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Chapter:04
Financial Statement of Bank
Mohammed Sohail Mustafa 2
The Income Statement of Bank

Financial Outputs
(revenues from making use of
bank funds & other services)
Financial Inputs
(the cost of acquiring funds &
other resources)
Loan Income Deposit Costs
Security Income Costs of Nondeposit Borrowings.
Income from Deposits in other
Institutions
Employee Costs
Income from miscellaneous
services.
Overhead Expenses.
Taxes
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The Balance Sheet of Bank (Report of
Conditions)
Financial Outputs (use of bank
funds)
Financial Inputs
(sources of bank funds or
liabilities)
Cash Assets [C] Deposits from the Public [D]
Investment in Securities [S] Nondeposit Borrowings [NDB]
Loans & Leases [L] Equity Capital [EC]
Miscellaneous Assets [MA]
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Bank Assets
1. The Cash Account (Cash held in banks vault +
Correspondent Deposits).
2. Investment Securities (Money Market Securities: The
Liquid portion)
3. Investment Securities (Capital Market Securities: The
Income Generating Portion )
4. Loans ##
5. Securities Purchased under Resale Agreement.(Repo)
6. Customers Liability on Acceptance.
7. Miscellaneous Assets (Bank Buildings & Equipment,
Investments in Subsidiary firms, Prepaid insurance, etc.)
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## Loans
1) Commercial & Industrial Loans.
2) Consumer or Households Loans.
3) Real Estate Loans.
4) Financial Institutions loans. (loans to other
depository institutions.)
5) Foreign Loans (to foreign governments,
agencies)
6) Agricultural Production Loans (to farmers &
ranchers)
7) Security loans (to investors & security brokers)
8) Leases (operating & financial leases)
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Bank Liabilities
1. Deposits:
a. Noninterest-bearing demand deposits (permits unlimited
check writing)
b. Savings Deposits (lower rate of interest with minimum size
requirement of deposits)
c. NOW Accounts (held only by individuals & nonprofit
institutions, bear interest & permit the customer to withdraw
at will)
d. Money Market Deposit Accounts (MMDAs pay competitive
interest rate with limited checking privileges)
e. Time Deposits (fixed maturity term & stipulated interest
rate)
2. Nondeposits Borrowings
3. Capital Accounts
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Off-balance-Sheet Items
Banks have converted many of their customers in recent
years into fee-generating transactions that are not recorded
on their balance sheet.
Standby Credit Agreements (bank pledges to guarantee
repayment of a customers loan received from a third party)
Interest Rate Swaps (bank promises to exchange interest payment
on debt securities with another party)
Financial Futures & option Interest-rate Contracts (bank
agrees to deliver or to take delivery of securities from another
party at a guaranteed price)
Loan Commitments (bank pledges to lend up to a certain amount
of funds until the commitment matures.
Foreign exchange Rate Contracts (bank agrees to deliver or
accept delivery of foreign currencies)
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Major Components of Income Statement
Interest Income:
Interest & Fees on Loans
Interest on Investment Securities
Interest Expenses:
Deposit Interest Costs
Interest on Short-term debt
Interest on Long-term debt
Noninterest Income:
Service charges on customer deposits
Trust department income
Noninterest Expenses:
Wages, Salaries & other personnel expenses
Net occupancy & Equipment expenses
Loan-Loss Expenses
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Features & Consequences of Bank Financial Statements

Key Features of Bank
Financial Statements
Consequences for Bank
Managers
Heavy dependence on borrowed
funds supplied by others increased
the use of financial leverage.
The banks earnings & existence
will be at risk if bank cannot repay
those borrowings in due time.
Growing use of nondeposit
borrowings ; little owners capital is
invested in most banks.
The bank must hold a significant
proportion of high-quality & readily
marketable assets to meet its most
pressing debt obligation.
Most revenues stem from interest on
loans & securities. The largest
expense item is the interest cost of
borrowed funds.
Bank management must choose
loans & investments carefully to
avoid a high proportion of earnings
assets that fail to pay out as planned.
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Features & Consequences of Bank Financial Statements--Contd
Key Features of Bank
Financial Statements
Consequences for Bank
Managers
The greatest proportion of a banks
assets are financial assets. A
relatively small proportion of assets
is devoted to plant & equipment;
thus banks make very limited use of
operating leverage in most case.
With only limited resources devoted
to fixed assets & therefore few fixed
costs stemming from plant &
equipment, banks earnings are less
sensitive to fluctuations in sales
volume than those of many other
business.