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The Company recognized net income of $18.067 million in
2015, relative to $15.240 million in 2014 and $13.369 million
in 2013. Net income per diluted share was $1.33 in 2015, as
compared to $1.08 in 2014 and $0.94 for 2013. The Com-
pany’s return on average assets and return on average equity
were 1.07% and 9.59%, respectively, in 2015, as compared to
1.03% and 8.18%, respectively, in 2014, and 0.96% and 7.56%,
respectively, for 2013. The Company’s financial performance
improved in 2015, due in part to economic conditions that
contributed to reductions in nonperforming assets, increased
lending activity, and strong core deposit growth. Those trends
were also evident in 2014 and 2013, but for several years prior
to that our financial performance was materially impacted by
adverse economic conditions. The following are some of the
major factors impacting the Company’s results of operations
in recent years.
Net interest income increased by 15% in 2015 over 2014, and
by 8% in 2014 over 2013, due primarily to growth in average
interest-earning assets that was largely funded by low-cost
non-maturity deposits, and non-recurring interest income. The
growth in average earning assets in 2015 resulted from a com-
bination of our acquisition of Santa Clara Valley Bank in the lat-
ter part of 2014, organic growth, and the purchase of residen-
tial mortgage loans in the first quarter of 2015. The positive
impact of asset growth was partially offset by a two basis point
drop in our net interest margin for 2015, resulting in part from
relatively strong growth in lower-yielding mortgage warehouse
loans and continued competitive pressures on loan yields. Net
interest income has been favorably impacted in recent years by
non-recurring interest income, which added $825,000 to inter-
est income in 2015 relative to $505,000 in 2014.
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 subsequent 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 with-
in this category in 2015 was in service charges on deposit ac-
counts, 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 Fed-
eral 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. Fa-
vorable variances in 2015 were partially offset by a drop in in-
come on bank-owned life insurance (“BOLI”) associated with
deferred compensation plans. The primary factors impacting
the unfavorable variance in non-interest income in 2014 in-
clude a drop in overdraft income and certain other deposit fee
income, lower income on BOLI associated with deferred com-
pensation 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 rela-
tive to 2013. Almost half of the increase in 2015 was in sala-
ries and benefits, which were up by $1.945 million, or 8%, for
the year due in large part to recurring compensation costs as-
sociated with our acquisition that was completed in the latter
part of 2014. The acquisition was also a major contributor to
increases in occupancy expense, data processing expense, tele-
communications expense, and other operating costs. OREO
expense was 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 due to an increase in fraud-
ulent 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 ac-
quisition 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-re-
curring costs associated with our core system conversion, and
costs associated with our rebranding project. Those increases
were partially offset by the aforementioned 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 in-
come 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.
RESULTS
OF OPERATIONS
*
*Complete financial information is contained in the Company’s Form 10-K included herewith