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FED ER A L RESER VE BANK O F NEW YO R K $.tk<XJanuary 2, 1980 SECURITIES OF MEMBER STATE BANKS Proposed Amendments to Regulation F To Conform With SEC Rules To All State M em ber Banks in the Second Federal Reserve District: The Board o f Governors o f the Federal Reserve System has invited comment, by March 1, 1980, on a proposal to amend its Regulation F, “ Securities o f Member State Banks,” to simplify the regulation and bring it into conformity with recent rule changes adopted by the Securities and Exchange Commission. The following is quoted from the text o f the Board’ s statement announcing the proposal: The Board is required by law to revise its Regulation F to be substantially similar to comparable rules and regulations o f the Commission unless the Board finds that it is not necessary or appropriate to do so. Banks with more than 500 stockholders are subject to the rules of the Board’s Regulation F. To be consistent with recent changes in the Commission’s rules the Board proposed to revise Regulation F as follows: Loans to Officers, Directors, Principal Security Holders and Associates —A note would be required to financial statements o f affected banks setting forth the amount o f aggregate indebtedness of these persons if loans to them exceed five percent o f the bank’s equity capital. Details o f loans to these persons would be disclosed if the amount exceeds $500,000 or two and one-half per cent o f equity capital, whichever is less. Loans to directors who are not officers of the bank may be combined in the aggregate. Statement of Income —Since the net interest income format adopted by the Commission does not affect the determination o f net income nor expand the overall structure of the existing report o f income, the Board proposes to adhere to the ex isting format. Foreign Activities —A note to the financial statements would be required if assets, or income gains or losses, associated with foreign activities of the bank exceed ten percent of the corresponding amount in the bank’s related financial statements. Investment Securities —A proposed supplemental instruction would require certain disclosures in a note to the financial statements of concentration in the bank’s investment in securities by an issuer other than U .S. Treasury and U .S. Government agencies and corporations. Falsification of Accounting Records and Issuer’s Representation —The Securities Exchange Act requires issuers who are registered under the Act to (1) make and keep books, records and accounts, in reasonable detail, which accurately and fairly reflect transactions and disposi tions of the assets; and (2) devise and maintain a system of internal accounting controls sufficient to meet certain standards. The commission adopted rules 13(b)2-l, and 13(b)2-2 to implement this authority. The Board pro poses to add these new provisions as section 206.7(c) and (d) of Regulation F. (Over) Other Changes —Proposed section 206.7 (Form and Content o f Financial Statements) o f the regulation has been restruc tured and minor editorial changes have been made to obtain more similarity with Commission rules and to establish identical structure among Federal bank agency disclosure regulations to the extent possible. New sec tions 206.7(e)7 and 8 (relating to reacquired evidences o f indebtedness and reacquired shares respectively) have been proposed. Guideline Format F-9E Schedules have been revised by combining Schedules I and II (Investment and Other Securities) into a single schedule, proposing a new Schedule II (Loans to Officers, Directors, Principal Security Flolders and any Associates o f the Foregoing Persons), deleting Schedule VI (Other Liabilities for Bor rowed Money), and editing in certain other schedules. Simplification —Concurrent with these changes, the Board proposed to simplify the regulation by incorporating by reference the format and instructions o f the bank’s Report of Condition and Report o f Income. This is expected not only to simplify the Regulation but also to reduce the burden o f compliance with it. Enclosed — for State member banks — is a copy of the complete text of the proposed amendments; it will be published in the Federal Register and will be made available to others upon request directed to the Circulars Division of this Bank. Comments should be submitted by March 1, and may be sent to our Con sumer Affairs and Bank Regulations Department. T homas M. T im len , First Vice President. FEDERAL RESERVE SYSTEM [12 C.F.R. Part 206] [ Reg. F; Docket No. R-0269 ] SECURITIES OF MEMBER STATE BANKS AGENCY: ACTION: Board of Governors of the Federal Reserve System. Proposed Rule. SUMMARY: Pursuant to its authority under section 12(i) of the Securities Exchange Act of 193^, as amended (15 U.S.C. § 7S(i)) ("Act"), the Board proposes to amend its Regulation F (12 C.F.R. § 206) in order that it will be substantially similar to comparable rules and regulations issued by the Securities and Exchange Commission. This proposal is intended to comply with section 12(i) of the Act, which requires that the Board either conform its Regulation F to any changes made by the Commission in its relevant rules and regulations, or publish reasons why the Board has determined that such changes are not necessary or appropriate. Concurrent with the conforming revisions to Regulation F required by section 12(i) of the Act, the Board proposes to simplify and thus reduce the burden of compliance by proposing to incorporate by reference instructions for the preparation of supervisory Reports of Condition and Reports of Income and thereby eliminate separate Regulation F instructions. To the extent additional financial statement data are required for disclosure purposes, supplemental instructions will be applicable and are proposed herein. The proposed conforming changes, which in all major respects are consistent with recent amendments to the rules and regulations of the Commission, concern: (A) Form and Content of Financial Statements designated Article 9 of Regulation S-X (B) Veracity of accounting records and issuer's representations in connection with preparation of required reports and documents filed under the Act and (C) editing changes and restructuring of certain financial statementregulations schedules and formats. The proposed changes do not include the net interest income format for the statement of income adopted by the Commission for two reasons: (1) the difference is considered a difference of form only, all material components needed to derive net interest income are readily available in the present statement of income format, and (2) consistency with the existing supervisory report of income format is required to achieve the concurrent simplification objective described above. There are several other minor differences in financial statement structure which do not materially affe ct the disclosure content of financial statement presentations. DATES: Comments must be received by March 1, 1980. ADDRESS: Interested persons are invited to submit written data, views or arguments regarding the proposed regulation to the Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. 20551. All material submitted should include the docket number R- 0269 . All written comments will be made available for public inspection at this address. [Ref. AT Cir. No. 8720] -2 - FOR FURTHER INFORMATION CONTACT: Thomas Sidman, Assistant Director, Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, Washington, D. C. 20551 (202/452-3503). SUPPLEMENTARY INFORMATION: following changes: A. (1) The Federal Reserve Board would make the AMENDMENTS TO CONFORM WITH ARTICLE 9 OF REGULATION S-X On September 7, 1978, the Commission amended Article 9 of Regulation S-X effective for financial statements for periods commencing after December 24, 1978. The following significant changes would conform Regulation F section 206.7 Form and Content of Financial Statements and Format F-9 Financial Statements to amended Article 9 of Regulation S-X. 1. Loans to O fficers, Associates Directors, Principal Security Holders, and The Commission adopted a broad scope of disclosure concerning receivables of persons related to the registrant and its principal subsidiaries as directors, executive officers or principal holders of equity securities and certain of their associates. If the aggregate amount of such receivables exceeds five per cent of stockholders' equity, a statement of the amount is to be made in a note to financial statements. Amounts related to installment loans made in the ordinary course of business need not be included provided they were made on nonpreferentiai terms and did not involve more than normal risk of collectibility. In addition, any individual indebtedness of persons mentioned above of more than $500,000 or two and one half per cent of stockholders' equity, whichever is less, would be required to be listed separately in a schedule to the financial statements. On November 6, 1979, the Commission proposed to amend the individual indebtedness listing requirements of Schedule I relating to amounts due from nonofficer directors. Detailed disclosure of loans to nonofficer directors made in the ordinary course of business is proposed to be provided on an aggregate basis. The proposed amendment was prompted in part by the enactment