• statements preceded by, followed by or that include the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "projects," or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this Quarterly Report on Form 10-Q, including, but not limited to, those presented in the Management's Discussion and Analysis. Factors that might cause such differences include, but are not limited to:
• changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including without limitation, reduced rates of business formation and growth, commercial and residential real estate development and real estate prices;

• fluctuations in markets for equity, fixed-income, commercial paper and other securities, including availability, market liquidity levels, and pricing;

• changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;

• changes in fiscal, monetary, regulatory, trade and tax policies and laws, including policies of the U.S. Department of Treasury and the Federal Reserve Board;

• the Company's participation or lack of participation in governmental programs implemented under the Emergency Economic Stabilization Act ("EESA") and the American Recovery and Reinvestment Act ("ARRA"), including without limitation the Troubled Asset Relief Program ("TARP"), the Capital Purchase Program ("CPP"), and the Temporary Liquidity Guarantee Program ("TLGP") and the impact of such programs and related regulations on the Company and on international, national, and local economic and financial markets and conditions;

• changes in consumer spending and savings habits;

• increased competitive challenges and expanding product and pricing pressures among financial institutions;

• demand for financial services in the Company's market areas;

• legislation or regulatory changes which adversely affect the Company's operations or business, including the Obama Administration's regulatory reform proposals concerning the financial services sector released on June 17, 2009;

• the Company's ability to comply with applicable laws and regulations, including restrictions on dividend payments;

• changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies;

• increased costs of deposit insurance and changes with respect to Federal Deposit Insurance Corporation ("FDIC") insurance coverage levels; and

• declines in the market value of the Company's publicly traded stock price or declines in the Company's ability to generate future cash flows may increase the potential that goodwill recorded on the Company's consolidated statement of financial position be designated as impaired and that the Company may incur a goodwill write-down in the future.

The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advises readers that various factors, including those described above, could affect the Company's financial performance and could cause the Company's actual results or circumstances for future periods to differ materially from those anticipated or projected.
Except as required by law, the Company does not undertake, and specifically disclaims any obligation to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES The Company's consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and are consistent with predominant practices in the banking industry. Application of critical accounting policies, which are those policies that management believes are the most important to the Company's financial position and results, requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes and are based on information available as of the date of the financial statements. Future changes in information may affect these estimates, assumptions and judgments, which, in turn, may affect amounts reported in the financial statements.
The Company has numerous accounting policies, of which the most significant are presented in Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements included in the Company's 2008 Annual Report on Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets, liabilities, revenues and expenses are reported in the consolidated financial statements and how those reported amounts are determined. Based on the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies with respect to the allowance for loan losses, valuation of goodwill and deferred tax assets, the valuation of securities and determination of other-than-temporary impairment ("OTTI"), and accounting for defined benefit plans require particularly subjective or complex judgments important to the Company's financial position and results of operations, and, as such, are considered to be critical accounting policies. These estimates and assumptions are based on management's best estimates and judgment and are evaluated on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts these estimates and assumptions when facts and circumstances dictate. Illiquid credit markets and volatile equity have combined with declines in consumer spending to increase the uncertainty inherent in these estimates and assumptions. As future events cannot be determined with precision, actual results could differ significantly from the Company's estimates.
For additional information regarding critical accounting policies, refer to Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements and the section captioned "Critical Accounting Estimates" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2008 Annual Report on Form 10-K. There have been no material changes in the Company's application of critical accounting policies related to the allowance for loan losses, valuation of goodwill and deferred tax assets, the valuation of securities and determination of OTTI, and accounting for defined benefit plans since December 31, 2008.
OVERVIEW
The principal objective of this discussion is to provide an overview of the financial condition and results of operations of the Company for the periods covered in this quarterly report. Certain reclassifications have been made to make prior periods comparable. This discussion and tabular presentations should be read in conjunction with the accompanying consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
Summary of Performance
Net income was $2.6 million for the second quarter of 2009 compared to $1.6 million for the second quarter of 2008. Net income available to common shareholders for the second quarter of 2009 was $1.7 million, or $0.16 per diluted share, compared with $1.3 million, or $0.12 per diluted share, for the second quarter of last year. Net income for the six months ended June 30, 2009 totaled $5.6 million compared to $5.4 million for the same period in 2008. For the first six months of 2009 net income available to common shareholders was $3.8 million, or $0.35 per diluted share, compared with $4.7 million, or $0.43 per diluted share, for the first six months of 2008.
Net income increased $1.0 million, or 61%, for the three months ended June 30, 2009 and increased $185 thousand, or 3%, for the six months ended June 30, 2009 compared to the same periods in 2008. The increase for the three months ended June 30, 2009 was primarily the result of a $1.5 million increase in net interest income and a $3.6 million increase in noninterest income partly offset by a $730 thousand increase in the provision for loan losses, a $2.1 million increase in noninterest expense and a $1.3 million increase in income tax expense. The increase in net income during the six months ended June 30, 2009 was primarily the result of a $3.7 million increase in net interest income and a $3.5 million increase in noninterest income partly offset by a $1.9 million increase in the provision for loan losses, a $3.9 million increase in noninterest expense and a $1.3 million increase in income tax expense. Details of the changes in the various components of net income are further discussed in the sections that follow.

