How is the cost of funds determined?
The cost of funds in banking is determined by combining the amounts in interest that a bank pays to depositors, to other banks that it borrows from, and to other institutions or investors for the money it later loans to borrowers.
You can calculate this figure with a few important pieces of information. You'll need the average balance of deposits for the period you're examining and the amount of interest paid over that period.
From there, simply divide the interest paid by the deposits. For example, if your bank paid $50,000 for funds in the form of interest to depositors last month, and held an average balance of $1 million in deposits, that would be $50,000 / $1,000,000 = 0.05 or 5%.