FNBN » Topics » Net Interest Income

This excerpt taken from the FNBN 10-Q filed Nov 14, 2007.

Net Interest Income

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities. An analysis is presented in Table 2 of the Company’s net interest income on a taxable-equivalent basis and average balance sheets for the three month and nine month periods ended September 30, 2007 and 2006.

For the three months ended September 30, 2007, net interest income before the provision for loan losses was $16.3 million, an increase of $370,000, or 2%, from $15.9 million for the same quarter in 2006. The increase was primarily due to an $80 million increase in average loan balances, offset by a $61 million increase in interest bearing liabilities. For the nine months ended September 30, 2007, net interest income before the provision for loan losses was $48.9 million, an increase of $7.4 million, or 17.8%, from $41.5 million for the same period in 2006. The increase was primarily due to a $273 million increase in average loan balances associated with the Integrity acquisition.

The net interest margin (taxable-equivalent net interest income divided by average earning assets) compressed 18 basis points to 3.96 % for the three months ended September 30, 2007, compared to 4.14% in the same period in 2006. The decline in the net interest margin was attributable to pressures associated with an inverted yield curve whereby short-term rates are higher than long-term rates. While the Company experienced a 15 basis points increase in the yield on earning assets, the cost of interest-bearing liabilities increased 40 basis points. Growth in earning assets was funded by higher cost deposits and wholesale borrowings. The pattern was similar for the nine months ended September 30, 2007 with the net interest margin decreasing 16 basis points to 4.05%, compared to 4.21% in the same period of 2006 and with the yield on earning assets and the cost of interest-bearing liabilities increasing 42 basis points and 62 basis points, respectively.

 

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This excerpt taken from the FNBN 10-Q filed Aug 9, 2007.

Net Interest Income

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities. An analysis is presented in Table 2 of the Corporation’s net interest income on a taxable-equivalent basis and average balance sheet for the three months ended June 30, 2007 and 2006 and also for the six months then ended.

For the three months ended June 30, 2007, net interest income before the provision for loan losses was $16.1 million, an increase of $1.7 million or 11.8% from $14.4 million for the same quarter in 2006. The increase was primarily due to a $221 million increase in average loan balances associated with the Integrity acquisition. For the six months ended June 30, 2007, net interest income before the provision for loan losses was $31.9 million, an increase of $7.4 million or 30.2% from $24.5 million for the same period in 2006. The increase was primarily due to a $371 million increase in average loan balances associated with the Integrity acquisition.

The net interest margin (taxable-equivalent net interest income divided by average earning assets) compressed 18 basis points to 4.07 % for the three months ended June 30, 2007, compared to 4.25% in the same period in 2006. The decline in the net interest margin was attributable to pressures associated with an inverted yield curve whereby short-term rates are higher than long-term rates. While the Corporation experienced a 43 basis points increase in the yield on earning assets, the cost of interest-bearing liabilities increased 65 basis points. Growth in earning assets was funded by higher cost deposits and wholesale borrowings. The pattern was similar for the six months ended June 30, 2007 with the net interest margin decreasing 15 basis points to 4.11% compared to 4.26% in the same period of 2006 and with the yield on earning assets and the cost of interest-bearing liabilities increasing 59 basis points and 78 basis points, respectively.

 

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This excerpt taken from the FNBN 10-Q filed May 10, 2007.

Net Interest Income

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities. An analysis of the Corporation’s net interest income on a taxable-equivalent basis and average balance sheet for the three months ended March 31, 2007 and 2006 is presented in Table 2.

For the three months ended March 31, 2007, net interest income was $15.8 million, an increase of $5.7 million or 57.0% from $10.1 million for the same quarter in 2006. The increase was primarily due to a $520 million increase in average loan balances associated with the Integrity acquisition.

The net interest margin (taxable-equivalent net interest income divided by average earning assets) compressed 13 basis points to 4.15% for the three months ended March 31, 2007, compared to 4.28% in the same period in 2006. The decline in the net interest margin was attributable to pressures associated with an inverted yield curve whereby short-term rates are higher than long-term rates. While the Corporation experienced an 83 basis point increase in the yield or earning assets, the cost of interest-bearing liabilities increased 98 basis points. Higher cost deposit growth outpaced loan growth (highest yielding costs). The excess funds were deployed in lower yielding assets (overnight investments and available for sale securities) and the spread was minimal because of the flat yield curve.

 

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This excerpt taken from the FNBN 10-K filed Mar 27, 2007.

