Community Banking Advisor: Avoid these common holding company reporting errors

The Federal Reserve Board (FRB) uses information in reports to monitor and analyze a holding company’s financial condition, spot potential financial trends or problems and review merger and acquisition applications.

In a recent paper, FRB staff outlined common errors made on holding companies’ FR Y-9SP reports.

Reconciliation with call reports

Assuming that a holding company owns 100% of a bank subsidiary’s equity, common errors made on call reports include the following:

  • The holding company’s dividend income on the FR Y-9SP doesn’t equal the bank subsidiary’s dividend payments.
  • The holding company’s equity in the bank’s undistributed income or loss on the FR Y-9SP doesn’t equal the bank subsidiary’s net income less its dividends declared or paid.
  • The holding company’s equity investment in bank subsidiaries and associated banks on the FR Y-9SP doesn’t equal the bank subsidiaries’ total equity capital.
  • The holding company’s total consolidated assets on the FR Y-9SP are less than the bank subsidiary’s total assets.

If the holding company owns less than 100% of the subsidiary’s equity, a pro-rata calculation is necessary to reconcile these items.

Reconciliation with structure reports

The FRB cross-checks certain line items from the FR Y-9SP with the FR Y-6 (Annual Report of Bank Holding Companies) and FR Y-10 (Report of Changes in Organizational Structure) “structure reports.” Common errors include the following:

  • There’s a discrepancy between the holding company’s equity investment in a bank subsidiary, which is calculated based on 100% ownership, and the holding company’s most recent FR Y-6, which indicates less than 100% ownership. This could indicate an error in the FR Y-6 or a need to file an FR Y-10 to report a change in ownership.
  • Structure data regarding nonbanking companies or activities doesn’t coincide with FR Y-9SP report data.<

Other errors

The FRB’s paper lists several other common reporting errors made by bank holding companies. Examples include the following:

  • Cash dividends reported in the FR Y-9SP don’t include dividends from both common and preferred stock.
  • FR Y-9SP, Schedule SC-M, No. 14, isn’t completed. This section asks whether all changes in investments and activities have been reported on an FR Y-10 and also asks for the name and phone number of the holding company official verifying FR Y-10 reporting.

Many holding companies also omit external audit information from the FR Y-9SP. The form requires holding companies to state whether or not they have “engaged in a full-scope external audit at any time during the calendar year” and, if the answer is “yes,” to provide the name and address of the external auditing firm. This section should be left blank in the June filing but should be completed in the December filing.

Are your reports accurate?

It’s in a bank holding company’s best interest to ensure that its Federal Reserve reports are accurate. In addition to minimizing the time and expense of corrections and follow-up, completing the forms correctly ensures that the data, which is made available to the public, is reliable.