Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary
Statements Regarding Forward-Looking Statements
Certain matters
discussed or incorporated by reference in this Annual Report on Form 10-K including, but not limited to, matters described in
“Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking
statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, Section 27A of the Securities
Act of 1933, as amended, and subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements may contain words related to future projections including, but not limited to, words such as “believe,”
“expect,” “anticipate,” “intend,” “may,” “will,” “should,”
“could,” “would,” and variations of those words and similar words that are subject to risks, uncertainties
and other factors that could cause actual results to differ materially from those projected. Factors that could cause or contribute
to such differences include, but are not limited to, the following: (1) legislation promulgated by the United States Congress
and actions taken by governmental agencies that may impact the U.S. financial system; (2) the risks presented by economic volatility
and recession, which could adversely affect credit quality, collateral values, including real estate collateral, investment values,
liquidity and loan originations and loan portfolio delinquency rates; (3) variances in the actual versus projected growth in assets
and return on assets; (4) potential loan and lease losses; (5) potential expenses associated with resolving nonperforming assets
as well as regulatory changes; (6) changes in the interest rate environment including interest rates charged on loans, earned
on securities investments and paid on deposits and other borrowed funds; (7) competitive effects; (8) potential declines in fee
and other noninterest income earned associated with economic factors, as well as regulatory changes; (9) general economic conditions
nationally, regionally, and within our operating markets could be less favorable than expected or could have a more direct and
pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain
the quality of our earning assets; (10) changes in the regulatory environment including increased capital and regulatory compliance
requirements and government intervention in the U.S. financial system; (11) changes in business conditions and inflation; (12)
changes in securities markets, public debt markets, and other capital markets; (13) potential data processing, cybersecurity and
other operational systems failures, breach or fraud; (14) potential decline in real estate values in our operating markets; (15)
the effects of uncontrollable events such as terrorism, the threat of terrorism or the impact of military conflicts in connection
with the conduct of the war on terrorism by the United States and its allies, negative financial and economic conditions, natural
disasters, and disruption of power supplies and communications; (16) changes in accounting standards, tax laws or regulations
and interpretations of such standards, laws or regulations; (17) projected business increases following any future strategic expansion
could be lower than expected; (18) the goodwill we have recorded in connection with acquisitions could become impaired, which
may have an adverse impact on our earnings; (19) the reputation of the financial services industry could experience deterioration,
which could adversely affect our ability to access markets for funding and to acquire and retain customers; and (20) the efficiencies
we may expect to receive from any investments in personnel and infrastructure may not be realized.
The factors set
forth under “Item 1A - Risk Factors” in this report and other cautionary statements and information set forth in this
report should be carefully considered and understood as being applicable to all related forward-looking statements contained in
this report, when evaluating the business prospects of the Company and its subsidiaries.
Forward-looking
statements are not guarantees of performance. By their nature, they involve risks, uncertainties and assumptions. The future results
and shareholder values may differ significantly from those expressed in these forward-looking statements. You are cautioned not
to put undue reliance on any forward-looking statement. Any such statement speaks only as of the date of this report, and in the
case of any documents that may be incorporated by reference, as of the date of those documents. We do not undertake any obligation
to update or release any revisions to any forward-looking statements, to report any new information, future event or other circumstances
after the date of this report or to reflect the occurrence of unanticipated events, except as required by law. However, your attention
is directed to any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange
Commission (the “SEC”) on Forms 10-K, 10-Q and 8-K.
Use of Non-GAAP
Financial Measures
This Annual
Report on Form 10-K (“Form 10K”) contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures
in addition to results presented in accordance with GAAP. These measures include tangible book value and taxable equivalent
basis. Management has presented these non-GAAP financial measures in this Form 10K because it believes that they provide
useful and comparative information to assess trends in the Company’s financial position reflected in the results and facilitate
comparison of our performance with the performance of our peers.
Net Interest
Margin and Efficiency Ratio (non-GAAP financial measures)
In accordance
with industry standards, certain designated net interest income amounts are presented on a taxable equivalent basis,
including the calculation of net interest margin and the efficiency ratio. The Company believes the presentation of net
interest margin on a taxable equivalent basis using a 34% effective tax rate allows comparability of net interest margin with
industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both
taxable and tax-exempt loans and investments. The efficiency ratio is a measure of a banking company’s overhead as a
percentage of its revenue. The Company derives this ratio by dividing total noninterest expense by the sum of the taxable
equivalent net interest income and the total noninterest income.
Tangible Equity
(non-GAAP financial measures)
Tangible common
stockholders’ equity (tangible book value) excludes goodwill and other intangible assets. The Company believes the
exclusion of goodwill and other intangible assets to create “tangible equity” facilitates the comparison of results
for ongoing business operations. The Company’s management internally assesses its performance based, in part, on these
non-GAAP financial measures.
Critical Accounting
Policies
General
The Company’s
financial statements are prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”). The financial information contained within our statements is, to a significant extent, financial information
that is based on measures of the financial effects of transactions and events that have already occurred. We use historical loss
data and the economic environment as factors, among others, in determining the inherent loss that may be present in our loan and
lease portfolio. Actual losses could differ significantly from the factors that we use. In addition, GAAP itself may change from
one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of
events that would impact our transactions could change.
Allowance
for Loan and Lease Losses
The allowance
for loan and lease losses is an estimate of probable credit losses inherent in the Company’s credit portfolio that have
been incurred as of the balance-sheet date. The allowance is based on two basic principles of accounting: (1) “Accounting
for Contingencies,” which requires that losses be accrued when it is probable that a loss has occurred at the balance sheet
date and such loss can be reasonably estimated; and (2) the “Receivables” topic, which requires that losses be accrued
on impaired loans based on the differences between the value of collateral, present value of future cash flows or values that
are observable in the secondary market and the loan balance.
The allowance
for loan and lease losses is determined based upon estimates that can and do change when the actual risk, loss events, or changes
in other factors, occur. The analysis of the allowance uses a historical loss view as an indicator of future losses and as a result
could differ from the actual losses incurred in the future. If the allowance for loan and lease losses falls below that deemed
adequate (by reason of loan and lease growth, actual losses, the effect of changes in risk factors, or some combination of these),
the Company has a strategy for supplementing the allowance for loan and lease losses, over the short-term. For further information
regarding our allowance for loan and lease losses, see “Allowance for Loan and Lease Losses Activity.”
Stock-Based
Compensation
The Company
recognizes compensation expense over the service period in an amount equal to the fair value of all share-based payments which
consist of stock options and restricted stock awarded to directors and employees. The fair value of each stock option award is
estimated on the date of grant and amortized over the service period using a Black-Scholes-Merton based option valuation model
that requires the use of assumptions. Critical assumptions that affect the estimated fair value of each award include expected
stock price volatility, dividend yields, option life and the risk-free interest rate. The fair value of each restricted award
is estimated on the date of award and amortized over the service period.
Goodwill
Business combinations
involving the Company’s acquisition of equity interests or net assets of another enterprise or the assumption of net liabilities
in an acquisition of branches constituting a business may give rise to goodwill. Goodwill represents the excess of the cost of
an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The value of goodwill is ultimately
derived from the Company’s ability to generate net earnings after the acquisition and is not deductible for tax purposes.
A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason,
goodwill is assessed for impairment at least annually. Impairment exists when a reporting unit’s carrying value of goodwill
exceeds its fair value. At December 31, 2016, the Company’s reporting unit had positive equity and the Company elected to
perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded
its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value
of the reporting unit exceeded its carrying value, resulting in no impairment.
Income Taxes
The
Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents
each entity’s proportionate share of the consolidated provision for income taxes.
The Company
accounts for income taxes using the balance sheet method, under which deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On the consolidated
balance sheet, net deferred tax assets are included in accrued interest receivable and other assets. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets
will not be realized. The Company conducted an analysis to assess the need for a valuation allowance at December 31, 2016,
and determined that no valuation allowance was required. As part of this assessment, all available evidence, including both positive
and negative, was considered to determine whether based on the weight of such evidence, a valuation allowance on the Company’s
deferred tax assets was needed. A valuation allowance is deemed to be needed when, based on the weight of the available evidence,
it is more likely than not (a likelihood of more than 50 percent) that some portion or all of a deferred tax asset will not be
realized. The future realization of the deferred tax asset depends on the existence of sufficient taxable income within the carryback
and carry forward periods.
The benefit
of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management
believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that
meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities
upon examination. Only tax positions that meet the more-likely-than-not recognition threshold are recognized. The election has
been made to record interest expense related to tax exposures in tax expense, if applicable, and the exposure for penalties related
to tax exposures in tax expense, if applicable.
Overview
The Company
recorded net income in 2016 of $6,404,000, an increase of $1,136,000 (21.6%) from $5,268,000 in 2015. Diluted earnings per share
were $0.94 for 2016 and $0.70 for 2015. For 2016, the Company realized a return on average equity of 7.60% and a return on average
assets of 1.00%, as compared to 6.03% and 0.85%, respectively, in 2015.
Net income for
2015 increased $907,000 (20.8%) from $4,361,000 in 2014. Diluted earnings per share for 2014 were $0.54. For 2014, the Company
realized a return on average equity of 4.98% and return on average assets of 0.72%. Table One below provides a summary of the
components of net income for the years indicated (dollars in thousands):
Table One:
Components of Net Income
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest income*
|
|
$
|
21,618
|
|
|
$
|
21,340
|
|
|
$
|
20,242
|
|
Interest
expense
|
|
|
(910
|
)
|
|
|
(961
|
)
|
|
|
(1,168
|
)
|
Net interest
income*
|
|
|
20,708
|
|
|
|
20,379
|
|
|
|
19,074
|
|
Provision for loan and lease losses
|
|
|
1,344
|
|
|
|
—
|
|
|
|
541
|
|
Noninterest income
|
|
|
2,045
|
|
|
|
2,015
|
|
|
|
2,177
|
|
Noninterest expense
|
|
|
(13,836
|
)
|
|
|
(14,080
|
)
|
|
|
(14,862
|
)
|
Provision for income taxes
|
|
|
(3,392
|
)
|
|
|
(2,674
|
)
|
|
|
(2,292
|
)
|
Tax equivalent
adjustment
|
|
|
(465
|
)
|
|
|
(372
|
)
|
|
|
(277
|
)
|
Net income
|
|
$
|
6,404
|
|
|
$
|
5,268
|
|
|
$
|
4,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
|
|
$
|
638,276
|
|
|
$
|
623,049
|
|
|
$
|
605,247
|
|
Net income as a percentage of
average total assets
|
|
|
1.00
|
%
|
|
|
0.85
|
%
|
|
|
0.72
|
%
|
*
Fully taxable equivalent basis (FTE)
Under
accounting principles generally accepted in the United States of America all share and per share data is adjusted for stock dividends
and stock splits. There were no stock dividends or stock splits in 2016, 2015 or 2014.
