Total interest income increased $600,000, or 31.9%, to $2.5 million for the three months ended March 31, 2023 as compared to $1.9 million the same period in 2022. The increase resulted from increases in the average balance of and the yield earned on interest-earning assets. The average balance of interest-earning assets increased to $269.5 million for the quarter ended March 31, 2023 from $250.9 million for the quarter ended March 31, 2022, due primarily to increases in loans receivable and investment securities, partially offset by decreases in interest-bearing deposits with banks. The average yield on interest-earning assets and tax-equivalent yield on interest-earning assets(1) increased to 3.69% and 3.85%, respectively, for the quarter ended March 31, 2023 from 3.00% an 3.17%, respectively, for the quarter ended March 31, 2022, due primarily to an increase in market interest rates.
Total interest expense increased $473,000, or 315.3%, to $623,000 for the three months ended March 31, 2023 compared to $150,000 for the three months ended March 31, 2022 due to increases in the average balances of and the costs incurred on interest-bearing liabilities. The average cost of interest-bearing liabilities increased to 1.21% for the quarter ended March 31, 2023 from 0.32% for the same period in 2022. The average balance of interest-bearing liabilities increased to $205.2 million for the quarter ended March 31, 2023 from $184.8 million for the same period in 2022, due primarily to increases in the average balance of borrowings and time deposits, partially offset by a decrease in savings and interest-bearing deposits. The average balance and cost of borrowings increased to $24.6 million and 4.49%, respectively, as of March 31, 2023 from $10.0 million and 1.73%, respectively, for the same period in 2022. The average cost of deposits increased to 0.77% for the quarter ended March 31, 2023 from 0.24% for the same period in 2022. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread and interest rate spread on a tax-equivalent basis(1) decreased to 2.48% and 2.64%, respectively, for the quarter ended March 31, 2023, from 2.68% and 2.85%, respectively for the quarter ended March 31, 2022. The net interest margin and net interest margin on a tax-equivalent basis(1) remained at 2.76% and 2.93%, respectively, for the quarters ended March 31, 2023 and March 31, 2022.
Provision for Credit Losses. The amortized cost of non-performing loans decreased to $612,000, at March 31, 2023 compared to $732,000 at December 31, 2022, or 0.4% and 0.5% of total loans, respectively. At March 31, 2023, $399,000 or 65.1% of nonperforming loans were current on their loan payments.
On January 1, 2023, the Company implemented ASC 326, and as a result, the opening balances for the allowance for credit losses and reserve for unfunded loan commitments increased by $557,000 and $73,000, respectively, as of January 1, 2023. The adoption entries reduced the Company’s retained earnings on a tax-effected basis of $481,000, with no impact on earnings.
Based on an analysis of the factors described in "Summary of Significant Accounting Policies – Allowance for Credit Losses,” the Company recorded a net provision for credit losses of $52,000 for the three months ended March 31, 2023 compared to no provision recorded for three months ended March 31, 2022.
Noninterest Income. Noninterest income decreased $41,000, or 14.4%, for the quarter ended March 31, 2023 as compared to the same period in 2022, due primarily to a reduction in brokered loan fees of $28,000 and a $27,000 net loss on the sale of available for sale investment securities, partially offset by increases of $10,000 in deposit account service charges and $3,000 in ATM and debit card fee income.
Noninterest Expense. Noninterest expense increased $232,000, or 15.3%, for the quarter ended March 31, 2023 as compared to the same period in 2022. The increase was due primarily to increases in data processing expenses of $93,000, compensation and benefits expenses of $58,000, professional fees of $25,000, occupancy and equipment expenses of $23,000 and other expenses of $20,000.
Income Tax Expense. The Company recorded an income tax benefit of $37,000 for the quarter ended March 31, 2023, compared to an expense of $34,000 for the same period in 2022. The income tax benefit for the quarter ended March 31, 2023 is primarily due to an increase in tax-exempt income in proportion to income before income taxes.
(1) Refer to “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” above for more information and for a reconciliation of this non-GAAP financial measure to the nearest GAAP financial measure.