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, 2007
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-31525
AMERICAN RIVER BANKSHARES
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(Exact name of registrant as specified in its charter)
California 68-0352144
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(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
3100 Zinfandel Drive, Rancho Cordova, California 95670
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(Address of principal executive offices) (Zip code)
(916) 854-0123
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(Registrant's telephone number,
including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 a large accelerated filer, an
accelerated filer, or non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (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 - 5,520,433 shares outstanding at May 7, 2007.
AMERICAN RIVER BANKSHARES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2007
Part I. Page
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 27
Part II.
Item 1. Legal Proceedings 27
Item 1A. Risk Factors 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits 28
Signatures 33
Exhibit Index 34
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 45
31.2 Certifications of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 46
32.1 Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 47
2
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN RIVER BANKSHARES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2007 2006
------------ ------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 16,275 $ 25,352
Federal funds sold 400 --
------------ ------------
Total cash and cash equivalents 16,675 25,352
Interest-bearing deposits in banks 4,951 4,951
Investment securities:
Available-for-sale (amortized cost: 2007--$90,359; 2006--$105,166) 89,735 104,209
Held-to-maturity (market value: 2007--$41,265; 2006--$43,720) 41,425 44,031
Loans and leases, less allowance for loan and lease losses of
$5,935 at March 31, 2007 and $5,874 at December 31, 2006 379,646 382,993
Premises and equipment, net 1,765 1,846
Federal Home Loan Bank stock 3,119 3,071
Accounts receivable servicing receivables, net 1,842 2,581
Goodwill and other intangible assets 17,745 17,822
Accrued interest receivable and other assets 17,746 17,147
------------ ------------
$ 574,649 $ 604,003
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 146,964 $ 160,574
Interest bearing 338,780 333,301
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Total deposits 485,744 493,875
Short-term borrowings 20,083 37,270
Long-term borrowings 2,500 5,000
Accrued interest payable and other liabilities 6,339 5,487
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Total liabilities 514,666 541,632
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Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock - no par value; 20,000,000 shares
authorized; issued and outstanding - 5,520,433 shares
at March 31, 2007 and 5,657,346 shares at December 31, 2006 44,405 48,246
Retained earnings 15,946 14,690
Accumulated other comprehensive loss, net of taxes (Note 5) (368) (565)
------------ ------------
Total shareholders' equity 59,983 62,371
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$ 574,649 $ 604,003
============ ============
See Notes to Unaudited Consolidated Financial Statements
3
AMERICAN RIVER BANKSHARES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
For the three month periods ended March 31,
2007 2006
------------ ------------
Interest income:
Interest and fees on loans and leases $ 7,848 $ 7,338
Interest on Federal funds sold 3 1
Interest on deposits in banks 68 50
Interest and dividends on investment securities:
Taxable 1,249 1,468
Exempt from Federal income taxes 288 252
Dividends 8 8
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Total interest income 9,464 9,117
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Interest expense:
Interest on deposits 2,447 1,794
Interest on short-term borrowings 430 441
Interest on long-term borrowings 40 90
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Total interest expense 2,917 2,325
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Net interest income 6,547 6,792
Provision for loan and lease losses 121 84
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Net interest income after provision for loan and lease losses 6,426 6,708
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Noninterest income 641 634
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Noninterest expense:
Salaries and employee benefits 2,125 1,965
Occupancy 341 352
Furniture and equipment 164 228
Other expense 1,062 1,093
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Total noninterest expense 3,692 3,638
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Income before provision for income taxes 3,375 3,704
Provision for income taxes 1,289 1,461
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Net income $ 2,086 $ 2,243
============ ============
Basic earnings per share (Note 4) $ .37 $ .38
============ ============
Diluted earnings per share (Note 4) $ .37 $ .37
============ ============
Cash dividends per share of outstanding common
stock, adjusted for stock dividends $ .15 $ .14
============ ============
See Notes to Unaudited Consolidated Financial Statements
4
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, 2006 5,604,479 $ 47,474 $ 16,029 $ (757) $ 62,746
Cumulative effect of adopting Staff
Accounting Bulletin No. 108,
net of tax: (214) (214)
Comprehensive income (Note 5):
Net income 9,062 9,062 $ 9,062
Other comprehensive income, net of tax:
Net change in unrealized losses on
available-for-sale
investment securities 192 192 192
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Total comprehensive income $ 9,254
============
Cash dividends ($0.58 per share) (3,332) (3,332)
Fractional shares redeemed (21) (21)
5% stock dividend 268,346 6,834 (6,834)
Stock options exercised and related tax
benefit 43,162 441 441
Stock option compensation expense 221 221
Retirement of common stock (258,641) (6,724) (6,724)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2006 5,657,346 48,246 14,690 (565) 62,371
Comprehensive income (Note 5):
Net income 2,086 2,086 $ 2,086
Other comprehensive income, net of tax:
Net change in unrealized losses on
available-for-sale
investment securities 197 197 197
------------
Total comprehensive income $ 2,283
============
Cash dividends ($0.15 per share) (830) (830)
Stock options exercised and related tax
benefit 22,087 176 176
Stock option compensation expense 62 62
Retirement of common stock (159,000) (4,079) (4,079)
------------ ------------ ------------ ------------ ------------
Balance, March 31, 2007 5,520,433 $ 44,405 $ 15,946 $ (368) $ 59,983
============ ============ ============ ============ ============
See Notes to Unaudited Consolidated Financial Statements
5
AMERICAN RIVER BANKSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the three months ended March 31,
2007 2006
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Cash flows from operating activities:
Net income $ 2,086 $ 2,243
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses 121 84
Decrease in deferred loan origination fees, net (75) (58)
Depreciation and amortization 202 262
Amortization of investment security premiums
and discounts, net 88 201
Provision for accounts receivable servicing
receivable allowance for losses 1 --
Increase in cash surrender value of life insurance (97) (44)
polices
Stock option compensation expense 62 37
(Increase) decrease in accrued interest
receivable and other assets (639) 673
Increase (decrease) in accrued interest payable
and other liabilities 872 (286)
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Net cash provided by operating activities $ 2,621 $ 3,112
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Cash flows from investing activities:
Proceeds from the sale of investment securities 6,494 1,066
Proceeds from matured available-for-sale investment
securities 9,300 2,500
Purchases of available-for-sale investment securities -- --
Purchases of held-to-maturity investment securities (967) --
Proceeds from principal repayments for available-
for-sale investment securities 718 609
Proceeds from principal repayments for held-to-
maturity investment securities 1,781 3,234
Net (increase) decrease in interest-bearing deposits in banks -- --
Net decrease (increase) in loans 3,301 (7,209)
Net decrease (increase) in accounts receivable
servicing receivables 738 (49)
Purchases of equipment (44) (102)
Net increase in FHLB stock (48) (31)
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Net cash provided by investing activities $ 21,273 $ 18
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6
Cash flows from financing activities:
Net decrease in demand, interest-bearing
and savings deposits $ (4,380) $ (13,419)
Net (decrease) increase in time deposits (3,751) 8,669
Net (decrease) increase in short-term borrowings (17,187) 643
Net (decrease) increase in long-term borrowings (2,500) 3,984
Payment of cash dividends (850) (841)
Cash paid to repurchase common stock (4,079) (264)
Exercise of stock options, including tax benefit 176 284
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Net cash used in financing activities $ (32,571) $ (944)
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(Decrease) increase in cash and cash
equivalents (8,677) 2,186
Cash and cash equivalents at beginning of year 25,352 36,075
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Cash and cash equivalents at end of period $ 16,675 $ 38,261
============ ============
See Notes to Unaudited Consolidated Financial Statements
7
AMERICAN RIVER BANKSHARES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
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, 2007 and December 31, 2006, and
the results of its operations and its cash flows for the three-month periods
ended March 31, 2007 and 2006 in conformity with accounting principles generally
accepted in the United States of America.
