Profitability
Yield on Loans
Also known as Loan Yield
Yield on loans is the annualized interest income a bank earns on its loan and lease portfolio, expressed as a percentage of average loans. It is the asset-side counterpart to a bank's cost of funds.
Formula
Interest and fee income on loans (from the income statement, annualized for partial-year call reports) divided by the average balance of total loans and leases over the period.
Why it matters
Loan yield drives the bulk of a bank's revenue. Read against cost of funds, it shows how much spread the bank captures; read against peers, it signals loan-mix risk — unusually high yields often mean a riskier book (consumer, credit-card, or construction lending).
How to interpret
Loan yields move with the interest-rate cycle, so compare within the same quarter. A yield far above peers can flag higher-risk lending; far below peers can flag a low-rate, relationship-driven book or competitive pressure. Always pair with the net interest margin and cost of funds.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| > 7% | High | Often signals a consumer- or construction-weighted, higher-risk book. |
| 4–7% | Typical | Normal range for a diversified commercial bank. |
| < 4% | Low | Low-rate or relationship-driven book; thin spread risk. |
Worked example
Frequently asked
How is yield on loans different from net interest margin?
Yield on loans measures gross interest earned on the loan book alone. Net interest margin nets out funding costs and spreads the result over all earning assets (loans plus securities). A bank can have a high loan yield but a thin NIM if its funding is expensive.
Does a higher loan yield mean a better bank?
Not necessarily. Higher yields frequently come with higher credit risk. Read loan yield alongside the net charge-off ratio and nonperforming loan ratio to see whether the extra yield is being given back as credit losses.
Sources
- FFIEC Call Report Schedule RI (Income Statement)
- FFIEC Call Report Schedule RC-K (Quarterly Averages)
See Loan Yield across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by Loan Yield, refreshed quarterly within 48 hours of FFIEC release.