Earning assets: Earning assets are the assets that actually produce interest income: loans, leases, securities, interest bearing balances at other banks and fed funds sold.
How it is calculated
Derived from Schedule RC as total assets less noninterest bearing cash, premises, other real estate owned, intangibles and other assets, with the allowance for credit losses added back so loans enter net of unearned income only.
Formula
Earning assets = total assets - assets that earn no interest
How to read it
Earning assets are the denominator of net interest margin and of yield on earning assets. The point of using them rather than total assets is that a branch building and a foreclosed house should not be held against the margin the bank earns on the things it lent.
The common mistake. Using total assets in their place and comparing the result to a published margin. Earning assets run several percent below total assets at most banks, so the two bases give different answers and only one of them ties to the UBPR.
Go deeper
- What is a good net interest margin for a bank?
- BankingLens pricing and what a subscription adds: percentile rank against the bank’s own FFIEC peer group, fourteen quarters of trend, and the flags an examiner reaches for first.
See also. Net interest margin, Yield on earning assets, Net interest spread, UBPR.
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