12 CFR Part 327 — Assessments

PART 327—ASSESSMENTS Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821, 1823. Source: 54 FR 51374, Dec. 15, 1989, unless otherwise noted. Subpart A—In General Source: Sections 327.1 through 327.8 appear at 71 FR 69277, Nov. 30, 2006, unless otherwise noted. § 327.1 Purpose and scope. (a) Scope. (b) Purpose. (i) The time and manner of filing certified statements by insured depository institutions; (ii) The time and manner of payment of assessments by such institutions; (iii) The payment of assessments by depository institutions whose insured status has terminated; (iv) The classification of depository institutions for risk; and (v) The processes for review of assessments. (2) Deductions from the assessment base of an insured branch of a foreign bank are stated in subpart B part 347 of this chapter. § 327.2 Certified statements. (a) Required. (2) The quarterly certified statement invoice shall reflect the institution's risk assignment, assessment base, assessment computation, and assessment amount, for each quarterly assessment period. (b) Availability and access. connect (2) Insured depository institutions shall access their quarterly certified statement invoices via FDIC connect connect. (3) Institutions that do not have Internet access may request a renewable one-year exemption from the requirement that quarterly certified statement invoices be accessed through FDIC connect. (4) Each assessment period, the FDIC will provide courtesy e-mail notification to insured depository institutions indicating that new quarterly certified statement invoices are available and may be accessed on FDIC connect. connect (5) E-mail notification may be used by the FDIC to communicate with insured depository institutions regarding quarterly certified statement invoices and other assessment-related matters. (c) Review by institution. (d) Retention by institution. (e) Amendment by institution. (1) Amend its report of condition, or other similar report, to correct any data believed to be inaccurate on the quarterly certified statement invoice; amendments to such reports timely filed under section 7(g) of the Federal Deposit Insurance Act but not permitted to be made by an institution's primary federal regulator may be filed with the FDIC for consideration in determining deposit insurance assessments; or (2) Amend and sign its quarterly certified statement invoice to correct a calculation believed to be inaccurate and return it to the FDIC by the applicable payment date specified in § 327.3(b)(2). (f) Certification. (g) Requests for revision of assessment computation. (2) The assessment rate on the quarterly certified statement invoice shall be amended only if it is inconsistent with the assessment risk assignment(s) provided to the institution by the Corporation for the assessment period in question pursuant to § 327.4(a). Agreement with the assessment rate shall not be deemed to constitute agreement with the assessment risk assignment. An institution may request review of an assessment risk assignment it believes to be incorrect pursuant to § 327.4(c). § 327.3 Payment of assessments. (a) Required In general. (2) Notice of designated deposit account. connect (3) Transition Rule for Financing Corporation (FICO) Payments. (b) Assessment payment Quarterly certified statement invoice. (2) Quarterly payment date and manner. (i) In the case of the assessment payment for the quarter that begins on January 1, the payment date is the following June 30; (ii) In the case of the assessment payment for the quarter that begins on April 1, the payment date is the following September 30; (iii) In the case of the assessment payment for the quarter that begins on July 1, the payment date is the following December 30; and (iv) In the case of the assessment payment for the quarter that begins on October 1, the payment date is the following March 30. (c) Necessary action, sufficient funding by institution. (d) Business days. (e) Payment adjustments in succeeding quarters. (f) Request for revision of computation of quarterly assessment payment In general. (i) The institution disagrees with the computation of the assessment base as stated on the quarterly certified statement invoice; (ii) The institution determines that the rate applied by the Corporation is inconsistent with the assessment risk assignment(s) provided to the institution in writing by the Corporation for the assessment period for which the payment is due; or (iii) The institution believes that the quarterly certified statement invoice does not fully or accurately reflect adjustments provided for in paragraph (e) of this section. (2) Inapplicability. (3) Requirements. (g) Quarterly certified statement invoice unavailable. connect [54 FR 51374, Dec. 15, 1989, as amended at 74 FR 9550, Mar. 4, 2009; 81 FR 32201, May 20, 2016; 81 FR 42243, June 29, 2016; 83 FR 61115, Nov. 28, 2018; 85 FR 38292, June 26, 2020] § 327.4 Assessment rates. (a) Assessment risk assignment. (b) Payment of assessment at rate assigned. (c) Requests for review. (d) Disclosure restrictions. (e) Limited use of assessment risk assignment. (f) Effective date for changes to risk assignment. (g) Designated Reserve Ratio. [71 FR 69277, 69326, Nov. 30, 2006, as amended at 75 FR 79293, Dec. 20, 2010; 76 FR 10704, Feb. 25, 2011; 81 FR 32201, May 20, 2016; 87 FR 64334, Oct. 24, 2022] § 327.5 Assessment base. (a) Assessment base for all insured depository institutions. (1) Average consolidated total assets defined and calculated. (i) Institutions that must report average consolidated total assets using a daily averaging method. (ii) Institutions that may report average consolidated total assets using a weekly averaging method. (iii) Mergers and consolidations. (2) Average tangible equity defined and calculated. (i) Calculation of average tangible equity. (ii) Alternate calculation of average tangible equity. (iii) Calculation of average tangible equity for the surviving institution in a merger or consolidation. (3) Consolidated subsidiaries Reporting for insured depository institutions with consolidated subsidiaries that are not insured depository institutions. (ii) Reporting for insured depository institutions with consolidated insured depository subsidiaries. (b) Assessment base for banker's banks Bankers bank defined. (2) Self-certification. (3) Assessment base calculation for banker's banks. (c) Assessment base for custodial banks Custodial bank defined. (2) Assessment base calculation for custodial banks. (d) Assessment base for insured branches of foreign banks. (e) Newly insured institutions. [76 FR 10704, Feb. 25, 2011, as amended at 79 FR 70437, Nov. 26, 2014] § 327.6 Mergers and consolidations; other terminations of insurance. (a) Final quarterly certified invoice for acquired institution. (b) Assessment for quarter in which the merger or consolidation occurs. (c) Other termination. (1) Payment of assessments; quarterly certified statement invoices. (2) Payment of deposits; certification to Corporation. (i) The transfer of cash funds in an amount sufficient to pay the unclaimed and unpaid deposits to the public official authorized by law to receive the same; or (ii) If no law provides for the transfer of funds to a public official, the transfer of cash funds or compensatory assets to an insured depository institution in an amount sufficient to pay the unclaimed and unpaid deposits in consideration for the assumption of the deposit obligations by the insured depository institution. (3) Notice to depositors. (ii) If the unclaimed and unpaid deposits are disposed of as provided in paragraph (c)(2)(i) of this section, a certified copy of the public official's receipt issued for the funds shall be furnished to the Corporation. (iii) If the unclaimed and unpaid deposits are disposed of as provided in paragraph (c)(2)(ii) of this section, an affidavit of the publication and of the mailing of the notice to the depositors, together with a copy of the notice and a certified copy of the contract of assumption, shall be furnished to the Corporation. (4) Notice to Corporation. (d) Resumption of insured status before insurance of deposits ceases. [76 FR 10706, Feb. 25, 2011] § 327.7 Payment of interest on assessment underpayments and overpayments. (a) Payment of interest Payment by institutions. (2) Payment by Corporation. (3) Accrual of interest. (ii) Interest on an amount specified in paragraph (a)(3)(i) of this section shall begin to accrue on the day following the regular payment date, as provided for in § 327.3(b)(2), for the amount so overpaid or underpaid, provided, however, that interest shall not begin to accrue on any overpayment until the day following the date such overpayment was received by the Corporation. Interest shall continue to accrue through the date on which the overpayment or underpayment (together with any interest thereon) is discharged. (iii) The relevant interest rate shall be redetermined for each quarterly assessment interval. A quarterly assessment interval begins on the day following a regular payment date, as specified in § 327.3(b)(2), and ends on the immediately following regular payment date. (b) Interest rates. (2) The relevant interest rate for a quarterly assessment interval will apply to any amounts overpaid or underpaid on the payment date immediately prior to the beginning of the quarterly assessment interval. The relevant interest rate will also apply to any amounts owed for previous overpayments or underpayments (including any interest thereon) that remain outstanding, after any adjustments to such overpayments or underpayments have been made thereon, at the end of the regular payment date immediately prior to the beginning of the quarterly assessment interval. Interest will be compounded daily. § 327.8 Definitions. For the purpose of this part 327: (a) Deposits. deposit l (b) Quarterly report of condition. quarterly report of condition (c) Assessment period In general. assessment period (d) Acquiring institution. acquiring institution (e) Small institution. (2) Except as provided in paragraph (e)(3) of this section and § 327.17(e), if, after December 31, 2006, an institution classified as large under paragraph (f) of this section (other than an institution classified as large for purposes of § 327.16(f)) reports assets of less than $10 billion in its quarterly reports of condition for four consecutive quarters, excluding assets as described in § 327.17(e), the FDIC will reclassify the institution as small beginning the following quarter. (3) An insured depository institution that elects to use the community bank leverage ratio framework under 12 CFR 3.12(a)(3), 12 CFR 217.12(a)(3), or 12 CFR 324.12(a)(3), shall be classified as a small institution, even if that institution otherwise would be classified as a large institution under paragraph (f) of this section. (f) Large institution. (g) Highly complex institution. (i) An insured depository institution (excluding a credit card bank) that has had $50 billion or more in total assets for at least four consecutive quarters, excluding assets as described in § 327.17(e), that is controlled by a U.S. parent holding company that has had $500 billion or more in total assets for four consecutive quarters, or controlled by one or more intermediate U.S. parent holding companies that are controlled by a U.S. holding company that has had $500 billion or more in assets for four consecutive quarters; or (ii) A processing bank or trust company. (2) Control has the same meaning as in section 3(w)(5) of the FDI Act. A U.S. parent holding company is a parent holding company incorporated or organized under the laws of the United States or any State, as the term “State” is defined in section 3(a)(3) of the FDI Act. If, after December 31, 2010, an institution classified as highly complex under paragraph (g)(1)(i) of this section falls below $50 billion in total assets in its quarterly reports of condition for four consecutive quarters, or its parent holding company or companies fall below $500 billion in total assets for four consecutive quarters, the FDIC will reclassify the institution beginning the following quarter. If, after December 31, 2010, an institution classified as highly complex under paragraph (a)(1)(ii) of this section falls below $10 billion in total assets for four consecutive quarters, the FDIC will reclassify the institution beginning the following quarter. (h) CAMELS composite and CAMELS component ratings. CAMELS composite ratings CAMELS component ratings (i) ROCA supervisory ratings. (j) New depository institution. (k) Established depository institution. (1) Merger or consolidation involving new and established institution(s). (i) The assets of the established institution, as reported in its report of condition for the quarter ending immediately before the merger, exceeded the assets of the new institution, as reported in its report of condition for the quarter ending immediately before the merger; and (ii) Substantially all of the management of the established institution continued as management of the resulting or surviving institution. (2) Consolidation involving established institutions. (3) Grandfather exception. (4) Subsidiary exception. (i) A company that is a bank holding company under the Bank Holding Company Act of 1956 or a savings and loan holding company under the Home Owners' Loan Act, and: (A) At least one eligible depository institution (as defined in 12 CFR 303.2(r)) that is owned by the holding company has been chartered as a bank or savings association for at least five years as of the date that the otherwise new institution was established; and (B) The holding company has a composite rating of at least “2” for bank holding companies or an above average or “A” rating for savings and loan holding companies and at least 75 percent of its insured depository institution assets are assets of eligible depository institutions, as defined in 12 CFR 303.2(r); or (ii) An eligible depository institution, as defined in 12 CFR 303.2(r), that has been chartered as a bank or savings association for at least five years as of the date that the otherwise new institution was established. (5) Effect of credit union conversion. (l) Risk assignment. (m) Unsecured debt. (n) Senior unsecured liability. (o) Subordinated debt. (p) Long-term unsecured debt. (q) Brokered reciprocal deposits. (r) Parent holding company (s) Processing bank or trust company. (t) Credit card bank. (u) Control. (v) Established small institution. (w) New small institution. (x) Deposit Insurance Fund and DIF. (y) Reserve ratio of the DIF. (z) Well capitalized, adequately capitalized, and undercapitalized. [54 FR 51374, Dec. 15, 1989, as amended at 74 FR 9551, Mar. 4, 2009; 76 FR 10707, Feb. 25, 2011; 81 FR 32201, May 20, 2016; 83 FR 14568, Apr. 5, 2018; 84 FR 1353, Feb. 4, 2019; 84 FR 66838, Dec. 6, 2019; 85 FR 38292, June 26, 2020; 87 FR 64334, Oct. 24, 2022] § 327.9 [Reserved] § 327.10 Assessment rate schedules. (a) Assessment rate schedules for established small institutions and large and highly complex institutions applicable in the first assessment period after June 30, 2016, where the reserve ratio of the DIF as of the end of the prior assessment period has reached or exceeded 1.15 percent, and in all subsequent assessment periods through the assessment period ending December 31, 2022, where the reserve ratio of the DIF as of the end of the prior assessment period is less than 2 percent. (1) Initial base assessment rate schedule for established small institutions and large and highly complex institutions. Table 1 to Paragraph ( a 1 Established small institutions Large & CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 3 to 16 6 to 30 16 to 30 3 to 30 1 (i) CAMELS composite 1- and 2-rated established small institutions initial base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions initial base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions initial base assessment rate schedule. (iv) Large and highly complex institutions initial base assessment rate schedule. (2) Total base assessment rate schedule after adjustments. Table 2 to Paragraph ( a 1 2 Established small institutions Large & CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 3 to 16 6 to 30 16 to 30 3 to 30 Unsecured Debt Adjustment −5 to 0 −5 to 0 −5 to 0 −5 to 0 Brokered Deposit Adjustment N/A N/A N/A 0 to 10 Total Base Assessment Rate 1.5 to 16 3 to 30 11 to 30 1.5 to 40 1 2 (i) CAMELS composite 1- and 2-rated established small institutions total base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions total base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions total base assessment rate schedule. (iv) Large and highly complex institutions total base assessment rate schedule. (b) Assessment rate schedules for established small institutions and large and highly complex institutions beginning the first assessment period of 2023, where the reserve ratio of the DIF as of the end of the prior assessment period is less than 2 percent. (1) Initial base assessment rate schedule for established small institutions and large and highly complex institutions. Table 3 to Paragraph ( b 1 Established small institutions Large & CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 5 to 18 8 to 32 18 to 32 5 to 32 1 (i) CAMELS composite 1- and 2-rated established small institutions initial base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions initial base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions initial base assessment rate schedule. (iv) Large and highly complex institutions initial base assessment rate schedule. (2) Total base assessment rate schedule after adjustments. Table 4 to Paragraph ( b 1 2 Established small institutions Large & Highly Complex Institutions CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 5 to 18 8 to 32 18 to 32 5 to 32 Unsecured Debt Adjustment −5 to 0 −5 to 0 −5 to 0 −5 to 0 Brokered Deposit Adjustment N/A N/A N/A 0 to 10 Total Base Assessment Rate 2.5 to 18 4 to 32 13 to 32 2.5 to 42 1 2 (i) CAMELS composite 1- and 2-rated established small institutions total base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions total base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions total base assessment rate schedule. (iv) Large and highly complex institutions total base assessment rate schedule. (c) Assessment rate schedules if the reserve ratio of the DIF as of the end of the prior assessment period is equal to or greater than 2 percent and less than 2.5 percent Initial base assessment rate schedule for established small institutions and large and highly complex institutions. Initial Base Assessment Rate Schedule if the Reserve Ratio as of the End of the Prior Assessment Period Is Equal to or Greater Than 2 Percent But Less Than 2.5 Percent 1 Established small institutions Large & CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 2 to 14 5 to 28 14 to 28 2 to 28. 1 (i) CAMELS composite 1- and 2-rated established small institutions initial base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions initial base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions initial base assessment rate schedule. (iv) Large and highly complex institutions initial base assessment rate schedule. (2) Total base assessment rate schedule after adjustments for established small institutions and large and highly complex institutions. Total Base Assessment Rate Schedule (After Adjustments) 1 2 Established small institutions Large & CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 2 to 14 5 to 28 14 to 28 2 to 28. Unsecured Debt Adjustment −5 to 0 −5 to 0 −5 to 0 −5 to 0. Brokered Deposit Adjustment N/A N/A N/A 0 to 10. Total Base Assessment Rate 1 to 14 2.5 to 28 9 to 28 1 to 38. 1 2 (i) CAMELS composite 1- and 2-rated established small institutions total base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions total base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions total base assessment rate schedule. (iv) Large and highly complex institutions total base assessment rate schedule. (d) Assessment rate schedules if the reserve ratio of the DIF as of the end of the prior assessment period is greater than 2.5 percent Initial base assessment rate schedule. Initial Base Assessment Rate Schedule if the Reserve Ratio as of the End of the Prior Assessment Period Is Greater Than or Equal to 2.5 Percent 1 Established small institutions Large & CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 1 to 13 4 to 25 13 to 25 1 to 25. 1 (i) CAMELS composite 1- and 2-rated established small institutions initial base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions initial base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions initial base assessment rate schedule. (iv) Large and highly complex institutions initial base assessment rate schedule. (2) Total base assessment rate schedule after adjustments. Total Base Assessment Rate Schedule (After Adjustments) 1 2 Established small institutions Large & CAMELS composite 1 or 2 3 4 or 5 Initial Base Assessment Rate 1 to 13 4 to 25 13 to 25 1 to 25. Unsecured Debt Adjustment −5 to 0 −5 to 0 −5 to 0 −5 to 0. Brokered Deposit Adjustment N/A N/A N/A 0 to 10. Total Base Assessment Rate 0.5 to 13 2 to 25 8 to 25 0.5 to 35. 