UNITED STATES
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 March 31, 2005
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-31525
AMERICAN RIVER BANKSHARES
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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
--------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(916) 565-6100
-------------------------------
(Registrant's telephone number,
including area code)
not applicable
----------------------------------------------------
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
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 - 5,351,299 shares outstanding at May 5, 2005.
Page 1 of 35
The Index to the Exhibits is located at Page 32
PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN RIVER BANKSHARES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except number of shares)
March 31, December 31,
2005 2004
------------ ------------
ASSETS
Cash and due from banks $ 31,505 $ 28,115
Federal funds sold -- 7,000
Interest-bearing deposits in banks 6,035 5,939
Investment securities:
Available-for-sale, (amortized cost: 2005--$114,527; 2004--$115,161) 113,902 116,041
Held-to-maturity (market value: 2005--$39,431; 2004--$41,328) 39,557 41,203
Loans and leases, less allowance for loan and lease losses of
$5,676 at March 31, 2005 and $5,496 at December 31, 2004 354,084 352,467
Premises and equipment, net 1,831 1,876
Federal Home Loan Bank stock 1,910 2,158
Accounts receivable servicing receivables, net 2,256 2,409
Goodwill and other intangible assets 18,247 18,329
Accrued interest receivable and other assets 11,249 11,129
------------ ------------
$ 580,576 $ 586,666
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 146,786 $ 143,710
Interest bearing 329,580 331,677
------------ ------------
Total deposits 476,366 475,387
Short-term borrowed funds 29,258 24,457
Long-term debt 9,816 9,832
Accrued interest payable and other liabilities 6,114 18,000
------------ ------------
Total liabilities 521,554 527,676
------------ ------------
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock - no par value; 20,000,000 shares
authorized; issued and outstanding - 5,351,160 shares
shares at March 31, 2005 and 5,314,732 at December 31, 2004 42,132 42,557
Retained earnings 17,260 15,878
Accumulated other comprehensive (loss) income (Note 5) (370) 555
------------ ------------
Total shareholders' equity 59,022 58,990
------------ ------------
$ 580,576 $ 586,666
============ ============
See Notes to Unaudited Consolidated Financial Statements
2
AMERICAN RIVER BANKSHARES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
For the three month periods ended March 31,
2005 2004
---------- ----------
Interest income:
Interest and fees on loans $ 6,202 $ 4,280
Interest on Federal funds sold 6 --
Interest on deposits in banks 40 29
Interest and dividends on investment securities:
Taxable 1,208 673
Exempt from Federal income taxes 210 123
Dividends 8 8
---------- ----------
Total interest income 7,674 5,113
---------- ----------
Interest expense:
Interest on deposits 1,121 556
Interest on short-term borrowings 160 105
Interest on long-term debt 78 30
---------- ----------
Total interest expense 1,359 691
---------- ----------
Net interest income 6,315 4,422
Provision for loan and lease losses 217 198
---------- ----------
Net interest income after provision for loan and lease losses 6,098 4,224
---------- ----------
Noninterest income 581 429
---------- ----------
Noninterest expense:
Salaries and employee benefits 1,725 1,575
Occupancy 301 205
Furniture and equipment 227 180
Other expense 1,075 789
---------- ----------
Total noninterest expense 3,328 2,749
---------- ----------
Income before income taxes 3,351 1,904
Income taxes 1,300 744
---------- ----------
Net income $ 2,051 $ 1,160
========== ==========
Basic earnings per share (Note 4) $ .38 $ .27
========== ==========
Diluted earnings per share (Note 4) $ .37 $ .25
========== ==========
See Notes to Unaudited Consolidated Financial Statements
3
AMERICAN RIVER BANKSHARES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except number of shares) (Unaudited)
Common Stock Accumulated
------------------------ Other
Retained Comprehensive Shareholders' Comprehensive
Shares Amount Earnings Income (Loss) Equity Income
---------- ---------- ---------- ------------ ------------ ------------
Balance, January 1, 2004 4,055,260 16,693 17,900 864 35,457
Comprehensive income (Note 5):
Net income 5,827 5,827 $ 5,827
Other comprehensive loss, net of tax:
Change in unrealized gains on
available-for-sale investment
securities (309) (309) (309)
------------
Total comprehensive income $ 5,518
============
Shares issued in acquisition 775,548 18,284 18,284
Cash dividends ($0.44 per share) (2,044) (2,044)
5% stock dividend 252,392 5,805 (5,805)
Stock options exercised 263,446 1,959 1,959
Retirement of common stock (31,914) (184) (184)
---------- ---------- ---------- ------------ ------------ ------------
Balance, December 31, 2004 5,314,732 42,557 15,878 555 58,990
Comprehensive income (Note 5):
Net income 2,051 2,051 $ 2,051
Other comprehensive loss, net of tax:
Change in unrealized gains on
available-for-sale investment
securities (925) (925) (925)
------------
Total comprehensive income $ 1,126
============
Cash dividends ($0.125 per share) (669) (669)
Fractional shares redeemed (1) (16) (16)
Stock options exercised 81,738 587 587
Retirement of common stock (45,309) (996) (996)
---------- ---------- ---------- ------------ ------------
Balance, March 31, 2005 5,351,160 $ 42,132 $ 17,260 $ (370) $ 59,022
========== ========== ========== ============ ============
See Notes to Unaudited Consolidated Financial Statements
4
AMERICAN RIVER BANKSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the three months ended March 31,
2005 2004
---------- ----------
Cash flows from operating activities:
Net income $ 2,051 $ 1,160
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses 217 198
Decrease in deferred loan origination fees, net (91) (34)
Depreciation and amortization 255 129
Net amortization of investment security
premiums 362 300
Gain on sale of securities (43)
Gain on sale of equipment -- --
Increase (decrease) in accrued interest
receivable and other assets 498 (108)
Increase in cash surrender value of life insurance (44) --
polices
Decrease in accrued interest payable
and other liabilities (11,973) (406)
---------- ----------
Net cash (used in) provided by operating activities (8,768) 1,239
---------- ----------
Cash flows from investing activities:
Proceeds from the sale of available-for-sale
investment securities 1,757 --
Proceeds from called available-for-sale investment
securities -- --
Proceeds from matured available-for-sale investment
securities 1,250 1,000
Purchases of held-to-maturity investment
securities (1,056) (2,080)
Purchases of available-for-sale investment securities (3,476) (305)
Proceeds from principal repayments for available-
for-sale mortgage-related securities 992 470
Proceeds from principal repayments for held-to-
maturity mortgage-related securities 2,494 1,127
Net increase in interest-bearing deposits in banks (96) (198)
Net increase in loans (1,742) (9,723)
Net decrease in accounts receivable
servicing receivables 153 64
Proceeds from the sale of equipment -- --
Purchases of equipment (122) (228)
Net decrease in FHLB and FRB stock 248 106
---------- ----------
Net cash provided by (used in) investing activities 402 (9,767)
---------- ----------
5
Cash flows from financing activities:
Net increase in demand, interest-bearing
and savings deposits $ 412 $ 9,824
Net increase (decrease) in time deposits 567 (54)
Net decrease in long-term debt (16) (13)
Net increase (decrease) in short-term borrowings 4,801 (3,800)
Payment of cash dividends (583) (613)
Cash paid to repurchase common stock (996) (118)
Cash paid for fractional shares (16) --
Exercise of stock options 587 1,288
---------- ----------
Net cash provided by financing
activities 4,756 6,514
---------- ----------
Decrease in cash and cash
equivalents (3,610) (2,014)
Cash and cash equivalents at beginning of year 35,115 29,797
---------- ----------
Cash and cash equivalents at end of period $ 31,505 $ 27,783
========== ==========
See Notes to Unaudited Consolidated Financial Statements
6
AMERICAN RIVER BANKSHARES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
1. 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 Bankshares (the "Company") at March 31, 2005 and December 31, 2004, and
the results of its operations and its cash flows for the three-month periods
ended March 31, 2005 and 2004 in conformity with accounting principles generally
accepted in the United States of America.
