CHAPTER 6: BANK REPORTS

The bank reports include information on enterprise that are majority-owned or

controlled by the bank so that the public will know the true financial condition of a bank at
any given time. A condensed financial statement of a bank is usually published quarterly in
newspapers of wide circulation. Such report will be used to direct the course of action in
order to improve the bank's business and its attendant functions and services.

WHO NEEDS BANK REPORTS?

1. Supervisory and regulatory agencies – for the requirements.

2. Bank directors and officers – for wise and judicious action.
3. Stockholders – for ensuring the money they invested.
4. Borrowers – for its lending capacity and loan policies.
5. Potential investors – for the safety of their investments.
6. General public – for their trust and confidence in the bank.

Sec. 58 Independent Auditor – The Monetary Board may require a bank, quasi-bank
to engage the services of an independent auditor to be chosen by the bank, quasi-bank
concerned form the list of certified public accountants acceptable to the Monetary Board.
The term of engagement shall be as prescribed by the Monetary Board. The copy of the
report shall also be furnished to the MB.

Sec. 60 Financial Statements – Every bank or quasi-bank shall submit to the

appropriate supervising and examining department of the BSP financial statements in such
form or frequency as may be prescribed by the BSP. Such statements shall show the actual
financial condition of the institution.

Sec. 61 Publication of Financial Statements – Every bank or quasi-bank shall publish

a statement of its financial condition at least once every quarter in a newspaper of general
circulation.

In periods of national or local emergency of imminent panic which directly threaten

monetary and banking stability, The MB, by a vote of at least five of its members, allow
banks or quasi-banks to defer for a stated period of time the publication of the statement of
financial condition required therein.

TYPES OF BANK REPORTS

1. Condensed bank statement

- The accounts in such a statement would appear in condensed or abbreviated
form.

2. Real bank statement

- This statement is usually in more detailed form and is prepared for the regulatory
and supervisory agencies.

3. Annual reports
- They are also called progress report which contains resume of its yearly
operations. Such reports do contain the focal points in the bank's progress.

THE BANK STATEMENT

Of major interest among the numerous reports is the bank statement which serves
to underscore the bank's position at certain periods of time.
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 While there is nor rule as to uniformity and pattern of reporting, most of the bank
statements include the assets and liabilities. The most common bank assets or
resources are the following:

1. Cash on hand
- This account represents notes and coins held by the bank to meet depositors'
withdrawals and other normal cash needs.

2. Other Cash Resources

- These accounts comprise the following:

a. Exchanges for the clearing house – this consists of checks deposited at or cashed
by the bank preparing the statement during the course of the day.

b. Collection in transit – This account consists of out of town checks drawn on

banks outside the city.

c. Claims of banks to other banks or depositors.

3. Due from banks

- This represents deposits carried with other banks. They are usually in the form
legal reserves or deposits.

4. Balances with foreign banks

- This consists of deposits or funds held abroad mainly to fill foreign exchange
needs.

5. Loans and discounts

- It consists of all promissory notes and drafts held by the bank evidencing the
existence of a debt or securing a debt.

6. Government Securities
- It consists of the evidences of indebtedness in the form of bonds and other
instruments.

7. Corporate Securities
- These securities belong to private corporations.

8. Bank building, furniture and fixture

- This item represents the monetary value of the properties owned by the bank to
carry on its functions.

9. Real estate owned

- This account arises out of the fact that banks foreclose real estate mortgages and
carry the monetary value of the asset in their books until it is disposed of.

10. Customer's liability under Letters of credit

- It represents the customers' obligation to reimburse the bank by virtue of the
bank's commitment to substitute its credit for the borrowers by honoring the drafts
drawn against it.

11. Customers' liability under acceptances

- This is similar to number 10.

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 12. Income accrued but not yet collected
- When a bank grants loans with interest collected at maturity, the bank in effect
has future earnings which as yet have not been collected.

Bank Liabilities

A. Liabilities:

1. Demand deposits
- This account represents claims of depositors who withdraw their deposits by
means of checks.

2. Time deposits
- This represents claims of depositors who keep their money in the bank for a
specified period of time.

3. Government deposits
- This represents, either time or demand, which belongs to the government or its
instrumentalities and political subdivisions.

4. Cashier's check outstanding

- The bank's cashier issues checks to either pay the bank's obligations, to
accommodate customers.

5. Certified check outstanding

- When the depositor requests the bank to certify his check, the bank immediately
sets aside the amount of check by debiting the depositor's account before stamping
certification on the face of the check.

6. Due to banks
- This account represents deposits or balances of other banks with the bank
preparing the statement.

7. Letters of credit outstanding

- This account arises out of the issuance of letters of credit for which the bank
obliges itself to pay or guarantee payment.

