Profitability
Net Interest Spread
Also known as Spread
Net interest spread is the difference between the average yield a bank earns on its assets and the average rate it pays on its funding. It isolates pure pricing power, separate from the free-funding benefit captured by net interest margin.
Formula
Both legs are computed from Schedule RI. The spread excludes the lift that noninterest-bearing deposits give to margin, so it is always a touch lower than the net interest margin and reflects the rate gap alone.
Why it matters
The spread shows whether a bank's margin comes from genuine pricing power or from cheap, noninterest-bearing funding. Two banks can post the same net interest margin while one earns it through a wide spread and the other through a large free-deposit base.
How to interpret
Read net interest spread next to net interest margin. When margin exceeds spread by a wide gap, the bank benefits heavily from noninterest-bearing deposits; a narrow gap means most of the margin is earned on rate alone — more exposed if asset yields fall.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| ≥ 3.0% | Strong | Wide pricing spread independent of free funding. |
| 2.0-3.0% | Adequate | Healthy spread for most commercial banks. |
| 1.0-2.0% | Watch | Thin spread; margin leans on cheap deposits. |
| < 1.0% | Concern | Minimal pricing power between assets and funding. |
Worked example
Frequently asked
What is the difference between net interest spread and net interest margin?
Spread is asset yield minus funding rate. Margin is net interest income divided by average earning assets, which also captures the benefit of funding provided by noninterest-bearing deposits and equity — so margin is usually slightly higher than spread.
Why can two banks with the same margin have different spreads?
A bank with abundant noninterest-bearing deposits earns part of its margin from free funding, so it can post a strong margin on a narrow spread. A bank without that base must earn the same margin through a wider rate spread.
Sources
- FFIEC Call Report Schedule RI (Income Statement)
- Uniform Bank Performance Report (UBPR)
See Spread across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by Spread, refreshed quarterly within 48 hours of FFIEC release.