Consolidated Reports of Condition and Income

1

FFIEC

Federal Financial Institutions Examination Council

Arlington, VA 22226

CALL REPORT DATE: September 30, 2018

THIRD 2018 CALL, NUMBER 285

SUPPLEMENTAL INSTRUCTIONS

September 2018 Call Report Materials

The three versions of the Call Report (FFIEC 031, FFIEC 041, and FFIEC 051) for September 30, 2018, include

two new data items this quarter pertaining to reciprocal deposits in Schedule RC-E, Deposit Liabilities.

Institutions will report their “Total reciprocal deposits (as of the report date)” in new Memorandum item 1.g.

On a one-time-only basis this quarter, institutions will report their “Total reciprocal deposits as of June 30, 2018”

in Memorandum item 1.h of Schedule RC-E. No new topics have been added to the Supplemental Instructions

for September 2018.

Separate updates to the instruction book for the FFIEC 051 Call Report and the instruction book for the

FFIEC 031 and FFIEC 041 Call Reports for September 2018 are available for printing and downloading from

the FFIEC’s website (https://www.ffiec.gov/ffiec_report_forms.htm) and the FDIC’s website

(https://www.fdic.gov/callreports). Sample FFIEC 051, FFIEC 041, and FFIEC 031 Call Report forms,

including the cover (signature) page, for September 2018 can be printed and downloaded from these

websites. In addition, institutions that use Call Report software generally can print paper copies of blank forms

from their software. Please ensure that the individual responsible for preparing the Call Report at your

institution has been notified about the electronic availability of the September 2018 report forms, instruction

book updates, and these Supplemental Instructions. The locations of changes to the text of the previous

quarter’s Supplemental Instructions (except references to the quarter-end report date) are identified by a

vertical line in the right margin

for preparing the Call Report at your

institution has been notified about the electronic availability of the September 2018 report forms, instruction

book updates, and these Supplemental Instructions. The locations of changes to the text of the previous

quarter’s Supplemental Instructions (except references to the quarter-end report date) are identified by a

vertical line in the right margin.

Submission of Completed Reports

Each institution’s Call Report data must be submitted to the FFIEC's Central Data Repository (CDR), an

Internet-based system for data collection (https://cdr.ffiec.gov/cdr/), using one of the two methods described

in the banking agencies' Financial Institution Letter (FIL) for the September 30, 2018, report date. The CDR

Help Desk is available from 9:00 a.m. until 8:00 p.m., Eastern Time, Monday through Friday, to provide

assistance with user accounts, passwords, and other CDR system-related issues. The CDR Help Desk can

be reached by telephone at (888) CDR-3111, by fax at (703) 774-3946, or by e-mail at CDR.Help@ffiec.gov.

Institutions are required to maintain in their files a signed and attested hard-copy record of the Call Report data

file submitted to the CDR. The appearance of this hard-copy record of the submitted data file need not match

exactly the appearance of the sample report forms on the FFIEC’s website, but the hard-copy record should

show at least the caption of each Call Report item and the reported amount. A copy of the cover page printed

from Call Report software or from the FFIEC’s website should be used to fulfill the signature and attestation

requirement. The signed cover page should be attached to the hard-copy record of the Call Report data file

that must be placed in the institution's files

rd-copy record should

show at least the caption of each Call Report item and the reported amount. A copy of the cover page printed

from Call Report software or from the FFIEC’s website should be used to fulfill the signature and attestation

requirement. The signed cover page should be attached to the hard-copy record of the Call Report data file

that must be placed in the institution's files.

Currently, Call Report preparation software products marketed by (in alphabetical order) Axiom Software

Laboratories, Inc.; DBI Financial Systems, Inc.; Fed Reporter, Inc.; FIS Compliance Solutions; FiServ, Inc.;

KPMG LLP; Lombard Risk; SHAZAM Core Services; and Wolters Kluwer Financial Services meet the

technical specifications for producing Call Report data files that are able to be processed by the CDR.

Contact information for these vendors is provided on the final page of these Supplemental Instructions.

Reporting High Volatility Commercial Real Estate (HVCRE) Exposures

Section 214 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which

was enacted on May 24, 2018, adds a new Section 51 to the Federal Deposit Insurance Act (FDI Act)

governing the risk-based capital requirements for certain acquisition, development, or construction (ADC)

loans. EGRRCPA provides that, effective upon enactment, the banking agencies may only require a

depository institution to assign a heightened risk weight to an HVCRE exposure if such exposure is an

“HVCRE ADC Loan,” as defined in this new law. Accordingly, an institution is permitted to risk weight at

risk-based capital requirements for certain acquisition, development, or construction (ADC)

loans. EGRRCPA provides that, effective upon enactment, the banking agencies may only require a

depository institution to assign a heightened risk weight to an HVCRE exposure if such exposure is an

“HVCRE ADC Loan,” as defined in this new law. Accordingly, an institution is permitted to risk weight at

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

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150 percent only those commercial real estate exposures it believes meet the statutory definition of an

“HVCRE ADC Loan.” When reporting HVCRE exposures in the Call Report regulatory capital schedule

(Schedule RC-R) as of June 30, 2018, and subsequent report dates, institutions may use available information

to reasonably estimate and report only “HVCRE ADC Loans” held for sale and held for investment in

Schedule RC-R, Part II, items 4.b and 5.b, respectively. Any “HVCRE ADC Loans” held for trading would

be reported in Schedule RC-R, Part II, item 7. The portion of any “HVCRE ADC Loan” that is secured by

collateral or has a guarantee that qualifies for a risk weight lower than 150 percent may continue to be

assigned a lower risk weight when completing Schedule RC-R, Part II. Institutions may refine their estimates

of “HVCRE ADC Loans” in good faith as they obtain additional information, but they will not be required to

amend Call Reports previously filed for report dates on or after June 30, 2018, as these estimates are

adjusted.

Alternatively, institutions may continue to report and risk weight HVCRE exposures in a manner consistent

with the current Call Report instructions for Schedule RC-R, Part II, until the agencies take further action.

For more detail, see the agencies’ proposal to amend their regulatory capital rules to revise the definition of an

HVCRE exposure to conform to the statutory definition of an “HVCRE ADC loan,” which was published on

September 28, 2018

risk weight HVCRE exposures in a manner consistent

with the current Call Report instructions for Schedule RC-R, Part II, until the agencies take further action.

For more detail, see the agencies’ proposal to amend their regulatory capital rules to revise the definition of an

HVCRE exposure to conform to the statutory definition of an “HVCRE ADC loan,” which was published on

September 28, 2018.

Section 214 of EGRRCPA, which includes the definition of “HVCRE ADC Loan,” is provided in the Appendix to

these Supplemental Instructions for your reference.

Reporting Reciprocal Deposits

Section 202 of EGRRCPA amends Section 29 of the FDI Act to exclude a capped amount of reciprocal

deposits from treatment as brokered deposits for qualifying institutions, effective upon enactment. The current

Call Report instructions, consistent with the law prior to the enactment of EGRRCPA, treat all reciprocal

deposits as brokered deposits. Institutions that wish to report pursuant to the new law for the September 30,

2018, Call Report should apply the newly defined terms and other provisions of Section 202 of EGRRCPA

(provided in the Appendix to these Supplemental Instructions for your reference) to determine whether an

institution and its reciprocal deposits are eligible for the statutory exclusion. Qualifying institutions may use

available information to then reasonably estimate and report as brokered deposits (in Schedule RC-E,

Memorandum items 1.b through 1.d), and reciprocal brokered deposits (in Schedule RC-O, item 9 and, if

applicable, item 9.a), only those reciprocal deposits that are still considered brokered deposits under the

new law

ts are eligible for the statutory exclusion. Qualifying institutions may use

available information to then reasonably estimate and report as brokered deposits (in Schedule RC-E,

Memorandum items 1.b through 1.d), and reciprocal brokered deposits (in Schedule RC-O, item 9 and, if

applicable, item 9.a), only those reciprocal deposits that are still considered brokered deposits under the

new law.

Alternatively, when reporting as of September 30, 2018, institutions may continue to report reciprocal deposits

in Schedule RC-E, Memorandum items 1.b through 1.d, and Schedule RC-O, item 9 and, if applicable,

item 9.a, consistent with the Call Report instructions for these items currently included in the Call Report

instruction books (i.e., the instructions in effect prior to passage of EGRRCPA).

Institutions should complete new Schedule RC-E, Memorandum items 1.g, “Total reciprocal deposits (as of the

report date),” and 1.h, “Total reciprocal deposits as of June 30, 2018,” in accordance with the instructions for

these items included in the Call Report instruction book updates for September 30, 2018.

