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federal R eser ve Ba n k DALLAS. TEXAS of Dallas 75222 Circular No. 69-181 July 23, 1969 To the President of Each State Member Bank in the Eleventh Federal Reserve District: Attached for your information and guidance is a copy of a letter from Vice Chairman J. L. Robertson of the Board of Governors of the Federal Reserve System to the President of each State member bank concerning revisions in the structure of bank statements of income to be included in stockholder reports submitted in accordance with the provisions of Regulation F of the Federal Reserve System. Yours very truly, P. E. Coldwell President Enclosure (l) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF G OVERNO RS OF TH E FEDERAL R ESER VE 5YSTEM W A S H I N G T O N , □ . C. 2 0 5 5 1 D F FIC E OF TH E V ICE CHAIRM AN July 18, 1969. TO THE PRESIDENT OF EACH STATE MEMBER BANK One of the principal supervisory goals in the continuing program to improve bank accounting practices has been the develop ment of reasonably uniform and informative bank financial reports. After extensive joint-agency staff discussions and a series of con sultations with representative committees of industry, professional accountants, and the staff of the Securities and Exchange Commission, the Federal bank supervisory agencies announce the following revisions to the structure of bank statements of income to be included in stock holder reports in accordance with Part 18 of the Comptroller of the Currency regulations, Regulation F of the Federal Reserve Board and Part 333 of the Federal Deposit Insurance Corporation regulations. 1. Recognition of a loan loss factor in the operating expenses of banks. Any provision for loan losses not allocable against current operations shall be charged directly to the undivided profits account, 2. Inclusion of results of investment security trans actions as realized in the report of income. 3. Designation of the last line in the statement of income as Mnet income." Regulatory instruction for the allocation of loan losses to operating expense will include: (a) Minimum charge equivalent to the five-year average ratio of losses computed on the basis of net charge-offs to total loans. (b) An added amount based on management's judgment shall be permitted. Adequate disclosure of such discretionary action to be furnished in a referenced footnote. (c) If the bank is on a charge-off basis of recog nizing loan losses, the amount of actual chargeoffs shall be reported against operating income. 0 -2- Conforming to established bank accounting practice and in accordance with generally accepted accounting principles, gains and losses on investment securities shall be reported following the com putation of operating income. Net security gains and losses shall be reflected in income in the period such results are realized and recorded in the accounts. To visualize the effect of the revisions discussed herein and to assist your staff in their study of the matter, there is enclosed an illustrative financial statement presentation. The above income report revisions shall be incorporated in published bank reports for the year 1969. The statement of con dition as revised in the supervisory call of April 1969, has not been changed. Amendments to applicable regulations including the Report of Income and Dividends, will be forthcoming within the next few months. Sincerely, ) / r / J. L. Robertson Enclosures Statement of Changes in Capital Accounts For the Year Ended December 31, 19__ Capital Stock Balance, January 1 Net income for the year Cash dividends declared--$2.00 per share Provision for losses on loans, exclusive of portion charged against income, less related income tax effect $10,000 Surplus $1,000,000 $1,250,000 Undivided Profits $507,000 406,000 ( 2 0 0 , 000 ) ( 1 0 , 000 ) $1,000,000 $1.250,000 $703,000 * * * * * * * * * * Reconcilement of Reserve for Loan Losses For the Year Ended December 31, 19__ Balance, January 1 Additions: Transferred from operating earnings Transferred from undivided profits Recoveries of charged-o ff loans $418,000 29,000 20,000 2,000 $469,000 Deductions: Loan charge-offs Balance, December 31 51,000 $418,000 Balance Sheet December 31, 19__ and 19 December 31 Preceding Year Current Year Assets $ 8,000,000 3,200,000 3,500,000 800,000 2,000,000 217.500 400.000 2,000,000 167.500 200,000 18,198,000 860,000 17,418,000 970.000 152.500 142.500 $32,598,000 $22,387,000 4,260,000 4,000,000 Total $ 9,000,000 $34,628,000 Cash and due from banks Investment Securities: U. S. Treasury securities Securities of other U.S. Government agencies and corporations Obligations of States and political subdivisions Other securities Trading account securities Federal funds sold and securities purchased under agreements to resell Other loans Bank premises and equipment Investments in subsidiaries not consolidated Accrued interest receivable and other assets $21,560,000 3,500,000 4,000,000 $30,647,000 $29,060,000 100,000 80,000 510,000 283,000 $31,257,000 $29,423,000 $ $ Liabilities Demand deposits Savings deposits Other time deposits Total deposits Federal funds purchased and securities sold under agreements to repurchase Other liabilities for borrowed money Mortgage indebtedness Other liabilities Total liabilities Reserves on Loans and Securities Reserve for possible loan losses 418,000 418,000 Capital Accounts Capital notes and debentures Equity capital: Capital stock (100,000 shares of $10 par value) Surplus Undivided Profits $ 1,000,000 1,250,000 507,000 $ 2,953,000 Total $ 1,000,000 1,250,000 703,000 $ 2.757,000 $34,628,000 $32,598,000 Statement of Income For the Years Ended December 31, 19__ and 19 Preceding Year Current Year Operating Income: Interest and fees on loans Income on Federal funds sold and securities purchased under agreements to resell Interest and dividends on investments: U.S. Treasury securities Securities of other U.S. Government agencies and corporations Obligations of States and political subdivisions Other securities Trust department income Service charges on deposit accounts Other service charges, collection and exchange charges, commissions, and fees Other operating income Total Operating Expenses: Salaries Pensions and other employee benefits Interest on deposits Expense of Federal funds purchased and securities sold under agreements to repurchase Interest on other borrowed money Interest on capital notes and debentures Net occupancy of bank premises Provision for losses on loans Other Total Income Before Income Taxes and Securities Gains (Losses) $ Earnings per common share: Income before securities gains (losses) Net income Comparative per share amount of securities gains (losses) may be included herein. 890,000 10,000 160,000 185,000 20,000 60,000 10,000 100,000 50,000 15.000 60.000 90.000 45.000 15,000 45,000 45,000 $1.460,000 $1,358,000 $ $ 220,000 15,000 465,000 8,000 10. 00 0 20 0,000 15.000 445,000 5,000 1 0. 000 5,000 10,000 55,000 29,000 56,000 52.000 15.000 65.000 $ 855,000 $ 807,000 $ 605,000 $ 551,000 236,000 262,000 $ Securities Gains (Losses), less related income tax effect of $21,000 and ($20,000) Net Income $ 20,000 Applicable Income Taxes Income Before Securities Gains (Losses) 980,000 343,000 $ 315,000 ( 2 0 , 000 ) 63,000 $_ 406,000 $ 295,000 $ $ 3.15 2.95 3.43 4.06
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