9.
BORROWING ARRANGEMENTS
At
June 30, 2011, the Company had $17,000,000 of unsecured
short-term borrowing arrangements with two of its
correspondent banks. There were no advances under the
borrowing arrangements as of June 30, 2011 or December 31,
2010.
The
Company has a line of credit available with the Federal
Home Loan Bank of San Francisco (the “FHLB”)
which is secured by pledged mortgage loans and investment
securities. Borrowings may include overnight advances as
well as loans with terms of up to thirty years. Advances
(both short and long-term) totaling $17,000,000 were
outstanding from the FHLB at June 30, 2011, bearing
interest rates ranging from 0.67% to 3.78% and maturing
between August 22, 2011 and May 19, 2014. Advances totaling
$17,000,000 were outstanding from the FHLB at December 31,
2010, bearing interest rates ranging from 1.85% to 3.78%
and maturing between March 11, 2011 and January 13, 2014.
Remaining amounts available under the borrowing arrangement
with the FHLB at June 31, 2011 and December 31, 2010
totaled $63,308,000 and $55,165,000, respectively. The
increased borrowing capacity in 2011 resulted from an
increase in the borrowing capacity of the pledged
collateral. In addition, the Company has a secured
borrowing agreement with the Federal Reserve Bank of San
Francisco. The borrowing can be secured by pledging
selected loans and investment securities. Borrowings
generally are short-term including overnight advances as
well as loans with terms up to ninety days. Amounts
available under this borrowing arrangement at June 30, 2011
and December 31, 2010 were $25,872,000 and $30,702,000,
respectively. The decreased borrowing capacity in 2011
resulted from a decrease in the pledged collateral,
primarily from principal reductions on the loan collateral.
There were no advances outstanding under this borrowing
arrangement as of June 30, 2011 and December 31,
2010.
10.
INCOME TAXES
The
Company files its income taxes on a consolidated basis with
its subsidiaries. The allocation of income tax expense
(benefit) represents each entity’s proportionate
share of the consolidated provision for (benefit from)
income taxes.
The
Company accounts for income taxes using the balance sheet
method, under which deferred tax assets and liabilities are
recognized for the tax consequences of temporary
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment. On the
consolidated balance sheet, net deferred tax assets are
included in accrued interest receivable and other
assets.
The
benefit of a tax position is recognized in the financial
statements in the period during which, based on all
available evidence, management believes it is more likely
than not that the position will be sustained upon
examination, including the resolution of appeals or
litigation processes, if any. Tax positions that meet the
more-likely-than-not recognition threshold are measured as
the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the
applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount
measured as described above, if applicable, is reflected as
a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination. The Company recognizes
accrued interest and penalties related to unrecognized tax
benefits, if applicable, as a component of interest expense
in the consolidated statement of income. There were no
unrecognized tax benefits or accrued interest and penalties
at June 30, 2011 or for the three-month and six-month
periods then ended.
11.
FAIR VALUE MEASUREMENTS
The
carrying amounts and estimated fair values of the
Company’s financial instruments are as follows
(dollars in thousands):
|
|
June
30, 2011
|
|
|
December
31, 2010
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
35,048
|
|
|
$
|
35,048
|
|
|
$
|
31,871
|
|
|
$
|
31,871
|
|
Interest-bearing
deposits in banks
|
|
|
2,249
|
|
|
|
2,254
|
|
|
|
2,248
|
|
|
|
2,248
|
|
Investment
securities
|
|
|
170,730
|
|
|
|
170,995
|
|
|
|
160,664
|
|
|
|
160,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases, net
|
|
|
316,861
|
|
|
|
311,606
|
|
|
|
338,533
|
|
|
|
332,964
|
|
FHLB
stock
|
|
|
3,204
|
|
|
|
3,204
|
|
|
|
3,486
|
|
|
|
3,486
|
|
Accrued
interest receivable
|
|
|
1,837
|
|
|
|
1,837
|
|
|
|
1,876
|
|
|
|
1,876
|
|
Cash
surrender values of life insurance
policies
|
|
|
11,157
|
|
|
|
11,157
|
|
|
|
11,019
|
|
|
|
11,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
455,263
|
|
|
$
|
456,104
|
|
|
$
|
465,122
|
|
|
$
|
465,985
|
|
Short-term
borrowings
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
Long-term
borrowings
|
|
|
10,000
|
|
|
|
10,240
|
|
|
|
10,000
|
|
|
|
10,523
|
|
Accrued
interest payable
|
|
|
247
|
|
|
|
247
|
|
|
|
268
|
|
|
|
268
|
|
Estimated
fair values are disclosed for financial instruments for
which it is practicable to estimate fair value. These
estimates are made at a specific point in time based on
relevant market data and information about the financial
instruments. These estimates do not reflect any premium or
discount that could result from offering the
Company’s entire holdings of a particular financial
instrument for sale at one time, nor do they attempt to
estimate the value of anticipated future business related
to the instruments. In addition, the tax ramifications
related to the realization of unrealized gains and losses
can have a significant effect on fair value estimates and
have not been considered in any of these estimates.
Because
no market exists for a significant portion of the
Company’s financial instruments, fair value estimates
are based on judgments regarding current economic
conditions, risk characteristics of various financial
instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly
affect the fair values presented.
The
following methods and assumptions were used by the Company
to estimate the fair values of its financial instruments at
June 30, 2011 and December 31, 2010:
Cash
and cash equivalents:For cash and cash equivalents,
the carrying amount is estimated to be fair value.
Interest-bearing
deposits in banks:The fair values of
interest-bearing deposits in banks are estimated by
discounting their future cash flows using rates ate each
reporting date for instruments with similar remaining
maturities offered by comparable financial
institutions.
Investment
securities:For investment securities, fair values
are based on quoted market prices, where available. If
quoted market prices are not available, fair values are
estimated using quoted market prices for similar securities
and indications of value provided by brokers.
Loans
and leases:For variable-rate loans and leases that
reprice frequently with no significant change in credit
risk, fair values are based on carrying values. The fair
values for other loans and leases are estimated using
discounted cash flow analyses, using interest rates being
offered at each reporting date for loans and leases with
similar terms to borrowers of comparable creditworthiness.
The carrying amount of accrued interest receivable
approximates its fair value.
FHLB
stock:The carrying amount of FHLB stock approximates
its fair value. This investment is carried at cost and is
redeemable at par with certain restrictions.
Cash
surrender values of life insurance policies:The fair
values of life insurance policies are based on cash
surrender values at each reporting date as provided by
insurers.
Deposits:The
fair values for non-maturing deposits are, by definition,
equal to the amount payable on demand at the reporting date
represented by their carrying amount. Fair values for
fixed-rate certificates of deposit are estimated using a
discounted cash flow analysis with interest rates offered
at each reporting date for certificates with similar
remaining maturities. The carrying amount of accrued
interest payable approximates its fair value.
Short-term
and long-term borrowings:The fair values of
short-term borrowings are estimated to be the carrying
amount. The fair values of long-term borrowings are
estimated using a discounted cash flow analysis with
interest rates currently available for similar debt
instruments.
Commitments
to extend credit:The fair value of commitments is
based on fees currently charged to enter into similar
agreements, net of origination fees. These fees were not
material at June 30, 2011 and December 31, 2010.
The
following table presents information about the
Company’s assets and liabilities measured at fair
value on a recurring and nonrecurring basis as of June 30,
2011 and December 31, 2010, and indicates the fair value
hierarchy of the valuation techniques utilized by the
Company to determine such fair value. In general, fair
values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs utilize
information other than the quoted prices included in Level
1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs include quoted
prices for similar assets and liabilities in active
markets, and inputs other than quoted prices that are
observable for the asset or liability, such as interest
rates and yield curves that are observable at commonly
quoted intervals. Level 3 inputs are unobservable inputs
for the asset or liability, and include situations where
there is little, if any, market activity for the asset or
liability. In certain cases, the inputs used to measure
fair value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value
hierarchy within which the fair value measurement, in its
entirety, falls has been determined based on the lowest
level input that is significant to the fair value
measurement. The Company’s assessment of the
significance of a particular input to the fair value
measurement in its entirety requires judgment, and
considers factors specific to the asset or
liability.
Description
|
|
Fair
Value
|
|
|
Fair
Value Measurements Using
|
|
|
Total
Gains
(Losses)
|
|
(dollars
in thousands)
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Other
Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
|
June
30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a recurring
basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$
|
144,969
|
|
|
|
|
|
$
|
144,969
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
|
20,701
|
|
|
|
|
|
|
20,701
|
|
|
|
|
|
|
|
Corporate
stock
|
|
|
77
|
|
|
$
|
18
|
|
|
|
59
|
|
|
|
|
|
|
|
Total
recurring
|
|
$
|
165,747
|
|
|
$
|
18
|
|
|
$
|
165,729
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a nonrecurring
basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,361
|
|
|
$
|
—
|
|
|
$
|
538
|
|
|
$
|
823
|
|
|
$
|
(546
|
)
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
10,758
|
|
|
|
—
|
|
|
|
1,116
|
|
|
|
9,642
|
|
|
|
(442
|
)
|
Multi-family
|
|
|
1,198
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,198
|
|
|
|
13
|
|
Construction
|
|
|
573
|
|
|
|
—
|
|
|
|
—
|
|
|
|
573
|
|
|
|
(303
|
)
|
Residential
|
|
|
2,318
|
|
|
|
—
|
|
|
|
1,312
|
|
|
|
1,006
|
|
|
|
(244
|
)
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
597
|
|
|
|
—
|
|
|
|
597
|
|
|
|
—
|
|
|
|
(253
|
)
|
Consumer
|
|
|
56
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56
|
|
|
|
(12
|
)
|
Other
real estate owned
|
|
|
3,224
|
|
|
|
—
|
|
|
|
3,224
|
|
|
|
—
|
|
|
|
(474
|
)
|
Total
nonrecurring
|
|
$
|
20,087
|
|
|
$
|
—
|
|
|
$
|
6,787
|
|
|
$
|
13,298
|
|
|
$
|
(2,261
|
)
|
|
|
December
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a recurring
basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$
|
138,644
|
|
|
|
—
|
|
|
$
|
138,644
|
|
|
|
—
|
|
|
|
—
|
|
Obligations
of states and political subdivisions
|
|
|
15,792
|
|
|
|
—
|
|
|
|
15,792
|
|
|
|
—
|
|
|
|
—
|
|
Corporate
stock
|
|
|
79
|
|
|
$
|
75
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Total
recurring
|
|
$
|
154,515
|
|
|
$
|
75
|
|
|
$
|
154,440
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a nonrecurring
basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,231
|
|
|
$
|
—
|
|
|
$
|
2,904
|
|
|
$
|
327
|
|
|
$
|
(11
|
)
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
12,120
|
|
|
|
—
|
|
|
|
194
|
|
|
|
11,926
|
|
|
|
(397
|
)
|
Multi-family
|
|
|
1,214
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,214
|
|
|
|
(93
|
)
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential
|
|
|
1,013
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,013
|
|
|
|
—
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
491
|
|
|
|
—
|
|
|
|
—
|
|
|
|
491
|
|
|
|
107
|
|
Other
real estate owned
|
|
|
2,696
|
|
|
|
—
|
|
|
|
2,696
|
|
|
|
—
|
|
|
|
(908
|
)
|
Total
nonrecurring
|
|
$
|
20,765
|
|
|
$
|
—
|
|
|
$
|
5,794
|
|
|
$
|
14,971
|
|
|
$
|
(1,302
|
)
|
There
were no significant transfers between level 1and level 2
during the three-month and six-month periods ended June 30,
2011 or the twelve months ended December 31, 2010.
The
following methods were used to estimate the fair value of
each class of financial instrument above:
Available-for-sale
securities - Fair values for investment securities
are based on quoted market prices, if available, or
evaluated pricing models that vary by asset class and
incorporate available trade, bid and other market
information. Pricing applications apply available
information, as applicable, through processes such as
benchmark curves, benchmarking to similar securities,
sector groupings, and matrix pricing.
Impaired
loans and leases - The
fair value calculation for impaired loans and leases is
based upon the fair values of the assets obtained through
either collateral valuations or present value of future
cash flows. For Level 2 impaired loans and leases, the
analysis consists of a collateral analysis inclusive of an
appraisal and detailed review of any mitigating factors
pertaining to a complete valuation of the asset. For Level
3 impaired loans or leases, the analysis is one of
determining the credit’s value based upon a review of
the present value of the loan or lease’s future cash
flows.
Other
real estate owned - Other
real estate owned (“OREO”) represents real
estate which the Company has title to in partial or full
satisfaction of loans. At or near the time of foreclosure,
the Company obtains an independent third-party appraisal
and the OREO is recorded at the fair value of the real
estate less costs to sell, which becomes the
property’s new basis. The value of the OREO
properties is periodically assessed by performing a
property valuation, which could include a full or partial
appraisal, and performed by either internally or by an
independent third-party.
12.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In
May 2011, the Financial Accounting Standards Board
(“FASB”) issued FASB Accounting Standards
Update (“ASU”) No. 2011-05, Comprehensive
Income (Topic 220): Presentation of Comprehensive Income.
This ASU amends the FASB Accounting Standards
CodificationTM
(“Codification”) to allow an entity the option
to present the total of comprehensive income, the
components of net income, and the components of other
comprehensive income either in a single continuous
statement of comprehensive income or in two separate but
consecutive statements. In both choices, an entity is
required to present each component of net income along with
total net income, each component of other comprehensive
income along with a total for other comprehensive income,
and a total amount for comprehensive income. ASU 2011-05
eliminates the option to present the components of other
comprehensive income as part of the statement of changes in
stockholders’ equity. The amendments to the
Codification in the ASU do not change the items that must
be reported in other comprehensive income or when an item
of other comprehensive income must be reclassified to net
income.
ASU
2011-05 should be applied retrospectively. These amendments
are effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011. Early
adoption is permitted. Management does not believe that the
adoption of this ASU will have a material impact on the
Company’s consolidated financial position, results of
operation, cash flows, or disclosure.
In
May 2011, the FASB issued ASU No. 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in United
States Generally Accepted Accounting Principles and
International Financial Reporting Standards. This ASU
represents the converged guidance of the FASB and the
International Accounting Standards Board on fair value
measurement, and resulted in common requirements for
measuring fair value and for disclosing information about
fair value measurements, including a consistent meaning of
the term “fair value.”The amendments to the
Codification in this ASU are to be applied prospectively.
The amendments are effective during interim and annual
periods beginning after December 15, 2011. Early
application by public entities is not permitted. Management
does not believe that the adoption of this ASU will have a
material impact on the Company’s consolidated
financial position, results of operation, cash flows, or
disclosure.
