Consolidated Reports of Condition and Income for Fourth Quarter 2019

1

FFIEC

Federal Financial Institutions Examination Council

Arlington, VA 22226

CALL REPORT DATE: December 31, 2019

FOURTH 2019 CALL, NUMBER 290

SUPPLEMENTAL INSTRUCTIONS

December 2019 Call Report Materials

There are no new Call Report data items in the FFIEC 031, FFIEC 041, or FFIEC 051 Call Report forms

this quarter. One new topic has been added to the Supplemental Instructions for December 2019, “Technical

Amendments to the Banking Agencies’ Regulatory Capital Rule,” which includes information on an

instructional clarification that revises the calculation applicable to an item in Schedule RC-R, Part I.

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 December 2019 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 December 2019 also 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 December 2019 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

e for preparing the Call Report at your

institution has been notified about the electronic availability of the December 2019 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 December 31, 2019, 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; SHAZAM Core Services; Vermeg (formerly Lombard Risk); 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.

Technical Amendments to the Banking Agencies’ Regulatory Capital Rule

The banking agencies’ capital simplifications final rule, which was published July 22, 2019, included technical

amendments to the agencies’ regulatory capital rule (for national banks and federal savings associations,

12 CFR Part 3; for state member banks, 12 CFR Part 217; and for state nonmember banks and state savings

associations, 12 CFR Part 324). These amendments took effect October 1, 2019, and made certain technical

corrections and clarifications to the capital rule.

The final rule clarifies the definition of “eligible retained income,” which is reported in Schedule RC-R, Part I,

item 47, if the amount of the capital conservation buffer reported in Schedule RC-R, Part I, item 46 on the

tate savings

associations, 12 CFR Part 324). These amendments took effect October 1, 2019, and made certain technical

corrections and clarifications to the capital rule.

The final rule clarifies the definition of “eligible retained income,” which is reported in Schedule RC-R, Part I,

item 47, if the amount of the capital conservation buffer reported in Schedule RC-R, Part I, item 46 on the

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

2

FFIEC 051, item 46.a on the FFIEC 031 and the FFIEC 041, in general, is less than or equal to the required

minimum capital conservation buffer of 2.5000 percent. The Call Report instruction book updates for this

quarter include clarified instructions for item 47 that result in a revision of the calendar quarters upon which

the eligible retained income to be reported in item 47 should be based. The clarified instructions state, for

example, that the amount of eligible retained income an institution would report in item 47 for the

December 31, 2019, report date should be based on the net income attributable to the institution for the four

calendar quarters ending on December 31, 2019.

In addition, the final rule adds the European Stability Mechanism and the European Financial Stability Facility

to the list of entities for which exposures to, and the portions of exposures guaranteed by, the entity receive a

zero percent risk weight. This risk weight applies to the reporting of such exposures for the December 31,

2019, report date. The “Summary of Risk Weights for Exposures to Government and Public Sector Entities” in

the General Instructions for Schedule RC-R, Part II, will be updated to reflect this addition at a future date.

Small Bank Assessment Credits

As of September 30, 2018, the Deposit Insurance Fund (DIF) reserve ratio, the balance of the DIF as a

percentage of estimated insured deposits, reached 1.36 percent, exceeding the statutorily required minimum

reserve ratio of 1.35 percent

ies” in

the General Instructions for Schedule RC-R, Part II, will be updated to reflect this addition at a future date.

Small Bank Assessment Credits

As of September 30, 2018, the Deposit Insurance Fund (DIF) reserve ratio, the balance of the DIF as a

percentage of estimated insured deposits, reached 1.36 percent, exceeding the statutorily required minimum

reserve ratio of 1.35 percent. Under FDIC regulations issued pursuant to the Dodd-Frank Wall Street Reform

and Consumer Protection Act, all insured depository institutions that were assessed as small institutions

(generally, those with total consolidated assets of less than $10 billion) at any time during the period from

July 1, 2016, through September 30, 2018, were awarded assessment credits (“small bank assessment

credits”) for the portion of their assessments that contributed to the growth in the reserve ratio from the former

minimum of 1.15 percent to 1.35 percent. The FDIC notified all such eligible institutions of their respective

assessment credit amounts in January 2019.

