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What are the Components of Profitability

by Judy Schultz, Vice President of Marquis Consulting

Question: What are the Components of Profitability and How Do I Determine the Actual Numbers for My Bank?

Answer: Profitability at all levels (total bank, customer, household, product, etc.) is based on the same formula: margin plus non-interest income less non-interest expense. You will find all these components on your monthly Income Statement.

Margin or spread is the difference between your loan rate (earning asset yield) and the rate you pay on deposits (cost of funds). Non- interest income includes all income other than the interest income earned on loans, i.e., service charges, NSF fees, and other miscellaneous fees. Non-interest expense includes operating or overhead costs, such as salaries, building costs, equipment, processing expenses, etc. Most banks have fairly detailed Income Statements, which include a line item for all these items. Find a friend in your finance division and work with that person to understand your bank's Balance Sheet and Income Statement.

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For additional information on our compliance and marketing solutions, visit our company web sites at or, or call us at (800) 365-4274. Judy Schultz is Vice President of Marquis Consulting. She can be reached at

You can contact Judy Schultz at 800-365-4274 or at

First published on 3/1/04

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