Certain disclosures normally presented in the notes to the annual consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted. The Company believes that the
disclosures are adequate to make the information not misleading. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
2006 annual report on Form 10-K. The results of operations for the three-month
period ended March 31, 2007 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
Stock Option Plans
In 2000 and 1995, the Board of Directors adopted stock option plans under which
options may be granted to employees and directors under incentive and
nonstatutory agreements. The plans require that the option price may not be less
than the fair market value of the stock at the date the option is granted. The
options under the plans expire on dates determined by the Board of Directors,
but not later than ten years from the date of grant. The vesting period is
generally five years; however the vesting period can be modified at the
discretion of the Company's Board of Directors. Outstanding options under the
plans are exercisable until their expiration. New shares are issued upon
exercise.
Stock Option Compensation
The weighted average grant date fair value of options granted for the three
month periods ended March 31, 2007 and 2006 was $6.37 and $8.34, respectively.
For the three-month periods ended March 31, 2007 and 2006, the compensation cost
recognized for stock option compensation was $62,000 and 37,000, respectively.
The recognized tax benefit for stock option compensation expense was $11,000 and
$7,000, for the three-month periods ended March 31, 2007 and 2006, respectively.
At March 31, 2007, the total compensation cost related to nonvested awards not
yet recorded is expected to be $1,133,000. This amount will be recognized over
the next five years and the weighted average period of recognizing these costs
is expected to be 2.5 years.
8
Stock Option Activity
A summary of option activity under the stock option plans as of March 31, 2007
and changes during the period then ended is presented below:
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Options Shares Price Term ($000)
------------ ------------ ------------ ------------
Outstanding at January 1, 2007 326,282 $ 16.32 6.2 years $ 2,504
Granted 62,576 $ 25.80 10.0 years (110)
Exercised (22,087) $ 6.38 -- --
Cancelled -- -- -- --
------------
Outstanding at March 31, 2007 366,771 $ 18.54 7.0 years $ 2,022
============ ============ ============
Exercisable at March 31, 2007 160,200 $ 12.89 4.8 years $ 1,787
============ ============ ============
The intrinsic value was derived from the market price of the Company's common
stock of $24.05 as of March 31, 2007.
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 $121,624,000 and standby letters of credit of
approximately $6,521,000 at March 31, 2007. Such loans relate primarily to real
estate construction loans and revolving lines of credit and other commercial
loans. However, all such commitments will not necessarily culminate in actual
extensions of credit by the Company during 2007 as some of these are expected to
expire without being fully drawn upon.
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 or as
security for real estate rents 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. The majority of 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, 2007 or March 31, 2006.
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 (5,564,723 shares for the
three-month period ended March 31, 2007, and 5,893,821 shares for the
three-month period ended March 31, 2006). 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 (79,333 shares for the three-month period ended March 31, 2007 and
119,187 for the three-month period ended March 31, 2006). Earnings per share is
retroactively adjusted for stock splits and stock dividends for all periods
presented.
9
5. COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods
presented. Comprehensive income is comprised of net income plus other
comprehensive income (loss). Other comprehensive income (loss), net of taxes,
was comprised of the unrealized gains (losses) on available-for-sale investment
securities of $197,000 for the three-month period ended March 31, 2007 and
$(432,000) for the three-month period ended March 31, 2006. Comprehensive income
was $2,283,000 for the three-month period ended March 31, 2007 and $1,811,000
for the three-month period ended March 31, 2006. Reclassification adjustments
resulting from gain or loss on sale of investment securities were not
significant for all periods presented.
6. BORROWING ARRANGEMENTS
The Company has a total of $53,000,000 in unsecured short-term borrowing
arrangements with four of its correspondent banks. There were no advances under
the borrowing arrangements as of March 31, 2007 or December 31, 2006.
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 (both short and long-term) totaling
$22,583,000 were outstanding from the FHLB at March 31, 2007, bearing interest
rates ranging from 2.66% to 6.13% and maturing between April 2, 2007 and April
7, 2008. Advances totaling $42,270,000 were outstanding from the FHLB at
December 31, 2006, bearing interest rates ranging from 2.66% to 6.13% and
maturing between January 3, 2007 and April 7, 2008. Remaining amounts available
under the borrowing arrangement with the FHLB at March 31, 2007 and December 31,
2006 totaled $115,400,000 and $87,091,000, respectively.
7. INVESTMENT SECURITIES
Management periodically evaluates each investment security in a loss position
for other than temporary impairment relying primarily on industry analyst
reports, observation of market conditions and interest rate fluctuations.
Management has the ability and intent to hold securities with established
maturity dates until recovery of fair value, which may be maturity, and believes
it will be able to collect all amounts due according to the contractual terms
for all of the underlying investment securities; therefore, management does not
consider these investments to be other-than-temporarily-impaired.
8. INCOME TAXES
In July 2006, the FASB issued Financial Accounting Standards Interpretation No.
48 (FIN 48), Accounting for Uncertainty in Income Taxes--an Interpretation of
FASB statement No. 109. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes
a recognition threshold and measurement standard for the financial statement
recognition and measurement of an income tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosures and transitions. The Company has adopted FIN 48 as of January 1,
2007.
The Company previously recognized income tax positions based on management's
estimate of whether it is reasonably possible that a liability has been incurred
for unrecognized income tax benefits by applying FASB Statement No. 5,
Accounting for Contingencies.
The provisions of FIN 48 have been applied to all tax positions of the Company
as of January 1, 2007. There was no cumulative effect of applying the provisions
of FIN 48 and there was no significant effect on the Company's provision for
income taxes for the three months ended March 31, 2007. The Company recognizes
interest accrued related to unrecognized tax benefits and accruals for penalties
in income tax expense.
10
9. ACCOUNTING PRONOUNCEMENTS
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities --
Including an Amendment of FASB Statement No. 115 ("FAS 159"). This standard
permits entities to choose to measure many financial assets and liabilities and
certain other items at fair value. An enterprise will report unrealized gains
and losses on items for which the fair value option has been elected in earnings
at each subsequent reporting date. The fair value option may be applied on an
instrument-by-instrument basis, with several exceptions, such as those
investments accounted for by the equity method, and once elected, the option is
irrevocable unless a new election date occurs. The fair value option can be
applied only to entire instruments and not to portions thereof. FAS 159 is
effective as of the beginning of an entity's first fiscal year beginning after
November 15, 2007, with early adoption permissible, subject to certain criteria.
Management did not elect to early adopt SFAS 159. Management does not anticipate
that this statement will have a significant impact on the Company's financial
position, results of operations or cash flows.
Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Collateral Assignment Split-Dollar Life Insurance Arrangements
In March 2007, the Emerging Issues Task Force (EITF) reached a final consensus
on Issue No. 06-10 (EITF 06-10), Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements. EITF 06-10 requires employers to recognize a liability
for the post-retirement benefit related to collateral assignment split-dollar
life insurance arrangements in accordance with SFAS No. 106 or APB Opinion No.
