Financial Statement of Bank

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