- Overall net interest margins (NIMs) at community banking organizations (CBOs)_ began rising in 2022 alongside increases in the federal funds rate; however, the trend in NIM diverged for CBOs of different bank sizes in 2023 before again moving parallel beginning in 2024.
- NIMs at CBOs above $250 million (larger CBOs) expanded quickly in 2022 as larger CBOs were able to take advantage of the higher interest rate environment with considerable asset yield growth and lagging funding cost growth. Beginning in 2023, however, funding cost growth increased for larger CBOs and exceeded slowing asset yield growth causing margins to compress.
- Growth in NIMs was also experienced by CBOs under $250 million (small CBOs) in 2022. However, in contrast to the margin compression of larger CBOs in 2023, NIMs for smaller banks remained stable as growth in asset yields was able to keep pace with growth in funding costs.
- Since 1Q 2024, trends in NIMs for CBOs of different sizes have been consistent. Quarterly changes to asset yields and funding costs have benefitted CBO NIMs, causing margins to continue to expand. Most recently in 2Q 2025, margins were pushed higher as asset yields increased while funding costs remained relatively stable with NIMs at small CBOs reaching 2007 heights.
Questions or comments? Please contact KC.SRM.SRA.CommunityBankingBulletin@kc.frb.org
Endnotes
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1
Community banking organizations are defined as having less than $10 billion in total assets.
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.