[Federal Register Volume 70, Number 103 (Tuesday, May 31, 2005)]
[Notices]
[Pages 31009-31014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10778]



[[Page 31009]]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION


Agency Information Collection Activities; Submission for OMB 
Review; Comment Request

AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury; 
Board of Governors of the Federal Reserve System (Board); and Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Notice of information collection to be submitted to OMB for 
review and approval under the Paperwork Reduction Act of 1995.

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SUMMARY: In accordance with the requirements of the Paperwork Reduction 
Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC 
(the ``agencies'') may not conduct or sponsor, and the respondent is 
not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. On April 29, 2004, the agencies requested public 
comment for 60 days on proposed revisions to the instructions for the 
Consolidated Reports of Condition and Income (Call Report), which are 
currently approved collections of information. After considering the 
comments received, the Federal Financial Institutions Examination 
Council (FFIEC), of which the agencies are members, has adopted the 
proposed instructional revisions and also will add new items to the 
Call Report based on suggestions by commenters. In addition, on March 
11, 2005, the agencies requested public comment for 60 days on other 
proposed revisions to the Call Report. The FFIEC and the agencies have 
considered the comments received on these additional revisions, which 
the FFIEC has adopted as proposed. The agencies are submitting the 
revisions adopted by the FFIEC to OMB for review and approval.

DATES: Comments must be submitted on or before June 30, 2005.

ADDRESSES: Interested parties are invited to submit written comments to 
any or all of the agencies. All comments, which should refer to the OMB 
control number(s), will be shared among the agencies.
    OCC: You may submit comments, identified by [Attention: 1557-0081], 
by any of the following methods:
     E-mail: [email protected]. Include [Attention: 
1557-0081] in the subject line of the message.
     Fax: (202) 874-4448.
     Mail: Public Information Room, Office of the Comptroller 
of the Currency, 250 E Street, SW., Mailstop 1-5, Washington, DC 20219; 
Attention: 1557-0081.
    Public Inspection: You may inspect and photocopy comments at the 
Public Information Room. You can make an appointment to inspect the 
comments by calling (202) 874-5043.
    Board: You may submit comments, which should refer to 
``Consolidated Reports of Condition and Income, 7100-0036,'' by any of 
the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments on the http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include docket 
number in the subject line of the message.
     Fax: 202-452-3819 or 202-452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, except as necessary for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or on 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: You may submit comments, which should refer to ``Consolidated 
Reports of Condition and Income, 3064-0052,'' by any of the following 
methods:
     http://www.FDIC.gov/regulations/laws/federal/propose.html.
     E-mail: [email protected]. Include ``Consolidated Reports 
of Condition and Income, 3064-0052'' in the subject line of the 
message.
     Mail: Steven F. Hanft (202-898-3907), Paperwork Clearance 
Officer, Room MB-3064, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429.
     Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7 a.m. and 5 p.m.
    Public Inspection: You may inspect comments at the FDIC Public 
Information Center, Room 100, 801 17th Street, NW., between 9 a.m. and 
4:30 p.m. on business days.
    A copy of the comments may also be submitted to the OMB desk 
officer for the agencies: Mark Menchik, Office of Information and 
Regulatory Affairs, Office of Management and Budget, New Executive 
Office Building, Room 10235, Washington, DC 20503, or electronic mail 
to [email protected].

FOR FURTHER INFORMATION CONTACT: For further information about the 
revisions discussed in this notice, please contact any of the agency 
clearance officers whose names appear below. In addition, copies of 
Call Report forms can be obtained at the FFIEC's Web site (http://www.ffiec.gov/ffiec_report_forms.htm).
    OCC: Mary Gottlieb, OCC Clearance Officer, or Camille Dixon, (202) 
874-5090, Legislative and Regulatory Activities Division, Office of the 
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
    Board: Michelle E. Long, Clearance Officer, (202) 452-3829, 
Division of Research and Statistics, Board of Governors of the Federal 
Reserve System, 20th and C Streets, NW., Washington, DC 20551. 
Telecommunications Device for the Deaf (TDD) users may call (202) 263-
4869.
    FDIC: Steven F. Hanft, Paperwork Clearance Officer, (202) 898-3907, 
Legal Division, Federal Deposit Insurance Corporation, 550 17th Street, 
NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: Request for OMB approval to revise the 
currently approved collections of information identified below.
    The effect of the proposed revisions to the reporting requirements 
for the Call Report will vary from institution to institution depending 
on the institution's involvement with the types of activities or 
transactions to which the proposed changes apply. More specifically, 
the agencies expect that the reporting changes that relate to certain 
securitized U.S. government-guaranteed or -insured residential mortgage 
loans will primarily affect the small percentage of institutions that 
originate or purchase and then securitize these loans. The revisions to 
the Call Report dealing with acquired loans with evidence of 
deterioration of credit quality since origination, including 
acquisitions of such loans in business combinations accounted for using 
the purchase method, will generally apply only to the limited number of

