Other income increased to $2.2 million during second quarter 2013, compared to $1.7 million during first quarter 2013 and $1.5 million during second quarter 2012, primarily due to proceeds from company owned life insurance. Increases in earnings on securities held under deferred compensation plans also contributed to the increase in other income during second quarter 2013, as compared to second quarter 2012.

NON-INTEREST EXPENSE

Salaries and wages expense increased to $23.5 million during second quarter 2013, as compared to $23.4 million during first quarter 2013 and $21.6 million during second quarter 2012. The increase from the same period in the prior year was primarily due to higher incentive compensation accruals reflective of the Company's improved financial performance.

Employee benefits expense decreased to $7.5 million during second quarter 2013, as compared to $8.2 million during first quarter 2013, primarily due to decreases in payroll taxes and the second quarter 2013 reversal of $500 thousand of group health insurance expense to reflect favorable claims experience. These decreases were partially offset by higher profit sharing accruals reflective of continued improved financial performance. Employee benefits expense increased to $7.5 million during second quarter 2013, as compared to $6.8 million during second quarter 2012, primarily due to increases in earnings on securities held under deferred compensation plans.

Variations in net OREO expense between periods were primarily due to fluctuations in write-downs of the estimated fair value of OREO properties, net gains and losses recorded on the sales of OREO properties and operating expenses for OREO properties. Second quarter 2013 net OREO expense included $678 thousand of net operating expenses, $259 thousand of fair value write-downs and net gains of $1.9 million on the sale of OREO properties. This compares to $411 thousand of net operating expenses, $2.3 million of fair value write-downs and net gains of $820 thousand during first quarter 2013, and $1.3 million of net operating expenses, $580 thousand of fair value write-downs and net gains of $75 thousand during second quarter 2012.

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