Interest income ii includes interest and fees from

Interest Income (II)

Includes interest and fees from:

Loans

Deposits at other institutions

Trading Account Securities

Municipal Securities

Estimated Tax Benefit =

Municipal Interest Rate/(1 – Marginal Tax
Rate) = Tax-Equivalent Municipal Interest
Income
30

Commercial Bank Financial
Statements

Income Statement

Interest Expense (IE)

Includes interest paid on all interest-
bearing liabilities:

NOW Accounts

ATS Accounts

MMDAs

Savings Accounts

Time Deposits

Non-Core Liabilities

Long-Term Debt
31

Commercial Bank Financial
Statements

Income Statement

Interest Income (II)

minus

Interest Expense (IE)

equals

Net Interest Income (NII)
32

Commercial Bank Financial
Statements

Income Statement

Non-Interest Income (OI)

Includes:

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
Statements

Income Statement

Non-Interest Expense (OE)

Includes:

Personnel

Occupancy

Technology

Utilities

Deposit Insurance Premiums

Intangible Amortizations

Goodwill Impairment
34

Commercial Bank Financial
Statements

Income Statement

Non-Interest Expense (OE)

minus

Non-Interest Income (OI)

equals

Burden

Non-interest expense is typically larger
than non-interest income

Reducing the Burden will increase bank
profitability
35

Commercial Bank Financial
Statements

Income Statement

Provision for Loan and Lease Losses (PLL)

Estimate of potential losses on loans

Relationship between PLL and ALL

Beginning ALL (from Balance Sheet)

plus

This year’s PLL (from Income Statement)

minus

Charge-offs

plus

Recoveries

Equals

Ending ALL
36

Commercial Bank Financial
Statements

Income Statement

Provision for Loan and Lease Losses
(PLL)

Relationship 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 amount
37

Commercial Bank Financial
Statements

Income Statement

Net Interest Income (NII)

minus

Burden

minus

PLL

plus

Realized Security Gains (Losses) (SG)

equals
38

Commercial Bank Financial
Statements

Income Statement

Pre-Tax Net Operating Income (te)

minus

Taxes (T)

minus

Extraordinary Items

equals

Net Income (NI)
39

Commercial Bank Financial
Statements

Income Statement

Total Revenue (TR) or Total Operating
Income (TOI)

Includes:

Interest Income

Non-Interest Income

Realized Security Gains (Losses)

Analogous to Net Sales
40

Commercial Bank Financial
Statements

Income Statement

Total Operating Expense (EXP)

Includes

Interest Expense

Non-Interest Expense

PLL

Analogous to COGS + Operating
Expenses
41

Commercial Bank Financial
Statements

Income Statement

NI = NII – Burden – PLL + SG – T
42