OTHER ASSETS AND LIABILITIES Section 3.7
INTRODUCTION …………………………………………………….2
OTHER ASSETS………………………………………………………2
Accrued Income…………………………………………………….2
Tax Assets…………………………………………………………….2
Interest-Only Strips………………………………………………..3
Equities without Readily Determinable Fair Values……3
Bank-Owned Life Insurance Policies………………………..3
Miscellaneous Assets …………………………………………………4
Prepaid Expenses …………………………………………………..4
Repossessed Personal Property………………………………..4
Suspense Accounts…………………………………………………5
Cash Items Not In Process Of Collection…………………..5
Other Accrued Interest Receivables………………………….5
Indemnification Assets……………………………………………5
INTANGIBLE ASSETS…………………………………………….5
Goodwill and Other Intangible Assets………………………5
Accounting for Goodwill ………………………………………..6
Servicing Assets…………………………………………………….6
Accounting……………………………………………………………6
Valuation………………………………………………………………7
Regulatory Capital …………………………………………………8
Servicing Risk……………………………………………………….8
Examination Procedures………………………………………….8
OTHER LIABILITIES ………………………………………………8
Other Borrowed Money ………………………………………….9
Accrued Expenses………………………………………………….9
Servicing Liabilities ……………………………………………….9
Deferred Tax Liabilities………………………………………….9
Allowance for Off-Balance Sheet Exposures……………..9
All Other Miscellaneous Liabilities ………………………….9
RMS Manual of Examination Policies 3.7-1 Other Assets and Other Liabilities (3/12)
Federal Deposit Insurance Corporation
OTHER ASSETS AND LIABILITIES Section 3.7
INTRODUCTION
Assets and liabilities that are not reported in major balance
sheet categories are generally reported in other asset or
other liability categories. Although these items are listed
in “other” categories, it does not mean the accounts are of
less significance than items detailed in major categories.
Intangible assets lack physical substance and are also
reported separately on the balance sheet. The following
pages include descriptions of common other assets,
intangible assets, and other liabilities. Additional guidance
and information is included in the Call Report Instructions
and the Examination Documentation (ED) Module – Other
Assets and Liabilities.
OTHER ASSETS
Accrued Income
All banks, regardless of size, shall prepare the Call Report
on an accrual basis. Accrued income represents the
amount of interest earned or accrued on earning assets and
applicable to current or prior periods that has not yet been
collected. Examples include accrued interest receivable on
loans and investments. When income is accrued but not
yet collected, a bank debits a receivable account and
credits an applicable income account. When funds are
collected, cash or an equivalent is debited, and the
receivable account is credited.
The degree to which accrual accounts and practices are
reviewed during an examination should be governed by
the examination scope. When scoping examination
procedures, examiners should consider the adequacy of a
bank’s internal control structure and the extent to which
accrual accounting procedures are analyzed during audits.
When reviewing accrual accounts and practices, examiners
should assess the general accuracy of the accrual
accounting system and determine if accruals relate to items
in default or to items where collection is doubtful. If
accrued income accounts are materially overstated,
examiners should consider the impact to overall
profitability levels, classify overstated amounts as Loss,
and recommend management amend Call Reports.
Tax Assets
Banks must estimate the amount of the current income tax
liability (or receivable) to be reported on its tax returns.
Estimating this liability (or receivable) may involve
consultation with the bank’s tax advisers, a review of the
previous year’s tax returns, the identification of significant
expected differences between items of income and expense
reflected on the Call Report and on the tax returns, and the
identification of expected tax credits.
Deferred tax assets and liabilities represent the amount by
which taxes receivable (or payable) are expected to
increase or decrease in the future as a result of temporary
differences and net operating losses or tax credit
carryforwards that exist at the reporting date. When
determining the current and deferred income tax assets and
liabilities to be reported in any period, a bank’s income tax
calculation will contain an inherent degree of uncertainty
surrounding the realizability of the tax positions included
in the calculation.
A net deferred tax asset is reported if a debit balance
results after offsetting deferred tax assets (net of valuation
allowance) and deferred tax liabilities measured at the
report date for a particular tax jurisdiction. If the result for
a particular tax jurisdiction is a net credit balance, then a
net deferred tax liability is reported. A bank may report a
net deferred tax debit, or asset, for one tax jurisdiction,
such as for federal income tax purposes, and also report at
the same time a net deferred tax credit, or liability, for
another tax jurisdiction, such as for state or local income
tax purposes.
Temporary differences arise when an institution
recognizes income or expense items on the books during
one period, but records them for tax purposes in another
period. For example a deductible temporary difference is
created when a provision for loan and lease losses is
expensed in one period for financial reporting purposes,
but deferred for tax purposes until the loans are charged
off in a subsequent period.
A bank sustains an operating loss when deductions exceed
income for federal income tax purposes. An operating loss
in a year following periods when the bank had taxable
income may be carried back to recover income taxes
previously paid. Banks may carry back operating losses
for two years. Generally, an operating loss that occurs
when loss carrybacks are not available (e.g., when losses
occur in a year following periods of losses) becomes an
operating loss carryforward. Banks may carry operating
losses forward 20 years.
Tax credit carryforwards are tax credits that cannot be
used for tax purposes in the current year, but which can be
carried forward to reduce taxes payable in a future period.
Deferred tax assets are recognized for operating loss and
tax credit carryforwards just as they are for deductable
temporary differences. However, a bank can only
recognize the benefit of a net operating loss, or a tax credit
Other Assets and Other Liabilities (3/12) 3.7-2 RMS Manual of Examination Policies
Federal Deposit Insurance Corporation
OTHER ASSETS AND LIABILITIES Section 3.7
carryforward, to the extent the bank determines that a
valuation allowance is not necessary. A valuation
allowance must be recorded, if needed, to reduce the
amount of deferred tax assets to an amount that is more
likely than not to be realized. Examiners should obtain
management’s analysis and support for any deferred tax
asset and valuation allowance reported for financial
reporting purposes. Examiners should refer to the Call
Report Glossary for guidance on income taxes and may
contact the regional accounting specialist for further
guidance in cases involving significant amounts of net
deferred tax assets.
Part 325 of the FDIC Rules and Regulations, Capital
Maintenance (Part 325), establishes limitations on the
amount of deferred tax assets that can be included in Tier
1 capital. The maximum allowable amount is limited to
the lesser of: the amount of deferred tax assets dependent
upon future taxable income expected to be realized within
one year of the calendar quarter-end date, based on
projected future taxable income for that year; or ten
percent of the amount of Tier 1 capital that exists before
certain deductions. Refer to Part 325 for more details.
Interest-Only Strips
currently available on a securities exchange registered with
the Securities and Exchange Commission and are not
publicly reported by the National Association of Securities
Dealers Automated Quotations or the National Quotation
Bureau. Equity securities that do not have readily
determinable fair values may have been purchased by a
bank or acquired for debts previously contracted, and may
include items such as paid-in stock of a Federal Reserve
Bank, stock of a Federal Home Loan Bank, and stock of a
bankers’ bank. Refer to the Call Report Instructions for
additional details.
Bank-Owned Life Insurance Policies
The purchase of bank-owned life insurance (BOLI) can be
an effective way for institutions to manage exposures
arising from commitments to provide employee
compensation and pre- and post-retirement benefits, and to
protect against the loss of key persons.
Consistent with safe and sound banking practices,
institutions must understand the risks associated with
BOLI and implement a risk management process that
provides for the identification and control of such risks. A
sound pre-purchase analysis, meaningful ongoing