Net Interest Income

 

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

 

Net interest income was $56.2 million in 2006 compared to $34.4 million in 2005. The increase of $21.8 million or 64% resulted primarily from a 61% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 4.16% in 2005 to 4.20% in 2006. In 2005, the increase of $6.3 million or 22.6% resulted primarily from a 13.2% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 3.89% in 2004 to 4.16% in 2005. On a taxable equivalent basis, the increases in net interest income in 2006 and 2005 were $22.2 million and $6.2 million, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each year.

 

Table 1 sets forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities.

 

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Table of Contents
This excerpt taken from the FNBN 10-Q filed Nov 9, 2006.

Net Interest Income

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

Net interest income was $40.3 million in the first nine months of 2006 compared to $24.6 million in the same period of 2005. This increase of $15.7 million or 64% resulted primarily from a 60% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 4.15% in the first nine months of 2005 to 4.21% in the same period of 2006. In comparing third quarter periods, net interest income increased $7.3 million or 84% reflecting an 88% increase in average earning assets, the effect of which was partially offset by a decrease in the net interest margin from 4.24% to 4.14%. On a taxable equivalent basis, the increases in net interest income in the first nine months and third quarter of 2006 were $16.0 million and $7.4 million, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each period.

Table 1 on page 39 and Table 2 on page 40 set forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable equivalent basis, as measured by volume and rate variances, are also analyzed in Tables 1 and 2. Volume refers to the average dollar level of earning assets and interest-bearing liabilities.

 

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Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities.

Following a generally low-rate environment for interest rates both earned and paid by the Corporation, the Federal Reserve took action to raise the level of interest rates by 25 basis points at the end of June 2004, due to concern about increasing inflationary pressures, causing the prime rate to increase to 4.25% in July 2004. Four additional rate increases of 25 basis points each during the second six months of 2004, eight more such rate increases in 2005 and four more in 2006 have raised the prime rate to the 8.25% level at September 30, 2006. The prime rate averaged 4.12% in 2003, rising to 4.33% in 2004 and 6.15% in 2005.

The prime rate averaged 7.84% in the first nine months of 2006 compared to 5.88% in the first nine months of 2005. The prime rate averaged 8.25% in the third quarter of 2006 compared to 6.43% in the third quarter of 2005. The net interest spread, in comparing nine-month periods, was unchanged at 3.84% in both 2005 and 2006. The yield on earning assets increased by 115 basis points from 6.36% in 2005 to 7.51% in 2006, while the cost of funds also increased by 115 basis points from 2.52% to 3.67%. In comparing third quarter periods, the net interest spread decreased by 16 basis points from 3.91% to 3.75%, as the yield on earning assets increased by 103 basis points while the cost of funds increased by 119 basis points.

This excerpt taken from the FNBN 10-Q filed Aug 9, 2006.

Net Interest Income

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

Net interest income was $24,458,000 in the first six months of 2006 compared to $16,004,000 in the same period of 2005. This increase of $8,454,000 or 52.8% resulted primarily from a 46.4% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 4.10% in the first six months of 2005 to 4.25% in the same period of 2006. In comparing

 

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second quarter periods, net interest income increased $6,192,000 or 75.7% reflecting a 69.3% increase in average earning assets and an increase in the net interest margin from 4.12% to 4.25%. On a taxable equivalent basis, the increases in net interest income in the first six months and second quarter of 2006 were $8,614,000 and $6,329,000, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each period.

Table 1 on page 35 and Table 2 on page 36 set forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable equivalent basis, as measured by volume and rate variances, are also analyzed in Tables 1 and 2. Volume refers to the average dollar level of earning assets and interest-bearing liabilities.

Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities.

Following a generally low-rate environment for interest rates both earned and paid by the Corporation, the Federal Reserve took action to raise the level of interest rates by 25 basis points at the end of June 2004, due to concern about increasing inflationary pressures, causing the prime rate to increase to 4.25% in July 2004. Four additional rate increases of 25 basis points each during the second six months of 2004, eight more such rate increases in 2005 and four more in 2006 have raised the prime rate to the 8.25% level at June 30, 2006. The prime rate averaged 4.12% in 2003, rising to 4.33% in 2004 and 6.15% in 2005.

