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Ann Thomas

CALL REPORT PRESENTATION: A REVIEW AND UPDATE 1

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CALL REPORT PREPARATION

Recent Changes, Highlights, Pitfalls

Presented by Ann Thomas

[email protected]

This webinar is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal or accounting services. If legal or accounting advice is required, it is recommended that each financial institution consult its own attorney or accountant. This material may not be reproduced without written permission of Thomas Consulting.

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CALL REPORT REVISIONS & UPDATES

Table of Contents

Slide

FFIEC 041 Cover Page 3

December, 2015/March, 2016 Proposed Changes 5

2015 Approved Revisions 15

Accounting Updates 21

Basel III, Risk Based Capital 40

Ann Thomas


Average burden associated with call report preparation is 50.4 hours, but hours

estimated to vary from 20 to 775 hours per quarter

OCC regulated banks – 59.41 hours

Fed supervised bank – 59.90 hours

FDIC supervised banks -- 44.56 hours

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Ann Thomas


Proposed Revisions to December, 2015 Call Report

� http://www.ffiec.gov/press/pr090815.htm

� Proposing to remove:� RI M14, Other than temporary impairment line items 14a

& 14b; will continue to report any OTTI that impacted credit of the security

� RCC M1 & RCN M1, Certain data on restructured loans� M1f2, restructured depository institutions

� M1f5, foreign governments

� M1f6, municipalities

� M1f7 for FFIEC 031 banks

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� Proposing to remove:� RC-M 13a5a-a5e and RC-N, 11e1-11e5, FDIC Loss

Sharing agreement detail on all other loans

� RC-R 18b, Asset backed commercial paper conduits (reported on RC-R 10); line 18c on unused commitments > 1 year will be renumbered to 18b

� Banks < $1 billion will not be required to complete RC-S M3a1-M3a2 on commercial paper conduits

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� Increase reporting thresholds for several schedule:� From $25,000 to $100,000 for:

�RI-E, Other noninterest income and expense

�RC-F 6, Other Asset Detail

�RC-G 6, Other Liability Detail

�RC-Q M1 & M2, All other assets & liabilities measured at fair value

� RC-D M9, M10, Other Trading Assets/Liabilities from $25,000 to $1,000,000

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� Instruction updates:� Home equity lines of credit converting from revolving to non-

revolving – once convert to closed end should report in RCC 1c

� Net gains/losses and Other than temporary impairment on equity securities without readily determinable fair values should be included in RI 5k

� Securities for which a fair value option is elected� In past if reported at fair value had to be included in trading portfolio;

per accounting rules; since rules have changed are not required to report as trading, may report as HTM or AFS as appropriate 8

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� Increasing deposit size threshold used to report certain deposit information from $100,000 to $250,000 on RC-E, RI, and RC-K; changes to RI & RC-K would not be effective until March, 2016� RC-E M3a1-M3a4, M3b – report time deposits < $250,000

� RC-E M4a1-M4a4, M4b – report time deposits > $250,000; RC-E M4c will be removed

� RC-K 11b & RI 2a2b – report time deposits < $250,000

� RC-K 11c & RI 2a2c – report time deposits > $250,0009



� Adding contact information for CEO

� Revision of certain securities measured under a fair value option on RC-Q to now include HTM

� Moving fair value reporting of loans from RC-C M10 & M11 to RC-Q

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� Adding additional preprinted captions:� RI-E 1 – income & fees from wire transfers

� RI-E 2 – other real estate owned expenses and insurance expenses (excluding employee, occupancy, & OREO)

� RC-F 6 – computer software, accounts receivable, and receivable from foreclosed government guaranteed mortgage loans

� Adding Legal Entity Identifier (LEI) � Already required on holding company reporting

� If do not have, not required to obtain 11

Proposed Revisions to March, 2016 Call Report


� Revisions of statements used to describe audit work on RC M1

� Removal of RI 11, Extraordinary Items

� Revisions to information reported in RI memo items on trading revenues of changes in credit & debit valuation adjustments

� Revising information reported about supplementary leverage ratio by advanced approaches institutions

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Proposed Revisions to March, 2016 Call Report

� The agencies are considering a less burdensome version of the Call Report for institutions that meet certain criteria; plan to complete analysis by year end 2015.

� Any new version would have to be approved by FFIEC and implemented by the Agencies.

� Agencies are also visiting with limited banks during the third quarter and looking at how banks prepare their call report and where a significant amount of time and/or manual processes are required.

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Proposed Revisions to December, 2015 & March, 2016

Call Report


� Comment period open for 60 days, until 11-8-15

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RI M15, Deposit Products

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� Effective 3-31-15� For all institutions with assets of more than $1 billion

that offer at least one non-CD consumer deposit product and answered yes to RC-E M5, new breakdown on year to date amounts of certain types of service charges on consumer deposit accounts reported in RCE M6 & M7; detail must equal RI 5b

• RI M15a, overdraft related service charges on consumer accounts

• RI M15b, monthly maintenance charges on consumer accts – Minimum balance fees, transaction activity fees, & other recurring

fees not subject to waiver 16

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� Effective 3-31-15� For all institutions with assets of more than $1 billion

that offer at least one non-CD consumer deposit product and answered yes to RC-E M5, new breakdown on year to date amounts of certain types of service charges on consumer deposit accounts reported in RCE M6 & M7; detail must equal RI 5b

• RI M15c, automated teller machine (ATM) fees on consumer accts

– Fees for deposit to or withdrawals from deposit accounts, conducted through the use of ATM or remote service units owned or operated by the bank or other banks

– exclude debit card interchange fees; report in RI 5l

• RI M15d, all other service charges on deposit accounts17

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RCL 6, Securities Borrowed & Lent

� Effective 3/31/15

� to implement the reporting of securities lent and borrowed consistent with the revised regulatory capital rules

� item 6a is used to report securities lent and item 6b will be to report securities borrowed

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RCL 6, Securities Borrowed & Lent

� previously securities lent and borrowed were reported separately; all banks had to report securities lent, but securities borrowed were reported and disclosed only if the amount exceeded specified thresholds

� securities borrowed were reported in RCL 9, all other off balance sheet items, if > 10% of capital

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ASU 2015-01Extraordinary Items

(June supplemental instructions)

� Effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015; will affect March, 2016 Call Report

� Will report in RI 5l, Other Noninterest Income or RI 7d, Other Noninterest Expense as appropriate

� Will remove RI 11, Extraordinary Items, in 201621

ASU 2015-03, Debt Issuance Costs(June supplemental instructions)

� Requires debt issuance costs to be recognized as a direct deduction from face amount of the related debt liability

� Currently reported in Other Assets

� Effective for public entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2015; will affect March, 2016 Call Report

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ASU 2015-03, Debt Issuance Costs

� Effective for non-public entities for fiscal years after December 15, 2015 and interim periods within those fiscal years beginning after December 15, 2016; will affect December, 2016 Call Report

� Once adopted debt issuance costs currently reported in other assets should be reported as a direct deduction from carrying amount of the related debt liability and included either in RC 16, Other Borrowings, or RC 19, Subordinated Debt, as appropriate.

