Non-Interest Income and ExpenseNon-interest income was $2.0 million for the second quarter of 2013, an increase of $0.2 million, or 10.8%, from $1.8 million for the same period in 2012. Gains on sales of loans increased $0.1 million between the periods primarily because of an increase in single family loan originations due to the low interest rate environment that continued to exist in the second quarter of 2013. Fees and service charges increased $0.1 million primarily because of an increase in overdraft charges and debit card fees between the periods.

Non-interest expense was $5.3 million for the second quarter of 2013, a decrease of $1.1 million, or 16.2%, from $6.4 million for the same period of 2012. The gains on real estate owned increased $0.5 million primarily because of an increase in the gains recognized on the properties sold. Compensation expense decreased $0.2 million primarily because of a decrease in employees between the periods due to certain branch closures and our continued focus on reducing expenses. Other non-interest expense decreased $0.2 million primarily because of a decrease in real estate taxes and other expenses related to other real estate owned. Deposit insurance costs decreased $0.1 million primarily because of a decrease in assets between the periods.

Income tax expense was $55,000 for the second quarter of 2013, an increase of $55,000 from the second quarter of 2012 when no income tax expense was recorded. In the second quarter of 2010, the Company recorded a deferred tax asset valuation reserve against its entire deferred tax asset balance and the Company continued to maintain a valuation reserve against the entire deferred tax asset balance at June 30, 2013. Since the valuation reserve is established against the entire deferred tax asset balance, no regular income tax expense was recorded for the second quarter of 2013. The income tax expense that was recorded in the second quarter of 2013 relates to alternative minimum tax amounts that are due since only a portion of the outstanding net operating loss carry forwards can be used to offset current income under the current alternative minimum tax rules.

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