As amended November 27, 2019, FDIC regulations further provide that, effective as of July 1, 2019, the FDIC

will automatically apply small bank assessment credits up to the full amount of an institution’s credits or its

quarterly deposit insurance assessment, whichever is less, starting in the first quarterly assessment period in

which the DIF reserve ratio is at least 1.38 percent and in each of the next three assessment periods

thereafter in which this ratio is at least 1.35 percent. After assessment credits have been applied for four

quarterly assessment periods, the FDIC will remit the full nominal value of an institution’s remaining

assessment credits, if any, in a single lump-sum payment to the institution in the next assessment period in

which the DIF reserve ratio is at least 1.35 percent

ee assessment periods

thereafter in which this ratio is at least 1.35 percent. After assessment credits have been applied for four

quarterly assessment periods, the FDIC will remit the full nominal value of an institution’s remaining

assessment credits, if any, in a single lump-sum payment to the institution in the next assessment period in

which the DIF reserve ratio is at least 1.35 percent. The amended FDIC regulations are expected to result in

more stable and predictable application of credits to quarterly assessments, permitting insured depository

institutions to better budget for their assessment cash flow.

With the DIF reserve ratio reaching 1.40 percent as of June 30, 2019, the FDIC first applied small bank

assessment credits to offset institutions’ second quarter 2019 deposit insurance assessments, which were due

September 30, 2019. The reserve ratio increased to 1.41 percent as of September 30, 2019. Therefore, the

FDIC automatically applied small bank assessment credits to offset institutions’ third quarter 2019 deposit

insurance assessments, which were due December 30, 2019. When an institution that was awarded small

bank assessment credits prepares its Call Report for December 31, 2019, it should offset (i.e., reduce) its

deposit insurance assessment expense accruals for the second and third quarters of 2019 by the amount of

assessment credits the FDIC applied against its deposit insurance assessments for these two quarters.

Furthermore, consistent with the FDIC’s amended assessment regulations governing the use of small bank

assessment credits and considering the level and trend of the DIF reserve ratio, an institution awarded small

bank assessment credits also may offset (i.e., reduce) the deposit insurance assessment expense it has

accrued for the fourth quarter of 2019 by the remaining amount of its assessment credits or its assessment

expense for the quarter, whichever is less, when it prepares its December 31, 2019, Call Report

and considering the level and trend of the DIF reserve ratio, an institution awarded small

bank assessment credits also may offset (i.e., reduce) the deposit insurance assessment expense it has

accrued for the fourth quarter of 2019 by the remaining amount of its assessment credits or its assessment

expense for the quarter, whichever is less, when it prepares its December 31, 2019, Call Report. Thus, the

institution would include the amount of deposit insurance assessment expense accrued for the four quarters of

2019, net of the assessment credits applied or to be applied for the second, third, and fourth quarters of 2019,

in Schedule RI, item 7.d, and, if applicable, Schedule RI-E, item 2.g, of the Call Report for December 31, 2019.

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 governing the

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

3

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 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

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, such as the final rule on the regulatory capital treatment for HVCRE exposures

published on December 13, 2019, and effective on April 1, 2020. However, institutions will not be required to

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

adjusted, and institutions are not required to incorporate information contained in the final rule into their

reporting and risk weighting of HVCRE exposures until report dates after the April 1, 2020, effective date of the

final rule.

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 June 30, 2020, report date when

the agencies’ final rule amending their regulatory capital rule revising the definition of an HVCRE exposure to

conform to the statutory definition of an “HVCRE ADC loan” takes effect for reporting purposes. For more

detail, see the agencies’ final rule published on December 13, 2019

with the current Call Report instructions for Schedule RC-R, Part II, until the June 30, 2020, report date when

the agencies’ final rule amending their regulatory capital rule revising the definition of an HVCRE exposure to

conform to the statutory definition of an “HVCRE ADC loan” takes effect for reporting purposes. For more

detail, see the agencies’ final rule published on December 13, 2019.

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

these Supplemental Instructions for your reference.