In
April 2011, the FASB issued ASU No. 2011-03, Transfers and
Servicing (Topic 860): Reconsideration of Effective Control
for Repurchase Agreements. The ASU is intended to improve
financial reporting of repurchase agreements
(“repos”) and other agreements that both
entitle and obligate a transferor to repurchase or redeem
financial assets before their maturity. In a typical repo
transaction, an entity transfers financial assets to a
counterparty in exchange for cash with an agreement for the
counterparty to return the same or equivalent financial
assets for a fixed price in the future. Codification Topic
860, Transfers and Servicing, prescribes when an entity may
or may not recognize a sale upon
the transfer of financial assets subject to repo
agreements. That determination is based, in part, on
whether the entity has maintained effective control over
the transferred financial assets. The amendments to the
Codification in this ASU are intended to improve the
accounting for these transactions by removing from the
assessment of effective control the criterion requiring the
transferor to have the ability to repurchase or redeem the
financial assets. The guidance in the ASU is effective for
the first interim or annual period beginning on or after
December 15, 2011. The guidance should be applied
prospectively to transactions or modifications of existing
transactions that occur on or after the effective date.
Early adoption is not permitted. Management does not
believe that the adoption of this ASU will have a material
impact on the Company’s consolidate financial
position, results of operation, cash flows, or
disclosure.
In
April 2011, the FASB issued ASU No. 2011-02, Receivables
(Topic 310): A Creditor’s Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. This ASU
clarifies which loan modifications constitute troubled debt
restructurings. It is intended to assist creditors in
determining whether a modification of the terms of a
receivable meets the criteria to be considered a troubled
debt restructuring, both for purposes of recording an
impairment loss and for disclosure of troubled debt
restructurings. In evaluating whether a restructuring
constitutes a troubled debt restructuring, a creditor must
separately conclude that both of the following exist:
(a) the
restructuring constitutes a concession; and (b) the
debtor is experiencing financial difficulties. The
amendments to Codification Topic 310, Receivables, clarify
the guidance on a creditor’s evaluation of whether it
has granted a concession and whether a debtor is
experiencing financial difficulties. The new guidance is
effective for interim and annual periods beginning on or
after June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the
fiscal year of adoption. Early application is permitted.
Management does not believe that the adoption of this ASU
will have a material impact on the Company’s
consolidated financial position, results of operation, cash
flows, or disclosure.
13.
OTHER MATTERS
In
February 2010, in connection with American River
Bank’s (the “Bank”) regularly scheduled
2009 Federal Deposit Insurance Corporation (the
“FDIC”) examination, the Bank entered into a
Memorandum of Understanding (the “Memorandum”)
with the FDIC and the California Commissioner of Financial
Institutions. The Memorandum covered actions to be taken by
the Board of Directors and management to (a) enhance BSA
compliance; (b) reduce the Bank’s level of classified
assets and further strengthen and improve the Bank’s
asset quality; (c) request regulatory approval prior to
paying any cash dividends; and (d) maintain the
Bank’s Tier 1 Leverage capital ratio at not less than
8% and a Total Risk-Based capital ratio of not less than
11%. In July 2011, the Bank was notified by the FDIC and
the California Commissioner of Financial Institutions that
the Memorandum was terminated. The Board has resolved to
continue to take the necessary steps to improve the
Bank’s asset quality and to continue to focus on
strategies to improve earnings.
The
following is management’s discussion and analysis of
the significant changes in American River Bankshares’
(the “Company”) balance sheet accounts between
December 31, 2010 and June 30, 2011 and its income and
expense accounts for the three-month and six-month periods
ended June 30, 2011 and 2010. The discussion is designed to
provide a better understanding of significant trends
related to the Company’s financial condition, results
of operations, liquidity, capital resources and interest
rate sensitivity. This discussion and supporting tables and
the consolidated financial statements and related notes
appearing elsewhere in this report are unaudited. Interest
income and net interest income are presented on a fully
taxable equivalent basis (FTE) within management’s
discussion and analysis. Certain matters discussed or
incorporated by reference in this Quarterly Report on Form
10-Q including, but not limited to, matters described in
“Item 2 - Management’s Discussion and Analysis
of Financial Condition and Results of Operations,”
are “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of
1934, as amended, Section 27A of the Securities Act of
1933, as amended, and subject to the safe-harbor provisions
of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements may contain words related
to future projections including, but not limited to, words
such as “believe,” “expect,”
“anticipate,” “intend,”
“may,” “will,”
“should,” “could,”
“would,” and variations of those words and
similar words that are subject to risks, uncertainties and
other factors that could cause actual results to differ
materially from those projected. Factors that could cause
or contribute to such differences include, but are not
limited to, the following:
|
●
|
the
duration of financial and economic volatility and
decline and actions taken by the United States
Congress and governmental agencies, including the
United States Department of the Treasury, to deal
with challenges to the U.S. financial
system;
|
|
●
|
the
risks presented by a continued economic recession,
which could adversely affect credit quality,
collateral values, including real estate
collateral, investment values, liquidity and loan
originations and loan portfolio delinquency
rates;
|
|
●
|
variances
in the actual versus projected growth in assets and
return on assets;
|
|
●
|
potential
continued or increasing loan and lease
losses;
|
|
●
|
potential
increasing levels of expenses associated with
resolving nonperforming assets as well as
regulatory changes;
|
|
●
|
changes
in the interest rate environment including interest
rates charged on loans, earned on securities
investments and paid on deposits and other borrowed
funds;
|
|
●
|
competitive
effects;
|
|
●
|
potential
declines in fee and other noninterest income earned
associated with economic factors as well as
regulatory changes;
|
|
●
|
general
economic conditions nationally, regionally, and
within our operating markets could be less
favorable than expected or could have a more direct
and pronounced effect on us than expected and
adversely affect our ability to continue internal
growth at historical rates and maintain the quality
of our earning assets;
|
|
●
|
changes
in the regulatory environment including government
intervention in the U.S. financial system;
|
|
●
|
changes
in business conditions and inflation;
|
|
●
|
changes
in securities markets, public debt markets, and
other capital markets;
|
|
●
|
potential
data processing and other operational systems
failures or fraud;
|
|
●
|
potential
continued decline in real estate values in our
operating markets;
|
|
●
|
the
effects of uncontrollable events such as terrorism,
the threat of terrorism or the impact of the
current military conflicts in Afghanistan and Iraq
and the conduct of the war on terrorism by the
United States and its allies, worsening financial
and economic conditions, natural disasters, and
disruption of power supplies and
communications;
|
|
●
|
changes
in accounting standards, tax laws or regulations
and interpretations of such standards, laws or
regulations;
|
|
●
|
projected
business increases following any future strategic
expansion could be lower than expected;
|
|
●
|
the
goodwill we have recorded in connection with
acquisitions could become impaired, which may have
an adverse impact on our earnings;
|
|
●
|
the
reputation of the financial services industry could
experience further deterioration, which could
adversely affect our ability to access markets for
funding and to acquire and retain customers;
|
|
●
|
the
efficiencies we may expect to receive from any
investments in personnel and infrastructure may not
be realized; and
|
|
●
|
downgrades
in the credit rating of the United States by credit
rating agencies
|
The
factors set forth under “Item 1A - Risk
Factors” in the Company’s Annual Report on Form
10-K for the year ended December 31, 2010, and other
cautionary statements and information set forth in this
Quarterly Report on Form 10-Q should be carefully
considered and understood as being applicable to all
related forward-looking statements contained in this
Quarterly Report on Form 10-Q, when evaluating the business
prospects of the Company and its subsidiaries.
Forward-looking
statements are not guarantees of performance. By their
nature, they involve risks, uncertainties and assumptions.
The future results and shareholder values may differ
significantly from those expressed in these forward-looking
statements. You are cautioned not to put undue reliance on
any forward-looking statement. Any such statement speaks
only as of the date of this report, and in the case of any
documents that may be incorporated by reference, as of the
date of those documents. We do not undertake any obligation
to update or release any revisions to any forward-looking
statements, to report any new information, future event or
other circumstances after the date of this report or to
reflect the occurrence of unanticipated events, except as
required by law. However, your attention is directed to any
further disclosures made on related subjects in our
subsequent reports filed with the Securities and Exchange
Commission on Forms 10-K, 10-Q and 8-K.
Critical
Accounting Policies
General
The
Company’s financial statements are prepared in
accordance with accounting principles generally accepted in
the United States of America (“GAAP”). The
financial information contained within our statements is,
to a significant extent, financial information that is
based on measures of the financial effects of transactions
and events that have already occurred. We use historical
loss data and the economic environment as factors, among
others, in determining the inherent loss that may be
present in our loan and lease portfolio. Actual losses
could differ significantly from the factors that we use. In
addition, GAAP itself may change from one previously
acceptable method to another method. Although the economics
of our transactions would be the same, the timing of events
that would impact our transactions could change.
Allowance
for Loan and Lease Losses
The
allowance for loan and lease losses is an estimate of the
credit loss risk in our loan and lease portfolio. The
allowance is based on two basic principles of accounting:
(1) “Accounting for Contingencies,” which
requires that losses be accrued when it is probable that a
loss has occurred at the balance sheet date and such loss
can be reasonably estimated; and (2) the
“Receivables” topic, which requires that losses
be accrued on impaired loans based on the differences
between the value of collateral, present value of future
cash flows or values that are observable in the secondary
market and the loan balance.
The
allowance for loan and lease losses is determined based
upon estimates that can and do change when the actual risk,
loss events, or changes in other factors, occur. The
analysis of the allowance uses an historical loss view as
an indicator of future losses and as a result could differ
from the actual losses incurred in the future. If the
allowance for loan and lease losses falls below that deemed
adequate (by reason of loan and lease growth, actual
losses, the effect of changes in risk factors, or some
combination of these), the Company has a strategy for
supplementing the allowance for loan and lease losses, over
the short-term. For further information regarding our
allowance for loan and lease losses, see “Allowance
for Loan and Lease Losses Activity” discussion later
in this Item 2.
Stock-Based
Compensation
The
Company recognizes compensation expense over the vesting
period in an amount equal to the fair value of all
share-based payments which consist of stock options and
restricted stock awarded to directors and employees. The
fair value of each stock option award is estimated on the
date of grant and amortized over the service period using a
Black-Scholes-Merton based option valuation model that
requires the use of assumptions. Critical assumptions that
affect the estimated fair value of each award include
expected stock price volatility, dividend yields, option
life and the risk-free interest rate.
Goodwill
Business
combinations involving the Company’s acquisition of
the equity interests or net assets of another enterprise or
the assumption of net liabilities in an acquisition of
branch offices constituting a business may give rise to
goodwill. Goodwill represents the excess of the cost of an
acquired entity over the net fair value of the amounts
assigned to assets acquired and liabilities assumed in
transactions accounted for under the purchase method of
accounting. The value of goodwill is ultimately derived
from the Company’s ability to generate net earnings
after the acquisition. A decline in net earnings could be
indicative of a decline in the fair value of goodwill and
result in impairment. For that reason, goodwill is assessed
for impairment at a reporting unit level at least annually
following the year of acquisition. The Company performed an
evaluation of goodwill, recorded as a result of the Bank of
Amador acquisition, during the fourth quarter of 2010 and
determined that there was no impairment. While the Company
believes all assumptions utilized in its assessment of
goodwill for impairment are reasonable and appropriate,
changes in earnings, the effective tax rate, historical
earnings multiples and the cost of capital could all cause
different results for the calculation of the present value
of future cash flows upon which the assessment is
based.
Income
Taxes
The
Company files its income taxes on a consolidated basis with
its subsidiaries. The allocation of income tax expense
(benefit) represents each entity’s proportionate
share of the consolidated provision for (benefit from)
income taxes.
The
Company accounts for income taxes using the balance sheet
method, under which deferred tax assets and liabilities are
recognized for the tax consequences of temporary
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment. On the
consolidated balance sheet, net deferred tax assets are
included in accrued interest receivable and other
assets.
The
benefit of a tax position is recognized in the financial
statements in the period during which, based on all
available evidence, management believes it is more likely
than not that the position will be sustained upon
examination, including the resolution of appeals or
litigation processes, if any. Tax positions that meet the
more-likely-than-not recognition threshold are measured as
the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the
applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount
measured as described above is, if applicable, reflected as
a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination. The Company recognizes
accrued interest and penalties related to unrecognized tax
benefits, if applicable, as a component of interest expense
in the consolidated statement of income. There were no
unrecognized tax benefits or accrued interest and penalties
at June 30, 2011 or for the three-month and six-month
periods then ended.
General
Development of Business
The
Company is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended. The Company was
incorporated under the laws of the State of California in
1995. As a bank holding company, the Company is authorized
to engage in the activities permitted under the Bank
Holding Company Act of 1956, as amended, and regulations
thereunder. Its principal office is located at 3100
Zinfandel Drive, Suite 450, Rancho Cordova, California
95670 and its telephone number is (916) 854-0123. The
Company employed an equivalent of 109 full-time employees
as of June 30, 2011.
The
Company owns 100% of the issued and outstanding common
shares of its banking subsidiary, American River Bank (the
“Bank”), and American River Financial, a
California corporation which has been inactive since its
incorporation in 2003.
American
River Bank was incorporated and commenced business in Fair
Oaks, California, in 1983 and thereafter moved its
headquarters to Sacramento, California in 1985. American
River Bank operates five full service offices in Sacramento
and Placer Counties including the main office located at
1545 River Park Drive, Suite 107, Sacramento and branch
offices in Sacramento, Fair Oaks, and Roseville. American
River Bank also operates two full service offices in Sonoma
County in Healdsburg and Santa Rosa, operated under the
name “North Coast Bank, a division of American River
Bank.”North Coast Bank was incorporated and commenced
business in 1990 as Windsor Oaks National Bank in Windsor,
California. In 1997, the name was changed to North Coast
Bank. In 2000, North Coast Bank was acquired by the Company
as a separate bank subsidiary. Effective December 31, 2003,
North Coast Bank was merged with and into American River
Bank. On December 3, 2004, the Company acquired Bank of
Amador located in Jackson, California. Bank of Amador was
merged with and into American River Bank and now operates
three full service banking offices in Amador County in
Jackson, Pioneer, and Ione, operating as “Bank of
Amador, a division of American River Bank.”
The
Bank’s deposits are insured by the Federal Deposit
Insurance Corporation (the “FDIC”) up to
applicable legal limits. On July 21, 2010, President Obama
signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”). The
Dodd-Frank Act includes a permanent increase to $250,000 as
the maximum FDIC insurance limit per depositor retroactive
to January 1, 2008 and the extension of unlimited FDIC
insurance for noninterest-bearing transaction accounts
effective December 31, 2010 through December 31, 2012. On
November 9, 2010, the FDIC implemented a final rule to
increase the coverage and extension of FDIC insurance under
the Dodd-Frank Act. FDIC insurance coverage and assessments
are discussed under “Item 1A--Risk Factors” in
the Company’s Annual Report on Form 10-K for the year
ended December 31, 2010.
