Financial Statement of Bank
The Income Statement of Bank
The Balance Sheet of Bank (Report of Conditions)
Bank Assets

n           The Cash Account (Cash held in bank’s vault + Correspondent Deposits).

n           Investment Securities (Money Market Securities: The Liquid portion)

n           Investment Securities (Capital Market Securities: The Income Generating Portion )

n           Loans ##

n           Securities Purchased under Resale Agreement.(Repo)

n           Customers’ Liability on Acceptance.

n           Miscellaneous Assets (Bank Buildings & Equipment, Investments in Subsidiary firms, Prepaid insurance, etc.)

## Loans

n           Commercial & Industrial Loans.

n           Consumer or Households Loans.

n           Real Estate Loans.

n           Financial Institutions loans. (loans to other depository institutions.)

n           Foreign Loans (to foreign governments, agencies)

n           Agricultural Production Loans (to farmers & ranchers)

n           Security loans (to investors & security brokers)

n           Leases (operating & financial leases)

## Loans Losses

n    Annual Provision for Loan Loss (PLL) expense is debited in the Income Statement

n    Allowance for Loan Loss (ALL) is credited in the Balance Sheet.

n    Worthless Loan deducted and recovered loan added with ALL at the end of the year and that becomes the opening balance in the next year

Bank Liabilities

n            Deposits:

n        Noninterest-bearing demand deposits (permits unlimited check writing)

n        Savings Deposits (lower rate of interest with minimum size requirement of deposits)

n        NOW Accounts (held only by individuals & nonprofit institutions, bear interest & permit the customer to withdraw at will)

n        Money Market Deposit Accounts (MMDAs pay competitive interest rate with limited checking privileges, normally 7 days prior notice is required before withdrawal of cash)

n        Time Deposits (fixed maturity term & stipulated interest rate)

n            Nondeposits Borrowings

– No reserve requirement or insurance fee required, that reduces the cost of fund and makes it flexible but interest rate is highly volatile

– During the time of financial problems, lender may refuse to extend credit

– Sources are : Money & Capital Market, Euro Market, Long-term borrowings.

n            Capital Accounts (less than 10% of the total asset)

Off-balance-Sheet Items

n    Banks have converted many of their customers in recent years into fee-generating transactions that are not recorded on their balance sheet.

–    Standby Credit Agreements (bank pledges to guarantee repayment of a customer’s loan received from a third party)

–    Interest Rate Swaps (bank promises to exchange interest payment on debt securities with another party)

–    Financial Futures & option Interest-rate Contracts (bank agrees to deliver or to take delivery of securities from another party at a guaranteed price)

–    Loan Commitments (bank pledges to lend up to a certain amount of funds until the commitment matures)

–    Foreign exchange Rate Contracts (bank agrees to deliver or accept delivery of foreign currencies)

Major Components of Income Statement

n     Interest Income:

•    Interest & Fees on Loans

•    Interest on Investment Securities

n     Interest Expenses:

•    Deposit Interest Costs

•    Interest on Short-term debt

•    Interest on Long-term debt

n     Noninterest Income:

•    Service charges on customer deposits

•    Trust department income

n     Noninterest Expenses:

•    Wages, Salaries & other personnel expenses

•    Net occupancy & Equipment expenses

n     Provision for Loan-Loss (PLL) Expenses

Features & Consequences of Bank Financial Statements