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