset nor recognize the net investment in the lease. Instead, the
institution, as lessor, should recognize lease payments received as a liability until the earliest of the
following:
(1) The collectibility of amounts due under the lease becomes probable; or
(2) The contract has been terminated and the lease payments received are nonrefundable; or
(3) The institution, as lessor, has repossessed the leased asset, it has no further obligation under the
lease to the lessee, and the lease payments received are nonrefundable.
In a sales-type lease, any selling profit or loss arising from the lease is recognized in full and initial
direct costs generally are expensed by the lessor at the commencement date unless there is no selling
profit or loss to be recognized or collectibility of amounts due under the lease is not probable.
Operating Lease - Lessor – In an operating lease, the leased asset remains on the lessor’s balance
sheet and continues to be depreciated over its estimated useful life. The lessor defers initial direct
costs at the commencement date of the lease. The lease payments and initial direct costs generally
are recognized in income and expense, respectively, over the lease term on a straight-line basis, or
on another systematic and rational basis if it is more representative of the pattern in which benefit is
expected to be derived from (i.e., income is earned from) the use of the underlying asset. Other
methods of income recognition may be used if the results are not materially different. The lessor is
required to use the guidance in ASC Topic 842 to assess the probability of collection of the lease
payments from a lessee at, as well as after, the lease commencement date. A lessor may elect to
supplement the guidance in ASC Topic 842 with the portfolio allowance approach in ASC
Subtopic 450-20, Contingencies – Loss Contingencies.
Leveraged Leases – Leveraged leases no longer exist under ASC Topic 842. The Standard
grandfathers the ASC Topic 840 accounting treatment for leveraged leases existing on the date of
adoption of ASC Topic 842. However, lessors are required to follow the criteria in ASC Topic 842
when classifying and accounting for any grandfathered leveraged leases modified after the date of
adoption of the Standard.
Sale and Leaseback Transactions – In a sale and leaseback transaction, the seller-lessee sells an
asset it owns to the buyer-lessor and leases back all or a portion of the same asset for all or a portion
of the asset’s remaining economic life. For the transfer of an asset in a sale and leaseback transaction
to qualify for sale treatment, ASC Topic 842 requires certain criteria within ASC Topic 606 to be met.
In general, under ASC Topic 606, an institution is required to determine whether a contract exists
(within the meaning of ASC Topic 606) and whether the seller-lessee has satisfied its performance
obligations by transferring control of the asset to the buyer-lessor.
These criteria also require, among other things, that a contract with a related party have commercial
substance (that is, the risk, timing, or amount of the seller-lessee’s future cash flows is expected to
change as a result of the contract). Related party contracts that lack commercial substance will not
qualify for sale treatment in sale and leaseback transactions.
An option for the seller-lessee to repurchase the asset would preclude accounting for the transfer of the
asset as a sale unless both of the following criteria are met:
(1) The exercise price of the option is the fair value of the asset at the time the option is exercised; and
(2) There are alternative assets, substantially the same as the transferred asset, readily available in
the marketplace.

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Lease Accounting (cont.):
However, if the contract for the asset transfer contains a repurchase option and the leased asset is
real estate, control of the asset has not been transferred to the buyer-lessor and therefore the
transaction is not expected to meet the criteria necessary under ASC Topic 606 to recognize a sale.
Additionally, if the leaseback is a finance lease for the seller-lessee, control has not been transferred,
and thus there is no sale.
The classification of a lease can also impact whether a sale has occurred for accounting purposes. In
the event a leaseback is classified as a finance lease by the seller-lessee, or a sales-type lease by the
buyer-lessor, then a sale has not occurred since a finance lease is essentially the purchase of an asset
and a sales-type lease is essentially a sale of an asset. As such, the transaction would be considered
a failed sale and leaseback transaction.
If the transaction qualifies as a sale in accordance with ASC Topic 606 and the transaction would not
be considered a failed sale and leaseback, any gain or loss on the sale is recognized immediately. If
the transaction would not meet the criteria for a sale under ASC Topic 606, or when the leaseback
would not be classified as an operating lease by the seller-lessee (i.e., would be a failed sale and
leaseback), the transaction would be accounted for as a financing arrangement by the seller-lessee
and a lending transaction by the buyer-lessor. The seller-lessee would not derecognize the transferred
asset and would continue to depreciate the asset as if it were the legal owner. Any sales proceeds
received by the seller-lessee would be reported as a liability.
Letter of Credit: A letter of credit is a document issued by a bank on behalf of its customer (the account
party) authorizing a third party (the beneficiary), or in special cases the account party, to draw drafts on
the bank up to a stipulated amount and with specified terms and conditions. The letter of credit is a
conditional commitment (except when prepaid by the account party) on the part of the bank to provide
payment on drafts drawn in accordance with the terms of the document.
As a matter of sound practice, letters of credit should:
(1) Be conspicuously labeled as a letter of credit;
(2) Contain a specified expiration date or be for a definite term;
(3) Be limited in amount;
(4) Call upon the issuing bank to pay only upon the presentation of a draft or other documents as
specified in the letter of credit and not require the issuing bank to make determinations of fact or
law at issue between the account party and the beneficiary; and
(5) Be issued only subject to an agreement between the account party and the issuing bank that
establishes the unqualified obligation of the account party to reimburse the issuing bank for all
payments made under the letter of credit.
There are four basic types of letters of credit:
(1) A commercial letter of credit is issued specifically to facilitate trade or commerce. Under the terms
of a commercial letter of credit, as a general rule, drafts will be drawn when the underlying
transaction is consummated as intended.
(2) A letter of credit sold for cash is a letter of credit for which the bank has received funds from the
account party at the time of issuance. This type of letter of credit is not to be reported as an
outstanding letter of credit but as a demand deposit. These letters are considered to have been
sold for cash even though the bank may have advanced funds to the account party for the
purchase of such letters of credit on a secured or unsecured basis.

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Letter of Credit (cont.):
(3) A travelers' letter of credit is issued to facilitate travel. This letter of credit is addressed by the
bank to its correspondents authorizing the correspondents to honor drafts drawn by the person
named in the letter of credit in accordance with specified terms. These letters are generally sold
for cash.
(4) A standby letter of credit is a letter of credit or similar arrangement that:
(a) Represents an obligation on the part of the issuing bank to a designated third party (the
beneficiary) contingent upon the failure of the issuing bank's customer (the account party) to
perform under the terms of the underlying contract with the beneficiary, or
(b) Obligates the bank to guarantee or stand as surety for the benefit of a third party to the extent
permitted by law or regulation.
The underlying contract may entail either financial or nonfinancial undertakings of the account party
with the beneficiary. The underlying contract may involve such things as the customer's payment of
commercial paper, delivery of merchandise, completion of a construction contract, release of maritime
liens, or repayment of the account party's obligations to the beneficiary. Under the terms of a standby
letter, as a general rule, drafts will be drawn only when the underlying event fails to occur as intended.
Limited-Life Preferred Stock: See "Preferred Stock."
Loan: For purposes of these reports, a loan is generally an extension of credit resulting from direct
negotiations between a lender and a borrower. The reporting bank may originate a loan by directly
negotiating with a borrower or it may purchase a loan or a portion of a loan originated by another
lender that directly negotiated with a borrower. The reporting bank may also sell a loan or a portion of
a loan, regardless of the method by which it acquired the loan.
Loans may take the form of promissory notes, acknowledgments of advance, due bills, invoices,
overdrafts, acceptances, and similar written or oral obligations.
Among the extensions of credit reportable as loans in Schedule RC-C, which covers both loans held for
sale and loans held for investment, are:
(1) Acceptances of other banks purchased in the open market, not held for trading;
(2) Acceptances executed by or for the account of the reporting bank and subsequently acquired by it
through purchase or discount;
(3) Customers' liability to the reporting bank on drafts paid under letters of credit for which the bank
has not been reimbursed;
(4) "Advances" and commodity or bill-of-lading drafts payable upon arrival of goods against which
drawn, for which the reporting bank has given deposit credit to customers;
(5) Paper pledged by the bank whether for collateral to secure bills payable (e.g., margin collateral to
secure bills rediscounted) or for any other purpose;
(6) Sales of so-called "term federal funds" (i.e., sales of immediately available funds with a maturity of
more than one business day), other than those involving security resale agreements;
(7) Factored accounts receivable;
(8) Loans arising out of the purchase of assets (other than securities) under resale agreements with a
maturity of more than one business day if the agreement requires the bank to resell the identical
asset purchased; and

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Loan (cont.):
(9) Participations (acquired or held) in a single loan or in a pool of loans or receivables (see the
discussion of loan participations in the Glossary entry for "Transfers of Financial Assets").
Loan assets held for trading are to be reported in Schedule RC, item 5, "Trading assets."
See also "Loan Secured by Real Estate," "Overdraft," and "Transfers of Financial Assets."
Loan Fees: The accounting standards for nonrefundable fees and costs associated with lending,
committing to lend, and purchasing a loan or group of loans are set forth in ASC Subtopic 310-20,
Receivables – Nonrefundable Fees and Other Costs, a summary of which follows. The statement
applies to all types of loans as well as to debt securities (but not to loans or debt securities carried at
fair value if the changes in fair value are included in earnings) and to all types of lenders. For further
information, see ASC Subtopic 310-20.
A bank may acquire a loan by originating the loan (lending) or by acquiring a loan from a party other
than the borrower (purchasing). Lending, committing to lend, refinancing or restructuring loans,
arranging standby letters of credit, syndicating loans, and leasing activities are all considered "lending
activities." Nonrefundable loan fees paid by the borrower to the lender may have many different
names, such as origination fees, points, placement fees, commitment fees, application fees,
management fees, restructuring fees, and syndication fees, but in this Glossary entry, they are referred
to as loan origination fees, commitment fees, or syndication fees.
ASC Subtopic 310-20 applies to both a lender and a purchaser, and should be applied to individual
loan contracts. Aggregation of similar loans for purposes of recognizing net fees or costs and
purchase premiums or discounts is permitted under certain circumstances specified in ASC
Subtopic 310-20 or if the result does not differ materially from the amount that would have been
recognized on an individual loan-by-loan basis. In general, ASC Subtopic 310-20 specifies that:
(1) Loan origination fees should be deferred and recognized over the life of the related loan as an
adjustment of yield (interest income). Once a bank adopts ASC Subtopic 310-20, recognizing a
portion of loan fees as revenue to offset all or part of origination costs in the reporting period in
which a loan is originated is no longer acceptable.
(2) Certain direct loan origination costs specified in ASC Subtopic 310-20 should be deferred and
recognized over the life of the related loan as a reduction of the loan's yield. Loan origination fees
and related direct loan origination costs for a given loan should be offset and only the net amount
deferred and amortized.
(3) Direct loan origination costs should be offset against related commitment fees and the net amounts
deferred except for: (a) commitment fees (net of costs) where the likelihood of exercise of the
commitment is remote, which generally should be recognized as service fee income on a straight
line basis over the loan commitment period, and (b) retrospectively determined fees, which are
recognized as service fee income on the date as of which the amount of the fee is determined.
All other commitment fees (net of costs) shall be deferred over the entire commitment period and
recognized as an adjustment of yield over the related loan's life or, if the commitment expires
unexercised, recognized in income upon expiration of the commitment.
(4) Loan syndication fees should be recognized by the bank managing a loan syndication (the
syndicator) when the syndication is complete unless a portion of the syndication loan is retained.
If the yield on the portion of the loan retained by the syndicator is less than the average yield to the
other syndication participants after considering the fees passed through by the syndicator, the
syndicator should defer a portion of the syndication fee to produce a yield on the portion of the loan
retained that is not less than the average yield on the loans held by the other syndication
participants.

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Loan Fees (cont.):
(5) Loan fees, certain direct loan origination costs, and purchase premiums and discounts on loans
shall be recognized as an adjustment of yield generally by the interest method based on the
contractual term of the loan. However, if the bank holds a large number of similar loans for which
prepayments are probable and the timing and amount of prepayments can be reasonably
estimated, the bank may consider estimates of future principal prepayments in the calculation of
the constant effective yield necessary to apply the interest method. Once a bank adopts ASC
Subtopic 310-20, the practice of recognizing fees over the estimated average life of a group of
loans is no longer acceptable.
(6) A refinanced or restructured loan, other than a troubled debt restructuring, should be accounted for
as a new loan if the terms of the new loan are at least as favorable to the lender as the terms for
comparable loans to other customers with similar collection risks who are not refinancing or
restructuring a loan. Any unamortized net fees or costs and any prepayment penalties from the
original loan should be recognized in interest income when the new loan is granted. If the
refinancing or restructuring does not meet these conditions or if only minor modifications are made
to the original loan contract, the unamortized net fees or costs from the original loan and any
prepayment penalties should be carried forward as a part of the net investment in the new loan
(or the amortized cost basis of the new loan if the institution has adopted ASC Topic 326, Financial
Instruments–Credit Losses).
The net investment in, or the amortized cost basis of, the new loan, as applicable, should include
the remaining net investment in the original loan, any additional amounts loaned, any fees
received, and direct loan origination costs associated with the transaction. In a troubled debt
restructuring involving a modification of terms, fees received should be applied as a reduction of
the recorded investment in, or the amortized cost basis of, the loan, as applicable; all related costs,
including direct loan origination costs, should be charged to expense as incurred. (See the
Glossary entry for "Troubled Debt restructurings" for further discussion.)
(7) Deferred net fees or costs shall not be amortized during periods in which interest income on a loan
is not being recognized because of concerns about realization of loan principal or interest.
Direct loan origination costs of a completed loan are defined to include only (a) incremental direct costs
of loan origination incurred in transactions with independent third parties for that particular loan and
(b) certain costs directly related to specified activities performed by the lender for that particular loan.1
Incremental direct costs are costs to originate a loan that (a) result directly from and are essential to
the lending transaction and (b) would not have been incurred by the lender had that lending transaction
not occurred. The specified activities performed by the lender are evaluating the prospective
borrower's financial condition; evaluating and recording guarantees, collateral, and other security
arrangements; negotiating loan terms; preparing and processing loan documents; and closing the
transaction. The costs directly related to those activities include only that portion of the employees'
total compensation and payroll-related fringe benefits directly related to time spent performing those
activities for that particular loan and other costs related to those activities that would not have been
incurred but for that particular loan.
All other lending-related costs, whether or not incremental, should be charged to expense as incurred,
including costs related to activities performed by the lender for advertising, identifying potential
borrowers, soliciting potential borrowers, servicing existing loans, and other ancillary activities related
to establishing and monitoring credit policies, supervision, and administration. Employees'
compensation and fringe benefits related to these activities, unsuccessful loan origination efforts, and
idle time should be charged to expense as incurred. Administrative costs, rent, depreciation, and all
other occupancy and equipment costs are considered indirect costs and should be charged to expense
as incurred.
1

For purposes of these reports, a bank which deems its costs for these lending activities not to be material and which
need not maintain records on a loan-by-loan basis for other purposes may expense such costs as incurred.

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Loan Fees (cont.):
Net unamortized loan fees represent an adjustment of the loan yield, and shall be reported in the same
manner as unearned income on loans, i.e., deducted from the related loan balances (to the extent
possible) or deducted from total loans in "Any unearned income on loans reflected in items 1-9 above"
in Schedule RC-C, Part I. Net unamortized direct loan origination costs shall be added to the related
loan balances in Schedule RC-C, Part I. Amounts of loan origination, commitment, and other fees and
costs recognized as an adjustment of yield should be reported under the appropriate subitem of item 1,
"Interest income," in Schedule RI. Other fees, such as (a) commitment fees that are recognized during
the commitment period or included in income when the commitment expires (i.e., fees retrospectively
determined and fees for commitments where exercise is remote) and (b) syndication fees that are not
deferred, should be reported as "Other noninterest income" on Schedule RI.
Loan Impairment: This Glossary entry applies to institutions that have not adopted ASC Topic 326,
Financial Instruments–Credit Losses. Institutions that have adopted ASC Topic 326 should refer to the
Glossary entry for “Allowance for Credit Losses.”
The accounting standard for impaired loans is ASC Topic 310, Receivables. For further information,
refer to ASC Topic 310.
Each institution is responsible for maintaining an allowance for loan and lease losses (allowance) at a
level that is appropriate to cover estimated credit losses in its entire portfolio of loans and leases held
for investment, i.e., loans and leases that the bank has the intent and ability to hold for the foreseeable
future or until maturity or payoff. ASC Topic 310 sets forth measurement methods for estimating the
portion of the overall allowance for loan and lease losses attributable to individually impaired loans.
For the remainder of the portfolio, an appropriate allowance must be maintained in accordance with
ASC Subtopic 450-20, Contingencies – Loss Contingencies. For comprehensive guidance on the
maintenance of an appropriate allowance, banks should refer to the Interagency Policy Statement on
the Allowance for Loan and Lease Losses dated December 13, 2006, and the Glossary entry for
“Allowance for Loan and Lease Losses." National banks should also refer to the Office of the
Comptroller of the Currency's Handbook for National Bank Examiners discussing the allowance for
loan and lease losses.
In general, loans are impaired under ASC Topic 310 when, based on current information and events, it
is probable that an institution will be unable to collect all amounts due (i.e., both principal and interest)
according to the contractual terms of the original loan agreement. An institution should apply its normal
loan review procedures when identifying loans to be individually evaluated for impairment under
ASC Topic 310. When an individually evaluated loan is deemed impaired under ASC Topic 310 and is
not collateral dependent, an institution must measure impairment using the present value of expected
future cash flows discounted at the loan’s effective interest rate (i.e., the contractual interest rate
adjusted for any net deferred loan fees or costs, premium, or discount existing at the origination or
acquisition of the loan), except that as a practical expedient, an institution may measure impairment
based on a loan’s observable market price. As discussed in the following paragraph, the agencies
require the impairment of an impaired collateral dependent loan to be measured using the fair value of
collateral method. A loan is collateral dependent if repayment of the loan is expected to be provided
solely by the underlying collateral and there are no other available and reliable sources of repayment.
A creditor should consider estimated costs to sell, on a discounted basis, in the measurement of
impairment if those costs are expected to reduce the cash flows available to repay or otherwise satisfy
the loan. If the measure of an impaired loan is less than the recorded investment in the loan, an
impairment should be recognized by creating an allowance for estimated credit losses for the impaired
loan or by adjusting an existing allowance with a corresponding charge or credit to "Provision for loan
and lease losses."
For purposes of the Consolidated Reports of Condition and Income, the impairment of an impaired
collateral dependent loan must be measured using the fair value of collateral method. In general, any
portion of the recorded investment in an impaired collateral dependent loan (including recorded

