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Our allowance for loan and lease losses totaled $10.4 million as of December 31, 2015, a decline of $825,000,
or 7%, relative to year-end 2014.
The drop during 2015 was due to the charge-off of certain impaired loan
balances against previously-established reserves, partially offset by higher general reserves on performing loans
resulting from loan growth. The allowance fell to 0.92% of total loans at December 31, 2015 from 1.16% of total
loans at December 31, 2014, due to loan growth in portfolio segments with low historical loss rates and credit
quality improvement in the remainder of the loan portfolio.
•
Deposits reflect an increase of $98 million, or 7%, during 2015 due primarily to organic growth in core non-
maturity deposits.
Combined transaction account balances were up $87 million, or 11%, and savings deposits
increased $25 million, or 15%, while money market deposits dropped $16 million, or 14%, and time deposits
experienced minimal overall change.
•
Total capital increased by $3 million, or 2%, to $190 million at December 31, 2015.
The increase in capital
was relatively small in 2015, since the addition of net income to retained earnings and the impact of stock options
exercised during the year were largely offset by the Company’s repurchase of shares, the payment of cash divi-
dends, and a drop in accumulated other comprehensive income. While still robust, risk-based capital ratios declined
in 2015 as capital was leveraged during the year to grow risk-adjusted assets. At December 31, 2015, the consoli-
dated Company’s Common Equity Tier One Capital Ratio was 13.98%, its Tier One Risk-Based Capital Ratio was
16.17%, Total Risk-Based Capital Ratio was 17.01%, and Tier One Leverage Ratio was 12.14%.
Results of Operations
Net income was $18.067 million in 2015, an increase of $2.827 million, or 19%, relative to 2014. 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 facilitate offering
a full range of banking services to our customers.
Net Interest Income and Net Interest Margin
Net interest income was $60.126 million in 2015, compared to $52.325 million in 2014 and $48.564 million in 2013.
This equates to increases of 15% in 2015 and 8% in 2014. The level of net interest income we recognize 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 average balances for significant balance sheet categories and the amount of interest income
or interest expense associated with each category for each of the past three years. The table also displays the calculated
yields on each major component of the Company’s investment and loan portfolios, the average rates paid on each key
segment of the Company’s interest-bearing liabilities, and our net interest margin for the noted periods.