2015 Annual Report
Giving Business More Reach
TABLE OF CONTENTS
Letter from the Chairman and CEO
Locations and Lending Area
Total Return Performance
Our Team
Selected Financial Data
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Report of Management on Internal Control
Over Financial Reporting
Report of Independent Registered
Public Accounting Firm
Consolidated Balance Sheets,
December 31, 2015 and 2014
Consolidated Statements of Income for the
Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income (Loss)
for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in
Shareholders’ Equity for the Years Ended
December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for
the Years Ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Selected Quarterly Information
1
2
2
3
4
5
28
29
30
31
32
33
34
36
83
ANNUAL REPORT COPIES. American River Bankshares will provide its security holders and
interested parties, without charge, a copy of its 2015 Annual Report on Form 10-K, including
the financial statements and schedules thereto, as filed with the Securities and Exchange
Commission. To request a copy by mail, please contact American River Bankshares. To view a
pdf version online, please go to our web site at www.envisionreports.com/AMRB.
2015 YEAR IN REVIEW
Dear Valued Shareholder,
In our letter to you last year, we highlighted our desire for consistent loan growth meant to
drive our net interest income, while at the same time keeping our overhead expenses
stable. We are happy to report that in 2015, success in these two areas was substantive
and will be our ongoing focus. We believe it is also important to continue investment in the
relevant technological advancements within our industry as well as the cultivation of the
American River Bankshares team of professionals, our most important asset.
SHAREHOLDER VALUE. For the year ended December 31, 2015, the Company increased
earnings per share by 30% to $0.70 per share. The drivers included an increase in net
interest income and a decrease in overhead expenses compounded by a significant
repurchase of our common stock. Total share appreciation in 2015 was 12% and tangible
book value per share grew to $9.50 at year end.
EARNINGS PER SHARE DRIVER. The majority of our income is derived from net interest
income, which increased by $1.2 million in 2015. Low interest rates continue to put
pressure on our interest income but we were successful in our loan growth, securities
portfolio return and in controlling cost of deposits. Being smart with our overhead is of
paramount importance and this past year we were able to reduce overhead by $800,000.
We focused on the utilization of technology to drive efficiencies while keeping our client
experience top-notch. These two critical actions contributed to a 21% increase in net
income in 2015. The share repurchase program results enabled us to leverage this solid
income growth even further. In 2015, we repurchased 791,000 shares which helped with
the 30% growth in earnings per share.
BALANCE SHEET GROWTH. Core deposits* grew by $23 million for the year with the
growth coming from noninterest-bearing deposits, which grew 22% or $35 million. This
clearly demonstrates our success within our business banking niche. Loans outstanding
increased by $31 million for the year as a result of a solid increase of 30% in loan fundings.
Loan growth has been a priority and while we are pleased with the results, we are mindful
of credit standards and pricing discipline.
The keys to our continued momentum are to increase net interest income while at the same
time controlling overhead expense. The growth in our Company will be driven by an
aggressive sales effort coupled with an extraordinary client experience provided by service-
oriented employees who are given the tools and training needed to excel in this area.
Staying current with, and providing for our clients’ technological needs also contributes to
this extraordinary client experience.
We thank you for your continued investment and for the trust and confidence you have
placed in our Company.
Sincerely,
Charles D. Fite
Chairman of the Board
David T. Taber
President & CEO
*The Company considers all deposits except time deposits as core deposits.
1 OUR LOCATIONS
TOTAL RETURN PERFORMANCE
American River Bankshares
NASDAQ Composite
SNL Bank NASDAQ
12/31/10 12/31/11
75.83
99.21
88.73
100.00
100.00
100.00
Source: SNL Financial LC, Charlottesville, VA
12/31/12 12/31/13 12/31/14 12/31/15
176.33
201.40
169.94
157.50
163.75
152.00
157.00
188.03
157.42
115.17
116.82
105.75
2 OUR TEAM
AMERICAN RIVER BANK AND
BANKSHARES BOARD OF DIRECTORS
AMERICAN RIVER BANK
LEADERSHIP TEAM
Charles D. Fite
Chairman of the Board
President, Fite Development Co.
William A. Robotham, CPA
Vice-Chairman of the Board
Executive Partner, Pisenti & Brinker LLP
Stephen H. Waks, Esq.
Corporate Secretary
Attorney-at-Law and Owner, Waks Law
Corporation
Kimberly A. Box
President & CEO, Kamere, Inc.
Robert J. Fox, CPA
Retired Partner, Gallina LLP
David T. Taber
President & CEO, American River
Bankshares
Roger J. Taylor, DDS
Retired Dentist
Director, Taylor’s Investment Company
Philip A. Wright
President & Owner, Wright Investments
Inc. dba Wright Realty
Michael A. Ziegler
President & CEO, PRIDE Industries
ANNUAL MEETING
The 2016 annual meeting of American
River Bankshares will be held at 3:00
p.m. on May 19, 2016 at:
Rancho Cordova City Hall
American River Room North
2729 Prospect Park Drive
Rancho Cordova, CA 95670
David T. Taber
President & CEO
Kevin B. Bender
EVP & Chief Operating Officer
Mitchell A. Derenzo
EVP & Chief Financial Officer
Loren E. Hunter
EVP & Chief Credit Officer
Lisa R. Cisneros
SVP & Retail Banking Manager
Erica C. Fernandez
SVP & Commercial Banking Manager
STOCK LISTING
American River Bankshares trades on
the NASDAQ Global Select Stock
Market under the symbol “AMRB”
INVESTOR RELATIONS
American River Bankshares
3100 Zinfandel Drive, Suite 450
Rancho Cordova, CA 95670
(916) 851-0123
investor.relations@americanriverbank.com
www.AmericanRiverBank.com
TRANSFER AGENCY
Computershare Trust Company
P.O. Box 43070
Providence, RI 02940-3070
(800) 962 4284
www-us.computershare.com/Investor/
3 Selected Financial Data.
FINANCIAL SUMMARY-The following table presents certain consolidated financial information concerning the business of the
Company and its subsidiaries. This information should be read in conjunction with the Consolidated Financial Statements, the notes thereto,
and Management’s Discussion and Analysis included in this report. All per share data has been retroactively restated to reflect stock
dividends and stock splits.
As of and for the Years Ended December 31,
(In thousands, except per share amounts and ratios)
Operations Data:
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expenses
Income before income taxes
Income tax expense
Net income
Share Data:
Earnings per share – basic
Earnings per share – diluted
Cash dividends per share (1)
Book value per share
Tangible book value per share
Balance Sheet Data:
Assets
Loans and leases, net
Deposits
Shareholders’ equity
2015
2014
2013
2012
2011
$
$
$
$
$
$
$
$
20,007
—
2,015
14,080
7,942
2,674
5,268
0.70
0.70
0.00
11.72
9.50
634,640
289,102
530,690
86,075
$
$
$
$
$
$
$
$
18,797
(541)
2,177
14,862
6,653
2,292
4,361
0.54
0.54
0.00
11.08
9.06
617,754
258,057
510,693
89,647
$
$
$
$
$
$
$
$
17,391
200
2,015
14,891
4,315
1,258
3,057
0.34
0.34
0.00
10.25
8.33
592,753
251,747
483,690
87,020
$
$
$
$
$
$
$
$
19,405
1,365
2,774
16,747
4,067
860
3,207
0.34
0.34
0.00
10.08
8.33
596,389
252,118
478,256
93,994
$
$
$
$
$
$
$
$
21,591
3,625
2,108
16,301
3,773
1,269
2,504
0.25
0.25
0.00
9.51
7.85
581,518
293,731
462,285
94,099
Financial Ratios:
Return on average equity
Return on average tangible equity
Return on average assets
Efficiency ratio (2)
Net interest margin (2) (3)
Net loans and leases to deposits
Net charge-offs (recoveries) to average loans &
leases
Non-performing loans and leases to total loans
and leases (4)
Allowance for loan and lease losses to total
loans and leases
Average equity to average assets
Dividend payout ratio (1)
Capital Ratios:
Leverage capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
6.03%
7.42%
0.85%
62.87%
3.63%
54.48%
0.12%
0.56%
1.69%
14.02%
0%
10.97%
19.34%
20.59%
4.98%
6.12%
0.72%
69.96%
3.54%
50.53%
(0.20%)
0.63%
2.01%
14.47%
0%
11.60%
21.60%
22.85%
3.38%
4.13%
0.52%
75.61%
3.45%
52.05%
0.25%
0.77%
2.08%
15.31%
0%
11.88%
21.95%
23.20%
3.42%
4.15%
0.55%
73.69%
3.91%
52.72%
0.93%
2.12%
2.24%
15.97%
0%
12.82%
23.87%
25.13%
2.74%
3.35%
0.43%
67.18%
4.36%
63.54%
1.29%
4.46%
2.34%
15.81%
0%
13.09%
21.52%
22.78%
(1) On July 27, 2009, the Company announced that the Board of Directors suspended the payment of cash dividends, until such time that it
was prudent to reestablish the payment of cash dividends.
(2) Fully taxable equivalent.
(3) Excludes the amortization of intangible assets.
(4) Non-performing loans and leases consist of loans and leases past due 90 days or more and still accruing and nonaccrual loans and
leases.
4 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statements Regarding Forward-Looking Statements
Certain matters discussed or incorporated by reference in this Annual Report including, but not limited to, matters described herein,
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: (1) the legislation promulgated by the United States Congress
and actions taken by governmental agencies, including the United States Department of the Treasury, to deal with challenges to the U.S.
financial system; (2) the risks presented by economic volatility and recession, which could adversely affect credit quality, collateral values,
including real estate collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates; (3) variances in the
actual versus projected growth in assets and return on assets; (4) potential loan and lease losses; (5) potential expenses associated with
resolving non-performing assets as well as regulatory changes; (6) changes in the interest rate environment including interest rates charged
on loans, earned on securities investments and paid on deposits and other borrowed funds; (7) competitive effects; (8) potential declines in
fee and other noninterest income earned associated with economic factors as well as regulatory changes; (9) 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; (10) changes in the regulatory environment including increased capital and regulatory compliance requirements and further
government intervention in the U.S. financial system; (11) changes in business conditions and inflation; (12) changes in securities markets,
public debt markets, and other capital markets; (13) potential data processing, cybersecurity and other operational systems failures, breach or
fraud; (14) potential decline in real estate values in our operating markets; (15) the effects of uncontrollable events such as terrorism, the
threat of terrorism or the impact of military conflicts in connection with the conduct of the war on terrorism by the United States and its
allies, negative financial and economic conditions, natural disasters, and disruption of power supplies and communications; (16) changes in
accounting standards, tax laws or regulations and interpretations of such standards, laws or regulations; (17) projected business increases
following any future strategic expansion could be lower than expected; (18) the goodwill we have recorded in connection with acquisitions
could become impaired, which may have an adverse impact on our earnings; (19) 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;
and (20) the efficiencies we may expect to receive from any investments in personnel and infrastructure may not be realized. The factors set
forth under “Item 1A - Risk Factors” our 2015 Form 10-K and other cautionary statements and information set forth in this report should be
carefully considered and understood as being applicable to all related forward-looking statements contained in this report, 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 (the “SEC”)
on Forms 10-K, 10-Q and 8-K.
5 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 probable credit losses inherent in the Company’s credit portfolio that have
been incurred as of the balance-sheet date. 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 a 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.”
Stock-Based Compensation
The Company recognizes compensation expense over the service 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. The fair value of each restricted award is estimated on the date of award
and amortized over the service period.
Goodwill
Business combinations involving the Company’s acquisition of equity interests or net assets of another enterprise or the assumption
of net liabilities in an acquisition of branches constituting a business may give rise to goodwill. Goodwill represents the excess of the cost of
an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The value of goodwill is ultimately
derived from the Company’s ability to generate net earnings after the acquisition and is not deductible for tax purposes. 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 least annually. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At December 31,
2015, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was
more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment
indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.
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 income taxes.
6 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. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be
realized. The Company conducted an analysis to assess the need for a valuation allowance at December 31, 2015, and determined that no
valuation allowance was required. As part of this assessment, all available evidence, including both positive and negative, was considered to
determine whether based on the weight of such evidence, a valuation allowance on the Company’s deferred tax assets was needed. A
valuation allowance is deemed to be needed when, based on the weight of the available evidence, it is more likely than not (a likelihood of
more than 50 percent) that some portion or all of a deferred tax asset will not be realized. The future realization of the deferred tax asset
depends on the existence of sufficient taxable income within the carryback and carry forward periods.
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 taken are not offset or aggregated with other positions. 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 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. Only tax positions that meet the more-
likely-than-not recognition threshold are recognized. The election has been made to record interest expense related to tax exposures in tax
expense, if applicable, and the exposure for penalties related to tax exposures in tax expense, if applicable.
Overview
The Company recorded net income in 2015 of $5,268,000, an increase of $907,000 (20.8%) from $4,361,000 in 2014. Diluted
earnings per share were $0.70 for 2015 and $0.54 for 2014. For 2015, the Company realized a return on average equity of 6.03% and a
return on average assets of 0.85%, as compared to 4.98% and 0.72%, respectively, in 2014.
Net income for 2014 increased $1,304,000 (42.7%) from $3,057,000 in 2013. Diluted earnings per share for 2013 were $0.34. For
2013, the Company realized a return on average equity of 3.38% and return on average assets of 0.52%. Table One below provides a
summary of the components of net income for the years indicated (dollars in thousands):
Table One: Components of Net Income
Interest income*
Interest expense
Net interest income*
Provision for loan and lease losses
Noninterest income
Noninterest expense
Provision for income taxes
Tax equivalent adjustment
Net income
Average total assets
Net income as a percentage of average total assets
* Fully taxable equivalent basis (FTE)
2015
2014
2013
$
$
$
21,340
(961)
20,379
—
2,015
(14,080)
(2,674)
(372)
5,268
623,049
0.85%
$
$
$
20,242
(1,168)
19,074
541
2,177
(14,862)
(2,292)
(277)
4,361
605,247
0.72%
$
$
$
19,170
(1,490)
17,680
(200)
2,015
(14,891)
(1,258)
(289)
3,057
590,411
0.52%
Under accounting principles generally accepted in the United States of America all share and per share data is adjusted for stock
dividends and stock splits. There were no stock dividends or stock splits in 2015, 2014 or 2013.
7 During 2015, total assets of the Company increased $16,886,000 (2.7%) from $617,754,000 at December 31, 2014 to $634,640,000
at December 31, 2015. At December 31, 2015, net loans totaled $289,102,000, up $31,045,000 (12.0%) from the ending balance of
$258,057,000 at December 31, 2014. Deposits increased $19,997,000 or 3.9% from $510,693,000 at December 31, 2014 to $530,690,000 at
December 31, 2015. Shareholders’ equity decreased $3,572,000 or 4.0% from $89,647,000 at December 31, 2014 to $86,075,000 at
December 31, 2015. The Company ended 2015 with a leverage capital ratio of 11.0% and a total risk-based capital ratio of 20.6% compared
to a leverage capital ratio of 11.6% and a total risk-based capital ratio of 22.9% at the end of 2014.
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, securities, Federal funds sold
and interest-bearing deposits in other banks) over the interest paid on deposits and borrowed funds. Net interest margin is net interest
income expressed as a percentage of average earning assets.
The Company’s fully taxable equivalent net interest margin was 3.63% in 2015, 3.54% in 2014, and 3.45% in 2013. The fully
taxable equivalent net interest income was up $1,312,000 (6.9%), from $19,067,000 in 2014 to $20,379,000 in 2015. The fully taxable
equivalent net interest income was up $1,387,000 (7.8%), from $17,680,000 in 2013 to $19,067,000 in 2014.
The fully taxable equivalent interest income component increased $1,098,000 (5.4%) from $20,242,000 in 2014 to $21,340,000 in
2015. The increase in the fully taxable equivalent interest income for 2015 compared to the same period in 2014 is comprised of two
components - rate (down $285,000) and volume (up $1,383,000). The rate decrease primarily occurred in the loan portfolio. While average
loans increased by $25,830,000 (10.2%) from $253,898,000 during 2014 to $279,728,000 during 2015, due to the overall lower interest rate
environment, the new loans added were at lower yields than the existing loans. Yield on loans decreased from 5.37% in 2014 to 5.01% in
2015 and contributed a decrease of $1,076,000 in loan interest income. The decrease of $1,076,000 in interest income created from the
decrease in rates on the loan balances was partially offset by an increase in rates on the investment portfolio resulting in an increase of
$790,000 related to the investments. This increase in investment income due to rates can be attributed to a slowdown in the mortgage
refinance market. As mortgage refinancing slows it also reduces the principal prepayments that the Company receives on the mortgage
backed securities, which reduces the premium amounts amortized on the bonds. A lower amount of amortized premium results in higher
interest income. The volume increase of $1,383,000 was primarily from the increase in average loans mentioned above ($1,466,000) and
partially offset by a decrease in investments ($83,000). When compared to 2014, average investment securities decreased $3,092,000 (1.1%)
from $284,436,000 in 2014 compared to $281,344,000 in 2015.
The fully taxable equivalent interest income component increased from $19,170,000 in 2013 to $20,235,000 in 2014, representing a
5.6% increase. The increase in the fully taxable equivalent interest income for 2014 compared to the same period in 2013 is comprised of
two components - rate (up $591,000) and volume (up $474,000). The rate increase primarily occurred in the investment portfolio which can
be attributed to a slowdown in the mortgage refinance market. As mortgage refinancing slows it also reduces the principal prepayments that
the Company receives on the mortgage backed securities, which reduces the premium amounts amortized on the bonds. A lower amount of
amortized premium results in higher interest income. Investment securities added $1,211,000 in additional interest income related to rate.
The average yield on investments increased from 1.93% in 2013 to 2.32% in 2014. The increase in interest income created from the
investment portfolio was partially offset by a decrease in rates on the loan balances. The average yield on loans decreased from 5.61% to
5.37% and was caused by principal reductions from normal payments and paydowns from loans being loaned out at lower market rates. The
volume increase of $474,000 was also primarily related to the investments. Average investment balances were up $26,273,000 (10.2%) from
$258,164,000 in 2013 to $284,436,000 in 2014. Funds received from the increase in deposit balances were primarily deployed in the
investment portfolio.
8 Interest expense was $207,000 (17.7%) lower in 2015 compared to 2014, decreasing from $1,168,000 to $961,000. The primary
decrease in interest expense relates to lower rates (down $222,000). Rates paid on interest bearing liabilities decreased 6 basis points from
0.33% to 0.27% in 2014 compared to 2015. The average balances on interest bearing liabilities were $356,052,000 (or $180,000 and 0.1%
higher) in 2015 compared to $355,872,000 in 2014. The higher balances had only a slight impact on the overall interest expense.
