The provision for loan losses for the first quarter of 2012 totaled $427 thousand compared to $1.2 million for the same period a year ago. The decrease in the provision for loan losses for the first quarter of 2012 was due primarily to the decrease in the size of our loan portfolio from $394.6 million a year ago to $328.8 million at March 31, 2012. The first quarter provision was also impacted by specific loss allocations on loans that became impaired during the quarter and charge-offs that were not reserved for at year-end 2011.
Non-interest income for the first quarter of 2012 totaled $283 thousand compared to $181 thousand for the first quarter of 2011. The $102 thousand increase from the first quarter of 2011 was primarily due to higher net gains on sales of REOs which was partially offset by higher net losses on mortgage banking activities and lower service charges for loan-related fees and retail banking fees.
Non-interest expense for the first quarter of 2012 totaled $3.6 million, compared to $3.5 million for the first quarter of 2011. Higher non-interest expense in the first quarter of 2012 was primarily due to higher provisions for losses on loans held for sale and REO. The $503 thousand of provision for losses on loans held for sale during the first quarter of 2012 was due to charge-offs on two loans that went into foreclosure during the quarter and the recent valuation of the underlying collateral reflected a decrease in values. Partially offsetting these increases were lower compensation and benefits expense, occupancy expense and office services and supplies expense, primarily resulting from two branch closures at the end of 2011.
Income tax benefit totaled $3 thousand for the first quarter of 2012 compared to $86 thousand for the same period in 2011. The Company’s effective income tax rate was 4.76% for the three months ended March 31, 2012 compared to 40.00% for the three months ended March 31, 2011. Income taxes for interim periods are computed by applying the projected annual effective income tax rate for the year to the year-to-date earnings plus discrete items (items incurred in the quarter). The projected annual effective tax rate incorporates certain non-taxable federal and state income items, federal and state tax credits, and expected increases to the valuation allowance for projected deferred tax assets.
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