Ch 5 financial statements of banks
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Ch. 5 Financial Statements of Banks. Based on Rose and Hudgins, Bank Mgt & Fin Services , Gup text, and adapted by Dorla Evans. Key Topics. Balance Sheet Asset Items Liability Items Off-balance Sheet Items Revenues and Expenses. C = Cash Assets S = Security Holdings L = Loans

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Ch. 5 Financial Statements of Banks

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Ch 5 financial statements of banks

Ch. 5 Financial Statements of Banks

Based on Rose and Hudgins, Bank Mgt & Fin Services, Gup text, and adapted by Dorla Evans


Key topics

Key Topics

  • Balance Sheet

  • Asset Items

  • Liability Items

  • Off-balance Sheet Items

  • Revenues and Expenses


Balance sheet

C = Cash Assets

S = Security Holdings

L = Loans

MA = Miscellaneous Assets

D = Deposits

NDB = Nondeposit Borrowings

EC = Equity Capital

Balance Sheet

C + S + L + MA = D + NDB + EC


Balance sheet 000

Balance sheet ($000)

ASSETSDEC. 31, 2007 DEC. 31, 2006

Cash & due from dep. Instit.$ 9,039$10,522

Investment securities

Interest bearing bank balances$ 0$ 1,000

U.S. Treasury and agency securities 54,082 44,848

Municipal securities 32,78934,616

Investment securities$86,871$80,464

Trading account assets$ 0$ 0

Fed Funds Sold$10,500$ 1,500

Securities $97,371$81,964


Balance sheet 0001

Balance sheet ($000)

ASSETS DEC. 31, 2007 DEC. 31, 2006

Loans and leases

Real estate loans $50,393 $38,975

Commercial loans 9,615 11,381

Individual loans 8,824 10,640

Agricultural loans 20,680 19,654

Other loans and leases-domestic 3,6844,025

Gross loans and leases $93,196 $84,675

Less: unearned income reserves ( 89) (282)

Allowance for loan and lease losses (3,006)(2,536)

Net loans and leases $90,101$81,857


Balance sheet 0002

Balance sheet ($000)

ASSETSDEC. 31, 2007 DEC. 31, 2006

Cash$ 9,039$10,522

Total securities $ 97,371$81,964

Net loans and leases $90,101$81,857

Premises, fixed assets,

and capitalized leases $2,229 $2,398

Other real estate 2,282 3,012

Other assets 4,951 4,014

Total assets $205,973$183,767


Balance sheet 0003

Balance sheet ($000)

LIABILITIES & CAPITAL DEC. 31, 2007 DEC. 31, 2006

Demand deposits $ 23,063 $ 22,528

All NOW and ATS accounts 6,021 5,322

MMDA accounts 41,402 49,797

Other savings deposits 3,097 2,992

Time deposits<$100K 31,707 28,954

Time deposits>$100K 83,00957,665

Total deposits $188,299$167,258


Balance sheet 0004

Balance sheet ($000)

LIABILITIES & CAPITAL DEC. 31, 2007DEC. 31, 2006

Nondeposit funds

Fed funds purchased 0 0

Other borrowings 0 0

Bankers’ acceptance and other liabilities 3,5463,101

Total nondeposit funds $ 3,546$3,101

Total liabilities $191,845$170,359

Subordinated notes and debentures 0 0

All common and preferred equity 14,128 13,408

Total liabilities and capital $205,973$183,767


Off balance sheet items

Off-Balance-Sheet Items

  • Types

    • Unused commitments

    • Standby credit agreements

    • Derivative contracts

  • Size

    • 13x the volume of largest banks’ balance sheet assets

    • Main exposure is gain and losses, not face value of contracts.


Net interest income interest income interest expenses

Interest and Fees on Loans

Taxable Securities Revenue

Tax-Exempt Securities Revenue

Other Interest Income

Deposit Interest Costs

Interest on Short-Term Debt

Interest on Long-Term Debt

Net Interest Income = Interest Income – Interest Expenses

Interest Income

Interest Expenses


Simplified income statement

Simplified Income Statement

  • Interest Income

  • -Interest Expense

  • Net Interest Income

  • -Provision for Loan & Lease Losses (non-cash outflow)

  • +Non-interest Income

  • -Non-interest Expense

  • Pretax Net Operating Income

  • +/- Securities Gains (Losses)

  • Income Taxes

  • Income Before Extraordinary Items

  • +/- Extraordinary gains (losses)

  • Net Income


Income statement

Income statement


Income statement1

Income statement


Income statement2

Income statement


Income statement3

Income statement


Income statement4

Income statement


Loan losses

Loan losses

Suppose bank makes a $10 million loan but the business

goes bankrupt. Bank expects to collect only $1 million.

Gross loan$10 million

Less uncollected loan- 9 million

Gross loan$ 1 million

Allowance for loan losses (ALL)$100 million

Less uncollected loan 9 million

Allowance for loan losses (ALL) $ 91 million


Loan losses1

Loan losses

Suppose bank expects a $1 million loan loss against a $100 million loan reserve.

Income statement: Non-cash charge against revenue

Provision for loan loss (PLL)- $1 million

Balance sheet: Allowance for loan loss (ALL) adjustment

Allowance for loan losses$100 million

Plus provision for loan loss 1 million

Allowance for loan losses $101 million


Reserve for loan losses

Reserve for loan losses

Now suppose bank finds it has an actual loss of $0.5 million

Balance sheet: Allowance for loan loss adjustment

Allowance for loan losses$100.0 million

Plus annual provision for loan loss 1.0 million

Less charged-off loan- 0.5 million

Reserve for loan losses$100.5 million


Reserve for loan losses1

Reserve for loan losses

Suppose bank recovers $1.5 million of a previously charged-off loan.

Income statement: Cash recovery increases revenue

Recovery+ $1.5 million

Balance sheet: Allowance for loan loss adjustment

Allowance for loan losses$100.5 million

Plus recovery of previously

charged-off loan + 1.5 million

Allowance for loan losses($102.0 million)


Reserve for loan losses2

Reserve for loan losses

Bad loans usually do not affect current income.

Ending Beginning

allowance for = allowance for - Gross + Provision for + Recoveries

loan losses loan losses charge-offs loan losses

bal sheet bal. sheetexp. accrued exp. income

Bank has a target for its allocation for loan losses.


Questions

Questions?


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