OCC Information Related to Hurricane Katrina

Q: Are there circumstances under which individuals may be able to access funds in their deferred compensation plans as a result of Hurricane Katrina to repair or replace a home or for some other purpose?

A: Yes. Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, and state and local government employees with certain 457 deferred-compensation plans may be able to take advantage of new, liberalized provisions that will enable them to borrow money or obtain distributions from their retirement plans as a result of Hurricane Katrina. The new procedures means that Hurricane Katrina victims may be able to take hardships distributions or borrow up to the specified statutory limits from their retirement plan to repair or replace a home or for some other purpose. It also means that a person who lives in another part of the country may be able to take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

The Internal Revenue Service has issued a News Release and Announcement 2005-70, which set forth the liberalized provisions applicable to loans and distributions of funds from certain deferred compensation plans. In addition, the United States Department of Labor's Employee Benefits Security Administration (EBSA) has issued a Release that states the Department of Labor will not treat any person as having violated the provisions of title I of the Employee Retirement Income Security Act solely because they complied with the provisions of IRS Announcement 2005-70.

Return to Top

Q: May national banks enter into space and employee sharing arrangements with other depository institutions when providing services through temporary branches to persons displaced by Hurricane Katrina? (Added Sept. 9, 2005)

A:  Yes. OCC regulations permit national banks to share space and employees with unrelated businesses, including other depository institutions. 12 C.F.R. § 7.3001(a) and (b). The regulations permit employees of one of the other businesses to act as an agent for the bank and vice-versa.

In entering into space and employee sharing arrangements, OCC regulations provide that banks make certain that customers know the identity of the institution providing the services. This can be accomplished with appropriate signage where reasonably possible, but in any event, shared employees should clearly disclose to customers the identity of the depository institution with which they are doing business. Any forms that are used should include the name of the depository institution even if the employee writes the name of the institution on the form.

OCC regulations provide that the rights, obligations, and duties of the parties, including steps taken to assure safe and sound operation, when engaging in a sharing arrangement be set forth in a written agreement. The OCC recognizes, however, that under the emergency circumstances existing following Hurricane Katrina, banks need to provide services as quickly as possible through temporary branches created following little or no lead-time. In these cases, it may be impossible for the parties to develop a written agreement prior to providing services through such arrangements. Consequently, for temporary branches created in response to Hurricane Katrina the OCC is not requiring that the parties enter into a formal written agreement prior to initiating a shared space or employee relationship. However, the parties should take steps to assure that customers know the identity of the depository institution that they are dealing with, and the parties should come to a general understanding about how the facility will operate. As soon as reasonably practical following the initiation of the sharing arrangement, the parties should enter into a written agreement formalizing the relationship, roles and responsibilities of the parties.  

Return to Top

Q: How can banks work with their customers who were affected by Hurricane Katrina?

A:  For borrowers, banks are encouraged to establish programs that allow affected borrowers to waive or defer monthly payments until a repayment plan can be resumed.  For many customers, the bank may need to offer temporary hardship programs that waive fees and lower interest rates and payment amounts for a period up to 12 months.  Lenders also can extend and defer payments and renew and rewrite loans to help borrowers overcome financial difficulties. 

Please see the interagency statement that was issued on September 2, 2005 (also on this web site) that addresses this, as well as actions that could be taken for depositors and others, in more detail.  Also on this web site is information from the Treasury Department that provides guidance on Government benefit checks and the use of third party drafts.  National banks should also contact their portfolio manager or Keith Pace in the OCC's District Office in Dallas (214-720-0656).

Return to Top

Q: Will OCC defer implementation of the banks' changes in minimum payment requirements to comply with the Account Management and Loss Allowance Guidance for Credit Card Lending?

A:  Deferring implementation of the Account Management Guidance is not an appropriate solution.   For many hurricane victims simply deferring implementation of plans to change minimum payment requirements for credit cards would not address the borrowers' primary concerns.  Banks will be far more effective in their payment relief efforts through direct contact with customers and designing programs that are most suitable for the customers' situation.  Credit card lenders have the latitude to work with borrowers in affected areas by establishing programs, including temporary hardship programs that can ease payment requirements for customers in need of financial assistance. 

Return to Top

Q: May a national bank located in an area in Louisiana, Alabama, or Mississippi, which the President has declared a major disaster area as a result of Hurricane Katrina establish emergency temporary banking facilities at other locations in those states and in Texas to serve persons displaced as a result of the hurricane? 

A:   Yes.  National banks in those areas may establish temporary facilities to serve people and businesses displaced by the hurricane subject to an after-the fact notice process. These facilities may be established at any location, such as at or near the Astrodome in Houston, Texas, where persons displaced by the hurricane are being sheltered. Under these circumstances, no additional determination, approval, or authorization from the OCC will be required for a period of up to six months following the establishment of the temporary facility. The facilities established under this procedure may provide all of the usual branching services including payment of withdrawals, receipt of deposits, and disbursal of loan proceeds. These facilities may be traditional fixed site facilities, mobile facilities, facilities shared by two or more depository institutions, or other types of branch facilities.

            After-the-fact notification process

Banks seeking to establish such facilities should provide written or oral notice to the OCC's Southern district licensing unit of the existence of the facility within five days after it is established. The notice should state the location of the facility, that the primary purposes of the facility is to serve persons displaced by Hurricane Katrina, the date that it opened, and that the bank will not operate the facility for more than six months. The contact information for our licensing unit is:

Karen Bryant
Southern District Licensing@occ.treas.gov
500 North Akard Street, Suite 1600
Dallas, Texas  75201

     Establishment of temporary emergency branches in other states

National banks located in areas of Louisiana, Alabama, or Mississippi that have been declared to be major disaster areas that seek to establish temporary emergency branches to serve displaced persons in states other than those three or Texas should follow the procedures set forth in response to the following question.

