Financial Reporting & Analysis Flashcards

A bank recognizes a $2 million gain on the sale of a branch building. On the statement of cash flows using the indirect method, this gain is treated how?

Answer: Subtracted from net income in the operating section and shown as an investing inflow

Under the indirect method, non-operating gains are removed from operating activities (subtracted) to avoid double-counting, while the full sale proceeds appear as an investing cash inflow.

Which disclosure is required under ASC 825 (Fair Value Option) when a bank elects to measure its own long-term debt at fair value?

Answer: The cumulative unrealized gain or loss attributable to changes in the bank's own credit risk must be disclosed separately

ASC 825 requires banks electing the fair value option to separately disclose the portion of fair value changes attributable to changes in their own credit risk, typically in OCI.

A bank's Tier 1 leverage ratio is calculated as Tier 1 capital divided by:

Answer: Average total consolidated assets (on-balance-sheet)

The Tier 1 leverage ratio uses average total consolidated on-balance-sheet assets as the denominator, unlike risk-based ratios that use risk-weighted assets.

When analyzing a bank's noninterest income, which revenue stream is considered MOST volatile and subject to market risk?

Answer: Trading revenue and securities gains/losses

Trading revenue and realized/unrealized securities gains are directly tied to market prices and can swing dramatically, making them the most volatile component of noninterest income.

Under GAAP, when should a bank discontinue accruing interest on a commercial loan?

Answer: When full collection of principal or interest is not reasonably expected, typically at 90 days past due

Regulatory guidance and GAAP practice require banks to place loans on nonaccrual status when full repayment is doubtful, generally when 90 days past due, and to reverse any previously accrued interest.

A bank acquires another institution in a business combination. Under ASC 805, which of the acquired bank's assets is NOT remeasured to fair value at the acquisition date?

Answer: Deferred tax assets and liabilities arising from the acquisition

ASC 805 requires most acquired assets and liabilities to be measured at fair value, but deferred tax assets and liabilities are recognized and measured following ASC 740 (income taxes), not at fair value.

Which presentation approach is required for a bank's provision for credit losses under the current CECL framework on the income statement?

Answer: Presented as a separate line item in the income statement, reducing pre-tax income

The provision for credit losses flows through the income statement as a distinct expense line item, reducing pre-tax income and ultimately affecting the allowance for credit losses on the balance sheet.