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F E D E R A L R E S E R V E B A N K O F D A LLA S DALLAS, TEXAS 75222 Circular No. 69-^1 F e b r u a r y 18, 1 9 69 To A l l S t a t e M e m b e r Banks in the El e v e n t h Federal Res e r v e District: En c l o s e d is a c o p y of "Announcement of R e v i s i o n of B a n k C o n d i t i on Reports and A n n u a l Reports of Income". The changes d e t a i l e d in the A n n o u n c e m e n t w i l l b e c o m e effective with t he first Report of C o n d i t i o n in Report of Income for 1969 and w i t h the a n n u a l 1969* The A n n o u n c e m e n t is e s s e n t i a l l y c omplete a nd selfexplanatory; however, d i r e ct e d to J. B a n k of Dallas, a n y questions t h at m a y arise m a y be 0. Russell, Dallas, C h i e f Examiner, F e d e r a l Reserve T e x as 75222. Yours very truly, P. E. Coldwell President En c l o s u r e (l) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) ANNOUNCEMENT OF BANK C O N D IT IO N ANNUAL R E V IS IO N REPORTS AND REPORTS OF IN C O M E A Report of the Federal B a n k S u p ervisory A g encies - Office of the Co m ptroller of the C u rrency - Federal Deposit Insurance Corpo r a t i o n - Federal Rese r v e Syst e m February 1969 OF SECTION I--INTRODUCTION The revisions reflected in the following summary report and the amended in sample copies of official Reports of C o n d ition and of Income are the final result of extensive and comprehensive r ev i e w of the proposals of the Fed e r a l banking agencies w h i c h w e r e o riginally circulated of last year. in A u gust R e v i sions in the proposals reflect discussions wi t h State b a n k supervisors and wi th b a n k i n g organizations. They also reflect comments from many other groups and from individual bankers r e p r e senting large and small State and national banks in all parts of the country. The changes d e tailed h e r e i n become effective w i t h the first Report of C o n d i t i o n in 1969 and w i t h the annual Report of Income for 1969. This general statement of requirements for the revised Reports is be i n g circulated n ow because preparations at some banks wi l l be needed to meet the n e w instructions w i t h respect to accounting standards. Mo r e d e tailed instr u c t i o n booklets w i l l be circulated to re p o rt i n g banks b y their respective b a n k supervisory agencies as soon as they becom e available. These detailed instructions, however, w i l l not attempt m e t h o d o l o g y w i t h respect to accou n t i ng practices. reasonableness, to prescribe specific W i t h i n the bounds of internal a c c o u n t i n g methods remain the province and r e s p o n sibility of individual banks. E s tablished channels m a t i o n w i t h supervisory authorities for exchange of in f o r should be used for c l a r i f i c a t i o n of specific questions. For the mo s t part the changes outlined in this report relate to accounting standards and to the content of the face of the Report of C o n dition and to the full Report of Income. However, a p p l i c a t i o n of ma n y of the accoun t in g standards will nece s s a r i l y affect schedules on the b a c k of the Repo rt of Condition. items in the detailed Changes in the content of some items in these schedules are no w under separate consideration. adopted If these w o u l d become effective w i t h the June 1969 Report of Condition-- the first date for w h i c h the detailed schedules will be required. Some bro a d e r changes not related to the content of the Reports or to accou n t i n g standards also have b e e n adopted. The dates for required transmittal of the Report forms to the supervisory agencies have be e n changed and made u n i f o r m as b e t w e e n agencies. The R e port of Income is to be forwarded w i t h i n 30 days of the end of the report year. date The submission for Reports of C o n d i t i o n has n o w been ma d e u n i f o r m among the three b a n k s u p ervisory agencies. The domestic offices Reports are to be forwarded to the appropriate b a n k supervisory agencies w i t h i n 10 calendar days following public announcement of the call date. Some changes in p u b l i c a t i o n procedures for q u a rterly Reports of C o n d i t i o n have b e e n made to permit flexibility at "surprise" spring and fall call dates by allowing optional variations from the form used at m i d y e a r and year-end call dates and to preclude disclo s u r e of deposits held by a single foreign branch or other office. The first revised Report of Income wi l l report include a supplemental form for r e c o n c i l i a t i o n of accounts for w h i c h special o ne-time a d justments have be e n m a d e to c o n f o r m to the n e w accou n t i n g standards. supplemental report will show the effect on some b a l a n c e sheet accounts r e sulting from c o n s o l i d a t i o n of domestic subsidiaries, accounting, justments. The conve r s i o n to accrual from changes in tax a ccounting and from any other special a d -3- SECTION II--ACCOUNTING PRINCIPLES Accrual A c c o u n t i n g E v e r y insured commercial ba n k w i t h total resources of $50 m i l l i o n or more shall prepare its Re port of C o n d i t io n and Report of Income for periods after December 31, on the basis of accrual accounting. 1968, Where the results w o u ld not be significantly different a cash basis of reporting m a y be used for particular accounts. E v e r y insured commercial ba n k w i t h total resources of $25 m i l l io n or mo r e shall prepare its Report of Co n d i t i o n and Report of Income for periods after December 31, on the basis of accrual accounting. 1969, Where the results w ould not be significantly different a cash basis of r e p o rting m a y be used for particular accounts. Those insured c ommercial banks not subject to full accrual r e quirem e n t s shall prepare Reports of C o n d i t i on and Reports of Income periods after December 31, 1968, so that the instalment o n the ba s i s of accrual accounting, or alternatively, income on instalment loans carried loan function is shall disclose, a published m e m o r a n d u m item to its Report of Condition, earned for in the amount of u n in the undivided profits or other capital accounts. Trust department income may, at the option of the reporting bank, be reported on a cash basis. T a x A c c ou n t i n g and Reporting B e g i n n i n g w i t h annual Reports of Income for 1969, every insured commercial b a n k shall b ring the reported pr o v i s i o n for income taxes to a current basis, i.e., related to income and expense items reported for the -4 current year, and such taxes shall be allocated b e t w e e n current operating earnings and below- t h e - L i n e profit and loss transactions. The preferred handling in the 1969 Report of Income of the t rans ition to the current accrual tax treatment for a ba n k now on a cash basis is to m a k e a direct charge against capital (undivided profits account) taxes paid during the report year on the prior y ear's income, e stimated tax accruals the-line" items. for the and to deduct for the report year from o p erating earnings and "below- Special provisions for a deferred a p p lication of capital reductions arising from the transitional double tax impact w i l l be available. Total provisions for estimated Federal and State and income taxes a c c r u e d - - d i s t i n g u i s h i n g between local income taxes--are required to be reported M e m o r a n d a Section of the Report. in a M aterial adjustments to prior years' are required to be reported as changes taxes in capital accounts and in the M e m o r a n d a Section. Reserves on Loans and Securities R eserves a g a i n s t Loans and s e c u r i t i e s , i n c l u d i n g the Reserve for Bad Debts accumulated pursuant to I n t e r n a l Revenue S e r v i c e r u l i n g s , w i l l be incl uded in a new s e c t i o n o f the balance s heet f o l l o w i n g "Total l i a b i l i t i e s " and preceding "Capital accounts" and Loans w i l l be shown on a g ross b a s i s on the a s s e t s id e o f the balance s h e e t . Changes in the i n d i v i d u a l r e s e r v e accou n ts should be r e c o n c i l a b l e with r e l a t e d amounts reported in year-end Re ports o f Income. Interim Reports o f C ondition s h a l l be reported on the same b a s i s and r e f l e c t current b a la n ces in such r e s e r v e s . The annual t r a n s f e r s to and from such r e s e r v e s w i l l be r e f l e c t e d in the appro priate accounts " b e lo w - t h e - l in e " on the Report o f Income. The t r a n s f e r s between such accounts and c a p i t a l accounts w i l l be item ized in the s e c t i o n r e l a t i n g to "Changes i n C ap ital Accounts" in Reports o f Income. -5- V a l uation of Fixed Assets Fixed assets acquired after D e cember 31, 1968, are to be carried in Reports of Con d i t i o n on the basis of cost less depreciation. A n y method of dep re c i a t i o n conforming to accepted accou n t i n g principles may be used. Use of a m e t h o d other than that used for tax purposes would, require a l lowance for the tax effect in Reports of Income. of course, A restatement of e xisting fixed assets to a depreciated cost basis is not required but w ould be desirable in the interest of meani n g f u l comparative reporting. In the event of restatement, any conflict w i t h State statutory r e q u i r e m ents or regulations will be resolved o n an individual ba n k basis. A c c r e t i o n of Discount Revised instructions for Co n d i t i on and Income Reports encourage but do not require ac c r etion of discount on investment b e l o w par or face value. If a c c retion is adopted, securities purchased the discount on s e c u r i ties should be accreted from date of purchase to maturity. P r ov i s i o n for deferred income taxes a pplicable to the amount accreted should be recognized and recorded. A m e m o r a n d u m item in Reports of Income has b e e n added to show the total effect (before taxes) of a c c retion for banks following this practice. T ra d i n g Account Securities The caption, Reports of Condition. "Trading account securities," has b e e n added to The account may be valued on the same basis as is used for tax purposes. Net trading account income should be itemized as a subitem of "Other current o pe r ating r evenue" in Reports of Income. The inset should show such income net of losses and certain incidental expenses. -6- M i d y ea r and end-of-year Reports of C o n d i t i o n include an u n p u b lished schedule showing the b r e a k d o w n of trading account securities by type of security as they appear on the face of Repo r t s of Condition. T he intention is to o b t a i n the trading account segregation for banks that r e gularly deal in securities w i t h other banks or w i t h the public. Banks w h i c h conduct trading account activity to c o n f o r m w i t h p a ragraph 1.471-5 of the Internal Revenue Service regulations w o u l d ordinarily be expected to report such activity separately. securities purchased this for possible resale Banks o c c a s ionally holding should not report an amount against item but should include such securities in the a p p ropriate security investment account. Banks holding trading account securities may, the bank, distribute at the o p t i o n of such holdings among the appropriate investment s e c u r ity accounts o n the publishers copy of the Report of Co n d i t i o n used for the spring and fall call. Published midy e a r and ye a r - e n d Reports must show the trading account holdings as a separate item. C o n s o l i d a t i o n of Domestic Subsidiaries Th e revised C o n d i t i o n and Income Reports require full c o n s o l i d a t i on of all m a j o ri t y - o w n e d ba n k premises subsidiaries. In addition, other subsidiaries m e e t i n g e i ther of the following tests of relative significance are required to be consolidated: in w h i c h the bank's parent bank. subsidiary investment represents 5 per cent or more of the equity capital accounts of the parent bank; revenues amount any ma j o r i ty - o w n e d or any subsidiary w h o s e gross operating to 5 per cent or m o r e of the gross op e r a t i n g revenues of the A s used herein, "investment" refers to the amount carried on -7the books of the parent b a n k or the amount equivalent to the parent's proport i o n a t e share in the equity capital accounts o f the majori t y -o w n e d subsidiary, w h i c h e v e r is greater. Ma j o r i t y - o wn e d subsidiaries not m e e t i n g this significance test m a y be consolidated at the o p t i o n of the re p o r t i n g bank, sistent c o n s o l i d a t i o n policy is followed. are subsidiaries of the reporting bank, provided a c o n W h e n domestic commercial banks the accounts should not be c o n solidated. C o n s o l i d a t i o n of F o r e i g n Branches, Edge A ct Subsidiaries, Subsidiaries E a c h ba n k w i t h foreign branches, Edge Act and Fore i g n subsidiaries or "Agreement" subsidiaries shall publish a Report of C o n d i t i o n in w h i c h these international offices are consolidated w i t h the b ank's domestic operations. subsidiaries, Significant foreign subsidiaries, and significant including foreign ba n k (to the parent bank) sidiaries mu s t also be consolidated. subsidiaries of sub The same significance tests apply to foreign subsidiaries as to domestic subsidiaries. M a j o rity-owned foreign subsidiaries not m e e t i n g these significance tests m a y be c o n s o l i dated at the option of the r e p orting bank provided a consistent c o n s o l i d ati o n policy is followed. The published report wi l l include only the items o n the face of the Report. offices are to be included published Report Total deposits held b y such foreign in a single separate item on the face of the (not shown on sample copy). These