Goodwill Impairment Testing

In January 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-04, “Simplifying the Test for

Goodwill Impairment,” to address concerns over the cost and complexity of the two-step goodwill impairment

test in Accounting Standards Codification (ASC) Subtopic 350-20, Intangibles‒Goodwill and Other ‒ Goodwill,

that applies to an entity that has not elected the private company alternative for goodwill (which is discussed in

the Glossary entry for “Goodwill” in the Call Report instructions). Thus, the ASU simplifies the subsequent

measurement of goodwill by eliminating the second step from the test, which involves the computation of the

implied fair value of a reporting unit’s goodwill. Instead, under the ASU, when an entity tests goodwill for

impairment, which must take place at least annually, the entity should compare the fair value of a reporting unit

with its carrying amount. In general, the entity should recognize an impairment charge for the amount, if any,

by which the reporting unit’s carrying amount exceeds its fair value. However, the loss recognized should not

exceed the total amount of goodwill allocated to that reporting unit. This one-step approach to assessing

goodwill impairment applies to all reporting units, including those with a zero or negative carrying amount

he entity should recognize an impairment charge for the amount, if any,

by which the reporting unit’s carrying amount exceeds its fair value. However, the loss recognized should not

exceed the total amount of goodwill allocated to that reporting unit. This one-step approach to assessing

goodwill impairment applies to all reporting units, including those with a zero or negative carrying amount.

An entity retains the option to perform the qualitative assessment for a reporting unit described in ASC

Subtopic 350-20 to determine whether it is necessary to perform the quantitative goodwill impairment test.

For an institution that is a public business entity and is also a U.S. Securities and Exchange Commission

(SEC) filer, as both terms are defined in U.S. generally accepted accounting principles (GAAP), the ASU is

effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. For a public

business entity that is not an SEC filer, the ASU is effective for goodwill impairment tests in fiscal years

beginning after December 15, 2020. For all other institutions, the ASU is effective for goodwill impairment

tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for goodwill impairment

tests performed on testing dates after January 1, 2017. For Call Report purposes, an institution should apply

the provisions of ASU 2017-04 to goodwill impairment tests on a prospective basis in accordance with the

applicable effective date of the ASU. An institution that early adopts ASU 2017-04 for U.S. GAAP financial

reporting purposes should early adopt the ASU in the same period for Call Report purposes.

For additional information, institutions should refer to ASU 2017-04, which is available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168778106&acceptedDisclaimer=true.

the

applicable effective date of the ASU. An institution that early adopts ASU 2017-04 for U.S. GAAP financial

reporting purposes should early adopt the ASU in the same period for Call Report purposes.

For additional information, institutions should refer to ASU 2017-04, which is available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168778106&acceptedDisclaimer=true.

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

4

Accounting and Reporting Implications of the Tax Cuts and Jobs Act

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 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. 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. 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

years. 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. 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

ginning 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.

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

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

5

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 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, 2018, and interim periods beginning after December 15,

2019

her compensation costs arising during the reporting period.

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

owances 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.

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

investment and held-to-maturity debt securities, as well as trade receivables, reinsurance recoverables, and

receivables that relate to repurchase agreements and securities lending agreements), a lessor’s net

investments in leases, 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.

On November 15, 2019, the FASB issued ASU No. 2019-10 to defer the effective dates of ASU 2016-13 for

certain institutions. Under this ASU, for institutions that are U.S

ll 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.

On November 15, 2019, the FASB issued ASU No. 2019-10 to defer the effective dates of ASU 2016-13 for

certain institutions. Under this ASU, for institutions that are U.S. Securities and Exchange Commission (SEC)

filers, excluding those that are “smaller reporting companies” as defined in the SEC’s rules, ASU 2016-13

continues to be effective for fiscal years beginning after December 15, 2019, including interim periods within

those fiscal years, i.e., January 1, 2020, for such entities with calendar year fiscal years. For all other entities,

including those SEC filers that are smaller reporting companies, ASU 2016-13 now will take effect for fiscal

years beginning after December 15, 2022, including interim periods within those fiscal years, i.e., January 1,

2023, for such entities with calendar year fiscal years. For all institutions, early application of the new credit

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

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 amended in November 2019. 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.

The agencies revised several Call Report schedules as of the March 31, 2019, report date in response to the

revised accounting for credit losses under ASU 2016-13 (see FIL-10-2019, dated March 6, 2019). The

in November 2019. 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.