American
River Bank does not offer trust services or international
banking services and does not plan to do so in the near
future. American River Bank’s primary business is
serving the commercial banking needs of small to mid-sized
businesses within those counties listed above. American
River Bank accepts checking and savings deposits, offers
money market deposit accounts and certificates of deposit,
makes secured and unsecured commercial, secured real
estate, and other installment and term loans and offers
other customary banking services. American River Bank also
conducts lease financing for certain types of business
equipment. American River Bank owns 100% of two inactive
companies, ARBCO and American River Mortgage. ARBCO was
formed in 1984 to conduct real estate development and has
been inactive since 1995. American River Mortgage has been
inactive since its formation in 1994. During 2011, the
Company conducted no significant activities other than
holding the shares of its subsidiaries. However, it is
authorized, with the prior approval of the Board of
Governors of the Federal Reserve System (the “Federal
Reserve Board”), the Company’s principal
regulator, to engage in a variety of activities which are
deemed closely related to the business of banking. The
common stock of the Company is registered under the
Securities Exchange Act of 1934, as amended, and is listed
and traded on the Nasdaq Global Select Market under the
symbol “AMRB.”
Overview
The
Company recorded net income of $221,000 for the quarter
ended June 30, 2011, which was an increase of $167,000
compared to $54,000 reported for the same period of 2010.
Diluted earnings per share for the second quarter of 2011
were $0.02 compared to $0.01 recorded in the second quarter
of 2010. The return on average equity (ROAE) and the return
on average assets (ROAA) for the second quarter of 2011
were 0.97% and 0.16%, respectively, as compared to 0.24%
and 0.04%, respectively, for the same period in
2010.
Net
income for the six months ended June 30, 2011 and 2010 was
$427,000 and $360,000, respectively, with diluted earnings
per share of $0.04 for each period. For the first six
months of 2011, ROAE was 0.95% and ROAA was 0.15% compared
to 0.82% and 0.12%, respectively, for the same period in
2010.
Total assets of
the Company decreased by $9,215,000 (1.6%) from
$578,940,000 at December 31, 2010 to $569,725,000 at June
30, 2011. Net loans totaled $316,861,000 at June 30, 2011,
down $18,872,000 (5.6%) from $338,533,000 at December 31,
2010. Deposit balances at June 30, 2011 totaled
$455,263,000, down $9,859,000 (2.1%) from $465,122,000 at
December 31, 2010.
The
Company ended the second quarter of 2011 with a Tier 1
capital ratio of 13.0% and a total risk-based capital ratio
of 21.7% compared to 12.6% and 20.3%, respectively, at
December 31, 2010. Table One below provides a summary of
the components of net income for the periods indicated (See
the “Results of Operations” section that
follows for an explanation of the fluctuations in the
individual components).
Table
One: Components of Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended June 30,
|
|
|
For
the six months ended
June 30,
|
|
(dollars
in thousands)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income*
|
|
$
|
5,744
|
|
|
$
|
5,635
|
|
|
$
|
11,023
|
|
|
$
|
11,464
|
|
Provision
for loan and lease losses
|
|
|
(1,700
|
)
|
|
|
(2,011
|
)
|
|
|
(3,075
|
)
|
|
|
(3,652
|
)
|
Noninterest
income
|
|
|
454
|
|
|
|
460
|
|
|
|
887
|
|
|
|
921
|
|
Noninterest
expense
|
|
|
(4,197
|
)
|
|
|
(4,055
|
)
|
|
|
(8,248
|
)
|
|
|
(8,240
|
)
|
(Provision
for) benefit from income taxes
|
|
|
(25
|
)
|
|
|
78
|
|
|
|
(55
|
)
|
|
|
(23
|
)
|
Tax
equivalent adjustment
|
|
|
(55
|
)
|
|
|
(53
|
)
|
|
|
(105
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
221
|
|
|
$
|
54
|
|
|
$
|
427
|
|
|
$
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total assets
|
|
$
|
570,683
|
|
|
$
|
584,511
|
|
|
$
|
573,636
|
|
|
$
|
584,428
|
|
Net
income (annualized) as a percentage of average
total assets
|
|
|
0.16
|
%
|
|
|
0.04
|
%
|
|
|
0.15
|
%
|
|
|
0.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Fully
taxable equivalent basis
Results
of Operations
Net
Interest Income and Net Interest Margin
Net
interest income represents the excess of interest and fees
earned on interest earning assets (loans and leases,
securities, Federal funds sold and investments in time
deposits) over the interest paid on interest-bearing
deposits and borrowed funds. Net interest margin is net
interest income expressed as a percentage of average
earning assets. The Company’s net interest margin was
4.58% for the three months ended June 30, 2011, 4.52% for
the three months ended June 30, 2010, 4.41% for the six
months ended June 30, 2011 and 4.62% for the six months
ended June 30, 2010.
The
fully taxable equivalent interest income component for the
second quarter of 2011 decreased $104,000 (1.6%) to
$6,422,000 compared to $6,526,000 for the three months
ended June 30, 2010. The decrease in the fully taxable
equivalent interest income for the second quarter of 2011
compared to the same period in 2010 is broken down by rate
(up $234,000) and volume (down $338,000). Although the
Company was impacted by the overall lower interest rate
environment, forgone interest on nonaccrual loans, and
loans with higher interest rates replaced with lower
yielding investment securities, these items were offset by
an increase in yield on its investment portfolio. The yield
on investment securities was positively impacted by a
slowdown in mortgage prepayments. As mortgage prepayments
slow, the premium paid on these securities is amortized
over a longer period of time, resulting in a higher yield.
In addition, we have also recently upgraded our investment
accounting system that allows us to obtain the actual
mortgage prepayment speeds from an external source. This
more accurate information also contributed to the increased
yield during the second quarter of 2011. The yield on
investment securities increased from 2.81% in the second
quarter of 2010 to 3.62% in the second quarter of 2011.
Approximately 0.35% of this increase was related to the new
system’s ability to more accurately reflect the
updated prepayment speeds. While the overall dollar
increase due to rates was $234,000, investment securities
added $396,000. Offsetting this increase was foregone
interest income on nonaccrual loans, which was
approximately $465,000, compared to foregone interest of
$401,000 during the second quarter of 2010. The foregone
interest of $465,000 had a 37 basis point negative impact
on the yield on earning assets. The average balance of
earning assets increased 0.5% from $499,975,000 in the
second quarter of 2010 to $502,505,000 in the second
quarter of 2011. The overall increase in average assets
during the three month period was predominately related to
an increase in investment securities offset by a decrease
in loans. When compared to the second quarter of 2010,
average loan balances were down $38,219,000 (10.5%) to
$327,169,000 for the second quarter of 2011 and
average
investment securities were up $38,879,000 (28.9%) to
$173,466,000 for the second quarter of 2011. The
increased
yield on investments securities offset by the overall low
interest rate environment, the negative effect of the
foregone interest on loans, and the change in the asset mix
resulted in an 11 basis point decrease in the yield on
average earning assets from 5.24% for 2010 to 5.13% for
2011. The volume decrease of $338,000 occurred mainly as a
result of the decrease in average loans. The market in
which the Company operates continues to see a slowdown in
new loan volume as existing and potential new borrowers
continue to pay down debt and delay expansion plans. Total
fully taxable equivalent interest income for the six months
ended June 30, 2011 decreased $871,000 (6.6%) to
$12,426,000 compared to $13,297,000 for the six months
ended June 30, 2010. The breakdown of the fully taxable
equivalent interest income for the six months ended June
30, 2011 over the same period in 2010 resulted from
decreases in rate (down $184,000) and a decrease in volume
(down $687,000). Average earning assets increased
$3,708,000 (0.7%) during the first six months of 2011 as
compared to the same period in 2010. Average loan balances
decreased $39,426,000 (10.6%) during that same period and
average investment securities balances increased
$41,076,000 (32.0%).
Interest
expense was $678,000 or $213,000 (23.9%) lower in the
second quarter of 2011 versus the prior year period. The
average balances on interest bearing liabilities were
$21,591,000 (5.9%) lower in the second quarter of 2011
compared to the same quarter in 2010. The lower balances
accounted for a $94,000 decrease in interest expense for
the same periods. Average borrowings were down $7,248,000
(33.3%) as the Company replaced higher cost borrowings with
lower cost checking and money market accounts. Average
deposit balances decreased $9,983,000 or 2.1% from
$469,090,000 during the second quarter of 2010 to
$459,107,000 during the second quarter of 2011. While there
was an overall decrease in deposits, the Company continues
to have success attracting new deposit relationships as a
direct result of its business development efforts. The
Company’s business development efforts have been
focused on building checking and savings deposits and other
non-CD balances. These non-CD balances increased
$11,511,000 (3.3%) from the 2nd
quarter of 2010 to the second quarter of 2011 and CD
balances decreased $21,494,000 (17.2%) during the same time
period. The overall lower interest rate environment
accounted for a decrease in rates and a $119,000 reduction
in interest expense for the three-month period ended June
30, 2011 compared to the same quarter in 2010. Rates paid
on interest bearing liabilities decreased 19 basis points
from the second quarter of 2010 to the second quarter of
2011 from 0.97% to 0.78%.
Interest
expense was $430,000 (23.5%) lower in the six-month period
ended June 30, 2011 versus the prior year period. The
average balances on interest-bearing liabilities were
$20,802,000 (5.6%) lower in the six-month period ended June
30, 2011 compared to the same period in 2010. The lower
balances, especially in the level of average borrowings and
time deposits accounted for a $193,000 decrease in interest
expense. The decrease in interest expense was also aided by
lower rates, which accounted for a $237,000 decrease in
interest expense for the six-month period. Rates paid on
interest-bearing liabilities decreased 19 basis points from
the first six months of 2010 to the first six months of
2011 from 1.00% to 0.81%.
Table
Two, Analysis of Net Interest Margin on Earning Assets, and
Table Three, Analysis of Volume and Rate Changes on Net
Interest Income and Expenses, are provided to enable the
reader to understand the components and trends of the
Company’s interest income and expenses. Table Two
provides an analysis of net interest margin on earning
assets setting forth average assets, liabilities and
shareholders’ equity; interest income earned and
interest expense paid and average rates earned and paid;
and the net interest margin on earning assets. Table Three
sets forth a summary of the changes in interest income and
interest expense from changes in average asset and
liability balances (volume) and changes in average interest
rates.
Table
Two: Analysis of Net Interest Margin on Earning
Assets
|
|
Three
Months Ended
June
30,
|
|
2011
|
|
|
2010
|
|
(Taxable
Equivalent Basis)
(dollars
in thousands)
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield (4)
|
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases (1)
|
|
$
|
327,169
|
|
|
$
|
4,845
|
|
|
|
5.94
|
%
|
|
$
|
365,388
|
|
|
$
|
5,580
|
|
|
|
6.13
|
%
|
Taxable
investment Securities
|
|
|
156,264
|
|
|
|
1,351
|
|
|
|
3.47
|
%
|
|
|
118,768
|
|
|
|
726
|
|
|
|
2.45
|
%
|
Tax-exempt investment
securities
(2)
|
|
|
17,187
|
|
|
|
221
|
|
|
|
5.16
|
%
|
|
|
15,793
|
|
|
|
215
|
|
|
|
5.46
|
%
|
Corporate
stock (2)
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
5
|
|
|
|
77.13
|
%
|
Federal
funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Investments
in time deposits
|
|
|
1,870
|
|
|
|
5
|
|
|
|
1.07
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
earning assets
|
|
|
502,505
|
|
|
|
6,422
|
|
|
|
5.13
|
%
|
|
|
499,975
|
|
|
|
6,526
|
|
|
|
5.24
|
%
|
Cash
& due from banks
|
|
|
34,014
|
|
|
|
|
|
|
|
|
|
|
|
49,838
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
41,981
|
|
|
|
|
|
|
|
|
|
|
|
43,414
|
|
|
|
|
|
|
|
|
|
Allowance
for loan & lease losses
|
|
|
(7,817
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,716
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
570,683
|
|
|
|
|
|
|
|
|
|
|
$
|
584,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
$
|
184,056
|
|
|
|
281
|
|
|
|
0.61
|
%
|
|
$
|
181,892
|
|
|
|
343
|
|
|
|
0.76
|
%
|
Savings
|
|
|
45,770
|
|
|
|
50
|
|
|
|
0.44
|
%
|
|
|
40,783
|
|
|
|
58
|
|
|
|
0.57
|
%
|
Time
deposits
|
|
|
103,118
|
|
|
|
261
|
|
|
|
1.02
|
%
|
|
|
124,612
|
|
|
|
360
|
|
|
|
1.16
|
%
|
Other
borrowings
|
|
|
14,527
|
|
|
|
86
|
|
|
|
2.37
|
%
|
|
|
21,775
|
|
|
|
130
|
|
|
|
2.39
|
%
|
Total
interest bearing liabilities
|
|
|
347,471
|
|
|
|
678
|
|
|
|
0.78
|
%
|
|
|
369,062
|
|
|
|
891
|
|
|
|
0.97
|
%
|
Noninterest
bearing demand deposits
|
|
|
126,163
|
|
|
|
|
|
|
|
|
|
|
|
121,803
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
5,878
|
|
|
|
|
|
|
|
|
|
|
|
4,743
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
479,512
|
|
|
|
|
|
|
|
|
|
|
|
495,608
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
91,171
|
|
|
|
|
|
|
|
|
|
|
|
88,903
|
|
|
|
|
|
|
|
|
|
|
|
$
|
570,683
|
|
|
|
|
|
|
|
|
|
|
$
|
584,511
|
|
|
|
|
|
|
|
|
|
Net
interest income & margin (3)
|
|
|
|
|
|
$
|
5,744
|
|
|
|
4.58
|
%
|
|
|
|
|
|
$
|
5,635
|
|
|
|
4.52
|
%
|
(1)
|
Loan
interest includes loan fees of $26,000 and
$3,000, respectively, during the three months
ended June 30, 2011 and June 30, 2010. Average
loan balances include non-performing
loans.
|
(2)
|
Includes
taxable-equivalent adjustments that primarily
relate to income on certain securities that is
exempt from federal income taxes. The effective
federal statutory tax rate was 34% for 2011 and
2010.
|
(3)
|
Net
interest margin is computed by dividing net
interest income by total average earning
assets.
|
(4)
|
Average
yield is calculated based on actual days in the
quarter (91 days) and annualized to actual days
in the year (365 days).