On September 26, 2018, the FDIC published proposed amendments to its regulations to conform to the

treatment of reciprocal deposits set forth in Section 202 of EGRRCPA. If the FDIC adopts a final rule

amending its regulations, the FFIEC anticipates issuing additional instructions regarding the application of

Section 202 to reciprocal deposits for purposes of reporting in the Call Report. Institutions that wish to amend

their reporting of reciprocal deposits still considered brokered deposits in their reports as originally filed for

June 30, 2018, and subsequent report dates before these additional instructions are issued may use the

additional instructions as the basis for their amended reports.

Accounting and Reporting Implications of the New Tax Law

On January 18, 2018, the banking agencies issued an Interagency Statement on Accounting and Reporting

Implications of the New Tax Law

r reports as originally filed for

June 30, 2018, and subsequent report dates before these additional instructions are issued may use the

additional instructions as the basis for their amended reports.

Accounting and Reporting Implications of the New Tax Law

On January 18, 2018, the banking agencies issued an Interagency Statement on Accounting and Reporting

Implications of the New Tax Law. The tax law was enacted on December 22, 2017, and is commonly known

as the Tax Cuts and Jobs Act (the Act). U.S. GAAP requires the effect of changes in tax laws or rates to be

recognized in the period in which the legislation is enacted. Thus, in accordance with Accounting Standards

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Codification (ASC) Topic 740, Income Taxes, the effects of the Act were to be recorded in an institution’s

Call Report for December 31, 2017, because the Act was enacted before year-end 2017. Changes in deferred

tax assets (DTAs) and deferred tax liabilities (DTLs) resulting from the Act’s lower corporate income tax rate

and other applicable provisions of the Act were to be reflected in an institution’s income tax expense in the

period of enactment, i.e., the year-end 2017 Call Report. Institutions should refer to the Interagency

Statement for guidance on the remeasurement of DTAs and DTLs, assessing the need for valuation

allowances for DTAs, the effect of the remeasurement of DTAs and DTLs on amounts recognized in

accumulated other comprehensive income (AOCI), the use for Call Report purposes of the measurement

period approach described in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118

and a related FASB Staff Q&A, and regulatory capital effects of the new tax law

need for valuation

allowances for DTAs, the effect of the remeasurement of DTAs and DTLs on amounts recognized in

accumulated other comprehensive income (AOCI), the use for Call Report purposes of the measurement

period approach described in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118

and a related FASB Staff Q&A, and regulatory capital effects of the new tax law.

The Interagency Statement notes that the remeasurement of the DTA or DTL associated with an item reported

in AOCI, such as unrealized gains (losses) on available-for-sale (AFS) securities, results in a disparity

between the tax effect of the item included in AOCI and the amount recorded as a DTA or DTL for the tax

effect of this item. However, when the new tax law was enacted, ASC Topic 740 did not specify how this

disproportionate, or “stranded,” tax effect should be resolved. The Interagency Statement reported that the

Financial Accounting Standards Board (FASB) had approved issuing an Exposure Draft of a proposed

Accounting Standards Update (ASU) that would allow reclassification of the disproportionate tax effect from

AOCI to retained earnings in financial statements that had not yet been issued. The Interagency Statement

advised institutions that they were permitted to apply the guidance proposed in the ASU to remedy the

disproportionate tax effects of items reported in AOCI when they prepared their Call Reports for December 31,

2017.

On February 18, 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from

Accumulated Other Comprehensive Income,” which allows institutions to eliminate the stranded tax effects

resulting from the Act by electing to reclassify these tax effects from AOCI to retained earnings. Thus, this

reclassification is permitted, but not required. ASU 2018-02 is effective for all entities for fiscal years beginning

after December 15, 2018, and interim periods within those fiscal years

ted Other Comprehensive Income,” which allows institutions to eliminate the stranded tax effects

resulting from the Act by electing to reclassify these tax effects from AOCI to retained earnings. Thus, this

reclassification is permitted, but not required. ASU 2018-02 is effective for all entities for fiscal years beginning

after December 15, 2018, and interim periods within those fiscal years. Early adoption of the ASU is

permitted, including in any interim period, as specified in the ASU. An institution electing to reclassify its

stranded tax effects for U.S. GAAP financial reporting purposes should also reclassify these stranded tax

effects in the same period for Call Report purposes. For additional information, institutions should refer to

ASU 2018-02, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176170041017&acceptedDisclaimer=true.

An institution that elects to reclassify the disproportionate, or stranded, tax effects of items within AOCI to

retained earnings should not report any amounts associated with this reclassification in Call Report

Schedule RI-A, Changes in Bank Equity Capital, because the reclassification is between two accounts within

the equity capital section of Schedule RC, Balance Sheet, and does not result in any change in the total

amount of equity capital.

When discussing the regulatory capital effects of the new tax law, the Interagency Statement explains that

temporary difference DTAs that could be realized through net operating loss (NOL) carrybacks are treated

differently from those that could not be realized through NOL carrybacks (i.e., those for which realization

depends on future taxable income) under the agencies’ regulatory capital rules. These latter temporary

difference DTAs are deducted from common equity tier 1 (CET1) capital if they exceed certain CET1 capital

deduction thresholds

d through net operating loss (NOL) carrybacks are treated

differently from those that could not be realized through NOL carrybacks (i.e., those for which realization

depends on future taxable income) under the agencies’ regulatory capital rules. These latter temporary

difference DTAs are deducted from common equity tier 1 (CET1) capital if they exceed certain CET1 capital

deduction thresholds. However, for tax years beginning on or after January 1, 2018, the Act generally

removes the ability to use NOL carrybacks to recover federal income taxes paid in prior tax years. Thus,

except as noted in the following sentence, for such tax years, the realization of all federal temporary difference

DTAs will be dependent on future taxable income and these DTAs would be subject to the CET1 capital

deduction thresholds. Nevertheless, consistent with current practice under the regulatory capital rules, when

an institution has paid federal income taxes for the current tax year, if all federal temporary differences were to

fully reverse as of the report date during the current tax year and create a hypothetical federal tax loss that

would enable the institution to recover federal income taxes paid in the current tax year, the federal temporary

difference DTAs that could be realized from this source may be treated as temporary difference DTAs

realizable through NOL carrybacks as of the regulatory capital calculation date.

the report date during the current tax year and create a hypothetical federal tax loss that

would enable the institution to recover federal income taxes paid in the current tax year, the federal temporary

difference DTAs that could be realized from this source may be treated as temporary difference DTAs

realizable through NOL carrybacks as of the regulatory capital calculation date.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

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Presentation of Net Benefit Cost in the Income Statement

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost

and Net Periodic Postretirement Benefit Cost,” which requires an employer to disaggregate the service cost

component from the other components of the net benefit cost of defined benefit plans. In addition, the ASU

requires these other cost components to be presented in the income statement separately from the service

cost component, which must be reported with the other compensation costs arising during the reporting period.

For institutions that are public business entities, as defined under U.S. GAAP, ASU 2017-07 is effective for

fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For

institutions that are not public business entities (i.e., that are private companies), the ASU is effective for fiscal

years beginning after December 15, 2018, and interim periods beginning after December 15, 2019. Early

adoption is permitted as described in the ASU. Refer to the Glossary entries for “public business entity” and

“private company” in the Call Report instructions for further information on these terms.

For Call Report purposes, an institution should apply the new standard prospectively to the cost components

of net benefit cost as of the beginning of the fiscal year of adoption

2019. Early

adoption is permitted as described in the ASU. Refer to the Glossary entries for “public business entity” and

“private company” in the Call Report instructions for further information on these terms.

For Call Report purposes, an institution should apply the new standard prospectively to the cost components

of net benefit cost as of the beginning of the fiscal year of adoption. The service cost component of net benefit

cost should be reported in Schedule RI, item 7.a, “Salaries and employee benefits.” The other cost

components of net benefit cost should be reported in Schedule RI, item 7.d, “Other noninterest expense.”

For additional information, institutions should refer to ASU 2017-07, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168888120&acceptedDisclaimer=true.

Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,”

which introduces the current expected credit losses methodology (CECL) for estimating allowances for credit

losses. Under CECL, an allowance for credit losses is a valuation account, measured as the difference

between the financial assets’ amortized cost basis and the net amount expected to be collected on the

financial assets (i.e., lifetime credit losses). To estimate expected credit losses under CECL, institutions will

use a broader range of data than under existing U.S. GAAP. These data include information about past

events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability

of the cash flows of financial assets

expected to be collected on the

financial assets (i.e., lifetime credit losses). To estimate expected credit losses under CECL, institutions will

use a broader range of data than under existing U.S. GAAP. These data include information about past

events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability

of the cash flows of financial assets.

The ASU is applicable to all financial instruments measured at amortized cost (including loans held for

investment, net investments in leases, and held-to-maturity debt securities, as well as trade and reinsurance

receivables and receivables that relate to repurchase agreements and securities lending agreements) and

off-balance-sheet credit exposures not accounted for as insurance, including loan commitments, standby

letters of credit, and financial guarantees. The new standard does not apply to trading assets, loans held for

sale, financial assets for which the fair value option has been elected, or loans and receivables between

entities under common control.