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 2004 annual report on Form 10-K. The results of
operations for the three-month period ended March 31, 2005 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. STOCK-BASED COMPENSATION
At March 31, 2005, the Company had two stock-based compensation plans. The
Company accounts for these plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Under APB Opinion No. 25, stock-based compensation cost
is only reflected in net income when options granted under these plans have an
exercise price less than the market value of the underlying common stock on the
date of grant.
Pro forma adjustments to the Company's consolidated net earnings and earnings
per share are disclosed during the years in which the options become vested. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.
Three Months Ended March 31,
----------------------------
2005 2004
------------ ------------
(Dollars in thousands, except per share data)
Net income, as reported $ 2,051 $ 1,160
Deduct: Total stock-based compensation expense
determined under the fair value based method
for all awards, net of related tax effects (16) (13)
------------ ------------
Pro forma net income $ 2,035 $ 1,147
============ ============
Basic earnings per share - as reported $ 0.38 $ 0.27
Basic earnings per share - pro forma $ 0.38 $ 0.27
Diluted earnings per share - as reported $ 0.37 $ 0.25
Diluted earnings per share - pro forma $ 0.37 $ 0.25
7
The fair value of each option granted during the three-month period ended March
31, 2005 is estimated on the date of grant using an option-pricing model with
the following weighted-average assumptions:
Dividend yield 2.27%
Expected life 7 years
Expected volatility 83.15%
Risk-free rate 3.96%
Weighted average fair value of options granted
during the period $6.80
There were no options granted during the three-month period ended March 31,
2004.
3. 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 $120,095,000 and standby letters of credit of
$3,444,000 at March 31, 2005. However, all such commitments will not necessarily
culminate in actual extensions of credit by the Company during 2005.
Approximately $14,122,000 of the loan commitments outstanding at March 31, 2005
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 fully 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.
Standby letters of credit are conditional commitments issued to guarantee the
performance or financial obligation of a client to a third party. These
guarantees are issued primarily relating to purchases of inventory by commercial
clients and are typically short term in nature. Credit risk is similar to that
involved in extending loan commitments to clients and accordingly, evaluation
and collateral requirements similar to those for loan commitments are used.
Virtually all such commitments are collateralized. The fair value of the
liability related to these standby letters of credit, which represents the fees
received for issuing the guarantees was not significant at March 31, 2005 or
March 31, 2004.
4. EARNINGS PER SHARE COMPUTATION
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding for the period (5,338,462 shares for the
three-month period ended March 31, 2005, and 4,347,780 shares for the
three-month period ended March 31, 2004). 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 (131,814 shares for the three-month period ended March 31, 2005 and
247,649 for the three-month period ended March 31, 2004). Earnings per share is
retroactively adjusted for stock splits and stock dividends for all periods
presented.
5. 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 (loss). Other comprehensive income (loss), net of taxes,
was comprised of the unrealized (losses) gains on available-for-sale investment
securities of $(925,000) for the three-month period ended March 31, 2005 and
$236,000 for the three-month period ended March 31, 2004. Comprehensive income
was $1,126,000 for the three-month period ended March 31, 2005 and $1,396,000
for the three-month period ended March 31, 2004.
8
6. BORROWING ARRANGEMENTS
The Company has a total of $48,000,000 in unsecured short-term borrowing
arrangements with four of its correspondent banks. There were no advances under
the borrowing arrangements as of March 31, 2005 or December 31, 2004.
In addition, the Company has a line of credit available with the Federal Home
Loan Bank (the "FHLB") which is secured by pledged mortgage loans and investment
securities. Borrowings may include overnight advances as well as loans with
terms of up to thirty years. Advances totaling $39,074,000 were outstanding from
the FHLB at March 31, 2005, bearing interest rates ranging from 1.41% to 6.13%
and maturing between April 1, 2005 and December 21, 2007. Advances totaling
$34,289,000 were outstanding from the FHLB at December 31, 2004, bearing
interest rates ranging from 1.29% to 6.13% and maturing between January 24, 2005
and December 21, 2007. Remaining amounts available under the borrowing
arrangement with the FHLB at March 31, 2005 and December 31, 2004 totaled
$8,864,000 and $16,071,000, respectively.
7. INVESTMENT SECURITIES
Investment securities with unrealized losses at March 31, 2005 are summarized
and classified according to the duration of the loss period as follows (dollars
in thousands):
--------------------------------------------------------------------------------------------------------------------------------
Less than 12 Months Greater than 12 Months Total
--------------------------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Loss Value Loss Value Loss
--------------------------------------------------------------------------------------------------------------------------------
Available-for-Sale:
--------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and agencies $ 31,059 $ (364) $ 3,943 $ (99) $ 35,002 $ (463)
--------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 28,839 (501) 6,270 (100) 35,109 (601)
--------------------------------------------------------------------------------------------------------------------------------
Obligations of state and political
subdivisions 17,020 (236) 543 (14) 17,563 (250)
--------------------------------------------------------------------------------------------------------------------------------
Corporate debt securities 355 (1) -- -- 355 (1)
--------------------------------------------------------------------------------------------------------------------------------
Corporate stock 1 (1) 227 (23) 228 (24)
--------------------------------------------------------------------------------------------------------------------------------
$ 77,274 $ (1,103) $ 10,983 $ (236) $ 88,257 $ (1,339)
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity:
--------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $ 24,476 $ (174) $ 1,582 $ (44) $ 26,058 $ (218)
--------------------------------------------------------------------------------------------------------------------------------
Management periodically evaluates each investment security in a loss position
for other than temporary impairment relying primarily on industry analyst
reports, observation of market conditions and interest rate fluctuations.
Management believes it will be able to collect all amounts due according to the
contractual terms of the underlying investment securities and that the noted
decline in fair value is considered temporary and is due only to interest rate
fluctuations.
8. ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board issued Statement
Number 123 (revised 2004) ("FAS 123 (R)"), Share-Based Payments. FAS 123 (R)
requires all entities to recognize compensation expense in an amount equal to
the fair value of share-based payments such as stock options granted to
employees. In April 2005, the Securities and Exchange Commission adopted a rule
amending the effective date of FAS 123(R) from the first reporting period after
June 15, 2005 to the first fiscal year beginning after June 15, 2005,
effectively January 1, 2006, for the Company. Management believes that the
effect of FAS 123 (R) will be consistent with its pro forma disclosures included
in Note 2 to the Unaudited Consolidated Financial Statements in Item 1 -
Financial Statements.
In December 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 03-03,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer (the
9
"SOP"). This SOP addresses accounting for differences between contractual cash
flows and cash flows expected to be collected from an investor's initial
investment in loans or debt securities (loans) acquired in a transfer if those
differences are attributable, at least in part, to credit quality. It also
includes such loans acquired in purchase business combinations. This SOP does
not apply to loans originated by the entity. This SOP limits the yield that may
be accreted and requires that the excess of contractual cash flows over cash
flows expected to be collected not be recognized as an adjustment of yield, loss
accrual, or valuation allowance.
This SOP prohibits "carrying over" or creation of valuation allowances in the
initial accounting for loans acquired in a transfer that are within the scope of
this SOP. The prohibition of the valuation allowance carryover applies to the
purchase of an individual loan, a pool of loans, a group of loans, and loans
acquired in a purchase business combination. This SOP was effective for loans
acquired in fiscal years beginning after December 15, 2004. In management's
opinion, the adoption of this pronouncement did not have a material impact on
the Company's financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations of American River Bankshares.
The following is management's discussion and analysis of the
significant changes in American River Bankshares' (the "Company") balance sheet
accounts between December 31, 2004 and March 31, 2005 and its income and expense
accounts for the three-month periods ended March 31, 2005 and 2004. The
discussion is designed to provide a better understanding of significant trends
related to the Company's financial condition, results of operations, liquidity,
capital resources and interest rate sensitivity. This discussion and the
consolidated financial statements and related notes appearing elsewhere in this
report are condensed and unaudited.
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,
changes in the interest rate environment including interest rates charged on
loans, earned on securities investments and 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, data processing
problems, a decline in real estate values in the Company's market area, the
effects of terrorism, the threat of terrorism or the impact of the current
military conflict in Iraq 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, 2004 and its 2005 reports filed on
Form 8-K.
