Bank Financial Metrics Cheat Sheet
Bank Income Statement Structure
| Line Item | Description | Key Drivers |
|---|---|---|
| Interest Income | Income from loans, securities, and other earning assets | Loan volume, yield on assets, rate environment |
| Interest Expense | Cost of deposits, borrowings, and other funding | Deposit rates, wholesale funding costs |
| Net Interest Income (NII) | Interest Income – Interest Expense | NIM × average earning assets |
| Provision for Credit Losses | Estimated future loan losses (CECL methodology) | Credit quality, macro outlook, loan growth |
| NII after Provision | NII – Provision | Core lending profitability after credit costs |
| Non-Interest Income | Fees, trading revenue, wealth management, service charges | Fee-based business mix, market activity |
| Non-Interest Expense | Compensation, occupancy, technology, other operating costs | Headcount, branch network, tech investment |
| Pre-Tax Income | Total revenue less all expenses | Operating leverage, efficiency ratio |
| Net Income | After-tax earnings | Tax rate, preferred dividends |
Bank Balance Sheet Structure
| Assets | Liabilities & Equity |
|---|---|
| Cash & due from banks | Deposits (demand, savings, time) |
| Fed funds sold & securities purchased under repo | Fed funds purchased & securities sold under repo |
| Investment securities (AFS & HTM) | Short-term borrowings |
| Loans & leases (net of allowance) | Long-term debt / subordinated notes |
| Goodwill & intangibles | Other liabilities |
| Other assets | Shareholders’ equity |
Loan Portfolio Composition
| Loan Category | Description | Risk Profile |
|---|---|---|
| Commercial & Industrial (C&I) | Loans to businesses for operations, working capital | Medium — tied to business cycle |
| Commercial Real Estate (CRE) | Loans secured by commercial property | Higher — concentration risk, property values |
| Residential Mortgage | Home purchase and refinance loans | Lower — secured by residential property |
| Consumer Loans | Auto, credit card, personal loans | Medium — unsecured = higher loss rates |
| Construction & Land | Loans for new development | Highest — speculative, cyclical |
Deposit Mix Analysis
| Deposit Type | Cost | Stability | Why It Matters |
|---|---|---|---|
| Non-Interest Bearing (NIB) | Zero — free funding | High (checking accounts) | Most valuable — drives NIM higher |
| Interest-Bearing Checking | Low | High | Sticky deposits, low beta |
| Savings & Money Market | Medium | Medium | Rate-sensitive, can move to higher yields |
| Time Deposits (CDs) | Higher | Locked until maturity | Expensive funding, but contractual |
| Wholesale / Brokered | Highest | Low — flight risk | Sign of funding stress if over-reliant |
Interest Rate Sensitivity
Banks are fundamentally exposed to interest rate movements. An “asset-sensitive” bank benefits from rising rates (loans reprice faster than deposits). A “liability-sensitive” bank benefits from falling rates. Most US banks are moderately asset-sensitive. The key metric is deposit beta — how much deposit rates rise for every 100bp increase in the fed funds rate. Lower deposit beta = more NIM expansion when rates rise.
Key Takeaways
- Net Interest Income is the primary revenue driver for most banks — it’s NIM × earning assets.
- The bank balance sheet is the most important financial statement — loans and deposits drive everything.
- Non-interest bearing deposits are the most valuable funding source — free money for the bank.
- CRE and construction loans carry the highest risk; watch concentration limits.
- Deposit beta and asset sensitivity determine how a bank performs in different Fed rate environments.
FAQ
Why is the balance sheet more important than the income statement for banks?
The balance sheet drives the income statement for banks. Loan and deposit volumes and their respective rates determine net interest income. Asset quality (NPLs) drives provisions. Capital ratios determine whether the bank can grow or must raise capital.
What is deposit beta?
Deposit beta measures how much a bank raises deposit rates relative to fed funds rate changes. A 40% beta means if rates rise 100bp, the bank raises deposit rates by 40bp. Lower beta = more profitable in a rising rate environment.
What is the difference between AFS and HTM securities?
Available-for-Sale (AFS) securities are marked to market, with unrealized gains/losses flowing through equity (AOCI). Held-to-Maturity (HTM) securities are carried at amortized cost. During 2022–2023, large unrealized losses on HTM portfolios became a significant risk factor (as seen with Silicon Valley Bank).
How do you model bank revenue?
Model NII by projecting average earning assets × NIM. Model non-interest income by line item (fees, trading, wealth management). The key assumptions are loan growth rate, NIM trajectory (driven by rate expectations), and fee income trends.
What is PPNR and why does it matter?
Pre-Provision Net Revenue is total revenue minus non-interest expense, before loan loss provisions. It measures the bank’s core earnings power before credit costs. Regulators use PPNR in stress tests to assess whether a bank can absorb losses and maintain capital.