1 2 (i) CAMELS composite 1- and 2-rated established small institutions total base assessment rate schedule. (ii) CAMELS composite 3-rated established small institutions total base assessment rate schedule. (iii) CAMELS composite 4- and 5-rated established small institutions total base assessment rate schedule. (iv) Large and highly complex institutions total base assessment rate schedule. (e) Assessment rate schedules for new institutions and insured branches of foreign banks. (i) Assessment rate schedules for new large and highly complex institutions once the DIF reserve ratio first reaches 1.15 percent on or after June 30, 2016, and through the assessment period ending December 31, 2022. (ii) Assessment rate schedules for new large and highly complex institutions beginning the first assessment period of 2023 and for all subsequent periods. (iii) Assessment rate schedules for new small institutions beginning the first assessment period after June 30, 2016, where the reserve ratio of the DIF as of the end of the prior assessment period has reached or exceeded 1.15 percent, and for all subsequent assessment periods through the assessment period ending December 31, 2022 Initial base assessment rate schedule for new small institutions. Table 9 to Paragraph (e)(1)(iii) 1 Risk category I Risk category II Risk category III Risk category IV Initial Assessment Rate 7 12 19 30 1 ( 1 Risk category I initial base assessment rate schedule. ( 2 Risk category II, III, and IV initial base assessment rate schedule. (B) Total base assessment rate schedule for new small institutions. Table 10 to Paragraph (e)(1)(iii)(B) 1 2 Risk category I Risk category II Risk category III Risk category IV Initial Assessment Rate 7 12 19 30 Brokered Deposit Adjustment (added) N/A 0 to 10 0 to 10 0 to 10 Total Base Assessment Rate 7 12 to 22 19 to 29 30 to 40 1 2 ( 1 Risk category I total assessment rate schedule. ( 2 Risk category II total assessment rate schedule. ( 3 Risk category III total assessment rate schedule. ( 4 Risk category IV total assessment rate schedule. (iv) Assessment rate schedules for new small institutions beginning the first assessment period of 2023 and for all subsequent assessment periods Initial base assessment rate schedule for new small institutions. Table 11 to Paragraph (e)(1)(iv)(A) 1 Risk category I Risk category II Risk category III Risk category IV Initial Assessment Rate 9 14 21 32 1 ( 1 Risk category I initial base assessment rate schedule. ( 2 Risk category II, III, and IV initial base assessment rate schedule. (B) Total base assessment rate schedule for new small institutions. Table 12 to Paragraph (e)(1)(iv)(B) 1 2 Risk category I Risk category II Risk category III Risk category IV Initial Assessment Rate 9 14 21 32 Brokered Deposit Adjustment (added) N/A 0 to 10 0 to 10 0 to 10 Total Base Assessment Rate 9 14 to 24 21 to 31 32 to 42 1 2 ( 1 Risk category I total assessment rate schedule. ( 2 Risk category II total assessment rate schedule. ( 3 Risk category III total assessment rate schedule. ( 4 Risk category IV total assessment rate schedule. (2) Insured branches of foreign banks Beginning the first assessment period after June 30, 2016, where the reserve ratio of the DIF as of the end of the prior assessment period has reached or exceeded 1.15 percent, and for all subsequent assessment periods through the assessment period ending December 31, 2022, where the reserve ratio as of the end of the prior assessment period is less than 2 percent. Table 13 to Paragraph (e)(2)(i) 1 2 Risk category I Risk category II Risk category III Risk category IV Initial and Total Assessment Rate 3 to 7 12 19 30 1 2 (A) Risk category I initial and total base assessment rate schedule. (B) Risk category II, III, and IV initial and total base assessment rate schedule. (C) All insured branches of foreign banks in any one risk category, other than Risk Category I, will be charged the same initial base assessment rate, subject to adjustment as appropriate. (ii) Assessment rate schedule for insured branches of foreign banks beginning the first assessment period of 2023, where the reserve ratio of the DIF as of the end of the prior assessment period is less than 2 percent. Table 14 to Paragraph (e)(2)(ii) 1 2 Risk category I Risk category II Risk category III Risk category IV Initial and Total Assessment Rate 5 to 9 14 21 32 1 2 (A) Risk category I initial and total base assessment rate schedule. (B) Risk category II, III, and IV initial and total base assessment rate schedule. (C) Same initial base assessment rate. (iii) Assessment rate schedule for insured branches of foreign banks if the reserve ratio of the DIF as of the end of the prior assessment period is equal to or greater than 2 percent and less than 2.5 percent. Initial and Total Base Assessment Rate Schedule 1 2 Risk Category Risk Category Risk Category Risk Category Initial and Total Assessment Rate 2 to 6 10 17 28 1 2 (A) Risk category I initial and total base assessment rate schedule. (B) Risk category II, III, and IV initial and total base assessment rate schedule. (C) All insured branches of foreign banks in any one risk category, other than Risk Category I, will be charged the same initial base assessment rate, subject to adjustment as appropriate. (iv) Assessment rate schedule for insured branches of foreign banks if the reserve ratio of the DIF as of the end of the prior assessment period is greater than 2.5 percent. Initial and Total Base Assessment Rate Schedule 1 2 Risk Category Risk Category Risk Category Risk Category Initial Assessment Rate 1 to 5 9 15 25 1 2 (A) Risk category I initial and total base assessment rate schedule. (B) Risk category II, III, and IV initial and total base assessment rate schedule. (C) All insured branches of foreign banks in any one risk category, other than Risk Category I, will be charged the same initial base assessment rate, subject to adjustment as appropriate. (f) Total base assessment rate schedule adjustments and procedures Board rate adjustments. (2) Amount of revenue. (i) Estimated operating expenses of the Deposit Insurance Fund; (ii) Case resolution expenditures and income of the Deposit Insurance Fund; (iii) The projected effects of assessments on the capital and earnings of the institutions paying assessments to the Deposit Insurance Fund; (iv) The risk factors and other factors taken into account pursuant to 12 U.S.C. 1817(b)(1); and (v) Any other factors the Board may deem appropriate. (3) Adjustment procedure. (4) Announcement. [76 FR 10717, Feb. 25, 2011, as amended at 81 FR 32201, May 20, 2016; 87 FR 64335, Oct. 24, 2022] § 327.11 Surcharges and assessments required to raise the reserve ratio of the DIF to 1.35 percent. (a) Surcharge Institutions subject to surcharge. (i) Large institutions, as defined in § 327.8(f); (ii) Highly complex institutions, as defined in § 327.8(g); and (iii) Insured branches of foreign banks whose assets are equal to or exceed $10 billion, as reported in Schedule RAL of the branch's most recent quarterly Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks. (2) Surcharge period. (3) Notification of surcharge. (4) Payment of any surcharge. (5) Calculation of surcharge. (i) Surcharge base—Insured depository institution that has no affiliated insured depository institution subject to the surcharge. (A) The institution's deposit insurance assessment base for the assessment period, determined according to § 327.5; plus (B) The greater of the increase amount determined according to paragraph (a)(5)(iii) of this section or zero; minus (C) $10 billion; provided, however, that an institution's surcharge base for an assessment period cannot be negative. (ii) Surcharge base—insured depository institution that has one or more affiliated insured depository institutions subject to the surcharge. (A) The institution's deposit insurance assessment base for the assessment period, determined according to § 327.5; plus (B) The greater of the institution's portion, determined according to paragraph (a)(5)(v) of this section, of the increase amount determined according to paragraph (a)(5)(iii) of this section or zero; minus (C) The institution's portion, determined according to paragraph (a)(5)(v) of this section, of $10 billion; provided, however, that an institution's surcharge base for an assessment period cannot be negative. (iii) Surcharge base—determination of increase amount. (A) The amount of the aggregate deposit insurance assessment bases for the assessment period, determined according to § 327.5, of all of the institution's affiliated insured depository institutions that are not subject to the surcharge, minus (B) The product of the increase multiplier set out in paragraph (a)(5)(iv) of this section and the aggregate deposit insurance assessment bases, determined according to § 327.5, as of December 31, 2015, of all of the small institutions, as defined in § 327.8(e), that were the institution's affiliated insured depository institutions for the assessment period ending December 31, 2015. (iv) Increase multiplier for the assessment periods during the surcharge period. Increase Multipliers for the Assessment Periods During the Surcharge Period For the assessment period ending— September 30, 2016 1.0740995 December 31, 2016 1.1000000 March 31, 2017 1.1265251 June 30, 2017 1.1536897 September 30, 2017 1.1815094 December 31, 2017 1.2100000 March 31, 2018 1.2391776 June 30, 2018 1.2690587 September 30, 2018 1.2996604 December 31, 2018 1.3310000 (A) For the assessment period ending September 30, 2016, the increase multiplier shall be 1.0740995. (B) For the assessment period ending December 31, 2016, the increase multiplier shall be 1.1000000. (C) For the assessment period ending March 31, 2017, the increase multiplier shall be 1.1265251. (D) For the assessment period ending June 30, 2017, the increase multiplier shall be 1.1536897. (E) For the assessment period ending September 30, 2017, the increase multiplier shall be 1.1815094. (F) For the assessment period ending December 31, 2017, the increase multiplier shall be 1.2100000. (G) For the assessment period ending March 31, 2018, the increase multiplier shall be 1.2391776. (H) For the assessment period ending June 30, 2018, the increase multiplier shall be 1.2690587. (I) For the assessment period ending September 30, 2018, the increase multiplier shall be 1.2996604. (J) For the assessment period ending December 31, 2018, the increase multiplier shall be 1.33100000. (v) Surcharge base—institution's portion. (vi) For the purposes of this section, an affiliated insured depository institution is an insured depository institution that meets the definition of “affiliate” in section 3 of the FDI Act, 12 U.S.C. 1813(w)(6). (6) Effect of mergers and consolidations on surcharge base. (ii) If an insured depository institution not subject to the surcharge is the surviving or resulting institution in a merger or consolidation with an insured depository institution that is subject to the surcharge or acquires all or substantially all of the assets, or assumes all or substantially all of the deposit liabilities, of an insured depository institution subject to the surcharge, then the surviving or resulting insured deposit institution or the insured depository institution that acquires such assets or assumes such deposit liabilities is subject to the surcharge. (b) Shortfall assessment Institutions subject to shortfall assessment. (2) Notification of shortfall. (3) Payment of any shortfall assessment. (4) Amount of aggregate shortfall assessment. (ii) If the reserve ratio of the DIF is less than 1.15 percent and has not reached or exceeded 1.35 percent by December 31, 2018, the shortfall assessment shall be imposed at the end of the assessment period immediately following the assessment period that occurs after December 31, 2018, during which the reserve ratio first reaches or exceeds 1.15 percent and shall equal 0.2 percent of estimated insured deposits as of the end of the calendar quarter in which the reserve ratio first reaches or exceeds 1.15 percent. (5) Institutions' shares of aggregate shortfall assessment. (i) Shortfall assessment base if surcharges have been in effect. (ii) Shortfall assessment base if surcharges have not been in effect. (6) Effect of mergers and consolidations on shortfall assessment. (ii) For the purposes of the shortfall assessment, a merger or consolidation means any transaction in which an insured depository institution merges or consolidates with any other insured depository institution, and includes transactions in which an insured depository institution either directly or indirectly acquires all or substantially all of the assets, or assumes all or substantially all of the deposit liabilities of any other insured depository institution where there is not a legal merger or consolidation of the two insured depository institutions. (c) Assessment credits. Eligible Institutions. (ii) Credit accruing institutions. (A) A large institution, as defined in § 327.8(f); (B) A highly complex institution, as defined in § 327.8(g); or (C) An insured branch of a foreign bank whose assets are equal to or exceed $10 billion, as reported in Schedule RAL of the branch's most recent quarterly Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks. (2) Credit calculation period. (3) Determination of aggregate assessment credit awards to all eligible institutions. fraction of quarterly regular deposit insurance assessments paid by credit accruing institutions DIF increase, (i) Fraction of quarterly regular deposit insurance assessments paid by credit accruing institutions. (ii) DIF increase if the DIF reserve ratio has reached 1.35 percent by December 31, 2018. (iii) DIF Increase if the DIF reserve ratio has not reached 1.35 percent by December 31, 2018. (4) Determination of individual eligible institutions' shares of aggregate assessment Credit Assessment credit share. (ii) Assessment credit base. (iii) Limitation. (5) Effect of merger or consolidation on assessment credit base. (6) Effect of call report amendments. (7) Award and notice of assessment credits Award of assessment credits. (ii) Notice of assessment credits. (8) Requests for review and appeal of assessment credits. (9) Successors. (10) Mergers and consolidation include only legal mergers and consolidation. (11) Use of credits. (ii) The FDIC shall apply assessment credits to reduce an institution's quarterly deposit insurance assessments by each institution's remaining credits. The assessment credit applied to each institution's deposit insurance assessment for any assessment period shall not exceed the institution's total deposit insurance assessment for that assessment period. (12) Transfer or sale of credits. (13) Remittance of credits. (d) Request for review and appeals of assessment credits. (2) Timing. (A) The initial notice provided by the FDIC to the insured depository institution under paragraph (c)(7) of this section stating the FDIC's preliminary estimate of an eligible institution's assessment credit and the manner in which the assessment credit was calculated; or (B) Any updated notice provided by the FDIC to the insured depository institution under paragraph (c)(7) of this section. (ii) Any requests submitted after the deadline in paragraph (d)(2)(i) of this section will be considered untimely filed and the institution will be subsequently barred from submitting a request for review of its assessment credit. (3) Process of review. (ii) The FDIC may request, as part of its review, additional information from the insured depository institution involved in the request and any such information must be submitted to the FDIC within 21 days of the FDIC's request; (iii) The FDIC's Director of the Division of Finance, or his or her designee, will notify the requesting institution of his or her determination of whether a change is warranted within 60 days of receipt by the FDIC of the request for review, or if additional information had been requested from the FDIC, within 60 days of receipt of any such additional information. (4) Appeal. (5) Adjustments to assessment credits. [81 FR 16069, Mar. 25, 2016, as amended at 83 FR 14568, Apr. 5, 2018; 84 FR 65275, Nov. 27, 2019; 87 FR 64339, Oct. 24, 2022] § 327.12 Prepayment of quarterly risk-based assessments. (a) Requirement to prepay assessment. (b) Calculation of prepaid assessment Prepaid assessment Fourth quarter 2009 and all of 2010. (ii) All of 2011 and 2012. (2) Prepaid assessment rate. (3) Prepaid assessment base. (4) Finality of prepaid assessment. (5) Prepaid assessment rates for mergers and consolidations. (c) Invoicing of prepaid assessment. (d) Payment of prepaid assessment. (1) Exception to ACH payment. (2) One-time assessment credits. (e) Use of prepaid assessments. (f) Transfers. connect. connect (g) Prepaid assessments following a merger. (h) Disposition in the event of failure or termination of insured status. (i) Exemptions Exemption without application. (2) Application for exemption. [email protected] (3) Application for withdrawal of exemption. [email protected] (4) Postponement of determination. (5) Obligation to pay third quarter 2009 assessment. [74 FR 59065, Nov. 17, 2009] § 327.13 Special assessment pursuant to March 12, 2023, systemic risk determination. (a) Special assessment. (b) Losses to the Deposit Insurance Fund. (c) Calculation of quarterly special assessment amount. (d) Invoicing of special assessment. (e) Payment of quarterly special assessment amount. (f) Uninsured deposits. (1) November 2, 2023, adjusted for mergers prior to March 12, 2023; or (2) The date of the institution's most recent amendment to its Call Report or FFIEC 002 for the quarter ended December 31, 2022, if such amendment arises from, or is confirmed through, the FDIC's Assessment Reporting Review. Institutions with less than $1 billion in total assets as of June 30, 2021, were not required to report such items; therefore, for purposes of calculating the special assessment or a shortfall special assessment under this section, the amount of uninsured deposits for such institutions as of December 31, 2022, is zero. (g) Five billion dollar deduction from the special assessment base—institution's portion. (h) Affiliates. (i) Special assessment during initial special assessment period Initial special assessment period. (2) Special assessment rate during initial special assessment period. (3) Special assessment base during initial special assessment period. (A) The institution's uninsured deposits; minus (B) Five billion dollars; provided, however, that an institution's assessment base cannot be negative. (ii) The special assessment base for an insured depository institution during the initial special assessment period that has one or more affiliated insured depository institutions shall equal: (A) The institution's uninsured deposits; minus (B) The institution's portion of the $5 billion deduction; provided, however, that an institution's special assessment base cannot be negative. (j) Effect of mergers, consolidations, and other terminations of insurance on the special assessment Final quarterly certified invoice for acquired institution. (2) Special assessment for quarter in which the merger or consolidation occurs and subsequent quarters. (3) Other termination. (k) Corrective reporting amendments Recalculation of quarterly special assessment amount. (2) Invoicing overpayment and underpayment. (l) One-time final shortfall special assessment. (1) Notification of one-time final shortfall special assessment. (2) Aggregate one-time final shortfall special assessment amount. (3) One-time final shortfall special assessment rate. (4) One-time final shortfall special assessment base. (A) The institution's uninsured deposits; minus (B) $5 billion; provided, however, that an institution's one-time final shortfall special assessment base cannot be negative. (ii) The one-time final shortfall special assessment base for an insured depository institution that has one or more affiliated insured depository institutions shall equal: (A) The institution's uninsured deposits; minus (B) The institution's portion of the $5 billion deduction, adjusted for termination of insurance as of the assessment period preceding the final shortfall assessment period; provided, however, that an institution's one-time final shortfall special assessment base cannot be negative. (5) Calculation of one-time final shortfall special assessment. (6) One-time final special assessment. (7) Payment, invoicing, and mergers. (m) Request for revisions. (n) Special assessment collection in excess of losses. (o) Rule of construction. (p) Assessment offsets. (1) Timing. (i) The final unappealable judgment or settlement of the litigation between the FDIC and SVB Financial Trust (Case No. 5:24-cv-01321-BLF, U.S. District Court for the Northern District of