Board of Governors of the Federal Reserve System

Data Dictionary

Item Number 6593

Call confidentiality applies to FFIEC 031/041.

Data Description:

Includes the sum of item numbers 6770 plus 2719.

The methodology used to account for investments in service corporations/subsidiaries is determined by the reporting institution's percentage of ownership. If the reporting institution owns 20 percent or more of the voting stock of a service corporation or other subsidiary, the total investment reported in this item must be accounted for by the equity method of accounting as described in APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." Investments of less than 20 percent of the voting stock of a service corporation/subsidiary are accounted for using the cost method. These methods are defined below.

Equity Method: Under the equity method of accounting, all intercompany profits and losses must be eliminated as if the subsidiary were consolidated. For example, if an institution sells real estate with a book value of $50 to its service corporation for $75 cash, the parent institution cannot report $25 of profit from the sale, but instead must reduce its equity investment, reported in this item, by the amount of the profit (net of any tax effect).

If the equity investment is less than $1,000 a "1" is reported in this item to indicate that it is not a zero.

Increases in the Investment (debits) will result from:

1. Purchase of stock (including cost in excess of par value);

2. The institution's share of the subsidiary's net income, which is included in "Net Income (Loss) from Service Corporations/Subsidiaries (4085)"; and

3. Capital contributions.

Decreases in the Investment (credits) will result from:

1. Sale of stock;

2. The institution's share of the subsidiary's net loss, which is reported in "Net Income (Loss) from Service Corporations/Subsidiaries (4085)"; and

3. Receipt of dividends from the subsidiary.

Net losses reduces the investment balance. If the institution has not made loans to the service corporation/subsidiary, has not guaranteed either orally or in writing the obligations of the service corporation/subsidiary, and is not otherwise committed to provide future financial support, net losses should be recorded only until the investment balance reaches zero. In most circumstances, however, the reporting institution has made loans to or guaranteed the obligations of the service corporation/subsidiary, and therefore, the investment balance would be reduced below zero when accumulated losses exceed the investment.

The amount of negative investment in this item normally should not exceed the sum of "Secured Loans to Service Corporations/Subsidiaries (Including Joint Ventures of the Service Corporations) (0972)" plus "Loans from Third Parties to Service Corporations/Subsidiaries Guaranteed by Parent (0973)".

NOTE:

Reported as a derived item.

Cost Method: The use of this method is appropriate only when the institution owns less than 20 percent of the voting stock of a service corporation and such ownership does not provide the reporting institution control over the operations of the service corporation. If the reporting institution owns more than 20 percent of the voting stock or exercises control over the operations of the service corporation, the equity method must be used. Under the cost method, the investment is not adjusted for net income or loss of the service corporation or for dividends received. Only the reporting institution's investment, at cost, in the stock of service corporations is reported. Cash dividends received should be included in "Net Income (Loss) from Service Corporations/Subsidiaries (4085)".