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Subsequent Restructuring of a Troubled Debt

(December supplemental instructions):

� When loan previously modified in a troubled debt restructuring (TDR), may enter into another restructuring agreement

� In certain circumstances may be acceptable NOT to account for subsequent restructuring as a TDR� Borrower not experiencing financial difficulties

• Must be supported by current, well document credit evaluation

� No concession has been granted to borrower• Must be market terms

• Principal forgiveness on a cumulative basis IS a concession24

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Subsequent Restructuring of a Troubled Debt

� Even though may no longer be reported as TDR, the recorded investment in the loan should not change at time of subsequent restructuring unless cash has been advanced or received

� If interest payments were applied to principal of TDR prior to subsequent restructuring, application of the payments should not be reversed or reported as income at time of subsequent restructuring

� Guidance effective on or after October 1, 2014� May apply to loans outstanding as of 9-30-14

� Prior call reports should not be amended25

ASU 2014-14, August, 2014 (September supplemental instructions):

� The new ASU clarifies the conditions under which a creditor must derecognize a government-guaranteed mortgage loan and recognize a separate “other receivable” upon foreclosure (when a creditor receives physical possession of real estate property collateralizing a mortgage loan).

� Under the new guidance, institutions should derecognize a mortgage loan and record a separate other receivable upon foreclosure of the real estate collateral if the following conditions are met: 26

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� The loan has a government guarantee that is not separable from the loan before foreclosure.

� At the time of foreclosure, the institution has the intent to convey the property to the guarantor and make a claim on the guarantee and it has the ability to recover under that claim.

� At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed (that is, the real estate property has been appraised for purposes of the claim and thus the institution is not exposed to changes in the fair value of the property). 27


� The guidance is applicable to fully and partially government-guaranteed mortgage loans.

� Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.

� The other receivable should be reported in RCF 6, all other assets. Any interest income earned on the other receivable would be reported in RI 1g, other interest income. Other real estate owned would not be recognized by the institution. 28

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� For institutions that are public business entities, as defined under GAAP, ASU 2014-14 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014 (in call reports beginning March 31, 2015).

� Institutions that are not public business entities (private companies) are not required to apply the guidance until annual periods ending after December 15, 2015, and interim periods beginning after December 15, 2015 (in call reports beginning December 31, 2015). 29


� Earlier adoption of the guidance in ASU 2014-14 is permitted if the institution has already adopted the amendments in ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.

� Entities can elect to apply ASU 2014-14 on either a modified retrospective transition basis or a prospective transition basis. However, institutions must use the method of transition that is elected for ASU 2014-04 (that is, either modified retrospective or prospective). 30

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� Applying ASU 2014-14 on a prospective transition basis should be less complex for institutions than applying the ASU on a modified retrospective transition basis. Under the prospective transition method, an institution should apply the new guidance to foreclosures of real estate property collateralizing certain government-guaranteed mortgage loans that occur after the date of adoption of the ASU.

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� Under the modified retrospective transition method, an institution should apply a cumulative-effect adjustment to affected accounts existing as of the beginning of the annual period for which the ASU is adopted. The cumulative-effect adjustment for this change in accounting principle should be reported in RIA 2.

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GOODWILL� ASU 2014-02 was issued in January, 2014 and generally

permits a private company to elect to amortize goodwillon a straight line basis over a period of 10 years & applysimplified impairment method to goodwill.

� If elected by a private company, effective in annual periods beginning December, 2014 and interim periods after December, 2014. May be permitted earlier.

� Agencies have concluded that a bank is a private company as defined in GAAP is permitted to use the private company accounting alternatives unless the agencies determine the accounting is inconsistent with statutorily specified supervisory objectives; agencies would provide appropriate notice if they were to disallow.33

GOODWILL� A private company is one that is not a public business

entity. ASU 2013-12 says a public business entity isone that meets any of the following criteria:� Is required by Securities & Exchange Commission (SEC) to file

or furnish financial statements, or does file or furnish financialstatements (including voluntary filers), with the SEC (includingother entities whose financial statements or financialinformation are required to be or are included in a filing)

� Is required by the Securities Exchange Act of 1934 to file orfurnish financial statements with a regulatory agency otherthan the SEC (such as one of the federal banking agencies)

� Is required to file or furnish financial statements with a foreignor domestic regulatory agency in preparation for the sale of orfor purposes of issuing securities that are not subject tocontractual restrictions on transfer

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GOODWILL

� Has issued securities that are traded, listed, or quoted on anexchange or an over-the-counter market, which includes aninterdealer quotation or trading system for securities notlisted on an exchange (for example, OTC Markets Group,Inc., including the OTC Pink Markets, or the OTC BulletinBoard)

� Has one or more securities not subject to contractualrestrictions on transfer (not subject to managementpreapproval on resale), & is required by law, contract, orregulation to prepare U.S. GAAP financial statements(including footnotes) and make them publicly available on aperiodic basis (interim or annual periods). An entity mustmeet both of these conditions to meet this criterion.

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GOODWILL• an insured depository institution with $500 million or more in total

assets as of the beginning of its fiscal year is required by FDIC regulations to prepare and make publicly available annual U.S. GAAP financial statements

• in certain circumstances, an insured depository institution with $500 million or more in total assets that is a subsidiary of a holding company may choose to satisfy this annual financial statement requirement at a holding company level rather than at the institution level

• an institution of this size that satisfies the financial statement requirement at the institution level would meet the fifth criterion’s second condition; however, if the institution has a parent holding company and the holding company’s financial statements are used to satisfy the requirements and the institution is not required by some other law, contract, or regulation to prepare and make publicly available its standalone U.S. GAAP financial statements (including footnotes), the institution would not meet the fifth criterion’s second condition and therefore would be a private company for Call Report purposes 36

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GOODWILL

� If adopted by a private company, the ASU requires theprivate company to make an accounting policy election totest goodwill for impairment when a triggering event occursthat indicates that the fair value of an entity may be below itscarrying amount.

