Net interest margin (NIM): formula, a worked bank example, and what moves it

Net interest margin (NIM) is a bank's net interest income, interest earned minus interest paid, divided by its average earning assets. A bank that earns $65.70 million of interest and pays $22.35 million on $1,150 million of average earning assets has net interest income of $43.35 million and a NIM of 3.77%. The US industry ran 3.32% in the second quarter of 2026.

The formula

Net interest income (NII) = Interest income − Interest expense

NIM = NII / Average earning assets

Earning assets are the assets that pay interest: loans and leases, investment securities, balances at the Federal Reserve and other banks, and fed funds sold. Cash in the vault, premises, goodwill and other non-earning assets are left out. The FDIC defines NIM in the Quarterly Banking Profile as interest and dividends earned on interest-bearing assets minus interest paid to depositors and other creditors, "expressed as a percentage of average earning assets."

NIM is an annual rate. For a quarter, annualize the net interest income first:

Annualized quarterly NIM = Quarterly NII × (Days in year / Days in quarter) / Average earning assets

A bank with $10.9 million of NII in the second quarter of 2026 (91 days) and $1,150 million of average earning assets has a NIM of 10.9 × 365 / 91 / 1,150 = 3.80%.

The figures you need

Average balances and the interest earned or paid on each category, for the same period. Every insured US bank reports both in its quarterly call report: interest income and expense in Schedule RI, and quarterly averages of the main asset and liability categories in Schedule RC-K. A bank's own call reports and its Uniform Bank Performance Report are public in the FFIEC Central Data Repository. Inside the bank, the same figures come from the general ledger and the loan and deposit systems; listed bank holding companies also publish an average balance sheet with yields and rates in their annual report.

Worked example: one bank

One year, average balances, in USD millions:

Step by step:

1. Interest income = 52.48 + 10.14 + 3.08 = 65.70; yield on earning assets = 65.70 / 1,150 = 5.71%.
2. Interest expense = 17.94 + 4.41 = 22.35; cost of interest-bearing liabilities = 22.35 / 870 = 2.57%.
3. NII = 65.70 − 22.35 = 43.35.
4. NIM = 43.35 / 1,150 = 3.77%.
5. Net interest spread = 5.71% − 2.57% = 3.14%.

In Excel, with balances in B2:B4 and B6:B7 and rates in C2:C4 and C6:C7:

=(SUMPRODUCT(B2:B4,C2:C4)-SUMPRODUCT(B6:B7,C6:C7))/SUM(B2:B4)

NIM versus net interest spread

Spread compares two rates: what earning assets yield and what interest-bearing funding costs. It ignores the funding that costs nothing. Here, earning assets of 1,150 are funded by only 870 of interest-bearing liabilities; the other 280 come from non-interest-bearing deposits and equity. That free funding earns the asset yield with no matching expense, which is why NIM is higher than spread:

NIM = Spread + Cost of interest-bearing liabilities × Free funding / Earning assets

3.14% + 2.57% × 280 / 1,150 = 3.14% + 0.63% = 3.77%

The more operating accounts a bank holds, the wider that gap. It is also why a bank that loses non-interest-bearing deposits loses margin even when no rate changes.

What moves NIM

• Asset yields and repricing. Floating-rate loans reprice with the market within weeks; fixed-rate loans and securities only as they mature.
• Deposit costs and deposit beta. Deposit beta is the share of a market rate move passed on to depositors. If deposit rates rise 25 basis points with asset yields unchanged, interest expense rises by 780 × 0.25% = 1.95, NII falls to 41.40 and NIM to 41.40 / 1,150 = 3.60%: 17 basis points gone.
• Balance sheet mix. Moving 50 of earning assets from securities at 3.90% to loans at 6.40% adds 50 × 2.50% = 1.25 of interest income, before any credit cost.
• Non-interest-bearing deposits. Outflows into interest-bearing accounts or out of the bank, the pattern traced in deposit flight by relationship, replace free funding with paid funding.

Rate cycles show all four at once. The Federal Reserve's May 2023 Supervision and Regulation Report noted that "between year-end 2021 and year-end 2022, the industry net interest margin increased by nearly 1 percent" as interest income grew; the deposit outflows and rising funding costs that followed are covered on the loan-to-deposit ratio page.

The check that proves it

Two ties before anyone reads the ratio:

1. Interest by category sums to the reported totals. 52.48 + 10.14 + 3.08 = 65.70 must equal interest income in the income statement (Schedule RI), and 17.94 + 4.41 = 22.35 must equal interest expense. If the average-balance table and the ledger disagree, fix that first.
2. NIM × average earning assets returns NII. 3.7696% × 1,150 = 43.35. The spread decomposition above, 3.14% + 0.63%, must give the same NIM.

What is a normal NIM

From the FDIC Quarterly Banking Profile for the second quarter of 2026, the industry NIM was 3.32%, up 1 basis point from the first quarter: the yield on earning assets was 5.35% and the cost of funding earning assets 2.03%. Community banks ran 3.81%. By asset size (Table III-A, second quarter 2026):

For full years the same table (I-A) gives 2.54% in 2021, 2.95% in 2022, 3.30% in 2023, 3.22% in 2024 and 3.30% in 2025. The largest banks hold more securities, central bank balances and trading assets, and fund more of their books in wholesale markets, so their margins sit well below community banks'. Note that the FDIC makes no adjustment for tax-exempt income; many US banks report NIM on a fully taxable-equivalent basis in their own results, which runs a little higher.

Where it goes wrong

• Total assets instead of earning assets. On total assets of 1,230, the same bank shows 3.52%, and banks with large non-earning assets look worse than they are.
• Period-end balances in a quarter of fast growth. Use daily or monthly averages.
• Tax-equivalent NIM compared with unadjusted NIM. State which basis every figure uses.
• A rising NIM read as good without the credit picture. Higher yields can mean riskier loans.
• Deposit beta ignored. NIM that rises with rates can fall quickly when deposit costs catch up.

NIM by relationship

A bank's NIM is the sum of its relationships: some bring deposits that fund others' loans, and some, the lending-only relationships, draw on the balance sheet without funding it. Covirage's tools compute balances, interest and margin per relationship from your own exports and split the change into balance, rate and mix; the external AI model explains it and never does the arithmetic. See Covirage for commercial banking, and relationship KPIs for commercial banking for the measures that sit under NIM. For the ratios beside it, see return on assets and financial ratios; for the same balance, rate and mix split applied to revenue, price volume mix.