8. Acceptance outstanding
- This is similar to the account letters of credit.

9. Bills payable
- This represents the claims of creditors of the bank for funds borrowed by it.

10. Rediscounted notes

- This account arises out of the use of endorsed commercial papers for the purpose
of procuring funds.

11. Discounts collected but not yet earned

- When the bank gives out a loan and collects interest in advance, the amount
deducted is not yet really earned in full.

B. Reserves:

1. Reserve for accrued taxes

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 - A bank is levied with numerous taxes. Hence, the bank provides a certain amount
based on past payments made.

2. Reserve for accrued interest

- This represents the interest accruals on time deposits as well as interest payments
on money borrowed bu the bank.

3. Reserve for accrued expense

- This constitutes the salaries, supplies, and other expenses estimated on the bank's
budget for the year.

4. Reserve for depreciation on bank properties

- This item represents the wear and tear on the bank's building, furniture, and
fixtures.

5. Reserve for depreciation on securities

- this account will represent the cushion for the fall in the value of the securities
held by the bank.

6. Reserve for contingencies

- This will represent losses incurred by the bank.

c. Stockholders' equity

1. Capital stock
- This account is carried as per the par or face value of the total number of stocks
appearing in the bank's charter.

2. Surplus
- This account may consist of earnings derived from the sale of stock above par or
earnings retained by the management from operations.

3. Undivided profits
- This account represents earnings from current operations not yet paid out as
dividends.

BANK EARNINGS AND EXPENSES

Of great importance to a bank, and for that matter to all other businesses, is the
profit and loss statement. Although this section is seldom published, it is nevertheless
important in the appraisal of a bank's financial condition.

A bank must earn enough to meet its expenses to cover losses, as well as to
provide return on the stockholders' investments.

The most significant sources of the commercial bank's income are in the form of
interest on loans and investments in government and other securities. Other minor sources
are the service and other fees charged by banks for services rendered.

The current operating expenses of a bank are practically the same as that of other
businesses except for the interest paid on time deposits. The bank also uses stationery and
supplies, furniture and fixtures, salaries of employees, telephone service and other expenses
common to other businesses.

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ANALYSIS OF TRANSACTIONS

Assuming that the bank's charter represents the issue of 50,000 shares at a par
value of P100.00 each and that the stockholders have fully paid their shares, the resulting
figure will be:

Assets: Liabilities:
Cash P 5,000,000.00 Stockholders' equity P 5,000,000.00
Total Assets P 5,000,000.00 Total Liabilities and stockholders' equity
P 5,000,000.00

Then out of the cash received, the management buys a building worth P
1,000,000.00 and furniture and equipment worth P 500,000.00. Hence, the balance sheet
will now be:

Assets: Liabilities:
Cash P 3,500,000.00 Stockholders' equity
Bank building 1,000,000.00 P 5,000,000.00
Furniture and fixture 500,000.00
Total assets P 5,000,000.00 Total Liabilities and stockholders' equity
P 5,000,000.00

The bank receives demand deposits to the tune of P 1,000,000.00 in cash. The
position will now shift a little and will appear as follows:

Assets: Liabilities:
Cash P 4,500,000.00 Demand deposits P 1,000,000.00
Bank building 1,000,000.00
Furniture and fixture 500,000.00 Stockholders' equity 5,000,000.00
Total assets P 6,000,000.00 Total Liabilities and stockholders' equity
P 6,000,000.00

Because of the imposition of the legal reserve requirement, the statement will be
adjusted as follows (assuming that the legal reserve is 10%)

Assets: Liabilities:
Cash P 4,400,000.00 Demand deposits P 1,000,000.00
Due from bank 100,000.00
Bank building 1,000,000.00
Furniture and fixture 500,000.00 Stockholders' equity 5,000,000.00
Total assets P 6,000,000.00 Total Liabilities and stockholders' equity
P 6,000,000.00

The bank receives loan applications and after due processing approves the loans for
P 200,000.00 in cash. The statement will then be:

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Assets: Liabilities:
Cash P 4,200,000.00 Demand deposits P 1,000,000.00
Due from bank 100,000.00
Loans and discounts 200,000.00
Bank building 1,000,000.00
Furniture and fixture 500,000.00 Stockholders' equity 5,000,000.00
Total Assets P 6,000,000.00 Total Liabilities and Stockholders' equity
P 6,000,000.00

A borrower requests for an overdraft line of P 40,000.00. Hence, the balance sheet
will appear as follows:

Assets: Liabilities:
Cash P 4,196,000.00 Demand deposits P 1,040,000.00
Due from bank 104,000.00
Loans and discounts 200,000.00
Overdraft 40,000.00
Bank building 1,000,000.00
Furniture and fixture 500,000.00 Stockholders' equity 5,000,000.00
Total assets P 6,040,000.00 Total liabilities and stockholders' equity
P 6,040,000.00