Chapter 5

  2. Report of Condition (pg. 131)- balance sheet, lists the assets, liabilites, and equity capital (owner's funds) held by or invested in a bank or other financial firm on any given date.

    Report of Income (pg. 145)- income statement, indicates the amount of revenue received and expenses incurred over a specific period of time.

  3. 5-2: An Overview of Balance Sheets and Income Statements
    • The particular services each finanical firm chooses to offer and the overall size of each financial-service organization are refelected in its financial statements.
    • The Report of Condition shows the amount and composition of funds sources (financial inputs) drawn upon to finance lending and investing activities and how much has been allocated to loans, securities, and other funds uses (financial outputs) at any given point in time.
    • The financial inputs and outputs on the Report of Income show how much it has cost acquire funds and to generate revenues from the uses the finanical firm has made to those funds.
    • -Include interest paid to depositors and other creditors of the institution, the expenses of hiring management and staff, overhead costs in acquiring and using office facilities, and taxes paid for government services.
    • -The Report of Income also shows the revenues (cash flow) generated by selling servies to the public, including making loans and servicing customer deposits.
    • -Shows net earning after all costs are deducted from the sum of all revenues
  4. 5-3: The Balance Sheet (Report of Condition)
    • For banks and other depository institutions the Assets on the balance sheet are of four major types:
    • 1. cash in the vault and deposits held at other depository institutions (C)
    • 2. government and private interest-bearing securities purchased in the open market (S)
    • 3. loans and lease financings made available to customers (L)
    • 4. miscellaneous assets (MA)

    • Liabilites fall into two principal categories:
    • 1. deposits made by and owed to various customers (D)
    • 2. nondeposit borrowings of funds in the money and capital markets (NDB)

    • Equity Capital represents long-term funds the owners contribute (EC).
    • C + S + L + MA = D + NDB + EC
  5. 5-3: The Balance Sheet (Report of Condition)
    • Cash assets (C) are designed to meet the financial firm's need for liquidity in order to meet deposit withdrawals, customer demands for loans, and other unexpected or immediate cash needs.
    • Security holdings (S) are a backup source of liquidity and include investments that provide a source of income.
    • Loans (L) are made principally to supply income
    • Miscellaneous assets (MA) are usually dominated by fixed assets and investments in subsidiaries
    • Deposits (D) are typically the main soucr of funding for banks, and comparable institutions with nondeposit borrowings (NDB) carried out mainly to supplement deposit and provide additonal liquidity that cash assests and securities cannon provide.
    • Equity Capital (EC) supplies long-term, relatively stable base of financial support upon which the financial firm will rely to grow and to cover any extradordinary losses it incurs.
  6. 5-3: The Balance Sheet (Report of Condition)
    • Accumulated uses of funds = Accumulated sources of funds
    • (assests) (liabilities and equity capital)
  7. 5-3: The Balance Sheet (Report of Condition)
    Assets of the Banking Firm
    Cash and Due from Depository Institutions
Card Set
Chapter 5
The Financial Statements of Banks and Their Principal Competitors