The quarter ended September 30, 2010 is the fourth consecutive quarter during which total nonperforming assets declined. Nonperforming assets, which consist of non-accrual loans and other real estate owned properties (“OREO”), were $108.8 million at September 30, 2010 as compared to $145.6 million at September 30, 2009; this represents an improvement of $36.8 million or 25% over the twelve month period. This decrease further supports management’s statement made in the 2009 annual earnings release, that nonperforming assets peaked during the third quarter of 2009. The $108.8 million of nonperforming assets is comprised of $7.3 million of OREO properties and $101.5 million of non-accrual loans. Of the $101.5 million in non-accrual loans, borrowers of $30.5 million or 30% of non-accrual loans consisting of 21 notes continue to make payments. The $7.3 million in OREO consists of four properties, the oldest of which was acquired in July 2009. During the nine month period ended September 30, 2010, OREO declined by $11.7 million or 61% reflecting the disposition of six properties sold by the Company.
Net interest income increased to $5.1 million for the three months ended September 30, 2010 as compared to $4.0 million for the three months ended September 30, 2009. The improvement in net interest income is primarily the result of the continuing improvement in the overall cost of funds; interest expense on deposits declined $2.6 million or 49% when compared to the same period last year. The net interest margin for the third quarter of 2010 was 2.71% which reflects the favorable impact of 19 basis points for the collection of delinquent interest payments on nonaccrual loans in the third quarter; the net interest margin for the same period last year was 1.76%.
The provision for loan losses for the nine month period ended September 30, 2010 of $6.2 million represents an improvement of $2.7 million when compared to the same period last year. The provision for loan losses of $5.0 million recorded for the third quarter of 2010 is $3.6 million higher, as described above, when compared to the same period last year.