GABC » Topics » Net Interest Income:

This excerpt taken from the GABC 10-K filed Mar 15, 2006.

NET INTEREST INCOME

 

Net interest income is the Company’s single largest source of earnings, and represents the difference between interest and fees realized on earning assets, less interest paid on deposits and borrowed funds. Several factors contribute to the determination of net interest income and net interest margin, including the volume and mix of earning assets, interest rates, and income taxes. Many factors affecting net interest income are subject to control by management policies and actions. Factors beyond the control of management include the general level of credit and deposit demand, Federal Reserve Board monetary policy, and changes in tax laws.

 

Net interest income increased $974,000 or 3% ($576,000 or 2% on a tax-equivalent basis) in 2005 compared with 2004. Net interest margin is tax equivalent net interest income expressed as a percentage of average earning assets. For 2005, the net interest margin increased to 3.92% compared with 3.86% in 2004. The Company’s increase in net interest income during 2005 compared with 2004 was largely attributable to the increase in the net interest margin. The Company’s yield on earning assets increased to 6.03% during 2005 compared with 5.79% for 2004. The increased yield on earning assets was primarily attributable to higher short-term interest rates and an increased level of loans outstanding during 2005 compared with 2004. The Company’s cost of funds (expressed as a percentage of average earning assets) during 2005 was 2.10% compared with 1.93% for 2004. The increase in the cost of funds was due to a rise in short-term market interest rates tempered by an increased level of non-maturity deposits including non-interest bearing demand accounts, less reliance on time deposits and borrowings and a decline in interest rates on outstanding borrowings from the Federal Home Loan Bank due to repayments of higher-cost advances that were outstanding in 2004.

 

Net interest income increased during 2004 by $1,704,000 or 6% ($1,336,000 or 4% on a tax equivalent basis) compared to 2003. For 2004, the net interest margin increased to 3.86% compared with 3.61% in 2003. The Company’s increase in net interest income in 2004 compared with 2003 was largely attributable to the increased net interest margin that was largely driven by a decline in the Company’s cost of funds. The Company’s cost of funds was reduced due to a number of factors including the historically low level of interest rates during 2003 and 2004 and the change in the mix of the deposit base to a higher dependence on non-maturity deposits and less dependence on time deposits. Also contributing to the lower cost of funds during 2004 was the repayment of higher costing FHLB advances during 2003 in the Company’s mortgage banking segment.

 

 

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The following table summarizes net interest income (on a tax-equivalent basis) for each of the past three years. For tax-equivalent adjustments, an effective tax rate of 34% was used for all years presented (1).

This excerpt taken from the GABC 10-Q filed Nov 9, 2005.

Net Interest Income:

 

Net interest income is the Company’s single largest source of earnings, and represents the difference between interest and fees realized on earning assets, less interest paid on deposits and borrowed funds. The following table summarizes German American Bancorp’s net interest income (on a tax-equivalent basis, at an effective tax rate of 34%) for the most recent quarter of 2005 and the comparable prior year period (dollars in thousands):




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Three Months
Ended September 30,

Change from
Prior Period

2005
2004
Amount
Percent
Interest Income (T/E)     $ 12,872   $ 12,357   $ 515     4 .2%
Interest Expense    4,595    4,057    538    13 .3%



     Net Interest Income (T/E)   $ 8,277   $ 8,300   $ (23 )  (0 .3)%



 

Net interest income increased $81,000 or 1% (a decline of $23,000 or 0.3% on a tax-equivalent basis) for the quarter ended September 30, 2005 compared with the same quarter of 2004. Net interest margin is tax-equivalent net interest income expressed as a percentage of average earning assets. For the third quarter of 2005, the net interest margin increased to 3.92% compared to 3.88% for the same period of 2004.

 

The Company’s increase in net interest income during the three months ended September 30, 2005 compared with the same period of the prior year was largely attributable to the increase in the net interest margin. The Company’s yield on earning assets totaled 6.08% compared with a cost of funds (expressed as a percentage of average earning assets) of 2.16% producing the net interest margin of 3.92% for the three months ended September 30, 2005. The Company’s yield on earning assets totaled 5.77% compared with a cost of funds of 1.89% netting a net interest margin of 3.88% for the three months ended September 30, 2004. The rise in both the yield on earning assets and the cost of funds during 2005 compared with 2004 was largely attributable to an increase in short-term market interest rates.

