Classification of Investment Securities

Classification is made and documented at the time of the initial acquisition of each investment. (ASC 320-10-25-1 and 2) The appropriateness of classification is reassessed at each reporting date. ASC 320 requires all debt securities and equity securities with readily determinable fair values to be placed into one of three categories. These are summarized in the Exhibit below and the discussion that follows.

Presentation

If a classified statement of financial position is presented, the debt and equity securities owned by an entity are grouped into current and noncurrent portfolios. By definition, all trading securities are classified as current assets. The determination of current or noncurrent status for individual held-to-maturity and individual available-for-sale securities is made on the basis of whether or not the securities are considered working capital available for current operations. (ASC 210-10-45) Investments that are held for purposes of control of another entity or pursuant to an ongoing business relationship, for example, stock held in a supplier, would be excluded from current assets and would instead be listed as other assets or long-term investments.

Fair Value Readily Determinable

The fair value of an equity security is considered readily determinable if it meets the definition in ASC 320-10-20. See the Definition of Terms section in this chapter for the criteria.

Changes Consistent with the Held-to-Maturity Category

Held-to-maturity securities are accounted for at amortized cost. To justify that accounting treatment, the held-to-maturity category does not include securities available for sale in response to a need for liquidity or changes in:

1. Market interest rates
2. Foreign currency risk
3. Funding sources and terms
4. Yield and availability of alternative investments
5. Prepayment risk.

   (ASC 320-10-25-4)

For asset-liability management purposes, similar or identical securities may be classified differently depending upon intent and ability to hold. (ASC 320-10-25-4)

Under ASC 860-20-35, securities such as interest-only strips, which can be settled in a manner that could cause the recorded amounts to not be substantially recovered, cannot be classified as held-to-maturity. Dependent upon the circumstances, those securities are categorized as either trading or available-for-sale.

There are also specific scenarios where a debt security should not be classified as held-to-maturity or where stated intent will be called into question in the future:

• Contractually, the security can be prepaid or settled in a way that the holder would not recover all or substantially all of its investment.
• The debt security is available to be used in response to:
  • Changes in market interest rates or the security's prepayment risk or foreign exchange risk
  • Need for liquidity.
• The security may need to be sold to implement tax strategies.
• Security sold based on speculative analysis before any actual deterioration of the issuer's creditworthiness.
• Security sold to meet regulatory capital requirements.
• Exercise of a put option.
• Convertible debt securities classified as held-to-maturity.
• The entity has a policy to initially classify all debt securities as held-to-maturity and then transfer all securities to available-for-sale at a trigger point.
• An insurance or other regulatory entity clarifies a security as held-to maturity while at the same time telling regulators that the security could be sold to meet liquidity needs.

(ASC 320-10-25-5)

Transfers

In general, transfers to or from this category are not permitted. In those rare circumstances when there are transfers or sales of securities in this category, disclosure must be made of the following in the notes to the financial statements for each period for which the results of operations are presented:

1. Amortized cost
2. Realized or unrealized gain or loss
3. Circumstances leading to the decision to sell or transfer.

ASC 320-10-25-6 lists changes in circumstances that are not considered inconsistent with the transfer, including:

1. Significant deterioration in creditworthiness of the issuer
2. Elimination or reduction of tax-exempt status of interest through a change in tax law
3. Major business disposition or combination
4. Statutory or regulatory changes that significantly modify what a permissible investment is or the maximum level of the security to be held
5. Downsizing in response to a regulatory increase in the industry's capital requirements
6. A significant increase in risk weights for regulatory risk-based capital purposes.

Other events may prompt a sale or transfer of a held-to-maturity security before maturity (ASC 320-10-25-9). These events should be:

• Isolated
• Nonrecurring
• Unusual for the reporting entity
• Not able to be reasonably anticipated.

If a sale meets all four of the conditions above, it may be considered not “tainted” and not call into question the entity's intent to hold other debt to maturity in the future. (See section later in this chapter on Transfers between Categories for more information on “tainted” transfers.

