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Accounting and Regulatory

Issues for Banks and Thrifts

Tuesday, June 18, 2013 8:00 am – 9:30 am

Robert F. Storch, Chief Accountant Federal Deposit Insurance Corporation Jeffrey J. Geer, Deputy Chief Accountant Office of the Comptroller of Currency Sydney K. Garmong, Partner Crowe Horwath LLP


Agenda: Main Topics

FASB’s Financial Instruments Project

Classification & Measurement

Credit Losses

FASB’s Leasing Project

Lightning Round

Mortgage Purchase Program

OREO – physical possession

Audit Committees

Internal Control Framework

Purchased Credit Impaired (PCI) Loans

Call Report Revisions

OCC Bank Accounting Advisory Series (BAAS) Update

slide 2


Financial Instruments:


A convergence project of the FASB and the

International Accounting Standards Board (IASB)

During 2011, the FASB developed a tentative new

model with 3 asset categories, including amortized

cost, in place of its May 2010 proposal

In Jan. 2012, the FASB and the IASB agreed to work

together to reduce differences in their models

The IASB and the FASB issued their Exposure Drafts

in Nov. 2012 and Feb. 2013, respectively

The FASB’s comment period ended May 15, 2013

The FASB has received 144 comment letters

slide 3


Classification of Financial Assets

Upon initial recognition, classify each financial asset

into appropriate subsequent measurement category

based on

• Contractual cash flow characteristics of the asset

• Entity’s business model for managing the asset

A financial asset that does not satisfy the contractual

cash flow characteristics test must be subsequently

measured at fair value through net income (FV-NI)

Business model test is applied only to a financial asset

that satisfies the cash flow characteristics test



slide 4


Contractual Cash Flow Characteristics Test

Financial asset satisfies this test if its contractual terms give

rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding

Business Model Assessment

For financial assets passing contractual cash flow

characteristics test

Classification determined at origination or acquisition based on

how financial assets will be managed together with other

financial assets within a distinct business model

Entity not prevented from managing the same or similar

financial assets within different business models

No tainting



slide 5


Business Model Assessment

Amortized Cost – Financial assets held within a business model

whose objective is to hold the assets in order to collect

contractual cash flows

Fair Value through Other Comprehensive Income (FV-OCI) –

Financial assets managed within a business model whose

objective is both to hold the financial assets to collect

contractual cash flows and to sell the financial assets

Fair Value through Net Income (FV-NI) – A residual category for

financial assets that fail the amortized cost and FV-OCI

business model assessments

Limited fair value option would be available



slide 6


Regulatory Agencies’ Views on the FASB’s Proposal

Overall, supportive of the FASB’s effort to improve the

accounting for financial instruments

A single model that could be applied uniformly to all financial

assets and across institutions has conceptual merit because

it would improve comparability and reduce complexity

However, several key aspects of the FASB’s proposal fall short

of its objectives

• Creates complexity

• Results in reporting that is not representationally faithful to how

some financial assets are managed

Because convergence is a major priority, the need for change

to current model is questionable without convergence



slide 7


Agencies’ Views on Cash Flow Characteristics Test

Conceptually, agencies support a model in which

classification is determined based on instrument’s cash flows

However, certain aspects of the cash flow characteristics

assessment are overly complex, rules-based, and yield

counterintuitive financial reporting outcomes

Recommended that “solely payments of principal and interest”

(SPPI) be revised pragmatically

Definition of “principal” and “contingent features” criterion

produce counterintuitive results

“Modified economic relationships” criterion and assessment

criteria for beneficial interests introduce significant

complexity and raises operational questions



slide 8


Agencies’ Views on Business Model Assessment

Conceptually, agencies support a model in which

classification requires assessment of how an instrument’s

cash flows will be realized as part of an entity’s business

model

However, certain aspects of the business model assessment

lack clarity and could result in financial reporting not faithful

to how financial assets generally are managed in a business

Hold-to-collect model carries over current held-to-maturity

guidance, which could be problematic for loans

For loans originated as part of a business model that relies

on securitization or other markets for funding, proposal

could result in all such loans being measured at FV-OCI



slide 9


Loans managed as part of a portfolio for which sales are used

to manage concentrations of credit risk could result in all

such loans being measured at FV-OCI

Unclear how assessment would apply to a loan managed as

part of planned strategy in which a portion of the loan’s cash

flows will be sold and the rest will be held for collection (e.g.,

syndications and participations)

