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12.5 Debt security disclosure requirements
Publication date: 31 May 2022
us Loans & investments guide
ASC 320-10-50 provides disclosure guidance related to investments in debt securities. Generally, the disclosures are required to be segregated by security accounting classification (i.e., trading, AFS, or HTM), and highlight key information to investors about the types and terms of securities held. ASC 326 also requires disclosures about the credit quality and impairment of debt securities, which are detailed in LI 12.7.
12.5.1 Portfolio layer method
For any entities using a portfolio layer method hedge in accordance with ASU 2022-01, there are specific balance sheet presentation and disclosure considerations for presenting basis adjustments resulting from these hedges.
The “portfolio layer” method permits reporting entities to designate a portion of a closed portfolio of financial assets, beneficial interests secured by financial assets, or a combination of the two, that is not expected to be prepaid during the hedge period as the hedged item in a fair value hedge of interest rate risk. Although the portfolio layer method (originally referred to as the last-of-layer model) was designed considering prepayable mortgage loans or mortgage-backed securities, it may be applicable to other assets as well. The guidance allows an entity to essentially ignore prepayment risk in the hedge relationship even when prepayable assets are present in the closed portfolio. It does so by permitting designation of the portion of the pool not expected to be prepaid, defaulted, or sold as the hedged item.
For an active portfolio layer hedge, the basis adjustment is not allocated to individual assets until the hedge is dedesignated. The basis adjustment is maintained on the closed portfolio of assets and therefore adjusts the carrying amount of the balance sheet line item in which the closed portfolio of assets is presented.
The guidance in ASC 815-10-50-5B states that for active portfolio layer method hedges, when a reporting entity is required to disclose the amortized cost basis on a more disaggregated basis than the balance sheet line item, the entity needs to exclude the portfolio layer method basis adjustment from the amortized cost basis of those assets and separately disclose the basis adjustment that has been excluded from the disclosure as a reconciling item. Refer to FSP 19.5.4.2 for further information.
If a portfolio layer method hedge relationship is dedesignated, ASC 815-25-40-9 and ASC 815-25-40-9A require the basis adjustments to be allocated to individual assets. Subsequently, the basis adjustment is considered part of the amortized cost basis of the individual assets and included in the amortized cost disclosures, similar to any other fair value hedge basis adjustment. Refer to DH 10.3.8 for further information.
12.5.2 Debt securities: major security types
Many investments disclosures, including those discussed in LI 12.5.3 and LI 12.5.4, are required to be provided by major security type. ASC 320-10-50-1B provides guidance to help reporting entities evaluating the level at which the disclosures should be provided. It requires reporting entities to consider whether the discussion of certain security types should be further disaggregated based on common characteristics underlying the securities (e.g., geographic concentration, credit quality, economic characteristics). For example, a reporting entity that separates fixed-maturity AFS securities into government bonds and mortgage-backed securities may want to consider whether further detail would be beneficial to investors. If so, the reporting entity may consider separating government bonds between US and foreign, or separating mortgage-backed securities into commercial and residential.
The figures in the remainder of this chapter include sample disclosures that present fixed maturity securities disaggregated into three major security types. These are only examples; the level of disaggregation will vary by reporting entity and the nature of its portfolio.
12.5.3 Disclosures for securities classified as AFS
When disclosing securities classified as AFS in accordance with ASC 320-10-50-2, a reporting entity should disclose the following information by major security type for the securities held as of each balance sheet date presented.
- Amortized cost basis
- Aggregate fair value
- Total allowance for credit losses
- Total unrealized gains for securities with net gains in AOCI
- Total unrealized losses for securities with net losses in AOCI
- Information about the contractual maturities (only required as of the date of the most recent statement of financial position presented)
Figure LI 12-1 illustrates these disclosure requirements assuming three classes of instruments.
Figure LI 12-1
Example disclosure for AFS securities
Example disclosure for AFS securities
Excerpt of Note X: Investments
The following table summarizes the unrealized positions for available-for-sale fixed-maturity securities, disaggregated by class of instrument.
