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The Company’s results reflect reductions in total non-interest income of $1.232 million, or 7%, in 2014 relative to
2013, and $1.063 million, or 6%, for 2013 over 2012. While the primary reasons for declining non-interest income
are discussed in greater detail below, several items of a non-recurring nature have had a significant impact over the
past few years. In 2014, non-recurring income was comprised primarily of $667,000 in gains on the sale of
investments. For 2013, non-recurring income items include $397,000 in life insurance proceeds and a $100,000 non-
recurring signing incentive received in conjunction with our merchant processing vendor conversion. In 2012, we
realized $1.762 million in gains on the sale of investments, had non-recurring accrual adjustments to costs associated
with tax credit investments and other limited partnership investments, and received life insurance proceeds totaling
$87,000. Variability in income on BOLI associated with deferred compensation plans also contributed to the year-to-
year changes in total non-interest income.
The principal component of the Company’s non-interest revenue, namely service charges on deposit accounts, fell by
$747,000, or 8%, in 2014 relative to 2013. The primary reason for the drop was lower fees received from customer
overdrafts and returned items, but certain other service charges were also down due in part to fees waived in the
course of our core system conversion in the first quarter of 2014. Deposit service charges also declined by $654,000,
or 7%, in 2013 relative to 2012, mainly as the result of certain debit card interchange fees that were included with
service charges on deposits in 2012 but which were reclassified to other service charges in 2013. The Company’s
ratio of service charge income to average transaction account balances was 1.2% in 2014, down from 1.4% in 2013
and 1.7% in 2012.
The next line item under other operating income is credit card fees, which consist primarily of credit card interchange
fees. Despite the sale of all credit card balances in 2007, we still receive a portion of the interchange and interest
income from credit cards issued in our name. Credit card fees did not change materially in 2014 over 2013, but
increased by $72,000, or 18%, in 2013 relative to 2012. Checkcard fees, which represent interchange fees from
electronic funds transactions (“EFTs”), increased by $159,000, or 4%, in 2014 over 2013, and by $962,000, or 35%,
in 2013 over 2012. The increase in 2014 can be explained by growth in our deposit account base, while the increase
in 2013 includes the impact of the aforementioned reclassification of debit card interchange fees.
Other service charges and fees also constitute a relatively large portion of non-interest income, with the principal
components consisting of ATM fees from transactions not associated with deposit customers (also referred to as
foreign ATM fees), dividends on restricted stock, check printing fees, currency order fees, and other fees for
merchant services. For 2014, fees on merchant accounts declined, including the impact of a $100,000 non-recurring
incentive received in conjunction with our conversion to a new merchant processing vendor in the first quarter of
2013, but that drop was largely offset by increases in other areas, including dividends received on restricted stock.
The increase of $312,000, or 15%, in 2013 over 2012 was also due in large part to higher dividends received on
restricted stock.
Bank-owned life insurance income fell by $509,000, or 28%, in 2014 relative to 2013, but increased by $367,000, or
26%, in 2013 over 2012, due mainly to fluctuations in income on BOLI associated with deferred compensation plans.
The Company owns and derives income from two basic types of BOLI: “general account” and “separate account.”
At December 31, 2014 the Company had $38.3 million invested in single-premium general account BOLI, including
$2.1 million from the acquisition of SCVB. This BOLI generates income that is used to fund expenses associated
with executive salary continuation plans, director retirement plans and other employee benefits. Interest credit rates
on general account BOLI do not change frequently and the income is typically fairly consistent, but rate reductions
have led to slightly reduced income levels in recent periods. The SCVB BOLI added toward the end of 2014 should
help mitigate the impact of any rate reductions in 2015. In addition to general account BOLI the Company had $4.7
million invested in separate account BOLI at December 31, 2014, which produces income that helps offset deferred
compensation accruals for certain directors and senior officers. These deferred compensation BOLI accounts have
returns pegged to participant-directed investment allocations that can include equity, bond, or real estate indices, and
are thus subject to gains or losses which often contribute to significant fluctuations in income (and associated
expense accruals). There was a gain on separate account BOLI totaling $315,000 in 2014 relative to a gain of
$770,000 in 2013, for a year over year decrease of $455,000 in deferred compensation BOLI income. There was also
a gain on separate account BOLI totaling $339,000 in 2012, for an increase of $431,000 in 2013 over 2012. As
noted, gains and losses on separate account BOLI are related to expense accruals or reversals associated with
