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Board Report: February 28, 2013

Federal Financial Institutions Examination Council Financial Statements as of and for the Years Ended December 31, 2012 and 2011, and Independent Auditors' Report

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Federal Financial Institutions Examination Council

Balance Sheets
as of December 31, 2012 and 2011

  2012 2011
ASSETS
CURRENT ASSETS:
Cash $638,550 $543,453
Accounts receivable from member organizations 885,200 785,708
Accounts receivable from non-members — net 189,930 91,520
Total current assets 1,713,680 1,420,681
NONCURRENT ASSETS:
Furniture and equipment leased — net 97,929 137,625
Central Data Repository software — net 3,393,963 5,138,312
Home Mortgage Disclosure Act software — net 1,716,718 2,273,492
Total noncurrent assets 5,208,610 7,549,429
TOTAL ASSETS $6,922,290 $8,970,110
LIABILITIES AND CUMULATIVE RESULTS OF OPERATIONS
CURRENT LIABILITIES:
Accounts payable and accrued liabilities payable to member organizations $840,720 $805,796
Other accounts payable and accrued liabilities 484,866 285,947
Accrued annual leave 38,880 22,971
Capital lease payable 41,040 39,376
Deferred revenue 3,950,737 3,125,930
Total current liabilities 5,356,243 4,280,020
LONG-TERM LIABILITIES:
Capital lease payable 61,786 102,825
Deferred revenue 1,159,944 4,285,874
Deferred rent 10,085 9,996
Total long-term liabilities 1,231,815 4,398,695
Total liabilities 6,588,058 8,678,715
CUMULATIVE RESULTS OF OPERATIONS 334,232 291,395
TOTAL LIABILITIES AND CUMULATIVE RESULTS OF OPERATIONS $6,922,290 $8,970,110

See notes to financial statements.

Federal Financial Institutions Examination Council

Statements of Operations
for the Years Ended December 31, 2012 and 2011

  2012 2011
REVENUES:
Assessments on member organizations $687,332 $687,107
Central Data Repository 5,398,279 4,936,912
Home Mortgage Disclosure Act 3,999,638 3,727,927
Tuition 3,605,056 3,246,549
Community Reinvestment Act 949,761 946,928
Uniform Bank Performance Report 396,883 351,646
Total revenues 15,036,949 13,897,069
EXPENSES:
Data processing 4,392,625 4,164,479
Professional fees 4,277,394 4,121,224
Salaries and related benefits 2,023,401 1,781,660
Depreciation 3,371,828 2,869,594
Rental of office space 264,989 264,989
Administration fees 261,000 281,000
Travel 277,321 242,659
Other seminar expenses 22,694 33,526
Rental and maintenance of office equipment 33,612 27,544
Office and other supplies 34,145 56,237
Printing 23,561 18,389
Postage 1,419 2,564
Miscellaneous 10,123 5,046
Total expenses 14,994,112 13,868,911
RESULTS OF OPERATIONS 42,837 28,158
CUMULATIVE RESULTS OF OPERATIONS — Beginning of year 291,395 263,237
CUMULATIVE RESULTS OF OPERATIONS — End of year $334,232 $291,395

See notes to financial statements.

Federal Financial Institutions Examination Council

Statements of Cash Flows
for the Years Ended December 31, 2012 and 2011

  2012 2011
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Results of operations $42,837 $28,158
Adjustments to reconcile results of operations to net cash provided by operating activities:
Depreciation 3,371,828 2,869,594
(Increase) decrease in assets:
Accounts receivable from member organizations (99,492) 490,542
Other accounts receivable (98,410) 12,921
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities payable to member organizations 34,924 (33,356)
Other accounts payable and accrued liabilities 113,238 (284,515)
Accrued annual leave 15,909 (4,775)
Deferred revenue (current and non-current) (2,583,162) (2,080,991)
Deferred rent 89 3,391
Net cash provided by operating activities 797,761 1,000,969
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures (660,365) (1,169,016)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Capital lease payments (42,299) (35,315)
NET INCREASE (DECREASE) IN CASH 95,097 (203,362)
CASH BALANCE — Beginning of year 543,453 746,815
CASH BALANCE — End of year $638,550 $543,453

See notes to financial statements.

Federal Financial Institutions Examination Council

Notes to Financial Statements
as of and for the Years Ended December 31, 2012 and 2011

1. Organization and Purpose

The Federal Financial Institutions Examination Council (the Council) was established under Title X of the Financial Institutions Regulatory and Interest Rate Control Act of 1978. The purpose of the Council is to prescribe uniform principles and standards for the federal examination of financial institutions and to make recommendations to promote uniformity in the supervision of these financial institutions. The five agencies represented on the Council during 2012, referred to collectively as member organizations, are as follows:

  • Board of Governors of the Federal Reserve System (FRB)
  • Consumer Financial Protection Bureau (CFPB)
  • Federal Deposit Insurance Corporation (FDIC)
  • National Credit Union Administration (NCUA)
  • Office of the Comptroller of the Currency (OCC)

In accordance with the Financial Services Regulatory Relief Act of 2006, a representative state regulator was added as a full voting member of the Council in October 2006.

