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While banks are not as profitable as they were during the 1990s, they are starting to come back
to their 2000s level. Banks with assets between $1B to $15B took their largest hit in 2009, when their
Net Interest Margin (NIM) dropped by 12%. It should be noted that NIM was already low in the 2000s,
compared to the 1990s, and this drop pushed it to 27% below its 1990s average.
Smaller banks, those with assets less than a billion dollars, also saw their NIM drop. While they fared better than their larger
counterparts during the 2000s, the impact of the financial crisis on them was initially almost the same. Their NIM dropped by 14%
below their 2000s average.
While both categories are showing significant improvement in their NIM, the larger banks appear to be back to their 2000s average.
The smaller banks are also recovering, and now have almost the same NIM as the larger banks. However, compared to their
own pre-recession performance, smaller banks are still around 9% short of their 2000s average.
Net Interest Margin (NIM) is total interest income on a tax-equivalent basis minus total interest
expense, as a percentage of average interest-earning assets. The interest income in the numerator
is adjusted to a tax-equivalent basis to "gross up" the returns of banks that have non-taxable
municipal bond income. The denominator contains average interest-earning assets as opposed to
average total assets. The ratio is expressed in percentage terms.
For 22 years KAA has been assisting community and regional banks in taking advantage of
opportunities and avoiding threats. We have a specific methodology in place for
assessing the strengths, weaknesses, opportunities and threats for community and regional
bank.
Please contact us at 610-691-3272 if you would like to hear more about KAA and see
if we can be of assistance to your bank during this exceptional economic environment.
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