Income Statement Basics
This is the difference between interest income and interest expense.
What is Net Interest Income (NII)?
This is calculated as interest earned on assets minus interest paid on liabilities.
What is Net Interest Income (NII)?
This includes fees from services like account maintenance, advisory, or trading.
What is Noninterest Income?
This equals Net Income divided by Equity.
What is Return on Equity (ROE)?
This measures how much income a bank generates per dollar of assets.
What is ROA?
This term equals non-interest expense minus non-interest income.
What is Burden?
This ratio equals Net Interest Income divided by Average Earning Assets.
What is Net Interest Margin (NIM)?
This ratio compares Noninterest Expenses to Total Revenue and measures efficiency.
What is Efficiency Ratio?
This equals Net Income divided by Total Assets.
What is Return on Assets (ROA)?
This ratio equals Interest Income divided by Average Earning Assets.
What is Yield on Earning Assets?
Small banks rely heavily on this type of income, making up the majority of revenues.
What is Interest income?
If interest rates rise and a bank’s assets reprice faster than liabilities, NII will likely do this.
What is increase?
If a bank’s efficiency ratio increases, operational efficiency is doing this.
What is decrease?
This component of ROE equals Total Assets divided by Equity.
What is Equity Multiplier (Financial Leverage)?
This ratio measures the proportion of a bank’s assets that are funded by deposits.
What is Deposits-to-Assets Ratio?
This provision reduces earnings to account for expected loan losses under credit risk.
What is Provision for Loan Losses (PLL)?
Name two types of earning assets that generate interest income for banks.
What are loans and investment securities?
Give two examples of noninterest income sources for a commercial bank.
What are fees, commissions, trading revenue, or asset management income?
State the full banking ROE decomposition formula using ROA and leverage.
What is ROE = ROA × Equity Multiplier?
If a bank’s Cost of Funds rises faster than its Yield on Earning Assets, this key profitability ratio will do this.
What is Net Interest Margin decreases?
Explain how an increase in Provision for Loan Losses flows through the income statement and impacts Net Income.
What is: It increases expenses → reduces pre-tax income → lowers net income (all else equal)?·
A bank has $1B in earning assets, earns 5%, and pays 3% on $800M liabilities. Estimate NII.
What is $26M?
Explain why high noninterest income can stabilize a bank’s earnings.
What is: it diversifies revenue away from interest rate dependence, reducing volatility?
Break ROA into its main income statement drivers for banks.
What is: ROA = (Net Interest Income/Assets) + (Noninterest Income/Assets) − (Noninterest Expense/Assets) − (Provision/Assets) − (Taxes/Assets)?
A bank has: Yield on Earning Assets = 6%, Cost of Funds = 3.5%, Earning Assets / Total Assets = 85%. Estimate ROA contribution from net interest activities.
What is 2.125%?