Academic journal article ABA Banking Journal

Net Interest Margins Vary Sharply by Size

Academic journal article ABA Banking Journal

Net Interest Margins Vary Sharply by Size

Article excerpt

The recent credit crunch has eaten through bank profitability like a team of football players at an all-you-can-eat buffet.

To see how bank net interest margins have fared over the last year, SNL looked at five different asset ranges on a linked-quarter and a year-over-year basis. Each range represents different operational segments of the banking market, from the mega-banks to regional banks to the community banks.

The largest banks in the country, while taking massive write-downs over the last six months, have seen their net interest margins increase on both a linked-quarter and a year-over-year basis, by 11 and 18 basis points respectively. While these margins are still off the historical marks and are well below that of smaller banks, the trend is still positive.

Banks in the $100 billion to $1 trillion range, arguably the operational sweet spot for the modern financial holding company, have seen margins remain stable over the last year, at the same time well outperforming their larger rivals.

As you move down the asset-size ranking, however, it is the public community banks that have been the hardest hit by the crunch. Average net interest margins for banks with less than a billion in assets contracted by 30 basis points year-over-year and 18 basis points on a linked-quarter basis.

The contraction is due in no small part to intense deposit pricing pressures that have left some of these banks scrambling to secure stable funding sources. Tightness in the secondary loan markets has also forced these banks to hold what they might have sold only a year before. …

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