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We were not required to record a loan loss provision in 2015, as opposed to provisions of $350,000 in 2014
and $4.350 million in 2013.
During the recession and for several years thereafter, our loan loss provision was
unusually high due to the establishment of specific reserves for impaired loans, the replenishment of reserves sub-
sequent to loan charge-offs, and the buildup of general reserves for performing loans due to higher historical loss
factors. The lower provisions in 2015 and 2014 were facilitated by a reduction of impaired loan balances, lower
loan losses, and tighter underwriting standards for new and renewed loans.
•
Non-interest income increased by $1.884 million, or 12%, in 2015 compared to 2014, but was down $1.232
million, or 7%, in 2014 relative to 2013.
The largest favorable variance within this category in 2015 was in
service charges on deposit accounts, which were up $1.124 million, or 14%, due primarily to fees earned from
increased activity on commercial accounts and higher overdraft income. Other contributors to the 2015 increase
include a non-recurring special dividend from the Federal Home Loan Bank, higher debit card interchange income,
increases in other activity-based fees, and lower pass-through costs on our low-income housing tax credit
investments. Favorable variances in 2015 were partially offset by a $380,000 drop in income on bank-owned life
insurance (“BOLI”) associated with deferred compensation plans. The primary factors impacting the unfavorable
variance in non-interest income in 2014 include a drop in overdraft income and certain other deposit fee income,
lower income on BOLI associated with deferred compensation plans, and lower merchant fees.
•
Operating expense increased by $4.328 million, or 9%, in 2015 over 2014, and was up by $1.560 million, or
3%, in 2014 relative to 2013.
Almost half of the increase in 2015 was in salaries and benefits, which were up by
$1.945 million, or 8%, for the year due in large part to recurring compensation costs associated with our acquisition
that was completed in the latter part of 2014. Furthermore, the acquisition was a major contributor to increases in
occupancy expense, data processing expense, telecommunications expense, and other operating costs. OREO
expense was also up by $1.573 million in 2015 due in large part to substantial gains realized on the sale of OREO
in 2014, and sundry and teller costs increased by $349,000 due to an increase in fraudulent debit card activity. The
largest single favorable variance within other non-interest expense in 2015 over 2014 was a reduction of $1.969
million in non-recurring acquisition costs.
Direct costs incurred or accrued in conjunction with our acquisition of
SCVB totaled $2.070 million in 2014, which led to an unfavorable variance in non-interest expense in 2014 over
2013 along with higher personnel costs, ongoing and non-recurring costs associated with our core system
conversion, and costs associated with our rebranding project. Those increases were partially offset by the afore-
mentioned gains on the sale of OREO in 2014.
•
The Company had tax provisions of $9.071 million, or 33% of pre-tax income in 2015; $6.191 million, or
29% of pre-tax income in 2014; and $3.093 million, or 19% of pre-tax income in 2013.
The tax provisioning
rate has been increasing due to higher taxable income and a declining level of available tax credits, including those
generated by our investments in low-income housing tax credit funds as well as certain hiring tax credits.
The Company’s assets totaled $1.797 billion at December 31, 2015, relative to total assets of $1.637 billion at December
31, 2014. Total liabilities were $1.606 billion at the end of 2015 compared to $1.450 billion at the end of 2014, and
shareholders’ equity totaled $190 million at December 31, 2015 relative to $187 million at December 31, 2014. The
following is a summary of key balance sheet changes during 2015.
•
Total assets increased by $159 million, or 10%.
The increase resulted from growth in performing loans that was
partially offset by a reduction in nonperforming assets, and lower cash and investment balances.
•
Gross loans and leases were up $162 million, or 17%, for the year in 2015.
Loan growth was favorably
impacted by a $74 million upsurge in balances outstanding on mortgage warehouse lines from increased line utili-
zation, the first quarter purchase of $28 million in residential mortgage loans, and strong organic growth in other
non-farm real estate loans and agricultural production loans.
•
Nonperforming assets ended 2015 at $13 million, representing a reduction of $12 million, or 48%, for the
year.
The net decline during 2015 is comprised of an $11 million reduction in loans on non-accrual status and a
$1 million reduction in foreclosed assets. The Company’s ratio of nonperforming assets to loans plus foreclosed
assets fell to 1.13% at December 31, 2015, from 2.53% at December 31, 2014.