Return to Top

Q:  May a national bank not located in an area that the President has declared to be a major disaster area as a result of Hurricane Katrina establish emergency temporary branches to serve persons displaced as a result of the hurricane? 

A:  Yes, national banks may establish such temporary emergency branches in any state if permissible under applicable law following prior notice to the OCC. Banks seeking to establish such branches must provide prior written notice to the OCC's Southern district licensing unit at the address listed above. The notice should disclose the location of the branch, the date that it will open, that its primary purpose will be to serve persons displaced by Hurricane Katrina, and that the branch will be operated for no longer than six months. 

                        Branch establishment by in-state banks

A prior notice submitted by a bank seeking to establish an intrastate branch (that is, a branch in a state where the bank has its main office or one or more branches) does not need to represent compliance with branching law in most states, including Texas, Louisiana, Mississippi, Alabama, Arkansas and Oklahoma, because they impose no geographical restrictions on intrastate branching. 

                        Branch establishment by out-of-state banks

A prior notice submitted by a bank seeking to establish an interstate branch (that is, a branch in a state other than one in which the bank has its main office or already operates one or more branches) must represent compliance with interstate branching law. Currently about half of the states, including Louisiana, Mississippi, Alabama and Arkansas do not permit establishment of interstate de novo branches. Texas and Oklahoma permit interstate de novo branching only where the state of the bank seeking to establish the branch also permits it. 

Out-of-state banks that may not have legal authority to establish temporary branches in states affected by the hurricane may contact the OCC to determine how they can provide services in affected communities or to displaced persons.

Return to Top

Q:  Do branch closing procedures apply to branches closed because of Hurricane Katrina? 

A:  Branch closing notice requirements and procedures do not apply when there is a temporary interruption of service due to an event beyond the bank's control, such as damage inflicted by a hurricane, provided that the bank intends to restore branching services at the site in a timely manner under the circumstances.   However, if the bank ultimately decides not to reopen the branch, the bank should notify the customers of the branch and the OCC to the extent reasonably possible under the circumstances and as soon as reasonably possible after the decision not to reopen the branch is made.

Q: Do branch closing procedures apply to temporary facilities that are set up as described above to serve persons displaced by Hurricane Katrina?

A:  Banks that establish temporary facilities under the procedures set forth above in the aftermath of Hurricane Katrina to serve persons displaced by the hurricane are not required to follow branch closing procedures when the bank closes down the temporary facility.   However, in anticipation of closing such a facility, banks should work with any remaining customers to make certain that they will have convenient access to banking services once the facility is closed.

Return to Top

Q: How can financial institutions verify the identity of hurricane evacuees for individuals who lost their Louisiana driver's license or identification card?

A: For financial institutions attempting to verify the identity of hurricane evacuees, the following information may help customers obtain proof of identity if they had a Louisiana Office of Motor Vehicles issued driver's license or identification (ID) card prior to Hurricane Katrina.

Evacuees located inside Louisiana should visit their local motor vehicle office and apply for a free replacement driver's license or ID card. The Office of Motor Vehicles will not require any documentary proof of identity to reissue the cards, because they will use photograph and signature verification from their database. Persons at shelters or lacking access to a motor vehicle office should call (225) 925-4610 or (225) 925-3993 to receive information about the best options to obtain identity documents in their area.

Evacuees located outside of Louisiana should apply for a free reconstructed driver's license or ID card by faxing form DPSMV-2003 to the Louisiana Office of Motor Vehicles at (225) 925-3901, (225) 925-1937 or (225) 925-6303. Form DPSMV-2003 is available for download from the Louisiana Office of Motor Vehicles official Web site or can be faxed to the individual by calling (225) 925-4195 or (877) DMV-LINE [(877) 368-5463]. The form should include the person's full name, signature, date of birth, race, sex, social security number, an address where they would like their driver's license or ID card mailed, and a telephone number, if possible. Their signature on the form will be used to verify their identity. The Office of Motor Vehicles will try to mail the driver's license or ID card within 72 hours.

For additional information, please visit the Louisiana Office of Motor Vehicles' Web site.

Return to Top

Questions relating to the Bank Secrecy Act and Katrina

Q: I am opening new bank accounts for people displaced by Hurricane Katrina. What information or identification do the Bank Secrecy Act or related regulations require me to obtain to open an account?

A:  Bank Secrecy Act regulations require banks to obtain certain information about a person before opening a new account and to verify the identity of individuals within a reasonable time thereafter.

Under the interagency Customer Identification Program rules, before opening an account, a bank must obtain, at a minimum, an individual's

1. name,

2. address,

3. date of birth, and

4. taxpayer identification number, which for most individuals is a social security number. [Individuals who are not U.S. persons may provide a taxpayer identification number or a number from any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.]

After the account is opened, the bank is permitted a reasonable period of time to verify the customer's identity. The bank should determine what period of time is reasonable under the circumstances and given the methods available to verify the identity of individuals affected by the hurricane, through documentary or non-documentary methods. (See response to question below for information on provisions for verifying a new account holder's identity without documents.)

Return to Top

Q: I am opening accounts for Hurricane Katrina victims who do not have drivers' licenses or any other form of identification. How can I verify the identity of these individuals and remain in compliance with the Bank Secrecy Act?

