Financial Reports


bank financial statements

Banks review annual statements covering the last three years, unless the company is new and has no operating history. Banks also require projected financial statements covering the life of the requested loan. The balance sheet shows assets , liabilities and net worth as of a certain date. The income statement shows revenue that comes into the business from operations and other activities, expenses and the resulting net profit or loss for the period of the statement. The cash flow statement shows cash inflows from operations and investment activities and outflows for business activities and investments. Before extending a loan to a borrower, banks consider all major financial statements of a company. The balance sheet, the income statement and the statement of cash flow are all studied carefully by the bank’s loan office to assess the company’s ability to repay the loan.

What financial statements should I look for when buying a business?

Before buying a business, make sure to examine its past few years of financials, including:Tax returns.
Balance sheets.
Cash flow statements.
Sales records and accounts receivable.
Accounts payable.
Debt disclosures.
Advertising costs.

The financial and other information that may be accessed on this Investor Relations web site speaks only as of the particular dates referenced in the information or the dates the information was originally issued. This information may have since become superseded as a result of later circumstances or events. Bank of America does not undertake any obligation, and disclaims any duty, to update this information. During financial statement analysis banks are most concerned with the borrower’s ability to repay its debt. The presentation of financials in accordance with GAAP doesn’t always match up with that goal.


As investors, these are the primary elements of risk that need to be understood when analyzing a bank’s accounting equation calculator financial statement. To absorb these losses, banks maintain an allowance for loan and lease losses.

bank financial statements

Banks also earn interest income from investing their cash in short-term securities like U.S. An investee that is accounted for under the equity method may report in the currency of a hyperinflationary economy. The balance sheet and income statement are restated in accordance with this standard in order to calculate the investor’s share of its net assets and results. If expressed in a foreign currency they are translated at closing rates. The balance sheet is prepared after the income statement is closed and reflects any profit or loss from the period’s activity. The amounts shown on the balance sheet are the ending balances in the asset, liability, and owner’s equity accounts “as of” the end of the reporting period.

What Is Spreading Financial Statements?

Interest rate risk is the management of the spread between interest paid on deposits and received on loans over time. Loans are the bread and butter for most banks and are usually the largest asset on the balance sheet. Investors monitor loan growth to determine whether a bank is increasing their loans and putting to use the bank’s deposits to earn a favorable yield. Also, as interest rates rise, banks tend to earn more interest income on variable-rate loans since they can increase the rate they charge borrowers as in the case of credit cards. However, exceedingly high-interest rates might hurt the economy and lead to lower demand for credit, thus reducing a bank’s net income. In the above table, BofA earned $58.5 billion in interest income from loans and investments while simultaneously paying out $12.9 billion in interest for deposits . The total income earned by the bank is found on the income statement.

This is certainly a task you can delegate to your bookkeeper or accountant, but make sure you review and understand your numbers. While learning financial statement analysis was probably not on your list of reasons you wanted to start a business, this is your business and your money that’s at stake. Being a community bank means being open and transparent to the communities Central Bank serves. Please feel free to review our quarterly statements and annual reports. Keeping you informed about our bank’s financial strength is Central to us – and Central to you.

bank financial statements

In addition to the capability to honor the payments, the bank also considers the likelihood of loan recovery if the borrower goes into bankruptcy. RMA member institutions all over the country annually submit those financial spreads to RMA to be compiled in RMA’s Annual Statement Studies® reports. RMA’s Annual Statement Studies® is the only source of comparative industry data that is sourced directly from the financial statements of business clients of RMA’s member institutions. It provides the banking industry with reliable, accurate benchmarking figures including balance sheet and income statement line items, and financial ratios. All of that starts with a standard, uniform way of spreading of financial statements.

Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management’s annual report to the stockholders. To access these details the bank will conduct additional due diligence, which includes going over the company’s legal filings with local and federal courts, as well as a thorough search of news coverage about the company. A short term creditor would be most interested in the management of the business, reports bookkeeping experts Complete Controller. Loan officers also interview the company’s owners, executives and in some cases low-level employees to better understand the risks. Just like accounts receivables and bad debt expense, a company must prepare in the event that borrowers are not able to pay off their loans. These bad pieces of credit are written off in the income statement as a provision for credit loss.

As one might imagine, the current ratio reflected in the bank spreads was poor. Spreading that related-party long-term debt as a current liability sent up a signal that was reflected in the low current ratio. The bank, in its analysis of the owner’s personal financial condition included an assessment as to what reliance the owner had on payments of that debt in order to meet his own personal obligations. When the applicant is a closely held company — that is, one that’s not publicly traded on a stock exchange — the bank will require a personal guarantee of the loan from each owner of the company. The bank must have personal financial statements of the owners to complete the guarantee process. Introduction to Balance Sheets and Income Statements The balance sheet summarizes the financial position of an organization at a given moment, it is a snapshot of the firm. The balance sheet reflects the status of the organization’s assets, , liabilities , and equity (the owner’s investment in the organization).

What Is “due From Shareholder” On A Balance Sheet?

The size of this spread is a major determinant of the profit generated by a bank. Although we won’t delve into how rates are determined in the market, several factors drive rates including monetary policy set by the Federal Reserve Bank and the yields on U.S. Below we’ll take a look at an example of how the interest rate spread looks for a large bank. When financial statements are not spread in accordance with RMA spreading guidelines, credit approvers are not provided with all the information they need to make the best informed credit decision. The RMA guidelines surface what might have been otherwise overlooked risks.

bank financial statements

Statements should be audited by, or at least prepared by, a certified public accountant. The balance sheet provides a snapshot of a company’s financial health on a certain date. It tells how much debt the company is carrying, how much it owes in trade obligations and how much it needs to collect from customers. Components of the balance sheet can be compared as ratios in balance sheet analysis. For example, the current ratio — current assets divided by current liabilities — is a test of liquidity showing how much working capital is available to meet current obligations.

