The income statement also consists of two components namely financial output (revenues and income ) and the financial inputs (the cost of acquiring funds or expenses)
The income statement measuring bank performance over a period of time. Many bank in recent years expenses of operations have grown faster than revenues
And as a result profit have been placed under severe pressure. Particularly noteworthy have been raising paid on time and sacings deposits. Commercial banks have responded to these cost pressure in a variety of ways. Larger banking units have been formed through branching mergers and holding companies in an effort to lower per units costs. The industry has developed new product lines such as new savings plans, computer services lease financing management consulting and so on to boost revenues. Electronic tellers and other computerized equipment have been given a greatly expanded role and have helped offset some of the increases in other expense items.
For most banks salaries wages and fringe benefits are the second largest expense item. These personal expenses are outdistanced by a wide margin by interest cost associated with raising funds however. These interest costs come from selling interest bearing deposit to the public and from non deposit sources of borrowed funds.
Interest income: interest income on short term instruments, securities tax exempt securities commercial loans real estate loans other loans and leases is the interest the bank receives on each of these specific asset categories. All interest income less associated expenses is taxable with the exception of some of the interest income on securities of state and local governments which may be partially exempt from federal income taxes.
Interest expenses: Interest expense on Now and other transaction accounts savings account CDs of $100,000 and over time certificates short term borrowing other liabilities and subordinated debt includes the interest expense on each specific deposit or liability categoey. Even category of interest expense is a deductible expense for determining a banks income taxes.
Net interest income: Net interest income is the difference between interest income revenues and interest expense. It measures how much total interest income on all earnings assests exceeds total interest expense on all sources of funding.
Net interest income = Total interest income - total interest expenses.
Provision for loan losses: provision for loan losses is the amount charged against earnings to establish a reserve sufficient to absorb expected loan losses. Provision for loan losses is the operating expenses.
Net interest income after provision: it is also known as adjusted net interest income (anii). Net interest income after provision is net interest income less the provision for loan losses. It represents an attempt to adjust the net interest income downward by a proxy measure for the credit risk taken to obtain interest income.
ANII = net interest income - loan loss provision
Deposit service charges: Deposit service charges include income from maintenance fees and various activity fees that most banks charge on their deposit accounts under a certain size.
Other non interest income : other non interest income includes the net income from banks trust department commissions on mutual funds sales trading account income safety deposit rental fees and miscellaneous noninterest income sources. Fees for originating loans or guaranteed lines of credit are often included in this category.
Salaries and benefits: salaries and benefits represent the total compensation paid to all officers and employees of the bank. This compensation includes not only salaries and wages but also unemployment and social security taxes paid. Contributions to retirement or pension plans cost of medical or health services and other fringe benefits provided officers and employees.
Premises and equipment expense: premises and equipment expense consists of depreciation on premises computers and equipment the rental or leasing cost of offices computers and other machines and taxes on premises and equipment.
Occupancy expenses: Occupancy expenses include the cost of maintaining and repairing bank properties depreciation of buildings and equipment insurance costs and property taxes. The provision for possible loan losses shown on the report of income reflects the risks inherent in a banks lending function.
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