Noninterest expense increased by $1.5 million, or 14.7 percent, to $11.7 million for the quarter ended December 31, 2012 from $10.2 million for the quarter ended December 31, 2011, primarily due to a $990,000 increase in salaries and benefits expense and a $438,000 increase in professional and outside services expense. The increase in salaries and benefits expense was due primarily to increases in expenses related to our defined benefit pension plan, our equity incentive plan, and our cash incentive plan. The increase in professional and outside services resulted primarily from costs associated with the enhancement of our electronic banking capabilities and expenses related to the equity incentive plan attributable to our outside directors.

Operating Results for the Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011

Net income increased $1.7 million, or 43.6 percent, to $5.7 million, or $0.55 per share, for the year ended December 31, 2012 from $4.0 million, or $0.37 per share, for the year ended December 31, 2011. 

Net interest income decreased by $1.5 million, or 3.8 percent, to $39.2 million for the year ended December 31, 2012 from $40.7 million for the year ended December 31, 2011, primarily due to a decrease in the average yield on interest-earning assets, partially offset by an increase in the average balance of interest-earning assets and a decrease in the average rate paid on interest-bearing liabilities. Total interest income decreased $3.8 million, or 7.0 percent, to $50.0 million for the year ended December 31, 2012 from $53.8 million for the year ended December 31, 2011, primarily due to a 45 basis point decrease in the average yield on interest-earning assets, partially offset by a 3.3 percent increase in the average balance of interest-earning assets. Total interest expense decreased $2.2 million, or 17.0 percent, to $10.9 million for the year ended December 31, 2012 from $13.1 million for the year ended December 31, 2011, primarily due to a 29 basis point decrease in the average rate paid on interest-bearing liabilities, partially offset by a 6.8 percent increase in the average balance of interest-bearing liabilities.

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