SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-31525
AMERICAN RIVER HOLDINGS
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(Exact name of registrant as specified in its charter)
California 68-0352144
- ------------------------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
1545 River Park Drive, Sacramento, California 95815
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(Address of principal executive offices) (Zip code)
(916) 565-6100
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(Registrant's telephone number, including area code)
not applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
No par value Common Stock - 2,621,834 shares outstanding at November 1, 2002.
Page 1 of 33
The Index to the Exhibits is located at Page 32
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
AMERICAN RIVER HOLDINGS
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares)
September 30, December 31,
2002 2001
------------ ------------
ASSETS
Cash and due from banks $ 17,417 $ 20,342
Federal funds sold -- 7,814
Interest-bearing deposits in banks 6,037 5,740
Investment securities:
Available-for-sale (amortized cost: 2002--$65,864; 2001--$35,007) 68,074 35,803
Held-to-maturity (fair value: 2002--$13,672; 2001--$13,234) 13,457 13,109
Loans and leases, less allowance for loan and lease losses of $3,141
at September 30, 2002; $2,614 at December 31, 2001 219,568 195,026
Bank premises and equipment, net 1,755 1,903
Accounts receivable servicing receivables, net 1,873 2,869
Accrued interest receivable and other assets 3,347 3,953
------------ ------------
$ 331,528 $ 286,559
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 75,425 $ 67,740
Interest bearing 189,575 187,148
------------ ------------
Total deposits 265,000 254,888
Short-term borrowed funds (Note 5) 31,700 --
Long-term debt 2,004 2,039
Accrued interest payable and other liabilities 1,751 1,690
------------ ------------
Total liabilities 300,455 258,617
------------ ------------
Commitments and contingencies (Note 2)
Shareholders' equity:
Common stock - no par value; 20,000,000 shares authorized;
issued and outstanding - 2,625,183 shares at September 30,
2002 and 2,519,717 at December 31, 2001 16,087 14,167
Retained earnings 13,647 13,290
Accumulated other comprehensive income (Note 4) 1,339 485
------------ ------------
Total shareholders' equity 31,073 27,942
------------ ------------
$ 331,528 $ 286,559
============ ============
See notes to Unaudited Consolidated Financial Statements
2
AMERICAN RIVER HOLDINGS
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
For the periods ended September 30,
Three months Nine months
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Interest income:
Interest and fees on loans $ 3,850 $ 4,332 $ 11,406 $ 13,924
Interest on Federal funds sold 34 79 72 142
Interest on deposits in banks 66 82 203 264
Interest and dividends on investment securities:
Taxable 662 435 1,642 1,421
Exempt from Federal income taxes 116 115 345 350
Dividends 4 12 15 54
------------ ------------ ------------ ------------
Total interest income 4,732 5,055 13,683 16,155
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits 800 1,374 2,472 4,998
Interest on short-term borrowings 79 1 90 97
Interest on long-term debt 33 31 95 95
------------ ------------ ------------ ------------
Total interest expense 912 1,406 2,657 5,190
------------ ------------ ------------ ------------
Net interest income 3,820 3,649 11,026 10,965
Provision for loan and lease losses 160 192 494 573
------------ ------------ ------------ ------------
Net interest income after provision for
loan and lease losses 3,660 3,457 10,532 10,392
------------ ------------ ------------ ------------
Noninterest income 619 656 1,663 1,791
------------ ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits 1,372 1,252 4,092 4,083
Occupancy 211 201 620 602
Furniture and equipment 162 145 458 416
Other expense 540 669 1,747 2,046
------------ ------------ ------------ ------------
Total noninterest expense 2,285 2,267 6,917 7,147
------------ ------------ ------------ ------------
Income before income taxes 1,994 1,846 5,278 5,036
Income taxes 794 735 2,090 2,000
------------ ------------ ------------ ------------
Net income $ 1,200 $ 1,111 $ 3,188 $ 3,036
============ ============ ============ ============
Basic earnings per share (Note 3) $ .46 $ .42 $ 1.21 $ 1.14
============ ============ ============ ============
Diluted earnings per share (Note 3) $ .43 $ .39 $ 1.13 $ 1.07
============ ============ ============ ============
Cash dividends per common share $ -- $ -- $ .14 $ .12
============ ============ ============ ============
See notes to Unaudited Consolidated Financial Statements
3
AMERICAN RIVER HOLDINGS
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except number of shares)
Accumulated
Common Stock Other
--------------------------- Retained Comprehensive Shareholders' Comprehensive
Shares Amount Earnings Income Equity Income
------------ ------------ ------------ ------------- ------------- -------------
Balance, January 1, 2001 2,395,158 $ 12,320 $ 11,876 $ 217 $ 24,413
Comprehensive income (Note 4):
Net income 4,037 4,037 $ 4,037
Other comprehensive income, net of tax:
Change in unrealized gain on
available-for-sale investment
securities 268 268 268
------------
Total comprehensive income $ 4,305
============
Cash dividends (681) (681)
5% stock dividend 120,531 1,935 (1,935)
Fractional shares redeemed (7) (7)
Stock options exercised 25,428 247 247
Retirement of common stock (21,400) (335) (335)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 2,519,717 14,167 13,290 485 27,942
Comprehensive income (Note 4):
Net income 3,188 3,188 $ 3,188
Other comprehensive income, net of tax:
Change in unrealized gain on
available-for-sale investment
securities 854 854 854
------------
Total comprehensive income $ 4,042
============
Cash dividends (362) (362)
5% stock dividend 124,604 2,469 (2,469)
Stock options exercised 16,309 123 123
Retirement of common stock (35,447) (672) (672)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2002 2,625,183 $ 16,087 $ 13,647 $ 1,339 $ 31,073
============ ============ ============ ============ ============
See notes to Unaudited Consolidated Financial Statements
4
AMERICAN RIVER HOLDINGS
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the nine months ended September 30,
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 3,188 $ 3,036
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses 494 573
Increase (decrease) in deferred loan origination
fees (costs), net 137 (161)
Depreciation and amortization 341 333
Amortization (accretion) of investment security
premiums (discounts), net 201 (35)
Provision for accounts receivable servicing
asset 2 13
Gain on sale of equipment and other real estate (13)
Decrease (increase) in accrued interest receivable
and other assets 414 (163)
(Decrease) increase in accrued interest payable
and other liabilities (45) 10
------------ ------------
Net cash provided by operating activities 4,719 3,606
------------ ------------
Cash flows from investing activities:
Proceeds from the sale of available-for-sale
investment securities 252 1,979
Proceeds from called available-for-sale investment
securities 250 --
Proceeds from called held-to-maturity investment
securities -- 1,250
Proceeds from matured available-for-sale investment
securities 7,255 6,500
Proceeds from matured held-to-maturity investment
securities -- 2,050
Purchases of available-for-sale investment securities (39,338) (5,866)
Purchases of held-to-maturity investment securities (4,249) (514)
Proceeds from principal repayments for available-
for-sale mortgage-related securities 593 66
Proceeds from principal repayments for held-to-
maturity mortgage-related securities 3,831 2,328
Net increase in interest-bearing deposits in banks (297) (201)
Net increase in loans (25,217) (1,023)
Net decrease (increase) in accounts receivable servicing
receivables 1,077 (513)
Purchases of equipment (189) (505)
Proceeds from the sale of other real estate 61 --
------------ ------------
Net cash (used in) provided by
investing activities (55,971) 5,551
------------ ------------
5
AMERICAN RIVER HOLDINGS
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
For the nine months ended September 30,
2002 2001
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand, interest-bearing and
savings deposits $ 13,401 $ (8,549)
Net (decrease) increase in time deposits (3,289) 12,705
Repayment of Federal Home Loan Bank advance (35) (33)
Net increase (decrease) in short-term borrowings 31,700 (13,690)
Payment of cash dividends (715) (641)
Cash paid to repurchase common stock (672) --
Cash paid for fractional shares -- --
Exercise of stock options 123 170
------------ ------------
Net cash provided by (used in) financing
activities 40,513 (10,038)
------------ ------------
Decrease in cash and cash
equivalents (10,739) (881)
Cash and cash equivalents at beginning of period 28,156 21,236
------------ ------------
Cash and cash equivalents at end of period $ 17,417 $ 20,355
============ ============
See notes to Unaudited Consolidated Financial Statements
6
AMERICAN RIVER HOLDINGS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the consolidated financial position of American
River Holdings (the "Company") at September 30, 2002 and December 31, 2001, and
the results of its operations for the three and nine month periods ended
September 30, 2002 and 2001 and cash flows for the nine month periods ended
September 30, 2002 and 2001.