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OTHER REAL ESTATE� Insubstance Foreclosure

� ASU 2014-04 issued in January, 2014• Clarifies when a creditor is considered to have received

physical possession of residential real estate

• Under new guidance, physical possession is considered to have occurred when:

– Bank obtains legal title upon completion of foreclosure even if borrower has redemption rights

– Completion of deed in lieu of foreclosure under which the borrower conveys all interest in the residential property

• Loans secured by real estate other than residential real estate should continue to be classified to OREO when the bank has received physical possession of the real estate38

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OTHER REAL ESTATE� Insubstance Foreclosure

• Effective for fiscal years for public entities after 12-15-14; non-public entities in fiscal years after 12-31-15

• May apply prospectively or on a modified retrospective transition

• Under a modified retrospective transition– Apply a cumulative effect adjustment to residential mortgage

loans and OREO existing as of beginning of the annual period for which the ASU is effective; report in RIA 2

– Assets reclassified from OREO to loans should be measured at carrying value of real estate as of date of adoption

– Assets reclassified from loans to OREO should be measured at lower of net amount of loan receivable or the OREO fair value less costs to sell 39

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Basel III, Risk Based Capital --Revisions to capital definitions,

minimum ratios, & risk weightings

� Revised the definition of regulatory capital and minimum ratios

� Redefined tier 1 capital into two components:� a new common equity tier 1 capital

� additional tier 1 capital

� Created a new capital ratio of Common Equity Tier 1 Capital

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� Requires higher levels of regulatory capital� Common equity tier 1 of 4.5%

� Tier 1 of 6.0% (up from 4.0%)

� Total capital of 8.0% (unchanged)

� Also limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements

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� Amends the methodologies for determining risk-weighted assets for all banking organizations

� Final rule applies to all banking organizations currently subject to minimum capital requirements, including national banks, state member banks, state nonmember banks, state and Federal savings associations

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RCR 1, Common stock & surplus�Common stock, RC 24�Related surplus, RC 25�Less items in RC 26c (treasury stock, unearned ESOP)

RCR 2, Retained earnings� RC 26a

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� RCR 3, Accumulated other comprehensive income (AOCI), RC 26b

� 3a, AOCI opt out election for non-advanced approach banks that do not want to include most components of AOCI in common equity tier one capital� If want to opt out, RCR 3a should be “1”, yes

�Make one time election 3-31-15

� If opt out will complete RCR 9a-9e

� If opt in, RCR 3a should be “0”, no

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� If opt out report amount included in RC 26b:� Unrealized gains on AFS equity securities, plus

� Unrealized gain/loss on AFS debt securities, plus

� Any amounts in AOCI attributed to defined benefit postretirement plans, plus

� Accumulated gains/losses on cash flow hedges in AOCI related to items reported at fair value, plus

� Unrealized gain/loss on HTM securities included in AOCI

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� If opt in:� Multiply total by appropriate phase in percentage

� Report amount of AOCI in RC 26b less amount calculated

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� RCR 4, Includable minority interest

� Portion of equity in bank’s subsidiary not attributable, directly or indirectly, to parent bank

� May only include minority interest if:�Subsidiary is depository institution or a foreign bank,

and

�Capital instruments issued by subsidiary meet criteria for common equity tier one capital

�Will be phase out period for surplus and non-qualifying minority interest; 60% allowed in 2015, 0% by 2018

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RCR 6, Goodwill net of associated deferred tax liability (DTL)

�Report amount reported in RC 10a�May net DTL specifically related to goodwill

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� RCR 7, Intangible assets, other than goodwill and mortgage servicing net of DTL� Includes core deposit intangibles, purchased credit

card relationships and non-mortgage servicing assets reported on RCM 2b & 2c

� Reduce amount reported by associated DTL

� State member banks may exclude remaining book value of intangible assets on balance sheet prior to 2/19/92

� Transition provisions:

�40% in 2015, 60% in 2016, 80% in 2017, 100% 2018

�100% risk weight applies to any amount not deducted

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� RCR 8, Deferred tax assets (DTA) that arise from net operating loss and tax credit carryforwards, net of DTL’s

� Rules say that before calculating DTA’s subject to DTA limitations for inclusion in Tier 1 capital, a bank may eliminate the deferred tax effect of any net unrealized gain/loss on AFS debt securities

� Transition provisions:�40% in 2015, 60% in 2016, 80% in 2017, 100% 2018

�Remaining balance will be reported in RCR 24, additional tier 1 capital deductions; if don’t have additional tier one capital then report in RCR 17

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� RCR 9, Accumulated other comprehensive income (AOCI) adjustments� Complete RCR 9a-9e if entered “1”, yes on RCR 3a

�9a, net unrealized gain/loss on AFS securities, net of taxes included in RC 26b

�9b, net unrealized loss on AFS equity securities

�9c, accumulated net gain/loss on cash flow hedges

�9d, amounts in AOCI attributed to defined benefit plans

�9e, net unrealized gain/loss on HTM securities

� Complete RCR 9f if entered “0”, no, on RCR 3a�9f, less accumulated net gain/loss on cash flow hedges

not recognized at fair value on the balance sheet

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� RCR 10, Other deductions from common equity tier 1 capital� 10a, unrealized gain/loss related to changes in fair

value of liabilities that are due to changes in own credit risk


� Remaining balance will be reported in RCR 24, additional tier 1 capital deductions

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� RCR 10, Other deductions from common equity tier 1 capital� 10b, all other deductions from/additions to common

equity tier 1 capital� Include any after tax gain on sale in connection with

securitization exposure (increase in equity capital other than from receipt of cash)

�Same transition provisions as 10a

� Investments in own shares to extent not excluded as part of treasury stock if could be contractually obligated to purchase� Same transition provisions as RCR 11

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� RCR 10, Other deductions from common equity tier 1 capital

�Reciprocal cross holdings in the capital of financial institutions in form of common stock� from arrangement between two financial institutions to

swap or exchange each other’s capital instruments

� deduction made from tier of capital for which the instrument qualifies

� Transition provisions, see RCR 11

�Equity investments, including retained earnings, in financial subsidiaries� bank must deduct aggregate amount of outstanding equity

instruments, including retained earnings, in its financial subsidiaries

� may not consolidate assets & liabilities of financial subsidiary with those of parent institution

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� RCR 11, Less non-significant investments in capital of unconsolidated financial institutions in form of common stock exceeding 10% threshold ( RCR 5 less RCR 6, 7, 8, 9, 10)� Non-significant means own 10% or less of the issued

and outstanding common shares of that institution

� Consider aggregate of all non-significant investments


�Report amount not deducted in risk weighted assets

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� RCR 13-16, Items subject to the 10 & 15% common equity tier 1 capital threshold deductions

� Report amount of items that individually exceed 10% of common equity tier 1 (RCR 12)

� Aggregate of items not reported in lines 13-15 may not exceed 15% of common equity tier 1 capital�Amount over 15% must be deducted on RCR 16

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� RCR 13, Less significant investments in capital of unconsolidated financial institution in form of common stock exceeding 10% common equity tier 1 deduction threshold� Determine amount of significant investments (own

more than 10%) in capital of unconsolidated financial institutions

� If amount > 10% of RCR 12, report difference in RCR 13

� If less < 10% or RCR 12, report zero


� from 1/1/15-1/1/18 report amount remaining in 100% risk weight; after 1/1/18 report in 250% risk weight

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� RCR 14, Less mortgage servicing assets net of DTL that exceed 10% of common equity tier 1 capital� Use amount reported in RCM 2a, net of DTL; if

amount is > 10% of RCR 12, report difference in RCR 14

� If less < 10% of RCR 12, report zero



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� RCR 15, Less deferred tax assets (DTA) arising from temporary differences that could not be realized from net operating loss carrybacks, net of DTL that exceed 10% common equity tier 1 capital threshold� If amount is > 10% of RCR 12, report difference in RCR 15

