[Federal Register Volume 61, Number 172 (Wednesday, September 4, 1996)]
[Notices]
[Pages 46645-46649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22518]


=======================================================================
-----------------------------------------------------------------------

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL


Schedule on Trust Income and Expense

AGENCY: Federal Financial Institutions Examination Council.

ACTION: Final action.

-----------------------------------------------------------------------

SUMMARY: The Federal Financial Institutions Examination Council (FFIEC) 
1 has approved the addition of Schedule E, ``Fiduciary Income 
Statement,'' to the Annual Report of Trust Assets (form FFIEC 001), 
effective for the December 31, 1996, report date. The new trust income 
statement must be completed only by those banks and savings 
associations with $100 million or more in total trust assets and by all 
nondeposit trust companies. In general, institutions will report trust 
fees by type of trust account, three general categories of expense, and 
the amount of settlements, surcharges, and other losses gross and net 
of recoveries. If an institution's aggregate losses are $100,000 or 
more in any year, individual losses of $10,000 or more must be reported 
by type of account. The information reported by individual institutions 
in Schedule E will not be publicly available, but aggregate data will 
be published by the FFIEC. The new trust income schedule is intended to 
enable the agencies to better target their supervision of trust 
activities to those areas that pose greater risk to institutions.

    \1\ The FFIEC consists of representatives from the Board of 
Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), the Office of the Comptroller of the 
Currency (OCC), the Office of Thrift Supervision (OTS) (referred to 
as the ``agencies''), and the National Credit Union Administration. 
However, this reporting requirement is not applicable to credit 
unions. Section 1006(c) of the Federal Financial Institutions 
Examination Council Act requires the FFIEC to develop uniform 
reporting standards for federally-supervised financial institutions.
---------------------------------------------------------------------------

EFFECTIVE DATE: For the Annual Report of Trust Assets (form FFIEC 001) 
to be prepared as of December 31, 1996.

FOR FURTHER INFORMATION CONTACT:
    Board: Donald R. Vinnedge, Manager, Trust Activities Program, (202) 
452-2717; William R. Stanley, Supervisory Trust Analyst, Trust 
Activities Program, (202) 452-2744.
    FDIC: John F. Harvey, Trust Review Examiner, Division of 
Supervision, (202) 898-6762.
    OCC: William F. Granovsky, National Bank Examiner, Fiduciary 
Activities, (202) 874-4447.
    OTS: Larry A. Clark, Program Manager, Compliance and Trust, (202) 
906-5628.

SUPPLEMENTARY INFORMATION:

Background

    There are approximately 3,000 banks, savings associations, and 
trust companies that actively engage in trust activities. These 
institutions administered $11.6 trillion of assets as of December 31, 
1994, or nearly three times the commercial banking industry's on-
balance sheet assets. The information that the agencies have been 
collecting from institutions engaging in trust activities has been 
limited to data reported in the Annual Report of Trust Assets (form 
FFIEC 001) showing discretionary and nondiscretionary trust assets by 
various types of accounts.
    The off-balance sheet nature of fiduciary activities has presented 
certain impediments to the agencies in the development and 
implementation of fiduciary and related supervision policy. The lack of 
uniform, consistent and industry-wide information on fiduciary income 
and expenses has precluded effective analysis of fiduciary 
profitability and risk management for an individual institution, a peer 
group, and the entire industry. It also has hampered the agencies' 
ability to measure the risk associated with particular lines of 
fiduciary business and to evaluate the functional activities causing 
losses. Thus, the agencies have not been able to ensure that they have 
targeted their supervision of trust activities to those areas that pose 
greater risks to institutions.