banks shall continue to submit a supplemental domestic offices only Report of C o n d i t i o n in cluding the supporting schedules on the b a c k of the report to the s u p e r visory agencies for statistical and deposit insurance assessment purposes. Special provisions for publication of consolidated domestic and foreign Reports of C o n d i t i o n on the spring and fall call dates have been adopted. Banks c onducting such foreign operations m a y publish a fully consolidated Report as of the call date if this is feasible and the banks so desire. As a second option b anks m ay publish a fully consolidated Report as of the end of the quarter, i.e., M a r c h 31 and September 30. Banks e xercising the second o p t i o n may publish the domestic Report w i t h the quarterly consolidated Report even if this delays p u b lication of the domestic Report. Also, at all call dates w h e n disclosure of deposits of a single foreign branch or other office w ould result, the publishers copy m a y c o m bine deposits held in foreign offices in the a p p ropriate categories with domestic offices. Net earnings from foreign operations shall be and included under the caption, of Income itemized separately "Other current op e r a t i n g revenue" in Report submitted to the supervisory authorities At the o ption of the reporting bank, for statistical purposes line-by-line c o n s o l i d a t i o n of income and expenses attributable to foreign offices m ay be ma d e in Reports of Income prepared for other purposes. (SAMPLE COPY-REDUCED SIZE) Form F. R. 105 - Call Budget Bureau No. 55-R004 (Rev. Jan. 69) Please read carefully "Instructions for the Preparation of Report of Condition"--Every item and schedule must be filled in. Printed items must not be amended. Amounts that cannot properly be included in the printed items must be entered under "Other assets" or "Other liabilities." Consolidated Report of Condition of__ (Legal title of bank) of__ , (City) business on 1. 2. 3. 4. 5. 6. , and Domestic Subsidiaries at the close of (County) 19 (State) (Zip Code) . State Bank No. Federal Reserve District No. _unposted debits). Cash and due from banks (including $ U.S. Treasury securities. Securities of other U.S. Government agencies and corporations. Obligations of States and political subdivisions............ Other securities (including?___________ corporate stocks).... Trading account securities. 7. 8. 9. 10. 11. 12. 13. 14. Federal funds sold and s e c u r it i e s purchased under agreements to r e s e l l .......................... Other loa n s....................................................................................................................................... Bank premises, furniture and f ix t u r e s , and other a s s e ts representing bank premises. Real e s t a te owned other than bank premises................................................................ ............... Investments in su bsidia ries not consolidated.................................................................................. Customer's l i a b i l i t y to th is bank on acceptances outstanding............................................... Other a s s e t s ...................................................................................................................................................... TOTAL ASSETS...................................................................................................................................................... 15. 16. 17. 18. 19. 20. 21. 22. Demand deposits of individuals, partnerships, and corporations......... Time and savings deposits of individuals, partnerships, and corporations. Deposits of United States Government.................................. Deposits of States and political subdivisions.......................... Deposits of foreign governments and official institutions.............. Deposits of commercial banks.......................................... Certified and officers' checks, etc........................ ........ . TOTAL DEPOSITS..................................................... $_ (a) Total demand deposits......................................... $_ (b) Total time and savings deposits. Federal funds purchased and securities sold under agreements to repurchase. Other liabilities for borrowed money............. ........... . Mortgage indebtedness.................................................. Acceptances executed by or for account of this bank and outstanding....... Other liabilities...................................................... TOTAL LIABILITIES...................................................... MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES........................... LIABILITIES 23. 24. 25. 26. 27. 28. 29. XXX XXX XXX XXX XXX XXX XXX XXX XXX RESERVES ON LOANS AND SECURITIES 30. 31. 32. 33. Reserve for bad debt losses on loans (set up pursuant to IRS rulings). Other reserves on loans........ ................................... Reserves on securities.......................... .................. TOTAL RESERVES ON LOANS AND SECURITIES............................. CAPITAL ACCOUNTS 34. Capital notes and debentures................ ......................... . (specify Interest rate and maturity of each issue outstanding on publishers copy) 35. Equity capital, total (sum of Items 36 to 40 below).............................. 36. Preferred stock-total par value........... ............. .......... ...»..... . (No. shares outstanding ) Common stock-total par value. 37. (No. shares authorized____ _) (No. shares outstanding_ J 38. Surplus.................... 39. Undivided profits. 40. Reserve for contingencies and other capital reserves. 41. TOTAL CAPITAL ACCOUNTS (sum of Items 34 and 35 above)................................ 42. TOTAL LIABILITIES, RESERVES, AND CAPITAL ACCOUNTS (sum of Items 28, 29, 33, & 41 above). MEMORANDA 1. Average of total deposits for the 15 calendar days ending with call date. 2. Average of total loans for the 15 calendar days ending with call date.... 3. Unearned discount on instalment loans included in total capital accounts. I, _______________________________________________ _, of the above-named bank do hereby declare that this Report of (Name and title of officer authorized to sign report) Condition (including the information below and the supporting schedules) is true to the best of my knowledge and belief. (Signature of officer authorized to sign report) We, the undersigned directors, attest the correctness of this Report of Condition (including the information below and the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief is true and correct. N0TE--This report must be signed by an authorized officer, attested by not less than three directors (or by at least two if there are not more than three directors) other than the officer signing the report, and forwarded within 10 days after receipt of request. ---------------------------____________________________ Directors ‘ <«> (b) -9SECT I O N III--REPORT OF CO N D I T I O N ASSETS It e m I, "Cash and due from banks" The i t e m caption, (including $______________ unposted d e b i t s ) . as above, has been changed from the previous "Cash, balances w i t h other banks, and cash items in process of collection," but no substantive change in content has b e e n made. An inset item has b e e n added to show the amount of "unposted debits" included in the total, if any. As defined in the current instruction booklet, "The t er m 'unposted debit' means a ca s h item in the bank's p ossession d r a w n on itself w h i c h has b e e n paid or credited and against, but has not b e e n charged against, is chargeable deposit liabilities at the close of b u siness o n the date as of w h i c h the Report of C on d i t i o n is m a d e . " A ll banks w h i c h include "unposted debits" in Schedule D as C a s h items in process of colle c t i o n and in I t e m 1 on the face of the report, shall show the amount in the inset provided. estimates or use of an experience basis are permitted. R easonable Banks r e p o r t ing these items as insets in Schedule D on the b a c k of the reports for FDIC assessment purposes shall use these amounts in the inset to I t e m 1 on the face of the Report. Items 2, 3, 4, and 5 r e lating to investment securities. Item 2, "U.S. Treasury securities" has be e n substituted for "United States Gover n m e n t obligations" and It e m 3, "Securities of other U.S. Government agencies and corporations," has be en substituted for "Securities o f Federal agencies and c o r p orations." This change in captions is intended to clarify the status of such holdings g i v e n -10- recent legal interpretations as to the implied Federal guarantee of mo s t agency issues. T he effect o f the required reclassification, compared to previous practice, D.C. S t a d i u m bonds, is limited to m o v i n g b a n k holdings of c e r t a i n Mer c h a n t M a rine issues, issued by the Federal H o u s in g Administration, obligations" to "Securities of other U.S. corpor a t i o n s . " and debentures from "U.S. Government G overnment agencies and Schedule B, w h i c h requires the re p orting of securities included in these two catego r i e s by total par value of each issue, hence f o r t h will b e collected only once a y e a r (as of June). Order of a ppearance of the investment security items w as also changed for the purpose of clarification. I t e m 6, "Trading account s e c u r i t i e s . 11 Securities held in the bank' s trading accounts should be reported in a separate category from investment portfolio holdings. An unpub lished m e m o r a n d u m schedule listing trading account securities by type of security a c c ording to the investment portfolio b r e a k d o w n will be r equired o n June and December call dates. The June Schedule B reports include only investment securities and exclude trading account s e c u r i ties. I t e m 7, "Federal funds sold and securities purchased under agreements to resell." No change from previous R e port form. I t e m 8, "Other loans." The total of loans shown shall be reported gross on the face of the Report and Schedule A o n the back. All reserves on loans, including the reserve for bad debts set up pursuant to Internal Revenue -11- Service rulings, will be included as balance sheet credits in a ne w s ection appearing b e t w e e n "Total liabilities" and "Capital accounts." As noted previously all transfers reflected either itemized in Item 6(b) from and to such reserves must be and 7(b) of Reports of Income or in "Changes in Capital A c c o u n t s " - - if amounts are transferred directly from or to capital. Item 9, "Bank premises, furniture and fixtures, and other assets r e p r e senting bank premises," and Item 10, "Real estate owned other than bank premises." These items are Reports. sult identical in content to comparable items in previous S u b stantial changes in totals reported, from con s o l i d at i o n of premises fixed assets. however, might r e subsidiaries or restatement of Please refer to the previous d iscussion under A c c o u n t i n g Principles. Item 11, "Investments in subsidiaries not c o n s o l i d a t e d ." This added c a pt i o n to the face of the Report results from the n ew requirements for consolidation, discussed previously. In domestic offices Reports this item ma y include investments in majority-owned foreign subsidiaries and "insignificant" subsidiaries not consolidated. Item 12, "Customers' liability to this b a n k o n acceptances o u t s t a n d i n g ," and Item 13, "Other a s s e t s . " No change from comparable items in previous Reports. or accrued but not collected"is It e m 14, "Income earned included in "Other assets." "TOTAL A S S E T S . " The only changes follow from required changes in treatment of reserves on loans and securities and from the con so l i d a t i o n requirements. -12- LIABILITIES Items 15-22, "Deposit c a t e g o r i e s . " No change from the previous Reports or instructions. "Total deposits in foreign o f f i c e s ." The section o n Accounting Principles discusses the special provisions for re p o r t i n g deposits at foreign offices. This total will appear only on the publishers copy of the Report used by banks operating foreign branches, Edge Act, or other foreign subsidiaries. I t e m 23, "Federal funds purchased and securities repurchase." sold under agreements to No change from previous Reports. I t e m 24, "Other liabilities for borrowed m o n e y . " No change from previous Reports. I t e m 25, "Mortgage i n d e b t e d n e s s . " M o r t g a g e liabilities, n o w carried as an inset item in the "Other l iabilities" account will be required to be reported separately. It should be noted that, wi t h ma n d a t o r y con s o l i d a t i o n of b a n k premises subsidiaries, this item will be considerably more inclusive. I t e m 26, "Acceptances executed b y or for account of this b a n k and o u t standing." No change from previous Reports or instructions. Item 27, "Other lia b i l it i e s . " M o r t gages payable have b e e n removed from this account, Accrued taxes and other accrued expenses are included Item 28, in this account. "TOTAL L I A B I L I T I E S . " No change from previous Call Report arises as noted above. form or instructions except as from consoli d a t i o n of subsidiaries. -13Item 29, "MINORITY INTEREST IN C O N S O L I D A T E D S U B S I D I A R I E S . " This account has be e n added to the Report as a result of c o nsolidation requirements. RESERVES O N LOANS A N D SECURITIES This change in r e p o r t i n g requirements r eflects a change in b al a n c e sheet c l a s s if i c a t i o n of such reserves as discussed under " A c c o u n t ing Principles." I t e m 30, "Reserve for bad debt losses o n loans (set up pursuant to Internal Revenue Service r u l i n g s ) . " This item has b e e n added to the face of the R e port to reflect