A:  Under the interagency rules regarding customer identification, a bank is not required to obtain a driver's license from a person at the time of account opening. The bank must obtain the information listed in the response to the question above (name, address, date of birth, taxpayer ID) before opening an account. This can be done without documentation. Verification of the identity of the customer is not required at account opening. This may be undertaken within a "reasonable time" thereafter. The bank should determine what period of time is reasonable for verifying the identity of individuals affected by the hurricane, given the unique circumstances . In satisfying the verification requirement, it is important to stress that the Bank Secrecy Act rules allow banks flexibility to design a program that uses documents (driver's license, passport, etc), non-documentary methods (e.g., comparison of information provided by the person to information obtained through electronic searches of consumer reporting agencies, public databases, or other sources), or a combination to verify a customer's identity.

Banks are encouraged to use other verification methods for individuals affected by the storm who do not have traditional forms of identification, such as driver's licenses. Banks establishing accounts for individuals depositing Treasury checks for Social Security, the Office of Personnel Management, and Railroad Retirement benefit payments can use the processes put in place by these agencies to verify the identity of their benefit recipients by telephone. A link to recently released guidance from the U.S. Treasury on government benefit checks and the use of third party drafts is inserted: http://www.fms.treas.gov/flexibility_thirdparty.html

Accepting these or other forms of identification, or using non-documentary methods for verifying customer identity may require an amendment to a bank's Customer Identification Program. If necessary, banks should amend their Customer Identification Programs immediately and obtain required board approval for program changes as soon as practicable.

Return to Top

Q: I would like to open an account for an individual who does not have a permanent address because his house was destroyed by the hurricane. How do I comply with the requirement in the Bank Secrecy Act rules that I get the individual's address before I open the account?

A:  The bank should obtain the individual's last permanent address and get the address of the location where the individual is currently residing; even if it is temporary. In the absence of an actual address or street number for the temporary housing, a description of the physical location of the customer's temporary housing will suffice.

Return to Top

Q: I am a banker that is receiving wire transfers for non-customers who are victims of Hurricane Katrina. What information do I have to obtain and verify before I release the proceeds of the wire transfer directly to a non-customer beneficiary?

A:  For wires or payment orders of less than $3,000 the bank is not required by law to obtain information from the beneficiary or to verify the beneficiary's identity. However, prudent banking practice would normally lead a bank to do both. For wire transfers or payment orders of $3,000 or more, which the bank accepts for a person who is not a customer of the bank, the bank should obtain and retain the following:

1. Name of beneficiary
2. Address (see Q&A above for information about addresses)
3. Type of identification document reviewed and number of the identification document, and
4. Taxpayer identification number (e.g. social security number) or notation of the lack thereof.

The receiving bank is responsible for obtaining this information and maintaining a record of the information. Typically, the bank will verify the identity of the person by asking for a driver's license or some other form of identification (see prior questions).

Return to Top

Community Reinvestment Act

Q: Will banks receive consideration under the Community Reinvestment Act for loans, investments, and services that benefit people or areas affected by Hurricane Katrina?

A: In accordance with the CRA regulation and existing guidance, the OCC will favorably consider activities that revitalize or stabilize designated disaster areas, but will give greater weight to those activities designed to benefit low- or moderate-income individuals or areas. Other activities, such as providing affordable housing or community services to low- and moderate-income individuals, may also qualify for community development consideration under CRA.

Return to Top

Q: Would a bank receive CRA credit for supporting temporary emergency shelter/housing for individuals who have been evacuated and then transported to other areas? In my situation, individuals have been evacuated to Texas, and parts of Texas have been declared a disaster area due to Hurricane Katrina.

A: Yes, a bank may receive positive CRA consideration for supporting temporary emergency shelter/housing for individuals in areas declared disaster areas.

Return to Top

Q: How did the 2005 changes to the CRA regulations concerning designated disaster areas expand opportunities for "Part 24" public welfare investments (12 CFR Part 24)?

A: A national bank may make a public welfare investment under 12 CFR Part 24, if the investment primarily benefits low- and moderate-income individuals, low- and moderate-income areas, or other areas targeted by a government entity for redevelopment, or if the investment would receive consideration under 12 CFR 25.23 (CRA) as a "qualified investment."

The 2005 revisions to the CRA regulations modified the definition of "community development" to make bank activities to revitalize or stabilize designated disaster areas eligible for CRA consideration. Thus, a national bank may make an investment under 12 CFR Part 24 for any community development activity that revitalizes or stabilizes a designated disaster area.

An activity will be presumed to revitalize or stabilize a designated disaster area if it helps to attract new, or retain existing, businesses or residents and is related to disaster recovery. A "designated disaster area" is a major disaster area designated by the federal government. Investments in recovery-related activities designed to revitalize or stabilize a designated disaster area generally must be made within 36 months after the date of designation. Where there is demonstrable community need to extend the period for recognizing revitalization or stabilization activities in a particular disaster area to assist in long-term recovery efforts, this time period may be extended. For the areas impacted by hurricanes Katrina and Rita, this time period will be extended.

Return to Top

Accounting and Regulatory Reporting Questions and Answers

Third Quarter 2005 Regulatory Report Filings

Q: Hurricanes Katrina and Rita (the Hurricanes) may affect the ability of financial institutions to submit timely and accurate regulatory reports for September 30, 2005. These reports include bank Reports of Condition and Income (Call Reports), Thrift Financial Reports, Thrift Holding Company Reports, credit union 5300 and 5310 Call Reports, and bank holding company Y reports. What approach do the member agencies of the Federal Financial Institutions Examination Council expect to take in situations where institutions affected by the Hurricanes expect to encounter difficulty completing their September 30, 2005, regulatory reports? (October 7, 2005)

A: Institutions affected by the Hurricanes that expect to encounter difficulty submitting accurate and timely data for the September 30, 2005, report date should contact their primary federal regulatory agency, as shown below, to discuss their situation. The agencies do not expect to assess penalties or take other supervisory action against institutions that take reasonable and prudent steps to comply with regulatory reporting requirements if those institutions are unable to fully satisfy those requirements by the specified filing deadlines because of the effects of the Hurricanes. The agencies' staffs stand ready to work with affected institutions that may be experiencing problems fulfilling their reporting responsibilities, taking into account each institution's particular circumstances, including the status of its reporting and recordkeeping systems and the condition of its underlying financial records.

