How Have Net Interest Margins For The Largest U.S. Banks Trended Over Recent Quarters?

The five largest U.S. banks reported net interest margin (NIM) figures for Q3 2016 which were well below the average NIM figure for the U.S. banking industry.

The NIM figures for individual banks are taken from their respective earnings releases, while the figure for the industry is as compiled by the Federal Reserve Bank of St. Louis here. The average figure shown here is the weighted average figure obtained by weighing the NIM figure for individual banks with their respective portfolio of interest-earning assets.

The chart below captures changes in the NIM figure for all these banks as well as the overall industry over the last five quarters.

Notably, there is a sizable difference in the NIM figure among these banks. This is primarily due to their varied business models, with JPMorgan and Citigroup having more diversified banking operations compared to their peers. Another important factor that impacts the NIM figure is the proportion of various loans in the total loan portfolio of these banks, as yields for some loan types like credit cards (which are almost always unsecured) are inherently much higher than those for commercial loans (which usually are backed by collateral).

That said, the low interest rate environment that has been prevalent since the economic downturn of 2008 has put pressure on interest margins for all U.S. banks over recent years. While the downward trend for the largest banks is evident in the table above, the industry saw a small improvement in NIM figures in Q4 2015 as a result of the Fed’s decision to hike benchmark interest rates by 25 basis points (0.25% points), and has largely remained constant around 3.02% since then.

Although lukewarm global economic conditions make it unlikely that the Fed will hike interest rates again this year, NIM figures for all these banks should begin to rise once the Fed resumes the rate hike process next year. You can see how changes to U.S. Bancorp’s net interest margin for mortgages impacts our price estimate for the bank by modifying to the chart below.

See the links below for more information about the 5 largest U.S. commercial banks:

• How Much Of Total U.S. Deposits Are Held By The Country’s Five Largest Banks?
• How Much Of Total Outstanding Loans In The U.S. Were Handed Out By The Five Largest Banks?
• What Was The Loan-To-Deposit Ratio For The Largest U.S. Banks In Q3 2016?
• What Is The Breakup Of Outstanding Loans Across The U.S. Banking Industry By Loan Type?

See full Trefis analysis for U.S. Bancorp | Wells Fargo | JPMorgan | Bank of America | Citigroup

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