The Council was given additional statutory responsibilities by Section 340 of the Housing and Community Development Act of 1980, Public Law 96-399. Among these responsibilities are the implementation of a system to facilitate public access to data that depository institutions must disclose under the Home Mortgage Disclosure Act of 1975 (HMDA) and the aggregation of annual HMDA data, by census tract, for each metropolitan statistical area.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) was signed into law. This legislation substituted the director of the Consumer Financial Protection Bureau for the director of the Office of Thrift Supervision (OTS) as a member of the Council effective July 21, 2011.

The Council’s financial statements do not include financial data for the Council’s Appraisal Subcommittee (the Subcommittee). The Subcommittee was created pursuant to Public Law 101–73, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Although it is a subcommittee of the Council, the Appraisal Subcommittee maintains separate financial records and administrative processes. The Council is not responsible for any debts incurred by the Appraisal Subcommittee, nor are Appraisal Subcommittee funds available for use by the Council.

2. Significant Accounting Policies

Basis of Accounting — The Council prepares its financial statements in accordance with accounting principles generally accepted in the United States (GAAP).

Revenues — Assessments are made on member organizations to fund the Council’s operations based on expected cash needs. Amounts over- or under- assessed due to differences between actual and expected cash needs are presented in the “Cumulative Results of Operations” line item during the year and then may be used to offset or increase the next year’s assessment. Deficits in “Cumulative Results of Operations” can be recouped in the following year’s assessments.

The Council provides training seminars in the Washington, D.C. area and at locations throughout the country for member organizations and other agencies. The Council also coordinates the production and distribution of the Uniform Bank Performance Reports (UBPR) through the FDIC. Tuition and UBPR revenue are adjusted at year-end to match expenses incurred as a result of providing education classes and UBPR services. For differences between revenues and expenses, member agencies are assessed an additional amount or credited a refund based on each member’s proportional cost for the Examiner Education and UBPR budget. The Council recognizes revenue from member agencies for expenses incurred related to the Community Reinvestment Act, and the Home Mortgage Disclosure Act. The Council also recognizes revenue from other agencies and mortgage insurance companies related to the Home Mortgage Disclosure Act.

Capital Assets — Furniture and equipment is recorded at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, which range from four to ten years. Upon the sale or other disposition of a depreciable asset, the cost and related accumulated depreciation are removed and any gain or loss is recognized. The Central Data Repository (CDR) and the HMDA processing system, internally developed software projects, are recorded at cost as required by the Internal Use Software Topic of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).

Deferred Revenue — Deferred revenue includes cash collected and accounts receivable related to CDR and the HMDA processing system.

Deferred Rent — The lease for office and classroom space contains scheduled rent increases over the term of the lease. As required by FASB ASC 840 Topic Leases, scheduled rent increases must be considered in determining the annual rent expense to be recognized. The deferred rent represents the difference between the actual lease payments and the rent expense recognized.

Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for Doubtful Accounts — Accounts receivable for non-members are shown net of the allowance for doubtful accounts. Accounts receivable considered uncollectible are charged against the allowance account in the year they are deemed uncollectible. The allowance for doubtful accounts is adjusted monthly, based upon a review of outstanding receivables. The allowance for doubtful accounts is $0 and $59 for 2012 and 2011, respectively.

3. Transactions With Member Organizations

  2012 2011
Accounts receivable:
Board of Governors of the Federal Reserve System $211,061 $132,539
Consumer Financial Protection Bureau 42,253 0
Federal Deposit Insurance Corporation 268,871 194,230
National Credit Union Administration 42,370 46,051
Office of the Comptroller of the Currency 320,645 412,888
  $885,200 $785,708
Accounts payable and accrued liabilities:
Board of Governors of the Federal Reserve System $545,770 $494,234
Consumer Financial Protection Bureau 5,397 0
Federal Deposit Insurance Corporation 161,700 175,940
National Credit Union Administration 28,470 27,080
Office of the Comptroller of the Currency 99,383 108,542
  $840,720 $805,796
Operations:
Council operating expenses reimbursed by members $687,332 $687,107
FRB-provided administrative support $261,000 $281,000
FRB-provided data processing $4,392,625 $4,164,479

The Council does not directly employ personnel, but rather member organizations detail personnel to support Council operations. These personnel are paid through the payroll systems of member organizations. Salaries and fringe benefits, including retirement benefit plan contributions, are reimbursed to these organizations. The Council does not have any post-retirement or post-employment benefit liabilities since Council personnel are included in the plans of the member organizations. Due to organizational changes resulting from the Dodd-Frank Act, the OCC absorbed all financial related activity of the OTS on July 21, 2011.

Member organizations are not reimbursed for the costs of personnel who serve as Council members and on the various task forces and committees of the Council. The value of these contributed services is not included in the accompanying financial statements.