[For example purposes, only a single year is shown and the ASC reference is provided. Assume that none of these securities are designated as part of an active portfolio layer method hedge.]
Amortized cost |
Allowance for credit losses
|
Total unrealized gains |
Total unrealized losses |
Fair value |
|
US Treasury securities |
$500 |
$0 |
$50 |
$3 |
$547 |
Foreign government bonds |
780 |
5 |
10 |
25 |
760 |
Asset-backed securities |
20 |
6 |
17 |
1 |
30 |
Total AFS debt securities |
$1,300 |
$11 |
$77 |
$29 |
$1,337 |
See LI 12.5.5 for disclosures related to investments in AFS securities by maturity date, LI 12.7.3 for required disclosures related to credit risk and the allowance for credit losses on AFS debt securities, LI 12.7.3.2 for disclosures required for purchased AFS securities with credit deterioration, and FSP 4 for required disclosures related to other comprehensive income. For disclosure purposes, the guidance in ASC 815-10-50-5B states that for active portfolio layer method hedges, when a reporting entity is required to disclose the amortized cost basis on a more disaggregated basis than the balance sheet line item, the entity needs to exclude the portfolio layer method basis adjustment from the amortized cost basis of those assets and separately disclose the basis adjustment that has been excluded from the disclosure as a reconciling item. Refer to FSP 19.5.4.2 for further information.
12.5.3.1 Reclassifications out of AOCI for AFS securities
For each income statement presented, ASC 320-10-50-9 requires a reporting entity to disclose the change in net unrealized holding gain or loss on AFS securities reported in AOCI during the period and the amount of gains and losses reclassified out of OCI into net income upon sale of the securities. For AFS securities, the unrealized gain or loss is reclassified out of AOCI and into a “Realized gain/loss” line on the income statement upon the sale of the security. ASC 220-10-45-17 requires reporting entities to disclose the location in the income statement to which amounts reclassified from AOCI were recorded. FSP 4.5.6.1 includes a sample disclosure.
These required disclosures can either be shown as part of the statement of changes in equity or in a footnote.
12.5.4 Disclosures for securities classified as HTM
In accordance with ASC 320-10-50-5 and ASC 320-10-50-5A, a reporting entity should disclose the following information for securities classified as HTM detailed major security type, as of the date of each balance sheet presented.
- Amortized cost basis
- Aggregate fair value (PBEs only)
- Total allowance for credit losses
- Gross unrecognized holding gains (PBEs only)
- Gross unrecognized holding losses (PBEs only)
- Net carrying amount
- Gross gains and losses in AOCI for any derivatives that hedged the forecasted acquisition of the HTM securities
- Information about the contractual maturities combined in appropriate groupings (only required of the date of the most recent statement of financial position presented). See LI 12.5.5 for more information.
Figure LI 12-2 illustrates these disclosure requirements for HTM securities for a PBE.
Figure LI 12-2
Example disclosure for HTM securities
Example disclosure for HTM securities
[For example purposes, only a single year is shown and the ASC reference is provided.]
Excerpt of Note X: Investments
The following table summarizes the unrealized positions and the allowance for credit losses for held-to-maturity securities, disaggregated by class of instrument.
Amortized cost |
Allowance for credit losses |
Net Carrying Amount |
Gross unrealized gains |
Gross unrealized losses |
Fair value |
|
US Treasury securities |
$410 |
$0 |
$410 |
$67 |
$13 |
$464 |
Foreign government bonds |
285 |
5 |
280 |
28 |
30 |
278 |
Asset-backed securities |
96 |
6 |
90 |
11 |
14 |
87 |
Total |
$791 |
$11 |
$780 |
$106 |
$57 |
$829 |
12.5.5 Disclosures for AFS and HTM securities by maturity date
In addition to the disclosures discussed in LI 12.5.3 and LI 12.5.4, ASC 320-10-50-3 and ASC 320-10-50-5 and ASC 320-10-50-5B require presentation of investments in AFS and HTM securities, respectively, by maturity date. This disclosure should include the fair value and net carrying amount (if different than the fair value). The disaggregation by contractual maturity illustrated in Figure LI 12-3 is the minimum level of disaggregation required by ASC 942-320 for financial institutions. All other reporting entities may use judgment to determine the level of disaggregation. The fair value and net carrying value for debt securities that do not have a single maturity date, such as mortgage-backed securities, could be disclosed separate from those included in the aging groupings. Alternatively, if a reporting entity chooses to allocate such securities across the aging categories, it should disclose the basis for allocation.