The ASU also modifies the treatment of credit impairment on AFS debt securities. Under the new standard,

institutions will recognize a credit loss on an AFS debt security through an allowance for credit losses, rather

than the current practice required by U.S. GAAP of write-downs of individual securities for other-than-

temporary impairment.

For institutions that are public business entities and are also U.S. Securities and Exchange Commission (SEC)

filers, as both terms are defined in U.S. GAAP, the ASU is effective for fiscal years beginning after

December 15, 2019, including interim periods within those fiscal years. For public business entities that are

not SEC filers, the ASU is effective for fiscal years beginning after December 15, 2020, including interim

periods within those fiscal years

. Securities and Exchange Commission (SEC)

filers, as both terms are defined in U.S. GAAP, the ASU is effective for fiscal years beginning after

December 15, 2019, including interim periods within those fiscal years. For public business entities that are

not SEC filers, the ASU is effective for fiscal years beginning after December 15, 2020, including interim

periods within those fiscal years. For institutions that are not public business entities (i.e., that are private

companies), the ASU is, at present, effective for fiscal years beginning after December 15, 2020, and for

interim periods of fiscal years beginning after December 15, 2021. However, on August 20, 2018, the FASB

proposed to amend the transition and effective date provisions in ASU 2016-13 for entities that are not public

business entities so that this ASU would be effective for such entities for fiscal years beginning after

December 15, 2021, including interim periods within those fiscal years. For all institutions, early application of

the new standard is permitted for fiscal years beginning after December 15, 2018, including interim periods

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

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within those fiscal years. Institutions must apply ASU 2016-13 for Call Report purposes in accordance with

the effective dates set forth in the ASU as these dates may be amended. An institution that early adopts

ASU 2016-13 for U.S. GAAP financial reporting purposes should also early adopt the ASU in the same period

for Call Report purposes.

On September 28, 2018, the agencies issued a Federal Register notice requesting public comment on

proposed revisions to the Call Report to address the revised accounting for credit losses under ASU 2016-13.

The proposal also includes reporting changes to Call Report Schedule RC-R, Regulatory Capital, to align the

schedule with the agencies’ May 14, 2018, notice of proposed rulemaking, which would revise the regulatory

capital rules for the implementation of and capital transition for CECL

proposed revisions to the Call Report to address the revised accounting for credit losses under ASU 2016-13.

The proposal also includes reporting changes to Call Report Schedule RC-R, Regulatory Capital, to align the

schedule with the agencies’ May 14, 2018, notice of proposed rulemaking, which would revise the regulatory

capital rules for the implementation of and capital transition for CECL. These Call Report revisions are

proposed to take effect as of the March 31, 2019, report date.

For additional information, institutions should refer to the agencies’ Frequently Asked Questions on the New

Accounting Standard on Financial Instruments – Credit Losses, which were most recently updated on

September 6, 2017, the agencies’ June 17, 2016, Joint Statement on the New Accounting Standard on

Financial Instruments – Credit Losses, and ASU 2016-13, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168232528&acceptedDisclaimer=true.

Accounting for Hedging Activities

In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging

Activities.” This ASU amends ASC Topic 815, Derivatives and Hedging, to “better align an entity’s risk

management activities and financial reporting for hedging relationships through changes to both the

designation and measurement guidance for qualifying hedging relationships and the presentation of hedge

results.”

For institutions that are public business entities, as defined under U.S. GAAP, the ASU is effective for fiscal

years beginning after December 15, 2018, including interim periods within those fiscal years. For institutions

that are not public business entities (i.e., that are private companies), the ASU is effective for fiscal years

beginning after December 15, 2019, and interim periods beginning after December 15, 2020.

Early application of the ASU is permitted for all institutions in any interim period or fiscal year before the

effective date of the ASU

eriods within those fiscal years. For institutions

that are not public business entities (i.e., that are private companies), the ASU is effective for fiscal years

beginning after December 15, 2019, and interim periods beginning after December 15, 2020.

Early application of the ASU is permitted for all institutions in any interim period or fiscal year before the

effective date of the ASU. Further, the ASU specifies transition requirements and offers transition elections for

hedging relationships existing on the date of adoption (i.e., hedging relationships in which the hedging

instrument has not expired, been sold, terminated, or exercised or for which the institution has not removed

the designation of the hedging relationship). These transition requirements and elections should be applied on

the date of adoption of the ASU and the effect of adoption should be reflected as of the beginning of the fiscal

year of adoption (i.e., the initial application date). Thus, if an institution early adopts the ASU in an interim

period, any adjustments shall be reflected as of the beginning of the fiscal year that includes the interim period

of adoption, e.g., as of January 1 for a calendar year institution. An institution that early adopts ASU 2017-12

in an interim period for U.S. GAAP financial reporting purposes should also early adopt the ASU in the same

period for Call Report purposes.

The Call Report instructions, including the Glossary entry for “Derivative Contracts,” will be revised to conform

to the ASU at a future date.

For additional information, institutions should refer to ASU 2017-12, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176169282347&acceptedDisclaimer=true

adopt the ASU in the same

period for Call Report purposes.

The Call Report instructions, including the Glossary entry for “Derivative Contracts,” will be revised to conform

to the ASU at a future date.

For additional information, institutions should refer to ASU 2017-12, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176169282347&acceptedDisclaimer=true.

Regulatory Capital Treatment of Certain Centrally-Cleared Derivative Contracts

On August 14, 2017, the banking agencies issued supervisory guidance on the regulatory capital treatment of

certain centrally-cleared derivative contracts in light of recent changes to the rulebooks of certain central

counterparties. Under the previous requirements of these central counterparties’ rulebooks, variation margin

transferred to cover the exposure that arises from marking cleared derivative contracts, and netting sets of

such contracts, to fair value was considered collateral pledged by one party to the other, with title to the

collateral remaining with the posting party. These derivative contracts are referred to as collateralized-to-

market contracts. Under the revised rulebooks of certain central counterparties, variation margin for certain

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

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centrally-cleared derivative contracts, and certain netting sets of such contracts, is considered a settlement

payment for the exposure that arises from marking these derivative contracts and netting sets to fair value,

with title to the payment transferring to the receiving party. In these circumstances, the derivative contracts

and netting sets are referred to as settled-to-market contracts

centrally-cleared derivative contracts, and certain netting sets of such contracts, is considered a settlement

payment for the exposure that arises from marking these derivative contracts and netting sets to fair value,

with title to the payment transferring to the receiving party. In these circumstances, the derivative contracts

and netting sets are referred to as settled-to-market contracts.

Under the agencies’ regulatory capital rules, in general, an institution must calculate the trade exposure

amount for a cleared derivative contract, or a netting set of such contracts, by using the methodology

described in section 34 of the rules to determine (i) the current credit exposure and (ii) the potential future

exposure of the derivative contract or netting set of such contracts for purposes of the standardized approach

risk-based capital calculation and the supplementary leverage ratio calculation. The risk-weighted asset

calculations under the advanced approaches capital framework have similar requirements. Current credit

exposure is determined by reference to the fair value of each derivative contract as measured under U.S.

GAAP. Potential future exposure is determined, in part, by multiplying each derivative contract’s notional

principal amount by a conversion factor. The conversion factors vary by the category (for example, interest

rate, equity) and remaining maturity of the derivative contract. The regulatory capital rules provide that, for a

derivative contract that is structured such that on specified dates any outstanding exposure is settled and the

terms are reset so that the fair value of the contract is zero, the remaining maturity equals the time until the

next reset date

y by the category (for example, interest

rate, equity) and remaining maturity of the derivative contract. The regulatory capital rules provide that, for a

derivative contract that is structured such that on specified dates any outstanding exposure is settled and the

terms are reset so that the fair value of the contract is zero, the remaining maturity equals the time until the

next reset date.

For the purpose of the regulatory capital rules, the August 2017 supervisory guidance states that if, after

accounting and legal analysis, an institution determines that (i) the variation margin payment on a centrally

cleared settled-to-market contract settles any outstanding exposure on the contract, and (ii) the terms are

reset so that the fair value of the contract is zero, the remaining maturity on such a contract would equal the

time until the next exchange of variation margin on the contract. In conducting its legal analysis to determine

whether variation margin may be considered settlement of outstanding exposure under the regulatory capital

rules, an institution should evaluate whether the transferor of the variation margin has relinquished all legal

claims to the variation margin and whether the payment of variation margin constitutes settlement under the

central counterparty’s rulebook, any other applicable agreements governing the derivative contract, and

applicable law. Among other requirements, a central counterparty’s rulebook may require an institution to

satisfy additional obligations, such as payment of other expenses and fees, in order to recognize payment of

variation margin as satisfying settlement under the rulebook. The legal and accounting analysis performed by

the institution should take all such requirements into account.