� If less < 10% or RCR 12, report zero

� Transition provisions:� 40% in 2015, 60% in 2016, 80% in 2017, 100% 2018


� DTA’s from temporary differences that could be realized through net operating loss carrybacks are not subject to deduction and are risk weighted at 100%

� If member of holding company, amount of DTA may not exceed amount the institution could reasonably expect to be refunded by holding company

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� RCR 16, Amount of significant investments in capital of unconsolidated financial institutions, mortgage servicing assets, and DTA’s arising from temporary differences that can’t be realized through net operating loss carrybacks that exceed 15% of common equity tier 1 capital� Aggregate of threshold items may not exceed 15% of

bank’s common equity tier 1 capital

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� From 1/1/15-1/1/18:� (1) Add aggregate amount of threshold items before

deductions

� (2) Multiply RCR 12 by 15%

� (3) Add RCR 13, 14, & 15

� (4) Subtract (3) from (1), aggregate amount above

� (5) Deduct (2) from (4)

� (6) multiply (5) by transitional percentage from RCR 13


� Report amount from (6) in RCR 16

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� beginning 1/1/18:

� (1) Add aggregate amount of threshold items before deductions

� (2) Add amounts of threshold items deducted

� (3) Subtract (1) from RCR 12 and multiply by 17.65%

� (4) If amount in (2) is greater than (3), report difference; if less than report zero

� (5) If amount in (4) is over (3), prorate threshold items; amount from (4) x (threshold item/total of threshold items)

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� RCR 17, Deductions applied to common equity tier 1 capital due to insufficient amounts of additional tier 1 & 2 capital to cover deductions

� Report deductions related to reciprocal cross holdings, non-significant investments in capital of unconsolidated financial institutions, & non-common stock significant investments in capital of financial institutions if bank does not have sufficient amount of additional tier 1 & 2 capital to cover deductions in RCR 24 & 33

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Additional Tier One Capital:

� RCR 20, additional tier 1 capital plus related surplus� Noncumulative perpetual preferred stock and surplus

reported in RC 23

� Must satisfy criteria in capital rules

� Include:� Instruments issued under small business job act 2010 or

prior to under emergency economic stabilization act and

�Were included in tier 1 under primary supervisory’s risk rules� Tarp tier 1 grandfathered permanently

� SBLF if qualifies for Tier 1

� Trups issued prior to 5-19-10 by holding companies < $15 billion as of 12-31-09

� Instruments issued as part of esop, provided repurchase is required solely by virtue of erisa for a bank not publicly traded

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� RCR 21, non-qualifying capital subject to phase out

� Capital debt or equity issued prior to 9/12/10 not meeting criteria for additional tier 1 or 2 but were included as of 9/12/10

� Include up to percentage of outstanding principal amount as of 1/1/15 per transition rules (for non-advance approach)

� Amount excluded from tier 1 may be included in tier 2 provided it meets tier 2 criteria� Trups issued by holding companies > $15 billion

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� RCR 22, Tier 1 minority interest not included in common equity tier 1 capital

� No requirement that the minority interest be a depository institution or foreign bank

� See worksheet in RCR instructions, p. 21

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� RCR 24, Less additional tier 1 deductions� If not enough additional tier 1 capital to cover

deductions, must be subtracted from RCR 17, common equity tier 1

� Investments in own additional tier 1 capital instruments�Held directly or indirectly

�Transitional provisions as in RCR 11

� Reciprocal cross holdings in the capital of financial institutions � investments in additional tier 1 capital of other financial

institutions that the institution holds reciprocally� crossholdings result from arrangement between two

financial institutions to swap or exchange each other’s capital instruments

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� RCR 24, Less additional tier 1 deductions� Non-significant investments in additional tier 1 capital

of unconsolidated financial institutions > 10% threshold for non-significant investments

� Non-significant if own < 10% of issued & outstanding common shares of financial institution

� (1) Determine aggregate amount of non-significant investments in capital of unconsolidated financial institutions in form of common stock, additional tier 1, and tier 2 capital

� (2) Determine non-significant investment in capital of unconsolidated financial institutions in form additional tier 1 capital

� If (1) > 10% threshold for non-significant investments, multiply difference by (2)/(1)

� If (1) < 10% report zero

� Same transitional provisions as RCR 11

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� RCR 24, Less additional tier 1 deductions

� Significant investments in capital of unconsolidated financial institutions not in form of common stock to be deducted from tier 1 capital

�Report significant investments in capital of unconsolidated financial institutions in form of additional tier 1 capital

�Same transitional provisions as RCR 11

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� RCR 24, Less additional tier 1 deductions� Other adjustments & deductions

� Include any adjustments due to insufficient tier 2 capital to cover deductions

� Include adjustments/deductions related to calculation of DTA (from RCR 8 during transitional years), gain on sale, defined benefit pension fund assets, changes in fair value of liabilities due to change in own credit risk

� Insured state banks with real estate subsidiaries whose operations have been approved by FDIC should include as a deduction their equity investment in the subsidiary; if have phase out plan don’t need to make deduction

� If insured banks have other subsidiaries approved by FDIC, include as a deduction amount required by order

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� RCR 27, Tier 2 capital plus related surplus� Instruments issued under small business job act, under

emergency stabilization act, and were included in tier 2 capital non-qualifying instruments under primary supervisor’s capital rules

�Trups issued by holding companies > $15 billion

�Cumulative perpetual preferred

� RCR 28, Non-qualifying capital instruments subject to phase out� Preferred stock with credit sensitive features

� Use transitional rules from RCR 21

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� RCR 29, Minority interest not included in tier 1 capital� See worksheet in RCR instruction, p.26

� Use transitional rules from RCR 4

� RCR 30a, Allowance for loan & lease losses� Limited to 1.25% of risk weighted assets

� Include ALLL reported on RC 4c and RCG 3 less allocated transfer risk reserve reported in RIB part II 7

� RCR 31, Unrealized gains on AFS equities� May include 45% of unrealized gain if opted out

� If haven’t opted out, multiply unrealized gain by allowable transition percentages (27%, 18%, 9%, 0% 2015-2018)

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� RCR 33, Less tier 2 capital deductions� If not enough tier 2 capital for deductions, must deduct

from additional tier 1 (RCR 24) or common equity tier 1 (RCR 17)

� Investments in own additional tier 2 capital instruments

� Reciprocal cross holdings in tier 2 capital of financial institutions

� Non-significant investments in tier 2 capital of unconsolidated financial institutions > 10% threshold

� Significant investments in capital of unconsolidated financial institutions not in form of capital stock to be deducted from tier 2 capital

� Follow transition provisions from RCR 11

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� RCR 36, Average total consolidated assets� Report average assets from RCK 9