Appropriate offices of federal regulatory agencies to contact:

Board: For Call and Y Reports, contact the Federal Reserve Bank to which the bank or bank holding company submits its reports. Alternatively, banks and bank holding companies may contact Douglas Carpenter, Supervisory Financial Analyst, Federal Reserve Board, at (202) 452-2205.

FDIC: For Call Reports, contact Data Collection and Analysis Section, Washington, DC, at (800) 688-FDIC (3342).

NCUA: For 5300 Call Reports, contact the Atlanta Regional Office (Alabama, Mississippi) at (678) 443-3000, the Austin Regional Office (Louisiana, Texas) at (512) 342-5600, or Ashley Rowe, Department of Risk Management, at (703) 518-6360. For 5310 Call Reports, contact the Office of Corporate Credit Unions at (703) 518 6640.

OCC: For Call Reports, contact the FDIC's Data Collection and Analysis Section, Washington, DC, at (800) 688-FDIC (3342).

OTS: For Thrift Financial Reports and Thrift Holding Company Reports, contact Vikki Reynolds, Financial Reporting Division, Dallas, TX, at (972) 277-9595. For securities filings sent directly to the OTS: For accounting issues, contact Lynnwood Campbell, Director, Securities Filings, Washington, DC, at (202) 906-5713; for legal issues, contact Kevin Corcoran, Deputy Chief Counsel, Washington, DC, at (202) 906-6962.

Return to Top

Third Quarter 2005 Allowance for Loan and Lease Losses

Q: How should financial institutions with borrowers affected by the Hurricanes determine the appropriate amount to report for their allowance for loan and lease losses (ALLL) in their third quarter regulatory reports (e.g., Call Report, Thrift Financial Report, 5300 and 5310 Call Reports, Y Reports)? (October 7, 2005)

A: For financial institutions with loans to borrowers in the affected area, it may be difficult at this time to determine the overall effect that the Hurricanes will have on the collectibility of these loans. Many of these financial institutions will need time to evaluate their individual borrowers, assess the condition of underlying collateral, and determine potential insurance proceeds and other available recovery sources.

For its third quarter regulatory reports, management should consider all information available prior to filing this report about the collectibility of the financial institution's loan portfolio in order to make its best estimate of probable losses within a range of loss estimates, recognizing that there is a short time between the storms' occurrence and the required filing date for the third quarter regulatory report. Consistent with generally accepted accounting principles (GAAP), the amounts included in the ALLL in third quarter regulatory reports for estimated credit losses incurred as a result of the Hurricanes should include those amounts that represent probable losses that can be reasonably estimated. As financial institutions are able to obtain additional information about their loans to borrowers affected by the Hurricanes, the agencies would expect that estimates of the effect of the Hurricanes on loan losses could change over time and that the revised estimates of loan losses would be reflected in financial institutions' subsequent regulatory reports.

Q: Is there an ability for a financial institution to disclose additional information in its regulatory reports about the consequences of the hurricanes? (October 7, 2005)

A: Yes, the agencies note that for banks, bank holding companies and thrifts that file Reports of Condition and Income (Call Report), financial statements for bank holding companies (Y-9 Report) or Statements of Condition and Operations (Thrift Financial Report), the management of such financial institutions may, if it wishes, submit a brief narrative statement on the amounts reported in the Call Report, Y-9 Report or Thrift Financial Report. This optional narrative statement will be made available to the public, along with the publicly available data in the Call Report, Y-9 Report or Thrift Financial Report. This statement has long been available for the use of financial institutions that are required to file a Call Report, Y-9 Report or Thrift Financial Report. Financial institutions may wish to comment on certain financial consequences to their institutions resulting from the effects of the Hurricanes in the optional narrative statement. Please refer to page RC-X-1 of the Call Report instructions for the "Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income", page BS notes 1 of the FR Y-9C instructions, page SP notes 1 of the FR Y-9SP instructions or to Schedule NS of the Thrift Financial Reporting Instructions for the "Optional Narrative Statement" for further guidance.

Return to Top

Sales of Held-to-Maturity Securities

Q: If a financial institution affected by major-category hurricanes (such as Hurricane Katrina and Hurricane Rita) sells investment securities that were classified as "held to maturity" (HTM) to meet its liquidity needs, will that financial institution's intent to hold other investment securities to maturity be questioned? (October 7, 2005)

A: Under normal circumstances the sale of any HTM investment would call into question an institution's intent to hold its remaining HTM investments to maturity. However, paragraph 8 of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, indicates that events that are isolated, nonrecurring, and unusual for the reporting enterprise that could not be reasonably anticipated may cause an enterprise to sell or transfer an HTM security without necessarily calling into question its intent to hold other HTM debt securities to maturity. The FASB staff believes that the above provision encompasses the sales of HTM investment securities by a financial institution that are required to meet the abnormally increased liquidity needs of that financial institution that are directly related to a major-category hurricane (such as Hurricane Katrina and Hurricane Rita) that has caused extraordinary devastation over a wide area affecting a vast number of the financial institution's customers.