of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 which was effective subsequent to the adoption of the revision of Article 9. The Board proposes to amend its format and schedule requirements to conform with Article 9 disclosure requirements for loans to officers, directors, principal security holders and associates in accordance with the five per cent of equity capital threshold for note to financial statement rule with respect to aggregate indebtedness of such persons. With respect to the separate listing of individual indebtedness in a related schedule requirement, the Board proposes to adopt the threshold of $500,000 or two and one half per cent of equity capital, whichever is less, except that indebtedness of nonofficer directors may be combined in the aggregate as proposed by the Commission on November 6, 1979. -32. Statement of Income Format The net interest income format adopted by the Commission introduced a multi-step statement of income that in substance does not affect the determination of net income nor expand the overall caption structure of the existing report of income format used for supervisory financial reports. Derivation of net interest income is readily calculable from the present supervisory report of income format. Rather than conform with the multi-step statement of income presentation, the Board concludes that the change would be a matter of form only. Further, conforming to such change would be inimical to the achievement of its objective to simplify compliance by and reduce reporting burden of registrant banks by proposing to incorporate the instructions for the preparation of supervisory reports. It should be noted that the guidelines set forth in Format F-9 Financial Statements of Regulation F are recommended presentations, but financial statements may be filed in such form and order as will best indicate their significance and character. Such statement has been a long established provision in the regulations of the Commission and adhered to by the Board. Thus, a registrant bank may at its option and in its judgment present a statement of income that would conform to the Commission's Regulation S-X. 3. Foreign Activities Section 206.7(eX9) of the regulation would be added to require disclosure in a note to the financial statements of foreign activities if assets, or operating income, or income (loss) before taxes and securities gains (losses), or net income (loss) associated with foreign activities, exceeded ten per cent of the corresponding amount in the related financial statements. Loan categories, balances with banks in foreign countries, deposit liabilities, other borrowings, income and expense summary and allowance for possible loan losses must be furnished. In addition, activities for each significant geographic area (defined as one in which assets, operating income, or net income exceed ten per cent of the comparable amount as reported in the related financial statements) must be separately stated for such area. In connection with deposit liabilities, the amount of interest bearing deposits in denominations of $100,000 or more must be stated. Disclosure of such interest bearing deposits conforms to the amendment of Article 9 of Regulation S-X of the Commission proposed on November 6, 1979. 4. Investment Securities A proposed supplemental instruction to Format F-9A, Balance Sheet would require disclosure in a note to the financial statements of concentration in the bank's investment in securities by an issuer other than U. S. Treasury and U. S. Government agency and corporation. If aggregate book value for that issuer securities exceeds ten per cent of the equity capital accounts of the bank, the name of issuer, aggregate book value and aggregate amount on the basis of market quotations or fair value must be stated. Debt securities issued by a State of the United States and its political subdivisions and agencies which are payable from and secured by the same source of revenue or taxing authority shall be considered to be securities of a single issuer. ■ * -u - B. FALSIFICATION OF REPRESENTATION ACCOUNTING RECORDS AND ISSUER'S Section 13(b)(2) of the Securities Exchange Act of 1934 (15 U.S.C. §78(i)) ("Act") requires issuers who are registered under the Act to (1) make and keep books, records and accounts, in reasonable detail, which accurately and fairly reflect transactions and dispositions of the assets; and (2) devise and maintain a system of internal accounting controls sufficient to meet certain standards. The Commission adopted rules 13(b)2-l, and 13(b)2-2 to implement this authority. The Board proposes to adopt such rules by adding these new provisions as section 206.7(c) and (d) of Regulation F. C. OTHER CHANGES Proposed section 206.7 - Form and Content of Financial Statements of the regulation has been restructured as to order and content of certain provisions with minor editing changes to obtain more similarity with Commission rules and to establish identical structure among Federal bank agency disclosure regulations to the extent possible. New sections 206.7(e)7 and 8 relating to reacquired evidences of indebtedness and reacquired shares respectively have been proposed. Guideline Format F-9E Schedules has been revised by combining Schedules I and II - Investment and Other Securities into a single schedule, proposing a new Schedule II - Loans to O fficers, Directors, Principal Security Holders and any Associates of the Foregoing Persons, deleting Schedule VI - Other Liabilities for Borrowed Money and editing in certain other schedules. D. SIMPLIFICATION OF FINANCIAL STATEMENT PREPARATION To reduce reporting burden of registrant banks the proposal includes a procedure which will permit the assembly of financial statement data compiled for supervisory bank reports to be used for compliance with Regulation F financial statement requirements. Format F-9 Financial Statements would be patterned on the caption structure of supervisory financial reports and the related Instructions for Preparation of Reports of Condition and Income have been incorporated by reference. To the extent additional financial data are needed to meet the disclosure standards of the Commission, supplemental instructions are provided in the proposed Format F-9. Thus, registrant banks will be able to utilize identical basic financial statement data to meet both supervisory and disclosure report requirements of the Board. (2) Section 206.7 [am ended]. Section 206.7 of Regulation F, 12 CFR §206.7, would be amended to read as follows: -5- SECTION 206.7 - FORM AND CONTENT OF FINANCIAL STATEMENTS (a) Principles of financial reporting. Financial statements filed with the Board pursuant to this Part shall be prepared in accordance with generally accepted accounting principles and practices applicable to banks. The Board may from time to time issue releases on accounting principles and practices to be used with respect to specific areas. (b) Verification. (1) General. (i) Every verification with respect to financial statements filed pursuant to this Part shall be dated, shall be signed manually, shall indicate the city and State where issued, and shall identify without detailed enumeration the financial statements covered by the verification. (ii) If the person or persons making a verification considers that he must take exceptions or express qualifications with respect thereto, each such exception or qualification shall be stated specifically and clearly and, to the extent practicable, shall indicate the effect of the matter on the financial statements to which it relates. (2) Opinions to be expressed by principal accounting officer and internal auditor. Every verification by a bank's principal accounting officer and internal auditor shall state: (i) The opinions of such persons with respect to the financial statements covered by the verification and the accounting principles and practices reflected therein; and (ii) The opinions of such persons as to any material changes in accounting principles or practices or in the method of applying the accounting principles or practices, or adjustments of the accounts, required to be set forth by paragraph (c)(5) of this section. (3) Examination by independent public accountants. (i) Qualifications of independent public accountants. (a) The Board will not recognize any person as an independent public accountant who is not registered or licensed to practice as a public accountant by a regulatory authority of a State and in good standing with such authority as such an accountant. (b) The Board will not recognize any certified public accountant or public accountant as independent who is not in fact independent. For example, an accountant will be considered not independent with respect to any person or any of its parents, its subsidiaries, or other affiliates (1) in which, during the period of his professional engagement to examine the financial statements being reported on or at the date of his report, he or his firm or a member thereof had, or was committed to acquire, any direct financial interest or any material indirect financial interest, or (2) with which, during the period of his professional engagement to examine the financial -6- statements being reported on, at the date of his report or during the period covered by the financial statements, he or his firm or a member thereof was connected as a promoter, underwriter, voting