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Net Interest Income and Margin
Quarter Ended Year Ended ------------------------------- -------------------- December September December December December 31, 2012 30, 2012 31, 2011 31, 2012 31, 2011 --------- --------- --------- --------- --------- (Dollars in thousands)Net interest income $ 15,217 $ 14,511 $ 15,325 $ 60,411 $ 59,894Interest rate spread 3.21% 3.15% 3.54% 3.37% 3.25%Net interest margin 3.48% 3.46% 3.86% 3.67% 3.61%Net interest margin, fully tax equivalent 3.57% 3.55% 3.95% 3.77% 3.68%Average cost of deposits, including noninterest bearing deposits 0.19% 0.20% 0.26% 0.21% 0.49%
Net interest income increased $0.7 million from $14.5 million in the third quarter 2012 to $15.2 million in the fourth quarter 2012 and decreased $0.1 million as compared to $15.3 million for the fourth quarter 2011. Net interest margin increased two basis points from 3.46% in the third quarter 2012 to 3.48% in the fourth quarter 2012 and declined 38 basis points from 3.86% in the fourth quarter 2011.
The increase in net interest income of $0.7 million from the third quarter 2012 to the fourth quarter 2012 was due to an increase in interest income of $0.6 million and a decrease in interest expense of $0.1 million. Interest income increased primarily due to increases in average loan and investment balances of $33.5 million and $48.3 million, respectively. The decrease in interest expense was the result of a reduction in subordinated debentures interest due to the payment of compounding, deferred interest during the third quarter 2012.
The decline in net interest income of $0.1 million for the fourth quarter 2012 as compared to the same quarter in 2011 was due to a reduction in interest income of $0.4 million, partially offset by a reduction in interest expense of $0.3 million. The decline in interest income was mostly due to a decline in loan income of $0.2 million and a decline in investment income of $0.2 million. The decline in interest expense was due to a change in the deposit mix from higher-cost time and money market deposits to lower yielding demand accounts, reductions in average time deposit rates and a reduction in subordinated debentures interest due to the payment of compounding, deferred interest during the third quarter 2012.
On a year-to-date basis, the net interest margin improved six basis points from 3.61% in 2011 to 3.67% in 2012, as a result of an increase in net interest income of $0.5 million and a reduction in average earning assets of $13.8 million. The improvement in net interest income was primarily due to a decrease in interest expense of $5.3 million caused by reductions in both average balances and average rates on time certificates of deposit. The improvement in interest expense was partially offset by a decrease in interest income of $4.7 million, primarily due to declines in yields on loans and investments.
Noninterest Income
The following table presents noninterest income as of the dates indicated:
Quarter Ended Year Ended ------------------------------ ------------------- December September December December December 31, 2012 30, 2012 31, 2011 31, 2012 31, 2011 --------- --------- --------- --------- --------- (In thousands)Noninterest income: Customer service and other fees $ 2,640 $ 2,616 $ 2,320 $ 9,909 $ 9,413 Gain on sale of securities 817 746 283 2,527 3,703 Gain on sale of SBA loans - 203 - 203 - Other 309 250 197 952 829 --------- --------- --------- --------- --------- Total noninterest income $ 3,766 $ 3,815 $ 2,800 $ 13,591 $ 13,945 ========= ========= ========= ========= =========
