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Chief financial officer and group president (financial markets), Rajat Monga, said : 'We may see an uptick in net interest margins if the current economic environment prevails'.
Sharp declines in short-term interest rates and a steepening of the yield curve helped boost income, as net interest margins widened and banks realized hefty gains on securities, which helped offset adverse effects on profitability of higher loss provisioning (table 4).
Service 1st Bancorp's wholly owned subsidiary Service 1st Bank continues to reflect strong asset growth coupled with lower net income primarily due to the branch office expansion into Lodi and higher interest expense which has compressed net interest margins," said John O.
Strong net interest margins, lower operating expenses and reduced credit charges are driving the improvement in FFB's earnings.
Net interest margins were depressed at very large banks by a sharp rise in interest paid on Treasury tax and loan note balances and other borrowed funds.
Fitch expects profitability metric's to be relatively low and volatile as the company implements its new business strategy and net interest margins remain pressured.
The improvement resulted from higher net interest margins, continued low provisions for loan losses, and slow growth of expenses.
Although net interest margins showed continued strain from the flat yield curve, overall earnings held up during the second quarter of 2006, with net income reaching a quarterly record of $38.
Year-to-date net interest income and the net interest margins were $16.
The results for the second quarter and six-month periods of 2006 reflect significant loan and deposit growth, with the impact of this growth reduced by declines in net interest margins caused by a flat yield curve and increasingly competitive pricing for loans and deposits.
Net interest margins will level off as falling interest rates reduce loan yields.
Competitive forces have compressed net interest margins across the industry over the past several quarters and Fitch expects NDE's net interest margin to remain pressured due to the relatively flat yield curve and lower gain-on-sale spreads.