|
Six
Months Ended June 30,
|
|
2011
|
|
|
2010
|
|
(Taxable
Equivalent Basis)
(dollars
in thousands)
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
(4)
|
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases (1)
|
|
$
|
332,390
|
|
|
$
|
9,842
|
|
|
|
5.97
|
%
|
|
$
|
371,816
|
|
|
$
|
11,417
|
|
|
|
6.19
|
%
|
Taxable
investment securities
|
|
|
153,205
|
|
|
|
2,152
|
|
|
|
2.83
|
%
|
|
|
112,133
|
|
|
|
1,434
|
|
|
|
2.58
|
%
|
Tax-exempt
investment securities
(2)
|
|
|
16,091
|
|
|
|
421
|
|
|
|
5.28
|
%
|
|
|
16,082
|
|
|
|
440
|
|
|
|
5.52
|
%
|
Corporate
stock (2)
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
|
6
|
|
|
|
46.54
|
%
|
Federal
funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
%
|
Interest-bearing
deposits in banks
|
|
|
2,058
|
|
|
|
11
|
|
|
|
1.08
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
0.00
|
%
|
Total
earning assets
|
|
|
503,765
|
|
|
|
12,426
|
|
|
|
4.97
|
%
|
|
|
500,057
|
|
|
|
13,297
|
|
|
|
5.36
|
%
|
Cash
& due from banks
|
|
|
35,451
|
|
|
|
|
|
|
|
|
|
|
|
48,398
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
42,207
|
|
|
|
|
|
|
|
|
|
|
|
44,482
|
|
|
|
|
|
|
|
|
|
Allowance
for loan & lease losses
|
|
|
(7,787
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,509
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
573,636
|
|
|
|
|
|
|
|
|
|
|
$
|
584,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
$
|
183,738
|
|
|
|
576
|
|
|
|
0.63
|
%
|
|
$
|
181,751
|
|
|
|
693
|
|
|
|
0.77
|
%
|
Savings
|
|
|
45,800
|
|
|
|
104
|
|
|
|
0.46
|
%
|
|
|
39,437
|
|
|
|
115
|
|
|
|
0.59
|
%
|
Time
deposits
|
|
|
105,033
|
|
|
|
543
|
|
|
|
1.04
|
%
|
|
|
126,480
|
|
|
|
751
|
|
|
|
1.20
|
%
|
Other
borrowings
|
|
|
14,928
|
|
|
|
180
|
|
|
|
2.43
|
%
|
|
|
22,633
|
|
|
|
274
|
|
|
|
2.44
|
%
|
Total
interest-bearing liabilities
|
|
|
349,499
|
|
|
|
1,403
|
|
|
|
0.81
|
%
|
|
|
370,301
|
|
|
|
1,833
|
|
|
|
1.00
|
%
|
Noninterest-bearing
demand deposits
|
|
|
127,980
|
|
|
|
|
|
|
|
|
|
|
|
119,998
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
5,836
|
|
|
|
|
|
|
|
|
|
|
|
5,629
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
483,315
|
|
|
|
|
|
|
|
|
|
|
|
495,928
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
90,321
|
|
|
|
|
|
|
|
|
|
|
|
88,500
|
|
|
|
|
|
|
|
|
|
|
|
$
|
573,636
|
|
|
|
|
|
|
|
|
|
|
$
|
584,428
|
|
|
|
|
|
|
|
|
|
Net
interest income & margin (3)
|
|
|
|
|
|
$
|
11,023
|
|
|
|
4.41
|
%
|
|
|
|
|
|
$
|
11,464
|
|
|
|
4.62
|
%
|
(1)
|
Loan
interest includes loan fees of $28,000 and $24,000,
respectively, during the six months ended June 30,
2011 and June 30, 2010. Average loan balances
include non-performing loans.
|
(2)
|
Includes
taxable-equivalent adjustments that primarily
relate to income on certain securities that is
exempt from federal income taxes. The effective
federal statutory tax rate was 34% for 2011 and
2010.
|
(3)
|
Net
interest margin is computed by dividing net
interest income by total average earning
assets.
|
(4)
|
Average
yield is calculated based on actual days in the
period (181days) and annualized to actual days in
the year (365 days).
|
Table
Three: Analysis of Volume and Rate Changes on Net
Interest Income and Expenses
|
|
Three
Months Ended June 30, 2011 over 2010 (dollars in
thousands)
|
|
Increase
(decrease) due to change in:
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate (4)
|
|
|
Net Change
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loans (1)(2)
|
|
$
|
(584
|
)
|
|
$
|
(151
|
)
|
|
$
|
(735
|
)
|
Taxable
investment securities
|
|
|
229
|
|
|
|
396
|
|
|
|
625
|
|
Tax
exempt investment securities (3)
|
|
|
19
|
|
|
|
(13
|
)
|
|
|
6
|
|
Corporate
stock
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
Federal
funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest-bearing
deposits in banks
|
|
|
—
|
|
|
|
5
|
|
|
|
5
|
|
Total
|
|
|
(338
|
)
|
|
|
234
|
|
|
|
(104
|
)
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
|
4
|
|
|
|
(66
|
)
|
|
|
(62
|
)
|
Savings
deposits
|
|
|
7
|
|
|
|
(15
|
)
|
|
|
(8
|
)
|
Time
deposits
|
|
|
(62
|
)
|
|
|
(37
|
)
|
|
|
(99
|
)
|
Other
borrowings
|
|
|
(43
|
)
|
|
|
(1
|
)
|
|
|
(44
|
)
|
Total
|
|
|
(94
|
)
|
|
|
(119
|
)
|
|
|
(213
|
)
|
Interest
differential
|
|
$
|
(244
|
)
|
|
$
|
353
|
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2011 over 2010 (dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) due to change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate (4)
|
|
|
Net
Change
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loans (1)(2)
|
|
$
|
(1,211
|
)
|
|
$
|
(364
|
)
|
|
$
|
(1,575
|
)
|
Taxable
investment securities
|
|
|
525
|
|
|
|
193
|
|
|
|
718
|
|
Tax
exempt investment securities (3)
|
|
|
—
|
|
|
|
(19
|
)
|
|
|
(19
|
)
|
Corporate
stock
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
Federal
funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest-bearing
deposits in banks
|
|
|
—
|
|
|
|
11
|
|
|
|
11
|
|
Total
|
|
|
(687
|
)
|
|
|
(184
|
)
|
|
|
(871
|
)
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
|
8
|
|
|
|
(125
|
)
|
|
|
(117
|
)
|
Savings
deposits
|
|
|
19
|
|
|
|
(30
|
)
|
|
|
(11
|
)
|
Time
deposits
|
|
|
(127
|
)
|
|
|
(81
|
)
|
|
|
(208
|
)
|
Other
borrowings
|
|
|
(93
|
)
|
|
|
(1
|
)
|
|
|
(94
|
)
|
Total
|
|
|
(193
|
)
|
|
|
(237
|
)
|
|
|
(430
|
)
|
Interest
differential
|
|
$
|
(494
|
)
|
|
$
|
53
|
|
|
$
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
average balance of non-accruing loans is
immaterial as a percentage of total loans
and, as such, has been included in net
loans.
|
(2)
|
Loan
fees of $26,000 and $3,000, respectively,
during the three months ended June 30, 2011
and June 30, 2010, and loan fees of $28,000
and $24,000, respectively, during the six
months ended June 30, 2011 and June 30, 2010,
have been included in the interest income
computation.
|
(3)
|
Includes
taxable-equivalent adjustments that primarily
relate to income on certain securities that
is exempt from federal income taxes. The
effective federal statutory tax rate was 34%
for 2011 and 2010.
|
(4)
|
The
rate/volume variance has been included in the
rate variance.
|
Provision
for Loan and Lease Losses
The
Company provided $1,700,000 for loan and lease losses for
the second quarter of 2011 as compared to $2,011,000 for
the second quarter of 2010. Net loan and lease losses for
the three months ended June 30, 2011 were $1,175,000 or
1.44% (on an annualized basis) of average loans and leases
as compared to $2,950,000 or 3.24% (on an annualized basis)
of average loans and leases for the three months ended June
30, 2010. For the first six months of 2011, the Company
made provisions for loan and lease losses of $3,075,000 and
net loan and lease losses were $2,773,000 or 1.68% (on an
annualized basis) of average loans and leases outstanding.
This compares to provisions for loan and lease losses of
$3,652,000 and net loan and lease losses of $4,120,000 for
the first six months of 2010 or 2.23% (on an annualized
basis) of average loans and leases outstanding. The Company
has continued to provide significant amounts to the
allowance for loan and lease losses for 2011 resulting from
a continued high level of nonperforming loans and leases.
The high level of nonperforming loans and leases is due to
the impact that the overall challenging economy in the
Company’s market areas and the United States,
overall, has had on the Company’s borrowers. For
additional information see the “Allowance for Loan
and Lease Losses Activity.”
Noninterest
Income
Table
Four below provides a summary of the components of
noninterest income for the periods indicated (dollars in
thousands):
Table
Four: Components of Noninterest Income
|
|
|
|
Three
Months
Ended
June 30,
|
|
|
Six
Months
Ended
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
$
|
187
|
|
|
$
|
232
|
|
|
$
|
383
|
|
|
$
|
465
|
|
Gain
(loss) on sale/call of securities
|
|
|
25
|
|
|
|
(7
|
)
|
|
|
27
|
|
|
|
(5
|
)
|
Merchant
fee income
|
|
|
120
|
|
|
|
104
|
|
|
|
222
|
|
|
|
201
|
|
Bank
owned life insurance
|
|
|
69
|
|
|
|
69
|
|
|
|
137
|
|
|
|
127
|
|
Other
|
|
|
53
|
|
|
|
62
|
|
|
|
118
|
|
|
|
133
|
|
Total
noninterest income
|
|
$
|
454
|
|
|
$
|
460
|
|
|
$
|
887
|
|
|
$
|
921
|
|
Noninterest
income decreased $6,000 (1.3%) to $454,000 for the three
months ended June 30, 2011 as compared to $460,000 for the
three months ended June 30, 2010. Although the decrease was
insignificant there were two areas that fluctuated. Service
charges on deposit accounts decreased $45,000 (19.4%) from
the second quarter of 2010 to the second quarter of 2011
and gains on sale and call of securities increased $32,000
during the same period. The decrease in service charges was
primarily related to a decline in fees from overdraft
charges and the gain from securities sales and calls was
related to more volume. For the six months ended June 30,
2011, noninterest income decreased $34,000 (3.7%) to
$887,000. The decrease from the first six months of 2010
compared to the same period in 2011 was also related to
lower service charges on deposit accounts.
Noninterest
Expense
Noninterest
expense increased $142,000 (3.5%) to a total of $4,197,000
in the second quarter of 2011 compared to $4,055,000 in the
second quarter of 2010. Salary and employee benefits
expense increased $63,000 (3.2%) from $1,980,000 during the
second quarter of 2010 to $2,043,000 during the second
quarter of 2011. The increase in salary and benefits was
due in part to an increase in core salaries which increased
$32,000 (2.1%) mainly due to the additional staff added to
the loan collection and workout department and normal merit
increases. Employee health insurance increased $24,000
(15.7%). On a quarter-over-quarter basis, occupancy expense
decreased $44,000 (13.2%) and furniture and equipment
expense decreased $5,000 (2.8%). FDIC assessments decreased
$117,000 (32.6%) during 2011 to $242,000, from $359,000 in
2010. The majority of this decrease relates to lower
deposit balances. Other expense increased $245,000 (20.4%)
to a total of $1,448,000 in the second quarter of 2011
versus the second quarter of 2010. Much of this increase is
related to higher costs associated with maintaining the
Company’s other real estate owned
(“OREO”). The total OREO expense in the second
quarter of 2011 was $508,000 compared to $203,000 for the
same period in 2010. The increased OREO expense related to
valuation adjustments and higher costs related to
maintaining the Company’s existing and sold
properties during the quarter. A portion of the increase in
OREO expenses was offset by lower overall expenses. The
fully taxable equivalent efficiency ratio for the second
quarter of 2011 increased to 66.8% from 65.5% for the
second quarter of 2010.
Noninterest
expense for the six-month period ended June 30, 2011 was
$8,248,000 versus $8,240,000 for the same period in 2010
for an increase of $8,000 (0.1%). Salaries and benefits
expense increased $149,000 (3.7%) from $3,974,000 for the
six months ended June 30, 2010 to $4,123,000 for the same
period in 2011. The increase in salary and benefits was due
in part to an increase in overall salary expense which
increased $45,000 (1.5%) mainly due to the additional staff
added to the loan collection and workout department.
Employee health insurance increased $53,000 (17.5%).
Occupancy expense decreased $97,000 (14.6%) and furniture
and equipment expense decreased $16,000 (4.2%).
FDIC assessments decreased $138,000 (20.4%) during 2011 to
$540,000, from $678,000 in 2010. Other expense increased
$110,000 (4.3%) from $2,546,000 for the six months ended
June 30, 2010 to $2,656,000 for the same period in 2011.
Much of this increase is related to higher costs associated
with maintaining the Company’s OREO. The total OREO
expense in the first half of 2011 was $709,000 compared to
$584,000 for the same period in 2010. The overhead
efficiency ratio (fully taxable equivalent), excluding the
amortization of intangible assets, for the first six months
of 2011 was 68.3% as compared to 65.6% in the same period
of 2010.
Provision
for (Benefit from) Income Taxes
The
Company recorded a provision for income taxes for the
quarter ended June 30, 2011 of $25,000, or an effective tax
rate of 10.2%, compared to a benefit of $78,000 for the
quarter ended June 30, 2010. For the six months ended June
30, 2011, the provision for income taxes was $55,000 with
an effective tax rate of 11.4%, compared to a provision of
$23,000 and an effective tax rate of 6.0% for the six
months ended June 30, 2010. The lower effective tax rate
for the past two years compared to historical averages
results from the Company realizing the benefits of tax-free
income related to such items as municipal bonds and bank
owned life insurance, in conjunction with an overall lower
amount of taxable income.
Balance
Sheet Analysis
The
Company’s total assets were $569,725,000 at June 30,
2011 as compared to $578,940,000 at December 31, 2010,
representing a decrease of $9,215,000 (1.6%). The average
assets for the three months ended June 30, 2011 were
$570,683,000, which represents a decrease of $13,828,000 or
2.4% compared to the average balance of $584,511,000 during
the three-month period ended June 30, 2010. The average
assets for the six months ended June 30, 2011 were
$573,636,000, which represents a decrease of $10,792,000 or
1.8% from the average balance of $584,428,000 during the
six-month period ended June 30, 2010. The decrease in
average assets for both periods is the result of decreased
time deposits and lower loan balances. See “Net
Interest Income and Net Interest Margin” above for a
discussion of the average balances of loans and
deposits.
Investment
Securities
The
Company classifies its investment securities as either
available-for-sale or held-to-maturity. The Company’s
intent is to hold all securities classified as
held-to-maturity until maturity and management believes
that it has the ability to do so. Securities
available-for-sale may be sold, for liquidity purposes, to
implement asset/liability management strategies, and in
response to changes in interest rates, prepayment rates and
similar factors. During the first half of 2011, the Company
used the majority of the proceeds from loan paydowns and
principal payments from investment securities to purchase
mortgage backed-securities and municipal bonds. Table Five
below summarizes the values of the Company’s
investment securities held on June 30, 2011 and December
31, 2010.
Table
Five: Investment Securities Composition
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
(at fair value)
|
|
June
30, 2011
|
|
|
December
31, 2010
|
|
Debt
securities:
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$
|
144,969
|
|
|
$
|
138,644
|
|
Obligations
of states and political subdivisions
|
|
|
20,701
|
|
|
|
15,792
|
|
Corporate
stock
|
|
|
77
|
|
|
|
79
|
|
Total
available-for-sale investment securities
|
|
$
|
165,747
|
|
|
$
|
154,515
|
|
Held-to-maturity
(at amortized cost)
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$
|
4,983
|
|
|
$
|
6,149
|
|
Total
held-to-maturity investment
securities
|
|
$
|
4,983
|
|
|
$
|
6,149
|
|
Management
periodically evaluates each investment security in a loss
position for other than temporary impairment relying
primarily on industry analyst reports, observation of
market conditions and interest rate fluctuations.