Figure LI 12-3 illustrates the disclosure requirements for AFS and HTM securities.
Figure LI 12-3
Example disclosure of AFS and HTM securities by contractual maturity
Example disclosure of AFS and HTM securities by contractual maturity
Excerpt of Note X: Investments
The following table summarizes the fair value and net carrying amount of the available-for-sale and held-to-maturity securities by contractual maturity.
[For example purposes, only a single year is shown. Assume none of the securities are designated as part of an active portfolio layer method hedge.]
Available-for-sale |
Held-to-maturity |
|||
Net carrying amount |
Fair value |
Net carrying amount |
Fair value |
|
Due within one year |
$433 |
$429 |
$117 |
$121 |
Due after one year through five years |
234 |
241 |
78 |
92 |
Due after five years through ten years |
212 |
211 |
289 |
306 |
Due after ten years |
396 |
426 |
206 |
223 |
Asset-backed securities |
14 |
30 |
90 |
87 |
Total |
$1,289 |
$1,337 |
$780 |
$829 |
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations.
For disclosure purposes, the guidance in ASC 815-10-50-5B states that for active portfolio layer method hedges, when a reporting entity is required to disclose the amortized cost basis on a more disaggregated basis than the balance sheet line item, the entity needs to exclude the portfolio layer method basis adjustment from the amortized cost basis of those assets and separately disclose the basis adjustment that has been excluded from the disclosure as a reconciling item. Refer to FSP 19.5.4.2 for further information.
12.5.6 Disclosures of sales, transfers, and related matters
Additional disclosures are required when investments in available-for-sale debt securities are sold during a period or transferred between classifications (e.g., from AFS to HTM), as outlined in ASC 320-10-50-9 through ASC 320-10-50-12.
For each period for which an income statement is presented, ASC 320-10-50-9 requires the following disclosures for AFS securities.
- Proceeds from sales and maturities
- Gross realized gains and losses
- The basis on which the cost of a security sold or the amount reclassified out of AOCI into income was determined (e.g., specific identification, average cost, or other method)
- The amount of the net unrealized holding gain or loss for the period included in AOCI
- The amount of gains and losses reclassified out of AOCI into income for the period
ASC 320-10-50-9 also requires disclosure of trading gains and losses on trading securities still held at the balance sheet date.
Figure LI 12-4 illustrates the disclosure of the proceeds from sales or maturities and the gross realized gains and losses. FSP 4.5 details the disclosure requirements associated with the amounts in, and reclassified out of, AOCI.
Figure LI 12-4
Example disclosure of the proceeds and gross realized gains and losses from sales or maturities of AFS securities
Example disclosure of the proceeds and gross realized gains and losses from sales or maturities of AFS securities
Excerpt of Note X: Investments
The following table summarizes the proceeds and gross realized gains and losses from sales or maturities of AFS securities.
[For example purposes, only a single year is shown.]
Gross realized gains |
Gross realized losses |
Gross proceeds from sales |
Gross proceeds from maturities |
|
Fixed-maturity AFS securities |
314 |
149 |
2,100 |
300 |
The gross proceeds from sales and maturities may alternatively be presented on the face of the statement of cash flows.
For any sales of, or transfers from, securities classified as HTM, a reporting entity should disclose all of the following in the notes for each period for which an income statement is presented.