12. EITF 06-10 also requires employers to recognize and measure an asset based
on the nature and substance of the collateral assignment split-dollar life
insurance arrangement. The provisions of EITF 06-10 are effective for the
Company on January 1, 2008, with earlier application permitted, and are to be
applied as a change in accounting principle either through a cumulative-effect
adjustment to retained earnings or other components of equity or net assets in
the statement of financial position as of the beginning of the year of adoption;
or as a change in accounting principle through retrospective application to all
prior periods. The Company does not expect adoption of EITF 06-10 to have a
significant impact on its consolidated financial statements, results of
operations or liquidity.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following is management's discussion and analysis of the
significant changes in American River Bankshares' (the "Company") balance sheet
accounts between December 31, 2006 and March 31, 2007 and its income and expense
accounts for the three-month periods ended March 31, 2007 and 2006. The
discussion is designed to provide a better understanding of significant trends
related to the Company's financial condition, results of operations, liquidity,
capital resources and interest rate sensitivity. This discussion and supporting
tables and the consolidated financial statements and related notes appearing
elsewhere in this report are unaudited.
Certain matters discussed or incorporated by reference in this
Quarterly Report on Form 10-Q including, but not limited to, matters described
in "Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations," are "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. Such forward-looking statements may
contain words related to future projections including, but not limited to, words
such as "believe," "expect," "anticipate," "intend," "may," "will," "should,"
"could," "would," and variations of those words and similar words that are
subject to risks, uncertainties and other factors that could cause actual
results to differ significantly from those projected. Factors that could cause
or contribute to such differences include, but are not limited to, the
following: (1) variances in the actual versus projected growth in assets; (2)
return on assets; (3) loan and lease losses; (4) expenses; (5) changes in the
interest rate environment including interest rates charged on loans, earned on
securities investments and paid on deposits; (6) competition effects; (7) fee
and other noninterest income earned; (8) general
11
economic conditions nationally, regionally, and in the operating market areas of
the Company and its subsidiaries; (9) changes in the regulatory environment;
(10) changes in business conditions and inflation; (11) changes in securities
markets; (12) data processing problems; (13) a decline in real estate values in
the Company's operating market areas; (14) 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. These factors and other cautionary statements and information set
forth in this report should be carefully considered and understood as being
applicable to all related forward-looking statements contained in this report,
when evaluating the business prospects of the Company and its subsidiaries.
Forward-looking statements are not guarantees of performance. By their
nature, they involve risks, uncertainties and assumptions. The future results
and shareholder values may differ significantly from those expressed in these
forward-looking statements. You are cautioned not to put undue reliance on any
forward-looking statement. Any such statement speaks only as of the date of this
report, and in the case of any documents that may be incorporated by reference,
as of the date of those documents. We do not undertake any obligation to update
or release any revisions to any forward-looking statements, to report any new
information, future event or other circumstances after the date of this report
or to reflect the occurrence of unanticipated events, except as required by law.
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, 2006 and
its 2007 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 and the economic environment as factors, among others, in
determining the inherent loss that may be present in our loan and lease
portfolio. Actual losses could differ significantly from the factors that we
use. Other estimates that we use are related to the 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 it is probable that a loss has occurred at the balance sheet date
and such loss can be reasonably estimated; and (2) SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," which requires that losses be accrued on
impaired loans based on the differences between the value of collateral, present
value of future cash flows or values that are observable in the secondary market
and the loan balance.
The allowance for loan and lease losses is determined based upon
estimates that can and do change when the actual risk, loss events, or changes
in other factors, occur. The analysis of the allowance uses an historical loss
view as an indicator of future losses and as a result could differ from the 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. If
the allowance for loan and lease losses falls below that deemed adequate (by
reason of loan and lease growth, actual losses, the effect of changes in risk
factors, or some combination of these), the Company has a strategy for
supplementing the allowance for loan and lease losses, over the short-term. For
further information regarding our allowance for loan and lease losses, see
"Allowance for Loan and Lease Losses Activity" discussion later in this Item 2.
12
Stock-Based Compensation
The Company accounts for its stock-based compensation under the
recognition and measurement principles of Financial Accounting Standards Board
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. The Company adopted FAS 123 (R) on a modified prospective method,
beginning on January 1, 2006. 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 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 performed an evaluation
of the goodwill, recorded as a result of the Bank of Amador acquisition, during
the fourth quarter of 2006 and determined that there was no impairment. While
the Company believes all assumptions utilized in its assessment of goodwill for
impairment are reasonable and appropriate, changes in earnings, the effective
tax rate, historical earnings multiples and the cost of capital could all cause
different results for the calculation of the present value of future cash flows.
General Development of Business
The Company is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended. The Company was incorporated under the laws of
the State of California in 1995. As a bank holding company, the Company is
authorized to engage in the activities permitted under the Bank Holding Company
Act of 1956, as amended, and regulations thereunder. Its principal office is
located at 3100 Zinfandel Drive, Suite 450, Rancho Cordova, California 95670 and
its telephone number is (916) 854-0123. The Company employed an equivalent of
130 full-time employees as of March 31, 2007.
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 to Sacramento,
California in 1985. American River Bank operates: (1) five full service offices
and one convenience office 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 the convenience office (limited service office)
located at 3100 Zinfandel Drive, Suite 450, Rancho Cordova, and (2) 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 cities of Jackson, Pioneer and Ione.
13
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 revolving
credit 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.
During 2007, 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
"Board of Governors"), the Company's principal regulator, to engage in a variety
of activities which are deemed closely related to the business of banking. The
common stock of the Company is registered under the Securities Exchange Act of
1934, as amended, and is listed and traded on the Nasdaq Global Select Market
under the symbol "AMRB."
Overview
The Company recorded net income of $2,086,000 for the quarter ended
March 31, 2007, which was $157,000 (7.0%) below the $2,243,000 reported for the
same period of 2006. Diluted earnings per share for the first quarters of 2007
and 2006 remained the same at $0.37. The return on average equity (ROAE) and the
return on average assets (ROAA) for the first quarter of 2007 were 14.02% and
1.44%, respectively, as compared to 14.41% and 1.49%, respectively, for the same
period in 2006.
Total assets of the Company decreased by $29,354,000 (4.9%) from
$604,003,000 at December 31, 2006 to $574,649,000 at March 31, 2007. Net loans
totaled $379,646,000 at March 31, 2007, down $3,347,000 (0.9%) from the
$382,993,000 at December 31, 2006. Deposit balances at March 31, 2007 totaled
$485,744,000, down $8,131,000 (1.6%) from $493,875,000 at December 31, 2006.
The Company ended the first quarter of 2007 with a Tier 1 capital ratio
of 9.9% and a total risk-based capital ratio of 11.2% versus 10.3% and 11.6%,
respectively, at December 31, 2006.