Sales within Three Months of Maturity Date

The sale of a security within three months of its maturity meets the requirement to hold to maturity, since the interest rate risk is substantially diminished. Likewise, if a call is considered probable, a sale within three months of that date meets the requirement. The sale of a security after collection of at least 85% of the principal outstanding at acquisition (due to prepayments or to scheduled payments of principal and interest in equal installments) also qualifies, since the “tail” portion no longer represents an efficient investment due to the economic costs of accounting for the remnants. Scheduled payments are not required to be equal for variable-rate debt. (ASC 320-10-25-14)

Measurement

Transfers among portfolios are accounted for at fair value as of the date of the transfer. Generally, investments in the trading category transferred to the available-for-sale category warrant no further recognition of gain or loss, as the carrying value of the investments already reflects any unrealized gains or losses experienced since their original acquisition. The only caveat is that, if the reporting entity's accounting records of its investments, as a practical matter, have not been updated for fair values since the date of the most recently issued statement of financial position, any changes occurring since that time need to be recognized at the date the transfer occurs. The fair value at the date of transfer becomes the new “cost” of the equity security in the available-for-sale portfolio.

In brief, fair value is used for transfers between categories. When the security is transferred, any unrealized holding gains and losses are accounted for in the following manner:

1. From trading—Fair value already recognized and must not be reversed
2. Into trading—Recognize immediately in income
3. Available-for-sale debt security into held-to-maturity—Continue to report the unrealized holding gain or loss at the transfer date as other comprehensive income and amortize the gain or loss over the investment's remaining life as an adjustment of yield in the same manner as a premium or discount. The transferred-in security will probably record a premium or discount since fair value is used. Thus, the two amortizations will tend to cancel each other on the income statement.
4. Held-to-maturity debt security into available-for-sale—Recognize in other comprehensive income per ASC 220. Few transfers are expected from the held-to-maturity category.

(ASC 320-10-35-10)

For securities being transferred into the trading category, any unrealized gain or loss (that had previously been recorded in accumulated other comprehensive income, as illustrated above) is deemed to have been realized at the date of the transfer. Also, any fair value changes since the date of the most recent statement of financial position may need to be recognized at that time.

Scope

The guidance on impairment of individual available-for-sale and held to maturity securities applies to:

1. Debt and equity securities within the scope of ASC 320 with the following clarifications:
   • All equity securities held by insurance entities are included in the scope of the guidance.
   • Entities are not to “look through” the form of their investment to the nature of the securities held by the investee entity. So, for example, if the reporting entity holds an investment in shares of a mutual fund whose investment strategy is to invest primarily in debt securities, management is to assess the mutual fund investment as an equity security, since the shares held by the reporting entity represent equity in the mutual fund, irrespective of the fact that the mutual fund's holdings are comprised primarily of debt.
   • If the application of ASC 815-15-25 (recognition of embedded derivatives) results in bifurcating an investment into a host instrument and an embedded derivative, the host instrument would be evaluated for impairment under this guidance if it falls within its scope.
2. The standard applies to debt and equity securities that are (a) within the scope of ASC 958-320 (not-for-profit entities' investments in debt and equity securities) and (b) held by an investor that reports a performance indicator.
3. Cost-method investments in equity securities.

(ASC 320-10-35-17)

ASC 320-10-35 establishes a multistep decision process to determine if an investment has been impaired, evaluate whether the impairment is other than temporary, and if OTTI is determined to have occurred, measure the impairment loss. It also establishes a discrete model for assessing impairment of cost-method investments that present unique challenges since reasonable estimation of their fair value is often not practical or cost effective.

Unit of Accounting

The unit of accounting to be used for the purpose of performing these steps is the individual security level. This is defined as the level and method of aggregation used by the reporting entity to measure realized and unrealized gains and losses on its debt and equity securities. An example of an acceptable method of aggregation would be for the reporting entity to consider equity securities of an issuer that carry the same Committee on Uniform Security Information Procedures (CUSIP) number that were purchased in separate trade lots to be considered together on an average cost basis.

In considering whether the issuer (i.e., borrower or debtor) of a debt security can prepay or settle the security in a manner that would result in the investor not recovering substantially all of its cost, the investor is not permitted to combine separate contracts such as a debt security and a guarantee or other credit enhancement.

The model set forth for investments, other than those accounted for using the cost method, follows.

Step 1—Determine Whether the Investment is Impaired

An investment is impaired if its fair value is less than its cost. Cost as defined for this purpose includes adjustments made to the cost basis of an investment for accretion, amortization, previous OTTIs, and hedging.³

In assessing impairment of debt securities, the investor is not permitted to combine separate contracts such as guarantees or other credit enhancements.