� RCR 37, Deductions from common equity tier 1 & additional tier 1 capital� Report sum of RCR 6, 7, 8, & 10b, 11, 13-17, 24

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� RCR 38, Other deductions/additions for leverage ratio purposes� If sponsor single employer defined benefit post-retirement

plan, adjust for any amounts included in RC 26b as a result of the initial and subsequent application of the funded status of the plan

� If do not make opt out election:� Report deduction/addition the amount needed to adjust AFS

debt securities from cost to fair value and AFS equity securities from lower of cost or fair value to fair value (reported differently on RCK 9)

� If deferred tax effects of unrealized gain/loss on AFS securities were excluded from RCK 9, also include the amount as an adjustment to average assets for leverage purposes� Use appropriate transition percentage from RCR 3a

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� Also effective for non-advance approach banks:

� Revisions to capital definitions & minimum ratios:

� Implements a capital conservation buffer in order to pay dividends and discretionary bonuses to executive officers

�RCR 46a equal to lowest of following ratios:�RCR 41, common equity tier 1 capital ratio less required

ratio (4.5% starting in 2015)

�RCR 42, tier 1 capital ratio less required ratio ( 6.0% starting in 2015)

�RCR 43, total capital ratio less 8%

�Amount in RCR 46a must be greater than minimum risk based capital requirements plus capital conservation buffer

80

� Beginning in 2016, must complete RCR 47 & 48 if RCR 46a is < capital conservation buffer

� RCR 47, Eligible retained earnings�Report amount of net income for four calendar quarters

preceding current quarter

Ann Thomas


81

� RCR 48, Distributions & discretionary bonus payments during quarter

� Bonus is payment made to executive officer that:� Bank retains discretion of payment & amount until awarded� Bank pays without promise or agreement� Executive officer has no contractual right to payment� Bonus does not include non-cash payments (stock options)

� Executive Officer:� person who holds the title or, without regard to title, salary,

or compensation, performs the function of one or more of the following positions: president, chief executive officer, executive chairman, chief operating officer, chief financial officer, chief investment officer, chief legal officer, chief lending officer, chief risk officer, or head of a major business line, and other staff that the board of directors of the FDIC-supervised institution deems to have equivalent responsibility

82

� RCR 48, Distributions & discretionary bonus payments during quarter

� Distribution�Dividend declaration or payment on any tier 1

instrument

�Dividend declaration or interest payment on any tier 2 capital instrument if bank has discretion to suspend payments without triggering default

�FIL 40-2014 addresses dividends paid by Sub S corps to their shareholders to cover personal tax liability

� banks can apply for an exception if meet certain criteria

�FDIC will provide instructions well in advance of implementation of the buffer

Ann Thomas


83

� New minimum capital ratios� Leverage of 4.0% (common equity/average assets)

� Common equity tier 1 of 4.5%

� Tier 1 risk based capital of 6.0%

� Total risk based capital of 8.0%

� Well capitalized under PCA standards 1/1/15� Leverage > 5.0%

� Common equity tier 1 > 6.5%

� Tier 1 risk based capital > 8.0%

� Total risk based capital > 10.0%

Instructions for RCR Part 1 & 2 at: http://www.ffiec.gov/forms041.htm

Risk Based Capital Frequently Asked Question, FAQ’s issued in FIL 16-2015

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Ann Thomas


85

� In general, banks need to risk weight the exposure amount. The exposure amount is defined as follows (see §.2 of the regulatory capital rules for additional info):

� (1) For the on-balance sheet component of an exposure, the bank’s carrying value of the exposure.

� (2) For a security classified as available-for-sale (AFS) or held-to-maturity (HTM) where the bank has made the AOCI opt-out election in Schedule RC-R, Part I 3.a, the carrying value for the exposure (book value)

� (3) For AFS preferred stock classified as an equity under GAAP where the bank has made the AOCI opt-out election, the carrying value (book value)

� (4) For the off-balance sheet component of an exposure, the notional amount of the off-balance sheet component multiplied by the appropriate credit conversion factor

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Ann Thomas


� In general, banks need to risk weight the exposure amount. The exposure amount is defined as follows (see §.2 of the regulatory capital rules for additional info):

� (5) For an exposure that is an OTC derivative contract, the exposure amount is determined under §.34 of the regulatory capital rules

• Current credit exposure – fair value if positive, zero if negative

Plus

• Potential future exposure over remaining life of contract• Based on type of contract and remaining maturity

87

� RCR 1, Cash & Due From� Additional risk columns only apply if have balances due from

foreign central banks and foreign depository institutions; if due from foreign banks, must use applicable Country Risk Classification Code (CCRC, see instructions RCR 43)

� Col C, 0% Risk

• Cash

• Collected Federal Reserve balances

• Collected FDIC insured due from bank balances

� Col G, 20% Risk

• Cash Items

• Due from bank balances over FDIC insurance limits

• FHLB bank balances

88

Ann Thomas


� RCR 2a, Held to Maturity Securities

� RCR 2b, Available for Sale Securities

� Excludes securitization exposures

� Securitizations are transactions that have been separated into at least two tranches reflecting different levels of seniority for credit risk

� Amounts risk weighted based on whether bank has made AOCI opt in or opt out election

89



� Col C, 0% Risk• Treasury securities, RCB 1

• Guaranteed agency securities, RCB 2a

• GNMA mortgage back securities, RCB 4a1, 4b1, 4c1a, or 4c2a

� Col G, 20% Risk• Sponsored agencies, RCB 2b

• General obligation municipals, RCB 3

• FNMA or FHLMC mortgage back securities, RCB 4a2, 4b1, 4c1a, 4c2a, or 4b2

• Structured financial products, RCB 5b (only include if not securitizations and qualify for 20% risk)

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Ann Thomas




� Col H, 50% Risk• Revenue obligation municipals, RCB 3

• Other residential mortgage back securities that qualify for 50% risk in RCB 4a3, 4b2, 4b3 that are not securitizations

� Col I, 100% Risk• Industrial revenue munis reported in RCB 3

• Other debt securities reported in RCB 6

• Other residential mortgage back securities that qualify for 100% risk in RCB 4a3, 4b2, 4b3 that are not securitizations

• Other commercial mortgage back in RCB 4c1b

• All other commercial mortgage back in RCB 4c2b

• Asset back securities in RCB 5a

• Structured financial products, that qualify for 100% risk, RCB 5b (only include if not securitizations and qualify for 100% risk)

91



� Col I, 100% Risk• Equity securities that are not securitization exposures and not

required to be risk weighted higher (see below Col L & N)

• Mutual funds reported in RCB 7 can be risk weighted using the simple approach (use highest risk weight that would apply to any exposure the fund is permitted to hold and apply to entire balance) or look through approach (considers composition of funds and risk weights accordingly; lowest risk is 20% even if only invested in treasury securities)