The agencies revised several Call Report schedules as of the March 31, 2019, report date in response to the

revised accounting for credit losses under ASU 2016-13 (see FIL-10-2019, dated March 6, 2019). The

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

6

Call Report revisions also included reporting changes to Call Report Schedule RC-R, Regulatory Capital, to

align the schedule with the agencies’ final rule that amends their regulatory capital rule for the implementation

of and capital transition for CECL. This final capital rule for CECL was published on February 14, 2019.

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 April 3,

2019; 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.

Since the issuance of ASU 2016-13, the FASB has published the following amendments to the new credit

losses accounting standard:

•

ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” available

at https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176171644373&acceptedDisclaimer=true;

•

ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815,

Derivatives and Hedging, and Topic 825, Financial Instruments,” available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172541591&acceptedDisclaimer=true;

•

ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief,” available

at https://www.fasb.org/jsp/FASB/Document_C/D

ments to Topic 326, Financial Instruments—Credit Losses, Topic 815,

Derivatives and Hedging, and Topic 825, Financial Instruments,” available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172541591&acceptedDisclaimer=true;

•

ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief,” available

at https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172668879&acceptedDisclaimer=true;

•

ASU 2019-10, “Financial Instruments‒Credit Losses (Topic 326), Derivatives and Hedging (Topic 815),

and Leases (Topic 842): Effective Dates,” available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176173775344&acceptedDisclaimer=true;

and

•

ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” available

at https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176173831330&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, ASU 2017-12 is currently in

effect. For institutions that are not public business entities (i.e., that are private companies), the FASB issued

ASU 2019-10 on November 15, 2019, to defer the effective date of ASU 2017-12 by one year. As amended

by ASU 2019-10, ASU 2017-12 will take effect for entities that are not public business entities for fiscal years

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

2021

ic business entities (i.e., that are private companies), the FASB issued

ASU 2019-10 on November 15, 2019, to defer the effective date of ASU 2017-12 by one year. As amended

by ASU 2019-10, ASU 2017-12 will take effect for entities that are not public business entities for fiscal years

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

2021.

Early application of ASU 2017-12 is permitted for all institutions in any interim period or fiscal year before the

effective date of the ASU. Further, ASU 2017-12 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 ASU 2017-12 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;

and ASU 2019-10, “Financial Instruments‒Credit Losses (Topic 326), Derivatives and Hedging (Topic 815),

he 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;

and ASU 2019-10, “Financial Instruments‒Credit Losses (Topic 326), Derivatives and Hedging (Topic 815),

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

7

and Leases (Topic 842): Effective Dates,” which is available at

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176173775344&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 currently in

effect. 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 described in the ASU. Institutions must

apply ASU 2016-01 for Call Report purposes in accordance with the effective dates set forth in the ASU.

Institutions with a calendar year fiscal year that are not public business entities (and did not early adopt ASU

2016-01) must first report their investments in equity securities in accordance with the ASU in the Call Report

for December 31, 2019.

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). For an

institution with a calendar year fiscal year that is not a public business entity (and did not early adopt ASU

2016-01), the adoption date is January 1, 2019. 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 previous

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.

An institution with a calendar year fiscal year that is not a public business entity, did not early adopt ASU

2016-01, and must first report its investments in equity securities in accordance with the ASU in the Call

Report for December 31, 2019, should report the fair value of its equity securities with readily determinable

fair values not held for trading in Schedule RC, item 2.c, and leave Schedule RC-B, item 7, columns C and D,

blank. If the institution is an insured state bank that has received FDIC approval in accordance with

Section 362.3(a) of the FDIC’s regulations to hold certain equity investments (“grandfathered equity

securities”), it also must report the cost basis of all equity securities with readily determinable fair values not

held for trading (that are reported in Schedule RC, item 2.c) in Schedule RC-M, item 4. Otherwise, the

institution should leave Schedule RC-M, item 4, blank

al in accordance with

Section 362.3(a) of the FDIC’s regulations to hold certain equity investments (“grandfathered equity

securities”), it also must report the cost basis of all equity securities with readily determinable fair values not

held for trading (that are reported in Schedule RC, item 2.c) in Schedule RC-M, item 4. Otherwise, the

institution should leave Schedule RC-M, item 4, blank. The institution should continue to report its equity

securities and other equity investments without readily determinable fair values not held for trading in