Interest income and net interest income are presented on a fully
taxable equivalent basis (FTE) within management's discussion and analysis.
Critical Accounting Policies
General
The Company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). The financial information contained within our statements is, to a
significant extent, financial information that is based on measures of the
financial effects of transactions and events that have already occurred. We use
historical loss data, peer group experience and the economic environment as
factors, among others, in determining the inherent loss that may be present in
our loan and lease portfolio. Actual losses could differ significantly from the
historical factors that we use. Other estimates that we use are related to the
10
expected useful lives of our depreciable assets. In addition GAAP itself may
change from one previously acceptable method to another method. Although the
economics of our transactions would be the same, the timing of events that would
impact our transactions could change.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is an estimate of the credit
loss risk in our loan and lease portfolio. The allowance is based on two basic
principles of accounting: (1) Statement of Financial Accounting Standards
("SFAS") No. 5 "Accounting for Contingencies," which requires that losses be
accrued when they are probable of occurring and estimable; and (2) SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which requires that losses
be accrued based on the differences between the value of collateral, present
value of future cash flows or values that are observable in the secondary market
and the loan balance.
The allowance for loan and lease losses is determined based upon
estimates that can and do change when the actual risk or loss events occur. The
analysis of the allowance uses an historical loss view as an indicator of future
losses and as a result could differ from the loss incurred in the future.
However, since our analysis of risk and loss potential is updated regularly, the
errors that might otherwise occur are mitigated. The use of factors and ranges
is inherently subjective and our actual losses could be greater or less than the
estimates. The Company's goal is to maintain an allowance for loan and lease
losses that is between the lower and upper ranges as described above. If the
allowance for loan and lease losses falls below the lower range of adequate
reserves (by reason of loan and lease growth, actual losses, the effect of
changes in risk ratings, or some combination of these factors), the Company has
a strategy for supplementing the allowance for loan and lease losses, over the
short term, so that it would again fall within the lower and upper acceptable
ranges. For further information regarding our allowance for loan and lease
losses, see "Allowance for Loan and Lease Losses Activity" discussion later in
this Item 2.
Stock-Based Compensation
The Company accounts for its stock-based compensation under the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Since the Company's stock option plan provides for the issuance
of options at a price of no less than the fair market value at the date of the
grant, no compensation expense is recognized in the financial statements unless
the options are modified after the grant date.
In January 1, 2006, the Company will be required to apply FAS 123 (R)
on a modified prospective method. Under this method, the Company is required to
record compensation expense (as previous awards continue to vest) for the
unvested portion of previously granted awards that remain outstanding at the
date of adoption. The fair value of each option is estimated on the date of
grant and amortized over the service period using an option pricing model.
Critical assumptions that affect the estimated fair value of each option include
expected stock price volatility, dividend yields, option life and forfeiture
rates and the risk-free interest rate.
Goodwill
Business combinations involving the Company's acquisition of the equity
interests or net assets of another enterprise or the assumption of net
liabilities in an acquisition of branches constituting a business may give rise
to goodwill. Goodwill represents the excess of the cost of an acquired entity
over the net of the amounts assigned to assets acquired and liabilities assumed
in transactions accounted for under the purchase method of accounting. The value
of goodwill is ultimately derived from the Company's ability to generate net
earnings after the acquisition. A decline in net earnings could be indicative of
a decline in the fair value of goodwill and result in impairment. For that
reason, goodwill is assessed for impairment at a reporting unit level at least
annually following the year of acquisition. The Company will perform an
impairment evaluation of the goodwill, recorded as a result of the Bank of
Amador acquisition, in the fourth quarter of 2005. While the Company believes
all assumptions utilized in its prior assessments of goodwill for impairment are
reasonable and appropriate, changes in earnings, the effective tax rate,
historical earnings multiples and the cost of capital could all cause different
results for the calculation of the present value of future cash flows.
11
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 employed an equivalent of
122 full-time employees as of March 31, 2005.
The Company owns 100% of the issued and outstanding common shares of
its banking subsidiary, American River Bank, and American River Financial, a
California corporation which has been inactive since its incorporation in 2003.
American River Bank was incorporated and commenced business in Fair
Oaks, California, in 1983 and thereafter moved its headquarters office to
Sacramento, California in 1985. American River Bank operates five full service
offices in Sacramento and Placer Counties including the head office located at
1545 River Park Drive, Suite 107, Sacramento, and branch offices located at 520
Capitol Mall, Suite 100, Sacramento, 9750 Business Park Drive, Sacramento, 10123
Fair Oaks Boulevard, Fair Oaks and 2240 Douglas Boulevard, Roseville, and three
full service offices in Sonoma County located at 412 Center Street, Healdsburg,
8733 Lakewood Drive, Windsor, and 50 Santa Rosa Avenue, Suite 100, Santa Rosa,
operated under the name "North Coast Bank, a division of American River Bank."
North Coast Bank was incorporated and commenced business in 1990 as Windsor Oaks
National Bank in Windsor, California. In 1997, the name was changed to North
Coast Bank. In 2000, North Coast Bank was acquired by the Company as a separate
bank subsidiary. Effective December 31, 2003, North Coast Bank was merged with
and into American River Bank.
On December 3, 2004, the Company acquired Bank of Amador located in
Jackson, California. Bank of Amador was merged with and into American River Bank
and now operates three full service banking offices as "Bank of Amador, a
division of American River Bank" within its primary service area of Amador
County, in the communities of Jackson, Pioneer and Ione. The business
combination was accounted for under the purchase method of accounting and
accordingly the results of their operations have been included in the
consolidated financial statements of the Company since the date of acquisition.
American River Bank's deposits are insured by the Federal Deposit
Insurance Corporation up to applicable legal limits. American River Bank does
not offer trust services or international banking services and does not plan to
do so in the near future. American River Bank's primary business is serving the
commercial banking needs of small to mid-sized businesses within those counties
listed above. American River Bank accepts checking and savings deposits, offers
money market deposit accounts and certificates of deposit, makes secured and
unsecured commercial, secured real estate, and other installment and term loans
and offers other customary banking services. American River Bank also conducts
lease financing for most types of business equipment, from computer software to
heavy earth-moving equipment.
American River Bank owns 100% of two inactive companies, ARBCO and
American River Mortgage. ARBCO was formed in 1984 to conduct real estate
development and has been inactive since 1995. American River Mortgage has been
inactive since its formation in 1994.
The Company conducted no significant activities other than holding the
shares of its subsidiaries. However, it is authorized, with the prior approval
of the Board of Governors of the Federal Reserve System, the Company's principal
regulator, to engage in a variety of activities which are deemed closely related
to the business of banking.
The common stock of the Company is registered under the Securities
Exchange Act of 1934, as amended, and is listed and traded on the Nasdaq
National Market under the symbol "AMRB."
12
Overview
The Company recorded net income of $2,051,000 for the quarter ended
March 31, 2005, which was $891,000 above the $1,160,000 reported for the same
period of 2004. Diluted earnings per share for the first quarter of 2005 were
$0.37 versus $0.25 for the first quarter of 2004. The return on average equity
(ROAE) and the return on average assets (ROAA) for the first quarter of 2005
were 14.08% and 1.43%, respectively, as compared to 12.96% and 1.17%,
respectively, for the same period in 2004.
Total assets of the Company decreased by $6,090,000 (1.0%) from
$586,666,000 at December 31, 2004 to $580,576,000 at March 31, 2005. Net loans
totaled $354,084,000 at March 31, 2005, up $1,617,000 (0.5%) from the
$352,467,000 at December 31, 2004. Deposit balances at March 31, 2005 totaled
$476,366,000, up $979,000 (0.2%) from $475,387,000 at December 31, 2004.
The Company ended the first quarter of 2005 with a Tier 1 capital
ratio of 9.9% and a total risk-based capital ratio of 11.1% versus 9.6% and
10.9%, respectively, at December 31, 2004.
