Business and Personal Finance Dictionary

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• NET INTEREST MARGIN
  
  The amount of interest income minus interest expense, usually expressed as a percentage. The net interest margin percentage is calculated by dividing interest income less interest expense by average earning assets. If interest income includes tax-free income, that income should be "grossed up" to its taxable equivalent before calculating the percentage. (To gross up tax-free income to its taxable equivalent, divide the income by one minus the marginal income tax rate.) The net interest margin expressed as a percentage of earning assets is often confused with the net spread. The spread is the difference between the average rate earned on assets minus the average rate paid on liabilities. That spread would only equal the net interest margin percentage if the dollar amount of earning assets equaled the dollar amount of interest-bearing liabilities.
  
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