Schedule RC-F, item 4, or in Schedule RC, item 9, “Direct and indirect investments in real estate venture,” as

applicable. In addition, the institution should report the following in Schedule RI, item 8.b, “Unrealized holding

gains (losses) on equity securities not held for trading,” in its year-end 2019 Call Report:

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

8

•

Unrealized holding gains (losses) before applicable income taxes, if any, during the January 1 through

December 31, 2019, reporting period on equity securities with readily determinable fair values not held for

trading. Because these equity securities were previously reported as available-for-sale equity securities in

the Call Report, the year-to-date unrealized holding gains (losses) on these securities, net of applicable

income taxes, if any, were reported in Schedule RI-A, item 10, “Other comprehensive income,” in the

Call Report for September 30, 2019. No unrealized holding gains (losses) on available-for-sale equity

securities should be reported in Schedule RI-A, item 10, in the Call Report for December 31, 2019.

•

Unrealized holding gains (losses) during the January 1 through December 31, 2019, reporting period on

equity securities and other equity investments without readily determinable fair values not held for trading

that are measured at fair value through earnings

s) on available-for-sale equity

securities should be reported in Schedule RI-A, item 10, in the Call Report for December 31, 2019.

•

Unrealized holding gains (losses) during the January 1 through December 31, 2019, reporting period on

equity securities and other equity investments without readily determinable fair values not held for trading

that are measured at fair value through earnings. Also include in Schedule RI, item 8.b, impairment, if

any, plus or minus changes resulting from observable price changes during the January 1 through

December 31, 2019, reporting period on equity securities and other equity investments without readily

determinable fair values not held for trading for which this measurement election is made. Year-to-date

other-than temporary impairment losses on equity securities and other equity investments without readily

determinable fair values not held for trading (including those reported in Schedule RC, item 9) that were

reported in Schedule RI, item 5.k, in the Call Report for September 30, 2019, should be excluded from

item 5.k in the Call Report for December 31, 2019, when the valuation changes on such equities during

2019 described in the two preceding sentences must be reported in Schedule RI, item 8.b.

•

Realized gains (losses) on equity securities and other equity investments not held for trading during the

January 1 through December 31, 2019, reporting period. Year-to-date realized gains (losses) on such

equities (including those reported in Schedule RC, item 9) that were reported in Schedule RI, items 6.b

and 5.k, as applicable, in the Call Report for September 30, 2019, should be excluded from these items

and included in the amount reported in Schedule RI, item 8.b, in the Call Report for December 31, 2019.

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

and 5.k, as applicable, in the Call Report for September 30, 2019, should be excluded from these items

and included in the amount reported in Schedule RI, item 8.b, in the Call Report for December 31, 2019.

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.

Institutions may also refer to the Glossary entry for “Securities Activities” in the Call Report instruction books,

which was updated in September 2019 in response to the changes in the accounting for investments in equity

securities summarized above.

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. 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)

easured 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.

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

cal 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

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

9

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.

A similar approach would apply to an institution with a calendar year fiscal year that is not a public business

entity, did not early adopt the own credit risk provisions of ASU 2016-01, and must first report the changes in

the instrument-specific credit risk of fair value option liabilities in accordance with the ASU in the Call Report

for December 31, 2019. Such an institution should reclassify any year-to-date unrealized gains and losses

due to changes in own credit risk and the related tax effects that were included in Schedule RI, item 5.l, “Other

noninterest income,” and Schedule RI, item 9, “Applicable income taxes,” respectively, in the September 30,

2019, Call Report to Schedule RI-A, item 10, “Other comprehensive income,” in the Call Report for

December 31, 2019

ld reclassify any year-to-date unrealized gains and losses

due to changes in own credit risk and the related tax effects that were included in Schedule RI, item 5.l, “Other

noninterest income,” and Schedule RI, item 9, “Applicable income taxes,” respectively, in the September 30,

2019, Call Report to Schedule RI-A, item 10, “Other comprehensive income,” in the Call Report for

December 31, 2019. The institution also must include the changes during the fourth quarter of 2019 in the

instrument-specific credit risk of fair value option liabilities, net of applicable income taxes, in the amount of

OCI reported in Schedule RI-A, item 10, as of December 31, 2019.

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. 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.

In addition, the instructions for certain data items in Schedules RI, RI-A, and RC were updated in the

Call Report instruction books in September 2019 in response to the change in accounting for own credit

risk on fair value option liabilities.

