The net interest income increase in the fourth quarter relative to the third quarter reflects lending growth and was achieved despite slight net interest margin compression. The two basis point net interest margin decline in the fourth quarter was the net result of approximately a six basis point decrease from the full quarter impact of the issuance of $55 million of 6.25% Senior Notes (the "Senior Notes") during the third quarter of 2012, offset by other improvements.
The decrease in net interest income and margin over the same period of 2011 was largely due to the impact of the Senior Notes as well as significantly reduced rates on the mortgage-backed securities ("MBS") portfolio, resulting from substantial sales and paydowns with subsequent reinvestment at much lower market rates.
Customer funding growth reflects continued success of business lines
Customer funding increased to $3.1 billion at December 31, 2012, an increase of $204.1 million, or 7%, and included core deposit growth of $295.2 million, or 13%, over levels reported at September 30, 2012. The growth included $141.2 million in short-term, temporary trust-related money market deposits at year-end. Excluding these deposits, customer funding increased $62.9 million, or 2% (9% annualized), and core deposits increased a strong $154.0 million, or 7% (28% annualized). These increases reflected continued growth in market share during the quarter and more than offset the purposeful decrease of $88.4 million in high-cost, customer time deposits.Excluding temporary trust deposits (including $55.0 million at December 31, 2011), core deposits also grew a significant $318.0 million, or 15%, and customer funding increased $159.9 million, or 6%, over December 31, 2011 balances despite a $147.4 million intentional run-off in high-cost customer time deposits. The following table summarizes current customer funding balances and composition compared to prior periods.
|(Dollars in thousands)||December 31, 2012||September 30, 2012||December 31, 2011|
|Total core deposits||2,493,099||79||2,197,941||75||2,088,899||73|
|Total customer deposits||3,104,322||99||2,897,545||99||2,847,494||99|
|Customer sweep accounts||27,218||1||29,942||1||37,927||1|
|Total customer funding||$3,131,540||100%||$2,927,487||100%||$2,885,421||100%|