Certain disclosures normally presented in the notes to the financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. These interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2001 Annual Report to Shareholders. The results of
operations for the three and nine month periods ended September 30, 2002 may not
necessarily be indicative of the operating results for the full year.
In preparing such financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates. Material estimates that
are particularly susceptible to significant changes in the near term relate to
the determination of the allowance for loan and lease losses, the provision for
taxes and the estimated fair value of investment securities.
2. COMMITMENTS AND CONTINGENCIES
In the normal course of business there are outstanding various commitments to
extend credit which are not reflected in the financial statements, including
loan commitments of approximately $63,249,000 and letters of credit of
$3,395,000 at September 30, 2002. However, all such commitments will not
necessarily culminate in actual extensions of credit by the Company during 2002.
Approximately $15,452,000 of loan commitments outstanding at September 30, 2002
are for real estate construction loans and are expected to fund within the next
twelve months. The remaining commitments primarily relate to revolving lines of
credit or other commercial loans, and many of these are expected to expire
without being drawn upon. Therefore, the total commitments do not necessarily
represent future cash requirements. Each potential borrower and the necessary
collateral are evaluated on an individual basis. Collateral varies, but may
include real property, bank deposits, debt or equity securities or business
assets.
Stand-by letters of credit are commitments written to guarantee the performance
of a customer to a third party. These guarantees are issued primarily relating
to purchases of inventory by commercial customers and are typically short-term
in nature. Credit risk is similar to that involved in extending loan commitments
to customers and accordingly, evaluation and collateral requirements similar to
those for loan commitments are used. Virtually all such commitments are
collateralized.
3. EARNINGS PER SHARE COMPUTATION
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding for the period (2,627,121 and 2,637,256 shares
for the three and nine month periods ended September 30, 2002, and 2,663,804 and
2,662,052 shares for the three and nine month periods ended September 30, 2001).
Diluted earnings per share reflect the potential dilution that could occur if
outstanding stock options were exercised. Diluted earnings per share is computed
by dividing net income by the weighted average common shares outstanding for the
period plus the dilutive effect of options (194,766 and 195,373 shares for the
three and nine month periods ended September 30, 2002 and 180,685 and 167,792
shares for the three and nine month periods September 30, 2001). Earnings per
share is retroactively adjusted for stock dividends for all periods presented.
7
4. COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods
presented. Comprehensive income is made up of net income plus other
comprehensive income. Other comprehensive income, net of taxes, was comprised of
the unrealized gains on available-for-sale investment securities of $717,000 and
$854,000, respectively, for the three and nine month periods ended September 30,
2002 and $318,000 and $479,000, respectively, for the three and nine month
periods ended September 30, 2001. Comprehensive income was $1,917,000 and
$4,042,000, respectively, for the three and nine month periods ended
September 30, 2002 and $1,429,000 and $3,515,000, respectively, for the three
and nine month periods ended September 30, 2001.
5. SHORT-TERM BORROWING ARRANGEMENTS
The Company has a total of $26,000,000 in unsecured short-term borrowing
arrangements with four of its correspondent banks. Advances totaling $6,700,000
were outstanding from one of its correspondent banks at September 30, 2002,
bearing an interest rate of 2.375% and maturing October 1, 2002. There were no
borrowings outstanding under these arrangements at December 31, 2001.
In addition, the Company has a line of credit available with the Federal Home
Loan Bank which is secured by pledged mortgage loans and investment securities.
Borrowings may include overnight advances as well as loans with a term of up to
thirty years. Three advances totaling $25,000,000 were outstanding from the
Federal Home Loan Bank at September 30, 2002. One advance for $12,500,000 bears
an interest rate of 1.74% and matures October 30, 2002; one advance for
$10,000,000 bears an interest rate of 1.87% and matures July 30, 2003 and one
advance for $2,500,000 bears an interest rate of 1.86% and matures July 30,
2003. There were no short-term borrowings outstanding under this line of credit
at December 31, 2001.
6. ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. This Statement amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. This Statement is effective for fiscal years beginning after May 15,
2002. Adoption of this statement is not expected to have a material effect on
the Company's consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This Statement is
effective for exit or disposal activities are initiated after December 31, 2002.
Adoption of this statement is not expected to have a material effect on the
Company's consolidated financial statements.
On October 1, 2002, the FASB issued FASB Statement No. 147, Acquisitions of
Certain Financial Institutions. This statement, which provides guidance on the
accounting for the acquisition of a financial institution, applies to all
acquisitions except those between two or more mutual enterprises (the FASB has a
separate project on its agenda that will provide guidance on the accounting for
transactions between mutual enterprises).
8
The provisions of Statement 147 reflect the following conclusions:
o The excess of the fair value of liabilities assumed over the fair value of
tangible and identifiable intangible assets acquired in a business
combination represents goodwill that should be accounted for under FASB
Statement No. 142, Goodwill and Other Intangible Assets. Thus, the
specialized accounting guidance in paragraph 5 of FASB Statement No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions,
will not apply after September 30, 2002. If certain criteria in Statement
147 are met, the amount of the unidentifiable intangible asset will be
reclassified to goodwill upon adoption of that Statement.
o Financial institutions meeting conditions outlined in Statement 147 will
be required to restate previously issued financial statements. The
objective of that restatement requirement is to present the balance sheet
and income statement as if the amount accounted for under Statement 72 as
an unidentifiable intangible asset had been reclassified to goodwill as of
the date Statement 142 was initially applied. (For example, a financial
institution that adopted Statement 142 on January 1, 2002, would
retroactively reclassify the unidentifiable intangible asset to goodwill
as of that date and restate previously issued income statements to remove
the amortization expense recognized in 2002). Those transition provisions
are effective on October 1, 2002; however, early application is permitted.
o The scope of FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, is amended to include long-term
customer-relationship intangible assets such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible
assets.
The adoption of Statement 147 is not expected to have a material
effect on the Company's consolidated financial statements.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF AMERICAN RIVER HOLDINGS
The following is management's discussion and analysis of the
significant changes in American River Holdings balance sheet accounts for the
periods ended September 30, 2002 and December 31, 2001 and its income and
expense accounts for the three and nine-month periods ended September 30, 2002
and 2001. The discussion is designed to provide a better understanding of
significant trends related to the Company's financial condition, results of
operations, liquidity, capital resources and interest rate sensitivity.
In addition to the historical information contained herein, this
report on Form 10-Q contains certain forward-looking statements. The reader of
this report should understand that all such forward-looking statements are
subject to various uncertainties and risks that could affect their outcome. The
Company's actual results could differ materially from those suggested by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan and lease losses, expenses,
rates charged on loans and earned on securities investments, rates paid on
deposits, competition effects, fee and other noninterest income earned, general
economic conditions, nationally, regionally and in the operating market areas of
the Company and its subsidiaries, changes in the regulatory environment, changes
in business conditions and inflation, changes in securities markets, changes in
accounting principals and procedures, data processing problems, a decline in
real estate values in the Company's market area, the California energy shortage,
the effects of terrorism, including the events of September 11, 2001 and
thereafter, and the conduct of the war on terrorism by the United States and its
allies, as well as other factors. This entire report should be read to put such
forward-looking statements in context. To gain a more complete understanding of
the uncertainties and risks involved in the Company's business, this report
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
Interest income and net interest income are presented on a fully
taxable equivalent basis ("FTE") within management's discussion and analysis.
General Development of Business
The Company is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended. The Company was incorporated under the
laws of the State of California in 1995. As a bank holding company, the Company
is authorized to engage in the activities permitted under the Bank Holding
Company Act of 1956, as amended, and regulations thereunder. Its principal
office is located at 1545 River Park Drive, Suite 107, Sacramento, California
95815 and its telephone number is (916) 565-6100.
The Company owns 100% of the issued and outstanding common shares of
American River Bank, North Coast Bank (the "Subsidiary Banks") and First Source
Capital. American River Bank was incorporated and commenced business in Fair
Oaks, California, in 1983. American River Bank operates four full service
offices within its primary service areas of Sacramento and Placer Counties.
American River Bank's primary business is serving the commercial banking needs
of small to mid-sized businesses within those counties. American River Bank
accepts checking and savings deposits, offers money market deposit accounts and
certificates of deposit, makes secured and unsecured commercial, secured real
estate, and other installment and term loans and offers other customary banking
services.