� Col K, 250% Risk• Starting in 2018, includes equity securities not qualifying as

securitizations that are significant investments in the common stock of unconsolidated financial institutions that are not deducted from capital;

• Prior to 2018, report in Col I, 100%92

Ann Thomas




� Equity holdings (other than 20% risk weight, community development, significant financial institutions, or 600% risk equities) exceeding 10% of the bank’s capital are risk weighted higher depending on type of equity

• Col L, 300% risk includes publicly traded AFS equity security reported in RCB 7

– report amount in RCB 7 Col D if in a loss position

– report amount in RCB 7 Col C + unrealized gain in tier 2 capital (up to 45%)

• Col N, 600% risk includes AFS equity securities to investment firms with readily determinable fair values reported in RCB 7

– report amount in RCB 7 Col D if in a loss position

– report amount in RCB 7 Col C + unrealized gain in tier 2 capital (up to 45%) 93



� Exposures to Sovereign Entities & Foreign Banks reported in RCB 4a3, 4b3, 4c1b, 4c2b, 5a, 5b, or 6 (that are not securitizations) are risk weighted based on whether exposure is to foreign central government, foreign bank, general or revenue obligation of foreign public sector entity and Country Risk Code Classification (CRC); if no CRC risk is based on whether OECD (organization for economic cooperation & development) member

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Ann Thomas


� RCR 3, Federal Funds Sold� Col G, 20% risk

� RCR 4, Loans held for sale

� RCR 5, Portfolio loans� Exclude any that qualify as securitization exposures (report in RCR 9)

� RCR 4a or 5a, Residential mortgage exposures� Exclude presold construction loans

� Include:

• loans secured by first or junior lien, or

• loan with an original & outstanding amount of < $1 million that is primarily secured by first or junior lien on non 1-4 property (multifamily) and is managed as part of a segment of exposures with homogeneous risk characteristics and not on an individual basis

– include above two categories even if past due 90+ or nonaccrual95

� RCR 4a or 5a, Residential mortgage exposures

� Include:

• statutory multifamily loans– meet LTV guidelines of 80% or 75% if rate changes over loan term

– are not past due 90+ days or nonaccrual

– Annual net operating income to required debt servicing of 120%

– Maximum amortization period of 30 years

– Minimum original maturity of 7 years

– Demonstrated timely repayment performance for 12 months; if refinance may consider repayment performance at prior bank

� Col G, 20% risk

• Guaranteed portion of FHA & VA mortgage loans reported in RCC 1c

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Ann Thomas


� RCR 4a or 5a, Residential mortgage exposures

� Col H, 50% risk

• 1-4 1st liens on RCC 1c, if prudently underwritten– meet LTV guidelines of 90%

» may include PMI in LTV calculation

– not 90+ days past due or nonaccrual

– have not been restructured or modified, unless under the Treasury’s home affordable mortgage program

» if modify without updated credit review, will not qualify for 50% risk

– may include 1-4 junior lien if also hold the 1st lien and there are no intervening liens

• residential mortgage multifamily loans reported in RCC 1d that qualify for 50% risk (< $1 million)

– 1st lien

– Not 90+ days past due or nonaccrual

– Have not been restructured

• statutory multifamily loans reported in RCC 1d (must meet criteria)97

� RCR 4a or 5a, Residential mortgage exposures� Exclude presold construction loans

� Col I, 100% risk

• 1-4 first liens past due 90+ days or on nonaccrual

• 1-4 junior liens not qualifying for 50% risk

• Residential mortgage multifamily loans (< $1 million) past due 90+ days or on nonaccrual

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Ann Thomas


� RCR 4b or 5b, High volatility commercial real estate exposures (HVCRE)

� Exclude any that qualify as securitization exposures (report in RCR 9), statutory multifamily, presold construction loans

� Includes HVCRE loans that are past due 90+ days or on nonaccrual

� HVCRE are loans that finance the acquisition, development, or construction of real property unless the loan finances:

• 1-4 residential properties

• real property that would qualify as an investment in community development

– affordable housing for low/moderate income individuals

– community services for low/moderate income individuals

– revitalized or stabilizes low/moderate income areas, designated disaster areas, or underserved areas

• purchase or development of ag land (land used or usable for ag) provided the value is based on its value for ag purposes, not value based on any potential use of land for non-ag commercial or residential development

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� RCR 4b or 5b, High volatility commercial real estate exposures (HVCRE)

� HVCRE are loans that finance the acquisition, development, or construction of real property unless the loan finances:

• commercial real estate projects where:– “as completed” loan to value is < 80% (75% if land development)

– borrower has contributed capital in form of cash or unencumbered readily marketable asset or has paid out of pocket development expenses of at least 15% of as completed value

– borrower contribution must be before bank advances funds and contribution remains in project throughout life of project

– life of project ends when loan is converted to permanent, is sold, or is paid in full

� Col J, 150% risk• HVCRE loans, current and past due 90+ days, nonaccrual (unless

collateral or guarantor would qualify for lower risk)100

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� RCR 4c or 5c, Loans past due 90+ days or on nonaccrual

� Exclude residential loans, HVCRE

� Col C, 0% risk

• Portion of loans secured by cash

� Col C, 20% risk

• Portion of loans guaranteed by US government

� Col J, 150% risk

• All other loans past due 90+ days or on nonaccrual

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� RCR 4d or 5d, All other loans� Col C, 0% Risk

� portion of loans with unconditional guarantee

� SBA guaranteed portion purchased

� cash collateral in your bank

� loans secured by treasury or GNMA bond to extent of fair value discounted by 20%

� Col G, 20% Risk

• guaranteed portion of SBA loans originated

• government guaranteed portion of student or farm loans

• cash collateral in another financial institution if have perfected first lien interest

• municipal loans if repayment from general tax receipts

• loans covered by loss sharing agreements with FDIC

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Ann Thomas


� RCR 4d or 5d, All other loans

� Col H, 50% Risk

• presold construction loans to builders– meet LTV guidelines of 80%

– cannot be past due 90+ days or on nonaccrual

– must be presold with documented contract and loan commitment

– must be owner occupied; cannot include spec homes

• municipal loans if repayment from revenues

� Col I, 100% Risk

• all other loans not qualifying for lower risk weighting

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105

� RCR 6, Allowance for loan losses, excluded� Report in Col B

� RCR 7, Trading Assets� Report in same risk weighting portfolio assets

� RCR 8, All Other Assets� Include amounts reported on RC 6-11 other than securitizations

� Banks that make opt out election that have a single employer defined benefit postretirement plan should adjust amount reported in column A for any amounts included in RC 26b (as result of the initial & subsequent application of funded status & measurement date provisions); adjustment should also take into account subsequent amortization of those amounts from AOCI into earnings

• also report amount as an adjustment in Col B 106

Ann Thomas


� RCR 8, All Other Assets

� Col B, Adjustments

• Goodwill reported in RCR Pt I 6

• Intangible assets reported in RCR Pt I 7

• Fair value of derivative contracts reported in RC 11

• Items subject to 10/15% common equity threshold limitations deducted in RCR Pt I 13-16