Proposed Schedule on Trust Income and Expense

    On June 29, 1995, the FFIEC published a request for comment on a 
proposed Schedule E, ``Fiduciary Income Statement,'' that would be 
added to the Annual Report of Trust Assets and prepared on a calendar 
year basis beginning with the year ending December 31, 1996 (60 FR 
34252). The comment period closed on August 29, 1995.
    The FFIEC proposed that this schedule be required to be filed by 
all institutions with $100 million or more in total trust assets as 
reported on Schedule A, ``Annual Report of Trust Assets,'' on form 
FFIEC 001. In addition, all nondeposit trust companies, whether or not 
they report any assets on Schedule A, would be required to file 
Schedule E. Under this proposal, less than one third of all 
institutions actively engaging in trust activities were to be required 
to report trust income and expense on the new schedule, but these 
institutions accounted for approximately 99 percent of all trust 
assets.
    The proposal called for institutions to provide a breakdown of 
fiduciary income along six categories that correspond to the existing 
account classifications on Schedule A, ``Annual Report of Trust 
Assets,'' and Schedule C, ``Corporate Trusts,'' of the form FFIEC 001. 
This would permit the agencies to compare income data with information 
on assets managed and to enhance their understanding of the operations 
of individual institutions.
    Expense information was proposed to be broken out by three 
categories: (1) Salaries and Employee Benefits, (2) Other Direct 
Expense, and (3) Allocated Indirect Expense. This would permit the 
development of efficiency or overhead ratios comparable to those 
commonly used in the analysis of commercial bank operations.
    The proposed schedule included two types of breakdowns of losses 
resulting from surcharges and settlements (e.g., replenishment of 
losses incurred by fiduciary customers). For the first breakdown, these 
losses were to be separately reported for ten categories of fiduciary 
activities, including eight types of accounts reported on Schedule A, 
``Annual Report of Trust Assets,'' and corporate trusts reported on 
Schedule C of the form FFIEC 001. For the second breakdown, loss data 
were to be reported for three types of losses: (1) Investment, (2) 
Administrative, and (3) Operational. If an institution or group of

[[Page 46646]]

institutions show loss data or trends in loss data for certain 
categories of fiduciary activities or certain types of losses, this 
information should help the agencies develop and implement appropriate 
supervisory policies and examination emphasis.
    Since the trust income and expense information proposed for 
collection generally pertains to only a portion of a reporting 
institution's total operations, the proposal stated that the data 
reported in Schedule E by individual institutions would be regarded as 
confidential by the FFIEC and the agencies. Aggregate information, 
however, would be published annually in an FFIEC publication entitled 
``Trust Assets of Financial Institutions.''

Public Comments

    The FFIEC solicited comment on all aspects of the proposed trust 
income schedule and specifically requested comments on seven issues. 
The FFIEC received 58 comments on the proposal, 56 from institutions or 
the parent holding companies of institutions that engage in trust 
activities and two from bank trade associations.
    Comments submitted by the largest institutions dealt primarily with 
the initial cost of establishing data collection systems in 
environments where many of them are no longer structured along 
traditional trust business or reporting lines. Most respondents of all 
sizes indicated that required income and expense information was 
available, but that it might need to be reformatted to be used for 
reporting in the proposed schedule and that the reporting burden in 
years after the first year would diminish significantly. Several 
respondents indicated that, while available, expense information might 
not be meaningful due to the wide variety of indirect expense 
allocation formulas in use throughout the industry. The settlements, 
surcharges, and other losses portion of the proposed schedule generated 
six comments indicating that manual collection procedures would have to 
be utilized because of the unique nature of this information. The 
confidentiality of the Schedule E data was a concern of several 
respondents.
    The first issue for which comments were specifically requested--the 
availability of the information proposed to be collected--elicited 
comments from 13 respondents. Eleven of these indicated that the 
information was already available, although three stated that it would 
have to be obtained manually. Only two respondents indicated that none 
of the information to be collected in the proposed schedule would be 
readily available. Four respondents stated that the data on 
settlements, surcharges, and other losses would cause difficulties 
because the records they maintain do not use the categories that were 
proposed in the schedule. In addition, three respondents also believed 
that the information on expenses, gross losses, and recoveries was not 
readily available to them and would be difficult to obtain.
    Only five respondents supplied information concerning the second 
issue for which comments were requested--the cost and time required to 
implement any needed changes in institutions' recordkeeping systems to 
provide the information requested in proposed Schedule E. Two of these 
respondents indicated that there would be little or no cost and time 
involved. One stated that five to six hours would be needed while 
another reported that 20 hours would be needed to make the needed 
changes. One respondent only stated that extensive time plus changes to 
computer systems would be needed to obtain the required information.
    Ten respondents commented on the third issue for which comments 
were requested--the cost and time that would be required to complete 
the proposed schedule each year after the initial year. Five of these 
respondents indicated that there would be either minimal or no 
additional time or cost involved. The other five respondents gave cost 
estimates for preparing the new schedule along with time commitments 
ranging from one hour to 48 hours per year.
    Seven commenters expressed opinions about the fourth issue for 
which comment was requested--the feasibility of providing the 
information in the proposed schedule for the calendar year ending 
December 31, 1996. Four of these commenters indicated that this would 
not present any problem for them since the information is already 
available, with one stating that most banking institutions already 
produce the requested information in a similar format. Two commenters 
indicated that the schedule would not present any problem for them, 
provided that they were given sufficient lead time. They noted that 
sufficient lead time would perhaps be 12 months. One respondent stated 
that there would be no problem with supplying the information with the 
exception of the proposed data on settlements, surcharges, and other 
losses.
    Nine respondents expressed opinions on the fifth issue for which 
comment was requested--the proposed reporting threshold for depository 
institutions of $100 million in total trust assets. Of these nine, five 
indicated that the $100 million threshold was appropriate since it 
would eliminate the small institutions while including the majority of 
trust assets. One respondent stated that institutions below this level 
should be asked to file the schedule on a voluntary basis. Three 
respondents stated that the threshold level was too low and should be 
raised. One respondent believed that there should be no threshold level 
and that all trust institutions should be required to file the 
schedule.
    Only three respondents commented on the sixth issue for which 
comment was requested--the proposed requirement that all nondeposit 
trust companies, regardless of size, file the trust income schedule. 
Each respondent felt that all of the trust companies should be required 
to supply income and expense information.
    Finally, seven respondents replied to the seventh issue for which 
comment was requested--the adequacy and clarity of the proposed 
instructions. Each one indicated that the instructions were clearly 
written, adequate in scope and detail, and easy to follow. No 
suggestions were made for improvement.
    A total of fourteen respondents supplied other comments covering a 
wide range of topics in addition to those detailed above. One objected 
to the inclusion of allocated expenses as well as to the amount of 
detail required for settlements, surcharges, and other losses. Another 
respondent, however, felt that there should be a more detailed 
breakdown of expenses. One respondent suggested that a threshold level 
should be used for the reporting of losses so that small items would be 
eliminated. Another respondent felt that the proposed single item on 
total non-fiduciary income, which would be applicable to non-deposit 
trust companies only, should be eliminated completely since it is often 
only an estimate. On the other hand, one commenter felt that this item 
should be expanded to detail all types of non-fiduciary income.