First Source Capital was formed in July 1999 to conduct lease
financing for most types of business equipment, from computer software to heavy
earth-moving equipment. Specific leasing programs are tailored for vendors of
equipment in order to increase their sales. First Source Capital acts as a lease
broker and receives a fee for each lease recorded on the books of the party
acting as the funding source.
10
North Coast Bank, National Association ("North Coast Bank"). North
Coast Bank was incorporated and commenced business in 1990 as Windsor Oaks
National Bank in Windsor, California. In 1997, the name was changed to North
Coast Bank. North Coast Bank is headquartered in Santa Rosa, California and
operates three full service banking offices within its primary service area of
Sonoma County. North Coast Bank's primary business is serving the business or
commercial banking needs of small to mid-sized businesses within Sonoma County.
Overview
The Company recorded net income of $1,200,000 for the quarter ended
September 30, 2002, which was an 8.0% increase over the $1,111,000 reported for
the same period of 2001. Diluted earnings per share for the third quarter of
2002 were $0.43 compared to the $0.39 recorded in the third quarter of 2001. The
return on average equity ("ROAE") and the return on average assets ("ROA") for
the third quarter of 2002 were 16.01% and 1.48%, respectively, as compared to
16.46% and 1.59%, respectively, for the same period in 2001.
Net income for the nine months ended September 30, 2002 and 2001 was
$3,188,000 and $3,036,000, respectively, with diluted earnings per share of
$1.13 and $1.07, respectively. For the first nine months of 2002, ROAE was
14.71% and ROA was 1.43 as compared to 15.75% and 1.47% for the same period in
2001.
Total assets of the Company increased by $44,969,000 (15.7%) from
December 31, 2001 to $331,528,000 at September 30, 2002. Net loans totaled
$219,568,000, up $24,542,000 (12.6%) from the ending balances on December 31,
2001. Investment securities totaled $81,531,000, up $32,619,000 (66.7%) from the
ending balances on December 31, 2001. Deposit balances at September 30, 2002
totaled $265,000,000, up $10,112,000 (4.0%) from December 31, 2001. The balances
in other borrowings at September 30, 2002 totaled $33,704,000, up $31,665,000
(1553.0%) from December 31, 2001. The increase in investment securities is
primarily due to a change in investment strategy whereby the Company has
invested its excess funds in investment securities rather than federal funds
sold and the adoption of an investment strategy that allowed the Company to take
advantage of a relatively steep yield curve, to utilize excess capital and to
reduce exposure to further declines in intermediate term interest rates by
purchasing mortgage-backed securities with average lives of 3 to 5 years and
funding them with wholesale Federal Home Loan Bank (the "FHLB") advances that
mature in one year or less (for further information see the "Market Risk
Management" section of this report. The FHLB advances are recorded in short-term
borrowings. Table One below provides a summary of the components of net income
for the periods indicated:
Table One: Components of Net Income
- -------------------------------------------------------------------------------------------------
For the three For the nine
months ended months ended
September 30, September 30,
----------------------- -----------------------
(In thousands, except percentages) 2002 2001 2002 2001
-------- -------- -------- --------
Net interest income* $ 3,861 $ 3,688 $ 11,148 $ 11,082
Provision for loan and lease losses (160) (192) (494) (573)
Noninterest income 619 656 1,663 1,791
Noninterest expense (2,285) (2,267) (6,917) (7,147)
Provision for income taxes (794) (735) (2,090) (2,000)
Tax equivalent adjustment (41) (39) (122) (117)
-------- -------- -------- --------
Net income $ 1,200 $ 1,111 $ 3,188 $ 3,036
======== ======== ======== ========
- -------------------------------------------------------------------------------------------------
Average total assets $ 320.8 $ 276.4 $ 299.0 $ 276.5
Net income (annualized) as a percentage
of average total assets 1.48% 1.59% 1.43% 1.47%
<FN>
- -------------------------------------------------------------------------------------------------
* Fully taxable equivalent basis (FTE)
</FN>
11
The Company ended the third quarter of 2002 with a Tier 1 capital
ratio of 11.9% and a total risk-based capital ratio of 13.2% versus 12.4% and
13.6%, respectively, at December 31, 2001.
Results of Operations
Net Interest Income and Net Interest Margin
Net interest income represents the excess of interest and fees
earned on interest earning assets (loans and leases, securities, Federal funds
sold and investments in time deposits) over the interest paid on deposits and
borrowed funds. Net interest margin is net interest income expressed as a
percentage of average earning assets.
The Company's net interest margin was 5.18% for the three months
ended September 30, 2002, 5.76% for the three months ended September 30, 2001,
5.48% for the nine months ended September 30, 2002 and 5.83% for the nine months
ended September 30, 2001.
The fully taxable equivalent interest income component for the third
quarter of 2002 decreased $321,000 (6.3%) to $4,773,000 compared to $5,094,000
for the three months ended September 30, 2001. Total fully taxable equivalent
interest income for the nine months ended September 30, 2002 decreased
$2,467,000 (15.2%) to $13,805,000 compared to $16,272,000 for the nine months
ended September 30, 2001. The decrease in the fully taxable equivalent interest
income for the third quarter of 2002 compared to the same period in 2001 is
broken down by rate (down $1,052,000) and volume (up $731,000). The rate
decrease can be attributed to decreases implemented by the Company during 2001
in response to the Federal Reserve Board (the "FRB") decreases in the Federal
funds and Discount rates. Although there were no FRB rate decreases during the
third quarter of 2002, the effects of five such rate decreases by the FRB for
the period beginning on July 1, 2001 and ending on December 31, 2001, resulting
in a 200 basis point drop in the prime rate, contributed to the drop in the
yield in average earning assets from 7.96% for the third quarter of 2001 to
6.40% for the third quarter of 2002. The volume increase was the result of a
16.5% increase in average assets primarily the result of a concentrated focus on
business lending and the effects of a favorable local market and an increase in
investment securities as a result of an increase in average deposits of
$21,539,000 and an increase in average other borrowings of $17,823,000. Average
loan balances were up 6.6% for the three months ended September 30, 2002 as
compared to the same quarter in 2001, while average investments were up 53.3%
during the same period. The breakdown of the fully taxable equivalent interest
income for the nine months ended September 30, 2002 over the same period in 2001
resulted from increases in volume (up $894,000) and decreases in rate (down
$3,361,000). Average earning assets increased 7.1% during the first nine months
of 2002 as compared to the same period in 2001. Average loan balances increased
$3,380,000 (1.7%) during that same period; however, average investments and
Federal funds balances increased a combined $14,581,000 (28.6%).
Interest expense was $494,000 (35.1%) lower in the third quarter of
2002 versus the prior year period. The average balances on interest bearing
liabilities were $23,889,000 (12.8%) higher in the third quarter of 2002 versus
the same quarter in 2001. The increased volume increased expense by $233,000,
however, the overall decrease in interest expense for the three-month period can
be related to a drop in rates (down $727,000). Rates paid on interest bearing
liabilities decreased 128 basis points on a quarter over quarter basis. Interest
expense was $2,533,000 (48.8%) lower in the nine month period ended September
30, 2002 versus the prior year period. The average balances on interest bearing
liabilities were $7,167,000 (3.8%) higher in the nine-month period ended
September 30, 2002 versus the same period in 2001. The higher balances accounted
for an increase in interest expense of $136,000, while rates paid on interest
bearing liabilities decreased 188 basis points on a year over year basis and
accounted for a $2,669,000 decrease.
Table Two, Analysis of Net Interest Margin on Earning Assets, and
Table Three, Analysis of Volume and Rate Changes on Net Interest Income and
Expenses, are provided to enable the reader to understand the components and
trends of the Company's interest income and expenses. Table Two provides an
analysis of net interest margin on earning assets setting forth average assets,
liabilities and shareholders' equity; interest income earned and interest
expense paid and average rates earned and paid; and the net interest margin on
earning assets. Table Three sets forth a summary of the changes in interest
income and interest expense from changes in average asset and liability balances
(volume) and changes in average interest rates.
