Net interest income on a fully tax equivalent basis decreased $25.2 million during the year ended December 31, 2012 compared to the year ended December 31, 2011, primarily due to a $285.2 million decrease in average interest earning assets and a 17 basis point decline in our net interest margin on a fully tax equivalent basis. The decline in the margin was primarily due to lower covered loan yields (negatively impacted the margin by 12 basis points), and tighter credit spreads, partially offset by lower costs of funds.
See the supplemental net interest margin tables for further detail.
Fee Income (dollars in thousands):
|Core fee income:|
|Key fee initiatives:|
|Capital markets and international banking|
|Commercial deposit and treasury management fees||6,095||5,860||5,784||5,897||6,113||23,636||23,559|
|Lease financing, net||12,419||9,671||7,334||6,958||7,801||36,382||26,939|
|Trust and asset management fees||4,623||4,428||4,535||4,404||4,166||17,990||17,324|
|Total key fee initiatives||
|Loan service fees||
|Consumer and other deposit service fees||3,655||3,786||3,534||3,453||3,917||14,428||15,375|
|Increase in cash surrender value of life insurance||893||890||870||917||944||3,570||4,377|
|Accretion of FDIC indemnification asset||154||204||222||475||683||1,055||4,838|
|Net gain on sale of loans||822||575||554||374||366||2,325||817|
|Other operating income||1,325||405||958||1,604||1,086||4,292||5,676|
|Total core fee income||38,401||31,867||29,539||28,962||29,585||128,769||120,046|
|Non-core fee income: (1)|
|Net gain (loss) on investment securities||311||281||(34||)||(3||)||411||555||640|
|Net (loss) gain on sale of other assets||(905||)||(12||)||(8||)||(17||)||(87||)||(942||)||283|
|Net gain on sale of loans held for sale (A)||-||-||-||-||-||-||1,790|
|Net loss recognized on other real estate owned (B)||(1,848||)||(4,151||)||(4,156||)||(4,348||)||(3,620||)||(14,503||)||(9,971||)|
|Net gain (loss) recognized on other real estate|
|owned related to FDIC transactions (B)||222||213||(1,285||)||(2,241||)||(1,858||)||(3,091||)||(3,642||)|
|Increase (decrease) in market value of assets held|
|in trust for deferred compensation (C)||104||355||(149||)||501||20||811||(40||)|
|Total non-core fee income||(2,116||)||(3,314||)||(5,632||)||(6,108||)||(5,134||)||(17,170||)||(10,940||)|
|Total fee income||$||36,285||$||28,553||$||23,907||$||22,854||$||24,451||$||111,599||$||109,106|
|(1)||Letter denotes the corresponding line items where these non-core fee income items reside in the consolidated statements of income as follows: A – Net gain on sale of loans, B – Net loss recognized on other real estate owned, C – Other operating income.|
Core fee income increased by $6.5 million (+20.5%) from the third quarter of 2012 to the fourth quarter of 2012, driven by revenue from our key fee initiatives (+18.7%).
- Net lease financing income increased as a result of increase in equipment remarketing gains and fees from the sale of equipment maintenance contracts.
- Capital markets and international banking service fees increased primarily due to an increase in merger and acquisition advisory and interest rate swap fees.
- Loan service fees increased due to an increase in prepayment fees.
- Other operating income increased due to higher income from low income housing partnerships.
- Non-core fee income was primarily impacted by lower losses recognized on OREO, partially offset by higher losses on the sale of other assets as a result of the disposal of fixed assets.
- Net lease financing income increased as a result of increase in equipment remarketing gain and fees from the sale of equipment maintenance contracts.
- Capital markets and international banking service fees increased due to an increase in interest rate swap fees, merger and acquisition advisory fees, and international banking activities.
- Card fee income increased primarily due to fees earned on prepaid and credit cards.
- Brokerage fees declined due to a decrease in third party brokerage revenues.
- Consumer and other deposit service fees decreased as a result of lower NSF fees.
- Accretion of FDIC indemnification asset decreased $3.8 million as expected. Accretion is recorded based on the FDIC indemnification asset balance, which has declined as we have received loss-share payments.