The assessment of whether an investment is impaired is to be made for each interim and annual reporting period, subject to special provisions that apply to cost-method investments discussed separately below.

After comparing fair value to cost, if cost exceeds fair value, the investment is considered impaired, and the evaluator is to then proceed to Step 2 to evaluate whether the impairment is considered to be “other than temporary.”

Step 2—Evaluate Whether the Impairment is Other than Temporary

If the fair value of the investment is less than its cost at the ending date of a reporting period (the date of the latest statement of financial position), management is tasked with evaluating whether the impairment is temporary, or whether it is “other-than-temporary.” While the term “other-than-temporary” is not defined, FASB affirmatively states that it does not mean permanent. Thus a future recovery of all or a portion of the decline in fair value is not necessarily indicative that an assessment of OTTI made in prior periods was incorrect.

OTTI of available-for-sale (AFS) equity securities. (ASC 320-10-35-32A) When the fair value of an equity security declines, management is to start with a working premise that the decline may necessitate a write-down of the security. With that mindset, management is to investigate the reasons for the decline by considering all available evidence to evaluate the AFS equity investment's realizable value. Many factors should be considered by management in performing the evaluation and, of course, the evaluation will depend on the individual facts and circumstances. The SEC's Stafff Accounting Bulletin Series, Topic 5.M provides a few examples of factors that, when considered individually or in the aggregate, indicate that a decline in fair value of an AFS equity security is other-than-temporary, and that an impairment write-down of the carrying value is required:

1. The period of time and the extent to which the fair value has been less than cost.
2. The financial condition and near-term prospects of the issuer, including any specific events that might influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; or
3. The intent or ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Unless there is existing evidence supporting a realizable value greater than or equal to the carrying value of the investment, a write-down to fair value accounted for as a realized loss is to be recorded. The loss is to be recognized as a charge to net income in the period in which it occurs and the written-down value of the investment in investee becomes the new cost basis of the investment.

It is important to note that, if an investor has decided to sell an impaired AFS equity security, and the investor does not expect the fair value of the security to fully recover prior to the expected time of sale, the security is to be considered OTTI in the period in which the investor decides to sell the security. However, even if a decision to sell the security has not been made, the investor is to recognize OTTI when that impairment has been determined to have been incurred.

OTTI of debt securities. (ASC 320-10-35-33A through 33I) If the fair value of a debt security is less than its amortized cost basis at the date of the statement of financial position, management is to assess whether the impairment is an OTTI.

If management intends to sell the security, then an OTTI is considered to have been incurred.

If management does not intend to sell the security, management should consider all available evidence to assess whether it is more likely than not that it will be required to sell the security prior to recovery of its amortized cost basis (e.g., whether the entity's cash or working capital requirements, or contractual or regulatory obligations, will require sale of the security prior to the occurrence of a forecasted recovery). If it is more likely than not that a sale will be required prior to recovery of the security's amortized cost basis, OTTI is considered to have been incurred.

If, at the measurement date, management does not expect to recover the entire amortized cost basis, this precludes an assertion that it will recover the amortized cost basis irrespective of whether management's intent is to continue holding the security or to sell the security. Therefore, when this is the case, OTTI is considered to have been incurred.

Expected recovery is computed by comparing the present value of cash flows expected to be collected (PVCF) from the security to the security's amortized cost basis.

If PVCF is less than amortized cost basis, the entire amortized cost basis of the security will not be recovered; a credit loss has occurred, and an OTTI has been incurred.

Amortized cost basis (ACB) includes adjustments made to the original cost of the investment for such items as:

1. Accretion
2. Amortization
3. Cash collections
4. Previous OTTI recognized as charges to net income (less any cumulative-effect adjustments recognized in transitioning to the provisions of FSP 115-2)
5. Fair value hedge accounting adjustments.

In determining whether a credit loss has been incurred, management must use its best estimate of the present value of cash flows expected to be collected from the debt security. The computation, in simple terms, is made by discounting the expected cash flows at the effective interest rate implicit in the security at the date of its acquisition. A methodology for estimation of that amount is described in ASC 310, which is codified in the ASC as follows:

• ASC 310-10-35-21 through 35-37
• ASC 310-30-30-2
• ASC 310-40-35-12.