trustee, director, officer, or employee, except that a firm will not be deemed not independent in regard to a particular person if a former officer or employee of such person is employed by the firm and such individual has completely disassociated himself from the person and its affiliates and does not participate in auditing financial statements of the person or its affiliates covering any period of his employment by the person. For the purposes of section 206.7 the term "member" means all partners in the firm and all professional employees participating in the audit or located in an office of the firm participating in a significant portion of the audit. (c) In determining whether a public accountant is, in fact, independent with respect to a particular person, the Board will give appropriate consideration to all relevant circumstances, including evidence bearing on all relationships between the accountant and that person or any affiliate thereof, and will not confine itself to the relationships existing in connection with the filing of reports with the Board. (ii) Representations as to the audit. The independent public accountant's report (a) shall state whether the audit was made in accordance with generally accepted auditing standards; and (b) shall designate any auditing procedures generally recognized as normal (or deemed necessary by the accountant under the circumstances of the particular case) that have been omitted, and the reasons for their omission. Nothing in this provision shall be construed to imply authority for the omission of any procedure which independent accountants would ordinarily employ in the course of an audit made for the purpose of expressing the opinions required by clause (iii) below. (iii) shall state clearly: Opinions to be expressed. The independent public accountant's report (a) The opinion of the accountant with respect to the financial statements covered by the report and the accounting principles and practices reflected therein; and (b) The opinion of the accountant as to the consistency of the application of the accounting principles, or as to any changes in such principles which have a material effect on the financial statements required to be set forth by paragraph (cX5) of this section. (iv) Exceptions. If the accountant making the report considers that he must take exceptions or express qualifications with respect thereto, each such exception or qualification shall be stated specifically and clearly and, to the extent practicable, shall indicate the effect of the matter on the financial statements to which it relates. (v) Association with unaudited note covering interim financial data. If the financial statements covered by the accountant's report designate as "unaudited" the -7 - note required by section 206.7(e)(13Xvii), it shall be professional standards and procedures with respect to the followed by the independent accountant who is associated by virtue of reporting on the financial statements in which presumed that appropriate data in the note have been with the unaudited footnote the note is included. (vi) Examination of financial statements by more than one independent public accountant. If, with respect to the examination of the financial statements of any bank, the principal independent public accountant relies on an audit made by another independent public accountant of certain of the accounts of such bank or its subsidiaries, the report of such other accountant shall be filed (and the provisions of this subparagraph shall be applicable thereto); however, the report of such other accountant need not be filed (a) if no reference is made directly or indirectly to such other accountant's audit in the principal accountant's report, or (b) if, having referred to such other accountant's audit the principal accountant's report indicates an assumption of responsibility for such other accountant's audit. (c) Falsification of accounting records. No person shall, directly or indirectly, falsify or cause to be falsified, any book, record or account subject to section 13(b)(2XA) of the Securities Exchange Act. (d) Bank's representations in connection with the preparation of required reports and documents. No director or officer of a bank shall directly or indirectly make or cause to be made a materially false or misleading statement, or omit to state, or cause another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with (1) any audit or examination of the financial statements of the bank required to be made pursuant to this part or (2) the preparation or filing of any document or report required to be filed with the Board pursuant to this part or otherwise. (e) Provisions of general application. (1) Requirements as to form. Financial statements shall be prepared in accordance with the applicable requirements of Formats 9A, B, C, D, and E. All money amounts required to be shown in financial statements may be expressed in even dollars or thousands of dollars. If shown in even thousands, an indication to that e ffect shall be inserted immediately beneath the caption of the statement or schedule, or at the top of each money column. The individual amounts shown need not be adjusted to the nearest dollar or thousand if the failure of the items to add to the totals shown is stated in a note as due to the dropping of amounts of less than $1.00 or $1,000, as appropriate. (2) Items not material. If the amount that would otherwise be required to be shown with respect to any item is not material, it need not be separately set forth. (3) Inapplicable captions and omission of unrequired or inapplicable financial statements. No caption need be shown in any financial statement required by the forms set forth in this Part as to which the items and conditions are not present. Financial statements not required or inapplicable because the required matter is not present need not be filed, but the statements omitted and the reasons for their omission shall be indicated in the list of financial statements required by the applicable form. -8- (4) Additional information. In addition to the information required with respect to any financial statement, such further information shall be furnished as is necessary to make the required statem ents, in the light of the circumstances under which they are made, not misleading. (5) Changes in accounting principles and practices and retroactive adjustments of accounts. Any change in accounting principle or practice, or in the method of applying any accounting principle or practice, made during any period for which financial statements are filed that affects comparability of such financial statements with those of prior or future periods and the e ffect thereof upon the net income for each period for which financial statements are filed, shall be disclosed in a note to the appropriate financial statement. Any material retroactive adjustment made during any period for which financial statements are filed, and the effect thereof upon net income of prior periods, shall be disclosed in a note to the appropriate financial statement. (6) Summary of accounting principles and practices. Information required in notes as to accounting principles and practices reflected in the financial statements may be presented in the form of a single statement. In such a case specific references shall be made in the appropriate financial statements to the applicable portion of such single statement. (7) Reacquired evidences of indebtedness. Reacquired evidences of indebtedness shall be deducted from the appropriate liability caption. (8) Reacquired shares. When authorized by statute, reacquired shares not retired shall be shown separately as a deduction from capital shares, or from the total of capital shares and other stockholders' equity, at either par or stated value, or cost, as circumstances require. (9) Foreign activities. If assets, or operating income, or income (loss) before taxes and securities gains (losses), or net income (loss) associated with foreign activities, exceeded 10 per cent of the corresponding amount in the related financial statements, the following disclosures concerning foreign activities shall be furnished in a note to the financial statements. (i) Loans. State separately loan categories as prescribed by Schedule A, Column C of Consolidated Report of Condition, FR 2106, as applicable. Categories of less than 10 per cent of total loans related to foreign activities may be grouped with all other loans. (ii) Balances with banks in foreign countries. State separately balances with foreign branches of other U. S. banks and with other banks in foreign countries. (See line 5(a) and (b) of Schedule C, Column C of Consolidated Report of Condition, FR 2106.) Also furnish the amount of interest-bearing balances included above. (iii) Deposit liabilities. Furnish deposit information as prescribed in Schedule F/F of Consolidated Report of Condition, FR 2106. State also amount of interest-bearing deposits in denominations of $100,000 or more. -9- (iv) Other borrowings. State separately short-term borrowings, other liabilities for borrowed money, and other indebtedness related to foreign activities corresponding to the amounts reported on the Balance Sheet (Format F-9A) Items 18, 20, 21 and 25. (v) Income and expense summary. For each period for which an income statement is filed, furnish