During 2016,
total assets of the Company increased $16,810,000 (2.6%) from $634,640,000 at December 31, 2015 to $651,450,000 at December 31,
2016. At December 31, 2016, net loans totaled $324,086,000, up $34,984,000 (12.1%) from the ending balance of $289,102,000 at
December 31, 2015. Deposits increased $14,116,000 or 2.7% from $530,690,000 at December 31, 2015 to $544,806,000 at December 31,
2016. Shareholders’ equity decreased $2,225,000 or 2.6% from $86,075,000 at December 31, 2015 to $83,850,000 at December
31, 2016. The Company ended 2016 with a leverage capital ratio of 10.5% and a total risk-based capital ratio of 20.3% compared
to a leverage capital ratio of 11.0% and a total risk-based capital ratio of 20.6% at the end of 2015.
Results of Operations
Net Interest Income and
Net Interest Margin
Net interest
income represents the excess of interest and fees earned on interest earning assets (loans, securities, Federal funds sold and
interest-bearing deposits in other banks) over the interest paid on deposits and borrowed funds. Net interest margin is net interest
income expressed as a percentage of average earning assets.
The Company’s
fully taxable equivalent net interest margin was 3.62% in 2016, 3.63% in 2015, and 3.54% in 2014. The fully taxable equivalent
net interest income was up $329,000 (1.6%), from $20,379,000 in 2015 to $20,708,000 in 2016. The fully taxable equivalent net
interest income was up $1,312,000 (6.9%), from $19,067,000 in 2014 to $20,379,000 in 2015.
The fully
taxable equivalent interest income component increased $278,000 (1.3%) from $21,340,000 in 2015 to $21,618,000 in 2016. The increase
in the fully taxable equivalent interest income for 2016 compared to the same period in 2015 is comprised of two components -
rate (down $613,000) and volume (up $891,000). The rate decrease primarily occurred in the loan portfolio. While average loans
increased by $27,009,000 (9.7%) from $279,728,000 during 2015 to $306,737,000 during 2016, due to the overall lower interest rate
environment, the new loans added were at lower yields than the existing loans. Yield on loans decreased from 5.01% in 2015 to
4.88% in 2016 and contributed to a decrease of $399,000 in loan interest income. The investment portfolio also contributed to
the decrease in interest income. The yield on the investments decreased from 2.60% in 2015 to 2.51% in 2016 and contributed to
a decrease of $217,000 in interest income. This decrease in investment income due to rates can also be attributed to the lower
overall rate environment as proceeds from paid down securities were invested at lower rates. The volume increase of $891,000 was
primarily from the increase of $1,346,000 in average loans mentioned above and partially offset by a decrease of $454,000 in investments.
When compared to 2015, average investment securities decreased $17,168,000 (6.1%) from $281,344,000 in 2015 compared to $264,176,000
in 2016, as a portion of these funds helped fund the increase in loans.
The fully
taxable equivalent interest income component increased $1,098,000 (5.4%) from $20,242,000 in 2014 to $21,340,000 in 2015. The
increase in the fully taxable equivalent interest income for 2015 compared to the same period in 2014 is comprised of two components
- rate (down $285,000) and volume (up $1,383,000). The rate decrease primarily occurred in the loan portfolio. While average loans
increased by $25,830,000 (10.2%) from $253,898,000 during 2014 to $279,728,000 during 2015, due to the overall lower interest
rate environment, the new loans added were at lower yields than the existing loans. Yield on loans decreased from 5.37% in 2014
to 5.01% in 2015 and contributed to a decrease of $1,076,000 in loan interest income. The decrease of $1,076,000 in interest income
created from the decrease in rates on the loan balances was partially offset by an increase in rates on the investment portfolio
resulting in an increase of $790,000 related to the investments. This increase in investment income due to rates can be attributed
to a slowdown in the mortgage refinance market. As mortgage refinancing slows it also reduces the principal prepayments that the
Company receives on the mortgage backed securities, which reduces the premium amounts amortized on the bonds. A lower amount of
amortized premium results in higher interest income. The volume increase of $1,383,000 was primarily from the increase of $1,466,000
in average loans mentioned above and partially offset by a decrease of $83,000 in investments. When compared to 2014, average
investment securities decreased $3,092,000 (1.1%) from $284,436,000 in 2014 compared to $281,344,000 in 2015.
Interest
expense was $51,000 (5.3%) lower in 2016 compared to 2015, decreasing from $961,000 to $910,000. The primary decrease in interest
expense relates to lower rates (down $53,000). Rates paid on interest bearing liabilities decreased one basis point from 0.27%
to 0.26% in 2015 compared to 2014. The average balances on interest bearing liabilities were $351,095,000 (or $4,957,000 and 1.4%
lower) in 2016 compared to $356,052,000 in 2015. Despite the slightly lower average balances, the Company experienced a slight
increase in interest expense of $2,000 due to volume as a result of an increase in the higher cost other borrowings which increased
from $14,092,000 in 2015 to $17,201,000 in 2016 and had a $32,000 impact on the increase in interest expense due to volume. This
increase was offset by a decrease in interest expense of $30,000 related to deposit balances.
Interest
expense was $207,000 (17.7%) lower in 2015 compared to 2014, decreasing from $1,168,000 to $961,000. The primary decrease in interest
expense relates to lower rates (down $222,000). Rates paid on interest bearing liabilities decreased six basis points from 0.33%
to 0.27% in 2014 compared to 2015. The average balances on interest bearing liabilities were $356,052,000 (or $180,000 and 0.1%
higher) in 2015 compared to $355,872,000 in 2014. The higher balances had only a slight impact on the overall interest expense.
Table Two, Analysis
of Net Interest Margin on Earning Assets, and Table Three, Analysis of Volume and Rate Changes on Net Interest Income and Expenses,
are provided to enable the reader to understand the components and past trends of the Company’s interest income and expenses.
Table Two provides an analysis of net interest margin on earning assets setting forth average assets, liabilities and shareholders’
equity; interest income earned and interest expense paid and average rates earned and paid; and the net interest margin on earning
assets. Table Three sets forth a summary of the changes in interest income and interest expense from changes in average asset
and liability balances (volume), computed on a daily average basis, and changes in average interest rates.
Table Two: Analysis
of Net Interest Margin on Earning Assets
Year Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(Taxable Equivalent Basis)
(dollars in thousands)
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
|
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
|
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable loans
and leases (1)
|
|
$
|
289,699
|
|
|
$
|
14,008
|
|
|
|
4.84
|
%
|
|
$
|
270,267
|
|
|
$
|
13,547
|
|
|
|
5.01
|
%
|
|
$
|
253,434
|
|
|
$
|
13,609
|
|
|
|
5.37
|
%
|
Tax-exempt loans and leases
(2)
|
|
|
17,038
|
|
|
|
967
|
|
|
|
5.68
|
%
|
|
|
9,461
|
|
|
|
481
|
|
|
|
5.08
|
%
|
|
|
464
|
|
|
|
29
|
|
|
|
6.25
|
%
|
Taxable investment Securities
|
|
|
240,149
|
|
|
|
5,755
|
|
|
|
2.40
|
%
|
|
|
255,137
|
|
|
|
6,280
|
|
|
|
2.46
|
%
|
|
|
257,308
|
|
|
|
5,528
|
|
|
|
2.15
|
%
|
Tax-exempt investment securities (2)
|
|
|
23,952
|
|
|
|
867
|
|
|
|
3.62
|
%
|
|
|
26,128
|
|
|
|
1,015
|
|
|
|
3.88
|
%
|
|
|
27,051
|
|
|
|
1,057
|
|
|
|
3.91
|
%
|
Corporate stock
|
|
|
75
|
|
|
|
14
|
|
|
|
18.67
|
%
|
|
|
79
|
|
|
|
12
|
|
|
|
15.19
|
%
|
|
|
77
|
|
|
|
15
|
|
|
|
19.48
|
%
|
Federal funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest
bearing deposits in other banks
|
|
|
996
|
|
|
|
7
|
|
|
|
0.70
|
%
|
|
|
994
|
|
|
|
5
|
|
|
|
0.50
|
%
|
|
|
1,000
|
|
|
|
4
|
|
|
|
0.40
|
%
|
Total
earning assets
|
|
|
571,909
|
|
|
|
21,618
|
|
|
|
3.78
|
%
|
|
|
562,066
|
|
|
|
21,340
|
|
|
|
3.80
|
%
|
|
|
539,334
|
|
|
|
20,242
|
|
|
|
3.75
|
%
|
Cash & due from banks
|
|
|
33,806
|
|
|
|
|
|
|
|
|
|
|
|
26,313
|
|
|
|
|
|
|
|
|
|
|
|
28,533
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
37,753
|
|
|
|
|
|
|
|
|
|
|
|
39,941
|
|
|
|
|
|
|
|
|
|
|
|
42,924
|
|
|
|
|
|
|
|
|
|
Allowance
for loan & lease losses
|
|
|
(5,192
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,271
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
638,276
|
|
|
|
|
|
|
|
|
|
|
$
|
623,049
|
|
|
|
|
|
|
|
|
|
|
$
|
605,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW & MMDA
|
|
$
|
190,237
|
|
|
|
146
|
|
|
|
0.08
|
%
|
|
$
|
196,120
|
|
|
|
244
|
|
|
|
0.12
|
%
|
|
$
|
201,412
|
|
|
|
420
|
|
|
|
0.21
|
%
|
Savings
|
|
|
60,543
|
|
|
|
19
|
|
|
|
0.03
|
%
|
|
|
58,910
|
|
|
|
29
|
|
|
|
0.05
|
%
|
|
|
53,806
|
|
|
|
40
|
|
|
|
0.07
|
%
|
Time deposits
|
|
|
83,114
|
|
|
|
565
|
|
|
|
0.68
|
%
|
|
|
86,930
|
|
|
|
544
|
|
|
|
0.63
|
%
|
|
|
89,392
|
|
|
|
561
|
|
|
|
0.63
|
%
|
Other borrowings
|
|
|
17,201
|
|
|
|
180
|
|
|
|
1.05
|
%
|
|
|
14,092
|
|
|
|
144
|
|
|
|
1.02
|
%
|
|
|
11,262
|
|
|
|
147
|
|
|
|
1.31
|
%
|
Total interest bearing
liabilities
|
|
|
351,095
|
|
|
|
910
|
|
|
|
0.26
|
%
|
|
|
356,052
|
|
|
|
961
|
|
|
|
0.27
|
%
|
|
|
355,872
|
|
|
|
1,168
|
|
|
|
0.33
|
%
|
Demand deposits
|
|
|
196,434
|
|
|
|
|
|
|
|
|
|
|
|
173,130
|
|
|
|
|
|
|
|
|
|
|
|
155,537
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
6,494
|
|
|
|
|
|
|
|
|
|
|
|
6,537
|
|
|
|
|
|
|
|
|
|
|
|
6,275
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
554,023
|
|
|
|
|
|
|
|
|
|
|
|
535,719
|
|
|
|
|
|
|
|
|
|
|
|
517,684
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
84,253
|
|
|
|
|
|
|
|
|
|
|
|
87,330
|
|
|
|
|
|
|
|
|
|
|
|
87,563
|
|
|
|
|
|
|
|
|
|
|
|
$
|
638,276
|
|
|
|
|
|
|
|
|
|
|
$
|
623,049
|
|
|
|
|
|
|
|
|
|
|
$
|
605,247
|
|
|
|
|
|
|
|
|
|
Net
interest income &
margin (3)
|
|
|
|
|
|
$
|
20,708
|
|
|
|
3.62
|
%
|
|
|
|
|
|
$
|
20,379
|
|
|
|
3.63
|
%
|
|
|
|
|
|
$
|
19,074
|
|
|
|
3.54
|
%
|
|
(1)
|
Loan and lease
interest includes loan and lease fees of $253,000, $322,000 and $307,000 in 2016, 2015
and 2014, respectively.