Net Interest Income
Net interest income was $17.6 million for the second quarter of 2009, compared to $16.2 million for second quarter of 2008. For the six months ended June 30, 2009, net interest income was $35.0 million compared to $31.3 million for the same period in 2008. The increases for both periods resulted primarily from favorable changes in the mix and repricing of our earning assets and decreases in both the prime interest rate and the federal funds rate during the last nine months of 2008.
Net interest income increased $1.5 million, or 9%, when comparing the second quarter of 2009 to that of 2008. For the second quarter of 2009, average loans and securities represented 65% and 32%, respectively, of average earning assets compared to 56% and 42% in the second quarter of 2008. The tax equivalent net interest margin increased by 7 basis points to 4.01% for the second quarter of 2009 compared to 3.94% for the second quarter of 2008. A decrease of $1.2 million, or 5%, in total interest income was surpassed by a decrease of $2.7 million, or 32%, in total interest expense.
Interest on investment securities and interest-earning deposits was $5.5 million for the second quarter of 2009, compared to $8.1 million for the second quarter of 2008. The average balance of investment securities was $593.7 million with an average tax equivalent yield of 4.16% for the second quarter of 2009, compared to an average balance of $744.6 million with an average yield of 4.92% for the second quarter of 2008. The decrease in yield is primarily due to lower market interest rates, coupled with less risk and shorter average maturities in the investment securities.
Interest on loans was $17.8 million for second quarter of 2009, compared to $16.4 million for the second quarter of 2008. The average balance of loans was $1.193 billion with an average yield of 5.99% for the second quarter of 2009 compared to an average balance of $990.1 million with an average yield of 6.65% for the second quarter of 2008. Average commercial loans in 2009 increased $61.8 million, as compared to 2008 primarily due to continued strong growth in our commercial loan portfolio. The average balance of consumer indirect loans, comprised almost entirely of automobile loans, increased $144.4 million for the second quarter of 2009 over the corresponding quarter last year. This 92% increase in volume was primarily responsible for the $2.4 million increase in interest income on consumer indirect loans when comparing the second quarter of 2009 to that of 2008.
Interest on deposits was $4.9 million for the second quarter of 2009, compared to $7.4 million for the second quarter of 2008. The average balance of interest-bearing deposits was $1.436 billion with an average cost of 1.37% for the second quarter of 2009 compared to an average balance of $1.337 billion with an average cost of 2.23% for the second quarter of 2008. The average balance of noninterest-bearing deposits increased to $286.2 million or 4% during the second quarter of this year compared to the same quarter last year. The increase in the balance of total deposits is due to a 12% increase in public and 5% increase in nonpublic deposits, while the decrease in average cost is due primarily to the beneficial repricing of certificates of deposits, and to a lesser extent savings and money market accounts, at lower interest rates. The declines in interest and average cost on borrowed funds from last year's second quarter to this year's second quarter are due to reductions in market interest rates.
Net interest income increased $3.7 million, or 12%, during the six months ended June 30, 2009 compared to the same period in 2008. For the six months ended June 30, 2009, average loans and securities represented 64% and 33%, respectively, of average earning assets compared to 55% and 42% for the same period in 2008. The tax equivalent net interest margin increased by 22 basis points to 4.05% for the first six months of 2009 compared to 3.83% for the same period in 2008. A decrease of $3.4 million, or 7%, in total interest income was surpassed by a decrease of $7.1 million, or 38%, in total interest expense. Interest on investment securities and interest-earning deposits was $11.5 million for the six months ended June 30, 2009, compared to $16.7 million for the same period in 2008. The average balance of investment securities was $597.4 million with an average tax equivalent yield of 4.35% for the six months ended June 30, 2009 compared to an average balance of was $749.2 million with an average yield of 4.98% for the same period in 2008. The decrease in yield is primarily due to lower market interest rates and less tax-exempt interest income.
Interest on loans was $34.9 million for first six months of 2009, compared to $33.1 million for the first six months of 2008. The average balance of loans was $1.167 billion with an average yield of 6.02% for the six month period ended June 30, 2009 compared to an average balance of $977.3 million with an average yield of 6.80% for the same period in 2008. Average commercial loans in 2009 increased $54.1 million, as compared to 2008 primarily due to strong growth in our commercial loan portfolio. The average balance of consumer indirect loans, comprised almost entirely of automobile loans, increased $137.1 million for the first six months of 2009 over the corresponding period last year. This 93% increase in volume was primarily responsible for the $4.6 million increase in interest income on consumer indirect loans when comparing the six months ended June 30, 2009 to the same period in 2008.
Interest on deposits was $9.9 million for the six month period ended June 30, 2009, compared to $16.7 million for the same period in 2008. The average balance of interest-bearing deposits was $1.418 billion with an average cost of 1.41% for the six month period ended June 30, 2009 compared to an average balance of $1.339 billion with an average cost of 2.50% for the same period in 2008. The average balance of noninterest-bearing deposits increased to $283.9 million or 5% during the first six months of this year compared to the same period last year. The increase in the balance of total deposits is due to a 4% increase in public and a 7% increase in nonpublic deposits, while the decrease in average cost is due primarily to the beneficial repricing of certificates of deposits, and to a lesser extent savings and money market accounts, at lower interest rates.