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Loan Impairment (cont.):
accrued interest, net deferred loan fees or costs, and unamortized premium or discount) in excess of
the fair value of the collateral (less estimated costs to sell, if applicable) that can be identified as
uncollectible should be promptly charged off against the allowance for loan and lease losses.
An institution should not provide an additional allowance for estimated credit losses on an individually
impaired loan over and above what is specified by ASC Topic 310. The allowance established under
ASC Topic 310 should take into consideration all available information existing as of the Call Report
date that indicates that it is probable that a loan has been impaired. All available information would
include existing environmental factors such as industry, geographical, economic, and political factors
that affect collectibility.
ASC Topic 310 also addresses the accounting by creditors for all loans that are restructured in troubled
debt restructurings involving a modification of terms, except loans that are measured at fair value or the
lower of cost or fair value. According to ASC Topic 310, all loans restructured in troubled debt
restructurings are impaired loans. For guidance on troubled debt restructurings, see the Glossary entry
for "Troubled Debt Restructurings."
As with all other loans, all impaired loans should be reported as past due or nonaccrual loans in
Schedule RC-N in accordance with the schedule's instructions. A loan identified as impaired is one for
which it is probable that the institution will be unable to collect all principal and interest amounts due
according to the contractual terms of the original loan agreement. Therefore, a loan that is not already
in nonaccrual status when it is first identified as impaired will normally meet the criteria for placement in
nonaccrual status at that time. Exceptions may arise when a loan not previously in nonaccrual status
is identified as impaired because its terms have been modified in a troubled debt restructuring, but the
borrower’s sustained historical repayment performance for a reasonable time prior to the restructuring
is consistent with the modified terms of the loan and the loan is reasonably assured of repayment (of
principal and interest) and of performance in accordance with its modified terms. This determination
must be supported by a current, well documented credit evaluation of the borrower's financial condition
and prospects for repayment under the revised terms. Exceptions may also arise for those purchased
credit-impaired loans for which the criteria for accrual of income under the interest method are met as
specified in ASC Subtopic 310-30, Receivables – Loans and Debt Securities Acquired with
Deteriorated Credit Quality. Any cash payments received on impaired loans in nonaccrual status
should be reported in accordance with the criteria for the cash basis recognition of income in the
Glossary entry for "Nonaccrual Status." For further guidance, see the Glossary entries for “Nonaccrual
Status” and “Purchased Credit-Impaired Loans and Debt Securities.”
Loan Secured by Real Estate: For purposes of these reports, a loan secured by real estate is a loan
that, at origination, is secured wholly or substantially by a lien or liens on real property for which the lien
or liens are central to the extension of the credit – that is, the borrower would not have been extended
credit in the same amount or on terms as favorable without the lien or liens on real property. To be
considered wholly or substantially secured by a lien or liens on real property, the estimated value of the
real estate collateral at origination (after deducting any more senior liens held by others) must be
greater than 50 percent of the principal amount of the loan at origination.
A loan satisfying the criteria above, except a loan to a state or political subdivision in the U.S., is to be
reported as a loan secured by real estate in Schedule RC-C, Part I, item 1, and related items in the
Consolidated Reports of Condition and Income, (1) regardless of whether the loan is secured by a first
or a junior lien; (2) regardless of whether the loan was originated by the reporting bank or purchased
from others and, if originated by the reporting bank, regardless of the department within the bank or
bank subsidiary that made the loan; (3) regardless of how the loan is categorized in the bank’s records;
(4) and regardless of the purpose of the financing. Only in a transaction where a lien or liens on real
property (with an estimated collateral value greater than 50 percent of the loan’s principal amount at
origination) have been taken as collateral solely through an abundance of caution and where the loan
terms as a consequence have not been made more favorable than they would have been in the

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Loan Secured by Real Estate (cont.):
absence of the lien or liens, would the loan not be considered a loan secured by real estate for
purposes of the Consolidated Reports of Condition and Income. In addition, when a loan is partially
secured by a lien or liens on real property, but the estimated value of the real estate collateral at
origination (after deducting any more senior liens held by others) is 50 percent or less of the principal
amount of the loan at origination, the loan should not be categorized as a loan secured by real estate.
Instead, the loan should be reported in one of the other loan categories used in these reports based on
the purpose of the loan.
The following are examples of the application of the preceding guidance:
(1) A bank loans $700,000 to a dental group to construct and equip a building that will be used as its
dental office. The loan will be secured by both the real estate and the dental equipment. At
origination, the estimated values of the building, upon completion, and the equipment are $400,000
and $350,000, respectively. The loan should be reported as a loan secured by real estate in
Schedule RC-C, Part I, item 1.a.(2), “Other construction loans and all land development and other
land loans.” In contrast, if the estimated values of the building and equipment at origination were
$340,000 and $410,000, respectively, the loan should not be reported as a loan secured by real
estate. Instead, the loan should be reported in Schedule RC-C, Part I, item 4, “Commercial and
industrial loans.”
(2) A bank grants a $25,000 line of credit and a $125,000 term loan to a commercial borrower for
working capital purposes on the same date. The loans will be cross-collateralized by equipment
with an estimated value of $40,000 and a third lien on the borrower’s residence, which has an
estimated value of $140,000 and first and second liens with unpaid balances payable to other
lenders totaling $126,000. The two loans should be considered together to determine whether
they are secured by real estate. Because the estimated equity in the real estate collateral
available to the bank is $14,000, the two cross-collateralized loans for $150,000 should not be
reported as loans secured by real estate. Instead, the loans should be reported in Schedule RC-C,
Part I, item 4, “Commercial and industrial loans.”
(3) A bank grants a $50,000 working capital loan and takes a first lien on a vacant commercial building
lot as collateral. The estimated value of the lot is $30,000. The loan should be reported as a loan
secured by real estate in Schedule RC-C, Part I, item 1.a.(2), “Other construction loans and all land
development and other land loans,” unless the lien has been taken as collateral solely through an
abundance of caution and where the loan terms as a consequence have not been made more
favorable than they would have been in the absence of the lien.
(4) A bank grants a $10,000 home equity line of credit secured by a junior lien on a 1-4 family
residential property. The bank also has a loan to the same borrower that is secured by a first lien
on the same 1-4 family residential property and has an unpaid principal balance of $71,000. There
are no intervening liens and the line of credit will be used for household, family, and other personal
expenditures. The estimated value of the residential property at the origination of the home equity
line of credit is $75,000. Consistent with the risk-based capital treatment of these loans, the two
loans should be considered together to determine whether the home equity line of credit should be
reported as a loan secured by real estate. Because the value of the collateral is greater than
50 percent of the first lien balance plus the amount of the home equity line of credit, loans
extended under the line of credit should be reported as loans secured by real estate in
Schedule RC-C, Part I, item 1.c.(1), “Revolving, open-end loans secured by 1-4 family residential
properties and extended under lines of credit.” In contrast, if a creditor other than the bank holds
the first lien on the borrower’s property, the estimated value of the collateral to the bank for the
home equity line of credit would have been $4,000 ($75,000 less the $71,000 first lien held by the
other creditor), which is 50 percent or less of the amount of the line of credit at origination. In this
case, the bank should not report loans extended under the line of credit as loans secured by real
estate in Schedule RC-C, Part I, item 1. Rather, the loans should be reported as “Loans to
individuals for household, family, and other personal expenditures” in Schedule RC-C, Part I,
item 6.b, “Other revolving credit plans.”

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Loss Contingencies: A loss contingency is an existing condition, situation, or set of circumstances that
involves uncertainty as to possible loss that will be resolved when one or more future events occur or
fail to occur. An estimated loss (or expense) from a loss contingency (for example, pending or
threatened litigation) must be accrued by a charge to income if it is probable that an asset has been
impaired or a liability incurred as of the report date and the amount of the loss can be reasonably
estimated.
A contingency that might result in a gain, for example, the filing of an insurance claim, shall not be
recognized as income prior to realization.
For further information, see ASC Subtopic 450-20, Contingencies – Loss Contingencies.
Majority-Owned Subsidiary: See "Subsidiaries."
Mandatory Convertible Debt: Mandatory convertible debt is a subordinated note or debenture with a
maturity of 12 years or less that obligates the holder to take the common or perpetual preferred stock
of the issuer in lieu of cash for repayment of principal by a date at or before the maturity date of the
debt instrument (so-called "equity contract notes").
Mergers: See "Business Combinations."
Money Market Deposit Account (MMDA): See "Deposits."
Nonaccrual Status: This entry covers, for purposes of these reports, the criteria for placing assets in
nonaccrual status (presented in the general rule below) and related exceptions, the reversal of
previously accrued but uncollected interest, the treatment of cash payments received on nonaccrual
assets and the criteria for cash basis income recognition, the restoration of a nonaccrual asset to
accrual status, and the treatment of multiple extensions of credit to one borrower.
General rule – Banks shall not accrue interest, amortize deferred net loan fees or costs, or accrete
discount on any asset (1) which is maintained on a cash basis because of deterioration in the financial
condition of the borrower, (2) for which payment in full of principal or interest is not expected, or (3)
upon which principal or interest has been in default for a period of 90 days or more unless the asset is
both well secured and in the process of collection.
An asset is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or
personal property, including securities, that have a realizable value sufficient to discharge the debt
(including accrued interest) in full, or (2) by the guarantee of a financially responsible party. An asset is
"in the process of collection" if collection of the asset is proceeding in due course either (1) through
legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through
collection efforts not involving legal action which are reasonably expected to result in repayment of the
debt or in its restoration to a current status in the near future.
For purposes of applying the third test for nonaccrual status listed above, the date on which an asset
reaches nonaccrual status is determined by its contractual terms. If the principal or interest on an
asset becomes due and unpaid for 90 days or more on a date that falls between report dates, the asset
should be placed in nonaccrual status as of the date it becomes 90 days past due and it should remain
in nonaccrual status until it meets the criteria for restoration to accrual status described below.
Any state statute, regulation, or rule that imposes more stringent standards for nonaccrual of interest
takes precedence over this instruction.

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Nonaccrual Status (cont.):
Exceptions to the general rule – In the following situations, an asset need not be placed in nonaccrual
status:
(1) The criteria for accrual of income under the interest method specified in ASC Subtopic 310-30,
Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, are met for a
purchased credit-impaired loan, pool of loans, or debt security accounted for in accordance with
that Subtopic, regardless of whether the loan, the loans in the pool, or debt security had been
maintained in nonaccrual status by its seller. (For purchased credit-impaired loans with common
risk characteristics that are aggregated and accounted for as a pool, the determination of
nonaccrual or accrual status should be made at the pool level, not at the individual loan level.)
For further information, see the Glossary entry for "Purchased Credit-Impaired Loans and Debt
Securities." For institutions that have adopted ASC Topic 326, Financial Instruments–Credit
Losses, as discussed in the “Definitions” section of the instructions for Schedule RC-N, this
exception is no longer available.
(2) The asset upon which principal or interest is due and unpaid for 90 days or more is a consumer
loan (as defined for Schedule RC-C, Part I, item 6, "Loans to individuals for household, family, and
other personal expenditures") or a loan secured by a 1-to-4 family residential property (as defined
for Schedule RC-C, Part I, item 1.c, Loans "Secured by 1-4 family residential properties").
Nevertheless, such loans should be subject to other alternative methods of evaluation to assure
that the bank's net income is not materially overstated. However, to the extent that the bank has
elected to carry such a loan in nonaccrual status on its books, the loan must be reported as
nonaccrual in Schedule RC-N.
Treatment of previously accrued interest – The reversal of previously accrued but uncollected interest
applicable to any asset placed in nonaccrual status should be handled in accordance with generally
accepted accounting principles. Acceptable accounting treatment includes a reversal of all previously
accrued but uncollected interest applicable to assets placed in a nonaccrual status against appropriate
income and balance sheet accounts.
For example, for institutions that have not adopted ASC Topic 326, one acceptable method of
accounting for such uncollected interest on a loan placed in nonaccrual status is (1) to reverse all of the
unpaid interest by crediting the "accrued interest receivable" account on the balance sheet, (2) to
reverse the uncollected interest that has been accrued during the calendar year-to-date by debiting the
appropriate "interest and fee income on loans" account on the income statement, and (3) to reverse
any uncollected interest that had been accrued during previous calendar years by debiting the
"allowance for loan and lease losses" account on the balance sheet. The use of this method presumes
that bank management's additions to the allowance through charges to the "provision for loan and
lease losses" on the income statement have been based on an evaluation of the collectability of the
loan and lease portfolios and the "accrued interest receivable" account.
Institutions that have adopted ASC Topic 326 should refer to the Glossary entry for “Accrued Interest
Receivable” for information on the treatment of previously accrued interest.
Treatment of cash payments and criteria for the cash basis recognition of income – When doubt exists
as to the collectibility of the remaining recorded investment in a nonaccrual asset (or the amortized cost
basis of a nonaccrual asset, if the institution has adopted ASC Topic 326), any payments received
must be applied to reduce the recorded investment in, or the amortized cost basis of, the asset, as
applicable, to the extent necessary to eliminate such doubt. Placing an asset in nonaccrual status
does not, in and of itself, require a charge-off, in whole or in part, of the asset's recorded investment or
amortized cost basis, as applicable. However, any identified losses must be charged off.
While an asset is in nonaccrual status, some or all of the cash interest payments received may be
treated as interest income on a cash basis as long as the remaining recorded investment in, or the

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Nonaccrual Status (cont.):
amortized cost basis of, the asset, as applicable, (i.e., after charge-off of identified losses, if any) is
deemed to be fully collectible.3 A bank's determination as to the ultimate collectibility of the asset's
remaining recorded investment, or amortized cost basis, as applicable, must be supported by a current,
well documented credit evaluation of the borrower's financial condition and prospects for repayment,
including consideration of the borrower's historical repayment performance and other relevant factors.
When recognition of interest income on a cash basis is appropriate, it should be handled in accordance
with generally accepted accounting principles. One acceptable accounting practice involves allocating
contractual interest payments among interest income, reduction of the recorded investment in, or the
amortized cost basis of, the asset, as applicable, and recovery of prior charge-offs. If this method is
used, the amount of income that is recognized would be equal to that which would have been accrued
on the asset's remaining recorded investment at the contractual rate. A bank may also choose to
account for the contractual interest in its entirety either as income, reduction of the recorded investment
in, or the amortized cost basis of, the asset, as applicable, or recovery of prior charge-offs, depending
on the condition of the asset, consistent with its accounting policies for other financial reporting
purposes.
Restoration to accrual status – As a general rule, a nonaccrual asset may be restored to accrual status
when (1) none of its principal and interest is due and unpaid, and the bank expects repayment of the
remaining contractual principal and interest, or (2) when it otherwise becomes well secured and in the
process of collection. If any interest payments received while the asset was in nonaccrual status were
applied to reduce the recorded investment in, or the amortized cost basis of, the asset, as applicable,
as discussed in the preceding section of this entry, the application of these payments to the asset's
recorded investment or amortized cost basis, as applicable, should not be reversed (and interest
income should not be credited) when the asset is returned to accrual status.
For purposes of meeting the first test, the bank must have received repayment of the past due principal
and interest unless, as discussed below, (1) the asset has been formally restructured and qualifies for
accrual status, (2) the asset is a purchased credit-impaired loan, pool of loans, or debt security
accounted for in accordance with ASC Subtopic 310-30 and it meets the criteria for accrual of income
under the interest method specified therein, or (3) the borrower has resumed paying the full amount of
the scheduled contractual interest and principal payments on a loan that is past due and in nonaccrual
status, even though the loan has not been brought fully current, and the following two criteria are met.
These criteria are, first, that all principal and interest amounts contractually due (including arrearages)
are reasonably assured of repayment within a reasonable period and, second, that there is a sustained
period of repayment performance (generally a minimum of six months) by the borrower in accordance
with the contractual terms involving payments of cash or cash equivalents. A loan that meets these
two criteria may be restored to accrual status, but must continue to be disclosed as past due in
Schedule RC-N until it has been brought fully current or until it later must be placed in nonaccrual
status. For institutions that have adopted ASC Topic 326, the second exception above, which applies
to purchased credit-impaired assets, is no longer available.
A loan or other debt instrument that has been formally restructured in a troubled debt restructuring so
as to be reasonably assured of repayment (of principal and interest) and of performance according to
its modified terms need not be maintained in nonaccrual status, provided the restructuring and any
charge-off taken on the asset are supported by a current, well documented credit evaluation of the
borrower's financial condition and prospects for repayment under the revised terms. Otherwise, the

3 An asset in nonaccrual status that is subject to the cost recovery method required by ASC Subtopic 325-40,
Investments-Other – Beneficial Interests in Securitized Financial Assets, should follow that method for reporting
purposes. In addition, when a purchased credit-impaired loan, pool of loans, or debt security that is accounted for
in accordance with ASC Subtopic 310-30 (or when a purchased credit-deteriorated asset that is accounted for in
accordance with ASC Subtopic 326-20, if the institution has adopted ASC Topic 326) has been placed on nonaccrual
status, the cost recovery method should be used, when appropriate.

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Nonaccrual Status (cont.):
restructured asset must remain in nonaccrual status. The evaluation must include consideration of the
borrower's sustained historical repayment performance for a reasonable period prior to the date on
which the loan or other debt instrument is returned to accrual status. A sustained period of repayment
performance generally would be a minimum of six months and would involve payments of cash or cash
equivalents. (In returning the asset to accrual status, sustained historical repayment performance for a
reasonable time prior to the restructuring may be taken into account.) Such a restructuring must
improve the collectability of the loan or other debt instrument in accordance with a reasonable
repayment schedule and does not relieve the bank from the responsibility to promptly charge off all
identified losses.
A troubled debt restructuring may involve a multiple note structure in which, for example, a troubled
loan is restructured into two notes. The first or "A" note represents the portion of the original loan
principal amount that is expected to be fully collected along with contractual interest. The second or
"B" note represents the portion of the original loan that has been charged off and, because it is not
reflected as an asset and is unlikely to be collected, could be viewed as a contingent receivable. For a
troubled debt restructuring of a collateral-dependent loan involving a multiple note structure, the
amount of the “A” note should be determined using the fair value of the collateral. The "A" note may
be returned to accrual status provided the conditions in the preceding paragraph are met and:
(1) there is economic substance to the restructuring and it qualifies as a troubled debt restructuring
under generally accepted accounting principles, (2) the portion of the original loan represented by the
"B" note has been charged off before or at the time of the restructuring, and (3) the "A" note is
reasonably assured of repayment and of performance in accordance with the modified terms.
Until the restructured asset is restored to accrual status, if ever, cash payments received must be
treated in accordance with the criteria stated above in the preceding section of this entry. In addition,
after a formal restructuring, if a restructured asset that has been returned to accrual status later meets
the criteria for placement in nonaccrual status as a result of past due status based on its modified
terms or for any other reasons, the asset must be placed in nonaccrual status.
For further information on formally restructured assets, see the Glossary entry for "Troubled Debt
Restructurings."
Treatment of multiple extensions of credit to one borrower – As a general principle, nonaccrual status
for an asset should be determined based on an assessment of the individual asset's collectability and
payment ability and performance. Thus, when one loan to a borrower is placed in nonaccrual status, a
bank does not automatically have to place all other extensions of credit to that borrower in nonaccrual
status. When a bank has multiple loans or other extensions of credit outstanding to a single borrower,
and one loan meets the criteria for nonaccrual status, the bank should evaluate its other extensions of
credit to that borrower to determine whether one or more of these other assets should also be placed in
nonaccrual status.
Noninterest-Bearing Account: See "Deposits."
Nontransaction Account: See "Deposits."
NOW Account: See "Deposits."
Offsetting: Offsetting is the reporting of assets and liabilities on a net basis in the balance sheet. Banks
are permitted to offset assets and liabilities recognized in the Consolidated Report of Condition when a
"right of setoff" exists. Under ASC Subtopic 210-20, Balance Sheet – Offsetting, a right of setoff exists
when all of the following conditions are met:
(1) Each of two parties owes the other determinable amounts. Thus, only bilateral netting is permitted.

