27
•
Nonperforming assets ended 2014 at $25 million, representing a reduction of $21 million, or 46%, for the
year.
The net decline during 2014 is comprised of a $17 million reduction in loans on non-accrual status and a
$4 million reduction in foreclosed assets. The Company’s ratio of nonperforming assets to loans plus foreclosed
assets fell to 2.53% at December 31, 2014, from 5.62% at December 31, 2013.
•
Our allowance for loan and lease losses totaled $11.2 million as of December 31, 2014, a decline of
$429,000, or 4%, relative to year-end 2013.
The drop during 2014 was due to lower general reserves on
performing loans, consistent with improvement in asset quality. The allowance fell to 1.16% of total loans at
December 31, 2014 from 1.45% of total loans at December 31, 2013 due to credit quality improvement in the
existing portfolio, rigorous underwriting standards for newly-originated loans, and the fact that SCVB loans were
recorded on our books at their fair values.
•
Deposits reflect an increase of $193 million, or 16%, during 2014, but experienced no net growth in 2013.
For 2014, the increase includes $108 million in deposits from the acquisition of SCVB and strong organic growth
in core non-maturity deposits. In 2013, growth in non-maturity deposits was offset by the maturity of a brokered
time deposit and the runoff of other time deposits managed by our Treasury Department.
•
Total capital increased by $5 million, or 3%, to $187 million at December 31, 2014.
Despite the higher level
of capital, risk-based capital ratios declined as capital was leveraged during the year to acquire SCVB and grow
risk-adjusted assets. At December 31, 2014, the consolidated Company’s Total Risk-Based Capital Ratio was
18.44%, its Tier One Risk-Based Capital Ratio was 17.39%, and its Tier One Leverage Ratio was 12.99%.
Results of Operations
Net income was $15.240 million in 2014, an increase of $1.871 million, or 14%, relative to 2013. The Company
earns income from two primary sources. The first is net interest income, which is interest income generated by
earning assets less interest expense on deposits and other borrowed money. The second is non-interest income,
which primarily consists of customer service charges and fees but also comes from non-customer sources such as
bank-owned life insurance. The majority of the Company’s non-interest expense is comprised of operating costs that
relate to providing a full range of banking services to our customers.
Net Interest Income and Net Interest Margin
Net interest income was $52.325 million in 2014, compared to $48.564 million in 2013 and $50.581 million in 2012.
This represents an increase of 8% in 2014, but a decline of 4% in 2013. The level of net interest income recognized
in any given period depends on a combination of factors including the average volume and yield for interest-earning
assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the
Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income is also impacted by the
reversal of interest for loans placed on non-accrual status during the reporting period, and the recovery of interest on
loans that had been on non-accrual and were paid off, sold or returned to accrual status.
The following table shows, for each of the past three years, average balances for significant balance sheet categories
and the amount of interest income or interest expense associated with each applicable category for the noted periods.
The table also displays calculated yields on each major component of the Company’s investment and loan portfolios,
average rates paid on each key segment of the Company’s interest-bearing liabilities, and our net interest margin.
