Net loans declined to $365.8 million in the first quarter of 2012, compared with $381.1 million at December 31, 2011. The decrease in net loans was due to loan payoffs and write-downs outpacing new loans. Loan demand of all types remains soft in our markets due primarily to the prolonged weak economy that we are experiencing. Real estate sales and new construction activity for both residential and commercial projects have been significantly affected.
Interest expense declined 21.8% to $1.5 million in the first quarter of 2012, compared with $1.9 million in the first quarter of 2011. The decline in interest expense was due primarily to lower interest rates paid, partially offset by growth in deposits.
Provision for loan losses increased to $2.2 million in the first quarter of 2012, or 3.8% of annualized average loans, compared with $1.3 million, or 2.2% of annualized average loans, in the first quarter of 2011. Net charge-offs totaled $3.7 million in the first quarter of 2012, compared with $2.2 million in the first quarter of 2011.
Total non-interest income increased to $1.3 million in the first quarter of 2012, compared with $1.2 million in the first quarter of the prior year. The increase was due primarily to higher other income, partially offset by lower service and other charges on deposit accounts and credit life insurance income.Non-interest expense increased to $9.8 million in the first quarter of 2012, compared with $7.4 million in the first quarter of 2011. Non-interest expense rose primarily due to an increase in impairment expense related to OREO. Impairment expense was $2.8 million in the first quarter of 2012, compared with $484,000 in the first quarter of 2011. United Security was classified as well-capitalized at the end of the first quarter of 2012. Total risk-based capital was 15.04% for the holding company and 15.09% for First United Security Bank, compared with a regulatory requirement of 10.0% for a well-capitalized institution and a minimum regulatory requirement of 8.0%. Tier 1 risk-based capital was 9.25% for the holding company and 9.29% for the bank, both measures significantly above the requirement of 6.0% for a well-capitalized institution and minimum regulatory requirement of 4.0%.
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