information as prescribed in Part 1, Column B and Part 2 of the Statement of Income FR 2107s. State in a note the basis of pricing money transfers and the policy governing allocation of income and expenses to foreign activities. (vi) Allowance for possible loan losses. For each period for which a statement of income is filed, furnish in a note a reconciliation of changes in the allowance for possible loan losses applicable to loans related to foreign activities. (vii) If disclosure above is required, state separately in a note for each significant geographic area, and in the aggregate for all other geographic areas not deemed significant, the following. (a) total assets (net of valuation allowances) (b) total operating income (c) income (loss) before taxes and securities gains (losses) (d) net income (loss) Note: A ’’significant geographic area" is one whose assets, operating income, or net income exceed 10 per cent of the comparable amount as reported in the related financial statements. (10) Foreign currencies. The basis of conversion of all items in foreign currencies shall be stated, and the amount and disposition of the resuiting unrealized profit or loss shown. Disclosure should be made as to the effect, insofar as this can be reasonably determined, of foreign exchange restrictions upon the consolidated financial position and operating results of the bank and its subsidiaries. (11) Commitments. If material in amount, the pertinent facts relative to firm commitments for the acquisition, directly or indirectly, of fixed assets and for the purchase, repurchase, construction, or rental of assets under long-term leases shall be stated briefly in the balance sheet or in footnotes referred to therein. Where the rentals or obligations under long-term leases are material the following shall be set forth in a note to the appropriate financial statement: (i) Total rental expense (reduced by rentals from subleases, with disclosure of such amounts) entering into the determination of results of operations for each period for which an income statement is presented shall be disclosed. Rental payments under short-term leases for a month or less which are not expected to be renewed need not be included. Contingent rentals, such as those based upon usage or sales, shall be reported separately from the basic or minimum rentais. -10- (ii) The minimum rental commitments under all noncancelable leases shall be disclosed, as of the date of the latest balance sheet required, in the aggregate for (A) each of the five succeeding fiscal years and (B) the remainder as a single amount. The amounts so determined should be reduced by rentals to be received from existing noncancelable subleases (with disclosure of the amounts of such rentals). For purposes of this rule, a noncancelable lease is defined as one that has an initial or remaining term of more than one year and is noncancelable, or is cancelable only upon the occurrence of some remote contingency or upon the payment of a substantial penalty. (iii) Additional disclosures shall be made to report in general terms; (A) the basis for calculating rental payments if dependent upon factors other than the lapse of time; (B) existence and terms of renewal or purchase options, escalation clauses, etc.; (C) the nature and amount of related guarantees made or obligations assumed; (D) restrictions on paying dividends, incurring additional debt, further leasing, etc.; and (E) any other information necessary to assess the effect of lease commitments upon the financial position, results of operations, and changes in financial position of the lessee. (12) General notes to balance sheets. If present with respect to the bank for which the statement is filed, the following shall be set forth in the balance sheet or in referenced notes thereto. Information required by items (i), (v), (vi), (vii), (viii), (ix) and (x) below shall be provided with the most recent fiscal year balance sheet and any interim date balance sheet being filed. (i) Assets subject to lien. The amounts of assets mortgaged, pledged, or otherwise subject to a lien or security interest shall be designated and the obligation secured thereby, if any, shall be identified briefly. (ii) Intercompany profits and losses. The effect upon any balance sheet item of profits or losses, resulting from transactions with affiliated companies and not eliminated shall be stated. If impracticable of accurate determination without unreasonable effort or expense, an estim ate or explanation shall be given. (iii) Pension and retirement plans. (A) A brief description of the essential provisions of any employee pension or retirement plan and of the accounting and funding policies relating thereto shall be given; (B) The estimated annual cost of the plan shall be stated; (C) If a plan has not been funded or otherwise provided for, the estimated amount that would be necessary to fund or otherwise provide for the pastservice cost of the plan shall be disclosed; (D) The excess, if any, of the actuarially computed value of vested benefits over the total of the pension fund and any balance sheet accruals, less any pension prepayments or deferred charges, shall be stated as of the most recent practicable date; (E) A statement shall be given of the nature and effect of significant matters affecting comparability of pension costs for which income statements are presented. (iv) Capital stock optioned to officers and employees. (A) A brief description of the terms of each option arrangement shall be given, including the title and amount of securities subject to the option, the year or years during which the options were granted, and the year or years during which the optionees became, or will become, entitled to exercise the options; (B) There shall be stated the number of shares under option at the balance sheet date, and the option price and the fair value thereof (per -1 1 - share and in total) at the dates the options were granted; the number of shares with respect to which options became exercisable during the period, and the option price and the fair value thereof (per share and in total) at the dates the options became exercisable; the number of shares with respect to which options were exercised during the period, and the option price and the fair value thereof (per share and in total) at the dates the options were exercised; and the number of unoptioned shares available at the beginning and at the close of the latest period presented, for the granting of options under an option plan. A brief description of the terms of each other arrangement covering shares sold or offered for sale to only directors, officers, and key employees shall be given, including the number of shares, and the offered price and the fair value thereof (per share and in total) at the dates of sale or offer to sell, as appropriate. The required information may be summarized as appropriate with respect to each of the categories referred to in this subclause (B); (C) The basis of accounting for such option arrangements and the amount of charges, if any, reflected in income with respect thereto shall be stated. (v) Restrictions that limit the availability of surplus and/or undivided profits for dividend purposes. Describe the most restrictive of any such restriction, other than as reported pursuant to Item 26(b) of Format F-9A, indicating briefly its source, its pertinent provisions, and where appropriate and determinable, the amount of the surplus and/or undivided profits (A) so restricted or (B) free of such restrictions. (vi) Contingent liabilities. A brief statement as to contingent liabilities not reflected in the balance sheet shall be made. (vii) Standby letters of credit. State the amount of outstanding "standby letters of credit." For the purpose of this paragraph, "standby letters of credit" include every letter of credit (or similar arrangement however named or designated) which represents an obligation to the beneficiary on the part of the issuing bank (A) to repay money borrowed by or advanced to or for the account of the account party or (B) to make payment on account of any evidence of indebtedness undertaken by the account party, or (C) to make payment on account of any default by the account party in the performance of an obligation, l l except that, if prior to or at the time of issuance of a standby letter of credit, the issuing bank is paid an amount equal to the bank's maximum liability under the standby letter of credit, or has set aside sufficient funds in a segregated, clearly earmarked deposit account to cover the bank's maximum liability under the standby letter of credit, then the amount of that standby letter of credit need not be stated. (viii) Defaults. interest, sinking fund, or or credit agreements, or which default or breach The facts and amounts concerning any default in principal, redemption provisions with respect to any issue of securities any breach of covenant of a related indenture or agreement, existed at the date of the most recent balance sheet being 1/ As defined, "standby letter of credit" would not include (1) commercial letters of credit and similar instruments where the issuing bank expects the beneficiary to draw upon the issuer and which do not "guaranty" payment of a money obligation or (2) a guaranty or similar obligation issued by a foreign branch in accordance with and