Final Action

    After reviewing the comments received and giving further 
consideration to the issues involved, on December 15, 1995, the FFIEC 
approved the addition of Schedule E to the Annual Report of Trust 
Assets (form FFIEC 001), effective for the December 31, 1996, report 
date. All banks, savings associations, and trust companies engaged in 
trust activities were directly notified of the FFIEC's decision on 
December 28, 1995, in Financial

[[Page 46647]]

Institutions Letter (FIL) 85-95. Copies of FIL-85-95 may be obtained 
from the FDIC's Office of Corporate Communications, Public Information 
Center, 801 17th Street, N.W., Washington, D.C. 20434-0001, (202) 416-
6940.
    As proposed, the new trust income statement must be completed only 
by those depository institutions with $100 million or more in total 
trust assets and by all nondeposit trust companies. Also as proposed, 
the information reported by individual institutions in Schedule E will 
not be publicly available, but aggregate data will be included in 
``Trust Assets of Financial Institutions,'' which is published annually 
by the FFIEC.
    However, the version of Schedule E adopted by the FFIEC 
incorporates changes made to the proposal to address commenters' 
concerns about reporting burden. First, the proposed breakdown of 
settlements, surcharges, and other losses by type of loss, i.e., 
Investment, Administrative, and Operational Losses, was eliminated. 
Second, a threshold of $100,000 was established for reporting the 
breakdown of losses incurred by type of fiduciary activity. Thus, only 
if an institution's aggregate losses are greater than $100,000 in any 
year must individual losses greater than $10,000 be reported by type of 
fiduciary activity. Finally, in recognition of the limited amount of 
time between the date of the FFIEC's final action and the beginning of 
the initial calendar year for which trust income statement data must be 
compiled, i.e, January 1, 1996, the FFIEC decided that institutions may 
report reasonable estimates in Schedule E for 1996 if the requested 
information is not readily available. Institutions were advised of this 
decision in FIL-85-95.
    In approving the trust income reporting requirement, the 
Examination Council noted that the trust activities of federally-
supervised financial institutions have grown substantially in recent 
years, both in terms of the types and volume of assets administered and 
the variety and sophistication of investment services offered. Trust 
assets administered by the industry have grown by 74 percent over the 
five years from 1989 to 1994, including increases of 12 percent from 
1992 to 1993 and 10 percent from 1993 to 1994. At year-end 1994, 2,892 
institutions administered total trust assets of $11.6 trillion, with 
the 886 institutions with $100 million or more in trust assets holding 
more than 99 percent of this total. Trust activities have also been an 
important source of fee income for financial institutions with trust 
powers. For the 50 largest bank holding companies, gross trust fee 
income of $10.8 billion was nearly 20 percent of noninterest income in 
1994, and this dollar amount was 83 percent higher than the $5.9 
billion in trust fee income earned in 1989.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), the current Annual Report of Trust Assets required from 
those institutions with trust powers and under the supervision of one 
of the agencies has been submitted to, and approved by, the U.S. Office 
of Management and Budget (OMB). (OMB Control Numbers: for the Board, 
7100-0031; for the OCC, 1557-0127; for the FDIC, 3064-0024; and for the 
OTS, 1550-0026.) Each of the agencies is submitting the Annual Report 
of Trust Assets, revised to include Schedule E, ``Fiduciary Income 
Statement,'' to OMB for its review.
    Schedule E and its accompanying (draft) instructions are 
illustrated as follows:

