Net Interest Margin (NIM)

Net interest margin is a bank's core profit spread: interest earned on loans and securities minus interest paid on deposits and borrowings, divided by average earning assets. A bank earning 5% on its loan book while paying 1.8% for funding runs a NIM around 3.2% — and for a traditional lender, that spread is the business.

U.S. bank NIMs have mostly lived in the 2.5-3.5% band over the past two decades, with large money-center banks toward the low end and smaller regional lenders higher. A 20-basis-point move in NIM at a bank with $100B of earning assets is $200M of pre-tax income, which is why bank earnings calls obsess over it.

Rate cycles cut both ways. Rising rates lift loan yields fast, but the benefit survives only if deposit costs lag — the "deposit beta" question. Banks that must chase deposits with high-yield savings rates watch the margin compress even as headline rates climb. NIM is meaningless outside lending businesses; do not compute it for an industrial.