Unclear where to draw the line between FV-NI and FV-OCI

because magnitude or frequency of sales differentiating when

these categories should be used is not explained

• Apply FV-NI to trading activities and assets originated or

acquired for sale

• Apply FV-OCI to assets held for managing interest rate risk or

meeting everyday liquidity needs in ordinary course of business



slide 10


Agencies’ Views on Other Aspects of Proposal

Own credit: Require presentation of fair value changes

attributable to own credit risk in AOCI for all liabilities

measured at fair value, not just fair value option liabilities

Fair value option: Impose conditions for use of option for

assets otherwise measured at FV-OCI rather than

unconditional election

Beneficial interests: Need to retain existing interest income

recognition guidance for a change in cash flows that appears

to have been eliminated

Transition for SPPI assessment: Permit use of existing

“clearly and closely related” assessment to identify existing

assets to be measured at FV-NI



slide 11


FASB Current Expected

Credit Losses (CECL) - Agenda

Background

Overview & Objectives

Interagency Comment Letter

Key Interagency Messages on FASB’s proposal

IASB proposal

Overview of the 3-stage model

slide 12


CECL: Background

On December 20, 2012, FASB issued its Credit Losses

Exposure Draft (ED) with comments due May 31, 2013

FASB issued a Frequently Asked Questions document on March

25, 2013, to further educate stakeholders on the proposal

Interagency Comment Letter has been sent to the FASB

The FASB has received 349 comment letters

The main provision of the current expected credit loss

(CECL) model:

To require an entity to measure expected credit losses on financial

assets held at the reporting date on the basis of the current

estimate of contractual cash flows not expected to be collected

This would remove the “probable” threshold and the “incurred” loss

notion in existing GAAP

slide 13


Objectives of the Credit

Impairment Project

Address credit impairment weaknesses exposed by the

financial crisis, including those raised by joint FASB –

IASB Financial Crisis Advisory Group (FCAG):

Respond to “too-little, too-late” criticism of the incurred loss model

Include more forward-looking information into the measurement of

impairment

Reduce complexity in GAAP by creating a single impairment model

for all debt instruments (loans and investment securities)

Provide for more transparency in accounting for PCI assets

Achieve international convergence

slide 14

www.fmsinc.org | 800-ASK-4FMS slide 15

CECL: Key Provisions

Allowance for Credit Impairment is recognized at

each reporting date for Expected Credit Losses

Expected Credit Loss – estimate of all contractual

cash flows not expected to be collected from a

financial asset or commitment to extend credit

Expected

Future

Cash Flows

Expected

Credit

Losses

Total

Contractual

Cash Flows



Estimating CECL

Should consider past events, current

conditions, and reasonable and

supportable forecasts to estimate credit

losses over the entire term of the loan

Estimate must consider time value of money

Estimate is not most likely, best case or

worst case, but expected :

• At least two outcomes are required

• Reflect both the possibility that a credit

loss results and no credit loss results



The same CECL model applies to all debt

instruments not measured at FV-NI (e.g.,

“trading”)

Practical Expedient

Bank may elect to not recognize CECL on debt

instruments measured at FV-OCI if both:

• Fair value of the debt instrument is > amortized cost

• CECL is insignificant, which may be determined by

considering general expectations of the range of

CECL given credit-quality indicators


CECL Overall Message:

