Understanding Bank Financial Statements

Video Transcript

"My name is Miranda Chook, a CPA. Banks have the same required financial statements as other commercial entities that sell tangible products such as the balance sheet, income statement cash flow statement and statement of shareholder's equity. However, since banks are in the business of taking deposits and making loans you'll see categories such as loans on the balance sheet instead of inventory and on the liability side instead of a large accounts payable balance you'll see deposits, both interest bearing and non-interest bearing. Now banks are part of the country's financial system so they have a funding system that is specific to them. Since banks have access to different instruments than commercial entities do what you'll see on their balance sheet differs quite a lot and on the asset side if banks have excess cash to invest you'll see federal funds sold and securities enter agreements to resell and on the liability side you'll see federal funds purchased and repurchase agreements as well. Now on the cash flow statement you will see the categories of course in investing activities of gross loans made and loans that matured. On the cash flow statement you'll see changes in the accounts just mentioned and of course you'll see changes in the loan balance on the investing side or investing activities side of the cash flow statement. On the financing section you'll see the changes in deposits. On the income statement where you would see the gross profit margin on a commercial entities income statement you'll see net interest margin on a bank's financial statement and the net interest margin is the excess of net interest income that is earned on principally loans less the interest paid on deposits and the results is net interest margin and finally for purposes of this segment another significant item that is different from other commercial entities on a bank's income statement will be the provision for loan and lease losses."