12
Table Two: Analysis of Net Interest Margin on Earning Assets
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30,
---------------------------------------------------------------------------------
2002 2001
-------------------------------------- --------------------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg
(In thousands, except percentages) Balance Interest Yield (4) Balance Interest Yield (4)
--------- ---------- --------- --------- ---------- ---------
Assets:
Earning assets
Loans (1) $ 213,412 $ 3,850 7.16% $ 200,123 $ 4,332 8.59%
Taxable investment
securities 57,619 662 4.56% 28,370 435 6.08%
Tax-exempt investment
securities (2) 9,889 155 6.22% 9,606 151 6.24%
Corporate stock (2) 282 6 8.44% 769 15 7.74%
Federal funds sold 8,681 34 1.55% 9,503 79 3.30%
Investments in time deposits 6,012 66 4.36% 5,552 82 5.86%
--------- --------- --------- ---------
Total earning assets 295,895 4,773 6.40% 253,923 5,094 7.96%
--------- ---------
Cash & due from banks 19,800 18,102
Other assets 8,130 7,057
Allowance for loan & lease losses (3,048) (2,706)
--------- ---------
$ 320,777 $ 276,376
========= =========
Liabilities & Shareholders' Equity
Interest bearing liabilities:
NOW & MMDA $ 102,581 250 0.97% $ 87,454 375 1.70%
Savings 13,426 13 0.38% 14,393 36 0.99%
Time deposits 74,053 537 2.88% 82,147 963 4.65%
Other borrowings 19,974 112 2.22% 2,151 32 5.90%
--------- --------- --------- ---------
Total interest bearing
liabilities 210,034 912 1.72% 186,145 1,406 3.00%
--------- ---------
Demand deposits 78,320 62,847
Other liabilities 2,695 605
--------- ---------
Total liabilities 291,049 249,597
Shareholders' equity 29,728 26,779
--------- ---------
$ 320,777 $ 273,376
========= =========
Net interest income & margin (3) $ 3,861 5.18% $ 3,688 5.76%
========= ======== ========= ========
<FN>
(1) Loan interest includes loan fees of $111,000 and $109,000 during the three
months ending September 30, 2002 and September 30, 2001, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
(4) Average yield is calculated based on actual days in quarter (92) and
annualized to actual days in year (365).
</FN>
13
- ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
---------------------------------------------------------------------------------
2002 2001
-------------------------------------- --------------------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg
(In thousands, except percentages) Balance Interest Yield (4) Balance Interest Yield (4)
--------- ---------- --------- --------- ---------- ---------
Assets:
Earning assets
Loans (1) $ 206,288 $ 11,406 7.39% $ 202,908 $ 13,924 9.17%
Taxable investment
Securities 43,837 1,642 5.01% 30,053 1,421 6.32%
Tax-exempt investment
securities (2) 9,735 462 6.35% 9,682 457 6.31%
Corporate stock (2) 333 20 8.03% 853 64 10.03%
Federal funds sold 5,724 72 1.68% 4,965 142 3.82%
Investments in time deposits 5,985 203 4.53% 5,480 264 6.44%
--------- --------- --------- ---------
Total earning assets 271,902 13,805 6.79% 253,941 16,272 8.57%
--------- ---------
Cash & due from banks 21,055 16,932
Other assets 8,832 8,218
Allowance for loan & lease losses (2,839) (2,613)
--------- ---------
$ 298,950 $ 276,478
========= =========
Liabilities & Shareholders' Equity
Interest bearing liabilities:
NOW & MMDA $ 98,321 711 0.97% $ 89,992 1,690 2.51%
Savings 13,471 39 0.39% 13,564 151 1.49%
Time deposits 74,178 1,722 3.10% 79,681 3,157 5.30%
Other borrowings 8,715 185 2.84% 4,281 192 6.00%
--------- --------- --------- ---------
Total interest bearing
liabilities 194,685 2,657 1.82% 187,518 5,190 3.70%
--------- ---------
Demand deposits 73,049 61,686
Other liabilities 2,246 1,506
--------- ---------
Total liabilities 269,980 250,710
Shareholders' equity 28,970 25,768
--------- ---------
$ 298,950 $ 276,478
========= =========
Net interest income & margin (3) $ 11,148 5.48% $ 11,082 5.83%
========= ======== ========= =========
<FN>
(1) Loan interest includes loan fees of $422,000 and $406,000 during the nine
months ending September 30, 2002 and September 30, 2001, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
(4) Average yield is calculated based on actual days in period (273) and
annualized to actual days in year (365).
</FN>
14
Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
- ---------------------------------------------------------------------------------------------------
(In thousands) Three Months Ended September 30, 2002 over 2001
Increase (decrease) due to change in:
Interest-earning assets: Volume Rate (4) Net Change
---------- ---------- ----------
Net loans (1)(2) $ 288 $ (770) $ (482)
Taxable investment securities 448 (221) 227
Tax exempt investment securities (3) 4 -- 4
Corporate stock (9) -- (9)
Federal funds sold (7) (38) (45)
Investment in time deposits 7 (23) (16)
---------- ---------- ----------
Total 731 (1,052) (321)
---------- ---------- ----------
Interest-bearing liabilities:
Demand deposits 65 (190) (125)
Savings deposits (2) (21) (23)
Time deposits (95) (331) (426)
Other borrowings 265 (185) 80
---------- ---------- ----------
Total 233 (727) (494)
---------- ---------- ----------
Interest differential $ 498 $ (325) $ 173
========== ========== ==========
- ---------------------------------------------------------------------------------------------------
(In thousands) Nine Months Ended September 30, 2002 over 2001
Increase (decrease) due to change in:
Interest-earning assets: Volume Rate (4) Net Change
---------- ---------- ----------
Net loans (1)(2) $ 232 $ (2,750) $ (2,518)
Taxable investment securities 652 (431) 221
Tax exempt investment securities (3) 3 2 5
Corporate stock (39) (5) (44)
Federal funds sold 22 (92) (70)
Investment in time deposits 24 (85) (61)
---------- ---------- ----------
Total 894 (3,361) (2,467)
---------- ---------- ----------
Interest-bearing liabilities:
Demand deposits 156 (1,135) (979)
Savings deposits (1) (111) (112)
Time deposits (218) (1,217) (1,435)
Other borrowings 199 (206) (7)
---------- ---------- ----------
Total 136 (2,669) (2,533)
---------- ---------- ----------
Interest differential $ 758 $ (692) $ 66
========== ========== ==========
- ---------------------------------------------------------------------------------------------------
<FN>
(1) The average balance of non-accruing loans is immaterial as a percentage of
total loans and, as such, has been included in net loans.
(2) Loan fees of $111,000 and $109,000 during the three months ending September
30, 2002 and September 30, 2001, respectively, and $422,000 and $406,000
during the nine months ending September 30, 2002 and September 30, 2001,
respectively, have been included in the interest income computation.
(3) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(4) The rate/volume variance has been included in the rate variance.
</FN>
15
Provision for Loan and Lease Losses
The Company provided $160,000 for loan and lease losses for the
third quarter of 2002 as compared to $192,000 for the third quarter of 2001. Net
loan and lease charge-offs for the three months ended September 30, 2002 were
($87,000) or -.16% (on an annualized basis) of average loans and leases as
compared to charge-offs of $18,000 or .04% (on an annualized basis) of average
loans and leases for the three months ended September 30, 2001. For the first
nine months of 2002, the Company made provisions for loan and lease losses of
$494,000 and net loan and lease charge-offs were ($33,000) or -.02% (on an
annualized basis) of average loans and leases outstanding. This compares to
provisions for loan and lease losses of $573,000 and net loan and lease
charge-offs of $321,000 for the first nine months of 2001 or .21% (on an
annualized basis) of average loans and leases outstanding. A negative number
occurs in the charge-off amounts and percentages for both periods in 2002 as
recoveries exceeded charge-offs during those periods.