Interest expense was $322,000 (21.6%) lower in 2014 compared to 2013, decreasing from $1,490,000 to $1,168,000. The average
balances on interest bearing liabilities was 1.9% higher in 2014 ($355,872,000) compared to 2013 ($349,329,000). The slightly higher
balances, however, did not increase interest expense as the increases occurred in lower cost checking and savings accounts, which were
slightly offset by decreases in higher cost time deposits and other borrowings. Despite the increase in average interest bearing balances the
Company experienced a decrease in interest expense of $95,000 due to this increase in interest checking and money market balances offset
by the decrease in time deposits and other borrowings. The overall decrease in interest expense was also due to lower rates, which accounted
for a $227,000 decrease in interest expense for 2014 compared to 2013. Rates paid on interest-bearing liabilities decreased 10 basis points
from 0.43% in 2013 to 0.33% in 2014.
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 past 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), computed on a daily average basis, and changes in average interest rates.
9 Table Two: Analysis of Net Interest Margin on Earning Assets
Year Ended December 31,
(Taxable Equivalent Basis)
(dollars in thousands)
Assets:
Earning assets:
Taxable loans and leases (1)
Tax-exempt loans and leases (2)
Taxable investment Securities
Tax-exempt investment securities (2)
Corporate stock
Federal funds sold
Interest bearing deposits in other banks
Total earning assets
Cash & due from banks
Other assets
Allowance for loan & lease losses
Liabilities & Shareholders’Equity:
Interest bearing liabilities:
NOW & MMDA
Savings
Time deposits
Other borrowings
Total interest bearing liabilities
Demand deposits
Other liabilities
Total liabilities
Shareholders’ equity
2015
Interest
$ 13,547
481
6,280
1,015
12
—
5
21,340
244
29
544
144
961
Avg
Balance
$ 270,267
9,461
255,137
26,128
79
—
994
562,066
26,313
39,941
(5,271)
$ 623,049
$ 196,120
58,910
86,930
14,092
356,052
173,130
6,537
535,719
87,330
$ 623,049
2014
Interest
$ 13,609
29
5,528
1,057
15
—
4
20,242
Avg
Yield
Avg
Balance
5.01% $ 253,434
464
5.08%
257,308
2.46%
27,051
3.88%
77
15.19%
—
—
0.50%
1,000
539,334
3.80%
28,533
42,924
(5,544)
Avg
Yield
Avg
Balance
5.37% $ 252,807
—
6.25%
229,518
2.15%
28,607
3.91%
38
19.48%
—
—
0.40%
898
511,868
3.75%
37,609
46,703
(5,769)
$ 605,247
$ 590,411
2013
Interest
$ 14,191
—
3,822
1,142
12
—
3
19,170
Avg
Yield
5.61%
—
1.67%
3.99%
31.58%
—
0.33%
3.75%
420
40
561
147
1,168
0.12% $ 201,412
53,806
0.05%
89,392
0.63%
1.02%
11,262
355,872
0.27%
155,537
6,275
517,684
87,563
$ 605,247
0.21% $ 185,671
51,432
0.07%
95,415
0.63%
1.31%
16,811
349,329
0.33%
144,710
5,978
500,017
90,394
$ 590,411
475
67
655
293
1,490
0.26%
0.13%
0.69%
1.74%
0.43%
Net interest income & margin (3)
$ 20,379
3.63%
$ 19,074
3.54%
$ 17,680
3.45%
(1) Loan and lease interest includes loan and lease fees of $322,000, $307,000 and $119,000 in 2015, 2014 and 2013, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal
income taxes. The effective federal statutory tax rate was 34% in 2015, 2014 and 2013.
(3) Net interest margin is computed by dividing net interest income by total average earning assets.
10 Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
Year ended December 31, 2015 over 2014 (dollars in thousands)
Increase (decrease) in interest income and expense
due to change in:
Interest-earning assets:
Taxable net loans and leases (1)(2)
Tax-exempt net loans and leases (3)
Taxable investment securities
Tax-exempt investment securities (3)
Corporate stock
Federal funds sold & other
Interest bearing deposits in other banks
Total
Interest-bearing liabilities:
Demand deposits
Savings deposits
Time deposits
Other borrowings
Total
Interest differential
Year Ended December 31, 2014 over 2013 (dollars in thousands)
Increase (decrease) in interest income and expense
due to change in:
Interest-earning assets:
Net loans and leases (1)(2)
Taxable investment securities
Tax-exempt investment securities (3)
Corporate stock
Federal funds sold & other
Interest bearing deposits in other banks
Total
Interest-bearing liabilities:
Demand deposits
Savings deposits
Time deposits
Other borrowings
Total
Interest differential
Volume
Rate (4)
904
562
(47)
(36)
—
—
—
1,383
(11)
4
(15)
37
15
1,368
$
$
(966)
(110)
799
(6)
(3)
—
1
(285)
(165)
(15)
(2)
(40)
(222)
(63)
Volume
Rate (4)
61
463
(62)
12
—
—
474
40
3
(41)
(97)
(95)
569
$
$
(621)
1,243
(23)
(9)
—
1
591
(95)
(30)
(53)
(49)
(227)
818
$
$
$
$
Net Change
$
(62)
452
752
(42)
(3)
—
1
1,098
(176)
(11)
(17)
(3)
(207)
1,305
$
Net Change
(560)
$
1,706
(85)
3
—
1
1,065
(55)
(27)
(94)
(146)
(322)
1,387
$
(1) The average balance of non-accruing loans and leases is immaterial as a percentage of total loans and leases and has been included in
net loans and leases.
(2) Loan and lease fees of $322,000, $307,000 and $119,000 for the years ended December 31, 2015, 2014 and 2013, respectively, have
been included in the interest income computation.
(3) Includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal
income taxes. The effective federal statutory tax rate was 34% in 2015, 2014 and 2013.
(4) The rate/volume variance has been included in the rate variance.
11 Provision for Loan and Lease Losses
The Company experienced net loan and lease losses of $326,000 or 0.12% of average loans and leases during 2015 compared to net
loan and lease recoveries of $496,000 or 0.20% of average loans and leases during 2014. As a result of the improving credit quality over the
past several years and a reduction in historical loan loss rates the Company did not require any loan or lease loss provision in 2015. As a
result of the recoveries in 2014, the Company reduced the allowance for loan and lease losses by recording a negative provision for loan and
lease losses of $541,000. The level of non-performing loans and leases, which began to increase during the economic cycle of 2007 through
2010, reached a high of $22,571,000 at December 31, 2010, but has decreased to $1,643,000 at December 31, 2015. For additional
information see the “Nonaccrual, Past Due and Restructured Loans and Leases.” While the level of non-performing loans and leases has
decreased, there remains a challenging economy in the Company’s market areas and in the United States, in general. This may potentially
negatively impact the Company’s borrowers and as a result the Company has maintained the ALLL at a level that is higher than the long-
term historical averages. For additional information see the “Allowance for Loan and Lease Losses Activity.”
Service Charges and Fees and Other 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
Service charges on deposit accounts
Rental income from OREO properties
Merchant fee income
Earnings on bank-owned life insurance
Life insurance death benefit
Gain on sale, impairment and call of securities
Other
Year Ended December 31,
2014
2013
2015
$
$
498
335
378
316
—
251
237
2,015
$
$
562
365
413
284
99
208
246
2,177
$
$
590
316
443
247
118
36
265
2,015
Noninterest income decreased $162,000 (7.4%) to $2,015,000 in 2015 from the 2014 level. The decrease from 2014 to 2015 was
primarily related to lower fees from service charges on deposit accounts (down $64,000 or 11.4%) and no life insurance death benefits in
2015 as compared to $99,000 in 2014. The decrease in service charges is related to a decrease in insufficient funds income.
Noninterest income increased $162,000 (8.0%) to $2,177,000 in 2014 from the 2013 level. The increase from 2013 to 2014 was
primarily related to income from security sales which increased from $36,000 in 2013 to $208,000 in 2014. In addition, rental income from
OREO properties increased from $316,000 in 2013 to $365,000 in 2014.
Salaries and Benefits
Salaries and benefits were $8,528,000 (down $248,000 or 2.8%) for 2015 as compared to $8,776,000 in 2014. The decrease in
salary and benefits was due in part to lower incentive compensation expense and lower employee benefits. Incentive accruals decreased
$182,000, from $672,000 in 2014 to $490,000 in 2015 and other employee benefits decreased $107,000 (7.0%) from $1,529,000 in 2014 to
$1,422,000 in 2015. The decrease in incentive compensation was primarily due to the Company not reaching all of the incentive targets in
2015. The decrease in other employee benefits, which includes health care related benefits, 401(k) matching, and employee placement fees,
was primarily related to lower employee placement fees paid in 2015.
Salaries and benefits were $8,776,000 (up $260,000 or 3.1%) for 2014 as compared to $8,516,000 in 2013. The increase in salary
and benefits was due in part to increased incentive compensation expense and higher employee benefits partially offset by a decrease in core
salaries. Incentive accruals increased $54,000, from $618,000 in 2013 to $672,000 in 2014 and other employee benefits increased $162,000
(11.9%) from $1,367,000 in 2013 to $1,529,000 in 2014. Salaries decreased $66,000 (1.1%) from $6,048,000 in 2013 to $5,982,000 in
2014. The increase in incentive compensation was primarily due to an increase in the Company’s net income in relationship to incentive
targeted net income goals. The increase in other employee benefits, which includes health care related benefits, 401(k) matching, and
employee placement fees, was primarily related to higher employee placement fees paid in 2014 to attract lending officers and a chief credit
officer. The decrease in salaries is related to a lower number of employees. Average full-time equivalent employees decreased from 106
during 2013 to 102 during 2014.
12 Other Real Estate Owned
The total other real estate owned (“OREO”) expense in 2015 was $322,000 (down $42,000 or 11.5%) compared to $364,000 in
2014. The primary reason for the decrease in OREO related expenses is due to the sale of a number of properties, including office buildings
which have high operating expenses and lower property write-downs. In 2015, write-downs were $76,000 compared to $165,000 in 2013.
This decrease is related to a fewer number of owned properties and some stability in the real estate market. Operating expenses on the
properties held in 2015 totaled $245,000 compared to $430,000 in 2014. In 2014, the gains on sale, which offset the overall OREO expense,
were higher than in 2015. Gains from properties sold in 2014 totaled $231,000 compared to a loss of $1,000 in 2015.
The total OREO expense in 2014 was $364,000 (down $572,000 or 61.1%) compared to $936,000 in 2013. The primary reason for
the decrease in OREO related expenses is due to the sale of a number of properties, including office buildings which have high operating
expenses and lower write-downs due to updated property valuations. In 2014, the gains on sale, which offset the overall OREO expense,
were higher than in 2013. In 2014, write-downs were $165,000 compared to $293,000 in 2013. This decrease is related to a fewer number of
owned properties and some stability in the real estate market. Gains from properties sold in 2014 totaled $231,000 compared to $44,000 in
2013 and operating expenses on the properties held in 2014 totaled $430,000 compared to $686,000 in 2013.
Occupancy, Furniture and Equipment
Occupancy expense decreased $5,000 (0.4%) during 2015 to $1,183,000, compared to $1,188,000 in 2014. Furniture and
equipment expense decreased $34,000 (4.7%) during 2015 to $690,000 compared to $724,000 in 2014. The decrease in the furniture and
equipment expense resulted from lower depreciation on the Company’s furniture and equipment.
Occupancy expense decreased $24,000 (2.0%) during 2014 to $1,188,000, compared to $1,212,000 in 2013. Furniture and
equipment expense decreased $34,000 (4.5%) during 2014 to $724,000 compared to $758,000 in 2013. The decrease in the furniture and
equipment expense resulted from lower depreciation on the Company’s furniture and equipment.
Regulatory Assessments
Regulatory assessments include fees paid to the California Department of Business Oversight (the “DBO”) and the Federal Deposit
Insurance Corporation (the “FDIC”). FDIC assessments decreased $39,000 (10.7%) during 2015 to $324,000, compared to $363,000 in
2014. The majority of this decrease relates to a lower assessment rate as a result of lower nonperforming assets. The assessments paid to the
DBO in 2015 were $71,000 compared to $70,000 in 2014.
FDIC assessments increased $51,000 (16.3%) during 2014 to $363,000, compared to $312,000 in 2013. The majority of this
increase relates to an adjustment to the accrual based upon an updated analysis performed in 2013 revealing that the accrual should be
reduced. This adjustment occurred in 2013 and did not reoccur in 2014. The assessments paid to the DBO in 2014 were $70,000, no change
from 2013.
Other Expenses
Table Five below provides a summary of the components of the other noninterest expenses for the periods indicated (dollars in
thousands):
Professional fees
Outsourced item processing
Directors’ expense
Telephone and postage
Stationery and supplies
Advertising and promotion
Other operating expenses
Year Ended December 31,
2014
2013
2015
$
$
863
360
402
368
143
164
662
2,962
$
$
1,182
355
394
357
193
160
736
3,377
$
$
933
357
348
329
240
284
596
3,087
13 Other expenses were $2,962,000 (down $415,000 or 12.3%) for 2015 as compared to $3,377,000 for 2014. The decrease in other
expenses occurred primarily in the professional expense category. Professional expenses, which primarily include legal, accounting and
other professional services, decreased $319,000 (27.0%), from $1,182,000 in 2014 to $863,000 in 2015. Legal expenses decreased $255,000
(61.6%) from $414,000 in 2014 to $255,000 during 2015. This decrease is primarily related to a lower number of problem loan credits and
OREO properties. The overhead efficiency ratio on a taxable equivalent basis for 2015 was 62.9% as compared to 70.0% in 2014.
Other expenses were $3,377,000 (up $290,000 or 9.4%) for 2014 as compared to $3,087,000 for 2013. The increase in other
expenses occurred primarily in the professional expense category. Professional expenses increased $249,000 (26.7%), from $933,000 in
2013 to $1,182,000 in 2014. Legal expenses increased $182,000 (78.4%) from $232,000 in 2013 to $414,000 during 2014. This increase is
primarily related to problem loan credits and the resolution of issues associated with a former OREO property. The overhead efficiency ratio
on a taxable equivalent basis for 2014 was 70.0% as compared to 75.6% in 2013.
Provision for Income Taxes
The effective tax rate on income was 33.7%, 34.5%, and 29.2% in 2015, 2014 and 2013, respectively. The effective tax rate differs
from the federal statutory tax rate due to state tax expense (net of federal tax effect) of $516,000, $419,000, and $197,000 in these years.
Tax-exempt income of $1,412,000, $1,194,000, and $1,213,000 from investment securities, loans, and bank-owned life insurance in these
years helped to reduce the effective tax rate. The higher level of income taxes and effective tax rate in 2014 compared to 2013 resulted from
the Company realizing significantly less benefits of Enterprise Zone credits on our State tax return as the program has been significantly
reduced and an increase in taxable income in 2014. Taxable income increased from $4,315,000 in 2013 to $6,653,000 in 2014.
Balance Sheet Analysis
The Company’s total assets were $634,640,000 at December 31, 2015 as compared to $617,754,000 at December 31, 2014,
representing an increase of $16,886,000 (2.7%). The average balances of total assets during 2015 were $623,049,000, up $17,802,000 or
2.9% from the 2014 total of $605,247,000.
Investment Securities
The Company classifies its investment securities as trading, held-to-maturity or available-for-sale. 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 classified as
available-for-sale may be sold to implement asset/liability management strategies as part of our contingency funding plan and in response to
changes in interest rates, prepayment rates and similar factors. Table Six below summarizes the values of the Company’s investment
securities held on December 31 of the years indicated. The Company did not have any investment securities classified as trading in any of
the years indicated below.
Table Six: Investment Securities Composition
(dollars in thousands)
Available-for-sale (at fair value)
Debt securities:
US Government Agencies and US Government-Sponsored Agencies
Obligations of states and political subdivisions
Corporate debt securities
Equity securities:
Corporate stock
Total available-for-sale investment securities
Held-to-maturity (at amortized cost)
Debt securities:
US Government Agencies and US Government-Sponsored Agencies
Total held-to-maturity investment securities
2015
2014
2013
$
$
$
$
246,185
26,013
1,551
70
273,819
623
623
$
$
$
$
261,115
26,289
1,583
77
289,064
862
862
$
$
$
$
244,160
26,903
1,609
119
272,791
1,185
1,185
14 See Table Fifteen, “Securities Maturities and Weighted Average Yields,” for a breakdown of the investment securities by maturity
and the corresponding weighted average yields.
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. At December 31, 2015, these categories accounted for approximately 12%, 68%, 8%,
5%, 5%, 0%, 1% and 1%, respectively, of the Company’s loan portfolio. This mix was relatively unchanged compared to 10%, 73%, 5%,
3%, 5%, 1%, 1% and 2%, respectively, at December 31, 2014. Continuing focus in the Company’s market area, new borrowers developed
through the Company’s marketing efforts, and credit extensions expanded to existing borrowers resulted in the Company originating
approximately $80 million in new loans in 2015. This production was partially offset by normal pay downs and payoffs, but still resulted in
an overall net increase in net loans and leases of $31.0 million (12.0%) from December 31, 2014. The market in which the Company
operates has begun to show demand for credit products as the continued low rate environment and expectations for economic expansion
have increased refinancing as well as new loan activity. The Company reported net increases in balances for commercial loans ($11,009,000
or 43.7%), commercial real estate ($5,720,000 or 3.0%), multi-family real estate ($9,327,000 or 65.8%), real estate construction ($6,505,000
or 81.0%), and residential real estate ($891,000 or 6.7%), and decreases in lease financing receivable ($554,000 or 43.1), agriculture
($451,000 or 15.6%), and consumer loans ($1,794,000 or 36.5%). Table Seven below summarizes the composition of the loan and lease
portfolio for the past five years as of December 31.
Table Seven: Loan and Lease Portfolio Composition
(dollars in thousands)
Commercial
Real estate:
Commercial
Multi-family
Construction
Residential
Lease financing receivable
Agriculture
Consumer
Deferred loan fees, net
Allowance for loan and lease losses
Total net loans and leases
2015
2014
$
36,195
$
25,186
December 31,
2013
$
24,545
2012
2011
$
30,811
$
42,108
199,591
23,494
14,533
14,200
732
2,431
3,122
294,298
(221)
(4,975)
289,102
$
193,871
14,167
8,028
13,309
1,286
2,882
4,916
263,645
(287)
(5,301)
258,057
$
184,204
11,085
9,633
17,703
1,344
3,120
5,772
257,406
(313)
(5,346)
251,747
$
180,126
9,155
6,918
17,701
1,509
3,340
8,569
258,129
(230)
(5,781)
252,118
$
204,043
7,580
10,356
19,695
1,725
4,583
10,984
301,074
(302)
(7,041)
293,731
$
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 and working capital and loans for equipment or vehicle purchases.
Consumer loans include traditional consumer products such as secured and unsecured personal loans and loans to finance the purchase of
autos, boats and recreational vehicles. Construction loans are generally comprised of commitments to customers within the Company’s
service area for construction of owner-occupied commercial properties. Other real estate loans consist primarily of loans secured by first
trust deeds on commercial or multi-family properties, typically with maturities from 3 to 10 years and original loan-to-value ratios generally
from 65% to 75%. In general, except in the case of loans under SBA programs, the Company does not make long-term mortgage loans.