Return to Top

Credit Questions and Answers

Credit Card Temporary Hardship and Workout Programs

The following questions and answers provide additional guidance concerning the Account Management and Loss Allowance Guidance for Credit Card Lending issued by the federal banking agencies on January 8, 2003 ("Credit Card Guidance") and the Uniform Retail Credit Classification and Account Management Policy, issued by the federal banking agencies on June 6, 2000 ("Retail Credit Policy Statement") that may be relevant for institutions that have customers affected by Hurricane Katrina and Hurricane Rita ("the hurricanes").

Note: The timeframes for reestablishing communications with customers in the comments below may not be appropriate for institutions physically located in the disaster area. These institutions should work with their primary supervisor to determine appropriate timeframes.

Q: The Retail Credit Policy Statement states that "open-end accounts should not be re-aged more than once within any twelve-month period and no more than twice within any five year period." Does this policy continue to apply to accounts of customers located in the affected areas at the time of the hurricanes? (October 13, 2005)

A: The policy statement, including the limits described above, would continue to apply to such accounts. However, if an institution has agreed to defer customer payments as a result of the hurricanes, the institution may make delinquency bucket adjustments back to the customer's payment status at the time of the hurricanes, which may preclude the need to re-age the account.

Q: May an institution place an account in a temporary hardship program before contact with the customer occurs? (October 7, 2005)

A: An institution may place a customer in a temporary hardship program before making contact with the customer. However, placing a customer in a long-term hardship program without communication with the customer generally would not be appropriate. Institutions should work to reestablish communications with customers within 90 days to determine if a temporary hardship program is appropriate for the customer's circumstances. When contact is made, the elements of the hardship program can be modified based on the consumer's situation.

Q: What should an institution do if communication with a customer isn't reestablished within a reasonable timeframe, such as within 90 days? (October 7, 2005)

A: Institutions should continue to assess their exposure to such customers. Lack of communication with a customer for an extended period heightens the level of risk for the account. Strategies should be developed to determine actions that will be taken if communication is not reestablished, including ensuring that interest and fee income is not overstated, appropriate loss allowances are established, and losses are recognized as appropriate for these accounts.

Q: May an institution extend the 12-month timeframe for temporary hardship programs or the 60-month timeframe for accounts in workout programs as set forth in the Credit Card Guidance? (October 7, 2005)

A: Temporary hardship programs of up to 18 months may be appropriate for some customers in the affected areas. Institutions should reevaluate the account prior to granting extensions beyond 12 months to determine if an extension of the hardship program is necessary for the customer. For customers in the affected areas with accounts already enrolled in workout programs, an institution may extend repayment timeframes for 12 months beyond the 60-month repayment target set forth in the Credit Card Guidance to accommodate payment deferrals and the need to lower payment amounts. Institutions should maintain appropriate loss allowances for accounts needing the extended timeframes.

Q: May an institution defer implementation of a change in its minimum payment requirements that it had previously agreed with its regulator to make in order to comply with the Account Management and Loss Allowance Guidance for Credit Card Lending? (October 7, 2005)

A: Deferring implementation of the Account Management Guidance is not an appropriate solution. For many hurricane victims simply deferring implementation of plans to change minimum payment requirements for credit cards would not address the borrowers' primary concerns. Institutions will be far more effective in their payment relief efforts through direct contact with customers and designing programs that are most suitable for the customers' situation. Credit card lenders have the latitude to work with borrowers in affected areas by establishing programs targeted to their specific situations and needs, including temporary hardship programs that can ease payment requirements by waiving fees and lowering interest rates and principal payments for customers in need of financial assistance.

Q: May institutions delay implementation if the change of terms notification regarding minimum payments changes was not communicated to customers in the affected areas prior to the hurricanes and an institution now does not know how to contact the customer? (October 7, 2005)

A: The agencies acknowledge that there may be unavoidable delays in implementation for some customers because of the inability to communicate the change of terms information to customers in the affected areas. Institutions may defer mailings and subsequent implementation in the affected areas until communication with the customer can be reestablished. Institutions should work to reestablish communications with customers as quickly as possible.

Return to Top

Delinquency and Credit Bureau Reporting

Q: If an institution cannot contact a customer due to the hurricanes, may an institution maintain the payment status of the customer's account at the time of the hurricanes until contact is reestablished? (October 13, 2005)

A: Freezing an affected account's payment status as of the time of the hurricanes is an acceptable action to prevent the account from rolling through the delinquency buckets and to prevent fee assessments. If communication with the customer is not reestablished within 90 days of the event, the institution should evaluate whether this strategy remains appropriate, and should ensure that interest and fee income is not overstated, that appropriate allowances are established, and that losses are recognized as appropriate for this segment of the institution's accounts.

Q: Should an institution temporarily suspend reporting adverse information to the consumer reporting agencies for customers in the affected areas? (October 7, 2005)

A: While financial institutions are not required to report information to consumer reporting agencies, those institutions that do furnish information are encouraged to avoid reporting adverse information to the consumer reporting agencies for customers located in the affected areas until conditions stabilize and borrowers can reasonably be expected to resume payment activity. For example, to prevent reporting adverse information to the consumer reporting agencies, some institutions have temporarily suspended reporting and/or maintained accounts in their payment status at the time of the event even though payments have not been received.

Return to Top

Past Due and Nonaccrual Reporting

Q: Some financial institutions have engaged in programs to temporarily provide consumer borrowers affected by Hurricane Katrina or Rita (the Hurricanes) additional flexibility in repaying loans. For example, some institutions have encouraged borrowers that were affected by the Hurricanes to contact the institution to work out new repayment arrangements (e.g., waiving late fees and deferring interest and principal payments for a short period of time, such as 30 - 90 days). Other institutions have provided similar repayment arrangements across-the-board to all consumer borrowers in the affected area, unless a customer requests otherwise. How should financial institutions report such loans in regulatory reports (e.g., Call Report, Thrift Financial Report, 5300 and 5310 Call Reports, or Y Reports)? (10/12/2005)

A: Each financial institution should consider the specific facts and circumstances regarding its temporary payment deferral program for consumer borrowers affected by the Hurricanes in determining the appropriate reporting treatment in accordance with generally accepted accounting principles (GAAP) and regulatory reporting instructions.

