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
Commercial Bank Financial StatementsnIncome StatementnInterest Income (II)nminusnInterest Expense (IE)nequalsnNet Interest Income (NII)32
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
Commercial Bank Financial StatementsnIncome StatementnNon-Interest Expense (OE)nIncludes:§Personnel§Occupancy§Technology§Utilities§Deposit Insurance Premiums§Intangible Amortizations§Goodwill Imparement34
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
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
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
Commercial Bank Financial StatementsnIncome StatementnNet Interest Income (NII)nminusnBurdennminusnPLLnplusnRealized Security Gains (Losses) (SG)nequals38
Commercial Bank Financial StatementsnIncome StatementnPre-Tax Net Operating Income (te)nminusnTaxes (T)nminusnExtraordinary ItemsnequalsnNet Income (NI)39
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
Commercial Bank Financial StatementsnIncome StatementnTotal Operating Expense (EXP)nIncludes§Interest Expense§Non-Interest Expense§PLLnAnalogous to COGS + Operating Expenses41
Commercial Bank Financial StatementsnIncome StatementnNI = NII – Burden – PLL + SG – T42
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
NWLAmjjnii+=∑∑==11∑=-=niiiAy1IncomeInterest ∑=-=mijjLc1ExpenseInterest 44Relationship Between Balance Sheet & Income Statement
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- Balance Sheet, Interest, Generally Accepted Accounting Principles, Bank Financial
