Net interest income grew in 2012 as average earning assets increased by 23% or $258.3 million, offsetting the net interest margin decline from 3.97% to 3.52%. The decline in the net interest margin reflects several factors: the positive impact of higher deposit balances and increased loan demand, offset by increases in the level of lower yielding securities, and historically low market interest rates. This trend continued into the fourth quarter of 2012. Net interest income for the fourth quarter of 2012 increased $0.9 million, over 2011 due to higher average earnings assets. Most of the loan growth occurred late in the fourth quarter, and therefore did not contribute significantly to net interest income. The provision for loan losses was $1.1 million for the quarter, $0.2 million higher than the 2011 fourth quarter. For 2012, the provision was $5 million, an increase of $1.1 million over 2011. Total non-interest income grew $0.8 million for the fourth quarter of 2012, with increases in fee income, service charges, title revenue and securities gains of $0.5 million. During the year, total non-interest income increased $3.7 million resulting from an increase of $2.5 million in securities gains, as well as, higher title revenue, fee income and service charges. Non-interest expense for 2012 increased in both the quarter and year due to expenses associated with new branches, technology and staff.
"Our successful expansion of the franchise's geographic reach delivered the desired results; increasing core deposits and loans, and generating record levels of revenue and income. This revenue offset higher credit and compliance costs allowing us to continue building the infrastructure necessary to manage in today's increasingly complex regulatory environment," commented Mr. O'Connor.
Balance Sheet and Asset Quality
Total assets of $1.62 billion at December 2012, were $287.3 million higher than last year, and average assets increased 23%. This increase reflects strong organic growth in new and existing markets driven by growth in loans of $186.3 million or 30% and investments of $130.5 million or 21%, partially offset by a $28.3 million decrease in cash and cash equivalents. Total deposits were $1.4 billion at December 31, 2012 and included demand deposits of $529.2 million or 38% compared to 27% at December 2011. The increase in total deposits at year end 2012 reflects organic growth of $221.1 million or 19% compared to December 2011.
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