the fact that total loans are n ow to be reported on a gross basis o n the asset side of the b a l a n c e sheet. T he total reported at the year end should agree wi t h the cor r e s p o n d i n g total included ports of Income. in Sect i o n D of annual R e All reserves carried under relevant IRS rulings for the a c c u m u l a t i on of so-called "tax free" reserves against loans should be included. losses on As noted above under A c c o u n t i n g Principles all transfers to these reserves should be recon ci l e d w i t h amounts r e ported I t e m 31, in the appropriate sections o f Reports of Income. "Other r eserves on l o a n s . " These include all reserves on loans carried o n the bank's b o o k s w h ic h are in excess of the allowable tax reserve for bad debts, Item 30 above. The amount of transfers to and from the account shall agree w i t h amounts reported in the a p p ropriate sections of annual Repo r t s of Income. -14It e m 32, "Reserves o n s e c u r i t i e s . " All reserves on securities carried on the books of the b a n k should be included in this item and should not be deducted security captions under assets. shall b e reflected It e m 33, from the investment The transfers to and from the account in the a p propriate sections of Reports of Income. "TOTAL RESERVES O N LOANS A N D S E C U R I T I E S . " The sum of the three reserve items above. C A P I TA L A C COUNTS Items 34-40, "Capital a c c o u n t s . " The p ublishers copy of the Report requires the interest rate, maturity, note and debenture issue. information p ertaining to and the amount outst a n d i n g of each capital The only other changes are a realignment of the accounts and an added c a p t i o n to show the total of equity capital. MEMORANDA Items 1 and 2 re l a t i n g to 15-day averages of loans and deposits reflect no change It e m 3, from the previous Report or instructions. "Unearned discount on instalment loans As noted a bove under A c c o u n t i n g Principles, included in capital a c c o u n t s . " this n e w m e m o r a n d u m item has b e e n added to show the amount of u nearned income included in capital accounts by those banks w h i c h have elected not to account ment for instal loan income on the accrual basis. M e m o r a n d a items r elating to reserves on loans and on securities have be e n deleted since such reserves are now included in the balance sheet on the face of the Report. (SAMPLE COPY-REDUCED SIZE) Form F . R. B u d g e t B u r e a u No. 5 5 - R 0 1 0 . 2 107 ( R e v . J a n . 6 9 ) CONSOLIDATED REPORT OF INCOME--CALENDAR YEAR 1969 (Including Domestic Subsidiaries) (Legal title of bank) (County) (City) (State) (F. R. District No.) SECTION A.--SOURCES AND DISPOSITION OF INCOME 1. CURRENT OPERATING REVENUE: (a) (b) (a) Interest and fees on loans....................................................... (b) Income on Federal funds sold and securities purchased under agreements to resell.... (c) Interest and dividends on investments (exclude trading account income): 1. U.S. Treasury securities.................................................... 2. Securities of other U.S. Government agencies and corporations................. 3. Obligations of States and political subdivisions............................. 4. Other securities............................................................ (d) Trust department income................................................... ...... (e) Service charges on deposit accounts.............................................. (f) Other service charges, collection and exchange charges, commissions, and fees....... (g) Other current operating revenue (itemize net income on trading account, net earnings from foreign branches and Edge Act subsidiaries and any other amount accounting for over 25 per cent of the total.)............................................. (c) 1 2 3 4 (d) (e) (f) (g) (h) (h) Total current operating revenue............................................. 2. CURRENT OPERATING EXPENSE: (a) Salaries and wages of officers and employees (Number on payroll at the end of period ______ ). (b) Pensions and other employee benefits............................................... (c) Interest on deposits.............................................................. (d) Expense of Federal funds purchased and securities sold under agreements to repurchase. (e) Interest on other borrowed money.................................................. (f) Interest on capital notes and debentures........................................... (g) Occupancy expense of bank premises, net................................... ........ Gross occupancy expense $ Less rental income $_ (h) Furniture and equipment, depreciation, rental costs, servicing, etc............ (i) Other current operating expenses (itemize amounts over 25 per cent of the total). (a) (b) (c) (d) (e) (f) <g> (h) (i) (j) Total current operating expense................ (j) 3. CURRENT OPERATING EARNINGS (Item 1(h) minus Item 2(j)). 4. INCOME TAXES APPLICABLE TO CURRENT OPERATING EARNINGS.. 5. NET CURRENT OPERATING EARNINGS (Item 3 minus Item 4) LESS $_ MINORITY INTEREST...................................... 6. OTHER ADDITIONS: (a) (b) (c) (d) Net profits on securities sold or redeemed. Transfers from reserves.................. Loan recoveries............. ...... . All other (itemize large amounts)......... (1) Gross [2)Net of tax ESfect (a) (b) <c) <d) (e) Total additions................. (e) OTHER DEDUCTIONS: (a) (b) (c) (d) Net losses on securities sold.... Transfers to reserves........... Charge-offs on loans............ All other (itemize large amounts). (e) Total deductions......................................... 8. NET ADDITION OR DEDUCTION (Item 6(e) minus Item 7(e) of column 2) LESS $_______________MINORITY INTEREST....................... 9. TRANSFERRED TO UNDIVIDED PROFITS (Item 5 plus Item 8). (a) (b) (c) (d> (e) SECTION B--CHANGES IN CAPITAL ACCOUNTS DURING 1969 Dollars Cts. 1 2. OTHER INCREASES IN CAPITAL ACCOUNTS: 2 (a) Common stock (par value) sold (excluding $ common stock di vidends issued) (a) (b) (c) (d) (O (c) Preferred stock or capital notes and debentures sold (par or face value)............... . (e) Addition to surplus, undivided profits and reserves incident to mergers, etc............. (f) All other increases in capital accounts (itemize)....................................... (f) <g) 3. OTHER DECREASES IN CAPITAL ACCOUNTS: 3 (a) (b) (c) (d) (<0 (c) Preferred stock or capital notes and debentures retired (par or face value).............. (e) Reduction in surplus, undivided profits and reserves incident to mergers, etc............ (£) (g) 4 (Item 1 plus 2(g) minus Item 3(g); indicate net decrease by minus sign or in red. This must agree with the net change at Item 7 of Section C.) ....................... SECTION C--CAPITAL ACCOUNTS AT END OF PRECEDING AND CURRENT YEAR The items in this section must agree with the corresponding items in the Condition Reports rendered as of the same dates. The items in the first column must agree with the corresponding items for the same date in the pre ceding Report of Income. December 31, 1968 December 1, 1969 1 2 3 4 5 6 6. Reserve for contingencies and other capital reserves........................ 