---
title: "Retained Earnings: definition, formula, and thresholds"
description: "Retained earnings are the cumulative profits a bank has kept rather than paid out as dividends. They are a core component of equity capital and the primary engine of organic capital growth."
canonical_url: https://www.bankregreports.com/glossary/retained-earnings/
source: BankRegReports
category: "Income & Expense"
units: "$"
schedule: "Schedule RC"
---

# Retained Earnings

> Retained earnings are the cumulative profits a bank has kept rather than paid out as dividends. They are a core component of equity capital and the primary engine of organic capital growth.

## Formula

```
Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
```

Each period's net income adds to retained earnings; dividends to shareholders subtract from them. The balance is reported in the equity section of Schedule RC and feeds directly into CET1 capital.

## Why it matters

Retained earnings are how a bank builds capital without issuing stock. Strong, consistently retained profits let a bank grow assets and absorb losses on its own; a retained-earnings deficit is a direct record of accumulated losses.

## How to read it

Rising retained earnings signal a profitable bank funding its own growth. Compare the retention rate (retained earnings growth versus net income) to the dividend payout: a bank paying out nearly all earnings is not building the capital cushion that supports future expansion.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| Steadily growing | Strong | Profits retained to build capital organically. |
| Positive, stable | Adequate | Capital accumulating at a measured pace. |
| Flat / high payout | Watch | Little organic capital generation. |
| Deficit | Concern | Accumulated losses have eroded retained capital. |


## Worked example

A bank earning $20 million and paying $6 million in dividends adds $14 million to retained earnings that year, roughly a 70% retention rate. Over a decade, that retained capital can support hundreds of millions in additional assets without a single share issuance.

## Questions

### Are retained earnings the same as cash?

No. Retained earnings are an equity figure recording accumulated profit kept in the business; that capital is deployed across loans, securities, and other assets. It is not a pile of cash.

### How do retained earnings affect capital ratios?

Retained earnings flow into common equity tier 1 capital. Retaining profits raises CET1 and the leverage ratio over time, which is why dividend and buyback policy is a capital-management decision.

## Sources

- [FFIEC Call Report Schedule RC (Balance Sheet, Equity Capital)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF)
- [FFIEC Call Report Schedule RI-A (Changes in Equity Capital)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF)

## Related metrics

- [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.
- [Total Equity Capital](https://www.bankregreports.com/glossary/total-equity/): Total equity capital is the bank's net worth on a book basis: common stock, surplus, retained earnings, and accumulated other comprehensive income (AOCI). It is the first cushion that absorbs losses before depositors or the FDIC are exposed.
- [Common Equity Tier 1 Capital Ratio](https://www.bankregreports.com/glossary/cet1-ratio/): The CET1 ratio measures a bank's highest-quality capital (common stock and surplus, retained earnings and, for banks that have not opted out, accumulated other comprehensive income, less regulatory deductions) against its risk-weighted assets. It is the most-watched single capital indicator in US bank supervision after the 2013 Basel III reforms.
- [Return on Equity](https://www.bankregreports.com/glossary/roe/): Return on equity (ROE) is a bank's annualized net income divided by its average shareholders' equity, expressed as a percentage. It is the return the bank earns on the capital its owners have invested.

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