Credit cycle costs, which include other real estate owned expense, loan related expense, and legal expense totaled $12.5 million for the fourth quarter of 2012, as compared to $14.9 million for the third quarter of 2012 and $21.9 million for the fourth quarter of 2011. Of the total credit cycle costs incurred in the fourth quarter, $4.9 million is related to covered loans and other real estate owned for which we expect that 80% or $3.9 million is reimbursable by the FDIC.

The effective tax rate for the fourth quarter was 33.5% as compared to 32.4% in the prior quarter. The effective tax rate was reduced from the statutory tax rate primarily due to the utilization of tax credits related to affordable housing investments.

Full Year 2012 Operating Results

For the full year 2012, the adjusted net interest income totaled $793.6 million, an increase of 2% or $14.2 million from full year 2011. Although the adjusted net interest margin for 2012 decreased to 4.00% compared to 4.02% for 2011, the adjusted net interest income for 2012 increased as compared to 2011 due to the growth in average interest earning assets of 2% or $447.8 million for the year. Further, although the low interest rate environment reduced our loan and investment securities yields in 2012 as compared to 2011, East West took actions throughout the year to reduce deposit and borrowing costs. Our total cost of funds declined by 25 basis points from 0.94% for the full year 2011 to 0.69% for the full year 2012.

Total fees and other operating income for the full year 2012 increased to $94.7 million, a 19% or $15.1 million increase from full year 2011. As compared to 2011, branch fees decreased 1% or $172 thousand, letters of credit fees and foreign exchange income increased 14% or $3.1 million, ancillary loan fees increased 6% or $481 thousand and other operating income increased 82% or $11.7 million. A summary of these fees and other operating income is detailed below:
  Year Ended     % Change  
($ in thousands) December 31, 2012     December 31, 2011   (Yr/Yr)
 
Branch fees $ 33,604 $ 33,776 -1 %
Letters of credit fees and foreign exchange income 26,270 23,140 14 %
Ancillary loan fees 8,831 8,350 6 %
Other operating income   25,950   14,270 82 %
Total fees & other operating income $ 94,655 $ 79,536 19 %
 

Noninterest expense totaled $422.5 million for the full year 2012, a decrease of 3% or $13.1 million as compared to 2011.

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