Non-interest income increased $196,000 to $1.5 million for the three months ended December 31, 2012 compared to $1.3 million for the same period in 2011. The increase was primarily due to an increase in income related to sale of loans on the secondary market, an increase in debit card related income, an increase in income related to consumer loan related fees and increased revenue from Valley Title Services, LLC partially offset by a reduction in deposit related fees generated from non-sufficient fund charges.

Non-interest expense increased $319,000 to $3.2 million for the quarter ended December 31, 2012 compared to $2.8 million for the quarter ended December 31, 2011. The increase was primarily due to data processing fees related to increased debit card transactions as well as increased salary and employee benefits expenses including an increase in the number of employees.

Income tax expense for the three months ended December 31, 2012 was $285,000 compared to $202,000 for the same period in 2011.

Results of Operations – Year Ended December 31, 2012 and 2011

Net interest income after provision for loan losses increased $1.4 million, or 15.31%, to $10.8 million for the year ended December 31, 2012 as compared to the year ended December 31, 2011. Interest income decreased $172,000 when comparing the two periods as the average balance of interest-earning assets increased from $262.9 million for the year ended December 31, 2011 to $271.3 million for the year ended December 31, 2012. The average yield on interest-earning assets decreased from 5.57% during the year ended December 31, 2011 to 5.33% for the year ended December 31, 2012. Interest expense decreased $700,000 as the average cost of interest bearing liabilities decreased from 1.53% to 1.18% when comparing the two years, while the average balance of interest bearing liabilities increased$4.8 million from $218.5 million to $223.3 million. The provision for loan losses decreased $900,000 from $2.0 million for the year ended December 31, 2011 to $1.1 million for the year ended December 31, 2012. The decrease in provision for loan losses was primarily due to a decrease in net charge offs period over period.

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