---
title: "Net Interest Income: definition, formula, and thresholds"
description: "Net interest income (NII) is the difference between the interest a bank earns on loans and securities and the interest it pays on deposits and borrowings. It is the core profit engine of traditional banking and the numerator behind net interest margin."
canonical_url: https://www.bankregreports.com/glossary/net-interest-income/
source: BankRegReports
category: "Income & Expense"
units: "$"
schedule: "Schedule RI"
---

# Net Interest Income

> Net interest income (NII) is the difference between the interest a bank earns on loans and securities and the interest it pays on deposits and borrowings. It is the core profit engine of traditional banking and the numerator behind net interest margin.

## Formula

```
Net Interest Income = Total Interest Income - Total Interest Expense
```

Total interest income comes from loans, leases, and securities; total interest expense is paid on deposits and borrowings. Both are reported on Schedule RI. Dividing NII by average earning assets gives the net interest margin (NIM).

## Why it matters

For most banks, NII is the largest single revenue line, far bigger than fee income. Its sensitivity to interest-rate moves (asset-liability mismatch) is the central question of bank interest-rate risk management.

## How to read it

Read NII together with NIM and the rate environment. Rising rates can lift NII for asset-sensitive banks and squeeze it for liability-sensitive ones. A bank growing NII only by growing the balance sheet (while NIM compresses) is buying revenue with risk.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| Growing with stable NIM | Strong | Spread income expanding without margin compression. |
| Stable | Adequate | NII holding steady through the rate cycle. |
| Margin compression | Watch | Funding costs rising faster than asset yields. |
| Declining | Concern | Falling spread income pressures the entire earnings stream. |


## Worked example

A community bank with $1.8 billion of average earning assets and a 3.5% net interest margin generates about $63 million of net interest income a year. If deposit costs climb faster than loan yields, that margin (and the NII it produces) compresses even with the balance sheet unchanged.

## Questions

### What is the difference between net interest income and net interest margin?

NII is a dollar amount (interest earned minus interest paid). NIM is that amount expressed as a percentage of average earning assets, which makes it comparable across banks of different sizes.

### Does net interest income include fee income?

No. Fees, service charges, trading, and servicing revenue are noninterest income, reported separately. NII is strictly the spread between interest earned and interest paid.

## Sources

- [FFIEC Call Report Schedule RI (Income Statement)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF)

## Related metrics

- [Net Interest Margin](https://www.bankregreports.com/glossary/net-interest-margin/): Net interest margin (NIM) is a bank's interest income minus its interest expense, annualized and divided by its average earning assets, expressed as a percentage. It measures the spread a bank earns on its lending and investing, the core of how a bank makes money.
- [Yield on Earning Assets](https://www.bankregreports.com/glossary/yield-earning-assets/): Yield on Earning Assets measures gross interest income as a percentage of average earning assets. It is the asset-side input to net interest margin, the bank's gross interest rate.
- [Cost of Funds](https://www.bankregreports.com/glossary/cost-of-funds/): Cost of funds is the interest rate a bank pays, on average, for the money it lends and invests: annualized interest expense divided by average funding from deposits and borrowings. It is the bank's own cost of money and the expense side of net interest margin.
- [Net Income](https://www.bankregreports.com/glossary/net-income/): Net income is a bank's bottom-line profit for the period: total revenue less interest expense, noninterest expense, the provision for credit losses, and taxes. It is the source of retained earnings and the numerator behind ROA and ROE.

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