Table One below provides a summary of the components of net income for
the periods indicated (See the "Results of Operations" section that follows for
an explanation of the fluctuations in the individual components):
Table One: Components of Net Income
--------------------------------------------------------------------------------
For the three months
ended March 31
-------------------------
(Dollars in thousands) 2007 2006
---------- ----------
Net interest income* $ 6,636 $ 6,875
Provision for loan losses (121) (84)
Noninterest income 641 634
Noninterest expense (3,692) (3,638)
Provision for income taxes (1,289) (1,461)
Tax equivalent adjustment (89) (83)
---------- ----------
Net income $ 2,086 $ 2,243
========== ==========
--------------------------------------------------------------------------------
Average total assets $ 588,775 $ 608,549
Net income (annualized) as a percentage
of average total assets 1.44% 1.49%
--------------------------------------------------------------------------------
* Fully taxable equivalent basis (FTE)
14
Results of Operations
Net Interest Income and Net Interest Margin
Net interest income represents the excess of interest and fees earned
on interest earning assets (loans and leases, securities, Federal funds sold and
investments in time deposits) over the interest paid on interest-bearing
deposits and borrowed funds. Net interest margin is net interest income
expressed as a percentage of average earning assets. The Company's net interest
margin was 5.04% for the three months ended March 31, 2007 and 5.12% for the
three months ended March 31, 2006.
The fully taxable equivalent interest income component for the first
quarter of 2007 increased $353,000 (3.8%) to $9,553,000 compared to $9,200,000
for the three months ended March 31, 2006. The increase in the fully taxable
equivalent interest income for the first quarter of 2007 compared to the same
period in 2006 is broken down by rate (up $310,000) and volume (up $43,000). The
rate increase can be attributed to increases implemented by the Company during
2004, 2005 and 2006 and continuing through the first quarter of 2007 in response
to the Federal Reserve Board (the "FRB") increases in the Federal funds and
Discount rates. Increases by the FRB have resulted in seventeen 25 basis point
increases since June 2004. The overall increasing interest rate environment
since June 2004 has resulted in a 41 basis point increase in the yield on
average earning assets from 6.85% for the first quarter of 2006 to 7.26% for the
first quarter of 2007. The volume increase was the result of the change in mix
of earning assets from lower yielding investment securities to higher earning
loans and leases. Average loan balances were up $16,841,000 (4.5%) in 2007 over
the balances in 2006, while average investment securities balances were down
$28,440,000 (16.8%). The increase in average loans is the result of the
Company's concentrated focus on business lending, the demand for commercial real
estate and the effects of a favorable local market.
Interest expense was $592,000 (25.5%) higher in the first quarter of
2007 versus the same period in the prior year. The average balances on interest
bearing liabilities were $11,556,000 (3.0%) lower in the first quarter of 2007
versus the same quarter in 2006. The lower balances in interest bearing balances
accounted for a $101,000 decrease in interest expense. Average borrowings were
down $13,461,000 (26.5%) as the Company focused on reducing the higher cost
borrowings; the decrease in other borrowings accounting for $141,000 in reduced
interest costs compared to the first quarter of 2007. Increased rates accounted
for an additional $693,000 in interest expense for the three-month period ended
March 31, 2007. Interest paid on interest bearing liabilities increased 72 basis
points on a quarter-over-quarter basis from 2.46% to 3.18%. The increase in
rates is a direct result of the higher overall rate environment.
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.
15
Table Two: Analysis of Net Interest Margin on Earning Assets
-------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2007 2006
------------------------------------- -------------------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg
(Dollars in thousands) Balance Interest Yield (4) Balance Interest Yield (4)
---------- ---------- ---------- ---------- ---------- ----------
Assets
Earning assets:
Loans and leases (1) $ 387,398 $ 7,848 8.22% $ 370,557 $ 7,338 8.03%
Taxable investment
securities 110,666 1,249 4.58% 141,330 1,468 4.21%
Tax-exempt investment
securities (2) 29,818 376 5.11% 27,588 333 4.90%
Corporate stock 561 9 6.51% 567 10 7.15%
Federal funds sold 238 3 5.11% 124 1 3.27%
Investments in time deposits 4,964 68 5.56% 4,844 50 4.19%
---------- ---------- ---------- ----------
Total earning assets 533,645 9,553 7.26% 545,010 9,200 6.85%
---------- ----------
Cash & due from banks 20,919 32,899
Other assets 40,129 36,352
Allowance for loan & lease losses (5,918) (5,712)
---------- ----------
$ 588,775 $ 608,549
========== ==========
Liabilities & Shareholders' Equity
Interest bearing liabilities:
NOW and money market $ 165,321 906 2.22% $ 172,406 654 1.54%
Savings 37,534 130 1.40% 35,878 34 0.38%
Time deposits 131,604 1,411 4.35% 124,270 1,106 3.61%
Other borrowings 37,274 470 5.11% 50,735 531 4.24%
---------- ---------- ---------- ----------
Total interest bearing
liabilities 371,733 2,917 3.18% 383,289 2,325 2.46%
---------- ----------
Demand deposits 150,754 155,883
Other liabilities 5,955 6,229
---------- ----------
Total liabilities 528,442 545,401
Shareholders' equity 60,333 63,148
---------- ----------
$ 588,775 $ 608,549
========== ==========
Net interest income & margin (3) $ 6,636 5.04% $ 6,875 5.12%
========== ========== ========== ==========
(1) Loan and lease interest includes loan fees of $144,000 and $301,000 for the
three months ended March 31, 2007 and March 31, 2006, 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 35% for the three months ended March 31,
2007 and 2006.
(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.
16
Table Three: Analysis of Volume and Rate Changes on Net Interest Income and
Expenses
--------------------------------------------------------------------------------
(Dollars in thousands) Three Months Ended March 31, 2007 over 2006
Increase (decrease) due to change in:
Interest-earning assets: Volume Rate (4) Net Change
---------- ---------- ----------
Net loans and leases (1)(2) $ 333 $ 177 $ 510
Taxable investment securities (319) 100 (219)
Tax exempt investment securities (3) 27 16 43
Corporate stock -- (1) (1)
Federal funds sold 1 1 2
Investment in time deposits 1 17 18
---------- ---------- ----------
Total 43 310 353
---------- ---------- ----------
Interest-bearing liabilities:
NOW and money market (27) 279 252
Savings 2 94 96
Time deposits 65 240 305
Other borrowings (141) 80 (61)
---------- ---------- ----------
Total (101) 693 592
---------- ---------- ----------
Interest differential $ 144 $ (383) $ (239)
========== ========== ==========
--------------------------------------------------------------------------------
(1) The average balance of non-accruing loans and leases is not significant as
a percentage of total loans and leases and, as such, has been included in
net loans.
(2) Loan fees of $144,000 and $301,000 for the three months ending March 31,
2007 and March 31, 2006, 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 35% for the three months ended March 31,
2007 and 2006.
(4) The rate/volume variance has been included in the rate variance.
Provision for Loan and Lease Losses
The Company provided $121,000 for loan and lease losses for the first
quarter of 2007 as compared to $84,000 for the first quarter of 2006. Net loan
and lease charge-offs for the three months ended March 31, 2007 were $60,000 or
..06% (on an annualized basis) of average loans and leases as compared to
recoveries of $4,000 or less than .01% (on an annualized basis) of average loans
and leases for the three months ended March 31, 2006. For further information
please see "Allowance for Loan and Lease Losses Activity."
Noninterest Income
Table Four below provides a summary of the components of noninterest
income for the periods indicated (Dollars in thousands):
Table Four: Components of Noninterest Income
--------------------------------------------------------------------------------
Three Months Ended
March 31,
-------------------
2007 2006
--------------------------------------------------------------------------------
Service charges on deposit accounts $ 194 $ 209
Accounts receivable servicing fees 71 104
Gain on sale of securities -- --
Merchant fee income 128 129
Income from residential lending 65 65
Bank owned life insurance 88 44
Other 95 83
--------------------------------------------------------------------------------
Total noninterest income $ 641 $ 634
--------------------------------------------------------------------------------
17
Noninterest income increased slightly by $7,000 (1.1%) to $641,000 for
the three months ended March 31, 2007 as compared to $634,000 for the three
months ended March 31, 2006. The increase is primarily related to increased
income from bank owned life insurance (up $44,000 or 100%) as a result of the
Company purchasing additional policies near the end of the fourth quarter of
2006. This increase was offset by a reduction of fees from accounts receivable
servicing (down $33,000 or 31.7%).