15 “Subprime” real estate loans generally refer to residential mortgages made to higher-risk borrowers with lower credit and/or
income histories. Within the banking 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 led to an increase in 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 December 31, 2015 and December 31, 2014.
Average loans and leases in 2015 were $279,728,000 which represents an increase of $25,830,000 (10.2%) compared to the
average in 2014. Average loans and leases in 2014 were $253,898,000 which represents an increase of $1,091,000 (0.4%) compared to the
average in 2013.
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.
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, which is focused on businesses within the two communities in which the
Bank has offices (Santa Rosa and Healdsburg); and in Amador County, in which the Bank is primarily focused on businesses within the
three communities in which it has offices (Jackson, Pioneer, and Ione). 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 recently entered the Santa Clara, Contra
Costa, and Alameda County markets with loan productions offices in San Ramon and San Jose. The economies of Santa Clara, Contra Costa
and Alameda Counties are diversified with professional services, manufacturing, technology related companies, real estate investment and
construction.
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 86% of the Company’s
loan and lease portfolio at December 31, 2015 and 87% at December 31, 2014. Management believes that the residential land portion of the
Company’s loan portfolio carries more than the normal credit risk, due primarily to curtailed demand for new and resale residential property,
relative to pre-recession levels, a resulting oversupply of unsold residential land, 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.
16 A decline in the economy in general, or decline in real estate values in the Company’s primary market areas, in particular, could
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 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 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.
The recorded investments in non-performing loans and leases, which includes nonaccrual loans and leases and loans and leases that
were 90 days or more past due and on accrual, totaled $1,643,000 and $1,653,000 at December 31, 2015 and 2014, respectively. Of the
$1,643,000 in non-performing loans and leases at December 31, 2015, there were four real estate loans totaling $1,493,000, four consumer
loans totaling $120,000 and a single commercial loan totaling $30,000. At December 31, 2014, the $1,653,000 in non-performing loans
consisted of three real estate loans totaling $845,000; two commercial loans totaling $666,000 and three consumer loans totaling $142,000.
The net interest due on nonaccrual loans and leases but excluded from interest income was approximately $145,000 during 2015,
$116,000 during 2014, and $327,000 during 2013. Interest income recognized from payments received on nonaccrual loans and leases was
approximately $59,000 in 2015, $84,000 in 2014 and $161,000 in 2013. Table Eight below sets forth nonaccrual loans and leases and loans
and leases past due 90 days or more and on accrual as of year-end for the past five years.
Table Eight: Non-Performing Loans and Leases
(dollars in thousands)
Past due 90 days or more and still accruing:
Commercial
Real estate
Lease financing receivable
Consumer and other
Nonaccrual:
Commercial
Real estate
Lease financing receivable
Consumer and other
Total non-performing loans and leases
2015
2014
December 31,
2013
2012
2011
$
$
—
—
—
—
30
1,493
—
120
1,643
$
$
—
—
—
—
666
845
—
142
1,653
$
$
80
—
—
—
766
977
—
156
1,979
$
$
—
—
—
—
2,352
2,897
3
222
5,474
$
$
—
—
—
—
2,775
9,809
17
822
13,423
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 December 31, 2015. Management is not aware of any potential problem loans, which were accruing and current at
December 31, 2015, 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 apart from those loans identified in the Bank’s impairment analysis.
17 Management monitors the Company’s performance metrics including the ratios related to non-performing loans and leases. From
2008 to 2010, the Company experienced an increase in non-performing loans and leases. In 2011, the focused efforts of the previous years
resulted in a decrease in these levels. In 2012, 2013, 2014 and 2015, the level of non-performing loans and leases continued to decrease to a
level below the amount reported at December 31, 2008. However, the variations in the amount of non-performing loans and leases does not
directly impact the level of the Company’s allowance for loan and lease losses as management monitors each of the loans and leases for loss
potential or probability of loss on an individual basis using accounting principles generally accepted in the United States of America.
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’s 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. The Company identifies troubled debt restructures by reviewing each renewal, modification, or extension of a
loan with a screening document. This document is designed to identify any characteristics of such a loan that would qualify it as a troubled
debt restructure. If the characteristics are not present that would qualify a loan as a troubled debt restructure, it is deemed to be a
modification.
The recorded investment in loans and leases that were considered to be impaired totaled $21,365,000 at December 31, 2015 and
had a related valuation allowance of $899,000. The average recorded investment in impaired loans and leases during 2015 was
approximately $20,818,000. As of December 31, 2014, the recorded investment in loans and leases that were considered to be impaired
totaled $25,120,000 and had a related valuation allowance of $1,603,000. The average recorded investment in impaired loans and leases
during 2014 was approximately $24,127,000. As of December 31, 2013, the recorded investment in loans and leases that were considered to
be impaired totaled $27,034,000 and had a related valuation allowance of $1,598,000. The average recorded investment in impaired loans
and leases during 2013 was approximately $27,975,000.
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 estimate 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.
18 The ALLL totaled $4,975,000 or 1.69% of total loans and leases at December 31, 2015, $5,301,000 or 2.01% of total loans and
leases at December 31, 2014, and $5,346,000 or 2.08% at December 31, 2013. The decrease in the allowance for loan and lease losses from
$5,346,000 at December 31, 2013 to $4,975,000 at December 31, 2015, was mainly due to a decrease in historical losses impacting the loss
factor used in calculating the reserve on loans collectively valued for impairment. The Company establishes general and specific reserves in
accordance with accounting principles generally accepted in the United States of America. The ALLL is composed of 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 302.8% at December 31, 2015 and
320.7% at December 31, 2014. The allowance for loans and leases as a percentage of impaired loans and leases was 23.3% at December 31,
2015 and 21.1% at December 31, 2014. Of the total non-performing and impaired loans and leases outstanding as of December 31, 2015,
there were $4,757,000 in loans or leases that had been reduced by partial charge-offs of $816,000.
At December 31, 2015, there was $12,607,000 in impaired loans or leases that did not carry a specific reserve. Of this amount,
$3,900,000 were loans or leases that had previous partial charge-offs and $8,707,000 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.
Prior to 2013, the Company had been operating in a market that had experienced significant decreases in real estate values of commercial,
residential, land, and construction properties. As such, the Company continues to focus 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 twelve months, and are reviewed by a qualified credit officer.
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 ALLL
when management believes that the collectability of the principal is unlikely. As previously discussed in the “Impaired Loans and Leases”
section, certain loans are evaluated for impairment. Generally, if a loan is collateralized by real estate, and considered collateral dependent,
the impaired portion will be charged off to the allowance for loan and lease losses unless it is in the process of collection, in which case a
specific reserve may be warranted. If the collateral is other than real estate and considered impaired, 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. Formula allocations are
calculated by applying historical loss factors to outstanding loans with similar characteristics. Historical loss factors are based upon the
Company’s loss experience. These historical loss factors are adjusted for changes in the business cycle and for significant factors that, in
management’s judgment, affect the collectability of the loan portfolio as of the evaluation date. The discretionary allocation is based upon
management’s evaluation of various loan segment conditions that are not directly measured in the determination of the formula and specific
allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of
the Company, credit quality trends, collateral values, loan volumes and concentrations, and other business conditions. Based on information
currently available, management believes that the allowance for loan and lease losses is prudent and adequate. However, no prediction of the
ultimate level of loans and leases charged off in future periods can be made with any certainty. During the fourth quarter of 2015, the
Company made a specific enhancement to its methodology for determining the general reserve component of the ALLL. The enhancement
related specifically to the methodology used to calculate the qualitative factors with respect to non-impaired loans graded watch, special
mention and substandard by eliminating the use of multipliers. The ALLL methodology was also revised to add an additional qualitative
factor, by loan grade, in calculating the general reserve component of the ALLL. Management believes that the allocation of the ALLL to
each loan risk grade, within each loan type has become more precise under the methodology enhancement. The implementation of the
ALLL model revision did not have a material impact on the calculation of the required allowance for loan losses as of December 31, 2015.
Table Nine below summarizes, for the periods indicated, the activity in the ALLL.
19 Table Nine: Allowance for Loan and Lease Losses
(dollars in thousands)
2015
Year Ended December 31,
2013
2012
2014
2011
Average loans and leases outstanding
$
279,728
$
253,898
$
252,807
$
282,136
$
323,310
Allowance for loan & lease losses at beginning
of period
Loans and leases charged off:
Commercial
Real estate
Consumer
Lease financing receivable
Total
Recoveries of loans and leases previously
charged off:
Commercial
Real estate
Consumer
Lease financing receivable
Total
Net loans and leases (recovered) charged off
(Reductions) additions to allowance (credited)
charged to operating expenses
Allowance for loan and lease losses at end of
$
5,301
$
5,346
$
5,781
$
7,041
$
7,585
609
—
6
1
616
123
165
2
—
290
326
—
—
—
76
—
76
256
163
150
3
572
(496)
(541)
377
534
1
26
938
215
88
—
—
303
635
200
302
2,038
505
9
2,854
21
172
30
6
229
2,625
1,365
713
3,765
—
220
4,698
163
346
—
20
529
4,169
3,625
period
$
4,975
$
5,301
$
5,346
$
5,781
$
7,041
Ratio of net charge-offs to average loans and
leases outstanding
Provision for loan and lease losses to average
loans and leases outstanding
Allowance for loan and lease losses to total
loans and leases, at end of period
Allowance for loan and lease losses to non-
0.12%
(0.20%)
0.25%
0.93%
1.29%
—
(0.21%)
0.08%
0.48%
1.12%
1.69%
2.01%
2.08%
2.24%
2.34%
performing loans and leases, at end of period
302.80%
320.69%
270.14%
105.61%
52.45%
As part of its loan review process, management has allocated the overall allowance based on specific identified problem loans and
leases, qualitative factors, uncertainty inherent in the estimation process and historical loss data. A risk exists that future losses cannot be
precisely quantified or attributed to particular loans or leases or classes of loans and leases. Management continues to evaluate the loan and
lease portfolio and assesses current economic conditions that will affect management’s conclusion as to future allowance levels. Table Ten
below summarizes the allocation of the allowance for loan and lease losses for the five years ended December 31, 2015.
20 Table Ten: Allowance for Loan and Lease Losses by Loan Category
(dollars in thousands)
Commercial
Real estate
Agriculture
Consumer
Lease financing receivable
Unallocated
Total
Commercial
Real estate
Agriculture
Consumer
Lease financing receivable
Unallocated
Total
$
$
$
$
December 31, 2015
December 31, 2014
December 31, 2013
Percent of loans
in each category
to total loans
Percent of loans
in each category
to total loans
Amount
Percent of loans
in each category
to total loans
Amount
Amount
860
3,729
77
78
1
230
4,975
12% $
86%
1%
1%
—
—
100% $
1,430
3,429
62
124
2
254
5,301
10% $
86%
1%
2%
1%
—
100% $
885
4,010
80
161
4
206
5,346
10%
86%
1%
2%
1%
—
100%
December 31, 2012
December 31, 2011
Percent of loans
in each category
to total loans
Percent of loans
in each category
to total loans
Amount
Amount
1,351
3,835
87
262
3
243
5,781
12% $
83%
1%
3%
1%
—
100% $
1,536
4,545
167
348
79
366
7,041
14%
80%
1%
4%
1%
—
100%
The allocation presented should not be interpreted as an indication that charges to the allowance for loan and lease losses will be
incurred in these amounts or proportions, or that the portion of the allowance allocated to each loan and lease category represents the total
amounts available for charge-offs that may occur within these categories.
Other Real Estate Owned
The balance in OREO at December 31, 2015 consisted of three properties acquired through foreclosure. The balance in OREO at
December 31, 2014 consisted of seven properties. During 2015, the Company received $1,153,000 from the net proceeds of the sale of four
OREO properties with net losses of $1,000 in the aggregate recognized on these sales and, prior to sale, there was a write-down of $156,000
to the OREO allowance and $76,000 to expense on two of the four properties. Furthermore, there were capitalized costs of $126,000 on a
single existing property. There was $3,551,000 in other real estate owned at December 31, 2015 with no valuation allowance and
$4,803,000 in other real estate owned at December 31, 2014 with a valuation allowance of $156,000.
Deposits
At December 31, 2015, total deposits were $530,690,000 representing an increase of $19,997,000 (3.9%) from the December 31,
2014 balance of $510,693,000. The Company’s deposit growth plan for 2015 was to concentrate its efforts on increasing noninterest-bearing
demand, interest-bearing money market and interest-bearing checking, and savings accounts, while continuing to focus on reducing overall
interest expense. Due to these efforts, the Company experienced increases during 2015 in noninterest-bearing demand ($34,850,000 or
22.4%), interest-bearing checking ($462,000 or 0.8%), and savings ($241,000 or 0.4%) and decreases in money market ($12,439,000 or
8.4%) and time deposit ($3,117,000 or 3.6%) accounts. The decrease in money market accounts is related to the plan to reduce interest
expense as the Company evaluated the rate structure on some of the higher cost money market accounts and reduced the interest rates on
some relationships.
21 Other Borrowed Funds
Other borrowings outstanding as of December 31, 2015 consist of advances from the Federal Home Loan Bank (the “FHLB”). The
following table summarizes these borrowings (dollars in thousands):
Short-term borrowings:
FHLB advances
Long-term borrowings:
FHLB advances
$
$
2015
2014
2013
Amount
Rate
Amount
Rate
Amount
Rate
3,500
1.28% $
3,500
0.92% $
8,000
2.15%
7,500
1.24% $
7,500
1.39% $
8,000
1.47%
The maximum amount of short-term borrowings at any month-end during 2015, 2014 and 2013, was $11,500,000, $3.500,000, and
$8,000,000, 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):
Amount
Maturity
Average rates
Short-term
3,500
$
2016
1.28%
$
Long-term
7,500
2017 to 2019
1.24%
The Company has the ability to enter into letters of credit with the FHLB. There were no letters of credit outstanding as of
December 31, 2015 or 2014. There were no draws upon any letter of credit in 2015 or 2014 and management does not expect to draw upon
these sources of liquidity in the foreseeable future.
Capital Resources
The current and projected capital position of the Company and the impact of capital plans and long-term strategies are reviewed
regularly by management. The Company’s capital position represents the level of capital available to support continuing operations and
expansion.
On January 17, 2014, the Company approved and authorized a stock repurchase program for 2014 (the “2014 Program”). The 2014
Program authorized the repurchase during 2014 of up to 5% of the outstanding shares of the Company’s common stock. During 2014, the
Company repurchased 424,462 shares of its common stock at an average price of $9.77 per share. On January 21, 2015, the Company
approved and authorized a stock repurchase program for 2015 (the “2015 Program”). The 2015 Program authorized the repurchase during
2015 of up to 5% of the outstanding shares of the Company’s common stock. In addition, on July 15, 2015, the Company approved and
authorized an additional amount of 5% to be purchased under the 2015 Program. During 2015, the Company repurchased 790,989 shares of
its common stock at an average price of $9.92 per share. On January 20, 2016, the Company approved and authorized a stock repurchase
program for 2016 (the “2016 Program”). The 2016 Program authorized the repurchase during 2016 of up to 5% of the outstanding shares of
the Company’s common stock, or approximately 367,182 shares based on the 7,343,649 shares outstanding as of December 31, 2015. Any
repurchases under the 2016 Program will be made from time to time by the Company in the open market as conditions allow. All such
transactions will be structured to comply with Commission Rule 10b-18 and all shares repurchased under the 2016 Program will be retired.
The number, price and timing of the repurchases will be at the Company’s sole discretion and the 2016 Program may be re-evaluated
depending on market conditions, capital and liquidity needs or other factors. Based on such re-evaluation, the Board of Directors may
suspend, terminate, modify or cancel the 2016 Program at any time without notice.
The Company did not repurchase any shares in 2011 or 2010 and repurchased 575,389 shares in 2012 and 849,404 shares in 2013.
Share amounts have been adjusted for stock dividends and/or splits.
The Company and American River Bank are subject to certain regulatory capital requirements administered by the Board of
Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation. 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 of December 31, 2015 and 2014, the most recent regulatory notification categorized American River Bank as well capitalized under the
regulatory framework for prompt corrective action plan. There are no conditions or events since that notification that management believes
have changed the Bank’s categories.
22 At December 31, 2015, shareholders’ equity was $86,075,000, representing a decrease of $3,572,000 (5.1%) from $89,647,000 at
December 31, 2014. The decrease resulted from a decrease in other comprehensive income of $1,268,000 as a result of the decrease in the
unrealized gain on securities due to an increase in interest rates, additions from net income of $5,269,000 for the period and the stock based
compensation of $271,000, offset by repurchases of common stock of $7,843,000. In 2014, shareholders’ equity increased $2,627,000
(3.0%) from $87,020,000 at December 31, 2013. The increase resulted from the additions from net income for the period, an increase in
other comprehensive income, and an increase in stock based compensation exceeding the repurchases of common stock.
Table Eleven below lists the Company’s actual capital ratios at December 31, 2015 and 2014, as well as the minimum capital ratios
for capital adequacy.
Table Eleven: Capital Ratios
Capital to Risk-Adjusted Assets
Leverage ratio
Tier 1 Risk-Based Capital
Total Risk-Based Capital
At December 31,
2015
2015
11.0% 11.6%
19.3% 21.6%
20.6% 22.9%
Minimum Regulatory
Capital Requirements
4.00%
6.00%
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. At December 31, 2015, American River Bank’s ratios were in excess of the regulatory definition of “well capitalized.”
Management believes that the Company’s capital is adequate to support current operations and anticipated growth and currently foreseeable
future capital requirements of the Company and its subsidiaries.
In July 2013, the federal bank regulatory agencies issued interim final rules that revised and replaced the then current risk-based
capital requirements in order to implement the “Basel III” regulatory capital reforms released by the Basel Committee on Banking
Supervision and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Basel III reforms
reflected in the final rules included an increase in the risk-based capital requirements and certain changes to capital components and the
calculation of risk-weighted assets.
Effective January 1, 2015, bank holding companies with consolidated assets of $1 Billion or more and banks like American River
Bank were required to comply with new minimum capital ratio requirements to be phased-in between January 1, 2015 and January 1, 2019,
which would consist of the following: (i) a new common equity Tier 1 capital to total risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital
to total risk weighted assets ratio of 6% (increased from 4%); (iii) a total capital to total risk weighted assets ratio of 8% (unchanged from
current rules); and (iv) a Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%.
In addition, a “capital conservation buffer,” is established which when fully phased-in will require maintenance of a minimum of
2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum capital ratio requirements described
above. The 2.5% buffer will increase the minimum capital ratios to (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio
of 8.5%, and (iii) a total capital ratio of 10.5%. The new buffer requirement will be phased-in between January 1, 2016 and January 1, 2019.