The following table sets forth certain information relating to the consolidated balance sheets and reflects the average yields earned on interest-earning assets, as well as the average rates paid on interest-bearing liabilities for the periods indicated (in thousands).

                                                            Three months ended June 30,
                                                  2009                                       2008
                                   Average                     Average        Average                     Average
                                   Balance       Interest        Rate         Balance       Interest        Rate
Interest-earning assets:
Federal funds sold and
interest-earning deposits        $    49,105     $      26         0.21 %   $    35,733     $     194         2.18 %
Investment securities (1):
Taxable                              420,952         3,970         3.77         491,541         5,411         4.40
Tax-exempt (2)                       172,788         2,210         5.11         253,107         3,745         5.92

Total investment securities          593,740         6,180         4.16         744,648         9,156         4.92
Loans held for sale                    2,565            31         4.71           1,289            20         6.12
Loans:
Commercial                           183,733         2,108         4.60         146,778         2,285         6.26
Commercial real estate               275,275         4,395         6.40         248,290         4,270         6.92
Agricultural                          42,368           586         5.54          44,504           754         6.82
Residential real estate              168,300         2,518         5.98         169,925         2,683         6.31
Consumer indirect                    301,112         5,240         6.98         156,728         2,800         7.19
Consumer direct and home
equity                               222,122         2,969         5.36         223,906         3,588         6.44

Total loans                        1,192,910        17,816         5.99         990,131        16,380         6.65

Total interest-earning assets      1,838,320        24,053         5.24       1,771,801        25,750         5.83

Allowance for loan losses            (20,272 )                                  (15,649 )
Other noninterest-earning
assets                               194,289                                    141,362

Total assets                     $ 2,012,337                                $ 1,897,514


Interest-bearing liabilities:
Deposits:
Interest-bearing demand          $   366,985     $     186         0.20 %   $   342,463     $     761         0.89 %
Savings and money market             392,355           263         0.27         378,799           957         1.02
Certificates of deposit              676,221         4,439         2.63         615,950         5,701         3.72

Total interest-bearing
deposits                           1,435,561         4,888         1.37       1,337,212         7,419         2.23
Short-term borrowings                 31,903            56         0.71          31,739           132         1.67
Long-term borrowings                  46,860           713         6.08          42,163           798         7.56

Total interest-bearing
liabilities                        1,514,324         5,657         1.50       1,411,114         8,349         2.38

Noninterest-bearing demand
deposits                             286,155                                    275,570
Other noninterest-bearing
liabilities                           19,412                                     15,527
Shareholders' equity                 192,446                                    195,303

Total liabilities and
shareholders' equity             $ 2,012,337                                $ 1,897,514

Net interest income
(tax-equivalent)                                 $  18,396                                  $  17,401

Interest rate spread                                               3.74 %                                     3.45 %

Net earning assets               $   323,996                                $   360,687

Net interest margin
(tax-equivalent)                                                   4.01 %                                     3.94 %

Ratio of average
interest-earning assets to
average interest-bearing
liabilities                                                      121.40 %                                   125.56 %

(1) Investment securities are shown at amortized cost.

