Quarterly Average Assets and Monster Movies
Schedule RC-K of the Call Report requires banks to report certain quarterly average balance sheet figures. The main purpose of this schedule is to provide data for the calculation of yields and costs of funds for the bank’s Uniform Bank Performance Report (UBPR or “beeper” report as all the kids call it). It also feeds the FFIEC’s statistics machine for the calculation of financial performance figures for the industry as whole.
Most of the averages for loans and deposits are easy enough to find in the bank’s quarterly general ledger or other reports. The total average asset figure, however, can be trickier than it looks. The Call Report instructions start off by saying that the definition of “Total assets” is the same as for Schedule RC item 12, “except that…”. It is in the “except that’s” wherein lies the gotcha.
“Except that” #1: “All debt securities not held for trading” are reported at amortized cost. This means that average unrealized gains and losses on Available for Sale securities are not included in the Average assets figure to be reported. This makes sense, since a big unrealized gain or loss, if included, would distort the bank’s calculated yield on investment. This is an easy one to miss.
“Except that” #2: “Equity securities with readily determinable fair values not held for trading” are reported at fair value.
“Except that” #3: “Equity security and other equity investments without readily determinable fair values not held for trading” should be reported at their balance sheet carrying value.
And the last little detail the instructions talk about refers to “Except that” #1. The portion of deferred taxes that pertain to unrealized gains and losses on available-for-sale securities are also not reported.
When you get to the end of a monster movie and just when you think that the evil entity has finally been vanquished, the monster either comes roaring back to life or perhaps stirs just enough to let you know he will be back for a sequel. The same is true for reported average assets.
Many banks require to have certain asset ledger accounts with credit balances reclassified as liabilities for reporting purposes. Sometimes liability accounts with debit balances must also be reclassified as assets. This may be because of how the internal general ledger accounts are set up, or to a one-time anomaly in booking a transaction.
The most common example is accounting for deferred tax assets on the assets ledger and deferred liabilities on the liabilities ledger. Since deferred taxes are netted, a net debit balance is reported as an asset and a net credit balance as a liability (not counting deferred taxes attributable to unrealized gains and losses on AFS of course (Sheesh!). Sometimes an overpayment will result in a credit balance in a receivables account or a debit balance in a payables account that must be reclassified.
Bottom line, whatever adjustments are made to Schedule RC line 12 must also be done for RC-K line 9. Then and only then will the monster be kept at bay, at least until next quarter!