Deposits are typically short-term investments and adjust to current interest rates faster than the rates on fixed-rate loans. If interest rates are rising, banks can charge a higher rate on their Services for Nonprofit Organizations variable-rate loans and a higher rate on their new fixed-rate loans. However, the deposit rates don’t typically adjust as much as the long-term rates which are used to price loan rates.

Personal Financial Statements

As the collateral can take either forms, arbitrage CDOs can be either CLOs or collateralised bond obligations . Market practitioners often refer to all arbitrage deals as CDOs for simplicity, irrespective of the retained earnings collateral backing them. The key motivation behind arbitrage CDOs is, unsurprisingly, the opportunity for arbitrage, or the difference between investment grade funding rates and high-yield investment rates.

  • The balance sheet shows assets , liabilities and net worth as of a certain date.
  • Banks review annual statements covering the last three years, unless the company is new and has no operating history.
  • Before extending a loan to a borrower, banks consider all major financial statements of a company.
  • Banks also require projected financial statements covering the life of the requested loan.
  • The income statement shows revenue that comes into the business from operations and other activities, expenses and the resulting net profit or loss for the period of the statement.
  • The cash flow statement shows cash inflows from operations and investment activities and outflows for business activities and investments.

Another liquidity ratio, debt to equity — total liabilities divided by owners’ equity or net worth — shows how much the company is leveraging debt against the owners’ capital. The bank can evaluate the company by comparing these and other ratios against industry averages. A balance sheet or statement of financial position, reports on a company’s assets, liabilities, and owners equity at a given point in time. A lender wants to know that your daily operations will generate enough cash to repay the loan, reports Bizfilings, so along with the income statement, the bank also studies the cash flow statement. This statement details the sources of cash inflows as well as outflows. Cash in and outflows during a particular financial period may be consequences of actions taken a long time ago.

Financial Statements For Banks: Balance Sheet

A profit and loss statement provides information on the operation of the enterprise. These include sales and the various expenses incurred during the stated period. However, it is neither a profit nor a loss and will not be found in the income statement. The bank therefore has to carefully consider how the company used its cash resources to understand if it will have the cash to repay the loan. Overall, a careful review of a bank’s financial statements can highlight the key factors that should be considered before making an investment decision. Investors need to have a good understanding of the business cycle and interest rates since both can have a significant impact on the financial performance of banks.

Arriving at the provision for loan losses involves a high degree of judgment, representing management’s best evaluation of the appropriate loss to reserve. Because it is a management judgment, the provision for loan losses can be used to manage a bank’s earnings. Looking at the income statement above, we see that the loan-loss provision ultimately reduced the bank’s recording transactions net income or profit. One way banks try to overcome interest rate risk is through fee income for products and services. As a bank increases its fee income, it becomes less reliant on the interest income from loans, mitigating interest rate risk . Banks take on financial risk when they lend at interest rates that are different than the rates paid to depositors.

In an arbitrage CDO, the income generated by the high-yield assets should exceed the cost of funding, as long as no credit event or market event takes place. Another important disadvantage of debt compared with equity is that a debtor must make the contractually agreed payments to its creditors or else be declared bankrupt. In contrast, a firm that is funded by equity can, if its financial circumstances require, miss a dividend payment to shareholders without being cash basis vs accrual basis accounting declared insolvent. Thus, increasing the proportion of debt relative to equity raises the probability of insolvency. In the sort of analysis beloved by economists, these trade-offs suggests that a firm will borrow up to the point where the marginal benefit of the tax advantage is equal to the marginal expected cost of insolvency. Different countries have developed their own accounting principles over time, making international comparisons of companies difficult.

What does a personal financial statement include?

The term personal financial statement refers to a document or spreadsheet that outlines an individual’s financial position at a given point in time. The statement typically includes general information about the individual, such as name and address, along with a breakdown of total assets and liabilities.

This safety net lends to the perception that banks’ debt is relatively safe—independent of a particular bank’s actual creditworthiness. In effect, the safety net acts as a subsidy that contributes to banks’ preference for debt over equity.

On top of that, there are several unique characteristics of bank financial statements that include how the balance sheet and income statement are laid out. However, once investors have a solid understanding of how banks earn revenue and how to analyze what’s driving that revenue, bank financial statements are relatively easy to grasp. The income statement shows a company’s financial performance over a period of time. The types of expenses are the cost of goods sold and selling, general and administrative (SG&A). Operating profit, widely considered a company’s true profit, is calculated as revenue minus cost of goods sold and SG&A. Net income, also known as the “bottom line,” is the amount of revenue remaining after all expenses, including taxes, have been paid. Profit margins can be compared with other companies in the loan applicant’s industry.

Banks use a more conservative view of spreading financial statements than GAAP. All else being equal, a decline in the value of a bank’s assets will result in a corresponding decline in its capital. If losses are particularly large, the bank’s capital will be wiped out, leaving the bank insolvent. Thus, the regulation of bank capital rests on the fact that an adequate capital cushion is essential if banks are to be able to absorb their losses while at the same time fulfilling their promise to pay back creditors. Although laws differ from country to country, an audit of the financial statements of a public company is usually required for investment, financing, and tax purposes.