Institutions should refer to the supervisory guidance in its entirety for purposes of determining the appropriate

regulatory capital treatment of settled-to-market contracts under the regulatory capital rules

payment of

variation margin as satisfying settlement under the rulebook. The legal and accounting analysis performed by

the institution should take all such requirements into account.

Institutions should refer to the supervisory guidance in its entirety for purposes of determining the appropriate

regulatory capital treatment of settled-to-market contracts under the regulatory capital rules. This guidance is

available at https://www.fdic.gov/news/news/financial/2017/fil17033a.pdf.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU No. 2017-08, “Premium Amortization on Purchased Callable Debt

Securities.” This ASU amends ASC Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs

(formerly FASB Statement No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating

or Acquiring Loans and Initial Direct Costs of Leases”), by shortening the amortization period for premiums on

callable debt securities that have explicit, non-contingent call features and are callable at fixed prices and on

preset dates. Under existing U.S. GAAP, the premium on such a callable debt security generally is required to

be amortized as an adjustment of yield over the contractual life of the debt security. Under the ASU, the

excess of the amortized cost basis of such a callable debt security over the amount repayable by the issuer at

the earliest call date (i.e., the premium) must be amortized to the earliest call date (unless the institution

applies the guidance in ASC Subtopic 310-20 that allows estimates of future principal prepayments to be

considered in the effective yield calculation when the institution holds a large number of similar debt securities

for which prepayments are probable and the timing and amount of the prepayments can be reasonably

estimated). If the call option is not exercised at its earliest call date, the institution must reset the effective

yield using the payment terms of the debt security

epayments to be

considered in the effective yield calculation when the institution holds a large number of similar debt securities

for which prepayments are probable and the timing and amount of the prepayments can be reasonably

estimated). If the call option is not exercised at its earliest call date, the institution must reset the effective

yield using the payment terms of the debt security.

The ASU does not change the accounting for debt securities held at a discount. The discount on such debt

securities continues to be amortized to maturity (unless the Subtopic 310-20 guidance mentioned above is

applied).

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

7

For institutions that are public business entities, as defined under U.S. GAAP, the new standard is effective for

fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For

institutions that are not public business entities (i.e., that are private companies), the new standard is effective

for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after

December 15, 2020.

Early application of the new standard is permitted for all institutions, including adoption in an interim period of

2018 or a subsequent year before the applicable effective date for an institution. If an institution early adopts

the ASU in an interim period, the cumulative-effect adjustment shall be reflected as of the beginning of the

fiscal year of adoption.

An institution must apply the new standard on a modified retrospective basis as of the beginning of the period

of adoption. Under the modified retrospective method, an institution should apply a cumulative-effect

adjustment to affected accounts existing as of the beginning of the fiscal year the new standard is adopted.

The cumulative-effect adjustment to retained earnings for this change in accounting principle should be

reported in Call Report Schedule RI-A, item 2

as of the beginning of the period

of adoption. Under the modified retrospective method, an institution should apply a cumulative-effect

adjustment to affected accounts existing as of the beginning of the fiscal year the new standard is adopted.

The cumulative-effect adjustment to retained earnings for this change in accounting principle should be

reported in Call Report Schedule RI-A, item 2.

For additional information, institutions should refer to ASU 2017-08, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168934053&acceptedDisclaimer=true.

Recognition and Measurement of Financial Instruments: Investments in Equity Securities

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and

Financial Liabilities.” This ASU makes targeted improvements to U.S. GAAP. As one of its main provisions,

the ASU requires investments in equity securities, except those accounted for under the equity method and

those that result in consolidation, to be measured at fair value with changes in fair value recognized in net

income. Thus, the ASU eliminates the existing concept of AFS equity securities, which are measured at

fair value with changes in fair value generally recognized in other comprehensive income. To be classified

as AFS under current U.S. GAAP, an equity security must have a readily determinable fair value and not be

held for trading. In addition, for an equity security that does not have a readily determinable fair value, the

ASU permits an entity to elect to measure the security at cost minus impairment, if any, plus or minus changes

resulting from observable price changes in orderly transactions for the identical or a similar investment of the

same issuer. When this election is made for an equity security without a readily determinable fair value, the

ASU simplifies the impairment assessment of such an investment by requiring a qualitative assessment to

identify impairment

minus impairment, if any, plus or minus changes

resulting from observable price changes in orderly transactions for the identical or a similar investment of the

same issuer. When this election is made for an equity security without a readily determinable fair value, the

ASU simplifies the impairment assessment of such an investment by requiring a qualitative assessment to

identify impairment.

The ASU’s measurement guidance for investments in equity securities also applies to other ownership

interests, such as interests in partnerships, unincorporated joint ventures, and limited liability companies.

However, the measurement guidance does not apply to Federal Home Loan Bank stock and Federal Reserve

Bank stock.

For institutions that are public business entities, as defined under U.S. GAAP, ASU 2016-01 is effective for

fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all

other entities, the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods

within fiscal years beginning after December 15, 2019. Early application of the ASU is permitted for all

institutions that are not public business entities as of the fiscal years beginning after December 15, 2017,

including interim periods within those fiscal years. Institutions must apply ASU 2016-01 for Call Report

purposes in accordance with the effective dates set forth in the ASU.

With the elimination of AFS equity securities upon an institution’s adoption of ASU 2016-01, the amount of net

unrealized gains (losses) on these securities, net of tax effect, that is included in AOCI on the Call Report

balance sheet (Schedule RC, item 26.b) as of the adoption date will be reclassified (transferred) from AOCI

into the retained earnings component of equity capital on the balance sheet (Schedule RC, item 26.a)

ty securities upon an institution’s adoption of ASU 2016-01, the amount of net

unrealized gains (losses) on these securities, net of tax effect, that is included in AOCI on the Call Report

balance sheet (Schedule RC, item 26.b) as of the adoption date will be reclassified (transferred) from AOCI

into the retained earnings component of equity capital on the balance sheet (Schedule RC, item 26.a).

Thereafter, changes in the fair value of (i.e., the unrealized gains and losses on) an institution’s equity

securities that would have been classified as AFS under existing U.S. GAAP will be recognized through net

income rather than other comprehensive income (OCI). For an institution’s holdings of equity securities

without readily determinable fair values as of the adoption date for which the measurement alternative is

elected, the measurement provisions of the ASU are to be applied prospectively to these securities.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

8

For additional information, institutions should refer to ASU 2016-01, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167762170&acceptedDisclaimer=true.

Recognition and Measurement of Financial Instruments: Fair Value Option Liabilities

In addition to the changes in the accounting for equity securities discussed in the preceding section of these

Supplemental Instructions, ASU 2016-01 requires an institution to present separately in OCI the portion of the

total change in the fair value of a liability resulting from a change in the instrument-specific credit risk

(“own credit risk”) when the institution has elected to measure the liability at fair value in accordance with the

fair value option for financial instruments. Until an institution adopts the own credit risk provisions of the ASU,

U.S. GAAP requires the institution to report the entire change in the fair value of a fair value option liability in

earnings

in the instrument-specific credit risk

(“own credit risk”) when the institution has elected to measure the liability at fair value in accordance with the

fair value option for financial instruments. Until an institution adopts the own credit risk provisions of the ASU,

U.S. GAAP requires the institution to report the entire change in the fair value of a fair value option liability in

earnings. The ASU does not apply to other financial liabilities measured at fair value, including derivatives.

For these other financial liabilities, the effect of a change in an entity’s own credit risk will continue to be

reported in net income.

The change due to own credit risk, as described above, is the difference between the total change in fair value

and the amount resulting from a change in a base market rate (e.g., a risk-free interest rate). An institution

may use another method that it believes results in a faithful measurement of the fair value change attributable

to instrument-specific credit risk. However, it will have to apply the method consistently to each financial

liability from period to period.

The effective dates of ASU 2016-01 are described in the preceding section of these Supplemental Instructions.

Notwithstanding these effective dates, early application of the ASU’s provisions regarding the presentation in

OCI of changes due to own credit risk on fair value option liabilities is permitted for all entities for financial

statements of fiscal years or interim periods that have not yet been issued or made available for issuance, and

in the same period for Call Report purposes

Instructions.

Notwithstanding these effective dates, early application of the ASU’s provisions regarding the presentation in

OCI of changes due to own credit risk on fair value option liabilities is permitted for all entities for financial

statements of fiscal years or interim periods that have not yet been issued or made available for issuance, and

in the same period for Call Report purposes.

When an institution with a calendar year fiscal year adopts the own credit risk provisions of ASU 2016-01, the

accumulated gains and losses as of the beginning of the fiscal year due to changes in the instrument-specific

credit risk of fair value option liabilities, net of tax effect, are reclassified from Schedule RC, item 26.a,

“Retained earnings,” to Schedule RC, item 26.b, “Accumulated other comprehensive income.” If an institution

with a calendar year fiscal year chooses to early apply the ASU’s provisions for fair value option liabilities in an

interim period after the first interim period of its fiscal year, any unrealized gains and losses due to changes in

own credit risk and the related tax effects recognized in the Call Report income statement during the interim

period(s) before the interim period of adoption should be reclassified from earnings to OCI. In the Call Report,

this reclassification would be from Schedule RI, item 5.l, “Other noninterest income,” and Schedule RI, item 9,

“Applicable income taxes,” to Schedule RI-A, item 10, “Other comprehensive income,” with a corresponding

reclassification from Schedule RC, item 26.a, to Schedule RC, item 26.b.

