Results of Operations
Net Interest Income
Net interest income was $12.9 million, in line with the fourth quarter of 2011 and up $1.3 million, or 11.3%, from the first quarter of 2011. Total average interest earning assets increased modestly on a linked-quarter basis as proceeds from our successful capital raise were invested into highly liquid securities, partially offset by a decline in our loans held for investment portfolio. Total average interest bearing deposit balances declined as a result of declines in higher-costing certificates of deposit, offset by increases in transaction savings and money market accounts. The net interest margin increased to 2.53% from 2.50% for the fourth quarter of 2011 as a result of the shift in deposit balances from higher-cost certificates of deposit to lower cost transaction, savings and money market accounts and an increase in the average balance of investment securities as net proceeds from the initial public offering were invested, partially offset by changes in the loans held for investment portfolio, resulting primarily from pay downs or pay offs.
Noninterest income was $39.5 million, up $12.0 million, or 43.8%, from $27.5 million in the fourth quarter of 2011 and up $25.0 million, or 173.1%, from $14.5 million in the first quarter of 2011. The increase on a linked-quarter basis was primarily due to a $10.0 million increase in net gain on mortgage loan origination and sales activities, reflecting an increase in single family mortgage loan origination and sale activity. Also contributing to the increase in noninterest income was an increase in net valuation gains on mortgage servicing rights and related hedge instruments, totaling $1.9 million during the first quarter of 2012, as compared with a net loss of $189,000 during the fourth quarter of 2011.
Noninterest expense was $35.1 million, up $1.2 million, or 3.4%, from $33.9 million in the fourth quarter of 2011 and up $1.6 million, or 4.8%, from $33.5 million in the first quarter of 2011. The increase on a linked-quarter basis was primarily due to a $4.9 million increase in salary and related costs, reflecting the hiring of mortgage origination personnel previously with MetLife Home Loans. This increase was partially offset by a combined decrease in legal and consulting expenses as a result of the recognition of $2.4 million of expenses associated with capital raising efforts in the fourth quarter of 2011. Offsetting the increase in noninterest expense was a $1.2 million decrease in other real estate owned expense.