Net Income (Loss) Available to Common ShareholdersThe net income available to common shareholders was $1.3 million for the second quarter of 2013, an improvement of $1.4 million from the $0.1 net loss available to common shareholders in the second quarter of 2012. The net income available to common shareholders increased primarily because of the change in the net income between the periods. The Company has deferred the last ten quarterly dividend payments, beginning with the February 15, 2011 dividend payment, on its Fixed Rate, Series A, Cumulative Perpetual Preferred Stock that was originally issued to the United States Treasury Department as part of the TARP Capital Purchase Program (the “Preferred Stock”). The deferred dividend payments have been accrued for payment in the future and are being reported for the deferral period as a preferred dividend requirement that is deducted from income for financial statement purposes to arrive at the net income (loss) available to common shareholders.

Return on Assets and EquityReturn on average assets for the second quarter of 2013 was 1.21%, compared to a 0.23% return on average assets for the second quarter of 2012. Return on average equity was 11.78% for the second quarter of 2013, compared to 2.66% for the same period in 2012. Book value per common share at June 30, 2013 was $8.09, compared to $7.79 at June 30, 2012.

Six Month Period Results

Net IncomeNet income was $2.5 million for the six month period ended June 30, 2013, a decrease of $0.7 million, or 20.6%, compared to the net income of $3.2 million for the six month period ended June 30, 2012. The net income available to common shareholders was $1.5 million for the six month period ended June 30, 2013, a decrease of $0.8 million, or 33.3%, compared to the net income available to common shareholders of $2.3 million for the same period of 2012. Diluted earnings per common share for the six month period ended June 30, 2013 was $0.36, a decrease of $0.21 per share compared to the diluted earnings per common share of $0.57 for the same period in 2012. The decrease in net income for the six month period ended June 30, 2013 was primarily due to a $2.7 million decrease in net interest income due primarily to the decrease in interest earning assets between the periods and a $0.6 million decrease in the gain related to the sale of the Bank’s Toledo, Iowa branch in the first quarter of 2012. These changes to net income were partially offset by a $1.5 million decrease in the provision for loan losses and a $1.2 million decrease in non-interest expenses.

Net Interest IncomeNet interest income was $9.6 million for the first six months of 2013, a decrease of $2.7 million, or 21.7%, from $12.3 million for the same period in 2012. Interest income was $12.1 million for the six month period ended June 30, 2013, a decrease of $4.1 million, or 25.4%, from $16.2 million for the same six month period in 2012. Interest income decreased between the periods primarily because of a $96 million decrease in the average interest-earning assets and also because of a decrease in average yields between the periods. Average interest-earning assets decreased between the periods primarily because of a decrease in the commercial loan portfolio, which occurred primarily because of loan prepayments or non-renewals as a result of the Company’s focus on improving credit quality, decreasing loan concentrations, managing net interest margin and improving capital ratios. The average yield earned on interest-earning assets was 4.18% for the first six months of 2013, a decrease of 61 basis points from the 4.79% average yield for the first six months of 2012. The decrease in average yield is due to the continued low short-term interest rate environment that existed during the first six months of 2013. The increase in domestic long-term mortgage rates during the second quarter of 2013 did not materially impact the average yield earned on interest-earning assets during the first six months of 2013 since most of the mortgage loans originated by the Bank are sold into the secondary market and not placed in the loan portfolio.

Interest expense was $2.5 million for the first six months of 2013, a decrease of $1.5 million, or 36.8%, compared to $4.0 million for the first six months of 2012. Interest expense decreased primarily because of the $107 million decrease in the average interest-bearing liabilities between the periods. The decrease in average interest-bearing liabilities is primarily the result of a decrease in the outstanding borrowings and brokered certificates of deposits and a decrease in other deposits as a result of the branch sale that occurred in the first quarter of 2012. The decrease in borrowings and brokered certificates of deposits between the periods was the result of using the proceeds from loan principal payments to fund maturing borrowings and brokered certificates of deposits. Interest expense also decreased because of the lower interest rates paid on money market accounts and certificates of deposits. The decreased rates were the result of the low interest rate environment that continued to exist during the first six months of 2013. The average interest rate paid on interest-bearing liabilities was 0.93% for the first six months of 2013, a decrease of 30 basis points from the 1.23% average interest rate paid in the first six months of 2012. The average interest rate paid on interest-bearing liabilities is anticipated to continue to decrease in the third quarter of 2013 as a result of paying off all outstanding Federal Home Loan Bank advances in the second quarter of 2013. Net interest margin (net interest income divided by average interest earning assets) for the first six months of 2013 was 3.31%, a decrease of 31 basis points, compared to 3.62% for the first six months of 2012.

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