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

s in Schedules RI, RI-A, and RC were updated in the

Call Report instruction books in September 2019 in response to the change in accounting for own credit

risk on fair value option liabilities.

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

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 was included in the Call Report instruction book updates for September 2018.

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

effect. 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

September 2018.

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

effect. 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 as described in the

standard. Institutions that are private companies with a calendar year fiscal year (that did not early adopt the

new standard) must first report revenue in accordance with the standard in the Call Report for December 31,

2019.

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.

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

10

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 first adopted for Call Report purposes (i.e., as of January 1, 2019, for an institution that is a private

company with a calendar year fiscal year that did not early adopt the new standard)

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 first adopted for Call Report purposes (i.e., as of January 1, 2019, for an institution that is a private

company with a calendar year fiscal year that did not early adopt the new standard). In its Call Report for

December 31, 2019, an institution that is a private company with a calendar year fiscal year that did not early

adopt the new standard should report revenue for the entire calendar year (January 1 through December 31,

2019) in accordance with this new standard even though the year-to-date revenue it reported in its Call Report

for September 30, 2019, was recognized in accordance with previous U.S. GAAP. The cumulative-effect

adjustment to retained earnings for this change in accounting principle as of January 1, 2019, should be

reported in Schedule RI-A, item 2, of the December 31, 2019, Call Report.

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

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.

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

cognize 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. 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

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

tinuing 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

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

11

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 first adopted for Call Report purposes (i.e., as of

January 1, 2019, for an institution that is a private company with a calendar year fiscal year that did not early

adopt the new standard). In its Call Report for December 31, 2019, an institution that is a private company

with a calendar year fiscal year that did not early adopt the new standard should recognize and report revenue

(gains and losses) on OREO transfers accounted for as sales in accordance with the new standard over the

entire calendar year (January 1 through December 31, 2019) even though the year-to-date revenue on OREO

transfers it reported in its Call Report for September 30, 2019, was recognized in accordance with previous

U.S. GAAP. The cumulative-effect adjustment to retained earnings for this change in accounting principle as

of January 1, 2019, should be reported in Schedule RI-A, item 2, of the December 31, 2019, Call Report.

Accounting for Leases

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

effective, this guidance, as amended by certain subsequent ASUs, supersedes ASC Topic 840, Leases

nt to retained earnings for this change in accounting principle as

of January 1, 2019, should be reported in Schedule RI-A, item 2, of the December 31, 2019, Call Report.

Accounting for Leases

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

effective, this guidance, as amended by certain subsequent ASUs, 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. 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

dard 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.

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

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

12

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 currently in

effect

s 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 currently in

effect. For institutions that are not public business entities, the FASB issued ASU 2019-10 on November 15,

2019, to defer the effective date of ASU 2016-02 by one year. As amended by ASU 2019-10, ASU 2016-02

will take effect for entities that are not public business entities for fiscal years beginning after December 15,

2020, and interim reporting periods within fiscal years beginning after December 15, 2021. 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.

Under ASU 2016-02, an institution must apply the new leases standard on a modified retrospective basis for

financial reporting purposes. Under the modified retrospective method, an institution should apply the leases

standard and the related cumulative-effect adjustments to affected accounts existing as of the beginning of the

earliest period presented in the financial statements

ort date.

Under ASU 2016-02, an institution must apply the new leases standard on a modified retrospective basis for

financial reporting purposes. Under the modified retrospective method, an institution should apply the leases

standard and the related cumulative-effect adjustments to affected accounts existing as of the beginning of the

earliest period presented in the financial statements. However, as explained in the “Changes in accounting

principles” section of the Glossary entry for “Accounting Changes” in the Call Report instructions, when a new

accounting standard (such as the leases standard) requires the use of a retrospective application method,

institutions should instead report the cumulative effect of adopting the new standard on the amount of retained

earnings at the beginning of the year in which the new standard is first adopted for Call Report purposes (net

of applicable income taxes, if any) as a direct adjustment to equity capital in the Call Report. For the adoption

of the new leases standard, the cumulative-effect adjustment to bank equity capital for this change in

accounting principle should be reported in Schedule RI-A, item 2, and disclosed in Schedule RI-E, item 4.b,