Noninterest Expense
Noninterest expense increased $54,000 (1.5%) to a total of $3,692,000
in the first quarter of 2007 compared to the $3,638,000 recorded in the first
quarter of 2006. Salary and employee benefits increased $160,000 (8.1%). The
salaries component increased $35,000 (2.2%) mainly as a result of
market-condition salary adjustments, additional administrative staff to address
the burden of more stringent compliance and regulatory issues, and service
personnel to help achieve strategic growth in business banking. At March 31,
2007, the Company employed 130 persons on a full-time equivalent basis as
compared to 124 at March 31, 2006. The employee benefits and taxes component
increased by $33,000, primarily as a result of the increase in employees. In
addition, the adoption of FAS 123(R) in January of 2006 resulted in an increase
in salaries and benefits of $17,000 from the first quarter of 2006 to the first
quarter of 2007. On a quarter-over-quarter basis, occupancy expenses were down
$11,000 or 3.1%. Furniture and equipment decreased $64,000 or 28.1% year over
year, primarily due to less amortization of technology related equipment.
Although still being used, certain equipment has reached its fully depreciated
life.
Other expenses for the first quarter of 2007 were $1,062,000, a
decrease of $31,000 (2.8%) over the prior year quarter. The efficiency ratios
(fully taxable equivalent), excluding the amortization of intangible assets, for
the 2007 and 2006 first quarters were 49.7% and 47.3%, respectively.
Provision for Income Taxes
The effective federal and state tax rate for the first quarter of 2007
was 38.2% versus 39.4% for the first quarter of 2006. The decrease is related to
the Company's additional investment in bank owned life insurance during the
fourth quarter of 2006. The income from bank owned life insurance is tax-free,
helping to reduce the Company's tax rate.
Balance Sheet Analysis
The Company's total assets were $574,649,000 at March 31, 2007 as
compared to $604,003,000 at December 31, 2006, representing a decrease of 4.9%.
The average balance of total assets for the three months ended March 31, 2007
was $588,775,000, which represents a decrease of $19,774,000 or 3.2% over the
average balance of $608,549,000 for the three-month period ended March 31, 2006.
The decrease relates primarily to an overall decrease in deposit balances (see
"Deposits" on page 23). In addition, the Company has not reinvested the proceeds
from matured investment securities which has resulted in an overall decrease in
assets.
Investment Securities
The Company classifies its investment securities as held to maturity or
available for sale. The Company's intent is to hold all securities classified as
held to maturity until maturity and management believes that it has the ability
to do so. Securities available for sale may be sold to implement asset/liability
management strategies and in response to changes in interest rates, prepayment
rates and similar factors. Table Five below summarizes the values of the
Company's investment securities held on March 31, 2007 and December 31, 2006.
18
Table Five: Investment Securities Composition
-------------------------------------------------------------------------------------
(Dollars in thousands)
Available-for-sale (at fair value)
March 31, 2007 December 31, 2006
-------------------------------------------------------------------------------------
Debt securities:
U.S. Government agencies $ 20,805 $ 28,123
Mortgage-backed securities 32,660 33,236
Obligations of states and political subdivisions 35,153 41,224
Corporate debt securities 501 1,003
Corporate stock 616 623
-------------------------------------------------------------------------------------
Total available-for-sale investment securities $ 89,735 $ 104,209
=====================================================================================
Held-to-maturity (at amortized cost)
-------------------------------------------------------------------------------------
Debt securities:
Mortgage-backed securities $ 41,425 $ 44,031
-------------------------------------------------------------------------------------
Total held-to-maturity investment securities $ 41,425 $ 44,031
=====================================================================================
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, 2007, these categories accounted for
approximately 23%, 47%, 1%, 21%, 2%, 1%, 2% and 3%, respectively, of the
Company's loan portfolio. This mix was relatively unchanged compared to 22%,
45%, 1%, 23%, 2%, 2%, 2% and 3% at December 31, 2006. 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 resulted in the Company originating over $49,000,000 in new loans
during the first quarter of 2007; however, loan and lease paydowns and payoffs
resulted in a net decrease of $3,347,000 in loans from December 31, 2006. The
Company did experience increases in loan balances for commercial ($1,570,000 or
1.8%) and commercial real estate ($5,800,000 or 3.3%) and decreases in balances
for multi-family real estate loans ($23,000 or 0.6%), real estate construction
loans ($9,220,000 or 10.2%), residential real estate loans ($814,000 or 9.4%),
lease financing receivable ($405,000 or 6.4%), agriculture loans ($222,000 or
3.0%) and consumer loans ($47,000 or 0.4%). Table Six below summarizes the
composition of the loan portfolio as of March 31, 2007 and December 31, 2006.
Table Six: Loan and Lease Portfolio Composition
--------------------------------------------------------------------------------
March 31, December 31,
(Dollars in thousands) 2007 2006
--------------------------------------------------------------------------------
Commercial $ 87,429 $ 85,859
Real estate
Commercial 181,443 175,643
Multi-family 3,595 3,618
Construction 81,094 90,314
Residential 7,875 8,689
Lease financing receivable 5,970 6,375
Agriculture 7,140 7,362
Consumer 11,665 11,712
--------------------------------------------------------------------------------
Total loans and leases 386,211 389,572
Deferred loan and lease fees, net (630) (705)
Allowance for loan and lease losses (5,935) (5,874)
--------------------------------------------------------------------------------
Total net loans and leases $ 379,646 $ 382,993
===============================================================================
19
A significant portion of the Company's loans and leases are direct
loans and leases made to individuals and local businesses. The Company relies
substantially on local promotional activity and personal contacts by American
River Bank officers, directors and employees to compete with other financial
institutions. The Company makes loans and leases to borrowers whose applications
include a sound purpose and a viable primary repayment source, generally
supported by a secondary source of repayment.
Commercial loans consist of credit lines for operating needs, loans for
equipment purchases, working capital, and various other business loan products.
Consumer loans include a range of traditional consumer loan products such as
personal lines of credit and 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
clients 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 concentrated: (1) in
the Sacramento Metropolitan Statistical Area, (2) 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 (3) 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). American River Bank also has a diversified residential
construction loan business in numerous Northern California counties. The
Sacramento Metropolitan Statistical Area is a diversified economy, but with a
large State of California government presence and employment base. 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, capitalization rates, 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 flows 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
20
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 70.9% of the Company's loan and lease portfolio
at March 31, 2007, down from 71.4% at December 31, 2006. 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 that 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 remote.
At March 31, 2007, non-performing loans and leases (those loans on
non-accrual status and those loans still accruing and past due 90 days or more)
were $766,000 or 0.20% of total loans and leases. Non-performing loans and
leases were $78,000 or 0.02% of total loans and leases at December 31, 2006. The
increase was primarily related to addition of one real estate secured loan that
was past due 90 days and still accruing interest in the amount of $450,000, that
management believes is well-secured. There were no loan concentrations in excess
of 10% of total loans not otherwise disclosed as a category of loans as of March
31, 2007 or December 31, 2006. Management is not aware of any significant
problem loans, which were accruing and current at March 31, 2007, where serious
doubt exists as to the ability of the borrower to comply with the present
repayment terms and that would result in a significant loss to the Company.
