Net interest margin

With high deposit and borrowing costs persisting amid the Federal Reserve's campaign against inflation, lenders face stress on their net interest margins and the potential of troubled loans ticking up.

Higher interest rates, deposit flight and looming credit losses were roiling the banking industry a few months ago, but so far banks seem to be weathering the storm. That doesn't mean things can't get worse.

Nearly nine out of 10 bankers surveyed by the Conference of State Bank Supervisors ranked the specter of rising deposit costs and narrowing margins as their top concern.

Bank of America expects interest income to rise as stronger borrowing outweighs the impact of low rates. The upbeat forecast is in contrast with remarks from JPMorgan Chase executives.

Comerica, Citizens Financial and other companies are buying up securities, paying off high-cost borrowing and trying to develop specialty lending niches. But loan growth remains weak, and the likelihood of extreme volatility in deposits makes it hard to plan ahead.

Deposits are soaring while loan demand lags and mortgage-backed securities offer weak returns. So the Alabama company has parked loads of cash at the Fed in hopes the economy will pick up steam before profit margins suffer.

The Federal Deposit Insurance Corp.’s latest report on the industry’s health had positive news about the earnings recovery last quarter, but it also showed that low interest rates amid continuing economic uncertainty are putting downward pressure on asset yields.

Current economic conditions are greatly tied to controlling the spread of the coronavirus. To survive this volatile situation, financial institutions must be resilient.

Lending opportunities have become scarce, especially with commercial borrowers, and banks are resisting the temptation to relax standards to boost volume.

While national banks have remained strong during the pandemic, they are still navigating risks from a murky credit environment and other potential warnings signs, according to a report by the Office of the Comptroller of the Currency.

Weak loan demand, persistently low yields and the continued struggles of sectors such as hospitality and retail are among the myriad lending challenges facing small regional banks.

The family-owned bank from the South and the New York commercial lender each would fill a clear need for the other. First Citizens would gain business lending expertise and an online deposit-gathering platform, and CIT would get the cheap deposits it coveted.

The flood of liquidity that accompanied the pandemic recession isn’t likely to subside anytime soon. Banks will have to employ a mix of securities buying, hedging and other balance-sheet-management tricks to prop up margins longer than initially imagined.

Originations in the third quarter are on pace to double what the Detroit lender reported a quarter earlier, adding more high-yielding loans to the balance sheet.

The $18.8 billion in net income was 70% less than a year earlier as the uncertain economic picture and new accounting rules drove a sharp rise in provisions for future losses.

The industry will have to grapple with pressure on net interest margins, interchange income and credit quality, said CUNA Mutual's Steve Rick during a virtual conference.

In what was a challenging quarter for the industry, the company reported strong loan growth and a wider margin. Continued momentum will depend on government stimulus, the reopening of New York City and borrowers' ability to make payments after their deferral periods end.

The company reported growth of more than 103% since the end of last year.

With multiple business sectors reeling from the pandemic, banks are facing tighter net interest margins, provisioning more for losses and seeing their balance sheets expand, the agency said in a report.

A record amount of funds have flowed into banks since the coronavirus hit, but a low-rate environment and tepid loan demand are complicating efforts to put that money to work.