slike bài giảng quản trị ngân hàng chương 2 financial statements of bank

William Chittenden edited and updated the PowerPoint slides for this edition.
FINANCIAL
STATEMENTS OF BANKS
Chapter 2
Key topics
1. 1. Overview of the Balance sheets and Income
statements of banks
2. 2. Balance sheet or Report of condition
1. Asset items
2. Liability items
3. 3. Recent expansion of off-balance sheet items
4. 4. Components of the Income statement: Revenues
and Expenses
5. 5. Financial statement manipulation
Bank financial statements

Report of condition – Balance sheet

Report of income – Income statement
5-4
Report of condition - Balance sheet

The Balance sheet of a bank showing its Assets,
Liabilities and Net worth at a given point in time
Assets = Liabilities + Equity

May be viewed as a list of financial inputs (sources
of funds) and outputs (uses of funds)
C + S + L + MA = D + NDB + EC
C = Cash assets
S = Security holdings

L = Loans
MA = Miscellaneous
assets
D = Deposits
NDB = Non-deposit
borrowings
EC = Equity capital
5-6
Balance sheet
Bank assets

Cash and due from banks

Vault cash, deposits held at the Fed and other financial
institutions, and cash items in the process of collection

Investment securities

Securities held to earn interest and help meet liquidity
needs

Loans

The major asset, generate the greatest amount of
income, exhibit the highest default risk and are relatively
illiquid

Other assets

Bank premises and equipment, interest receivable,

prepaid expenses, other real estate owned, and
customers' liability to the bank
Balance Sheet (assets): PNC and Community National Bank
Cash assets

Account is called cash and deposits due from bank

Includes:

Vault cash

Deposits with other banks (correspondent deposits)

Cash Items in process of collection

Reserve account with the Federal Reserve
(sometimes called primary reserves)
5-9
Securities: the liquid portion

Often called secondary reserves, include:

Short term government securities

Privately issued money market securities

Interest bearing time deposits

Commercial paper
5-10

Investment securities

These are the income generating portion of
securities

Taxable securities

U.S. Government notes

Government agency securities

Corporate bonds

Tax-exempt securities

Municipal bonds
5-11
Trading account assets

Securities purchased to provide short-term profits
from short-term price movements

When bank acts as a securities dealer

Valued at market – FASB 115
5-12
Federal funds sold and reverse
repurchase agreements

A type of loan account


Generally overnight loans

Federal funds sold - funds come from the deposits at
the Federal Reserve

Reverse repurchase agreements – bank takes
temporary title to securities owned by borrower
5-13
Bank investments and FASB 115

Following FASB 115, a bank, at purchase, must designate the
objective behind buying investment securities as either:

Held-to-maturity securities are recorded on the balance sheet at
amortized cost.

Trading account securities are actively bought and sold, so the
bank marks the securities to market (reports them at current
market value) on the balance sheet and reports all gains and
losses on the income statement.

Available-for-sale, all other investment securities, are recorded
at market value on the balance sheet with a corresponding
change to stockholders’ equity as unrealized gains and losses
on securities holdings; no income statement impact.
Bank investments and FASB 115
amortized cost, market value (fair value)
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Loan accounts

The major asset

Gross loans – sum of all loans

Allowance for possible loan losses

Contra asset account

For potential future loan losses

Net loans

Unearned discount income

Nonperforming loans
5-16
Types of loans

Commercial and industrial loans

Consumer loans (loans to individuals)

Real estate loans


Financial institution loans

Foreign loans

Agriculture production loans

Security loans

Leases
5-17
Adjustments to total loans
…three adjustments are made to obtain a net loan
figure.
1. Leases are included in gross loans.
2. Unearned income is deducted from gross
interest received.
3. Gross loans are reduced by the dollar
magnitude of a bank's loan-loss reserve,
which exists in recognition that some loans
will not be repaid.
Specific and general reserves

Specific reserves

Set aside to cover a particular loan

Designate a portion of ALL or

Add more reserves to ALL


General reserves

Remaining ALL

Determined by management but influenced by taxes and
government regulation

Loans to lesser developed countries require allocated
transfer reserves
ALL : Allowance for loan losses
5-19
Allowance for loan losses (ALL)
Beginning ALL
+ Provision for loan loss (Income statement)
= Adjusted allowance for loan losses
-
Actual charge-offs
+ Recoveries from previous charge-offs
= Ending allowance for loan losses
VN: see Decision 493/2005/QD-NHNN
5-20
Provisions for loan losses
Provisions for loan losses
Reserve for Loan Losses
Recoveries
Charge offs
Average assets, capital and loan loss data: PNC and Community NB
Miscellaneous assets

Bank premises and fixed assets


Other real estate owned (OREO)

Goodwill and other intangibles
5-23
Bank liabilities

Non interest-bearing demand deposits

Transactions accounts that pay no interest

Negotiable orders of withdrawal (NOWs) and
automatic transfers from savings (ATS) accounts

Pay interest set by each bank without federal
restrictions

Money market deposit accounts (MMDAs)

Pay market rates, but a customer is limited to no more
than six checks or automatic transfers each month

Savings and time deposits represent the bulk of
interest-bearing liabilities at banks.
Bank liabilities (cont.)

Two general time deposits categories exist:

Time deposits in excess of $100,000, labeled
jumbo certificates of deposit (CDs).


Small CDs, considered core deposits which tend
to be stable deposits that are typically not
withdrawn over short periods of time.

Deposits held in foreign offices

Balances issued by a bank subsidiary located
outside the U.S.