(2) The interest on tax-exempt securities is calculated on a tax equivalent basis assuming a Federal tax rate of 34%.

                                                             Six months ended June 30,
                                                  2009                                       2008
                                   Average                     Average        Average                     Average
                                   Balance       Interest        Rate         Balance       Interest        Rate
Interest-earning assets:
Federal funds sold and
interest-earning deposits        $    46,376     $      53         0.23 %   $    38,270     $     504         2.65 %
Investment securities (1):
Taxable                              417,267         8,403         4.03         491,927        10,993         4.47
Tax-exempt (2)                       180,182         4,594         5.10         257,309         7,673         5.97

Total investment securities          597,449        12,997         4.35         749,236        18,666         4.98
Loans held for sale                    2,524            61         4.80             938            29         6.21
Loans:
Commercial                           174,761         4,027         4.65         142,397         4,737         6.69
Commercial real estate               272,030         8,599         6.37         247,923         8,597         6.97
Agricultural                          42,528         1,183         5.61          44,938         1,659         7.42
Residential real estate              171,462         5,177         6.04         168,304         5,350         6.36
Consumer indirect                    284,329         9,799         6.95         147,242         5,189         7.09
Consumer direct and home
equity                               221,576         6,060         5.52         226,470         7,567         6.72

Total loans                        1,166,686        34,845         6.02         977,274        33,099         6.80

Total interest-earning assets      1,813,035        47,956         5.32       1,765,718        52,298         5.94

Allowance for loan losses            (19,738 )                                  (15,590 )
Other noninterest-earning
assets                               194,888                                    144,066

Total assets                     $ 1,988,185                                $ 1,894,194


Interest-bearing liabilities:
Deposits:
Interest-bearing demand          $   363,745     $     410         0.23 %   $   343,783     $   1,878         1.10 %
Savings and money market             382,104           514         0.27         370,112         2,281         1.24
Certificates of deposit              672,153         8,979         2.69         624,774        12,496         4.02

Total interest-bearing
deposits                           1,418,002         9,903         1.41       1,338,669        16,655         2.50
Short-term borrowings                 28,105            94         0.68          29,277           284         1.95
Long-term borrowings                  46,979         1,426         6.07          42,342         1,597         7.54

Total interest-bearing
liabilities                        1,493,086        11,423         1.54       1,410,288        18,536         2.64

Noninterest-bearing demand
deposits                             283,935                                    271,446
Other noninterest-bearing
liabilities                           19,245                                     16,022
Shareholders' equity                 191,919                                    196,438

Total liabilities and
shareholders' equity             $ 1,988,185                                $ 1,894,194

Net interest income
(tax-equivalent)                                 $  36,533                                  $  33,762

Interest rate spread                                               3.78 %                                     3.30 %

Net earning assets               $   319,949                                $   355,430

Net interest margin
(tax-equivalent)                                                   4.05 %                                     3.83 %

Ratio of average
interest-earning assets to
average interest-bearing
liabilities                                                      121.43 %                                   125.20 %

(1) Investment securities are shown at amortized cost.

(2) The interest on tax-exempt securities is calculated on a tax equivalent basis assuming a Federal tax rate of 34%.

The following table provides a reconciliation between tax equivalent net interest income as presented in the average balance sheets above and net interest income in the consolidated financial statements filed herewith in

Net interest income $ 17,645 $ 16,187 $ 34,972 $ 31,272

The following table presents, on a tax equivalent basis, the relative contribution of changes in volumes and changes in rates to changes in net interest income for the periods indicated. The change in interest not solely due to changes in volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each (in thousands):

                              Three months ended                            Six months ended
                            June 30, 2009 vs. 2008                       June 30, 2009 vs. 2008
                     Increase/(Decrease)                          Increase/(Decrease)
. . .