• Investments in unconsolidated subsidiaries in RCR 8 deducted for risk based capital purposes on RCR Pt 1 33

� Col C, 0%

• Federal Reserve Stock

• Accrued interest on assets reported at 0% risk on lines 1-7

• Carrying amount of gold held in bank’s vault

� Col G, 20%

• Federal Home Loan Bank Stock


� RCR 8, All Other Assets� Col H, 50% risk


� Col I, 100% risk• Accrued interest on assets reported at 100% risk on lines 1-7

• Amount of all other assets reported in Col A not qualifying for another risk category

• Amount of items that do not exceed the 10/15% threshold limitations

• Bank owned life insurance– General account policies

– Separate account BOLI product (or hybrid with separate features) must risk weight using the look through, simplified, or modified simplified method; report on 8a

� Col J, 150% risk• Accrued interest on assets reported at 150% risk on lines 1-7

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Ann Thomas


� RCR 8, All Other Assets� Bank owned life insurance

• Separate account policy is treated as an exposure to an investment fund; must risk weight using the look through, simplified, or modified simplified approach

• RCR 8a, Separate account BOLI product

• Col R is the carrying value of the bank’s investments in separate account life insurance products, including hybrid separate account products

• Col S is the risk-weighted asset amount of these insurance products

• the portion of the carrying value that represents general account claims on the insurer, including items such as deferred acquisition costs (DAC) and mortality reserves realizable as of the balance sheet date, and any portion of the carrying value attributable to a Stable Value Protection (SVP) contract should be risk weighted at the 100 percent risk weight as claims on the insurer or the SVP provider

109

� RCR 8, All Other Assets� Bank owned life insurance

• Stable value protection means a contract where the provider of the contract pays to the policy owner of the separate account an amount equal to the shortfall between the fair value and cost basis of the separate account when the policy owner of the separate account surrenders the policy

– the remaining portion of the investment in separate account life insurance products is an equity exposure to an investment fund that should be measured under the full look-through approach (apply risk weighting for each exposure held by the investment fund), the simplemodified look-through approach (apply highest risk weight applicable to any exposure fund is permitted to hold and apply to entire fund), or the alternative modified look-through approach (equal to the sum of each portion of the of the adjusted carrying value assigned to an exposure type multiplied by the applicable risk weight).

– adjusted carrying value assigned to an exposure type multiplied by the applicable risk weight), all three of which require a minimum risk weight of 20 percent

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Ann Thomas


� RCR 8, All Other Assets� Col M, 400%

• Equity securities, other than ones issued by investment firms, that do not have readily determinable fair values included in RCF 4; report historical cost

� Col N, 600%

• Equity securities issued by investment firms that do not have readily determinable fair values included in RCF 4; report historical cost

� Col O, 625%

• DvP and PvP transactions where counterparty has not made delivery or payment within 16-30 business days after contractual settlement date

• A DvP transaction refers to a securities or commodities transaction in which the buyer is obligated to make payment only if the seller has made delivery of the securities or commodities and the seller is obligated to deliver the securities or commodities only if the buyer has made payment 111

� RCR 8, All Other Assets

� Col O, 625%• DvP and PvP transactions where counterparty has not made delivery or

payment within 16-30 business days after contractual settlement date– A PvP transaction means a foreign exchange transaction in which each

counterparty is obligated to make a final transfer of one or more currencies only if the other counterparty has made a final transfer of one or more currencies

� Col P, 937.5%

• DvP and PvP transactions where counterparty has not made delivery or payment within 31-45 business days after contractual settlement date

� Col Q, 1250%

• DvP and PvP transactions where counterparty has not made delivery or payment 46 or more business days after contractual settlement date

• Non DvP/PvP transactions where bank has not received deliverables from counterparty by 5th business day after delivery was due 112

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� RCR 9, On balance sheet securitization exposures� May use simplified supervisory formula approach (SSFA) or gross up

approach

� Must apply either SSFA or gross up approach consistently across all securitization exposures

� Any individual securitization may be risk weighted at 1250%

� RCR 9a, Held to maturity securities� Amount reported in Col A depends on whether bank has made opt out

election

� Col B – report amount included in Col A that will be risk weighted using SSFA or gross up approach

� Col Q – report exposure amount to be risk weighted at 1250%

� Col T – report risk weighted amount for securitizations calculated under SSFA approach

� Col U – report risk weighted amount for securitizations calculated under gross up approach

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Ann Thomas


� RCR 9b, Available for sale securities� Amount reported in Col A depends on whether bank has made opt out

election

� if have not opted out, report fair value of debt securities and adjusted carrying amount of equity securities

� if have opted out, report book value of debt securities and carrying value of equities less any unrealized gains excluded from capital

� Col B – if opted out, report difference in fair value and book value of securitizations that will be risk weighted at 1250%

• difference between RCB 4, 5 Col D – Col C

• if fair value more than cost, report positive number

• if fair value less than cost, report negative number

• Col B – all banks report amount included in Col A that will be risk weighted using SSFA or gross up approach

115

� RCR 9b, Available for sale securities� Col Q – report exposure amount to be risk weighted at 1250%

� Col T – report risk weighted amount for securitizations calculated under SSFA approach

� Col U – report risk weighted amount for securitizations calculated under gross up approach

� RCR 9c, Trading assets that receive standardized charges� Amount reported in RC 5 that are securitization exposures

� RCR 9d, All other on-balance sheet securitization exposures� Amount reported in Col A depends on whether bank has made opt out

election

� Include accrued interest receivable on securitizations116

Ann Thomas


� RCR 10, Off balance sheet securitization exposures� If not a repo-style transaction or eligible margin loan, cleared

transaction (other than credit derivative), or over the counter derivative (other than credit derivative), the exposure amount is the notional amount of the exposure

• if bank makes a credit enhancing representation & warranty that is limited or capped (warranty to cover first losses on loans up to set amount that is less than full loan amount)

– ex. bank sells $100,000 in 1-4 loans and agrees to compensate buyer up to $2,000 if loans default in first 12 months

» since 12 months longer than 120 day period meet definition of credit enhancement

» securitization because $2,000 is a first loss tranche on a $100,000 transaction

» report $100,000 in Col A, adjustment of $98,000 in Col B, $2,000 in Col Q if applying 1250% risk or Col T or U if applying gross up approach or SSFA

117

� RCR 10, Off balance sheet securitization exposures� If securitization exposure to asset back commercial paper program

(ABCP), notional amount may be reduced to maximum potential amount bank could be required to fund given the program’s current underlying assets

• exposure amount of eligible ABCP for which SSFA does not apply is the notional amount of exposure multiplied by credit conversion factor of 50%

• exposure amount of eligible ABCP for which SSFA does apply is the notional amount of exposure multiplied by credit conversion factor of 100%

