Latest Changes to the Call Report for Credit Unions
This year, the National Credit Union Administration (NCUA) has regularly been changing parts of the quarterly Consolidated Report of Condition and Income (Call Report). Many of these changes clarify current rules, or reduce reporting requirements. Other changes are more significant and may require credit unions to alter their data processing systems.
The changes issued this year may be hard to interpret and can affect how credit unions extrapolate the data. The following discussion summarizes some of the significant changes effective during the most recent Call Report cycles.
Delinquent loan categories
When entering delinquent loan data on the Call Report, you must now use days instead of months.
The NCUA made this change to help standardize delinquency reporting across the financial services industry (banks and credit bureaus already report delinquencies by days) and better align the reporting with commonly used calendar conventions. This also helps account for months that have more or less than 30 days.
How you calculate the actual loan delinquencies has not changed, and you should continue to report them based on the past due status of the loan, as stated in the terms of the contract.
Investments used to fund employee benefit plans
A new section was added to Schedule B that requires credit unions to disclose all investments (book and market value) that have been purchased and earmarked to fund employee benefit plans, and which may be grouped in with investments or other assets on a statement of financial condition.
Such investment items may include defined contribution plans, deferred compensation arrangements (e.g., life insurance, 457 plans, mutual funds), and health and welfare plans. The Call Report has different reporting criteria for federal credit unions, since they have more investment restrictions.
Specifically, NCUA Rules and Regulations Part 703.16 prohibits federal credit unions from investing in the following:
- Derivatives (with a few exceptions, defined in 701.21 and 703.14)
- Mortgage servicing rights (as an investment, as opposed to a financial service for a member’s mortgage)
- Stripped mortgage backed securities (except for certain interest-only or principal only classes of collateralized mortgage obligations)
- Residual interests in collateralized mortgage obligations
- Real estate mortgage investment conduits
- Small business related securities
NCUA Rules and Regulations Part 701.19c provides federal credit unions the authority to invest in the prohibited investments described above, so long as the investment is directly related to the its obligation or potential obligation under its employee benefit program, and the investment is held only so long as this obligation or potential obligation exists.
For most credit unions, this information should be relatively easy to compile, and they only have to enter the total amount for all employee benefit plans that they participate in and have investments earmarked to fund.
A new section called Purchased Credit Impaired Loans (PCIL) has been added to the Call Report. In essence, any loan your credit union acquired that was deemed credit impaired at the purchase date (i.e., management deemed it probable that you will not collect all principal and interest on the loan) would be considered a PCIL.
Generally accepted accounting principles (GAAP) in Codification topic 310-30, defines PCILs as:
- A loan that is acquired through the completion of a transfer (merger with or purchase from another institution) with evidence of deterioration in credit quality since their origination
- A loan where it is probable at the date of acquisition that the investor will be unable to collect all contractually required payments receivable
Under GAAP, these loans are initially recorded at the present value of estimated future cash flows with no valuation allowance established at the date of acquisition. Future valuation allowances should only reflect estimated losses incurred by the investor following the date of acquisition.
It is important to note that the new PCIL section of the Call Report does not necessarily include all loans acquired via a merger or a purchase — this appears to be a source of confusion with the industry. Only loans deemed to be impaired at the time of the merger or purchase, such as loans on nonaccrual or nonperforming status, loans with evidence of member distress or that received a troubled debt restructuring, or with other characteristics that negatively impact the expectation that all future loan payments will be received under the loan’s terms in a timely manner are considered PCILs and need to be noted on the Call Report.
If you believe your credit union has any loans that meet the PCIL criteria described above, you will need to extrapolate the value of these loans from the non-impaired loans at the purchase date. The following table clarifies the information credit unions must include in the Call Report for PCILs:
|(A) Number of loans outstanding||Number of loans currently on the books that meet the definition of a PCIL.|
|(B) Contractual balance outstanding||Remaining outstanding principal loan balance (gross).|
|(C) Non-accretable balance outstanding||Contractual cash flows minus gross expected cash flows, or all expected lost future principal and interest payments.|
|(D) Accretable yield outstanding||The cash flow excess expected at acquisition over the investor’s initial investment. Under GAAP, this excess should be recognized as interest income on a level-yield basis over the life of the loan.|
|(E) Carrying value of loans: (B) – (C) – (D)||The remaining carrying amount of the loans at the Call Report date. This amount is affected by differences between the expected and actual payments received on these loans, which affects the accretable and non-accretable balances.|
|(F) Amount of loans charged-off against valuation adjustment accounts (C) and (D)||The change in the non-accretable and accretable balance for the year-to-date.|
It can be difficult and time consuming to estimate the amounts presented above, both at the date of the initial purchase and for any subsequent improvements or deterioration in credit quality. A valuation expert with experience with these types of loan transactions may be necessary for you to fully understand the implications of these changes to the Call Report.