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COVID-19 updates to the June 30, 2020, Call Report FAQ

Jul 21, 2020

On June 22, 2020, the FDIC released FIL-63-2020 - Final Rule Mitigating the Deposit Insurance Assessment Effect of Participation in the Paycheck Protection Program (PPP), the PPP Liquidity Facility, and the Money Market Mutual Fund Liquidity Facility. Below are frequently asked questions related to reporting PPP loans, CARES Act modification and the potential impact on regulatory capital ratios.

Loan modifications

Q: Are loan modifications made as a result of COVID-19 reported on the Call Report?

A: Yes. Loans eligible for modifications under Section 4013 of the CARES Act or consistent with ASC 310-40, Receivables – Troubled Debt Restructuring by Creditors are reported on schedule RC-C, Part II. The total number of loans are reported on item RC-C, Part I, M.17.a – Number of Section 4013 loans outstanding and the total amount of loans are reported on item RC-C, Part I, M.17.b. – Outstanding Balance of Section 4013 loans.

Q: What should I do if Section 4013 modification loans are past due?

A: Verify the core system loan information — such as next payment date, payment amount and maturity dates — are consistent with the modification agreement. The core system should be updated to reflect the key information indicated on the modified note. If the loan is past due according to the modified terms, the loan should be reported appropriately on RC-N, based on the loan classification and days past due.

Q: How are modifications that are not eligible under Section 4013 of the CARES Act or consistent with ASC 310-40, Receivables – Troubled Debt Restructuring by Creditors reported?

A: Loans modified that were not eligible under Section 4013 should be identified and reported as a Troubled Debt Restructure (TDR). TDRs in compliance with the modified terms should be reported at Schedule RC-C, Part I, Memorandum item 1, “Loans restructured in troubled debt restructurings that are in compliance with their modified terms.” TDRs that are 30 days or more past due or on nonaccrual should be reported at Schedule RC-N, Memorandum item 1, “Loans restructured in troubled debt restructurings included in items 1 through 7, above.”

Q: How are 1-4 family residential mortgage loans modified in response to COVID-19 risk weighted on RC-R, Part II?

A: 1-4 family residential mortgage loans that were granted a temporary modification under Section 4013 that are prudently underwritten and less than 90 days past due and not on nonaccrual should continue to be risk weighted at 50% on RC-R, Part II.

Community Banking Leverage Ratio Framework Changes

Q: How will the COVID-19 response impact the CBLR framework for calculating capital ratios for the June 30, 2020 Call Report?

A: Note that the leverage ratio for a “well-capitalized” institution has been temporarily changed. Effective June 30, 2020, the CBLR framework can be elected if the Bank’s leverage ratio is equal or greater than 8%.

Q: Is the 8% leverage ratio permanent?

A: No. The 8% leverage ratio is effective until December 31, 2020. The leverage ratio requirement effective January 1, 2021, through December 31, 2021, increases to 8.5%. Effective January 1, 2022, the leverage ratio returns to 9%.

Q: Is there still a grace period if the CBLR ratio drops below 8%?

A: Yes. The two-quarter grace period remains in effect with no changes except the leverage ratio cannot fall more than 1% below the required ratio. The minimum grace period ratio through December 31, 2020, is 7%. It will be 7.5% from January 1, 2021, through December 31, 2021, and return to 8% effective January 1, 2022.

Q: What do I have to do to opt in to the CBLR framework?

A: When you update your call reporting software, there will be elections on the landing page. When you check the box to opt-in to the CBLR framework, the form will adjust to the CBLR version. Typically, the other areas are disabled.

Changes Related to Paycheck Protection Program (PPP) Loans

Q: Is there a designated place to report PPP loan on the Call Report?