California); and (ii) The termination of the receiverships to which the March 12, 2023, systemic risk determination applied. (2) Application of offsets. (3) Calculation. (4) Mergers, consolidations, and other terminations of insurance. [88 FR 83347, Nov. 29, 2023, as amended at 90 FR 59373, Dec. 19, 2025] § 327.15 Emergency special assessments. (a) Emergency special assessment imposed on June 30, 2009. (b) Emergency special assessments after June 30, 2009. (1) Estimation process. (2) Imposition and announcement of emergency special assessments. Federal Register (c) Invoicing of any emergency special assessments. (d) Payment of any emergency special assessment. [74 FR 9341, Mar. 3, 2009] § 327.16 Assessment pricing methods—beginning the first assessment period after June 30, 2016, where the reserve ratio of the DIF as of the end of the prior assessment period has reached or exceeded 1.15 percent. Subject to the modifications described in § 327.17, the following pricing methods shall apply beginning in the first assessment period after June 30, 2016, where the reserve ratio of the DIF as of the end of the prior assessment period has reached or exceeded 1.15 percent, and for all subsequent assessment periods. (a) Established small institutions. (1) Under the financial ratios method, each of seven financial ratios and a weighted average of CAMELS component ratings will be multiplied by a corresponding pricing multiplier. The sum of these products will be added to a uniform amount. The resulting sum shall equal the institution's initial base assessment rate; provided, however, that no institution's initial base assessment rate shall be less than the minimum initial base assessment rate in effect for established small institutions with a particular CAMELS composite rating for that assessment period nor greater than the maximum initial base assessment rate in effect for established small institutions with a particular CAMELS composite rating for that assessment period. An institution's initial base assessment rate, subject to adjustment pursuant to paragraphs (e)(1) and (2) of this section, as appropriate (resulting in the institution's total base assessment rate, which in no case can be lower than 50 percent of the institution's initial base assessment rate), and adjusted for the actual assessment rates set by the Board under § 327.10(f), will equal an institution's assessment rate. The seven financial ratios are: Leverage Ratio (%); Net Income before Taxes/Total Assets (%); Nonperforming Loans and Leases/Gross Assets (%); Other Real Estate Owned/Gross Assets (%); Brokered Deposit Ratio (%); One Year Asset Growth (%); and Loan Mix Index. The ratios and the weighted average of CAMELS component ratings are defined in paragraph (a)(1)(ii) of this section. The ratios will be determined for an assessment period based upon information contained in an institution's report of condition filed as of the last day of the assessment period as set out in paragraph (a)(2) of this section. The weighted average of CAMELS component ratings is created by multiplying each component by the following percentages and adding the products: Capital adequacy—25%, Asset quality—20%, Management—25%, Earnings—10%, Liquidity—10%, and Sensitivity to market risk—10%. The following tables set forth the values of the pricing multipliers: Pricing Multipliers Applicable Beginning the First Assessment Period After June 30, 2016, Where the Reserve Ratio as of the End of the Prior Assessment Period Has Reached 1.15 Percent, and for All Subsequent Assessment Periods Where the Reserve Ratio as of the End of the Prior Assessment Period Is Less Than 2 Percent Risk measures 1 Pricing 2 Leverage ratio −1.264 Net Income before Taxes/Total Assets −0.720 Nonperforming Loans and Leases/Gross Assets 0.942 Other Real Estate Owned/Gross Assets 0.533 Brokered Deposit Ratio 0.264 One Year Asset Growth 0.061 Loan Mix Index 0.081 Weighted Average CAMELS Component Rating 1.519 1 2 Pricing Multipliers Applicable When the Reserve Ratio as of the End of the Prior Assessment Period Is Equal to or Greater Than 2 Percent but Less Than 2.5 Percent Risk measures 1 Pricing 2 Leverage Ratio −1.217 Net Income before Taxes/Total Assets −0.694 Nonperforming Loans and Leases/Gross Assets 0.907 Other Real Estate Owned/Gross Assets 0.513 Brokered Deposit Ratio 0.254 One Year Asset Growth 0.059 Loan Mix Index 0.078 Weighted Average CAMELS Component Rating 1.463 1 2 Pricing Multipliers Applicable When the Reserve Ratio as of the End of the Prior Assessment Period Is Greater Than or Equal to 2.5 Percent Risk measures 1 Pricing 2 Leverage Ratio −1.123 Net Income before Taxes/Total Assets −0.640 Nonperforming Loans and Leases/Gross Assets 0.837 Other Real Estate Owned/Gross Assets 0.474 Brokered Deposit Ratio 0.235 One Year Asset Growth 0.054 Loan Mix Index 0.072 Weighted Average CAMELS Component Rating 1.350 1 2 (i) Uniform amount. (A) 7.352 whenever the assessment rate schedule set forth in § 327.10(a) is in effect; (B) 9.352 whenever the assessment rate schedule set forth in § 327.10(b) is in effect; (C) 6.188 whenever the assessment rate schedule set forth in § 327.10(c) is in effect; or (D) 4.870 whenever the assessment rate schedule set forth in § 327.10(d) is in effect. (ii) Definitions of measures used in the financial ratios method Definitions. Definitions of Measures Used in the Financial Ratios Method Variables Description Leverage Ratio (%) Tier 1 capital divided by adjusted average assets. (Numerator and denominator are both based on the definition for prompt corrective action.) Net Income before Taxes/Total Assets (%) Income (before applicable income taxes and discontinued operations) for the most recent twelve months divided by total assets. 1 Nonperforming Loans and Leases/Gross Assets (%) Sum of total loans and lease financing receivables past due 90 or more days and still accruing interest and total nonaccrual loans and lease financing receivables (excluding, in both cases, the maximum amount recoverable from the U.S. Government, its agencies or government-sponsored enterprises, under guarantee or insurance provisions) divided by gross assets. 2 Other Real Estate Owned/Gross Assets (%) Other real estate owned divided by gross assets. 2 Brokered Deposit Ratio The ratio of the difference between brokered deposits and 10 percent of total assets to total assets. For institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, brokered reciprocal deposits as defined in § 327.8(q) are deducted from brokered deposits. If the ratio is less than zero, the value is set to zero. Weighted Average of C, A, M, E, L, and S Component Ratings The weighted sum of the “C,” “A,” “M,” “E”, “L”, and “S” CAMELS components, with weights of 25 percent each for the “C” and “M” components, 20 percent for the “A” component, and 10 percent each for the “E”, “L”, and “S” components. Loan Mix Index A measure of credit risk described paragraph (a)(1)(ii)(B) of this section. One-Year Asset Growth (%) Growth in assets (adjusted for mergers 3 4 1 2 3 4 (B) Definition of loan mix index. Loan Mix Index Categories and Weighted Charge-Off Rate Percentages Weighted Construction & Development 4.4965840 Commercial & Industrial 1.5984506 Leases 1.4974551 Other Consumer 1.4559717 Real Estate Loans Residual 1.0169338 Multifamily Residential 0.8847597 Nonfarm Nonresidential 0.7286274 1-4 Family Residential 0.6973778 Loans to Depository Banks 0.5760532 Agricultural Real Estate 0.2376712 Agriculture 0.2432737 (iii) Implementation of CAMELS rating changes Composite rating change. (B) Component ratings changes. (iv) No CAMELS composite rating or no CAMELS component ratings No CAMELS composite rating. (B) No CAMELS component ratings. (2) Applicable quarterly reports of condition. (b) Large and highly complex institutions Assessment scorecard for large institutions (other than highly complex institutions). Scorecard for Large Institutions Scorecard measures and components Measure weights Component weights P Performance Score P.1 Weighted Average CAMELS Rating 100 30 P.2 Ability to Withstand Asset-Related Stress 50 Leverage ratio 10 Concentration Measure 35 Core Earnings/Average Quarter-End Total Assets 1 20 Credit Quality Measure 35 P.3 Ability to Withstand Funding-Related Stress 20 Core Deposits/Total Liabilities 60 Balance Sheet Liquidity Ratio 40 L Loss Severity Score L.1 Loss Severity Measure 100 1 (ii) The scorecard for large institutions produces two scores: Performance score and loss severity score. (A) Performance score for large institutions. ( 1 Weighted average CAMELS rating score. i CAMELS component Weight C 25 A 20 M 25 E 10 L 10 S 10 ( ii ( 2 Ability to withstand asset-related stress score. i ( ii ( iii ( iv ( v Cutoff Values and Weights for Measures To Calculate Ability To Withstand Asset-Related Stress Score Measures of the ability to withstand asset-related stress Cutoff values Weights Minimum Maximum Leverage ratio 6 13 10 Concentration Measure 35 Higher-Risk Assets to Tier 1 Capital and Reserves; or 0 135 Growth-Adjusted Portfolio Concentrations 4 56 Core Earnings/Average Quarter-End Total Assets 1 0 2 20 Credit Quality Measure 35 Criticized and Classified Items/Tier 1 Capital and Reserves; or 7 100 Underperforming Assets/Tier 1 Capital and Reserves 2 35 1 ( vi 2 v ( 3 Ability to withstand funding-related stress score. Cutoff Values and Weights To Calculate Ability To Withstand Funding-Related Stress Score Measures of the ability to withstand funding-related stress Cutoff values Weights Minimum Maximum Core Deposits/Total Liabilities 5 87 60 Balance Sheet Liquidity Ratio 7 243 40 ( 4 Calculation of performance score. 3 (B) Loss severity score. Cutoff Values To Calculate Loss Severity Score Measure of loss severity Cutoff values Minimum Maximum Loss Severity 0 28 (C) Total score. 1 (Loss Severity Factor = 0.8 + [0.005 * (Loss Severity Score − 5)] ( 2 (D) Initial base assessment rate. Where: Rate is the initial base assessment rate (expressed in basis points); Maximum Rate is the maximum initial base assessment rate then in effect (expressed in basis points); and Minimum Rate is the minimum initial base assessment rate then in effect (expressed in basis points). Initial base assessment rates are subject to adjustment pursuant to paragraphs (b)(3) and (e)(1) and (2) of this section; large institutions that are not well capitalized or have a CAMELS composite rating of 3, 4 or 5 shall be subject to the adjustment at paragraph (e)(3) of this section; these adjustments shall result in the institution's total base assessment rate, which in no case can be lower than 50 percent of the institution's initial base assessment rate. (2) Assessment scorecard for highly complex institutions. Scorecard for Highly Complex Institutions Measures and components Measure Component P Performance Score P.1 Weighted Average CAMELS Rating 100 30 P.2 Ability To Withstand Asset-Related Stress 50 Leverage ratio 10 Concentration Measure 35 Core Earnings/Average Quarter-End Total Assets 20 Credit Quality Measure and Market Risk Measure 35 P.3 Ability To Withstand Funding-Related Stress 20 Core Deposits/Total Liabilities 50 Balance Sheet Liquidity Ratio 30 Average Short-Term Funding/Average Total Assets 20 L Loss Severity Score L.1 Loss Severity 100 (ii) The scorecard for highly complex institutions produces two scores: Performance and loss severity. (A) Performance score for highly complex institutions. The performance score for highly complex institutions is the weighted average of the scores for three components: Weighted average CAMELS rating, weighted at 30 percent; ability to withstand asset-related stress score, weighted at 50 percent; and ability to withstand funding-related stress score, weighted at 20 percent. ( 1 Weighted average CAMELS rating score. i CAMELS component Weight C 25 A 20 M 25 E 10 L 10 S 10 ( ii ( 2 Ability to withstand asset-related stress score. i ( ii ( iii ( iv ( v ( vi ( vii Cutoff Values and Weights for Measures To Calculate the Ability To Withstand Asset-Related Stress Score Measures of the ability to withstand asset-related stress Cutoff values Market risk Weights Minimum Maximum Leverage ratio 6 13 10. Concentration Measure 35. Higher Risk Assets/Tier 1 Capital and Reserves; 0 135 Top 20 Counterparty Exposure/Tier 1 Capital and Reserves; or 0 125 Largest Counterparty Exposure/Tier 1 Capital and Reserves 0 20 Core Earnings/Average Quarter-end Total Assets 0 2 20. Credit Quality Measure 1 35* (1−Trading Asset Ratio). Criticized and Classified Items to Tier 1 Capital and Reserves; or 7 100 Underperforming Assets/Tier 1 Capital and Reserves 2 35 Market Risk Measure 1 35* Trading Asset Ratio. Trading Revenue Volatility/Tier 1 Capital 0 2 60 Market Risk Capital/Tier 1 Capital 0 10 20 Level 3 Trading Assets/Tier 1 Capital 0 35 20 1 ( viii ( ix ( 3 Ability to withstand funding related stress score. Cutoff Values and Weights To Calculate Ability To Withstand Funding-Related Stress Measures Measures of the ability to withstand funding-related stress Cutoff values Weights Minimum Maximum Core Deposits/Total Liabilities 5 87 50 Balance Sheet Liquidity Ratio 7 243 30 Average Short-term Funding/Average Total Assets 2 19 20 ( 4 Calculation of performance score. (B) Loss severity score. Cutoff Values for Loss Severity Measure Measure of loss severity Cutoff values Minimum Maximum Loss Severity 0 28 (C) Total score. (D) Initial base assessment rate. Where: Rate is the initial base assessment rate (expressed in basis points); Maximum Rate is the maximum initial base assessment rate then in effect (expressed in basis points); and Minimum Rate is the minimum initial base assessment rate then in effect (expressed in basis points). Initial base assessment rates are subject to adjustment pursuant to paragraphs (b)(3) and (e)(1) and (2) of this section; highly complex institutions that are not well capitalized or have a CAMELS composite rating of 3, 4 or 5 shall be subject to the adjustment at paragraph (e)(3) of this section; these adjustments shall result in the institution's total base assessment rate, which in no case can be lower than 50 percent of the institution's initial base assessment rate. (3) Adjustment to total score for large institutions and highly complex institutions. (i) Prior notice of adjustments Prior notice of upward adjustment. (B) Prior notice of downward adjustment. (ii) Determination whether to adjust upward; effective period of adjustment. (iii) Determination whether to adjust downward; effective period of adjustment. (iv) Adjustment without notice. (c) New small institutions Risk categories. (i) Risk category I. (ii) Risk category II. (iii) Risk category III. (iv) Risk category IV. (2) Capital evaluations. (3) Supervisory evaluations. (i) Supervisory group “A.” (ii) Supervisory group “B.” (iii) Supervisory group “C.” (4) Assessment method for new small institutions in risk category I Maximum initial base assessment rate for risk category I new small institutions. (ii) New small institutions not subject to certain adjustments. (iii) Implementation of CAMELS rating changes Changes between risk categories. (B) [Reserved] (d) Insured branches of foreign banks Risk categories for insured branches of foreign banks. (2) Capital evaluations for insured branches of foreign banks. (i) Well Capitalized. (A) Maintains the pledge of assets required under § 347.209 of this chapter; and (B) Maintains the eligible assets prescribed under § 347.210 of this chapter at 108 percent or more of the average book value of the insured branch's third-party liabilities for the quarter ending on the report date specified in paragraph (d)(2) of this section. (ii) Adequately Capitalized. (A) Maintains the pledge of assets required under § 347.209 of this chapter; and (B) Maintains the eligible assets prescribed under § 347.210 of this chapter at 106 percent or more of the average book value of the insured branch's third-party liabilities for the quarter ending on the report date specified in paragraph (d)(2) of this section; and (C) Does not meet the definition of a Well Capitalized insured branch of a foreign bank. (iii) Undercapitalized. (3) Supervisory evaluations for insured branches of foreign banks. (4) Assessment method for insured branches of foreign banks in risk category I. (i) Weighted average ROCA component rating. (ii) Uniform amount. (A) −5.127 whenever the assessment rate schedule set forth in § 327.10(a) is in effect; (B) −3.127 whenever the assessment rate schedule set forth in § 327.10(b) is in effect; (C) −6.127 whenever the assessment rate schedule set forth in § 327.10(c) is in effect; or (D) −7.127 whenever the assessment rate schedule set forth in § 327.10(d) is in effect. (iii) Insured branches of foreign banks not subject to certain adjustments. (iv) Implementation of changes between risk categories for insured branches of foreign banks. (v) Implementation of changes within risk category I for insured branches of foreign banks. (e) Adjustments Unsecured debt adjustment to initial base assessment rate for all institutions. (i) Application of unsecured debt adjustment. (ii) Limitation. (iii) Applicable quarterly reports of condition. (2) Depository institution debt adjustment to initial base assessment rate for all institutions. (i) Application of depository institution debt adjustment. (ii) Applicable quarterly reports of condition. (3) Brokered deposit adjustment. (i) Application of brokered deposit adjustment. (ii) Limitation. (iii) Applicable quarterly reports of condition. (f) Request to be treated as a large institution Procedure. (2) Time limit on subsequent request for alternate method. (3) Request for review. (g) New and established institutions and exceptions New small institutions. (2) New large institutions and new highly complex institutions. (3) CAMELS ratings for the surviving institution in a merger or consolidation. (4) Rate applicable to institutions subject to subsidiary or credit union exception Established small institutions. (A) If the institution does not have a CAMELS composite rating, its initial base assessment rate shall be 2 basis points above the minimum initial base assessment rate applicable to established small institutions until it receives a CAMELS composite rating. (B) If the institution has a CAMELS composite rating but no CAMELS component ratings, its initial assessment rate shall be determined using the financial ratios method, as set forth in paragraph (a)(1) of this section, but its CAMELS composite rating will be substituted for its weighted average CAMELS component rating and, if the institution has not filed four quarterly reports of condition, then the assessment rate will be determined by annualizing, where appropriate, financial ratios from all quarterly reports of condition that have been filed. (ii) Large or highly complex institutions. (5) Request for review. (h) Assessment rates for bridge depository institutions and conservatorships. [81 FR 32207, May 20, 2016, as amended at 83 FR 14568, Apr. 5, 2018; 84 FR 1353, Feb. 4, 2019; 84 FR 4249, Feb. 14, 2019; 85 FR 38292, June 26, 2020; 85 FR 71228, Nov. 9, 2020; 87 FR 64339, Oct. 24, 2022] § 327.17 Mitigating the Deposit Insurance Assessment Effect of Participation in the Money Market Mutual Fund Liquidity Facility, the Paycheck Protection Program Liquidity Facility, and the Paycheck Protection Program. (a) Mitigating the assessment effects of loans provided under the Paycheck Protection Program for established small institutions. (1) Exclusion of loans provided under the Paycheck Protection Program from net income before taxes ratio, nonperforming loans and leases ratio, other real estate owned ratio, brokered deposit ratio, and one-year asset growth measure. (2) Exclusion of loans provided under the Paycheck Protection Program from Loan Mix Index. (i) The outstanding balance of loans provided under the Paycheck Protection Program, as reported on the Consolidated Report of Condition and Income, from the total assets; and (ii) The outstanding balance loans provided under the Paycheck Protection Program, as reported on the Consolidated Report of Condition and Income, from an established small institution's balance of commercial and industrial loans. To the extent that the outstanding balance of loans provided under the Paycheck Protection Program exceeds an established small institution's balance of commercial and industrial loans, as reported on the Consolidated Report of Condition and Income, the FDIC will exclude any remaining balance of these loans from the balance of agricultural loans, up to the amount of agricultural loans, in the calculation of the loan mix index. (b) Mitigating the assessment effects of loans provided under the Paycheck Protection Program for large or highly complex institutions. (1) Exclusion of Paycheck Protection Program loans from average short-term funding ratio, core earnings ratio, growth-adjusted portfolio concentration measure, and trading asset ratio. (2) Exclusion of Paycheck Protection Program Liquidity Facility borrowings from core deposit ratio. (3) Exclusion