|
|
(2)
|
Includes taxable-equivalent
adjustments that primarily relate to income on certain loans and securities that is exempt
from federal income taxes. The effective federal statutory tax rate was 34%
in 2016, 2015 and 2014.
|
|
(3)
|
Net interest
margin is computed by dividing net interest income by total average earning assets.
|
Table
Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
|
Year ended December 31, 2016 over 2015 (dollars in
thousands)
|
|
Increase (decrease) in interest income and expense
due to change in:
|
|
|
|
Interest-earning assets:
|
|
Volume
|
|
|
Rate (4)
|
|
|
Net Change
|
|
Taxable
net loans and leases (1)(2)
|
|
$
|
974
|
|
|
$
|
(532
|
)
|
|
$
|
442
|
|
Tax-exempt net loans and
leases (3)
|
|
|
372
|
|
|
|
133
|
|
|
|
505
|
|
Taxable
investment securities
|
|
|
(369
|
)
|
|
|
(156
|
)
|
|
|
(525
|
)
|
Tax-exempt
investment securities (3)
|
|
|
(85
|
)
|
|
|
(63
|
)
|
|
|
(148
|
)
|
Corporate
stock
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
2
|
|
Federal
funds sold & other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest
bearing deposits in other banks
|
|
|
—
|
|
|
|
2
|
|
|
|
2
|
|
Total
|
|
|
891
|
|
|
|
(613
|
)
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
(7
|
)
|
|
|
(91
|
)
|
|
|
(98
|
)
|
Savings
deposits
|
|
|
1
|
|
|
|
(11
|
)
|
|
|
(10
|
)
|
Time deposits
|
|
|
(24
|
)
|
|
|
45
|
|
|
|
21
|
|
Other
borrowings
|
|
|
32
|
|
|
|
4
|
|
|
|
36
|
|
Total
|
|
|
2
|
|
|
|
(53
|
)
|
|
|
(51
|
)
|
Interest
differential
|
|
$
|
889
|
|
|
$
|
(560
|
)
|
|
$
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2015 over 2014 (dollars in thousands)
Increase (decrease) in interest income and expense due to change in:
|
|
|
|
Interest-earning assets:
|
|
Volume
|
|
|
Rate (4)
|
|
|
Net Change
|
|
Taxable
net loans and leases (1)(2)
|
|
$
|
904
|
|
|
$
|
(966
|
)
|
|
$
|
(62
|
)
|
Tax-exempt net loans and
leases (3)
|
|
|
562
|
|
|
|
(110
|
)
|
|
|
452
|
|
Taxable
investment securities
|
|
|
(47
|
)
|
|
|
799
|
|
|
|
752
|
|
Tax-exempt
investment securities (3)
|
|
|
(36
|
)
|
|
|
(6
|
)
|
|
|
(42
|
)
|
Corporate
stock
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Federal
funds sold & other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest
bearing deposits in other banks
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
Total
|
|
|
1,383
|
|
|
|
(285
|
)
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
(11
|
)
|
|
|
(165
|
)
|
|
|
(176
|
)
|
Savings
deposits
|
|
|
4
|
|
|
|
(15
|
)
|
|
|
(11
|
)
|
Time deposits
|
|
|
(15
|
)
|
|
|
(2
|
)
|
|
|
(17
|
)
|
Other
borrowings
|
|
|
37
|
|
|
|
(40
|
)
|
|
|
(3
|
)
|
Total
|
|
|
15
|
|
|
|
(222
|
)
|
|
|
(207
|
)
|
Interest
differential
|
|
$
|
1,368
|
|
|
$
|
(63
|
)
|
|
$
|
1,305
|
|
|
(1)
|
The average balance
of non-accruing loans and leases is immaterial as a percentage of total loans and leases
and has been included in net loans and leases.
|
|
(2)
|
Loan and lease
fees of $253,000, $322,000 and $307,000 for the years ended December 31, 2016, 2015 and
2014, respectively, have been included in the interest income computation.
|
|
(3)
|
Includes taxable-equivalent
adjustments that primarily relate to income on certain loans and securities that is exempt
from federal income taxes. The effective federal statutory tax rate was 34%
in 2016, 2015 and 2014.
|
|
(4)
|
The rate/volume
variance has been included in the rate variance.
|
Provision
for Loan and Lease Losses
The Company
experienced net loan and lease recoveries of $1,191,000 or 0.39% of average loans and leases during 2016 compared to net loan
and lease losses of $326,000 or 0.12% of average loans and leases during 2015. As a result of the net recoveries in 2016, the
Company reduced the allowance for loan and lease losses by recording a negative provision for loan and lease losses of $1,344,000.
As a result of the improving credit quality over the past several years and a reduction in historical loan loss rates the Company
did not require any loan or lease loss provision in 2015. The level of nonperforming loans and leases, which began to increase
during the economic cycle of 2007 through 2010, reached a high of $22,571,000 at December 31, 2010, but has decreased to $19,000
at December 31, 2016. For additional information see the “Nonaccrual, Past Due and Restructured Loans and Leases”
the “Allowance for Loan and Lease Losses Activity.”
Service Charges and Fees
and Other Income
Table Four
below provides a summary of the components of noninterest income for the periods indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Table Four:
Components of Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Service charges on deposit accounts
|
|
$
|
502
|
|
|
$
|
498
|
|
|
$
|
562
|
|
|
Income from OREO properties
|
|
|
279
|
|
|
|
335
|
|
|
|
365
|
|
|
Merchant fee income
|
|
|
377
|
|
|
|
378
|
|
|
|
413
|
|
|
Earnings on bank-owned life insurance
|
|
|
322
|
|
|
|
316
|
|
|
|
284
|
|
|
Life insurance death benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
99
|
|
|
Gain on sale, impairment and call of securities
|
|
|
314
|
|
|
|
251
|
|
|
|
208
|
|
|
Other
|
|
|
251
|
|
|
|
237
|
|
|
|
246
|
|
|
|
|
$
|
2,045
|
|
|
$
|
2,015
|
|
|
$
|
2,177
|
|
Noninterest
income increased $30,000 (1.5%) to $2,045,000 in 2016 from the 2015 level. The increase from 2015 to 2016 was primarily related
to higher gains on sale of securities offset by lower earnings on OREO properties. Gain on sales of securities increased $63,000
(25.1%) from 2015 to 2016 while income from OREO properties decreased $56,000 (16.7%) during that same time period. The decrease
in OREO income resulted from the sale of the Bank’s only remaining income producing OREO property in the first quarter of
2016.
Noninterest
income decreased $162,000 (7.4%) to $2,015,000 in 2015 from the 2014 level. The decrease from 2014 to 2015 was primarily related
to lower fees from service charges on deposit accounts (down $64,000 or 11.4%) and no life insurance death benefits in 2015 as
compared to $99,000 in 2014. The decrease in service charges is related to a decrease in insufficient funds income.
Salaries
and Benefits
Salaries
and benefits were $8,435,000 (down $93,000 or 1.1%) for 2016 as compared to $8,528,000 in 2015. The decrease in salary and benefits
was due in part to lower employee benefits which decreased $102,000 (7.2%) from $1,422,000 in 2015 to $1,320,000 in 2016. The
decrease in other employee benefits, which includes health care related benefits, 401(k) matching, and employee placement fees,
was primarily related to lower employer paid health care insurance and lower employee placement fees paid in 2016.
Salaries
and benefits were decreased $248,000 (2.8%) to $8,528,000 for 2015 as compared to $8,776,000 in 2014. The decrease in salary and
benefits was due in part to lower incentive compensation expense and lower employee benefits. Incentive accruals decreased $182,000,
from $672,000 in 2014 to $490,000 in 2015 and other employee benefits decreased $107,000 (7.0%) from $1,529,000 in 2014 to $1,422,000
in 2015. The decrease in incentive compensation was primarily due to the Company not achieving all of the incentive targets under
Company incentive plans in 2015. The decrease in other employee benefits, which includes health care related benefits, 401(k)
matching, and employee placement fees, was primarily related to lower employee placement fees paid in 2015.
Other
Real Estate Owned
The total
other real estate owned (“OREO”) expense in 2016 was $246,000 (down $76,000 or 23.6%) compared to $322,000 in 2015.
The primary reason for the decrease in OREO related expenses is due to the sale of a number of properties, including office buildings
which have high operating expenses, and lower property write-downs. Operating expenses on the properties held in 2016 totaled
$128,000 compared to $245,000 in 2015. In 2016, the gains on sale, which offset the overall OREO expense, were higher than in
2015. Gains from properties sold in 2016 totaled $257,000 compared to a loss of $1,000 in 2015. These reductions were offset by
higher write-downs in 2016. In 2016, write-downs were $376,000 compared to $76,000 in 2015. This increase in the write-downs in
2016 was related to a single property that was evaluated during the first quarter of 2016. This property was eventually sold in
2016 for a gain of $89,000.