If the capital ratio levels of a banking organization fall below the capital conservation buffer amount, the organization will be subject to
limitations on (i) the payment of dividends; (ii) discretionary bonus payments; (iii) discretionary payments under Tier 1 instruments; and
(iv) engaging in share repurchases.
23 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
an Enterprise 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 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, with specialized software built for this specific purpose for financial institutions, the Company is able to estimate the
potential impact of changing interest rates on earnings, net interest margin and market value of equity. A balance sheet is prepared using
detailed inputs of actual loans, securities and interest-bearing liabilities (i.e. deposits/borrowings). The balance sheet is processed using
multiple interest rate scenarios. The scenarios include a rising rate forecast, a flat rate forecast and a falling rate forecast which take place
within a one-year time frame. The net interest income is measured over a one and a two year periods assuming a gradual change in rates
over the twelve-month horizon. The simulation modeling attempts to estimate changes in the Company’s net interest income utilizing a
detailed current balance sheet.
After a review of the model results as of December 31, 2015, the Company does not consider the fluctuations from the base case, 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.
Interest Rate Sensitivity Analysis
Interest rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at
replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity of assets and liabilities and their repricing
during periods of changes in market interest rates. Interest rate sensitivity is measured as the difference between the volumes of assets and
liabilities in the current portfolio that are subject to repricing at various time horizons. The differences are known as interest sensitivity gaps.
A positive cumulative gap may be equated to an asset sensitive position. An asset sensitive position in a rising interest rate environment will
cause a bank’s interest rate margin to expand. This results as floating or variable rate loans reprice more rapidly than fixed rate certificates
of deposit that reprice as they mature over time. Conversely, a declining interest rate environment will cause the opposite effect. A negative
cumulative gap may be equated to a liability sensitive position. A liability sensitive position in a rising interest rate environment will cause a
bank’s interest rate margin to contract, while a declining interest rate environment will have the opposite effect.
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 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 material effect upon the results of operations
of the Company during the years ended December 31, 2015, 2014 and 2013.
24 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 December 31, 2015 were approximately $26,730,000 and $238,000, 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. On December 31, 2015, consolidated liquid assets totaled $229.7 million
or 36.2% of total assets compared to $234.7 million or 38.0% of total assets on December 31, 2014. 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 December 31, 2015, the
Company had $17,000,000 available under these credit lines. Additionally, American River Bank is a member of the FHLB. At December
31, 2015, American River Bank could have arranged for up to $89,326,000 in secured borrowings from the FHLB. These borrowings are
secured by pledged mortgage loans and investment securities. At December 31, 2015, the Company had $78,326,000 available under these
secured borrowing arrangements. American River Bank also has a secured borrowing arrangement with the Federal Reserve Bank. The
borrowing can be secured by pledging selected loans and investment securities. Based on the amount of assets pledged at the Federal
Reserve Bank at December 31, 2015, the Company’s borrowing capacity was $11,371,000.
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 to volatile and 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. These
securities are also available to pledge as collateral for borrowings if the need should arise. American River Bank can also pledge additional
securities to borrow from the Federal Reserve Bank and the FHLB.
The maturity distribution of certificates of deposit is set forth in Table Thirteen below for the period presented. These deposits are
generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if
available.
Table Thirteen: Certificates of Deposit Maturities
December 31, 2015
(dollars in thousands)
Three months or less
Over three months through six months
Over six months through twelve months
Over twelve months
Total
Less than $250,000
8,971
$
6,555
6,561
15,657
37,744
$
Over $250,000
28,205
$
5,312
4,135
9,175
46,827
$
Loan and lease demand also affects the Company’s liquidity position. Table Fourteen below presents the maturities of loans and
leases for the period indicated.
25 Table Fourteen: Loan and Lease Maturities (Gross Loans and Leases)
December 31, 2015
(dollars in thousands)
Commercial
Real estate
Agriculture
Consumer
Leases
Total
One year
or less
One year through
five years
$
$
4,197
23,277
103
807
99
28,483
$
$
18,722
62,065
2,328
1,957
633
85,705
Over
five years
13,276
$
166,476
—
358
—
180,110
$
Total
36,195
251,818
2,431
4,122
732
294,298
$
$
Loans and leases shown above with maturities greater than one year include $169,728,000 of variable interest rate loans and
$96,087,000 of fixed interest rate loans and leases.
The carrying amount, maturity distribution and weighted average yield of the Company’s investment securities available-for-sale
and held-to-maturity portfolios are presented in Table Fifteen below. The yields on tax-exempt obligations have been computed on a tax
equivalent basis. Yields may not represent actual future income to be recorded. Timing of principal prepayments on mortgage-backed
securities may increase or decrease depending on market factors and the borrowers’ ability to make unscheduled principal payments. Fast
prepayments on bonds that were purchased with a premium will result in a lower yield and slower prepayments on premium bonds will
result in a higher yield, the opposite would be true for bonds purchased at a discount. Table Fifteen does not include FHLB Stock, which
does not have stated maturity dates or readily available market values. The balance in FHLB Stock at December 31, 2015, 2014 and 2013
was $3,779,000, $3,686,000 and $3,248,000, respectively.
Table Fifteen: Securities Maturities and Weighted Average Yields
(Taxable Equivalent Basis)
December 31,
2015
2014
2013
(dollars in thousands)
Available-for-sale securities:
State and political subdivisions
Maturing within 1 year
Maturing after 1 year but within 5 years
Maturing after 5 years but within 10 years
Maturing after 10 years
U.S. Government Agencies and
U.S.-Sponsored Agencies
Other
Maturing after 1 year but within 5 years
Non-maturing
Total investment securities
Held-to-maturity securities:
U.S. Government Agencies and
U.S.-Sponsored Agencies
Total investment securities
Carrying
Amount
Weighted
Average
Yield
Carrying
Amount
Weighted
Average
Yield
Carrying
Amount
Weighted
Average
Yield
$
494
3,746
15,543
6,230
2.40% $
5.93%
4.29%
4.29%
176
2,401
12,608
11,104
7.14% $
5.10%
4.46%
4.04%
346
2,357
12,067
12,133
246,185
2.11%
261,115
2.12%
244,160
1,551
70
$ 273,819
1,583
4.88%
0.00%
77
2.35% $ 289,064
1,609
4.88%
0.00%
119
2.34% $ 272,791
$
$
623
623
4.68% $
4.68% $
862
862
4.60% $
4.60% $
1,185
1,185
7.54%
4.98%
4.72%
4.14%
2.09%
4.88%
0.00%
2.34%
4.54%
4.57%
The carrying values of available-for-sale securities include net unrealized gains of $3,504,000, $5,618,000 and $1,872,000 at
December 31, 2015, 2014 and 2013, respectively. The carrying values of held-to-maturity securities do not include unrealized gains or
losses; however, the net unrecognized gains at December 31, 2015, 2014 and 2013 were $46,000, $60,000 and $78,000, respectively.
26 Off-Balance Sheet Arrangements
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.
As of December 31, 2015, commitments to extend credit and 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. At origination, real estate commitments are generally secured by property with a loan-to-value ratio of 55% to 75%. In
addition, the majority of the Company’s commitments have variable interest rates. The following financial instruments represent off-
balance-sheet credit risk:
Commitments to extend credit (dollars in thousands):
Revolving lines of credit secured by 1-4 family residences
Commercial real estate, construction and land development commitments secured by real estate
Other unused commitments, principally commercial loans
Letters of credit
December 31,
2015
2014
$
$
$
727
13,999
12,004
26,730
238
$
$
$
1,447
16,206
14,986
32,639
356
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 uses the same credit policies in making
commitments and letters of credit as it does for loans included on the consolidated balance sheets.
Certain financial institutions have elected to use special purpose vehicles (“SPV”) to dispose of problem assets. The SPV is
typically a subsidiary company with an asset and liability structure and legal status that makes its obligations secure even if the parent
corporation goes bankrupt. Under certain circumstances, these financial institutions may exclude the problem assets from their reported
impaired and non-performing assets. The Company does not use those vehicles or any other structures to dispose of problem assets.
Contractual Obligations
The Company leases certain facilities at which it conducts its operations. Future minimum lease commitments under non-
cancelable operating leases are noted in Table Sixteen below. Table Sixteen below presents certain of the Company’s contractual obligations
as of December 31, 2015. Included in the table are amounts payable under the Company’s Deferred Compensation Plan, Deferred Fees Plan
and salary continuation agreements listed in the “Other Long-Term Liabilities…” category. At December 31, 2015, these amounts
represented $4,089,000 most of which is anticipated to be primarily payable at least five years in the future.
Table Sixteen: Contractual Obligations
(dollars in thousands)
Long-Term Debt
Capital Lease Obligations
Operating Leases
Purchase Obligations
Certificates of Deposit
Other Long-Term Liabilities Reflected on the
Company’s Balance Sheet under GAAP
Total
Payments due by period
$
Total
11,000
—
2,208
—
84,571
4,089
101,868
$
Less than
1 year
3,500
—
767
—
59,739
173
64,179
$
$
1-3 years
5,500
—
709
—
17,579
192
23,980
$
$
3-5 years
2,000
—
303
—
7,239
91
9,633
$
$
More than
5 years
—
—
429
—
14
3,633
4,076
$
$
27 Report of Management on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for
the Company (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended).
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2015, presented in conformity with accounting principles
generally accepted in the United States of America. In making this assessment, management used the criteria applicable to the Company as
set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control—Integrated Framework.
Based upon such assessment, management believes that, as of December 31, 2015, the Company’s internal control over financial reporting
is effective based upon those criteria.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public
accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s
independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this Annual Report on Form 10-K.
David T. Taber
President and Chief Executive Officer
Mitchell A. Derenzo
Executive Vice President and
Chief Financial Officer
28 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Crowe Horwath LLP
Independent Member Crowe Horwath International
The Shareholders and Board of Directors
American River Bankshares
Rancho Cordova, California
We have audited the accompanying consolidated balance sheets of American River Bankshares and subsidiaries (the “Company”) as of
December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income (loss), changes in shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
American River Bankshares and subsidiaries as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Sacramento, California
February 25, 2016
29 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
(Dollars in thousands)
ASSETS
Cash and due from banks
Interest-bearing deposits in banks
Investment securities (Note 5):
Available-for-sale, at fair value
Held-to-maturity, at amortized cost
Loans and leases, less allowance for loan and lease losses of $4,975 in 2015 and $5,301 in 2014 (Notes
6, 7, 12 and 17)
Premises and equipment, net (Note 8)
Federal Home Loan Bank of San Francisco stock
Other real estate owned, net
Goodwill (Note 4)
Bank-owned life insurance (Note 16)
Accrued interest receivable and other assets (Notes 11 and 16)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing
Interest-bearing (Note 9)
Total deposits
Short-term borrowings (Note 10)
Long-term borrowings (Note 10)
Accrued interest payable and other liabilities (Note 16)
Total liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity (Notes 13 and 14):
Common stock - no par value; 20,000,000 shares authorized; issued and
outstanding – 7,343,649 shares in 2015 and 8,089,615 shares in 2014
Retained earnings
Accumulated other comprehensive income, net of taxes (Note 5)
Total shareholders’ equity
See accompanying notes to consolidated financial statements.
2015
2014
$
23,727
750
$
22,449
1,000
273,819
623
289,102
1,407
3,779
3,551
16,321
14,483
7,078
289,064
862
258,057
1,518
3,686
4,647
16,321
14,167
5,983
$
634,640
$
617,754
$
190,548
340,142
$
155,698
354,995
530,690
510,693
3,500
7,500
6,875
3,500
7,500
6,414
548,565
528,107
49,554
34,418
2,103
86,075
57,126
29,150
3,371
89,647
$
634,640
$
617,754
30 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2015, 2014 and 2013
(Dollars in thousands, except per share data)
Interest income:
Interest and fees on loans and leases:
Taxable
Exempt from Federal income taxes
Interest on deposits in banks
Interest and dividends on investment securities:
Taxable
Exempt from Federal income taxes
Total interest income
Interest expense:
Interest on deposits (Note 9)
Interest on borrowings
Total interest expense
Net interest income
Provision for loan and lease losses (Note 7)
2015
2014
2013
$
13,547
364
5
6,292
760
20,968
817
144
961
$
13,609
22
4
5,528
802
19,965
1,021
147
1,168
$
14,191
—
3
3,822
865
18,881
1,197
293
1,490
20,007
18,797
17,391
—
(541)
200
Net interest income after provision for loan and lease losses
20,007
19,338
17,191
Noninterest income:
Service charges
Gain on sale and call of investment securities (Note 5)
Income from other real estate owned properties
Other income (Note 15)
Total noninterest income
Noninterest expense:
Salaries and employee benefits (Notes 6 and 16)
Other real estate expense
Occupancy (Notes 8, 12 and 17)
Furniture and equipment (Notes 8 and 12)
Regulatory assessments
Other expense (Notes 4 and 15)
Total noninterest expense
Income before provision for income taxes
Provision for income taxes (Note 11)
Net income
Basic earnings per share (Note 13)
Diluted earnings per share (Note 13)
Cash dividends per share of issued and outstanding common stock
498
251
335
931
2,015
8,528
322
1,183
690
395
2,962
14,080
7,942
2,674
5,268
0.70
0.70
—
$
$
$
$
562
208
365
1,042
2,177
8,776
364
1,188
724
433
3,377
14,862
6,653
2,292
4,361
0.54
0.54
—
$
$
$
$
590
36
316
1,073
2,015
8,516
936
1,212
758
382
3,087
14,891
4,315
1,258
3,057
0.34
0.34
—
$
$
$
$
See accompanying notes to consolidated financial statements.
31 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2015, 2014 and 2013
(Dollars in thousands)
2015
2014
2013
$
5,268
$
4,361
$
3,057
Net income
Other comprehensive income (loss):
(Decrease) increase in net unrealized gains on investment securities
Deferred tax benefit (expense)
(Decrease) increase in net unrealized gains on investment securities, net of tax
Reclassification adjustment for realized gains included in net income
Tax effect
Realized gains, net of tax
(1,863)
745
(1,118)
(251)
101
(150)
3,954
(1,581)
2,373
(208)
83
(125)
Total other comprehensive (loss) income
(1,268)
2,248
Comprehensive income (loss)
$
4,000
$
6,609
$
See accompanying notes to consolidated financial statements.
(5,234)
2,094
(3,140)
(36)
14
(22)
(3,162)
(105)
32 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2015, 2014 and 2013
(Dollars in thousands)
Common Stock
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Net of Taxes)
Total
Share holders’
Equity
Balance, January 1, 2013
9,327,203
$ 67,977
$ 21,732
$
4,285
$
93,994
3,057
—
3,057
Net income
Other comprehensive loss, net of tax:
Net change in unrealized gains on available-for-sale
investment securities (Note 5)
Retirement of common stock (Note 13)
Net restricted stock award activity and related compensation
expense
Stock option compensation expense
—
—
—
—
(849,404)
(7,000)
11,448
—
111
20
—
—
—
Balance, December 31, 2013
8,489,247
61,108
24,789
Net income
Other comprehensive income, net of tax:
Net change in unrealized gains on available-for-sale
investment securities (Note 5)
Retirement of common stock (Note 13)
Net restricted stock award activity and related compensation
expense
Stock option compensation expense
—
—
—
—
(424,462)
(4,148)
24,830
—
147
19
4,361
—
—
—
—
Balance, December 31, 2014
8,089,615
57,126
29,150
Net income
Other comprehensive loss, net of tax:
Net change in unrealized gains on available-for-sale
investment securities (Note 5)
Retirement of common stock (Note 13)
Net restricted stock award activity and related compensation
expense
Stock option compensation expense
—
—
—
—
(790,989)
(7,843)
45,023
—
236
35
5,268
—
—
—
—
(3,162)
—
—
1,123
—
2,248
—
—
—
3,371
—
(1,268)
—
—
—
(3,162)
(7,000)
111
20
87,020
4,361
2,248
(4,148)
147
19
89,647
5,268
(1,268)
(7,843)
236
35
Balance, December 31, 2015
7,343,649
$ 49,554
$ 34,418
$
2,103
$
86,075
See accompanying notes to consolidated financial statements.
33 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015, 2014 and 2013
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses
(Decrease) increase in deferred loan and lease origination fees, net
Depreciation and amortization
Amortization of investment security premiums and discounts, net
Gain on sale and call of investment securities
Increase in cash surrender value of life insurance policies
Gain on life insurance death benefit
Deferred income tax expense (benefit)
Stock-based compensation expense
Loss (gain) on sale or write-down of other real estate owned
(Increase) decrease in accrued interest receivable and other assets
Increase (decrease) in accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from the sale of available-for-sale investment securities
Proceeds from called available-for-sale investment securities
Proceeds from matured available-for-sale investment securities
Purchases of available-for-sale investment securities
Proceeds from principal repayments for available-for-sale mortgage-backed
securities
Proceeds from principal repayments for held-to-maturity mortgage-backed
securities
Purchases of bank owned life insurance
Net decrease (increase) in interest-bearing deposits in banks
Net increase in loans and leases
Net proceeds from sale of other real estate owned
Death benefit from life insurance policy
Capitalized additions to other real estate
Purchases of equipment
Net (increase) decrease in FHLB stock
2015
2014
2013
$
5,268
$
4,361
$
3,057
—
(66)
430
3,160
(251)
(316)
—
473
271
70
(723)
461
8,777
(541)
(26)
438
4,647
(208)
(284)
(99)
(74)
166
(66)
298
371
8,983
23,764
—
175
(62,958)
23,804
1,160
105
(83,049)
200
83
518
5,774
(36)
(247)
(118)
244
131
116
1,821
(96)
11,447
8,851
590
905
(119,972)
49,242
41,014
57,664
239
—
250
(30,979)
1,153
—
(127)
(319)
(93)
324
(1,350)
—
(5,932)
2,283
252
(54)
(456)
(438)
934
—
(250)
(1,741)
7,516
419
(186)
(130)
6
Net cash used in investing activities
(19,653)
(22,337)
(45,394)
(Continued)
34 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2015, 2014 and 2013
(Dollars in thousands)
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits
Net decrease in time deposits
Cash paid to repurchase common stock
Decrease in long-term borrowings
(Decrease) increase in short-term borrowings
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2015
2014
2013
$
23,114
(3,117)
(7,843)
—
—
12,154
1,278
22,449
$
31,545
(4,542)
(4,148)
(500)
(4,500)
17,855
4,501
17,948
$
10,185
(4,751)
(7,000)
(8,000)
6,000
(3,566)
(37,513)
55,461
Cash and cash equivalents at end of year
$
23,727
$
22,449
$
17,948
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense
Income taxes
Non-cash investing activities:
Real estate acquired through foreclosure
$
$
$
961
2,495
—
$
$
$
1,234
2,415
189
$
$
$
1,527
1,575
1,829
See accompanying notes to consolidated financial statements.