of Paycheck Protection Program Liquidity Facility borrowings from balance sheet liquidity ratio. (i) Include the outstanding balance of loans provided under the Paycheck Protection Program that exceed total borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility, as reported on the Consolidated Report of Condition and Income, in the amount of highly liquid assets until September 30, 2020, or, if the Board of Governors of the Federal Reserve System and the Secretary of the Treasury determine to extend the Paycheck Protection Program Liquidity Facility, until such date of extension; and (ii) Exclude the outstanding balance of borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility with a remaining maturity of one year or less from other borrowings with a remaining maturity of one year or less, both as reported on the Consolidated Report of Condition and Income. (4) Exclusion of loans provided under the Paycheck Protection Program and Paycheck Protection Program Liquidity Facility borrowings from loss severity measure. (i) The total outstanding balance of borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility, as reported on the Consolidated Report of Condition and Income, from short- and long-term secured borrowings, as appropriate; and (ii) The outstanding balance of loans provided under the Paycheck Protection Program, as reported on the Consolidated Report of Condition and Income, from an institution's balance of commercial and industrial loans. To the extent that the outstanding balance of loans provided under the Paycheck Protection Program exceeds an institution's balance of commercial and industrial loans, the FDIC will exclude any remaining balance from all other loans, up to the total amount of all other loans, followed by agricultural loans, up to the total amount of agricultural loans, as reported on the Consolidated Report of Condition and Income. To the extent that an institution's outstanding balance of loans provided under the Paycheck Protection Program exceeds its borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility, the FDIC will add the amount of outstanding loans provided under the Paycheck Protection Program in excess of borrowings under the Paycheck Protection Program Liquidity Facility to cash. (c) Mitigating the effects of loans provided under the Paycheck Protection Program and assets purchased under the Money Market Mutual Fund Liquidity Facility on the unsecured adjustment, depository institution debt adjustment, and the brokered deposit adjustment to an insured depository institution's assessment rate. (d) Mitigating the effects on the assessment base attributable to loans provided under the Paycheck Protection Program and participation in the Money Market Mutual Fund Liquidity Facility. (1) Calculation of offset amount. (ii) To the extent that an institution does not report the outstanding balance of loans provided under the Paycheck Protection Program, such as in an insured branch's Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, the FDIC will take the sum of either the quarterly average amount of loans pledged to the Paycheck Protection Program Liquidity Facility as reported in the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, or the outstanding balance of loans provided under the Paycheck Protection Program, as such certified data is provided to the FDIC, and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility, as reported in the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, and multiply the sum by an institution's total base assessment rate, as calculated under § 327.16. (2) Calculation of assessment amount due. (e) Mitigating the effects of loans provided under the Paycheck Protection Program and assets purchased under the Money Market Mutual Fund Liquidity Facility on the classification of insured depository institutions as small, large, or highly complex for deposit insurance purposes. (f) Definitions. (1) Paycheck Protection Program. (2) Paycheck Protection Program Liquidity Facility. (3) Money Market Mutual Fund Liquidity Facility. [85 FR 38293, June 26, 2020] Appendix A to Subpart A of Part 327—Method to Derive Pricing Multipliers and Uniform Amount I. Introduction The uniform amount and pricing multipliers are derived from: • A model (the Statistical Model) that estimates the probability of failure of an institution over a three-year horizon; • The minimum initial base assessment rate; • The maximum initial base assessment rate; • Thresholds marking the points at which the maximum and minimum assessment rates become effective. II. The Statistical Model The Statistical Model estimates the probability of an insured depository institution failing within three years using a logistic regression and pooled time-series cross-sectional data; 1 2 1 2 Table A.1 lists and defines the explanatory variables (regressors) in the Statistical Model. Table A.1—Definitions of Measures Used in the Financial Ratios Method Variables Description Leverage Ratio (%) Tier 1 capital divided by adjusted average assets. (Numerator and denominator are both based on the definition for prompt corrective action.) Net Income before Taxes/Total Assets (%) Income (before applicable income taxes and discontinued operations) for the most recent twelve months divided by total assets. 1 Nonperforming Loans and Leases/Gross Assets (%) Sum of total loans and lease financing receivables past due 90 or more days and still accruing interest and total nonaccrual loans and lease financing receivables (excluding, in both cases, the maximum amount recoverable from the U.S. Government, its agencies or government-sponsored enterprises, under guarantee or insurance provisions) divided by gross assets. 2 3 Other Real Estate Owned/Gross Assets (%) Other real estate owned divided by gross assets. 2 Brokered Deposit Ratio The ratio of the difference between brokered deposits and 10 percent of total assets to total assets. For institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits. If the ratio is less than zero, the value is set to zero. Weighted Average of C, A, M, E, L, and S Component Ratings The weighted sum of the “C,” “A,” “M,” “E”, “L”, and “S” CAMELS components, with weights of 25 percent each for the “C” and “M” components, 20 percent for the “A” component, and 10 percent each for the “E”, “L”, and “S” components. In instances where the “S” component is missing, the remaining components are scaled by a factor of 10/9. 4 Loan Mix Index A measure of credit risk described below. One-Year Asset Growth (%) Growth in assets (adjusted for mergers 5 6 1 2 3 4 5 6 The financial variable measures used to estimate the failure probabilities are obtained from Call Reports and TFRs. The weighted average of the “C,” “A,” “M,” “E,” “L,”, and “S” component ratings measure is based on component ratings obtained from the most recent bank examination conducted within 24 months before the date of the Call Report or TFR. The Loan Mix Index assigns loans to the categories of loans described in Table A.2. For each loan category, a charge-off rate is calculated for each year from 2001 through 2014. The charge-off rate for each year is the aggregate charge-off rate on all such loans held by small institutions in that year. A weighted average charge-off rate is then calculated for each loan category, where the weight for each year is based on the number of small-bank failures during that year. 3 3 Table A.2—Loan Mix Index Categories Weighted Construction & Development 4.4965840 Commercial & Industrial 1.5984506 Leases 1.4974551 Other Consumer 1.4559717 Loans to Foreign Government 1.3384093 Real Estate Loans Residual 1.0169338 Multifamily Residential 0.8847597 Nonfarm Residential 0.7286274 1-4 Family Residential 0.6973778 Loans to Depository Banks 0.5760532 Agricultural Real Estate 0.2376712 Agriculture 0.2432737 For each of the three regression estimates (Regression 1, Regression 2 and Regression 3), the estimated probability of failure (over a three-year horizon) of institution i T where where the β variables are parameter estimates. As stated earlier, for actual assessments, the β values that are applied are averages of each of the individual parameters over three separate regressions. Pricing multipliers (discussed in the next section) are based on Z iT 4 4 Z iT iT III. Derivation of Uniform Amount and Pricing Multipliers The uniform amount and pricing multipliers used to compute the annual initial base assessment rate in basis points, R iT i T where α 0 α 1 Z iT Max Min iT iT 5 iT Solving equation 3 for minimum and maximum initial base assessment rates simultaneously, Min = α 0 α 1 N Max α 0 α 1 X where Z X iT Max N iT Min α 0, α 1 The values for Z X N X N Min Max X N α 0 α 1 Therefore from equation 3, it follows that Substituting equation 2 produces an annual initial base assessment rate for institution i T, iT again subject to 3≤ R iT 6 6 iT where 26.751 + 3.734 * β 0 j j, T IV. Description of Scorecard Measures Scorecard 1 Description Leverage Ratio Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted average assets based on the definition for prompt corrective action. Concentration Measure for Large Insured depository institutions (excluding Highly Complex Institutions) The concentration score for large institutions is the higher of the following two scores: (1) Higher-Risk Assets/Tier 1 Capital and Reserves 2 Sum of construction and land development (C&D) loans (funded and unfunded), higher-risk C&I loans (funded and unfunded), nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by Tier 1 capital and reserves. See Appendix C for the detailed description of the ratio. (2) Growth-Adjusted Portfolio Concentrations 2 The measure is calculated in the following steps: (1) Concentration levels (as a ratio to Tier 1 capital and reserves) are calculated for each broad portfolio category: • C&D, • Other commercial real estate loans, • First lien residential mortgages (including non-agency residential mortgage-backed securities), • Closed-end junior liens and home equity lines of credit (HELOCs), • Commercial and industrial loans, • Credit card loans, and • Other consumer loans. (2) Risk weights are assigned to each loan category based on historical loss rates. (3) Concentration levels are multiplied by risk weights and squared to produce a risk-adjusted concentration ratio for each portfolio. (4) Three-year merger-adjusted portfolio growth rates are then scaled to a growth factor of 1 to 1.2 where a 3-year cumulative growth rate of 20 percent or less equals a factor of 1 and a growth rate of 80 percent or greater equals a factor of 1.2. If three years of data are not available, a growth factor of 1 will be assigned. (5) The risk-adjusted concentration ratio for each portfolio is multiplied by the growth factor and resulting values are summed. See Appendix C for the detailed description of the measure. Concentration Measure for Highly Complex Institutions Concentration score for highly complex institutions is the highest of the following three scores: (1) Higher-Risk Assets/Tier 1 Capital and Reserves 2 Sum of C&D loans (funded and unfunded), higher-risk C&I loans (funded and unfunded), nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by Tier 1 capital and reserves. See Appendix C for the detailed description of the measure. (2) Top 20 Counterparty Exposure/Tier 1 Capital and Reserves 2 Sum of the 20 largest total exposure amounts to counterparties divided by Tier 1 capital and reserves. The total exposure amount is equal to the sum of the institution's exposure amounts to one counterparty (or borrower) for derivatives, securities financing transactions (SFTs), and cleared transactions, and its gross lending exposure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an entity's own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one counterparty (or borrower). Counterparty exposure excludes all counterparty exposure to the U.S. Government and departments or agencies of the U.S. Government that is unconditionally guaranteed by the full faith and credit of the United States. The exposure amount for derivatives, including OTC derivatives, cleared transactions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the methodology set forth in 12 CFR 324.34(b), but without any reduction for collateral other than cash collateral that is all or part of variation margin and that satisfies the requirements of 12 CFR 324.10(c)(4)(ii)(C)( 1 ii iii 3 7 3 (3) Largest Counterparty Exposure/Tier 1 Capital and Reserves 2 The largest total exposure amount to one counterparty divided by Tier 1 capital and reserves. The total exposure amount is equal to the sum of the institution's exposure amounts to one counterparty (or borrower) for derivatives, SFTs, and cleared transactions, and its gross lending exposure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an entity's own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one counterparty (or borrower). Counterparty exposure excludes all counterparty exposure to the U.S. Government and departments or agencies of the U.S. Government that is unconditionally guaranteed by the full faith and credit of the United States. The exposure amount for derivatives, including OTC derivatives, cleared transactions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the methodology set forth in 12 CFR 324.34(b), but without any reduction for collateral other than cash collateral that is all or part of variation margin and that satisfies the requirements of 12 CFR 324.10(c)(4)(ii)(C)( 1 ii iii 3 7 3 Core Earnings/Average Quarter-End Total Assets Core earnings are defined as net income less extraordinary items and tax-adjusted realized gains and losses on available-for-sale (AFS) and held-to-maturity (HTM) securities, adjusted for mergers. The ratio takes a four-quarter sum of merger-adjusted core earnings and divides it by an average of five quarter-end total assets (most recent and four prior quarters). If four quarters of data on core earnings are not available, data for quarters that are available will be added and annualized. If five quarters of data on total assets are not available, data for quarters that are available will be averaged. Credit Quality Measure The credit quality score is the higher of the following two scores: (1) Criticized and Classified Items/Tier 1 Capital and Reserves 2 Sum of criticized and classified items divided by the sum of Tier 1 capital and reserves. Criticized and classified items include items an institution or its primary Federal regulator have graded “Special Mention” or worse and include retail items under Uniform Retail Classification Guidelines, securities, funded and unfunded loans, other real estate owned (ORE), other assets, and marked-to-market counterparty positions, less credit valuation adjustments. 4 (2) Underperforming Assets/Tier 1 Capital and Reserves 2 Sum of loans that are 30 days or more past due and still accruing interest, nonaccrual loans, restructured loans 5 Core Deposits/Total Liabilities Total domestic deposits excluding brokered deposits and uninsured non-brokered time deposits divided by total liabilities. Balance Sheet Liquidity Ratio Sum of cash and balances due from depository institutions, federal funds sold and securities purchased under agreements to resell, and the market value of available for sale and held to maturity agency securities (excludes agency mortgage-backed securities but includes all other agency securities issued by the U.S. Treasury, U.S. government agencies, and U.S. government-sponsored enterprises) divided by the sum of federal funds purchased and repurchase agreements, other borrowings (including FHLB) with a remaining maturity of one year or less, 5 percent of insured domestic deposits, and 10 percent of uninsured domestic and foreign deposits. 6 Potential Losses/Total Domestic Deposits (Loss Severity Measure) 7 Potential losses to the DIF in the event of failure divided by total domestic deposits. Appendix D describes the calculation of the loss severity measure in detail. Market Risk Measure for Highly Complex Institutions The market risk score is a weighted average of the following three scores: (1) Trading Revenue Volatility/Tier 1 Capital Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital. (2) Market Risk Capital/Tier 1 Capital Market risk capital divided by Tier 1 capital. 8 (3) Level 3 Trading Assets/Tier 1 Capital Level 3 trading assets divided by Tier 1 capital. Average Short-term Funding/Average Total Assets Quarterly average of federal funds purchased and repurchase agreements divided by the quarterly average of total assets as reported on Schedule RC-K of the Call Reports. 1 2 3 4 5 6 http://www.bis.org/publ/bcbs188.pdf. 7 8 Market risk [74 FR 9557, Mar. 4, 2009, as amended at 76 FR 10720, Feb. 25, 2011; 76 FR 17521, Mar. 30, 2011; 77 FR 66015, Oct. 31, 2012; 78 FR 55594, Sept. 10, 2013; 79 FR 70437, Nov. 26, 2014; 83 FR 17740, Apr. 24, 2018; 85 FR 4443, Jan. 24, 2020; 85 FR 71228, Nov. 9, 2020; 86 FR 11399, Feb. 25, 2021; 87 FR 64340, 64354, Oct. 24, 2022] Appendix B to Subpart A of Part 327—Conversion of Scorecard Measures into Score 1. Weighted Average CAMELS Rating Weighted average CAMELS ratings between 1 and 3.5 are assigned a score between 25 and 100 according to the following equation: S C 2 where: S C 2. Other Scorecard Measures For certain scorecard measures, a lower ratio implies lower risk and a higher ratio implies higher risk. These measures include: • Concentration measure; • Credit quality measure; • Market risk measure; • Average short-term funding to average total assets ratio; and • Potential losses to total domestic deposits ratio (loss severity measure). For those measures, a value between the minimum and maximum cutoff values is converted linearly to a score between 0 and 100, according to the following formula: S V − where S V For other scorecard measures, a lower value represents higher risk and a higher value represents lower risk. These measures include: • Leverage ratio; • Core earnings to average quarter-end total assets ratio; • Core deposits to total liabilities ratio; and • Balance sheet liquidity ratio. For those measures, a value between the minimum and maximum cutoff values is converted linearly to a score between 0 and 100, according to the following formula: S V where S V [76 FR 10720, Feb. 25, 2011] Appendix C to Subpart A of Part 327—Description of Concentration Measures I. Concentration Measures The concentration score for large banks is the higher of the higher-risk assets to Tier 1 capital and reserves score or the growth-adjusted portfolio concentrations score. 1 2 1 2 A. Higher-Risk Assets/Tier 1 Capital and Reserves The higher-risk assets to Tier 1 capital and reserves ratio is the sum of the concentrations in each of five risk areas described below and is calculated as: Where: H i i' k 3 k 3 1. Construction and Land Development Loans Construction and land development loans include construction and land development loans outstanding and unfunded commitments to fund construction and land development loans, whether irrevocable or unconditionally cancellable. 