Past Due Reporting: Past due reporting status in regulatory reports should be determined in accordance with the contractual terms of a loan as its terms have been revised under a temporary payment deferral program, either as agreed to with the individual customer or provided across-the-board to all affected customers. Accordingly, if all payments are current in accordance with the revised terms of the loan, the loan would not be reported as past due. Furthermore, for loans subject to a payment deferral program on which payments were past due prior to the Hurricanes, the agencies have determined that the delinquency status of the loan may be adjusted back to the status that existed at the date of the applicable hurricane (i.e., "frozen") for the duration of the payment deferral period. For example, if a consumer loan subject to a payment deferral program was 60 days past due on the date of a hurricane, it would continue to be reported in its regulatory reports as 60 days past due during the deferral period (unless the loan is reported in nonaccrual status or charged off as discussed below).

Nonaccrual Status, Allowance for Loan and Lease Losses, and Charge-offs: Each financial institution should refer to the applicable regulatory reporting instructions, as well as its internal accounting policies, in determining whether to report loans to affected customers on which payments have been temporarily deferred as nonaccrual assets in regulatory reports. Furthermore, each institution should maintain an appropriate allowance for loan losses for these loans, considering all information available prior to filing its reports about their collectibility (for further information, see answer 1 to "Third Quarter 2005 Allowance for Loan and Lease Losses"). As information becomes available indicating a specific loan will not be repaid (e.g., information related to the likelihood of collection on a specific loan or the inability of the institution to contact the borrower within a reasonable period), the institution's charge-off policies should be applied.

Regulatory Reporting Disclosures: Each banking organization or thrift institution is encouraged, but not required, to disclose information related to its deferral programs (e.g., amount and types of loans subject to the program) in the optional narrative statements in the Call Report, Y-9 Report, or Thrift Financial Report (for further information, see answer 2 to "Third Quarter 2005 Allowance for Loan and Lease Losses").

Return to Top

Q: Some financial institutions are working with certain commercial borrowers affected by Hurricane Katrina or Rita (the Hurricanes) to provide additional flexibility in repaying loans (e.g., commercial and industrial loans, commercial real estate loans, and certain small business loans). In this regard, some institutions have renegotiated the repayment terms of specific loans (e.g., deferring or waiving interest and principal payments) with such borrowers, considering the borrower's current situation and overall ability to repay. How should financial institutions report such commercial loans in regulatory reports (e.g., Call Report, Thrift Financial Report, 5300 and 5310 Call Reports, or Y Reports)?

A: Each financial institution should consider the specific facts and circumstances regarding the renegotiated contractual repayment terms for commercial borrowers affected by the Hurricanes in determining the appropriate reporting treatment of these loans in accordance with generally accepted accounting principles (GAAP) and regulatory reporting instructions. Institutions should refer to GAAP and regulatory reporting instructions for further information. Some areas to consider are summarized in the guidance below.

This guidance applies to commercial loans (including small business loans) with terms that have been individually renegotiated. However, financial institutions offering an across-the-board temporary deferral program to small business borrowers should refer to the following question and answer.

Past Due (Delinquency) Reporting: Past due reporting status in regulatory reports should be determined in accordance with the contractual terms of a loan as its terms have been renegotiated with the borrower.

Troubled Debt Restructurings (TDRs): Financial institutions should determine whether commercial loans to affected borrowers with renegotiated repayment terms should be reported as TDRs in separate memoranda items for such loans in regulatory reports. A TDR is a loan restructuring in which an institution, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. However, a loan extended or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not reported as a TDR. Financial institutions may refer to Financial Accounting Standards Board (FASB) Statement No. 15 for additional guidance on determining whether a loan with renegotiated terms should be accounted for as a TDR. FASB Statement No. 114 also provides guidance on accounting for impairment losses on TDRs (summarized below in "Allowance for Loan and Lease Losses and Charge-offs").

Nonaccrual Status: Each financial institution should refer to the applicable regulatory reporting instructions, as well as its internal accounting policies, in determining whether to report commercial loans to affected borrowers as nonaccrual assets in regulatory reports. In general, institutions shall not accrue interest on any commercial loan: (1) which is maintained on a cash basis because of deterioration in the financial condition of the borrower, (2) for which payment in full of principal or interest is not expected, or (3) upon which principal or interest has been in default for a period of 90 days or more, unless the loan is both well secured and in the process of collection. Accordingly, if interest or principal has been waived on a commercial loan, the loan generally should be placed on nonaccrual status. If interest or principal has been deferred (i.e., no payments are required during the deferral period), but not waived, judgment should be used to determine whether the loan should be placed on nonaccrual status (e.g., by evaluating whether or not full payment of principal and interest is expected).

While a commercial loan is in nonaccrual status, some or all of the cash interest payments received may be treated as interest income on a cash basis as long as the remaining book balance of the loan (i.e., after charge-off of identified losses, if any) is deemed to be fully collectible. Guidance on restoring nonaccrual loans to accrual status is provided in regulatory reporting instructions.

Allowance for Loan and Lease Losses and Charge-offs: Each institution should maintain an appropriate allowance for loan losses for all commercial loans to borrowers affected by the Hurricanes, considering all information available prior to filing its reports about their collectibility. In particular, for commercial loans whose terms have been modified in a TDR that provides for a reduction of either interest or principal (referred to as a modification of terms), financial institutions should measure the impairment loss on the restructured loan in accordance with GAAP (FASB Statement No. 114). In this regard, a credit analysis should be performed in conjunction with the restructuring to determine the loan's collectibility and estimated impairment. The amount of this impairment should be included in the allowance for loan and lease losses.

