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The principal component of the Company’s non-interest revenue, namely service charges on deposit accounts, increased
by $1.124 million, or 14%, in 2015 relative to 2014 due primarily to fees earned from increased activity in commercial
accounts and higher overdraft income in 2015, and from a decline in fee income in 2014 resulting from certain non-
recurring fee waivers made in the course of our core software conversion. Deposit service charges fell by $747,000, or
8%, in 2014 relative to 2013, due mainly to lower fees received from customer overdrafts and returned items, but certain
other service charges were also down due to the aforementioned fee waivers. The Company’s ratio of service charge
income to average transaction account balances was 1.1% in 2015, down from 1.2% in 2014 and 1.4% in 2013.
The line item immediately following service charges on deposits is credit card fees, comprised primarily of credit card
interchange income. 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 by a third party vendor. Credit card fees did not change
materially in 2015 relative to the prior two years. Checkcard fees, which consist of interchange fees from our
customers’ use of debit cards for electronic funds transactions, increased by $326,000, or 8%, in 2015 over 2014, and
by $159,000, or 4%, in 2014 over 2013. The increases can be explained primarily by growth in our deposit account
base, including the addition of accounts pursuant to our acquisition of SCVB.
Other service charges and fees also constitute a relatively large portion of non-interest income, with the principal com-
ponents 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.
This category increased by $818,000, or 35%, in 2015 over 2014, with the increase comprised of a $481,000 increase
in dividends on restricted stock, including the aforementioned nonrecurring special dividend from the FHLB, and
increases in other activity-based fees. For 2014 relative to 2013, other service charges and fees dropped by $36,000,
or 2%. Fees on merchant accounts declined in 2014, reflecting 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.
Bank-owned life insurance (“BOLI”) income was down $371,000, or 29%, in 2015 relative to 2014, and also dropped
by $509,000 for 2014 over 2013 due mainly to fluctuations in BOLI income 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, 2015 the Company had $39.3 million invested in single-premium general account BOLI,
which 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 lower income levels in recent
periods. In addition to general account BOLI the Company had $4.9 million invested in separate account BOLI at
December 31, 2015, 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 loss on separate account
BOLI totaling $65,000 in 2015 relative to a gain of $315,000 in 2014, for a year over year drop of $380,000 in deferred
compensation BOLI income. There was also a gain on separate account BOLI of $770,000 in 2013, thus 2014 over
2013 reflects a decline of $455,000 in deferred compensation BOLI income. As noted, gains and losses on separate
account BOLI are related to expense accruals or reversals associated with participant gains and losses on deferred
compensation balances, thus their impact on taxable income tends to be neutral.
Gains on the sale of loans dropped to immaterial levels in 2015 and 2014 since the Company has been retaining almost
all of the loans it originates. We did, however, realize $666,000 in gains on the sale of investments in 2015, almost the
same as the $667,000 in gains realized in 2014 but up materially from only $6,000 in gains for 2013. The next line
item reflects pass-through losses associated with our investments in low-income housing tax credit funds and other
limited partnership investments. Those costs, which are netted out of revenue, dropped by $103,000, or 9%, in 2015
over 2014, but increased by $98,000, or 9%, in 2014 over 2013.
Other non-interest income includes gains and losses on the disposition of assets other than OREO, rent on bank-owned
property other than OREO, life insurance proceeds, and other miscellaneous income. Other non-interest income was
down $130,000 in 2015 relative to 2014, and declined $525,000 in 2014 relative to 2013. Income generated through
the Company’s alliance with Investment Centers of America (“ICA”) has been included in this line item, but the
Company terminated its affiliation with ICA effective July 31, 2014 thus related income was down $68,000 in 2015.