[[Page 31010]]

institutions that are involved in purchase business combinations or 
that engage in purchases of loans with credit quality problems as a 
business activity. The agencies estimate that implementation of these 
reporting changes will result in a small increase in the current 
reporting burden imposed by the Call Report for those institutions 
involved with these activities and transactions. The following burden 
estimates include the effect of the proposed revisions.
    Report Title: Consolidated Reports of Condition and Income (Call 
Report).
    Form Number: Call Report: FFIEC 031 (for banks with domestic and 
foreign offices) and FFIEC 041 (for banks with domestic offices only).
    Frequency of Response: Quarterly.
    Affected Public: Business or other for-profit.

OCC

    OMB Number: 1557-0081.
    Estimated Number of Respondents: 2,000 national banks.
    Estimated Time per Response: 46.45 burden hours.
    Estimated Total Annual Burden: 371,633 burden hours.
    Board:
    OMB Number: 7100-0036.
    Estimated Number of Respondents: 922 state member banks.
    Estimated Time per Response: 52.38 burden hours.
    Estimated Total Annual Burden: 193,177 burden hours.

FDIC

    OMB Number: 3064-0052.
    Estimated Number of Respondents: 5,263 insured state nonmember 
banks.
    Estimated Time per Response: 37.10 burden hours.
    Estimated Total Annual Burden: 781,029 burden hours.
    The estimated time per response for the Call Report is an average 
that varies by agency because of differences in the composition of the 
institutions under each agency's supervision (e.g., size distribution 
of institutions, types of activities in which they are engaged, and 
existence of foreign offices). The average reporting burden for the 
Call Report includes the effect on burden of the new Central Data 
Repository (CDR) system that the agencies are developing for processing 
Call Reports. The time per response for the Call Report is estimated to 
range from 15 to 600 hours, depending on an individual institution's 
circumstances, before considering the effect of voluntary testing and 
global enrollment activities related to the CDR. The reporting burden 
for testing and enrollment activities for an individual institution is 
estimated to range from 16 to 69 hours, depending on the institution's 
level of participation.

General Description of Reports

    These information collections are mandatory: 12 U.S.C. 161 (for 
national banks), 12 U.S.C. 324 (for state member banks), and 12 U.S.C. 
1817 (for insured state nonmember commercial and savings banks). Except 
for selected items, these information collections are not given 
confidential treatment.

Abstract

    Institutions file Call Reports with the agencies each quarter for 
the agencies' use in monitoring the condition, performance, and risk 
profile of individual institutions and the industry as a whole. In 
addition, Call Reports provide the most current statistical data 
available for evaluating institutions' corporate applications such as 
mergers, for identifying areas of focus for both on-site and off-site 
examinations, and for monetary and other public policy purposes. Call 
Reports are also used to calculate all institutions' deposit insurance 
and Financing Corporation assessments and national banks' semiannual 
assessment fees.

