A bank's balance sheet is different from that of a typical company. You won't find inventory, accounts receivable, or accounts payable. Instead, under assets, you'll see mostly loans and investments, and on the liabilities side, you'll see deposits and borrowings. Let's take a closer look at the balance sheet of the fictional First Bank of the Fool.
Cash Image source: Getty Images. Securities If we look at Wells Fargo (NYSE:WFC), SunTrust (NYSE:STI), and M&T Bank (NYSE:MTB), we see that approximately 16%, 18%, and 17% of their earning assets are invested in securities. The purpose of holding securities is for the bank to have safe, liquid assets available, so the banks primarily hold Treasuries and agency debt (such as Fannie Mae- or Freddie Mac-issued debt), which yield around the rate of the current long-term U.S. Government yield, anywhere from 4%-6%. Loans Loans, however, come with risk. If the bank makes bad loans to consumers or businesses, the bank will take a hit when those loans aren't repaid. Because loans are a bank's bread and butter, it's critical to understand a bank's book of loans. In their 10-Ks, banks characterize their loans in easily readable charts. For example, M&T tells us that at the end of its last fiscal year, 36.5% of its average loans were backed by commercial real estate. We also know that of its $14.5 billion in commercial real estate loans outstanding, $4.5 billion was in metropolitan New York. I was once interested in Corus Bankshares (NASDAQ:CORS). However, as of last quarter, 94% of its loans were for condo construction and conversions, and 33% of its loans were in Florida. Although I've heard good things about Corus' management, and the valuation looked compelling, I took a pass -- foreseeing the future of the Florida condo market is outside my circle of competence. However, bank stock investors have to read the financials if they want to know the kind of risks to which they are exposed. Other assets
Data provided by CapitalIQ, a division of Standard & Poor's. Assessing assets Now that we've looked at a bank's assets, we also need to understand the other side of the balance sheet -- its liabilities, which are how a bank finances its assets. Check back tomorrow for the whole story. Bank on further Foolishness:
Only three days left in this season's Foolanthropy campaign! Visit www.foolanthropy.com to learn about five reader-nominated charities and make a donation. Home Depot is an Inside Value recommendation, and Disney is a Stock Advisor recommendation. Try any of our Foolish newsletters free for 30 days. Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates comments, concerns, and complaints. The Motley Fool has a disclosure policy. What is the purpose of a bank balance sheet?A balance sheet gives you a snapshot of your company's financial position at a given point in time. Along with an income statement and a cash flow statement, a balance sheet can help business owners evaluate their company's financial standing.
How do you make a bank balance sheet?How to make a balance sheet. Invest in accounting software. ... . Create a heading. ... . Use the basic accounting equation to separate each section. ... . Include all of your assets. ... . Create a section for liabilities. ... . Create a section for owner's equity. ... . Add total liabilities to total owner's equity.. |