(Updated with news of Silicon Valley Bank’s failure.)
As interest rates have risen, many banks have become more profitable because the spreads between what they earn on loans and investments and what they pay for funding has widened. But there are always exceptions.
Below is a screen of banks that are bucking the industry trend of expanding net interest margins, followed by another list of banks whose margins have widened the most over the past year.
On March 8, SVB Financial Group SIVB, -60.41% sold $ 21 billion in securities for a loss of $ 1.8 billion. SVB was the holding company for Silicon Valley Bank of Santa Clara, Calif. It had $ 212 billion in assets as of Dec. 31.
The bank said it was repositioning to “increase asset sensitivity, to take advantage of the potential for higher short-term rates, partially lock-in funding costs, better protect net interest income (NII) and net interest margin (NIM), and enhance profitability.”
The bank had long focused on lending to and gathering deposits from venture capital firms. It said on March 8 that “client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted.”
Silicon Valley Bank wasn’t able to sooth customers sufficiently to prevent a run on deposits. So it was closed by California regulators on Friday and handed over to the Federal Deposit Insurance Corp.
The entire banking industry seemed to take it on the chin on March 9, with the KBW Nasdaq Bank Index BKX, -3.91% sinking 8%.
Another bank whose stock dropped amid concerns over liquidity was Signature Bank SBNY, -22.87% of New York, which issued a statement meant to calm depositors and shareholders. Signature Bank’s shares fell 12% on March 9 and were down another 24% in premarket late trading on March 10.
Red margin flags
Before SVB Financial decided to take such a dramatic step, the movement of its net interest margin was signaling that the bank wasn’t well positioned for the combination of rising interest rates and slowing loan growth in the venture capital space.
A bank’s net interest margin is the spread between its average yield on loans and investments and its average cost for deposits and borrowings. This is an annualized calculation. Here’s how the NIM moved for SVB Financial over the past year:
| Bank | Ticker | NIM – Q4 2022 | NIM – Q3 2022 | NIM – Q2 2022 | NIM – Q1 2022 | NIM- Q4 2021 |
| SVB Financial Group | SIVB, -60.41% | 2.00% | 2.28% | 2.24% | 2.13% | 1.91% |
| Source: FactSet | ||||||
SVB’s net interest margin narrowed considerably during the fourth quarter, and it widened only slightly from the year-earlier quarter.
So now the question is which other banks might face pressure because their net interest margins have contracted, or because their margins have only expanded slighlty?
Starting with a list of U.S. banks with total assets of at least $ 10 billion, and removing purer investment banks, such as Goldman Sachs Group Inc. GS, -4.22% and Morgan Stanley MS, -2.33%, we looked at 108 banks.
A uniform set of net interest margins for the past five quarters isn’t available from FactSet for the full group — it is only available for 56 of the banks. So instead, we screened for net interest income (total interest income less total interest expense) divided by average total assets.
By this screen, 102 of 108 banks showed expanding margins for the fourth quarter from a year earlier.
Here are the 10 showing contracting margins over the past year, or the smallest expansions of margins:
| Bank | Ticker | City | Net interest income/ avg. assets – Q4 2022 | Net interest income/ avg. assets – Q3 2022 | Net interest income/ avg. assets – Q4 2021 | One-year contraction or expansion |
| Customers Bancorp Inc. | CUBI, -13.11% | West Reading, Pa. | 2.61% | 3.10% | 4.03% | -1.42% |
| First Republic Bank | FRC, -14.84% | San Francisco, Calif. | 2.28% | 2.53% | 2.50% | -0.22% |
| Sandy Spring Bancorp Inc. | SASR, -2.91% | Olney, Md. | 3.10% | 3.34% | 3.29% | -0.19% |
| New York Community Bancorp Inc. | NYCB, -5.99% | Hicksville, N.Y. | 2.10% | 2.06% | 2.20% | -0.11% |
| First Foundation Inc. | FFWM, -9.11% | Dallas, Texas | 2.35% | 2.98% | 2.41% | -0.07% |
| Ally Financial Inc. | ALLY, -5.70% | Detroit, Mich. | 4.04% | 4.20% | 4.09% | -0.05% |
| Dime Community Bancshares Inc. | DCOM, -2.81% | Hauppauge, N.Y. | 2.98% | 3.20% | 2.95% | 0.03% |
| Pacific Premier Bancorp Inc. | PPBI, -1.95% | Irvine, Calif. | 3.34% | 3.34% | 3.27% | 0.07% |
| Prosperity Bancshares Inc. | PB, -4.46% | Houston, Texas | 2.72% | 2.78% | 2.65% | 0.07% |
| Columbia Financial Inc. | CLBK, -1.78% | Fair Lawn, N.J. | 2.69% | 2.78% | 2.60% | 0.09% |
| Source: FactSet | ||||||
Click on the tickers for more about each bank.
Read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
SVB Financial ranked 11th worst in the screen, with net interest income/average assets of 1.93% in the fourth quarter, up from 1.83% in the year-earlier quarter.
Most margin improvement
To end on a positive note, these banks showed the widest expansion of margins, based on net interest income divided by average assets:
| Bank | Ticker | City | Net interest income/ avg. assets – Q4, 2022 | Net interest income/ avg. assets – Q3, 2022 | Net interest income/ avg. assets – Q4, 2021 | One-year expansion |
| Comerica Inc. | CMA, -5.01% | Dallas, Texas | 3.54% | 3.31% | 1.91% | 1.63% |
| First Horizon Corp. | FHN, -3.97% | Memphis, Tenn. | 3.57% | 3.21% | 2.24% | 1.33% |
| M&T Bank Corp. | MTB, -1.44% | Buffalo, N.Y. | 3.68% | 3.34% | 2.37% | 1.31% |
| Stellar Bancorp Inc. | STEL, -1.12% | Houston, Texas | 4.16% | 3.95% | 2.85% | 1.31% |
| Enterprise Financial Services Corp. | EFSC, -1.88% | Clayton, Mo. | 4.28% | 3.78% | 3.08% | 1.20% |
| Berkshire Hills Bancorp Inc. | BHLB, -1.65% | Boston, Mass. | 3.61% | 3.26% | 2.43% | 1.18% |
| East West Bancorp Inc. | EWBC, -6.11% | Pasadena, Calif. | 3.77% | 3.50% | 2.61% | 1.16% |
| Texas Capital Bancshares Inc. | TCBI, -1.13% | Dallas, Texas | 3.22% | 3.01% | 2.08% | 1.14% |
| Wintrust Financial Corp. | WTFC, -2.33% | Rosemont, Ill. | 3.51% | 3.17% | 2.41% | 1.10% |
| WSFS Financial Corp. | WSFS, -2.78% | Wilmington, Del. | 3.90% | 3.50% | 2.81% | 1.09% |
| Source: FactSet | ||||||
Following up: 20 banks that are sitting on huge potential securities losses—as was SVB