Current Actions

I. Overview

    On April 29, 2004, the agencies (together with the Office of Thrift 
Supervision (OTS)) jointly published a notice soliciting comments for 
60 days on proposed revisions to the Call Report (69 FR 23502). This 
joint notice requested comment on two proposed instructional changes 
that would affect how institutions report certain information in the 
Call Report, but the notice did not propose to change the report forms 
themselves. First, the agencies proposed to change and clarify the 
reporting requirements related to certain U.S. Government-guaranteed or 
-insured residential mortgage loans backing Government National 
Mortgage Association (GNMA) securities that meet certain delinquency 
criteria and are subject to seller buy-back provisions, i.e., ``GNMA 
loans.'' These clarifications involved the reporting of GNMA loans as 
delinquent and the balance sheet classification of property backing a 
delinquent GNMA loan on which an institution has foreclosed. Second, 
the agencies proposed to change the reporting requirements for ``when-
issued'' securities from settlement date accounting to trade date 
accounting.
    The agencies received 13 comments on their April 2004 proposal, ten 
from banks and banking organizations, two from bankers' associations, 
and one from a trade group whose members include banking organizations. 
Only two of the commenters addressed both of the subjects in the 
agencies' April 2004 proposal. The FFIEC and the agencies have 
considered these comments and have decided to proceed with the 
instructional revisions pertaining to mortgage loans subject to buy-
back provisions, but with the addition of new items to the Call Report 
schedules in which banks report information on past due loans and on 
other real estate owned.\1\ The FFIEC and the agencies also have 
decided against requiring trade date accounting for all ``when-issued'' 
securities. These decisions are discussed below.
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    \1\ The OTS joined with the agencies in the April 2004 proposal. 
The OTS intends to follow a course of action similar to the agencies 
with respect to mortgage loans subject to buy-back provisions in the 
future when updating the reporting requirements for the Thrift 
Financial Report.
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    In addition, on March 11, 2005, the agencies jointly published a 
notice requesting comment on proposed revisions to the Call Report in 
response to Statement of Position 03-3, Accounting for Certain Loans or 
Debt Securities Acquired in a Transfer (SOP 03-3), which was issued by 
the American Institute of Certified Public Accountants (70 FR 12269). 
SOP 03-3 applies to loans acquired in fiscal years beginning after 
December 15, 2004. The agencies proposed to add three items to the Call 
Report relating to loans within the scope of SOP 03-3. The agencies 
also proposed a revision to the Call Report instructions to explain how 
the delinquency status of loans within the scope of SOP 03-3 should be 
determined for purposes of disclosing past due loans in the Call 
Report.
    The agencies received three comments in response to their March 
2005 proposal, one from a community bank trade association, one from a 
large banking organization, and another from a trade group outside the 
banking industry. The FFIEC and the agencies have considered these 
comments and, as discussed below, have decided to proceed with the SOP 
03-3 changes as proposed.
    The revisions to the Call Report have been approved for publication 
by the FFIEC. The agencies will implement the proposed Call Report 
changes as of the June 30, 2005, report date, except for the revisions 
pertaining to foreclosed properties backing delinquent GNMA loans. 
Nonetheless, as is customary for Call Report changes, if the 
information to be reported in accordance with the revised reporting 
requirements is not readily available, institutions are advised that 
they may report reasonable

[[Page 31011]]

estimates of this information for the report date as of which the 
proposed changes first take effect, i.e., June 30, 2005. With respect 
to the reporting of foreclosed properties backing GNMA loans, 
institutions should report these properties in their Call Reports in 
accordance with their existing reporting policies for such properties 
through the December 31, 2005, report date. Effective with the March 
31, 2006, report date, all institutions should report these properties 
as other real estate owned on the balance sheet and disclose the amount 
in a new subitem that will be added to the Call Report schedule in 
which information on the composition of other real estate owned is 
reported.
    Type of Review: Revision of currently approved collections.