Table Seven below sets forth nonaccrual loans and loans past due 90 days or more
as of March 31, 2007 and December 31, 2006.
Table Seven: Non-Performing Loans
--------------------------------------------------------------------------------
(Dollars in thousands) March 31, December 31,
2007 2006
--------------------------------------------------------------------------------
Past Due 90 days or more and still accruing
Commercial $ -- $ --
Real estate 450 13
Lease financing receivable 15 --
Consumer and other -- --
--------------------------------------------------------------------------------
Nonaccrual
Commercial -- --
Real estate 249 12
Lease financing receivable 52 53
Consumer and other -- --
--------------------------------------------------------------------------------
Total non-performing loans $ 766 $ 78
================================================================================
21
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 estimates 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 and
reversals of previous provisions charged to earnings. 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: (1) historical
loss rates, (2) local and regional economic conditions, (3) credit policy and
underwriting, (4) management and staff effectiveness, (5) trends in
delinquencies and charge-offs, (5) credit concentrations, (6) impaired loans,
(7) risk factors assigned to criticized or classified (problem) credits not
considered impaired, and (8) assessments by banking regulators and other third
parties. The Board of Directors reviews management's analysis of the adequacy of
the ALLL quarterly.
Table Eight below summarizes, for the periods indicated, the activity
in the allowance for loan and lease losses.
Table Eight: Allowance for Loan and Lease Losses
-----------------------------------------------------------------------------------
(Dollars in thousands) Three Months
Ended
March 31,
-------------------------
2007 2006
-----------------------------------------------------------------------------------
Average loans and leases outstanding $ 387,398 $ 370,557
-----------------------------------------------------------------------------------
Allowance for possible loan and lease losses at
beginning of period $ 5,874 $ 5,679
Loans and leases charged off:
Commercial -- --
Real estate (71) --
Consumer (4) --
Lease financing receivable -- --
-----------------------------------------------------------------------------------
Total (75) --
-----------------------------------------------------------------------------------
Recoveries of loans and leases previously charged off:
Commercial 8 --
Real estate -- --
Consumer -- --
Lease financing receivable 7 4
-----------------------------------------------------------------------------------
Total 15 4
-----------------------------------------------------------------------------------
Net loans and leases (charged off) recovered (60) 4
Additions to allowance charged to operating
expenses 121 84
-----------------------------------------------------------------------------------
Allowance for possible loan and lease
losses at end of period $ 5,935 $ 5,767
-----------------------------------------------------------------------------------
Ratio of net charge-offs to average loans and
leases outstanding (annualized) .06% .00%
Provision for possible loan and lease losses
to average loans and leases outstanding (annualized) .13% .09%
Allowance for possible loan and lease losses to loans
and leases, net of deferred fees, at end of period 1.54% 1.52%
22
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 internally allocated based on loan category,
loan grades, estimated risk factors, and loan impairment as discussed in the
prior paragraph; 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, the dollar weighted
risk factor of the loan portfolio (excepting criticized and classified credits
and impaired loans) is determined. Second, risk factors are assigned to
criticized and classified loans and leases not considered impaired. Third, the
Company determines whether a loan is impaired and if so measures the degree of
impairment within the context of SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan". These are estimated potential losses associated with
specific borrowers based upon estimated future cash flows or collateral value
and events affecting the risk rating. These three calculations are designed to
encompass the entire balance of the loan and lease portfolio. When these three
dollar numbers are aggregated, it is then compared to the actual ALLL balance at
the measurement date. Management is responsible to maintain the actual ALLL
within a reasonable range of the total estimated loss risk inherent in the loan
and lease portfolio. 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 $5,935,000 or 1.54% of total loans
and leases at March 31, 2007 and $5,767,000 or 1.52% of total loans and leases
at December 31, 2006.
Other Real Estate
At March 31, 2007 and December 31, 2006, the Company did not have any
other real estate ("ORE") properties.
Deposits
At March 31, 2007, total deposits were $485,744,000 representing a
decrease of $8,131,000 (1.4%) from the December 31, 2006 balance of
$493,875,000. Noninterest-bearing deposits decreased $13,610,000 (8.5%) while
interest-bearing deposits increased $5,479,000 (1.6%). The overall competitive
demand for deposit balances has resulted in a decrease in the Company's
deposits. Overall the Company has retained its deposit relationships; however,
the amount on deposit in these accounts is currently lower than in previous
quarters.
Other Borrowed Funds
Other borrowings outstanding as of March 31, 2007 and December 31,
2006, consist of advances (both long-term and short-term) from the FHLB. Table
Nine below summarizes these borrowings:
Table Nine: Other Borrowed Funds
---------------------------------------------------------------------------------------------------------
(Dollars in thousands)
March 31, 2007 December 31, 2006
--------------------------- ---------------------------
Amount Rate Amount Rate
----------------------------------------------------------
Short-term borrowings:
FHLB advances $ 20,083 4.73% $ 37,270 5.08%
----------------------------------------------------------
Long-term Borrowings:
FHLB advances $ 2,500 5.19% $ 5,000 4.95%
----------------------------------------------------------
23
The maximum amount of short-term borrowings at any month-end during the
first three quarters of 2007 and 2006 was $42,384,000 and $51,684,00,
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 $ 20,083 $ 2,500
Maturity 2007 to 2008 2008
Average rates 4.73% 5.19%
The Company has also been issued a total of $2,500,000 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 2007 or 2006 and management does not expect to draw upon these
lines in the future. See Liquidity section that follows for additional
information on FHLB borrowings.
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
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 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, 2007, shareholders'
equity was $59,983,000, representing a decrease of $2,388,000 (3.8%) from
$62,371,000 at December 31, 2006. The ratio of total risk-based capital to risk
adjusted assets was 11.2% at March 31, 2007 compared to 11.6% at December 31,
2006. Tier 1 risk-based capital to risk-adjusted assets was 9.9% at March 31,
2007 and 10.3% at December 31, 2006.
Table Ten below lists the Company's actual capital ratios at March 31,
2007 and December 31, 2006 as well as the minimum capital ratios for capital
adequacy.
Table Ten: Capital Ratios
----------------------------------------------------------------------------------------------------
Capital to Risk-Adjusted Assets At March 31, At December 31, Minimum Regulatory
2007 2006 Capital Requirements
----------------------------------------------------------------------------------------------------
Leverage ratio 7.5% 7.8% 4.00%
Tier 1 Risk-Based Capital 9.9% 10.3% 4.00%
Total Risk-Based Capital 11.2% 11.6% 8.00%
Capital ratios are reviewed on a regular basis to ensure that capital
exceeds the prescribed regulatory minimums and is adequate to meet future needs.
Management believes that both the Company and American River Bank met all of
their capital adequacy requirements as of March 31, 2007 and December 31, 2006.
The Company, through a Board of Director 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).
24
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 significant effect upon the
results of operations of the Company and its subsidiaries during the periods
ended March 31, 2007 and 2006.