“Effect of adoption of lease accounting standard - ASC Topic 842.” In July 2018, the FASB issued

ASU 2018-11, “Targeted Improvements,” which provides an additional and “optional transition method” for

comparative reporting purposes at adoption of the new leases standard. Under this optional transition method,

an institution initially applies the new leases standard at the adoption date (e.g., January 1, 2019, for a public

business entity with a calendar year fiscal year) and, for Call Report purposes, the institution should recognize

and report a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption

consistent with the Glossary instructions described above

n institution initially applies the new leases standard at the adoption date (e.g., January 1, 2019, for a public

business entity with a calendar year fiscal year) and, for Call Report purposes, the institution should recognize

and report a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption

consistent with the Glossary instructions described above.

For Call Report purposes, all ROU assets for operating leases and finance leases, including ROU assets for

operating leases recorded upon adoption of ASU 2016-02, should be reflected in Schedule RC, item 6,

“Premises and fixed assets.”

The agencies have received questions from institutions concerning the reporting of lease liabilities for

operating leases by a bank lessee. These institutions indicated that reporting operating lease liabilities as

other liabilities instead of other borrowings would better align the reporting of the single noninterest expense

item for operating leases (required by the standard and discussed below) with their balance sheet

classification and would be consistent with how these institutions report these lease liabilities internally. On

October 4, 2019, the agencies requested public comment on this proposed change in reporting with a

proposed effective date of March 31, 2020. However, until this proposed change takes effect, the agencies

will permit institutions to report the lease liability for operating leases in either Schedule RC-G, item 4, “All

other liabilities,” or Schedule RC-M, item 5.b, “Other borrowings.” If an institution chooses the latter reporting

treatment, the amount of operating lease liabilities reported in Schedule RC-M, item 5.b, should also be

reported in Schedule RC-M, item 10.b, “Amount of ‘Other borrowings’ that are secured,” consistent with the

current Call Report instructions for reporting obligations under capital leases, and this amount should not be

reported in Schedule RC-O, item 7, as “Unsecured ‘Other borrowings’.” An instituti

, the amount of operating lease liabilities reported in Schedule RC-M, item 5.b, should also be

reported in Schedule RC-M, item 10.b, “Amount of ‘Other borrowings’ that are secured,” consistent with the

current Call Report instructions for reporting obligations under capital leases, and this amount should not be

reported in Schedule RC-O, item 7, as “Unsecured ‘Other borrowings’.” An institution may choose to amend

the reporting of operating lease liabilities in its Call Reports for previous report dates in 2019 consistent with

this supplemental instruction. The agencies do not plan to make any changes to the reporting for a lessee’s

finance leases, the lease liabilities for which should be reported in Schedule RC-M, items 5.b and 10.b.

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

13

Regardless of a lessee institution’s balance sheet treatment of operating lease liabilities, a lessee should

report a single lease cost for an operating lease in the Call Report income statement, calculated so that the

cost of the lease is allocated over the lease term on a generally straight-line basis, in Schedule RI, item 7.b,

“Expenses of premises and fixed assets.” For a finance lease, a lessee should report interest expense on the

lease liability separately from the amortization expense on the ROU asset. The interest expense should be

reported on Schedule RI in item 2.c, “Other interest expense,” on the FFIEC 051 and in item 2.c, “Interest on

trading liabilities and other borrowed money,” on the FFIEC 031 and the FFIEC 041. The amortization

expense should be reported on Schedule RI in item 7.b, “Expenses of premises and fixed assets.”

The agencies have also 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

e should be reported on Schedule RI in item 7.b, “Expenses of premises and fixed assets.”

The agencies have also 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

nsistent

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.

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 December 31, 2019, 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. 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

ucturings, 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)

•

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

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

SUPPLEMENTAL INSTRUCTIONS – DECEMBER 2019

14

•

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

SHAZAM Core Services

6700 Pioneer Parkway

Johnston, Iowa 50131

Telephone: (888) 262-3348

http://www.cardinal400.com

Vermeg

(formerly Lombard Risk)

205 Lexington Avenue,

14th floor

New York, New York 10016

Telephone: (212) 682-4930

http://www.vermeg.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 – DECEMBER 2019

15

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

15

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 – DECEMBER 2019

16

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.’’.