    Dated: August 29, 1996.
Joe M. Cleaver,
Executive Secretary, Federal Financial Institutions Examination 
Council.

BILLING CODE 6210-01-P

[[Page 46648]]

[GRAPHIC] [TIFF OMITTED] TN04SE96.004



BILLING CODE 6210-01-C

[[Page 46649]]

Annual Report of Trust Assets--Form FFIEC 001 Specific Instructions

Schedule E--Fiduciary Income Statement

    Who Must Report: This Schedule must be completed by each 
financial institution with more than $100 million in Total Trust 
Assets as reported on Schedule A (Line 18, Column F). In addition, 
all non-deposit trust companies, whether or not they report any 
assets on Schedule A, must also file Schedule E. Institutions which 
are not required to file Schedule E are encouraged to file it on a 
voluntary basis.
    Public Availability of Schedule E: The information on Schedule E 
is confidential and will not be publicly available. The aggregate 
information will be included in the annual FFIEC publication, Trust 
Assets of Financial Institutions.
    Instructions: Institutions filing Schedule E must complete all 
portions of the Schedule. Enter a zero on any line item that does 
not apply to your institution.

1. Gross Fees, Commission and Other Fiduciary Income

1(a through e) Trust and Agency Accounts

    Gross fees, commissions and other fiduciary income data is to be 
reported by line of business. Please refer to the instructions for 
Schedules A and C for guidance in defining these lines of business. 
For employee benefit trust accounts, see Schedule A, column A; for 
personal trust & estate accounts, see Schedule A, columns B and C; 
for other agency accounts, see Schedule A, column E; and for 
corporate trust and agency accounts, see Schedule C.
    Fees received for IRA, Keogh Plan or other accounts that are not 
administered by the trust department should be excluded from this 
Schedule. If these accounts require the bank to have trust powers, 
then their fees should be reported on this Schedule.

1(f) All Other Fiduciary Income

    Report all other direct income derived from other fiduciary 
sources not included in any of the above categories (e.g. 12b-1 fees 
and income from providing fiduciary services under agreement with 
another institution). Include all internal allocations of income to 
the trust function (such as transfer agent or pension plan 
administration credits), except for credits for deposits held in own 
or affiliated institutions, which are to be reported on line 5.

1(g) Total Fiduciary Income

    The total of lines 1(a) through 1(f).
    (It should be noted that banks with more than $100 million in 
commercial bank assets are required to itemize ``Income from 
fiduciary activities'' in the quarterly FFIEC Report of Condition 
and Income (``Call Report'') on line 5(a) of Schedule RI. 
Instructions for fiduciary income to be reported on line 5(a) of 
Call Report Schedule RI differ from those for line 1(g) of this 
Schedule with respect to allocated income. Consequently, banks 
should be aware that the amounts reported in these two items will 
differ by the amount of such allocated income.)

2. Expenses

2(a) Salaries and Employee Benefits

    Include salaries, bonuses, hourly wages, overtime pay, and 
incentive pay for officers and employees of the trust department. If 
officers or employees spend only a portion of their time in the 
trust department, allocate that proportional share of their salaries 
and employee benefits. Expenses associated with employee benefit 
plans (pension, profit-sharing, 401(k), ESOP, etc.), health and life 
insurance, Social Security and unemployment taxes, tuition 
reimbursement, and all other so-called fringe benefits, should be 
included on this line.

