Banks operate by lending and investing cash to generate income, but they also have to pay interest to their savers and creditors. A bank's ability to make profit depends on how much its interest income exceeds its interest expenses  a value known as net interest. Net interest margin is a percentage calculated from net interest that indicates a bank's return on interestearning assets over a particular period.
Things You'll Need
 Income statement
 Balance sheet

Subtract total interest expenses from total interest income for the period in question. The result is net income. Interest income and expenses are items on a bank's income statement. Net interest income might already be calculated and listed on the income statement. If the period in question spans multiple income statements, add the net interest from each statement to calculate the total for the whole period. For example, if a bank made $1 million in interest income over the past year and had $800,000 in interest expesnes, its net interest is $1 million minus $800,000, or $200,000.

Calculate the bank's average interestearning assets. Interestearning assets are things like loans and investments made by a bank that generate interest income. Interestearning assets are noted on a bank's balance sheet. Add up all interestearning assets the company had on each balance sheet during the period in question and divide by the number of balance sheets you needed to cover the period. The result is the average interestearning assets. For instance, if over the past year a bank had $9 million of interestearning assets during the first six months and $11 million during the final six months, its average interestearning assets for the year are $10 million.

Divide average interestearning assets calculated in step 2 by net income calculated in step 1. The result is the net interest margin. Continuing the earlier example, dividing the bank's net interest income of $200,000 by the average interestearning assets of $10 million gives a net interest margin of 0.02 or 2 percent.
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