3-6-3 Rule
The 3-6-3 rule is a historical banking joke about paying 3% on deposits, lending at 6%, and leaving work for golf at 3 p.m.
Bank earnings concepts for connecting asset yield, funding costs, net interest margin, fee income, credit costs, and overall profitability.
Bank profitability analysis explains how earning assets and funding produce interest income, how fees add revenue, and how credit and operating costs determine what remains. A bank’s headline margin is useful, but it is not a complete earnings or risk assessment.
The interest-income bridge starts with Yield on Earning Assets, the gross asset-side yield. Cost of Funds measures a defined funding rate. Their dollar effects flow into Net Interest Income, while Net Interest Margin scales net interest income by average earning assets.
| Layer | Core question |
|---|---|
| Earning-asset yield | What gross rate did loans, securities, and other earning assets produce? |
| Funding cost | What did the bank pay for deposits and other funding? |
| Net interest income and NIM | How much interest income remained in dollars and per dollar of earning assets? |
| Non-interest income | How much revenue came from fees, servicing, fiduciary, trading, and other activities? |
| Credit and operating costs | How much was absorbed by provisions, charge-offs, salaries, technology, occupancy, and other costs? |
| Net income and return measures | What bottom-line result remained after the full income statement? |
Non-Interest Income is particularly important for fee-oriented institutions. Bank-Owned Life Insurance requires separate income, liquidity, concentration, and supervisory analysis. The 3-6-3 Rule is historical shorthand, not a modern profitability formula.
Use consistent periods, average balances, annualization methods, and reported or taxable-equivalent bases. Separate rate, volume, and mix effects; reconcile regulatory ratios to financial statements; and review credit quality, nonaccruals, deposit behavior, hedges, liquidity, and capital alongside earnings.
Comparisons are most useful among institutions with similar business models, currencies, asset mixes, and reporting conventions. A higher yield or margin can reflect pricing strength, but it can also reflect greater credit, duration, funding, concentration, or liquidity risk.
Choose a subsection first. Deeper term pages live inside each subsection, which keeps large topic hubs readable.
The 3-6-3 rule is a historical banking joke about paying 3% on deposits, lending at 6%, and leaving work for golf at 3 p.m.
Bank-owned life insurance is a bank-held insurance asset used for permissible employee-benefit, key-person, and related business purposes.
Cost of funds measures what a bank pays for deposits, borrowings, and other funding under a clearly stated balance and time-period denominator.
Net interest income is the interest a bank earns on assets minus the interest it pays on deposits, borrowings, and other funding.
Net interest margin is annualized net interest income divided by average earning assets, showing bank spread earnings relative to the assets producing them.
Non-interest income is bank revenue from services, fees, trading, fiduciary activities, servicing, insurance, and certain asset sales rather than interest spread.
Yield on earning assets is annualized interest-related income divided by average earning assets, measuring a bank's gross asset-side yield before funding costs.