Advanced Bank Financial Modeling

New York Institute of Finance, in conjunction with Wall St. Training, present the following course: Balance sheet based companies, such as banks, play by different rules and methodologies based on the unique nature of their business. Focus is placed on our Commercial Banks financial statements primer which dives deep into a bank’s unique financial statement terminology and drivers. Understand how to analyze a bank and why the standard financial analysis and valuation methodologies that apply to most companies do not apply to industries that “use money to make money”.

Start with a brief overview of the main banking functions (commercial, investment, asset management) and quickly turn to the quality of book of loans and analysis of net vs gross charge-offs vs provisions, etc. Understand the critical credit ratios and capital adequacy analysis as well as Tier 1 and II definitions and Basel II impact. Crystallize the impact of Interest Rates, importance of term structure and credit spreads and implications on a bank's profitability. Examine best practices in calculating net interest income via average asset and liability balances on the income statement. Dive into an analysis of Balance Sheet assets & liabilities and articulate the drivers of EPS growth. Wrap up by analyzing valuation parameters: key banking valuation multiples (PE, PEG, Book Value, ROE).

Then, build a fully integrated bank financial model that addresses the key drivers of profitability, cash flow, and valuation. Focus is placed on: projecting the Balance Sheet line items which drive the entire model; estimating interest-earning assets and interest-bearing liabilities which drives profitability; projecting loan portfolio growth, provisions for credit losses, and net charge-offs which determine overall impact on the financial statements. Complete the model by projecting different fee revenue sources and integrating the Cash Flow Statement. Finish the model by calculating and analyzing capital adequacy ratios, financial performance indicators and valuation metrics.

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CPE CREDITS
21.5
Investment bankers, mergers & acquisitions, leveraged finance and credit professionals. Private equity, buyout and venture capital professionals. Internal M&A and business development. CFO, VP Finance, Financial Analysts, & related functions. New hires and those being groomed for management.
No advance preparation required.
Students will be able to:
  • IS: best practices in calculating net interest income via average asset and liability balances
  • BS: forecast the different line items of a bank and learn how a bank model is balanced
  • Credit Losses: different ways to approach estimating provisions for credit losses
  • Regulatory Ratios: calculate risk weighted assets and Tier I and II capital ratios
Note regarding Computers:
EACH PARTICIPANT MUST BRING THEIR OWN LAPTOP TO CLASS.
Day 1 (morning) – PRIMER: Banks (Commercial Banks & Investment Banks)
Banking Industry Overview
  • Overview of main banking functions (commercial, investment, asset management)
  • Quality of book of loans and analysis of net charge-offs
  • Critical credit ratios and capital adequacy analysis; Tier 1 and II definitions and Basel II impact
  • Impact of Interest Rates, importance of term structure and credit spreads

Banking Financial Statement Terminology & Drivers

  • Net Interest Income Margin (Interest Expense net against Revenue not COGS)
  • Analysis of Balance Sheet Assets & Liabilities
  • Drivers of EPS growth
  • Valuation Parameters: key banking valuation multiples (PE, PEG, Book Value, ROE)

Day 1 (afternoon) through Day 3: BANK FINANCIAL MODELING
Balance Sheet
  • Project gross loan balance, provisions for credit losses, gross charge-offs, recoveries, net charge-offs, net loan balance based on important key trends and ratios
  • Analyze detailed components of and balance scope vs depth in projecting mix of loan portfolio
  • Project the critical funding requirements on the liability side of the Balance Sheet to support the loans and asset side of the Balance Sheet based on bank modeling best practices
  • Dynamically calculate the critical fed funds sold and purchased line items
  • Properly incorporate the equity account based on financing activities from Cash Flow Statement
  • Calculate crucial interest-earning assets and interest-bearing liabilities from the Balance Sheet
  • Estimate asset yield, funding costs and net interest spread to minimize forecasting error

Income Statement

  • Calculate future Net Interest Income and margin from IEA and IBL
  • Project line items that constitute non-interest fee revenue beyond using simple % growth rates
  • Incorporate and dynamically integrate provision for credit losses on IS and BS
  • Estimate compensation and overhead expenses to round out the Income Statement
  • Correctly incorporate and integrate share buybacks and issuances, treasury options, restricted stock units and stock-based compensation into all three financial statements (IS, BS, CF)

Cash Flow Statement

  • Construct automated Cash Flow Statement based on the Income Statement and Balance Sheet
  • Differentiate between a bank’s financial statements by properly allocating and including correct components of CFO, CFI and CFF
  • Understand and appreciate which line items are impossible to calculate independently and must be lumped and grouped together to arrive at the net impact instead of tediously (and incorrectly) trying to project every single item
  • Build more supporting detailed schedules to project dividends and stock repurchases and issuances and have it properly flow through the rest of the financials

Financial & Capital Ratios and Valuation Metrics

  • Construct and analyze internal profitability ratios to analyze core performance of the bank
  • Calculate profitability ratios and asset utilization ratios for direct comparisons
  • Reconstruct and estimate Tier I and Total Capital (Tier I and II) , risk weighted assets, adjusted assets and corresponding capital adequacy ratios for regulatory supervision
  • Calculate current market multiples and valuation metrics relevant for a bank

Clients who register for this course will receive a complimentary 4-month subscription to FT.com. The Financial Times is the world's most respected financial newspaper, providing a broad assessment on finance, business and the industrial sector. The move to the electronic version follows an ongoing review of our environmental responsibilities as a global business and as part of the Pearson group. FT.com also has features that are not available in hard copy, such as: Special Reports, Alphaville, editor blogs, education sections and much more! Subscriptions will start within 6-8 weeks of the start of class and are limited to one subscription per client. (Please note: as of May 1, 2011, the electronic subscription replaces the hard-copy 3-month Financial Times subscription.)

Lunch is included for all students taking day classes.