What are Earnings?

Earnings, of course, are the profits a bank makes from its business. While various fees and service charges have come to play an increasingly important role in bank earnings, the bread and butter of bank earnings continues to be the difference between the interest a bank earns on its loans and investments and the interest it pays on deposits and borrowed money. This difference is known as the net interest margin. Directors need to be concerned not only with the quantity and trend of a bank’s earnings and how that relates to budgeted projections, they also need to be concerned with the quality of a bank’s earnings. Quality of earnings generally refers to the sustainability of an income stream.

Lesson Objectives

This section introduces the topic of risk management including a director’s role in mitigating risks. When you finish this section of the course, you should be able to:

  1. recognize a quality income stream and
  2. determine which data comparisons are important when analyzing earnings.