II. Revisions to the Call Report

A. GNMA Buy-Back Option

    Under the GNMA Mortgage-Backed Securities Guide, the issuer of GNMA 
securities has the option to repurchase individual Federal Housing 
Administration (FHA), Department of Veterans Affairs/Veterans 
Administration (VA), and Farmers Home Administration (FmHA) mortgage 
loans backing the securities when these GNMA loans meet certain 
delinquency criteria. Because of this option, if and when individual 
loans that have been accounted for as sold in accordance with Statement 
of Financial Accounting Standards No. 140, Accounting for Transfers and 
Servicing of Financial Assets and Extinguishments of Liabilities (FAS 
140), later meet GNMA's specified delinquency criteria and are eligible 
for repurchase, FAS 140 requires these individual delinquent GNMA loans 
to be brought back onto the issuer's books as assets, along with an 
offsetting liability. This rebooking of the GNMA loans is required 
regardless of whether the issuer intends to exercise the buy-back 
option.
    The agencies proposed that all delinquent rebooked GNMA loans 
(including those for which the institution is taking steps to foreclose 
on the real estate collateral at the time of repurchase, but for which 
the sheriff's sale has not yet taken place) should be reported as past 
due on Call Report Schedule RC-N--Past Due and Nonaccrual Loans, 
Leases, and Other Assets, in accordance with their contractual terms. 
As part of this change, the agencies proposed to eliminate an existing 
provision in the Call Report instructions that permits institutions not 
to report delinquent GNMA loans that are repurchased when they are ``in 
foreclosure status'' at the time of repurchase as past due loans in 
Schedule RC-N, provided the government reimbursement process is 
proceeding normally. In proposing this reporting change, the agencies 
noted that delinquent rebooked GNMA loans would also be reported in 
supplemental items 10 and 10.a of Schedule RC-N, which disclose amounts 
for past due loans wholly or partially guaranteed or insured by the 
U.S. Government. These items supplement the main body of the past due 
loans schedule by providing information that enables users of the Call 
Report to determine the amount of an institution's total delinquent 
loans that are not protected by a U.S. Government guarantee or 
insurance.
    In addition, the agencies proposed that, when an institution 
forecloses on real estate backing a delinquent GNMA loan that it has 
rebooked as an asset, it should report the property as ``other real 
estate owned'' and not as an ``other asset'' on the Call Report balance 
sheet. The foreclosed property should be reported in this manner 
beginning at the time of foreclosure until it has been sold, 
transferred to HUD, or otherwise disposed of.
    The agencies received ten comments addressing the portion of the 
April 2004 proposal on GNMA loan reporting issues. With one exception, 
commenters disagreed with the agencies' proposed reporting treatment 
for past due GNMA loans and foreclosed property.\2\ One commenter did 
``not object to the proposal that all delinquent rebooked GNMA loans 
should be treated consistently and reported as past due'' in the 
schedule for past due loans, observing that users of this schedule 
``will have a method to identify the amount of loans that are not 
guaranteed by the U.S. Government.'' However, this commenter did not 
favor the proposed treatment of foreclosed property.
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    \2\ Only eight of the ten commenters specifically addressed 
foreclosed property.
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Delinquency Reporting
    With respect to delinquency reporting, nine commenters did not 
support reporting rebooked past due GNMA loans in the main body of Call 
Report Schedule RC-N. These commenters recommended that if these 
delinquent loans must be reported in this schedule, they should be 
reported only in a Memorandum section of the schedule and should not be 
aggregated with other past due loans. They favored segregated reporting 
for the GNMA loans because these loans have a different risk profile 
than other past due loans due to their guarantees or insurance. These 
commenters stated that reporting these delinquent rebooked GNMA loans 
with the other past due loans will skew analytical ratios used to 
evaluate credit risk, which will lead to misinterpretation of the past 
due data and cause banks to have to respond to questions regarding 
these data. One commenter specifically suggested that if the agencies 
decided to proceed with the proposed inclusion of delinquent rebooked 
GNMA loans in the body of the past due schedule, ``a separate line 
should be added for past due GNMA loans.'' Nevertheless, this commenter 
also expressed concern that the agencies' proposed past due reporting 
treatment in Schedule RC-N would produce disparities between the Call 
Report past due schedule and the past due reporting by public banking 
organizations in their filings with the Securities and Exchange 
Commission (SEC).
    The agencies do not believe that their proposal to include 
delinquent rebooked GNMA loans in the body of the past due schedule 
should lead to inconsistencies in the disclosure of these loans in the 
Call Report and in SEC filings. Accounting staff members in the SEC's 
Division of Corporation Finance prepared guidance on ``Current 
Accounting and Disclosure Issues in the Division of Corporation 
Finance'' dated November 30, 2004, and updated on March 4, 2005. Both 
versions of this guidance discuss ``Accounting for Loans or Other 
Receivables Covered by Buyback Provisions,'' including, but not limited 
to, loans securitized through GNMA.\3\ (See Section II.K.1. of the SEC 
staff's November 2004 guidance, which was carried forward without 
revision to Section II.N.1. of the March 2005 guidance.) The SEC 
staff's discussion of this topic states the following concerning loans, 
including GNMA loans, that have been ``re-recognized,'' i.e., rebooked 
as assets in accordance with FAS 140:
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    \3\ This guidance can be accessed at http://www.sec.gov/divisions/corpfin/acctdis030405.htm.