In 2015, the
OREO expense decreased by $42,000 (11.5%) to $322,000 compared to $364,000 in 2014. The primary reason for the decrease in OREO
related expenses is due to the sale of a number of properties and lower property write-downs. In 2015, write-downs were $76,000
compared to $165,000 in 2014. This decrease is related to a fewer number of owned properties and some stability in the real estate
market. Operating expenses on the properties held in 2015 totaled $245,000 compared to $430,000 in 2014. In 2014, the gains on
sale, which offset the overall OREO expense, were higher than in 2015. Gains from properties sold in 2014 totaled $231,000 compared
to a loss of $1,000 in 2015.
Occupancy,
Furniture and Equipment
Occupancy expense
decreased $8,000 (0.1%) during 2016 to $1,175,000, compared to $1,183,000 in 2015. Furniture and equipment expense decreased $38,000
(5.5%) during 2016 to $652,000 compared to $690,000 in 2015. The decrease in the furniture and equipment expense resulted from
lower maintenance expense on the Company’s equipment.
Occupancy expense
decreased $5,000 (0.4%) during 2015 to $1,183,000, compared to $1,188,000 in 2014. Furniture and equipment expense decreased $34,000
(4.7%) during 2015 to $690,000 compared to $724,000 in 2014. The decrease in the furniture and equipment expense resulted from
lower depreciation on the Company’s furniture and equipment.
Regulatory Assessments
Regulatory
assessments include fees paid to the California Department of Business Oversight (the “DBO”) and the Federal Deposit
Insurance Corporation (the “FDIC”). FDIC assessments decreased $68,000 (21.0%) during 2016 to $256,000, compared to
$324,000 in 2015. The majority of this decrease relates to a lower assessment rate as a result of lower nonperforming assets and
that the Deposit Insurance Fund reached the FDIC’s target level of 1.15% during 2016, which resulted in lower assessments
for community banks such as American River Bank. The assessments paid to the DBO in 2016 were $72,000 compared to $71,000 in 2015.
FDIC
assessments decreased $39,000 (10.7%) during 2015 to $324,000, compared to $363,000 in 2014. The majority of this decrease relates
to a lower assessment rate as a result of lower nonperforming assets. The assessments paid to the DBO in 2015 were $71,000 compared
to $70,000 in 2014.
Other Expenses
Table
Five below provides a summary of the components of the other noninterest expenses for the periods indicated (dollars in thousands):
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Professional fees
|
|
$
|
995
|
|
|
$
|
863
|
|
|
$
|
1,182
|
|
Outsourced item processing
|
|
|
366
|
|
|
|
360
|
|
|
|
355
|
|
Directors’ expense
|
|
|
417
|
|
|
|
402
|
|
|
|
394
|
|
Telephone and postage
|
|
|
357
|
|
|
|
368
|
|
|
|
357
|
|
Stationery and supplies
|
|
|
141
|
|
|
|
143
|
|
|
|
193
|
|
Advertising and promotion
|
|
|
129
|
|
|
|
164
|
|
|
|
160
|
|
Other operating expenses
|
|
|
595
|
|
|
|
662
|
|
|
|
736
|
|
|
|
$
|
3,000
|
|
|
$
|
2,962
|
|
|
$
|
3,377
|
|
Other expenses
were $3,000,000 (up $38,000 or 1.3%) for 2016 as compared to $2,962,000 for 2015. The increase in other expenses occurred primarily
in the professional expense category. Professional expenses, which primarily include legal, accounting and other professional
services, increased $132,000 (15.3%), from $863,000 in 2015 to $995,000 in 2016. Much of this increase is related to network administration
fees. Network administration fees increased from $278,000 to $441,000 related to additional work performed by the network vendor,
including full hosting of the Company’s computer network. The overhead efficiency ratio on a taxable equivalent basis for
2016 was 60.8% as compared to 62.9% in 2015.
Other expenses
were down $415,000 (12.3%) to $2,962,000 for 2015 as compared to $3,377,000 for 2014. The decrease in other expenses occurred
primarily in the professional expense category. Professional expenses, which primarily include legal, accounting and other professional
services, decreased $319,000 (27.0%), from $1,182,000 in 2014 to $863,000 in 2015. Legal expenses decreased $255,000 (61.6%) from
$414,000 in 2014 to $255,000 during 2015. This decrease is primarily related to a lower number of problem loan credits and OREO
properties. The overhead efficiency ratio on a taxable equivalent basis for 2014 was 70.0%.
Provision for Income Taxes
The effective
tax rate on income was 34.6%, 33.7%, and 34.5% in 2016, 2015 and 2014, respectively. The effective tax rate differs from the federal
statutory tax rate due to state tax expense (net of federal tax effect) of $697,000, $516,000, and $419,000 in these years. Tax-exempt
income of $1,681,000, $1,412,000, and $1,194,000 from investment securities, loans, and bank-owned life insurance in these years
helped to reduce the effective tax rate. The higher level of income taxes and effective tax rate in 2016 compared to 2015 resulted
from the Company’s higher level of taxable income. Taxable income increased $1,854,000 (23.3%) from $7,942,000 in 2015 to
$9,796,000 in 2016.
Balance Sheet
Analysis
The Company’s
total assets were $651,450,000 at December 31, 2016 as compared to $634,640,000 at December 31, 2015, representing an increase
of $16,810,000 (2.6%). The average balances of total assets during 2016 were $638,276,000, up $15,227,000 or 2.4% from the 2015
average of $623,049,000.
Investment Securities
The
Company classifies its investment securities as trading, held-to-maturity or available-for-sale. The Company’s intent is
to hold all securities classified as held-to-maturity until maturity and management believes that it has the ability to do so.
Securities classified as available-for-sale may be sold to implement asset/liability management strategies as part of our contingency
funding plan and in response to changes in interest rates, prepayment rates and similar factors. Table Six below summarizes the
values of the Company’s investment securities held on December 31 of the years indicated. The Company did not have any investment
securities classified as trading in any of the years indicated below.
Table Six: Investment
Securities Composition
(dollars in
thousands)
Available-for-sale (at fair value)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
US Government
Agencies and US Government-Sponsored Agencies
|
|
$
|
229,785
|
|
|
$
|
246,185
|
|
|
$
|
261,115
|
|
Obligations of states
and political subdivisions
|
|
|
22,612
|
|
|
|
26,013
|
|
|
|
26,289
|
|
Corporate debt securities
|
|
|
1,519
|
|
|
|
1,551
|
|
|
|
1,583
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
stock
|
|
|
104
|
|
|
|
70
|
|
|
|
77
|
|
Total available-for-sale
investment securities
|
|
$
|
254,020
|
|
|
$
|
273,819
|
|
|
$
|
289,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
(at amortized cost)
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Government Agencies and US Government-Sponsored Agencies
|
|
$
|
483
|
|
|
$
|
623
|
|
|
$
|
862
|
|
Total held-to-maturity
investment securities
|
|
$
|
483
|
|
|
$
|
623
|
|
|
$
|
862
|
|
Net unrealized
gains on available-for-sale investment securities totaling $916,000 were recorded, net of $372,000 in tax liabilities, as accumulated
other comprehensive income within shareholders’ equity at December 31, 2016 and net unrealized gains on available-for-sale
investment securities totaling $3,504,000 were recorded, net of $1,401,000 in tax liabilities, as accumulated other comprehensive
income within shareholders’ equity at December 31, 2015.
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 until 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. See Table Fifteen, “Securities Maturities and Weighted
Average Yields,” for a breakdown of the investment securities by maturity and the corresponding weighted average yields.
Loans and Leases
The Company
concentrates its lending activities in the following principal areas: (1) commercial; (2) commercial real estate; (3) multi-family
real estate; (4) real estate construction (both commercial and residential); (5) residential real estate; (6) lease financing
receivable; (7) agriculture; and (8) consumer loans. At December 31, 2016, these categories accounted for approximately 11%, 58%,
22%, 3%, 5%, 0%, 1% and 0%, respectively, of the Company’s loan portfolio. This mix was relatively unchanged compared to
12%, 68%, 8%, 5%, 5%, 0%, 1% and 1%, respectively, at December 31, 2015, with the exception of an increase in multi-family loans
which increased from 8% of the portfolio in 2015 to 22% of the portfolio in 2016. While the portfolio contains both commercial
and residential construction, the Company’s focus has been on commercial construction, as such, the balance of single-family
residential loans has decreased from $5,155,000 or 35.5% of the construction balance at December 31, 2015 to $2,467,000 or 26.9%
of the construction balance at December 31, 2016. Also, as noted in Table 7 below, lease financing receivable, agriculture, and
consumer loan balances have decreased as the Company’s primary focus is commercial and real estate loans.
Continuing
focus in the Company’s market area, new borrowers developed through the Company’s marketing efforts, and credit extensions
expanded to existing borrowers resulted in the Company originating approximately $89 million in new loans in 2016. This production
was partially offset by normal pay downs and payoffs, but still resulted in an overall net increase in net loans and leases of
$35.0 million (12.1%) from December 31, 2015. Included in the $89 million in new loans in 2016 was a $24.4 million pool of performing
multi-family loans purchased from another financial institution. These purchased loans consisted of nineteen (19) loans primarily
in the Company’s market areas and two loans in San Diego County. The market in which the Company operates has begun to show
demand for credit products as the continued low rate environment and expectations for economic expansion have increased refinancing
as well as new loan activity. Table Seven below summarizes the composition of the loan and lease portfolio for the past five years
as of December 31.
