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income and losses, as are directors deferred compensation accruals that are included in “other professional services,”
and the net income impact of all income/expense accruals related to deferred compensation is usually minimal.
Salaries and benefits increased to 49.44% of total operating expense in 2014, from 48.91% in 2013 and 44.44% in
2012. The number of full-time equivalent staff employed by the Company totaled 420 at the end of 2014, 389 at the
end of 2013, and 399 at the end of 2012. The increase in 2014 is due primarily to the addition of Santa Clara Valley
Bank staff.
Total rent and occupancy expense, including furniture and equipment costs, increased by $70,000, or 1%, in 2014
over 2013, but dropped by $107,000, or 2%, in 2013 relative to 2012. In 2014, premises costs were higher due
primarily to higher utilities expense and costs associated with our newly-acquired branches. Occupancy expense was
favorably impacted in 2013 by lower depreciation expense on furniture and equipment.
Advertising and marketing costs were up by $245,000, or 13%, in 2014 over 2013, and by $189,000, or 11%, in 2013
over 2012. The increase in 2014 was due to non-recurring costs incurred in conjunction with our 2014 rebranding
efforts and the acquisition, as well as an $83,000 increase in charitable donations. The increase in 2013 was due to
the enhancement of our direct-mail marketing campaign for deposits and an increase in image advertising, and certain
expenses incurred in the fourth quarter of 2013 in connection with our 2014 rebranding initiative. We anticipate that
marketing costs will be about the same in 2015 as in 2014, despite the elimination of non-recurring costs, due to
expenses likely to be incurred in our new market areas.
Data processing costs increased by $1.154 million, or 74%, in 2014 over 2013, and by $244,000, or 19%, in 2013
over 2012. The increase in 2014 can be attributed to incremental ongoing costs stemming from our core banking
system conversion and upgrades in the first quarter, and the acquisition in the fourth quarter. Costs were up in 2013
due in part to software that was purchased to facilitate more efficient loan origination and processing, including loan
document imaging.
Deposit services costs increased by $182,000, or 8%, in 2014 over 2013, but dropped by $350,000, or 13%, in 2013
relative to 2012. As with data processing costs, most of the increase in deposit costs in 2014 is the result of ongoing
costs associated with our software conversion and the acquisition. The drop in deposit costs in 2013 is due to lower
electronic banking costs, lower costs for debit card processing, and smaller reductions in a few other areas.
Loan services costs are comprised of loan processing costs and net costs associated with foreclosed assets. Loan
processing costs, which include expenses for property appraisals and inspections, loan collections, demand and
foreclosure activities, loan servicing, loan sales, and other miscellaneous lending costs, increased by $114,000, or
11%, in 2014 over 2013, but declined slightly in 2013 relative to 2012. If not for $290,000 in non-recurring
commissions paid in conjunction with the sale of certain nonperforming loans in 2014, loan processing costs would
have improved due to expense reductions in various other categories. Net expenses on foreclosed assets, comprised
of write-downs taken subsequent to re-appraisals, OREO operating expense (including property taxes), and losses on
the sale of foreclosed assets, net of rental income on OREO properties and gains on the sale of foreclosed assets,
actually reflect an overall expense reversal for 2014 due to relatively large gains on the sale of OREO. This line item
thus reflects an absolute difference of $2.949 million in 2014 relative to 2013, and was also down by $3.385 million,
or 69%, for 2013 relative to 2012. In 2014, the largest impact came from a net gain of $2.253 million on the sale of
OREO relative to a net loss of $223,000 in 2013. OREO write-downs and OREO operating expense were also down
in 2014 relative to 2013, by $277,000 and $227,000, respectively. For 2013 relative to 2012, we also saw significant
reductions in OREO operating expense due to declining levels of OREO and fewer losses on the sale of OREO.
Foreclosed asset expenses have been trending down in recent years as real estate values in our markets have
improved and real estate sales activity has increased, but we do not expect a recurrence of large gains on the sale of
OREO such as those realized in 2014.
The “other operating costs” category includes telecommunications expense, postage, and other miscellaneous costs.
Telecommunications expense was reduced by $330,000, or 20%, in 2014 relative to 2013, but increased by $64,000,
or 4%, in 2013. The reduction in 2014 was due in part to $155,000 in credits received in 2014 for prior-period
overpayments, and also includes the impact of new contract rates and the incorporation of infrastructure efficiencies.
The increase in 2013 was due to rate increases as well as costs associated with the addition and enhancement of data
circuits. Postage expense increased by $62,000, or 9%, in 2014 over 2013, but was about the same in 2013 as in