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Offsetting (cont.):
(2) The reporting party has the right to set off the amount owed with the amount owed by the other
party.
(3) The reporting party intends to set off. This condition does not have to be met for fair value
amounts recognized for conditional or exchange contracts that have been executed with the same
counterparty under a master netting arrangement.
(4) The right of setoff is enforceable at law. Legal constraints should be considered to determine
whether the right of setoff is enforceable. Accordingly, the right of setoff should be upheld in
bankruptcy (or receivership). Offsetting is appropriate only if the available evidence, both positive
and negative, indicates that there is reasonable assurance that the right of setoff would be upheld
in bankruptcy (or receivership).
According to ASC Subtopic 210-20, for forward, interest rate swap, currency swap, option, and other
conditional and exchange contracts, a master netting arrangement exists if the reporting bank has
multiple contracts, whether for the same type of conditional or exchange contract or for different types
of contracts, with a single counterparty that are subject to a contractual agreement that provides for the
net settlement of all contracts through a single payment in a single currency in the event of default or
termination of any one contract.
Offsetting the assets and liabilities recognized for conditional or exchange contracts outstanding with
a single counterparty results in the net position between the two counterparties being reported as an
asset or a liability in the Consolidated Report of Condition. The reporting entity's choice to offset or not
to offset assets and liabilities recognized for conditional or exchange contracts must be applied
consistently.
Offsetting of assets and liabilities is also permitted by other accounting pronouncements identified in
ASC Subtopic 210-20. These pronouncements apply to such items as leveraged leases, pension plan
and other postretirement benefit plan assets and liabilities, and deferred tax assets and liabilities.
In addition, ASC Subtopic 210-20, Balance Sheet – Offsetting, describes the circumstances in which
amounts recognized as payables under repurchase agreements may be offset against amounts
recognized as receivables under reverse repurchase agreements and reported as a net amount in the
balance sheet. The reporting entity's choice to offset or not to offset payables and receivables under
ASC Subtopic 210-20 must be applied consistently.
According to the AICPA Audit and Accounting Guide for Depository and Lending Institutions, ASC
Subtopic 210-20 does not apply to securities borrowing or lending transactions. Therefore, for purposes
of the Consolidated Report of Condition, banks should not offset securities borrowing and lending
transactions in the balance sheet unless all the conditions set forth in ASC Subtopic 210-20 are met.
See also "Reciprocal Balances."
One-Day Transaction: See "Federal Funds Transactions."
Option: See "Derivative Contracts."
Organization Costs: See "Start-Up Activities."
Other Real Estate Owned: See "Foreclosed Assets" and the instructions to Schedule RC-M, item 3.
Other-Than-Temporary Impairment: See “Securities Activities.” Institutions that have adopted
ASC Topic 326, Financial Instruments—Credit Losses, and have identified impairment in the
investment portfolio should no longer record any other-than-temporary impairment, as discussed in
the Glossary entry for “Securities Activities.”

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Overdraft: An overdraft can be either planned or unplanned. An unplanned overdraft occurs when a
depository institution honors a check or draft drawn against a deposit account when insufficient funds
are on deposit and there is no advance contractual agreement to honor the check or draft. When a
contractual agreement has been made in advance to allow such credit extensions, overdrafts are
referred to as planned or prearranged. Any overdraft, whether planned or unplanned, is an extension
of credit and is to be treated and reported as a "loan" rather than being treated as a negative deposit
balance.
Planned overdrafts in depositors' accounts are to be classified in Schedule RC-C, Part I, by type of
loan according to the nature of the overdrawn depositor. For example, a planned overdraft by a
commercial customer is to be classified as a "commercial and industrial loan."
Unplanned overdrafts in depositors' accounts are to be classified in Schedule RC-C, Part I, as "All
other loans," unless the depositor is a depository institution or a state or political subdivision in the U.S.
Such unplanned overdrafts should be reported in Schedule RC-C, Part I, item 2, "Loans to depository
institutions and acceptances of other banks," and item 8, "Obligations (other than securities and
leases) of states and political subdivisions in the U.S.," respectively. In addition, on the FFIEC 031,
when the depositor is a foreign government or foreign official institution, an unplanned overdraft in the
account of such a depositor should be reported in Schedule RC-C, Part I, item 7, “Loans to foreign
governments and official institutions.”
An overdraft also occurs when a borrower’s loan secured by real estate has an escrow account for the
payment of taxes and/or insurance and the institution pays taxes or insurance on behalf of the
borrower when the escrow account does not have sufficient funds to cover the full amount of the
payment. Because escrow funds are deposits for purposes of these reports, an overdrawn escrow
account should be reported as a “loan” in Schedule RC-C, Part I, in the same loan category in
Schedule RC-C, Part I, as the related loan.
For purposes of treatment of overdrafts in depositors' accounts, a group of related transaction accounts
of a single type (i.e., demand deposit accounts or NOW accounts, but not a combination thereof)
maintained in the same right and capacity by a customer (a single legal entity) that is established under
a bona fide cash management arrangement by this customer function as, and are regarded as, one
account rather than as multiple separate accounts. In such a situation, overdrafts in one or more of the
transaction accounts within the group are not to be classified as loans unless there is a net overdraft
position in the group of related transaction accounts taken as a whole. (NOTE: Affiliates and
subsidiaries are considered separate legal entities.) For further information, see "Cash Management
Arrangements."
The reporting institution's overdrafts on deposit accounts it holds with other depository institutions
(i.e., its "due from" accounts) are to be reported as borrowings in Schedule RC, item 16, except
overdrafts arising in connection with checks or drafts drawn by the reporting institution and drawn on,
or payable at or through, another depository institution either on a zero-balance account or on an
account that is not routinely maintained with sufficient balances to cover checks or drafts drawn in the
normal course of business during the period until the amount of the checks or drafts is remitted to the
other depository institution (in which case, report the funds received or held in connection with such
checks or drafts as deposits in Schedule RC-E until the funds are remitted).
Participations: See "Transfers of Financial Assets."
Participations in Acceptances: See "Bankers Acceptances."
Participations in Pools of Securities: See "Repurchase/Resale Agreements."
Pass-through Reserve Balances: Under the Monetary Control Act of 1980, and as reflected in
Federal Reserve Regulation D, both member and nonmember depository institutions may hold
the balances they maintain to satisfy reserve balance requirements (in excess of vault cash) in
one of two ways: either (1) directly with a Federal Reserve Bank or (2) indirectly in an account
with another institution (referred to here as a "correspondent"), which, in turn, is required to
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Pass-through Reserve Balances (cont.):
pass the reserves through to a Federal Reserve Bank. This second type of account is called a
"pass-through account," and a depository institution passing its reserves to the Federal Reserve
through a correspondent is referred to here as a "respondent." This pass-through reserve relationship
is legally and for supervisory purposes considered to constitute an asset/debt relationship between the
respondent and the correspondent, and an asset/debt relationship between the correspondent and the
Federal Reserve. The required reporting of the "pass-through reserve balances" reflects this structure
of asset/debt relationships.
In the balance sheet of the respondent bank, the pass-through reserve balances are to be treated as a
claim on the correspondent (not as a claim on the Federal Reserve) and, as such, are to be reflected in
the balance sheet of the Consolidated Report of Condition, Schedule RC, item 1.a, "Noninterestbearing balances and currency and coin," or item 1.b, "Interest-bearing balances," as appropriate.
For respondent banks with foreign offices or with $300 million or more in total assets, the pass-through
reserve balances would also be reflected in Schedule RC-A, item 2, "Balances due from depository
institutions in the U.S."
In the balance sheet of the correspondent bank, the pass-through reserve balances are to be treated
as balances due to respondents and, to the extent that the balances have actually been passed
through to the Federal Reserve, as balances due from the Federal Reserve. The balances due to
respondents are to be reflected in the balance sheet of the Consolidated Report of Condition,
Schedule RC, item 13.a, "Deposits in domestic offices," and on in Schedule RC-E, Deposit Liabilities,
(Part I), item 4.1 The balances due from the Federal Reserve are to be reflected on the balance sheet
in Schedule RC, item 1.b, "Interest-bearing balances," and, for correspondent banks with foreign
offices or with $300 million or more in total assets, in Schedule RC-A, item 4.
The reporting of pass-through reserve balances by correspondent and respondent banks differs from
the required reporting of excess balance accounts by participants and agents, which is described in the
Glossary entry for “Excess Balance Accounts.”
Perpetual Preferred Stock: See "Preferred Stock."
Placements and Takings: Placements and takings are deposits between a foreign office of the
reporting bank and a foreign office of another bank and are to be treated as due from or due to
depository institutions. Such transactions are always to be reported gross and are not to be netted as
reciprocal balances.
Preauthorized Transfer Account: See "Deposits."
Preferred Stock: Preferred stock is a form of ownership interest in a bank or other company which
entitles its holders to some preference or priority over the owners of common stock, usually with
respect to dividends or asset distributions in a liquidation.
Limited-life preferred stock is preferred stock that has a stated maturity date or that can be redeemed
at the option of the holder. It excludes those issues of preferred stock that automatically convert into
perpetual preferred stock or common stock at a stated date.
Perpetual preferred stock is preferred stock that does not have a stated maturity date or that cannot be
redeemed at the option of the holder. It includes those issues of preferred stock that automatically
convert into common stock at a stated date.

1

When an Edge or Agreement Corporation acts as a correspondent, its balances due to respondents are to be
reflected on the FFIEC 031 report form in Schedule RC, item 13.b, "Deposits in foreign offices," and in
Schedule RC-E, Part II, item 2, if applicable.

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Premiums and Discounts: A premium arises when an institution purchases a security, loan, or other
asset at a price in excess of its par or face value, typically because the current level of interest rates for
such assets is less than its contract or stated rate of interest. The difference between the purchase
price and par or face value represents the premium, which all institutions are required to amortize.
A discount arises when an institution purchases a debt security, loan, or other asset at a price below its
par or face value, typically because the current level of interest rates for such assets is greater than its
contract or stated rate of interest. A discount is also present on instruments that do not have a stated
rate of interest such as U.S. Treasury bills and commercial paper. The difference between par or face
value and the purchase price represents the discount that all institutions are required to accrete.
Except as discussed in the next two paragraphs, premiums and discounts are accounted for as
adjustments to the yield on an asset over its remaining life. A premium must be amortized and a
discount must be accreted from the date of purchase to maturity, and not to the call or put date. The
preferable method for amortizing premiums and accreting discounts involves the use of the interest
method for accruing income on the asset. The objective of the interest method is to produce a
constant effective yield or rate of return on the carrying value of the asset (par or face value plus
unamortized premium or less unaccreted discount) at the beginning of each amortization period over
the asset's remaining life. The difference between the periodic interest income that is accrued on the
asset and interest at the stated rate is the periodic amortization or accretion. However, a straight-line
method of amortization or accretion is acceptable only if the results are not materially different from the
interest method.
If an institution holds a large number of similar debt securities, loans, or other assets for which
prepayments are probable and the timing and amount of prepayments can be reasonably estimated,
the institution may consider estimates of future principal prepayments in the calculation of the constant
effective yield necessary to apply the interest method.
For callable debt securities that have explicit, non-contingent call features and are callable at fixed
prices and on preset dates, Accounting Standards Update No. 2017-08 (ASU 2017-08) amends
ASC Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs, to shorten the
amortization period for any premiums on such debt securities. Under the ASU, after it has been
adopted, the excess of the amortized cost basis of such a callable debt security over the amount
repayable by the issuer at the earliest call date (i.e., the premium) must be amortized to the earliest call
date (unless the institution applies the guidance that allows estimates of future principal prepayments
to be considered in the effective yield calculation). If the call option is not exercised at its earliest call
date, the institution must reset the effective yield using the payment terms of the debt security.1
A premium or discount may also arise when the reporting institution, acting either as a lender or a
borrower, is involved in an exchange of a note for assets other than cash and the interest rate is either
below the market rate or not stated, or the face amount of the note is materially different from the fair
value of the noncash assets exchanged. The noncash assets and the related note shall be recorded at
either the fair value of the noncash assets or the market value of the note, whichever is more clearly
determinable. The market value of the note would be its present value as determined by discounting
all future payments on the note using an appropriate interest rate, i.e., a rate comparable to that on
new loans of similar risk. The difference between the face amount and the recorded value of the note
is a premium or discount. This discount or premium shall be accounted for as an adjustment of the
interest income or expense over the life of the note using the interest method described above. For
further information, see ASC Subtopic 835-30, Interest – Imputation of Interest.

1

An institution must continue to amortize premiums over the contractual life of callable debt securities until the
effective date of ASU 2017-08 applicable to the institution unless early application of the ASU has been adopted.
For information on the ASU’s effective dates and transition, refer to ASU 2017-08.

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Private Company: A private company is a business entity that is not a public business entity. For further
information, see the Glossary entry for “Public Business Entity.”
Public Business Entity: Accounting Standards Update No. 2013-12, “Definition of a Public Business
Entity,” added this term to the Master Glossary in the Accounting Standards Codification. The
definition states that a business entity, such as bank or savings association, that meets any one of five
specified criteria is a public business entity for reporting purposes under U.S. GAAP. This also applies
for Call Report purposes. In contrast, a private company is a business entity that is not a public
business entity. An institution that is a public business entity is not permitted to apply private company
accounting alternatives when preparing its Call Report.
As defined in the ASC Master Glossary, a business entity is a public business entity if it meets any one
of the following criteria:
•

•
•
•

•

It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial
statements, or does file or furnish financial statements (including voluntary filers), with the SEC
(including other entities whose financial statements or financial information are required to be or
are included in a filing).
It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations
promulgated under the Act, to file or furnish financial statements with a regulatory agency other
than the SEC (such as one of the federal banking agencies).
It is required to file or furnish financial statements with a foreign or domestic regulatory agency in
preparation for the sale of or for purposes of issuing securities that are not subject to contractual
restrictions on transfer.
It has issued debt or equity securities that are traded, listed, or quoted on an exchange or an overthe-counter market, which includes an interdealer quotation or trading system for securities not
listed on an exchange (for example, OTC Markets Group, Inc., including the OTC Pink Markets, or
the OTC Bulletin Board).
It has one or more securities that are not subject to contractual restrictions on transfer, and it is
required by law, contract, or regulation to prepare U.S. GAAP financial statements (including
footnotes) and make them publicly available on a periodic basis (for example, interim or annual
periods). An entity must meet both of these conditions to meet this criterion.

The Master Glossary also explains that if an entity meets the definition of a public business entity solely
because its financial statements or financial information is included in another entity’s filing with the
SEC, the entity is only a public business entity for purposes of financial statements that are filed or
furnished with the SEC, but not for other reporting purposes or for Call Report purposes.
If a bank or savings association does not meet any one of the first four criteria, it would need to
consider whether it meets both of the conditions included in the fifth criterion to determine whether it
would be a public business entity. With respect to the first condition under the fifth criterion, a stock
institution must determine whether it has a class of securities not subject to contractual restrictions on
transfer, which the FASB has stated means that the securities are not subject to management
preapproval on resale. A contractual management preapproval requirement that lacks substance
would raise questions about whether the stock institution meets this first condition.
If an institution is a wholly owned subsidiary of a holding company, an implicit contractual restriction on
transfer is presumed to exist on the institution’s common stock; therefore, if the institution has issued
no other debt or equity securities, the institution would not meet the first condition of the fifth criterion.
A mutual institution that has issued no debt securities also does not meet the first condition of the fifth
criterion. In all other scenarios (e.g., a closely-held bank or a Subchapter S bank that is not a wholly
owned subsidiary of a holding company), an institution should assess whether contractual restrictions
on transfer exist on its securities based on its individual facts and circumstances.

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Public Business Entity (cont.):
With respect to the second condition under the fifth criterion, an insured depository institution with
$500 million or more in total assets as of the beginning of its fiscal year is required by Section 36 of the
Federal Deposit Insurance Act and Part 363 of the FDIC’s regulations, “Annual Independent Audits and
Reporting Requirements,” to prepare and make publicly available audited annual U.S. GAAP financial
statements. In certain circumstances, an insured depository institution with $500 million or more in
total assets that is a subsidiary of a holding company may choose to satisfy this annual financial
statement requirement at a holding company level rather than at the institution level. An insured
depository institution of this size that satisfies the financial statement requirement of Section 36 and
Part 363 at either the institution level or the holding company level would meet the fifth criterion’s
second condition.
Purchase Acquisition: See "Business Combinations."
Purchased Credit-Deteriorated Assets: This Glossary entry applies to institutions that have adopted
ASC Topic 326, Financial Instruments–Credit Losses. Institutions that have not adopted ASC
Topic 326 should continue to refer to the Glossary entry for “Purchased Credit-Impaired Loans and
Debt Securities.”
Purchased credit-deteriorated (PCD) assets are acquired financial assets that, at acquisition, have
experienced a more-than-insignificant deterioration in credit quality since origination, as determined by
an acquirer’s assessment.
In accordance with ASC Topic 326, institutions are required to estimate and record an allowance for
credit losses (ACL) for PCD assets at the time of purchase. This acquisition date ACL is added to the
purchase price of the financial assets rather than recording these losses through provisions for credit
losses. This establishes the initial amortized cost basis of the PCD assets. An institution may use
either a discounted or an undiscounted cash flow method at acquisition to determine this ACL.
Subsequent ACL measurements for acquired financial assets with more-than-insignificant credit
deterioration since origination are to be measured under ASC Topic 326 as with (1) originated financial
assets and (2) purchased financial assets that do not have a more-than-insignificant deterioration in
credit quality at acquisition.
Institutions that measure expected credit losses for PCD assets on a pool basis shall continue to
evaluate whether financial assets in the pool continue to share similar risk characteristics with the other
financial assets in the pool. If there have been changes in credit risk, borrower circumstances,
recognition of a charge-off, or cash collections of interest applied to principal while the asset is in
nonaccrual status, an institution may determine that either the financial asset has similar risk
characteristics with another pool or the credit loss measurement should be performed on an individual
financial asset basis because the financial asset does not share risk characteristics with other financial
assets. Institutions that measure the ACL on a collective basis shall allocate the ACL and any
noncredit discount or premium to the individual PCD assets unless the institution elected the transition
option to account for existing purchased credit-impaired financial asset pools as PCD pools upon
adoption of ASC Topic 326.
Any difference between the unpaid principal balance of the PCD asset and the amortized cost basis of
the asset as of the acquisition date is the noncredit discount or premium. Provided the asset remains
on accrual status, the noncredit discount or premium recorded at acquisition is accreted into interest
income over the remaining life of the PCD asset on a level-yield basis.
For further information on the reporting of interest income on PCD assets, institutions should reference
the Glossary entry for “Nonaccrual Status” and ASC Subtopic 310-10, Receivables – Overall.
Deferred Tax Asset Considerations – An institution’s provisions for credit losses that increase the
amount of the ACL also increase the amount of the deductible temporary difference associated with the