    In the event that loans re-recognized by the transferor have the 
risk elements contemplated by Item III.C.1. of Industry Guide 3 
(i.e., nonaccrual, past due, restructured), the amount of such loans 
should be included in the disclosures required by that Item. 
Supplemental disclosures may be made to facilitate understanding of 
the aggregate amounts reported pursuant to Item III.C.1. These 
disclosures may include, for example, information as to the nature 
of the loans, any guarantees, the extent of collateral, or amounts 
in process of collection. For example, if a loan re-recognized by a 
transferor is accruing, but it is contractually

[[Page 31012]]

past due 90 days or more as to principal or interest, that loan 
should be included in the disclosure required by Item III.C.1(b) 
even if the loan is guaranteed through a government program, such as 
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the Veterans Administration (VA) or Federal Housing Authority (FHA).

    As recognized by the SEC staff, delinquent rebooked GNMA loans are 
to be included in the aggregate past due disclosures required by 
Industry Guide 3. However, public banking organizations may provide 
supplemental disclosure of the fact that these loans are guaranteed or 
insured by the U.S. Government to assist users in understanding the 
aggregate amounts of past due loans. The agencies' proposal for 
reporting past due rebooked GNMA loans in Call Report Schedule RC-N 
parallels the SEC staff's guidance because this schedule includes items 
that permit the ``supplemental disclosure'' of the amount of past due 
loans wholly or partially guaranteed or insured by the U.S. Government. 
Nevertheless, the agencies and other users of the supplemental Schedule 
RC-N items on past due government-guaranteed or -insured loans would 
benefit from having delinquent rebooked GNMA loans identified 
separately from other past due government-guaranteed or -insured loans, 
especially for institutions that have securitized and sold a 
significant volume of GNMA loans.
    Accordingly, the agencies have decided to proceed with their 
original proposal that would require rebooked GNMA loans that are past 
due to be reported in the main body of Call Report Schedule RC-N and in 
supplemental item 10, ``Loans and leases reported in items 1 through 8 
above which are wholly or partially guaranteed by the U.S. 
Government.'' However, based on suggestions from commenters, the 
agencies will add a new supplemental item 10.b to Schedule RC-N 
effective June 30, 2005, in which banks would report ``Rebooked ``GNMA 
loans'' that have been repurchased or are eligible for repurchase 
included in item 10 above.''. \4\
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    \4\ In addition, if a bank services but did not originate 
mortgage loans backing a GNMA security, i.e., where the bank was not 
the transferor of the losses that have been securitized, the 
servicing bank should also include any government-guaranteed or -
insured mortgage ooans that it has purchased out of the 
securitization in Schedule RC-R, items 10 and 10b, even if the bank 
was not required to record the delinquent loans as assets prior to 
purchasing the loans.
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    In this regard, the agencies note that banks that originate and 
hold FHA, VA, and FmHA mortgage loans in their loan portfolios, rather 
than securitizing and selling them in the form of GNMA securities, 
currently report these loans as past due in the main body of Call 
Report Schedule RC-N if and when these loans become delinquent. These 
past due loans are also reported in existing supplemental items 10 and 
10.a for past due loans wholly or partially guaranteed or insured by 
the U.S. Government in Call Report Schedule RC-N. The reporting 
treatment of these guaranteed and insured loans in Schedule RC-N will 
not change.

