[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]
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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
Schedule on Trust Income and Expense
AGENCY: Federal Financial Institutions Examination Council.
ACTION: Final action.
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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.
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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.
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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