The prime rate averaged 7.64% in the first six months of 2006 compared to 5.60% in the first six months of 2005. The prime rate averaged 7.86% in the second quarter of 2006 compared to 5.88% in the second quarter of 2005. The net interest spread, in comparing six-month periods, increased by 7 basis points from 3.81% in 2005 to 3.88% in 2006, reflecting the effect of an increase in the average total yield on earning assets that more than offset the increase in the average rate paid on interest-bearing liabilities, or cost of funds. The yield on earning assets increased by 117 basis points from 6.20% in 2005 to 7.37% in 2006, while the cost of funds increased by 110 basis points from 2.39% to 3.49%. In comparing second quarter periods, the net interest spread increased by 6 basis points from 3.81% to 3.87%, as the yield on earning assets increased by 123 basis points while the cost of funds increased by 117 basis points.

This excerpt taken from the FNBN 10-Q filed May 10, 2006.

Net Interest Income

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

Net interest income was $10,081,000 in the first quarter of 2006 compared to $7,819,000 in the same period of 2005. This increase of $2,262,000 or 28.9% resulted from a 22.6% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 4.08% in 2005 to 4.26% in 2006. On a taxable equivalent basis, the increase in net interest income in the first quarter of 2006 was $2,285,000, reflecting changes in the relative mix of taxable and non-taxable earning assets in each period.

Table 1 on page 30 sets forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable equivalent basis, as measured by volume and rate variances, are also analyzed in Table 1. Volume refers to the average dollar level of earning assets and interest-bearing liabilities.

Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities.

Following a generally low-rate environment for interest rates both earned and paid by the Corporation, the Federal Reserve took action to raise the level of interest rates by 25 basis points at the end of June 2004, due to concern about increasing inflationary pressures, causing the prime rate to increase to 4.25% in July 2004. Four additional rate increases of 25 basis points each during the second six months of 2004, eight more such rate increases in 2005 and two more in 2006 have raised the prime rate to the 7.75% level at March 31, 2006. The prime rate averaged 4.12% in 2003, rising to 4.33% in 2004 and 6.15% in 2005.

The prime rate averaged 7.39% in the first quarter of 2006 compared to 5.34% in the first quarter of 2005. The net interest spread, in comparing first quarter periods, increased by 10 basis points from 3.80% in 2005 to 3.90% in 2006, reflecting the effect of an increase in the average total yield on earning assets that more than offset the increase in the average rate paid on interest-bearing liabilities, or cost of funds. The yield on earning assets increased by 107 basis points from 6.09% in 2005 to 7.16% in 2006, while the cost of funds increased by 97 basis points from 2.29% to 3.26%.

 

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This excerpt taken from the FNBN 10-K filed Mar 16, 2006.

Net Interest Income

 

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

 

Net interest income was $34,365,000 in 2005 compared to $28,034,000 in 2004. The increase of $6,331,000 or 22.6% resulted primarily from a 13.2% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 3.89% in 2004 to 4.16% in 2005. In 2004, the increase of $1,020,000 or 3.8% resulted primarily from a 4.5% increase in the level of average earning assets, the effect of which was partially offset by a decline in the net yield on earning assets, or net interest margin, from 3.94% in 2003 to 3.89% in 2004. On a taxable equivalent basis, the increases in net interest income in 2005 and 2004 were $6,220,000 and $907,000, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each year.

 

Table 1 sets forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities.

 

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Table of Contents
This excerpt taken from the FNBN 10-Q filed Nov 9, 2005.

Net Interest Income

 

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

 

Net interest income was $24,624,000 in the first nine months of 2005 compared to $20,447,000 in the same period of 2004. This increase of $4,177,000 or 20.4% resulted primarily from a 10.2% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 3.83% in the first nine months of 2004 to 4.15% in the same period of 2005. In comparing third quarter periods, net interest income increased $1,411,000 or 19.5% reflecting a 9.7% increase in average

 

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earning assets and an increase in the net interest margin from 3.94% to 4.24%. On a taxable equivalent basis, the increase in net interest income in the first nine months and third quarter of 2005 were $4,075,000 and $1,378,000, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each period.

 

Table 1 on page 32 and Table 2 on page 33 set forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable equivalent basis, as measured by volume and rate variances, are also analyzed in Tables 1 and 2. Volume refers to the average dollar level of earning assets and interest-bearing liabilities.

 

Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities.

 

Following the significant declines in 2001, interest rates tended to stabilize, until mid-2004, in a generally low-rate environment for rates both earned and paid by the Corporation. After reductions in the prime rate totaling 4.75% in 2001, there were additional rate cuts of .50% in November 2002 and .25% in June 2003, resulting in the prime rate of 4.00% that was effective through June 30, 2004. Due to concern about increasing inflationary pressures, the Federal Reserve took action to raise the level of interest rates at the end of June 2004, causing the prime rate to increase to 4.25% in July 2004. Four additional rate increases of 25 basis points each during the second six months of 2004 and six more such rate increases in 2005 have raised the prime rate to the 6.75% level at September 30, 2005. The prime rate averaged 6.99% in 2001, falling to 4.67% in 2002 and 4.12% in 2003 and rising to 4.33% in 2004.

