HispanicBusiness

Other Noninterest Income
Other noninterest income, exclusive of Trust fees, totaled $1.64 million in the September 2012 quarter compared to $1.42 million in the same quarter a year ago, reflecting an increase of $223 thousand. The 2012 quarter included $358 thousand of fee income from sale of longer term, fixed rate residential mortgage loans, compared to $115 thousand in the same 2011 quarter. The $243 thousand increase was due to higher residential mortgage loan origination levels, as well as a decision to retain less fixed rate loans in the portfolio. The 2012 quarter also included $22 thousand of gains from sales of other real estate owned. These positives were slightly offset by reduced gains from the strategic sales of securities and reduced service charges, as customers have been more diligent in managing their accounts.

Operating Expenses
The Company's total operating expenses were $11.99 million in the September 2012 quarter compared to $10.57 million in the September 2011 quarter. The 2012 expense levels included: costs for the Company to keep up with the increased regulatory burden on financial institutions; costs associated with key additions to staff in PGB Trust & Investments, to enhance their ability to grow and service their client base; increased commissions related to increased loan originations; normal salary increases; and increased bonus and profit sharing accruals. Additionally, the valuation of post retirement benefits for non-employee directors contributed approximately $475 thousand to operating expenses this quarter, due to an increase in the estimated future benefit amounts and, to a lesser extent, lower market rates required to be used in discounting such benefits. Also, initial expenses associated with the CEO search contributed approximately $75 thousand to expense levels this quarter. With the CEO search completed in the fourth quarter of 2012, the Company anticipates additional final costs to be recorded in that quarter. The net effect of the additional costs in the third quarter of 2012 were partially offset by various operational efficiencies.

Provision for Loan Losses / Asset Quality
The Company's provision for loan losses for the quarter ended September 30, 2012 was $750 thousand, lower than the $1.50 million provision recorded in the September 2011 quarter.

The Company continues to see improvement in credit metrics, as well as the overall condition of borrowers. Charge-offs, net of recoveries, for the third quarter of 2012 were $543 thousand, compared to $1.7 million for the same quarter of 2011. For the September 2012 quarter, nonperforming loans have declined and loans 30 through 89 days past due have declined significantly.

At September 30, 2012, nonperforming assets totaled $20.4 million or 1.29 percent of total assets, compared to $26.3 million or 1.65 percent of assets at December 31, 2011 and $26.2 million or 1.66 percent of assets at September 30, 2011.

Capital / Dividends
As noted in prior quarters, the preferred stock issued in January 2009 under Treasury's Capital Purchase Program (CPP) was fully redeemed early in the first quarter of 2012. At September 30, 2012, including the effect from this redemption, the Company's leverage ratio, tier 1 and total risk based capital ratios were 7.31 percent, 11.51 percent and 12.76 percent, respectively. The Company's ratios are all above the levels necessary to be considered well capitalized under regulatory guidelines applicable to banks. Additionally, the Company's common equity ratio (common equity to total assets) at September 30, 2012 was 7.42 percent of total assets, reflecting growth from 6.81 percent of total assets at December 31, 2011.