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The banks using regulatory grace period to file call reports amid COVID-19

SNL ImageA cleaning crew disinfects a bank in New Rochelle, N.Y. Despite disruptions from
the COVID-19 pandemic, the majority of U.S. banks chose not to take advantage
of the extra time regulators granted to file their call reports, a key quarterly filing.

Source: AP Photo

Regulators have taken the unusual step of delaying call report deadlines for the banking industry. Banks are using that extra time to cope with disruption from the coronavirus pandemic, get to grips with a new accounting standard and devote resources to the Paycheck Protection Program.

Banks and credit unions received a 30-day coronavirus-related grace period for filing their first-quarter call reports with the Federal Financial Institutions Examination Council. The normal deadline for filing first-quarter call reports — 35 days after quarter-end for companies with foreign offices and 30 days for those only with domestic offices — just passed.

About 18% of call report filers took advantage of the extra time, an S&P Global Market Intelligence analysis found.

SNL Image

John Geiringer, a partner at law firm Barack Ferrazzano Kirschbaum & Nagelberg LLP who focuses on regulatory, governance, and investigative matters involving financial institutions, said he was "very much taken aback" by the extension.

"The deadline on call reports was always sacrosanct to the regulators. In fact, if they were late they were subject to potential civil money penalties," Geiringer said in an interview. "So the fact that [regulators] were willing to allow institutions to extend the filing date really signifies what they believe to be the depth of the crisis brought on by the pandemic."

Call reports provide regulators with valuable off-site surveillance, helping them understand the health of individual banks and the banking industry as a whole, Geiringer said. They also give investors insight into where the banking market is heading, even for institutions that are not publicly traded.

Geiringer has heard from some clients who plan to take advantage of the extension, mainly community banks consumed by the Paycheck Protection Program. He said these smaller institutions have "an 'all hands on deck' approach to the PPP lending, which diverted resources that normally go into filing the call report."

The second round of the PPP launched on April 27, adding about $310 billion to the roughly $350 billion authorized in the first round in early April. Under the program, the government will convert loan amounts used on payroll and other expenses into grants.

"For some banks it's perfectly appropriate to be able to utilize this very rare type of extension provided by the regulators," Geiringer said. For many others, there are advantages to filing in the normal time frame.

"They don't want to lose the muscle memory of filing it when they're supposed to file it, knowing that these extensions won't be granted forever," Geiringer said. "They want to keep up the discipline of filing their call reports on time, as they've done for their entire existence."

SNL Image

In some cases, banks are using the additional time to get to grips with how they are reporting numbers related to the current expected credit loss accounting standard known as CECL.

"We have an approved extension from the FDIC to allow for additional time to run quality checks on the new CECL regulatory capital treatment," a spokesperson for Santander Holdings USA Inc. emailed. "We expect to file the Call Report within the approved timeframe. Our SEC 10-Q filing will be completed on time."

A spokesperson for Silicon Valley Bank said the Federal Reserve "offered all financial institutions an extension to file Call Reports until the end of May due to CECL adoption and COVID-19 developments." The bank alerted the Fed that it will file its call report by May 15. A spokesperson for MUFG Union Bank NA said the bank has opted to file its form 10-Q and call reports on the same day in mid-May.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.