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BIWS Bank Balance Sheet Terms PDF
BIWS Bank Balance Sheet Terms PDF
BIWS Bank Balance Sheet Terms PDF
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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.
Securities Borrowed Used to provide funding to bank clients by borrowing their securities in
the short-term. Usually tied to Securities.
Trading Assets 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.
Add new provisions for credit losses and subtract net charge-offs.
Bank Balance Sheet Key Terms – Quick Reference
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Net Loans The actual loan asset that factors into the Total Assets calculation; Gross
Loans minus Allowance for Loan Losses.
Despite this, note that any balance sheet items linked to loans are
projected as a percent of Gross Loans rather than Net Loans.
Accrued Interest Interest owed to the bank on interest-earning assets. Usually a % of
Gross Loans.
Accounts Receivable Same as AR for a normal company; represents receivables from brokers,
dealers, clearing organizations, and so on. % of Gross Loans.
Premises and Equipment Same as PP&E for a normal company, but it is much smaller (relatively)
and less important for a commercial bank.
Goodwill Same as Goodwill for a normal company: the premium paid for
acquisitions over the fair market value of assets. Usually held constant.
Mortgage Servicing Rights (MSR) A type of intangible asset specific to banks; MSRs represent the right to
future cash flows for servicing mortgages.
For example, a 3rd party lender might issue a new mortgage and then
say, “Hey, can you collect principal, tax, insurance, and so on for us?
We’ll pay you to help out with that.”
Then when you purchase these rights, they show up on your balance
sheet and you get to earn revenue from them in the future.
Despite being intangible assets, these are counted as tangible assets and
included in Tier 1 Capital and tangible book value – because unlike
Goodwill or Other Intangibles, they represent real cash flow in the
future.
Add the MSR origination each year and subtract Mortgage Fees &
Income on the Income Statement to get this number.
Other Intangible Assets Just like intangible assets for a normal company; 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).
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Some deposits are interest-bearing (CDs), while others are not (free
checking accounts).
% of Trading Assets.
Accounts Payable Same as AP for a normal company; % of Gross Loans.
Interest Payable Interest that a bank owes on borrowed money; % of Deposits,
Borrowings, or Long-Term Debt.
Beneficial Interests Interest-bearing liabilities issued by VIEs (Variable Interest Entities);
these are special entities that allow banks to keep securities such as
subprime mortgages off their balance sheets. Hold constant.
Long-Term Debt Same as LT debt for a normal company – may consist of Senior Notes or
Subordinated Notes. Projected as a % of Gross Loans because a bank
raises debt in proportion to how much it needs to issue loans.
Bank Balance Sheet Key Terms – Quick Reference
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You can do the math to get the precise number here, but most of the
time you hold this constant and assume that 100% of the value of new
shares shows up under Capital Surplus instead.
Capital Surplus Otherwise known as APIC (Additional Paid-In Capital), this is exactly
the same as for a normal company: add the value of new stock issuances
and stock-based compensation.
Retained Earnings Add Net Income and subtract Dividends. If you add Net Income to
Common, only subtract Common Dividends; otherwise subtract
Common Dividends and Preferred Dividends.
Accumulated Other The same as for a normal company – any miscellaneous items that don’t
Comprehensive Income show up anywhere else, such as the effect of foreign exchange rate
changes, unrealized gains and losses, and so on, go here.
Restricted Stock Units Insider holdings that cannot be sold easily; usually held constant in
models.
Treasury Stock Represents the market value of all shares that the bank has repurchased
– link to the “Shares Repurchased” line item on the CFS.