Earlier Recognition

Agencies believe the FASB’s CECL ED addresses the

“too-little, too-late” criticisms that arose during the

financial crisis

Eliminating “probable incurred loss threshold” permits

allowances reported in financial statements that fully

consider all relevant information

Agencies believe this provides more decision-useful

information for financial statement users

Presents a balance sheet that reflects the present value of future cash

flows expected to be collected

Allows financial institutions to align with all information used in

credit risk management in the measurement of expected credit losses

slide 18


CECL Model Application: Smaller,

Less Complex Institutions

Agencies believe all entities should apply the principles

governing the measurement of credit losses consistently

Will increase comparability between regulated and non-regulated

entities

Believe model is scalable for entities of all sizes and

complexities

However, the Agencies believe the objectives of the ED can be

achieved with less burdensome estimation practices than may be

used/developed by larger institutions

Agencies encourage the FASB to consider practical expedients, a

reasonable transition period, and condensed disclosure

requirements

slide 19


CECL Model Application:

Expanded Implementation Guidance

Agencies acknowledge that credit loss recognition under

the proposed model may result in significant impact to

earnings for de novo banks and new product lines

Agencies encourage FASB to explore the consequences of applying

the standard to these narrow circumstances

Agencies support the establishment of a single impairment

measurement (loan and debt securities)

Agencies encourage FASB to provide illustrative guidance on the

application of the model to debt securities and to financial assets

measured at FV-OCI

slide 20



PCI Assets

Agencies believe FASB’s proposal for PCI assets is an

improvement and provides more decision-useful

information

Agencies in a past comment letter to the FASB have criticized the

current model in ASC 310-30 for not providing sufficient

transparency

Encourage FASB to consider ways to reduce the incentives of

overstating expected credit losses at acquisition by providing

additional implementation guidance, disclosure requirements, etc.

slide 21



PCI Assets

Some fun PCI equations – “grossing up”

Amortized

Cost

Purchase

Price (FV)

Allowance for

expected credit

losses at acquisition

Noncredit

Discount

(Premium) Par Amortized Cost

slide 22


CECL: PCI Assets Example

A financial asset with a par value of $1,000,000 was acquired

for $750,000 (FV). At acquisition, CECL was $175,000

Amortized

Cost

$925,000

Purchase

$750,000

Allowance

$175,000

Noncredit

Discount

$75,000

Par

$1,000,000

Amortized Cost

$925,000

Journal Entry

Account Debit Credit

Loan $1,000,000

Noncredit Discount $75,000

Allowance $175,000

Cash $750,000

slide 23



TDR & Regulatory Principles

Agencies encourage the FASB to consider alternatives to

the TDR designation requirements

Encourage targeted or expanded disclosures

Encourage further cost-benefit analysis on the usefulness of

retaining TDR designation

Agencies support the inclusion of nonaccrual and write-

off principles into GAAP

Agencies do not anticipate a change in current practice

Encourage FASB to align its definitions as much as possible with

current regulatory guidance to avoid changes in current practice

slide 24


Nonaccrual: Regulatory

Principles vs. ED Principles Current Regulatory Guidance FASB ED

Nonaccrual

Definition

Payment in full of principal or

interest is not expected

It is not probable that the entity

will receive substantially all of

the principal or substantially all of

the interest

Cash Basis

The remaining recorded

investment in the loan is

deemed fully collectible

It is probable that the entity will

receive substantially all of the

principal, but it is not probable

that the entity will receive

substantially all of the interest

Cost

Recovery

If doubt exists as to the

collectability of the recorded

investment in the asset

It is not probable that the entity

will receive substantially all of the

principal

slide 25


Write-offs: Regulatory

Principles vs. ED Principles

Current Regulatory Guidance FASB ED

Wri

te-o

ffs (C

harg

e-O

ffs)

A loss classification is assigned when an

asset, or portion thereof, is considered

uncollectible and of such little value

that its continuance on the books is not

warranted. This does not mean that

the asset has absolutely no recovery

or salvage value; rather, it is not

practical or desirable to defer writing off

an essentially worthless asset (or portion

thereof), even though partial recovery

may occur in the future.

Directly reduce the cost basis in

a financial asset in the period in

which the entity determines

that it has no reasonable

expectation of future

recovery

slide 26


Collateral Dependent: Regulatory

Principles vs. ED Principles

Current Regulatory Guidance FASB ED

Definition

A loan is collateral dependent if

repayment of the loan is expected to be

provided solely by the underlying

collateral and there are no other

available and reliable sources of

repayment.

