Net interest margins drifted down most of last year as long-term rates buckled in the second half and flattened the yield curve.
But large segments of the industry sailed through the narrows — margins actually increased at small and midsize banks — and margins overall remained strong compared with most of the rest of the decade (see charts).
Now rates have retraced their fall and the curve has steepened, creating a more favorable environment for banks to the extent that they borrow short and lend long.
The industrywide net interest margin fell 12 basis points from the first quarter — when banks reached a longtime peak with the absorption of hundreds of billions of dollars of high-yield loans under new accounting rules for securitizations — to 3.71% in the fourth quarter, according to data from the Federal Deposit Insurance Corp.
During the same period, the net interest margin for banks with assets of $10 billion to $100 billion gained 3 basis points, to 3.73%. The increase was 9 basis points, to 3.77%, for banks with assets of less than $10 billion.
Some of the split in performance could be explained by small and midsize banks' greater reliance on portfolios of time deposits, which take longer to react to declines in market rates than transaction and savings accounts.
After initially lagging large banks, the cost of funds at small and midsize has been falling faster.
Still, even some large banks have recently predicted there is further room for their funding costs to fall.
In a presentation this month, PNC Financial Services Group Inc. said that about $20 billion of its certificates of deposits are scheduled to mature this year, and that its balance sheet is positioned to benefit from rising rates.
Richard Johnson, the company's chief financial officer, said that "with the lift in rates that started in November and continued somewhat into the new year," his views on "net interest income are more optimistic."
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