Deposit balances were $1.98 billion at December 31, 2012, down from $2.01 billion at December 31, 2011. Certificates of deposit decreased $378.3 million, or 36.6%, from a year ago as a result of the managed reduction of these higher-cost deposits and replacement with transaction and savings deposits, which increased $271.5 million, or 35.1%, from a year ago. The improvement in the composition of deposits reflects our successful efforts to attract transaction and savings deposit balances through our branch network and convert customers with maturing certificates of deposit to transaction and savings deposits.
Toward our goal of growing our consumer and commercial customer base, we opened two new deposit branches in the Seattle metropolitan area during the fourth quarter of 2012.
Results of OperationsNet Interest Income Net interest income in the fourth quarter of 2012 was $16.6 million, up $3.8 million, or 29.8%, from the fourth quarter of 2011. Full year net interest income was $60.7 million in 2012, up from $48.5 million in 2011. The fourth quarter net interest margin increased to 3.06% from 2.48% in the fourth quarter of 2011, and decreased from 3.12% in the third quarter 2012. Total average interest earning assets increased from the prior year periods as higher mortgage production volumes in 2012 resulted in a higher average balance of loans held for sale, partially offset by a decrease in cash and cash equivalents which was used to fund loans held for sale production. Total average interest bearing deposit balances declined from the prior year periods mostly as a result of declines in higher-cost certificates of deposit, partially offset by an increase in transaction and savings deposits. The decline in the net interest margin from the prior quarter is primarily due to the recognition in the third quarter of accumulated interest collected on nonaccrual loans.
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