Table
Seven: Loan and Lease Portfolio Composition
|
|
December 31,
|
|
(dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Commercial
|
|
$
|
35,374
|
|
|
$
|
36,195
|
|
|
$
|
25,186
|
|
|
$
|
24,545
|
|
|
$
|
30,811
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
191,129
|
|
|
|
199,591
|
|
|
|
193,871
|
|
|
|
184,204
|
|
|
|
180,126
|
|
Multi-family
|
|
|
73,373
|
|
|
|
23,494
|
|
|
|
14,167
|
|
|
|
11,085
|
|
|
|
9,155
|
|
Construction
|
|
|
9,180
|
|
|
|
14,533
|
|
|
|
8,028
|
|
|
|
9,633
|
|
|
|
6,918
|
|
Residential
|
|
|
15,718
|
|
|
|
14,200
|
|
|
|
13,309
|
|
|
|
17,703
|
|
|
|
17,701
|
|
Lease financing receivable
|
|
|
404
|
|
|
|
732
|
|
|
|
1,286
|
|
|
|
1,344
|
|
|
|
1,509
|
|
Agriculture
|
|
|
2,302
|
|
|
|
2,431
|
|
|
|
2,882
|
|
|
|
3,120
|
|
|
|
3,340
|
|
Consumer
|
|
|
1,650
|
|
|
|
3,122
|
|
|
|
4,916
|
|
|
|
5,772
|
|
|
|
8,569
|
|
|
|
|
329,130
|
|
|
|
294,298
|
|
|
|
263,645
|
|
|
|
257,406
|
|
|
|
258,129
|
|
Deferred loan fees, net
|
|
|
(222
|
)
|
|
|
(221
|
)
|
|
|
(287
|
)
|
|
|
(313
|
)
|
|
|
(230
|
)
|
Allowance
for loan and lease losses
|
|
|
(4,822
|
)
|
|
|
(4,975
|
)
|
|
|
(5,301
|
)
|
|
|
(5,346
|
)
|
|
|
(5,781
|
)
|
Total
net loans and leases
|
|
$
|
324,086
|
|
|
$
|
289,102
|
|
|
$
|
258,057
|
|
|
$
|
251,747
|
|
|
$
|
252,118
|
|
A significant
portion of the Company’s loans and leases are direct loans and leases made to individuals and local businesses. The Company
relies substantially on local promotional activity and personal contacts by American River Bank officers, directors and employees
to compete with other financial institutions. The Company makes loans and leases to borrowers whose applications include a sound
purpose and a viable primary repayment source, generally supported by a secondary source of repayment.
Commercial loans
consist of credit lines for operating needs and working capital and loans for equipment or vehicle purchases. Consumer loans include
traditional consumer products such as secured and unsecured personal loans and loans to finance the purchase of autos, boats and
recreational vehicles. Construction loans are generally comprised of commitments to customers within the Company’s service
area for construction of owner-occupied commercial properties. Other real estate loans consist primarily of loans secured by first
trust deeds on commercial or multi-family properties, typically with maturities from 3 to 10 years and original loan-to-value
ratios generally from 65% to 75%. In general, except in the case of loans under SBA programs, the Company does not make long-term
mortgage loans.
“Subprime”
real estate loans generally refer to residential mortgages made to higher-risk borrowers with lower credit and/or income histories.
Within the banking industry, many of these loans were originated with adjustable interest rates that reset upward after an introductory
period. These “subprime” loans coupled with declines in housing prices led to an increase in default rates resulting
in many instances of increased foreclosure rates as the adjustable interest rates reset to higher levels. The Company did not
have any such “subprime” loans at December 31, 2016 and December 31, 2015.
Average loans
and leases in 2016 were $306,737,000 which represents an increase of $27,009,000 (9.7%) compared to the average in 2015. Average
loans and leases in 2015 were $279,728,000 which represents an increase of $25,830,000 (10.2%) compared to the average in 2014.
Risk Elements
The Company assesses
and manages credit risk on an ongoing basis through a total credit culture that emphasizes excellent credit quality, extensive
internal monitoring and established formal lending policies. Additionally, the Company contracts with an outside loan review consultant
to periodically review the existing loan and lease portfolio. Management believes its ability to identify and assess risk and
return characteristics of the Company’s loan and lease portfolio is critical for profitability and growth. Management strives
to continue its emphasis on credit quality in the loan and lease approval process, through active credit administration and regular
monitoring. With this in mind, management has designed and implemented a comprehensive loan and lease review and grading system
that functions to continually assess the credit risk inherent in the loan and lease portfolio.
Ultimately,
underlying trends in economic and business cycles influence credit quality. American River Bank’s business is concentrated
in the Sacramento Metropolitan Statistical Area, which is a diversified economy, but with a large State of California government
presence and employment base; in Sonoma County, which is focused on businesses within the two communities in which the Bank has
offices (Santa Rosa and Healdsburg); and in Amador County, in which the Bank is primarily focused on businesses within the three
communities in which it has offices (Jackson, Pioneer, and Ione). The economy of Sonoma County is diversified with professional
services, manufacturing, agriculture and real estate investment and construction, while the economy of Amador County is reliant
upon government, services, retail trade, manufacturing industries and Indian gaming.
The Company has
significant extensions of credit and commitments to extend credit that are secured by real estate. The ultimate repayment of these
loans is generally dependent on personal or business cash flows or the sale or refinancing of the real estate. The Company monitors
the effects of current and expected market conditions and other factors on the collectability of real estate loans. The more significant
factors management considers involve the following: lease rates and terms, vacancy rates, absorption and sale rates and capitalization
rates; real estate values, supply and demand factors, and rates of return; operating expenses; inflation and deflation; and sufficiency
of repayment sources independent of the real estate including, in some instances, personal guarantees.
In extending
credit and commitments to borrowers, the Company generally requires collateral and/or guarantees as security. The repayment of
such loans is expected to come from cash flow or from proceeds from the sale of selected assets of the borrowers. The Company’s
requirement for collateral and/or guarantees is determined on a case-by-case basis in connection with management’s evaluation
of the creditworthiness of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant
and equipment, income-producing properties, residences and other real property. The Company secures its collateral by perfecting
its security interest in business assets, obtaining deeds of trust, or outright possession among other means.
In management’s
judgment, a concentration exists in real estate loans which represented approximately 88% of the Company’s loan and lease
portfolio at December 31, 2016 and 86% at December 31, 2015. Management believes that the residential land portion of the Company’s
loan portfolio carries more than the normal credit risk, due primarily to curtailed demand for new and resale residential property,
relative to pre-recession levels, a resulting oversupply of unsold residential land, and observed reductions in values throughout
the Company’s market area. Management has responded by evaluating loans that it considers to carry any significant risk
above the normal risk of collectability by taking actions where possible to reduce credit risk exposure by methods that include,
but are not limited to, seeking liquidation of the loan by the borrower, seeking additional tangible collateral or other repayment
support, converting the property through judicial or non-judicial foreclosure proceedings, and other collection techniques. Management
currently believes that it maintains its allowance for loan and lease losses at levels adequate to reflect the loss risk inherent
in its total loan portfolio.
A decline in
the economy in general, or decline in real estate values in the Company’s primary market areas, in particular, could have
an adverse impact on the collectability of real estate loans and require an increase in the provision for loan and lease losses.
This could adversely affect the Company’s future prospects, results of operations, profitability and stock price. Management
believes that its lending practices and underwriting standards are structured with the intent to minimize losses; however, there
is no assurance that losses will not occur. The Company’s loan practices and underwriting standards include, but are not
limited to, the following: (1) maintaining a thorough understanding of the Company’s service area and originating a significant
majority of its loans within that area, (2) maintaining a thorough understanding of borrowers’ knowledge, capacity, and
market position in their field of expertise, (3) basing real estate loan approvals not only on market demand for the project,
but also on the borrowers’ capacity to support the project financially in the event it does not perform to expectations
(whether sale or income performance), and (4) maintaining conforming and prudent loan-to-value and loan-to-cost ratios based on
independent outside appraisals and ongoing inspection and analysis by the Company’s lending officers or contracted third-party
professionals.
Nonaccrual, Past Due
and Restructured Loans and Leases
Management places
loans and leases on nonaccrual status when they become 90 days past due or if a loss is expected, unless the loan or lease is
well secured and in the process of collection. Loans and leases are partially or fully charged off when, in the opinion of management,
collection of such amount appears unlikely.
The recorded
investments in nonperforming loans and leases, which includes nonaccrual loans and leases and loans and leases that were 90 days
or more past due and on accrual, totaled $19,000 and $1,643,000 at December 31, 2016 and 2015, respectively. The $19,000 in nonperforming
loans and leases at December 31, 2016 were comprised of two consumer loans. At December 31, 2015, the $1,643,000 in nonperforming
loans consisted of four real estate loans totaling $1,493,000, four consumer loans totaling $120,000 and a single commercial loan
totaling $30,000.
Table
Eight: Nonperforming Loans and Leases
|
|
|
December 31,
|
|
(dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Past due 90 days or more
and still accruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
80
|
|
|
$
|
—
|
|
Real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
and other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Nonaccrual:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
30
|
|
|
|
666
|
|
|
|
766
|
|
|
|
2,352
|
|
Real estate
|
|
|
—
|
|
|
|
1,493
|
|
|
|
845
|
|
|
|
977
|
|
|
|
2,897
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
Consumer
and other
|
|
|
19
|
|
|
|
120
|
|
|
|
142
|
|
|
|
156
|
|
|
|
222
|
|
Total
nonperforming loans and leases
|
|
$
|
19
|
|
|
$
|
1,643
|
|
|
$
|
1,653
|
|
|
$
|
1,979
|
|
|
$
|
5,474
|
|
Interest income
recognized from payments received on nonaccrual loans and leases was approximately $115,000 in 2016, $59,000 in 2015 and $84,000
in 2014. Table Eight below sets forth nonaccrual loans and leases and loans and leases past due 90 days or more and on accrual
as of year-end for the past five years. There were no loan or lease concentrations in excess of 10% of total loans and leases
not otherwise disclosed as a category of loans and leases as of December 31, 2016. Management is not aware of any potential problem
loans, which were accruing and current at December 31, 2016, where serious doubt exists as to the ability of the borrower to comply
with the present repayment terms and that would result in a significant loss to the Company apart from those loans identified
in the Bank’s impairment analysis.
Management
monitors the Company’s performance metrics including the ratios related to nonperforming loans and leases. From 2008 to
2010, the Company experienced an increase in nonperforming loans and leases. In 2011, the focused efforts of the previous years
resulted in a decrease in these levels. From 2012 to 2016, the level of nonperforming loans and leases continued to decrease to
a level below the amount reported at December 31, 2008. However, the variations in the amount of nonperforming loans and leases
does not directly impact the level of the Company’s allowance for loan and lease losses as management monitors each of the
loans and leases for loss potential or probability of loss on an individual basis using accounting principles generally accepted
in the United States of America.
