Non-interest income, its disaggregated components, and bank profitability: Evidence from U.S. Banks

This study examines whether disaggregated non-interest income (NII) components exhibit nonlinear effects on the profitability of US banks. Using panel data on US banks for the period 2004–2023 and estimating a dynamic panel threshold model in the spirit of Seo and Shin (2016), we find that NII supports profitability when it is maintained below component-specific thresholds. Among the disaggregated items, other non-interest income (ONII) exerts the strongest and most consistently positive effect. However, when banks’ reliance on NII components exceeds the estimated thresholds, the profitability gains diminish or turn negative, indicating the risks associated with overconcentration in market-linked or otherwise volatile income sources. The results show that NII is not a homogeneous driver of performance and underscore the value of analysing its individual components, rather than only aggregated NII shares, when assessing US banks’ earnings capacity.