Management has the ability and intent to hold securities
with established maturity dates until recovery of
fair
value, which may be maturity and believes it will be able
to collect all amounts due according to the contractual
terms for all of the underlying investment securities;
therefore, management does not consider these investments
to be other-than-temporarily-impaired.
Loans
and Leases
The
Company concentrates its lending activities in the
following principal areas: (1) commercial; (2) commercial
real estate; (3) multi-family real estate; (4) real estate
construction (both commercial and residential); (5)
residential real estate; (6) lease financing receivable;
(7) agriculture; and (8) consumer loans. The
Company’s continuing focus in our market area, new
borrowers developed through the Company’s marketing
efforts, and credit extensions expanded to existing
borrowers resulted in the Company originating $17 million
in new loans during the first half of 2011. Normal pay
downs, loan chargeoffs, and loans transferred to OREO,
resulted in an overall decrease in total loans and leases
of $21,434,000 (6.2%) from December 31, 2010. The market in
which the Company operates continues to see a slowdown in
new loan volume as existing borrowers continue to pay down
debt and delay expansion plans. Table Six below summarizes
the composition of the loan portfolio as of June 30, 2011
and December 31, 2010.
Table
Six: Loan and Lease Portfolio
Composition
|
(dollars
in thousands)
|
|
June
30, 2011
|
|
|
December
31, 2010
|
|
|
Change
in
|
|
|
Percentage
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
dollars
|
|
|
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
47,845
|
|
|
|
15
|
%
|
|
$
|
58,261
|
|
|
|
17
|
%
|
|
$
|
(10,416
|
)
|
|
|
(17.9
|
%)
|
Real
estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
209,750
|
|
|
|
65
|
%
|
|
|
216,076
|
|
|
|
62
|
%
|
|
|
(6,326
|
)
|
|
|
(2.9
|
%)
|
Multi-family
|
|
|
8,037
|
|
|
|
2
|
%
|
|
|
6,968
|
|
|
|
2
|
%
|
|
|
1,069
|
|
|
|
15.3
|
%
|
Construction
|
|
|
13,959
|
|
|
|
4
|
%
|
|
|
15,971
|
|
|
|
5
|
%
|
|
|
(2,012
|
)
|
|
|
(12.6
|
%)
|
Residential
|
|
|
23,565
|
|
|
|
7
|
%
|
|
|
26,099
|
|
|
|
7
|
%
|
|
|
(2,534
|
)
|
|
|
(9.7
|
%)
|
Lease
financing receivable
|
|
|
2,270
|
|
|
|
1
|
%
|
|
|
2,766
|
|
|
|
1
|
%
|
|
|
(496
|
)
|
|
|
(17.9
|
%)
|
Agriculture
|
|
|
7,834
|
|
|
|
2
|
%
|
|
|
7,202
|
|
|
|
2
|
%
|
|
|
632
|
|
|
|
8.8
|
%
|
Consumer
|
|
|
11,851
|
|
|
|
4
|
%
|
|
|
13,202
|
|
|
|
4
|
%
|
|
|
(1,351
|
)
|
|
|
(6.2
|
%)
|
Total
loans and leases
|
|
|
325,111
|
|
|
|
100
|
%
|
|
|
346,545
|
|
|
|
100
|
%
|
|
|
(21,434
|
)
|
|
|
(6.2
|
%)
|
Deferred
loan and lease fees, net
|
|
|
(363
|
)
|
|
|
|
|
|
|
(427
|
)
|
|
|
|
|
|
|
64
|
|
|
|
|
|
Allowance
for loan and lease losses
|
|
|
(7,887
|
)
|
|
|
|
|
|
|
(7,585
|
)
|
|
|
|
|
|
|
(302
|
)
|
|
|
|
|
Total
net loans and leases
|
|
$
|
316,861
|
|
|
|
|
|
|
$
|
338,533
|
|
|
|
|
|
|
$
|
(21,672
|
)
|
|
|
(6.4
|
%)
|
A
significant portion of the Company’s loans and leases
are direct loans and leases made to individuals and local
businesses. The Company relies substantially on local
promotional activity and personal contacts by American
River Bank officers, directors and employees to compete
with other financial institutions. The Company makes loans
and leases to borrowers whose applications include a sound
purpose and a viable primary repayment source, generally
supported by a secondary source of repayment.
Commercial
loans consist of credit lines for operating needs, loans
for equipment purchases, working capital, and various other
business loan products. Consumer loans include a range of
traditional consumer loan products such as personal lines
of credit and homeowner equity lines of credit and loans to
finance purchases of autos, boats, recreational vehicles,
mobile homes and various other consumer items. Construction
loans are generally comprised of commitments to customers
within the Company’s service area for construction of
commercial properties, multi-family properties and custom
and semi-custom single-family residences. Other real estate
loans consist primarily of loans secured by first trust
deeds on commercial and residential properties typically
with maturities from 3 to 10 years and original
loan-to-value ratios generally from 65% to 75%. Agriculture
loans consist primarily of vineyard loans and development
loans to plant vineyards. In general, except in the case of
loans under SBA programs or Farm Services Agency
guarantees, the Company does not make long-term mortgage
loans.
“Subprime”
real estate loans generally refer to residential mortgages
made to higher-risk borrowers with lower credit and/or
income histories. Within the industry, many of these loans
were originated with adjustable interest rates that reset
upward after an introductory period. These
“subprime” loans coupled with declines in
housing prices have led to an increase in the banking
industry’s default rates resulting in many instances
of increased foreclosure rates as the adjustable interest
rates reset to higher levels. The Company did not have any
such “subprime” loans at June 30, 2011 and
December 31, 2010.
Risk
Elements
The
Company assesses and manages credit risk on an ongoing
basis through a total credit culture that emphasizes
excellent credit quality, extensive internal monitoring and
established formal lending policies. Additionally, the
Company contracts with an outside loan review consultant to
periodically review the existing loan and lease portfolio.
Management believes its ability to identify and assess risk
and return characteristics of the Company’s loan and
lease portfolio is critical for profitability and growth.
Management strives to continue its emphasis on credit
quality in the loan and lease approval process, through
active credit administration and regular monitoring. With
this in mind, management has designed and implemented a
comprehensive loan and lease review and grading system that
functions to continually assess the credit risk inherent in
the loan and lease portfolio. The Company is taking actions
to further strengthen and improve its asset quality in
accordance with recommendations arising out of its 2009
regulatory examination including, among other matters,
enhancement of existing procedures for appraisals
and re-appraisals on secured loans and other real estate
owned, and problem loan identification, including
identification of impaired loans and leases and
identification of troubled debt restructured loans. See
also “Note 13— OTHER MATTERS,” for more
information regarding the Memorandum entered into with the
FDIC and the California Commissioner of Financial
Institutions.
Ultimately,
underlying trends in economic and business cycles influence
credit quality. American River Bank’s business is
concentrated in the Sacramento Metropolitan Statistical
Area, which is a diversified economy, but with a large
State of California government presence and employment
base, in Sonoma County, through North Coast Bank, a
division of American River Bank, whose business is focused
on businesses within the two communities in which it has
offices (Santa Rosa and Healdsburg) and in Amador County,
through Bank of Amador, a division of American River Bank,
whose business is focused on businesses and consumers
within the three communities in which it has offices
(Jackson, Pioneer, and Ione), as well as a diversified
residential construction loan business in numerous Northern
California counties. The economy of Sonoma County is
diversified with professional services, manufacturing,
agriculture and real estate investment and construction,
while the economy of Amador County is reliant upon
government, services, retail trade, manufacturing
industries and Indian gaming.
The
Company has significant extensions of credit and
commitments to extend credit that are secured by real
estate. The ultimate repayment of these loans is generally
dependent on personal or business cash flows or the sale or
refinancing of the real estate. The Company monitors the
effects of current and expected market conditions and other
factors on the collectability of real estate loans. The
more significant factors management considers involve the
following:lease rates and terms, vacancy rates, absorption
and sale rates and capitalization rates; real estate
values, supply and demand factors, and rates of return;
operating expenses; inflation and deflation; and
sufficiency of repayment sources independent of the real
estate including, in some instances, personal
guarantees.
In
extending credit and commitments to borrowers, the Company
generally requires collateral and/or guarantees as
security. The repayment of such loans is expected to come
from cash flow or from proceeds from the sale of selected
assets of the borrowers. The Company’s requirement
for collateral and/or guarantees is determined on a
case-by-case basis in connection with management’s
evaluation of the creditworthiness of the borrower.
Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, income-producing
properties, residences and other real property. The Company
secures its collateral by perfecting its security interest
in business assets, obtaining deeds of trust, or outright
possession among other means.
In
management’s judgment, a concentration exists in real
estate loans, which represented approximately 78.5% of the
Company’s loan and lease portfolio at June 30, 2011,
an increase from 76.5% at December 31, 2010. Management
believes that the residential land and residential
construction portion of the Company’s loan portfolio
carries more than the normal credit risk it has seen in the
past several years, due primarily to severely curtailed
demand for new and resale residential property, a large
supply of unsold residential land and new and resale homes,
and observed
reductions in values throughout the Company’s market
area. Management has responded by evaluating loans that it
considers to carry any significant risk above the normal
risk of collectability by taking actions where possible to
reduce credit risk exposure by methods that include, but
are not limited to, seeking liquidation of the loan by the
borrower, seeking additional tangible collateral or other
repayment support, converting the property through judicial
or non-judicial foreclosure proceedings, and other
collection techniques. Management currently believes that
it maintains its allowance for loan and lease losses at
levels adequate to reflect the loss risk inherent in its
total loan portfolio.
A
continued substantial further decline in the economy in
general, or a continued additional decline in real estate
values in the Company’s primary market areas, in
particular, has had and could continue to have an adverse
impact on the collectability of real estate loans and
require an increase in the provision for loan and lease
losses. This could adversely affect the Company’s
financial condition, future prospects, results of
operations, profitability and stock price. Management
believes that its lending practices and underwriting
standards are structured with the intent to minimize
losses; however, there is no assurance that losses will not
occur. The Company’s loan practices and underwriting
standards include, but are not limited to, the following:
(1) maintaining a thorough understanding of the
Company’s service area and originating a significant
majority of its loans within that area, (2) maintaining a
thorough understanding of borrowers’ knowledge,
capacity, and market position in their field of expertise,
(3) basing real estate loan approvals not only on market
demand for the project, but also on the borrowers’
capacity to support the project financially in the event it
does not perform to expectations (whether sale or income
performance), and (4) maintaining conforming and prudent
loan-to-value and loan-to-cost ratios based on independent
outside appraisals and ongoing inspection and analysis by
the Company’s lending officers or contracted
third-party professionals.
Nonaccrual,
Past Due and Restructured Loans and Leases
Management
generally places loans and leases on nonaccrual status when
they become 90 days past due or if a loss is expected,
unless the loan or lease is well secured and in the process
of collection. Loans and leases are partially or fully
charged off when, in the opinion of management, collection
of such amount appears unlikely.
At
June 30, 2011, nonperforming loans and leases (those loans
and leases on nonaccrual status and those loans and leases
still accruing and past due 90 days or more) were
$22,228,000 or 6.84% of total loans and leases.
Nonperforming loans and leases were $22,571,000 or 6.77% of
total loans and leases at December 31, 2010. The
$22,228,000 in nonperforming loans and leases at June 30,
2011, was made up of forty-eight loans and two leases. Five
of those loans totaling $1,643,000 were current (less than
30 days past due) pursuant to their original or modified
terms. Of the June 30, 2011 balance, a valuation allowance
of $560,000 was established on the nonperforming loans. Of
the December 31, 2010 balance, a valuation allowance of
$385,000 was established. The overall level of
nonperforming loans increased $633,000 (2.9%) to
$22,228,000 at June 30, 2011 compared to $21,595,000 at of
March 31, 2011. At March 31, 2011, the Company had
thirty-one real estate loans totaling $17,779,000; fifteen
commercial loans totaling $3,258,000; eight consumer loans
totaling $533,000; and two leases totaling $25,000. During
the second quarter of 2011, ten loans incurred charge offs
in the amount of $724,000, six loans in the amount of
$751,000 were current and returned to performing status,
four loans in the amount of $2,093,000 were paid off, two
loans totaling $262,000 were adjusted to market value and
moved to OREO, and ten loans in the total amount of
$4,631,000 were placed on nonperforming status during the
quarter. The Company also collected approximately $168,000
in principal paydowns.
Of
the ten loans added in the second quarter of 2011, five
loans in the total amount of $4,404,000 were real estate
secured, three loans in the amount of $83,000 were consumer
loans and two loans in the amount of $144,000 were
commercial loans. Four of these lending relationships were
over $250,000. The first loan was originated as an SBA 504
product to purchase a commercial building in Sacramento
County with a quarter-end balance of $367,000. The second
loan was originated for construction of an owner occupied
property in Sonoma County with a quarter-end balance of
$3,000,000. The third loan was for the purchase of
adjoining agricultural property to an existing agricultural
loan in Sacramento County with a quarter-end balance of
$397,000. The final loan was for the purchase of
agricultural property as part of a government program in
Amador County with a quarter-end balance of
$252,000.
The
net interest due on nonaccrual loans and leases but
excluded from interest income was $465,000 for the three
months ended June 30, 2011, compared to foregone interest
of $401,000 during the same period in 2010. The net
interest due on nonaccrual loans and leases but excluded
from interest income was $890,000 for the six months ended
June 30, 2011, compared to $712,000 during the same period
in 2010. There were no loan or lease concentrations in
excess of 10% of total loans and leases not otherwise
disclosed as a category of loans and leases as of June 30,
2011. Management
is not aware of any potential problem loans, which were
accruing and current at June 30, 2011, where serious doubt
exists as to the ability of the borrower to comply with the
present repayment terms and that would result in a
significant loss to the Company. Table Seven below sets
forth nonaccrual loans and loans past due 90 days or more
as of June 30, 2011 and December 31, 2010.