35 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
THE BUSINESS OF THE COMPANY
American River Bankshares (the “Company”) was incorporated under the laws of the State of California in 1995 under the name of
American River Holdings and changed its name in 2004 to American River Bankshares. 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. As a community oriented regional bank holding company, the principal communities served are located in Sacramento,
Placer, Yolo, El Dorado, Amador, and Sonoma counties. In addition, the Company has loan production offices in San Jose and San
Ramon, which serve Santa Clara, Alameda and Contra Costa counties.
The Company owns 100% of the issued and outstanding common shares of its banking subsidiary, American River Bank (“ARB”
or the “Bank”). ARB was incorporated in 1983. ARB 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. ARB operates four full-service banking offices in Sacramento County, one full-service
banking office in Placer County, two full-service banking offices in Sonoma County, and three full-service banking offices in
Amador County. The Company also owns one inactive subsidiary, American River Financial.
ARB does not offer trust services or international banking services and does not plan to do so in the near future. The deposits of
ARB are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal limits.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accounting and reporting policies of the Company and its subsidiaries conform with accounting principles generally accepted
in the United States of America and prevailing practices within the financial services industry.
Reclassifications
Certain reclassifications have been made to prior years’ balances to conform to classifications used in 2015. Reclassifications had
no affect on prior year net income or shareholders’ equity.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and accounts among the Company and its subsidiaries have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these estimates.
36 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
For the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash
equivalents. Generally, Federal funds are sold for one-day periods.
Interest-Bearing Deposits in Banks
Interest-bearing deposits in banks mature within one year and are carried at cost.
Investment Securities
Investments are classified into the following categories:
(cid:120) Available-for-sale securities, reported at fair value, with unrealized gains and losses excluded from earnings and reported,
net of taxes, as accumulated other comprehensive income (loss) within shareholders’ equity.
(cid:120) Held-to-maturity securities, which management has the positive intent and ability to hold to maturity, reported at
amortized cost, adjusted for the accretion of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at the time of purchase and may only change the
classification in certain limited circumstances. All transfers between categories are accounted for at fair value. There were no
transfers during the years ended December 31, 2015 and 2014.
Gains or losses on the sale of investment securities are computed on the specific identification method. Interest earned on
investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of
premiums.
An investment security is impaired when its carrying value is greater than its fair value. Investment securities that are impaired are
evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to
determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration
of the decline and the intent and ability of the Company to retain its investment in the securities for a period of time sufficient to
allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in
value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but
indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to
support a realizable value equal to or greater than the carrying value of the investment. For debt securities, once a decline in value
is determined to be other than temporary and management does not intend to sell the security or it is more likely than not that
management will not be required to sell the security before recovery, only the portion of the impairment loss representing credit
exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive income. If
management intends to sell the security or it is more likely than not that management will be required to sell the security before
recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings. For equity securities, the entire
amount of impairment is recognized through earnings.
Federal Home Loan Bank Stock
Investments in Federal Home Loan Bank of San Francisco (the “FHLB”) stock are carried at cost and are redeemable at par with
certain restrictions. Investments in FHLB stock are necessary to participate in FHLB programs.
37 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Leases
Loans and leases that management has both the intent and ability to hold for the foreseeable future or until maturity or payoff are
reported at the principal amounts outstanding, adjusted for unearned income, deferred loan origination fees and costs, purchase
premiums and discounts, write-downs and the allowance for loan and lease losses. Loan and lease origination fees, net of certain
deferred origination costs, and purchase premiums and discounts are recognized as an adjustment to the yield of the related loans
and leases.
For all classes of loans and leases, the accrual of interest is discontinued when, in the opinion of management, there is an indication
that the borrower may be unable to meet payment requirements within an acceptable time frame relative to the terms stated in the
loan agreement. Upon such discontinuance, all unpaid accrued interest is reversed against current income unless the loan or lease is
well secured and in the process of collection. Interest received on nonaccrual loans and leases is either applied against principal or
reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans and leases
are restored to accrual status when the obligation is brought current and has performed in accordance with the contractual terms for
a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
Direct financing leases are carried net of unearned income. Income from leases is recognized by a method that approximates a level
yield on the outstanding net investment in the lease.
Loan Sales and Servicing
Included in the loan and lease portfolio are Small Business Administration (“SBA”) loans and Farm Service Agency guaranteed
loans that may be sold in the secondary market. At the time the loan is sold, the related right to service the loan is either retained,
with the Company earning future servicing income, or released in exchange for a one-time servicing-released premium. Loans
subsequently transferred to the loan portfolio are transferred at the lower of cost or fair value at the date of transfer. Any difference
between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield by the interest
method. There were no loans held for sale at December 31, 2015 and 2014.
SBA and Farm Service Agency loans with unpaid balances of $202,000 and $233,000 were being serviced for others as of
December 31, 2015 and 2014, respectively. The Company also serviced loans that are participated with other financial institutions
totaling $7,942,000 and $8,136,000 as of December 31, 2015 and 2014, respectively.
Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights
retained are recognized as separate assets or liabilities. Servicing assets or liabilities are initially recorded at fair value and are
subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are
periodically evaluated for impairment. Servicing assets were not considered material for disclosure purposes at December 31, 2015
and 2014.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is an estimate of probable credit losses inherent in the Company’s credit portfolio that have
been incurred as of the balance-sheet date. The allowance is established through a provision for loan and lease losses which is
charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and
loan growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously
charged off amounts is typically recorded as a recovery to the allowance. The overall allowance consists of two primary
components, specific reserves related to impaired credits and general reserves for inherent probable losses related to credits that are
not impaired.
38 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan and Lease Losses (Continued)
For all classes of the portfolio, a loan or lease is considered impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of
the original agreement. Factors considered by management in determining impairment include payment status, collateral value, and
the probability of collecting scheduled principle and interest payments when due. Impaired loans are individually evaluated to
determine the extent of impairment, if any, except for smaller-balance loans that are collectively evaluated for credit risk. When a
loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted
at the credit’s original interest rate, except that as a practical expedient, it may measure impairment based on a credit’s observable
market price, or the fair value of the collateral if the credit is collateral dependent. A loan or lease is collateral dependent if the
repayment of the credit is expected to be provided solely by the sale or operation of the underlying collateral.
For all portfolio segments, a restructuring of a debt constitutes a troubled debt restructuring (“TDR”) if the Company grants a
concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise
consider. Restructured workout loans typically present an elevated level of credit risk as the borrowers are not able to perform
according to the original contractual terms. Loans or leases that are reported as TDRs are considered impaired and measured for
impairment as described above.
For all portfolio segments, the determination of the general reserve for loans and leases that are not impaired is based on estimates
made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset
classifications, and qualitative factors to include economic trends in the Company’s service areas, industry experience and trends,
geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the credit portfolio,
and probable losses inherent in the portfolio taken as a whole.
During the fourth quarter of 2015, the Company made a specific enhancement to its methodology for determining the general
reserve component of the ALLL. The enhancement related specifically to the methodology used to calculate the qualitative factors
with respect to non-impaired loans graded watch, special mention and substandard by eliminating the use of multipliers. The
ALLL methodology was also revised to add an additional qualitative factor, by loan grade, in calculating the general reserve
component of the ALLL. Management believes that the allocation of the ALLL to each loan risk grade, within each loan type has
become more precise under the methodology enhancement. The implementation of the ALLL model revision did not have a
material impact on the calculation of the required allowance for loan losses as of December 31, 2015.
The Company determines a separate allowance for each portfolio segment. These portfolio segments include commercial, real
estate construction (including land and development loans), residential real estate, multi-family real estate, commercial real estate,
leases, agriculture, and consumer loans. The allowance for loan and lease losses attributable to each portfolio segment, which
includes both impaired credits and credits that are not impaired, is combined to determine the Company’s overall allowance, which
is included as a component of loans and leases on the consolidated balance sheet and available for all loss exposures.
The Company assigns a risk rating to all loans and periodically performs detailed reviews of all such loans over a certain threshold
to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by
independent specialists engaged by the Company and the Company’s regulators. During the internal reviews, management
monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and
the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual
credit. The risk ratings can be grouped into six major categories, defined as follows:
Pass – A pass loan is a strong credit with no existing or known potential weaknesses deserving of management’s close attention.
39 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan and Lease Losses (Continued)
Watch – A watch credit is a loan or lease that otherwise meets the definition of a standard or minimum acceptable quality loan, but
which requires more than normal attention due to any of the following items: deterioration of borrower financial condition less
severe than those warranting more adverse grading, deterioration of repayment ability and/or collateral value, increased leverage,
adverse effects from a downturn in the economy, local market or industry, adverse changes in local or regional employer,
management changes (including illness, disability, and death), and adverse legal action. Payments are current per the terms of the
agreement. If conditions persist or worsen, a more severe risk grade may be warranted.
Special Mention – A special mention credit is a loan or lease that has potential weaknesses that deserve management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit or in
the Company’s position at some future date. Special Mention credits are not adversely classified and do not expose the Company to
sufficient risk to warrant adverse classification.
Substandard – A substandard credit is a loan or lease that is not adequately protected by the current sound worth and paying
capacity of the borrower or the value of the collateral pledged, if any. Credits classified as substandard have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt. Well defined weaknesses include inadequate cash flow or
collateral support, a project’s lack of marketability, failure to complete construction on time or a project’s failure to fulfill
economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies
are not corrected.
Doubtful – Credits classified as doubtful are loans or leases that have all the weaknesses inherent in those classified as substandard
with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts,
conditions and values, highly questionable and improbable.
Loss – Credits classified as loss are loans or leases considered uncollectible and charged off immediately.
The general reserve component of the allowance for loan and lease losses also consists of reserve factors that are based on
management’s assessment of the following for each portfolio segment: (1) inherent credit risk, (2) historical losses and (3) other
qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each
portfolio segment described below.
Real Estate- Commercial – Commercial real estate mortgage loans generally possess a higher inherent risk of loss than other real
estate portfolio segments, except land and construction loans. Adverse economic developments or an overbuilt market impact
commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit
quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to
service debt obligations.
Real Estate- Construction – These loans generally possess a higher inherent risk of loss than other real estate portfolio segments. A
major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry
significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values
significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.
Real Estate- Multi-family – Multi-family loans are non-construction term mortgages for the acquisition, refinance, or improvement
of residential rental properties with generally more than 4 dwelling units. Underwriting is generally based on borrower
creditworthiness, sufficiency of net operating income to service the bank loan payment, and a prudent loan-to-value ratio, among
other factors.
40 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan and Lease Losses (Continued)
Real Estate- Residential – Residential loans are generally loans to purchase or refinance 1-4 unit single-family residences, either
owner-occupied or investor-owned. Some residential loans are short term to match their intended source of repayment through sale
or refinance. The remainder are fixed or floating-rate term first mortgages with an original maturity between 2 and 10 years,
generally with payments based on a 25-30 year amortization.
Commercial – Commercial loans generally possess a lower inherent risk of loss than real estate portfolio segments because these
loans are generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows
and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit
quality of these loans.
Lease Financing Receivable – Leases originated by the bank are non-consumer finance leases (as contrasted with operating leases)
for the acquisition of titled and non-titled business equipment. Leases are generally amortized over a period from 36 to 84 months,
depending on the useful life of the equipment acquired. Residual (balloon) payments at lease end range from 0-20% of original
cost, and are a non-optional obligation of the lessee. Lessees are contractually responsible for all costs, expenses, taxes, and
liability associated with the leased equipment.
Agricultural – Loans secured by crop production and livestock are especially vulnerable to two risk factors that are largely outside
the control of the Company and borrowers: commodity prices and weather conditions.
Consumer – The consumer loan portfolio is comprised of a large number of small loans scheduled to be amortized over a specific
period. Most installment loans are made directly for consumer purchases, but business loans granted for the purchase of heavy
equipment or industrial vehicles may also be included. Also included in the consumer loan portfolio are home equity lines of credit.
Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality
of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.
Although management believes the allowance to be adequate, ultimate losses may vary from its estimates. At least quarterly, the
Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current
economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on
those reviews, the allowance is adjusted. In addition, the Company’s primary regulators, the FDIC and the California Department
of Business Oversight, as an integral part of their examination process, review the adequacy of the allowance. These regulatory
agencies may require additions to the allowance based on their judgment about information available at the time of their
examinations.
41 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures
The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates probable incurred
losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in accrued
interest payable and other liabilities on the consolidated balance sheet.
Other Real Estate Owned (OREO)
Other real estate owned includes real estate acquired in full or partial settlement of loan obligations. When property is acquired, any
excess of the recorded investment in the loan balance and accrued interest income over the estimated fair market value of the
property less estimated selling costs is charged against the allowance for loan and lease losses. A valuation allowance for losses on
other real estate may be maintained to provide for temporary declines in value. The valuation allowance is established through a
provision for losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or writedowns
resulting from permanent impairments are recorded in other income or expense as incurred. During 2015, the Company received
$1,153,000 in net proceeds from the sale of other real estate owned with net losses of $1,000 recognized on the sale. During 2014,
the Company received $2,283,000 in net proceeds from the sale of other real estate owned with net gains of $231,000 recognized
on the sale. The recorded investment in other real estate owned totaled $3,551,000 and $4,647,000 at December 31, 2015 and 2014,
respectively, and had related valuation allowances of zero and $156,000, respectively.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation. Land is not depreciated. Depreciation is determined
using the straight-line method over the estimated useful lives of the related assets. The useful life of the building and improvements
is forty years. The useful lives of furniture, fixtures and equipment are estimated to be three to ten years. Leasehold improvements
are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise
disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or
loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred. Impairment of
long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets
which indicate long-lived assets may be impaired.
Goodwill and Intangible Assets
Business combinations involving the Company’s acquisition of equity interests or net assets of another enterprise or the assumption
of net liabilities in an acquisition of branches constituting a business may give rise to goodwill. Goodwill represents the excess of
the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The value of goodwill
is ultimately derived from the Company’s ability to generate net earnings after the acquisition and is not deductible for tax
purposes. 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 least annually. Impairment exists when a reporting unit’s carrying value of goodwill
exceeds its fair value. At December 31, 2015, the Company had one reporting unit and that reporting unit had positive equity and
the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the
reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not
that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.
Bank-Owned Life Insurance
The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount
that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other
charges or other amounts due that are probable at settlement.
42 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense represents
each entity’s proportionate share of the consolidated provision for 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. The
deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during
the year. This amount combined with the current taxes payable or refundable, results in the income tax expense for the current year.
On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.
The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely than not” that all
or a portion of the deferred tax assets will not be realized. “More likely than not” is defined as greater than a 50% chance. All
available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation
allowance is needed. Based upon the Company’s analysis of available evidence, the Company determined that it is “more likely
than not” that all of the deferred income tax assets as of December 31, 2015 and 2014 will be fully realized and therefore no
valuation allowance was recorded.
The Company uses a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax
positions taken or expected to be taken on a tax return. A tax position is recognized as a benefit only if it is “more likely than not”
that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount
recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions
not meeting the “more likely than not” test, no tax benefit is recorded. Interest expense and penalties associated with unrecognized
tax benefits, if any, are classified as income tax expense in the consolidated statement of income.
Comprehensive Income
Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income consists of net
income and other comprehensive income. Unrealized gains and losses on the Company’s available-for-sale investment securities
are included in other comprehensive income (loss), adjusted for realized gains or losses included in net income. Total
comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the consolidated
statements of comprehensive income.
Earnings Per Share
Basic earnings per share (“EPS”), which excludes dilution, is computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock, such as stock options or restricted stock, result in the issuance of
common stock that share in the earnings of the Company. The treasury stock method has been applied to determine the dilutive
effect of stock options and restricted stock in computing diluted EPS. Earnings and dividends per share are restated for all stock
splits and stock dividends through the date of issuance of the consolidated financial statements. There were no stock splits or stock
dividends in 2015, 2014 or 2013.
Stock-Based Compensation
At December 31, 2015, the Company had two stock-based compensation plans, which are described more fully in Note 13.
Compensation expense, net of related tax benefits, recorded in 2015, 2014 and 2013 totaled
43 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation (Continued)
$176,000, $107,000 and $84,000, or $0.02, $0.01 and $0.01 per diluted share, respectively. Compensation expense is recognized
over the vesting period on a straight line accounting basis.
The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton based option valuation model
that uses the assumptions noted in the following table. Because Black-Scholes-Merton based option valuation models incorporate
ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on historical volatility of the
Company’s stock and other factors. The Company uses historical data to estimate the dividend yield, option life and forfeiture rate
within the valuation model. The expected option life represents the period of time that options granted are expected to be
outstanding. The risk-free rate for the period representing the contractual life of the option is based on the U.S. Treasury yield
curve in effect at the time of grant.
Dividend yield
Expected volatility
Risk-free interest rate
Expected option life in years
Weighted average fair value of options granted during the year
2015
2014
0.0%
28.1%
1.92%
7
3.24
$
0.0%
20.7%
2.10%
7
2.44
$
There were no options granted in 2013 under either stock-based compensation plans.
Restricted stock awards are grants of shares of the Company’s common stock that are subject to forfeiture until specific conditions
or goals are met. Conditions may be based on continuing employment or service and/or achieving specified performance goals.
During the period of restriction, Plan participants holding restricted share awards have voting and cash dividend rights. The
restrictions lapse in accordance with a schedule or with other conditions determined by the Board of Directors as reflected in each
award agreement. Upon the vesting of each restricted stock award, the Company issues the associated common shares from its
inventory of authorized common shares. All outstanding awards under the Plan immediately vest in the event of a change of control
of the Company. The shares associated with any awards that fail to vest become available for re-issuance under the Plan.
The following is a summary of stock-based compensation information as of or for the years ended December 31, 2015, 2014 and
2013:
Total intrinsic value of options exercised
Aggregate cash received for option exercises
Total fair value of options vested
Total compensation cost, options and restricted stock
Tax benefit recognized
Net compensation cost, options and restricted stock
Total compensation cost for nonvested option awards not yet recognized
Weighted average years for compensation cost for nonvested options to be
recognized
Total compensation cost for restricted stock not yet recognized
Weighted average years for compensation cost for restricted stock to be
recognized
$
$
$
$
$
$
$
$
2015
2014
(Dollars in thousands)
$
—
$
—
$
$
$
$
$
$
$
—
24
271
94
176
165
2.0
530
1.6
$
$
$
$
$
$
$
—
14
166
59
107
104
2.1
273
1.2
2013
—
—
40
131
47
84
38
1.1
173
1.0
44 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Operating Segments
While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and
financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for
all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one
reportable operating segment.
Recently Issued Financial Accounting Pronouncements
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure--In January 2014, the
Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update (the “Update”) 2014-04,
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. Under this Update, FASB
amended existing guidance to clarify when a creditor should be considered to have received physical possession of residential real
estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized.
These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received
physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either:
(1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or
(2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion
of a deed in lieu of foreclosure or through a similar legal agreement.