4 4 2. Higher-Risk Commercial and Industrial (C&I) Loans and Securities Definitions Higher-Risk C&I Loans and Securities Higher-risk C&I loans and securities are: (a) All commercial and industrial (C&I) loans (including funded amounts and the amount of unfunded commitments, whether irrevocable or unconditionally cancellable) owed to the reporting bank ( i.e., 5 6 5 6 (b) All securities, except securities classified as trading book, issued by a higher-risk C&I borrower, as that term is defined herein, that are owned by the reporting bank, without regard to when the securities were purchased; however, higher-risk C&I loans and securities exclude: (a) The maximum amount that is recoverable from the U.S. government under guarantee or insurance provisions; (b) Loans (including syndicated or participated loans) that are fully secured by cash collateral as provided herein; (c) Loans that are eligible for the asset-based lending exclusion, described herein, provided the bank's primary federal regulator (PFR) has not cited a criticism (included in the Matters Requiring Attention, or MRA) of the bank's controls or administration of its asset-based loan portfolio; and (d) Loans that are eligible for the floor plan lending exclusion, described herein, provided the bank's PFR has not cited a criticism (included in the MRA) of the bank's controls or administration of its floor plan loan portfolio. Higher-Risk C&I Borrower A “higher-risk C&I borrower” is a borrower that: (a) Owes the reporting bank on a C&I loan originally made on or after April 1, 2013, if: (i) The C&I loan has an original amount (including funded amounts and the amount of unfunded commitments, whether irrevocable or unconditionally cancellable) of at least $5 million; (ii) The loan meets the purpose and materiality tests described herein; and (iii) When the loan is made, the borrower meets the leverage test described herein; or (b) Obtains a refinance, as that term is defined herein, of an existing C&I loan, where the refinance occurs on or after April 1, 2013, and the refinanced loan is owed to the reporting bank, if: (i) The refinanced loan is in an amount (including funded amounts and the amount of unfunded commitments, whether irrevocable or unconditionally cancellable) of at least $5 million; (ii) The C&I loan being refinanced met the purpose and materiality tests (described herein) when it was originally made; (iii) The original loan was made no more than 5 years before the refinanced loan; and (iv) When the loan is refinanced, the borrower meets the leverage test. When a bank acquires a C&I loan originally made on or after April 1, 2013, by another lender, it must determine whether the borrower is a higher-risk borrower as a result of the loan as soon as reasonably practicable, but not later than one year after acquisition. When a bank acquires loans from another entity on a recurring or programmatic basis, however, the bank must determine whether the borrower is a higher-risk borrower as a result of the loan as soon as is practicable, but not later than three months after the date of acquisition. A borrower ceases to be a “higher-risk C&I borrower” only if: (a) The borrower no longer has any C&I loans owed to the reporting bank that, when originally made, met the purpose and materiality tests described herein; (b) The borrower has such loans outstanding owed to the reporting bank, but they have all been refinanced more than 5 years after originally being made; or (c) The reporting bank makes a new C&I loan or refinances an existing C&I loan and the borrower no longer meets the leverage test described herein. Original Amount The original amount of a loan, including the amounts to aggregate for purposes of arriving at the original amount, as described herein, is: (a) For C&I loans drawn down under lines of credit or loan commitments, the amount of the line of credit or loan commitment on the date of its most recent approval, extension or renewal prior to the date of the most recent Call Report; if, however, the amount currently outstanding on the loan as of the date of the bank's most recent Call Report exceeds this amount, then the original amount of the loan is the amount outstanding as of the date of the bank's most recent Call Report. (b) For syndicated or participated C&I loans, the total amount of the loan, rather than just the syndicated or participated portion held by the individual reporting bank. (c) For all other C&I loans (whether term or non-revolver loans), the total amount of the loan as of origination or the amount outstanding as of the date of the bank's most recent Call Report, whichever is larger. For purposes of defining original amount and a higher-risk C&I borrower: (a) All C&I loans that a borrower owes to the reporting bank that meet the purpose test when made, and that are made within six months of each other, must be aggregated to determine the original amount of the loan; however, only loans in the original amount of $1 million or more must be aggregated; and further provided, that loans made before the April 1, 2013, need not be aggregated. (b) When a C&I loan is refinanced through more than one loan, and the loans are made within six months of each other, they must be aggregated to determine the original amount. Refinance For purposes of a C&I loan, a refinance includes: (a) Replacing an original obligation by a new or modified obligation or loan agreement; (b) Increasing the master commitment of the line of credit (but not adjusting sub-limits under the master commitment); (c) Disbursing additional money other than amounts already committed to the borrower; (d) Extending the legal maturity date; (e) Rescheduling principal or interest payments to create or increase a balloon payment; (f) Releasing a substantial amount of collateral; (g) Consolidating multiple existing obligations; or (h) Increasing or decreasing the interest rate. A refinance of a C&I loan does not include a modification or series of modifications to a commercial loan other than as described above or modifications to a commercial loan that would otherwise meet this definition of refinance, but that result in the classification of a loan as a troubled debt restructuring (TDR) or a modification to borrowers experiencing financial difficulty, as these terms are defined in the glossary of the Call Report instructions, as they may be amended from time to time. Purpose Test A loan or refinance meets the purpose test if it is to finance: (a) A buyout, defined as the purchase or repurchase by the borrower of the borrower's outstanding equity, including, but not limited to, an equity buyout or funding an Employee Stock Ownership Plan (ESOP); (b) An acquisition, defined as the purchase by the borrower of any equity interest in another company, or the purchase of all or a substantial portion of the assets of another company; or (c) A capital distribution, defined as a dividend payment or other transaction designed to enhance shareholder value, including, but not limited to, a repurchase of stock. At the time of refinance, whether the original loan met the purpose test may not be easily determined by a new lender. In such a case, the new lender must use its best efforts and reasonable due diligence to determine whether the original loan met the test. Materiality Test A loan or refinance meets the materiality test if: (a) The original amount of the loan (including funded amounts and the amount of unfunded commitments, whether irrevocable or unconditionally cancellable) equals or exceeds 20 percent of the total funded debt of the borrower; total funded debt of the borrower is to be determined as of the date of the original loan and does not include the loan to which the materiality test is being applied; or (b) Before the loan was made, the borrower had no funded debt. When multiple loans must be aggregated to determine the original amount, the materiality test is applied as of the date of the most recent loan. At the time of refinance, whether the original loan met the materiality test may not be easily determined by a new lender. In such a case, the new lender must use its best efforts and reasonable due diligence to determine whether the original loan met the test. Leverage Test A borrower meets the leverage test if: (a) The ratio of the borrower's total debt to trailing twelve-month EBITDA (commonly known as the operating leverage ratio) is greater than 4; or (b) The ratio of the borrower's senior debt to trailing twelve-month EBITDA (also commonly known as the operating leverage ratio) is greater than 3. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. Total debt is defined as all interest-bearing financial obligations and includes, but is not limited to, overdrafts, borrowings, repurchase agreements (repos), trust receipts, bankers acceptances, debentures, bonds, loans (including those secured by mortgages), sinking funds, capital (finance) lease obligations (including those obligations that are convertible, redeemable or retractable), mandatory redeemable preferred and trust preferred securities accounted for as liabilities in accordance with ASC Subtopic 480-10, Distinguishing Liabilities from Equity—Overall (formerly FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”), and subordinated capital notes. Total debt excludes pension obligations, deferred tax liabilities and preferred equity. Senior debt includes any portion of total debt that has a priority claim on any of the borrower's assets. A priority claim is a claim that entitles the holder to priority of payment over other debt holders in bankruptcy. When calculating either of the borrower's operating leverage ratios, the only permitted EBITDA adjustments are those specifically permitted for that borrower in the loan agreement (at the time of underwriting) and only funded amounts of lines of credit must be considered debt. The debt-to-EBITDA ratio must be calculated using the consolidated financial statements of the borrower. If the loan is made to a subsidiary of a larger organization, the debt-to-EBITDA ratio may be calculated using the financial statements of the subsidiary or, if the parent company has unconditionally and irrevocably guaranteed the borrower's debt, using the consolidated financial statements of the parent company. In the case of a merger of two companies or the acquisition of one or more companies or parts of companies, pro-forma debt is to be used as well as the trailing twelve-month pro-forma EBITDA for the combined companies. When calculating the trailing pro-forma EBITDA for the combined company, no adjustments are allowed for economies of scale or projected cost savings that may be realized subsequent to the acquisition unless specifically permitted for that borrower under the loan agreement. Exclusions Cash Collateral Exclusion To exclude a loan based on cash collateral, the cash must be in the form of a savings or time deposit held by a bank. The bank (or lead bank or agent bank in the case of a participation or syndication) must have a perfected first priority security interest, a security agreement, and a collateral assignment of the deposit account that is irrevocable for the remaining term of the loan or commitment. In addition, the bank must place a hold on the deposit account that alerts the bank's employees to an attempted withdrawal. If the cash collateral is held at another bank or at multiple banks, a security agreement must be in place and each bank must have an account control agreement in place. 7 7 Asset-Based and Floor Plan Lending Exclusions The FDIC retains the authority to verify that banks have sound internal controls and administration practices for asset-based and floor plan loans that are excluded from a bank's reported higher-risk C&I loans and securities totals. If the bank's PFR has cited a criticism of the bank's controls or administration of its asset-based or floor plan loan portfolios in an MRA, the bank is not eligible for the asset-based or floor plan lending exclusions. Asset-Based Lending Conditions Asset-based loans (loans secured by accounts receivable and inventory) that meet all the following conditions are excluded from a bank's higher-risk C&I loan totals: (a) The loan is managed by a loan officer or group of loan officers at the reporting bank who have experience in asset-based lending and collateral monitoring, including, but not limited to, experience in reviewing the following: Collateral reports, borrowing base certificates (which are discussed herein), collateral audit reports, loan-to-collateral values (LTV), and loan limits, using procedures common to the industry. (b) The bank has taken, or has the legally enforceable ability to take, dominion over the borrower's deposit accounts such that proceeds of collateral are applied to the loan balance as collected. Security agreements must be in place in all cases; in addition, if a borrower's deposit account is held at a bank other than the lending bank, an account control agreement must also be in place. (c) The bank has a perfected first priority security interest in all assets included in the borrowing base certificate. (d) If the loan is a credit facility (revolving or term loan), it must be fully secured by self-liquidating assets such as accounts receivable and inventory. 8 8 (e) A bank's lending policy or procedures must address the maintenance of an accounts receivable loan agreement with the borrower. This loan agreement must establish a maximum percentage advance, which cannot exceed 85 percent, against eligible accounts receivable, include a maximum dollar amount due from any one account debtor, address the financial strength of debtor accounts, and define eligible receivables. The definition of eligible receivables must consider the receivable quality, the turnover and dilution rates of receivables pledged, the aging of accounts receivable, the concentrations of debtor accounts, and the performance of the receivables related to their terms of sale. Concentration of debtor accounts is the percentage value of receivables associated with one or a few customers relative to the total value of receivables. Turnover of receivables is the velocity at which receivables are collected. The dilution rate is the uncollectible accounts receivable as a percentage of sales. Ineligibles must be established for any debtor account where there is concern that the debtor may not pay according to terms. Monthly accounts receivable agings must be received in sufficient detail to allow the bank to compute the required ineligibles. At a minimum, the following items must be deemed ineligible accounts receivable: (i) Accounts receivable balances over 90 days beyond invoice date or 60 days past due, depending upon custom with respect to a particular industry with appropriate adjustments made for dated billings; (ii) Entire account balances where over 50 percent of the account is over 60 days past due or 90 days past invoice date; (iii) Accounts arising from sources other than trade ( e.g., (iv) Consignment or guaranteed sales; (v) Notes receivable; (vi) Progress billings; (vii) Account balances in excess of limits appropriate to account debtor's credit worthiness or unduly concentrated by industry, location or customer; (viii) Affiliate and intercompany accounts; and (ix) Foreign accounts receivable. (f) Loans against inventory must be made with advance rates no more than 65 percent of eligible inventory (at the lower of cost valued on a first-in, first-out (FIFO) basis or market) based on an analysis of realizable value. When an appraisal is obtained, or there is a readily determinable market price for the inventory, however, up to 85 percent of the net orderly liquidation value (NOLV) or the market price of the inventory may be financed. Inventory must be valued or appraised by an independent third-party appraiser using NOLV, fair value, or forced sale value (versus a “going concern” value), whichever is appropriate, to arrive at a net realizable value. Appraisals are to be prepared in accordance with industry standards, unless there is a readily available and determinable market price for the inventory ( e.g., e.g., (g) A bank's lending policy or procedures must address the maintenance of an inventory loan agreement with the borrower. This loan agreement must establish a maximum percentage advance rate against acceptable inventory, address acceptable appraisal and valuation requirements, and define acceptable and ineligible inventory. Ineligibles must be established for inventory that exhibit characteristics that make it difficult to achieve a realizable value or to obtain possession of the inventory. Monthly inventory agings must be received in sufficient detail to allow the bank to compute the required ineligibles. At a minimum, ineligible inventory must include: (i) Slow moving, obsolete inventory and items turning materially slower than industry average; (ii) Inventory with value to the client only, which is generally work in process, but may include raw materials used solely in the client's manufacturing process; (iii) Consigned inventory or other inventory where a perfected security interest cannot be obtained; (iv) Off-premise inventory subject to a mechanic's or other lien; and (v) Specialized, high technology or other inventory subject to rapid obsolescence or valuation problems. (h) The bank must maintain documentation of borrowing base certificate reviews and collateral trend analyses to demonstrate that collateral values are actively, routinely and consistently monitored. A borrowing base certificate is a form prepared by the borrower that reflects the current status of the collateral. A new borrowing base certificate must be obtained within 30 days before or after each draw or advance on a loan. A bank is required to validate the borrowing base through asset-based tracking reports. The borrowing base validation process must include the bank requesting from the borrower a list of accounts receivable by creditor and a list of individual items of inventory and the bank certifying that the outstanding balance of the loan remains within the collateral formula prescribed by the loan agreement. Any discrepancies between the list of accounts receivable and inventory and the borrowing base certificate must be reconciled with the borrower. Periodic, but no less than annual, field examinations (audits) must also be performed by individuals who are independent of the credit origination or administration process. There must be a process in place to ensure that the bank is correcting audit exceptions. Floor Plan Lending Conditions Floor plan loans may include, but are not limited to, loans to finance the purchase of various vehicles or equipment including automobiles, boat or marine equipment, recreational vehicles (RV), motorized watersports vehicles such as jet skis, or motorized lawn and garden equipment such as tractor lawnmowers. Floor plan loans that meet all the following conditions are excluded from a bank's higher-risk C&I loan totals: (a) The loan is managed by a loan officer or a group of loan officers at the reporting bank who are experienced in floor plan lending and monitoring collateral to ensure the borrower remains in compliance with floor plan limits and repayment requirements. Loan officers must have experience in reviewing certain items, including but not limited to: Collateral reports, floor plan limits, floor plan aging reports, vehicle inventory audits or inspections, and LTV ratios. The bank must obtain and review financial statements of the borrower ( e.g., (b) For automobile floor plans, each loan advance must be made against a specific automobile under a borrowing base certificate held as collateral at no more than 100 percent of (i) dealer invoice plus freight charges (for new vehicles) or (ii) the cost of a used automobile at auction or the wholesale value using the prevailing market guide ( e.g., (c) Advance rates on vehicles other than automobiles must conform to industry standards for advance rates on such inventory, but may never exceed 100 percent of dealer invoice plus freight charges on new vehicles or 100 percent of the cost of a used vehicle at auction or its wholesale value. (d) Each loan is self-liquidating ( i.e., (e) Vehicle inventories and collateral values are closely monitored, including the completion of regular (at least quarterly) dealership automotive or other vehicle dealer inventory audits or inspections to ensure accurate accounting for all vehicles held as collateral. The lending bank or a third party must prepare inventory audit reports and inspection reports for loans to automotive dealerships, or loans to other vehicle dealers, and the lending bank must review the reports at least quarterly. The reports must list all vehicles held as collateral and verify that the collateral is in the dealer's possession. (f) Floor plan aging reports must be reviewed by the bank as frequently as required under the loan agreement, but no less frequently than quarterly. Floor plan aging reports must reflect specific information about each automobile or vehicle being financed ( e.g., Detailed Reports Examples of detailed reports that must be provided to the asset-based and floor plan lending bank include: (a) Borrowing Base Certificates: Borrowing base certificates, along with supporting information, must include: (i) The accounts receivable balance (rolled forward from the previous certificate); (ii) Sales (reported as gross billings) with detailed adjustments for returns and allowances to allow for proper tracking of dilution and other reductions in collateral; (iii) Detailed inventory information ( e.g., (iv) Detail of loan activity. (b) Accounts Receivable and Inventory Detail: A listing of accounts receivable and inventory that is included on the borrowing base certificate. Monthly accounts receivable and inventory agings must be received in sufficient detail to allow the lender to compute the required ineligibles. (c) Accounts Payable Detail: A listing of each accounts payable owed to the borrower. Monthly accounts payable agings must be received to monitor payable performance and anticipated working capital needs. (d) Covenant Compliance Certificates: A listing of each loan covenant and the borrower's compliance with each one. Borrowers must submit Covenant Compliance Certificates, generally on a monthly or quarterly basis (depending on the terms of the loan agreement) to monitor compliance with the covenants outlined in the loan agreement. Non-compliance with any covenants must be promptly addressed. (e) Dealership Automotive Inventory or Other Vehicle Inventory Audits or Inspections: The bank or a third party must prepare inventory audit reports or inspection reports for loans to automotive dealerships and other vehicle dealerships. The bank must review the reports at least quarterly. The reports must list all vehicles held as collateral and verify that the collateral is in the dealer's possession. (f) Floor Plan Aging Reports: Borrowers must submit