Additionally, for purposes of reporting on Schedule RC-R, Part I, institutions should report in item 10.a, “Less:

Unrealized net gain (loss) related to changes in the fair value of liabilities that are due to changes in own credit

risk,” the amount included in AOCI attributable to changes in the fair value of fair value option liabilities that are

due to changes in the institution’s own credit risk

tionally, for purposes of reporting on Schedule RC-R, Part I, institutions should report in item 10.a, “Less:

Unrealized net gain (loss) related to changes in the fair value of liabilities that are due to changes in own credit

risk,” the amount included in AOCI attributable to changes in the fair value of fair value option liabilities that are

due to changes in the institution’s own credit risk. Institutions should note that this AOCI amount is included in

the amount reported in Schedule RC-R, Part I, item 3, “Accumulated other comprehensive income (AOCI).”

For additional information, institutions should refer to ASU 2016-01, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167762170&acceptedDisclaimer=true.

New Revenue Recognition Accounting Standard

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which added

ASC Topic 606, Revenue from Contracts with Customers. The core principle of Topic 606 is that an entity

should recognize revenue at an amount that reflects the consideration to which it expects to be entitled

in exchange for transferring goods or services to a customer as part of the entity’s ordinary activities.

ASU 2014-09 also added Topic 610, Other Income, to the ASC. Topic 610 applies to income recognition that

is not within the scope of Topic 606, other Topics (such as Topic 840 on leases), or other revenue or income

guidance. As discussed in the following section of these Supplemental Instructions, Topic 610 applies to an

institution’s sales of repossessed nonfinancial assets, such as other real estate owned (OREO). The sale of

her Income, to the ASC. Topic 610 applies to income recognition that

is not within the scope of Topic 606, other Topics (such as Topic 840 on leases), or other revenue or income

guidance. As discussed in the following section of these Supplemental Instructions, Topic 610 applies to an

institution’s sales of repossessed nonfinancial assets, such as other real estate owned (OREO). The sale of

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

9

repossessed nonfinancial assets is not considered an “ordinary activity” because institutions do not typically

invest in nonfinancial assets. ASU 2014-09 and subsequent amendments are collectively referred to herein

as the “new standard.” For additional information on this accounting standard and the revenue streams to

which it does and does not apply, please refer to the Glossary entry for “Revenue from Contracts with

Customers,” which has been added to the Call Report instruction books this quarter.

For institutions that are public business entities, as defined under U.S. GAAP, the new standard is effective for

fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years.

For institutions that are not public business entities (i.e., that are private companies), the new standard is

effective for fiscal years beginning after December 15, 2018, and interim reporting periods within fiscal years

beginning after December 15, 2019. Early application of the new standard is permitted. If an institution

chooses to early adopt the new standard for financial reporting purposes, the institution should implement the

new standard in its Call Report for the same quarter-end report date.

For Call Report purposes, an institution must apply the new standard on a modified retrospective basis as of

the effective date of the standard

arly application of the new standard is permitted. If an institution

chooses to early adopt the new standard for financial reporting purposes, the institution should implement the

new standard in its Call Report for the same quarter-end report date.

For Call Report purposes, an institution must apply the new standard on a modified retrospective basis as of

the effective date of the standard. Under the modified retrospective method, an institution should apply a

cumulative-effect adjustment to affected accounts existing as of the beginning of the fiscal year the new

standard is adopted. The cumulative-effect adjustment to retained earnings for this change in accounting

principle should be reported in Call Report Schedule RI-A, item 2. An institution that early adopts the new

standard must apply it in its entirety. The institution cannot choose to apply the guidance to some revenue

streams and not to others that are within the scope of the new standard.

For additional information, institutions should refer to the new standard, which is available at

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498.

Revenue Recognition: Accounting for Sales of OREO

As stated in the preceding section, Topic 610 applies to an institution’s sale of repossessed nonfinancial

assets, such as OREO. When the new standard becomes effective at the dates discussed above, Topic 610

will eliminate the prescriptive criteria and methods for sale accounting and gain recognition for dispositions of

OREO currently set forth in Subtopic 360-20, Property, Plant, and Equipment – Real Estate Sales. Under the

new standard, an institution will recognize the entire gain or loss, if any, and derecognize the OREO at the

time of sale if the transaction meets certain requirements of Topic 606. Otherwise, an institution will generally

record any payments received as a deposit liability to the buyer and continue reporting the OREO as an asset

at the time of the transaction

– Real Estate Sales. Under the

new standard, an institution will recognize the entire gain or loss, if any, and derecognize the OREO at the

time of sale if the transaction meets certain requirements of Topic 606. Otherwise, an institution will generally

record any payments received as a deposit liability to the buyer and continue reporting the OREO as an asset

at the time of the transaction.

The following paragraphs highlight key aspects of Topic 610 that will apply to seller-financed sales of OREO

once the new standard takes effect. When implementing the new standard, an institution will need to exercise

judgment in determining whether a contract (within the meaning of Topic 606) exists for the sale or transfer of

OREO, whether the institution has performed its obligations identified in the contract, and what the transaction

price is for calculation of the amount of gain or loss. For additional information, please refer to the Glossary

entry for “Foreclosed Assets” in the Call Report instruction books, which was updated in March 2017 to

incorporate guidance on the application of the new standard to sales of OREO.

Under Topic 610, when an institution does not have a controlling financial interest in the OREO buyer under

Topic 810, Consolidation, the institution’s first step in assessing whether it can derecognize an OREO asset

and recognize revenue upon the sale or transfer of the OREO is to determine whether a contract exists under

the provisions of Topic 606. In order for a transaction to be a contract under Topic 606, it must meet five

criteria. Although all five criteria require careful analysis for seller-financed sales of OREO, two criteria in

particular may require significant judgment. These criteria are the commitment of the parties to the transaction

to perform their respective obligations and the collectability of the transaction price

. In order for a transaction to be a contract under Topic 606, it must meet five

criteria. Although all five criteria require careful analysis for seller-financed sales of OREO, two criteria in

particular may require significant judgment. These criteria are the commitment of the parties to the transaction

to perform their respective obligations and the collectability of the transaction price. To evaluate whether a

transaction meets the collectability criterion, a selling institution must determine whether it is probable that it

will collect substantially all of the consideration to which it is entitled in exchange for the transfer of the OREO,

i.e., the transaction price. To make this determination, as well as the determination that the buyer of the

OREO is committed to perform its obligations, a selling institution should consider all facts and circumstances

related to the buyer’s ability and intent to pay the transaction price. As with the current accounting standards

governing seller-financed sales of OREO, the amount and character of a buyer’s initial equity in the property

(typically the cash down payment) and recourse provisions remain important factors to evaluate. Other factors

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

10

to consider may include, but are not limited to, the financing terms of the loan (including amortization and any

balloon payment), the credit standing of the buyer, the cash flow from the property, and the selling institution’s

continuing involvement with the property following the transaction.

If the five contract criteria in Topic 606 have not been met, the institution generally may not derecognize the

OREO asset or recognize revenue (gain or loss) as an accounting sale has not occurred. In contrast, if an

institution determines the contract criteria in Topic 606 have been met, it must then determine whether it has

satisfied its performance obligations as identified in the contract by transferring control of the asset to the

buyer

been met, the institution generally may not derecognize the

OREO asset or recognize revenue (gain or loss) as an accounting sale has not occurred. In contrast, if an

institution determines the contract criteria in Topic 606 have been met, it must then determine whether it has

satisfied its performance obligations as identified in the contract by transferring control of the asset to the

buyer. For seller-financed sales of OREO, the transfer of control generally occurs on the closing date of the

sale when the institution obtains the right to receive payment for the property and transfers legal title to the

buyer. However, an institution must consider all relevant facts and circumstances to determine whether

control of the OREO has transferred.

When a contract exists and an institution has transferred control of the asset, the institution should

derecognize the OREO asset and recognize a gain or loss for the difference between the transaction price and

the carrying amount of the OREO asset. Generally, the transaction price in a sale of OREO will be the

contract amount in the purchase/sale agreement, including for a seller-financed sale at market terms.

However, the transaction price may differ from the amount stated in the contract due to the existence of off-

market terms on the financing. In this situation, to determine the transaction price, the contract amount should

be adjusted for the time value of money by using as the discount rate a market rate of interest considering the

credit characteristics of the buyer and the terms of the financing.

