OFFICE OF THE COMPTROLLER OF THE CURRENCY FEDERAL DEPOSIT INSURANCE CORPORATION BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM March 11, 1993 TO: The Chief Executive Officers and Chief Financial Officers of all insured commercial banks and FDIC-supervised savings banks PURPOSE The purpose of this issuance is to alert insured commercial banks and FDIC-supervised savings banks to a change in the reporting for certain past due and nonaccrual loans and leases which are federally guaranteed. BACKGROUND A bank's level of past due and nonaccrual loans and leases continues to be used by bank analysts in evaluating a bank's financial condition. Past due and nonaccrual loans and leases are reported in Schedule RC-N of the Call Report. Prior to the change described below, the Instructions to the Call Report have provided for past due and nonaccrual loans whose repayment is guaranteed by the U.S. Government or its agencies to be reported in the same manner as loans which are not guaranteed. Consequently, users of this information have not had sufficient information to determine the amount of past due and nonaccrual loans which are covered by federal guarantees. The banking industry has long been concerned about the appropriate reporting of nonaccrual loans. OCC Banking Bulletin 91-5, issued in January 1991, encouraged national banks to consider providing additional detail in their public disclosures about nonaccrual loans. The federal banking and thrift agencies reiterated the importance of disclosing additional information on nonaccrual loans in their Joint Policy Statement clarifying certain regulatory and accounting policies issued in March 1991. Some banks have provided this additional information in their annual reports. However, some analysts and other users obtain information about a bank's levels of past due and nonaccrual assets by relying upon the information in Schedule RC-N and may not consider additional information about the character of nonaccrual loans included in a bank's annual report, if one is available. CALL REPORT CHANGE Schedule RC-N is being revised to allow examiners and other users to readily determine the amount of past due and nonaccrual loans and leases which are covered and not covered by federal guarantees. Beginning with the March 31, 1993, Call Report, the "Total" line will be eliminated from RC-N. In addition, two items will be added to capture the total amount of past due and nonaccrual loans and leases that are wholly or partially guaranteed by the U.S. Government, its agencies or its government-sponsored agencies, and the guaranteed portion of these loans and leases. Loans and leases subject to these guarantees will continue to be reflected in RC-N by type of credit extension (items 1 through 8 on the FFIEC 031 and 032 versions of the report forms; items 1 through 5 on the FFIEC 033 and 034 report forms), while also being reported separately in the additional items described above. Consequently, the amount of past due and nonaccrual loans and leases not covered by federal guarantees can be determined by subtracting the guaranteed portion from the total of items 1 through 8 on the FFIEC 031 and 032 report forms and items 1 through 5 on the FFIEC 033 and 034 report forms. As a result, users of Schedule RC-N will obtain more accurate information about the risk inherent in the bank's loan portfolio. Only loans and leases guaranteed by the U.S. Government, its agencies and its government-sponsored agencies are considered in the additional disclosure in the revised Schedule RC-N. Examples include loans guaranteed by the FDIC (through loss-sharing arrangements in FDIC-assisted transactions), the Small Business Administration, the Federal Housing Administration, and certain Commodity Credit Corporation programs. Loans and leases guaranteed by state or local governments, state or local government agencies, foreign (non-U.S.) governments, and private agencies or organizations should be excluded. Also excluded are loans and leases collateralized by securities issued by the U.S. Government or a U.S. Government agency. Copies of the revised Schedule RC-N (for the FFIEC 031 and 034 report forms) and the change in the related instructions are attached for illustrative purposes. Questions concerning this issuance should be directed to the Office of the Chief Accountant, Office of the Chief National Bank Examiner, OCC, at (202) 874-5180; the Accounting Section, Division of Supervision, FDIC, at (202) 898-8914; or the Regulatory Reporting and Accounting Issues Section, Board of Governors of the Federal Reserve System, at (202) 452-2741. Susan F. Krause Stanley J. Poling Richard Spillenkothen Senior Deputy Director, Division Director, Division of Comptroller for of Supervision, Banking Supervision, Bank Supervision Federal Deposit Board of Governors of Policy, Insurance the Federal Reserve Office of the Corporation System Comptroller of the Currency Attachments FFIEC 031 -- Page RC-18 -- Schedule RC-N -- Past Due and Nonaccrual Loans, Leases, and Other Assets FFIEC 031 -- Page RC-19 -- Schedule RC-N -- Continued FFIEC 034 -- Page RC-15 -- Schedule RC-N -- Past Due and Nonaccrual Loans,1 Leases, and Other Assets SCHEDULE RC-N -- PAST DUE AND NONACCRUAL LOANS, LEASES, AND OTHER ASSETS Item Instructions Item 7 on the FFIEC 033 and 034 Loans and leases reported in items 1 through 5 above which are wholly or partially guaranteed by the U.S. Government. Item 10 on the FFIEC 031 and 032, Loans and leases reported in items 1 through 8 above which are wholly or partially guaranteed by the U.S. Government. Report the aggregate book value of all loans and leases reported in items 1 through 5 on the FFIEC 033 and 034 and in items 1 through 8 on the FFIEC 031 and 032 for which repayment of principal is wholly or partially guaranteed by the U.S. Government, including its agencies and its government-sponsored agencies. Examples include loans guaranteed by the FDIC (through loss-sharing arrangements in FDIC-assisted acquisitions), the Small Business Administration, and the Federal Housing Administration. Amounts need not be reported in this item if they are considered immaterial. Exclude from this item loans and leases guaranteed by state or local governments, state or local government agencies, foreign (non-U.S.) governments, and private agencies or organizations. Also exclude loans and leases collateralized by securities issued by the U.S. Government, including its agencies and its government-sponsored agencies. Item 7.a on the FFIEC 033 and 034, Guaranteed portion of loans and leases included in item 7 above. Item 10.a on the FFIEC 031 and 032, Guaranteed portion of loans and leases included in item 10 above. Report the maximum amount recoverable from the U.S. Government, including its agencies and its government-sponsored agencies, under the guarantee provisions applicable to the loans and leases included in item 7 above on the FFIEC 033 and 034 and in item 10 above on the FFIEC 031 and 032. 1 See instructions for loan classifications used in this schedule.