 

The Corporation’s net interest margin and net interest spread were negatively impacted in 2003 due in part to the prime rate reductions in November 2002 and June 2003 but also because of the cumulative effect of the reductions in yields on fixed rate earning assets over an extended period. While there was some continuing erosion of the margin and spread in the first six months of 2004, the subsequent prime rate increases have had a positive effect on the margin and spread.

 

The prime rate averaged 6.43% in the first nine months of 2005 compared to 4.38% in the first nine months of 2004. The prime rate averaged 5.88% in the second quarter of 2005 compared to 4.00% in the second quarter of 2004. The net interest spread, in comparing nine-month periods, increased by 23 basis points from 3.61% in 2004 to 3.84% in 2005, reflecting the effect of an increase in the average total yield on earning assets that more than offset the increase in the average rate paid on interest-bearing liabilities, or cost of funds. The yield on earning assets increased by 93 basis points from 5.43% in 2004 to 6.36% in 2005, while the cost of funds increased by 70 basis points from 1.82% to 2.52%. In comparing third quarter periods, the net interest spread increased by 20 basis points from 3.71% to 3.91%, as the yield on earning assets increased by 111 basis points while the cost of funds increased by 91 basis points.

 

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This excerpt taken from the FNBN 10-Q filed Aug 5, 2005.

Net Interest Income

 

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

 

Net interest income was $16,004,000 in the first six months of 2005 compared to $13,238,000 in the same period of 2004. This increase of $2,766,000 or 20.9% resulted primarily from a 10.5% increase in the level of average earning assets coupled with an improvement in the net yield on earning assets, or net interest margin, from 3.78% in the first six months of 2004 to 4.10% in the same period of 2005. In comparing second quarter periods, net interest income increased $1,474,000 or 22.0% reflecting a 9.3% increase in average earning assets and an increase in the net interest margin from 3.74% to 4.12%. On a taxable equivalent basis, the increase in net interest income in the first six months and second quarter of 2005 were $2,697,000 and $1,438,000, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each period.

 

Table 1 on page 30 and Table 2 on page 31 set forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable equivalent basis, as measured by

 

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volume and rate variances, are also analyzed in Tables 1 and 2. Volume refers to the average dollar level of earning assets and interest-bearing liabilities.

 

Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities.

 

Following the significant declines in 2001, interest rates tended to stabilize, until mid-2004, in a generally low-rate environment for rates both earned and paid by the Corporation. After reductions in the prime rate totaling 4.75% in 2001, there were additional rate cuts of .50% in November 2002 and .25% in June 2003, resulting in the prime rate of 4.00% that was effective through June 30, 2004. Due to concern about increasing inflationary pressures, the Federal Reserve took action to raise the level of interest rates at the end of June 2004, causing the prime rate to increase to 4.25% in July 2004. Four additional rate increases of 25 basis points each during the second six months of 2004 and four more such rate increases in 2005 have raised the prime rate to the 6.25% level at June 30, 2005. The prime rate averaged 6.99% in 2001, falling to 4.67% in 2002 and 4.12% in 2003 and rising to 4.33% in 2004.

 

The Corporation’s net interest margin and net interest spread were negatively impacted in 2003 due in part to the prime rate reductions in November 2002 and June 2003 but also because of the cumulative effect of the reductions in yields on fixed rate earning assets over an extended period. While there was some continuing erosion of the margin and spread in the first six months of 2004, the subsequent prime rate increases have had a positive effect on the margin and spread.

 

The prime rate averaged 5.60% in the first six months of 2005 compared to 4.00% in the first six months of 2004. The prime rate averaged 5.88% in the second quarter of 2005 compared to 4.00% in the second quarter of 2004. The net interest spread, in comparing six-month periods, increased by 26 basis points from 3.55% in 2004 to 3.81% in 2005, reflecting the effect of an increase in the average total yield on earning assets that more than offset the increase in the average rate paid on interest-bearing liabilities, or cost of funds. The yield on earning assets increased by 84 basis points from 5.36% in 2004 to 6.20% in 2005, while the cost of funds increased by 58 basis points from 1.81% to 2.39%. In comparing second quarter periods, the net interest spread increased by 30 basis points from 3.51% to 3.81%, as the yield on earning assets increased by 99 basis points while the cost of funds increased by 69 basis points.

