Where Do US Bank Profits Come From? An Exact Decomposition of Return on Assets, 1934–2025, and What Drives Its Variation

Using the FDIC's Historical Bank Data for all US commercial banks, 1934 to 2025, I decompose return on assets exactly into net interest income, noninterest income, noninterest expense, loan loss provisions, securities gains, taxes and extraordinary items, each as a share of average assets. The accounting identity holds to 10⁻¹⁵ points with a residual of at most 0.0065 points. Over the full period the level of ROA rose from 0.38% in the 1930s to 1.09% in the 2020s, mainly because fee income grew from 0.47% of assets in the 1940s to 2.27% in the 2000s while net interest income rose less and expenses absorbed much of both. A covariance decomposition shows that provisions account for 85% of the variance of year-to-year changes in ROA over 1936 to 2025 and 96% over 1984 to 2025, while net interest income accounts for about 15%. Provisions run close to charge-offs on average (median ratio 1.008), but they surged to 2.5 times charge-offs in 2020, the first year of the expected-loss (CECL) standard and the pandemic, and were negative in 2021. Finally, ROE rose only from 11.12% in 1985 to 11.83% in 2025 although ROA rose by 0.562 log points, because leverage fell from 16.2 to 9.8 times equity.