Net Interest Income

Net interest income (tax equivalent) in the 2 nd quarter of 2012 amounted to $171.2 million compared with $165.7 million in the previous quarter, or an increase of $5.5 million. Net interest income this quarter increased $407 thousand compared to the 2 nd quarter of last year. During the 2 nd quarter of 2012, the net yield on earning assets (tax equivalent) was 3.55%, compared with 3.45% in the previous quarter and 3.85% in the same period last year.

The increase in net interest income (tax equivalent) in the 2 nd quarter of 2012 over the previous quarter was mainly due to an increase in inflation income of $4.4 million on the Company's inflation protected securities (TIPs), which increased the yield on the overall securities portfolio by 20 basis points to 2.75%. Interest income (tax equivalent) on the total securities portfolio increased $4.0 million compared to the previous quarter, mainly due to the higher TIPs income. Additionally, the Company received interest income of $2.4 million on the pay-off of two commercial loans mentioned above. Excluding these large interest payments, interest income on loans would have declined by $1.9 million while the yield on total loans would have amounted to 4.84%.

Interest expense on deposits declined $632 million in the 2 nd quarter of 2012 compared with the previous quarter mainly due to lower rates paid on money market and CD accounts. Overall rates paid on total interest-bearing deposits declined 2 basis points to .30% this quarter. Interest expense on borrowings decreased slightly this quarter, due mainly to lower average balances and rates paid on repurchase agreements.

In the 2 nd quarter of 2012, the tax equivalent yield on interest earning assets increased 9 basis points to 3.75%, while the overall cost of interest bearing liabilities decreased 2 basis points to .30%.

Non-Interest Income

For the 2 nd quarter of 2012, total non-interest income amounted to $100.8 million, a decrease of $528 thousand when compared to $101.3 million in the same period last year. Also, current quarter non-interest income increased $6.2 million when compared to $94.6 million recorded in the previous quarter. The decrease in non-interest income from the same period last year was mainly due to a decline in debit card interchange fees this quarter of $7.0 million, but was offset mainly by an increase in corporate card and trust fees.

Bank card fees in the current quarter declined $2.9 million, or 6.9%, from the same period last year as a result of a 44.5% decline in debit card interchange fees noted above (effect of new regulations in 2011) but was partly offset by growth in corporate card fees of $3.6 million, or 25.5%. Corporate card and debit card fees for the current quarter totaled $17.7 million and $8.7 million, respectively. Merchant fees grew by 6.1% and totaled $6.4 million for the quarter.

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