A financial asset for which the repayment

is expected to be provided primarily or

substantially through the operation (by

the lender) or sale of the collateral, based

on the entity’s assessment as of the

reporting date.

Borrower Sale

of Collateral Collateral Dependent Collateral Dependent

Lender

Acquisition/

Sale of

Collateral

Collateral Dependent Collateral Dependent

Lender

Operation

of Collateral

Not Addressed Collateral Dependent

Borrower

Operation of

Collateral

Collateral Dependent Not Collateral Dependent

slide 27


Credit Losses:

International Convergence

Agencies support convergence and the 2009 G20

mandate for a single set of high quality accounting

standards worldwide

The Agencies commend FASB for conducting outreach to

understand the operational difficulties of the 3-stage model and

proposing an alternative solution

The Agencies believe FASB’s proposed model addresses the

concerns raised by FCAG

Agencies believe there is potential common ground

between the two Boards and encourage the Boards to

jointly re-deliberate after the comment period ends

slide 28


IASB 3-Stage Model Overview

The IASB issued its proposal in March 2013 with comments due

July 5, 2013

The Banking Agencies will provide comments through their participation within

the Basel Committee’s Accounting Experts Group (AEG)

IASB proposal captures deterioration in credit quality through

stages (1-3)

Stage 1: “12 month expected credit losses” & calculation of interest revenue is

based on effective interest rate x gross carrying amount

Stage 2: Lifetime expected credit losses & calculation of interest revenue is

based on effective interest rate x gross carrying amount

Stage 3: Lifetime expected credit losses & calculation of interest revenue based

on the effective interest rate x amortized cost (net of allowance) as credit losses

are incurred

“12 month expected credit losses” is defined as the expected

shortfalls in contractual cash flows over the life of a financial

instrument that will result if a default occurs in the 12 months

after the reporting date

slide 29


Leases: Introduction

FAS 13, “Accounting for Leases,” created two types of

leases:

Capital leases – accounted for similarly to purchases (asset

and liability on-balance sheet)

Operating leases – all others accounted for as executory

contracts (off-balance sheet)

Result: The balance sheet does not reflect (for most leases)

the underlying rights and obligations associated with the

lease

slide 30


Leases Project Timeline

Project added to agenda - July 2006

Discussion Paper - March 19, 2009

Exposure Draft – August 17, 2010

Outreach / Fieldwork

Re-deliberations

Revised Exposure Draft – May 16, 2013

Outreach / Fieldwork / Re-deliberations

Issue final ASU

Current

stage of the

project

slide 31


The Revised Leases Proposal

“Leases (Topic 842): A Revision of the 2010 Proposed FASB

ASU, Leases (Topic 840)”

Applies to both lessees and lessors

Retains an exception for short-term leases

• Leases with a maximum possible lease term of 12 months or

less, including any options to renew

Significant changes

Pattern of expense recognition

Characterization of expense

slide 32


Lease Accounting:

For Lessees

The “Right-Of-Use” (ROU) model

Asset - the right to use the asset

Liability - the obligation to make payments

Expense

• Amortization and character depends on:

– “....whether the lessee is expected to consume more than an

insignificant portion of the economic benefits embedded in

the underlying asset.”

• Practically, this assessment will often depend on the nature of

the underlying asset

slide 33


Lease Accounting:

For Lessees (Con’t)

Type A (financing) - other than property (e.g.,

equipment, aircraft, cars, trucks)

Interest expense and amortization expense

Expense is front-loaded

Type B (straight-line) - property (i.e., land and/or a

building or part of a building)

Lease expense

Expense is recognized on straight-line basis

slide 34


Lease Accounting:

For Lessors

Type A (receivable and residual) – other than property

Derecognize the underlying asset

Recognize a receivable for lease payments and a residual

asset for rights retained relating to the underlying asset;

recognize discount as interest income

Recognize any profit at commencement

Type B (operating lease) - property

Continue to recognize the underlying asset

Recognize lease income over the lease term typically on a

straight-line basis

slide 35


Lease Accounting:

Other Matters

Transition

Recognize and measure leases at the beginning of the earliest

period presented using either a modified retrospective

approach or a full retrospective approach

Effective date

Board will decide when it finalizes the standard

Board acknowledges the broad impact

Comments are due September 13, 2013

slide 36


Lightning Round

Mortgage Purchase Programs

OREO – Physical Possession

Audit Committees


Purchased Credit Impaired (PCI) Loans


OCC Bank Accounting Advisory Series (BAAS)

Update

slide 37


Mortgage Purchase

Programs – Background

Mortgage Purchase Programs (MPP)

Function similar to a warehouse lines of credit (WLC) to a

mortgage originator

Basic premise of MPP

Bank provides funding to a mortgage loan originator

• Originator closes residential mortgage loans subject to a takeout

commitment with an unrelated 3rd party investor

Bank “acquires” interests (varies from 97% - 100%) in

mortgage loans, subject to 3rd party takeout commitments

Accounting Question

How should the Bank account for this transaction?

• Purchase of mortgage loans or a loan to a mortgage originator

(warehouse line) secured by residential mortgage loans?

slide 38


MPP – Accounting

Considerations ASC 860 – Transfers of Financial Assets

Requires symmetrical accounting for the Originator & the Bank

If the entire financial asset is not being sold, does portion

transferred meet the definition of “Participating Interest”?

• Is there proportionate ownership in the financial asset?

• Is there proportionate sharing of cash flows?

• Does it have the same priority (no subordination) of cash flows?

• If, no Secured Borrowing

• If, yes Examine Sale Criteria

slide 39


MPP – Accounting

Considerations ASC 860 – Transfers of Financial Assets

Sale Criteria

• Legal isolation of transferred assets – examine the

facts/assumptions/limitations of legal opinion

• Transferee has ability to pledge/sell – often cannot due to takeout

commitment

• Effective control – likely retained by transferor due to servicing and

takeout commitment

Examine each MPP closely

• If fails sale criteria accounting treatment Secured Financing

slide 40


MPP – Regulatory Issues

Regulatory Issues & Call Report Information

Risk Weighting – 100%, 50%, or 20%?

• If the transaction does not qualify for accounting sales treatment (purchase

by bank), it is accounted for like a warehouse line of credit (WLC) and RBC

treatment of 100%

• Risk Weight: WLC = 100%; Mortgage Loans = 50% or 20% (FHA/VA

guaranteed portion)

Legal Lending Limit Implications

• May get credit for government-guaranteed portions of underlying mortgages

• The accounting treatment does not dictate the legal determination of

whether there is a loan from the bank to the mortgage originator for the

purposes of the regulation on legal lending limit

March 2013 Supplemental Call Report Instructions – MPP guidance

• Governing contracts may be structured to meet legal isolation, but fail to get

sale accounting due to the mortgage originator retaining effective control

• As a result, report as a loan to mortgage originator, requiring a 100% risk

weight

slide 41


Other Real Estate Owned

(OREO) – Physical Possession Background:

OCC exam team inquiry based on definition of physical possession

• Bank Accounting Advisory Series (BAAS) Section 5A., OREO Question 2

(“redemption period”)

Increases in vacant or abandoned residential properties

Foreclosure processes extended

Diversity in practice on when mortgage loans are transferred to OREO

• Legal “title” is obtained or borrower surrenders property (deed in lieu of

foreclosure – DILF)

• Property access and maintenance

Issue for Clarification:

When does “physical possession” constitute in-substance a

repossession or foreclosure by the creditor?

Neither the Call Report nor U.S. GAAP define “physical possession” or

“in-substance a repossession or foreclosure”

slide 42


OREO – Call Report Glossary

& U.S. GAAP Guidance

Call Report Instructions:

“For purposes of these reports, foreclosed assets include loans

where the bank, as creditor, has received physical possession of a

borrower's assets, regardless of whether formal foreclosure

proceedings take place.”