As information becomes available indicating a specific commercial loan, including a loan that is a TDR, will not be repaid (e.g., information related to the likelihood of collection on a specific loan or the inability of the institution to contact the borrower within a reasonable period or, for a renegotiated loan, to make further contact with the borrower within a reasonable period after revising the repayment terms), the institution's charge-off policies should be applied.

Regulatory Reporting Disclosures: Each banking organization or thrift institution is encouraged, but not required, to disclose information related to its efforts to work with commercial borrowers affected by the Hurricanes in its optional narrative statements in the Call Report, Y-9 Report, or Thrift Financial Report (for further information, see answer 2 to "Third Quarter 2005 Allowance for Loan and Lease Losses").

Return to Top

Q: Some financial institutions have engaged in programs to temporarily provide small business borrowers affected by Hurricane Katrina or Rita (the Hurricanes) additional flexibility in repaying loans, similar to the programs provided to consumer borrowers. In this regard, some institutions have provided new repayment arrangements (e.g., waiving late fees and deferring interest and principal payments for a short period of time, such as 30-90 days) across-the-board to small business borrowers in the affected area, unless a customer requests otherwise. How should institutions report such small business loans subject to across-the-board payment deferral arrangements in regulatory reports (e.g., Call Report, Thrift Financial Report, 5300 and 5310 Call Reports, or Y Reports)?

A: Each financial institution should consider the specific facts and circumstances regarding its temporary payment deferral program for small business borrowers affected by the Hurricanes in determining the appropriate reporting treatment in accordance with generally accepted accounting principles (GAAP) and regulatory reporting instructions. Institutions should refer to GAAP and regulatory reporting instructions for further information.

Past Due (Delinquency) Reporting: For loans subject to an across-the-board temporary payment deferral program on which payments were past due prior to the Hurricanes, the agencies have determined that the delinquency status of the loan may be adjusted back to the status that existed at the date of the applicable hurricane (i.e., "frozen") for the duration of the payment deferral period. For example, if a small business loan subject to a payment deferral program was 60 days past due on the date of a hurricane, it would continue to be reported in its regulatory reports as 60 days past due during the deferral period (unless payments are received on the loan that alter its delinquency status or the loan is reported in nonaccrual status or charged off as discussed below).

Nonaccrual Status: Each financial institution should refer to the applicable regulatory reporting instructions in determining whether to report small business loans to affected borrowers as nonaccrual assets in regulatory reports. In general, institutions shall not accrue interest on any small business loan: (1) which is maintained on a cash basis because of deterioration in the financial condition of the borrower, (2) for which payment in full of principal or interest is not expected, or (3) upon which principal or interest has been in default for a period of 90 days or more, unless the loan is both well secured and in the process of collection.

When interest and principal has been deferred (i.e., no payments are required during the deferral period), judgment should be used to determine whether the loan should be placed on nonaccrual status (e.g., by evaluating whether or not full payment of principal and interest is expected).

While a small business loan is in nonaccrual status, some or all of the cash interest payments received may be treated as interest income on a cash basis as long as the remaining book balance of the loan (i.e., after charge-off of identified losses, if any) is deemed to be fully collectible. Guidance on restoring nonaccrual loans to accrual status is provided in regulatory reporting instructions.

Allowance for Loan and Lease Losses and Charge-offs: Each institution should maintain an appropriate allowance for loan losses for small business loans to borrowers affected by the Hurricanes, considering all information available prior to filing its reports about their collectibility. As information becomes available indicating that a specific small business loan will not be repaid (e.g., information related to the likelihood of collection on a specific loan or the inability of the institution to contact the borrower within a reasonable period), the institution's charge-off policies should be applied.

Regulatory Reporting Disclosures: Each banking organization or thrift institution is encouraged, but not required, to disclose information related to its efforts to work with small business borrowers affected by the Hurricanes in its optional narrative statements in the Call Report, Y-9 Report, or Thrift Financial Report (for further information, see answer 2 to "Third Quarter 2005 Allowance for Loan and Lease Losses").

Return to Top

Check Processing

Q: Can checks that are damaged, destroyed, or contaminated due to Hurricane Katrina be collected via ACH if an electronic record of the MICR line has been captured?

A: Such items may be collected as "XCK" entries under NACHA Rules. NACHA has issued an Operations Bulletin in light of Hurricane Katrina clarifying the application of rules applicable to XCK and noting that it will not impose penalties on financial institutions that originate XCKs to collect checks that are normally ineligible for XCK entries under the NACHA Rules. Relief provided by the bulletin is effective through October 31, 2005. As noted in the bulletin, acceptance of XCK entries by receiving depository financial institutions (RDFIs) is voluntary. The OCC/Agencies joins NACHA in encouraging institutions receiving such XCK entries to adopt an accommodating approach in light of the disaster. See NACHA Decision on Rule Enforcement in Aftermath of Hurricane Katrina.

Q: Is there any guidance available for receiving depository financial institutions (RDFIs) as to requests from customers affected by Hurricane Katrina to prevent ACH debits from posting to their accounts?

A: Yes, NACHA has issued the following Operations Bulletin to provide guidance to RDFIs in such instances. See Customer Service Inquiries--ACH Processing and Hurricane Katrina.