7. Total capital accounts (net change of $ during the period must agree with Item 4 of Section B)...................... ........ 7 SECTION D--RESERVE FOR BAD DEBTS AND OTHER RESERVES Reserve for bad debt losses and other reserves on loans Reserve set up pur Other suant to Internal reserves Revenue Service on loans rulines Reserves on securities 4. Transfers to these reserves (included in Item 7(b) 5. Total (Sum of Items 1, 2, 3, and 4)................ 7. Transfers from these reserves (included in Item 6(b) 8. Balance December 31, 1969 (Must agree with corresponding items in Condition Reports rendered as of the same date) MEMORANDA 1. Total provision for Federal, State and local income taxes for current year (Must agree with Item 4 plus the difference between columns 1 and 2 at Item 6(e) less the difference between columns 1 and 2 at Item 7(e)).......................... 1 (a) Provision for Federal income taxes.... ....................... $ (b) Provision for State and local income taxes.................... $ (a) (b) 2 3 4 5- If this bank merged or consolidated with any banks during this period, list the banks XXX XXX XXX XX 5 I, _______________________________________________________ of the above-named bank, hereby certify that the foregoing (Name of officer authorized to sign report) (Title) statement is true, to the best of my knowledge and belief. (Date) (Signature of officer authorized to sign report) -15SECTION IV--REPORT OF INCOME CUR R E N T O P E R A T I N G REVENUE; It e m 1(a), All '‘Interest and fees on loans." interest, fees, accounts carried item. and other charges related to the h andling of loan in b a nk loan portfolios are to be included in this In addition, all c ommitment fees received on loans, regardless of w h e t h e r the loan has b e e n made, are included. Income from Federal funds and security resale transactions will be excluded and shown separately in It e m 1(b). The separate item for service charges and fees on loans has be e n e liminated and these amounts included either in this item or in Item 1(f) below. It e m 1(b), "Income from Federal funds sold and securities purchased under agreements to r e s e l l . " Gross revenue fr o m these transactions, previo us l y included in "Interest o n loans" by State banks and "Other current earnings" by na t i o n a l banks wi l l be included in this n e w item. I t e m 1(c), "Interest and d i v i dends o n investments (exclude trading account income)": A n e w c a t e go r i z a t i o n for re p o r t i n g income on investments follows the c orresp o n d i n g asset recla s si f i c a t i o n for Reports of Condition. change requires the a ddition o f two n e w interest This income categories: Interest on "Securities of other U.S. G overnment agencies and c o r p o rations," and interest on "Obligations of States and political sub d ivisions." Interest on securities held in dealer trading accounts w i l l be excluded from these items and reported to "Other current operating revenue." separately as an inset -16It e m 1(d), "Trust department deposit a c c o u n t s . " No changes income," and Item 1(e), "Service charges on from previous Report or instructions. I t e m 1(f), "Other service charges, missions, and fees." c o l l e c t io n and exchange charges, Only m i n o r changes from the previous Report have b e e n made. above, except for commitment fees, should be based on w h e t h e r the ba n k carried the related loan account. Percentage charges for h a ndling charge sales are "Other service charges" w h e n the b a n k does not carry the loan accounts on its books. rental As noted the d i s tinction b e t w e e n service charges on loans and "Other service charges" to m e r c h a n t s com Equipment fees previously netted against equipment expense should be in cluded in this item. I t e m 1(g), "Other current op e r a t i n g revenue (itemize all amounts over 25 per cent of total, net earnings from foreign b r anches and subsidiaries, and net income on trading account)." Changes in this item are noted above w i t h respect to the inclusion of trading account income, and to the r e c l a s s i f i c a t i o n (by national banks) of income on Federal funds and security resale transactions. account income includes interest and profits and count securities, r e v a l u a t i o n adjustments, losses on trading a c and incidental income and expenses related to the purchase and sale of such securities. expenses such as salaries, should not be included. commissions, Also, Other or interest on borrowed m o n e y certain types of regular recurring op e r a t i n g recoveries should n o w be shown against "below-the-line" as in the previous Report. credits such as net tellers' Net trading overages, this item rather than Regu l a r r e c urring o p e rating forgery recoveries, recoveries on payment of checks over stop payment orders, and similar transactions should be r eported in this item. -17Item 1(h), "Total current o p er a t i n g r e v e n u e . ” No change from the previous Report except for revenue d a tion of domestic from the c o n s o l i subsidiaries and from recl a s s i f i c at i o n of cert a i n types of r e c urring o p e r ating recoveries and equipment rental fees as noted above. CURRENT O P E R A T I N G EXPENSE: Item 2(a), "Salaries and wages of officers and of employees payroll at the end of p e r i o d ) . " (number on The separate c o m p e n s a t i o n items for officers and employees in the previous Report have been combined. Except as noted under 2(b) b e l o w w i t h respect to certain optional profit sharing plans, this consolidated item follows instructions for the previous report and will comprise the same types of comp e n s a t i o n as reported for income tax purposes in Form W 2 . ployees Item 2(b), A single inset item for the total number of officers and e m is to be reported. "Pensions and other employee b e n e f i t s . " For the most part, this item is the same as the c o rresponding item in the previous Report and includes the expense of all c o m p e n sa t i o n and fringe b enefits of officers and employees not above. included in Item 2(a) A n exception has be e n ma d e for expenditures under those profit sharing plans w h i c h give officers or employees an o p tion as to the portion to be received as current com p e n s a t i o n or to be held or in vested by the bank. this item. Except previous Report and The total of these costs should be included for this difference the item is unchanged instructions. in from the The item for directors' fees previously reported separately has b e e n e liminated and such fees included in "Other current o p er ating expenses. I t e m 2(c), "Interest