Magazine article American Banker

Superregionals Widened Net Interest Margins during Quarter

Magazine article American Banker

Superregionals Widened Net Interest Margins during Quarter

Article excerpt

Overlooked in the hoopla over banks' stellar first-quarter earnings reports was an increase in net interest margins among superregionals.

For the first time since the end of 1994, superregionals' average margin increased from quarter to quarter, according to a Lehman Brothers report covering 21 banking companies.

The margin rose to 4.42% in the first quarter, up 5 basis points from the fourth. It was the biggest jump since a 7-basis-point surge in third quarter 1992.

"Banks are changing their business mix toward more consumer loans, and downsizing their lower-spread assets," said Michael Mayo, the regional bank analyst at Lehman Brothers who authored the report.

"Also, deposit pricing has been more favorable for banks, because a lot of the price-sensitive money has already left the system," he said.

In other words, interest rate shoppers have already departed.

The wider margins reflect steps banks have taken to improve the management of their balance sheets, said Sandra J. Flannigan, a bank analyst with Merrill Lynch & Co.

Banks are not only working down their investment portfolio "but also turning over their low-spread loans, such as single family mortgages," she said. Charles Newman, chief financial officer of Barnett Banks Inc., said this month that the runoff in low-yielding mortgage loans had helped boost its margin 22 basis points, to 5.27%.

Several banks led the charge to healthier net interest margins - the difference between what a banks earns from lending and what is paid out for interest-bearing liabilities, like deposits and preferred equity. …

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