The amendments in this Update were effective for annual reporting periods beginning after December 15, 2014, including interim
periods within that reporting period. The effects of adopting this Update did not have a material effect on the Company’s
consolidated financial position, results of operations or cash flows.
Revenue from Contracts with Customers (Topic 606)--In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606). This Update requires an entity to recognize revenue as performance obligations are met, in order to
reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to
receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a
customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance
obligation. The amendments within this update are effective for the quarter ending March 31, 2018. The Company is currently in
the process of evaluating the impact of the adoption of this update, but does not expect a material impact on its consolidated
financial position, results of operations or cash flows.
Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)--In January 2016, the FASB issued
Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). Under this Update,
FASB enhanced the reporting model for financial instruments to provide users of financial statements with more decision-useful
information. This Update contains several provisions, including but not limited to 1) require equity investments, with certain
exceptions, to be measured at fair value with changes in fair value recognized in net income; 2) simplify the impairment assessment
of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3)
eliminated the requirement to disclose the method(s) and significant assumptions used to estimate fair value; and 4) require
separate presentation of financial assets and liabilities by measurement category and form of financial asset on the balance sheet or
the accompanying notes to the financial statements. The Update is effective for public entities for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that this
Update will have on its consolidated financial position, results of operations or cash flows.
45 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS
The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and
nonrecurring basis as of December 31, 2015 and December 31, 2014. They indicate 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 inputs other than 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 in its entirety.
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.
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.
The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):
December 31, 2015
Financial assets:
Cash and due from banks
Interest-bearing deposits in banks
Available-for-sale securities
Held-to-maturity securities
FHLB stock
Loans and leases, net
Accrued interest receivable
Financial liabilities:
Deposits:
Noninterest-bearing
Savings
Money market
NOW accounts
Time Deposits
Short-term borrowings
Long-term borrowings
Accrued interest payable
$
$
Carrying
Amount
23,727
750
273,819
623
3,779
289,102
1,885
190,548
59,061
135,186
61,324
84,571
3,500
7,500
60
Fair Value Measurements Using:
Level 2
Level 3
Level 1
$
$
23,727
—
24
—
N/A
—
—
190,548
59,061
135,186
61,324
—
3,500
—
—
$
$
—
752
273,795
669
N/A
—
1,077
—
—
—
—
85,165
—
7,502
60
$
$
—
—
—
—
N/A
292,444
808
—
—
—
—
—
—
—
—
$
$
Total
23,727
752
273,819
689
N/A
292,444
1,885
190,548
59,061
135,186
61,324
85,165
3,500
7,502
60
46 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
December 31, 2014
Financial assets:
Cash and due from banks
Interest-bearing deposits in banks
Available-for-sale securities
Held-to-maturity securities
FHLB stock
Loans and leases, net
Accrued interest receivable
Financial liabilities:
Deposits:
Noninterest-bearing
Savings
Money market
NOW accounts
Time, $100,000 or more
Short-term borrowings
Long-term borrowings
Accrued interest payable
$
$
Carrying
Amount
22,449
1,000
289,064
862
3,686
258,057
1,858
155,698
58,820
147,625
60,862
87,688
3,500
7,500
59
Fair Value Measurements Using:
Level 2
Level 3
Level 1
$
$
22,449
—
28
—
N/A
—
—
155,698
58,820
147,625
60,862
—
3,500
—
—
$
$
—
1,002
289,036
922
N/A
—
1,150
—
—
—
—
88,485
—
7,567
59
$
$
—
—
—
—
N/A
261,421
708
—
—
—
—
—
—
—
—
$
$
Total
22,449
1,002
289,064
922
N/A
261,421
1,858
155,698
58,820
147,625
60,862
88,485
3,500
7,567
59
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
December 31, 2015 and December 31, 2014:
Cash and due from banks: The carrying amounts of cash and short-term instruments approximate fair values and are classified as
Level 1.
Interest-bearing deposits in banks: The fair values of interest-bearing deposits in banks are estimated by discounting their future
cash flows using rates at each reporting date for instruments with similar remaining maturities offered by comparable financial
institutions and are classified as Level 2.
Investment securities: For investment securities, fair values are based on quoted market prices, where available, and are classified
as Level 1. 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 and are classified as Level 2.
FHLB stock: FHLB stock is not publically traded, as such, it is not practicable to determine the fair value of FHLB stock due to
restrictions placed on its transferability.
47 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
Loans and leases: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice
frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification.
Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality also resulting in a Level 3 classification. Impaired loans are valued at the
lower of cost or fair value. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
Deposits: The fair values disclosed for demand deposits (e.g. interest and non-interest checking, savings, and certain types of
money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amount)
resulting in a Level 1 classification. For time deposits, the fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow methodology that applies market interest rates to a schedule of aggregated expected monthly maturities on
time deposits resulting in a Level 2 classification.
Short-term and long-term borrowings: The fair value of short-term borrowings is estimated to be the carrying amount and is
classified as Level 1. The fair value of long-term borrowings is estimated using a discounted cash flow analysis using interest rates
currently available for similar debt instruments and are classified as Level 2.
Accrued interest receivable and payable: The carrying amount of accrued interest receivable and accrued interest payable
approximates fair value resulting in a Level 2 or 3 classification consistent with the asset or liability with which it is associated.
Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently
charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit
standing. The fair value of commitments was not material at December 31, 2015 and December 31, 2014. They are excluded from
the following tables.
Assets and liabilities measured at fair value on a recurring and non-recurring basis are presented in the following table:
(Dollars in thousands)
December 31, 2015
Assets and liabilities measured on a
recurring basis:
Available-for-sale securities:
U.S. Government Agencies and
Sponsored Agencies
Corporate Debt Securities
Obligations of states and political
subdivisions
Corporate stock
Total recurring
Quoted Prices
in Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total Gains
(Level 1)
(Level 2)
(Level 3)
(Losses)
Fair
Value
$ 246,185
1,551
$
— $ 246,185
1,551
—
$
26,013
70
$ 273,819
$
—
24
24
26,013
46
$ 273,795
$
— $
— $
—
—
—
—
—
—
—
—
48 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
(Dollars in thousands)
December 31, 2015
Assets and liabilities measured on a
nonrecurring basis:
Impaired loans:
Real estate:
Commercial
Other real estate owned:
Commercial
Land
Fair
Value
3,900
2,522
1,029
Quoted Prices
in Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total Gains
(Level 1)
(Level 2)
(Level 3)
(Losses)
—
—
—
—
—
—
3,900
(334)
2,522
1,029
—
—
(334)
Total nonrecurring
$
7,451
$
— $
— $
7,451
$
(Dollars in thousands)
December 31, 2014
Assets and liabilities measured on a
recurring basis:
Available-for-sale securities:
U.S. Government Agencies and
Sponsored Agencies
Corporate Debt Securities
Obligations of states and political
subdivisions
Corporate stock
Total recurring
Assets and liabilities measured on a
nonrecurring basis:
Impaired loans:
Commercial
Real estate:
Commercial
Other real estate owned:
Commercial
Land
Total nonrecurring
Quoted Prices
in Active
Markets for
Identical
Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Total Gains
(Level 1)
(Level 2)
(Level 3)
(Losses)
Fair
Value
$ 261,115
1,583
26,289
77
$ 289,064
$
$
— $ 261,115
1,583
—
—
28
28
26,289
49
$ 289,036
$
$
— $
—
—
—
— $
$
666
$
— $
— $
666
$
286
—
—
286
—
—
—
—
—
14
—
243
2,252
3,447
$
$
—
—
— $
—
—
— $
243
2,252
3,447
$
—
(60)
(46)
49 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
FAIR VALUE MEASUREMENTS (Continued)
U.S. Government Agencies and Sponsored Agencies consist predominately of residential mortgage-backed securities. There were
no transfers between Levels 1 and 2 during the years ended December 31, 2015 or December 31, 2014.
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, and are
considered Level 1, or evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market
information and are considered Level 2. Pricing applications apply available information, as applicable, through processes such as
benchmark curves, benchmarking to like securities, sector groupings and matrix pricing.
Impaired loans – The fair value of collateral dependent impaired loans adjusted for specific allocations of the allowance for loan
losses is generally based on recent real estate appraisals and/or evaluations. These appraisals and/or evaluations may utilize a single
valuation approach or a combination of approaches including comparable sales, cost and the income approach. Adjustments are
routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and
income and other available data. Such adjustments are usually significant and typically result in a Level 3 classification of the
inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring impaired loans is the sales comparison
approach less a reserve for past dues taxes and selling costs ranging from 8% to 10%.
Other real estate owned – Certain commercial and residential real estate properties classified as OREO are measured at fair value,
less costs to sell. Fair values are based on recent real estate appraisals and/or evaluations. These appraisals and/or evaluations may
use a single valuation approach or a combination of approaches including comparable sales, cost and the income approach.
Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the
comparable sales and income and other available data. Such adjustments are usually significant and typically result in a Level 3
classification of the inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring OREO is the sales
comparison approach less selling costs ranging from 8% to 10%.
4.
GOODWILL AND OTHER INTANGIBLE ASSETS
At December 31, 2015 and 2014, goodwill totaled $16,321,000. Goodwill is evaluated annually for impairment and was most
recently evaluated in December 2011 under the provisions of the codification Topic 350, Goodwill and Other Intangibles.
Management determined that no impairment recognition was required for the years ended December 31, 2015, 2014 and 2013.
At December 31, 2015 and 2014, the Company did not have other intangible assets.
50 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at December 31, 2015 and 2014 consisted of the following
(dollars in thousands):
Available-for-Sale
Debt securities:
U.S. Government Agencies and Sponsored Agencies
Obligations of states and political subdivisions
Corporate Debt Securities
Equity securities:
Corporate stock
Debt securities:
U.S. Government Agencies and Sponsored Agencies
Obligations of states and political subdivisions
Corporate Debt Securities
Equity securities:
Corporate stock
2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
$
$
244,056
24,706
1,502
51
$
3,059
1,307
49
19
(930)
—
—
—
Estimated
Fair
Value
$ 246,185
26,013
1,551
70
$
270,315
$
4,434
$
(930)
$ 273,819
2014
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
$
$
257,002
24,886
1,504
54
$
4,715
1,423
79
23
(602)
(20)
—
—
Estimated
Fair
Value
$ 261,115
26,289
1,583
77
$
283,446
$
6,240
$
(622)
$ 289,064
U.S. Government Agencies and U.S. Government-sponsored Agencies consist predominately of residential mortgage-backed
securities. Net unrealized gains on available-for-sale investment securities totaling $3,504,000 were recorded, net of $1,401,000 in
tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2015. Proceeds and gross
realized gains from the sale, impairment and call of available-for-sale investment securities for the year ended December 31, 2015
totaled $23,764,000 and $251,000, respectively. There were no transfers of available-for-sale investment securities during the year
ended December 31, 2015.
Net unrealized gains on available-for-sale investment securities totaling $5,618,000 were recorded, net of $2,247,000 in tax
liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2014. Proceeds and gross
realized gains from the sale, impairment and call of available-for-sale investment securities for the year ended December 31, 2014
totaled $24,964,000 and $208,000, respectively. There were no transfers of available-for-sale investment securities during the year
ended December 31, 2014.
51 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
INVESTMENT SECURITIES (Continued)
Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the year ended December 31,
2013 totaled $9,441,000 and $36,000, respectively.
Held-to-Maturity
Debt securities:
2015
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
U.S. Government Agencies and Sponsored Agencies
$
623
$
46
$
— $
669
2014
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Debt securities:
U.S. Government Agencies and Sponsored Agencies
$
862
$
60
$
— $
922
There were no sales or transfers of held-to-maturity investment securities for the years ended December 31, 2015, 2014 and 2013.
The amortized cost and estimated fair value of investment securities at December 31, 2015 by contractual maturity are shown
below (dollars in thousands).
Within one year
After one year through five years
After five years through ten years
After ten years
Investment securities not due at a single maturity date:
U.S. Government Agencies and Sponsored Agencies
Corporate stock
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Estimated
Fair
Value
Amortized
Cost
$
490
5,140
14,621
5,957
Estimated
Fair
Value
$
494
5,298
15,542
6,230
244,056
51
246,185
70
$
270,315
$ 273,819
$
$
623
—
623
$
$
669
—
669
Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay
obligations with or without call or prepayment penalties.
52 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
INVESTMENT SECURITIES (Continued)
Investment securities with amortized costs totaling $56,836,000 and $65,732,000 and estimated fair values totaling $57,665,000
and $67,039,000 were pledged to secure State Treasury funds on deposit, public agency and bankruptcy trustee deposits and
borrowing arrangements (see Note 10) at December 31, 2015 and 2014, respectively.
Investment securities with unrealized losses at December 31, 2015 and 2014 are summarized and classified according to the
duration of the loss period as follows (dollars in thousands):
Available-for-Sale
Debt securities:
U.S. Government Agencies and Sponsored
Agencies
Obligations of states and political subdivisions
Available-for-Sale
Debt securities:
U.S. Government Agencies and Sponsored
Agencies
Obligations of states and political subdivisions
2015
Less than 12 Months
Unrealized
Fair
Losses
Value
12 Months or More
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ 93,265
—
$ 93,265
$
$
(813)
—
$ 5,251
—
(813)
$ 5,251
$
$
(117)
—
$ 98,516
—
(117)
$ 98,516
$
$
(930)
—
(930)
2014
Less than 12 Months
Fair
Value
Unrealized
Losses
12 Months or More
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ 57,145
—
$ 57,145
$
$
(503 )
—
$ 10,006
649
(503)
$ 10,655
$
$
(99)
(20)
$ 67,151
649
(119)
$ 67,800
$
$
(602)
(20)
(622)
At December 31, 2015, the Company held 223 securities of which 45 were in a loss position for less than twelve months and three
were in a loss position for twelve months or more. Of these securities, all are mortgage-backed securities.
The unrealized loss on the Company’s investments in securities is primarily driven by interest rates. Because the decline in market
value is attributable to a change in interest rates and not credit quality, and because the Company has the ability and intent to hold
these investments until recovery of fair value, which may be maturity, management does not consider these investments to be
other-than-temporarily impaired.
53 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
LOANS AND LEASES
Outstanding loans and leases are summarized as follows (dollars in thousands):
Real estate – commercial
Real estate – construction
Real estate – multi-family
Real estate – residential
Commercial
Lease financing receivable
Agriculture
Consumer
Deferred loan and lease origination fees, net
Allowance for loan and lease losses
December 31,
2015
2014
$
199,591
14,533
23,494
14,200
36,195
732
2,431
3,122
$
193,871
8,028
14,167
13,309
25,186
1,286
2,882
4,916
294,298
263,645
(221)
(4,975)
(287)
(5,301)
$
289,102
$
258,057
Certain loans are pledged as collateral for available borrowings with the FHLB and the Federal Reserve Bank of San Francisco (the
“FRB”). Pledged loans totaled $160,626,000 and $147,254,000 at December 31, 2015 and 2014, respectively (see Note 10).
The components of the Company’s lease financing receivable are summarized as follows (dollars in thousands):
Future lease payments receivable
Residual interests
Unearned income
Net lease financing receivable
Future lease payments receivable are as follows (dollars in thousands):
Year Ending
December 31,
2016
2017
2018
2019
2020
Total lease payments receivable
December 31,
2015
2014
774
—
(42)
732
$
$
1,358
13
(85)
1,286
$
$
352
211
178
33
—
774
$
$
Salaries and employee benefits totaling $257,000, $244,000 and $315,000 have been deferred as loan and lease origination costs
for the years ended December 31, 2015, 2014 and 2013, respectively.