As stated in the preceding section on the new revenue recognition accounting standard, for Call Report

purposes, an institution must apply the new standard on a modified retrospective basis

contract amount should

be adjusted for the time value of money by using as the discount rate a market rate of interest considering the

credit characteristics of the buyer and the terms of the financing.

As stated in the preceding section on the new revenue recognition accounting standard, for Call Report

purposes, an institution must apply the new standard on a modified retrospective basis. To determine the

cumulative-effect adjustment for the change in accounting for seller-financed OREO sales, an institution

should measure the impact of applying Topic 610 to the outstanding seller-financed sales of OREO currently

accounted for under Subtopic 360-20 using the installment, cost recovery, reduced-profit, or deposit method

as of the beginning of the fiscal year the new standard is adopted. The cumulative-effect adjustment to

retained earnings for this change in accounting principle should be reported in Call Report Schedule RI-A,

item 2.

Accounting for Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which added ASC Topic 842, Leases. This

guidance, once effective, supersedes ASC Topic 840, Leases.

Topic 842 does not fundamentally change lessor accounting; however, it aligns terminology between lessee

and lessor accounting and brings key aspects of lessor accounting into alignment with the FASB’s new

revenue recognition guidance in Topic 606. As a result, the classification difference between direct financing

leases and sales-type leases for lessors moves from a risk-and-rewards principle to a transfer of control

principle. Additionally, there is no longer a distinction in the treatment of real estate and non-real estate leases

by lessors.

The most significant change that Topic 842 makes is to lessee accounting. Under existing accounting

standards, lessees recognize lease assets and lease liabilities on the balance sheet for capital leases, but do

not recognize operating leases on the balance sheet

principle. Additionally, there is no longer a distinction in the treatment of real estate and non-real estate leases

by lessors.

The most significant change that Topic 842 makes is to lessee accounting. Under existing accounting

standards, lessees recognize lease assets and lease liabilities on the balance sheet for capital leases, but do

not recognize operating leases on the balance sheet. The lessee accounting model under Topic 842 retains

the distinction between operating leases and capital leases, which the new standard labels finance leases.

However, the new standard requires lessees to record a right-of-use (ROU) asset and a lease liability on the

balance sheet for operating leases. (For finance leases, a lessee’s lease asset also is designated an ROU

asset.) In general, the new standard permits a lessee to make an accounting policy election to exempt leases

with a term of one year or less at their commencement date from on-balance sheet recognition. The lease

term generally includes the noncancellable period of a lease as well as purchase options and renewal options

reasonably certain to be exercised by the lessee, renewal options controlled by the lessor, and any other

economic incentive for the lessee to extend the lease. An economic incentive may include a related-party

commitment. When preparing to implement Topic 842, lessees will need to analyze their existing lease

contracts to determine the entries to record on adoption of this new standard.

reasonably certain to be exercised by the lessee, renewal options controlled by the lessor, and any other

economic incentive for the lessee to extend the lease. An economic incentive may include a related-party

commitment. When preparing to implement Topic 842, lessees will need to analyze their existing lease

contracts to determine the entries to record on adoption of this new standard.

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

11

For a sale-leaseback transaction to qualify for sales treatment, Topic 842 requires certain criteria within

Topic 606 to be met. Topic 606 focuses on the transfer of control of the leased asset from the seller/lessee to

the buyer/lessor. A sale-leaseback transaction that does not transfer control is accounted for as a financing

arrangement. For a transaction currently accounted for as a sale-leaseback under existing U.S. GAAP, an

entity is not required to reassess whether the transaction would have qualified as a sale and a leaseback

under Topic 842 when it adopts the new standard.

Leases classified as leveraged leases prior to the adoption of Topic 842 may continue to be accounted for

under Topic 840 unless subsequently modified. Topic 842 eliminates leveraged lease accounting for leases

that commence after an institution adopts the new accounting standard.

For institutions that are public business entities, as defined under U.S. GAAP, ASU 2016-02 is effective for

fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years.

For institutions that are not public business entities, the new standard is effective for fiscal years beginning

after December 15, 2019, and interim reporting periods within fiscal years beginning after December 15, 2020.

Early application of the new standard is permitted for all institutions. An institution that early adopts the new

standard must apply it in its entirety to all lease-related transactions

ons that are not public business entities, the new standard is effective for fiscal years beginning

after December 15, 2019, and interim reporting periods within fiscal years beginning after December 15, 2020.

Early application of the new standard is permitted for all institutions. An institution that early adopts the new

standard must apply it in its entirety to all lease-related transactions. If an institution chooses to early adopt

the new standard for financial reporting purposes, the institution should implement the new standard in its

Call Report for the same quarter-end report date.

For Call Report purposes, an institution must apply the new standard on a modified retrospective basis. Under

the modified retrospective method, an institution should apply a cumulative-effect adjustment to affected

accounts existing as of the beginning of the fiscal year the new standard is adopted. The cumulative-effect

adjustment to retained earnings for this change in accounting principle should be reported in Schedule RI-A,

item 2. The ROU asset recorded upon adoption should be reflected in Schedule RC, item 6, “Premises and

fixed assets” and the related lease liability recorded upon adoption should be reflected in Schedule RC-M,

item 5.b, “Other borrowings.” These classifications are consistent with the current Call Report instructions for

reporting a lessee’s capital leases. The agencies do not plan to add any new items to the Call Report for

reporting leases under the new lease accounting standard.

The agencies have received questions regarding how lessee institutions should treat ROU assets under the

agencies’ regulatory capital rules (12 CFR Part 3 (OCC); 12 CFR Part 217 (Board); and 12 CFR Part 324

(FDIC)). Those rules require that most intangible assets be deducted from regulatory capital. However, some

institutions are uncertain whether ROU assets are intangible assets

standard.

The agencies have received questions regarding how lessee institutions should treat ROU assets under the

agencies’ regulatory capital rules (12 CFR Part 3 (OCC); 12 CFR Part 217 (Board); and 12 CFR Part 324

(FDIC)). Those rules require that most intangible assets be deducted from regulatory capital. However, some

institutions are uncertain whether ROU assets are intangible assets. The agencies are clarifying that, to the

extent an ROU asset arises due to a lease of a tangible asset (e.g., building or equipment), the ROU asset

should be treated as a tangible asset not subject to deduction from regulatory capital. An ROU asset not

subject to deduction must be risk weighted at 100 percent under Section 32(l)(5) of the agencies’ regulatory

capital rules and included in a lessee institution’s calculations of total risk-weighted assets. In addition, such

an asset must be included in a lessee institution’s total assets for leverage capital purposes. The agencies

believe this treatment is consistent with the current treatment of capital leases under the rules, whereby a

lessee’s lease assets under capital leases of tangible assets are treated as tangible assets, receive a 100

percent risk weight, and are included in the leverage ratio denominator. This treatment is also consistent with

the approach taken by the Basel Committee on Banking Supervision

(https://www.bis.org/press/p170406a.htm).

For additional information on ASU 2016-02, institutions should refer to the FASB’s website at:

http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FCompl

etedProjectPage&cid=1176167904031, which includes a link to the new accounting standard.

Accounting for Measurement-Period Adjustments Related to a Business Combination

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period

Adjustments.” Under ASC Topic 805, Business Combinations (formerly FASB Statement No

gename=FASB%2FFASBContent_C%2FCompl

etedProjectPage&cid=1176167904031, which includes a link to the new accounting standard.

Accounting for Measurement-Period Adjustments Related to a Business Combination

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period

Adjustments.” Under ASC Topic 805, Business Combinations (formerly FASB Statement No. 141(R),

“Business Combinations”), if the initial accounting for a business combination is incomplete by the end of the

reporting period in which the combination occurs, the acquirer reports provisional amounts in its financial

statements for the items for which the accounting is incomplete. During the measurement period, the acquirer

is required to adjust the provisional amounts recognized at the acquisition date, with a corresponding

adjustment to goodwill, to reflect new information obtained about facts and circumstances that existed as of

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

12

the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that

date. At present under Topic 805, an acquirer is required to retrospectively adjust the provisional amounts

recognized at the acquisition date to reflect the new information. To simplify the accounting for the

adjustments made to provisional amounts, ASU 2015-16 eliminates the requirement to retrospectively account

for the adjustments. Accordingly, the ASU amends Topic 805 to require an acquirer to recognize adjustments

to provisional amounts that are identified during the measurement period in the reporting period in which

adjustment amounts are determined. Under the ASU, the acquirer also must recognize in the financial

statements for the same reporting period the effect on earnings, if any, resulting from the adjustments to the

provisional amounts as if the accounting for the business combination had been completed as of the

acquisition date

ified during the measurement period in the reporting period in which

adjustment amounts are determined. Under the ASU, the acquirer also must recognize in the financial

statements for the same reporting period the effect on earnings, if any, resulting from the adjustments to the

provisional amounts as if the accounting for the business combination had been completed as of the

acquisition date.