Table
Seven: Nonperforming Loans and Leases
|
|
(dollars
in thousands)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2011
|
|
|
2010
|
|
Past
due 90 days or more and still accruing
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
Real
estate
|
|
|
—
|
|
|
|
—
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
Consumer
and other
|
|
|
3
|
|
|
|
—
|
|
Nonaccrual
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2,890
|
|
|
|
3,491
|
|
Real
estate
|
|
|
19,055
|
|
|
|
18,735
|
|
Lease
financing receivable
|
|
|
23
|
|
|
|
28
|
|
Consumer
and other
|
|
|
257
|
|
|
|
317
|
|
Total
nonperforming loans and leases
|
|
$
|
22,228
|
|
|
$
|
25,571
|
|
Impaired
Loans and Leases
The
Company considers a loan to be impaired when, based on
current information and events, it is probable that it will
be unable to collect all amounts due (principal and
interest) according to the original contractual terms of
the loan or lease agreement. The measurement of impairment
may be based on (i) the present value of the expected cash
flows of the impaired loan or lease discounted at the loan
or lease’s original effective interest rate, (ii) the
observable market price of the impaired loan or lease, or
(iii) the fair value of the collateral of a
collateral-dependent loan. The Company does not apply this
definition to smaller-balance loans or leases that are
collectively evaluated for credit risk. In assessing
whether a loan or lease is impaired, the Company typically
reviews loans or leases graded substandard or lower with
outstanding principal balances in excess of $100,000 as
well as loans considered troubled debt restructures with
outstanding principal balances in excess of $25,000. At
June 30, 2011, the recorded investment in loans and leases
that were considered to be impaired totaled $38,139,000,
which includes $16,406,000 in performing loans and leases.
Of the total impaired loans of $38,139,000, loans totaling
$21,278,000 were deemed to require no specific reserve and
loans totaling $16,861,000 were deemed to require a related
valuation allowance of $792,000. Of the $21,278,000 in
impaired loans that did not carry a specific reserve there
were $9,440,000 in loans or leases that had previous
partial charge-offs and $11,838,000 in loans or leases that
were analyzed and determined not to require a specific
reserve or charge-off because the collateral value or
discounted cash flow value exceeded the loan or lease
balance. The recorded investment in loans and leases that
were considered to be impaired totaled $40,237,000 at
December 31, 2010. Of the total impaired loans of
$40,237,000, loans totaling $22,168,000 were deemed to
require no specific reserve and loans totaling $18,069,000
were deemed to require a related valuation allowance of
$1,619,000.
The
Company has been operating in a market that has experienced
significant decreases in real estate values of commercial,
residential, land, and construction properties. As such,
the Company is focused on monitoring collateral values for
those loans considered collateral dependent. The collateral
evaluations performed by the Company are updated as
necessary, which is generally once every six to twelve
months, and are reviewed by a qualified credit officer or
by an independent qualified third-party appraiser. In the
second quarter of 2011, the Company had a net charge-off of
$1,175,000 with a provision of $1,700,000. In the second
quarter of 2010, the Company had net charge-offs of
$2,950,000 with a provision of $2,011,000.
At
June 30, 2011, there were twenty-five loans and leases that
were modified and are currently performing (less than
ninety days past due) totaling $11,682,000 and sixteen
loans and leases that are considered nonperforming (and
included in Table Seven above), totaling $7,760,000, which
are considered troubled debt restructures
(“TDR”). These TDRs have a specific reserve of
$412,000. As of June 30, 2011, of the forty-one TDRs,
modifications to terms included twenty-one extensions,
eight partial charge off/ terms modifications, six term
outs, four rate reductions, one change to amortizing loan
and one forbearance. All were performing as agreed except
for six extensions, four partial charge off/ terms
modifications, three term outs, two rate reductions, and
one change to amortizing loan. The Company generally
requires TDRs that are on non-accrual status to make six
consecutive payments on the restructured loan or lease
prior to returning the loan or lease to accrual
status.
Allowance
for Loan and Lease Losses Activity
The
Company maintains an allowance for loan and lease losses
(“ALLL”) to cover probable losses inherent in
the loan and lease portfolio, which is based upon
management’s estimated range of those losses. The
ALLL is established through a provision for loan and lease
losses and is increased by provisions charged against
current earnings and recoveries and reduced by charge-offs.
Actual losses for loans and leases can vary significantly
from this estimate. The methodology and assumptions used to
calculate the allowance are continually reviewed as to
their appropriateness given the most recent losses realized
and other factors that influence the estimation process.
The model assumptions and resulting allowance level are
adjusted accordingly as these factors change.
The
adequacy of the ALLL and the level of the related provision
for loan and lease losses is determined based on
management’s judgment after consideration of numerous
factors including but not limited to: (i) local and
regional economic conditions, (ii) the financial condition
of the borrowers, (iii) loan impairment and the related
level of expected charge-offs, (iv) evaluation of industry
trends, (v) industry and other concentrations, (vi) loans
and leases which are contractually current as to payment
terms but demonstrate a higher degree of risk as identified
by management, (vii) continuing evaluations of the
performing loan portfolio, (viii) ongoing review and
evaluation of problem loans identified as having loss
potential, (ix) quarterly review by the Board of Directors,
and (x) assessments by banking regulators and other third
parties. Management and the Board of Directors evaluate the
ALLL and determine its appropriate level considering
objective and subjective measures, such as knowledge of the
borrowers’ business, valuation of collateral, the
determination of impaired loans or leases and exposure to
potential losses.
The
allowance for loan and lease losses totaled $7,887,000 or
2.43% of total loans and leases at June 30, 2011 compared
to $7,585,000 or 2.19% of total loans and leases at
December 31, 2010. The Company establishes general and
specific reserves in accordance with generally accepted
accounting principles. The ALLL is maintained by categories
of the loan and lease portfolio based on loan type and loan
rating; however, the entire allowance is available to cover
actual loan and lease losses. While management uses
available information to recognize possible losses on loans
and leases, future additions to the allowance may be
necessary, based on changes in economic conditions and
other matters. In addition, various regulatory agencies, as
an integral part of their examination process, periodically
review the Company’s ALLL. Such agencies may require
the Company to provide additions to the allowance based on
their judgment of information available to them at the time
of their examination.
The
allowance for loans and leases as a percentage of
non-performing loans and leases was 35.5% at June 30, 2011
and 33.6% at December 31, 2010. The allowance for loans and
leases as a percentage of impaired loans and leases was
20.7% at June 30, 2011 and 18.9% at December 31, 2010. Of
the total non-performing and impaired loans and leases
outstanding as of June 30, 2011, there were $20,250,000 in
loans or leases that had been reduced by partial
charge-offs of $8,166,000. As these loan or lease balances
are charged off, the remaining balances, following
analysis, normally do not require specific reserves and are
not eligible for general reserves.
The
Company’s policy with regard to loan or lease
charge-offs continues to be that a loan or lease is charged
off against the allowance for loan and lease losses when
management believes that the collectability of the
principal is unlikely. Generally, a loan or lease is
charged off when estimated losses related to impaired loans
and leases are identified. If the loan is collateralized by
real estate the impaired portion will be charged off to the
allowance for loan and lease losses unless it in the
process of collection, in which case a specific reserve may
be warranted. If the collateral is other than real estate
the Company will typically charge-off the impaired portion
of a loan, unless it is in the process of collection, in
which case a specific reserve may be warranted.
It
is the policy of management to maintain the allowance for
loan and lease losses at a level believed to be adequate
for known and inherent risks in the portfolio. Our
methodology incorporates a variety of risk considerations,
both quantitative and qualitative, in establishing an
allowance for loan and lease losses that management
believes is appropriate at each reporting date. Based on
information currently available to analyze inherent credit
risk, including economic factors, overall credit quality,
historical delinquencies and a history of actual
charge-offs, management believes that the provision for
loan and lease losses and the allowance for loan and lease
losses are prudent and adequate. Adjustments may be made
based on differences from estimated loan and lease growth,
the types of loans constituting
this growth, changes in risk ratings within the portfolio,
and general economic conditions. However, no prediction of
the ultimate level of loans and leases charged off in
future periods can be made with any certainty. Table Eight
below summarizes, for the periods indicated, the activity
in the ALLL.
Table
Eight: Allowance for Loan and Lease
Losses
|
|
(dollars
in thousands)
|
|
Three
Months
Ended June
30,
|
|
|
Six
Months
Ended June
30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
loans and leases outstanding
|
|
$
|
327,169
|
|
|
$
|
365,338
|
|
|
$
|
332,390
|
|
|
$
|
371,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan and lease losses at beginning of
period
|
|
$
|
7,362
|
|
|
$
|
8,380
|
|
|
$
|
7,585
|
|
|
$
|
7,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(459
|
)
|
|
|
(699
|
)
|
|
|
(750
|
)
|
|
|
(1,698
|
)
|
Real
estate
|
|
|
(802
|
)
|
|
|
(2,198
|
)
|
|
|
(2,250
|
)
|
|
|
(2,350
|
)
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
(164
|
)
|
|
|
(73
|
)
|
|
|
(170
|
)
|
|
|
(171
|
)
|
Total
|
|
|
(1,425
|
)
|
|
|
(2,970
|
)
|
|
|
(3,170
|
)
|
|
|
(4,219
|
)
|
Recoveries
of loans and leases previously charged
off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
250
|
|
|
|
—
|
|
|
|
383
|
|
|
|
63
|
|
Real
estate
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
36
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
250
|
|
|
|
20
|
|
|
|
397
|
|
|
|
99
|
|
Net
loans and leases charged off
|
|
|
(1,175
|
)
|
|
|
(2,950
|
)
|
|
|
(2,773
|
)
|
|
|
(4,120
|
)
|
Additions
to allowance charged to operating
expenses
|
|
|
1,700
|
|
|
|
2,011
|
|
|
|
3,075
|
|
|
|
3,652
|
|
Allowance
for loan and lease losses at end of
period
|
|
$
|
7,887
|
|
|
$
|
7,441
|
|
|
$
|
7,887
|
|
|
$
|
7,441
|
|
Ratio
of net charge-offs to average loans and
leases
outstanding (annualized)
|
|
|
1.44
|
%
|
|
|
3.24
|
%
|
|
|
1.68
|
%
|
|
|
2.23
|
%
|
Provision
of allowance for loan and lease losses
to average loans and leases outstanding
(annualized)
|
|
|
2.08
|
%
|
|
|
2.21
|
%
|
|
|
1.87
|
%
|
|
|
1.98
|
%
|
Allowance
for loan and lease losses to loans and leases net
of deferred fees at end of period
|
|
|
2.43
|
%
|
|
|
2.06
|
%
|
|
|
2.43
|
%
|
|
|
2.06
|
%
|
Other
Real Estate Owned
At
June 30, 2011, the Company had sixteen OREO properties with
a carrying cost of $3,224,000. This compares to fourteen
properties with a carrying cost of $2,696,000 at December
31, 2010 and seventeen properties with a carrying cost of
$3,219,000 at June 30, 2010. During the second quarter of
2011, the Company sold three properties for a gain of
$2,000 and added two properties to OREO with loan balances
totaling $293,000. These two properties added during the
quarter were simultaneously written down to fair value by
$31,000 leaving a net value of $262,000. Of the two
properties added during the quarter, one was 16.6 acre
parcel of residential land in El Dorado County carried at
$87,000 and the other was a commercial building currently
occupied by a specialty retail store on the ground floor
and two upstairs rented apartment units in Amador County,
carried at $175,000. The Company also adjusted the balance
on two properties that were obtained in the first quarter
of 2011 for which fair value adjustments were made in the
current quarter in the amount of $187,000. The amount had
been reserved for in the allowance for loan and lease
losses at March 31, 2011.
During
the first quarter of 2011, the Company sold three
properties with balances of $554,000 for a loss of $28,000
and added six properties to OREO with fair values less
costs to sell totaling $1,766,000 after writing the related
loans down by $222,000 through the allowance for loan and
lease losses. Of the six properties added during the
First
quarter of 2011, one is a multi-tenant office building in
Sacramento County carried for $1,037,000; two properties
are single family residences (one in El Dorado County
carried for $210,000 and the other in Calaveras County
carried for $127,000); two properties are commercial
buildings both in Calaveras County (one is a wine storage
facility carried at $178,000 and the other is a single
tenant lease of a 2,300 square foot retail building carried
for $131,000); and one property is 2.1 acres of residential
land in Calaveras County carried for $83,000.
The
Company periodically obtains property valuations to
determine whether the recorded book value is considered
fair value. During the second quarter of 2011, this
valuation process resulted in the Company reducing the book
value of certain properties by $441,000. At June 30, 2011,
the OREO valuation allowance was at $68,000. This compares
to a valuation allowance of $100,000 at December 31, 2010.
There was no valuation allowance at June 30, 2010. The
Company believes that all sixteen OREO properties owned at
June 30, 2011 are carried approximately at fair
value.
Deposits
At
June 30, 2011, total deposits were $455,263,000
representing a decrease of $9,859,000 (2.1%) from the
December 31, 2010 balance of $465,122,000. The
Company’s deposit growth plan for 2011 is to
concentrate its efforts on increasing noninterest-bearing
demand, interest-bearing money market and NOW accounts, and
savings accounts. The Company experienced increases in
interest-bearing checking ($284,000 or 0.6%), money market
($694,000 or 0.5%) and savings ($240,000 or 0.5%) and
decreases in noninterest-bearing ($3,086,000 or 2.4%) and
time deposits ($7,991,000 or 7.2%) in the six month period
ended June 30, 2011. A portion of the decrease in the
noninterest-bearing balances relates to purchases of real
estate and inventory by the Company’s business
depositors and the decrease in time deposits is related to
the Company’s decision to reduce the offering rates
on time deposits in light of reduced liquidity needs due to
the decrease in loan balances.
Other
Borrowed Funds
Other
borrowings outstanding as of June 30, 2011 and December
31, 2010, consist of advances (both long-term and
short-term) from the Federal Home Loan Bank of San
Francisco (“FHLB”). Table Nine below
summarizes these borrowings.
Table
Nine: Other Borrowed Funds
|
|
(dollars
in thousands)
|
|
|
|
June
30, 2011
|
|
|
December
31, 2010
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Short-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
advances
|
|
$
|
7,000
|
|
|
|
2.57
|
%
|
|
$
|
7,000
|
|
|
|
2.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
advances
|
|
$
|
10,000
|
|
|
|
1.86
|
%
|
|
$
|
10,000
|
|
|
|
2.41
|
%
|
The maximum
amount of short-term borrowings at any month-end during the
first two quarters of 2011 and 2010 was $12,000,000 and
$9,500,000, respectively. The FHLB advances are
collateralized by loans and securities pledged to the FHLB.
The following is a breakdown of rates and maturities on
FHLB advances (dollars in thousands):
|
Short-term
|
|
Long-term
|
|
Amount
|
|
$
|
7,000
|
|
|
$
|
10,000
|
|
Maturity
|
2011
to 2012
|
|
2012
to 2014
|
|
Average
rates
|
|
|
2.57
|
%
|
|
|
1.86
|
%
|
The
Company has also been issued a total of $10,000,000 in
letters of credit by the FHLB that are pledged to secure
Local Agency Deposits. The letters of credit act as a
guarantee of payment to certain third parties in accordance
with specified terms and conditions. The letters of credit
were not drawn upon in 2011 or 2010 and management does not
currently expect to draw upon them in the foreseeable
future. See the Liquidity section that follows for
additional information on FHLB borrowings.