floor plan aging reports on a monthly or quarterly basis (depending on the terms of the loan agreement). These reports must reflect specific information about each automobile or other type of vehicle being financed ( e.g., 3. Higher-Risk Consumer Loans Definitions Higher-risk consumer loans are defined as all consumer loans where, as of origination, or, if the loan has been refinanced, as of refinance, the probability of default (PD) within two years (the two-year PD) is greater than 20 percent, excluding those consumer loans that meet the definition of a nontraditional mortgage loan. 9 10 9 10 Higher-risk consumer loans exclude: (a) The maximum amounts recoverable from the U.S. government under guarantee or insurance provisions; and (b) Loans fully secured by cash collateral. To exclude a loan based on cash collateral, the cash must be in the form of a savings or time deposit held by a bank. The lending bank (or lead or agent bank in the case of a participation or syndication) must, in all cases, (including instances in which cash collateral is held at another bank or banks) have a perfected first priority security interest under applicable state law, a security agreement in place, and all necessary documents executed and measures taken as required to result in such perfection and priority. In addition, the lending bank must place a hold on the deposit account that alerts the bank's employees to an attempted withdrawal. For the exclusion to apply to a revolving line of credit, the cash collateral must be equal to, or greater than, the amount of the total loan commitment (the aggregate funded and unfunded balance of the loan). Banks must determine the PD of a consumer loan as of the date the loan was originated, or, if the loan has been refinanced, as of the date it was refinanced. The two-year PD must be estimated using an approach that conforms to the requirements detailed herein. Loans Originated or Refinanced Before April 1, 2013, and all Acquired Loans For loans originated or refinanced by a bank before April 1, 2013, and all acquired loans regardless of the date of acquisition, if information as of the date the loan was originated or refinanced is not available, then the bank must use the oldest available information to determine the PD. If no information is available, then the bank must obtain recent, refreshed data from the borrower or other appropriate third party to determine the PD. Refreshed data is defined as the most recent data available, and must be as of a date that is no earlier than three months before the acquisition of the loan. In addition, for loans acquired on or after April 1, 2013, the acquiring bank shall have six months from the date of acquisition to determine the PD. When a bank acquires loans from another entity on a recurring or programmatic basis, the acquiring bank may determine whether the loan meets the definition of a higher-risk consumer loan using the origination criteria and analysis performed by the original lender only if the acquiring bank verifies the information provided. Loans acquired from another entity are acquired on a recurring basis if a bank has acquired other loans from that entity at least once within the calendar year of the acquisition of the loans in question or in the previous calendar year. If the acquiring bank cannot or does not verify the information provided by the original lender, the acquiring bank must obtain the necessary information from the borrower or other appropriate third party to make its own determination of whether the purchased assets should be classified as a higher-risk consumer loan. Loans That Meet Both Higher-Risk Consumer Loans and Nontraditional Mortgage Loans Definitions A loan that meets both the nontraditional mortgage loan and higher-risk consumer loan definitions at the time of origination, or, if the loan has been refinanced, as of refinance, must be reported only as a nontraditional mortgage loan. If, however, the loan ceases to meet the nontraditional mortgage loan definition but continues to meet the definition of a higher-risk consumer loan, the loan is to be reported as a higher-risk consumer loan. General Requirements for PD Estimation Scorable Consumer Loans Estimates of the two-year PD for a loan must be based on the observed, stress period default rate (defined herein) for loans of a similar product type made to consumers with credit risk comparable to the borrower being evaluated. While a bank may consider additional risk factors beyond the product type and credit score ( e.g., empirically derived, demonstrably and statistically sound In estimating the PD based on such scores, banks must adhere to the following requirements: (a) The PD must be estimated as the average of the two, 24-month default rates observed from July 2007 to June 2009, and July 2009 to June 2011, where the average is calculated according to the following formula and DR t (b) The default rate for each 24-month period must be calculated as the number of active loans that experienced at least one default event during the period divided by the total number of active loans as of the observation date ( i.e., (c) The default rate for each 24-month period must be calculated using a stratified random sample of loans that is sufficient in size to derive statistically meaningful results for the product type and credit score (and any additional risk factors) being evaluated. The product strata must be as homogenous as possible with respect to the factors that influence default, such that products with distinct risk characteristics are evaluated separately. The loans should be sampled based on the credit score as of the observation date, and each 24-month default rate must be calculated using a random sample of at least 1,200 active loans. (d) Credit score strata must be determined by partitioning the entire credit score range generated by a given scoring system into a minimum of 15 bands. While the width of the credit score bands may vary, the scores within each band must reflect a comparable level of credit risk. Because performance data for scores at the upper and lower extremes of the population distribution is likely to be limited, however, the top and bottom bands may include a range of scores that suggest some variance in credit quality. (e) Each credit score will need to have a unique PD associated with it. Therefore, when the number of score bands is less than the number of unique credit scores (as will almost always be the case), banks must use a linear interpolation between adjacent default rates to determine the PD for a particular score. The observed default rate for each band must be assumed to correspond to the midpoint of the range for the band. For example, if one score band ranges from 621 to 625 and has an observed default rate of 4 percent, while the next lowest band ranges from 616 to 620 and has an observed default rate of 6 percent, a 620 score must be assigned a default rate of 5.2 percent, calculated as When evaluating scores that fall below the midpoint of the lowest score band or above the midpoint of the highest score band, the interpolation must be based on an assumed adjacent default rate of 1 or 0, respectively. (f) The credit scores represented in the historical sample must have been produced by the same entity, using the same or substantially similar methodology as the methodology used to derive the credit scores to which the default rates will be applied. For example, the default rate for a particular vendor score cannot be evaluated based on the score-to-default rate relationship for a different vendor, even if the range of scores under both systems is the same. On the other hand, if the current and historical scores were produced by the same vendor using slightly different versions of the same scoring system and equivalent scores represent a similar likelihood of default, then the historical experience could be applied. (g) A loan is to be considered in default when it is 90 + days past due, charged-off, or the borrower enters bankruptcy. Unscorable Consumer Loans For unscorable consumer loans—where the available information about a borrower is insufficient to determine a credit score—the bank will be unable to assign a PD to the loan according to the requirements described above. If the total outstanding balance of the unscorable consumer loans of a particular product type (including, but not limited to, student loans) exceeds 5 percent of the total outstanding balance for that product type, including both foreign and domestic loans, the excess amount shall be treated as higher risk (the de minimis approach). Otherwise, the total outstanding balance of unscorable consumer loans of a particular product type will not be considered higher risk. The consumer product types used to determine whether the 5 percent test is satisfied shall correspond to the product types listed in the table used for reporting PD estimates. A bank may not develop PD estimates for unscorable loans based on internal data. If, after the origination or refinance of the loan, an unscorable consumer loan becomes scorable, a bank must reclassify the loan using a PD estimated according to the general requirements above. Based upon that PD, the loan will be determined to be either higher risk or not, and that determination will remain in effect until a refinancing occurs, at which time the loan must be re-evaluated. An unscorable loan must be reviewed at least annually to determine if a credit score has become available. Alternative Methodologies A bank may use internally derived default rates that were calculated using fewer observations or score bands than those specified above under certain conditions. The bank must submit a written request to the FDIC either in advance of, or concurrent with, reporting under the requested approach. The request must explain in detail how the proposed approach differs from the rule specifications and the bank must provide support for the statistical appropriateness of the proposed methodology. The request must include, at a minimum, a table with the default rates and number of observations used in each score and product segment. The FDIC will evaluate the proposed methodology and may request additional information from the bank, which the bank must provide. The bank may report using its proposed approach while the FDIC evaluates the methodology. If, after reviewing the request, the FDIC determines that the bank's methodology is unacceptable, the bank will be required to amend its Call Reports and report according to the generally applicable specifications for PD estimation. The bank will be required to submit amended information for no more than the two most recently dated and filed Call Reports preceding the FDIC's determination. Foreign Consumer Loans A bank must estimate the PD of a foreign consumer loan according to the general requirements described above unless doing so would be unduly complex or burdensome ( e.g., When estimating a PD according to the general requirements described above would be unduly complex or burdensome, a bank that is required to calculate PDs for foreign consumer loans under the requirements of the Basel II capital framework may: (1) Use the Basel II approach discussed herein, subject to the terms discussed herein; (2) submit a written request to the FDIC to use its own methodology, but may not use the methodology until approved by the FDIC; or (3) treat the loan as an unscorable consumer loan subject to the de minimis approach described above. When estimating a PD according to the general requirements described above would be unduly complex or burdensome, a bank that is not required to calculate PDs for foreign consumer loans under the requirements of the Basel II capital framework may: (1) Treat the loan as an unscorable consumer loan subject to the de minimis approach described above; or (2) submit a written request to the FDIC to use its own methodology, but may not use the methodology until approved by the FDIC. When a bank submits a written request to the FDIC to use its own methodology, the FDIC may request additional information from the bank regarding the proposed methodology and the bank must provide the information. The FDIC may grant a bank tentative approval to use the methodology while the FDIC considers it in more detail. If the FDIC ultimately disapproves the methodology, the bank may be required to amend its Call Reports; however, the bank will be required to amend no more than the two most recently dated and filed Call Reports preceding the FDIC's determination. In the amended Call Reports, the bank must treat any loan whose PD had been estimated using the disapproved methodology as an unscorable domestic consumer loan subject to the de minimis approach described above. Basel II Approach A bank that is required to calculate PDs for foreign consumer loans under the requirements of the Basel II capital framework may estimate the two-year PD of a foreign consumer loan based on the one-year PD used for Basel II capital purposes. 11 11 (a) The bank must use data on a sample of loans for which both the one-year Basel II PDs and two-year final rule PDs can be calculated. The sample may contain both foreign and domestic loans. (b) The bank must use the sample data to demonstrate that a meaningful relationship exists between the two types of PD estimates, and the significance and nature of the relationship must be determined using accepted statistical principles and methodologies. For example, to the extent that a linear relationship exists in the sample data, the bank may use an ordinary least-squares regression to determine the best linear translation of Basel II PDs to final rule PDs. The estimated equation should fit the data reasonably well based on standard statistics such as the coefficient of determination; and (c) The method must account for any significant variation in the relationship between the two types of PD estimates that exists across consumer products based on the empirical analysis of the data. For example, if the bank is using a linear regression to determine the relationship between PD estimates, it should test whether the parameter estimates are significantly different by product type. The bank may report using this approach (if it first notifies the FDIC of its intention to do so), while the FDIC evaluates the methodology. If, after reviewing the methodology, the FDIC determines that the methodology is unacceptable, the bank will be required to amend its Call Reports. The bank will be required to submit amended information for no more than the two most recently dated and filed Call Reports preceding the FDIC's determination. Refinance For purposes of higher-risk consumer loans, a refinance includes: (a) Extending new credit or additional funds on an existing loan; (b) Replacing an existing loan with a new or modified obligation; (c) Consolidating multiple existing obligations; (d) Disbursing additional funds to the borrower. Additional funds include a material disbursement of additional funds or, with respect to a line of credit, a material increase in the amount of the line of credit, but not a disbursement, draw, or the writing of convenience checks within the original limits of the line of credit. A material increase in the amount of a line of credit is defined as a 10 percent or greater increase in the quarter-end line of credit limit; however, a temporary increase in a credit card line of credit is not a material increase; (e) Increasing or decreasing the interest rate (except as noted herein for credit card loans); or (f) Rescheduling principal or interest payments to create or increase a balloon payment or extend the legal maturity date of the loan by more than six months. A refinance for this purpose does not include: (a) A re-aging, defined as returning a delinquent, open-end account to current status without collecting the total amount of principal, interest, and fees that are contractually due, provided: (i) The re-aging is part of a program that, at a minimum, adheres to the re-aging guidelines recommended in the interagency approved Uniform Retail Credit Classification and Account Management Policy; 12 12 (ii) The program has clearly defined policy guidelines and parameters for re-aging, as well as internal methods of ensuring the reasonableness of those guidelines and monitoring their effectiveness; and (iii) The bank monitors both the number and dollar amount of re-aged accounts, collects and analyzes data to assess the performance of re-aged accounts, and determines the effect of re-aging practices on past due ratios; (b) Modifications to a loan that would otherwise meet this definition of refinance, but result in the classification of a loan as a TDR or modification to borrowers experiencing financial difficulty; (c) Any modification made to a consumer loan pursuant to a government program, such as the Home Affordable Modification Program or the Home Affordable Refinance Program; (d) Deferrals under the Servicemembers Civil Relief Act; (e) A contractual deferral of payments or change in interest rate that is consistent with the terms of the original loan agreement ( e.g., (f) Except as provided above, a modification or series of modifications to a closed-end consumer loan; (g) An advance of funds, an increase in the line of credit, or a change in the interest rate that is consistent with the terms of the loan agreement for an open-end or revolving line of credit ( e.g., (h) For credit card loans: (i) Replacing an existing card because the original is expiring, for security reasons, or because of a new technology or a new system; (ii) Reissuing a credit card that has been temporarily suspended (as opposed to closed); (iii) Temporarily increasing the line of credit; (iv) Providing access to additional credit when a bank has internally approved a higher credit line than it has made available to the customer; or (v) Changing the interest rate of a credit card line when mandated by law (such as in the case of the Credit CARD Act). 4. Nontraditional mortgage loans Nontraditional mortgage loans include all residential loan products that allow the borrower to defer repayment of principal or interest and include all interest-only products, teaser rate mortgages, and negative amortizing mortgages, with the exception of home equity lines of credit (HELOCs) or reverse mortgages. A teaser-rate mortgage loan is defined as a mortgage with a discounted initial rate where the lender offers a lower rate and lower payments for part of the mortgage term. A mortgage loan is no longer considered a nontraditional mortgage loan once the teaser rate has expired. An interest-only loan is no longer considered a nontraditional mortgage loan once the loan begins to amortize. Banks must determine whether residential loans meet the definition of a nontraditional mortgage loan as of origination, or, if the loan has been refinanced, as of refinance, as refinance is defined in this Appendix for purposes of higher-risk consumer loans. When a bank acquires a residential loan, it must determine whether the loan meets the definition of a nontraditional mortgage loan using the origination criteria and analysis performed by the original lender. If this information is unavailable, the bank must obtain refreshed data from the borrower or other appropriate third party. Refreshed data for residential loans is defined as the most recent data available. The data, however, must be as of a date that is no earlier than three months before the acquisition of the residential loan. The acquiring bank must also determine whether an acquired loan is higher risk not later than three months after acquisition. When a bank acquires loans from another entity on a recurring or programmatic basis, however, the acquiring bank may determine whether the loan meets the definition of a nontraditional mortgage loan using the origination criteria and analysis performed by the original lender only if the acquiring bank verifies the information provided. Loans acquired from another entity are acquired on a recurring basis if a bank has acquired other loans from that entity at least once within the calendar year or the previous calendar year of the acquisition of the loans in question. 