Noninterest Income
Table Four below provides a summary of the components of noninterest
income for the periods indicated (dollars in thousands):
Table Four: Components of Noninterest Income (Unaudited)
- ---------------------------------------------------------------------------------------
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------
Service charges on deposit accounts $ 141 $ 138 $ 427 $ 430
Accounts receivable servicing fees 73 117 226 365
Fees from lease brokerage services 135 73 272 222
Merchant fee income 93 73 255 194
Income from residential lending 72 83 175 189
Financial services income 14 11 51 60
Other 91 161 257 331
- ---------------------------------------------------------------------------------------
Total noninterest income $ 619 $ 656 $ 1,663 $ 1,791
=======================================================================================
Noninterest income was down $37,000 (5.6%) to $619,000 for the three
months ended September 30, 2002 as compared to $656,000 for the three months
ended September 30, 2001. The decrease in noninterest income for the quarter can
be attributed to a decrease in accounts receivable servicing (down $44,000 or
37.6%) and lower fees from the Real Estate Division at North Coast Bank (the
"REDNCB") (down $55,000 or 100.0%). The decrease in fees from accounts
receivable servicing and the REDNCB were offset by increases in fees from lease
brokerage services (up $62,000 or 84.9%) and an increase in merchant fee income
(up $20,000 or 27.4%). The decrease in accounts receivable servicing was a
result of a decrease in average accounts receivable balances outstanding from
$3,624,000 in the third quarter of 2001 to $2,252,000 (37.9%) in the third
quarter of 2002. The decrease in fees from the REDNCB (which were recorded in
"Other" in Table Four) results from the decision to shut down the REDNCB in the
first quarter of 2002. The increase in lease brokerage services results from
First Source Capital, the Company's lease brokerage subsidiary, which saw an
increase in business due to the development of new relationships and a general
positive increase in the businesses it services.
For the nine months ended September 30, 2002, noninterest income was
down $128,000 (7.1%) to $1,663,000. The decrease in noninterest income for the
nine-month period can be attributed to a decrease in accounts receivable
servicing (down $139,000 or 38.1%) and lower fees from the REDNCB (down $67,000
or 85.9%). There was an increase in merchant fee income (up $61,000 or 31.4%)
and lease brokerage fees (up $50,000 or 22.5%) during the nine-month period
ending September 30, 2002. The decrease in accounts receivable servicing was a
result of a decrease in average accounts receivable balances outstanding from
$3,520,000 in the 2002 period to $2,395,000 (32.0%) in the same period ended
2002. The increase in merchant fee income can be attributed to higher
transaction volume from existing clients and more favorable pricing received by
the Company from its processor.
16
Noninterest Expense
Noninterest expenses increased $18,000 (0.8%) to a total of
$2,285,000 in the third quarter of 2002 versus the third quarter of 2001. Salary
and employee benefits, which include commissions and incentives, increased
$120,000 (9.6%) from $1,252,000 during the third quarter of 2001 to $1,372,000
during the third quarter of 2002. The increase is primarily the result of higher
incentive accruals ($188,000 in the third quarter of 2002 as compared to $0 in
the 3rd quarter of 2001). The increased incentive is due to the Company being
close to meeting its projected performance goals for 2002, whereas, the goals
were not close at September 30, 2001. The increase in incentive was offset by
lower commissions paid in the REDNCB (down $45,000). On a quarter over quarter
basis, furniture and equipment increased $17,000 (11.7%). The increase relates
to the depreciation of technology related equipment purchased by the Company
over the past twelve months. Other expense decreased $129,000 (19.3%) to a total
of $540,000 in the third quarter of 2002 versus the third quarter of 2001.
Professional fees, which are classified in the other expense line item,
decreased $44,000 (40.7%) from $108,000 during the third quarter of 2001 to
$64,000 during the third quarter of 2002. The decrease in professional fees
results from a recovery of legal fees ($14,000) related to the resolution of a
problem loan credit and lower legal fees paid to resolve problem loan credits.
The overhead efficiency ratios for the 2002 and 2001 third quarters were 51.0%
and 52.2%, respectively.
Noninterest expense for the nine-month period ended September 30,
2002 was $6,917,000 versus $7,147,000 for the same period in 2001 for a decrease
of $230,000 (3.2%). Salaries and benefits increased $9,000 (0.2%) in 2002 as
compared to 2001. Full time equivalent employees increased to 99 at September
30, 2002 from 98 at September 30, 2001. Furniture and equipment expense
increased $42,000 (10.1%). The increase relates to the depreciation of
technology related equipment purchased by the Company over the past twelve
months. Other expense decreased $299,000 (14.6%). Professional fees decreased
$107,000 (34.6%) from $309,000 during the first nine months of 2001 to $202,000
during the first nine months of 2002. The decrease in professional fees results
from a recovery of legal fees ($78,000) related to the resolution of a problem
loan credit and lower legal fees paid to resolve problem loan credits. An
additional other expense item that decreased during the period was data
processing ($43,000) at North Coast Bank. The outsourced data processing at
North Coast Bank was converted in 2001 and is now processed internally by the
Company. The overhead efficiency ratio (fully tax equivalent) for the first nine
months of 2002 was 54.0% as compared to 55.5% in the same period of 2001.
Provision for Income Taxes
The effective tax rate for the third quarter and first nine months
of 2002 was 39.8% and 39.6%, respectively, versus 39.8% and 39.7%, respectively,
for the same two periods of 2001.
Balance Sheet Analysis
The Company's total assets were $331,528,000 at September 30, 2002
as compared to $286,559,000 at December 31, 2001, representing an increase of
15.7%. The average balances of total assets for the nine months ended September
30, 2002 was $298,950,000 which represents an increase of $22,472,000 or 8.1%
over the $276,478,000 during the nine month period ended September 30, 2001.
Total average assets for the third quarter of 2002 were $320,777,000 compared to
$276,376,000 during the third quarter of 2001 for an increase of 16.1%.
Loans
The Company concentrates its lending activities in the following
principal areas: 1) commercial; 2) commercial real estate; 3) real estate
construction (both commercial and residential); 4) residential real estate; 5)
lease financing receivable; 6) agriculture; and 7) consumer loans. At September
30, 2002, these categories accounted for approximately 22%, 54%, 14%, 1%, 2%, 4%
and 3%, respectively, of the Company's loan portfolio. This mix was relatively
unchanged compared to 22%, 51%, 15%, 2%, 1%, 5% and 4% at December 31, 2001.
Continuing favorable economic activity in the Company's market area, new
borrowers developed through the Company's marketing efforts and credit
extensions expanded to existing borrowers, offset by normal loan
17
paydowns and payoffs, resulted in net increases in balances for commercial
($6,290,000 or 14.4%), commercial real estate ($19,672,000 or 19.6%), real
estate construction ($785,000 or 2.5%) and lease financing receivable
($2,465,000 or 98.6%). The Company experienced decreases in residential real
estate ($1,107,000 or 35.5%), agriculture ($1,023,000 or 10.0%) and consumer
($1,876,000 or 24.7%) as a result of normal paydowns and higher than average
payoffs. The higher payoffs can be partly attributed to refinances during the
low rate environment. Table Five below summarizes the composition of the loan
portfolio as of September 30, 2002 and December 31, 2001.
Table Five: Loan and Lease Portfolio Composition
- -------------------------------------------------------------------------------
September 30, December 31,
(In thousands) 2002 2001
- -------------------------------------------------------------------------------
Commercial $ 49,909 $ 43,619
Real estate:
Commercial 119,830 100,158
Construction 31,606 30,821
Residential 2,012 3,119
Lease financing receivable 4,964 2,499
Agriculture 9,228 10,251
Consumer 5,722 7,598
- -------------------------------------------------------------------------------
Total loans 223,271 198,065
Allowance for loan and
lease losses (3,141) (2,614)
Deferred loan and lease fees (562) (425)
- -------------------------------------------------------------------------------
Total net loans & leases $ 219,568 $ 195,026
===============================================================================
A significant portion of the Company's loans are direct loans made
to individuals and local businesses. The Company relies substantially on local
promotional activity and personal contacts by bank officers, directors and
employees to compete with other financial institutions. The Company makes loans
to borrowers whose applications include a sound purpose and a viable primary
repayment source, generally supported by a secondary source of repayment.
Commercial loans consist of credit lines for operating needs, loans
for equipment purchases, working capital, and various other business loan
products. Consumer loans include a range of traditional consumer loan products
such as personal lines of credit and loans to finance purchases of autos, boats,
recreational vehicles, mobile homes and various other consumer items.
Construction loans are generally composed of commitments to customers within the
Company's service area for construction of both commercial properties and custom
and tract-type single-family residences. Other real estate loans consist
primarily of loans secured by first trust deeds on commercial and residential
properties typically with maturities from 3 to 10 years and original loan to
value ratios generally from 65% to 80%. Agriculture loans consist primarily of
vineyard loans and development loans to plant vineyards. In general, except in
the case of loans with SBA or Farm Services Agency guarantees, the Company does
not make long-term mortgage loans; however, American River Bank has a
residential lending division to assist customers in securing most forms of
longer term single-family mortgage financing. American River Bank acts as a
broker between American River Bank's customers and loan wholesalers. American
River Bank receives an origination fee for loans closed.