Many factors influence the estimate of whether a credit loss has occurred and the period over which the debt security is expected to recover. (ASC 320-10-35-33F) Examples of these factors include, but are not limited to:

1. The length of time and the extent to which the fair value of the security has been less than its amortized cost basis
2. Adverse conditions that relate specifically to the security, an industry, or a geographic locale such as:
   1. Changes in the financial condition of the issuer of the security or, in the case of asset-backed securities, changes in the financial condition of the underlying loan obligors
   2. Changes in technology
   3. Discontinuance of a segment of the business that may affect the future earnings potential of the issuer or underlying loan obligors of the security
   4. Changes in the quality of a credit enhancement
3. The historical and implied volatility of the fair value of the security
4. The payment structure of the debt security and the likelihood of the issuer being able to make payments that are scheduled to increase in the future; examples of nontraditional loan terms are described in ASC 310-10-50-25, ASC 825-10-55-1, and ASC 825-10-55-2
5. Failure of the security's issuer to make scheduled interest or principal payments
6. Changes in the rating of the security by a ratings agency
7. Recoveries or additional declines in fair value that occur subsequent to the date of the statement of financial position.

In developing the estimate of PVCF for the purpose of assessing whether OTTI has occurred (or recurred), management should consider all available information relevant to the collectability of sums due under the terms of the security, including information about past events, current conditions, and reasonable and supportable forecasts. That information generally is to include:

1. The remaining payment terms of the security,
2. Prepayment speeds,
3. The financial condition of the issuer(s),
4. Expected defaults, and
5. The value of the collateral.

   (ASC 320-10-35-33G)

To accomplish this objective, management should consider, for example:

1. Industry analyst reports and forecasts,
2. Sector credit ratings, and
3. Other market data relevant to the collectability of the security.

   (ASC 320-10-35-33H)

Management must also consider how other credit enhancements affect the expected performance of the security, including:

1. The current financial condition of the guarantor of the security (unless the guarantee is a separate contract under ASC 320-10-35-23), and/or
2. Whether any subordinated interests are capable of absorbing estimated losses on the loans underlying the security.

   (ASC 320-10-35-33I)

The remaining payment terms of the security could differ significantly from the payment terms in prior periods, such as when securities are backed by nontraditional loans (e.g., reverse mortgages, interest-only debt, adjustable-rate products). As a result, management must consider whether currently performing loans that back a security will continue to perform when required payments increase in the future, including any required “balloon” payments. Management should also consider how the value of any collateral would affect the security's expected performance. If there has been a decline in the fair value of the collateral, management is to assess the effect of that decline on the ability of the entity to collect the balloon payment.

Recognition of an Other-than-Temporary Impairment

If, as a result of Step 2, management judges the impairment to be other than temporary, the reporting entity recognizes an impairment loss as a charge to net income for the entire difference between the investment's cost and its fair value at the date of the statement of financial position. The impairment measurement must not to include any partial recoveries that might have occurred subsequent to the date of the statement of financial position but prior to issuance of the financial statements.

The reduced carrying amount of the investment becomes that investment's new cost basis. This new cost basis is not changed for any subsequent recoveries in fair value. Subsequent recoveries in the fair value of available-for-sale securities are included in other comprehensive income; subsequent decreases in fair value are evaluated as to whether they are other than temporary in nature. If considered temporary, the decrease is recorded in other comprehensive income. If considered other than temporary, the decrease is to be recognized as a component of net income for the period as previously described.

Determining OTTI of debt securities to be recognized in net income and in other comprehensive income (OCI). ASC 320 permits reporting entities to split OTTI of debt securities into two components and thus recognize only a portion of the OTTI as a charge to net income when incurred. The remaining portion is to be accounted for through other comprehensive income as described in the following paragraphs.

When an OTTI has been incurred with respect to a debt security, the amount of the OTTI recognized in net income is dependent upon whether management intends to sell the security or more likely than not will be required to sell the security prior to recovery of its ACB, less any recognized current period credit loss, as explained below.

