Linked Quarter Comparison

Net loss in the first quarter of 2013 was $806 thousand compared to net income of $2.1 million in the fourth quarter of 2012. After preferred stock dividends, net loss attributable to common stockholders was $0.03 per common share during the first quarter of 2013 compared to net income available to common stockholders of $0.05 per common share in the fourth quarter of 2012. The Company's results of operations in 1Q 2013 compared to 4Q 2012 were significantly impacted by a tax benefit in the prior quarter from the reversal of a valuation allowance on deferred tax assets, higher provision for loan losses, lower mortgage banking and government-guaranteed lending income, partially offset by lower foreclosed asset expense as well as merger and conversion costs combined with higher securities gains.

Net interest income in the first quarter of 2013 totaled $9.9 million compared to net interest income of $10.2 million in the fourth quarter of 2013. Net interest margin decreased from 4.37 percent in the fourth quarter to 4.24 percent in the first quarter. The linked quarter decrease in net interest margin and net interest income was primarily due to lower loan and investment yields as loan production is being booked at lower current market rates and as principal paydowns and maturities on investment securities are also being re-invested at currently low market rates. In addition to normal principal paydowns on the investment portfolio, the Company sold the majority of its tax exempt municipal bond portfolio in the quarter which reduced the annualized taxable equivalent yield on securities by 0.06 percent.

Higher average loan balances from the Company's strong loan growth and lower rates on interest-bearing liabilities partially offset the decline in net interest income. Average loan balances increased from $749.1 million in the fourth quarter of 2012 to $783.0 million in the first quarter of 2013. This increase was a result of the origination of $81.2 million in new loans in the first quarter of 2013. The Company also recognized a smaller benefit from acquisition accounting as net amortization of fair value premiums on time deposits and long-term debt reduced the cost of interest-bearing liabilities by 0.22 percent in the first quarter of 2013 compared to 0.28 percent in the fourth quarter of 2012.

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