10 banks with smaller margins than expected this year

Since interest rates have gone up, many banks have become more profitable because of the spreads between what they earn on loans and investments and what they pay for funding. There are always exceptions.

The banks below are bucking the industry trend of expanding net interest margins, followed by another list of banks with margins that have widened the most over the past year.

On March 8, SVB Financial Group SIVB sold $21 billion in securities for a loss of $1.8 billion. SVB is the holding company for Silicon Valley Bank of Santa Clara, Calif. It had $212 billion in assets as of December 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, to protect net interest income NII and net interest margin NIM and to increase profitability. The securities sales losses will lead to a $2.25 billion new capital raising through two offerings and a private placement. The company's shares fell by as much as 62% on March 9 due to the prospect of dilution of shareholder ownership positions.

The entire banking industry seemed to take it on the chin on March 9 with the KBW Nasdaq Bank Index BKX sinking 7.5%.

More information on SVB's offerings, the securities sale and reaction can be found in Tomi Kilgore's coverage.

Before SVB Financial decided to take such a dramatic step, the movement of its net interest margin signaled 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 difference between its average yield on loans and investments and its average cost for deposits and borrowings. This is an annualized calculation. Here is how the NIM moved for SVB Financial over the past year:

SVB's net interest margin narrowed considerably during the fourth quarter, and it widened only slightly from the year-earlier quarter.

Now the question is which other banks might have to deal with 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, and Morgan Stanley MS, 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. We screened for net interest income less total interest expense and the average total assets instead of net interest income.

102 of 108 banks have expanded their margins for the fourth quarter from a year ago, according to the screen.

Here are the 10 showing contracting margins over the past year, or the smallest expansion of margins:

You can read Tomi Kilgore's detailed guide to the wealth of information available on the MarketWatch quote page.

SVB Financial was 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.

These banks showed the widest expansion of margins based on net interest income divided by average assets, to end on a positive note:

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