� If securitization exposure is repo style transaction or eligible margin loan, calculate exposure based on capital rules in sections 34, 35, or 37

� RCR 11, Total Assets� Report total of lines 1-9 in Col A – Q

� Sum of Col B-Q must equal Col A 118

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� RCR 12, Financial standby letters of credit� Col A -- report amount from RCL 2, unless credit enhancement for

assets (if so, multiply by 12.5%)

� Col B – credit converted at 100%, so report amount from Col A

� Col C – 0% risk, report cash secured to extent of cash on deposit

� Col G – 20% risk, ones conveyed to US banks

� Col I – 100%, all others unless must be risk weighted by country risk classification methodology

� RCR 13, Performance standby letters of credit� Col A -- report amount from RCL 3

� Col B – credit converted at 50%, so report ½ of amount from Col A



� Col I – 100%, all others unless must be risk weighted by country risk classification methodology 120

Ann Thomas


� RCR 14, Commercial letters of credit� Col A -- report amount from RCL 4 with an original maturity of < 1

year

• if original maturity > 1 year, report on RCR 18c

� Col B – credit converted at 20%, so report 1/5 of amount from Col A



� Col I – 100%, all others unless must be risk weighted by country risk classification methodology

� RCR 15, Retained recourse on small business obligations sold with recourse (recourse retained if establish a recourse liability account that is sufficient under GAAP)� Col A -- report amount from RCS M1b (exclude securitizations)


� Col I – 100% risk 121

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Ann Thomas


� RCR 16, Repo style transactions � Include:

• securities lent reported in RCL 6a

• securities borrowed reported in RCL 6b

• securities sold under agreements to repurchase in RC 14b

• reverse repos reported in RC 3b

� Col A – report fair value of securities involved in transaction


� Col C-J – report based on risk category collateral or guarantee qualifies for

� With a traditional repo, bank borrows cash & posts security (ex. borrow $98, post $100 security; exposure to counterparty is $2)

� If take cash & give depositor a security because deposit is > FDIC insurance limits, only have exposure if market value of security > than cash from depositor

• If market value < cash from depositor substitute counterparty exposure with cash received, which is risk weighted at 0%)

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� RCR 17, All other off-balance sheet liabilities� Include:

• notional amount of all other off balance sheet items reported in RCL 9

• face amount of risk participations in bankers acceptances that have been acquired by the bank and are outstanding

• full amount of loans sold with credit-enhancing representations and warranties that do not meet definition of a securitization exposure

– if agree to repurchase loans, report until warranties expire

– credit enhancing representations & warranties do not include certain early default clauses and similar warranties that permit return of, or premium refund clauses covering 1-4 loans provided the warranty period does not exceed 120 days from the date of transfer

• notional amount of written option contracts that act as financial guarantees that do not meet definition of securitization

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Ann Thomas


� RCR 17, All other off-balance sheet liabilities� Include:

• notional amount of all forward agreements (legally binding contractual obligations to purchase assets with certain drawdown at a specified future date)

– exclude commitments to make 1-4 loans & forward foreign exchange contracts

• amount of credit derivatives reported in RCL 7 covered by risk rules and not included in any preceding line items

• Exclude:– credit derivatives classified as trading

– credit derivatives purchased by bank recognized as guarantees of an asset or off balance sheet exposure (for ex. credit derivatives on which bank is beneficiary)

• Col B – credit converted at 100%, so report amount from Col A

• Col C-J – risk weight based on counterparties who meet or have guarantees or collateral that meets the various risk categories 125

� RCR 18, Unused commitments� Exclude commitments that are unconditionally cancelable (bank may

cancel at any time for any reason)

� RCR 18a, Original maturities < 1 year excluding asset backed

commercial paper conduits (ABCP)

• Col B -- credit converted at 20%; report 20% of Col A amount

• Col C-J – report based on risk category collateral or guarantee qualifies for

� RCR 18b, Original maturities < 1 year to ABCP conduits



� RCR 18c, Original maturities > 1 year (includes commercial letters of credit with original maturities of > 1 year)



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127

RC-R 18c

� Unused commitments with original maturities of more than 1 year

� "Original maturity" is defined as the length of time between the date a commitment is issued and the date of maturity,

orthe earliest date on which the bank (1) is scheduled to (and as a normal practice actually does) review the facility to determinewhether or not it should be extended and (2) can unconditionally cancel the commitment*

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RC-R 18c

� Unused commitments with original maturities of more than 1 year

� * In the case of consumer home equity or mortgage lines of credit secured by liens on 1-4 family residential properties, a bank is deemed able to unconditionally cancel the commitment if, at its option, it can prohibit additional extensions of credit, reduce the credit line, and terminate the commitment to the full extent permitted by relevant federal law.

� Retail credit cards and related plans, including overdraft checking plans and overdraft protection programs, are defined to be short-term commitments that should be converted at zero percent and excluded from 18c if the bank has the unconditional right to cancel the line of credit at any time in accordance with applicable law.

Ann Thomas


� RCR 19, Unconditionally cancelable commitments

� unused commitments unconditionally cancelable at any time by the bank have a 0% credit conversion factor

� RCR 20, Over the counter (OTC) derivatives

� Col B – report credit equivalent amount of OTC derivative contracts covered by risk rules

� RCR 21, Centrally cleared derivatives

� Col B – report credit equivalent amount of centrally cleared derivative contracts covered by risk rules

� RCR 23-25, Totals, risk weightings, totals after applying risk weightings

129

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Ann Thomas


RCR 23-25, Totals, risk weightings, totals after applying risk weightings

131

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� RCR 26, Risk weighted assets for purposes of calculating allowance for loan loss threshold

� Report sum of:� RCR Part II

• Items 2b-20, Col S

• 9a (securitization--HTM securities), 9b (securitization--AFS securities), 9c (securitization--trading assets), 10 (off balance sheet securitization) –Col T &U

• Item 25, Col C-Q

� RCR Part I• portion of 10b composed of investments in bank’s own shares to extent not

excluded as part of treasury stock

• portion of 10b composed of reciprocal holdings in capital of financial institutions in form of stock

• items 11 (non-significant bankers bank), 13-17 (10/15% threshold items), 24, 33, (other capital deductions) 133

� RCR 29, Excess allowance for loan losses

� RC 4c (on balance sheet allowance) less RIB M1(allocated transfer risk reserve) plus RCG 3 (off balance sheet allowance) less RCR Part I 30a

� RCR 31, Total Risk Weighted Assets

134

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M1 excludes written option contracts (not covered by regulatory capital rules)

Include positive fair value of derivative contracts135

M2 -- report notional amount of OTC derivative contracts based on remaining maturity of contract

Include swaps, forwards, purchased options 136

Ann Thomas


END OF PRESENTATIONTHANK YOU FOR YOUR ATTENDANCE!

137

Ann Thomas

Thomas [email protected]

Kyle Bennett

TTS

[email protected]

www.ttsTrain.com

800-831-0678

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