(b) Other Direct Expense

    In general, direct expenses are immediately identifiable as 
costs expended for and under the control of the trust function. 
These include expenses related to the use of trust premises, 
furniture, fixtures, and equipment, as well as depreciation/
amortization, ordinary repairs and maintenance, service or 
maintenance contracts, utilities, lease or rental payments, 
insurance coverage, and real estate and other property taxes if they 
are directly chargeable to the trust function.

2(c) Allocated Indirect Expense

    Allocated indirect expenses are those charged to the trust 
function from other departments of the institution as reflected in 
the institution's internal management accounting system. These 
include any allocation for the trust function's proportionate share 
of corporate expenses that cannot be directly charged to particular 
departments or functions. If the institution's internal accounting 
system is not able to provide this information, the institution may 
use a reasonable alternate method to estimate indirect expenses.
    Indirect expenses include audit and examination fees, marketing, 
charitable contributions, customer parking, holding company 
overhead, and, in many cases, functions such as personnel, corporate 
planning, and corporate financial staff. Other indirect expenses 
include the trust function's proportionate share of building rent or 
depreciation, utilities, real estate taxes, and insurance.
    If no direct expense is shown for occupancy on line 2(b) and the 
institution's internal accounting system does not provide an 
allocated amount, an allocated occupancy expense based on 
proportionate floor space used by the trust function or some other 
reasonable alternate method should be shown on line 2(c).

2(d) Total Expense

    The total of lines 2(a) through 2(c).

3. Settlements, Surcharges & Other Losses

    See the instructions for line 7 for information about the 
reporting of settlements, surcharges and other losses.

3(a) Gross Settlements, Surcharges & Other Losses

    Report the total losses prior to any adjustments for recoveries. 
If the amount shown on this line is $100,000 or more, a breakdown of 
this amount should be shown on line 7 below. The amount shown on 
this line should then agree to the total of the details shown in 
that box.

3(b) Recoveries to Reported Losses

    Show all recoveries received on reported losses, including 
recoveries on prior years' losses.

3(c) Net Settlements, Surcharges & Losses

    Line 3(a) less 3(b).

4. Net Operating Income (Loss)

    Line 1(g) minus lines 2(d) and 3. If the result is less than 
zero, the figure should be shown in parentheses.

5. Credit For Own-Institution Deposits

    Uninvested cash belonging to fiduciary accounts is available to 
the commercial banking side of the institution for investment, trust 
functions are often given credit for the use of these monies. When 
this credit is given to the trust department or trust company as 
part of the bank's profit tracking system, it should be reported on 
line 5. Do not include actual interest earned on fiduciary funds on 
deposit, as this income would normally belong to the fiduciary 
account.

6. Net Trust Income (Loss)

    Report the total amount of trust income or loss, prior to any 
income taxes, experienced by the trust function for the full year. 
The number for this line is the result of adding line 5 to the sub-
total shown on line 4. If the total on line 6 is less than zero, the 
resulting figure should be shown in parentheses.

7. Settlements, Surcharges & Other Losses

    This box should only be completed where total settlements, 
surcharges and other losses for the reporting year on line 3(a) are 
$100,000 or more. If they are, report individual gross losses of 
$10,000 or ore on lines (a) through (j). Report individual gross 
losses of less than $10,000 on line (j). These amounts should not be 
shown net of any recoveries or insurance payments. Legal expenses 
should be included on line 2(b) or 2(c). Do not include contingent 
liabilities related to outstanding litigation.
    Report settlements, surcharges, and other losses arising from 
errors, misfeasance or malfeasance according to the type of account 
and capacity. The sum of lines 7(a) through 7(j) should equal the 
total shown on line 3(a) above.

Memo Item to be Completed by Non-Deposit Trust Companies Only

8. Non-Fiduciary Income

    Stand alone or non-deposit trust companies, whose activities are 
limited to providing fiduciary services, may have income not 
directly attributable to the furnishing of fiduciary services. This 
income should be reported on this line 8 as a memo figure and should 
not be included in the data shown on lines 1 through 6.
[FR Doc. 96-22518 Filed 9-3-96; 8:45 am]
BILLING CODE 6210-01-P