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 months
ended March 31
-----------------------------
(Dollars in thousands) 2005 2004
------------ ------------
Net interest income* $ 6,389 $ 4,467
Provision for loan losses (217) (198)
Noninterest income 581 429
Noninterest expense (3,328) (2,749)
Provision for income taxes (1,300) (744)
Tax equivalent adjustment (74) (45)
------------ ------------
Net income $ 2,051 $ 1,160
============ ============
- --------------------------------------------------------------------------------
Average total assets $ 580,293 $ 397,332
Net income (annualized) as a percentage
of average total assets 1.43% 1.17%
- --------------------------------------------------------------------------------
* Fully taxable equivalent basis (FTE)
13
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 4.96% for the
three months ended March 31, 2005 and 4.94% for the three months ended March 31,
2004.
The fully taxable equivalent interest income component increased from
$5,158,000 for the three months ended March 31, 2004 to $7,748,000 for the three
months ended March 31, 2005, representing a 50.2% increase. The increase in the
fully taxable equivalent interest income for the first three months of 2005
compared to the same period in 2004 is broken down by rate (up $523,000) and
volume (up $2,067,000). The rate increase can be attributed to increases
implemented by the Company during the latter half of 2004 and continuing through
the first quarter of 2005 in response to Federal Reserve Board (the "FRB")
increases in the Federal funds and Discount rates. The effects of seven such
rate increases by the FRB since June 2004, resulted in a 32 basis point increase
in the yield on average earning assets from 5.70% for the first quarter of 2004
to 6.02% during the first quarter of 2005. The volume increase was the result of
a 43.4% increase in average earning assets. Average loan balances were up
$88,987,000 (33.1%) in 2005 over the balances in 2004, while average investment
securities balances were up $69,196,000 (72.7%). The increase in average loans
is the result of the December 2004 Bank of Amador acquisition, concentrated
focus on business lending, the demand for commercial real estate and the effects
of a favorable local market. The increase in investment securities is primarily
due to the December 2004 Bank of Amador acquisition and the Company investing
its excess funds in investment securities. The excess funds were created by an
increase in deposit balances and other borrowings.
Interest expense increased $668,000 (99.7%) during the first quarter of
2005 compared to the first quarter of 2004. The average balances of interest
bearing liabilities were $109,544,000 (42.8%) higher in 2005 versus 2004. The
higher balances accounted for a $274,000 increase in interest expense. The
higher average balances in interest bearing balances was created by internal
growth in the Company's deposits and deposits acquired from the Bank of Amador
acquisition. Increased rates accounted for an additional $394,000 in interest
expense for the three-month period. The increase in rates paid on interest
bearing liabilities was a result of the higher interest rate environment over
the past twelve months. Rates paid on interest bearing liabilities increased 42
basis points on a quarter-over-quarter basis from 1.09% to 1.51%.
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.
14
Table Two: Analysis of Net Interest Margin on Earning Assets
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2005 2004
------------------------------------- -------------------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg
(In thousands, except percentages) Balance Interest Yield (4) Balance Interest Yield (4)
---------- ---------- ---------- ---------- ---------- ----------
Assets:
Earning assets:
Loans and leases (1) $ 357,719 $ 6,202 7.03% $ 268,732 $ 4,280 6.41%
Taxable investment
Securities 133,731 1,208 3.66% 78,349 673 3.45%
Tax-exempt investment
securities (2) 23,055 281 4.94% 11,323 165 5.86%
Corporate stock 572 11 7.80% 795 11 5.57%
Federal funds sold 1,144 6 2.13% -- -- 0.00%
Investments in time deposits 5,841 40 2.78% 4,779 29 2.44%
---------- ---------- ---------- ----------
Total earning assets 522,062 7,748 6.02% 363,978 5,158 5.70%
---------- ----------
Cash & due from banks 28,239 27,348
Other assets 35,554 10,073
Allowance for loan & lease losses (5,562) (4,067)
---------- ----------
$ 580,293 $ 397,332
========== ==========
Liabilities & Shareholders' Equity
Interest bearing liabilities:
NOW & MMDA $ 181,273 449 1.00% $ 132,961 232 0.70%
Savings 39,051 37 0.38% 18,345 9 0.20%
Time deposits 107,211 635 2.40% 70,365 315 1.80%
Other borrowings 37,692 238 2.56% 34,012 135 1.60%
---------- ---------- ---------- ----------
Total interest bearing
liabilities 365,227 1,359 1.51% 255,683 691 1.09%
---------- ----------
Demand deposits 148,836 101,561
Other liabilities 7,162 4,076
---------- ----------
Total liabilities 521,225 361,320
Shareholders' equity 59,068 36,012
---------- ----------
$ 580,293 $ 397,332
========== ==========
Net interest income & margin (3) $ 6,389 4.96% $ 4,467 4.94%
========== ========== ========== ==========
(1) Loan and lease interest includes loan fees of $260,000 and $167,000 during
the three months ended March 31, 2005 and March 31, 2004, 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 and annualized
to actual days in year.
15
Table Three: Analysis of Volume and Rate Changes on Net Interest Income and
Expenses
- --------------------------------------------------------------------------------
(In thousands) Three Months Ended March 31, 2005 over 2004
Increase (decrease) due to change in:
Interest-earning assets: Volume Rate (4) Net Change
---------- ---------- ----------
Net loans and leases (1)(2) $ 1,417 $ 505 $ 1,922
Taxable investment securities 476 59 535
Tax exempt investment securities (3) 171 (55) 116
Corporate stock (3) 3 --
Federal funds sold -- 6 6
Investment in time deposits 6 5 11
---------- ---------- ----------
Total 2,067 523 2,590
---------- ---------- ----------
Interest-bearing liabilities:
Demand deposits 84 133 217
Savings deposits 10 18 28
Time deposits 165 155 320
Other borrowings 15 88 103
---------- ---------- ----------
Total 274 394 668
---------- ---------- ----------
Interest differential $ 1,793 $ 129 $ 1,922
========== ========== ==========
- --------------------------------------------------------------------------------
(1) The average balance of non-accruing loans and leases is immaterial as a
percentage of total loans and leases and, as such, has been included in net
loans.
(2) Loan fees of $260,000 and $167,000 during the three months ending March 31,
2005 and March 31, 2004, 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.
Provision for Loan and Lease Losses
The Company provided $217,000 for loan and lease losses for the first
quarter of 2005 as compared to $198,000 for the first quarter of 2004. Net loan
and lease charge-offs for the three months ended March 31, 2005 were $37,000 or
..04% (on an annualized basis) of average loans and leases as compared to
charge-offs of $49,000 or .07% (on an annualized basis) for the three months
ended March 31, 2004.
Noninterest Income
Table Four below provides a summary of the components of noninterest
income for the periods indicated (dollars in thousands):
Table Four: Components of Noninterest Income
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------
2005 2004
- --------------------------------------------------------------------------------
Service charges on deposit accounts $ 168 $ 141
Accounts receivable servicing fees 90 66
Gain on sale of securities 43 --
Merchant fee income 106 84
Income from residential lending 53 37
Bank owned life insurance 45 16
Other 76 85
- --------------------------------------------------------------------------------
Total noninterest income $ 581 $ 429
- --------------------------------------------------------------------------------
16
Noninterest income was up $152,000 (35.4%) to $581,000 for the three
months ended March 31, 2005 as compared to $429,000 for the three months ended
March 31, 2004. The increase in noninterest income for the quarter can be
attributed to increases in service charges (up $30,000 or 21.7%), merchant fee
income (up $22,000 or 26.2%), fees from accounts receivable servicing (up
$24,000 or 36.4%), income from bank owned life insurance (up $29,000 or 181.3%),
and a gain on sale of securities of $43,000.