U.S. GAAP (ASC 310-40-40-6)

“…a troubled debt restructuring that is in substance a repossession

or foreclosure by the creditor, that is, the creditor receives physical

possession of the debtor's assets regardless of whether formal

foreclosure proceedings take place…” [emphasis added]

Essentially, this means report OREO at the earlier of

foreclosure or physical possession

slide 43


OREO – When to Recognize

What constitutes physical possession?

Imminent foreclosure

• Bank has real estate risk

Narrow view

• Right to exclude the borrower (sole possession -

title/deed-in lieu foreclosure completed/sheriff sale)

Facts and circumstances view

• Bank has access to and maintains vacant property in

process of foreclosure (delinquent nonresponsive

borrower)

• Bank has real estate risk

slide 44


OREO – Next Steps

OCC white paper outlining 3 points for clarification:

1. Defining physical possession

• At what point does a bank obtain physical possession, considering the

legal rights of the borrower and bank when property is vacated or

abandoned?

• Concepts of bank and/or borrower access to the property

2. Diversity in subsequent accounting of the FHA guaranteed loan

properties after foreclosure

• How to consider the guarantee amount?

3. Interest accrual on past due FHA guaranteed loans

OCC provided paper to the SEC & FASB

SEC requested this be added to the agenda of the FASB’s Emerging

Issues Task Force (EITF)

First issue has been added to the June agenda, and the second issue

will be added to the September agenda

slide 45


Audit Committees

For institutions subject to Part 363 of the FDIC’s

regulations (> $500 million in total assets), audit

committee duties include appointment, compensation,

and oversight of accounting firm performing audit

services

To carry out these duties, audit committee should review and

satisfy itself as to firm’s compliance with the required

qualifications for accounting firms, including

• Auditor independence

• Peer review and, if available, inspection reports

For other institutions, audit committee performance of

these duties, including reviewing auditor independence

and peer review/inspection reports, is a sound practice

slide 46


Audit Committees

PCAOB Release: Information for Audit Committees

About the PCAOB Inspection Process (Aug. 1, 2012) http://pcaobus.org/Inspections/Documents/Inspection_Information_for_Audit_Committees.pdf

Provides information about the meaning and significance of

PCAOB inspection findings in both engagement reviews and

quality control reviews

Highlights areas of inquiry that audit committees may wish to

address with their auditors, including:

• Whether the institution’s own audit was selected by the PCAOB for

an inspection and whether any findings were made

• Potentially relevant inspection findings on other audits performed

by the audit firm, particularly other financial institutions

• Audit firm's response to PCAOB’s inspection findings and its

remedial efforts to address any quality control deficiencies

identified by PCAOB

slide 47



COSO issued an updated version of Internal Control –

Integrated Framework on May 14, 2013

Responds to changes in business and operating environments,

including increased complexity and changes in technology

Retains core definition and five components of internal control

plus three categories of objectives from original 1992

framework

Explicitly articulates 17 principles for assessing whether the

five components are present and functioning that were

previously implicit in the components

Describes “points of focus” to assist management in designing,

implementing, and maintaining internal control and in

assessing the 17 principles

slide 48



Transition

COSO will continue to make original 1992 framework available

through Dec. 15, 2014, after which it will consider the 1992

framework superseded by the 2013 framework

COSO Board believes continued use of the 1992 Framework

during transition period is appropriate

During transition, entities subject to external reporting on

internal control over financial reporting should clearly disclose

which version of the framework is being used

COSO also issued Illustrative Tools for Assessing

Effectiveness of a System of Internal Control and Internal

Control over External Financial Reporting (ICEFR): A

Compendium of Approaches and Examples

slide 49



Part 363 of the FDIC’s regulations identifies COSO

Framework as a suitable and recognized framework

for purposes of assessing the effectiveness of the

institution’s internal control over financial reporting

Institutions subject to Part 363 > $1 billion in total assets

should plan to transition to the 2013 framework by Dec. 15,

2014, for purposes of management’s internal control

assessment

slide 50


Purchased Credit-Impaired

(PCI) Loans

Call Report instructions for “Purchased Credit-

Impaired Loans and Debt Securities” substantially

revised effective June 30, 2012

Glossary entry now addresses aggregation of individual PCI

loans acquired in same fiscal quarter that have common risk

characteristics, where pool becomes the unit of account

Common risk characteristics include similar credit risk or risk

ratings and one or more predominant risk characteristics

Contrasts modification of a PCI loan within a pool (loan not

removed from pool even if considered a troubled debt

restructuring) versus modification of PCI loan accounted for

individually (subject to the TDR accounting provisions of ASC

310-40)