Capital
Resources
The
Company and American River Bank are subject to certain
regulatory capital requirements administered by the Federal
Reserve Board and the Federal Deposit Insurance Corporation
(the “FDIC”). Failure to meet these minimum
capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on
the Company’s consolidated financial
statements. Under
capital adequacy guidelines and the regulatory framework
for prompt corrective action, banks must meet specific
capital guidelines that involve quantitative measures of
their assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices.
The Company’s and American River Bank’s capital
amounts and classification are also subject to qualitative
judgments by the regulators about components, risk
weightings and other factors. As a result of a 2009 FDIC
examination, management entered into a Memorandum of
Understanding as of February 10, 2010 with the FDIC and the
California Commissioner of Financial Institutions, which
required the Bank to take certain actions including
maintaining the Bank’s Tier I Leverage capital ratio
at not less than 8% and a Total Risk-Based capital ratio of
not less than 11%. In July 2011, this Memorandum was
terminated by the FDIC and the California Commissioner of
Financial Institutions. See “Note 13, OTHER
MATTERS” herein for more information regarding the
Memorandum.
At
June 30, 2011, shareholders’ equity was $91,187,000,
representing an increase of $1,643,000 (1.8%) from
$89,544,000 at December 31, 2010. The increase results from
net income for the period, the stock based compensation
expense, and the increase in other comprehensive income.
The ratio of total risk-based capital to risk adjusted
assets was 21.7% at June 30, 2011 and 20.3% at December 31,
2010. Tier 1 risk-based capital to risk-adjusted assets was
20.4% at June 30, 2011 and 19.1% at December 31, 2010. The
leverage ratio was 13.0% at June 30, 2011 and 12.6% at
December 31, 2010.
Table
Ten below lists the Company’s actual capital ratios
at June 30, 2011 and December 31, 2010 as well as the
minimum capital ratios for capital adequacy.
Table
Ten: Capital Ratios
|
Capital
to Risk-Adjusted Assets
|
|
At
June 30,
2011
|
|
At
December 31,
2010
|
|
Minimum
Regulatory Capital Requirements
|
|
|
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
13.0
|
%
|
|
12.6
|
%
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Risk-Based Capital
|
|
20.4
|
%
|
|
19.1
|
%
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
Risk-Based Capital
|
|
21.7
|
%
|
|
20.3
|
%
|
|
8.00
|
%
|
Capital
ratios are reviewed on a regular basis to ensure that
capital exceeds the prescribed regulatory minimums and is
adequate to meet future needs. Management believes that
both the Company and American River Bank met all of their
capital adequacy requirements as of June 30, 2011 and
December 31, 2010.
On
December 17, 2009, the Company filed a Current Report with
the SEC on Form 8-K announcing the completion of an
offering of approximately $24 million of its common stock.
Effective July 27, 2009, the Company temporarily suspended
both the payment of cash dividends and stock repurchases.
See Part II, Item 2, for additional disclosure regarding
the stock repurchase plan.
Inflation
The
impact of inflation on a financial institution differs
significantly from that exerted on manufacturing or other
commercial concerns primarily because its assets and
liabilities are largely monetary. In general, inflation
primarily affects the Company and its subsidiaries through
its effect on market rates of interest, which affects the
Company’s ability to attract loan customers.
Inflation affects the growth of total assets by increasing
the level of loan demand and potentially adversely affects
capital adequacy because loan growth in inflationary
periods can increase at rates higher than the rate that
capital grows through retention of earnings which may be
generated in the future. In addition to its effects on
interest rates, inflation increases overall operating
expenses. Inflation has not had a significant effect upon
the results of operations of the Company and its
subsidiaries during the periods ended June 30, 2011 and
2010.
Liquidity
Liquidity
management refers to the Company’s ability to provide
funds on an ongoing basis to meet fluctuations in deposit
levels as well as the credit needs and requirements of its
clients. Both assets and liabilities contribute to the
Company’s liquidity position. Federal funds lines,
short-term investments and securities, and loan and lease
repayments contribute to liquidity, along with deposit
increases, while loan and lease funding and deposit
withdrawals decrease liquidity. The Company assesses the
likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted
economic conditions and individual client funding needs.
Commitments to fund loans and outstanding standby letters
of credit at June 30, 2011 were approximately $38,841,000
and $9,971,000, respectively. Such loan commitments relate
primarily to revolving lines of credit and other commercial
loans and to real estate construction loans. Since some of
the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily
represent future cash requirements.
The
Company’s sources of liquidity consist of cash and
due from correspondent banks, overnight funds sold to
correspondent banks, unpledged marketable investments and
loans held for sale and/or pledged for secured borrowings.
At June 30, 2011, consolidated liquid assets totaled $142.8
million or 25.1% of total assets compared to $128.1 million
or 22.1% of total assets on December 31, 2010. In addition
to liquid assets, the Company maintains short-term lines of
credit in the amount of $17,000,000 with two of its
correspondent banks. At June 30, 2011, the Company had
$17,000,000 available under these credit lines.
Additionally, the Bank is a member of the FHLB. At June 30,
2011, the Bank could have arranged for up to $90,308,000 in
secured borrowings from the FHLB. These borrowings are
secured by pledged mortgage loans and investment
securities. At June 30, 2011, the Company had advances,
borrowings and commitments (including letters of credit)
outstanding of $27,000,000, leaving $63,308,000 available
under these FHLB secured borrowing arrangements. American
River Bank also has a secured borrowing arrangement with
the Federal Reserve Bank of San Francisco. The borrowing
can be secured by pledging selected loans and investment
securities. At June 30, 2011, the Company’s borrowing
capacity at the Federal Reserve Bank was $25,872,000. The
Company serves primarily a business and professional
customer base and, as such, its deposit base is susceptible
to economic fluctuations. Accordingly, management strives
to maintain a balanced position of liquid assets and
borrowing capacity to offset the potential runoff of these
volatile and/or cyclical deposits.
Liquidity
is also affected by portfolio maturities and the effect of
interest rate fluctuations on the marketability of both
assets and liabilities. The Company can sell any of its
unpledged securities held in the available-for-sale
category to meet liquidity needs. The Bank has established
a master repurchase agreement with a correspondent bank to
enable such transactions. Futhermore, the Bank can pledge
additional unencumbered securities to borrow from the
Federal Reserve Bank of San Francisco and the FHLB.
Off-Balance
Sheet Items
The
Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business in
order to meet the financing needs of its customers and to
reduce its exposure to fluctuations in interest rates.
These financial instruments consist of commitments to
extend credit and letters of credit. These instruments
involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized on
the balance sheet.
The
Company’s exposure to credit loss in the event of
nonperformance by the other party for commitments to extend
credit and letters of credit is represented by the
contractual amount of those instruments. The Company
applies the same credit policies to commitments and letters
of credit as it does for loans included on the consolidated
balance sheet. As of June 30, 2011 and December 31, 2010,
commitments to extend credit and standby letters of credit
were the only financial instruments with off-balance sheet
risk. The Company has not entered into any contracts for
financial derivative instruments such as futures, swaps,
options or similar instruments. Loan commitments and
standby letters of credit were $48,812,000 and $52,481,000
at June 30, 2011 and December 31, 2010, respectively. As a
percentage of net loans and leases these off-balance sheet
items represent 15.4% and 15.5%, respectively.
The
Company has certain ongoing commitments under operating
leases. These commitments do not significantly impact
operating results.
Website
Access
American River
Bankshares maintains a website where certain information
about the Company is posted. Through the website, its
annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments thereto, as
well as Section 16 Reports and amendments thereto, are
available as soon as reasonably practicable after such
material is electronically filed with or furnished to the
Securities and Exchange Commission (the “SEC”).
These reports are free of charge and can be accessed
through the address www.amrb.com
by clicking on the SEC
Filings link located at that address. Once you have
selected the SEC
Filings link you will have the option to access the
Section 16 Reports or the other above-referenced reports
filed by the Company by selecting the appropriate
link.
Market
Risk Management
Overview.
Market risk is the risk of loss from adverse changes in
market prices and rates. The Company’s market risk
arises primarily from interest rate risk inherent in its
loan, investment and deposit functions. The goal for
managing the assets and liabilities of the Company is to
maximize shareholder value and earnings while maintaining a
high quality balance sheet without exposing the Company to
undue interest rate risk. The Board of Directors has
overall responsibility for the interest rate risk
management policies. The Company has a Risk Management
Committee, made up of Company management that establishes
and monitors guidelines to control the sensitivity of
earnings to changes in interest rates.
Asset/Liability
Management. Activities involved in asset/liability
management include but are not limited to lending,
accepting and placing deposits, borrowing, and investing in
securities. Interest rate risk is the primary market risk
associated with asset/liability management. Sensitivity of
earnings to interest rate changes arises when yields on
assets change in a different time period or in a different
amount from that of interest costs on liabilities. To
mitigate interest rate risk, the structure of the balance
sheet is managed with the goal that movements of interest
rates on assets and liabilities are correlated and
contribute to earnings even in periods of volatile interest
rates. The asset/liability management policy sets limits on
the acceptable amount of variance in net interest margin
and market value of equity under changing interest
environments. The Company uses simulation models to
forecast earnings, net interest margin and market value of
equity.
Simulation
of earnings is the primary tool used to measure the
sensitivity of earnings to interest rate changes. Using
computer-modeling techniques, the Company is able to
estimate the potential impact of changing interest rates on
earnings. A balance sheet forecast is prepared quarterly
using inputs of actual loans, securities and
interest-bearing liabilities (i.e. deposits/borrowings)
positions as the beginning base. The forecast balance sheet
is processed against three interest rate scenarios. The
scenarios include a 200 basis point rising rate forecast, a
flat rate forecast and a 200 basis point falling rate
forecast which take place within a one-year time frame. The
net interest income is measured during the year assuming a
gradual change in rates over the twelve-month horizon. The
simulation modeling indicated below attempts to estimate
changes in the Company’s net interest income
utilizing a forecast balance sheet projected from the end
of period balances.
Table
Eleven below summarizes the effect on net interest income
(NII) of a ±200 basis point change in interest rates
as measured against a constant rate (no change)
scenario.
Table
Eleven: Interest Rate Risk Simulation of Net Interest as of
June 30, 2011 and December 31, 2010
(dollars
in thousands)
|
|
$
Change in NII
from
Current
12
Month Horizon
June 30,
2011
|
|
|
$
Change in NII
from
Current
12
Month Horizon
December 31,
2010
|
|
Variation
from a constant rate scenario
|
|
|
|
|
|
|
+200bp
|
|
$
|
194
|
|
|
$
|
289
|
|
-
200bp
|
|
$
|
(1,175
|
)
|
|
$
|
(1,739
|
)
|
Management
does not consider the fluctuations, as outlined in the
table above, to have a material impact on the
Company’s projected results and are within the
tolerance levels outlined in the Company’s interest
rate risk polices. The simulations of earnings do not
incorporate any management actions, which might moderate
the negative consequences of interest rate deviations.
Therefore, they do not reflect likely actual results, but
serve as reasonable estimates of interest rate risk.
The
Company, under the supervision and with the participation
of its management, including the Chief Executive Officer
and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of the
Company’s “disclosure controls and
procedures” (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of June 30, 2011. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer
concluded that the Company’s disclosure controls and
procedures are effective in timely making known to them
material information relating to the Company and the
Company’s consolidated subsidiaries required to be
disclosed in the Company’s reports filed or submitted
under the Exchange Act.
During
the quarter ended June 30, 2011, there have been no changes
in the Company’s internal control over financial
reporting that have significantly affected, or are
reasonably likely to materially affect, these
controls.
From
time to time, the Company and/or its subsidiaries is a
party to claims and legal proceedings arising in the
ordinary course of business. The Company’s management
is not aware of any significant pending legal proceedings
to which either it or its subsidiaries may be a party or
has recently been a party, which will have a significant
adverse effect on the financial condition or results of
operations of the Company or its subsidiaries, taken as a
whole.
There
have been no significant changes in the risk factors
previously disclosed in the Company’s Form 10-K for
the period ended December 31, 2010, filed with the
Securities and Exchange Commission on March 4, 2011,
other
than the addition of the following risk
factor.
Credit
Downgrade Risk and European Market Risk
On
August 5, 2011, Standard & Poor’s downgraded
the long-term credit rating of the U.S. from
“AAA” to “AA+.” This
was the first downgrade of the U.S. credit rating in
history. Prior to the action taken by S&P,
Moody’s placed the U.S. government under review for
a possible credit ratings downgrade, but on August 2,
2011, Moody’s confirmed the U.S. government’s
“AAA” credit rating while stating that the
rating outlook was negative. Also, on August
2, 2011, Fitch affirmed its existing U.S. government
credit rating, but stated that the rating was under
review. It is uncertain whether Moody’s
and Fitch will change their credit ratings. It
is also uncertain whether future additional downgrades
may occur by such rating agencies.
The
federal bank regulatory agencies jointly issued
guidance on August 5, 2011 regarding the impact of the
S&P downgrade upon risk-based capital
treatment. The agencies advised banks that for
risk-based capital purposes, the risk weights for
Treasury securities and other securities issued or
guaranteed by the U.S. government, government agencies,
and government-sponsored entities will not
change. The agencies also advised that treatment
of Treasury securities and other securities issued or
guaranteed by the U.S. government, government agencies,
and government-sponsored entities under other federal
banking agency regulations, including, for example, the
Federal Reserve Board’s Regulation W, will also
be unaffected.
The
effects of credit agency downgrade of the U.S.
government’s credit rating, or in the credit
ratings of instruments issued, insured or guaranteed by
related institutions, agencies or instrumentalities is
uncertain, but such downgrades could result in risks to
the Company and general economic conditions in the U.S.
and in the Company’s market areas, which we are
unable to predict. In addition, there is
existing uncertainty about the effects upon the U.S.
economy of the financial instability of several countries
in the European Union and the risks of debt defaults
posed by those countries. These economic
circumstances could have a significant adverse effect on
our business, results of operations and financial
condition, which in turn could adversely affect our stock
price.
On
January 16, 2008, the Board of Directors of the Company
authorized a stock repurchase program which allows for the
repurchase of up to six and one half percent (6.5%)
annually of the Company’s outstanding shares of
common stock. On July 27, 2009, the Company announced that
the Board of Directors was temporarily suspending the stock
repurchase program, therefore the number of shares reported
in column (d) of the table as shares that may be
repurchased under the plan are “none” for the
periods stated. The Company relies on distributions from
the Bank in the form of cash dividends in order to fund its
repurchase program. The following table lists shares
repurchased during the quarter ended June 30, 2011 and the
maximum amount available to repurchase under the repurchase
plan, which was none as a result on the suspension of the
repurchase program.
Period
|
(a)
|
(b)
|
(c)
|
(d)
|
|
Total
Number of Shares (or Units) Purchased
|
Average
Price Paid Per Share
(or
Unit)
|
Total
Number of Shares (or Units) Purchased as Part of
Publicly Announced Plans or Programs
|
Maximum
Number (or Approximate Dollar Value) of Shares (or
Units) That May Yet Be Purchased Under
the Plans or Programs
|
Month
#1
April
1 through
April
30, 2011
|
None
|
N/A
|
None
|
None
|
Month
#2
May
1 through
May
31, 2011
|
None
|
N/A
|
None
|
None
|
Month
#3
June
1 through
June
30, 2011
|
None
|
N/A
|
None
|
None
|
Total
|
None
|
N/A
|
None
|
|
None.
