Profitability
Net Interest Margin
Also known as NIM
Net Interest Margin measures net interest income (interest earned minus interest paid) against average earning assets. It is the core spread the bank earns from its primary business — lending deposits at higher rates than they cost.
Formula
Earning assets are loans, securities, and interest-bearing balances with other banks — assets that produce interest income. They exclude premises, goodwill, and non-earning cash. Banks compute NIM on a tax-equivalent basis (gross-up tax-exempt income) for comparability.
Why it matters
NIM is the bank's core unit economics — for every $100 of earning assets, how much net interest income does the bank generate. NIM drives roughly 60–80% of total revenue at most community banks (the rest is fees). Compressed NIM is the dominant headwind facing community banks in high-rate environments.
How to interpret
Most US community banks report NIM between 2.8% and 4.0%. Higher is generally better but reflects either premium lending (higher-yielding loans) or low-cost funding (large core deposit franchise). Falling NIM in a rising-rate environment signals the bank's deposit costs are catching up to its asset yields.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| ≥ 3.75% | Strong | Top-quartile spread. |
| 3.00–3.75% | Normal | Typical for community banks. |
| 2.50–3.00% | Watch | Compressed spread; check funding costs. |
| < 2.50% | Concern | Severely compressed; structural risk. |
Worked example
Frequently asked
What's the difference between NIM and Net Interest Spread?
Net Interest Spread is the simple difference between yield on earning assets and cost of funds — it ignores the bank's free funding from non-interest-bearing deposits and equity. NIM uses earning assets in the denominator and produces a higher number; spread is typically 20-50bp lower.
Why does NIM compress when rates rise quickly?
Bank assets reprice slowly (most are fixed-rate loans and securities); deposit costs reprice faster as competitors compete for funding. The result is asset yields lag deposit costs in rising-rate environments, compressing the spread. This is the 'deposit beta' problem.
Sources
- FFIEC Call Report Schedule RI (Income Statement)
- FFIEC Call Report Schedule RC (Balance Sheet, earning assets)
See NIM across 4,394 US banks
BankRegReports ranks every FDIC-insured institution by NIM, refreshed quarterly within 48 hours of FFIEC release.