Interest Expense IE n Includes interest paid on all interest bearing

Interest expense ie n includes interest paid on all

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Interest Expense (IE)nIncludes interest paid on all interest-bearing liabilities:§NOW Accounts§ATS Accounts§MMDAs§Savings Accounts§Time Deposits§Non-Core Liabilities§Long-Term Debt31
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Commercial Bank Financial StatementsnIncome StatementnInterest Income (II)nminusnInterest Expense (IE)nequalsnNet Interest Income (NII)32
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Commercial Bank Financial StatementsnIncome StatementnNon-Interest Income (OI)nIncludes:§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)33
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Commercial Bank Financial StatementsnIncome StatementnNon-Interest Expense (OE)nIncludes:§Personnel§Occupancy§Technology§Utilities§Deposit Insurance Premiums§Intangible Amortizations§Goodwill Imparement34
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Commercial Bank Financial StatementsnIncome StatementnNon-Interest Expense (OE)nminusnNon-Interest Income (OI)nequalsnBurdennNon-interest expense is typically larger than non-interest incomenReducing the Burden will increase bank profitability35
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Commercial Bank Financial StatementsnIncome StatementnProvision for Loan and Lease Losses (PLL)nEstimate of potential losses on loansnRelationship between PLL and ALL§Beginning ALL (from Balance Sheet)§plus§This year’s PLL (from Income Statement)§minus§Charge-offs§plus§Recoveries36
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Commercial Bank Financial StatementsnIncome StatementnProvision for Loan and Lease Losses (PLL)nRelationship between PLL and ALL§Recall, ALL is a contra-asset account§When a loan is charged off, Gross Loans and the ALL account are decreased by the same amount37
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Commercial Bank Financial StatementsnIncome StatementnNet Interest Income (NII)nminusnBurdennminusnPLLnplusnRealized Security Gains (Losses) (SG)nequals38
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Commercial Bank Financial StatementsnIncome StatementnPre-Tax Net Operating Income (te)nminusnTaxes (T)nminusnExtraordinary ItemsnequalsnNet Income (NI)39
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Commercial Bank Financial StatementsnIncome StatementnTotal Revenue (TR) or Total Operating Income (TOI)nIncludes:§Interest Income§Non-Interest Income§Realized Security Gains (Losses)nAnalogous to Net Sales40
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Commercial Bank Financial StatementsnIncome StatementnTotal Operating Expense (EXP)nIncludes§Interest Expense§Non-Interest Expense§PLLnAnalogous to COGS + Operating Expenses41
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Commercial Bank Financial StatementsnIncome StatementnNI = NII – Burden – PLL + SG – T42
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Relationship Between Balance Sheet & Income StatementnAi = Dollar magnitude of the ith assetnLj = Dollar magnitude of the jth liabilitynNW = Dollar magnitude of equitynyi = Average pre-tax yield on the ith assetncj = Average pre-tax cost on the jth liability43
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NWLAmjjnii+===11=-=niiiAy1IncomeInterest =-=mijjLc1ExpenseInterest 44Relationship Between Balance Sheet & Income Statement
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