Interest and fee reversals on non-accrual loans during the third quarter of 2012 were $0.2 million, negatively impacting the net interest margin by 1 basis point, as compared to reversals of $0.3 million for the second quarter of 2012 and reversals of $0.1 million in the third quarter of 2011. Excluding the impact of loan disposal gains and interest and fee reversals or recoveries on non-accrual loans, our adjusted net interest margin was 3.76% for the third quarter of 2012, 3.96% for the second quarter of 2012 and 3.94% for the third quarter of 2011. Adjusted net interest margin is considered a “non-GAAP” financial measure. More information regarding this measurement and reconciliation to the comparable GAAP measurement is provided under the heading Non-GAAP Financial Measures below.

For the twentieth consecutive quarter, the Company has reduced the cost of interest bearing deposits. As a result of these efforts, the cost of interest bearing deposits was 0.43% for the third quarter of 2012, 4 basis points lower than the second quarter of 2012 and 34 basis points lower than the third quarter of 2011. Management closely and continually monitors market deposit rates and develops our pricing strategy to ensure we are competitive in the market and in-line with our liquidity position and funding needs.

Mortgage banking revenue

The Company generated a record $24.3 million in total mortgage banking revenue during the third quarter of 2012, on record closed loan volume of $621 million. This represents a 56% increase in revenue over the second quarter of 2012 and a 244% increase in revenue over the same period of the prior year. In the third quarter of 2012, the Company recognized a decrease in the fair value of the mortgage servicing right assets in the income statement of $3.7 million. The decline is primarily due to the further reductions to the historically low mortgage interest rate levels during the quarter that have led to elevated levels of refinancing activity. Despite the elevated levels of refinance activity in the current environment, 32% of the current quarter’s production related to purchase activity. Income from the origination and sale of mortgage loans was $26.3 million in the third quarter, representing a 74% increase over the prior quarter, and a 260% increase as compared to the same quarter of the prior year. As of September 30, 2012, the Company serviced $2.8 billion of mortgage loans for others, and the related mortgage servicing right asset is valued at $24.5 million, or 0.87% of the total serviced portfolio principal balance.

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