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, 2007 and December 31, 2006 were approximately
$121,624,000 and $6,521,000 and $114,582,000 and $5,701,000, respectively. Such
loan commitments relate primarily to revolving lines of credit and other
commercial loans and to real estate construction loans. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Company's sources of liquidity consist of cash and due from
correspondent banks, overnight funds sold to correspondent banks, unpledged
marketable investments and loans held for sale and/or pledged for secured
borrowings. At March 31, 2007, consolidated liquid assets totaled $48.4 million
or 8.4% of total assets compared to $68.7 million or 11.4% of total assets on
December 31, 2006. In addition to liquid assets, the Company maintains
short-term lines of credit in the amount of $53,000,000 with correspondent
banks. At March 31, 2007, the Company had $53,000,000 available under these
credit lines. Additionally, American River Bank is a member of the FHLB. At
March 31, 2007, American River Bank could have arranged for up to $140,483,000
in secured borrowings from the FHLB. These borrowings are secured by pledged
mortgage loans and investment securities. At March 31, 2007, the Company had
advances, borrowings and commitments (including letters of credit) outstanding
of $25,083,000, leaving $115,400,000 available under these FHLB secured
borrowing arrangements. American River Bank also has informal agreements with
various other banks to sell participations in loans, if necessary. The Company
serves primarily a business and professional customer base and, as such, its
deposit base is susceptible to economic fluctuations. Accordingly, management
strives to maintain a balanced position of liquid assets and borrowing capacity
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.
25
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, 2007 and
December 31, 2006, 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 $128,145,000 and $120,283,000 at March 31, 2007 and
December 31, 2006, respectively. As a percentage of net loans and leases these
off-balance sheet items represent 33.8% and 31.4%, respectively.
The Company has certain ongoing commitments under operating leases.
These commitments do not significantly impact operating results.
Other Matters
Effects of Terrorism. The terrorist actions on September 11, 2001 and
thereafter, as well as, 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. Such 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 other above-referenced 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
26
rate risk, the structure of the balance sheet is managed with the goal that
movements of interest rates on assets and liabilities are correlated and
contribute to earnings even in periods of volatile interest rates. The
asset/liability management policy sets limits on the acceptable amount of
variance in net interest margin and market value of equity under changing
interest environments. The Company uses simulation models to forecast earnings,
net interest margin and market value of equity.
Simulation of earnings is the primary tool used to measure the
sensitivity of earnings to interest rate changes. Using computer-modeling
techniques, the Company is able to estimate the potential impact of changing
interest rates on earnings. A balance sheet forecast is prepared quarterly using
inputs of actual loans, securities and interest bearing liabilities (i.e.
deposits/borrowings) positions as the beginning base. The forecast balance sheet
is processed against three interest rate scenarios. The scenarios include a 200
basis point rising rate forecast, a flat rate forecast and a 200 basis point
falling rate forecast which take place within a one year time frame. The net
interest income is measured during the year assuming a gradual change in rates
over the twelve-month horizon. The simulation modeling indicated below attempts
to estimate changes in the Company's net interest income utilizing a forecast
balance sheet projected from the end of period balances.
Table Eleven below summarizes the effect on net interest income (NII)
of a +/-200 basis point change in interest rates as measured against a constant
rate (no change) scenario.
Table Eleven: Interest Rate Risk Simulation of Net Interest as of March 31, 2007 and December 31, 2006
------------------------------------------------------------------------------------------------------
(In thousands) $ Change in NII $ Change in NII
from Current from Current
12 Month Horizon 12 Month Horizon
March 31, 2007 December 31, 2006
-------------- -----------------
Variation from a constant rate scenario
+200bp $ 236 $ 389
-200bp $ (1,585) $ (1,871)
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.
Item 4. Controls and Procedures.
The Company, under the supervision and with the participation of its
management, including the Chief Executive Officer and the Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31,
2007. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely making known to them material information
relating to the Company and the Company's consolidated subsidiaries required to
be disclosed in the Company's reports filed or submitted under the Exchange Act.
During the quarter ended March 31, 2007, there have been no changes in the
Company's internal control over financial reporting that have significantly
affected, or are reasonably likely to materially affect, these controls.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company and/or its subsidiaries is a party to
claims and legal proceedings arising in the ordinary course of business. The
Company's management is not aware of any significant pending legal proceedings
to which either it or its subsidiaries may be a party or has recently been a
party, which will have a significant adverse effect on the financial condition
or results of operations of the Company or its subsidiaries, taken as a whole.
27
Item 1A. Risk Factors.
There have been no significant changes in the risk factors previously
disclosed in the Company's Form 10-K for the period ended December 31, 2006,
filed with the Securities and Exchange Commission on March 9, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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 number of shares reported in column (d) of the
table as shares that may be repurchased under the plan represent shares eligible
for the calendar year 2007. The repurchases can be made from time to time in the
open market as conditions allow and will be structured to comply with Commission
Rule 10b-18. Management reports monthly to the Board of Directors on the status
of the repurchase program. The Board of Directors has reserved the right to
suspend, terminate, modify or cancel this repurchase program at any time for any
reason. The following table lists shares repurchased during the quarter and the
maximum amount available to repurchase under the repurchase plan.
-------------------------------------------------------------------------------------------------------------------------------
Period (a) (b) (c) (d)
Total Number of Average Price Paid Total Number of Shares Maximum Number (or Approximate
Shares (or Per Share (or Units) Purchased as Dollar Value) of Shares (or
Units) (or Unit) Part of Publicly Units) That May Yet Be
Purchased Announced Plans or Purchased Under the Plans or
Programs Programs
-------------------------------------------------------------------------------------------------------------------------------
Month #1
January 1 through 45,000 $ 24.70 45,000 237,867
January 31, 2007
Month #2
February 1 through 114,000 $ 25.93 114,000 123,867
February 28, 2007
Month #3
March 1 through None N/A None 123,867
March 31, 2007
-------------------------------------------------------------------------------------------------------------------------------
Total 159,000 $ 25.58 159,000
-------------------------------------------------------------------------------------------------------------------------------
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
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). **
28
(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 March 31, 2006, filed with the Commission
on May 9, 2006.
(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 between American River Bank and Bradshaw
Plaza, Associates, Inc. dated November 27, 2006, related
to 9750 Business Park Drive, Sacramento, California
incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on November 28, 2006.
(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 LUM YIP
KEE, Limited (formerly Sandalwood Land Company) dated
August 28, 1996, related to 2240 Douglas Boulevard, Suite
100, Roseville, California (**) and Amendment No. 1
thereto dated July 28, 2006, incorporated by reference
from Exhibit 99.1 to the Registrant's Report on Form 8-K,
filed with the Commission on July 31, 2006.
*(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, incorporated by
reference from Exhibit 99.2 to the Registrant's Report on
Form 8-K, filed with the Commission on May 30, 2006.
*(10.10) Registrant's Deferred Fee Plan, incorporated by reference
from Exhibit 99.1 to the Registrant's Report on Form 8-K,
filed with the Commission on May 30, 2006.
(10.11) American River Bank Employee Severance Policy dated March
18, 1998. **
(10.12) 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. **
29
(10.13) 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 and
the First Amendment thereto dated April 21, 2004,
incorporated by reference from Exhibit 10.37 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 2004, filed with the Commission on August
11, 2004.
*(10.14) Employment Agreement between Registrant and David T. Taber
dated June 2, 2006, incorporated by reference from Exhibit
99.3 to the Registrant's Report on Form 8-K, filed with
the Commission on May 30, 2006.