 

The following table summarizes German American Bancorp’s net interest income (on a tax-equivalent basis, at an effective tax rate of 34%) for the first nine months of 2005 and the comparable prior year period (dollars in thousands):

 

Nine Months
Ended September 30,

Change from
Prior Period

2005
2004
Amount
Percent
Interest Income (T/E)     $ 37,695   $ 36,852   $ 843    2 .3%
Interest Expense    12,797    12,508    289    2 .3%



     Net Interest Income (T/E)   $ 24,898   $ 24,344   $ 554    2 .3%



 

Net interest income increased $842,000 or 4% ($554,000 or 2% on a tax-equivalent basis) for the nine months ended September 30, 2005 compared with the same period of 2004. For the first nine months of 2005, the net interest margin increased to 3.93% compared to 3.82% for the same period of 2004. The Company’s increase in net interest income during the nine month period ended September 30, 2005 compared 2004 was largely attributable to an increase in the net interest margin. The Company’s yield on earning assets increased to 5.94% for the nine months ended September 30, 2005 compared with 5.79% for the same period of 2004. The increased yield on earning assets was primarily attributable to higher short-term interest rates and an increased level of loans outstanding during 2005 compared with 2004. The Company’s cost of funds (expressed as a percentage of average earning assets) during the nine months ended September 30, 2005 was 2.01% compared with 1.97% for the same period of 2004. The increase in the cost of funds was due to a rise in short-term market interest rates tempered by an increased level of non-maturity deposits including non-interest bearing demand accounts, less reliance on time deposits and borrowings and a decline in interest rates on outstanding borrowings from the Federal Home Loan Bank due to repayments of higher-cost advances that were outstanding in the comparable period of 2004.

 

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

Net Interest Income:

Net interest income is the Company’s single largest source of earnings, and represents the difference between interest and fees realized on earning assets, less interest paid on deposits and borrowed funds. The following table summarizes German American Bancorp’s net interest income (on a tax-equivalent basis, at an effective tax rate of 34%) for each of the periods presented herein (dollars in thousands):

Three Months
Ended March 31,
Change from
Prior Period
2005
2004
Amount
Percent
Interest Income (T/E)     $ 12,328   $ 12,199   $ 129     1.1%      
Interest Expense    4,005    4,298    (293 )  -6.8%      



     Net Interest Income (T/E)   $ 8,323   $ 7,901   $ 422    5.3%      



Net interest income increased $521,000 or 7% ($422,000 or 5% on a tax-equivalent basis) for the quarter ended March 31, 2005 compared with the same quarter of 2004. Net interest margin is tax-equivalent net interest income expressed as a percentage of average earning assets. For the first quarter of 2005, the net interest margin increased to 3.93% compared to 3.75% for the same period of 2004. The Company’s increase in net interest income during the three months ended March 31, 2005 compared with the same period of the prior year was largely attributable to an increase in the net interest margin that was fueled by a decline in the Company’s cost of funds. The Company’s yield on earning assets remained relatively stable at 5.84% for the first quarter of 2005 compared with 5.80% for the first quarter 2004. The Company’s cost of funds (expressed as a percentage of average earning assets) during the quarter ended March 31, 2005 was 1.91% compared with 2.05% for the same period of 2004. The Company’s cost of funds was lowered due primarily to an increased level of non-maturity deposits including non-interest bearing demand accounts and less reliance on time deposits and borrowings.

Also contributing to the increased net interest income was a modest growth in earning assets. Earning assets increased $9.8 million during the first quarter of 2005 compared with the first quarter of 2004. This increase was primarily attributable to a growth in average total loans outstanding. Average total loans increased $19.2 million, during the quarter ended March 31, 2005 compared with 2004. Average commercial loans increased $25.8 million or 7% and average consumer loans increased $9.1 million or 8%. Partially mitigating the growth in the commercial and consumer loan portfolios was a continued decline in the average residential mortgage loan portfolio. Average residential mortgage loans declined $14.8 million or 13% during the three months ended March 31, 2005 compared with the same period of 2004.




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

NET INTEREST INCOME

Net interest income is the Company’s single largest source of earnings, and represents the difference between interest and fees realized on earning assets, less interest paid on deposits and borrowed funds. Several factors contribute to the determination of net interest income and net interest margin, including the volume and mix of earning assets, interest rates, and income taxes. Many factors affecting net interest income are subject to control by management policies and actions. Factors beyond the control of management include the general level of credit and deposit demand, Federal Reserve Board monetary policy, and changes in tax laws.

Net interest income increased during 2004 by $1,704,000 or 6% ($1,336,000 or 4% on a tax equivalent basis) compared to 2003. Net interest margin is tax equivalent net interest income expressed as a percentage of average earning assets. For 2004, the net interest margin increased to 3.86% compared with 3.61% in 2003.

