Dividends and the Call report: When Does the Dividend Count?

Dividends may be a routine part of a bank’s business, but they can create questions when it comes time to prepare the Call Report. One of the most important things for Call Report preparers to remember is: focus on when the dividend was declared, not when it was paid.

Where Are Dividends Reported?

The primary place to look is Schedule RI-A: Changes in Bank Equity Capital. For current Call Report reporting, RI-A item 8 reports cash dividends declared on preferred stock, while item 9 reports cash dividends declared on common stock. The instructions require banks to report dividends declared during the calendar year-to-date, including dividends that will not be paid until after the report date.

Just as important, the instructions state: Do not include dividends declared during the previous calendar year but paid in the current period.

Here's an Easy Example

Suppose a bank's board declares a $500,000 common stock dividend on March 20. The dividend will not be paid to shareholders until April 15. The $500,000 belongs in the March 31 Call Report, because the dividend was declared during the first quarter.

Why Does This Matter?

Dividends reduce the amount of equity capital retained by the bank. That makes the dividend transaction important not only for Schedule RI-A, but also when reviewing the bank's overall equity and regulatory capital position.

Schedule RI-A is designed to explain the changes in equity capital during the year. When dividends are reported incorrectly, the equity roll-forward may no longer tell the correct story.

And remember, the ending balance in Schedule RI-A, item 12, Total bank equity capital, should agree with Schedule RC, item 27.a, Total bank equity capital.

Don't Treat Every "Dividend" the Same

Cash dividends are not the only type of dividend a bank may encounter. A stock dividend generally involves transferring amounts within equity rather than distributing cash to shareholders. A property dividend involves distributing assets other than cash and can involve additional accounting considerations. So, when a dividend appears on the bank's general ledger, do not immediately assume it should be treated the same way as a routine cash dividend. The glossary section of the Call Report instructions will assist you in those other types of dividends.

A Quick Call Report Review

When reviewing dividends before submitting the Call Report, ask:

When was the dividend declared?

Was it common or preferred stock?

Was it a cash, stock, or property dividend?

Was it declared during the current calendar year?

Does the amount agree with the general ledger and board documentation?

Does the resulting equity balance reconcile between RI-A and RC?

What is the impact on the bank's regulatory capital?

The Bottom Line

A dividend may look like a simple transaction, but the timing of the declaration matters for Call Report reporting.

For Call Report preparers, the key is to follow the transaction from the board declaration, to the general ledger, to Schedule RI-A, and ultimately to total equity capital and regulatory capital.

Remember: Don't just ask, "When was the dividend paid?" Ask, "When was the dividend declared?" That simple question can help prevent a common Call Report reporting error.