Foreclosed Real Estate

    Commenters on the portion of the agencies' April 2004 proposal on 
GNMA loans objected to the proposed balance sheet classification of 
foreclosed real estate collateral backing delinquent GNMA loans as 
``other real estate owned.'' Commenters recommended that institutions 
report such real estate as ``other assets'' because they do not believe 
that institutions are exposed to the underlying risk of the real 
estate, despite the foreclosure, due to the insurance or guarantee by 
the U.S. Government. They also observed that, in contrast to foreclosed 
real estate arising from other types of loans, institutions do not 
intend to sell foreclosed properties resulting from GNMA loans in order 
to recover the value of these assets. Instead, institutions look to 
their claim on the U.S. Government for recovery.
    The agencies have reviewed and considered these comments. As stated 
in the April 2004 proposal, the U.S. Department of Housing and Urban 
Development (HUD), the federal entity that administers the GNMA 
program, cannot accept a foreclosed property nor can the government 
guarantee or insurance be honored until all legal actions related to 
the foreclosure process have been completed. Commenters confirmed that 
certain conditions must be met before a property can be conveyed to 
HUD. While these conditions normally will be met, whether they will 
ultimately be met for an individual property is not known at the time 
of foreclosure. For example, the servicing guide for VA loans indicates 
the circumstances in which foreclosed property would not be conveyed, 
including when the VA issues ``no-bid'' advice (because the VA's cost 
of paying its guarantee is less than its estimated cost of taking 
possession of the property and selling it) and when there has been a 
failure to follow the regulations upon which the VA's guarantee is 
based.
    Although the existence of insurance or a guarantee from the U.S. 
Government on a particular foreclosed loan will aid in determining 
whether the carrying value of the asset is recoverable, it does not 
determine the classification of the asset upon foreclosure. Because an 
institution's claim against the U.S. Government is effectively 
conditional until all the conditions have been met for the conveyance 
of a foreclosed property to HUD, the asset resulting from an 
institution's foreclosure on a delinquent GNMA loan has more of the 
characteristics of real estate than a receivable from the U.S. 
Government. Accordingly, the agencies believe that, for Call Report 
balance sheet purposes, it is more appropriate to view this asset as 
other real estate owned than as a receivable at foreclosure.
    The agencies recognize that the more common practice is for 
institutions that foreclose on delinquent GNMA loans to report the 
resulting asset as an ``other asset'' rather than ``other real estate 
owned'' on the Call Report balance sheet. In this regard, some 
commenters recommended that if the agencies concluded that these assets 
should not be reported as ``other assets,'' there should be separate 
disclosure of these assets in the Call Report because of the difference 
in their risk profile compared to other types of foreclosed real 
estate. The agencies see merit in enabling institutions with foreclosed 
properties from GNMA loans to distinguish the amount of these 
properties from other foreclosed properties. Therefore, the agencies 
will delay the implementation date for institutions to report 
foreclosed real estate from GNMA loans as ``other real estate owned'' 
on the balance sheet until the March 31, 2006, report date. The 
agencies will also add a new subitem to Schedule RC-M, item 3.b, ``All 
other real estate owned,'' to enable institutions to disclose the 
amount of such real estate in the March 2006 Call Report. Until then, 
i.e., through the December 31, 2005, report date, institutions should 
continue to report these foreclosed properties in their Call Reports in 
accordance with their existing reporting policies for such properties.

B. ``When-Issued'' Securities

    The agencies also proposed in April 2004 to revise the Call Report 
Glossary entry for ``When-Issued Securities Transactions,'' which 
currently indicates that institutions should follow settlement date 
accounting for when-issued securities, by replacing it with one that 
calls for trade date accounting for such securities. In addition, the 
agencies proposed to remove the references to commitments to purchase 
and sell when-issued securities from the instructions for Schedule RC-
L, item 9,

[[Page 31013]]

``All other off-balance sheet liabilities,'' and item 10, ``All other 
off-balance sheet assets,'' respectively. Furthermore, the agencies 
proposed to revise the Call Report Glossary entry for ``Trade Date and 
Settlement Date Accounting'' to clarify that institutions should follow 
trade date accounting for all securities, including when-issued 
securities.
    Five commenters on the agencies' April 2004 proposal addressed the 
reporting of when-issued securities, two of whom supported using trade 
date accounting for such securities. The other three commenters 
disagreed with the agencies' proposal. These commenters noted that, 
under paragraph 59(a) of Statement of Financial Accounting Standards 
No. 133, Accounting for Derivative Instruments and Hedging Activities, 
as amended (FAS 133), when-issued securities that meet certain criteria 
should be accounted for as derivatives rather than securities and, 
therefore, this derivatives accounting treatment should be followed in 
the Call Report.
    The agencies have reviewed relevant portions of FAS 133 and agree 
that, in appropriate circumstances, banks should report when-issued 
securities as derivatives and not as securities. Accordingly, the FFIEC 
and the agencies have concluded that they should not proceed with the 
three elements of their April 2004 proposal related to when-issued 
securities. However, the agencies will clarify the Call Report 
instructions addressing when-issued securities, where necessary, to 
ensure that they are in conformity with FAS 133.