As discussed previously, if management intends to sell the security or more likely than not will be required to sell the security prior to recovery of its amortized cost basis, less any current period credit loss, the OTTI to be recognized in net income equals the entire difference between the investment's amortized cost basis and its fair value at the date of the statement of financial position. Stated differently, in this situation, the entire amount of the OTTI is deemed to be a credit loss and is recognized as an immediate charge to net income in its entirety.

If, however,

1. Management does not intend to sell the security, and
2. It is more likely than not the entity will not be required to sell the security prior to recovery of its amortized cost basis less any current period credit lost, the OTTI is to be separated into two components as follows:

Component 1: The amount representing the credit loss, and

Component 2: The remaining amount, which is presumed to be related to all other factors (but that economically is inseparable from the factors that would cause a loss to be characterized as being from deteriorated credit quality).

Component 1 is to be recognized in its entirety in net income and Component 2 is to be recognized in OCI, net of applicable income taxes.

The previous ACB less Component 1 of the current year's OTTI that represents the current period credit loss is to become the new amortized cost basis of the investment prospectively. That new ACB is not to be adjusted for subsequent recoveries in fair value. The amortized cost basis is to be adjusted, however, for accretion and amortization, as described in the next section.

Subsequent Measurement After Recognition of an OTTI

After recognition of an OTTI, the impaired security is to be accounted for as follows. Management is to account for the debt security subject to OTTI as if that security had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less Component 1 of the OTTI (the portion recognized as a charge to net income as a current period credit loss).

Debt securities classified as available-for-sale (AFS). Subsequent increases and decreases in the fair value of AFS securities, if not caused by an additional OTTI, are to be included in OCI.

Debt securities classified as held-to-maturity. The OTTI recognized in OCI for held-to-maturity securities is to be prospectively accreted (sometimes referred to as “recycling”) from other comprehensive income (OCI) to the amortized cost of the debt security over its remaining life based on the amount and timing of future estimated cash flows. That accretion is to increase the security's carrying value and is to continue until the security is sold, matures, or there is an additional OTTI charged to net income. If the security is sold, guidance on the effect of changes in circumstances that would not call into question management's intent to hold other debt securities to maturity in the future is discussed in a previous section of this chapter and is provided in the following authoritative literature:

• ASC 320-10-25-6, and 25-9
• ASC 320-10-25-14
• ASC 320-10-50-11.

Additional guidance with respect to subsequent period accounting. For debt securities for which OTTI has been recognized as a charge to net income, the difference between the new amortized cost basis and the cash flows expected to be collected is to be accreted following existing guidance on interest income. Management is to continue to estimate the PVCF expected to be collected over the remaining life of the debt security.

For debt securities accounted for under Emerging Issues Task Force (EITF) 99-20 (i.e., specified beneficial interests in securitized financial assets) management is to apply the provisions of ASC 325-40 to account for changes in the PVCF.

For all other debt securities, if subsequent evaluation indicates a significant increase in the PVCF or if actual cash flows are significantly greater than cash flows previously expected, those changes are to be accounted for as a prospective adjustment to the accretable yield of the security under ASC 310-30, even if the debt security would not otherwise be subject to the scope of that standard.

Income Statement Presentation

In periods in which management determines that a decline in the fair value of a security below its amortized cost basis is other than temporary, management is to present the total OTTI in the income statement with an offset for the amount of the total OTTI that is recognized in OCI, if any (Component 2).

When reporting the components of accumulated other comprehensive income (AOCI), management must present separately the amounts recognized in AOCI related to held-to-maturity and available-for-sale debt securities for which a portion of an OTTI has been recognized as a charge to net income.

Subsequent Accounting for Debt Securities After Recognition of OTTI

After recognizing a loss from other-than-temporary impairment with respect to a debt security, the investor is to treat the security as if it had been purchased on the measurement date on which the impairment was recognized. If the security had been originally purchased at a premium, the impairment charge will either reduce or eliminate the premium or if the impairment is large enough cause the reporting entity to record a discount. If the security had been purchased at its face amount or a discount, the impairment charge will result in recording or increasing the discount.

After recording the adjustment for the impairment, the adjusted premium or discount is to be amortized prospectively over the remaining term of the debt security based on the amount and timing of future estimated cash flows.

Changes in Fair Value After the Date of the Statement of Financial Position

Under GAAP, events occurring after the date of the statement of financial position are generally not recognized as adjustments to the financial statements. However, disclosure may be necessary if, absent that information, the user of the financial statements would be misled. While not addressed explicitly by ASC 320, presumably material changes in fair value occurring subsequent to the date of the statement of financial position but prior to issuance of the financial statements should be disclosed by management.