Noninterest Expense
Noninterest expense increased $579,000 (21.1%) to a total of $3,328,000
in the first quarter of 2005 versus the $2,749,000 recorded in the first quarter
of 2004. Salary and employee benefits increased $150,000 (9.5%). The salaries
component, which include commissions, increased $235,000 mainly as a result of
expenses related to the new employees retained in the December 2004 Bank of
Amador acquisition. At March 31, 2005, the Company and its subsidiaries employed
122 persons on a full-time equivalent basis as compared to 105 at March 31,
2004. The employee benefits and taxes component also increased (up $132,000) as
a result of the increase in employees. These increases were offset by higher
loan costs of $216,000. The loan costs are derived from recording new loans and
are recorded as a reduction to compensation expense. The increase in the first
quarter of 2005 is attributed to recording a higher number of loans in 2005 as
compared to 2004. On a quarter-over-quarter basis, occupancy expenses were up
$96,000 or 46.8%. The increase is related to the three new facilities acquired
in the Bank of Amador acquisition and a full quarter of expense related to the
branch office in downtown Sacramento, which opened during the last part of the
first quarter in 2004. Furniture and equipment increased $47,000 or 26.1% during
the first quarter of 2005 as compared to the first quarter of 2004. The increase
in furniture and equipment relates to the new facilities described above. Other
expenses for the first quarter of 2005 were $1,075,000, an increase of $286,000
(36.2%) over the prior year quarter. Included in other expenses are professional
fees (up $65,000 or 68.4%), stationery and supplies (up $16,000 or 23.9%),
telephone (up $17,000 or 40.5%) and the amortization of the core deposit premium
related to the Bank of Amador acquisition (up $89,000 from zero). Professional
fees, which includes accounting, legal and other professional services, was up
primarily due to retainer fees paid to a deposit gathering relationship
established in 2004 ($34,000) and higher fees for compliance with SEC rules as
well as general corporate matters. The increase in stationery and supplies and
telephone is due mainly to the new locations described above. The efficiency
ratios (fully taxable equivalent) for the 2005 and 2004 first quarters were
47.8% and 56.2%, respectively.
Provision for Income Taxes
The effective tax rate for the first quarter of 2005 was 38.8% versus
39.1% for the first quarter of 2004.
Balance Sheet Analysis
The Company's total assets were $580,576,000 at March 31, 2005 as
compared to $586,666,000 at December 31, 2004, representing a decrease of 1.0%.
The average balance of total assets for the three months ended March 31, 2005
was $580,293,000, which represents an increase of $182,951,000 or 46.0% over the
average balance of $397,332,000 for the three-month period ended March 31, 2004.
Loans and Leases
The Company concentrates its lending activities in the following
principal areas: 1) commercial; 2) commercial real estate; 3) multi-family real
estate; 4) real estate construction (both commercial and residential); 5)
residential real estate; 6) lease financing receivable; 7) agriculture; and 8)
consumer loans. At March 31, 2005, these categories accounted for approximately
20%, 45%, 1%, 26%, 1%, 3%, 2% and 2%, respectively, of the Company's loan
portfolio. This mix was relatively unchanged compared to 19%, 46%, 1%, 25%, 1%,
3%, 2% and 3% at December 31, 2004. Continuing economic activity in the
Company's market area, new borrowers developed through the Company's marketing
efforts and credit extensions expanded to existing borrowers, were offset by
higher than normal loan paydowns and payoffs. The loan activity during the
period resulted in net increases in balances for commercial loans ($3,476,000 or
5.2%) and real estate construction ($4,359,000 or 4.8%). Despite the increased
17
loan activity and the new borrowers, the Company experienced a decrease in
commercial real estate ($4,830,000 or 2.9%), lease financing receivable
($756,000 or 7.6%), and consumer ($440,000 or 4.7%) as a result of normal
paydowns and higher than normal payoffs. Table Five below summarizes the
composition of the loan portfolio as of March 31, 2005 and December 31, 2004.
Table Five: Loan and Lease Portfolio Composition
- --------------------------------------------------------------------------------
March 31, December 31,
(In thousands) 2005 2004
- --------------------------------------------------------------------------------
Commercial $ 70,340 $ 66,864
Real estate:
Commercial 161,433 166,263
Multi-family 2,633 2,660
Construction 94,521 90,162
Residential 5,209 5,236
Lease financing receivable 9,238 9,994
Agriculture 8,203 8,252
Consumer 8,977 9,417
- -------------------------------------------------------------------------------
Total loans and leases 360,554 358,848
Deferred loan and lease fees, net (794) (885)
Allowance for loan and lease losses (5,676) (5,496)
- -------------------------------------------------------------------------------
Total net loans and leases $ 354,084 $ 352,467
===============================================================================
A significant portion of the Company's loans and leases are direct
loans and leases made to individuals and local businesses. The Company relies
substantially on local promotional activity and personal contacts by bank
officers, directors and employees to compete with other financial institutions.
The Company makes loans and leases to borrowers whose applications include a
sound purpose and a viable primary repayment source, generally supported by a
secondary source of repayment.
Commercial loans consist of credit lines for operating needs, loans for
equipment purchases, working capital, and various other business loan products.
Consumer loans include a range of traditional consumer loan products such as
personal lines of credit and loans to finance purchases of autos, boats,
recreational vehicles, mobile homes and various other consumer items.
Construction loans are generally comprised of commitments to customers within
the Company's service area for construction of commercial properties,
multi-family properties and custom and semi-custom single-family residences.
Other real estate loans consist primarily of loans secured by first trust deeds
on commercial and residential properties typically with maturities from 3 to 10
years and original loan to value ratios generally from 65% to 75%. Agriculture
loans consist primarily of vineyard loans and development loans to plant
vineyards. In general, except in the case of loans under SBA programs or Farm
Services Agency guarantees, the Company does not make long-term mortgage loans;
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 the 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.
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 focused in the
Sacramento Metropolitan Statistical Area, which is a diversified economy, but
18
with a large State of California government presence and employment base.
American River Bank operates in Sonoma County, through North Coast Bank, a
division of American River Bank, whose business is focused on businesses within
the three communities in which it has offices (Santa Rosa, Windsor, and
Healdsburg) and in Amador County, through Bank of Amador, a division of American
River Bank, whose business is focused on businesses and consumers within the
three communities in which it has offices (Jackson, Pioneer, and Ione) as well
as a diversified residential construction loan business in numerous Northern
California counties. The economy of Sonoma County is diversified with
professional services, manufacturing, agriculture and real estate investment and
construction, while the economy of Amador County is reliant upon government,
services, retail trade, manufacturing industries and Indian gaming.
The Company has significant extensions of credit and commitments to
extend credit that are secured by real estate. The ultimate repayment of these
loans is generally dependent on personal or business cash flows or the sale or
refinancing of the real estate. The Company monitors the effects of current and
expected market conditions and other factors on the collectability of real
estate loans. The more significant factors management considers involve the
following: lease rate and terms, absorption and sale rates; real estate values
and rates of return; operating expenses; inflation; and sufficiency of repayment
sources independent of the real estate including, in some instances, personal
guarantees.
In extending credit and commitments to borrowers, the Company generally
requires collateral and/or guarantees as security. The repayment of such loans
is expected to come from cash flow or from proceeds from the sale of selected
assets of the borrowers. The Company's requirement for collateral and/or
guarantees is determined on a case-by-case basis in connection with management's
evaluation of the creditworthiness of the borrower. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment,
income-producing properties, residences and other real property. The Company
secures its collateral by perfecting its security interest in business assets,
obtaining deeds of trust, or outright possession among other means.
In management's judgment, a concentration exists in real estate loans
which represented approximately 73.2% of the Company's loan and lease portfolio
at March 31, 2005. Although management believes this 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 within that area, (2) maintaining a thorough understanding of borrowers'
knowledge, capacity, and market position in their field of expertise, (3) basing
real estate loan approvals not only on market demand for the project, but also
on the borrowers' capacity to support the project financially in the event it
does not perform to expectations (whether sale or income performance), and (4)
maintaining conforming and prudent loan to value and loan to cost ratios based
on independent outside appraisals and ongoing inspection and analysis by the
Company's lending officers.
Nonaccrual, Past Due and Restructured Loans and Leases
Management generally places loans and leases on nonaccrual status when
they become 90 days past due, unless the loan or lease is well secured and in
the process of collection. Loans and leases are charged off when, in the opinion
of management, collection appears unlikely.
At March 31, 2005, non-performing loans and leases were 0.10% of total
loans and leases. The recorded investments in loans that were considered to be
impaired totaled $375,000 at March 31, 2005 and $247,000 at December 31, 2004.
There were no loan concentrations in excess of 10% of total loans not otherwise
disclosed as a category of loans as of March 31, 2005 or December 31, 2004.
