Bank Balance Sheet Key Terms – Quick Reference http://breakingintowallstreet.


Commercial Bank Balance Sheet – Common Items on the Assets Side
Line Item Cash and Due from Banks Deposits with Banks Description Cash held in retail branches and ATMs; earns no interest. Tied to Deposits on the Liabilities side. Used for short-term borrowing and lending needs between other banks; may earn interest but rates are very low. Tied to Deposits on the Liabilities side. Related to the central bank’s reserve requirements – a bank must maintain a minimum level of deposits with the country’s central bank at all times. If it has an excess and other banks need to increase their reserves, it can sell its excess funds at the “Fed Funds” rate (the name is different but the idea is the same outside the US). Used to balance the balance sheet. Used to provide funding to bank clients by borrowing their securities in the short-term. Usually tied to Securities. Represents a bank’s long positions in debt and equity securities (e.g. how much they have invested with the expectation that their investment will rise in value). Also includes certain derivative instruments. Only the debt portion earns interest. These assets are marked-to-market and any gains or losses over the historical cost are reported on the income statement. Most trading assets are used for market-making activities but some may be used for proprietary trading as well. May move independently of loans and deposits. Primarily available-for-sale (AFS) securities; used to invest cash from excess deposits / funding and to manage exposure to interest rate risk. May move independently of loans/deposits, but often tied to deposits. The most important line item on a bank’s balance sheet. Consists of loans issued to consumers, corporations, and institutions; the key driver of a bank’s business and where most of their interest income comes from. Reported net of charge-offs on the balance sheet. Projected via a bottoms-up loan portfolio build, or a simple growth %. How much the bank expects to lose on its total gross loans. Listed as a contra-asset in most countries; equivalent to a liability. Add new provisions for credit losses and subtract net charge-offs.

Federal Funds Sold

Securities Borrowed Trading Assets


Gross Loans

Allowance for Loan Losses

Despite this. “Hey. spun-off divisions of banks may start showing up here. % of Gross Loans. and other miscellaneous Net Loans The actual loan asset that factors into the Total Assets calculation. for a bank they consist of items like credit card relationships and core deposit intangibles (premium paid in excess of another bank’s deposits in an acquisition). Despite being intangible assets. Usually a % of Gross Loans. Same as Goodwill for a normal company: the premium paid for acquisitions over the fair market value of assets. they represent real cash flow in the future. Follow the amortization schedule in the filings to get these. dealers. Post-financial crisis and post-regulation. Gross Loans minus Allowance for Loan Losses. but it is much smaller (relatively) and less important for a commercial bank. Interest owed to the bank on interest-earning assets. insurance. Same as PP&E for a normal company. Same as AR for a normal company. note that any balance sheet items linked to loans are projected as a percent of Gross Loans rather than Net Loans. represents receivables from brokers. Accrued Interest Accounts Receivable Premises and Equipment Goodwill Mortgage Servicing Rights (MSR) Other Intangible Assets Other Assets Associates (Equity Investments) . Just like equity investments for a normal company – investments that represent a 20% to 50% ownership in another company. clearing organizations. Consists of private equity investments. these are counted as tangible assets and included in Tier 1 Capital and tangible book value – because unlike Goodwill or Other Intangibles. they show up on your balance sheet and you get to earn revenue from them in the future. owned life insurance policies. held constant or simple % growth. can you collect principal. For example. A type of intangible asset specific to banks. Usually held constant.Bank Balance Sheet Key Terms – Quick Reference http://breakingintowallstreet. and so on for us? We’ll pay you to help out with that. a 3rd party lender might issue a new mortgage and then say. sometimes a portion of intangibles is allowed to count toward Tier 1 Capital. Just like intangible assets for a normal company.” Then when you purchase these rights. Add the MSR origination each year and subtract Mortgage Fees & Income on the Income Statement to get this number. and so on. tax. MSRs represent the right to future cash flows for servicing mortgages.

Hold constant. these are special entities that allow banks to keep securities such as subprime mortgages off their balance sheets. For example. which is a deposit and the key liability of the bank. low interest rates. Just like Federal Funds Sold. while others are not (free checking accounts). or Long-Term Debt. A bank’s business model in a nutshell: get deposits from consumers and businesses. Federal Funds Purchased Commercial Paper Other Borrowed Funds Trading Liabilities Accounts Payable Interest Payable Beneficial Interests Long-Term Debt . Same as AP for a normal company. low interest rates. Represents a bank’s short positions in equity and debt securities and derivatives. “We think Company X’s share price will fall to $10. Interest-bearing liabilities issued by VIEs (Variable Interest Entities). Increase this to balance the balance sheet if the Liabilities & Shareholders’ Equity side falls below the Assets side. it can purchase additional funds from other banks at the Fed Funds rate. % of Trading Assets. Projected as a % of Gross Loans. Projected as a % of Gross Loans. Always projected as a % of Gross Loans. Same as LT debt for a normal company – may consist of Senior Notes or Subordinated Notes.Bank Balance Sheet Key Terms – Quick Reference http://breakingintowallstreet. % of Deposits. and then use these funds to issue loans at higher interest rates to other consumers and businesses. Liquidity management and short-term funding needs. Liquidity management and short-term funding needs. % of Gross Loans. but on the other side of the balance sheet. a trader says. Borrowings. That money goes into your checking account. so we’re going to bet against the stock by shorting it” – the value of that short position shows up under Trading Commercial Bank Balance Sheet – Common Liabilities Line Items Line Item Deposits Description You walk into a bank and deposit money via the ATM. If a bank falls short of its central reserve requirements. Some deposits are interest-bearing (CDs). Interest that a bank owes on borrowed money. Projected as a % of Gross Loans because a bank raises debt in proportion to how much it needs to issue loans.

You can do the math to get the precise number here. otherwise subtract Common Dividends and Preferred Dividends. can also project by adding issuances and subtracting redemptions. If you add Net Income to Common.Bank Balance Sheet Key Terms – Quick Reference http://breakingintowallstreet. Often held constant. Add Net Income and subtract Dividends. only subtract Common Dividends. Insider holdings that cannot be sold easily. and so on. Otherwise known as APIC (Additional Paid-In Capital). Represents the market value of all shares that the bank has repurchased – link to the “Shares Repurchased” line item on the CFS. Increase by Earnings from Non-Controlling Interests. such as the effect of foreign exchange rate changes. Same as Non-Controlling Interests or Minority Interest for a normal company – when a bank owns 50% of another company. this is exactly the same as for a normal company: add the value of new stock issuances and stock-based compensation. go here. usually held constant in models. unrealized gains and losses. but most of the time you hold this constant and assume that 100% of the value of new shares shows up under Capital Surplus Commercial Bank Balance Sheet – Shareholders’ Equity Line Items Line Item Preferred Stock Description Same as Preferred Stock for a normal company: guaranteed dividends and a higher claim to a bank’s assets than Common Stock. The par value multiplied by all common shares outstanding. this represents the portion they don’t own. The same as for a normal company – any miscellaneous items that don’t show up anywhere else. Non-Controlling Interests Common Stock Capital Surplus Retained Earnings Accumulated Other Comprehensive Income Restricted Stock Units Treasury Stock .

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