Provisions for loan losses were $2.6 million for the quarter ended December 31, 2012, compared to $3.6 million in the same period in 2011, and $3.1 million in the third quarter of 2012. Net charge-offs were $1.1 million for the three months ended December 31, 2012, compared to $8.5 million and $4.3 million for the quarters ended September 30, 2012, and December 31, 2011, respectively. For the twelve months ended December 31, 2012, provisions for loan losses totaled $14.8 million. Net charge-offs for the year ending December 31, 2012, amounted to $20.8 million, compared to $28.6 million in the year ended December 31, 2011. The decreases in the allowance for loan losses as a percentage of total loans and in the coverage of non-performing loans from December 31, 2011, to December 31, 2012, is due to charge-offs incurred during 2012 being primarily supported by specific reserves in the allowance for loan losses. As a result, the fourth quarter analysis of the adequacy of the loan loss reserve indicated that loan loss provisioning of $2.6 million was sufficient to maintain appropriate coverage. The $7.8 million reduction in net charge-offs for the year ended December 31, 2012, compared to the same period in 2011, was primarily due to net charge-offs in the ADC loan portfolio decreasing $7.6 million, from $14.6 million in 2011 to $7.0 million in 2012, and charge-offs in the non-farm, non-residential portfolio decreasing $3.5 million from $8.8 million in 2011 to $5.3 million in 2012, partially offset by an increase of $3.3 million in net charge-offs in the C&I loan portfolio, from $1.7 million in 2011 to $4.9 million in 2012.
Net Interest Income and Net Interest Margin
Net interest income of $26.6 million for the fourth quarter of 2012 declined $499 thousand, or 1.8%, over the same quarter last year. The net interest margin decreased 5 basis points from 3.78% in the fourth quarter of 2011, to 3.73% for the same period in 2012. Net interest income for the year ended December 31, 2012, of $106.7 million was mostly unchanged, compared to net interest income of $106.8 million for the year ended December 31, 2011. On a sequential basis, the net interest margin was up 11 basis points from 3.62% for the third quarter of 2012, to 3.73% for the fourth quarter of 2012. The year-over-year decrease in the fourth quarter net interest margin was due to the prolonged low interest rate environment contributing to lower rates on loan and investment security assets, the impact of which was partially offset by lower costs on average interest-bearing deposits and securities sold under agreement to purchase. The sequential increase in the net interest margin was primarily driven by a decrease of 7 basis points in the total deposit yield and a reduction of $37.3 million, or 18.6%, in average low yielding, interest-bearing deposits in other banks, partially offset by a 3 basis point decrease in loan yield. The sequential reduction in liquidity is expected to continue into 2013, as interest bearing deposits in other banks decreased from $214.0 million as of September 30, 2012, to $1.0 million as of December 31, 2012. The decrease in liquidity that occurred late in the fourth quarter of 2012, was driven by the intentional run-off of certain interest-bearing liabilities and is expected to have a positive impact on the net interest margin for the first quarter of 2013. Interest and dividend income decreased $2.9 million on average total interest-earnings assets of $2.9 billion for the three months ended December 31, 2012, compared to interest and dividend income generated by average total interest-earnings assets of $2.8 billion for the same period in 2011. The decline in interest and dividend income is mostly attributable to lower yielding average loan and security assets being generated in the current low interest rate environment. Interest expense decreased $2.4 million to $5.8 million generated on an average total interest-bearing liability balance of $2.3 billion for the quarter ended December 31, 2012, from $8.2 million generated on an average total interest-bearing liability balance of $2.3 billion for the same period in 2011. The average rate paid on total interest-bearing liabilities was 1.02% for the fourth quarter of 2012, as compared to 1.12% for the third quarter 2012, and 1.40% for the fourth quarter of 2011. Management anticipates the net interest margin will range between 3.70% and 3.80% for the first quarter of 2013.
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