Management is not aware of any potential problem loans, which were accruing and
current at March 31, 2005, where serious doubt exists as to the ability of the
borrower to comply with the present repayment terms or that would result in a
material loss to the Company. Table Six below sets forth nonaccrual loans and
loans past due 90 days or more as of March 31, 2005 and December 31, 2004.
19
Table Six: Non-Performing Loans
- --------------------------------------------------------------------------------
March 31, December 31,
(In thousands) 2005 2004
- --------------------------------------------------------------------------------
Past Due 90 days or more and still accruing:
Commercial $ -- $ --
Real estate 167 --
Lease financing receivable -- 11
Consumer and other 9 --
- --------------------------------------------------------------------------------
Nonaccrual:
Commercial 52 52
Real estate 30 113
Lease financing receivable 68 71
Consumer and other 49 --
- --------------------------------------------------------------------------------
Total non-performing loans $ 375 $ 247
================================================================================
Allowance for Loan and Lease Losses Activity
The Company maintains an allowance for loan and lease losses ("ALLL")
to cover probable losses inherent in the loan and lease portfolio, which is
based upon management's estimated range of those losses. The ALLL is established
through a provision for loan and lease losses and is increased by provisions
charged against current earnings and recoveries and reduced by charge-offs.
Actual losses for loans and leases can vary significantly from this estimate.
The methodology and assumptions used to calculate the allowance are continually
reviewed as to their appropriateness given the most recent losses realized and
other factors that influence the estimation process. The model assumptions and
resulting allowance level are adjusted accordingly as these factors change.
The adequacy of the ALLL and the level of the related provision for
loan and lease losses is determined based on management's judgment after
consideration of numerous factors including but not limited to: (i) local and
regional economic conditions, (ii) borrowers' financial condition, (iii) loan
impairment and the related level of expected charge-offs, (iv) evaluation of
industry trends, (v) industry and other concentrations, (vi) loans and leases
which are contractually current as to payment terms but demonstrate a higher
degree of risk as identified by management, (vii) continuing evaluations of the
performing loan portfolio, (viii) ongoing review and evaluation of problem loans
identified as having loss potential, (ix) quarterly review by the Board of
Directors, and (x) assessments by banking regulators and other third parties.
Management and the Board of Directors evaluate the ALLL and determine its
appropriate level considering objective and subjective measures, such as
knowledge of the borrowers' business, valuation of collateral, the determination
of impaired loans or leases and exposure to potential losses. The Company uses
this same methodology to evaluate the loans acquired from the Bank of Amador
acquisition.
The Company establishes general reserves in accordance with Statement
of Accounting Standards ("SFAS") No. 5., Accounting for Contingencies, and
specific reserves in accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. The ALLL is maintained by categories of the loan and lease
portfolio based on loan type and loan rating; however, the entire allowance is
available to cover actual loan and lease losses. While management uses available
information to recognize possible losses on loans and leases, future additions
to the allowance may be necessary, based on changes in economic conditions and
other matters. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's ALLL. Such agencies
may require the Company to provide additions to the allowance based on their
judgment of information available to them at the time of their examination.
The adequacy of the ALLL is determined based on three components. First
is the dollar weighted risk rating of the loan portfolio, including all
outstanding loans and leases. Every extension of credit has been assigned a risk
20
rating based upon a comprehensive definition intended to measure the inherent
risk of lending money. Each rating has an assigned risk factor expressed as a
reserve percentage. Second, established specific reserves consistent with SFAS
No. 114 "Accounting by Creditors for Impairment of a Loan" are assigned to
individually impaired loans. These are estimated potential losses associated
with specific borrowers based upon estimated cash flows or collateral value and
events affecting the risk rating. Third, the Company maintains a reserve for
qualitative factors that may affect the portfolio as a whole, such as those
factors described above, including a reserve for model imprecision consistent
with SFAS No. 5 "Accounting for Contingencies".
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.
Our methodology incorporates a variety of risk considerations, both quantitative
and qualitative, in establishing an allowance for loan and lease losses that
management believes is appropriate at each reporting date. Based on information
currently available to analyze inherent credit risk, including economic factors,
overall credit quality, historical delinquencies and a history of actual
charge-offs, management believes that the provision for loan and lease losses
and the allowance for loan and lease losses are prudent and adequate.
Adjustments may be made based on differences from estimated loan and lease
growth, the types of loans constituting this growth, changes in risk ratings
within the portfolio, and general economic conditions. However, no prediction of
the ultimate level of loans and leases charged off in future periods can be made
with any certainty. The allowance for loan and lease losses totaled $5,676,000
or 1.58% of total loans and leases at March 31, 2005 and $5,496,000 or 1.54% of
total loans and leases at December 31, 2004. 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
- -----------------------------------------------------------------------------------
(In thousands, except for percentages) Three Months
Ended
March 31,
-------------------------
2005 2004
- -----------------------------------------------------------------------------------
Average loans and leases outstanding $ 357,719 $ 268,732
- -----------------------------------------------------------------------------------
Allowance for possible loan and lease losses at
beginning of period $ 5,496 $ 3,949
Loans and leases charged off:
Commercial -- --
Real estate -- --
Consumer -- --
Lease financing receivable (38) (103)
- -----------------------------------------------------------------------------------
Total (38) (103)
- -----------------------------------------------------------------------------------
Recoveries of loans and leases previously charged off:
Commercial -- 54
Real estate -- --
Consumer 1 --
Lease financing receivable -- --
- -----------------------------------------------------------------------------------
Total 1 54
- -----------------------------------------------------------------------------------
Net loans and leases recovered (charged off) (37) (49)
Additions to allowance charged to operating
expenses 217 198
- -----------------------------------------------------------------------------------
Allowance for possible loan and lease
losses at end of period $ 5,676 $ 4,098
- -----------------------------------------------------------------------------------
Ratio of net (recoveries) charge-offs to average
loans and leases outstanding (annualized) .04% .07%
Provision for possible loan and lease losses
to average loans and leases outstanding (annualized) .25% .30%
Allowance for possible loan and lease losses to loans
and leases, net of deferred fees, at end of period 1.58% 1.48%
21
Other Real Estate
At March 31, 2005 and December 31, 2004, the Company did not have any
other real estate ("ORE") properties.
Deposits
At March 31, 2005, total deposits were $476,366,000 representing an
increase of $979,000 (0.2%) from the December 31, 2004 balance of $475,387,000.
Noninterest-bearing deposits increased $3,076,000 (2.1%) while interest-bearing
deposits decreased $2,097,000 (0.6%).
Other Borrowed Funds
Other borrowings outstanding as of March 31, 2005 and December 31,
2004, consist of advances (both long-term and short-term) from the FHLB. The
following table summarizes these borrowings (in thousands):
March 31, 2005 December 31, 2004
------------------------ -----------------------
Amount Rate Amount Rate
--------------------------------------------------
Short-Term borrowings:
FHLB advances $ 29,258 2.46% $ 24,457 1.85%
Advances from correspondent
banks -- -- -- --
--------------------------------------------------
Total Short-Term borrowings $ 29,258 2.46% $ 24,457 1.85%
--------------------------------------------------
Long-Term Borrowings:
FHLB advances $ 9,816 3.14% $ 9,832 3.15%
--------------------------------------------------
The maximum amount of short-term borrowings at any month-end during the
first quarter of 2005 and 2004 was $32,857,000 and $38,354,000, respectively.
The FHLB advances are collateralized by loans and securities pledged to the
FHLB. The following is a breakdown of rates and maturities on FHLB advances
(dollars in thousands):
Short Term Long Term
Amount $ 29,258 $ 9,816
Maturity 2005 to 2006 2006 to 2007
Average rates 2.46% 3.14%
The Company has also been issued a total of $500,000 in letters of
credit by the FHLB which have been pledged to secure Local Agency Deposits. The
letters of credit act as a guarantee of payment to certain third parties in
accordance with specified terms and conditions. The letters of credit were not
drawn upon in 2005 or 2004 and management does not expect to draw upon these
lines in the future.
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 continuing operations and expansion.