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Purchased Credit-Deteriorated Assets (cont.):
ACL and the related deferred tax asset because the provisions are expensed for financial reporting
purposes. These increases in the ACL typically are not deducted in the same period for income tax
purposes. Tax deductions for credit losses typically occur in the period when financial assets are
actually charged off. However, an addition to the ACL as of the acquisition date of a PCD asset
(i.e., the “gross–up”) does not create such a deductible temporary difference or a deferred tax asset.
An institution’s deferred tax assets should be calculated at the report date by applying the "applicable
tax rate" based on the institution’s total deductible temporary differences. See the Glossary entry for
"Income Taxes" for information on how to determine the tax effect of such a temporary difference and
the need for any deferred tax asset valuation allowance.
See also the Glossary entries for “Allowance for Credit Losses” and “Nonaccrual Status.”
Purchased Credit-Impaired Loans and Debt Securities: This Glossary entry applies to institutions that
have not adopted ASC Topic 326, Financial Instruments–Credit Losses. Institutions that have adopted
ASC Topic 326 should refer to the Glossary entry for “Purchased Credit-Deteriorated Assets.”
Purchased credit-impaired loans and debt securities are loans and debt securities that an institution
has purchased or otherwise acquired by completion of a transfer, including those acquired in a
purchase business combination, where there is evidence of deterioration of credit quality since the
origination of the loan or debt security and it is probable, at the acquisition date, that the institution will
be unable to collect all contractually required payments receivable. Such loans and debt securities
must be accounted for in accordance with ASC Subtopic 310-30, Receivables – Loans and Debt
Securities Acquired with Deteriorated Credit Quality. ASC Subtopic 310-30 does not apply to loans
that an institution has originated.
Under ASC Subtopic 310-30, a purchased credit-impaired loan or debt security is initially recorded at
its purchase price (in a purchase business combination, the present value of amounts to be received).
ASC Subtopic 310-30 limits the yield that may be accreted on the loan or debt security (the accretable
yield) to the excess of the institution's estimate of the undiscounted principal, interest, and other cash
flows expected at acquisition to be collected on the asset over the institution's initial investment in the
asset. The excess of the contractually required payments receivable on the loan or debt security over
the cash flows expected to be collected, which is referred to as the nonaccretable difference, must not
be recognized as an adjustment of yield, loss accrual, or valuation allowance. Neither the accretable
yield nor the nonaccretable difference may be shown on the balance sheet (Schedule RC). After
acquisition, increases in the cash flows expected to be collected generally should be recognized
prospectively as an adjustment of the asset's yield over its remaining life. Decreases in cash flows
expected to be collected should be recognized as an impairment.
For purposes of applying the guidance in ASC Subtopic 310-30 to loans not accounted for as debt
securities, an institution may aggregate loans acquired in the same fiscal quarter that have common
risk characteristics and thereby use a composite interest rate and expectation of cash flows expected
to be collected for the pool. To be eligible for aggregation, each loan first should be determined
individually to meet the scope criteria in the first sentence of this Glossary entry. After determining that
certain acquired loans individually meet these scope criteria, the institution may evaluate whether such
loans have common risk characteristics, thus permitting the aggregation of such loans into one or more
pools. The aggregation must be based on common risk characteristics that include similar credit risk or
risk ratings, and one or more predominant risk characteristics, such as financial asset type, collateral
type, size, interest rate, date of origination, term, and geographic location. Upon establishment of a
pool of purchased credit-impaired loans, the pool becomes the unit of account.
Once a pool of purchased credit-impaired loans is assembled, the integrity of the pool must be
maintained. An institution should remove an individual loan from a pool of purchased credit-impaired
loans only if the institution sells, forecloses, or otherwise receives assets in satisfaction of the loan or if

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Purchased Credit-Impaired Loans and Debt Securities (cont.):
the loan is written off. When an individual loan is removed from a pool of purchased credit-impaired
loans under these circumstances, the loan shall be removed at its carrying amount. Carrying amount
is defined as the loan’s current contractually required payments receivable less its remaining
nonaccretable difference, accretable yield, and any post-acquisition loan loss allowance. An institution
that accounts for a pool of purchased credit-impaired loans with common risk characteristics as one
unit of account may or may not document and maintain data on the nonaccretable difference and
accretable yield on a loan-by-loan basis. Accordingly, for purposes of determining the carrying amount
of an individual loan in the pool, an institution may apply a systematic and rational approach to
allocating the nonaccretable difference and accretable yield for the pool to an individual loan in the
pool. One acceptable approach is a pro rata allocation of the pool’s total remaining nonaccretable
difference and accretable yield to an individual loan in proportion to the loan’s current contractually
required payments receivable compared to the pool’s total contractually required payments receivable.
A refinancing or restructuring of a loan within a pool of purchased credit-impaired loans should not
result in the removal of the loan from the pool. In addition, a modification of the terms of a loan within a
pool of purchased credit-impaired loans is not considered a troubled debt restructuring under the scope
exceptions in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors.
However, a modification of the terms of a purchased credit-impaired loan accounted for individually
must be evaluated to determine whether the modification represents a troubled debt restructuring that
should be accounted for in accordance with ASC 310-40. For further information, see the Glossary
entry for “Troubled Debt Restructurings.”
ASC Subtopic 310-30 does not prohibit an institution from placing a purchased credit-impaired loan
accounted for individually, a pool of purchased credit-impaired loans with common risk characteristics,
or a purchased credit-impaired debt security in nonaccrual status. Because a loan (including a loan
aggregated with other loans with common risk characteristics) or debt security accounted for in
accordance with ASC Subtopic 310-30 has evidence of deterioration of credit quality since origination,
an acquiring institution must determine upon acquisition whether it is appropriate to recognize the
accretable yield as income over the life of the loan, pool of loans, or debt security using the interest
method. In order to apply the interest method, the institution must have sufficient information to
reasonably estimate the amount and timing of the cash flows expected to be collected on the loan, loan
pool, or debt security. Thus, when the amount and timing of the cash flows cannot be reasonably
estimated at acquisition, the institution should place the purchased credit-impaired loan, pool, or debt
security in nonaccrual status and then apply the cost recovery method or cash basis income
recognition to the asset. (For purchased credit-impaired loans with common risk characteristics that
are aggregated and accounted for as a pool, the determination of nonaccrual or accrual status should
be made at the pool level, not at the individual loan level.) In addition, if a purchased credit-impaired
loan or debt security is acquired primarily for the rewards of ownership of the underlying collateral,
accrual of income is inappropriate and the loan or debt security should be placed in nonaccrual status.
The amount of a purchased credit-impaired loan, pool of loans, or debt security in nonaccrual status
should be reported in the appropriate items of Schedule RC-N, Past Due and Nonaccrual Loans,
Leases, and Other Assets, column C.
When accrual of income on a purchased credit-impaired loan accounted for individually or a purchased
credit-impaired debt security is appropriate (either at acquisition or at a later date when the amount and
timing of the cash flows can be reasonably estimated), the delinquency status of the individual asset
should be determined in accordance with its contractual repayment terms for purposes of reporting the
amount of the loan or debt security as past due in the appropriate items of Schedule RC-N, column A
or B. When accrual of income on a pool of purchased credit-impaired loans with common risk
characteristics is appropriate, delinquency status should be determined individually for each loan in the
pool in accordance with the individual loan’s contractual repayment terms for purposes of reporting the
amount of individual loans within the pool as past due in the appropriate items of Schedule RC-N,
column A or B.

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Purchased Credit-Impaired Loans and Debt Securities (cont.):
ASC Subtopic 310-30 prohibits an institution from "carrying over" or creating loan loss allowances in
the initial accounting for purchased credit-impaired loans. This prohibition applies to the purchase of
an individual impaired loan, a pool or group of impaired loans, and impaired loans acquired in a
business combination. However, for a purchased credit-impaired loan accounted for individually
(and not accounted for as a debt security), if upon subsequent evaluation it is probable based on
current information and events that an institution will be unable to collect all cash flows expected at
acquisition (plus additional cash flows expected to be collected arising from changes in estimate after
acquisition), the purchased credit-impaired loan should be considered impaired for purposes of
establishing an allowance pursuant to ASC Subtopic 450-20, Contingencies – Loss Contingencies or
ASC Subtopic 310-10, Receivables – Overall, as appropriate. For purchased credit-impaired loans
with common risk characteristics that are aggregated and accounted for as a pool, this impairment
analysis should be performed subsequent to acquisition at the pool level as a whole and not at the
individual loan level. An institution should include post-acquisition allowances on purchased creditimpaired loans and pools of purchased credit-impaired loans in the overall allowance for loan and lease
losses it reports in Schedule RC, item 4.c, and Schedule RI-B, Part II, item 7, and disclose the amount
of these post-acquisition allowances in Schedule RI-B, Part II, Memorandum item 4.
In Schedule RC-C, Part I, Loans and Leases, an institution should report the amount of a purchased
credit-impaired loan in the appropriate loan category (items 1 through 9). Neither the accretable yield
nor the nonaccretable difference associated with a purchased credit-impaired loan should be reported
as unearned income in Schedule RC-C, Part I, item 11. In addition, an institution should report in
Schedule RC-C, Part I, Memorandum items 7.a and 7.b, in the June and December reports only the
outstanding balance and amount, respectively, of all purchased credit-impaired loans reported as held
for investment in Schedule RC-C, Part I. An institution also should report the outstanding balance and
amount of those held-for-investment purchased credit-impaired loans reported in Schedule RC-C,
Part I, Memorandum items 7.a and 7.b, that are past due 30 through 89 days and still accruing, past
due 90 days or more and still accruing, or in nonaccrual status as of the report date in Schedule RC-N,
Memorandum items 9.a and 9.b, column A, B, or C, respectively, in the June and December reports
only in accordance with the past due and nonaccrual guidance provided above in this Glossary entry.
For further information, refer to ASC Subtopic 310-30.
Put Option: See "Derivative Contracts."
Real Estate ADC Arrangements: See "Acquisition, Development, or Construction (ADC)
Arrangements."
Real Estate, Loan Secured By: See "Loan Secured by Real Estate."
Reciprocal Balances: Reciprocal balances arise when two depository institutions maintain deposit
accounts with each other; that is, when a reporting bank has both a due to and a due from balance with
another depository institution.
For purposes of the balance sheet of the Consolidated Report of Condition, reciprocal balances
between the reporting bank and other depository institutions may be reported on a net basis in
accordance with generally accepted accounting principles.
Renegotiated Troubled Debt: See "Troubled Debt Restructurings."
Repurchase/Resale Agreements: A repurchase agreement is a transaction involving the "sale" of
financial assets by one party to another, subject to an agreement by the "seller" to repurchase the
assets at a specified date or in specified circumstances. A resale agreement (also known as a reverse
repurchase agreement) is a transaction involving the "purchase" of financial assets by one party from
another, subject to an agreement by the "purchaser" to resell the assets at a specified date or in
specified circumstances.

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Repurchase/Resale Agreements (cont.):
As stated in the AICPA's Audit and Accounting Guide for Banks and Savings Institutions, dollar
repurchase agreements (also called dollar rolls) are agreements to sell and repurchase similar but not
identical securities. The dollar roll market consists primarily of agreements that involve
mortgage-backed securities (MBS). Dollar rolls differ from regular repurchase agreements in that the
securities sold and repurchased, which are usually of the same issuer, are represented by different
certificates, are collateralized by different but similar mortgage pools (for example, single-family
residential mortgages), and generally have different principal amounts.
General rule – Consistent with ASC Topic 860, Transfers and Servicing, repurchase and resale
agreements involving financial assets (e.g., securities and loans), including dollar repurchase
agreements, are either reported as (a) secured borrowings and loans or (b) sales and forward
repurchase commitments based on whether the transferring ("selling") institution maintains control over
the transferred assets. (See the Glossary entry for "Transfers of Financial Assets" for further
discussion of control criteria.)
If a repurchase agreement both entitles and obligates the "selling" bank to repurchase or redeem the
transferred assets from the transferee ("purchaser"), the "selling" bank should report the transaction as
a secured borrowing if and only if the following conditions have been met:
(1) The assets to be repurchased or redeemed are the same or "substantially the same" as those
transferred, as defined by ASC Topic 860.
(2) The "selling" institution has the ability to repurchase or redeem the transferred assets on
substantially the agreed terms, even in the event of default by the transferee ("purchaser"). This
ability is presumed to exist if the "selling" bank has obtained cash or other collateral sufficient to
fund substantially all of the cost of purchasing replacement assets from others.
(3) The agreement is to repurchase or redeem the transferred assets before maturity, at a fixed or
determinable price.
(4) The agreement is entered into concurrently with the transfer.
Participations in pools of securities are to be reported in the same manner as security
repurchase/resale transactions.
Repurchase agreements reported as secured borrowings – If a repurchase agreement qualifies as a
secured borrowing, the "selling" institution should report the transaction as indicated below based on
whether the agreement involves a security or some other financial asset.
(1) Securities "sold" under agreements to repurchase are reported in Schedule RC, item 14.b,
"Securities sold under agreements to repurchase."
(2) Financial assets (other than securities) "sold" under agreements to repurchase are reported as
follows:
(a) If the repurchase agreement has an original maturity of one business day (or is under a
continuing contract) and is in immediately available funds, it should be reported in
Schedule RC, item 14.a, "Federal funds purchased (in domestic offices)," if it is in a domestic
office, and in Schedule RC-M, item 5.b, "Other borrowings," if it is in a foreign office.
(b) If the repurchase agreement has an original maturity of more than one business day or is not in
immediately available funds, it should be reported in Schedule RC-M, item 5.b.
In addition, the "selling" institution may need to record further entries depending on the terms of the
agreement. If the "purchaser" has the right to sell or repledge noncash assets, the "selling" institution

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Repurchase/Resale Agreements (cont.):
should recategorize the transferred financial assets as "assets receivable" and report them in
Schedule RC, item 11, "Other assets." Otherwise, the financial assets should continue to be reported
in the same asset category as before the transfer (e.g., securities should continue to be reported in
Schedule RC, item 2, "Securities," or item 5, "Trading assets," as appropriate).
Resale agreements reported as secured borrowings. Similarly, if a resale agreement qualifies as a
secured borrowing, the "purchasing" institution should report the transaction as indicated below based
on whether the agreement involves a security or some other financial asset.
(1) Securities "purchased" under agreements to resell are reported in Schedule RC, item 3.b,
"Securities purchased under agreements to resell."
(2) Financial assets (other than securities) "purchased" under agreements to resell are reported as
follows:
(a) If the resale agreement has an original maturity of one business day (or is under a continuing
contract) and is in immediately available funds, it should be reported in Schedule RC, item 3.a,
"Federal funds sold (in domestic offices)," if it is in a domestic office, and in Schedule RC,
item 4.b, "Loans and leases held for investment," if it is in a foreign office.
(b) If the resale agreement has an original maturity of more than one business day or is not in
immediately available funds, it should be reported in Schedule RC, item 4.b.
In addition, the "purchasing" institution may need to record further entries depending on the terms of
the agreement. If the "purchasing" institution has the right to sell the noncash assets it has
"purchased" and sells these assets, it should recognize the proceeds from the sale and report its
obligation to return the assets in Schedule RC, item 20, "Other liabilities." If the "selling" institution
defaults under the terms of the repurchase agreement and is no longer entitled to redeem the noncash
assets, the "purchasing" bank should recognize these assets on its own balance sheet (e.g., securities
should be reported in Schedule RC, item 2, "Securities," or item 5, "Trading assets," as appropriate)
and initially measure them at fair value. However, if the "purchasing" bank has already sold the assets
it has "purchased," it should derecognize its obligation to return the assets. Otherwise, the
"purchasing" bank should not recognize the transferred financial assets (i.e., the financial assets
"purchased" under the resale agreement) on its balance sheet.
Repurchase/resale agreements reported as sales – If a repurchase agreement does not qualify as a
secured borrowing under ASC Topic 860, the selling bank should account for the transaction as a sale
of financial assets and a forward repurchase commitment. The selling bank should remove the
transferred assets from its balance sheet, record the proceeds from the sale of the transferred assets
(including the forward repurchase commitment), and record any gain or loss on the transaction.
Similarly, if a resale agreement does not qualify as a borrowing under ASC Topic 860, the purchasing
bank should account for the transaction as a purchase of financial assets and a forward resale
commitment. The purchasing bank should record the transferred assets on its balance sheet, initially
measure them at fair value, and record the payment for the purchased assets (including the forward
resale commitment).
Reserve Balances, Pass-through: See "Pass-through Reserve Balances."
Retail Sweep Arrangements: See “Deposits.”

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Revenue from Contracts with Customers: ASC Topic 606, Revenue from Contracts with Customers,
when it becomes effective as a result of Accounting Standards Update (ASU) 2014-09,1 provides
guidance on how an entity should recognize revenue from these transactions. The core principle of
ASC Topic 606 is that an entity should recognize revenue at an amount that reflects the consideration
to which it expects to be entitled in exchange for transferring goods or services to a customer as part of
the entity’s ordinary activities. ASU 2014-09 also added ASC Topic 610, Other Income, to the ASC.
ASC Topic 610 applies to income recognition that is not within the scope of ASC Topic 606, other
Topics (such as ASC Topics 840 and 842 on leases, as applicable), or other revenue or income
guidance. ASC Topic 610 applies to an institution’s sales of repossessed nonfinancial assets, such as
other real estate owned (OREO). See the Glossary entry for “Foreclosed Assets” for guidance on the
accounting and reporting for the sale of OREO and other repossessed nonfinancial assets.
ASC Topic 606 specifically excludes financial instruments and other contractual rights or obligations
within the scope of ASC Topic 310, Receivables; ASC Topic 320, Investments–Debt Securities; ASC
Topic 321, Investments–Equity Securities; ASC Topic 815, Derivatives and Hedging; ASC Topic 860,
Transfers and Servicing, and certain other ASC Topics. Therefore, many common revenue streams in
the financial sector, such as interest income, fair value adjustments, gains and losses on sales of
financial instruments, and loan origination fees, are not within the scope of ASC Topic 606. However,
the provisions of ASC Topic 606 may affect the timing for the recognition of, and the presentation of,
those revenue streams within the scope of this accounting standard, such as certain fees associated
with credit card arrangements, underwriting fees and costs, and deposit-related fees.
To achieve the core principle described above when accounting for transactions within the scope of
ASC Topic 606, an institution should apply the following steps as set forth in ASC Topic 606:
Step 1:
Step 2:
Step 3:
Step 4:
Step 5:

Identify the contract(s) with a customer.
Identify the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to the performance obligations in the contract.
Recognize revenue when (or as) the institution satisfies a performance obligation.

For further guidance on applying these steps, refer to ASC Topic 606.
Savings Deposits: See "Deposits."
Securities Activities: Institutions should categorize their investments in debt securities as trading,
available-for-sale, or held-to-maturity consistent with ASC Topic 320, Investments–Debt Securities.
Management should periodically reassess its security categorization decisions to ensure that they
remain appropriate.
For purposes of the Consolidated Reports of Condition and Income, debt and equity securities that are
intended to be held principally for the purpose of selling them in the near term should be classified as
trading assets. Trading activity includes active and frequent buying and selling of securities for the
purpose of generating profits on short-term fluctuations in price. Securities held for trading purposes
must be reported at fair value, with unrealized gains and losses recognized in current earnings and
regulatory capital.
Institutions may also elect to report debt securities within the scope of ASC Topic 320 at fair value in
accordance with ASC Subtopic 825-10, Financial Instruments – Overall. For purposes of the

1

For institutions that are public business entities, as defined under U.S. GAAP, the new standard is effective for fiscal
years beginning after December 15, 2017, including interim reporting periods within those fiscal years. For
institutions that are not public business entities (i.e., that are private companies), the new standard is effective for
fiscal years beginning after December 15, 2018, and interim reporting periods within fiscal years beginning after
December 15, 2019. Early application of the new standard is permitted. See the Glossary entries for “Public
Business Entity” and “Private Company” for the definitions of these terms.