54 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The following tables show the activity in the allowance for loan and lease losses for the years ended December 31, 2015, 2014 and
2013 and the allocation of the allowance for loan and lease losses as of December 31, 2015, 2014 and 2013 by portfolio segment
and by impairment methodology (dollars in thousands):
Commercial Commercial Multi-Family Construction Residential Leases Agriculture Consumer Unallocated
Total
December 31, 2015
Real Estate
Other
Allowance for Loan and Lease
Losses
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Ending balance allocated to
portfolio segments
Ending balance:
Individually evaluated for
impairment
Ending balance:
Collectively evaluated for
impairment
Loans
Ending balance
Ending balance:
Individually evaluated for
impairment
Ending balance:
Collectively evaluated for
impairment
$
$
$
$
$
1,430
(84)
(609)
123
2,317 $
—
—
52
$
130
98
—
—
$
583
230
—
—
$
399 $
(193)
—
113
2
—
(1)
—
$
62
15
—
—
$
124
(42)
(6)
2
$
254
(24)
—
—
5,301
—
(616)
290
860
$
2,369 $
228
$
813
$
319 $
1
$
77
$
78
$
230
$
4,975
25
$
598 $
5
$
— $
204 $ — $
38
$
29
$
— $
899
835
$
1,771 $
223
$
813
$
115 $
1
$
39
$
49
$
230
$
4,076
$
36,195
$
199,591 $
23,494
$
14,533
$
14,200 $ 732
$
2,431
$
3,122
$
— $294,298
$
121
$
17,866 $
488
$
— $
2,452 $ — $
370
$
68
$
— $ 21,365
$
36,074
$
181,725 $
23,006
$
14,533
$
11,748 $ 732
$
2,061
$
3,054
$
— $272,933
55 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
Commercial Commercial Multi-Family Construction Residential Leases Agriculture Consumer Unallocated
Total
December 31, 2014
Real Estate
Other
Allowance for Loan and Lease
Losses
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Ending balance allocated to
portfolio segments
Ending balance:
Individually evaluated for
impairment
Ending balance:
Collectively evaluated for
impairment
Loans
Ending balance
Ending balance:
Individually evaluated for
impairment
Ending balance:
Collectively evaluated for
impairment
$
$
$
$
$
885
289
—
256
2,401 $
(135)
—
51
$
242
(205)
—
93
$
542
39
—
2
$
825 $
(443)
—
17
4
(5)
—
3
$
80
(18)
—
—
$
161
(111)
(76)
150
206
48
—
—
$
5,346
(541)
(76)
572
1,430
$
2,317 $
130
$
583
$
399 $
2
$
62
$
124
$
254
$
5,301
344
$
949 $
38
$
— $
237 $ — $
13
$
22
$
— $
1,603
1,086
$
1,368 $
92
$
583
$
162 $
2
$
49
$
102
$
254
$
3,698
$
25,186
$
193,871 $
14,167
$
8,028
$
13,309 $1,286
$
2,882
$
4,916
$
— $263,645
$
769
$
20,457 $
496
$
— $
2,862 $ — $
381
$
155
$
— $ 25,120
$
24,417
$
173,414 $
13,671
$
8,028
$
10,447 $1,286
$
2,501
$
4,761
$
— $238,525
56 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
Commercial Commercial Multi-Family Construction Residential Leases Agriculture Consumer Unallocated
Total
December 31, 2013
Real Estate
Other
Allowance for Loan and Lease
Losses
Beginning balance
Provision for loan losses
Loans charged-off
Recoveries
Ending balance allocated to
portfolio segments
Ending balance:
Individually evaluated for
impairment
Ending balance:
Collectively evaluated for
impairment
Loans
Ending balance
Ending balance:
Individually evaluated for
impairment
Ending balance:
Collectively evaluated for
impairment
$
$
$
$
$
1,351
(304)
(377)
215
2,526 $
327
(476)
24
$
238
4
—
—
$
594
(73)
—
21
$
477 $
363
(58)
43
3
2
(1)
—
$
87
(7)
—
—
$
262
(75)
(26)
—
$
243
(37)
—
—
5,781
200
(938)
303
885
$
2,401 $
242
$
542
$
825 $
4
$
80
$
161
$
206
$
5,346
392
$
792 $
108
$
— $
276 $ — $
— $
30
$
— $
1,598
493
$
1,609 $
134
$
542
$
549 $
4
$
80
$
131
$
206
$
3,748
$
24,545
$
184,204 $
11,085
$
9,633
$
17,703 $1,344
$
3,120
$
5,772
$
— $257,406
$
1,736
$
19,919 $
1,650
$
248
$
3,316 $ — $
— $
165
$
— $ 27,034
$
22,809
$
164,285 $
9,435
$
9,385
$
14,387 $1,344
$
3,120
$
5,607
$
— $230,372
57 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
The following tables show the loan portfolio allocated by management’s internal risk ratings as of December 31, 2015 and 2014
(dollars in thousands):
December 31, 2015
Credit Risk Profile by Internally Assigned Grade
Commercial Commercial Multi-Family Construction Residential Leases Agriculture Consumer
Total
Real Estate
Other Credit Exposure
$
Grade:
Pass
Watch
Special mention
Substandard
Doubtful
32,216 $
1,073
—
2,906
—
172,755 $
17,318
8,363
1,155
—
23,001 $
493
—
—
—
6,371 $
8,162
—
—
—
10,593 $ 732 $
2,099
697
811
—
—
—
—
—
2,061 $
370
—
—
—
2,136 $249,865
29,893
9,493
5,047
—
378
433
175
—
Total
$
36,195 $
199,591 $
23,494 $
14,533 $
14,200 $ 732 $
2,431 $
3,122 $294,298
December 31, 2014
Credit Risk Profile by Internally Assigned Grade
Commercial Commercial Multi-Family Construction Residential Leases Agriculture Consumer
Total
Real Estate
Other Credit Exposure
$
Grade:
Pass
Watch
Special mention
Substandard
Doubtful
20,179 $
1,280
101
3,626
—
163,091 $
13,724
13,583
3,473
—
13,663 $
504
—
—
—
3,327 $
4,372
329
—
—
9,364 $1,286 $
2,504
603
838
—
—
—
—
—
2,501 $
—
381
—
—
3,424 $216,835
23,425
1,041
15,265
268
8,120
183
—
—
Total
$
25,186 $
193,871 $
14,167 $
8,028 $
13,309 $1,286 $
2,882 $
4,916 $263,645
58 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
The following tables show an aging analysis of the loan portfolio at December 31, 2015 and 2014 (dollars in thousands):
December 31, 2015
30-59 Days 60-89 Days
Past Due
Past Due
Past Due
Greater
Than
90 Days
Total Past
Due
Past Due
Greater Than
90 Days and
Current Total Loans Accruing Nonaccrual
$
— $
— $
30 $
30 $ 36,165 $
36,195 $
— $
30
—
—
—
—
—
—
367
359
—
—
—
—
—
—
499
—
—
338
—
—
—
858
198,733
— 23,494
— 14,533
13,862
338
199,591
23,494
14,533
14,200
732
—
— 2,431
2,755
367
732
2,431
3,122
—
—
—
—
—
—
—
1,155
—
—
338
—
—
120
$
367 $
359 $
867 $
1,593 $292,705 $
294,298 $
— $
1,643
Commercial:
Commercial
Real estate:
Commercial
Multi-family
Construction
Residential
Other:
Leases
Agriculture
Consumer
Total
59 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
December 31, 2014
Past Due
Greater
30-59 Days 60-89 Days
Past Due
Past Due
Than
90 Days
Total Past
Due
Current Total Loans Accruing Nonaccrual
Past Due
Greater Than
90 Days and
Commercial:
Commercial
Real estate:
Commercial
Multi-family
Construction
Residential
Other:
Leases
Agriculture
Consumer
Total
$
513 $
— $
666 $
1,179 $ 24,007 $
25,186 $
— $
666
507
—
—
—
—
—
135
—
—
—
—
—
—
—
507
—
—
338
—
—
—
1,014
192,857
— 14,167
— 8,028
12,971
338
193,871
14,167
8,028
13,309
— 1,286
— 2,882
4,781
135
1,286
2,882
4,916
—
—
—
—
—
—
—
507
—
—
338
—
—
142
$
1,155 $
— $ 1,511 $
2,666 $260,979 $
263,645 $
— $
1,653
60 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
The following tables show information related to impaired loans as of and for the years ended December 31, 2015, 2014 and 2013
(dollars in thousands):
With no related allowance recorded:
Commercial
Real estate:
Commercial
Residential
Other:
Consumer
With an allowance recorded:
Commercial
Real estate:
Commercial
Multi-family
Residential
Other:
Agriculture
Consumer
Total:
Commercial
Real estate:
Commercial
Multi-family
Residential
Other:
Agriculture
Consumer
December 31, 2015
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
—
$
—
$
$
$
$
$
12,269
338
—
12,607
121
5,597
488
2,114
370
68
8,758
121
17,866
488
2,452
370
68
$
$
$
$
12,902
338
—
13,240
121
5,693
488
2,201
370
68
8,941
121
18,595
488
2,539
370
68
$
$
$
$
—
—
—
—
—
25
598
5
204
38
29
899
25
598
5
204
38
29
$
—
$
$
$
$
$
12,345
338
—
12,683
99
4,953
492
2,140
375
76
8,135
99
17,298
492
2,478
375
76
$
$
$
$
—
595
—
—
595
9
320
29
91
18
—
467
9
915
29
91
18
—
$
21,365
$
22,181
$
899
$
20,818
$
1,062
61 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
With no related allowance recorded:
Commercial
Real estate:
Commercial
Residential
Other:
Consumer
With an allowance recorded:
Commercial
Real estate:
Commercial
Multi-family
Residential
Other:
Agriculture
Consumer
Total:
Commercial
Real estate:
Commercial
Multi-family
Residential
Other:
Agriculture
Consumer
December 31, 2014
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
—
$
—
$
$
$
$
$
10,684
338
37
11,059
769
9,773
496
2,524
381
118
14,061
769
20,457
496
2,862
381
155
$
$
$
$
10,882
338
37
11,257
769
9,773
496
2,524
381
118
14,061
769
20,655
496
2,862
381
155
$
$
$
$
—
—
—
—
—
344
949
38
237
13
22
1,603
344
949
38
237
13
22
$
—
$
$
$
$
$
10,512
340
37
10,889
758
8,917
501
2,553
386
123
13,238
758
19,429
501
2,893
386
160
$
$
$
$
3
518
7
2
530
4
562
20
114
21
2
723
7
1,080
20
121
21
4
$
25,120
$
25,318
$
1,603
$
24,127
$
1,253
62 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
December 31, 2013
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
577
$
577
$
$
$
$
$
10,921
248
37
11,783
1,159
8,998
1,650
3,316
128
15,251
1,736
19,919
1,650
248
3,316
165
$
$
$
$
11,119
248
37
11,981
1,159
8,998
1,743
3,316
128
15,344
1,736
20,117
1,743
248
3,316
165
$
$
$
$
—
—
—
—
—
392
792
108
276
30
1,598
392
792
108
—
276
30
$
665
$
$
$
$
$
11,614
256
37
12,572
1,240
9,008
1,665
3,354
136
15,403
1,905
20,622
1,665
256
3,354
173
$
$
$
$
11
11
—
1
23
10
196
39
70
1
316
21
207
39
70
2
With no related allowance recorded:
Commercial
Real estate:
Commercial
Construction
Other:
Consumer
With an allowance recorded:
Commercial
Real estate:
Commercial
Multi-family
Residential
Other:
Consumer
Total:
Commercial
Real estate:
Commercial
Multi-family
Construction
Residential
Other:
Consumer
$
27,034
$
27,325
$
1,598
$
27,975
$
339
The recorded investment in loans and leases that were considered to be impaired totaled $21,365,000 at December 31, 2015 and
had a related valuation allowance of $899,000. The average recorded investment in impaired loans and leases during 2015 was
approximately $20,818,000.
The recorded investment in loans and leases that were considered to be impaired totaled $25,120,000 at December 31, 2014 and
had a related valuation allowance of $1,603,000. The average recorded investment in impaired loans and leases during 2014 was
approximately $24,127,000.
63 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
Non-accrual loans and leases totaled approximately $1,643,000 and $1,653,000 at December 31, 2015 and 2014, respectively.
There were no loans and leases past due 90 days or more and still accruing interest at December 31, 2015 and December 31, 2014.
Interest income on non-accrual loans is generally recognized on a cash basis and was approximately $59,000, $84,000 and
$161,000 for the years ended December 31, 2015, 2014 and 2013. Interest foregone on non-accrual loans was approximately
$145,000, $116,000 and $324,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
Troubled Debt Restructurings
During the period ended December 31, 2015, the terms of certain loans were modified as troubled debt restructurings. The
modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate or an
extension of the maturity date.
Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from three years to nine years.
Modifications involving an extension of the maturity date were for periods ranging from six months to nine years.
The following table presents loans by class modified as troubled debt restructurings during the year ended December 31, 2015
(dollars in thousands):
Troubled debt restructurings:
Commercial
Consumer
Real estate – residential
Real estate – commercial
Total
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of Loans
1
1
2
1
5
$
$
$
26
23
407
644
26
23
407
644
1,100
$
1,100
The troubled debt restructurings described above increased the allowance for loan and lease losses by $59,000 and resulted in no
charge-offs of during the year ended December 31, 2015.
The Company has not committed to lend additional amounts as of December 31, 2015 to borrowers with outstanding loans that are
classified as troubled debt restructurings.
There were no payment defaults on troubled debt restructurings within 12 months following the modification during the year ended
December 31, 2015.
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
64 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
Troubled Debt Restructurings (Continued)
The following table presents loans by class modified as troubled debt restructurings during the year ended December 31, 2014
(dollars in thousands):
Troubled debt restructurings:
Commercial
Real estate – commercial
Total
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of Loans
2
8
10
$
$
50
5,787
5,837
$
$
50
5,787
5,837
The troubled debt restructurings described above increased the allowance for loan and lease losses by $263,000 and resulted in no
charge-offs of during the year ended December 31, 2014.
The Company has not committed to lend additional amounts as of December 31, 2014 to borrowers with outstanding loans that are
classified as troubled debt restructurings.
There were no payment defaults on troubled debt restructurings within 12 months following the modification during the year ended
December 31, 2014.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the
borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is
performed under the Company’s internal underwriting policy.
65 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8.
PREMISES AND EQUIPMENT
Premises and equipment consisted of the following (dollars in thousands):
Land
Building and improvements
Furniture, fixtures and equipment
Leasehold improvements
Less accumulated depreciation and amortization
December 31,
2015
2014
$
$
206
845
5,831
1,565
8,447
(7,040)
206
855
5,577
1,533
8,171
(6,653)
$
1,407
$
1,518
Depreciation and amortization included in occupancy and furniture and equipment expense totaled $430,000, $438,000 and
$518,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
9.
INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following (dollars in thousands):
Savings
Money market
NOW accounts
Time, $250,000 or more
Other time
December 31,
2015
2014
$
59,061
135,186
61,324
46,827
37,744
$
58,820
147,625
60,862
48,287
39,401
$
340,142
$
354,995
The Company held $29,000,000 in certificates of deposit for the State of California as of December 31, 2015 and 2014. This
amount represents 5.5% of total deposit balances at December 31, 2015 and 5.7% at December 31, 2014.
66 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9.
INTEREST-BEARING DEPOSITS (Continued)
Aggregate annual maturities of time deposits are as follows (dollars in thousands):
Year Ending
December 31,
2016
2017
2018
2019
2020
Thereafter
$
59,739
10,908
6,671
4,314
2,925
14
$
84,571
Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands):
Savings
Money market
NOW accounts
Time Deposits
10.
BORROWING ARRANGEMENTS
Year Ended December 31,
2015
2014
2013
$
$
$
29
218
26
544
$
40
383
36
562
68
435
40
654
817
$
1,021
$
1,197
The Company has $17,000,000 in unsecured short-term borrowing arrangements to purchase Federal funds with two of its
correspondent banks. There were no advances under the borrowing arrangements as of December 31, 2015 and 2014.
In addition, the Company has a line of credit available with the FHLB which is secured by pledged mortgage loans (see Note 6)
and investment securities (see Note 5). Borrowings may include overnight advances as well as loans with a term of up to thirty
years. Advances totaling $11,000,000 were outstanding from the FHLB at December 31, 2015, bearing fixed interest rates ranging
from 0.45% to 1.91% and maturing between January 19, 2016 and July 12, 2019. Advances totaling $11,000,000 were outstanding
from the FHLB at December 31, 2014, bearing fixed interest rates ranging from 0.24% to 1.91% and maturing between March 16,
2015 and July 12, 2019. Amounts available under the borrowing arrangement with the FHLB at December 31, 2015 and 2014
totaled $78,326,000 and $67,228,000, respectively.
In addition, the Company entered into a secured borrowing agreement with the FRB in 2008. The borrowing arrangement is
secured by pledging selected loans (see Note 6) and investment securities (see Note 5). There were no advances outstanding as of
December 31, 2015 and 2014. Amounts available under the borrowing arrangement with the FRB at December 31, 2015 and 2014
totaled $11,371,000 and $17,335,000, respectively.
67 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.
BORROWING ARRANGEMENTS (Continued)
The following table summarizes these borrowings (dollars in thousands):
Short-term portion of borrowings
Long-term borrowings
December 31,
2015
2014
Weighted
Average
Rate
Amount
1.28% $
1.24%
3,500
7,500
1.26% $
11,000
Weighted
Average
Rate
0.92%
1.39%
1.24%
Amount
$
$
3,500
7,500
11,000
Maturities on these borrowings are as follows (dollars in thousands):
Year Ending
December 31,
2016
2017
2018
2019
2020
Thereafter
$
3,500
3,500
2,000
2,000
—
—
$
11,000
11.
INCOME TAXES
The provision for (benefit from) income taxes for the years ended December 31, 2015, 2014, and 2013 consisted of the following
(dollars in thousands):
2015
Current
Deferred
Provision for income taxes
2014
Current
Deferred
Provision for income taxes
Federal
State
Total
$
$
$
$
1,482
409
1,891
1,754
(99)
1,655
$
$
$
$
719
64
783
612
25
637
$
$
$
$
2,201
473
2,674
2,366
(74)
2,292
68 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
INCOME TAXES (Continued)
2013
Current
Deferred
Provision for income taxes
Deferred tax assets (liabilities) consisted of the following (dollars in thousands):
Deferred tax assets:
Allowance for loan and lease losses
Other real estate owned
Deferred compensation
Other
Total deferred tax assets
Deferred tax liabilities:
Unrealized gains on available-for-sale investment securities
Future liability of state deferred tax assets
Deferred loan costs
Federal Home Loan Bank stock dividends
Premises and equipment
Total deferred tax liabilities
Net deferred tax assets
Federal
State
Total
$
$
797
162
959
$
$
$
217
82
299
$
$
1,014
244
1,258
December 31,
2015
2014
$
2,275
30
2,519
252
5,076
(1,401)
(160)
(223)
(211)
(273)
(2,268)
2,422
287
2,502
165
5,376
(2,247)
(215)
(223)
(211)
(45)
(2,941)
$
2,808
$
2,435
The Company and its subsidiaries file income tax returns in the United States and California jurisdictions. There are currently no
pending federal, state or local income tax examinations by tax. Furthermore, with few exceptions, the Company is no longer subject
to the examination by federal taxing authorities for the years ended before December 31, 2012 and by state and local taxing
authorities for years before December 31, 2011. The unrecognized tax benefits and changes therein and the interest and penalties
accrued by the Company as of December 31, 2015 were not significant.
69 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
INCOME TAXES (Continued)
The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rate of 34% in 2015,
2014 and 2013 to income before income taxes. The significant items comprising these differences consisted of the following:
Federal income tax statutory rate
State franchise tax, net of Federal tax effect
Tax benefit of interest on loans to/investments in states and political
subdivisions
Tax-exempt income from life insurance policies
Equity compensation expense
Other
Effective tax rate
12.
COMMITMENTS AND CONTINGENCIES
Leases
Year Ended December 31,
2015
2014
2013
34.0%
6.5%
(4.5)%
(1.3)%
0.1%
(1.1)%
33.7%
34.0%
6.3%
(4.0)%
(1.9)%
0.1%
—
34.5%
34.0%
4.6%
(6.5)%
(2.9)%
0.1%
(0.1)%
29.2%
The Company leases branch facilities, administrative offices and various equipment under noncancelable operating leases which
expire on various dates through the year 2024. Certain of the leases have five year renewal options. One of the branch facilities is
leased from a current member of the Company’s Board of Directors (see Note 17).
Future minimum lease payments are as follows (dollars in thousands):
Year Ending
December 31,
2016
2017
2018
2019
2020
Thereafter
$
767
451
258
155
148
429
$
2,208
Rental expense included in occupancy, furniture and equipment expense totaled $837,000, $872,000 and $865,000 for the years
ended December 31, 2015, 2014 and 2013, respectively.
Financial Instruments With Off-Balance-Sheet Risk
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 standby letters of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized on the consolidated balance sheet.
70 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
COMMITMENTS AND CONTINGENCIES (Continued)
Financial Instruments With Off-Balance-Sheet Risk (Continued)
The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies
in making commitments and standby letters of credit as it does for loans included on the consolidated balance sheet.
The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):
Commitments to extend credit:
Revolving lines of credit secured by 1-4 family residences
Commercial real estate, construction and land development commitments secured by real
estate
Other unused commitments, principally commercial loans
Standby letters of credit
December 31,
2015
2014
$
727
$
1,447
13,999
12,004
26,730
238
$
$
16,206
14,986
32,639
356
$
$
At inception, real estate commitments are generally secured by property with a loan to value ratio of 55% to 75%. In addition, the
majority of the Company’s commitments have variable interest rates.
Commitments to extend credit are agreements to lend to a client as long as there is no violation of any conditions established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral
obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral
held varies but may include accounts receivable, inventory, equipment and deeds of trust on real estate and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued to guarantee the performance or financial obligation of a client to a
third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to clients.
Significant Concentrations of Credit Risk
The Company grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to clients
throughout Northern California.
In management’s judgment, a concentration exists in real estate-related loans which represented approximately 86% and 87% of
the Company’s loan portfolio at December 31, 2015 and 2014, respectively. A continued substantial decline in the economy in
general, or a continued decline in real estate values in the Company’s primary market areas in particular, could have an adverse
impact on collectability of these loans. However, personal and business income represents the primary source of repayment for a
majority of these loans.
