Decreases in net interest margin ratio during the three and twelve months ended December 31, 2012, as compared to the same periods in 2011, were due to lower outstanding loan balances and lower yields earned on the Company's loan and investment portfolios, which were partially offset by reductions in the cost of interest bearing liabilities combined with a shift from higher-costing savings and time deposits to lower-costing demand deposits.

Non-interest Income

Non-interest income increased during the three and twelve months ended December 31, 2012, as compared to the same periods in 2011 and the three months ended September 30, 2012, primarily due to increases in income from the origination and sale of residential mortgage loans. New loans for home purchases accounted for approximately 35% of our 2012 residential loan production, compared to 44% in 2011.
                 

NON-INTEREST EXPENSE

(Unaudited; $ in thousands)
 
For the Three Months Ended

Sequential Quarter% Change

Year

Over Year% Change
        December 31,2012       September 30,2012       December 31,2011            
Non-interest expense:            
Salaries and wages $ 23,288 $ 23,341 $ 22,002 -0.2 % 5.8 %
Employee benefits 6,113 7,447 6,871 -17.9 % -11.0 %
Occupancy, net 3,968 3,793 3,815 4.6 % 4.0 %
Furniture and equipment 3,301 3,231 3,195 2.2 % 3.3 %
Other real estate owned ("OREO") expense, net of income 3,877 2,612 2,021 48.4 % 91.8 %
Outsourced technology services 2,199 2,182 2,245 0.8 % -2.0 %
FDIC insurance premiums 1,652 1,622 1,607 1.8 % 2.8 %
Professional fees 1,059 1,050 1,176 0.9 % -9.9 %
Mortgage servicing rights amortization 910 879 940 3.5 % -3.2 %
Mortgage servicing rights impairment (recovery) (10 ) 55 427 -118.2 % -102.3 %
Core deposit intangibles amortization 355 355 361 0.0 % -1.7 %
Other expenses       11,120         10,497         11,561         5.9 %       -3.8 %
Total non-interest expense       $ 57,832         $ 57,064         $ 56,221         1.3 %       2.9 %
 
           
For the Year Ended   Year

Over Year% Change
        December 31,2012       December 31,2011      
Non-interest expense:      
Salaries and wages $ 89,833 $ 83,560 7.5 %
Employee benefits 29,345 27,792 5.6 %
Occupancy, net 15,786 16,223 -2.7 %
Furniture and equipment 12,859 12,562 2.4 %
OREO expense, net of income 9,400 8,652 8.6 %
Outsourced technology services 8,826 8,933 -1.2 %
FDIC insurance premiums 6,470 7,333 -11.8 %
Professional fees 4,044 3,676 10.0 %
Mortgage servicing rights amortization 3,501 3,225 8.6 %
Mortgage servicing rights impairment (recovery) (771 ) 1,275 -160.5 %
Core deposit intangibles amortization 1,420 1,446 -1.8 %
Other expenses       48,922         43,735         11.9 %
Total non-interest expense       $ 229,635         $ 218,412         5.1 %
 

Salaries and wages increased during the three and twelve months ended December 31, 2012, as compared to the same periods in the prior year, primarily due to higher incentive bonus accruals reflective of the Company's improved performance, inflationary wage increases and increases in commissions and overtime related to the substantial increase in residential real estate loan activity.

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