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, active credit administration and regular monitoring.
18
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 may
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. North
Coast Bank's business is focused in Sonoma County. Special emphasis is placed
within the three communities in which North Coast Bank has offices (Santa Rosa,
Windsor, and Healdsburg). The economy of Sonoma County is diversified with
professional services, manufacturing, agriculture and 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 include the
following: lease rates and terms, absorption and sale rates; real estate values
and rates of return; operating expenses; inflation; and sufficiency of
collateral 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 in the normal course of business. 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 68.7% of the Company's loan and lease
portfolio at September 30, 2002. Although management believes the concentration
to have no more than the normal risk of collectability, a substantial decline in
the economy in general, or a decline in real estate values in the Company's
primary market areas in particular, could have an adverse impact on the
collectability of these loans and require an increase in the provision for loan
and lease losses which could adversely affect the Company's future prospects,
results of operations, profitability and stock price. Management believes that
its lending policies and underwriting standards will tend to minimize losses in
an economic downturn, however, there is no assurance that losses will not occur
under such circumstances. The Company's loan policies 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 and leases 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), (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, and (5)
limiting and monitoring lending within specific property categories.
Nonaccrual, Past Due and Restructured Loans & Leases
Management generally places loans on nonaccrual status when they
become 90 days past due, unless the loan is well secured and in the process of
collection. Loans are charged off when, in the opinion of management, collection
appears unlikely. Table Six below sets forth nonaccrual loans and loans past due
90 days or more as of September 30, 2002 and December 31, 2001.
19
Table Six: Non-Performing Loans & Leases
- --------------------------------------------------------------------------------
September 30, December 31,
------------- ------------
(In thousands) 2002 2001
- --------------------------------------------------------------------------------
Past Due 90 days or more and still accruing:
Commercial $ 4 $ --
Real estate -- --
Consumer and other -- --
- --------------------------------------------------------------------------------
Nonaccrual:
Commercial 86 534
Real estate 190 314
Consumer and other -- 8
- --------------------------------------------------------------------------------
Total non-performing loans & leases $ 280 $ 856
================================================================================
At September 30, 2002, non-performing loans and leases were 0.13% of
total loans and leases. The recorded investments in loans that were considered
to be impaired totaled $280,000 at September 30, 2002 and $856,000 at December
31, 2001. The recorded investment in troubled debt restructurings as of
September 30, 2002 was $237,000 of which $190,000 was on nonaccrual status and
classified as part of the $280,000 in non-performing totals mentioned above.
There were no loan concentrations in excess of 10% of total loans
not otherwise disclosed as a category of loans as of September 30, 2002 or
December 31, 2001. Management is not aware of any potential problem loans, which
were accruing and current at September 30, 2002, where serious doubt exists as
to the ability of the borrower to comply with the present repayment terms.
Allowance for Loan and Lease Losses Activity
The provision for loan and lease losses is based upon management's
evaluation of the adequacy of the existing allowance for loans and leases
outstanding and loan commitments. This allowance is increased by provisions
charged to expense and recoveries, and is reduced by loan and lease charge-offs.
Management determines an appropriate provision based upon the interaction of
three primary factors: (1) loan and lease portfolio growth, (2) a comprehensive
grading and review formula for total loans and leases outstanding, and (3)
estimated inherent credit risk in the portfolio.
Management reserves 2% of credit exposures graded "Special Mention",
15% of credits classified "Substandard" and 50% of credits classified
"Doubtful". These reserve factors may be adjusted for significant loans that are
individually evaluated by management for specific risk of loss. The amounts
allocated for "Special Mention", "Substandard" and "Doubtful" represent $278,000
at September 30, 2002. In addition, reserve factors ranging from 0.375% to
3.000% are assigned to currently performing loans that are not otherwise graded
as Special Mention, Substandard or Doubtful. These factors are assigned based on
management's assessment of the following for each identified loan type: (1)
inherent credit risk, (2) historical losses and, (3) where the Company has not
experienced losses, historical losses experienced by peer banks. Finally, a
residual component is maintained to cover uncertainties that could affect
management's estimate of probable losses. This residual component of the
allowance reflects a margin of imprecision inherent in the underlying
assumptions used to estimate losses in specifically graded loans and expected
losses in the performing portfolio.
The Loan Committees of each of the Subsidiary Banks review the
adequacy of the allowance for loan and lease losses at least quarterly to
include consideration of the relative risks in the portfolio and current
economic conditions. The Subsidiary Banks also engage outside firms to
independently assess our methodology and reserve adequacy, and on a regular
basis engage outside firms to perform independent reviews of the loan
portfolios. The allowance is adjusted based on those reviews if, in the judgment
of the loan committees and management, changes are warranted.
20
The allowance for loan and lease losses totaled $3,141,000 or 1.41%
of total loans and leases at September 30, 2002 and $2,614,000 or 1.32% at
December 31, 2001. Net charge-offs to average loans and leases were -0.16% (on
an annualized basis) for the third quarter of 2002 and -0.02% (on an annualized
basis) for the nine months ended September 30, 2002. A negative percentage
occurs for both periods as recoveries exceeded charge-offs during the periods
indicated. Net charge-offs to average loans and leases were 0.04% (on an
annualized basis) for the third quarter of 2001 and 0.21% (on an annualized
basis) for the nine months ended September 30, 2001.
It is the policy of management to maintain the allowance for loan
and lease losses at a level adequate for known and inherent risks in the
portfolio. Based on information currently available to analyze inherent credit
risk, including economic factors, overall credit quality, historical
delinquencies and a history of actual charge-offs, management believes that the
provision for loan and lease losses and the allowance for loan and lease losses
are prudent and adequate. Each of the Subsidiary Banks generally makes monthly
allocations to the allowance for loan and lease losses based on estimates of
loss risk and loan and lease growth. Adjustments may be made based on
differences from estimated loan growth, the types of loans constituting this
growth, changes in risk ratings within the portfolio, and general economic
conditions. However, no prediction of the ultimate level of loans charged off in
future periods can be made with any certainty.
Table Seven below summarizes, for the periods indicated, the
activity in the allowance for loan and lease losses.
Table Seven: Allowance for Loan and Lease Losses
- ------------------------------------------------------------------------------------------------------------
Three Months Nine Months
(In thousands, except for percentages) Ended Ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------
Average loans and leases outstanding $ 213,412 $ 200,123 $ 206,288 $ 202,908
- ------------------------------------------------------------------------------------------------------------
Allowance for possible loan and lease losses
at beginning of period $ 2,894 $ 2,532 $ 2,614 $ 2,454
Loans charged off:
Commercial -- (94) (1) (394)
Real estate -- -- (9) --
Consumer (2) -- (47) (5)
- ------------------------------------------------------------------------------------------------------------
Total (2) (94) (57) (399)
- ------------------------------------------------------------------------------------------------------------
Recoveries of loans previously Charged off:
Commercial -- 76 1 78
Real estate 85 -- 85 --
Consumer 4 -- 4 --
- ------------------------------------------------------------------------------------------------------------
Total 89 76 90 78
- ------------------------------------------------------------------------------------------------------------
Net loans recovered (charged off) 87 (18) 33 (321)
Additions to allowance charged
to operating expenses 160 192 494 573
- ------------------------------------------------------------------------------------------------------------
Allowance for possible loan and lease
losses at end of period $ 3,141 $ 2,706 $ 3,141 $ 2,706
- ------------------------------------------------------------------------------------------------------------
Ratio of net (recoveries) charge-offs to
average loans and leases outstanding (.16%) .04% (.02%) .21%
Provision of allowance for possible
loan and lease losses to average loans
and leases outstanding .30% .38% .32% .38%
Allowance for possible loan and lease losses
to loans and leases net of deferred fees at
end of period 1.41% 1.33% 1.41% 1.33%
21
Other Real Estate
At September 30, 2002 and December 31, 2001, the Company did not
have any other real estate ("ORE") properties.
Deposits
At September 30, 2002, total deposits were $265,000,000 representing
an increase of $10,112,000 (4.0%) from the December 31, 2001 balance of
$254,888,000. Noninterest-bearing deposits increased $7,685,000 (11.3%) while
interest-bearing deposits increased $2,427,000 (1.3%). The Company has attempted
to reduce higher rate time deposits while increasing the balances of more
profitable, lower-cost transaction accounts.
Capital Resources
The current and projected capital position of the Company and the
impact of capital plans and long-term strategies is reviewed regularly by
management. The Company's capital position represents the level of capital
available to support continued operations and expansion.
