Net interest margin (NIM) climbed to its highest level in seven years through the first half of 2026 (Slide 1) thanks to the banking industry’s balance sheet asset sensitivity. Bank analysts are asking whether the industry, can hold on to these gains as deposit competition heats up and the Fed raises rates, pushing up funding costs. They can point to call report data which shows that the industry’s wider NIMs to date are due to lower funding expense (Slide 2), while yields on earning assets have been flat (Slide 3).

Benchmarked to 5-year Treasurys, the book yield on its total loans improved since 2021 (Slide 4), but relative to the yield on total interest earning assets, the yield pick-up on loans was steady in line with its historical average around 100 basis points (Slide 5). Thanks to the AI tech surge, growth in higher-yielding commercial and industrial (C&I) loans helped drive up the yield on total loans (Slide 6). However, lower-yielding real estate loans (Slide 7) are a drag on loan yields are remain the single largest concentration in the loan book. Indeed, real estate loans grew faster than C&I loans over the past five years. Although AI data center-related commercial real estate loans would have a positive effect on total portfolio yields and represent a growing share of the industry’s real estate loan exposure, its total real estate loan portfolio remains concentrated in relatively low-yielding residential mortgage loans (Slide 8).

Setting aside the industry’s commitment to building noninterest-bearing deposit accounts, noninterest-bearing deposits peaked at 23% of total assets in 2023 (Slide 9) and have since declined as a share of assets. This year, they continued to decline as business depositors managed their cash assets more efficiently. However, noninterest-bearing deposits still account for 18% of funding, 3 points above the long-term historical average since 2002, when they equaled 12% of total assets. The industry’s interest-bearing deposit funding advantage, benchmarked to the 3-month Treasury Bill (Slide 10), has fallen from its 2023 high but remains 100 basis points above the historical average.