2204AFE: Financial Institutions Management Topics 3 & 4: Analysing Bank Performance-I & II 1
Lecture Contents 3.1 Introduction 3.2 Commercial bank financial statements 3.3 Income statement 3.4 Balance sheet 3.5 What to analyse? How? 3.6 The ROE Model 3.7 Risk analysis 3.8 Evaluating bank performance: an application 3.9 Financial statement manipulation 3.10 Summary 3.11 Tutorial Qs 2
3.1 Introduction • Why analyse performance? • How to analyse? • Ratio analysis? Others? • Interpretation 3
3.2 Commercial bank financial statements • Income statement : revenues & expenses • Balance sheet : assets, liabilities, capital • What are these? • Exhibits 3.2, 3.4 and 3.7: please bring your readings to class; we will need them ! [enlarged copies of these exhibits would be great!] • Brief review of IS and BS of PNC 4
Quiz #1 Banks generate their largest portion of income from: a)loansb)short-term investmentc)demand depositsd)long-term investmentse)certificates of deposit Answer: 5
3.3 Income statement Net interest income (NII) (Interest income-Interest expense) - Burden (Non-interest income-Non-interest expense) - Provision for loan losses (PLL) + Securities gains (SG) Net income before tax (NIbt) - Taxes Net income (NIat) - Dividends Retained earnings (RE) RE = NII-Burden+SG-T-Div 6
Interest Income (II) • Includes interest and fees from: – Loans, deposits at other institutions, trading account securities, etc. Interest Expense (IE) • Includes interest paid on all interest-bearing liabilities Non-Interest Income (OI) • Includes income from sources such as – fiduciary (trust) income, deposit service charges, trading revenues, investment banking fees and commissions, insurance commission fees and income, net servicing fees, net gains (losses) on sales of loans, other net gains (losses) 7
You've reached the end of your free preview.
Want to read all 42 pages?