FCAL » Topics » Net interest income

This excerpt taken from the FCAL 10-K filed Mar 31, 2009.

Net interest income

Net interest income is the difference between interest earned on assets and interest incurred on liabilities. Taxable-equivalent net interest income is the largest component of First California’s revenue. By its nature, net interest income is especially vulnerable to changes in the mix and amounts of interest-earning assets and interest-bearing liabilities. In addition, changes in the interest rates and yields associated with these assets and liabilities significantly impact net interest income. See “Interest Rate Risk” on page 56 for further discussion of how we manage the portfolios of interest-earning assets and interest-bearing liabilities and associated risk.

Net interest income for 2008 was $40.8 million compared with $40.2 million last year. Average interest-earning assets for 2008 were $1.01 billion, up 16 percent from $873 million last year. The yield on average interest-earning assets for 2008 declined to 6.26% from 7.57%. The decline in the yield outpaced the benefit from growth in average interest-earning assets which resulted in a decline in interest income of $2.5 million.

 

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The increase in average interest-earning assets was supported by an increase in average interest-bearing liabilities, principally time certificates of deposits and FHLB advances. Average interest-bearing liabilities increased to $789.2 million from $642.6 million, up 23 percent from last year. The rate paid on average interest- bearing liabilities fell to 2.85% from 3.97% last year. The decline in the rate paid outpaced the added expense of more interest-bearing liabilities resulting in a reduction in interest expense of $3.1 million. Together, the decline in interest expense exceeded the decline in interest income resulting in a 1 percent increase in net interest income for 2008.

The net interest margin (on a taxable equivalent basis) was 4.08% in 2008 compared with 4.64% in 2007. The decreased net interest margin for 2008 compared to 2007 resulted primarily from loan yields decreasing more and faster than deposit rates and a decline in the percentage relationship of noninterest-bearing demand deposits to total interest-bearing liabilities.

Throughout 2008, the FRB lowered the federal funds rate seven times by approximately 400 basis points. In contrast, our net interest margin declined 56 basis points for the 2008 year. A decrease in interest rates generally has a more immediate impact on our variable rate loans. Marketplace deposit rates generally respond more slowly to changes in interest rates and limit our ability to reduce rates quickly. Our interest rate risk management practices are designed to create stability in our net interest margin; however, we anticipate that our net interest margin will continue to experience downward pressure due to marketplace deposit rates.

 

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The following table presents the average balances, the amount of interest earned or incurred and the applicable taxable equivalent yields for interest-earning assets and the costs of interest-bearing liabilities that generate net interest income:

These excerpts taken from the FCAL 10-K filed Mar 31, 2008.

Net interest income

Net interest income for 2007 was $40,244,000, up 72 percent from $23,348,000 for 2006. Net interest income was $20,783,000 for 2005. The increase in net interest income reflects the increase in earning assets stemming from an increase in our business loans, securities and from the Mergers completed on March 12, 2007. Loans increased 3 percent (4 percent annualized) from March 31, 2007 to December 31, 2007. Securities increased 27 percent (35 percent annualized) from March 31, 2007 to December 31, 2007. The low percentage growth in loans reflects, in part, the change in the economic climate in the second half of 2007. The increase in securities reflects the purchase of approximately $50 million of agency and private-label mortgage-backed securities in the second half of 2007. Average earning assets increased 92 percent to $872,718,000 for 2007 from $454,492,000 for 2006. Average earning assets for 2005 were $372,663,000.

The net interest margin for 2007 was 4.64% compared with 5.14% for 2006. Net interest margin was 5.58% for 2005. The decrease in the net interest margin for 2007 reflects the general decline in interest rates. The decrease in the net interest margin for 2006 reflects the higher cost of interest bearing deposits and borrowings and the higher proportion of interest bearing funds to interest earning assets.

Average loans were $683,074,000 for 2007 and represented 78 percent of average earning assets, compared with $351,882,000 and 77 percent for 2006. For 2005, average loans were $314,164,000 or 84 percent of average earning assets. Average loans increased 94 percent for 2007 and 12 percent for 2006. The increase in loans reflects the Mergers.