Impaired
Loans and Leases
The Company
considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect
all amounts due (principal and interest) according to the original contractual terms of the loan or lease agreement. The measurement
of impairment may be based on (i) the present value of the expected cash flows of the impaired loan or lease discounted at
the loan’s or lease’s original effective interest rate, (ii) the observable market price of the impaired loan
or lease, or (iii) the fair value of the collateral of a collateral-dependent loan. The Company does not apply this definition
to smaller-balance loans or leases that are collectively evaluated for credit risk. In assessing whether a loan or lease is impaired,
the Company typically reviews loans or leases graded substandard or lower with outstanding principal balances in excess of $100,000,
as well as loans considered troubled debt restructures with outstanding principal balances in excess of $25,000. The Company identifies
troubled debt restructures by reviewing each renewal, modification, or extension of a loan with a screening document. This
document is designed to identify any characteristics of such a loan that would qualify it as a troubled debt restructure.
If the characteristics are not present that would qualify a loan as a troubled debt restructure, it is deemed to be a modification.
The recorded
investment in loans and leases that were considered to be impaired totaled $17,297,000 at December 31, 2016 and had a related
valuation allowance of $421,000. The average recorded investment in impaired loans and leases during 2016 was approximately $17,503,000.
As of December 31, 2015, the recorded investment in loans and leases that were considered to be impaired totaled $21,365,000 and
had a related valuation allowance of $899,000. The average recorded investment in impaired loans and leases during 2015 was approximately
$20,818,000. As of December 31, 2014, the recorded investment in loans and leases that were considered to be impaired totaled
$25,120,000 and had a related valuation allowance of $1.603,000. The average recorded investment in impaired loans and leases
during 2014 was approximately $24,127,000.
Allowance
for Loan and Lease Losses Activity
The Company
maintains an allowance for loan and lease losses (“ALLL”) to cover probable losses inherent in the loan and lease
portfolio, which is based upon management’s estimate of those losses. The ALLL is established through a provision for loan
and lease losses and is increased by provisions charged against current earnings and recoveries and reduced by charge-offs. Actual
losses for loans and leases can vary significantly from this estimate. The methodology and assumptions used to calculate the allowance
are continually reviewed as to their appropriateness given the most recent losses realized and other factors that influence the
estimation process. The model assumptions and resulting allowance level are adjusted accordingly as these factors change.
The adequacy
of the ALLL and the level of the related provision for loan and lease losses is determined based on management’s judgment
after consideration of numerous factors including, but not limited to: (i) local and regional economic conditions, (ii) the
financial condition of the borrowers, (iii) loan impairment and the related level of expected charge-offs, (iv) evaluation
of industry trends, (v) industry and other concentrations, (vi) loans and leases which are contractually current as
to payment terms but demonstrate a higher degree of risk as identified by management, (vii) continuing evaluations of the
performing loan portfolio, (viii) ongoing review and evaluation of problem loans identified as having loss potential, (ix) quarterly
review by the Board of Directors, and (x) assessments by banking regulators and other third parties. Management and the
Board of Directors evaluate the ALLL and determine its appropriate level considering objective and subjective measures, such as
knowledge of the borrowers’ business, valuation of collateral, the determination of impaired loans or leases and exposure
to potential losses.
The ALLL
totaled $4,822,000 or 1.47% of total loans and leases at December 31, 2016, $4,975,000 or 1.69% of total loans and leases at December
31, 2015, and $5,301,000 or 2.01% at December 31, 2014. The decrease in the allowance for loan and lease losses from $4,975,000
at December 31, 2015 to $4,822,000 at December 31, 2016, was mainly due to a decrease in historical losses impacting the loss
factor used in calculating the reserve on loans collectively valued for impairment and a reduction in the valuation allowances
held for impaired loans. The Company establishes general and specific reserves in accordance with accounting principles generally
accepted in the United States of America. The ALLL is composed of categories of the loan and lease portfolio based on loan type
and loan rating; however, the entire allowance is available to cover actual loan and lease losses. While management uses available
information to recognize possible losses on loans and leases, future additions to the allowance may be necessary, based on changes
in economic conditions and other matters. In addition, various regulatory agencies, as an integral part of their examination process,
periodically review the Company’s ALLL. Such agencies may require the Company to provide additions to the allowance based
on their judgment of information available to them at the time of their examination.
The allowance
for loans and leases as a percentage of nonperforming loans and leases was 25,379.0% at December 31, 2016 and 302.8% at December
31, 2015. The allowance for loans and leases as a percentage of impaired loans and leases was 27.9% at December 31, 2016 and 23.3%
at December 31, 2015. Of the total nonperforming and impaired loans and leases outstanding as of December 31, 2016, there were
$4,244,000 in loans or leases that had been reduced by partial charge-offs of $809,000.
At
December 31, 2016, there was $11,244,000 in impaired loans or leases that did not carry a specific reserve. Of this amount, $3,869,000
were loans or leases that had previous partial charge-offs and $7,375,000 in loans or leases that were analyzed and determined
not to require a specific reserve or charge-off because the collateral value or discounted cash flow value exceeded the loan or
lease balance. Prior to 2013, the Company had been operating in a market that had experienced significant decreases in real estate
values of commercial, residential, land, and construction properties. As such, the Company continues to focus on monitoring collateral
values for those loans considered collateral dependent. The collateral evaluations performed by the Company are updated as necessary,
which is generally once every twelve months, and are reviewed by a qualified credit officer.
The Company’s
policy with regard to loan or lease charge-offs continues to be that a loan or lease is charged off against the ALLL when management
believes that the collectability of the principal is unlikely. As previously discussed in the “Impaired Loans and Leases”
section, certain loans are evaluated for impairment. Generally, if a loan is collateralized by real estate, and considered collateral
dependent, the impaired portion will be charged off to the allowance for loan and lease losses unless it is in the process of
collection, in which case a specific reserve may be warranted. If the collateral is other than real estate and considered impaired,
a specific reserve may be warranted.
It is the
policy of management to maintain the allowance for loan and lease losses at a level believed to be adequate for known and inherent
risks in the portfolio. Our methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing
an allowance for loan and lease losses that management believes is appropriate at each reporting date. Formula allocations are
calculated by applying historical loss factors to outstanding loans with similar characteristics. Historical loss factors
are based upon the Company’s loss experience. These historical loss factors are adjusted for changes in the business cycle
and for significant factors that, in management’s judgment, affect the collectability of the loan portfolio as of the evaluation
date. The discretionary allocation is based upon management’s evaluation of various loan segment conditions that
are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are
not limited to, general economic and business conditions affecting the key lending areas of the Company, credit quality trends,
collateral values, loan volumes and concentrations, and other business conditions. Based on information currently available, management
believes that the allowance for loan and lease losses is prudent and adequate. However, no prediction of the ultimate level of
loans and leases charged off in future periods can be made with any certainty.
Table
Nine below summarizes, for the periods indicated, the activity in the ALLL.
Table Nine:
Allowance for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Average
loans and leases outstanding
|
|
$
|
306,737
|
|
|
$
|
279,728
|
|
|
$
|
253,898
|
|
|
$
|
252,807
|
|
|
$
|
282,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan
& lease losses at beginning
of period
|
|
$
|
4,975
|
|
|
$
|
5,301
|
|
|
$
|
5,346
|
|
|
$
|
5,781
|
|
|
$
|
7,041
|
|
Loans and leases charged
off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
609
|
|
|
|
—
|
|
|
|
377
|
|
|
|
302
|
|
Real estate
|
|
|
93
|
|
|
|
—
|
|
|
|
—
|
|
|
|
534
|
|
|
|
2,038
|
|
Consumer
|
|
|
34
|
|
|
|
6
|
|
|
|
76
|
|
|
|
1
|
|
|
|
505
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
26
|
|
|
|
9
|
|
Total
|
|
|
127
|
|
|
|
616
|
|
|
|
76
|
|
|
|
938
|
|
|
|
2,854
|
|
Recoveries of loans
and leases previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
660
|
|
|
|
123
|
|
|
|
256
|
|
|
|
215
|
|
|
|
21
|
|
Real estate
|
|
|
534
|
|
|
|
165
|
|
|
|
163
|
|
|
|
88
|
|
|
|
172
|
|
Consumer
|
|
|
124
|
|
|
|
2
|
|
|
|
150
|
|
|
|
—
|
|
|
|
30
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
6
|
|
Total
|
|
|
1,318
|
|
|
|
290
|
|
|
|
572
|
|
|
|
303
|
|
|
|
229
|
|
Net loans and leases
(recovered) charged off
|
|
|
(1,191
|
)
|
|
|
326
|
|
|
|
(496
|
)
|
|
|
635
|
|
|
|
2,625
|
|
(Reductions)
additions to allowance (credited) charged to operating expenses
|
|
|
(1,344
|
)
|
|
|
—
|
|
|
|
(541
|
)
|
|
|
200
|
|
|
|
1,365
|
|
Allowance for loan
and lease losses at end of period
|
|
$
|
4,822
|
|
|
$
|
4,975
|
|
|
$
|
5,301
|
|
|
$
|
5,346
|
|
|
$
|
5,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net (recoveries)
charge-offs to average loans and leases outstanding
|
|
|
(0.39
|
%)
|
|
|
0.12
|
%
|
|
|
(0.20
|
%)
|
|
|
0.25
|
%
|
|
|
0.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
and lease losses to average loans and leases outstanding
|
|
|
(0.44
|
%)
|
|
|
—
|
|
|
|
(0.21
|
%)
|
|
|
0.08
|
%
|
|
|
0.48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan
and lease losses to total loans and leases, at end of period
|
|
|
1.47
|
%
|
|
|
1.69
|
%
|
|
|
2.01
|
%
|
|
|
2.08
|
%
|
|
|
2.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan
and lease losses to nonperforming loans and leases, at end of period
|
|
|
25,378.95
|
%
|
|
|
302.80
|
%
|
|
|
320.69
|
%
|
|
|
270.14
|
%
|
|
|
105.61
|
%
|
As part
of its loan review process, management has allocated the overall allowance based on specific identified problem loans and leases,
qualitative factors, uncertainty inherent in the estimation process and historical loss data. A risk exists that future losses
cannot be precisely quantified or attributed to particular loans or leases or classes of loans and leases. Management continues
to evaluate the loan and lease portfolio and assesses current economic conditions that will affect management’s conclusion
as to future allowance levels. Table Ten below summarizes the allocation of the allowance for loan and lease losses for the five
years ended December 31, 2016.