In May of 1997, the Board of Directors of the Company authorized a
stock repurchase plan. The Company acquired 77,000 shares of its common stock
during 1999, 60,000 in 1998 and 25,000 in 1997. These repurchases were made
periodically in the open market with the intention to lessen the dilutive impact
of issuing new shares in connection with stock option plans and in conjunction
with annual distributions of a five percent common stock dividend. As a result
of the acquisition of North Coast Bank during 2000, which was accounted for as a
pooling of interests, the Company was required to discontinue the repurchase of
its common stock during the transition period. On September 20, 2001, the
Company announced a new plan to repurchase, as conditions warrant, up to 5%
annually of the Company's common stock in connection with the Company's annual
distribution of a 5% stock dividend. During 2001, the Company repurchased 21,400
shares under the new plan and during the first nine months of 2002, 35,001
shares were repurchased.
The Company and the Subsidiary Banks are subject to certain
regulations issued by the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Company and the Office of the Comptroller of the
Currency, which require maintenance of certain levels of capital. At September
30, 2002, shareholders' equity was $31,073,000, representing an increase of
$3,131,000 (11.2%) from $27,942,000 at December 31, 2001. The ratio of total
risk-based capital to risk adjusted assets was 13.2% at September 30, 2002
compared to 13.6% at December 31, 2001. Tier 1 risk-based capital to
risk-adjusted assets was 11.9% at September 30, 2002 and 12.4% at December 31,
2001.
Table Eight below lists the Company's actual capital ratios at
September 30, 2002 and December 31, 2001 as well as the minimum capital ratios
for capital adequacy.
Table Eight: Capital Ratios
- ------------------------------------------------------------------------------------------------
Capital to Risk-Adjusted Assets At September 30, At December 31, Minimum Regulatory
2002 2001 Capital Requirements
- ------------------------------------------------------------------------------------------------
Leverage ratio 10.0% 9.8% 4.00%
Tier 1 Risk-Based Capital 11.9% 12.4% 4.00%
Total Risk-Based Capital 13.2% 13.6% 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. All Subsidiary Banks ratios are in excess of the regulatory
Definition of "well capitalized" at September 30, 2002 and December 31, 2001.
22
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 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. Each
Subsidiary Bank has an Asset and Liability Management Committee (ALCO) 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, the Company is able to estimate the potential impact of changing
interest rates on earnings. A balance sheet forecast is prepared quarterly using
inputs of actual loans, securities and interest bearing liabilities (i.e.
deposits/borrowings) positions as the beginning base. The forecast balance sheet
is processed against three interest rate scenarios. The scenarios include a 200
basis point rising rate forecast, a flat rate forecast and a 200 basis point
falling rate forecast which take place within a one year time frame. The net
interest income is measured during the year assuming a gradual change in rates
over the twelve-month horizon. The Company's net interest income, as forecast
below, was modeled utilizing a forecast balance sheet projected from balances as
of the date indicated.
Table Nine below summarizes the effect on net interest income (NII)
of a +/-200 basis point change in interest rates as measured against a constant
rate (no change) scenario.
Table Nine: Interest Rate Risk Simulation of Net Interest Income as of
September 30, 2002 and December 31, 2001
- --------------------------------------------------------------------------------
(In thousands) $ Change in NII $ Change in NII
from Current from Current
12 Month Horizon 12 Month Horizon
September 30, 2002 December 31, 2001
------------------ -----------------
Variation from a constant rate scenario
+200bp $ 269 $ 635
-200bp $ (305) $ (587)
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 conservative estimates
of interest rate risk. During the third quarter of 2002, the Company employed an
investment strategy to reduce exposure to further declines in intermediate term
interest rates by purchasing mortgage-backed securities with average lives of 3
to 5 years and funding them with wholesale FHLB advances that mature in one year
or less. The fixed rate mortgage-backed securities should mitigate the Company's
exposure to further declines in rates.
23
Inflation
The impact of inflation on a financial institution differs
significantly from that exerted on manufacturing, or other commercial concerns,
primarily because its assets and liabilities are largely monetary. In general,
inflation primarily affects the Company and it subsidiaries through its effect
on market rates of interest, which affects the Company's ability to attract loan
customers. Inflation affects the growth of total assets by increasing the level
of loan demand, and potentially adversely affects capital adequacy because loan
growth in inflationary periods can increase at rates higher than the rate that
capital grows through retention of earnings which may be generated in the
future. In addition to its effects on interest rates, inflation increases
overall operating expenses. Inflation has not had a material effect upon the
results of operations of the Company and its subsidiaries during the periods
ended September 30, 2002 and 2001.
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 repayments contribute to liquidity, along
with deposit increases, while loan 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 letters of credit at September 30, 2002 and December 31, 2001 were
approximately $63,249,000 and $3,395,000 and $60,840,000 and $3,776,000,
respectively. Such loans relate primarily to revolving lines of credit and other
commercial loans, and to real estate construction loans. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Company's sources of liquidity consist of cash and due from
correspondent banks, overnight funds sold to correspondent banks, unpledged
marketable investments and loans held for sale and/or pledged for secured
borrowings. On September 30, 2002, consolidated liquid assets totaled $50.8
million or 15.3% of total assets compared to $54.8 million or 19.1% of total
assets on December 31, 2001. In addition to liquid assets, the Company maintains
short-term lines of credit in the amount of $26,000,000 with correspondent
banks. At September 30, 2002, the Company had $19,300,000 available under these
credit lines. Additionally, the Subsidiary Banks are members of the FHLB. At
September 30, 2002, the Subsidiary Banks could have arranged for up to an
additional $3,937,000 in secured borrowings from the FHLB (see Note 5 to the
Unaudited Consolidated Financial Statements). American River Bank also has
informal agreements with various other banks to sell participations in loans, if
necessary. 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. Due to the falling interest
rate environment throughout the last half of 2000 and continuing through the end
of the third quarter of 2002, much of the investment portfolio has experienced
significant price appreciation, which has resulted in unrealized gains. These
unrealized gains allow the Company the ability to sell these securities should
the liquidity needs arise. These securities are also available to pledge as
collateral for borrowings if the need should arise. American River Bank has
established a master repurchase agreement with a correspondent bank to enable
such transactions. American River Bank and North Coast Bank can also pledge
securities to borrow from the Federal Reserve Bank and the FHLB. The principal
cash requirements of the Company are for expenses incurred in the support of
administration and operations. For nonbanking functions, the Company is
dependent upon the payment of cash dividends from its subsidiaries to service
its commitments. The Company expects that the cash dividends paid by the
subsidiaries to the Company will be sufficient to meet this payment schedule.
24
Off-Balance Sheet Items
The Company has certain ongoing commitments under operating leases.
These commitments do not significantly impact operating results. As of September
30, 2002 and December 31, 2001, 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. Loan commitments and
letters of credit were $66,644,000 and $64,616,000 at September 30, 2002 and
December 31, 2001, respectively. As a percentage of net loans, these off-balance
sheet items represent 30.4% and 33.1%, respectively.
Certain financial institutions have elected to use special purpose
vehicles ("SPV") to dispose of problem assets. A 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. We do not use those vehicles
or any other structures to dispose of problem assets.
Other Matters
California Energy Shortage. During 2001, the State of California
experienced periodic electric power shortages. It is uncertain whether these
shortages will arise in the future. Conservation efforts and unanticipated
cooler weather conditions through the summer months of 2001 and 2002, have
resulted in lower demand for electricity throughout California and an
electricity surplus. California also initiated action to supplement conservation
efforts including acceleration of the approval process for development of new
energy production facilities and entering into long-term energy contracts for
the supply of electricity. The Company and its subsidiaries could be materially
and adversely affected either directly or indirectly by a severe electric power
shortage if such a shortage caused any of its critical data processing or
computer systems and related equipment to fail, or if the local infrastructure
systems such as telephone systems should fail, or the Company's and its
subsidiaries' significant vendors, suppliers, service providers, customers,
borrowers, or depositors are adversely impacted by their internal systems or
those of their respective customers or suppliers. Material increases in the
expenses related to electric power consumption and the related increase in
operating expense could also have an adverse effect on the Company's future
results of operations.
Effects of Terrorism. The terrorist actions on September 11, 2001
and thereafter have had significant adverse effects upon the United States
economy. Whether the terrorist activities in the future and the actions of the
United States and its allies in combating terrorism on a worldwide basis will
adversely impact the Company and the extent of such impact is uncertain.
