Turning to our outlook for 2015, our focus is going to be similar to last year, namely organic growth coupled with accretive well-structured acquisitions that complement our business banking focus when they arise. We will continue to emphasize Commercial Lending, Construction and SBA. Along with the SBA personnel we added in the fourth quarter, we also hired a couple of senior commercial bankers recently that should help give us better coverage in our existing markets and continue driving in new business banking relationships. Our pipeline is healthy and well-diversified and we think we will make good progress in 2015 leveraging up the capital we added through the issuance of the $60 million of subordinated debt last year.
We do expect to see the usual seasonality in loan production during the first quarter that we have experienced in the past. We are really excited about the pending acquisition of the Independence Bank which we expect will provide another catalyst for growing our franchise. Subject to shareholders’ approvals of both Independence and Pacific Premier at the respective special meetings on Friday, January 23rd, and satisfaction of the other closing conditions, we expect to close the Independence acquisition next Monday January 26th. Besides providing exceptional synergies from the cost savings we are expecting, the Independence acquisition will give us a better platform for penetrating the Inland Empire market and further growing our customer base.
As I mentioned earlier on the call, we have made a lot of investments in the business over the past few years with a goal of building a franchise that can consistently generate long-term profitable growth and we will continue to operate the business without long-term perspective in mind. We won’t pass up a good investment opportunity just because it might impact our near-term earnings. Whether it’s investing in banking talent, pursuing acquisitions, capital management through the issuance of sub debt to support our growth, we think making decisions based on what’s in the best long-term interest of the franchise is the most effective way to create value for our shareholders. We believe we have the right strategic balance. We’re making good long-term investments for the business while still positioning ourselves to have another strong year of solid earnings growth in 2015.
With that, I am going to turn the call over to Kent to provide a little bit more detail on the fourth quarter results.
Kent Smith, EVP, CFO, Corporate Secretary and Treasurer
Thanks, Steve. We provided a significant amount of detail on our earnings release today so I am just to going to review a few items that I think some additional discussion is warranted. I am going to start with our Income Statement. Our Net Interest Margin was 4.02% in the fourth quarter, down 12 basis points from the prior quarter. The decline was primarily due to a higher borrowing cost resulting from the full quarter impact of the sub debt in longer term FHLB advances that we added during the third quarter. On a positive note, we actually saw a slight bump up in the average yield on loans during the quarter, as we remain disciplined on our loan pricing and as our new loan production is weighted more towards higher yielding portfolios. With the impact of the higher funding costs we added fully reflected in our fourth quarter results, we don’t expect to see any additional meaningful increase in our funding costs in the near-term. With our funding costs stabilizing, we should be in a better position to mitigate pressure on our net interest margin.
During the fourth quarter, our Non-Interest Income increased by $935,000 from the prior quarter, even though our third quarter non-interest income included non-recurring legal settlement proceeds totaling $1.1 million. The increase in the fourth quarter was primarily due to three factors: first, we had a increase in gain on sale of loans of $904,000, which are related to sales of SBA loans of $22.0 million at a premium 9%, and $21.9 million in sales of CRE and multifamily loans at a premium of 3%. For comparison purposes, we sold $14.6 million in SBA loans last quarter at a premium of 11% and we sold $10.5 million in CRE loans at a premium of 2%. Second, we did some rebalancing in the securities portfolio in preparation for the securities we will add in the pending Independence Bank acquisition. The security sales resulted in higher gains in the current quarter of $661,000. And third, we had a higher level of prepayment fees in the fourth quarter, which resulted in $258,000 increase in our loan servicing fees. Our non-interest expense increased by $3.1 million from the third quarter, which included $864,000 in merger-related expense. Aside from that item, the most significant contributor to the increase was an accrual of $1.7 million related to a litigation matter that Steve mentioned earlier.