5. Higher-Risk Securitizations Higher-risk securitizations are defined as securitization exposures (except securitizations classified as trading book), where, in aggregate, more than 50 percent of the assets backing the securitization meet either the criteria for higher-risk C & I loans or securities, higher-risk consumer loans, or nontraditional mortgage loans, except those classified as trading book. A securitization exposure is as defined in 12 CFR 324.2, as it may be amended from time to time. A higher-risk securitization excludes the maximum amount that is recoverable from the U.S. government under guarantee or insurance provisions. A bank must determine whether a securitization is higher risk based upon information as of the date of issuance ( i.e., (a) For a securitization collateralized by a static pool of loans, whose underlying collateral changes due to the sale or amortization of these loans, the 50 percent threshold is to be determined based upon the amount of higher-risk assets, as defined in this Appendix, owned by the securitization on the date of issuance of the securitization. (b) For a securitization collateralized by a dynamic pool of loans, whose underlying collateral may change by the purchase of additional assets, including purchases made during a ramp-up period, the 50 percent threshold is to be determined based upon the highest amount of higher-risk assets, as defined in this Appendix, allowable under the portfolio guidelines of the securitization. A bank is not required to evaluate a securitization on a continuous basis when the securitization is collateralized by a dynamic pool of loans; rather, the bank is only required to evaluate the securitization once. A bank is required to use the information that is reasonably available to a sophisticated investor in reasonably determining whether a securitization meets the 50 percent threshold. Information reasonably available to a sophisticated investor includes, but is not limited to, offering memoranda, indentures, trustee reports, and requests for information from servicers, collateral managers, issuers, trustees, or similar third parties. When determining whether a revolving trust or similar securitization meets the threshold, a bank may use established criteria, model portfolios, or limitations published in the offering memorandum, indenture, trustee report, or similar documents. Sufficient information necessary for a bank to make a definitive determination may not, in every case, be reasonably available to the bank as a sophisticated investor. In such a case, the bank may exercise its judgment in making the determination. In some cases, the bank need not rely upon all of the aforementioned pieces of information to make a higher-risk determination if fewer documents provide sufficient data to make the determination. In cases in which a securitization is required to be consolidated on the balance sheet as a result of SFAS 166 and SFAS 167, and a bank has access to the necessary information, a bank may opt for an alternative method of evaluating the securitization to determine whether it is higher risk. The bank may evaluate individual loans in the securitization on a loan-by-loan basis and only report as higher risk those loans that meet the definition of a higher-risk asset; any loan within the securitization that does not meet the definition of a higher-risk asset need not be reported as such. When making this evaluation, the bank must follow the provisions of section I.B herein. Once a bank evaluates a securitization for higher-risk asset designation using this alternative evaluation method, it must continue to evaluate all securitizations that it has consolidated on the balance sheet as a result of SFAS 166 and SFAS 167, and for which it has the required information, using the alternative evaluation method. For securitizations for which the bank does not have access to information on a loan-by-loan basis, the bank must determine whether the securitization meets the 50 percent threshold in the manner previously described for other securitizations. B. Application of Definitions Section I of this Appendix applies to: (1) All construction and land development loans, whenever originated or purchased; (2) C&I loans (as that term is defined in this Appendix) owed to a reporting bank by a higher-risk C&I borrower (as that term is defined in this Appendix) and all securities issued by a higher-risk C&I borrower, except securitizations of C&I loans, that are owned by the reporting bank; (3) Consumer loans (as defined in this Appendix), except securitizations of consumer loans, whenever originated or purchased; (4) Securitizations of C&I and consumer loans (as defined in this Appendix) issued on or after April 1, 2013, including those securitizations issued on or after April 1, 2013, that are partially or fully collateralized by loans originated before April 1, 2013. For C&I loans that are either originated or refinanced by a reporting bank before April 1, 2013, or purchased by a reporting bank before April 1, 2013, where the loans are owed to the reporting bank by a borrower that does not meet the definition of a higher-risk C&I borrower as that term is defined in this Appendix (which requires, among other things, that the borrower have obtained a C&I loan or refinanced an existing C&I loan on or after April 1, 2013) and securities purchased before April 1, 2013, that are issued by an entity that does not meet the definition of a higher-risk C&I borrower, as that term is defined in this Appendix, banks must continue to use the transition guidance in the September 2012 Call Report instructions to determine whether to report the loan or security as a higher-risk asset for purposes of the higher-risk assets to Tier 1 capital and reserves ratio. A bank may opt to apply the definition of higher-risk C&I loans and securities in this Appendix to all of its C&I loans and securities, but, if it does so, it must also apply the definition of a higher-risk C&I borrower in this Appendix without regard to when the loan is originally made or refinanced ( i.e., For consumer loans (other than securitizations of consumer loans) originated or purchased prior to April 1, 2013, a bank must determine whether the loan met the definition of a higher-risk consumer loan no later than June 30, 2013. For all securitizations issued before April 1, 2013, banks must either (1) continue to use the transition guidance or (2) apply the definitions in this Appendix to all of its securitizations. If a bank applies the definition of higher-risk C&I loans and securities in this Appendix to its securitizations, it must also apply the definition of a higher-risk C&I borrower in this Appendix to all C&I borrowers without regard to when the loans to those borrowers were originally made or refinanced ( i.e., II. Growth-Adjusted Portfolio Concentration Measure The growth-adjusted concentration measure Where: N is bank i' 13 13 k g i' k; w is a risk weight for portfolio k. The seven portfolios (k) are defined based on the Call Report/TFR data and they are: • Construction and land development loans; • Other commercial real estate loans; • First-lien residential mortgages and non-agency residential mortgage-backed securities (excludes CMOs, REMICS, CMO and REMIC residuals, and stripped MBS issued by non-U.S. government issuers for which the collateral consists of MBS issued or guaranteed by U.S. government agencies); • Closed-end junior liens and home equity lines of credit (HELOCs); • Commercial and industrial loans; • Credit card loans; and • Other consumer loans. 14 15 14 15 The growth factor, g, g 16 g g 16 Where: V is the portfolio amount as reported on the Call Report/TFR and t is the quarter for which the assessment is being determined. The risk weight for each portfolio reflects relative peak loss rates for banks at the 90th percentile during the 1990-2009 period. 17 17 Table C.1—90th Percentile Annual Loss Rates for 1990-2009 Period and Corresponding Risk Weights Portfolio Loss rates (90th percentile) Risk weights First-Lien Mortgages 2.3% 0.5 Second/Junior Lien Mortgages 4.6% 0.9 Commercial and Industrial (C&I) Loans 5.0% 1.0 Construction and Development (C&D) Loans 15.0% 3.0 Commercial Real Estate Loans, excluding C&D 4.3% 0.9 Credit Card Loans 11.8% 2.4 Other Consumer Loans 5.9% 1.2 [77 FR 66017, Oct. 31, 2013, as amended at 78 FR 55594, Sept. 10, 2013; 83 FR 17740, Apr. 24, 2018; 86 FR 11401, Feb. 25, 2021; 87 FR 64355, Oct. 24, 2022] Appendix D to Subpart A of Part 327—Description of the Loss Severity Measure The loss severity measure applies a standardized set of assumptions to an institution's balance sheet to measure possible losses to the FDIC in the event of an institution's failure. To determine an institution's loss severity rate, the FDIC first applies assumptions about uninsured deposit and other unsecured liability runoff, and growth in insured deposits, to adjust the size and composition of the institution's liabilities. Assets are then reduced to match any reduction in liabilities. 1 2 3 1 2 3 Runoff and Capital Adjustment Assumptions Table D.1 contains run-off assumptions. Table D.1—Runoff Rate Assumptions Liability type Runoff rate * Insured Deposits (10) Uninsured Deposits 58 Foreign Deposits 80 Federal Funds Purchased 100 Repurchase Agreements 75 Trading Liabilities 50 Unsecured Borrowings ≤ 1 Year 75 Secured Borrowings ≤ 1 Year 25 Subordinated Debt and Limited Liability Preferred Stock 15 * A negative rate implies growth. Given the resulting total liabilities after runoff, assets are then reduced pro rata to preserve the relative amount of assets in each of the following asset categories and to achieve a Leverage ratio of 2 percent: • Cash and Interest Bearing Balances; • Trading Account Assets; • Federal Funds Sold and Repurchase Agreements; • Treasury and Agency Securities; • Municipal Securities; • Other Securities; • Construction and Development Loans; • Nonresidential Real Estate Loans; • Multifamily Real Estate Loans; • 1-4 Family Closed-End First Liens; • 1-4 Family Closed-End Junior Liens; • Revolving Home Equity Loans; and • Agricultural Real Estate Loans. Recovery Value of Assets at Failure Table D.2 shows loss rates applied to each of the asset categories as adjusted above. Table D.2—Asset Loss Rate Assumptions Asset category Loss rate Cash and Interest Bearing Balances 0.0 Trading Account Assets 0.0 Federal Funds Sold and Repurchase Agreements 0.0 Treasury and Agency Securities 0.0 Municipal Securities 10.0 Other Securities 15.0 Construction and Development Loans 38.2 Nonresidential Real Estate Loans 17.6 Multifamily Real Estate Loans 10.8 1-4 Family Closed-End First Liens 19.4 1-4 Family Closed-End Junior Liens 41.0 Revolving Home Equity Loans 41.0 Agricultural Real Estate Loans 19.7 Agricultural Loans 11.8 Commercial and Industrial Loans 21.5 Credit Card Loans 18.3 Other Consumer Loans 18.3 All Other Loans 51.0 Other Assets 75.0 Secured Liabilities at Failure Federal home loan bank advances, secured federal funds purchased and repurchase agreements are assumed to be fully secured. Foreign deposits are treated as fully secured because of the potential for ring fencing. Loss Severity Ratio Calculation The FDIC's loss given failure (LGD) is calculated as: An end-of-quarter loss severity ratio is LGD divided by total domestic deposits at quarter-end and the loss severity measure for the scorecard is an average of end-of-period loss severity ratios for three most recent quarters. [76 FR 10724, Feb. 25, 2011, as amended at 86 FR 11401, Feb. 25, 2021] Appendix E to Subpart A of Part 327—Mitigating the Deposit Insurance Assessment Effect of Participation in the Money Market Mutual Fund Liquidity Facility, the Paycheck Protection Program Liquidity Facility, and the Paycheck Protection Program I. Mitigating the Assessment Effects of Paycheck Protection Program Loans for Established Small Institutions Table E.1—Exclusions From Certain Risk Measures Used To Calculate the Assessment Rate for Established Small Institutions Variables Description Exclusions Leverage Ratio (%) Tier 1 capital divided by adjusted average assets. (Numerator and denominator are both based on the definition for prompt corrective action.) No Exclusion. Net Income before Taxes/Total Assets (%) Income (before applicable income taxes and discontinued operations) for the most recent twelve months divided by total assets 1 Exclude from total assets the outstanding balance of loans provided under the Paycheck Protection Program. Nonperforming Loans and Leases/Gross Assets (%) Sum of total loans and lease financing receivables past due 90 or more days and still accruing interest and total nonaccrual loans and lease financing receivables (excluding, in both cases, the maximum amount recoverable from the U.S. Government, its agencies or government-sponsored enterprises, under guarantee or insurance provisions) divided by gross assets 2 Exclude from gross assets the outstanding balance of loans provided under the Paycheck Protection Program. Other Real Estate Owned/Gross Assets (%) Other real estate owned divided by gross assets 2 Exclude from gross assets the outstanding balance of loans provided under the Paycheck Protection Program. Brokered Deposit Ratio The ratio of the difference between brokered deposits and 10 percent of total assets to total assets. For institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, brokered reciprocal deposits as defined in § 327.8(q) are deducted from brokered deposits. If the ratio is less than zero, the value is set to zero Exclude from total assets (in both numerator and denominator) the outstanding balance of loans provided under the Paycheck Protection Program. Weighted Average of C, A, M, E, L, and S Component Ratings The weighted sum of the “C,” “A,” “M,” “E“, “L“, and “S” CAMELS components, with weights of 25 percent each for the “C” and “M” components, 20 percent for the “A” component, and 10 percent each for the “E“, “L” and “S” components No Exclusion. Loan Mix Index A measure of credit risk described paragraph (A) of this section Exclusions are described in paragraph (A) of this section. One-Year Asset Growth (%) Growth in assets (adjusted for mergers 3 4 Exclude from total assets (in both numerator and denominator) the outstanding balance of loans provided under the Paycheck Protection Program. 1 2 3 4 (a) Definition of Loan Mix Index. (b) [Reserved] Loan Mix Index Categories and Weighted Charge-Off Rate Percentages Weighted charge-off Construction & Development 4.4965840 Commercial & Industrial 1.5984506 Leases 1.4974551 Other Consumer 1.4559717 Real Estate Loans Residual 1.0169338 Multifamily Residential 0.8847597 Nonfarm Nonresidential 0.7286274 1-4 Family Residential 0.6973778 Loans to Depository banks 0.5760532 Agricultural Real Estate 0.2376712 Agriculture 0.2432737 II. Mitigating the Assessment Effects of Paycheck Protection Program Loans for Large or Highly Complex Institutions Table E.2—Exclusions From Certain Risk Measures Used To Calculate the Assessment Rate for Large or Highly Complex Institutions Scorecard 1 Description Exclusions Leverage Ratio Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted average assets based on the definition for prompt corrective action No Exclusion. Concentration Measure for Large Insured depository institutions (excluding Highly Complex Institutions) The concentration score for large institutions is the higher of the following two scores: (1) Higher-Risk Assets/Tier 1 Capital and Reserves Sum of construction and land development (C&D) loans (funded and unfunded), higher-risk commercial and industrial (C&I) loans (funded and unfunded), nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by Tier 1 capital and reserves. See Appendix C for the detailed description of the ratio No Exclusion. (2) Growth-Adjusted Portfolio Concentrations The measure is calculated in the following steps: (1) Concentration levels (as a ratio to Tier 1 capital and reserves) are calculated for each broad portfolio category: • Constructions and land development (C&D), • Other commercial real estate loans, • First lien residential mortgages (including non-agency residential mortgage-backed securities), • Closed-end junior liens and home equity lines of credit (HELOCs), • Commercial and industrial loans (C&I), • Credit card loans, and • Other consumer loans. (2) Risk weights are assigned to each loan category based on historical loss rates. (3) Concentration levels are multiplied by risk weights and squared to produce a risk-adjusted concentration ratio for each portfolio. (4) Three-year merger-adjusted portfolio growth rates are then scaled to a growth factor of 1 to 1.2 where a 3-year cumulative growth rate of 20 percent or less equals a factor of 1 and a growth rate of 80 percent or greater equals a factor of 1.2. If three years of data are not available, a growth factor of 1 will be assigned Exclude from C&I loan growth rate the outstanding amount of loans provided under the Paycheck Protection Program. (5) The risk-adjusted concentration ratio for each portfolio is multiplied by the growth factor and resulting values are summed See Appendix C for the detailed description of the measure Concentration Measure for Highly Complex Institutions Concentration score for highly complex institutions is the highest of the following three scores: (1) Higher-Risk Assets/Tier 1 Capital and Reserves Sum of C&D loans (funded and unfunded), higher-risk C&I loans (funded and unfunded), nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by Tier 1 capital and reserves. See Appendix C for the detailed description of the measure No Exclusion. (2) Top 20 Counterparty Exposure/Tier 1 Capital and Reserves Sum of the 20 largest total exposure amounts to counterparties divided by Tier 1 capital and reserves. The total exposure amount is equal to the sum of the institution's exposure amounts to one counterparty (or borrower) for derivatives, securities financing transactions (SFTs), and cleared transactions, and its gross lending exposure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an entity's own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one counterparty (or borrower). Counterparty exposure excludes all counterparty exposure to the U.S. Government and departments or agencies of the U.S. Government that is unconditionally guaranteed by the full faith and credit of the United States. The exposure amount for derivatives, including OTC derivatives, cleared transactions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the methodology set forth in 12 CFR 324.34(b), but without any reduction for collateral other than cash collateral that is all or part of variation margin and that satisfies the requirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3) through (7). The exposure amount associated with SFTs, including cleared transactions that are SFTs, must be calculated using the standardized approach set forth in 12 CFR 324.37(b) or (c). For both derivatives and SFT exposures, the exposure amount to central counterparties must also include the default fund contribution No Exclusion. (3) Largest Counterparty Exposure/Tier 1 Capital and Reserves The largest total exposure amount to one counterparty divided by Tier 1 capital and reserves. The total exposure amount is equal to the sum of the institution's exposure amounts to one counterparty (or borrower) for derivatives, SFTs, and cleared transactions, and its gross lending exposure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an entity's own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one counterparty (or borrower). Counterparty exposure excludes all counterparty exposure to the U.S. Government and departments or agencies of the U.S. Government that is unconditionally guaranteed by the full faith and credit of the United States. The exposure amount for derivatives, including OTC derivatives, cleared transactions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the methodology set forth in 12 CFR 324.34(b), but without any reduction for collateral other than cash collateral that is all or part of variation margin and that satisfies the requirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3) through (7). The exposure amount associated with SFTs, including cleared transactions that are SFTs, must be calculated using the standardized approach set forth in 12 CFR 324.37(b) or (c). For both derivatives and SFT exposures, the exposure amount to central counterparties must also include the default fund contribution No Exclusion. Core Earnings/Average Quarter-End Total Assets Core earnings are defined as net income less extraordinary items and tax-adjusted realized gains and losses on available-for-sale (AFS) and held-to-maturity (HTM) securities, adjusted for mergers. The ratio takes a four-quarter sum of merger-adjusted core earnings and divides it by an average of five quarter-end total assets (most recent and four prior quarters). If four quarters of data on core earnings are not available, data for quarters that are available will be added and annualized. If five quarters of data on total assets are not available, data for quarters that are available will be averaged Prior to averaging, exclude from total assets for the applicable quarter-end periods the outstanding balance of loans provided under the Paycheck Protection Program. Credit Quality Measure. 