subject to the limitations of Regulation M. -1 2 - filed and which has not been subsequently cured, shall be stated. Notation of such default or breach of covenant shall be made in the financial statements. If a default or breach exists, but acceleration of the obligation has been waived for a stated period of time beyond the date of the most recent balance sheet being filed, state the amount of the obligation and the period of the waiver. (ix) Significant changes in bonds, mortgages, and similar debt. Any significant changes in the authorized or issued amounts of bonds, mortgages, and similar debt since the date of the latest balance sheet being filed for a particular person or group shall be stated. (x) Warrants or rights outstanding. Information with respect to warrants or rights outstanding at the date of the related balance sheet shall be set forth as follows: (A) Title of issue of securities called for by warrants or rights outstanding; (B) aggregate amount of securities called for by warrants or rights outstanding; (C) date from which warrants or rights are exercisable and expiration date; (D) price at which warrant or right is exercisable. (13) General notes to statements of income. If present with respect to the bank for which the statement is filed, the following shall be set forth in the statement of income or in referenced notes thereto: (i) Intercompany profits and losses. The amount of any profits or losses resulting from transactions between unconsolidated affiliated companies shall be stated. If impracticable of determination without unreasonable effort and expense, an estim ate or explanation shall be given. (ii) Depreciation and amortization. For the period for which statements of income are filed, there shall be stated the policy followed with respect to: (A) The provision for depreciation of physical properties or valuation allowances created in lieu thereof, including the methods and, if practicable, the rates used in computing the annual amounts; (B) The provision for depreciation and amortization of intangible, or valuation allowances created in lieu thereof, including the methods and, if practicable, the rates used in computing the annual amounts; (C) The accounting treatment for maintenance, repairs, renewals, and improvements; and (D) The adjustment of the accumulated valuation allowances for depreciation and amortization at the time the properties were retired or otherwise disposed of, including the disposition made of any profit or loss on sale of such properties. (iii) Bonus, profit sharing, and other similar plans. Describe the essential provisions of any such plans in which only directors, officers or key employees may participate, and state, for each of the fiscal periods for which income statements are required to be filed, the aggregate amount provided for all plans by charges to expense. (iv) Income tax expense. (A) Disclosure shall be made, in the income statement or a note thereto, of the components of income tax expense, including: (1) taxes currently payable; (2) the net tax effects, as applicable, of (i) timing differences (indicate separately the amount of the estimated tax effect of each of the various types of timing differences where the amount of each such tax effects exceeds -135 per cent cent of the amount computed by multiplying the income before tax by the applicable statutory Federal income tax rates; other differences may be combined) and (ii) operating losses; and (3) the net deferred investment tax credits. Amounts applicable to United States Federal income taxes, to foreign income taxes and to other income taxes shall be stated separately for each major component, unless the amounts applicable to foreign and other income taxes do not exceed 5 per cent of the total for the component. (B) If it is expected that the cash outlay for income taxes with respect to any of the succeeding three years will substantially exceed income tax expense for such year, that fact should be disclosed together with the approximate amount of the excess the year (or years) of occurrence and the reasons therefor. (C) Provide a reconciliation between the amount of reported total income tax expense and the amount computed by multiplying the income before tax by the applicable statutory Federal income tax rate, showing the estimated dollar amount of each of the underlying causes for the difference. If no individual reconciling item amounts to more than 5 per cent of the amount computed by multiplying the income before tax by the applicable statutory Federal income tax rate, and the total difference to be reconciled is less than 5 per cent of such computed amount, no reconciliation need be provided unless it would be significant in appraising the trend of earnings. Reconciling items that are individually less than 5 per cent of the computed amount may be agSreSated in the reconciliation. The reconciliation may be presented in percentages rather than in dollar amounts. (v) Interest capitalized. The amount of interest cost capitalized in each period for which an income statement is presented shall be shown within the income statement. Banks which follow a policy of capitalizing interest cost shall make the following additional disclosures: (A) The reason for the policy of interest capitalization and the way in which the amount to be capitalized is determined. (B) The e ffect on net income for each period for which an income statement is presented of following a policy of capitalizing interest as compared to a policy of charging interest to expense as incurred. (vi) Disagreements on accounting and financial disclosure matters. If, (A) within the twenty-four months prior to the date of the most recent financial statements, a Form F-3 has been filed reporting a change of accountants, (B) included in the Form F-3 there was a reported disagreement on any matter of accounting principles or practices or financial statement disclosure, (C) during the fiscal year in which the change in accountants took place or during the subsequent fiscal year there have been any transactions or events similar to those which involved the reported disagreement, and (D) such transactions or events were material and were accounted for or disclosed in a manner different from that which the former accountants apparently would have concluded was required, state the existence and nature of the disagreement and also state the effect on the financial statements if the method had been followed which the former accountant apparently concluded was required. The effects on the financial statements need not be disclosed if the method asserted by the former accountant ceases to be generally accepted because of authoritative standards or interpretations subsequently issued. (vii) Disclosure of selected quarterly financial data in notes to financial statements. -14- Exemption. This rule shall not apply unless the bank meets the following conditions: (A) The bank's securities registered under Section 12(g) of the Securities Exchange Act of 1934 are quoted on the National Association of Securities Dealers Automated Quotation System and (1) meet the requirements for continued inclusion on the list of OTC margin stocks set forth in section 220.8(i) of Regulation T of the Board of Governors of the Federal Reserve System or (2) the bank has securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934; and (B) The bank and its consolidated subsidiaries (1) have had a net income after taxes but before extraordinary items and the cumulative effect of a change in accounting of at least $250,000 for each of the last three fiscal years; or (2) had total assets of at least $200,000,000 as of the end of the last fiscal year. (1) Disclosure shall be made in a note to financial statements of total operating income, income before securities gains (losses), income before extraordinary items and cumulative effect of a change in accounting, net income, and per share data based upon such income for each full quarter within the two most recent fiscal years and any subsequent interim period for which income statements are presented. (2) When the data required by the preceding paragraph above vary from the amounts previously reported on the Form F-4 filed for any quarter, such as would be the case when a pooling of interests occurs or where an error is corrected, reconcile the amounts given with those previously reported describing the reason for the difference. (3) Describe the effect of any unusual or infrequently occurring items recognized in each full quarter within the two most recent fiscal years and any subsequent interim period for which income statements are presented, as well as the aggregate e ffect and the nature of year-end or other adjustments that are material to the results of that quarter. (4) Where this note is part of audited financial statements, it may be designated "unaudited." (f) Consolidated financial statements. (1) Consolidated statements generally pegged more meaningful information to the investor than unconsolidated statements. Except where good reason exists, consolidated statements of the bank and its majority-owned significant subsidiaries should be filed. (2) Every majority-owned bank-premises subsidiary and every majority-owned subsidiary operating under the provisions of section 25 or section 25(a) of the Federal Reserve Act ("Agreement Corporations" and "Edge Act Corporations") shall be consolidated with that of the reporting bank irrespective of whether such subsidiary is a significant subsidiary. (3) If the financial statements of a subsidiary are as of a date or for periods different from those of the bank, such statements may be used as the basis for consolidation of the subsidiary only if the date of such statements is not more than 93 days from the date of the close of the bank's fiscal year; the closing date of the -15- subsidiary is specified; the necessity for the use of different closing dates is explained briefly; and any changes in the respective fiscal periods of the bank and the subsidiary made during the period of report are indicated clearly. (4) There shall be set forth in a note to each consolidated balance sheet filed a statement of any difference between the investment in subsidiaries consolidated, as shown by the bank's books, and the bank's equity in the net assets of such subsidiaries as shown by the subsidiaries' books. If any such difference exists, there shall be set forth the amount of the difference and the disposition made thereof in preparing the consolidated statements, naming the balance sheet captions, and stating the amount included in each. (5) There may be filed financial statements in which majority-owned subsidiaries not consolidated with the parent are consolidated or combined in one or more groups, and 50 per cent or less owned persons, the investments in which are accounted for by the equity method are consolidated or combined in one or more groups, pursuant to principles of inclusion or exclusion which will clearly exhibit the financial position and results of operations of the group or groups. (6) A brief description of the principles followed in consolidating or combining the separate financial statements, including the principles followed in determining the inclusion or exclusion of (i) subsidiaries and (ii) companies in consolidated or combined financial statements, shall be stated in the notes to the respective financial statements. (7) As to each consolidated financial statement and as to each combined financial statement, if there has been a change in the persons included or excluded in the corresponding statement for the preceding fiscal period filed with the Board which has a material effect on the financial statements, the persons included and the persons excluded shall be disclosed. If there have been any changes in the respective fiscal periods of the persons included made during the periods of the report which have a material effect on the financial statements, indicate clearly such changes and the manner of treatment. (8) A statement shall be made in a note to the latest balance sheet of the amount and the accounting treatment of any difference between the investment of a bank and its consolidated subsidiaries, as shown in the consolidated balance sheet, in the unconsolidated subsidiaries and 50 per cent or less owned persons accounted for by the equity method, and their equity in the net assets of such unconsolidated subsidiaries and 50 per cent or less owned persons. (g) Statement of changes in equity capital. A statement of changes in equity capital shall be filed with each statement of income filed pursuant to this Part. (h) Statement of changes in financial position. A statement of changes in financial position shall be filed with each statement of income filed pursuant to this Part. (i) Schedules to be filed. (1) The following schedules shall be filed with each balance sheet filed pursuant to this Part: Schedule I - U. S. Treasury Securities, -16- Obligations of other U. S. Government Agencies and Corporations, Obligations of States and Political Subdivisions, and Other Bonds, Notes and Debentures; Schedule in - Loans; and Schedule IV - Bank Premises and Equipment. (2) The following schedule shall be filed with each statement of income filed pursuant to this Part: Schedule D - Loans to O fficers, Directors, Principal Security Holders, and any Associates of the Foregoing Persons; Schedule V - Investments in, Income from Dividends, and Equity in Earnings or Losses of Subsidiaries and Associated Companies; and Schedule VI - Allowance for Possible Loan Losses. (3) Reference to the schedules referred to in subparagraphs (1) and (2) shall be made against the appropriate captions of the balance sheet or statement of income. (4) The schedules shall be examined by the independent accountant if the related financial statements are so examined. (3) Format F-9, 12 C.F.R. 206.71 [am ended]. Section 206.71 of Regulation F, Format F-9, would be amended to read as follows: -17- BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FORMAT F-9 FINANCIAL STATEMENTS A. Balance Sheet (Format F-9A) B. Statement of Income (Format F-9B) C. Statement of Changes in Equity Capital (Format F-9C) D. Statement of Changes in Financial Position (Format F-9D) E. Schedules (Format F-9E) GENERAL INSTRUCTIONS 1. Preparation of Financial Statements. The formats are intended to serve as guides for preparation of financial statements required to be filed pursuant to this Part. The formats are recommended presentations, but financial statements may be filed in such form and order as will best indicate their significance and character. Requirements for inclusion of financial statements in certain other guideline forms required by Regulation F are found in the instructions to such forms. Requirements set forth in Section 206.7 of this Part shall be applicable to financial statements filed pursuant to Regulation F. The term, "financial statements," as used in this instruction, includes all required notes to financial statements and ail required schedules. 2. Accrual accounting. Financial statements shall generally be prepared on the basis of accrual accounting whereby all revenues and all expenses shall be recognized during the period earned or incurred regardless of the time received or paid, with certain exceptions: (a) where the results would be only insignificantly different on a cash basis, or (b) where accrual is not feasible. Statements with respect to the first fiscal year that a bank reports on the accrual basis shall indicate clearly, by footnote or otherwise, the beginning-ofyear adjustments that were necessary and their effect on prior financial statements filed under this Part. 3. Negative Amounts. Negative amounts shall be shown in brackets or parentheses and so described in the related caption, columnar heading or a note to the statement or schedule, as appropriate. -18- 4. Items not Material. If the amount that would otherwise be required to be shown with respect to any items is not material, it need not be separately set forth. 5. Inapplicable Captions and Omission of Unrequired or Inapplicable Financial Statements and Schedules. No caption need be shown in any financial statement or schedule if the items and conditions are not present. Financial statements and schedules not required or inapplicable because the required matter is not present need not be filed, but the statements and schedules omitted and the reasons for their omission shall be indicated in the list of financial statements and schedules required by the applicable form. -19A. BALANCE SHEET The Balance Sheet shall be prepared in accordance with the Instructions for the Preparation of the Consolidated Report of Condition (FR 2103, FR 2105 or FR 2106, as applicable) except to the extent revised or expanded financial data presentation is necessary to meet the disclosure standards of the Securities Exchange Act of 193^, as amended. Note: Banks subject to this Part are required to report on the accrual basis of accounting. The following captions and added supplemental instructions shall be observed in the preparation of the Balance Sheet required under this Part. Assets 1. Cash and due from depository institutions (a) State separately (1) interest bearing deposits in other banks and (2) noninterest bearing deposits and cash. (See Schedule C of FR 2105 or FR 2106.) 2. U, S. Treasury Securities 3. Obligations of other U. S. Government agencies and corporations Obligations of States and political subdivisions in the United States 5. Other bonds, notes and debentures 6. Federal Reserve stock and corporate stock (a) With respect to Items 2, 3,4, 5 and 6, state parenthetically on the balance sheet or in a note for each category the aggregate amount on the basis of market quotations or fair value of securities at the balance sheet date. (b) With respect to Items 2, 3, 4, 5 and 6, state in a note the basis by which book value is determined. Bond premium shall be amortized and discount shall be accreted. (c) With respect to Items 4, 5 and 6, as applicable, state in a note the name of issuer, aggregate book value and aggregate amount on the basis of market quotations or fair value of the securities of any issuer for which the aggregate book value exceeds 10 per cent of the equity capital accounts of the bank. Debt securities issued by a State of the United States and its political subdivisions and agencies which are payable from and secured by the same source of revenue or taxing authority shall be considered to be securities of a single issuer. Consideration shall be given to disclosure of risk characteristics of the securities of an issuer and of differences in risk characteristics of different issues of securities of an issuer as may be appropriate. -2 0 - 7. Trading account securities (a) $. 