A: Yes. PPP Loan related items added to the June 30, 2020, Call Report are:

RC-M

Memoranda

17.a

Number of PPP loans outstanding

17.b

Outstanding balance of PPP loans

17.c

Outstanding balance of PPP loans pledged to the PPPLF (Federal Reserve)

17.d.(1)

Outstanding balance of borrowings from Federal Reserve Banks under the PPPLF

with a remaining maturity of one year or less

17.d.(2)

Outstanding balance of borrowings from Federal Reserve Banks under the PPPLF

with a remaining maturity of more than one year

17.e

Quarterly average amount of PPP loans pledged to the PPPLF and excluded from “Total assets for the leverage ratio” reported in Schedule RC-R, Part I, item 30

18.a

Outstanding balance of assets purchased under the Money Market Mutual Fund Liquidity Facility MMLF

18.b

Quarterly average amount of assets purchased under the MMLF and excluded from “Total assets for the leverage ratio” reported in Schedule RC-R, Part I, item 30

Q: Are PPP loans reported on RC-C – Loans and Lease Financing Receivables?

A: Yes. PPP loans granted for agricultural purposes should be reported at RC-C, Part I, item 3 – Loans to finance agricultural production and other loans to farmers. PPP loans granted to small businesses should be reported at RC-C, Part I, item 4 – Commercial and industrial loans.

Q: Where should PPP fee income deferred under ASC 310-20 (formerly FAS 91) be reported?

A: Unearned income related to the PPP loans should be net against the either RC-C, Part I, item 3 – Loans to finance agricultural production and other loans to farmers or RC-C, Part I, item 4 – Commercial and industrial loans depending on the associated loans. If the fees are comingled and cannot be determined, report at RC-C, Part I, item 11 - LESS: Any unearned income on loans reflected in items 1-9 above.

Q: How will the influx off PPP loans impact capital ratios if the risk-based capital framework is used?

A: PPP loans should be risk weighted at 0%, therefore negating the impact of the increase in assets. Practically speaking, it is likely many customers added PPP funds advanced to their accounts within the Bank, which could increase cash. Depending on where the excess cash was held, and whether the risk weight assigned was 0% or 20%, the increase in assets could cause a slight decrease in capital ratios.

Q: How will the influx off PPP loans impact capital ratios if the CBLR capital framework is used?

A: The PPP loans impact under the CBLR framework could potentially decrease the leverage ratio. The Interim Final Rules allows the quarterly average of PPP loans pledged to the Federal Reserve under the Paycheck Protection Plan Loan Facility (PPPLF) and assets purchased under the Money Market Mutual Fund Liquidity Facility (MMMLF) to be deducted from RC-R, Part I, item 30 – Total assets for the leverage ratio. If the Bank did not pledge PPP loans to either the PPPLF or the MMMLF to fund the PPP loans, the effect of the increase loans assets due to PPP loans and the potential increase in cash caused by customers depositing PPP funds could result in an increase in total average assets. The increase in total average assets could potentially decrease the CBLR leverage ratio. To mitigate this impact, the FDIC has decreased the CBLR leverage ratio to 8%, effective June 30, 2020.

Q: Are PPP loans included in the amount reported at RC-M for loans extended to executive officers, directors, principal shareholders, and related interests?

A: The April 22, 2020, interim final rule indicates that extensions of credit 100% guaranteed by the Small Business Administration PPP loan program made between February 15 and June 30, 2020, are exempt from reporting on at item RC-M, 1.a.- Aggregate amount of all extensions of credit to all executive officers, directors, principal shareholders, and their related interests

General

Q: Are updated instructions or forms for the June 30, 2020 Call Report available?

A: The final updated forms are available at https://www.fdic.gov/regulations/resources/call/call.html. The draft 2Q2020 COVID-19 Related Supplemental Instructions (Call Report) instructions are available as part of FIL-60-2020 at https://www.fdic.gov/news/financial-institution-letters/2020/fil20060.html.

Q: Has the June 30, 2020, deadline for submitting the Call Report been extended?

A: No. As of June 30, 2020, the Call Report is due July 30, 2020.

Q: Is there a way to explain unusual amounts reported that were due to the COVID-19 response?

A: Yes. The Bank can write a brief explanation, that will be available to the public on the Call Report, in the narrative statement section.

Q: What if the Call Report preparer at our Bank is unable to complete the Call Report or if there a need to review processes and procedures surrounding loan modifications and monitoring?

A: Contact your relationship executive at Wipfli, and we will work with you to find a solution.

Author(s)

Heidemann_Danielle
Danielle M. Heidemann, CIA
Manager
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