o n d e p o s i t s . " No change from the previous R e p o r t or instructions. I t e m 2(d) , "Expense of Federal funds purchased and securities sold under agreements to r e p u r c h a s e . " Gross expenses from these transactions, previously included in "Interest on borrowed mone y " b y State b anks and "Other current o p e r a ting expenses" by n a tional b anks will be r e ported separately in this n ew item. I t e m 2(e), "Interest on other bo rrowed m o n e y . " No change from previous Report except as noted u nder 2(d) above w i t h respect to expenses of Federal I t e m 2(f), funds and security resale transactions. "Interest on capital n otes and d e b e n t u r e s . " This n e w i t e m has be e n added to recognize separately the interest cost of bor r ow e d l o n g-term subordinated funds. P reviously such expense was included w i t h dividends following "net income after taxes." It e m 2(g), "Occupancy expense of b a n k premises, net." Except for the effects o f c o n s o l i d a t i o n of building subsidiaries, the content of this i t em will be the same as in the previous report but c olle c t i o n of the detailed Section E "Occupancy expense of bank p r e m ises" u n d e r l y i n g this item has be e n eliminated. Instead, two inset items "Gross occupancy expense" and "Less rental income" have b e e n added to support the extended net occupancy expense figure. The c o n tent of this item w i l l be affected substantially by the required in c lusion of income and expenses of bank premises subsidiaries. -19I t e m 2(h), e t c ." "Furniture and equipment, depreciation, rental costs, servicing, This expense item wil l b e reported gross rather than net of equipment rental fees as previously. The revenue item previou s l y netted should be included in the ap p ropriate revenue item noted above. I t e m 2(i), "Other current o p er a t i n g expenses (itemize amounts over 25 per cent of the t o t a l ) . " Changes from the present R ep o r t arise from recl a ss i f i c a t i o n of directors' fees and of expenses of Fed e r a l funds and security repurchase t r a n s actions (for nat i o n a l banks) as noted above, and from inclusion of c e r tain operating losses discussed herein. Cer t a i n types of regu l a r r e curr i n g o pe rating losses and charge-offs should be shown against this item rather than "below-the-line" as in the previous Report. r e c u r r i n g o p e r a t i n g losses such as tellers' shortages, losses on payment of checks over stop payment orders, actions should be reported Regular forgery losses, and similar trans in this item. Item 2(j) , "Total current o p e rating e x p e n s e . " Changes from the previous Report result from c o n s o l i d a t i o n of expenses of domestic subsidiaries, o p e r a t i n g losses, and from recl a s s i f i c a ti o n of cer t a i n recurring of interest on capital notes and debentures, and of income from equipment rentals as noted above. I t e m 3, This "CURRENT O P E R A T I N G E A R N I N G S ." item wi l l a p pear as in the previous Report. co n s o l i d a t io n of revenue and expenses of domestic Changes arise from subsidiaries and from r e c l a s s i f i c a t io n of recurring operating losses and recoveries and interest on capital notes and debentures as n o t e d above. -20It e m 4, "INCOME TAXES A P PL I C A B L E TO CURR E N T O P E R A T I N G E A R N I N G S . " The change in treatment in this area is discussed in some detail under A c c o u n t i n g Principles. Usually this amount will be determined by a p p l i cati o n of the bank's o rdinary corporate income tax rate to the amount shown at It e m 3 above after d e d u c t io n of tax exempt me n t for n o n - deductible expenses, for submission, if any. income and a d j u s t Bec a u s e of time limitations the amount m a y be estimated. The amount wi l l differ from the total annual pr o v i s i o n for income taxes by the tax effect related to non-ope r a t i n g transactions columns shown as the difference betw e e n (1) and (2) in Items 6 and 7. I t e m 5 , "NET CURRENT O P E R A T I N G EARNINGS (LESS $_______________ M I N O R I T Y INTEREST)'.' A n e w item in the revised R eport r e p re senting net op e r a t i n g earnings after de d u c t i o n o f the estimated amount of income taxes applicable thereto shown at Item 4 above. A n inset item showing the after tax m i n o r i t y interest in net current earnings of subsidiaries has also be e n included. The inset amount should be deducted in de termining the e x tended total. I t e m 6, " O THER ADDITIONS": I t e m 6(a), "Net profits on securities sold or r e d e e m e d . " In the revised Report the net results of profits and losses o n s e curities realized at the time of sale or r e d e m p t i o n w i l l be reported in a single item rather than gross profits and gross losses in separate items as in the previous report. and Thus, if the net result of all profits losses on sales and redemptions of securities for the year was a gain the amount should be reported against this item and no amount -21- against Item 7(a). This net amount should be reflected in the first column. The second c o lumn should effect. Ordinarily, show these results net of the tax column 2 w o u l d be less than colu m n 1 by the amount of capital gains or other taxes applicable thereto. I t e m 6(b), This "Transfers from r e s e r v e s . " item c o mbines transfers w h i c h we r e changes from reserves on loans and on securities shown separately in the previous Report. The section on in reserves on the b a c k o f the Report continues to require separate r e p orting of transfers from reserves for bad debts, other r e serves on loans, and reserves on securities. I t e m 6(c), "Loan r e c o v e r i e s . " No change from the previous Report. Only recov e r i e s not c redited to reserves on loans should be included. I t e m 6(d), This "All other (itemize large a m o u n t s ) . " item w i l l n o w include recoveries o n security w r i t e -o f f s not charged to reserves on securities shown separately in the previous Report. The item will n ow exclude the types of current op e r a t i n g r ecoveries noted u n d e r Item 1(g) above. I t e m 6(e), "Total a d d i t i o n s . " No change from the previous R e port except w i t h respect to the types of current o p e r ating recoveries rev e n u e " as noted above, I t e m 7, "OTH E R DEDUCTIONS": included under "Other current operating and the required r e p o r t i n g net of tax effect. -22- It e m 7(a), "Net losses on securities s o l d . " The revised Report requires r e p orting of the net results of profits and losses on securities r ealized at the time of sale or r e d e mp t i o n in a single item rather than gross profits and gross losses in separate items as in the previous Report. reported Thus, an amount should be in this item if the net result of all profit and loss on sales and redemptions of securities for the year