However, such events have had and may continue to have an adverse effect on the
economy in the Company's market areas. Such continued economic deterioration
could adversely affect the Company's future results of operations by, among
other matters, reducing the demand for loans and other products and services
offered by the Company, increasing nonperforming loans and the amounts reserved
for loan and lease losses, and causing a decline in the Company's stock price.
Corporate Reform Legislation. President George W. Bush signed the
Sarbanes-Oxley Act of 2002 (the "Act") on July 30, 2002, which responds to
recent issues in corporate governance and accountability. Among other matters,
key provisions of the Act provide for:
o Expanded oversight of the accounting profession by creating a new
independent public company oversight board to be monitored by the
SEC.
o Revised rules on auditor independence to restrict the nature of
non-audit services provided to audit clients and to require such
services to be pre-approved by the audit committee.
o Improved corporate responsibility through mandatory listing
standards relating to audit committees, certifications of periodic
reports by the CEO and CFO, and making issuer interfere with an
audit a crime.
o Enhanced financial disclosures, including periodic reviews for
largest issuers and real time disclosure of material company
information.
25
o Enhanced criminal penalties for a broad array of white collar crimes
and increases in the statute of limitations for securities fraud
lawsuits.
The effect of the Act upon corporations is uncertain; however, it is likely that
compliance costs may increase as corporations modify procedures if required to
conform to the provisions of the Act. The Company does not currently anticipate
that compliance with the Act will have a material effect upon its financial
position or results of its operations or its cash flows.
ITEM 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer,
based on their evaluation within 90 days prior to the date of this report of the
Company's disclosure controls and procedures (as defined in Exchange Act Rule
13a--14(c)), have concluded that the Company's disclosure controls and
procedures are adequate and effective for purposes of Rule 13a--14(c) in timely
alerting them to material information relating to the Company required to be
included in the Company's filings with the SEC under the Securities Exchange Act
of 1934.
There were no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Document Description
-------- --------------------
(2.1) Agreement and Plan of Reorganization and Merger by and
among the Registrant, ARH Interim National Bank and
North Coast Bank, N.A., dated as of March 1, 2000
(included as Annex A to the joint proxy
statement/prospectus). **
(3.1) Articles of Incorporation, as amended, incorporated by
reference from Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the period ended December 31,
2000 filed with the Commission on April 2, 2001. (3.2)
Bylaws, as amended, incorporated by reference from
Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2001, filed with the
Commission on May 14, 2001.
26
(4.1) Specimen of the Registrant's common stock
certificate. **
(10.1) Lease agreement between American River Bank and Spieker
Properties, L.P., a California limited partnership,
dated April 1, 2000, related to 1545 River Park Drive,
Suite 107, Sacramento, California. **
(10.2) Lease agreement and addendum between American River Bank
and Bradshaw Plaza Group each dated January 31, 2000,
related to 9750 Business Park Drive, Sacramento,
California. **
(10.3) Lease agreement between American River Bank and Marjorie
G. Taylor dated April 5, 1984, and addendum dated July
16, 1997, related to 10123 Fair Oaks Boulevard, Fair
Oaks, California. **
(10.4) Lease agreement between American River Bank and
Sandalwood Land Company dated August 28, 1996, related
to 2240 Douglas Boulevard, Suite 100, Roseville,
California. **
(10.5) Lease agreement between American River Holdings and
Union Bank of California dated June 29, 1999, related to
1540 River Park Drive, Suite 108, Sacramento,
California. **
*(10.6) American River Holdings 1995 Stock Option Plan. **
*(10.7) Form of Nonqualified Stock Option Agreement under the
1995 Stock Option Plan. **
*(10.8) Form of Incentive Stock Option Agreement under the 1995
Stock Option Plan. **
*(10.9) American River Bank 401(k) Plan and amendment no. 1
dated April 1, 1998. **
*(10.10) American River Holdings Stock Option Gross-Up Plan and
Agreement, as amended, dated May 20, 1998. **
*(10.11) American River Bank Deferred Compensation Plan dated May
1, 1998. **
*(10.12) American River Bank Deferred Fee Plan dated April 1,
1998. **
*(10.16) American River Bank Employee Severance Policy dated
March 18, 1998. **
*(10.18) Employment agreement with David T. Taber dated August
16, 2000, incorporated by reference from Exhibit 10.18
to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2000, filed with the
Commission on November 14, 2000.
*(10.19) Employment agreement with William L. Young dated August
16, 2000, incorporated by reference from Exhibit 10.19
to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2000, filed with the
Commission on November 14, 2000.
*(10.20) American River Holdings Incentive Compensation Plan for
the Year Ended December 31, 2000, incorporated by
reference from Exhibit 10.20 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30,
2000, filed with the Commission on November 14, 2000.
27
(10.21) Amendment No. 1 dated March 1, 2001, to the lease
agreement between American River Holdings and Union Bank
of California dated June 29, 1999, related to 1540 River
Park Drive, Suite 108 and Suite 106, Sacramento,
California, incorporated by reference from Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
period ended December 31, 2000, filed with the
Commission on April 2, 2001.
*(10.22) First Amendment dated December 20, 2000, to the American
River Bank Deferred Compensation Plan dated May 1, 1998,
incorporated by reference from Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the period
ended December 31, 2000, filed with the Commission on
April 2, 2001.
*(10.23) Amendment No.1 to the American River Holdings Incentive
Compensation Plan, incorporated by reference from
Exhibit 10.23 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 2001, filed with the
Commission on August 14, 2001.
*(10.24) American River Holdings Employee Stock Purchase Plan
dated November 21, 2001, incorporated by reference from
Exhibit 10.24 to the Company's Annual Report on Form
10-K for the period ended December 31, 2001, filed with
the Commission on March 26, 2002.
(10.25) Amendment No. 2 dated March 20, 2002, to the lease
agreement between American River Holdings and Union Bank
of California dated June 29, 1999, related to 1540 River
Park Drive, Suite 108 and Suite 106, Sacramento,
California, incorporated by reference from Exhibit 10.25
to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 2002, filed with the Commission
on May 3, 2002.
(21.1) The Registrant's only subsidiaries are American River
Bank, North Coast Bank, N.A. and First Source Capital.
(99.1) Certification of Chief Executive Officer and Chief
Financial Officer pursuant to the Sarbanes-Oxley Act of
2002.
------------------
* Denotes management contracts, compensatory plans or
arrangements.
** Incorporated by reference to registrant's
Registration Statement on Form S-4 (No. 333-36326)
filed with the Commission on May 5, 2000.
(b) Reports on Form 8-K
On July 17, 2002, the Company filed a Report on Form 8-K announcing its
financial results for the quarter ended and year-to-date as of June 30, 2002.
On September 19, 2002, the Company filed a Report on Form 8-K announcing a 5%
stock dividend.
On September 19, 2002, the Company filed a Report on Form 8-K announcing Michael
Ziegler as a new American River Holdings Board member.
On September 19, 2002, the Company filed a Report on Form 8-K announcing the
resignation of James O. Burpo from the American River Holdings Board of
Directors and the Audit Committee.
28
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN RIVER HOLDINGS
November 1, 2002
- ----------------
By: /s/ DAVID T. TABER
----------------------------------
David T. Taber
President
Chief Executive Officer
November 1, 2002
- ----------------
By: /s/ MITCHELL A. DERENZO
----------------------------------
Mitchell A. Derenzo
Chief Financial Officer
(Principal Financial and
Accounting Officer)
29
Section 302 Certifications for the Signatures
CERTIFICATION FOR QUARTERLY REPORTS ON FORM 10-Q
------------------------------------------------
I, David T. Taber, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
River Holdings;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's Board of Directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 1, 2002
-------------------------------------
By: /s/ DAVID T. TABER
-------------------------------------
President and Chief Executive Officer
30
CERTIFICATION FOR QUARTERLY REPORTS ON FORM 10-Q
------------------------------------------------
I, Mitchell A. Derenzo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American
River Holdings;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's Board of Directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 1, 2002
-------------------------------------
By: /s/ MITCHELL A. DERENZO
-------------------------------------
Executive Vice President and Chief Financial Officer
31
EXHIBIT INDEX
Exhibit Number Description Page
- -------------------------------------------------------------------------------
99.1 Certification of American River Holdings 33
pursuant to Section 906 Of the
Sarbanes-Oxley Act of 2002.
32