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 assets1 | 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 assets2 | 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 assets2 | 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 mergers3) over the previous year in excess of 10 percent.4 If growth is less than 10 percent, 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. |
1The ratio of Net Income before Taxes to Total Assets is bounded below by (and cannot be less than) -25 percent and is bounded above by (and cannot exceed) 3 percent.
2Gross assets are total assets plus the allowance for loan and lease financing receivable losses (ALLL) or allowance for credit losses, as applicable.
3Growth in assets is also adjusted for acquisitions of failed banks.
4The maximum value of the Asset Growth measure is 230 percent; that is, asset growth (merger adjusted) over the previous year in excess of 240 percent (230 percentage points in excess of the 10 percent threshold) will not further increase a bank's assessment rate.
(a) Definition of Loan Mix Index. The Loan Mix Index assigns loans in an institution's loan portfolio to the categories of loans described in the following table. Exclude from the balance of commercial and industrial loans the outstanding balance of loans provided under the Paycheck Protection Program. In the event that the outstanding balance of loans provided under the Paycheck Protection Program exceeds the balance of commercial and industrial loans, exclude the remaining balance from the balance of agricultural loans, up to the total amount of agricultural loans. The Loan Mix Index is calculated by multiplying the ratio of an institution's amount of loans in a particular loan category to its total assets, excluding the outstanding balance of loans provided under the Paycheck Protection Program by the associated weighted average charge-off rate for that loan category, and summing the products for all loan categories. The table gives the weighted average charge-off rate for each category of loan. The Loan Mix Index excludes credit card loans.
(b) [Reserved]
Loan Mix Index Categories and Weighted Charge-Off Rate Percentages
| Weighted charge-off rate percent |
|
|---|---|
| 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 Measures1 | 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 Measure1 | 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. Exclude from other borrowings with a remaining maturity of one year or less the balance of outstanding borrowings from the Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility with a remaining maturity of one year or less. |
| 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 | 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. |
1The credit quality score is the greater of the criticized and classified items to Tier 1 capital and reserves score or the underperforming assets to Tier 1 capital and reserves score. The market risk score is the weighted average of three scores—the trading revenue volatility to Tier 1 capital score, the market risk capital to Tier 1 capital score, and the level 3 trading assets to Tier 1 capital score. All of these ratios are described in appendix A of this subpart and the method of calculating the scores is described in appendix B of this subpart. Each score is multiplied by its respective weight, and the resulting weighted score is summed to compute the score for the market risk measure. An overall weight of 35 percent is allocated between the scores for the credit quality measure and market risk measure. The allocation depends on the ratio of average trading assets to the sum of average securities, loans and trading assets (trading asset ratio) as follows: (1) Weight for credit quality score = 35 percent * (1—trading asset ratio); and, (2) Weight for market risk score = 35 percent * trading asset ratio. In calculating the trading asset ratio, exclude from the balance of loans the outstanding balance of loans provided under the Paycheck Protection Program.
(a) 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 liability runoff, and growth in insured deposits, to adjust the size and composition of the institution's liabilities. Exclude total outstanding borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility from short-and long-term secured borrowings, as appropriate. Assets are then reduced to match any reduction in liabilities. Exclude from an institution's balance of commercial and industrial loans the outstanding balance of loans provided under the Paycheck Protection Program. In the event that the outstanding balance of loans provided under the Paycheck Protection Program exceeds the balance of commercial and industrial loans, exclude any remaining balance of loans provided under the Paycheck Protection Program first from the balance of all other loans, up to the total amount of all other loans, followed by the balance of agricultural loans, up to the total amount of agricultural loans. Increase cash balances by outstanding loans provided under the Paycheck Protection Program that exceed total outstanding borrowings from Federal Reserve Banks under the Paycheck Protection Program Liquidity Facility, if any. The institution's asset values are then further reduced so that the Leverage Ratio reaches 2 percent. In both cases, assets are adjusted pro rata to preserve the institution's asset composition. Assumptions regarding loss rates at failure for a given asset category and the extent of secured liabilities are then applied to estimated assets and liabilities at failure to determine whether the institution has enough unencumbered assets to cover domestic deposits. Any projected shortfall is divided by current domestic deposits to obtain an end-of-period loss severity ratio. The loss severity measure is an average loss severity ratio for the three most recent quarters of data available.
Runoff and Capital Adjustment Assumptions
Table E.3 contains run-off assumptions.
Table E.3—Runoff Rate Assumptions
| Liability type | Runoff rate* (percent) |
|---|---|
| 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 (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 | 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]
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