9. State in a note whether securities in the trading account are vaiued at lower of cost or market or market. If market basis is not used, in valuing the trading account securities inventory, furnish the aggregate fair market value at each balance sheet date. Federal funds sold and securities purchased under agreements to resell Loans, (net of unearned income) Less: Allowance for possible loan losses Loans, net (a) If the amount exceeds 5 per cent of equity capital, state in a note the aggregate amount of loans outstanding to officers, directors and principal security holders and associates. Amounts to be reported shall include loans from the bank or any subsidiary. It shall not be necessary to disclose amounts related to individuals for household, family and other personal expenditures made in the ordinary course of business that (i) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other persons, and (ii) did not involve more than normal risk of collectibility or present other unfavorable features. 10. Lease financing receivables 11. Bank Premises, furniture and fixtures and other assets representing bank premises 12. Real estate owned other than bank premises (a) State in a note (1) the basis at which carried, (2) the aggregate fair market value of all real estate owned other than bank premises with an explanation of the method of determining such fair market value, and (3) a reconciliation of any valuation allowance account. 13. Investments in unconsolidated subsidiaries and associated companies 14. Customers' liability to this bank on acceptances outstanding 15. Other assets 16. Total Assets Liabilities 17. Deposits -2 1 - (a) State separately (1) Demand deposits in domestic bank offices (2) Savings deposits in domestic bank offices (3) Time deposits in domestic bank offices (4) Deposits in foreign offices (See Schedule F and FF of FR 2105 or FR 2106, as applicable.) (b) 18. State in a note the aggregate amount of (1) time certificates of deposit and (2) other time deposits in denominations of $100,000 or more in domestic offices. (See Memoranda Items 1(b) and (c) of FR 2105 and FR 2106, as applicable.) Federal funds purchased and securities sold under agreements to repurchase (a) If the approximate average balance outstanding during the period for any category was more than 30 per cent of equity capital accounts, state in a note with respect to each activity category the following: (1) Weighted average interest rate at balance sheet date. (2) Maximum amount of borrowings at any month-end during each period for which an end-of-period balance sheet is required (3) Approximate average borrowings outstanding during the period (4) Approximate weighted average interest borrowings outstanding during the period rate for such 19. Interest-bearing demand notes (note balance) issued to the U. S. Treasury 20. Other liabilities for borrowed money average See supplemental instruction to Item 18. 21. Mortgage indebtedness and liability for capitalized leases (a) State in a note material terms and conditions of each obligation including (but not limited to) (1) the general character of the debt, (2) the rate of interest, (3) the date of maturity, or if maturing serially, a brief indication of the serial maturities, (4) if the payment of principal or interest is contingent, an appropriate indication of such contingency, (5) a brief indication of priority and (6) the amount outstanding at the balance sheet date. -2 2 - (b) Furnish in tabular form the combined aggregate amount of maturities and sinking fund requirements for all obligations, each year for the five years following the date of the balance sheet. (c) If there are any liens on bank premises or other real estate owned by the bank or its consolidated subsidiaries which have not been assumed by the bank or its consolidated subsidiaries, state in a note the amount thereof together with an appropriate explanation. 22. Bank's liability on acceptances executed and outstanding 23. Other liabilities 24. Total Liabilities (excluding subordinated notes and debentures) 25. Subordinated notes and debentures (a) State in a note material terms and conditions of each obligation including (but not limited to) (1) the general character of the debt, (2) the rate of interest, (3) the date of maturity, or if maturing serially, an indication of serial maturities, (4) if the payment of principal or interest is contingent, an appropriate indication of such contingency, (5) a brief indication of priority and (6) the amount outstanding at the balance sheet date. (b) Furnish in tabular form the combined aggregate amount of maturities and sinking fund requirements for all obligations, each year for the five years following the date of the balance sheet. Equity Capital 26. Preferred stock (a) State for each class of shares the title of issue, the number of shares authorized, issued and outstanding, the par or stated value per share and the capital share liability thereof, and if convertible, the basis of conversion. Show also the dollar amount, if any, of shares subscribed but unissued, and show the deduction of subscriptions receivable therefrom. (b) State in a note (1) If callable, the date or dates and the amount per share at which such shares are callable, (2) if convertible, the terms of the conversion, (3) any arrears in cumulative dividends per share and in total for each class of shares, and (4) the preferences on involuntary liquidation, if other than the par or stated value. When the excess involved is material, there shall be shown the difference between the aggregate preference on involuntary liquidation and the aggregate par or stated value, a statement that this difference (plus any arrears in dividends) exceeds the sum of the par or stated value of the junior capital shares, surplus, and undivided profits including reserve for contingencies and other capital reserves if such is the case, and a statement as to the existence (or absence) of any restrictions upon surplus and/or undivided profits growing out of the fact -23that upon involuntary liquidation the preference of the preferred stock exceeds its par or stated value. 27. Common stock (a) State for each class of shares the title of issue, the number of shares authorized, issued and outstanding, the par or stated value per share and the capital share liability thereof. Show also the dollar amount, if any, of shares subscribed but unissued, and show the deduction of subscriptions receivable therefrom. 28. Surplus 29. Undivided profits 30. Reserve for contingencies and other capital reserves 31. Total Equity Capital 32. Total Liabilities and Equity Capital GENERAL NOTES TO THE BALANCE SHEETS If present with respect to the bank for which the statement is filed, the following topical information shall be furnished in notes to the balance sheets: 1. Assets subject to Lien. 2. Intercompany profits and losses. 3. Pension and Retirement Plans. 4. Capital Stock Optioned to Officers and Employees. 5. Restrictions that limit the availability of surplus and/or undivided profits for dividend purposes. 6. Contingent liabilities. 7. Standby letters of credit. 8. Defaults. 9. Significant Changes in Bonds, (Mortgages, and Similar Debt. 10. Warrants or rights outstanding. -24B. STATEMENT OF INCOME The Statement of Income shall conform generally to the Consolidated Report of Income (FR 2104 or FR 2107, as applicable) and related instructions thereto, except to the extent revised or expanded financial data presentation is necessary to meet the disclosure standards of the Securities and Exchange Act of 1934, as amended. Note: Banks subject to this Part are required to report on an accrual basis of accounting. The following captions and added supplemental instructions shall be observed in the preparation of the Statement of Income required under this Part: 1. Operating Income: (a) Interest and fees on loans (b) Interest on balances with depository institutions (c) Income on Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries (d) Interest on U. S. Treasury securities (e) Interest on obligations of other U. S. Government agencies and corporations (f) Interest on obligations of States and other political subdivisions in the U. S. (g) Interest on other bonds, notes and debentures (h) Dividends on stock (i) Income from lease financing (j) Income from fiduciary activities (k) Service charges on deposit accounts in domestic offices (l) Other service charges, commissions and fees (m) Other operating income (n) 2. Total Operating Income Operating Expenses: (a) Salaries and employee benefits (b) Interest on time certificate of deposits of $100,000 or more issued by domestic offices -25- (c) Interest on deposits in foreign offices (d) Interest on other deposits (e) Expense of Federal funds purchased and securities sold under repurchase agreements in domestic offices of the bank and of its Edge and Agreement subsidiaries (f) (l) Interest on demand notes (note balances) issued to the U. S. Treasury (2) Interest on other borrowed money (g) Interest on subordinated notes and debentures (h) (1) Occupancy expense of bank premises, Gross (2) Less - Rental income (3) Occupancy expense of bank premises, Net (i) Furniture and equipment expense (j) Provision for possible loan losses (k) Other operating expenses (l) Total Operating Expenses 3. Income (Loss) Before Taxes And Securities Gains (Losses) 4. Applicable Income Taxes 5. Income (Loss) Before Securities Gains (Losses) 6. (a) Securities Gains (Losses), Gross (b) Applicable Income Taxes (c) Security Gains (Losses), Net 7. Income (Loss) Before Extraordinary Items And Cumulative Effects of Changes In Accounting Principles 8. Extraordinary Items, Less Applicable Income Tax 9. Cumulative Effects Of Changes In Accounting Principles 10. Net Income (Loss) -2 6 - 11 • Earnings (Loss) Per Common Share V (a) Income (Loss) Before Securities Gains (Losses) (b) Net Income Earnings per common share. State the per share amounts applicable to common stock (including common stock equivalents) and per share amounts on a fully diluted basis, if applicable. The basis of computation, including the number of shares used, shall be furnished in a note to the financial statements. GENERAL NOTES TO THE STATEMENT OF INCOME If present with respect to the bank for which the statement is filed, the following topical information shall be furnished in notes to the Statement of Income. 