Net Interest Income Defies Margin Squeeze: Interactive Graphic

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Banks’ net interest margins continued to tighten in the fourth quarter. Net interest income, aided by loan growth, held up better.

Margins fell from the third quarter at about two-thirds of the companies in a group of publicly traded banks with more than $5 billion of assets, but net interest income fell at only about half of those institutions. (Use the dropdown in the graphic below to see net interest income data for the group, which excludes companies that bought banks or branches last year. Select the other tabs for industrywide overviews.)

Among a larger group of about 450 publicly traded banks for which fourth quarter data was available near the end of January, the median net interest margin slipped 3 basis points from the third quarter and 7 basis points from a year earlier to 3.67%. Over both time spans, drops in the cost of funding earning assets failed to keep pace with declines in yields.

The yield curve actually steepened: The spread between the rate on 10-year and two-year Treasuries widened by 6 basis points from the third quarter to an average of 1.44% in the fourth quarter. A steeper yield curve helps margins to the extent that banks borrow short and lend long, but rates remain low across the maturity spectrum.

For the entire industry, including banks whose shares do not trade on public markets, margin pressure has meant stagnant net interest income since 2010 despite growth in earning assets. (A $9 billion spike in industrywide net interest income from the fourth quarter of 2009, to $109 billion the first quarter of 2010, reflects the hundreds of billions of dollars of high-yielding credit card loans that were brought onto balance sheets under new accounting rules. Their runoff has likely made the subsequent decline in margins steeper than it would have been otherwise.)

But after more than a year of steady loan growth, aggregate net interest income inched up about $300 million from the second quarter to $106 billion in the third quarter. (Industrywide data for the fourth quarter is not available yet.)

While loan yields are also under pressure from low rates, they are typically higher than yields on bonds. Ongoing loan growth would improve the outlook for net interest income.

Marianne Lake, JPMorgan Chase’s (JPM) chief financial officer, told investors in January that the expansion in her company’s loan book meant “we are generally holding pace with NIM compression and hope to see the same next year, plus or minus.”

Timothy Sloan, Wells Fargo’s (WFC) chief financial officer, said, “Growing our net interest income remains our focus and we believe we can continue to generate growth even in a low rate environment.”

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