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Securities Activities (cont.):
Consolidated Reports of Condition and Income, debt securities for which the fair value option is elected
should be classified as trading assets with unrealized gains and losses recognized in current earnings
and regulatory capital. In general, the fair value option may be elected for an individual security only
when it is first recognized; this election is irrevocable.
Held-to-maturity securities are debt securities that an institution has the positive intent and ability to
hold to maturity. Held-to-maturity securities are generally reported at amortized cost. Debt securities
not categorized as trading or held-to-maturity must be reported as available-for-sale. An institution
must report its available-for-sale debt securities at fair value on the balance sheet, but unrealized gains
and losses are excluded from earnings and reported in a separate component of equity capital (i.e., in
Schedule RC, item 26.b, “Accumulated other comprehensive income”).
FASB Accounting Standards Update No. 2016-01, “Recognition and Measurement of Financial Assets
and Financial Liabilities” (ASU 2016-01), added ASC Topic 321, Investments – Equity Securities, to the
ASC. Once ASU 2016-01 has been adopted, it eliminates the classification of equity securities with
readily determinable fair values as available-for-sale equity securities that are measured at fair value
with changes in fair value generally recognized in other comprehensive income.1 Institutions that have
adopted ASU 2016-01 must measure investments in equity securities, except those accounted for
under the equity method and those that result in consolidation, at fair value with changes in fair value
recognized in net income. However, for an equity security that does not have a readily determinable
fair value, ASC Topic 321 permits an institution to elect to measure the security at cost minus
impairment, if any, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer. When this measurement
alternative is elected for an equity security without a readily determinable fair value, ASC Topic 321
requires the equity security to be written down to its fair value, with a charge to earnings, if a qualitative
assessment indicates the security is impaired and the fair value of the security is less than its carrying
value. For each equity security accounted for using this measurement alternative, the qualitative
assessment must be made each reporting period by qualitatively considering impairment indicators to
evaluate whether the security is impaired. Impairment indicators that an institution should consider
include, but are not limited to, the indicators identified in ASC Subtopic 321-10.
The measurement guidance for investments in equity securities in ASC Topic 321 described above
also applies to investments in other ownership interests, such as interests in partnerships,
unincorporated joint ventures, and limited liability companies. However, the measurement guidance
does not apply to Federal Home Loan Bank stock or Federal Reserve Bank stock.
Other-Than-Temporary Impairment (ASC Topic 320) – For institutions that have adopted ASC
Topic 326, Financial Instruments–Credit Losses, this section is no longer applicable. Refer to the
“Impairment of Individual Available-for-Sale Debt Securities (ASC Topic 326)” and “Accounting for
Held-to-Maturity Debt Securities (ASC Topic 326)” sections below, as applicable.
Until an institution has adopted FASB Accounting Standards Update No. 2016-13 (ASU 2016-13),
which applies to held-to-maturity and available-for-sale debt securities, or ASU 2016-01, which applies
to equity securities, when the fair value of a debt or equity security (not held for trading) is less than its
(amortized) cost basis, the security is impaired and the impairment is either temporary or other than
temporary. Under ASC Topic 320, institutions must determine whether an impairment of an individual
available-for-sale or held-to-maturity security is other than temporary. To make this determination,
institutions should apply applicable accounting guidance including, but not limited to, ASC Topic 320,
ASC Subtopic 325-40, Investments–Other – Beneficial Interests in Securitized Financial Assets, and
SEC Staff Accounting Bulletin No. 59, Other Than Temporary Impairment of Certain Investments in
Equity Securities (Topic 5.M. in the Codification of Staff Accounting Bulletins).

1

For information on the ASU’s effective dates and transition, institutions should refer to ASU 2016-01.

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Securities Activities (cont.):
Under ASC Topic 320, if an institution intends to sell a debt security, or it is more likely than not that it
will be required to sell the debt security before recovery of its amortized cost basis, an other-thantemporary impairment has occurred and the entire difference between the security’s amortized cost
basis and its fair value at the balance sheet date must be recognized in earnings. In these cases, the
fair value of the debt security would become its new amortized cost basis.
In addition, under ASC Topic 320, if the present value of cash flows expected to be collected on a debt
security is less than its amortized cost basis, a credit loss exists. In this situation, if an institution does
not intend to sell the security and 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, an
other-than-temporary impairment has occurred. The amount of the total other-than-temporary
impairment related to the credit loss must be recognized in earnings, but the amount of the total
impairment related to other factors must be recognized in other comprehensive income, net of
applicable taxes.
Until an institution has adopted ASU 2016-13, other-than-temporary impairment losses on held-tomaturity and available-for-sale debt securities that must be recognized in earnings should be included
in Schedule RI, items 6.a and 6.b, respectively. Other-than-temporary impairment losses that are to be
of applicable taxes, should be reported in item 10 of Schedule RI-A, Changes in Bank Equity Capital,
and included on the balance sheet in Schedule RC, item 26.b, “Accumulated other comprehensive
income.” The amount of other-than-temporary impairment losses on held-to-maturity and available-forsale debt securities recognized in earnings during the current calendar year-to-date reporting period
should be reported in Schedule RI, Memorandum item 14. For a held-to-maturity debt security on
which the institution has recognized an other-than-temporary impairment loss related to factors other
than credit loss in other comprehensive income, the institution should report the carrying value of the
debt security in Schedule RC, item 2.a, and in column A of Schedule RC-B, Securities. Under ASC
Topic 320, this carrying value should be the fair value of the held-to-maturity debt security as of the
date of the most recently recognized other-than-temporary impairment loss adjusted for subsequent
accretion of the impairment loss related to factors other than credit loss.
Impairment of Individual Available-for-Sale Debt Securities (ASC Topic 326) – This section of this
Glossary entry applies to institutions that have adopted ASC Topic 326. Institutions that have not
adopted ASC Topic 326 should continue to refer to the “Other-Than-Temporary Impairment (ASC
Topic 320)” section above. For additional information on the maintenance of appropriate allowances
for credit losses, institutions should refer to the Interagency Policy Statement on Allowances for Credit
Losses issued in May 2020.
Standards for the accounting for impairment of available-for-sale debt securities are set forth in
ASC Subtopic 326-30, Financial Instruments–Credit Losses–Available-for-Sale Debt Securities. Under
this subtopic, an available-for-sale debt security is impaired if its fair value is less than its amortized
cost basis. Thus, as of the end of each quarter, or more frequently if warranted, an institution must
determine whether a decline in fair value below the amortized cost basis of an individual available-forsale debt security has resulted from a credit loss or other factors. Credit losses are calculated
individually, rather than collectively, using a discounted cash flow method to compare the present value
of the cash flows expected to be collected with the amortized cost basis of the security. An ACL is
established, with a charge to the provision for credit losses, to reflect the credit loss component of the
decline in fair value below amortized cost. The ACL for an available-for-sale debt security is limited by
the amount that the fair value is less than the amortized cost basis, which is referred to as the fair value
floor. Noncredit impairment on an available-for-sale debt security that is not required to be recorded
through the ACL should be reported, net of applicable income taxes, in Schedule RI-A, item 10, “Other
comprehensive income.”
An institution must reassess the credit losses on an individual available-for-sale debt security each
quarter when there is an ACL on the security. The institution should record subsequent changes in the

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Securities Activities (cont.):
ACL in the period of the change with a corresponding adjustment recorded through a provision for
credit losses included in Schedule RI, item 4. A previously recorded ACL on an available-for-sale debt
security should not be reversed to an amount below zero.
When evaluating impairment for available-for-sale debt securities, an institution may evaluate the
amortized cost basis including accrued interest receivable, or may evaluate the accrued interest
receivable separately from the remaining amortized cost basis. If evaluated separately, accrued
interest receivable is excluded from both the fair value of the available-for-sale debt security and its
amortized cost basis.
If an institution intends to sell an available-for-sale debt security or will more likely than not be required
to sell the security before recovery of the amortized cost basis, the security’s ACL should be written off
and the amortized cost basis of the security should be charged down to its fair value at the reporting
date with any incremental impairment reported in Schedule RI, item 6.b, “Realized gains (losses) on
available for sale securities.” The previous amortized cost basis of the debt security, less the amount
of the charge-off, becomes the new amortized cost basis of the security. This new amortized cost
basis is not increased for subsequent recoveries in fair value; rather, a subsequent increase in fair
value after charge-off is included in other comprehensive income. The difference between the new
amortized cost basis and the cash flows expected to be collected should be accreted to interest income
according to applicable accounting standards.
An institution that has available-for-sale debt securities accounted for in accordance with ASC
Subtopic 325-40, Investments–Other–Beneficial Interests in Securitized Financial Assets, should refer
to that subtopic to account for changes in cash flows expected to be collected.
Accounting for Expected Credit Losses on Held-to-Maturity Debt Securities (ASC Topic 326) –
Institutions that have not adopted ASC Topic 326 should continue to refer to the “Other-ThanTemporary Impairment (ASC Topic 320)” section above.
Institutions that have adopted ASC Topic 326 should refer to the Glossary entry for “Allowance for
Credit Losses” for information on estimating the allowance for credit losses on held-to-maturity debt
securities. Such institutions should include provisions for credit losses on held-to-maturity debt
securities in Schedule RI, item 4.
Practices Considered Trading Activities – The proper categorization of securities is important to ensure
that trading gains and losses are promptly recognized in earnings and regulatory capital. This will not
occur when debt securities intended to be held for trading purposes are categorized as held-to-maturity
or available-for-sale. The following practices are considered trading activities:
(1) Gains Trading – Gains trading is characterized by the purchase of a security and the subsequent
sale of the same security at a profit after a short holding period, while securities acquired for this
purpose that cannot be sold at a profit are typically retained in the available-for-sale or held-tomaturity portfolio. Gains trading may be intended to defer recognition of losses, as unrealized
losses on available-for-sale and held-to-maturity debt securities do not directly affect regulatory
capital and generally are not reported in income until the security is sold.
(2) When-Issued Securities Trading – When-issued securities trading is the buying and selling of
securities in the period between the announcement of an offering and the issuance and payment
date of the securities. A purchase of a "when-issued" security acquires the risks and rewards of
owning a security and may sell the when-issued security at a profit before having to take delivery
and pay for it. Because such transactions are intended to generate profits from short-term price
movements, they should be categorized as trading.

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Securities Activities (cont.):
(3) Pair-offs – Pair-offs are security purchase transactions that are closed-out or sold at, or prior to,
settlement date. In a pair-off, an institution commits to purchase a security. Then, prior to the
predetermined settlement date, the institution will pair-off the purchase with a sale of the same
security. Pair-offs are settled net when one party to the transaction remits the difference between
the purchase and the sale price to the counterparty. Pair-offs may also involve the same sequence
of events using swaps, options on swaps, forward commitments, options on forward commitments,
or other off-balance sheet derivative contracts.
(4) Extended Settlements – In the U.S., regular-way settlement for federal government and federal
agency securities (except mortgage-backed securities and derivative contracts) is one business
day after the trade date. Regular-way settlement for corporate and municipal securities is three
business days after the trade date. For mortgage-backed securities, it can be up to 60 days or
more after the trade date. The use of extended settlements may be offered by securities dealers
in order to facilitate speculation on the part of the purchaser, often in connection with pair-off
transactions. Securities acquired through the use of a settlement period in excess of the regularway settlement periods in order to facilitate speculation should be reported as trading assets.
(5) Repositioning Repurchase Agreements – A repositioning repurchase agreement is a funding
technique offered by a dealer in an attempt to enable an institution to avoid recognition of a loss.
Specifically, an institution that enters into a "when-issued" trade or a "pair-off" (which may include
an extended settlement) that cannot be closed out at a profit on the payment or settlement date will
be provided dealer financing in an effort to fund its speculative position until the security can be
sold at a gain. The institution purchasing the security typically pays the dealer a small margin that
approximates the actual loss in the security. The dealer then agrees to fund the purchase of the
security, typically buying it back from the purchaser under a resale agreement. Any securities
acquired through a dealer financing technique such as a repositioning repurchase agreement that
is used to fund the speculative purchase of securities should be reported as trading assets.
(6) Short Sales – A short sale is the sale of a security that is not owned. The purpose of a short sale
generally is to speculate on a fall in the price of the security. (For further information, see the
Glossary entry for "Short Position.")
Prohibited Practice – One other practice, referred to as "adjusted trading," is not acceptable under any
circumstances. Adjusted trading involves the sale of a security to a broker or dealer at a price above
the prevailing market value and the contemporaneous purchase and booking of a different security,
frequently a lower-rated or lower quality issue or one with a longer maturity, at a price above its market
value. Thus, the dealer is reimbursed for losses on the purchase from the institution and ensured a
profit. Such transactions inappropriately defer the recognition of losses on the security sold and
establish an excessive cost basis for the newly acquired security. Consequently, such transactions are
prohibited and may be in violation of 18 U.S.C. Sections 1001–Statements or Entries Generally and
1005–Bank Entries, Reports and Transactions.
See also the Glossary entries for “Accrued Interest Receivable,” “Allowance for Credit Losses,”
“Purchased Credit-Deteriorated Assets,” and “Trading Account.”
Securities Borrowing/Lending Transactions: Securities borrowing/lending transactions are typically
initiated by broker-dealers and other financial institutions that need specific securities to cover a short
sale or a customer's failure to deliver securities sold. A transferee ("borrower") of securities generally
is required to provide "collateral" to the transferor ("lender") of securities, commonly cash but
sometimes other securities or standby letters of credit, with a value slightly higher than that of the
securities "borrowed."
Most securities borrowing/lending transactions do not qualify as sales under ASC Topic 860, Transfers
and Servicing, because the securities borrowing/lending agreement entitles and obligates the securities

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Securities Borrowing/Lending Transactions (cont.):
lender to repurchase or redeem the transferred assets before their maturity. (See the Glossary entry
for "Transfers of Financial Assets" for further discussion of sale criteria.) When such a transaction
does not qualify as a sale, the securities lender (the transferor) and the securities borrower (the
transferee) should account for the transaction as a secured borrowing in which cash (or securities that
the holder is permitted by contract or custom to sell or repledge) received as "collateral" by the
securities lender is considered the amount borrowed and the securities "loaned" by the securities
lender are considered pledged as collateral against the amount borrowed. The securities lender
should recognize the cash or securities received as “collateral” as an asset on its balance sheet with a
corresponding liability for the obligation to return the “collateral” received. The securities lender should
continue to report the “loaned” securities on its balance sheet in the same asset category as before the
transfer, e.g., as available-for-sale securities, held-to-maturity securities, or trading assets, as
appropriate. "Loaned" securities that the securities lender reports as available-for-sale or held-tomaturity securities in Schedule RC-B, Securities, should also be reported as "Pledged securities" in
Memorandum item 1 of that schedule. Similarly, for banks filing the FFIEC 031 report form, “loaned”
securities that the securities lender reports as trading assets in Schedule RC-D, Trading Assets and
Liabilities, should be reported as “Pledged securities” in Memorandum item 4.a of that schedule, if
applicable.
When a securities borrowing/lending transaction does not qualify as a sale, the securities borrower
should not recognize at inception the “loaned” securities transferred to it as assets on its balance
sheet. Rather, at the inception of a transaction in which the securities borrower pledges cash
collateral, the securities borrower should derecognize the cash pledged to the securities lender and
recognize a corresponding receivable for the borrower’s claim on the cash that the securities lender is
obligated to return in the future. If the securities borrower pledges securities as collateral to the
securities lender, the securities borrower should record no balance sheet entry for the pledged
securities at inception, but it should report these securities as pledged securities in the Call Report in
the same manner as discussed above for a securities lender. If the securities lender later defaults
under the terms of the securities borrowing/lending agreement and is no longer entitled to redeem the
“loaned” securities, the securities lender should remove these securities from its balance sheet.
Additionally, the securities borrower should now recognize the “loaned” securities as assets on its
balance sheet (and report these securities, e.g., as available-for-sale securities, held-to-maturity
securities, or trading assets, as appropriate, if debt securities had been loaned) and initially measure
them at fair value.
If the securities borrowing/lending transaction meets the criteria for a sale under ASC Topic 860, the
lender of the securities should remove the securities from its balance sheet, record the proceeds from
the sale of the securities (including the forward repurchase commitment), and recognize any gain or
loss on the transaction. The borrower of the securities should record the securities on its balance
sheet at fair value and record the payment for the purchased assets (including the forward resale
commitment).
Securities, Participations in Pools of: See "Repurchase/Resale Agreements."
Servicing Assets and Liabilities: The accounting and reporting standards for servicing assets and
liabilities are set forth in ASC Subtopic 860-50, Transfers and Servicing – Servicing Assets and
Liabilities, and ASC Topic 948, Financial Services-Mortgage Banking. A summary of the relevant
sections of these accounting standards follows. For further information, see ASC Subtopic 860-50,
ASC Topic 948, and the Glossary entry for "Transfers of Financial Assets."
Servicing of mortgage loans, credit card receivables, or other financial assets includes, but is not
limited to, collecting principal, interest, and escrow payments from borrowers; paying taxes and
insurance from escrowed funds; monitoring delinquencies; executing foreclosure if necessary;
temporarily investing funds pending distribution; remitting fees to guarantors, trustees, and others
providing services; and accounting for and remitting principal and interest payments to the holders of
beneficial interests in the financial assets. Servicers typically receive certain benefits from the
servicing contract and incur the costs of servicing the assets.

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Servicing Assets and Liabilities (cont.):
Servicing is inherent in all financial assets; it becomes a distinct asset or liability for accounting
purposes only in certain circumstances as discussed below. Servicing assets result from contracts to
service financial assets under which the benefits of servicing (estimated future revenues from
contractually specified servicing fees, late charges, and other ancillary sources) are expected to more
than adequately compensate the servicer for performing the servicing. Servicing liabilities result from
contracts to service financial assets under which the benefits of servicing are not expected to
adequately compensate the servicer for performing the servicing. Contractually specified servicing
fees are all amounts that, per contract, are due to the servicer in exchange for servicing the financial
asset and would no longer be received by a servicer if the beneficial owners of the serviced assets or
their trustees or agents were to exercise their actual or potential authority under the contract to shift the
servicing to another servicer. Adequate compensation is the amount of benefits of servicing that would
fairly compensate a substitute servicer should one be required including the profit that would be
demanded by a substitute servicer in the marketplace.
A bank must recognize and initially measure at fair value a servicing asset or a servicing liability each
time it undertakes an obligation to service a financial asset by entering into a servicing contract in
either of the following situations:
(1) The bank’s transfer of an entire financial asset, a group of entire financial assets, or a participating
interest in an entire financial asset that meets the requirements for sale accounting; or
(2) An acquisition or assumption of a servicing obligation that does not relate to financial assets of the
bank or its consolidated affiliates included in the Consolidated Reports of Condition and Income
being presented.
If a bank sells a participating interest in an entire financial asset, it only recognizes a servicing asset or
servicing liability related to the participating interest sold.
A bank that transfers its financial assets to an unconsolidated entity in a transfer that qualifies as a sale
in which the bank obtains the resulting securities and classifies them as debt securities held-to-maturity
in accordance with ASC Topic 320, Investments–Debt Securities, may either separately recognize its
servicing assets or servicing liabilities or report those servicing assets or servicing liabilities together
with the assets being serviced.
A bank should account for its servicing contract that qualifies for separate recognition as a servicing
asset or servicing liability initially measured at fair value regardless of whether explicit consideration
was exchanged. A bank that transfers or securitizes financial assets in a transaction that does not
meet the requirements for sale accounting under ASC Topic 860 and is accounted for as a secured
borrowing with the underlying assets remaining on the bank’s balance sheet must not recognize a
servicing asset or a servicing liability.
After initially measuring a servicing asset or servicing liability at fair value, a bank should subsequently
measure each class of servicing assets and servicing liabilities using either the amortization method or
the fair value measurement method. The election of the subsequent measurement method should be
made separately for each class of servicing assets and servicing liabilities. A bank must apply the
same subsequent measurement method to each servicing asset and servicing liability in a class. Each
bank should identify its classes of servicing assets and servicing liabilities based on (a) the availability
of market inputs used in determining the fair value of servicing assets and servicing liabilities, (b) the
bank’s method for managing the risks of its servicing assets or servicing liabilities, or (c) both. Different
elections can be made for different classes of servicing. For a class of servicing assets and servicing
liabilities that is subsequently measured using the amortization method, a bank may change the
subsequent measurement method for that class of servicing by making an irrevocable decision to elect
the fair value measurement method for that class at the beginning of any fiscal year. Once a bank
elects the fair value measurement method for a class of servicing, that election must not be reversed.