1. Intercompany profits and losses 2. Depreciation and amortization 3. Bonus, profit sharing, and other similar plans Income tax expense 5. Interest capitalized 6. Disagreements on accounting and financial disclosure matters 7. Disclosure o f selected quarterly financial data in notes to financial statements For detailed instructions as to required content of above general notes statement o f income, refer to Section 206.7(e)(13) of Regulation F. 17 to the If amounts are entered for Item 8 and/or 9, per share amounts shall be stated separately for Items 3, 8 and/or 9, and 10. -27- C. STATEMENT OF CHANGES IN EQUITY CAPITAL The format and content o f the Statement of Changes in Equity Capital shall conform generally to Section B of the Consolidated Report of Income (FR 2104 and FR 2107) and related instructions thereto except to the extent revised or expanded financial data presentation is necessary to meet the disclosure standards of the Securities Exchange Act of 1934, as amended. The following supplemental instructions shall be observed in the preparation of the Statement of Changes in Equity Capital required under this Part. Reconcile the various equity capital accounts individually as follows: 1. Balance end of previous year 2. Prior Period Adjustments 1/ (a) Cumulative e ffe c t type changes in accounting principles shall be reported under Item 9 of the Statement of Income 3. Adjusted balance end of previous year 4. Net income (loss) 5. Sale, conversion, acquisition, or retirement o f capital net: (a) Transactions with own holding company or affiliates (b) Other 6. Changes incident to mergers and absorptions, net 7. LESS: Cash dividends declared on common stock S. LESS: Cash dividends declared on preferred stock 9. Stock dividend issued 10. Other increases (decreases) 1/ 11. Balance end o f period JJ State separately any material amounts, indicating clearly the nature of the transaction out of which the item arose. -28- D. STATEMENT OF CHANGES IN FINANCIAL POSITION Sources of Funds Operations: Net Income Charges (Credits) to Income not affecting Funds: Total Funds provided by Operations Equity Funds — Proceeds Subordinated Notes and Debentures — Sale Proceeds Increase (Decrease) in Liabilities: U Total Applications of Funds Payment o f Dividends Purchase of Property and Equipment Increase (Decrease) in Assets: U Total 17 ~ Sources and applications of funds items shall be shown separately by amounts when they exceed 5 per cent o f the average of total funds provided during the respective reported periods. -2 9 - E. SCHEDULES SCHEDULE I-U .S . TREASURY SECURITIES, OBLIGATIONS OF OTHER U.S. GOVERNMENT AGENCIES AND CORPORATIONS, OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS, AND OTHER BONDS, NOTES AND DEBENTURES Type and maturity grouping Book ^ v a lu e 1 Market value U.S. Treasury securities Within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years Total U.S. Treasury securities Obligations o f other U.S. Government agencies and corporations Within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years Total securities o f other U.S. Government agencies and corporations ^^ Obligations o f States and political subdivisions c Within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years Total obligations o f States and political subdivisions ^ Other bonds, notes and debentures^ ^State briefly in a footnote the basis for determining the amounts in this column. ^Include obligations of the States of the United States and their political subdivisions, agencies, and instrumentalities; also obligations of territorial and insular possessions o f the United States. Do not include obligations o f foreign states. otate in a footnote the aggregate (a) book value and (b) market value of securities that are less than "investment grade”. If market value is determined on any basis other than market quotations at balance sheet date, explain. Note: See Schedule B of FR 2103, FR 2105 or FR 2106, as applicable. -3 0 - SCHEDULE n - LOANS TO OFFICERS, DIRECTORS, PRINCIPAL SECURITY HOLDERS, AND ANY. ASSOCIATES OF THE FOREGOING PERSONS1 Col. A Name o f Borrower (Note 2) Col. B Balance at Beginning of Period Col. C Col. D Col. E Additions Deductions 111 (2) Amounts Amounts Collected Charged (Note 3) Off Balance at End of Period ^Provide information if at any time during the period for which related income statements are required to be filed, loans to a specified person and associates exceeded 2 K2% of equity capital of the bank or $500,000, whichever is less. It shall not be necessary to include amount o f loans related to individuals for household, family and other personal expenditures made in the ordinary course of business as defined in Item 9(a) of Format F-9A, Balance Sheet. Loans to directors (and any associates) who are neither officers nor principal security holders may be stated in the aggregate. The number of directors for whom loans are stated in the aggregate shall bp indicated in Column A. zState in a note hereto pertinent information such as the maturity date, interest rate, terms of repayment and collateral, if any, o f loans made to the specified persons named in Column A as of the dale of the most recent balance sheet being filed. u collection was other than cash, explain. - 31- SCHEDULE ID - LOANS Type Loans in domestic offices Real estate loans: Insured or guaranteed by the U.S. Government or its agencies Other Loans to financial institutions Loans for purchasing or carrying securities (secured or unsecured) Loans to finance agricultural production and other loans to farmers Commercial and industrial loans Loans to individuals for household, family and other personal expenditures Ail other loans (including overdrafts) Loans in foreign offices Total loans, gross Less: Unearned income on loans Total loans (excluding unearned income) Note: See Schedule A of FR 2103, FR 2103 or FR 2106, as applicable. Book Value -32- SCHEDULE IV - BANK PREiVIISES AND EQUIPMENT Classification Column A Column B Column C Gross b<jok value1 Accumulated depreciation agd amortization"^ Amount at which carried on balance sheet Bank premises (including land $ ) Equipment Leasehold improvements Totals Istate the basis o f determining the amounts in column A. ihe nature and amount o f significant additions (other than provisions for depreciation and amortization) and deductions from depreciation accounts shall be stated in an explanatory footnote. -33- SCHEDULE V - INVESTMENTS IN, INCOME FROM DIVIDENDS, AND EQUITY IN EARNINGS OR LOSSES OF SUBSIDIARIES AND ASSOCIATED COMPANIES Column A Name o f issuer * Percent o f voting stock owned Column B Column C Total investment Equity in underlying net assets at balance^ sheet date^ Column D Column E Amount o j dividends^ Bank's propor tionate part of earnings or loss for the period Totals Group separately securities o f (a) subsidiaries consolidated, (b) subsidiaries not consolidated, and (c) associated companies. Show shares, bonds, notes and advances separately in each case. ^Equity shall include advances and other obligations reported in column B to the extent recoverable, otate as to any dividends other than cash the basis on which they have been reported as income. If any such dividend received has been credited to income in an amount differing from that charged to surplus and/or undivided profits by the disbursing subsidiary, state the amount of such difference and explain. -3 4 - SCHEDULE VI - ALLOWANCE FOR POSSIBLE LOAN LOSSES Amount Balance end o f previous period Recoveries credited to allowance Changes incident to mergers and absorptions Provision for possible loan losses Less: Losses charged to allowance Foreign currency translation adjustment Balance end o f period ^Describe briefly in a footnote any such addition. 2State in a footnote (1) the amount deducted for Federal income tax purposes, (2) the maximum amount that could have been deducted for Federal income tax purposes, and (3) the balance o f the allowance at the end of the period as reported for Federal income tax purposes. Note: See Schedule C of FR 2104 or FR 2107, as applicable. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Board of Governors of the Federal Reserve System, December 19, 1979. Theodore E. Allison Secretary of the Board [ SEAL ]