Table
Ten: Allowance for Loan and Lease Losses by Loan Category
|
(dollars
in thousands)
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
Amount
|
|
|
Percent of
loans
in each category
to total loans
|
|
|
Amount
|
|
|
Percent of
loans
in each category
to total loans
|
|
|
Amount
|
|
|
Percent of
loans
in each category
to total loans
|
|
Commercial
|
|
$
|
855
|
|
|
|
12
|
%
|
|
$
|
860
|
|
|
|
12
|
%
|
|
$
|
1,430
|
|
|
|
10
|
%
|
Real estate
|
|
|
3,600
|
|
|
|
86
|
%
|
|
|
3,729
|
|
|
|
86
|
%
|
|
|
3,429
|
|
|
|
86
|
%
|
Agriculture
|
|
|
64
|
|
|
|
1
|
%
|
|
|
77
|
|
|
|
1
|
%
|
|
|
62
|
|
|
|
1
|
%
|
Consumer
|
|
|
24
|
|
|
|
1
|
%
|
|
|
78
|
|
|
|
1
|
%
|
|
|
124
|
|
|
|
2
|
%
|
Lease financing receivable
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2
|
|
|
|
1
|
%
|
Unallocated
|
|
|
278
|
|
|
|
—
|
|
|
|
230
|
|
|
|
—
|
|
|
|
254
|
|
|
|
—
|
|
Total
|
|
$
|
4,822
|
|
|
|
100
|
%
|
|
$
|
4,975
|
|
|
|
100
|
%
|
|
$
|
5,301
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percent of loans
in each category
to total loans
|
|
|
Amount
|
|
|
Percent of loans
in each category
to total loans
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
885
|
|
|
|
10
|
%
|
|
$
|
1,351
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
4,010
|
|
|
|
86
|
%
|
|
|
3,835
|
|
|
|
83
|
%
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
80
|
|
|
|
1
|
%
|
|
|
87
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
161
|
|
|
|
2
|
%
|
|
|
262
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Lease financing receivable
|
|
|
4
|
|
|
|
1
|
%
|
|
|
3
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
206
|
|
|
|
—
|
|
|
|
243
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,346
|
|
|
|
100
|
%
|
|
$
|
5,781
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
The allocation
presented should not be interpreted as an indication that charges to the allowance for loan and lease losses will be incurred
in these amounts or proportions, or that the portion of the allowance allocated to each loan and lease category represents the
total amounts available for charge-offs that may occur within these categories.
Other Real Estate Owned
The balance in
OREO at December 31, 2016 consisted of two properties acquired through deeds in lieu of foreclosure. The balance in OREO at December
31, 2015 consisted of three properties, all of which were sold in 2016. During 2016, the Company received $3,432,000 from the
net proceeds of the sale of the three OREO properties with net gains of $257,000. The $3,432,000 proceeds included $1,746,000
in cash proceeds and $1,686,000 was financed by the Bank. Prior to the sale, the Company recognized a write-down of $376,000 to
the OREO expense on one of the three properties. During 2016, the Company also added two properties, one of which had a market
value greater than the recorded book value. The OREO balance was increased for the market value adjustment by $239,000 with a
corresponding charge to loan recoveries of $66,000 (to recapture a previous write-down) and a charge to OREO income of $173,000.
There was $1,348,000 in other real estate owned at December 31, 2016 with no valuation allowance and $3,551,000 in other real
estate owned at December 31, 2015 with no valuation allowance.
Deposits
At December
31, 2016, total deposits were $544,806,000 representing an increase of $14,116,000 (2.7%) from the December 31, 2015 balance of
$530,690,000. The Company’s deposit growth plan for 2016 was to concentrate its efforts on increasing noninterest-bearing
demand, interest-bearing money market and interest-bearing checking, and savings accounts, while continuing to focus on reducing
overall interest expense. Due to these efforts, the Company experienced increases during 2016 in noninterest-bearing demand ($10,565,000
or 5.5%), interest-bearing checking ($3,328,000 or 5.4%), and savings ($5,679,000 or 9.6%) and decreases in money market ($3,844,000
or 2.8%) and time deposit ($1,612,000 or 1.9%) accounts. The decrease in money market accounts is related to the plan to reduce
interest expense as the Company evaluated the rate structure on some of the higher cost money market accounts and reduced the
interest rates on some relationships.
Other
Borrowed Funds
Other
borrowings outstanding as of December 31, 2016 consist of advances from the Federal Home Loan Bank (the “FHLB”). The
following table summarizes these borrowings (dollars in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Short-term
borrowings:
FHLB advances
|
|
$
|
3,500
|
|
|
|
1.01
|
%
|
|
$
|
3,500
|
|
|
|
1.28
|
%
|
|
$
|
3,500
|
|
|
|
0.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings:
FHLB advances
|
|
$
|
12,000
|
|
|
|
1.32
|
%
|
|
$
|
7,500
|
|
|
|
1.24
|
%
|
|
$
|
7,500
|
|
|
|
1.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The maximum
amount of short-term borrowings at any month-end during 2016, 2015 and 2014, was $25,500,000, $11.500,000, and $3,500,000, respectively.
The FHLB advances are collateralized by loans and securities pledged to the FHLB. The following is a breakdown of rates and maturities
on FHLB advances (dollars in thousands):
|
|
Short-term
|
|
|
Long-term
|
|
Amount
|
|
$
|
3,500
|
|
|
$
|
12,000
|
|
Maturity
|
|
|
2017
|
|
|
|
2018 to
2020
|
|
Average rates
|
|
|
1.01
|
%
|
|
|
1.32
|
%
|
The Company
has the ability to enter into letters of credit with the FHLB. There were no letters of credit outstanding as of December 31,
2016 or 2015. There were no draws upon any letter of credit in 2016 or 2015 and management does not expect to draw upon these
sources of liquidity in the foreseeable future.
Capital Resources
The current
and projected capital position of the Company and the impact of capital plans and long-term strategies are reviewed regularly
by management. The Company’s capital position represents the level of capital available to support continuing operations
and expansion.
On January 21,
2015, the Company approved and authorized a stock repurchase program for 2015 (the “2015 Program”). The 2015 Program
authorized the repurchase during 2015 of up to 5% of the outstanding shares of the Company’s common stock. In addition,
on July 15, 2015, the Company approved and authorized an additional amount of 5% to be purchased under the 2015 Program. During
2015, the Company repurchased 790,989 shares of its common stock at an average price of $9.92 per share. On January 20, 2016,
the Company approved and authorized a stock repurchase program for 2016 (the “2016 Program”). The 2016 Program authorized
the repurchase during 2016 of up to 5% of the outstanding shares of the Company’s common stock. In addition, on April 20,
2016, the Company approved and authorized an additional amount of 5% to be purchased under the 2016 Program. During 2016, the
Company repurchased 716,897 shares of its common stock at an average price of $10.34 per share
On January 25,
2017, the Company approved and authorized a stock repurchase program for 2017 (the “2017 Program”). The 2017 Program
authorized the repurchase during 2017 of up to 5% of the outstanding shares of the Company’s common stock, or approximately
333,086 shares based on the 6,661,726 shares outstanding as of December 31, 2016. Any repurchases under the 2017 Program will
be made from time to time by the Company in the open market as conditions allow. All such transactions will be structured to comply
with Commission Rule 10b-18 and all shares repurchased under the 2017 Program will be retired. The number, price and timing of
the repurchases will be at the Company’s sole discretion and the 2017 Program may be re-evaluated depending on market conditions,
capital and liquidity needs or other factors. Based on such re-evaluation, the Board of Directors may suspend, terminate, modify
or cancel the 2017 Program at any time without notice.
The Company
did not repurchase any shares in 2011 or 2010 and repurchased 575,389 shares in 2012, 849,404 shares in 2013, and 424,462 in 2014.
Share amounts have been adjusted for stock dividends and/or splits. See Part II, Item 5, “Stock Repurchases” for more
information regarding stock repurchases.
The Company and
American River Bank are subject to certain regulatory capital requirements administered by the Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation. Failure to meet these minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material
effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, banks must meet specific capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and American
River Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors. As of December 31, 2016 and 2015, the most recent regulatory notification categorized American
River Bank as well capitalized under the regulatory framework for prompt corrective action plan. There are no conditions or events
since that notification that management believes have changed the Bank’s categories.
At December
31, 2016, shareholders’ equity was $83,850,000, representing a decrease of $2,225,000 (2.6%) from $86,075,000 at December
31, 2015. The decrease resulted from repurchases of common stock of $7,414,000 and a decrease in other comprehensive income of
$1,559,000, as a result of the decrease in the unrealized gain on securities due to an increase in interest rates, exceeding the
additions from net income of $6,404,000 for the period and the stock based compensation of $344,000. In 2015, shareholders’
equity decreased $3,572,000 (5.1%) from $89,647,000 at December 31, 2014. The decrease resulted from the reductions in other comprehensive
income and repurchases of common stock exceeding the additions from net income for the period and the increase in stock based
compensation.
Table Eleven
below lists the Company’s and American River Bank’s actual capital ratios at December 31, 2016 and 2015, as well as
the minimum capital ratios for capital adequacy.
Table Eleven:
Capital Ratios
|
|
At December 31,
|
|
|
Minimum Regulatory
|
|
|
|
2016
|
|
|
2015
|
|
|
Capital Requirements
|
|
American River Bankshares:
|
|
|
|
|
|
|
|
|
|
Leverage ratio
|
|
|
10.5
|
%
|
|
|
11.0
|
%
|
|
|
4.60
|
%
|
Tier 1 Risk-Based Capital
|
|
|
19.0
|
%
|
|
|
19.3
|
%
|
|
|
6.60
|
%
|
Total
Risk-Based Capital
|
|
|
20.3
|
%
|
|
|
20.6
|
%
|
|
|
8.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American River Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio
|
|
|
10.6
|
%
|
|
|
11.0
|
%
|
|
|
4.60
|
%
|
Common Equity Tier 1 Capital
|
|
|
18.9
|
%
|
|
|
19.1
|
%
|
|
|
5.10
|
%
|
Tier 1 Risk-Based Capital
|
|
|
18.9
|
%
|
|
|
19.1
|
%
|
|
|
6.60
|
%
|
Total Risk-Based Capital
|
|
|
20.2
|
%
|
|
|
20.3
|
%
|
|
|
8.60
|
%
|
Capital
ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet
future needs. At December 31, 2016, American River Bank’s ratios were in excess of the regulatory definition of “well
capitalized.” Management believes that the Company’s capital is adequate to support current operations and anticipated
growth and currently foreseeable future capital requirements of the Company and its subsidiaries.