was a loss and no amount should be reported under Item 6(a). flected in the first column. Ordinarily, This amount should be r e the tax effect w ould be a r e d u c t i o n in the net loss, a pplicable at the bank's ordinary corporate income tax rate, and the amount in the second c o l u m n w o ul d be less than the amount in the first colu m n by the amount of such reduction. I t e m 7(b), "Transfers to r e s e r v e s . " This item w i l l combine transfers to reserves on loans and on securities which were shown separately in the previous Report. Separate c l a s s i f i cati o n of transfers to r eserves for bad debts, other reserves on loans, and r eserves on securities continues to b e required in the section r e lating to changes in such reserves. I t e m 7(c), "Charge-offs on l o a n s . " No change f r o m the previous Report. Only losses not charged to reserves on loans should be included. I t e m 7(d), This "All o ther (itemize large a m o u n t s ) . " item wi l l include losses and c h a rge-offs on securities prior to sale or r e d e m p t i o n not charged to reserves o n securities. Th e item will -23- exclude the types of current o p e r a t i n g losses and charge-offs listed under expense I t e m 2 ( i) above. I t e m 7(e), "Total d e d u ct i o n s . " Except for the change in cl a s s i f i c a t i o n of current operating losses and charg e - o f f s noted above, and the required reporting net of tax effect, there has b e e n no chan g e from the previous Report. The two-c o l u m n p r e s entation for these "below-the-line" or "non-operating" items included under Item 6 and Item 7 wi l l such transactions gross set forth the results of (column 1) as in the previous report and net o f the estimated tax effect of such transactions (column 2). Ordinarily, n orm a l tax a p p li c a t i o n to "Other additions" and "Other deductions" items should b e made. Net security profits, o f the capital gains tax rate, six months. for example, w o u l d have appl i c a t i o n if the securities w e r e held for m o r e than The tax r e d u ction from net losses on securities sold w ould u sually have a p p l i c a t i o n at the o rdinary c o r porate income tax rate. The amount transferred to the "Reserve for bad debts" w o u l d usually have an ordinary c o r p orate income tax reduction rate applied. T he tax effects r e ported "below-the-line" w h e n combined w i t h income taxes applicable to o p e r a t in g earnings wi l l equal the total income tax expense computed for the current year reported in the n e w M e m o r a n d a Section. R easonable estimates of the tax effect are permitted. guidelines Procedural issued by accou n t in g committees of var i o u s b a n ki n g associations should prove helpful in m a k i n g such estimates. The items r e fl e c t i n g the total p r o v i s i o n for income taxes and the b r e a k down b e t w e e n State and Federal income taxes has b e e n eliminated from the face of the R e port and a separate M e m o randa item has b e e n added to secure details on income taxes. It e m 8, "NET A D D I T I O N O R D E D U C T I O N (LESS $ MINORITY INTEREST)." A n e w c a p t i o n has be e n added to the revised Report to reflect the net after tax results of all no n- o p e r a t i n g or "below-the-line" transactions. A n inset has b e e n added to show the after tax adjustment repr e s e n t i ng the m i n o r i ty interest in subsidiaries. Item 9, "TRANSFERRED TO U N D I V I D E D PROFITS." The net income capt i o n f r o m previous Reports has be e n retitled. total is carried to Sect i o n B, "Changes in Capital Accounts." The schedule for dividends on capital has b e e n eliminated of the Report. The from the face Items have b e e n added to the section o n "Changes in Capital A c c o un t s " to show total dividends declared during the year on c o m m o n stock and on preferred stock. "Interest o n capital notes and debe n t u r e s " previously included w i t h dividends has b e e n included as a current o p e r at i n g expense as noted above. SEC T I O N B--CHA N GE S IN C A P I T A L ACCOUNTS D U R I N G THE Y E A R This section is e s sentially the same as the c o rresponding section in the previous Report. As noted above, items for dividends declared on c o mmon stock and on preferred stock have b e e n added. b e e n made, Provision has also as noted in this report under A c c o u n ti n g Principles, for r e p o r t ing the effects on capital accounts arising from the initial a p p l i c a t i o n of tax and other accrual accou n t i n g adjustments, years' and adjustments to prior taxes, under "All other decreases" or "All other increases." The last line represents the total change in capital during the year and should agree w i t h the change indicated in Section C and in the capital accounts in the C o n d i t i o n Reports for the end of the previous y e a r and the current -25- SECTION C - -C A P I T A L A CC O U N T S A T E N D OF P R E CEDING A N D CURR E N T Y E A R No changes from the previous Report except that a separate line has b e e n added to show capital notes and debentures outs t a n d i n g separately from preferred stock outstanding. accounts during the year another) As noted above all changes in capital (except transfers from one account in capital to should be reflected in S e c t i o n B. The totals agree w i t h c o r r e s ponding totals in Reports of C o n d i t i o n submitted as of the same dates. SECTION D --RESERVE F O R B A D DEBTS A N D O T H E R RESERVES No change from the previous Report. T r a n sfers to and from such reserves should agree w i t h the corresp o nd i n g amounts reported under "Other additions," and " O ther deductions" in the appro p r i at e sections of Reports of Income and the b e g i n n i n g and e n d i n g ba lances should agree w i t h the c o r respo n d i n g totals in the Reports of C o n d i t i o n as of the same dates. SECTION E - - O C C U P A N C Y EXPENSE This schedule has b e e n eliminated and r e placed by two inset items in the current o p e r a ti n g expense section in the R e port of Income as noted above. MEMORANDA As d e s c ribed above and in the discu s s i o n o f A c c o u n t i n g Principles under t ax accounting, this section has b e e n added to obtain information r e lated to the total income tax expense reported. Items require a n indication of (1) total p r o v i s i o n for current income taxes, (2) provision for current State a nd local taxes, (3) p r o v i s i o n for Federal income taxes, and (4) significant adjustments of prior years' income taxes, included in Sect i o n B "Changed in Capital Accou n t s . " to prior years' if any, w h i c h are M i n o r adjustments income taxes should be absorbed in the current year income tax expense. A n additional item provides for re p o r t i n g the before tax effect of accretion of discount on securities included in current op e r ating revenue on the face of the Report.