Net Interest MarginNIM
Net interest margin (NIM) is a bank’s net interest income (interest earned on loans and securities minus interest paid on deposits and borrowings) divided by its average earning assets. It is the core spread that pays for a bank’s operations.
How NIM is calculated
NIM = net interest income ÷ average earning assets, annualized. Earning assets are the loans, securities and interest-bearing balances that generate interest; cash in the vault and premises do not count. Banks often report NIM on a tax-equivalent basis, grossing up tax-exempt municipal income so it compares fairly with taxable income.
What drives it
Two sides move the margin. On the asset side: loan mix and pricing, how fast loans and securities reprice, and how much of the balance sheet sits in low-yielding securities. On the funding side: how much of the bank is funded by noninterest-bearing checking accounts versus CDs, money market accounts and wholesale borrowings.
Two South Carolina banks reporting the same week show the range. First Community reported a 3.59% tax-equivalent margin for the third quarter of 2026, and Southern First reported 3.02% according to their earnings releases (see our profiles of First Community and Southern First).
Why deposits decide it
Loan yields are set largely by the market. Deposit costs are where a community bank has an edge or loses one. Every operating checking account a bank opens replaces higher-cost funding, which is why account opening conversion is a margin question, not just a marketing one. A bank that loses the primary checking relationship to an app keeps paying for the deposits it has to buy instead.
Common questions
What is a good net interest margin?
It depends on the business model and the rate environment. Community banks with strong core deposit bases and loan-heavy balance sheets typically run higher margins than banks funded by CDs or holding large securities portfolios.
What is the difference between net interest margin and net interest spread?
Spread is the yield on earning assets minus the rate paid on interest-bearing liabilities. NIM divides net interest income by all earning assets, so it also credits the value of free funding such as noninterest-bearing deposits and equity.
How do rate cuts affect NIM?
It depends on what reprices first. Banks whose loans reset quickly while deposit costs lag can see margins compress; banks with high deposit costs that can lower them quickly can see margins expand.