The Company and American River Bank are subject to certain regulations
issued by the Board of Governors of the Federal Reserve System and the Federal
Deposit Insurance Corporation, which require maintenance of certain levels of
capital. Failure to meet these minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's consolidated
22
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, American River Bank must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's and American River Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors. At March 31, 2005,
shareholders' equity was $59,022,000, representing an increase of $32,000 (0.1%)
from $58,990,000 at December 31, 2004. The ratio of total risk-based capital to
risk adjusted assets was 11.1% at March 31, 2005 compared to 10.9% at December
31, 2004. Tier 1 risk-based capital to risk-adjusted assets was 9.9% at March
31, 2005 and 9.6% at December 31, 2004.
Table Eight below lists the Company's actual capital ratios at March
31, 2005 and December 31, 2004 as well as the minimum capital ratios for capital
adequacy.
Table Eight: Capital Ratios
- --------------------------------------------------------------------------------------------------
Capital to Risk-Adjusted Assets At March 31, At December 31, Minimum Regulatory
2005 2004 Capital Requirements
- --------------------------------------------------------------------------------------------------
Leverage ratio 7.3% 8.4% 4.00%
Tier 1 Risk-Based Capital 9.9% 9.6% 4.00%
Total Risk-Based Capital 11.1% 10.9% 8.00%
The Company, through a Board of Director's authorized plan, may
repurchase, as conditions warrant, up to 5% annually of the Company's common
stock. Repurchases are generally made in the open market at market prices. (See
Part II, Item 2, for additional disclosure).
Capital ratios are reviewed on a regular basis to ensure that capital
exceeds the prescribed regulatory minimums and is adequate to meet future needs.
Management believes that both the Company and American River Bank met all their
capital adequacy requirements as of March 31, 2005 and December 31, 2004.
Off-Balance Sheet Items
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business in order to meet the financing needs of
its customers and to reduce its exposure to fluctuations in interest rates.
These financial instruments consist of commitments to extend credit and letters
of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized on the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by
the other party for commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The Company applies
the same credit policies to commitments and letters of credit as it does for
loans included on the consolidated balance sheet. As of March 31, 2005 and
December 31, 2004, commitments to extend credit and standby letters of credit
were the only financial instruments with off-balance sheet risk. The Company has
not entered into any contracts for financial derivative instruments such as
futures, swaps, options or similar instruments. Loan commitments and standby
letters of credit were $123,539,000 and $127,200,000 at March 31, 2005 and
December 31, 2004, respectively. As a percentage of net loans and leases these
off-balance sheet items represent 34.9% and 36.1%, respectively.
The Company has certain ongoing commitments under operating leases.
These commitments do not significantly impact operating results.
Certain financial institutions have elected to use special purpose
vehicles ("SPV") to dispose of problem assets. The SPV is typically a subsidiary
company with an asset and liability structure and legal status that makes its
obligations secure even if the parent corporation goes bankrupt. Under certain
23
circumstances, these financial institutions may exclude the problem assets from
their reported impaired and non-performing assets. The Company does not use
these vehicles or any other structures to dispose of problem assets.
Other Matters
Effects of Terrorism. The terrorist actions on September 11, 2001 and
thereafter and the current military conflict in Iraq 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.
Website Access. American River Bankshares maintains a website where
certain information about the Company is posted. Through the website, its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments thereto, as well as Section 16 Reports and amendments
thereto, are available as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange Commission
(the "SEC"). These reports are free of charge and can be accessed through the
address www.amrb.com by clicking on the SEC Filings link located at that
address. Once you have selected the SEC Filings link you will have the option to
access the Section 16 Reports or the Reports filed by the Company by selecting
the appropriate link.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk Management
Overview. Market risk is the risk of loss from adverse changes in
market prices and rates. The Company's market risk arises primarily from
interest rate risk inherent in its loan, investment and deposit functions. The
goal for managing the assets and liabilities of the Company is to maximize
shareholder value and earnings while maintaining a high quality balance sheet
without exposing the Company to undue interest rate risk. The Board of Directors
has overall responsibility for the interest rate risk management policies. The
Company has a Risk Management Committee, made up of Company management that
establishes and monitors guidelines to control the sensitivity of earnings to
changes in interest rates.
Asset/Liability Management. Activities involved in asset/liability
management include but are not limited to lending, accepting and placing
deposits and investing in securities. Interest rate risk is the primary market
risk associated with asset/liability management. Sensitivity of earnings to
interest rate changes arises when yields on assets change in a different time
period or in a different amount from that of interest costs on liabilities. To
mitigate interest rate risk, the structure of the balance sheet is managed with
the goal that movements of interest rates on assets and liabilities are
correlated and contribute to earnings even in periods of volatile interest
rates. The asset/liability management policy sets limits on the acceptable
amount of variance in net interest margin and market value of equity under
changing interest environments. The Company uses simulation models to forecast
earnings, net interest margin and market value of equity.
Simulation of earnings is the primary tool used to measure the
sensitivity of earnings to interest rate changes. Using computer-modeling
techniques, the Company is able to estimate the potential impact of changing
interest rates on earnings. A balance sheet forecast is prepared quarterly using
inputs of actual loans, securities and interest bearing liabilities (i.e.
deposits/borrowings) positions as the beginning base. The forecast balance sheet
is processed against three interest rate scenarios. The scenarios include a 200
basis point rising rate forecast, a flat rate forecast and a 200 basis point
falling rate forecast which take place within a one year time frame. The net
interest income is measured during the year assuming a gradual change in rates
over the twelve-month horizon. The simulation modeling indicated below attempts
to estimate changes in the Company's net interest income utilizing a forecast
balance sheet projected from the end of period balances.
24
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 as of March 31, 2005 and December 31, 2004
------------------------------------------------------------------------------------------------------------
(In thousands) $ Change in NII $ Change in NII
from Current from Current
12 Month Horizon 12 Month Horizon
March 31, 2005 December 31, 2004
-------------- -----------------
Variation from a constant rate scenario
+200bp $ 941 $ 673
-200bp $ (847) $ (466)
The simulations of earnings do not incorporate any management actions,
which might moderate the negative consequences of interest rate deviations.
Therefore, they do not reflect likely actual results, but serve as reasonable
estimates of interest rate risk.
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 March 31, 2005 and 2004.
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 March 31, 2005 and December 31, 2004 were approximately
$120,095,000 and $3,444,000 and $123,413,000 and $2,788,000, 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 March 31, 2005, consolidated liquid assets totaled $90.2 million
or 15.5% of total assets compared to $93.4 million or 16.4% of total assets on
December 31, 2004. In addition to liquid assets, the Company maintains
short-term lines of credit in the amount of $48,000,000 with correspondent
banks. At March 31, 2005, the Company had $48,000,000 available under these
credit lines. Additionally, American River Bank is member of the Federal Home
Loan Bank (the "FHLB"). At March 31, 2005, American River Bank could have
arranged for up to $48,438,000 in secured borrowings from the FHLB. These
borrowings are secured by pledged mortgage loans and investment securities. At
March 31, 2005, the Company had advances, borrowings and commitments outstanding
of $39,574,000, leaving $8,864,000 available under these secured borrowing
arrangements. American River Bank also has informal agreements with various
25
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. 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 can also
pledge securities to borrow from the FRB 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 American River Bank to service
its commitments. The Company expects that the cash dividends paid by American
River Bank to the Company will be sufficient to meet this payment schedule.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures: An evaluation of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) was carried out under the supervision and with the participation
of the Company's Chief Executive Officer, Chief Financial Officer and other
members of the Company's senior management as of the end of the period covered
by this quarterly report on Form 10-Q. The Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures as currently in effect are effective in ensuring that the information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is (i) accumulated and communicated to the Company's management
(including the Chief Executive Officer and Chief Financial Officer) to allow
timely decisions regarding required disclosure, and (ii) recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
(b) Internal Control Over Financial Reporting: An evaluation of any
changes in the Company's internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the
Company's fiscal quarter ended March 31, 2005, was carried out under the
supervision and with the participation of the Company's Chief Executive Officer,
Chief Financial Officer and other members of the Company's senior management.
The Company's Chief Executive Officer and Chief Financial Officer concluded that
no change identified in connection with such evaluation has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity in Securities and Use of Proceeds.