C. Loans Within the Scope of SOP 03-3

    SOP 03-3 applies to ``purchased impaired loans,'' i.e., loans \5\ 
that a bank has purchased, including those acquired in a purchase 
business combination, when there is evidence of deterioration of credit 
quality since the origination of the loan and it is probable, at the 
purchase date, that the bank will be unable to collect all 
contractually required payments receivable. To assist the agencies in 
understanding the relationship between the allowance for loan and lease 
losses and the carrying amount of the loan portfolios of those banks 
whose portfolios include purchased impaired loans, the agencies 
proposed to add three items to the Call Report. All three of these 
items represent information included in the disclosures required by SOP 
03-3. The agencies proposed to add two Memorandum items to Schedule RC-
C, part I--Loans and Leases: (1) The outstanding balance \6\ and (2) 
the carrying amount (before any loan loss allowances) as of the report 
date of the purchased impaired loans held for investment \7\ that are 
included in Schedule RC-C. In addition, the agencies proposed to add a 
Memorandum item to Schedule RI-B, part II--Changes in Allowance for 
Loan and Lease Losses, in which banks would report the amount of post-
acquisition loan loss allowances for purchased impaired loans held for 
investment that is included in the total amount of the allowance for 
loan and lease losses as of the report date.
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    \5\ As defined in SOP 03-3, the term ``loans'' includes ``debt 
securities.''
    \6\ The outstanding balance is the undiscounted sum of all 
amounts, including amounts deemed principal, interest, fees, 
penalties, and other under the loan, owed to the bank at the report 
date, whether or not currently due and whether or not any such 
amounts have been charged off by the bank. However, the outstanding 
balance does not include amounts that would be accrued under the 
contract as interest, fees, penalties, and other after the report 
date.
    \7\ Loans held for investment are those loans that the bank has 
the intent and ability to hold for the foreseeable future or until 
maturity or payoff. Thus, the outstanding balance and carrying 
amount of any purchased impaired loans that are held for sale would 
not be reported in these proposed Memorandum items.
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    The agencies also stated that they planned to revise the 
instructions to Schedule RC-N--Past Due and Nonaccrual Loans, Leases, 
and Other Assets, to explain how purchased impaired loans should be 
reported in this schedule. SOP 03-3 does not prohibit placing loans on 
nonaccrual status and any nonaccrual purchased impaired loans should be 
reported accordingly in Schedule RC-N. For those purchased impaired 
loans that are not on nonaccrual status, banks should determine the 
loans' delinquency status in accordance with the contractual repayment 
terms of the loans without regard to the purchase price of (initial 
investment in) these loans or the amount and timing of the cash flows 
expected at acquisition.
    As previously mentioned, the agencies received three comments in 
response to their March 2005 proposed reporting revisions related to 
SOP 03-3, one from a community bank trade association, one from a large 
banking organization, and another from a trade group outside the 
banking industry. In its comment letter, the community bank trade 
association advised that, although most community banks it surveyed are 
not purchasers of impaired loans, the proposed items would add clarity 
to the Call Report for those that are. The association also stated that 
the additional time needed by bankers to report the proposed items may 
range from 10 minutes to one hour once the process for automating the 
reporting of this information has been created, which can be 
burdensome. The agencies note that the need for a bank that purchases 
impaired loans to establish a process to account for and track these 
loans is a result of SOP 03-3 becoming part of generally accepted 
accounting principles, which are the foundation for the Call Report, 
and would be necessary even if no new items were added to the Call 
Report for purchased impaired loans. The new items for purchased 
impaired loans produce only a small increase in the overall reporting 
burden for the Call Report because the overall burden represents an 
average across all institutions, including the vast majority that will 
not be purchasers of impaired loans.
    The community bank trade association also identified certain Call 
Report schedules that its member banks consider most burdensome because 
of the level of detail required. The agencies recognize these bankers' 
concerns and are evaluating potential revisions to the Call Report that 
would reduce the level of detail for small institutions.
    The large banking organization that commented on the SOP 03-3 
revisions agreed with the proposed addition of items for the 
outstanding balance and carrying amount of purchased impaired loans and 
with the proposed use of contractual terms for determining the 
delinquency status of such loans for Call Report purposes. The 
organization also did not object to the proposed item for reporting 
amounts included in the allowance for loan and lease losses related to 
purchased impaired loans, but disagreed with the agencies' statement in 
the March 2005 proposal that all post-acquisition impairments recorded 
under SOP 03-3 should be included in the allowance account. The 
organization stated that it plans to recognize impairments resulting 
from decreases in forecasted cash flows through interest income and 
only recognize impairments through the allowance for loan and lease 
losses when undiscounted forecasted cash flows decrease below the 
amortized cost of the purchased impaired loan or pool of loans.
    The agencies have considered the banking organization's comment on 
post-acquisition impairments. After reviewing the relevant portions of 
SOP 03-3 and discussing this comment with persons involved in the 
development of SOP 03-3, the agencies do not believe the interest 
income approach advocated by the banking organization is an appropriate 
application of this accounting standard. Such an approach will result 
in the recognition of interest