2 The credit quality score is the higher of the following two scores: (1) Criticized and Classified Items/Tier 1 Capital and Reserves Sum of criticized and classified items divided by the sum of Tier 1 capital and reserves. Criticized and classified items include items an institution or its primary federal regulator have graded “Special Mention” or worse and include retail items under Uniform Retail Classification Guidelines, securities, funded and unfunded loans, other real estate owned (ORE), other assets, and marked-to-market counterparty positions, less credit valuation adjustments. Criticized and classified items exclude loans and securities in trading books, and the amount recoverable from the U.S. government, its agencies, or government-sponsored enterprises, under guarantee or insurance provisions No Exclusion. (2) Underperforming Assets/Tier 1 Capital and Reserves Sum of loans that are 30 days or more past due and still accruing interest, nonaccrual loans, restructured loans (including restructured 1-4 family loans), and ORE, excluding the maximum amount recoverable from the U.S. government, its agencies, or government-sponsored enterprises, under guarantee or insurance provisions, divided by a sum of Tier 1 capital and reserves No Exclusion. Core Deposits/Total Liabilities Total domestic deposits excluding brokered deposits and uninsured non-brokered time deposits divided by total liabilities Exclude from total liabilities outstanding borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility with a maturity of one year or less and outstanding borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility with a maturity of greater than one year. Balance Sheet Liquidity Ratio Sum of cash and balances due from depository institutions, federal funds sold and securities purchased under agreements to resell, and the market value of available for sale and held to maturity agency securities (excludes agency mortgage-backed securities but includes all other agency securities issued by the U.S. Treasury, U.S. government agencies, and U.S. government sponsored enterprises) divided by the sum of federal funds purchased and repurchase agreements, other borrowings (including FHLB) with a remaining maturity of one year or less, 5 percent of insured domestic deposits, and 10 percent of uninsured domestic and foreign deposits Include in highly liquid assets the outstanding balance of PPP loans that exceed borrowings from the Federal Reserve Banks under the PPPLF, until September 30, 2020, or if extended by the Board of Governors of the Federal Reserve System and the Secretary of the Treasury, until such date of extension. Potential Losses/Total Domestic Deposits (Loss Severity Measure) Potential losses to the DIF in the event of failure divided by total domestic deposits. Paragraph (a) of this section describes the calculation of the loss severity measure in detail Exclusions are described in paragraph (a) of this section. Market Risk Measure for Highly Complex Institutions 2 The market risk score is a weighted average of the following three scores: (1) Trading Revenue Volatility/Tier 1 Capital Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital No Exclusion. (2) Market Risk Capital/Tier 1 Capital Market risk capital divided by Tier 1 capital No Exclusion. (3) Level 3 Trading Assets/Tier 1 Capital Level 3 trading assets divided by Tier 1 capital No Exclusion. Average Short-term Funding/Average Total Assets Quarterly average of federal funds purchased and repurchase agreements divided by the quarterly average of total assets as reported on Schedule RC-K of the Call Reports Exclude from the quarterly average of total assets the outstanding balance of loans provided under the Paycheck Protection Program. 1 2 (a) Description of the loss severity measure. Runoff and Capital Adjustment Assumptions Table E.3 contains run-off assumptions. Table E.3—Runoff Rate Assumptions Liability type Runoff rate * Insured Deposits (10) Uninsured Deposits 58 Foreign Deposits 80 Federal Funds Purchased 100 Repurchase Agreements 75 Trading Liabilities 50 Unsecured Borrowings < = 1 Year 75 Secured Borrowings < = 1 Year, excluding outstanding borrowings from the Federal Reserve Banks under the PPPLF < = 1 Year 25 Subordinated Debt and Limited Liability Preferred Stock 15 * A negative rate implies growth. Given the resulting total liabilities after runoff, assets are then reduced pro rata to preserve the relative amount of assets in each of the following asset categories and to achieve a Leverage Ratio of 2 percent: • Cash and Interest Bearing Balances, including outstanding loans provided under the Paycheck Protection Program in excess of borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility; • Trading Account Assets; • Federal Funds Sold and Repurchase Agreements; • Treasury and Agency Securities; • Municipal Securities; • Other Securities; • Construction and Development Loans • Nonresidential Real Estate Loans; • Multifamily Real Estate Loans; • 1—4 Family Closed-End First Liens; • 1—4 Family Closed-End Junior Liens; • Revolving Home Equity Loans; and • Agricultural Real Estate Loans Recovery Value of Assets at Failure Table E.4—shows loss rates applied to each of the asset categories as adjusted above. Table E.4—Asset Loss Rate Assumptions Asset category Loss rate Cash and Interest Bearing Balances, including outstanding loans provided under the Paycheck Protection Program in excess of borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility 0.0 Trading Account Assets 0.0 Federal Funds Sold and Repurchase Agreements 0.0 Treasury and Agency Securities 0.0 Municipal Securities 10.0 Other Securities 15.0 Construction and Development Loans 38.2 Nonresidential Real Estate Loans 17.6 Multifamily Real Estate Loans 10.8 1-4 Family Closed-End First Liens 19.4 1-4 Family Closed-End Junior Liens 41.0 Revolving Home Equity Loans 41.0 Agricultural Real Estate Loans 19.7 Agricultural Loans, excluding outstanding loans under the Paycheck Protection Program, as described in § 327.17 and this appendix 11.8 Commercial and Industrial Loans, excluding outstanding loans under the Paycheck Protection Program, described in § 327.17 and this appendix 21.5 Credit Card Loans 18.3 Other Consumer Loans 18.3 All Other Loans, excluding outstanding loans under the Paycheck Protection Program, described in § 327.17 and this appendix 51.0 Other Assets 75.0 Secured Liabilities at Failure Federal Home Loan Bank advances, secured federal funds purchased and repurchase agreements are assumed to be fully secured. Foreign deposits are treated as fully secured because of the potential for ring fencing. Exclude total outstanding borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility. Loss Severity Ratio Calculation The FDIC's loss given failure (LGD) is calculated as: An end-of-quarter loss severity ratio is LGD divided by total domestic deposits at quarter-end and the loss severity measure for the scorecard is an average of end-of-period loss severity ratios for three most recent quarters. (b) [Reserved] III. Mitigating the Effects of Loans Provided Under the Paycheck Protection Program and Assets Purchased Under the Money Market Mutual Fund Liquidity Facility on the Unsecured Adjustment, Depository Institution Debt Adjustment, and the Brokered Deposit Adjustment to an IDI's Assessment Rate Table E.5—Exclusions From Adjustments to the Initial Base Assessment Rate Adjustment Calculation Exclusion Unsecured debt adjustment The unsecured debt adjustment shall be determined as the sum of the initial base assessment rate plus 40 basis points; that sum shall be multiplied by the ratio of an insured depository institution's long-term unsecured debt to its assessment base. The amount of the reduction in the assessment rate due to the adjustment is equal to the dollar amount of the adjustment divided by the amount of the assessment base Exclude from the assessment base the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility. Depository institution debt adjustment An insured depository institution shall pay a 50 basis point adjustment on the amount of unsecured debt it holds that was issued by another insured depository institution to the extent that such debt exceeds 3 percent of the institution's Tier 1 capital. This amount is divided by the institution's assessment base. The amount of long-term unsecured debt issued by another insured depository institution shall be calculated using the same valuation methodology used to calculate the amount of such debt for reporting on the asset side of the balance sheets Exclude from the assessment base the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility. Brokered deposit adjustment The brokered deposit adjustment shall be determined by multiplying 25 basis points by the ratio of the difference between an insured depository institution's brokered deposits and 10 percent of its domestic deposits to its assessment base Exclude from the assessment base the outstanding balance of loans provided under the Paycheck Protection Program and the quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility. IV. Mitigating the Effects on the Assessment Base Attributable to Loans Provided Under the Paycheck Protection Program and Participation in the Money Market Mutual Fund Liquidity Facility Total Assessment Amount Due = Total Assessment Amount LESS: (SUM (Outstanding balance of loans provided under the Paycheck Protection Program and quarterly average amount of assets purchased under the Money Market Mutual Fund Liquidity Facility) * Total Base Assessment Rate) [85 FR 38294, June 26, 2020, as amended at 85 FR 71228, Nov. 9, 2020; 86 FR 11401, Feb. 25, 2021] Subpart B—Implementation of One-Time Assessment Credit Authority: 12 U.S.C. 1817(e)(3). Source: 71 FR 61383, Oct. 18, 2006, unless otherwise noted. § 327.30 Purpose and scope. (a) Scope. (b) Purpose. (1) Determination of the aggregate amount of the one-time credit; (2) Identification of eligible insured depository institutions; (3) Determination of the amount of each eligible institution's December 31, 1996 assessment base ratio and one-time credit; (4) Transferability of credit amounts among insured depository institutions; (5) Application of such credit amounts against assessments; and (6) An institution's request for review of the FDIC's determination of a credit amount. § 327.31 Definitions. For purposes of this subpart and subpart C: (a) The average assessment rate (b) Board (c) De facto rule (d) An eligible insured depository institution: (1) Means an insured depository institution that: (i) Was in existence on December 31, 1996, and paid a deposit insurance assessment before December 31, 1996; or (ii) Is a successor to an insured depository institution referred to in paragraph (d)(1)(i) of this section; and (2) does not include an institution if its insured status has terminated as of or after the effective date of this regulation. (e) Merger merger (f) Resulting institution (g) Successor de facto § 327.32 Determination of aggregate credit amount. The aggregate amount of the one-time credit shall equal $4,707,580,238.19. § 327.33 Determination of eligible institution's credit amount. (a) Subject to paragraph (c) of this section, allocation of the one-time credit shall be based on each eligible insured depository institution's 1996 assessment base ratio. (b) Subject to paragraph (c) of this section, an eligible insured depository institution's 1996 assessment base ratio shall consist of: (1) Its assessment base as of December 31, 1996 (adjusted as appropriate to reflect the assessment base of December 31, 1996, of all institutions for which it is the successor), as the numerator; and (2) The combined aggregate assessment bases of all eligible insured depository institutions, including any successor institutions, as of December 31, 1996, as the denominator. (c) If an insured depository institution is a successor to an eligible insured depository institution under the de facto de facto § 327.34 Transferability of credits. (a) Any remaining amount of the one-time assessment credit and the associated 1996 assessment base ratio shall transfer to a successor of an eligible insured depository institution. (b) Prior to the final determination of its 1996 assessment base and one-time assessment credit amount by the FDIC, an eligible insured depository institution may enter into an agreement to transfer any portion of such institution's one-time credit amount and 1996 assessment base ratio to another insured depository institution. The parties to the agreement shall notify the FDIC's Division of Finance and submit a written agreement, signed by legal representatives of both institutions. The parties must include documentation stating that each representative has the legal authority to bind the institution. The adjustment to credit amount and the associated 1996 assessment base ratio shall be made in the next assessment invoice that is sent at least 10 days after the FDIC's receipt of the written agreement. (c) An eligible insured depository institution may enter into an agreement after the final determination of its 1996 assessment base ratio and one-time credit amount by the FDIC to transfer any portion of such institution's one-time credit amount to another insured depository institution. The parties to the agreement shall notify the FDIC's Division of Finance and submit a written agreement, signed by legal representatives of both institutions. The parties must include documentation stating that each representative has the legal authority to bind the institution. The adjustment to the credit amount shall be made in the next assessment invoice that is sent at least 10 days after the FDIC's receipt of the written agreement. § 327.35 Application of credits. (a) Subject to the limitations in paragraph (b) of this section, the amount of an eligible insured depository institution's one-time credit shall be applied to the maximum extent allowable by law against that institution's quarterly assessment payment under subpart A of this part, after applying assessment credits awarded under § 327.11(c), until the institution's credit is exhausted. (b) The following limitations shall apply to the application of the credit against assessment payments. (1) For assessments that become due for assessment periods beginning in calendar years 2008, 2009, and 2010, the credit may not be applied to more than 90 percent of the quarterly assessment. (2) For an insured depository institution that exhibits financial, operational, or compliance weaknesses ranging from moderately severe to unsatisfactory, or is not at least adequately capitalized (as defined pursuant to section 38 of the Federal Deposit Insurance Act) at the beginning of an assessment period, the amount of the credit that may be applied against the institution's quarterly assessment for that period shall not exceed the amount that the institution would have been assessed if it had been assessed at the average assessment rate for all insured institutions for that period. The FDIC shall determine the average assessment rate for an assessment period based upon its best estimate of the average rate for the period. The estimate shall be made using the best information available, but shall be made no earlier than 30 days and no later than 20 days prior to the payment due date for the period. (3) If the FDIC has established a restoration plan pursuant to section 7(b)(3)(E) of the Federal Deposit Insurance Act, the FDIC may elect to restrict the application of credit amounts, in any assessment period, up to the lesser of: (i) The amount of an insured depository institution's assessment for that period; or (ii) The amount equal to 3 basis points of the institution's assessment base. (c) Remittance of credits. [71 FR 61383, Oct. 18, 2006, as amended at 81 FR 16073, Mar. 25, 2016; 84 FR 65276, Nov. 27, 2019] § 327.36 Requests for review of credit amount. (a)(1) As soon as practicable after the publication date of this rule, the FDIC shall notify each insured depository institution by FDIC connect (i) The institution disagrees with a determination as to eligibility for the credit that relates to that institution's credit amount; (ii) The institution disagrees with the calculation of the credit as stated on the Statement; or (iii) The institution believes that the 1996 assessment base ratio attributed to the institution on the Statement does not fully or accurately reflect its own 1996 assessment base or appropriate adjustments for successors. (2) If an institution does not submit a timely request for review, that institution is barred from subsequently requesting review of its credit amount, subject to paragraph (e) of this section. (b)(1) An insured depository institution may submit a request for review of the FDIC's adjustment to the credit amount in a quarterly invoice within 30 days of the date on which the FDIC provides the invoice. Such review may be requested if: (i) The institution disagrees with the calculation of the credit as stated on the invoice; or (ii) The institution believes that the 1996 assessment base ratio attributed to the institution due to the adjustment to the invoice does not fully or accurately reflect appropriate adjustments for successors since the last quarterly invoice. (2) If an institution does not submit a timely request for review, that institution is barred from subsequently requesting review of its credit amount, subject to paragraph (e) of this section. (c) The request for review shall be submitted to the Division of Finance and shall provide documentation sufficient to support the change sought by the institution. At the time of filing with the FDIC, the requesting institution shall notify, to the extent practicable, any other insured depository institution that would be directly and materially affected by granting the request for review and provide such institution with copies of the request for review, the supporting documentation, and the FDIC's procedures for requests under this subpart. In addition, the FDIC also shall make reasonable efforts, based on its official systems of records, to determine that such institutions have been identified and notified. (d) During the FDIC's consideration of the request for review, the amount of credit in dispute shall not be available for use by any institution. (e) Within 30 days of being notified of the filing of the request for review, those institutions identified as potentially affected by the request for review may submit a response to such request, along with any supporting documentation, to the Division of Finance, and shall provide copies to the requesting institution. If an institution that was notified under paragraph (c) does not submit a response to the request for review, that institution may not: (1) Subsequently dispute the information submitted by other institutions on the transaction(s) at issue in the review process; or (2) Appeal the decision by the Director of the Division of Finance. (f) If additional information is requested of the requesting or affected institutions by the FDIC, such information shall be provided by the institution within 21 days of the date of the FDIC's request for additional information. (g) Any institution submitting a timely request for review will receive a written response from the FDIC's Director of the Division of Finance, (or his or her designee), notifying the requesting and affected institutions of the determination of the Director as to whether the requested change is warranted. Notice of the procedures applicable to appeals under paragraph (h) of this section will be included with the Director's written determination. Whenever feasible, the FDIC will provide the institution with the aforesaid written response the later of: (1) Within 60 days of receipt by the FDIC of the request for revision; (2) If additional institutions have been notified by the requesting institution or the FDIC, within 60 days of the date of the last response to the notification; or (3) If additional information has been requested by the FDIC, within 60 days of receipt of the additional information. (h) Subject to paragraph (e) of this section, the insured depository institution that requested review under this section, or an insured depository institution materially affected by the Director's determination, that disagrees with that determination may appeal to the FDIC's Assessment Appeals Committee on the same grounds as set forth under paragraph (a) of this section. Any such appeal must be submitted within 30 calendar days from the date of the Director's written determination. Notice of the procedures applicable to appeals under this section will be included with the Director's written determination. The decision of the Assessment Appeals Committee shall be the final determination of the FDIC. (i) Any adjustment to an institution's credits resulting from a determination by the Director of the FDIC's Assessment Appeals Committee shall be reflected in the institution's next assessment invoice. The adjustment to credits shall affect future assessments only and shall not result in a retroactive adjustment of assessment amounts owed for prior periods. Subpart C—Implementation of Dividend Requirements Authority: 12 U.S.C. 1817(e)(2), (4). Source: 73 FR 73162, Dec. 2, 2008, unless otherwise noted. § 327.50 Dividends. (a) Suspension of dividends. (b) Assessment rate schedule if DIF reserve ratio exceeds 1.50 Percent. [76 FR 10725, Feb. 25, 2011]

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