slide 51


Nonaccrual treatment for PCI loans

• When amount and timing of cash flows on a PCI loan or a PCI loan

pool cannot be reasonably estimated, place loan or pool in

nonaccrual status

Do not report individual loans in a nonaccrual pool as past due

Reporting PCI loans as past due

• For a PCI loan accounted for individually and on accrual,

determine and report past due status of individual loan in

accordance with its contractual repayment terms

• For PCI loans accounted for on a pool basis when pool is on

accrual, determine and report delinquency status of individual

loans in the pool in accordance with each loan’s contractual

repayment terms

Do not report individual loans in an accrual pool as nonaccrual


(PCI) Loans

slide 52


Once a pool is assembled, integrity of pool should be

maintained

Remove loan from a pool only if institution sells, forecloses, or

otherwise receives assets in satisfaction of the loan, or the

loan is written off

Remove loan from pool at its carrying amount, i.e., loan’s

current contractually required payments receivable less its

remaining nonaccretable difference and accretable yield

• An acceptable approach is a pro rata allocation of pool’s total

remaining nonaccretable difference and accretable yield to an

individual loan in proportion to loan’s current contractually

required payments receivable compared to pool’s total

contractually required payments receivable


(PCI) Loans

slide 53



New Schedule RI-C, Disaggregated Data on the

Allowance for Loan and Lease Losses

Added in March 2013 for institutions > $1 billion in assets

Modeled after disclosure required by ASU 2010-20

6 loan portfolio segments and 3 impairment measurements

New and Revised Items for June 30, 2013

For large and highly complex institutions (> $10 billion in

assets)

• Certain higher-risk loans, foreign office real estate loans and

commitments, and U.S. government-guaranteed assets plus a

new table of consumer loans by loan type and probability of

default

• Higher-risk loans and PD table would be confidential

slide 54



Other Call Report Revisions Proposed for June 2013

Remain under study and will not take effect in June 2013

Any resulting new reporting requirements would be

implemented no earlier than:

• December 31, 2013, for

Information on international remittance transfers

Trade names used to identify physical branches and Internet

Web sites that differ from institution’s legal title

• March 31, 2014, for

Consumer deposit account balances (institutions > $1 billion

in total assets)

Consumer deposit account service charges

See http://www.fdic.gov/news/news/financial/2013/fil13024.html

slide 55



Call Report Changes for Basel III

Any regulatory reporting changes necessary to implement

Basel III capital rules would be issued for industry comment

after banking agencies adopt any final rules for Basel III

slide 56


2013 Bank Accounting Advisory

Series (BAAS) Update

The 2013 BAAS includes new questions and

edits/updates to existing questions

Some of the new questions that we anticipate adding

to the BAAS:

TDR

• Treatment of legal (and other direct costs) incurred in a TDR

Acquired Loans

• For PCI loans subject to TDR when does a modification

constitute a concession?

slide 57


2013 Bank Accounting Advisory

Series (BAAS) Update

Some of the new questions that we anticipate adding to the

BAAS:

OREO

• If the Bank finances the sale of an OREO property where the buyer

pledges additional collateral can the value of the excess collateral be

included in the initial investment for use of the full accrual method?

• If the Bank finances the sale of an OREO property where the buyer

makes no down payment and the sales prices is lower than the

appraised amount which value (sales price or appraised value) is used

for the initial investment calculation?

Fair Value Accounting

• Clarifying the requirement for consistent valuation methodologies for

derivatives

Target issuance of BAAS update: July/August 2013

www.occ.gov/publications/publications-by-type/other-publications-reports/baas.pdf

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