The Company’s increase in net interest income in 2004 compared with 2003 was largely attributable to the increased net interest margin that has been largely driven by a decline in the Company’s cost of funds. The Company’s cost of funds has been reduced due to a number of factors including the historically low level of interest rates during 2003 and 2004 and the change in the mix of the deposit base to a higher dependence on non-maturity deposits and less dependence on time deposits. Also contributing to the lower cost of funds during 2004 was the repayment of higher costing FHLB advances during 2003 in the Company’s mortgage banking segment.

In the second quarter of 2003, the Company’s mortgage banking segment repaid a maturing FHLB advance in the amount of $10.0 million with a rate of 7.27%. Late in the third quarter of 2003, the mortgage banking segment prepaid $20.0 million of FHLB advances with an average rate of 5.99%. These advances had stated maturities in the third quarter of 2004. Late in the fourth quarter of 2003, the Company’s mortgage banking segment prepaid an additional $20.0 million of FHLB advances with an average rate of 6.19%. These advances had stated maturities in the first quarter of 2005. During 2003, these advances were carried at negative interest rate spreads ranging from approximately 3% to 5% compared to the short-term investments that had been internally matched to the contractual repayment of these advances. The extinguishment of these borrowings positively impacted the net interest margin and net interest income during the year ended December 31, 2004 compared with the year ended December 31, 2003.

As illustrated in Note 16 to the Company’s consolidated financial statements included in item 8 of this Report, the Company’s core banking segment net interest income increased $995,000 in 2004 compared with 2003. The increase in the core banking segment was largely attributable to an increased level of earning assets driven by commercial loan growth and a stable net interest margin. The core banking segment’s net interest margin was able to remain stable due primarily to the decline in its cost of funds. Net interest income increased $873,000 during 2004 compared with 2003 in the Company’s mortgage banking segment primarily due to the repayment of the aforementioned FHLB borrowings.

Total average earning assets declined by $21.6 million during 2004 compared with 2003 primarily due to the repayment of FHLB advances within the mortgage banking segment during 2003. Average total loans remained relatively stable, increasing $3.9 million in 2004 compared with 2003. While total loans have remained relatively stable, the loan portfolio composition has changed. Average commercial loans increased $35.2 million or 10% in 2004 compared with 2003. Mitigating to a large degree the growth in the commercial loan portfolio has been the continued decline in the average residential mortgage loan portfolio. Average residential mortgage loans declined $34.9 million or 25% during the year ended 2004 compared with 2003.

Net interest income declined during 2003 by $2,467,000 or 8% ($2,777,000 or 8% on a tax equivalent basis) compared with 2002. Net interest margin is tax equivalent net interest income expressed as a percentage of average earning assets. For 2003, the net interest margin declined to 3.61% compared with 3.67% for 2002.

The Company’s net interest income was adversely impacted by the historically low levels of interest rates during 2003. The historically low interest rate environment resulted in a decline in overall earning asset yields including both the loan and securities portfolios. The decline in interest rates through most of the first three quarters of 2003 resulted in increased prepayment speeds in the Company’s mortgage-related securities portfolio, causing increased purchase premium amortization within that portfolio and thereby driving yields lower. In addition, due to the low level of interest rates, the Company was unable to reinvest the proceeds of the mortgage-related securities repayments and cash flows from securities issued by state and local subdivisions at comparable yields. The low level of interest rates also caused downward pressure on the yield in the Company’s loan portfolio. The Company’s cost of funds was lowered significantly but not sufficiently to mitigate the decline in earning asset yield.




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Earning assets also declined during 2003 compared with 2002 and was largely attributable to a decreased residential mortgage loan portfolio and the repayment of FHLB advances within the mortgage banking segment. The decline in interest earning assets was also attributable, to a lesser degree, to the self tender offer discussed in Note 9 to the Company’s consolidated financial statements included in item 8 of this Report and the purchase of Company Owned Life Insurance (COLI) during mid-2003.

The reduction in loans during 2003 compared with 2002 was attributable to the refinance activity in the residential loan industry that resulted from historically low interest rates and the Company’s continued sale of a majority of residential loan production in the secondary markets. Overall, the average loan portfolio declined by $26.7 million or approximately 4% during 2003 compared with 2002. Average residential mortgage loans declined $63.5 million or 31% during 2003. Partially mitigating the decline in average residential mortgage loans was growth in the commercial loan portfolio. Average commercial loans increased by $40.4 million or 13% during 2003 compared with 2002.

The following table summarizes net interest income (on a tax-equivalent basis) for each of the past three years. For tax-equivalent adjustments, an effective tax rate of 34% was used for all years presented (1).




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