Sometimes changes in fair value can be indicative of the underlying cause of the price fluctuations. Of most interest here would be declines in value of available-for-sale securities held at the date of the statement of financial position, which suggest that an “other-than-temporary” impairment has occurred. If the decline actually occurred after year-end as evidenced by a bankruptcy filing, then the event would be disclosed but not reflected in the year-end statement of financial position. However, in some instances, the subsequent decline would be seen as a “confirming event” which provided evidence that the classification or other treatment of an item on the date of the statement of financial position was incorrect. Thus, if a decline in the fair value of available-for-sale securities at the date of the statement of financial position had been accounted for as temporary (and hence reported in other comprehensive income) a further decline after the statement of financial position date might suggest that the decline as of the statement of financial position date had, in fact, been a permanent impairment. Note that any further value decline after year-end would not be recorded in the financial statements; the only question to be addressed is whether the decline that occurred prior to year-end should have been treated as a permanent impairment rather than as a temporary market fluctuation.

If it is clear that the impairment at year-end had, in fact, been other than temporary in nature, then the financial statements are to be adjusted to reflect this loss in net income. Absent sufficient basis to reach this conclusion, the appropriate course of action is to not adjust the statements, but merely to disclose the (material) change in fair value that occurred subsequent to year-end including, if appropriate, a statement to the effect that the later decline was deemed to be an OTTI and will be reflected in the net income of the next year's financial statements. It should also be made clear that the decline occurring prior to year-end was not considered to be an other-than-temporary impairment at that time.

The FASB staff noted that when an entity has decided to sell a security classified as available-for-sale having a fair value less than cost at year-end, and it does not reasonably expect a recovery in value before the sale is to occur, then a write-down for an other-than-temporary decline is prescribed. This would most obviously be necessary if the actual sales transaction, anticipated at year-end, occurs prior to the issuance of the financial statements.

Mutual funds invested in U.S. government contracts. ASC 320-10-50 holds that investments in open-end mutual funds that invest in U.S. government securities are to be reported at fair value per ASC 320. Investments in mutual funds that invest solely in U.S. government debt securities are deemed to be equity investments (since it is the shares of the fund, and not the ultimate debt securities, that are owned), and therefore cannot be classified as held-to-maturity investments.

Forward contracts and options. ASC 815-10-35 addresses the accounting for certain forward contracts and purchased options to acquire securities covered by ASC 320. It applies only when the terms require physical settlement. It stipulates that forward contracts and purchased options (which are not classified as derivatives, having no intrinsic value at acquisition) are to be designated and accounted for as prescribed by ASC 320. These forwards and options would not be eligible for designation as hedging instruments.

Structured notes. ASC 320-10-35 deals with the complex area of “structured notes,” in particular with the matters of the recognition of interest income and of the statement of financial position classification of such instruments. According to this consensus, when recognizing interest income on structured note securities in an available-for-sale or held-to-maturity portfolio, the retrospective interest method is to be used if three conditions are satisfied. These conditions are:

1. Either the original investment amount or the maturity amount of the contractual principal is at risk
2. Return of investment on note is subject to volatility arising from either:
   1. No stated rate or stated rate that is not a constant percentage or in the same direction as changes in market-based interest rates or interest rate index, or
   2. Fixed or variable coupon rate lower than that for interest for traditional notes with similar maturity, and a portion of potential yield based on occurrence of future circumstances or events
3. Contractual maturity of bond is based on a specific index or on occurrence of specific events or situations outside the control of contractual parties.

This does not apply to structured note securities that, by their nature, subject the holder to reasonably possible loss of all, or substantially all, of the original invested amount (other than due to debtor failure to pay amount owed). In those instances, the investment is to be carried at fair value with changes in value recognized in current earnings.

The retrospective interest method requires that periodic income be measured by reference to the change in amortized cost from period beginning to period end, plus any cash received during the period. Amortized cost is determined with reference to the conditions applicable as of the respective date of the statement of financial position. Other-than-temporary declines in fair value would also have to be recognized in earnings, consistent with ASC 320 requirements for held-to-maturity investments.