In general, the measurement period in a business combination is the period after the acquisition date during

which the acquirer may adjust provisional amounts reported for identifiable assets acquired, liabilities

assumed, and consideration transferred for the acquiree for which the initial accounting for the business

combination is incomplete at the end of the reporting period in which the combination occurs. Topic 805

provides additional guidance on the measurement period, which shall not exceed one year from the acquisition

date, and adjustments to provisional amounts during this period.

The ASU’s amendments to Topic 805 should be applied prospectively to adjustments to provisional amounts

that occur after the effective date of the ASU. For institutions that are public business entities, as defined

under U.S. GAAP, ASU 2015-16 is currently in effect. For institutions that are not public business entities

(i.e., that are private companies), the ASU is effective for fiscal years beginning after December 15, 2016, and

interim periods within fiscal years beginning after December 15, 2017. Thus, institutions with a calendar year

fiscal year that are private companies must apply the ASU to any adjustments to provisional amounts that

occur after January 1, 2017, beginning with their Call Reports for December 31, 2017. Early application of

ASU 2015-16 is permitted in Call Reports that have not been submitted

d

interim periods within fiscal years beginning after December 15, 2017. Thus, institutions with a calendar year

fiscal year that are private companies must apply the ASU to any adjustments to provisional amounts that

occur after January 1, 2017, beginning with their Call Reports for December 31, 2017. Early application of

ASU 2015-16 is permitted in Call Reports that have not been submitted.

For additional information, institutions should refer to ASU 2015-16, which is available at

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176166411212&acceptedDisclaimer=true.

Amending Previously Submitted Report Data

Should your institution find that it needs to revise previously submitted Call Report data, please make the

appropriate changes to the data, ensure that the revised data passes the FFIEC-published validation criteria,

and submit the revised data file to the CDR using one of the two methods described in the banking agencies'

FIL for the September 30, 2018, report date. For technical assistance with the submission of amendments to

the CDR, please contact the CDR Help Desk by telephone at (888) CDR-3111, by fax at (703) 774-3946, or by

e-mail at CDR.Help@ffiec.gov.

Other Reporting Matters

For the following topics, institutions should continue to follow the guidance in the specified Call Report

Supplemental Instructions:

•

“Purchased” Loans Originated By Others – Supplemental Instructions for September 30, 2015

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201509.pdf)

•

True-up Liability under an FDIC Loss-Sharing Agreement – Supplemental Instructions for June 30, 2015

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201506.pdf)

•

Troubled Debt Restructurings, Current Market Interest Rates, and ASU No

By Others – Supplemental Instructions for September 30, 2015

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201509.pdf)

•

True-up Liability under an FDIC Loss-Sharing Agreement – Supplemental Instructions for June 30, 2015

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201506.pdf)

•

Troubled Debt Restructurings, Current Market Interest Rates, and ASU No. 2011-02 – Supplemental

Instructions for December 31, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201412.pdf)

•

Determining the Fair Value of Derivatives – Supplemental Instructions for June 30, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201406.pdf)

•

Indemnification Assets and ASU No. 2012-06 – Supplemental Instructions for June 30, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201406.pdf)

•

Other-Than-Temporary Impairment of Debt Securities – Supplemental Instructions for June 30, 2014

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201406.pdf)

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

13

•

Small Business Lending Fund – Supplemental Instructions for March 31, 2013

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201303.pdf)

•

Reporting Purchased Subordinated Securities in Schedule RC-S – Supplemental Instructions for

September 30, 2011

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201109.pdf)

•

Treasury Department’s Capital Purchase Program – Supplemental Instructions for September 30, 2011

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201109.pdf)

•

Deposit insurance assessments – Supplemental Instructions for September 30, 2009

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200909.pdf)

•

Accounting for share-based payments under FASB Statement No

Treasury Department’s Capital Purchase Program – Supplemental Instructions for September 30, 2011

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_FFIEC041_suppinst_201109.pdf)

•

Deposit insurance assessments – Supplemental Instructions for September 30, 2009

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200909.pdf)

•

Accounting for share-based payments under FASB Statement No. 123 (Revised 2004), Share-Based

Payment – Supplemental Instructions for December 31, 2006

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200612.pdf)

•

Commitments to originate and sell mortgage loans – Supplemental Instructions for March 31, 2006

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200603.pdf) and June 30, 2005

(https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200506.pdf)

Call Report Software Vendors

For information on available Call Report preparation software products, institutions should contact:

Axiom Software Laboratories, Inc.

67 Wall Street, 17th Floor

New York, New York 10005

Telephone: (212) 248-4188

http://www.axiomsl.com

DBI Financial Systems, Inc.

P.O. Box 14027

Bradenton, Florida 34280

Telephone: (800) 774-3279

http://www.e-dbi.com

Fed Reporter, Inc.

28118 Agoura Road, Suite 202

Agoura Hills, California 91301

Telephone: (888) 972-3772

http://www.fedreporter.net

FIS Compliance Solutions

16855 West Bernardo Drive,

Suite 270

San Diego, California 92127

Telephone: (800) 825-3772

http://www.callreporter.com

FiServ, Inc

O. Box 14027

Bradenton, Florida 34280

Telephone: (800) 774-3279

http://www.e-dbi.com

Fed Reporter, Inc.

28118 Agoura Road, Suite 202

Agoura Hills, California 91301

Telephone: (888) 972-3772

http://www.fedreporter.net

FIS Compliance Solutions

16855 West Bernardo Drive,

Suite 270

San Diego, California 92127

Telephone: (800) 825-3772

http://www.callreporter.com

FiServ, Inc.

1345 Old Cheney Road

Lincoln, Nebraska 68512

Telephone: (402) 423-2682

http://www.premier.fiserv.com

KPMG LLP

303 Peachtree Street, Suite 2000

Atlanta, Georgia 30308

Telephone: (404) 221-2355

https://advisory.kpmg.us/risk-

consulting/frm/capital-

management.html

Lombard Risk

One Gateway Center,

26th Floor

Newark, New Jersey 07102

Telephone: (973) 648-0900

http://www.lombardrisk.com

SHAZAM Core Services

6700 Pioneer Parkway

Johnston, Iowa 50131

Telephone: (888) 262-3348

http://www.cardinal400.com

Wolters Kluwer Financial Services

130 Turner Street, Building 3,

4th Floor

Waltham, Massachusetts 02453

Telephone (800) 261-3111

http://www.wolterskluwer.com

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

14

APPENDIX

Section 214 of EGRRCPA, which includes the definition of “HVCRE ADC Loan,” is as follows:

SEC. 214. PROMOTING CONSTRUCTION AND DEVELOPMENT ON MAIN STREET.

The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by adding at the end the following

new section:

‘‘SEC. 51. CAPITAL REQUIREMENTS FOR CERTAIN ACQUISITION, DEVELOPMENT, OR

CONSTRUCTION LOANS

14

APPENDIX

Section 214 of EGRRCPA, which includes the definition of “HVCRE ADC Loan,” is as follows:

SEC. 214. PROMOTING CONSTRUCTION AND DEVELOPMENT ON MAIN STREET.

The Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.) is amended by adding at the end the following

new section:

‘‘SEC. 51. CAPITAL REQUIREMENTS FOR CERTAIN ACQUISITION, DEVELOPMENT, OR

CONSTRUCTION LOANS.

‘‘(a) IN GENERAL.—The appropriate Federal banking agencies may only require a depository institution to

assign a heightened risk weight to a high volatility commercial real estate (HVCRE) exposure (as such term is

defined under section 324.2 of title 12, Code of Federal Regulations, as of October 11, 2017, or if a successor

regulation is in effect as of the date of the enactment of this section, such term or any successor term

contained in such successor regulation) under any risk-based capital requirement if such exposure is an

HVCRE ADC loan.