4. Central Data Repository (CDR)

In 2003, the Council entered into an agreement with UNISYS to enhance the methods and systems used to collect, validate, process, and distribute Call Report information, and to store this information in CDR. CDR was placed into service in October 2005. At that time, the Council began depreciating CDR on the straight-line basis over its estimated useful life of 63 months. In 2009, the Council reevaluated the useful life of CDR and decided to extend the estimated useful life by an additional 36 months based on enhanced functionality of the software. The Council records depreciation expenses and recognizes the same amount of revenue. The Council also pays for hosting and maintenance expenses for CDR and recognizes the associated revenue from members. In 2012, the Council had enhancements made to CDR of $ 1,031,009. Some of these enhancements, which affect the asset value, were paid for directly by the FDIC. This non-cash event in the amount of $282,040 is excluded from the Statement of Cash Flows.

  2012 2011
Capital asset CDR
Beginning balance $20,120,566 $19,371,661
Software placed in use during the year 1,031,009 748,905
Total asset $21,151,575 $20,120,566
Less accumulated depreciation (17,757,612) (14,982,254)
Central Data Repository software — net $3,393,963 $5,138,312
Accounts payable and accrued liabilities related to CDR:
Payable to UNISYS for the CDR project $219,762 $216,012

CDR Financial Activity — The Council is funding the project by billing the three participating Council member organizations (FRB, FDIC, and OCC). Activity for the years ended December 31, 2012 and 2011 is as follows:

Deferred Revenue 2012 2011
Beginning balance $5,138,312 $6,708,927
Additions 1,031,009 748,906
Less revenue recognized (2,775,358) (2,319,521)
Ending balance $3,393,963 $5,138,312
Current portion deferred revenue $3,393,963 $2,569,156
Long-term deferred revenue 0 2,569,156
Total Deferred Revenue $3,393,963 $5,138,312
Total CDR Revenue
Deferred revenue recognized $2,775,358 $2,319,521
Hosting and maintenance revenue 2,622,921 2,617,391
Total CDR Revenue $5,398,279 $4,936,912
Depreciation
Depreciation for the CDR project $2,775,358 $2,319,521
 

5. Home Mortgage Disclosure Act (HMDA)

FRB provides maintenance and support for the HMDA processing system. In 2007, the Council began a rewrite of the entire HMDA processing system, which went into service in 2011. At that time the Council began depreciating the system on the straight-line basis over its estimated useful life of 60 months. The Council records depreciation expenses and recognizes the same amount of revenue each year. The Council also pays for maintenance expenses for the HMDA processing system and recognizes the associated revenue from the members and non-members. The financial activity associated with the processing system for the years ended December 31, 2012 and 2011 is as follows:

  2012 2011
Deferred Revenue
Beginning balance $2,273,492 $2,783,868
Additions 0 0
Less revenue recognized (556,774) (510,376)
Ending balance $1,716,718 $2,273,492
Current portion deferred revenue $556,774 $556,774
Long-term deferred revenue 1,159,944 1,716,718
Total Deferred Revenue $1,716,718 $2,273,492
Total HMDA Revenue
The Council recognized the following revenue from:
Member organizations for the production and distribution of reports under the HMDA (includes the deferred revenue recognized in 2012)
$3,111,398 $2,857,085
Department of Housing and Urban Development’s participation in the HMDA project 546,809 556,207
Mortgage insurance companies for HMDA-related work 341,431 314,635
Total HMDA Revenue $3,999,638 $3,727,927
Capital asset HMDA
Beginning balance $2,783,868 $2,783,868
Total asset $2,783,868 $2,783,868
Less accumulated depreciation (1,067,150) (510,376)
HMDA software — net $1,716,718 $2,273,492
Depreciation
Depreciation for the HMDA Rewrite project $556,774 $510,376

6. Operating Leases

The Council entered into an operating lease with the FDIC in January 2010 to secure office and classroom space. Minimum annual payments under the operating lease having an initial or remaining non-cancelable lease term in excess of one year at December 31, 2012 are as follows:

2013 268,292
2014 271,772
Total minimum lease payments $540,064

Rental expenses under this operating lease were $264,989 and $264,989 as of December 31, 2012 and 2011, respectively.

7. Capital Leases

In December 2009 and November 2010, the Council entered into capital leases for printing equipment. Furniture and equipment includes $198,485 for the capital leases. Accumulated depreciation is $100,556 and $60,860 for 2012 and 2011, respectively. The depreciation expense for the printing equipment is $39,697 and $39,697 for 2012 and 2011, respectively. Contingent rentals for excess usage of the printing equipment amounted to $20,544 and $13,531 in 2012 and 2011, respectively.

The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of December 31, 2012 are as follows:

Years Ending December 31, Amount
2013 59,089
2014 59,089
2015 31,738
Total minimum lease payments 149,916
Less amount representing maintenance (42,733)
Net minimum lease payments 107,183
Less amount representing interest (4,357)
Net minimum lease payments 102,826
Less current maturities of capital lease payments (41,040)
Long-term capital lease obligations 61,786

8. Subsequent Events

There were no subsequent events that require adjustments to or disclosures in the financial statements as of December 31, 2012. Subsequent events were evaluated through February 28, 2013, which is the date the financial statements were available to be issued.

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