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Servicing Assets and Liabilities (cont.):
Under the amortization method, all servicing assets or servicing liabilities in the class should be
amortized in proportion to, and over the period of, estimated net servicing income for assets (servicing
revenues in excess of servicing costs) or net servicing loss for liabilities (servicing costs in excess of
servicing revenues). The servicing assets or servicing liabilities should be assessed for impairment or
increased obligation based on fair value at each quarter-end report date. The servicing assets within a
class should be stratified into groups based on one or more of the predominant risk characteristics of
the underlying financial assets. If the carrying amount of a stratum of servicing assets exceeds its fair
value, the bank should separately recognize impairment for that stratum by reducing the carrying
amount to fair value through a valuation allowance for that stratum. The valuation allowance should be
adjusted to reflect changes in the measurement of impairment subsequent to the initial measurement
of impairment. For the servicing liabilities within a class, if subsequent events have increased the fair
value of the liability above the carrying amount of the servicing liabilities, the bank should recognize the
increased obligation as a loss in current earnings.
Under the fair value measurement method, all servicing assets or servicing liabilities in a class should
be measured at fair value at each quarter-end report date. Changes in the fair value of these servicing
assets and servicing liabilities should be reported in earnings in the period in which the changes occur.
For purposes of these reports, servicing assets resulting from contracts to service loans secured by
real estate (as defined for Schedule RC-C, Part I, item 1, in the Glossary entry for "Loans Secured by
Real Estate") should be reported in Schedule RC-M, item 2.a, "Mortgage servicing assets." Servicing
assets resulting from contracts to service all other financial assets should be reported in
Schedule RC-M, item 2.c, "All other intangible assets." When reporting the carrying amount of
mortgage servicing assets in Schedule RC-M, item 2.a, and nonmortgage servicing assets in
Schedule RC-M, item 2.c, banks should include all classes of servicing accounted for under the
amortization method as well as all classes of servicing accounted for under the fair value measurement
method. The fair value of all recognized mortgage servicing assets should be reported in
Schedule RC-M, item 2.a.(1), regardless of the subsequent measurement method applied to these
assets. The amount of mortgage servicing assets reported in Schedule RC-M, item 2.a, should be
used when determining the amount of such assets, net of associated deferred tax liabilities, that
exceeds the common equity tier 1 capital deduction thresholds in Schedule RC-R, Part I. Servicing
liabilities should be reported in Schedule RC-G, item 4, “All other liabilities.” If the amount of servicing
liabilities is greater than $100,000 and exceeds 25 percent of “All other liabilities,” this amount should
be itemized and described in Schedule RC-G, item 4.f, 4.g, or 4.h, as appropriate.
Servicing assets and servicing liabilities may not be netted on the balance sheet (Schedule RC), but
must be reported gross as assets and liabilities, respectively.
Changes in the fair value of any class of servicing assets and servicing liabilities accounted for under
the fair value measurement method should be included in earnings in Schedule RI, item 5.f, “Net
servicing fees.” In addition, certain information about assets serviced by the reporting bank should be
reported in Schedule RC-S, Servicing, Securitization, and Asset Sale Activities.
Settlement Date Accounting: See "Trade Date and Settlement Date Accounting."
Shell Branches: Shell branches are limited service branches that do not conduct transactions with
residents, other than with other shell branches, in the country in which they are located. Transactions
at shell branches are usually initiated and effected by their head office or by other related branches
outside the country in which the shell branches are located, with records and supporting documents
maintained at the initiating offices. Examples of such locations are the Bahamas and the Cayman
Islands.

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Short Position: When a bank sells an asset that it does not own, it has established a short position.
If on the report date a bank is in a short position, it shall report its liability to purchase the asset in
Schedule RC, item 15, "Trading liabilities." In this situation, the right to receive payment shall be
reported in Schedule RC-F, item 6, "All other assets.” Short positions shall be reported gross. Short
trading positions shall be revalued consistent with the method used by the reporting bank for the
valuation of its trading assets.
Significant Subsidiary: See "Subsidiaries."
Standby Letter of Credit: See "Letter of Credit."
Start-Up Activities: Guidance on the accounting and reporting for the costs of start-up activities,
including organization costs, is set forth in ASC Subtopic 720-15, Other Expenses – Start-Up Costs.
A summary of this accounting guidance follows. For further information, see ASC Subtopic 720-15.
Start-up activities are defined broadly as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory, conducting business with
a new class of customer, or commencing some new operation. Start-up activities include activities
related to organizing a new entity, such as a new bank, the costs of which are commonly referred to as
organization costs.1
Costs of start-up activities, including organization costs, should be expensed as incurred. Costs of
acquiring or constructing premises and fixed assets and getting them ready for their intended use are
not start-up costs, but the costs of using such assets that are allocated to start-up activities
(e.g., depreciation of computers) are considered start-up costs.
For a new bank, pre-opening expenses such as salaries and employee benefits, rent, depreciation,
supplies, directors' fees, training, travel, postage, and telephone are considered start-up costs.
Pre-opening income earned and expenses incurred from the bank's inception until the date the bank
commences operations should be reported in the Consolidated Report of Income using one of the two
following methods, consistent with the manner in which the bank reports pre-opening income and
expenses for other financial reporting purposes:
(1) Pre-opening income and expenses for the entire period from the bank's inception until the date the
bank commences operations should be reported in the appropriate items of Schedule RI, Income
Statement, each quarter during the calendar year in which operations commence; or
(2) Pre-opening income and expenses for the period from the bank's inception until the beginning of
the calendar year in which the bank commences operations should be included, along with the
bank's opening (original) equity capital, in Schedule RI-A, item 5, "Sale, conversion, acquisition, or
retirement of capital stock, net." The net amount of these pre-opening income and expenses
should be identified and described in Schedule RI-E, item 7. Pre-opening income earned and
expenses incurred during the calendar year in which the bank commences operations should be
reported in the appropriate items of Schedule RI, Income Statement, each quarter during the
calendar year in which operations commence.
The organization costs of forming a holding company and the costs of other holding company start-up
activities are sometimes paid by the bank that will be owned by the holding company. Because these
are the holding company’s costs, whether or not the holding company formation is successful, they

1

Organization costs for a bank are the direct costs incurred to incorporate and charter the bank. Such costs include,
but are not limited to, professional (e.g., legal, accounting, and consulting) fees and printing costs directly related to
the chartering or incorporation process, filing fees paid to chartering authorities, and the cost of economic impact
studies.

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Start-Up Activities (cont.):
should not be reported as expenses of the bank. Accordingly, any unreimbursed costs paid by the
bank on behalf of the holding company should be reported as a cash dividend to the holding company
in Schedule RI-A, item 9. In addition, if a new bank and holding company are being formed at the
same time, the costs of the bank’s start-up activities, including its organization costs, should be
reported as start-up costs for the bank. If the holding company pays these costs for the bank but is not
reimbursed by the bank, the bank should treat the holding company’s forgiveness of payment as a
capital contribution, which should be reported in Schedule RI-A, item 11, “Other transactions with
stockholders (including a parent holding company),” and in Schedule RI-E, item 5.
STRIPS: See "Coupon Stripping, Treasury Receipts, and STRIPS."
Subordinated Notes and Debentures: A subordinated note or debenture is a form of debt issued by a
bank or a consolidated subsidiary. When issued by a bank, a subordinated note or debenture is not
insured by a federal agency, is subordinated to the claims of depositors, and has an original weighted
average maturity of five years or more. Such debt shall be issued by a bank with the approval of, or
under the rules and regulations of, the appropriate federal bank supervisory agency and is to be
reported in Schedule RC, item 19, "Subordinated notes and debentures."
When issued by a subsidiary, a note or debenture may or may not be explicitly subordinated to the
deposits of the parent bank and is to be reported in Schedule RC, item 16, "Other borrowed money," or
item 19, "Subordinated notes and debentures," as appropriate.
Those subordinated notes and debentures that are to be reported in Schedule RC, item 19, include
mandatory convertible debt.
Subsidiaries: The treatment of subsidiaries in the Consolidated Reports of Condition and Income
depends upon the degree of ownership held by the reporting bank.
A majority-owned subsidiary of the reporting bank is a subsidiary in which the parent bank directly or
indirectly owns more than 50 percent of the outstanding voting stock.
A significant subsidiary of the reporting bank is a majority-owned subsidiary that meets any one or
more of the following tests:
(1) The bank's direct and indirect investment in and advances to the subsidiary equals five percent or
more of the total equity capital of the parent bank.
NOTE: For the purposes of this test, the amount of direct and indirect investments and advances
is either (a) the amount carried on the books of the parent bank or (b) the parent's proportionate
share in the total equity capital of the subsidiary, whichever is greater.
(2) The parent bank's proportional share (based on equity ownership) of the subsidiary's gross
operating income or revenue amounts to five percent or more of the gross operating income or
revenue of the consolidated parent bank.
(3) The subsidiary's income or loss before income taxes amounts to five percent or more of the parent
bank's income or loss before income taxes.
(4) The subsidiary is, in turn, the parent of one or more subsidiaries which, when consolidated with the
subsidiary, constitute a significant subsidiary as defined in one or more of the above tests.
An associated company is a corporation in which the bank, directly or indirectly, owns 20 to 50 percent
of the outstanding voting stock and over which the bank exercises significant influence. This 20 to 50
percent ownership is presumed to carry "significant" influence unless the bank can demonstrate the
contrary to the satisfaction of the appropriate federal supervisory authority.

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Subsidiaries (cont.):
A corporate joint venture is a corporation owned and operated by a group of banks or other businesses
("joint venturers"), no one of which has a majority interest, as a separate and specific business or
project for the mutual benefit of the joint venturers. Each joint venturer may participate, directly or
indirectly, in the management of the joint venture. An entity that is a majority-owned subsidiary of one
of the joint venturers is not a corporate joint venture.
The equity ownership in majority-owned subsidiaries that are not consolidated on the Consolidated
Reports of Condition and Income (in accordance with the guidance in the General Instructions on the
Scope of the "Consolidated Bank" Required to be Reported in the Submitted Reports) and in
associated companies is accounted for using the equity method of accounting and is reported in
Schedule RC, item 8, "Investments in unconsolidated subsidiaries and associated companies," or
item 9, “Direct and indirect investments in real estate ventures,” as appropriate.
Ownership in a corporate joint venture is to be treated in the same manner as an associated company
(defined above) only to the extent that the equity share represents significant influence over
management. Otherwise, equity holdings in a joint venture are treated as holdings of corporate stock
and income is recognized only when distributed in the form of dividends.
See also “Equity Method of Accounting.”
Suspense Accounts: Suspense accounts are temporary holding accounts in which items are carried
until they can be identified and their disposition to the proper account can be made. Such accounts
may also be known as interoffice or clearing accounts. The balances of suspense accounts as of the
report date should not automatically be reported as "Other assets" or "Other liabilities." Rather, the
items included in these accounts should be reviewed and material amounts should be reported in the
appropriate accounts of the Consolidated Reports of Condition and Income.
Syndications: A syndication is a participation, usually involving shares in a single loan, in which several
participants agree to enter into an extension of credit under a bona fide binding agreement that
provides that, regardless of any event, each participant shall fund and be at risk only up to a specified
percentage of the total extension of credit or up to a specified dollar amount. In a syndication, the
participants agree to the terms of the participation prior to the execution of the final agreement and the
contract is executed by the obligor and by all the participants, although there is usually a lead institution
organizing or managing the credit. Large commercial and industrial loans, large loans to finance
companies, and large foreign loans may be handled through such syndicated participations.
Time Deposits: See "Deposits."
Trade Date and Settlement Date Accounting: For purposes of the Consolidated Reports of Condition
and Income, the preferred method for reporting transactions in held-to-maturity securities, available-forsale securities, and trading assets (including money market instruments) other than derivative
contracts (see the Glossary entry for "Derivative Contracts") is on the basis of trade date accounting.
However, if the reported amounts under settlement date accounting would not be materially different
from those under trade date accounting, settlement date accounting is acceptable. Whichever method
a bank elects should be used consistently, unless the bank has elected settlement date accounting and
subsequently decides to change to the preferred trade date method.
Under trade date accounting, assets purchased shall be recorded in the appropriate asset category on
the trade date and the bank's obligation to pay for those assets shall be reported in Schedule RC-G,
item 4, "All other liabilities." Conversely, when an asset is sold, it shall be removed on the trade date
from the asset category in which it was recorded, and the proceeds receivable resulting from the sale
shall be reported in Schedule RC-F, item 6, "All other assets." Any gain or loss resulting from such
transaction shall also be recognized on the trade date. On the settlement date, disbursement of the
payment or receipt of the proceeds will eliminate the respective "All other liabilities" or "All other assets"
entry resulting from the initial recording of the transaction.

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Trade Date and Settlement Date Accounting (cont.):
Under settlement date accounting, assets purchased are not recorded until settlement date. On the
trade date, no entries are made. Upon receipt of the assets on the settlement date, the asset is
reported in the proper asset category and payment is disbursed. The selling bank, on the trade date,
would make no entries. On settlement date, the selling bank would reduce the appropriate asset
category and reflect the receipt of the payment. Any gain or loss resulting from such transaction would
be recognized on the settlement date.
Each participant in the syndicate, including the lead bank, records its own share of the participated loan
and the total amount of the loan is not entered on the books of one bank to be shared through transfers
of loans. Thus, the initial operation and distribution of this type of participation does not require a
determination as to whether a transfer that should be accounted for as a sale has occurred. However,
any subsequent transfers of shares, or parts of shares, in the syndicated loan would be subject to the
provisions of ASC Topic 860, Transfers and Servicing, governing whether these transfers should be
accounted for as a sale or a secured borrowing. (See the Glossary entry for "Transfers of Financial
Assets.")
Telephone Transfer Account: See "Deposits."
Term Federal Funds: See "Federal Funds Transactions."
Trading Account: Trading activities typically include (a) regularly underwriting or dealing in securities;
interest rate, foreign exchange rate, commodity, equity, and credit derivative contracts; other financial
instruments; and other assets for resale, (b) acquiring or taking positions in such items principally for
the purpose of selling in the near term or otherwise with the intent to resell in order to profit from
short-term price movements, and (c) acquiring or taking positions in such items as accommodations
to customers, provided that acquiring or taking such positions meets the definition of “trading” in
ASC Topic 320, Investments–Debt Securities, and ASC Topic 815, Derivatives and Hedging, and the
definition of “trading purposes” in ASC Topic 815.
For purposes of the Consolidated Reports of Condition and Income, all debt securities within the scope
of ASC Topic 320 that a bank has elected to report at fair value under a fair value option with changes
in fair value reported in current earnings should be classified as trading securities. In addition, for
purposes of these reports, banks may classify assets (other than debt securities within the scope of
ASC Topic 320 for which a fair value option is elected) and liabilities as trading if the bank applies fair
value accounting, with changes in fair value reported in current earnings, and manages these assets
and liabilities as trading positions, subject to the controls and applicable regulatory guidance related to
trading activities. For example, a bank would generally not classify a loan to which it has applied the
fair value option as a trading asset unless the bank holds the loan, which it manages as a trading
position, for one of the following purposes: (1) for market making activities, including such activities as
accumulating loans for sale or securitization; (2) to benefit from actual or expected price movements; or
(3) to lock in arbitrage profits.
All trading assets should be segregated from a bank's other assets and reported in Schedule RC,
item 5, "Trading assets." In addition, banks that (1) reported total trading assets (Schedule RC, item 5)
of $10 million or more in any of the four preceding calendar quarters, or (2) meet the FDIC’s definition of
a large or highly complex institution for deposit insurance assessment purposes should detail the types
of assets and liabilities in the trading account in Schedule RC-D, Trading Assets and Liabilities, and the
levels within the fair value measurement hierarchy in which the trading assets and liabilities fall in
Schedule RC-Q, Assets and Liabilities Measured at Fair Value on a Recurring Basis. A bank's failure
to establish a separate account for assets that are used for trading purposes does not prevent such
assets from being designated as trading for purposes of these reports. For further information, see
ASC Topic 320.

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Trading Account (cont.):
All trading account assets should be reported at their fair value as defined by ASC Topic 820, Fair
Value Measurement, with unrealized gains and losses recognized in current income. When a security
or other asset is acquired, a bank should determine whether it intends to hold the asset for trading or
for investment (e.g., for securities, available-for-sale or held-to-maturity). A bank should not record a
newly acquired asset in a suspense account and later determine whether it was acquired for trading or
investment purposes. Regardless of how a bank categorizes a newly acquired asset, management
should document its decision.
All trading liabilities should be segregated from other transactions and reported in Schedule RC,
item 15, "Trading liabilities." The trading liability account includes the fair value of derivative contracts
held for trading that are in loss positions and short positions arising from sales of securities and other
assets that the bank does not own. (See the Glossary entry for "Short Position.") Trading account
liabilities should be reported at fair value as defined by ASC Topic 820 with unrealized gains and
losses recognized in current income in a manner similar to trading account assets.
Given the nature of the trading account, transfers into or from the trading category should be rare.
Transfers between a trading account and any other account of the bank must be recorded at fair value
at the time of the transfer. For a security transferred from the trading category, the unrealized holding
gain or loss at the date of the transfer will already have been recognized in earnings and should not be
reversed. For a security transferred into the trading category, the unrealized holding gain or loss at the
date of the transfer should be recognized in earnings.
Transaction Account: See "Deposits."
Transfers of Financial Assets: The accounting and reporting standards for transfers of financial assets
are set forth in ASC Topic 860, Transfers and Servicing. Banks must follow ASC Topic 860 for purposes
of these reports. ASC Topic 860 limits the circumstances in which a financial asset, or a portion of a
financial asset, should be derecognized when the transferor has not transferred the entire original
financial asset or when the transferor has continuing involvement with the transferred financial asset.
ASC Topic 860 also defines a “participating interest” (which is discussed more fully below) and
establishes the accounting and reporting standards for loan participations, syndications, and other
transfers of portions of financial assets. A summary of these accounting and reporting standards follows.
For further information, see ASC Topic 860.
A financial asset is cash, evidence of an ownership interest in another entity, or a contract that conveys
to the bank a contractual right either to receive cash or another financial instrument from another entity
or to exchange other financial instruments on potentially favorable terms with another entity. Most of
the assets on a bank's balance sheet are financial assets, including balances due from depository
institutions, securities, federal funds sold, securities purchased under agreements to resell, loans and
lease financing receivables, and interest-only strips receivable.1 However, servicing assets are not
financial assets. Financial assets also include financial futures contracts, forward contracts, interest
rate swaps, interest rate caps, interest rate floors, and certain option contracts.
A transferor is an entity that transfers a financial asset, an interest in a financial asset, or a group of
financial assets that it controls to another entity. A transferee is an entity that receives a financial
asset, an interest in a financial asset, or a group of financial assets from a transferor.
In determining whether a bank has surrendered control over transferred financial assets, the bank must
first consider whether the entity to which the financial assets were transferred would be required to be

1

ASC Topic 860 defines an interest-only strip receivable as the contractual right to receive some or all of the interest
due on a bond, mortgage loan, collateralized mortgage obligation, or other interest-bearing financial asset.

