Noninterest Expense

What it is

Noninterest expenses are a bank’s operating costs that are not interest payments. They include day-to-day overhead such as salaries, rent, IT, professional fees, and the amortization of intangible assets. These expenses are reported separately from interest expense and provisions for credit losses.

How it works

Banks classify expenses into two main buckets:
* Interest expenses — costs associated with deposits, loans, and debt.
* Noninterest expenses — operational costs incurred running the business.

Separating the two improves transparency and helps analysts and managers evaluate a bank’s operating efficiency and profitability.

Main components

Common noninterest expense categories:
* Personnel costs: salaries, bonuses, benefits (usually the largest item).
* Occupancy: rent, facility maintenance.
* Technology and communications: IT systems, software, telecom.
* Professional services: legal, consulting, audit.
* Marketing and administrative costs.
These expenses form the bank’s overhead and are used to compute ratios such as noninterest expense divided by average assets (overhead ratio). Prolonged high overhead typically triggers cost-control measures, often beginning with personnel expenses.

By bank type

Noninterest expense patterns vary by bank business model:
* Investment banks and capital markets firms tend to have higher compensation per employee (fewer employees, higher pay). Trading, asset management, and advisory activities are costly in terms of pay and technology.
* Commercial banks typically employ more staff at lower average compensation, reflecting branch networks and lending operations.

Example comparisons from large institutions illustrate this: some investment banks show noninterest expenses around two-thirds of revenue with compensation a large share, while some large commercial banks report similar overall noninterest expense shares but a higher percentage attributable to total personnel cost due to scale and branch staffing.

Largest noninterest expense

Personnel costs are generally the single largest noninterest expense for most banks.

Noninterest income (brief)

Noninterest income is revenue from noninterest sources, such as fees, commissions, service charges, and gains on certain investments. It offsets noninterest expenses and helps determine net operating performance.

Calculating noninterest income (example)

If a loan generates a $500 origination fee and $100 in service charges, the noninterest income from that loan is $600. Interest income from the loan is recorded separately.

Bottom line

Noninterest expenses are the fixed operating costs of banks distinct from interest-bearing costs. Monitoring and managing these expenses — especially personnel and technology costs — is essential to maintaining profitability and operational efficiency. Separating noninterest and interest expenses gives clearer insight into a bank’s underlying operating performance.

Sources

Company financial disclosures (example: annual reports and earnings releases) and industry financial statements.