- Non-core fee income was primarily impacted by higher losses recognized on OREO as well as higher losses on the sale of other assets as a result of the disposal of fixed assets.
|Core other expense:|
|Salaries and employee benefits||$||42,934||$||41,728||$||40,295||$||39,928||$||39,826||$||164,885||$||153,898|
|Occupancy and equipment expense||8,774||8,274||9,188||9,570||8,498||35,806||35,467|
|Computer services and telecommunication expense||4,160||3,777||3,909||3,653||4,382||15,499||14,885|
|Advertising and marketing expense||2,335||1,936||1,839||2,073||1,831||8,183||7,038|
|Professional and legal expense||1,640||1,554||1,503||1,413||1,422||6,110||6,147|
|Other intangible amortization expense||1,251||1,251||1,251||1,257||1,410||5,010||5,665|
|Other real estate expense, net||449||874||424||1,243||1,464||2,990||4,294|
|Other operating expenses||8,027||7,976||8,574||7,693||9,986||32,270||40,685|
|Total core other expense||69,570||67,370||66,983||66,830||68,819||270,753||268,079|
|Non-core other expense: (1)|
|Branch impairment charges||1,432||758||-||-||594||2,190||1,594|
|Prepayment fees on interest bearing liabilities||-||12,682||-||-||-||12,682||-|
|Increase (decrease) in market value of assets held|
|in trust for deferred compensation (A)||104||355||(149||)||501||20||811||(40||)|
|Total non-core other expense||1,536||13,795||(149||)||501||614||15,683||1,554|
|Total other expense||$||71,106||$||81,165||$||66,834||$||67,331||$||69,433||$||286,436||$||269,633|
|(1)||Letters denote the corresponding line items where these non-core other expense items reside in the consolidated statements of income as follows: A – Salaries and employee benefits.|
- Salaries and employee benefits expense increased primarily due to an increase in incentives and commissions on higher lease revenues.
- Non-core other expense decreased as we did not incur any prepayment fees in the fourth quarter of 2012, while in the third quarter of 2012 we incurred $12.7 million in prepayment fees, when we prepaid certain brokered certificates of deposits and an FHLB advance.
- Salaries and employee benefits expense increased primarily due to annual salary increases, an increase in incentives, commissions on higher lease revenues, and higher health insurance claims.
- Other operating expenses were down partially due to the decrease in FDIC insurance premiums as a result of a change in the assessment computation during the second quarter of 2012 and the impact of improved credit quality on the computation.
- Other operating expenses were also favorably impacted in the twelve months ended December 31, 2012 by a decrease in the clawback liability related to our loss share agreements with the FDIC recorded during the period.
- Other real estate expense decreased as a result of fewer properties in other real estate owned throughout 2012 compared to 2011.
- Non-core other expense was impacted by the $12.7 million in prepayment fees on interest bearing liabilities discussed above.
|% of||% of||% of||% of||% of|
|Commercial related credits:|
|Commercial loans collateralized by|
|assignment of lease payments (lease loans)||1,306,769||23||%||1,219,361||22||%||1,221,199||21||%||1,209,942||21||%||1,208,575||20||%|
|Commercial real estate||1,761,832||30||%||1,770,261||31||%||1,794,777||31||%||1,877,380||32||%||1,853,788||31||%|
|Construction real estate||110,261||2||%||149,872||3||%||150,665||3||%||128,040||2||%||183,789||3||%|
|Total commercial related credits||4,399,334||76||%||4,213,475||75||%||4,246,077||74||%||4,255,702||73||%||4,359,275||73||%|
|Residential real estate||314,359||5||%||308,866||5||%||313,137||5||%||309,644||5||%||316,787||5||%|
|Total other loans||921,495||16||%||915,208||16||%||924,334||16||%||913,535||16||%||929,176||16||%|
|Gross loans excluding covered loans||5,320,829||92||%||5,128,683||91||%||5,170,411||90||%||5,169,237||89||%||5,288,451||89||%|
|Covered loans (1)||449,850||8||%||496,162||9||%||552,838||10||%||620,528||11||%||662,544||11||%|
|(1)||Covered loans refer to loans we acquired in FDIC-assisted transactions that are subject to loss-sharing agreements with the FDIC.|