Return to Top

Municipal Bond Obligations

Q: How will the agencies treat bonds issued or backed by state or local governments in the areas affected by Hurricane Katrina and Hurricane Rita (the Hurricanes) for supervisory classification purposes? (December 28, 2005)

A: In assessing asset quality for supervisory purposes, the agencies generally assign an adverse classification to bonds when ratings assigned by nationally recognized statistical ratings organizations (NRSROs) are below investment grade.

Many bonds issued or backed by state or local governments in the areas affected by the Hurricanes (Alabama, Louisiana, Mississippi and Texas) have bond insurance from companies such as MBIA and Ambac. Although the ratings agencies have, as of this date, downgraded the stand-alone ratings of certain of the underlying issuers, the majority of such bonds nevertheless retain their Aaa/AAA ratings because of the bond insurance. The agencies will not assign an adverse classification to these bonds. Insured bonds represent the bulk of debt issued by areas impacted by the Hurricanes.

For the smaller population of non-insured bonds, the agencies will generally classify bonds as "Substandard" when their ratings are below investment grade. If a bond has a "split" rating (i.e., investment grade by one rating service and non-investment grade by another), the agencies will generally classify the holding "Substandard." An examiner does have limited flexibility to "pass" a non-investment grade security holding when the institution has a robust credit risk management framework and can document, based upon a comprehensive financial analysis, that the security holding represents a "pass" asset under its internal credit review program. For any bond, if impairment (i.e., depreciation) is deemed "other than temporary" in accordance with generally accepted accounting principles, the agencies will classify it as "Loss."

For non-rated bonds, the institution's management should monitor their exposures to assess whether these bonds are the credit equivalent of investment grade (CEIG). If management can document that the bonds are CEIG, the banking agencies will not classify them.

Summary of Security Classification Policy

Q: How should financial institutions holding municipal bonds from issuers in the Hurricane-affected areas on which fair value is less than amortized cost, assess these bonds for "other-than-temporary" impairment for purposes of their third quarter regulatory reports (e.g., Call Report, Thrift Financial Report, 5300 and 5310 Call Reports, Y Reports)? (October 24, 2005)

A: Under GAAP, when the fair value of a municipal bond has declined below its amortized cost, the financial institution holding the bond must assess whether the decline represents an "other-than-temporary" impairment and, if so, write the cost basis of the municipal bond down to fair value through earnings. When making this assessment, financial institutions should apply relevant "other-than-temporary" impairment guidance as required by existing authoritative literature which includes Financial Accounting Standards Board (FASB) Statement No. 115 and Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 59, Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities (Topic 5.M. in the Codification of Staff Accounting Bulletins).

In this regard, if a financial institution decided prior to the end of the third quarter that it would sell a municipal bond after quarter-end and management did not expect the fair value of the bond, which is less than its amortized cost, to recover prior to the expected time of sale, a write-down for "other-than-temporary" impairment should be recognized in earnings in the institution's third quarter regulatory reports. Otherwise, for third quarter regulatory reports, management should consider all information available prior to filing this report when assessing Hurricane-affected municipal bonds for "other-than-temporary" impairment. In each subsequent reporting period, financial institutions should continue to assess whether any declines in fair value below amortized cost of these municipal bonds are "other-than-temporary" impairments.

Return to Top

Retail Credit

Q: The agencies previously provided clarification on how the June 6, 2000 FFIEC Uniform Retail Credit Classification Policy ("Retail Credit Policy Statement") and the January 8, 2003 Account Management and Loss Methodology for Credit Card Lending ("Credit Card Guidance") apply to credit card temporary hardship and workout programs. See the four Q&A's (three dated October 7, 2005 and one dated October 13, 2005) under "Credit Card Temporary Hardship and Workout Programs." Does this guidance also apply to other forms of retail credit, including residential mortgage lending?

A: Yes, with one exception. The Retail Credit Policy Statement applies to credit cards as well as other types of retail credit, including mortgages. Therefore, the four Katrina Q&A's interpreting this guidance with respect to credit cards are also applicable to other types of retail credit. However, that portion of question 3 of the Katrina Q&A under "Credit Card Temporary Hardship and Workout Programs" providing clarification on the 60 month timeframe for credit card workout programs refers to the Credit Card Guidance and does not apply to other forms of retail lending.

Return to Top

FEMA Funds

Q: Can funds received by customers for disaster assistance under FEMA's Individuals and Households Program (IHP) be used to reduce negative balances in deposit accounts?

A: The Agencies encourage financial institutions to establish programs that allow affected borrowers to waive or defer monthly payments until a repayment plan can be resumed and to work with deposit customers affected by Hurricane Katrina. The Agencies recognized the importance of such flexibility in the interagency statement that was issued on September 2, 2005 (also on this website). These measures could help customers recover their financial strength and contribute to the health of the local community and the long-term interest of financial institutions and their customers. For example, institutions may need to offer temporary hardship programs that waive fees and lower interest rates and payment amounts on overdrafts for a defined period of time.

Under the regulations implementing the IHP, funds disbursed by FEMA are required to be used by applicants for specified eligible expenses relating to the disaster. FEMA requires that applicants keep receipts or bills for three years to demonstrate that the money was used in meeting the disaster-related need. Any person who knowingly misapplies the proceeds of a loan or other cash benefit under the IHP may face civil penalties (42 U.S.C. 5157). However, the IHP does not address whether financial institutions are obligated to try to segregate or track IHP funds in their customers' accounts. Thus, under preexisting account agreements, financial institutions may have the ability to apply funds in an account, which may include IHP assistance, to reduce negative balances in the account. Nevertheless, the Agencies strongly advise financial institutions, where advised by their customers or where IHP assistance is otherwise known to the bank, not to apply such funds to reduce negative balances resulting from fees or expenses charged by the financial institution.

Return to Top

OCC Home Page > Hurricane Central > Frequently Asked Questions