Additionally, the net interest margin contracted 15 basis points to 4.45% for the third quarter of 2012 from 4.60% for the second quarter due to pressure on earning asset yields from the low-interest rate environment. Loan yields declined to 6.28% from 6.37% as new originations for the quarter were booked at a weighted-average yield of 4.5%. Securities yields declined to 1.63% from 1.96%. Earning asset yield pressure was partially offset by a decline in cost of funds to 0.71% from 0.72%, due to growth in the relative proportion of, and reduced costs of, core deposits.

Non-Interest Income

Non-interest income increased $8.3 million to $20.4 million for the third quarter of 2012 from $12.2 million for the second quarter and increased $8.0 million from $12.4 million for the third quarter of 2011. For the third quarter of 2012, the Company had increased investment securities gains of $4.0 million, legal and insurance settlement gains of $3.5 million and an FDIC indemnification asset accretion increase of $1.0 million.

During the third quarter, fees (consisting of service charges, debit card income and fees on mortgage loans sold) declined to $9.1 million from $10.1 million, reflecting strength in mortgage lending offset by a reversal of $0.9 million of prior-quarter fees which were charged-off during the second quarter and lower deposit service charges largely due to closed accounts in Tennessee.

Provision for Loan Losses and Credit Quality

The provision for loan losses of $5.8 million recorded for the third quarter of 2012 includes approximately $4.7 million related to impairment of acquired impaired loan pools and a $1.1 million provision for newly originated loans (including the impact of the reversal of charge-offs of $0.9 million related to a reversal of deposit service charge fees). The $4.7 million impairment primarily reflects declines in appraised values and lower expectations for future cash flows from residential, construction and land loans in Southeast Florida and South Carolina. Since our first acquisition in 2010, we have cumulatively recognized $38.4 million in provisions for legacy acquired impaired loan pools that have performed below expectations.

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