valuation allowance against our mortgage servicing rights. The continual decline in mortgage rates decreased the estimated fair  value of these assets as it became more likely that some of the loans we serve will be refinanced. Our amortization expense also  increased as we increased our one-to-four family residential real estate loans serviced for others portfolio and recorded the  associated mortgage servicing rights and amortization expense. Partially offsetting those increases were declines of $326,000 in  professional fees, $320,000 in foreclosure and real estate owned, $110,000 in advertising and $101,000 in federal deposit  insurance premiums. The decrease in professional fees was primarily related to engaging consultants in 2011 to help us review  internal processes and procedures to identify additional opportunities to improve financial performance, without any comparable  cost incurred in the 2012 period. The decline in foreclosure and other real estate expense was the result of lower valuation  allowances recorded in 2012. Our advertising expense has declined over the past couple of years as we have emphasized sales  training and reduced our advertising costs. Our federal deposit insurance premiums declined in 2012 due to the lower assessment  rates that began in the second quarter of 2011. INCOME TAXES. During 2012, we recorded income tax expense of $1.8 million, which constituted an effective tax  rate of 22.2%, compared to an income tax expense of $504,000 and an effective tax rate of 10.1% in 2011. The increase in our  effective tax rate in 2012 was driven by an increase in earnings before income taxes compared to 2011, while tax-exempt  investment income and bank owned life insurance income remained similar between the years.  SUMMARY OF PERFORMANCE. Net earnings for 2011 increased $2.4 million, or 119.5%, to $4.5 million as  compared to 2010. The improvement in net earnings was primarily the result of a $3.9 million decrease in our provision for  loan losses. Also contributing to the increased 2011 net earnings was a $76,000 decline in non-interest expense. Partially  offsetting those items were declines of $239,000 in non-interest income, $119,000 in net interest income and $58,000 in  investment securities gains. Our provision for loan losses decreased to $2.0 million in 2011 from $5.9 million in 2010 due  to improvements in our asset quality, as demonstrated through lower levels of non-performing loans and reduced charge- offs. Our non-interest income declined as a result of lower gains on sales of loans as the volume of loans sold in the  secondary market declined in 2011 relative to 2010 as well as a higher mortgage repurchase reserve provision recorded in 2011  than 2010. Net interest income for 2011 decreased slightly to $17.9 million, or 0.7% lower than 2010. Our net interest margin,  on a tax equivalent basis, decreased slightly from 3.78% during 2010 to 3.77% in 2011. Average interest-earning assets  declined slightly from $511.7 million during 2010 to $510.6 million for 2011. The decrease in net interest income and net  interest margin was primarily a result of our interest-earnings assets and interest-bearing liabilities repricing lower. During  2011, we experienced a decline in the yields on our investment securities and loan portfolio which was not completely offset  by lower rates on our deposits and borrowings. In addition, we maintained higher average balances of investment securities  during 2011 and lower average balances of loans. Our investments balances increased as we invested excess liquidity from  higher deposits and lower loan balances. The decline in our average loan balances was the result of multiple factors,  including our decision to reduce exposure to construction and land loans and reduced loan demand from our customers. INTEREST INCOME. Interest income for 2011 decreased $1.8 million, or 7.3%, to $22.6 million from $24.4  million for 2010. Interest income on loans decreased $1.8 million, or 9.4%, to $17.4 million for 2011, due to lower average  balances, which decreased from $339.7 million in 2010 to $313.9 million in 2011, and, to a lesser extent, a decrease in the  average tax equivalent yield on loans from 5.71% during 2010 to 5.61% during 2011. Interest income on investment  securities increased $40,000, or 0.8%, to $5.1 million for 2011 due to higher average balances. Average investment  securities increased from $172.0 million for 2010, to $196.7 million for 2011, while the average tax equivalent yield on our  investment securities decreased from 3.77% during 2010 to 3.27% during 2011. The yield on our investment securities  declined as a result of reinvesting the portfolio’s cash flows into lower yielding investment securities. INTEREST EXPENSE. Interest expense for 2011 decreased $1.6 million, or 26.1%, to $4.7 million from $6.3  million for 2010. Interest expense on deposits decreased $1.0 million to $2.8 million, or 27.1%, from $3.8 million in 2010,  primarily as a result of lower rates on our maturing certificates of deposit and lower rates on savings, money market and  NOW accounts. Our total cost of deposits declined from 0.99% during 2010 to 0.72% during 2011 while our average  interest-bearing deposit balances increased from $381.4 million in 2010 to $385.7 million in 2011. The low interest rate  environment has allowed us to reduce the rates paid on savings, money market and NOW accounts while generally  51  COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND  DECEMBER 31, 2010 