- -------------------------------------------------------------------------------------------------------------------------
Period (a) (b) (c) (d)
Total Number Average Price Total Number of Shares Maximum Number (or
of Shares (or Paid Per Share (or Units) Purchased as Approximate Dollar Value) of
Units) (or Unit) Part of Publicly Shares (or Units) That May
Purchased Announced Plans or Yet Be Purchased Under the
Programs Plans or Programs
- -------------------------------------------------------------------------------------------------------------------------
Month #1
January 1 through None N/A None 266,923
January 31, 2005
Month #2
February 1 through 25,000 22.00 25,000 241,923
February 28, 2005
Month #3
March 1 through 10,800 21.90 10,800 231,123
March 31, 2005
- -------------------------------------------------------------------------------------------------------------------------
Total 35,800 21.97 35,800
- -------------------------------------------------------------------------------------------------------------------------
On September 20, 2001, the Board of Directors of the Company authorized
a stock repurchase program which calls for the repurchase of up to five percent
(5%) annually of the Company's outstanding shares of common stock. Each year the
Company may repurchase up to 5% of the shares outstanding (adjusted for stock
splits or stock dividends). The repurchases are to be made from time to time in
the open market as conditions allow and will be structured to comply with
Commission Rule 10b-18. The Board of Directors has reserved the right to
suspend, terminate, modify or cancel this repurchase program at any time for any
reason.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
27
Item 6. 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). **
(2.2) Agreement and Plan of Reorganization and Merger by and
among the Registrant, American River Bank and Bank of
Amador, dated as of July 8, 2004 (included as Annex A).***
(3.1) Articles of Incorporation, as amended, incorporated by
reference from Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 2004,
filed with the Commission on August 11, 2004.
(3.2) Bylaws, as amended, incorporated by reference from Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 2004, filed with the Commission
on August 11, 2004.
(4.1) Specimen of the Registrant's common stock certificate,
incorporated by reference from Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2004, filed with the Commission on August
11, 2004.
(10.1) Lease agreement between American River Bank and Spieker
Properties, L.P., a California limited partnership, dated
April 1, 2000, related to 1545 River Park Drive, Suite
107, Sacramento, California. **
(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) Registrant's 1995 Stock Option Plan. **
*(10.6) Form of Nonqualified Stock Option Agreement under the 1995
Stock Option Plan. **
*(10.7) Form of Incentive Stock Option Agreement under the 1995
Stock Option Plan. **
*(10.8) Registrant's Stock Option Gross-Up Plan and Agreement, as
amended, dated May 20, 1998. **
*(10.9) Registrant's Deferred Compensation Plan dated May 1,
1998.**
*(10.10) Registrant's Deferred Fee Plan dated April 1, 1998. **
*(10.11) American River Bank Employee Severance Policy dated March
18, 1998. **
*(10.12) Registrant's Incentive Compensation Plan for the Year
Ended December 31, 2000, incorporated by reference from
Exhibit 10.20 to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 2000, filed with
the Commission on November 14, 2000.
28
*(10.13) First Amendment dated December 20, 2000, to the
Registrant's Deferred Compensation Plan dated May 1, 1998,
incorporated by reference from Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the period
ended December 31, 2000, filed with the Commission on
April 2, 2001.
*(10.14) Amendment No. 1 to the Registrant's Incentive Compensation
Plan, incorporated by reference from Exhibit 10.23 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2001, filed with the Commission on August
14, 2001.
(10.15) Lease agreement and addendum between North Coast Bank,
N.A. and Rosario LLC, each dated September 1, 1998,
related to 50 Santa Rosa Avenue, Santa Rosa, California.**
(10.16) Lease agreement between American River Bank and 520
Capitol Mall, Inc., dated August 19, 2003, related to 520
Capitol Mall, Suite 100, Sacramento, California,
incorporated by reference from Exhibit 10.29 to the
Registrant's Form 10-Q for the period ended September 30,
2003, filed with the Commission on November 7, 2003.
*(10.17) Employment Agreement between Registrant and David T. Taber
dated August 22, 2003, incorporated by reference from
Exhibit 10.30 to the Registrant's Form 10-Q for the period
ended September 30, 2003, filed with the Commission on
November 7, 2003.
(10.18) Lease agreement between R & R Partners, A California
General Partnership and North Coast Bank, N.A., dated July
1, 2003, related to 8733 Lakewood Drive, Suite A, Windsor,
California, incorporated by reference from Exhibit 10.32
to the Company's Form 10-Q for the period ended September
30, 2003, filed with the Commission on November 7, 2003.
*(10.19) Salary Continuation Agreement between American River Bank
and Mitchell A. Derenzo dated August 22, 2003,
incorporated by reference from Exhibit 10.33 to the
Company's Form 10-Q for the period ended September 30,
2003, filed with the Commission on November 7, 2003.
*(10.20) Salary Continuation Agreement between the Registrant and
David T. Taber dated August 22, 2003, incorporated by
reference from Exhibit 10.34 to the Company's Form 10-Q
for the period ended September 30, 2003, filed with the
Commission on November 7, 2003.
*(10.21) Salary Continuation Agreement between American River Bank
and Douglas E. Tow dated August 22, 2003, incorporated by
reference from Exhibit 10.35 to the Company's Form 10-Q
for the period ended September 30, 2003, filed with the
Commission on November 7, 2003.
*(10.22) Registrant's 2000 Stock Option Plan with forms of
Nonqualified Stock Option Agreement and Incentive Stock
Option Agreement. **
(10.23) First Amendment dated April 21, 2004, to the lease
agreement between American River Bank and 520 Capitol
Mall, Inc. dated August 19, 2003, related to 520 Capitol
Mall, Suite 100 Sacramento, California, incorporated by
reference from Exhibit 10.37 to the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 2004,
filed with the Commission on August 11, 2004.
*(10.24) Registrant's 401(k) Plan dated September 20, 2004,
incorporated by reference from Exhibit 10.38 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 2004, filed with the Commission on
November 12, 2004.
(10.25) Agreement between Bank of Amador and the United States
Postal Service, dated April 24, 2001, related to 424
Sutter Street, Jackson, California. ***
29
(10.26) Ground lease agreement between Bank of Amador and the
James B. Newman and Helen M. Newman, dated June 1, 1992,
related to 26675 Tiger Creek Road, Pioneer, California.***
*(10.27) Salary Continuation Agreement between Bank of Amador and
Larry D. Standing dated April 1, 2004, and related
Endorsement Split Dollar Agreement dated April 1, 2004.***
*(10.28) Amended and Restated Director Retirement Agreement dated
as of August 1, 2003, between Bank of Amador and Larry D.
Standing. ***
*(10.29) Employment Agreement between Registrant and Larry D.
Standing dated December 3, 2004. ***
(14.1) Registrant's Code of Ethics, incorporated by reference
from Exhibit 14.1 to the Registrant's Annual Report on
Form 10-K for the period ended December 31, 2003, filed
with the Commission on March 19, 2004.
(21.1) The Registrant's only subsidiaries are American River Bank
and American River Financial.
(31.1) Certifications of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certifications of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification of Registrant by its Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*Denotes management contracts, compensatory plans or
arrangements.
**Incorporated by reference to registrant's Registration
Statement on Form S-4 (No. 333-36326) filed with the
Commission on May 5, 2000.
***Incorporated by reference to registrant's Registration
Statement on Form S-4 (No. 333-119085) filed with the
Commission on September 17, 2004.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN RIVER BANKSHARES
May 5, 2005 By: /s/ DAVID T. TABER
- ----------- ------------------------------------
David T. Taber
President
Chief Executive Officer
AMERICAN RIVER BANKSHARES
May 5, 2005 By: /s/ MITCHELL A. DERENZO
- ----------- ------------------------------------
Mitchell A. Derenzo
Chief Financial Officer
(Principal Financial and Accounting
Officer)
31
EXHIBIT INDEX
Exhibit Number Description Page
- --------------------------------------------------------------------------------
31.1 Certifications of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. 33
31.2 Certifications of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. 34
32.1 Certification of American River Bankshares by its
Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. 35
32