‘‘(b) HVCRE ADC LOAN DEFINED.—For purposes of this section and with respect to a depository

institution, the term ‘HVCRE ADC loan’—

‘‘(1) means a credit facility secured by land or improved real property that, prior to being reclassified by

the depository institution as a non-HVCRE ADC loan pursuant to subsection (d)—

‘‘(A) primarily finances, has financed, or refinances the acquisition, development, or construction

of real property;

‘‘(B) has the purpose of providing financing to acquire, develop, or improve such real property into

income-producing real property; and

‘‘(C) is dependent upon future income or sales proceeds from, or refinancing of, such real property

for the repayment of such credit facility;

‘‘(2) does not include a credit facility financing—

‘‘(A) the acquisition, development, or construction of properties that are—

‘‘(i) one- to four-family residential properties;

‘‘(ii) real property that would qualify as an investment in community development; or

‘‘(iii) agri

refinancing of, such real property

for the repayment of such credit facility;

‘‘(2) does not include a credit facility financing—

‘‘(A) the acquisition, development, or construction of properties that are—

‘‘(i) one- to four-family residential properties;

‘‘(ii) real property that would qualify as an investment in community development; or

‘‘(iii) agricultural land;

‘‘(B) the acquisition or refinance of existing income-producing real property secured by a mortgage

on such property, if the cash flow being generated by the real property is sufficient to support the debt

service and expenses of the real property, in accordance with the institution’s applicable loan

underwriting criteria for permanent financings;

‘‘(C) improvements to existing income-producing improved real property secured by a mortgage

on such property, if the cash flow being generated by the real property is sufficient to support the debt

service and expenses of the real property, in accordance with the institution’s applicable loan

underwriting criteria for permanent financings; or

‘‘(D) commercial real property projects in which—

‘‘(i) the loan-to-value ratio is less than or equal to the applicable maximum supervisory loan-to-

value ratio as determined by the appropriate Federal banking agency;

‘‘(ii) the borrower has contributed capital of at least 15 percent of the real property’s appraised,

‘as completed’ value to the project in the form of—

‘‘(I) cash;

‘‘(II) unencumbered readily marketable assets;

‘‘(III) paid development expenses out-of-pocket; or

‘‘(IV) contributed real property or improvements; and

‘‘(iii) the borrower contributed the minimum amount of capital described under clause (ii)

before the depository institution advances funds (other than the advance of a nominal sum made

in order to secure the depository institution’s lien aga

ets;

‘‘(III) paid development expenses out-of-pocket; or

‘‘(IV) contributed real property or improvements; and

‘‘(iii) the borrower contributed the minimum amount of capital described under clause (ii)

before the depository institution advances funds (other than the advance of a nominal sum made

in order to secure the depository institution’s lien against the real property) under the credit facility,

and such minimum amount of capital contributed by the borrower is contractually required to

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

15

remain in the project until the credit facility has been reclassified by the depository institution as a

non-HVCRE ADC loan under subsection (d);

‘‘(3) does not include any loan made prior to January 1, 2015; and

‘‘(4) does not include a credit facility reclassified as a non-HVCRE ADC loan under subsection (d).

‘‘(c) VALUE OF CONTRIBUTED REAL PROPERTY.—For purposes of this section, the value of any real

property contributed by a borrower as a capital contribution shall be the appraised value of the property as

determined under standards prescribed pursuant to section 1110 of the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989 (12 U.S.C. 3339), in connection with the extension of the credit facility

or loan to such borrower.

‘‘(d) RECLASSIFICATION AS A NON-HVRCE ADC LOAN.—For purposes of this section and with respect

to a credit facility and a depository institution, upon—

‘‘(1) the substantial completion of the development or construction of the real property being financed

by the credit facility; and

‘‘(2) cash flow being generated by the real property being sufficient to support the debt service and

expenses of the real property, in accordance with the institution’s applicable loan underwriting criteria for

permanent financings, the credit facility may be reclassified by the depository institution as a Non-HVCRE

ADC loan

property being financed

by the credit facility; and

‘‘(2) cash flow being generated by the real property being sufficient to support the debt service and

expenses of the real property, in accordance with the institution’s applicable loan underwriting criteria for

permanent financings, the credit facility may be reclassified by the depository institution as a Non-HVCRE

ADC loan.

‘‘(e) EXISTING AUTHORITIES.—Nothing in this section shall limit the supervisory, regulatory, or

enforcement authority of an appropriate Federal banking agency to further the safe and sound operation of an

institution under the supervision of the appropriate Federal banking agency.’’.

* * * * * * * * * * *

Section 202 of EGRRCPA, which creates a limited exception for certain reciprocal deposits, is as follows:

SEC. 202. LIMITED EXCEPTION FOR RECIPROCAL DEPOSITS.

(a) IN GENERAL.—Section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f) is amended by

adding at the end the following:

‘‘(i) LIMITED EXCEPTION FOR RECIPROCAL DEPOSITS.—

‘‘(1) IN GENERAL.—Reciprocal deposits of an agent institution shall not be considered to be funds

obtained, directly or indirectly, by or through a deposit broker to the extent that the total amount of such

reciprocal deposits does not exceed the lesser of—

‘‘(A) $5,000,000,000; or

‘‘(B) an amount equal to 20 percent of the total liabilities of the agent institution

TS.—

‘‘(1) IN GENERAL.—Reciprocal deposits of an agent institution shall not be considered to be funds

obtained, directly or indirectly, by or through a deposit broker to the extent that the total amount of such

reciprocal deposits does not exceed the lesser of—

‘‘(A) $5,000,000,000; or

‘‘(B) an amount equal to 20 percent of the total liabilities of the agent institution.

‘‘(2) DEFINITIONS.—In this subsection:

‘‘(A) AGENT INSTITUTION.—The term ‘agent institution’ means an insured depository institution

that places a covered deposit through a deposit placement network at other insured depository

institutions in amounts that are less than or equal to the standard maximum deposit insurance amount,

specifying the interest rate to be paid for such amounts, if the insured depository institution—

‘‘(i)(I) when most recently examined under section 10(d) was found to have a composite

condition of outstanding or good; and

‘‘(II) is well capitalized;

‘‘(ii) has obtained a waiver pursuant to subsection (c); or

‘‘(iii) does not receive an amount of reciprocal deposits that causes the total amount of

reciprocal deposits held by the agent institution to be greater than the average of the total amount

of reciprocal deposits held by the agent institution on the last day of each of the 4 calendar

quarters preceding the calendar quarter in which the agent institution was found not to have a

composite condition of outstanding or good or was determined to be not well capitalized.

‘‘(B) COVERED DEPOSIT.—The term ‘covered deposit’ means a deposit that—

‘‘(i) is submitted for placement through a deposit placement network by an agent institution;

and

lendar

quarters preceding the calendar quarter in which the agent institution was found not to have a

composite condition of outstanding or good or was determined to be not well capitalized.

‘‘(B) COVERED DEPOSIT.—The term ‘covered deposit’ means a deposit that—

‘‘(i) is submitted for placement through a deposit placement network by an agent institution;

and

SUPPLEMENTAL INSTRUCTIONS – SEPTEMBER 2018

16

‘‘(ii) does not consist of funds that were obtained for the agent institution, directly or indirectly,

by or through a deposit broker before submission for placement through a deposit placement

network.

‘‘(C) DEPOSIT PLACEMENT NETWORK.—The term ‘deposit placement network’ means a

network in which an insured depository institution participates, together with other insured depository

institutions, for the processing and receipt of reciprocal deposits.

‘‘(D) NETWORK MEMBER BANK.—The term ‘network member bank’ means an insured

depository institution that is a member of a deposit placement network.

‘‘(E) RECIPROCAL DEPOSITS.—The term ‘reciprocal deposits’ means deposits received by an

agent institution through a deposit placement network with the same maturity (if any) and in the same

aggregate amount as covered deposits placed by the agent institution in other network member

banks.

‘‘(F) WELL CAPITALIZED.—The term ‘well capitalized’ has the meaning given the term in section

38(b)(1).’’.

The term ‘reciprocal deposits’ means deposits received by an

agent institution through a deposit placement network with the same maturity (if any) and in the same

aggregate amount as covered deposits placed by the agent institution in other network member

banks.

‘‘(F) WELL CAPITALIZED.—The term ‘well capitalized’ has the meaning given the term in section

38(b)(1).’’.

(b) INTEREST RATE RESTRICTION.—Section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f)

is amended by striking subsection (e) and inserting the following:

‘‘(e) RESTRICTION ON INTEREST RATE PAID.—

‘‘(1) DEFINITIONS.—In this subsection—

‘‘(A) the terms ‘agent institution’, ‘reciprocal deposits’, and ‘well capitalized’ have the meanings

given those terms in subsection (i); and

‘‘(B) the term ‘covered insured depository institution’ means an insured depository institution that—

‘‘(i) under subsection (c) or (d), accepts funds obtained, directly or indirectly, by or through a

deposit broker; or

‘‘(ii) while acting as an agent institution under subsection (i), accepts reciprocal deposits while

not well capitalized.

‘‘(2) PROHIBITION.—A covered insured depository institution may not pay a rate of interest on funds

or reciprocal deposits described in paragraph (1) that, at the time that the funds or reciprocal deposits are

accepted, significantly exceeds the limit set forth in paragraph (3)

an agent institution under subsection (i), accepts reciprocal deposits while

not well capitalized.

‘‘(2) PROHIBITION.—A covered insured depository institution may not pay a rate of interest on funds

or reciprocal deposits described in paragraph (1) that, at the time that the funds or reciprocal deposits are

accepted, significantly exceeds the limit set forth in paragraph (3).

‘‘(3) LIMIT ON INTEREST RATES.—The limit on the rate of interest referred to in paragraph (2) shall

be—

‘‘(A) the rate paid on deposits of similar maturity in the normal market area of the covered insured

depository institution for deposits accepted in the normal market area of the covered insured

depository institution; or

‘‘(B) the national rate paid on deposits of comparable maturity, as established by the Corporation,

for deposits accepted outside the normal market area of the covered insured depository institution.’’.