In many ways, 2014 was a year of transition for Community State Bank. While the Bank’s net income declined during 2014, many improvements in our processes and procedures were put in place to prepare the bank for future growth, including the implementation of our ‘Relationships Matter’ accelerated customer call program. In December of 2014, the bank received good news that our Consent Order for Compliance was lifted by the FDIC. This release, which is a great accomplishment, will position us for success going forward.
Community State Bank had a net income of approximately $201,000 for 2014 compared to $498,000 in 2013. Net interest income decreased 8.1% from 2013 to 2014, primarily driven by the reduction in loans of over $4 million and a compressed net interest margin. Loan loss provision decreased 39% from the prior year due to improvement in the non-performing assets on the balance sheet. The Bank will continue to strive to reduce non-performing assets in order to maximize the income generated by our loan portfolio. Non-interest income decreased 3% from 2013, resulting from decreases in service charge income and sale of mortgage loans. The Bank did invest in bank-owned life insurance during 2014, which will generate earnings in the future. Non-interest expenses increased 2% from prior year. Compensation and benefits increased from 2013 due to several open management positions being filled in 2014. These positions included several loan officers that led to loan runoff during 2014. The Bank including all loan officers and branch managers have been actively making sales calls to increase loan volumes. Our occupancy expense also increased in 2014, which is due to having the Saginaw Loan Production Office (LPO) open for a full year. The LPO opened in August 2013, so the Bank only had approximately five months of expense in 2013. Collection expense increased in 2014 due to the Bank taking a more aggressive stance on collecting past due and non-performing loans. Overall, the Bank had net income of $0.64 per share down from $1.58 per share in 2013.
Community State Bank’s assets grew by $2 million or 1%. The loan portfolio decreased by approximately 6%. The Bank had a transition in loan officers during the end of 2013 and beginning of 2014, which led to some loan runoff. Management spent a significant amount of time working to improve the non-performing asset ratios. The Bank has reduced past due loan percentages and lowered classified asset levels when comparing amounts outstanding at the end of 2014 to 2013. The Bank is back to full strength with lending staff and has started a customer calling program to increase loan demand for the organization. The Bank did increase the investment security portfolio in 2014 by 11% but these investment securities have a significantly lower yield than the loan portfolio. The Bank is trying to maximize the earning potential of all assets on the balance sheet, which resulted in lower cash and due from banks balances and the purchase of bank-owned life insurance. The Bank has decreased deposit rates to some of the lowest levels in history, but the deposit balances continued to increase by 1%. The Bank has a very low cost of funds but the Bank needs to put these funds into higher yielding loans rather than investment securities. The Bank continues to be well-capitalized and the tier one leverage ratio is 8.96% up over 20 basis points from 2013.
Community State Bank is looking to the future which includes continuing to enhance the relationships we have with our customers. Our priorities will concentrate on loan growth, but only if it is a quality loan. We will continue to reduce the non-performing assets on the balance sheet, increase net income by charging fair and reasonable fees for the valuable services used by our customers, and reduce expenses whenever possible. The Bank will continue to concentrate on our improved processes and procedures and compliance standards, all while providing quality customer service to the communities that we serve.
Thank you for your support and loyalty to Community State Bank…where local matters.
Douglas J. Kelley
President and CEO