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Transfers of Financial Assets (cont.):
consolidated by the bank. If it is determined that consolidation would be required by the bank, then the
transferred financial assets would not be treated as having been sold in the bank’s Consolidated
Reports of Condition and Income even if all of the other provisions listed below are met.1
Determining Whether a Transfer Should be Accounted for as a Sale or a Secured Borrowing – A
transfer of an entire financial asset, a group of entire financial assets, or a participating interest in an
entire financial asset in which the transferor surrenders control over those financial assets shall be
accounted for as a sale if and only if all of the following conditions are met:
(1) The transferred financial assets have been isolated from the transferor, i.e., put presumptively
beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership.
Transferred financial assets are isolated in bankruptcy or other receivership only if the transferred
financial assets would be beyond the reach of the powers of a bankruptcy trustee or other receiver
for the transferor or any of its consolidated affiliates included in the financial statements being
presented. For multiple step transfers, an entity that is designed to make remote the possibility
that it would enter bankruptcy or other receivership (bankruptcy-remote entity) is not considered a
consolidated affiliate for purposes of performing the isolation analysis. Notwithstanding the
isolation analysis, each entity involved in the transfer is subject to the applicable guidance on
whether it must be consolidated.
(2) Each transferee (or, if the transferee is an entity whose sole purpose is to engage in securitization
or asset-backed financing activities and that entity is constrained from pledging or exchanging the
assets it receives, each third-party holder of its beneficial interest) has the right to pledge or
exchange the assets (or beneficial interests) it received, and no condition both constrains the
transferee (or third-party holder of its beneficial interests) from taking advantage of its right to
pledge or exchange and provides more than a trivial benefit to the transferor.
(3) The transferor, its consolidated affiliates included in the financial statements being presented, or its
agents do not maintain effective control over the transferred financial assets or third-party
beneficial interests related to those transferred assets. Examples of a transferor’s effective control
over the transferred financial assets include, but are not limited to (a) an agreement that both
entitles and obligates the transferor to repurchase or redeem the transferred financial assets
before their maturity, (b) an agreement that provides the transferor with both the unilateral ability to
cause the holder to return specific financial assets and a more-than-trivial benefit attributable to
that ability, other than through a cleanup call, or (c) an agreement that permits the transferee to
require the transferor to repurchase the transferred financial assets at a price that is so favorable to
the transferee that it is probable that the transferee will require the transferor to repurchase them.
If a transfer of an entire financial asset, a group of entire financial assets, or a participating interest in
an entire financial asset does not meet the conditions for sale treatment, or if a transfer of a portion of
an entire financial interest does not meet the definition of a participating interest (discussed below), the
transferor and the transferee shall account for the transfer as a secured borrowing with pledge of
collateral. The transferor shall continue to report the transferred financial assets in its financial
statements with no change in their measurement (i.e., the original basis of accounting for the
transferred financial assets is retained).

1 The requirements in ASC Subtopic 810-10, Consolidation – Overall, should be applied to determine when a variable
interest entity should be consolidated. For further information, refer to the Glossary entry for “Variable Interest
Entity.”

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Transfers of Financial Assets (cont.):
Accounting for a Transfer of an Entire Financial Asset or a Group of Entire Financial Assets That
Qualifies as a Sale1 – Upon the completion of a transfer of an entire financial asset or a group of entire
financial assets that satisfies all three of the conditions to be accounted for as a sale, the transferee(s)
(i.e., purchaser(s)) must recognize all assets obtained and any liabilities incurred and initially measure
them at fair value. The transferor (seller) should:
(1) Derecognize or remove the transferred financial assets from the balance sheet.
(2) Recognize and initially measure at fair value servicing assets, servicing liabilities, and any other
assets obtained (including a transferor’s beneficial interest in the transferred financial assets) and
liabilities incurred in the sale.
(3) Recognize in earnings any gain or loss on the sale.
If, as a result of a change in circumstances, a bank transferor regains control of a transferred financial
asset after a transfer that was previously accounted for as a sale because one or more of the
conditions for sale accounting in ASC Topic 860 are no longer met or a transferred portion of an entire
financial asset no longer meets the definition of a participating interest, such a change generally
should be accounted for in the same manner as a purchase of the transferred financial asset from the
former transferee (purchaser) in exchange for a liability assumed. The transferor should recognize
(rebook) the financial asset on its balance sheet together with a liability to the former transferee,
measuring the asset and liability at fair value on the date of the change in circumstances. If the
rebooked financial asset is a loan, it must be reported as a loan in Schedule RC-C, Part I, either as a
loan held for sale or a loan held for investment, based on facts and circumstances, in accordance with
generally accepted accounting principles. The liability to the former transferee should be reported as a
secured borrowing in Schedule RC-M, item 5.b, “Other borrowings.” This accounting and reporting
treatment applies, for example, to U.S. Government-guaranteed or -insured residential mortgage loans
backing Government National Mortgage Association (GNMA) mortgage-backed securities that a bank
services after it has securitized the loans in a transfer accounted for as a sale. If and when individual
loans later meet delinquency criteria specified by GNMA, they are eligible for repurchase (buy-back)
and the bank is deemed to have regained effective control over these loans. The delinquent loans
must be brought back onto the bank's books and recorded as loans, regardless of whether the bank
intends to exercise the buy-back option.
Banks should refer to ASC Topic 860 for implementation guidance for accounting for transfers of
certain lease receivables, securities lending transactions, repurchase agreements including "dollar
rolls," "wash sales," loan syndications, loan participations (discussed below), risk participations in
bankers acceptances, factoring arrangements, and transfers of receivables with recourse. However,
this accounting standard does not provide guidance on the accounting for most assets and liabilities
recorded on the balance sheet following a transfer accounted for as a sale. As a result, after their
initial measurement or carrying amount allocation, these assets and liabilities should be accounted for
in accordance with the existing generally accepted accounting principles applicable to them.
Participating Interests – Before considering whether the conditions to be accounted for as a sale have
been met (as discussed above), the transfer of a portion of an entire financial asset must first meet the
definition of a participating interest. If the transferred portion of the entire financial asset is a qualifying
participating interest (as defined below), then it should be determined whether the transfer of the
participating interest meets the sales conditions discussed above.

1

The guidance in this section of this Glossary entry does not apply to a transfer of a participating interest in an entire
financial asset that qualifies as a sale. The accounting for such a transfer is discussed in a separate section later in
this Glossary entry.

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Transfers of Financial Assets (cont.):
A participating interest in an entire financial asset, as defined by ASC Topic 860, has all of the following
characteristics:
(1) From the date of the transfer, it must represent a proportionate (pro rata) ownership interest in an
entire financial asset;
(2) From the date of the transfer, all cash flows received from the entire financial asset, except any
cash flows allocated as compensation for servicing or other services performed (which must not be
subordinated and must not significantly exceed an amount that would fairly compensate a
substitute service provider should one be required), must be divided proportionately among the
participating interest holders in an amount equal to their share of ownership;
(3) The rights of each participating interest holder (including the lead lender) must have the same
priority, no interest is subordinated to another interest, and no participating interest holder has
recourse to the lead lender or another participating interest holder other than standard
representations and warranties and ongoing contractual servicing and administration obligations;
and
(4) No party has the right to pledge or exchange the entire financial asset unless all participating
interest holders agree to do so.
Thus, under ASC Topic 860, so-called “last-in, first-out” (LIFO) participations in which all principal cash
flows collected on the loan are paid first to the party acquiring the participation do not meet
the definition of a participating interest. Similarly, so-called “first-in, first-out” (FIFO) participations in
which all principal cash flows collected on the loan are paid first to the lead lender do not meet the
definition of a participating interest. As a result, neither LIFO nor FIFO participations transferred on
or after the beginning of an institution’s first annual reporting period that begins after November 15, 2009
(i.e., January 1, 2010, for a bank with a calendar year fiscal year) will qualify for sale accounting and
instead must be reported as secured borrowings.
The participating interest definition also applies to transfers of government-guaranteed portions of
loans, such as those guaranteed by the Small Business Administration (SBA). In this regard, for a
transfer of the guaranteed portion of an SBA loan at a premium that settled before February 15, 2011,
the "seller" was obligated by the SBA to refund the premium to the “purchaser” if the loan was repaid
within 90 days of the transfer. This premium refund obligation was a form of recourse, which meant
that the transferred guaranteed portion of the loan did not meet the definition of a "participating
interest" for the 90-day period that the premium refund obligation existed. As a result, the transfer was
required to be accounted for as a secured borrowing during this period. After the 90-day period,
assuming the transferred guaranteed portion and the retained unguaranteed portion of the SBA loan
then met the definition of a "participating interest," the transfer of the guaranteed portion could be
accounted for as a sale if all of the conditions for sale accounting were met. In contrast, for transfers of
guaranteed portions of SBA loans at a premium that settled on or after February 15, 2011, the SBA has
eliminated the premium refund requirement. With the elimination of the premium refund obligation from
such transfers, the transferred guaranteed portion and the retained unguaranteed portion of the SBA
loan should normally meet the definition of a “participating interest” on the transfer date. Assuming the
definition of “participating interest” is met and all of the conditions for sale accounting are met, the
transfer of the guaranteed portion of an SBA loan at a premium on or after February 15, 2011, would
qualify as a sale on the transfer date. The conditions for sale accounting are described above under
“Determining Whether a Transfer Should be Accounted for as a Sale or a Secured Borrowing” in this
Glossary entry.
On the other hand, if the guaranteed portion of the SBA loan is transferred at par in a so-called “par
sale” in which the “seller” agrees to pass interest through to the “purchaser” at less than the contractual

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Transfers of Financial Assets (cont.):
interest rate and the spread between the contractual rate and the pass-through interest rate
significantly exceeds an amount that would fairly compensate a substitute servicer, the excess spread
is viewed as an interest-only strip. The existence of this interest-only strip results in a disproportionate
sharing of the cash flows on the entire SBA loan, which means that the transferred guaranteed portion
and the retained unguaranteed portion of the SBA loan do not meet the definition of a "participating
interest," which precludes sale accounting. Instead, the transfer of the guaranteed portion must be
accounted for as a secured borrowing.
Accounting for a Transfer of a Participating Interest That Qualifies as a Sale – Upon the completion of
a transfer of a participating interest that satisfies all three of the conditions to be accounted for as a
sale, the participating institution(s) (the transferee(s)) shall recognize the participating interest(s)
obtained, other assets obtained, and any liabilities incurred and initially measure them at fair value.
The originating lender (the transferor) must:
(1) Allocate the previous carrying amount of the entire financial asset between the participating
interest(s) sold and the participating interest that it continues to hold based on their relative fair
values at the date of the transfer.
(2) Derecognize the participating interest(s) sold.
(3) Recognize and initially measure at fair value servicing assets, servicing liabilities, and any other
assets obtained and liabilities incurred in the sale.
(4) Recognize in earnings any gain or loss on the sale.
(5) Report any participating interest(s) that continue to be held by the originating lender as the
difference between the previous carrying amount of the entire financial asset and the amount
derecognized.
Additional Considerations Pertaining to Participating Interests – When evaluating whether the transfer
of a participating interest in an entire financial asset satisfies the conditions for sale accounting under
ASC Topic 860, an originating lender's right of first refusal on a bona fide offer to the participating
institution from a third party, a requirement for a participating institution to obtain the originating
lender's permission to sell or pledge the participating interest that shall not be unreasonably withheld,
or a prohibition on the participating institution's sale of the participating interest to the originating
lender's competitor (if other potential willing buyers exist) is a limitation on the participating institution's
rights, but is presumed not to constrain a participant from exercising its right to pledge or exchange the
participating interest. However, if the participation agreement constrains the participating institution
from pledging or exchanging its participating interest, the originating lender presumptively receives
more than a trivial benefit, has not relinquished control over the participating interest, and should
account for the transfer of the participating interest as a secured borrowing.
A loan participation agreement may give the originating lender the contractual right to repurchase a
participating interest at any time. In this situation, the right to repurchase is effectively a call option on
a specific participating interest, i.e., a participating interest that is not readily obtainable in the
marketplace. Regardless of whether this option is freestanding or attached, it either constrains the
participating institution from pledging or exchanging its participating interest or results in the originating
lender maintaining effective control over the participating interest. As a consequence, the contractual
right to repurchase precludes sale accounting and the transfer of the participating interest should be
accounted for as a secured borrowing, not as a sale.
In addition, under a loan participation agreement, the originating lender may give the participating
institution the right to resell the participating interest, but reserves the right to call the participating

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Transfers of Financial Assets (cont.):
interest at any time from whoever holds it and can enforce that right by discontinuing the flow of
interest to the holder of the participating interest at the call date. In this situation, the originating lender
has maintained effective control over the participating interest and the transfer of the participating
interest should be accounted for as a secured borrowing, not as a sale.
When an originating FDIC-insured lender transfers a loan participation with recourse, the participation
generally will not be considered isolated from the transferor, i.e., the originating lender, in the event of
an FDIC receivership. Section 360.6 of the FDIC's regulations limits the FDIC's ability to reclaim loan
participations transferred "without recourse," as defined in the regulations, but does not limit the FDIC's
ability to reclaim loan participations transferred with recourse. Under Section 360.6, a participation that
is subject to an agreement that requires the originating lender to repurchase the participation or to
otherwise compensate the participating institution due to a default on the underlying loan is considered
a participation "with recourse." As a result, a loan participation transferred "with recourse" generally
should be accounted for as a secured borrowing and not as a sale for financial reporting purposes.
This means that the originating lender should not remove the participation from its loan assets on the
balance sheet, but should report the secured borrowing in Schedule RC-M, item 5.b, “Other
borrowings.”
Reporting Transfers of Loan Participations That Do Not Qualify for Sale Accounting – If a transfer of a
portion of an entire financial asset does not meet the definition of a participating interest, or if a transfer
of a participating interest does not meet all of the conditions for sale accounting under ASC Topic 860,
the transfer must be reported as a secured borrowing with pledge of collateral. In these situations,
because the transferred loan participation does not qualify for sale accounting, the originating lender
must continue to report the transferred participation (as well as the retained portion of the loan) as a
loan on the Consolidated Report of Condition balance sheet (Schedule RC), normally in item 4.b,
“Loans and leases held for investment,” and in the appropriate loan category in Schedule RC-C, Part I,
Loans and Leases. The originating lender should report the transferred loan participation as a secured
borrowing on the Call Report balance sheet in Schedule RC, item 16, “Other borrowed money,” and in
the appropriate subitem or subitems in Schedule RC-M, item 5.b, “Other borrowings;” in
Schedule RC-M, item 10.b, “Amount of ‘Other borrowings’ that are secured;” and in Schedule RC-C,
Part I, Memorandum item 14, “Pledged loans and leases.” As a consequence, the transferred loan
participation should be included in the originating lender’s loans and leases for purposes of determining
the appropriate level for the lender’s allowance for loan and lease losses (or allowance for credit
losses, if the institution has adopted ASC Topic 326, Financial Instruments–Credit Losses).
A bank that acquires a nonqualifying loan participation (or a qualifying participating interest in a transfer
that does not does not meet all of the conditions for sale accounting) should normally report the loan
participation or participating interest in item 4.b, “Loans and leases held for investment,” on the
Consolidated Report of Condition balance sheet (Schedule RC) and in the loan category appropriate to
the underlying loan, e.g., as a “commercial and industrial loan” in item 4 or as a “loan secured by real
estate” in item 1, in Schedule RC-C, Part I, Loans and Leases. Furthermore, for risk-based capital
purposes, the acquiring bank should assign the loan participation or participating interest to the riskweight category appropriate to the underlying borrower or, if relevant, the guarantor or the nature of the
collateral.
“Purchased” Loans Originated By Others – Some institutions have entered into various residential
mortgage loan purchase programs. These programs often function like traditional warehouse lines of
credit; however, in some cases, the mortgage loan transfers are legally structured as purchases by the
institution rather than as pledges of collateral to secure the funding. Under these programs, an
institution provides funding to a mortgage loan originator while simultaneously obtaining an interest in
the mortgage loans subject to a takeout commitment. A takeout commitment is a written commitment
from an approved investor (generally, an unrelated third party) to purchase one or more mortgage
loans from the originator.

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Transfers of Financial Assets (cont.):
Although the facts and circumstances of each program must be carefully evaluated to determine the
appropriate accounting, an institution should generally account for a mortgage purchase program with
continuing involvement by the originator, including takeout commitments, as a secured borrowing with
pledge of collateral, i.e., a loan to the originator secured by the residential mortgage loans, rather than
a purchase of mortgage loans.
When loans obtained in a mortgage purchase program do not qualify for sale accounting, the financing
provided to the originator (if not held for trading purposes) should be reported in Schedule RC-C, Part I,
item 9.a, “Loans to nondepository financial institutions,” and on the balance sheet in Schedule RC,
item 4.a, “Loans and leases held for sale,” or item 4.b, “Loans and leases, net of unearned income,”
as appropriate. For risk-based capital purposes, a loan to a mortgage loan originator secured by
residential mortgages that is reported in Schedule RC-C, Part I, item 9.a, should be assigned a
100 percent risk weight, or if relevant, the risk weight category appropriate to the exposure as
discussed in the regulatory capital rules, and included in the appropriate column of Schedule RC-R,
Part II, item 4.d or 5.d, based on its balance sheet classification.
In situations where the transaction between the mortgage loan originator and the transferee (acquiring)
institution is accounted for as a secured borrowing with pledge of collateral, the transferee (acquiring)
institution’s designation of the financing provided to the originator as held for sale is appropriate only
when the conditions in ASC Subtopic 310-10, Receivables – Overall, and the 2001 Interagency
Guidance on Certain Loans Held for Sale have been met. In these situations, the mortgage loan
originator’s planned sale of the pledged collateral (i.e., the individual residential mortgage loans) to a
takeout investor is not relevant to the transferee institution’s designation of the loan to the originator as
held for investment or held for sale. In situations where the transferee institution simultaneously
extends a loan to the originator and transfers an interest (for example, a participation interest) in the
loan to the originator to another party, the transfer to the other party also should be evaluated to
determine whether the conditions in ASC Topic 860 for sale accounting treatment have been met.
If this transfer qualifies to be accounted for as a sale, the portion of the loan to the originator that is
retained by the transferee institution should be classified as held for investment when the transferee
has the intent and ability to hold that portion for the foreseeable future or until maturity or payoff (which
is generally in the near term).
Financial Assets Subject to Prepayment – Financial assets such as interest-only strips receivable,
other beneficial interests, loans, debt securities, and other receivables, but excluding financial
instruments that must be accounted for as derivatives, that can contractually be prepaid or otherwise
settled in such a way that the holder of the financial asset would not recover substantially all of its
recorded investment do not qualify to be accounted for at amortized cost. After their initial recording on
the balance sheet, financial assets of this type must be subsequently measured at fair value like
available-for-sale securities or trading securities.
Traveler's Letter of Credit: See "Letter of Credit."
Treasury Receipts: See "Coupon Stripping, Treasury Receipts, and STRIPS."
Treasury Stock: Treasury stock is stock that the bank has issued and subsequently acquired, but that
has not been retired or resold. As a general rule, treasury stock, whether carried at cost or at
par value, is a deduction from a bank's total equity capital. For purposes of the Consolidated Reports
of Condition and Income, the carrying value of treasury stock should be reported (as a negative
number) in Schedule RC, item 26.c, "Other equity capital components."
"Gains" and "losses" on the sale, retirement, or other disposal of treasury stock are not to be reported
in Schedule RI, Income Statement, but should be reflected in Schedule RI-A, item 6, "Treasury stock

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Treasury Stock (cont.):
transactions, net." Such gains and losses, as well as the excess of the cost over the par value of
treasury stock carried at par, are generally to be treated as adjustments to Schedule RC, item 25,
"Surplus."
For further information, see ASC Subtopic 505-30, Equity – Treasury Stock.
Troubled Debt Restructurings: The accounting standards for troubled debt restructurings are set forth
in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, and, for institutions
that have adopted ASC Topic 326, Financial Instruments–Credit Losses, in ASC Topic 326.
Institutions should refer to the Glossary entries for “Allowance for Loan and Lease Losses” and
“Allowance for Credit Losses,” as applicable, when considering measurement of the allowance for loan
losses or allowance for credit losses (allowance, when used interchangeably) for TDRs.
A troubled debt restructuring (TDR) is a restructuring in which an institution, for economic or legal
reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would
not otherwise consider. The restructuring of a loan or other debt instrument (hereafter referred to
collectively as a "loan") may include, but is not necessarily limited to: (1) the transfer from the borrower
to the institution of real estate, receivables from third parties, other assets, or an equity interest in the
borrower in full or partial satisfaction of the loan (see the Glossary entry for "Foreclosed Assets" for
further information), (2) a modification of the loan terms, such as a reduction of the stated interest rate,
principal, or accrued interest or an extension of the maturity date at a stated interest rate lower than the
current market rate for new debt with similar risk, or (3) a combination of the above. A loan extended
or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not
to be reported as a TDR. Modifications of loans should be evaluated to determine if a TDR exists in
totality. In some instances a borrower may have been able to add additional collateral or a guarantor
to a loan which fully compensates for a concession made by the institution.
See the Glossary entry for “Nonaccrual Status” for a discussion of the conditions under which a
nonaccrual asset which has undergone a TDR (including those that involve a multiple note structure)
may be returned to accrual status.
A TDR in which an institution receives physical possession of the borrower's assets should be
accounted for in accordance with ASC Subtopic 310-40. Thus, in such situations, the loan should be
treated as if assets have been received in satisfaction of the loan and reported as described in the
Glossary entry for "Foreclosed Assets."
A TDR may include both a modification of terms and the acceptance of property in partial satisfaction
of the loan. The accounting for such a restructuring is a two-step process: (i) the recorded amount
(or amortized cost basis if the institution has adopted ASC Topic 326) of the loan is reduced by the fair
value (less cost to sell, if appropriate) of the property received, and (ii) the institution should measure
any impairment (or expected credit losses if the institution has adopted ASC Topic 326) on the
remaining recorded balance, or amortized cost basis, as applicable, of the restructured loan in
accordance with ASC Topic 310 (or ASC Subtopic 326-20 if the institution has adopted ASC
Topic 326) and record any related allowance.
A TDR may involve the substitution or addition of a new debtor for the original borrower. The treatment
of these situations depends upon their substance. Restructurings in which the substitute or additional
debtor controls, is controlled by, or is under common control with the original borrower, or performs the
custodial function of collecting certain of the original borrower's funds, should be accounted for as
modifications of terms. Restructurings in which the substitute or additional debtor does not have a
control or custodial relationship with the original borrower should be accounted for as a receipt of a
"new" loan in full or partial satisfaction of the original borrower's loan. The "new" loan should be
recorded at its fair value.