71 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
COMMITMENTS AND CONTINGENCIES (Continued)
Correspondent Banking Agreements
The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking
agreements. The Company had $4,126,000 in uninsured deposits at December 31, 2015. The Company had $4,082,000 in
uninsured deposits at December 31, 2014.
Contingencies
The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of
management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial
position or results of operations of the Company.
13.
SHAREHOLDERS’ EQUITY
Earnings Per Share
A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows (dollars
and shares in thousands, except per share data):
For the Year Ended
December 31, 2015
Basic earnings per share
Weighted
Average
Number of
Shares
Outstanding
Net
Income
Per-Share
Amount
$
5,268
7,561
$
0.70
Effect of dilutive stock-based compensation
—
18
Diluted earnings per share
December 31, 2014
Basic earnings per share
$
5,268
7,579
$
0.70
$
4,361
8,130
$
0.54
Effect of dilutive stock-based compensation
—
14
Diluted earnings per share
December 31, 2013
Basic earnings per share
$
4,361
8,144
$
0.54
$
3,057
8,888
$
0.34
Effect of dilutive stock-based compensation
—
6
Diluted earnings per share
$
3,057
8,894
$
0.34
Stock options for 188,735 shares, 211,024 shares and 277,923 shares of common stock were not considered in computing diluted
earnings per common share for the years ended December 31, 2015, 2014 and 2013, respectively, because they were antidilutive.
72 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
SHAREHOLDERS’ EQUITY (Continued)
Stock Based Compensation
In 2000, the Board of Directors adopted and the Company’s shareholders approved a stock option plan (the “2000 Plan”), under
which 171,950 options remain outstanding at December 31, 2015. On March 17, 2010, the Board of Directors adopted the 2010
Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was approved by the Company’s shareholders on May 20, 2010. The total
number of authorized shares that are available for issuance under the 2010 Plan is 1,395,985. The 2010 Plan provides for the
following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted
stock; restricted performance stock; unrestricted Company stock; and performance units. Awards granted under the 2000 Plan were
either incentive stock options or nonqualified stock options. The 2010 Plan and the 2000 Plan (collectively the “Plans”), under
which equity incentives may be granted to employees and directors under incentive and nonstatutory agreements, require that the
option price may not be less than the fair value of the stock at the date the option is granted. The option awards under the Plans
expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period is
generally five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors.
Outstanding option awards under the Plans are exercisable until their expiration; however, no new options will be awarded under
the 2000 Plan. The Plans do not provide for the settlement of awards in cash and new shares are issued upon exercise of an option.
A summary of the outstanding and nonvested stock option activity for the year ended December 31, 2015 is as follows:
Outstanding
Nonvested
Balance, January 1, 2015
Options granted
Options vested
Options expired or canceled
Balance, December 31, 2015
Weighted
Average
Exercise
Price Per
Share
$
$
$
$
$
16.27
9.56
2.40
18.11
15.19
Shares
271,700
26,427
(10,017)
(49,716)
248,411
Shares
43,118
26,427
59,528
A summary of options as of December 31, 2015 is as follows:
Nonvested:
Weighted average exercise price of nonvested stock options
Aggregate intrinsic value of nonvested stock options
Weighted average remaining contractual term in years of nonvested stock options
Vested:
Number of vested stock options
Number of options expected to vest
Weighted average exercise price per share
Aggregate intrinsic value
Weighted average remaining contractual term in years
Weighted
Average
Grant Date
Fair Value
Per Share
$
$
$
2.41
3.24
2.78
$
$
8.96
96,563
8.60
188,883
56,216
$
17.15
$ 135,879
2.13
73 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
SHAREHOLDERS’ EQUITY (Continued)
Stock Based Compensation (Continued)
Range of Exercise Prices
$7.07- $11.66
$11.67- $18.10
$18.11 - $24.07
Restricted Stock
Number of
Options
Outstanding
December 31,
2015
Weighted
Average
Remaining
Contractual Life
Number of
Options
Exercisable
December 31,
2015
118,808
42,669
86,934
248,411
6.45 years
2.15 years
0.65 years
59,280
42,669
86,934
188,883
There were 45,023 shares of restricted stock awarded during 2015. Of the 45,023 restricted common shares, 12,552 will vest one
year from the date of the award and 11,939 will vest 20% per year from the date of the award. The remaining 20,532 are considered
performance based awards. The awards can be earned based upon the stock performance of the Company’s common stock in
relationship to the common stock of the Company’s peer group. The number of shares can be adjusted by up to 150% of the award
if outstanding performance is reached or can be forfeited if minimum performance is not reached. The awards vest one year and a
day after the two year performance period or January 1, 2018. The weighted average contractual term over which the restricted
stock will vest is 1.64 years. There were 24,830 shares of restricted stock awarded during 2014. Of the 24,830 restricted common
shares, 13,560 will vest one year from the date of the award and 11,270 will vest 20% per year from the date of the award. The
weighted average contractual term over which the restricted stock will vest is 1.22 years.
Restricted Stock
Nonvested at January 1, 2015
Awarded
Vested
Cancelled
Nonvested at December 31, 2015
Weighted
Average
Grant Date
Fair Value
$
$
$
$
8.31
9.49
8.36
9.21
Shares
32,838
45,023
(20,344)
57,517
The shares awarded to employees and directors under the restricted stock agreements vest on applicable vesting dates only to the
extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will
forfeit all of the shares that have not vested on the date his or her employment or service is terminated. New shares are issued upon
vesting of the restricted common stock.
74 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
REGULATORY MATTERS
Dividends
Upon declaration by the Board of Directors of the Company, all shareholders of record will be entitled to receive dividends. There
is no assurance, however, that any dividends will be paid in the future since they are subject to regulatory restrictions, and
dependent upon earnings, financial condition and capital requirements of the Company and its subsidiaries. There were no cash
dividends declared or paid in 2015, 2014 or 2013.
As a California corporation, the Company’s ability to pay cash dividends is subject to restrictions set forth in the California General
Corporation Law (the “Corporation Law”). The Corporation Law provides that neither a corporation nor any of its subsidiaries
shall make a distribution to the corporation’s shareholders unless the board of directors has determined in good faith either of the
following: (1) the amount of retained earnings of the corporation immediately prior to the distribution equals or exceeds the sum of
(A) the amount of the proposed distribution plus (B) the preferential dividends arrears amount; or (2) immediately after the
distribution, the value of the corporation’s assets would equal or exceed the sum of its total liabilities plus the preferential rights
amount. The good faith determination of the board of directors may be based upon (1) financial statements prepared on the basis of
reasonable accounting practices and principles, (2) a fair valuation, or (3) any other method reasonable under the circumstances;
provided, that a distribution may not be made if the corporation or subsidiary making the distribution is, or is likely to be, unable to
meet its liabilities (except those whose payment is otherwise adequately provided for) as they mature. The term “preferential
dividends arrears amount” means the amount, if any, of cumulative dividends in arrears on all shares having a preference with
respect to payment of dividends over the class or series to which the applicable distribution is being made, provided that if the
articles of incorporation provide that a distribution can be made without regard to preferential dividends arrears amount, then the
preferential dividends arrears amount shall be zero. The term “preferential rights amount” means the amount that would be needed
if the corporation were to be dissolved at the time of the distribution to satisfy the preferential rights, including accrued but unpaid
dividends, of other shareholders upon dissolution that are superior to the rights of the shareholders receiving the distribution,
provided that if the articles of incorporation provide that a distribution can be made without regard to any preferential rights, then
the preferential rights amount shall be zero.
In addition, the California Financial Code restricts the total dividend payment of any state banking corporation in any calendar year
to the lesser of (1) the bank’s retained earnings or (2) the bank’s net income for its last three fiscal years, less distributions made to
shareholders during the same three-year period. In addition, subject to prior regulatory approval, any state banking corporation may
request an exception to this restriction.
Regulatory Capital
The Company and ARB are subject to certain regulatory capital requirements administered by the Board of Governors of the
Federal Reserve System and 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 of December 31, 2015 and 2014,
the most recent regulatory notification categorized American River Bank as well capitalized under the regulatory framework for
prompt corrective action plan. There are no conditions or events since that notification that management believes have changed the
Bank’s categories.
75 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
REGULATORY MATTERS (Continued)
Regulatory Capital (Continued)
Effective January 1, 2015, bank holding companies with consolidated assets of $1 Billion or more and banks like American River
Bank must comply with new minimum capital ratio requirements to be phased-in between January 1, 2015 and January 1, 2019,
which would consist of the following: (i) a new common equity Tier 1 capital to total risk weighted assets ratio of 4.5%; (ii) a Tier
1 capital to total risk weighted assets ratio of 6% (increased from 4%); (iii) a total capital to total risk weighted assets ratio of 8%
(unchanged from current rules); and (iv) a Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%.
In addition, a “capital conservation buffer,” is established which when fully phased-in will require maintenance of a minimum of
2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum capital ratio requirements
described above. The 2.5% buffer will increase the minimum capital ratios to (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a
Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new buffer requirement will be phased-in between January
1, 2016 and January 1, 2019. If the capital ratio levels of a banking organization fall below the capital conservation buffer amount,
the organization will be subject to limitations on (i) the payment of dividends; (ii) discretionary bonus payments; (iii) discretionary
payments under Tier 1 instruments; and (iv) engaging in share repurchases.
76 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
REGULATORY MATTERS (Continued)
Regulatory Capital (Continued)
To be categorized as well capitalized, ARB must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-
based and Tier 1 leverage ratios as set forth in the table below.
Management believes that the Company and ARB met all their capital adequacy requirements as of December 31, 2015 and 2014.
December 31,
2015
2014
Amount
Ratio
(Dollars in thousands)
Amount
Ratio
Leverage Ratio
American River Bankshares and Subsidiaries
Minimum regulatory requirement
American River Bank
Minimum requirement for “Well-Capitalized”
institution
Minimum regulatory requirement
Common Equity Tier 1 Risk-Based Capital Ratio
American River Bank
Minimum requirement for “Well-Capitalized”
institution
Minimum regulatory requirement
Tier 1 Risk-Based Capital Ratio
American River Bankshares and Subsidiaries
Minimum regulatory requirement
American River Bank
Minimum requirement for “Well-Capitalized”
institution
Minimum regulatory requirement
Total Risk-Based Capital Ratio
American River Bankshares and Subsidiaries
Minimum regulatory requirement
American River Bank
Minimum requirement for “Well-Capitalized”
institution
Minimum regulatory requirement
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
67,651
24,673
68,079
30,826
24,661
68,079
23,237
16,065
67,651
20,988
68,079
28,559
21,420
72,031
27,984
72,548
35,750
28,559
11.0% $
4.0% $
69,955
24,112
11.0% $
70,216
5.0% $
4.0% $
30,125
24,100
19.1%
6.5%
4.5%
19.3% $
6.0% $
69,955
12,957
19.1% $
70,216
8.0% $
6.0% $
19,419
12,946
20.6% $
8.0% $
74,020
26,014
20.3% $
74,277
10.0% $
8.0% $
32,490
25,992
11.6%
4.0%
11.7%
5.0%
4.0%
N/A
N/A
N/A
21.6%
4.0%
21.7%
6.0%
4.0%
22.9%
8.0%
22.9%
10.0%
8.0%
77 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15.
OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income consisted of the following (dollars in thousands):
Merchant fee income
Increase in cash surrender value of life insurance policies (Note 16)
Other
Year Ended December 31,
2015
2014
2013
$
$
378
316
237
931
$
$
413
284
345
1,042
$
$
443
247
383
1,073
Other noninterest expense consisted of the following (dollars in thousands):
Professional fees
Outsourced item processing
Directors’ expense
Telephone and postage
Stationery and supplies
Advertising and promotion
Other operating expenses
16.
EMPLOYEE BENEFIT PLANS
American River Bankshares 401(k) Plan
Year Ended December 31,
2015
2014
2013
$
$
$
863
360
402
368
143
164
662
1,182
355
394
357
193
160
736
933
357
348
329
240
284
596
$
2,962
$
3,377
$
3,087
The American River Bankshares 401(k) Plan has been in place since January 1, 1993 and is available to all employees. Under the
plan, the Company will match 100% of each participant’s contribution up to 3% of annual compensation plus 50% of the next 2%
of annual compensation. Employer Safe Harbor matching contributions are 100% vested upon entering the plan. The Company’s
contributions totaled $202,000, $178,000 and $181,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
Employee Stock Purchase Plan
The Company contracts with an administrator for an Employee Stock Purchase Plan which allows employees to purchase the
Company’s stock at fair market value as of the date of purchase. The Company bears all costs of administering the Plan, including
broker’s fees, commissions, postage and other costs actually incurred.
78 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16.
EMPLOYEE BENEFIT PLANS (Continued)
American River Bankshares Deferred Compensation Plan
The Company has established a Deferred Compensation Plan for certain members of the management team and a Deferred Fee
Agreement for Non-Employee Directors for the purpose of providing the opportunity for participants to defer compensation.
Participants of the management team, who are selected by a committee designated by the Board of Directors, may elect to defer
annually a minimum of $5,000 or a maximum of eighty percent of their base salary and all of their cash bonus. Directors may also
elect to defer up to one hundred percent of their monthly fees. The Company bears all administration costs and accrues interest on
the participants’ deferred balances at a rate based on U.S. Government Treasury rates plus 4.0%. This rate was 5.65% at December
31, 2015. Deferred compensation, including interest earned, totaled $2,837,000 and $2,690,000 at December 31, 2015 and 2014,
respectively. The expense recognized under this plan totaled $156,000, $150,000 and $117,000 for the years ended December 31,
2015, 2014 and 2013, respectively.
Salary Continuation Plan
The Company has agreements to provide certain current executives, or their designated beneficiaries, with annual benefits for up to
15 years after retirement or death. These benefits are substantially equivalent to those available under life insurance policies
purchased by the Company on the lives of the executives. The Company accrues for these future benefits from the effective date of
the agreements until the executives’ expected final payment dates in a systematic and rational manner. As of December 31, 2015
and 2014, the Company had accrued $1,252,000 and $1,179,000, respectively, for potential benefits payable. This payable
approximates the then present value of the benefits expected to be provided at retirement and is included in accrued interest payable
and other liabilities on the consolidated balance sheet. The expense recognized under this plan totaled $168,000, $142,000 and
$170,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
In connection with these plans, the Company invested in single premium life insurance policies with cash surrender values totaling
$14,483,000 and $14,167,000 at December 31, 2015 and 2014, respectively. On the consolidated balance sheet, the cash surrender
value of life insurance policies is included in accrued interest receivable and other assets. Tax-exempt income on these policies, net
of expense, totaled approximately $316,000, $383,000 and $365,000 for the years ended December 31, 2015, 2014 and 2013,
respectively. In 2014 and 2013, $99,000 and $118,000, respectively, of this tax-exempt income was from the death benefit
proceeds of life insurance policies on former employees or directors.
17.
RELATED PARTY TRANSACTIONS
During the normal course of business, the Company enters into transactions with related parties, including Directors and affiliates.
The following is a summary of the aggregate activity involving related party borrowers during 2015 (dollars in thousands):
Balance, January 1, 2015
Disbursements
Amounts repaid
Balance, December 31, 2015
$
3,821
—
(789)
$
3,032
There are no undisbursed commitments to related parties as of December 31, 2015.
The Company also leases one of its branch facilities from a current member of the Company’s Board of Directors. Rental payments
to the Director totaled $108,000, $107,000 and $105,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
79 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, 2015 and 2014
(Dollars in thousands)
ASSETS
Cash and due from banks
Investment in subsidiaries
Other assets
Liabilities:
Other liabilities
Total liabilities
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Shareholders’ equity:
Common stock
Retained earnings
Accumulated other comprehensive income, net of taxes
Total shareholders’ equity
2015
2014
$
191
86,503
333
$
378
89,908
277
$
87,027
$
90,563
$
$
952
952
916
916
49,554
34,418
2,103
86,075
57,126
29,150
3,371
89,647
$
87,027
$
90,563
80 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31, 2015, 2014 and 2013
(Dollars in thousands)
Income:
Dividends declared by subsidiaries – eliminated in consolidation
Management fee from subsidiaries – eliminated in consolidation
Other income
$
Total income
Expenses:
Professional fees
Directors’ expense
Other expenses
Total expenses
Income before equity in undistributed income of subsidiaries
Equity in (distributed) undistributed income of subsidiaries
Income before income taxes
Income tax benefit
Net income
2015
2014
2013
$
7,900
—
—
7,900
97
285
204
586
7,314
(2,287)
5,027
241
4,250
—
—
4,250
89
280
212
581
3,669
453
4,122
239
$
6,000
—
—
6,000
91
247
205
543
5,457
(2,623)
2,834
223
$
5,268
$
4,361
$
3,057
81 AMERICAN RIVER BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015, 2014 and 2013
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating
2015
2014
2013
$
5,268
$
4,361
$
3,057
activities:
Distributed (undistributed) earnings of subsidiaries
Equity-based compensation expense
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of equipment
Sale of equipment
Net cash provided by investing activities
Cash flows from financing activities:
Cash paid to repurchase common stock
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
2,287
271
(206)
36
7,656
—
—
—
(7,843)
(7,843)
(187)
378
(453)
166
(44)
80
4,110
—
—
—
(4,148)
(4,148)
(38)
416
Cash and cash equivalents at end of year
$
191
$
378
$
2,623
131
1,004
(60)
6,755
—
—
—
(7,000)
(7,000)
(245)
661
416
82 Selected Quarterly Information (Unaudited)
(In thousands, except per share and price range of common stock)
2015
Interest income
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expense
Income before taxes
Net income
Basic earnings per share
Diluted earnings per share
Cash dividends per share
Price range, common stock
2014
Interest income
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expense
Income before taxes
Net income
Basic earnings per share
Diluted earnings per share
Cash dividends per share
Price range, common stock
March 31,
June 30,
September
30,
December
31,
$
$
$
4,902
4,654
—
585
3,813
1,426
956
$
5,283
5,039
—
507
3,415
2,131
1,386
5,458
5,218
—
490
3,432
2,276
1,469
5,325
5,096
—
433
3,420
2,109
1,457
$
.12
.12
—
$ 9.23-9.98
$
.18
.18
—
$ 9.10-9.95
$
.20
.20
—
$ 9.15-10.35
$
.20
.20
—
$ 9.40-11.19
$
$
$
4,996
4,692
—
502
3,653
1,541
1,006
5,067
4,776
—
508
3,699
1,585
1,035
$
4,966
4,679
(200)
520
3,662
1,737
1,124
4,936
4,650
(341)
647
3,848
1,790
1,196
$
.12
.12
—
$ 8.92-10.29
$
.13
.13
—
$ 8.21-9.75
$
.14
.14
—
$ 8.42-9.63
$
.15
.15
—
$ 9.05-9.99
83
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