None.
None.
|
Exhibit
|
|
|
|
Number
|
|
Document
Description
|
|
|
|
|
|
(2.1)
|
|
Agreement
and Plan of Reorganization and Merger by and among
the Registrant, ARH Interim National Bank and North
Coast Bank, N.A., dated as of March 1, 2000
(included as Annex A). **
|
|
|
|
|
|
(2.2)
|
|
Agreement
and Plan of Reorganization and Merger by and among
the Registrant, American River Bank and Bank of
Amador, dated as of July 8, 2004 (included as Annex
A). ***
|
|
|
|
|
|
(3.1)
|
|
Articles
of Incorporation, as amended, incorporated by
reference from Exhibit 3.1 to the
Registrant’s Quarterly Report on Form 10-Q
for the period ended March 31, 2011, filed with the
Commission on May 10, 2011.
|
|
|
|
|
|
(3.2)
|
|
Bylaws,
as amended, incorporated by reference from Exhibit
3.2 to the Registrant’s Quarterly Report on
Form 10-Q for the period ended June 30, 2008, filed
with the Commission on August 8, 2008.
|
|
|
|
|
|
(4.1)
|
|
Specimen
of the Registrant’s common stock certificate,
incorporated by reference from Exhibit 4.1 to the
Registrant’s Quarterly Report on Form 10-Q
for the period ended June 30, 2004, filed with the
Commission on August 11, 2004.
|
|
|
|
|
|
(10.1)
|
|
Lease
agreement between American River Bank and Spieker
Properties, L.P., a California limited partnership,
dated April 1, 2000, related to 1545 River Park
Drive, Suite 107, Sacramento, California (**) and
the Second Amendment thereto dated August 27, 2010,
with HINES VAF II SACRAMENTO PROPERTIES, L.P., a
Delaware limited partnership, the successor to
Spieker Properties, L.P., incorporated by reference
from Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K, filed with the Commission on
August 30, 2010.
|
|
|
|
|
|
(10.2)
|
|
Lease
agreement between American River Bank and Bradshaw
Plaza, Associates, Inc. dated November 27, 2006,
related to 9750 Business Park Drive, Sacramento,
California incorporated by reference from Exhibit
99.1 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on November 28,
2006.
|
|
|
|
|
|
(10.3)
|
|
Lease
agreement between American River Bank and Marjorie
Wood Taylor, Trustee of the Marjorie Wood-Taylor
Trust, dated April 5, 1984, and addendum thereto
dated July 16, 1997, related to 10123 Fair Oaks
Boulevard, Fair Oaks, California (**) and Amendment
No. 2 thereto dated May 14, 2009, incorporated by
reference from Exhibit 99.1 to the
Registrant’s Current Report on Form 8-K,
filed with the Commission on May 15, 2009.
|
|
|
|
|
|
(10.4)
|
|
Lease
agreement between American River Bank and LUM YIP
KEE, Limited (formerly Sandalwood Land Company)
dated August 28, 1996, related to 2240 Douglas
Boulevard, Suite 100, Roseville, California (**)
and Amendment No. 1 thereto dated July 28, 2006,
incorporated by reference from Exhibit 99.1 to the
Registrant’s Current Report on Form 8-K,
filed with the Commission on July 31, 2006.
|
|
|
|
|
|
*(10.5)
|
|
Registrant’s
Deferred Compensation Plan, incorporated by
reference from Exhibit 99.2 to the
Registrant’s Current Report on Form 8-K,
filed with the Commission on May 30, 2006.
|
|
|
|
|
|
*(10.6)
|
|
Registrant’s
Deferred Fee Plan, incorporated by reference from
Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K, filed with the Commission on
May 30, 2006.
|
|
(10.7)
|
|
Lease
agreement between American River Bank and 520
Capitol Mall, Inc., dated August 19, 2003,
related to 520 Capitol Mall, Suite 100,
Sacramento, California, incorporated by reference
from Exhibit 10.29 to the Registrant’s
Quarterly Report on Form 10-Q for the period
ended September 30, 2003, filed with the
Commission on November 7, 2003 and the First
Amendment thereto dated April 21, 2004,
incorporated by reference from Exhibit 10.37 to
the Registrant’s Quarterly Report on Form
10-Q for the period ended June 30, 2004, filed
with the Commission on August 11, 2004.
|
|
|
|
|
|
*(10.8)
|
|
Employment
Agreement between Registrant and David T. Taber
dated June 2, 2006, incorporated by reference
from Exhibit 99.3 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on May 30, 2006.
|
|
|
|
|
|
*(10.9)
|
|
Salary
Continuation Agreement, as amended on February
21, 2008, between American River Bank and
Mitchell A. Derenzo, incorporated by reference
from Exhibit 99.3 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on February 22, 2008.
|
|
|
|
|
|
*(10.10)
|
|
Salary
Continuation Agreement, as amended on February
21, 2008, between the Registrant and David T.
Taber, incorporated by reference from Exhibit
99.1 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on February
22, 2008.
|
|
|
|
|
|
*(10.11)
|
|
Salary
Continuation Agreement, as amended on February
21, 2008, between American River Bank and Douglas
E. Tow, incorporated by reference from Exhibit
99.2 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on February
22, 2008.
|
|
|
|
|
|
*(10.12)
|
|
Registrant’s
2000 Stock Option Plan with forms of Nonqualified
Stock Option Agreement and Incentive Stock Option
Agreement. **
|
|
|
|
|
|
*(10.13)
|
|
Registrant’s
401(k) Plan dated December 23, 2008, incorporated
by reference from Exhibit 99.1 to the Current
Report on Form 8-K, filed with the Commission on
December 24, 2008.
|
|
|
|
|
|
(10.14)
|
|
Lease
agreement between Bank of Amador and the United
States Postal Service, dated May 24, 2011,
related to 424 Sutter Street, Jackson,
California,incorporated by reference from Exhibit
99.1 to the Registrant’s Current Report on
Form 8-K, filed with the Commission on May 25,
2011.
|
|
|
|
|
|
*(10.15)
|
|
Salary
Continuation Agreement, as amended on February
21, 2008, between Bank of Amador, a division of
American River Bank, and Larry D. Standing and
related Endorsement Split Dollar Agreement,
incorporated by reference from Exhibit 99.4 to
the Registrant’s Report on Form 8-K, filed
with the Commission on February 22, 2008.
|
|
|
|
|
|
*(10.16)
|
|
Director
Retirement Agreement, as amended on February 21,
2008, between Bank of Amador, a division of
American River Bank, and Larry D. Standing,
incorporated by reference from Exhibit 99.5 to
the Registrant’s Current Report on Form
8-K, filed with the Commission on February 22,
2008.
|
|
|
|
|
|
(10.17)
|
|
Item
Processing Agreement between American River Bank
and Fidelity Information Services, Inc., dated
April 22, 2005, incorporated by reference from
Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K, filed with the Commission on
April 27, 2005.
|
|
|
|
|
|
(10.18)
|
|
Lease
agreement between Registrant and One Capital
Center, a California limited partnership, dated
May 17, 2005, related to 3100 Zinfandel Drive,
Rancho Cordova, California, incorporated by
reference from Exhibit 99.1 to the
Registrant’s Current Report on Form 8-K,
filed with the Commission on May 18, 2005 and the
First Amendment thereto dated April 23, 2010,
incorporated by reference from Exhibit 99.1 to
the Registrant’s Current Report on Form
8-K, filed with the Commission on April 23,
2010.
|
|
(10.19)
|
|
Managed
Services Agreement between American River
Bankshares and ProNet Solutions, Inc., dated
June 16, 2009, incorporated by reference from
Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on June 18, 2009.
|
|
|
|
|
|
*(10.20)
|
|
American
River Bankshares 2005 Executive Incentive
Plan, incorporated by reference from Exhibit
99.1 to the Registrant’s Current Report
on Form 8-K, filed with the Commission on
October 27, 2005; the First Amendment
thereto, incorporated by reference from
Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on March 17, 2006; the Second
Amendment thereto, incorporated by reference
from Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on March 23, 2007; the Third
Amendment thereto, incorporated by reference
from Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on February 22, 2008, the Fourth
Amendment thereto, incorporated by reference
from the Registrant’s Current Report on
Form 8-K, filed with the Commission on March
20, 2009, the Fifth Amendment thereto,
incorporated by reference from the
Registrant’s Current Report on Form
8-K, filed with the Commission on March 18,
2010, and the Sixth Amendment thereto,
incorporated by reference from the
Registrant’s Current Report on Form
8-K, filed with the Commission on March 17,
2011.
|
|
|
|
|
|
*(10.21)
|
|
American
River Bankshares Director Emeritus Program,
incorporated by reference from Exhibit 10.33
to the Registrant’s Quarterly Report on
Form 10-Q for the period ended June 30, 2006,
filed with the Commission on August 8,
2006.
|
|
|
|
|
|
*(10.22)
|
|
Employment
Agreement dated September 20, 2006, between
American River Bankshares and Mitchell A.
Derenzo, incorporated by reference from
Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on September 20, 2006.
|
|
|
|
|
|
*(10.23)
|
|
Employment
Agreement dated September 20, 2006, between
American River Bankshares and Douglas E. Tow,
incorporated by reference from Exhibit 99.2
to the Registrant’s Current Report on
Form 8-K, filed with the Commission on
September 20, 2006.
|
|
|
|
|
|
*(10.24)
|
|
Employment
Agreement dated September 20, 2006, between
American River Bankshares and Kevin B.
Bender, incorporated by reference from
Exhibit 99.3 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on September 20, 2006.
|
|
|
|
|
|
*(10.25)
|
|
Employment
Agreement dated September 20, 2006, between
American River Bank and Raymond F. Byrne,
incorporated by reference from Exhibit 99.5
to the Registrant’s Current Report on
Form 8-K, filed with the Commission on
September 20, 2006.
|
|
|
|
|
|
*(10.26)
|
|
Salary
Continuation Agreement, as amended on
February 21, 2008, between American River
Bank and Kevin B. Bender, incorporated by
reference from Exhibit 99.6 to the
Registrant’s Current Report on Form
8-K, filed with the Commission on February
22, 2008.
|
|
|
|
|
|
*(10.27)
|
|
Salary
Continuation Agreement, as amended on
February 21, 2008, between American River
Bank and Raymond F. Byrne, incorporated by
reference from Exhibit 99.7 to the
Registrant’s Current Report on Form
8-K, filed with the Commission on February
22, 2008.
|
|
|
|
|
|
(10.28)
|
|
Lease
agreement dated May 23, 2007 between Bank of
Amador, a division of American River Bank,
and Joseph Bellamy, Trustee of the Joseph T.
Bellamy 2005 Trust, related to 26395 Buckhorn
Ridge Road, Pioneer, California, incorporated
by reference from Exhibit 99.1 to the
Registrant’s Current Report on Form
8-K, filed with the Commission on May 24,
2007 and the First Amendment thereto, dated
October 15, 2007, incorporated by reference
from Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on October 16, 2007.
|
|
(10.29)
|
|
Sublease
agreement dated December 23, 2008, between
North Coast Bank, a division of American River
Bank, and Chicago Title Company, a California
Corporation; and lease agreement dated December
23, 2008, between North Coast Bank, a division
of American River Bank, and 90 E Street LLC,
related to 90 E Street, Santa Rosa, California,
incorporated by reference from Exhibit 99.2 and
99.3 to the Registrant’s Current Report
on Form 8-K, filed with the Commission on
December 24, 2008.
|
|
|
|
|
|
(10.30)
|
|
Customer
Service Agreement dated January 4, 2010,
between American River Bankshares and TriNet HR
Corporation, incorporated by reference from
Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K, filed with the Commission
on January 5, 2010.
|
|
|
|
|
|
*(10.31)
|
|
Form
of Indemnification Agreement entered into on
January 20, 2010, between American River
Bankshares and its Directors and certain named
executive officers, incorporated by reference
from Exhibit 99.1 to the Registrant’s
Current Report on Form 8-K, filed with the
Commission on January 22, 2010.
|
|
|
|
|
|
*(10.32)
|
|
Form
of Indemnification Agreement entered into on
January 20, 2010, between American River Bank
and its Directors and certain named executive
officers, incorporated by reference from
Exhibit 99.2 to the Registrant’s Current
Report on Form 8-K, filed with the Commission
on January 22, 2010.
|
|
|
|
|
|
*(10.33)
|
|
Registrant’s
2010 Equity Incentive Plan, incorporated by
reference from the Registrant’s
Definitive Proxy Statement for its 2010 Annual
Meeting of Shareholders, filed with the
Commission on April 9, 2010.
|
|
|
|
|
|
(14.1)
|
|
Registrant’s
Code of Ethics, incorporated by reference from
Exhibit 14.1 to the Registrant’s Annual
Report on Form 10-K for the period ended
December 31, 2003, filed with the Commission on
March 19, 2004.
|
|
|
|
|
|
(21.1)
|
|
The
Registrant’s only subsidiaries are
American River Bank, a California banking
corporation, and American River Financial, a
California corporation.
|
|
|
|
|
|
(31.1)
|
|
Certifications
of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
(31.2)
|
|
Certifications
of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
(32.1)
|
|
Certification
of Registrant by its Chief Executive Officer
and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document****
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema****
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation****
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition****
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label****
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation****
|
|
|
|
|
|
|
|
*Denotes
management contracts, compensatory plans or
arrangements.
|
|
|
|
|
|
|
|
**Incorporated
by reference to Registrant’s Registration
Statement on Form S-4 (No. 333-36326) filed
with the Commission on May 5, 2000.
|
|
|
|
|
|
|
|
***Incorporated
by reference to Registrant’s Registration
Statement on Form S-4 (No. 333-119085) filed
with the Commission on September 17,
2004.
|
|
|
|
|
|
|
|
****These
interactive data files shall not be deemed
filed for purposes of Section 11 or 12 of the
Securities Act of 1933, as amended, or Section
18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to liability
under those sections.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
AMERICAN
RIVER BANKSHARES
|
|
|
|
August
8, 2011
|
By:
|
/s/
DAVID T. TABER
|
|
David
T. Taber
|
|
President
and
|
|
Chief
Executive Officer
|
|
|
|
|
AMERICAN
RIVER BANKSHARES
|
|
|
|
August
8, 2011
|
By:
|
/s/
MITCHELL A. DERENZO
|
|
Mitchell
A. Derenzo
|
|
Executive
Vice President and
|
|
Chief
Financial Officer
|
|
(Principal
Financial and Accounting Officer)
|
Exhibit
Number
|
|
Description
|
|
Page
|
|
|
|
|
|
31.1
|
|
Certifications
of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
31.2
|
|
Certifications
of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
32.1
|
|
Certification
of American River Bankshares by its Chief Executive
Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation
|
|
|