Course Goals & Overview:
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).
Build a basic, streamlined bank financial model. Before diving deep into the complex nuances of our Advanced Bank Financial Model, really solidify your understanding of developing the logic in loan losses and provisions and its impact on the rest of the larger bank financial statements. Perform quick back-of-the-envelope calculations for key Balance Sheet items such as Interest Earning Assets and Interest Bearing Liabilities, which yield Net Interest Income. Estimate and calculate capital adequacy ratios to wrap up your summary simplified basic bank model.
• Understand banking industry specific terminology, jargon and financial analysis
• Compare and contrast the approach to bank financial modeling vs. typical non-financial institution
• Comprehend the key drivers of growth of a commercial lending institution and translate them to a model
• Construct a simplified bank model to crystalize the fundamental concepts and why one must start with the Balance Sheet instead of the Income Statement
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 2 definitions and Basel 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)
Bank Financial Modeling
• Perform quick back-of-the-envelope calculations for key Balance Sheet items
• Guestimate Interest Earning Assets and Interest Bearing Liabilities
• Calculate and estimate Net Interest Income
• Estimate and calculate capital adequacy ratios to wrap up your summary simplified bank model
**IMPORTANT - PLEASE NOTE**
To maximize the educational value of these programs, we strongly recommend that you have an intermediate understanding of Excel. Lack of basic Excel skills will impede your ability to effectively acquire and implement the techniques and shortcuts that are presented in this program. Our courses are extremely interactive, hands-on with intensive focus on Excel shortcuts and efficiency.
Bring a PC laptop with Microsoft Excel installed, and a working USB port (in case our email containing in-class materials gets lost in your junk/spam folder, we can distribute them via flash drive). If you can only bring a Mac, please avoid Office 2008 and ideally set up a Windows environment via Boot Camp, Parallels, or VMware.