YAVY » Topics » Net Interest Income

This excerpt taken from the YAVY 10-Q filed May 12, 2009.
Net Interest Income

Net interest income, the largest contributor to earnings, increased slightly to $9.9 million in the first quarter of 2009, compared with $9.4 million in the same period of 2008. The decrease in the prime interest rate was offset by the additional net interest income earned by the recently acquired Cardinal region. The net interest margin declined to 2.87% in the first quarter of 2009 from 3.56% in the first quarter of 2008.


The quarter-to-date margin decline was driven by the Bank’s short term asset sensitivity to changing interest rates.  A comparison of the first quarters of 2009 and 2008 shows that yield on earning assets decreased by 168 basis points which was partially offset by a decrease of 127 basis points in the yield on interest bearing liabilities.  The decline in yield on earning assets was attributable to the yield on loans which declined by 192 basis points in the first quarter of 2009 as compared to the first quarter of 2008.  The sum of variable rate loans that can reprice in three months and fixed rate loans that mature within 3 months comprised 41.9% of total loans held for investment at March 31, 2009 down from 44.1% at March 31, 2008.


The Company maintains an asset-sensitive position with respect to the impact of changing rates on net interest income.  The prime rate decreased by 200 basis points from April 1, 2008 to March 31, 2009, including a steep decline of 175 basis points during the fourth quarter of 2008.  After a period of about three months following a rate decrease, the Company’s net interest margin should begin to increase assuming a constant mix of asset and liability categories. Comparing the linked first quarter of 2009 and fourth quarter of 2008, the net interest margin declined by seven basis points as a result of the prime rate decreasing by 75 basis points in mid-December 2008.


Yadkin Valley Financial Corporation

Form 10-Q Quarterly Report March 31, 2009



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

Net Interest Income

        Net interest income is the primary source of operating income for the Bank. Net interest income is the difference between interest and fee income generated from earning assets and the interest paid on deposits and borrowed funds. The factors that influence net interest income include both changes in interest rates and changes in volume and mix of loans and deposits.

        For analytical purposes, net interest income may be reported on a tax equivalent basis, which illustrates the tax savings on loans and investments exempt from state and/or federal income taxes. The tables that follow, Interest Rates Earned and Paid, and Interest Rate/Volume Analysis, represent components of net interest income for the years 2008, 2007, and 2006. These tables detail changes in interest income and expense and net interest income changes caused by rate and/or volume.

        Taxable equivalent net interest income decreased $1.8 million or 4.2% in 2008 from 2007 compared to an increase of $1.1 million or 2.6% in 2007 over 2006. Average earning assets increased $225.0 million or 22.2% in 2008 over 2007 after increasing $80.8 million or 8.7% in 2007. Average


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loans increased $220.9 million or 25.5% in 2008 compared with an increase of $64.4 million or 8.0% in 2007. Average investment securities increased $835,000 or 0.61% from 2007 to 2008 compared to an increase of $13.2 million or 10.6% from 2006 to 2007.

        The net interest margin (taxable equivalent net interest income as a percentage of average interest earning assets) decreased to 3.29% from 4.20% comparing 2008 to 2007 after decreasing to 4.20% from 4.45% for the prior comparative periods. The decrease in net interest margin in 2008 was attributable to the Company's asset sensitivity, whereby assets adjust more quickly than liabilities to interest rate changes resulting in net interest margin expansion during a period of increasing rates and net interest margin compression during a period of declining rates. Rates declined 75 basis points in the last four months of 2007 and continued the decline through 2008 ending the year 400 basis points lower than at the beginning. As the Interest Rate/Volume Variance Analysis table (page 41) shows, the increase in net interest income during 2008 attributable to volume (asset and liability growth) was $6.8 million while rate decreases reduced net interest income by $8.7 million. Also contributing to the decline in net interest margin was a decline in non-interest bearing funds as a percentage of total deposits in 2008 (14.6%) as compared to 2007 (16.7%).

        Interest spread was 2.84% in 2008 compared to 3.49% in 2007 and 3.88% in 2006. Interest spread measures the difference between net yield on interest earning assets (taxable equivalent interest income as a percentage of average interest earning assets) and the interest paid on interest-bearing liabilities. The rate declines in 2008 and 2007 mentioned in the previous paragraph contributed to the earning asset rate decline from 7.48% in 2007 to 6.08% in 2008. While the general decline in rates also contributed to a decline of 75 basis points in the interest bearing liability rate from 2007 to 2008, this decline was 65 basis points less than the 140 basis point decline in the earning asset rate.


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        The following table presents the daily average balances, interest income and expense, and average rates earned and paid on interest-earning assets and interest-bearing liabilities of the Bank for the last three years.


May 12, 2009
Mar 31, 2009


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