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## Income Tax Expense 

## 2011 vs. 2010 comparison 

In 2011, the Company recorded income tax expense of $0.1 million, compared to $0.8 million in 2010. The effective income tax rate was 1.02% in 2011, compared to 12.99% in 2010. The decrease in income tax expense and the effective tax rate from 2010 to 2011 was primarily due to a decrease in the level of earnings before taxes and an increase in federal tax credits related to the Company’s increased investments in affordable housing limited partnerships in 2011. In January of 2012, the Company sold its interests in three affordable housing partnership investments. Accordingly, the Company expects that income tax expense will increase in 2012 when compared to 2011 since the Company currently does not expect to receive any federal tax credits related to affordable housing partnership investments in 2012. 

## 2010 vs. 2009 comparison 

In 2010, the Company recorded income tax expense of $0.8 million, compared to an income tax benefit of $0.3 million in 2009. This change was primarily due to an increase in the level of earnings before taxes. The effective income tax rate was 12.99% in 2010, compared to an effective income tax benefit rate of 16.47% in 2009. The increase in the effective tax rate from 2009 to 2010 was primarily due to a 198% increase in earnings before taxes. Also reflected in the Company’s effective income tax benefit rate for 2009 was a change in valuation allowance of $0.5 million related to nondeductible capital losses and an income tax benefit of $0.3 million related to the correction of an accounting error in prior periods. Information concerning the correction of an accounting error is included in Note 1 to the Consolidated Financial Statements. 

## BALANCE SHEET ANALYSIS 

## Securities 

Securities available-for-sale were $299.6 million and $315.2 million as of December 31, 2011 and 2010, respectively. The decrease from December 31, 2010 primarily reflects management’s decision to utilize a portion of the cash proceeds from securities sold, called, and matured during 2011 to reduce the level of wholesale funding (such as brokered certificates of deposit and FHLB advances) on our balance sheet. Unrealized net gains on securities available-for-sale were $6.7 million as of December 31, 2011 compared to unrealized net losses of $3.5 million as of December 31, 2010. The change in net unrealized gains (losses) of $10.2 million from December 31, 2010 was primarily due to changes in interest rates and a narrowing of credit spreads on securities of U.S. states and political subdivisions during 2011. The average tax-equivalent yields earned on total securities were 3.65% in 2011 and 4.09% in 2010. 

The following table shows the carrying value and weighted average yield of securities available-for-sale as of December 31, 2011 according to contractual maturity. Actual maturities may differ from contractual maturities of mortgage- backed securities because the mortgages underlying the securities may be called or prepaid with or without penalty. 

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