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Troubled Debt Restructurings (cont.):
A credit analysis should be performed for a TDR in conjunction with its restructuring to determine its
collectibility and estimated allowance. When available information confirms that a specific TDR, or a
portion thereof, is uncollectible, the uncollectible amount should be charged off against the allowance
at the time of the restructuring. As is the case for all loans, the credit quality of restructured loans
should be regularly reviewed. The institution should periodically evaluate the collectibility of the TDR
so as to determine whether any additional amounts should be charged to the allowance, or, if the
restructuring involved a financial asset other than a loan, to another appropriate account.
Once an obligation has been restructured in a TDR, it continues to be considered a TDR until paid in
full or otherwise settled, sold, or charged off (or meets the conditions discussed below under
“Accounting for a Subsequent Restructuring of a Troubled Debt Restructuring”). The loan must be
reported in the appropriate loan category in Schedule RC-C, Part I, items 1 through 9, and in the
appropriate loan category in:
•
•

Schedule RC-C, Part I, Memorandum item 1, if it is in compliance with its modified terms, or
Schedule RC-N, items 1 through 7, and Memorandum item 1, if it is not in compliance with its
modified terms.

However, for a loan that is a TDR for which the concession did not include a reduction of principal, if
the restructuring agreement specifies a contractual interest rate that is a market interest rate at the time
of the restructuring and the loan is in compliance with its modified terms, the loan need not continue to
be reported as a TDR in Schedule RC-C, Part I, Memorandum item 1, in calendar years after the year
in which the restructuring took place. A market interest rate is a contractual interest rate that at the
time of the restructuring is greater than or equal to the rate that the institution was willing to accept for a
new loan with comparable risk. To be considered in compliance with its modified terms, a loan that is a
TDR must be in accrual status and must be current or less than 30 days past due on its contractual
principal and interest payments under the modified repayment terms.
Accounting for a Subsequent Restructuring of a TDR – When a loan has previously been modified in a
TDR, the lending institution and the borrower may subsequently enter into another restructuring
agreement. The facts and circumstances of each subsequent restructuring of a TDR loan should be
carefully evaluated to determine the appropriate reporting by the institution under U.S. GAAP. Under
certain circumstances it may be acceptable not to report a subsequently restructured loan as a TDR.
The banking agencies will not object to an institution no longer reporting such a loan as a TDR if at the
time of the subsequent restructuring the borrower is not experiencing financial difficulties and, under
the terms of the subsequent restructuring agreement, no concession has been granted by the
institution to the borrower. To meet these conditions for removing the TDR designation, the
subsequent restructuring agreement must specify market terms, including a contractual interest rate
not less than a market interest rate for new debt with similar credit risk characteristics and other terms
no less favorable to the institution than those it would offer for such new debt. When determining
whether the borrower is experiencing financial difficulties, the institution's assessment of the borrower's
financial condition and prospects for repayment after the restructuring should be supported by a
current, well-documented credit evaluation performed at the time of the restructuring. When assessing
whether a concession has been granted by the institution, the agencies consider any principal
forgiveness on a cumulative basis to be a continuing concession. Accordingly, a TDR loan with any
principal forgiveness would retain the TDR designation after subsequent restructurings.
If at the time of the subsequent restructuring the institution appropriately demonstrates that a loan
meets the conditions discussed above, the loan need no longer be disclosed as a TDR in the
Call Report.
The recorded investment or amortized cost basis, as applicable, should not change at the time of the
subsequent restructuring (unless cash is advanced or received). When there have been charge-offs
prior to the subsequent restructuring, consistent with Call Report instructions, any expected recoveries

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Troubled Debt Restructurings (cont.):
of amounts previously charged off are not added to the recorded investment in, or the amortized cost
basis of, the TDR, as applicable. For institutions that have not adopted ASC Topic 326, no recoveries
should be recognized until collections on amounts previously charged off have been received. For
institutions that have adopted ASC Topic 326, expected recoveries of amounts previously charged off
should be considered as part of the allowance estimate but are not included in the amortized cost basis
of the TDR. Similarly, if interest payments were applied to the recorded investment in, or amortized
cost basis of, the TDR, as applicable, prior to the subsequent restructuring, the application of these
payments to the recorded investment or amortized cost basis, as applicable, should not be reversed
nor reported as interest income at the time of the subsequent restructuring.
If the TDR designation is removed from a loan that meets the conditions discussed above and the loan
is later modified in a TDR, the loan should be reported as a TDR.
Measurement of Impairment on a TDR when ASC Topic 326 Has Not Been Adopted – This section of
this Glossary entry applies to institutions that have not adopted ASC Topic 326. Institutions that have
adopted ASC Topic 326 should refer to the “Measurement of Expected Credit Losses on a TDR when
ASC Topic 326 Has Been Adopted” section below.
All loans whose terms have been modified in a TDR, including both commercial and retail loans, are
impaired loans. Therefore, an institution should measure any impairment on the restructured loan in
accordance with ASC Topic 310, Receivables, and should refer to the Glossary entry for "Loan
Impairment."
An institution measuring the allowance on a TDR that is not collateral dependent using the present
value of expected future cash flows method (i.e., discounted cash flow method) should discount the
cash flows using the effective interest rate of the original or modified loan prior to the restructuring
that resulted in the TDR classification. For a residential mortgage loan with a “teaser” or starter rate
that is less than the loan’s fully indexed rate, the starter rate is not the original effective interest rate.
ASC Topic 310 also permits an institution to aggregate impaired loans that have risk characteristics in
common with other impaired loans, such as modified residential mortgage loans that represent TDRs,
and use historical statistics along with a composite effective interest rate as a means of measuring the
impairment of these loans.
For a subsequently restructured TDR, if at the time of the subsequent restructuring the institution
appropriately determines that the loan no longer meets the conditions discussed above, the impairment
on the loan need no longer be measured as a TDR (i.e., as an impaired loan) in accordance with
ASC Topic 310 and the Glossary entry for “Loan Impairment.” Accordingly, going forward, the loan’s
allowance should be measured under ASC Subtopic 450-20, Contingencies – Loss Contingencies.
For a subsequently restructured TDR on which there was principal forgiveness and therefore does not
meet the conditions discussed above, the impairment on the TDR should continue to be measured as a
TDR (i.e., as an impaired loan) in accordance with ASC Topic 310.
Measurement of Expected Credit Losses on a TDR when ASC Topic 326 Has Been Adopted – This
section of this Glossary entry applies to institutions that have adopted ASC Topic 326. Institutions that
have not adopted ASC Topic 326 should continue to refer to the “Measurement of Impairment on a
TDR when ASC Topic 326 Has Not Been Adopted” section above.
An institution should measure any expected credit losses on loans whose terms have been modified in
a TDR in accordance with ASC Topic 326 as set forth in the Glossary entry for "Allowance for Credit
Losses." ASC Topic 326 allows an institution to use any appropriate loss estimation method to
estimate ACLs for TDRs. However, there are circumstances when specific measurement methods are
required. For purposes of the Consolidated Reports of Condition and Income, if a TDR, or a loan for
which a TDR is reasonably expected, is collateral-dependent, the ACL must be estimated using the fair
value of collateral.

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Troubled Debt Restructurings (cont.):
An institution measuring the allowance on a TDR, or a pool of TDRs with shared risk characteristics,
using the present value of expected future cash flow method (i.e., discounted cash flow method) should
discount the cash flows using the effective interest rate of the original or modified loan prior to the
restructuring that resulted in the TDR classification. For a residential mortgage loan with a “teaser” or
starter rate that is less than the loan’s fully indexed rate, the starter rate is not the original effective
interest rate.
When there is a reasonable expectation of executing a TDR or if a TDR has been executed, the
expected effect of the modification (e.g., a term extension or an interest rate concession) is included in
the estimate of the allowance.
If the TDR designation is removed from a loan balance when it is appropriate for the loan to no longer
be reported as a TDR, given the change in the loan’s risk characteristics, the institution should
determine whether the loan should be included in a pool of loans with similar risk characteristics for
allowance measurement purposes or evaluated for expected credit losses on an individual basis.
See also the Glossary entries for “Allowance for Credit Losses” or “Allowance for Loan and Lease
Losses,” as applicable, “Amortized Cost Basis,” and “Foreclosed Assets.”
Trust Preferred Securities: As bank investments, trust preferred securities are hybrid instruments
possessing characteristics typically associated with debt obligations. Although each issue of these
securities may involve minor differences in terms, under the basic structure of trust preferred securities a
corporate issuer, such as a bank holding company, first organizes a business trust or other special
purpose entity. This trust issues two classes of securities: common securities, all of which are
purchased and held by the corporate issuer, and trust preferred securities, which are sold to investors.
The business trust’s only assets are deeply subordinated debentures of the corporate issuer, which the
trust purchases with the proceeds from the sale of its common and preferred securities. The corporate
issuer makes periodic interest payments on the subordinated debentures to the business trust, which
uses these payments to pay periodic dividends on the trust preferred securities to the investors. The
subordinated debentures have a stated maturity and may also be redeemed under other circumstances.
Most trust preferred securities are subject to mandatory redemption upon the repayment of the
debentures.
Trust preferred securities meet the definition of a security in ASC Topic 320, Investments–Debt
Securities, and in ASC Topic 321, Investments–Equity Securities. Because of the mandatory
redemption provision in the typical trust preferred security, investments in trust preferred securities
would normally be considered debt securities for financial accounting purposes. Accordingly,
regardless of the authority under which a bank is permitted to invest in trust preferred securities,
banks should report these investments as debt securities for purposes of these reports (unless,
based on the specific facts and circumstances of a particular issue of trust preferred securities, the
securities would be considered equity securities under ASC Topic 321 rather than debt securities under
ASC Topic 320). If not held for trading purposes, an investment in trust preferred securities issued by
a single U.S. business trust should be reported in Schedule RC-B, item 6.a, “Other domestic debt
securities.” If not held for trading purposes, an investment in a structured financial product, such as a
collateralized debt obligation, for which the underlying collateral is a pool of trust preferred securities
issued by U.S. business trusts should be reported in Schedule RC-B, item 5.b, “Structured financial
products,” and, for banks with $10 billion or more in total assets, in the appropriate subitem of
Schedule RC-B, Memorandum item 6, “Structured financial products by underlying collateral or
reference assets.”
U.S. Banks: See "Banks, U.S. and Foreign."
U.S. Territories and Possessions: United States territories and possessions include American Samoa,
Guam, the Northern Mariana Islands, and the U.S. Virgin Islands.

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Valuation Allowance: In general, a valuation allowance is an account established against a specific
asset category or to recognize a specific liability, with the intent of absorbing some element of
estimated loss. Such allowances are created by charges to expense in the Consolidated Report of
Income and those established against asset accounts are netted from the accounts to which they relate
for presentation in the Consolidated Report of Condition. Provisions establishing or augmenting such
allowances are to be reported as "Other noninterest expense" except for the provision for loan and
lease losses, which is reported in a separate, specifically designated income statement item on
Schedule RI.
Variable Interest Entity: A variable interest entity (VIE), as described in ASC Subtopic 810-10,
Consolidation – Overall, is an entity in which equity investors do not have sufficient equity at risk for that
entity to finance its activities without additional subordinated financial support or, as a group, the
holders of the equity investment at risk lack one or more of the following three characteristics: (a) the
power, through voting rights or similar rights, to direct the activities of an entity that most significantly
impact the entity’s economic performance, (b) the obligation to absorb the expected losses of the
entity, or (c) the right to receive the expected residual returns of the entity.
Variable interests in a VIE are contractual, ownership, or other pecuniary interests in an entity that
change with changes in the fair value of the entity’s net assets exclusive of variable interests. For
example, equity ownership in a VIE would be a variable interest as long as the equity ownership is
considered to be at risk of loss.
ASC Subtopic 810-10 provides guidance for determining when a bank or other company must
consolidate certain special purposes entities, such as VIEs. Under ASC Subtopic 810-10, a bank must
perform a qualitative assessment to determine whether it has a controlling financial interest in a VIE. This
must include an assessment of the characteristics of the bank’s variable interest or interests and other
involvements (including involvement of related parties and de facto agents), if any, in the VIE, as well as
the involvement of other variable interest holders. The assessment must also consider the entity’s
purpose and design, including the risks that the entity was designed to create and pass through to its
variable interest holders. In making this assessment, only substantive terms, transactions, and
arrangements, whether contractual or noncontractual, are to be considered. Any term, transaction, or
arrangement that does not have a substantive effect on an entity’s status as a VIE, the bank’s power
over a VIE, or the bank’s obligation to absorb losses or its right to receive benefits of the VIE are to be
disregarded when applying the provisions of ASC Subtopic 810-10.
If a bank has a controlling financial interest in a VIE, it is deemed to be the primary beneficiary of the VIE
and, therefore, must consolidate the VIE. An entity is deemed to have a controlling financial interest in a
VIE if it has both of the following characteristics:
•
•

The power to direct the activities of a variable interest entity that most significantly impact the
entity’s economic performance.
The obligation to absorb losses of the entity that could potentially be significant to the variable
interest entity or the right to receive benefits from the entity that could potentially be significant to
the variable interest entity.

If a bank holds a variable interest in a VIE, it must reassess each reporting period to determine whether
it is the primary beneficiary. Based on a bank’s reassessment it may be required to consolidate or
deconsolidate the VIE if a change in the bank’s status as the primary beneficiary has occurred.
ASC Subtopic 810-10 provides guidance on the initial measurement of a VIE that the primary
beneficiary must consolidate. For example, if the primary beneficiary and the VIE are not under
common control, the initial consolidation of a VIE that is a business is a business combination and
must be accounted for in accordance with ASC Topic 805, Business Combinations. If a bank is
required to deconsolidate a VIE, it must follow the guidance for deconsolidating subsidiaries in
ASC Subtopic 810-10.

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Variable Interest Entity (cont.):
When a bank is required to consolidate a VIE because it is the primary beneficiary, the standard
principles of consolidation apply after initial measurement (see “Rules of Consolidation” in the General
Instructions). The assets and liabilities of consolidated VIEs should be reported on the Consolidated
Report of Condition balance sheet (Schedule RC) in the balance sheet category appropriate to the
asset or liability. An institution that consolidates one or more VIEs must complete Schedule RC-V,
Variable Interest Entities, to report, by balance sheet category, (a) the assets of consolidated VIEs that
can be used only to settle obligations of the consolidated VIEs and (b) the liabilities of consolidated
VIEs for which creditors do not have recourse to the general credit of the reporting institution. Such an
institution also must report in Schedule RC-V the total amount of assets and the total amount of
liabilities of its consolidated VIEs that do not meet these criteria.
When-Issued Securities Transactions: Transactions involving securities described as "when-issued" or
"when-as-and-if-issued" are, by their nature, conditional, i.e., their completion is contingent upon the
issuance of the securities. The accounting for contracts for the purchase or sale of when-issued
securities or other securities that do not yet exist is addressed in ASC Topic 815, Derivatives and
Hedging. Such contracts are excluded from the requirements of ASC Topic 815 as a regular-way
security trade only if:
(1) There is no other way to purchase or sell that security;
(2) Delivery of that security and settlement will occur within the shortest period possible for that type of
security; and
(3) It is probable at inception and throughout the term of the individual contract that the contract will
not settle net and will result in physical delivery of a security when it is issued.
A contract for the purchase or sale of when-issued securities may qualify for the regular-way security
trade exclusion even though the contract permits net settlement or a market mechanism to facilitate net
settlement of the contract exists (as described in ASC Topic 815). A bank should document the basis
for concluding that it is probable that the contract will not settle net and will result in physical delivery.
If a when-issued securities contract does not meet the three criteria above, it should be accounted for
as a derivative at fair value on the balance sheet (Schedule RC) and reported as a forward contract in
Schedule RC-L, item 12.b. Such contracts should be reported on a gross basis on the balance sheet
unless the criteria for netting in ASC Subtopic 210-20, Balance Sheet – Offsetting, are met. (See the
Glossary entry for "Offsetting" for further information.)
If a when-issued securities contract qualifies for the regular-way security trade exclusion, it is not
accounted for as a derivative. If the bank accounts for these contracts on a trade-date basis, it should
recognize the acquisition or disposition of the when-issued securities on its balance sheet
(Schedule RC) at the inception of the contract. If the bank accounts for these contracts on a
settlement-date basis, contracts for the purchase of when-issued securities should be reported as
"Other off-balance sheet liabilities" in Schedule RC-L, item 9, and contracts for the sale of when-issued
securities should be reported as "Other off-balance sheet assets" in Schedule RC-L, item 10, subject to
the existing reporting thresholds for these two items.
Trading in when-issued securities normally begins when the U.S. Treasury or some other issuer of
securities announces a forthcoming issue. (In some cases, trading may begin in anticipation of such
an announcement and should also be reported as described herein.) Since the exact price and terms
of the security are unknown before the auction date, trading prior to that date is on a "yield" basis. On
the auction date the exact terms and price of the security become known and when-issued trading
continues until settlement date, when the securities are delivered and the issuer is paid. If physical
delivery is taken on settlement date and settlement date accounting is used, the securities purchased
by the bank shall be reported on the balance sheet as held-to-maturity securities in Schedule RC,
item 2.a, available-for-sale securities in Schedule RC, item 2.b, or trading assets in Schedule RC,
item 5, as appropriate.

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