[[Page 31014]]

income at an inappropriate percentage yield under the Statement of 
Position. Therefore, the agencies have decided against revising their 
statement in the March 2005 proposal that decreases in originally 
expected cash flows on a purchased impaired loan should be recognized 
as an impairment through an addition to the loan loss allowance.
    In its comment letter, the trade group from outside the banking 
industry did not address the SOP 03-3 revisions, but requested that the 
agencies revise several other items in the Call Report. The agencies 
will consider these suggested Call Report changes at a later date.

D. Other Matters

    Call Report Schedule RC-R--``Regulatory Capital, does not currently 
allow a bank to report an amount in column B, ``Items Not Subject to 
Risk-Weighting,'' of item 34, ``Cash and balances due from depository 
institutions,'' because such items were not expected to exist within 
this asset category when this schedule was originally designed. 
However, when amounts are included in column A, ``Totals (from Schedule 
RC \8\),'' of item 34 for certain embedded derivatives, these embedded 
derivatives should be risk-weighted under the rules for derivatives 
rather than the rules that apply to the cash and due from asset 
account. As a result, banks contacted the agencies upon finding that 
they could not properly report the carrying amount of these derivatives 
in column B when allocating the total carrying amount of their ``Cash 
and balances due from depository institutions'' across the columns of 
item 34. In response to banks' comments about this reporting 
difficulty, the agencies are revising Schedule RC-R to permit the use 
of column B of item 34.
---------------------------------------------------------------------------

    \8\ Schedule RC of the Call Report is the balance sheet.
---------------------------------------------------------------------------

    A number of banks have requested that they be permitted to provide 
USA PATRIOT Act Section 314(a) Anti-Money Laundering contact 
information for more than two contact persons at their institutions. 
The agencies are adding text fields for two additional contact persons 
that will enable a bank, at its option, to supply information for a 
third and fourth anti-money laundering contact person. This contact 
information is not released to the public.

III. Request for Comment

    Public comment is requested on all aspects of this joint notice. In 
addition, comments are invited on:
    (a) Whether the proposed revisions to the Call Report collections 
of information are necessary for the proper performance of the 
agencies' functions, including whether the information has practical 
utility;
    (b) The accuracy of the agencies' estimates of the burden of the 
information collections as they are proposed to be revised, including 
the validity of the methodology and assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Comments submitted in response to this joint notice will be shared 
among the agencies and will be summarized or included in the agencies' 
requests for OMB approval. All comments will become a matter of public 
record. Written comments should address the accuracy of the burden 
estimates and ways to minimize burden as well as other relevant aspects 
of the information collection request.

    Dated: May 25, 2005.
Stuart E. Feldstein,
Assistant Director, Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency.
    Board of Governors of the Federal Reserve System, May 24, 2005.
Robert deV. Frierson,
Deputy Secretary of the Board.
    Dated at Washington, DC, this 25th day of May, 2005.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 05-10778 Filed 5-27-05; 8:45 am]
BILLING CODE 4810-33; 6210-01; 6714-01-P