Noninterest expense: Noninterest expense is a bank’s operating cost: salaries and benefits, premises and equipment, technology, and everything else it takes to run the bank.
Where it comes from
Reported on Schedule RI. It excludes interest paid on deposits and borrowings, and it excludes the provision for credit losses.
How to read it
This is the numerator of the efficiency ratio and the line management controls most directly. Salaries and benefits are usually about half of it, with core processing, compliance and audit making up much of the rest, which is why the cost base barely scales down with size.
The common mistake. Assuming it captures the cost of credit. Loan loss provisions sit outside it, so a bank can post an excellent efficiency ratio and still lose money on lending.
Go deeper
- What is a good efficiency ratio 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. Efficiency ratio, Noninterest income, Allowance for credit losses.
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