Excerpt from ASC 320-10-50-10
- The net carrying amount of the sold or transferred security
- The net gain or loss in accumulated other comprehensive income for any derivative that hedged the forecasted acquisition of the held-to-maturity security
- The related realized or unrealized gain or loss
- The circumstances leading to the decision to sell or transfer the security. (Such sales or transfers should be rare, except for sales and transfers due to the changes in circumstances identified in paragraph 320-10-25-6(a) through (f).)
For transfers into the HTM classification, the security's new amortized cost basis is determined as the amortized cost basis at the transfer date (which is reduced by any previous writeoffs but excludes any allowance for credit losses) plus or minus the amount of any remaining unrealized holding gain or loss reported in accumulated other comprehensive income. See ASC 320-10-35-16. This amortized cost basis would not include any basis adjustments as a result of portfolio layer method hedges unless this transfer into HTM created an actual or anticipated breach in the hedge relationship. See DH 10.3.8 for information on breaches associated with portfolio layer method hedges.
In the rare circumstance, as defined by ASC 320-10-35-12, that a security is transferred from AFS to trading, the reporting entity should disclose the gross gains and gross losses included in income from the transfer.
12.5.6.1 Beneficial interest in securitized assets disclosures
A reporting entity may own debt securities representing beneficial interests in securitized financial assets that have been accounted for as sales. If so, in addition to meeting the disclosure requirements of ASC 320 and ASC 326, the reporting entity should consider the disclosure requirements in ASC 860-20-50-4 that may apply to those beneficial interests. Refer to FSP 22 for additional information on transfers.
From a presentation perspective, ASC 325-40-45-1 states that the amount of accretable yield may not be displayed in the balance sheet.
12.5.7 AFS debt security: accrued interest and related disclosure
For entities that have accounting policies to exclude accrued interest from both the fair value and the amortized cost basis of an AFS debt security for purposes of identifying and measuring impairment, ASC 326-30 provides the following guidance on accrued interest receivable disclosures (see LI 8.2.8 for further information on accounting for accrued interest receivable):
- If a reporting entity elects to develop expected credit losses on its accrued interest receivable balances separate from other components of the amortized cost basis, disclosure of the amounts of accrued interest, net of allowance for credit losses (if any), and in which line item on the balance sheet the amount is presented is required. See ASC 326-30-50-3A and ASC 326-30-45-1.
- If a reporting entity makes an accounting policy election to not measure an allowance for credit losses on accrued interest due to the entity writing off the uncollectible accrued interest in a timely manner, the election should be disclosed, including the time period or periods the entity considers timely. Disclosure of what time period or periods are considered timely by major security type is also required. See ASC 326-30-50-3C.
- If a reporting entity makes an accounting policy election to write off accrued interest by reversing interest income or recognizing the write off as a credit loss expense (or a combination of both), the accounting policy election is required to be disclosed in addition to the amount of accrued interest receivable written off by reversing interest income by major security type. See ASC 326-30-50-3D.
- If an entity elects the practical expedient to exclude the accrued interest receivable balance from the amortized cost disclosure requirements in ASC 326-30-50-4 through ASC 326-30-50-10, the total amount of accrued interest, net of the allowance for credit losses (if any), excluded from the amortized cost should be disclosed. See ASC 326-30-50-3B.
- An entity may elect a practical expedient to exclude the accrued interest that is included in the amortized cost basis for the purposes of the disclosure requirements in ASC 320-10-50-2. If an entity elects this practical expedient, it should disclose the total amount of accrued interest, net of the allowance for credit losses (if any), excluded from the disclosed amortized cost basis. See LI 12.5.3 and LI 12.5.5 for further information regarding the disclosure requirements in ASC 320-10-50-2.
1 Represents the amount of impairment that has resulted from credit-related factors, and therefore was recognized in the statement of financial operations (as a credit loss expense on AFS debt securities). Amount excludes unrealized losses relating to non-credit factors.
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