(10.15) Lease agreement between R & R Partners, a California
General Partnership and North Coast Bank, 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
and the First Amendment thereto, dated January 2, 2006,
incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on January 3, 2006.
*(10.16) Salary Continuation Agreement, as amended on June 2, 2006,
between American River Bank and Mitchell A. Derenzo,
incorporated by reference from Exhibit 99.9 to the
Registrant's Report on Form 8-K, filed with the Commission
on May 30, 2006 and a modification to the agreement dated
January 3, 2007, incorporated by reference from Exhibit
99.6 to the Registrant's Report on Form 8-K, filed with
the Commission on January 5, 2007.
*(10.17) Salary Continuation Agreement, as amended on June 2, 2006,
between the Registrant and David T. Taber, incorporated by
reference from Exhibit 99.7 to the Registrant's Report on
Form 8-K, filed with the Commission on May 30, 2006 and a
modification to the agreement dated January 3, 2007,
incorporated by reference from Exhibit 99.4 to the
Registrant's Report on Form 8-K, filed with the Commission
on January 5, 2007.
*(10.18) Salary Continuation Agreement, as amended on June 2, 2006,
between American River Bank and Douglas E. Tow,
incorporated by reference from Exhibit 99.8 to the
Registrant's Report on Form 8-K, filed with the Commission
on May 30, 2006, and a modification to the agreement dated
January 3, 2007, incorporated by reference from Exhibit
99.5 to the Registrant's Report on Form 8-K, filed with
the Commission on January 5, 2007.
*(10.19) Registrant's 2000 Stock Option Plan with forms of
Nonqualified Stock Option Agreement and Incentive Stock
Option Agreement. **
*(10.20) 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.
(10.21) Lease agreement between Bank of Amador and the United
States Postal Service, dated April 24, 2001, related to
424 Sutter Street, Jackson, California (***) and the First
Amendment thereto, dated June 5, 2006, incorporated by
reference from Exhibit 99.1 to the Registrant's Report on
Form 8-K, filed with the Commission on June 6, 2006.
(10.22) Ground lease agreement between Bank of Amador and James B.
Newman and Helen M. Newman, dated June 1, 1992, related to
26675 Tiger Creek Road, Pioneer, California. ***
30
*(10.23) Salary Continuation Agreement, as amended on June 2, 2006,
between Bank of Amador, a division of American River Bank,
and Larry D. Standing and related Endorsement Split Dollar
Agreement, incorporated by reference from Exhibit 99.5 to
the Registrant's Report on Form 8-K, filed with the
Commission on May 30, 2006.
*(10.24) Director Retirement Agreement, as amended on June 2, 2006,
between Bank of Amador, a division of American River Bank,
and Larry D. Standing, incorporated by reference from
Exhibit 99.6 to the Registrant's Report on Form 8-K, filed
with the Commission on May 30, 2006.
*(10.25) Employment Agreement dated June 2, 2006 between Bank of
Amador, a division of American River Bank, and Larry D.
Standing, incorporated by reference from Exhibit 99.4 to
the Registrant's Report on Form 8-K, filed with the
Commission on May 30, 2006.
(10.26) Item Processing Agreement between American River Bank and
Fidelity Information Services, Inc., dated April 22, 2005,
incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on April 27, 2005.
(10.27) Lease agreement between Registrant and One Capital Center,
a California limited partnership, dated May 17, 2005,
related to 3100 Zinfandel Drive, Rancho Cordova,
California, incorporated by reference from Exhibit 99.1 to
the Registrant's Report on Form 8-K, filed with the
Commission on May 18, 2005.
(10.28) Managed Services Agreement between American River
Bankshares and ProNet Solutions, Inc., dated September 8,
2005, incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on September 9, 2005.
*(10.29) American River Bankshares 2005 Executive Incentive Plan,
incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on October 27, 2005, the First Amendment thereto,
incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on March 17, 2006 and the Second Amendment thereto,
incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on March 23, 2007.
*(10.30) American River Bankshares Director Emeritus Program,
incorporated by reference from Exhibit 10.33 to the
Registrant's Report on Form 10-Q, filed with the
Commission on August 8, 2006.
*(10.31) Employment Agreement dated September 20, 2006 between
American River Bankshares and Mitchell A. Derenzo,
incorporated by reference from Exhibit 99.1 to the
Registrant's
Report on Form 8-K, filed with the Commission on September
20, 2006.
*(10.32) Employment Agreement dated September 20, 2006 between
American River Bankshares and Douglas E. Tow, incorporated
by reference from Exhibit 99.2 to the Registrant's Report
on Form 8-K, filed with the Commission on September 20,
2006.
*(10.33) Employment Agreement dated September 20, 2006 between
American River Bankshares and Kevin B. Bender,
incorporated by reference from Exhibit 99.3 to the
Registrant's Report on Form 8-K, filed with the Commission
on September 20, 2006.
*(10.34) Employment Agreement dated September 20, 2006 between
American River Bank and Gregory N. Patton, incorporated by
reference from Exhibit 99.4 to the Registrant's Report on
Form 8-K, filed with the Commission on September 20, 2006.
31
*(10.35) Employment Agreement dated September 20, 2006 between
American River Bank and Raymond F. Byrne, incorporated by
reference from Exhibit 99.5 to the Registrant's Report on
Form 8-K, filed with the Commission on September 20, 2006.
*(10.36) Salary Continuation Agreement, dated January 3, 2007,
between American River Bank and Kevin B. Bender,
incorporated by reference from Exhibit 99.1 to the
Registrant's Report on Form 8-K, filed with the Commission
on January 5, 2007.
*(10.37) Salary Continuation Agreement, dated January 3, 2007,
between American River Bank and Gregory N. Patton,
incorporated by reference from Exhibit 99.2 to the
Registrant's Report on Form 8-K, filed with the Commission
on January 5, 2007.
*(10.38) Salary Continuation Agreement, dated January 3, 2007,
between American River Bank and Raymond F. Byrne,
incorporated by reference from Exhibit 99.3 to the
Registrant's Report on Form 8-K, filed with the Commission
on January 5, 2007.
(10.39) Second Amendment to Commercial Lease Agreement between R.
& R. Partners and North Coast Bank, a division of American
River Bank related to 8733 Lakewood Drive, Suite A,
Windsor, California.
(10.40) Lease agreement between American River Bank and Sierra
Investment Group, LLC, dated April 1, 2007, related to
3330 Cameron Park Drive, Suite 150, Cameron Park,
California.
(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.
32
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 7, 2007 By: /s/ DAVID T. TABER
----------- ----------------------------------
David T. Taber
President
Chief Executive Officer
AMERICAN RIVER BANKSHARES
May 7, 2007 By: /s/ MITCHELL A. DERENZO
----------- ----------------------------------
Mitchell A. Derenzo
Chief Financial Officer
(Principal Financial and Accounting Officer)
33
EXHIBIT INDEX
Exhibit Number Description Page
--------------------------------------------------------------------------------
10.39 Second Amendment to Commercial Lease Agreement between
R. & R. Partners and North Coast Bank, a division of
American River Bank related to 8733 Lakewood Drive,
Suite A, Windsor, California. 35
10.40 Lease agreement between American River Bank and Sierra
Investment Group, LLC, dated April 1, 2007, related to
3330 Cameron Park Drive, Suite 150, Cameron Park,
California. 37
31.1 Certifications of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. 45
31.2 Certifications of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. 46
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. 47
34