For the year ended December 31, 2017, total interest income on loans increased
$2.4 million compared to December 31, 2016 due to the Companys $56.1 million increase in the average balance of net loans. For the year ended December 31, 2017, the Companys interest income on investments declined by
$411,000 due to lower average balances of securities.
For the year ended December 31, 2017, interest expense was $6.0 million
compared to $5.3 million for the year ended December 31, 2016. The increase in interest expense was largely the result of higher short term interest rates as the FED increased its overnight borrowing rate to 1.50% by the end of 2017. The
average cost of deposits was 0.64% for the year ended December 31, 2017 compared to 0.59% of average deposits for the year ended December 31, 2016. Over the same period, the average balance of deposits increased from $721.8 million
for the year ended December 31, 2016 to $747.8 million for the year ended December 31, 2017.
The Company determined that
an additional $477,000 and $1.2 million in provision for loan loss expense was required for the years ended December 31, 2017 and December 31, 2016, respectively. We reduced our provision expense in 2017 due to lower levels of
non-accrual
and substandard loans. The Companys ratio of allowance for loan losses to
non-performing
loans at December 31, 2017 and December 31, 2016 was
351.49% and 67.36%, respectively.
For the year ended December 31, 2017, total
non-interest
income was $8.0 million, an increase of $95,000 compared to December 31, 2016. For the year ended December 31, 2017, the slight increase in
non-interest
income was accomplished despite a
$443,000 decline in gains on the sale of securities and a $264,000 decline in mortgage origination income. The decline of income in both gains on the sale of securities and mortgage origination income is partially attributable to rising interest
rates as well as increased competition for mortgage originators in the Companys higher growth markets.
For the year ended
December 31, 2017, the Companys service charge income was $3.2 million, representing an increase of $436,000 compared to the year ended December 31, 2016. The increase in service charge income is the result of changes made by
management to the Companys retail deposit account offerings that increased the number of checking accounts paying a monthly fee. For the year ended December 31, 2017, other
non-interest
income
increased by $306,000 as compared to the year ended December 31, 2016. The increase in other income was largely the result of a $225,000
one-time
payment collected from a vendor.
Total
non-interest
expense for each of the years ended December 31, 2017 and December 31,
2016 was $29.9 million. For the year ended December 31, 2017, the Companys salaries and benefits expense increased by $649,000 compared to the year ended December 31, 2016. The increase in salary and benefit expenses in 2017
compared to 2016 was the result of a $300,000 increase in health insurance benefits and a $349,000 increase in compensation. For the year ended December 31, 2017, professional services expenses were $2.3 million compared to
$1.4 million for the year ended December 31, 2016 largely due to legal expenses of approximately $1.1 million incurred as a result of a shareholder lawsuit and shareholder demand letter.
For the year ended December 31, 2017, foreclosure expenses net of gains and losses on the sale of foreclosed assets were $9,000 compared
to $448,000 for the year ended December 31, 2016. The decline in net foreclosure expenses for the year ended December 31, 2017 was the result of a reduction in both the number and complexity of foreclosures and higher realized values on
properties sold. For the year ended December 31, 2017, other operating expenses were $3.6 million compared to $4.2 million for the year ended December 31, 2016.
Income Taxes. The effective tax rates for the years ended December 31, 2017 and December 31, 2016, was 39.4% and 11.1%,
respectively. For the year ended December 31, 2017, the Companys effective tax rate was largely influenced by the $980,000 reduction in the Companys deferred tax asset. For the year ended December 31, 2017, higher tax rates
were the result of higher levels of taxable income and reduced balances of municipal bonds.
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