Average securities were $176,259,000 for 2007 and represented 20 percent of average earning assets, compared with $98,411,000 and 22 percent for 2006. For 2005, average securities were $54,665,000 or 15 percent of average earning assets. Average securities increased 79 percent for 2007 after having increased 80 percent for 2006.

Average interest-bearing deposits were $510,810,000 for 2007 and represented 59 percent of average earning assets, compared with $262,757,000 and 58 percent of average earning assets for 2006. Average interest-bearing deposits were $214,171,000 or 57 percent of average earning assets for 2005. Average interest-bearing deposits increased 94 percent for 2007 and 23 percent for 2006. Average certificates of deposit increased substantially in 2007 reflecting both the Mergers completed at the end of the first quarter of 2007 and the increased preference of our customers for certificates of deposit over other deposit products. Noninterest bearing demand deposits for the same periods increased 69 percent and decreased 8 percent, respectively. We had broker certificates of deposits of $30.0 million as of December 31, 2007.

Average interest-bearing liabilities for 2007 were $642,571,000 compared with $325,320,000 for 2006 and $241,821,000 for 2005. The increase in interest-bearing liabilities is a result of the Mergers which took place in the first quarter of 2007.

 

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The following table presents average balances and interest income or interest expense, with resulting average yield or rates on a tax equivalent basis, by earning asset or interest bearing liability category:

Net interest income

Net interest income for 2007 was $40,244,000, up 72 percent from $23,348,000 for 2006. Net interest income was $20,783,000 for 2005.
The increase in net interest income reflects the increase in earning assets stemming from an increase in our business loans, securities and from the Mergers completed on March 12, 2007. Loans increased 3 percent (4 percent annualized) from
March 31, 2007 to December 31, 2007. Securities increased 27 percent (35 percent annualized) from March 31, 2007 to December 31, 2007. The low percentage growth in loans reflects, in part, the change in the economic climate in
the second half of 2007. The increase in securities reflects the purchase of approximately $50 million of agency and private-label mortgage-backed securities in the second half of 2007. Average earning assets increased 92 percent to $872,718,000 for
2007 from $454,492,000 for 2006. Average earning assets for 2005 were $372,663,000.

The net interest margin for 2007 was 4.64% compared
with 5.14% for 2006. Net interest margin was 5.58% for 2005. The decrease in the net interest margin for 2007 reflects the general decline in interest rates. The decrease in the net interest margin for 2006 reflects the higher cost of interest
bearing deposits and borrowings and the higher proportion of interest bearing funds to interest earning assets.

Average loans were
$683,074,000 for 2007 and represented 78 percent of average earning assets, compared with $351,882,000 and 77 percent for 2006. For 2005, average loans were $314,164,000 or 84 percent of average earning assets. Average loans increased 94 percent for
2007 and 12 percent for 2006. The increase in loans reflects the Mergers.

Average securities were $176,259,000 for 2007 and represented 20
percent of average earning assets, compared with $98,411,000 and 22 percent for 2006. For 2005, average securities were $54,665,000 or 15 percent of average earning assets. Average securities increased 79 percent for 2007 after having increased
80 percent for 2006.

Average interest-bearing deposits were $510,810,000 for 2007 and represented 59 percent of average earning
assets, compared with $262,757,000 and 58 percent of average earning assets for 2006. Average interest-bearing deposits were $214,171,000 or 57 percent of average earning assets for 2005. Average interest-bearing deposits increased 94 percent for
2007 and 23 percent for 2006. Average certificates of deposit increased substantially in 2007 reflecting both the Mergers completed at the end of the first quarter of 2007 and the increased preference of our customers for certificates of deposit
over other deposit products. Noninterest bearing demand deposits for the same periods increased 69 percent and decreased 8 percent, respectively. We had broker certificates of deposits of $30.0 million as of December 31, 2007.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Average interest-bearing liabilities for 2007 were $642,571,000 compared with $325,320,000 for 2006 and $241,821,000 for 2005. The increase in
interest-bearing liabilities is a result of the Mergers which took place in the first quarter of 2007.

 


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The following table presents average balances and interest income or interest expense, with resulting
average yield or rates on a tax equivalent basis, by earning asset or interest bearing liability category:

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