Sept 28 -- The Office of the Comptroller of the Currency (OCC), Treasury; Board of Governors of the Federal Reserve System (Board); and Federal Deposit Insurance Corporation (FDIC) invite public comment on a proposal to revise and extend for three years the Consolidated Reports of Condition and Income (Call Reports) (FFIEC 031, FFIEC 041, and FFIEC 051), the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002), and the Report of Assets and Liabilities of a Non-U.S. Branch that is Managed or Controlled by a U.S. Branch or Agency of a Foreign (Non-U.S.) Bank (FFIEC 002S), and proposed revisions related to the Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) 2022–02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (ASU 2022–02); reporting of past due loans; and reporting of internet website addresses of depository institution trade names. The revisions are proposed to take effect with the March 31, 2024, report date.
Comments must be submitted on or before November 27, 2023.
On March 31, 2022, the FASB issued ASU 2022–02 which eliminates the troubled debt restructuring (TDR) recognition and measurement guidance for entities that have adopted ASU 2016–13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016–13). Instead of identifying and accounting for TDRs separately from other loan modifications, all loans modified from the beginning of the fiscal year in which the new standard is adopted by an institution would be accounted for in accordance with ASC Section 310–20–35, Receivables—Nonrefundable Fees and Other Costs—Subsequent Measurement, as amended by ASU 2022–02. In addition, the new standard enhances financial statement disclosure requirements for certain loan modifications to borrowers experiencing financial difficulty. These disclosures include quantitative information about the modifications and their performance and qualitative information regarding how initial modifications and subsequent performance of such modifications impact the allowance for credit losses.
Upon adoption of ASU 2022–02, an institution would have the option to use a modified retrospective transition method to account for those TDRs that existed as of the last day of the fiscal year preceding the fiscal year in which the standard was implemented. For these TDRs, an institution would recognize a cumulative-effect adjustment to the beginning balance of retained earnings as of the first day of the fiscal year resulting from the adoption of ASU 2022–02. Institutions that opt to apply ASU 2022–02 prospectively would continue applying the TDR guidance to the existing TDR loans for allowance for credit losses purposes until the loans are paid in full or otherwise settled, sold, charged-off, or subsequently modified.
Regardless of the transition method applied to existing TDRs, institutions would apply ASU 2022–02 to all modifications made from the beginning of the fiscal year of adoption and in subsequent reporting periods. Institutions would only include loans that were modified to borrowers experiencing financial difficulty from the beginning of the fiscal year of adoption and in subsequent periods in their disclosures for financial statement purposes. TDRs or modifications made prior to the beginning of the fiscal year of adoption would not be included in these enhanced disclosures in the period of adoption or in any subsequent periods.
Additionally, per ASU 2022–02, an institution would not be required to use a discounted cash flow (DCF) approach to measure the allowance for credit loss on the modified loans. However, if an institution chooses to use a DCF approach, it would be required to use the post-modification effective interest rate to discount expected cash flows. Modified loans for which repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty would still be considered to be collateral dependent. For regulatory reporting purposes, the allowance for credit losses for a collateral dependent loan would continue to be measured using the fair value of collateral (less cost to sell, when appropriate), regardless of whether foreclosure is probable.
ASU 2022–02 is effective for all institutions that have adopted ASU 2016–13 for fiscal years beginning after December 15, 2022, including interim reporting periods within those fiscal years. For all other institutions, the effective date for ASU 2022–02 would be the same as the effective date for ASU 2016–13.
In response to ASU 2022–02, the agencies are proposing revisions to the Call Report forms and instructions. In general, these revisions would align the data collected in the Call Report forms and instructions with the definition of loan modifications to borrowers experiencing financial difficulty that is used in U.S. generally accepted accounting principles (GAAP). The banking agencies are proposing to replace, as appropriate, references to “troubled debt restructurings” with “modifications to borrowers experiencing financial difficulty” in the Call Report forms and instructions, and to update the Glossary to reflect the change in accounting for modifications to borrowers experiencing financial difficulty.
These changes are intended to provide data needed to monitor banks' safety and soundness and for FDIC deposit insurance assessment purposes. The proposed revisions would assist the agencies in gaining a better understanding of banks' credit exposures. Specifically, the loan modifications to borrowers experiencing financial difficulty reported in Call Report Schedule RC–C, Part I, Loans and Leases, Memorandum item 1, and Schedule RC–N, Past Due and Nonaccrual Loans, Leases, and Other Assets, Memorandum item 1 would enable the agencies to better understand the level of loan modification activity at institutions and the categories of loans involved in this activity. The agencies would benefit from continued reliable data outside of on-site examinations to assess modification activity, particularly given current increased risks related to commercial real estate loans and commercial and industrial loans. In addition, the proposed changes are needed to calculate deposit insurance assessments for large or highly complex institutions as defined in FDIC regulations.
Institutions that have fiscal years beginning in the fourth quarter of 2023, and choose not to early adopt the standard, will not apply the standard in the Call Report and/or the FFIEC 002 until the December 31, 2023, report date. The proposed revisions to specific data items resulting from the elimination of the TDR recognition and measurement guidance would be reflected in the forms as of the March 31, 2024, report date, as outlined in the following descriptions of the proposed changes to the affected Call Report and FFIEC 002 schedules.
Through December 31, 2023, the quarterly Supplemental Instructions for the Call Report will include guidance for institutions that have adopted ASU 2022–02 on reporting the data items related to loan modifications to borrowers experiencing financial difficulty. . . .
Question 1: What additional factors, if any, should the agencies consider when determining the length of time that a loan modification to a borrower experiencing financial difficulty must be reported in Schedule RC–C and RC–N memoranda items?
Question 2: What are the advantages or disadvantages of reporting loan modifications for a period longer than 12 months as required for financial statement disclosures for applicable institutions under ASU 2022–02?
Question 3: What, if any, other clarifications to the definition of “past due” should the agencies consider that would improve usability by institutions and comparability across the institutions?
Question 4: While the agencies do not intend that these proposed changes would materially alter the way institutions currently assess and report past due loans, do institutions view any burden associated with implementing these proposed changes?
Question 5: The current instructions for item 8 request information regarding websites “operated by” an FDIC-insured depository institution. Does the phrase “operated by” capture the appropriate population of URLs used by FDIC-insured depository institutions or would an alternate phrase such as “owned by” be more appropriate?
Question 6: Would these proposed instruction revisions clearly distinguish reporting deposit accepting activities of the institution under its own websites and trade names while excluding URLs used by third parties that facilitate pass-through insurance?
Question 7: What additional burden, if any, would result from FFIEC 051 filers reporting items 8.a through 8.c on a quarterly basis?
FFIEC report forms: https://www.ffiec.gov/ffiec_report_forms.htm