Financial Reporting & Analysis Flashcards
7 cards from real CBA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Reporting & Analysis flashcards as text
Under ASC 310-20, how should a bank account for loan origination fees received from borrowers?
Answer: Defer and amortize over the loan's life using the effective interest method
ASC 310-20 requires loan origination fees to be deferred and recognized as an adjustment to yield (interest income) over the loan's life using the effective interest method.
A bank's net interest margin (NIM) declined from 3.2% to 2.8% year-over-year. Which scenario BEST explains this change?
Answer: The cost of funds rose more rapidly than loan yields
NIM compresses when the cost of funding rises faster than asset yields, squeezing the spread between earning assets and interest-bearing liabilities.
Which financial statement line item most directly reflects a bank's credit risk exposure from off-balance-sheet commitments?
Answer: Contingent liabilities disclosed in footnotes
Unfunded loan commitments and letters of credit are off-balance-sheet exposures disclosed as contingent liabilities in the footnotes under ASC 450.
A bank auditor notices that the efficiency ratio increased from 58% to 72%. What does this indicate?
Answer: Operating expenses are consuming a larger share of net revenue
The efficiency ratio (noninterest expense / net revenue) rising from 58% to 72% indicates that expenses are taking up more of each revenue dollar, signaling declining operational efficiency.
Under CECL (ASC 326), the allowance for credit losses on a bank's held-to-maturity (HTM) securities portfolio is measured using:
Answer: Lifetime expected credit losses from the date of acquisition
CECL requires banks to estimate lifetime expected credit losses on HTM securities at acquisition, replacing the prior incurred-loss model.
Which ratio best measures a bank's ability to cover interest payments from operating earnings?
Answer: Times interest earned (interest coverage ratio)
The times interest earned ratio (EBIT / interest expense) directly measures how many times a bank's earnings can cover its interest obligations.
A bank reclassifies $50 million of available-for-sale (AFS) securities to held-to-maturity (HTM). The unrealized loss at reclassification date is $3 million. How is this loss treated?
Answer: Remains in AOCI and is amortized over the remaining life of the securities
Under ASC 320, the unrealized loss frozen in AOCI at reclassification from AFS to HTM is amortized over the securities' remaining life as an offset to the discount amortization.