 

This excerpt taken from the FNBN 10-Q filed May 9, 2005.

Net Interest Income

 

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

 

Net interest income was $7,819,000 in the first quarter of 2005 compared to $6,527,000 in the same period of 2004. This increase of $1,292,000 or 19.8% resulted from an improvement in the net yield on earning assets, or net interest margin, from 3.82% in 2004 to 4.08% in 2005 coupled with an 11.8% increase in the level of average earning assets. On a taxable equivalent basis, the increase in net interest income in the first quarter of 2005 was $1,259,000, reflecting changes in the relative mix of taxable and non-taxable earning assets in each period.

 

Table 1 on page 26 sets forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities. Changes in net interest income on a taxable equivalent basis, as measured by volume and rate variances, are also analyzed in Table 1. Volume refers to the average dollar level of earning assets and interest-bearing liabilities.

 

Changes in the net interest margin and net interest spread tend to correlate with movements in the prime rate of interest. There are variations, however, in the degree and timing of rate changes, compared to prime, for the different types of earning assets and interest-bearing liabilities.

 

Following the significant declines in 2001, interest rates tended to stabilize, until mid-2004, in a generally low-rate environment for rates both earned and paid by the Corporation. After reductions in the prime rate totaling 4.75% in 2001, there were additional rate cuts of .50% in November 2002 and .25% in June 2003, resulting in the prime rate of 4.00% that was effective through June 30, 2004. Due to concern about increasing inflationary pressures, the Federal Reserve took action to raise the level of interest rates at the end of June 2004, causing the prime rate to increase to 4.25% in July 2004. Four additional rate increases of 25 basis points each during the second six months of 2004 and two more such rate increases in 2005 have raised the prime rate to the 5.75% level at March 31, 2005. The prime rate averaged 6.99% in 2001, falling to 4.67% in 2002 and 4.12% in 2003 and rising to 4.33% in 2004.

 

The Corporation’s net interest margin and net interest spread were negatively impacted in 2003 due in part to the prime rate reductions in November 2002 and June 2003 but also because of the cumulative effect of the reductions in yields on fixed rate earning assets over an extended period. While there was some continuing erosion of the margin and spread in the first six months of 2004, the subsequent prime rate increases have had a positive effect on the margin and spread.

 

The prime rate averaged 5.34% in the first quarter of 2005 compared to 4.00% in the first quarter of 2004. The net interest spread, in comparing first quarter periods, increased by 20 basis points from 3.60% in 2004 to 3.80% in 2005, reflecting the effect of an increase in the average total yield on earning assets that

 

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more than offset the increase in the average rate paid on interest-bearing liabilities, or cost of funds. The yield on earning assets increased by 68 basis points from 5.41% in 2005 to 6.09% in 2004, while the cost of funds increased by 48 basis points from 1.81% to 2.29%.

 

This excerpt taken from the FNBN 10-K filed Mar 16, 2005.

Net Interest Income

 

Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits. Changes in net interest income result from changes in interest rates and in the volume, or average dollar level, and mix of earning assets and interest-bearing liabilities.

 

Net interest income was $28,034,000 in 2004 compared to $27,014,000 in 2003. The increase of $1,020,000 or 3.8% resulted primarily from a 4.5% increase in the level of average earning assets, the effect of which was partially offset by a decline in the net yield on earning assets, or net interest margin, from 3.94% in 2003 to 3.89% in 2004. In 2003, the increase of $1,676,000 or 6.6% resulted largely from the acquisitions of Rowan Bank and Dover Mortgage Company on August 1, 2002 and April 1, 2003, respectively, as discussed above, which was the primary factor resulting in an 18.7% increase in the level of average earning assets, the effect of which was partially offset by a decline in the net yield on earning assets, or net interest margin, from 4.40% to 3.94%. On a taxable equivalent basis, the increases in net interest income in 2004 and 2003 were $907,000 and $1,665,000, respectively, reflecting changes in the relative mix of taxable and non-taxable earning assets in each year.

 

Table 1 sets forth for the periods indicated information with respect to the Corporation’s average balances of assets and liabilities, as well as the total dollar amounts of interest income (taxable equivalent basis) from earning assets and interest expense on interest-bearing liabilities, resultant rates earned or paid, net interest income, net interest spread and net yield on earning assets. Net interest spread refers to the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities. Net yield on earning assets, or net interest margin, refers to net interest income divided by average earning assets and is influenced by the level and relative mix of earning assets and interest-bearing liabilities.

 

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