In July 2013,
the federal bank regulatory agencies issued interim final rules that revised and replaced the then current risk-based capital
requirements in order to implement the “Basel III” regulatory capital reforms released by the Basel Committee on Banking
Supervision and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Basel III reforms
reflected in the final rules included an increase in the risk-based capital requirements and certain changes to capital components
and the calculation of risk-weighted assets.
Effective January
1, 2015, bank holding companies with consolidated assets of $1 Billion or more and banks like American River Bank were required
to comply with new minimum capital ratio requirements to be phased-in between January 1, 2015 and January 1, 2019, which would
consist of the following: (i) a new common equity Tier 1 capital to total risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital
to total risk weighted assets ratio of 6% (increased from 4%); (iii) a total capital to total risk weighted assets ratio of 8%
(unchanged from current rules); and (iv) a Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%.
In addition,
a “capital conservation buffer,” is established which when fully phased-in will require maintenance of a minimum of
2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum capital ratio requirements
described above. The 2.5% buffer will increase the minimum capital ratios to (i) a common equity Tier 1 capital ratio of 7.0%,
(ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new buffer requirement will be phased-in between
January 1, 2016 and January 1, 2019. If the capital ratio levels of a banking organization fall below the capital conservation
buffer amount, the organization will be subject to limitations on (i) the payment of dividends; (ii) discretionary bonus payments;
(iii) discretionary payments under Tier 1 instruments; and (iv) engaging in share repurchases. The minimum capital regulatory
requirement in Table 11 above include the capital conservation buffer of 0.625% as of December 31, 2016.
Market Risk Management
Overview
.
Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily
from interest rate risk inherent in its loan, investment and deposit functions. The goal for managing the assets and liabilities
of the Company is to maximize shareholder value and earnings while maintaining a high quality balance sheet without exposing the
Company to undue interest rate risk. The Board of Directors has overall responsibility for the interest rate risk management policies.
The Company has an Enterprise Risk Management Committee, made up of Company management that establishes and monitors guidelines
to control the sensitivity of earnings to changes in interest rates.
Asset/Liability
Management
. Activities involved in asset/liability management include but are not limited to lending, accepting and placing
deposits and investing in securities. Interest rate risk is the primary market risk associated with asset/liability management.
Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different
amount from that of interest costs on liabilities. To mitigate interest rate risk, the structure of the balance sheet is managed
with the goal that movements of interest rates on assets and liabilities are correlated and contribute to earnings even in periods
of volatile interest rates. The asset/liability management policy sets limits on the acceptable amount of variance in net interest
margin and market value of equity under changing interest environments. The Company uses simulation models to forecast earnings,
net interest margin and market value of equity.
Simulation
of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Using computer-modeling
techniques, with specialized software built for this specific purpose for financial institutions, the Company is able to estimate
the potential impact of changing interest rates on earnings, net interest margin and market value of equity. A balance sheet is
prepared using detailed inputs of actual loans, securities and interest-bearing liabilities (i.e. deposits/borrowings). The balance
sheet is processed using multiple interest rate scenarios. The scenarios include a rising rate forecast, a flat rate forecast
and a falling rate forecast which take place within a one-year time frame. The net interest income is measured over a one and
a two year periods assuming a gradual change in rates over the twelve-month horizon. The simulation modeling attempts to estimate
changes in the Company’s net interest income utilizing a detailed current balance sheet.
After a review
of the model results as of December 31, 2016, the Company does not consider the fluctuations from the base case, to have a material
impact on the Company’s projected results and are within the tolerance levels outlined in the Company’s interest rate
risk polices. The simulations of earnings do not incorporate any management actions, which might moderate the negative consequences
of interest rate deviations. Therefore, they do not reflect likely actual results, but serve as reasonable estimates of interest
rate risk.
Interest Rate
Sensitivity Analysis
Interest
rate sensitivity is a function of the repricing characteristics of the portfolio of assets and liabilities. These repricing characteristics
are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at
replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity of assets and liabilities and
their repricing during periods of changes in market interest rates. Interest rate sensitivity is measured as the difference between
the volumes of assets and liabilities in the current portfolio that are subject to repricing at various time horizons. The differences
are known as interest sensitivity gaps. A positive cumulative gap may be equated to an asset sensitive position. An asset sensitive
position in a rising interest rate environment will cause a bank’s interest rate margin to expand. This results as floating
or variable rate loans reprice more rapidly than fixed rate certificates of deposit that reprice as they mature over time. Conversely,
a declining interest rate environment will cause the opposite effect. A negative cumulative gap may be equated to a liability
sensitive position. A liability sensitive position in a rising interest rate environment will cause a bank’s interest rate
margin to contract, while a declining interest rate environment will have the opposite effect.
Inflation
The impact of
inflation on a financial institution differs significantly from that exerted on manufacturing, or other commercial concerns, primarily
because its assets and liabilities are largely monetary. In general, inflation primarily affects the Company through its effect
on market rates of interest, which affects the Company’s ability to attract loan customers. Inflation affects the growth
of total assets by increasing the level of loan demand, and potentially adversely affects capital adequacy because loan growth
in inflationary periods can increase at rates higher than the rate that capital grows through retention of earnings which may
be generated in the future. In addition to its effects on interest rates, inflation increases overall operating expenses. Inflation
has not had a material effect upon the results of operations of the Company during the years ended December 31, 2016, 2015 and
2014.
Liquidity
Liquidity
management refers to the Company’s ability to provide funds on an ongoing basis to meet fluctuations in deposit levels as
well as the credit needs and requirements of its clients. Both assets and liabilities contribute to the Company’s liquidity
position. Federal funds lines, short-term investments and securities, and loan and lease repayments contribute to liquidity, along
with deposit increases, while loan and lease funding and deposit withdrawals decrease liquidity. The Company assesses the likelihood
of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual
client funding needs. Commitments to fund loans and outstanding standby letters of credit at December 31, 2016 were approximately
$19,728,000 and $238,000, respectively. Such loan commitments relate primarily to revolving lines of credit and other commercial
loans and to real estate construction loans. Since some of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
The Company’s
sources of liquidity consist of cash and due from correspondent banks, overnight funds sold to correspondent banks, unpledged
marketable investments and loans held for sale. On December 31, 2016, consolidated liquid assets totaled $224.2 million or 34.4%
of total assets compared to $229.7 million or 36.2% of total assets on December 31, 2015. In addition to liquid assets, the Company
maintains short-term lines of credit in the amount of $17,000,000 with two of its correspondent banks. At December 31, 2016, the
Company had $17,000,000 available under these credit lines. Additionally, American River Bank is a member of the FHLB. At December
31, 2016, American River Bank could have arranged for up to $115,687,000 in secured borrowings from the FHLB. These borrowings
are secured by pledged mortgage loans and investment securities. At December 31, 2016, the Company had $100,187,000 available
under these secured borrowing arrangements. American River Bank also has a secured borrowing arrangement with the Federal Reserve
Bank. The borrowing can be secured by pledging selected loans and investment securities. Based on the amount of assets pledged
at the Federal Reserve Bank at December 31, 2016, the Company’s borrowing capacity was $11,068,000.
The Company
serves primarily a business and professional customer base and, as such, its deposit base is susceptible to economic fluctuations.
Accordingly, management strives to maintain a balanced position of liquid assets to volatile and cyclical deposits.
Liquidity
is also affected by portfolio maturities and the effect of interest rate fluctuations on the marketability of both assets and
liabilities. The Company can sell any of its unpledged securities held in the available-for-sale category to meet liquidity needs.
These securities are also available to pledge as collateral for borrowings if the need should arise. American River Bank can also
pledge additional securities to borrow from the Federal Reserve Bank and the FHLB.
The
maturity distribution of certificates of deposit is set forth in Table Thirteen below for the period presented. These deposits
are generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields
elsewhere if available.
Table
Thirteen: Certificates of Deposit Maturities
|
December 31, 2016
|
(dollars
in thousands)
|
|
Less than
$250,000
|
|
|
Over $250,000
|
|
Three months or less
|
|
$
|
9,970
|
|
|
$
|
16,045
|
|
Over three months through six months
|
|
|
6,245
|
|
|
|
17,887
|
|
Over six months through twelve
months
|
|
|
6,174
|
|
|
|
873
|
|
Over twelve months
|
|
|
14,734
|
|
|
|
11,031
|
|
Total
|
|
$
|
37,123
|
|
|
$
|
45,836
|
|
Loan
and lease demand also affects the Company’s liquidity position. Table Fourteen below presents the maturities of loans and
leases for the period indicated.
Table
Fourteen: Loan and Lease Maturities (Gross Loans and Leases)
|
|
|
|
December 31, 2016
|
|
|
One year
|
|
|
One year through
|
|
|
Over
|
|
|
|
|
(dollars
in thousands)
|
|
or less
|
|
|
five years
|
|
|
five years
|
|
|
Total
|
|
Commercial
|
|
$
|
8,234
|
|
|
$
|
14,611
|
|
|
$
|
12,529
|
|
|
$
|
35,374
|
|
Real estate
|
|
|
10,044
|
|
|
|
64,861
|
|
|
|
214,495
|
|
|
|
289,400
|
|
Agriculture
|
|
|
469
|
|
|
|
1,833
|
|
|
|
—
|
|
|
|
2,302
|
|
Consumer
|
|
|
206
|
|
|
|
1,193
|
|
|
|
251
|
|
|
|
1,650
|
|
Leases
|
|
|
28
|
|
|
|
376
|
|
|
|
—
|
|
|
|
404
|
|
Total
|
|
$
|
18,981
|
|
|
$
|
82,874
|
|
|
$
|
227,275
|
|
|
$
|
329,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases shown above with maturities greater than one year include $190,260,000 of variable interest rate loans and $119,889,000 of fixed interest rate loans and leases. The carrying amount, maturity distribution and weighted average yield of the Company’s investment securities available-for-sale and held-to-maturity portfolios are presented in Table Fifteen below.
Table Fifteen:
Securities Maturities and Weighted Average Yields
(Taxable Equivalent
Basis)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
2016
|
|
|
|
|
|
2015
|
|
|
|
|
|
2014
|
|
(dollars
in thousands)
|
|
Carrying
Amount
|
|
|
Weighted
Average
Yield
|
|
|
Carrying
Amount
|
|
|
Weighted
Average
Yield
|
|
|
Carrying
Amount
|
|
|
Weighted
Average
Yield
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political
subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing
within 1 year
|
|
$
|
580
|
|
|
|
5.39
|
%
|
|
$
|
494
|
|
|
|
2.40
|
%
|
|
$
|
176
|
|
|
|
7.14
|
%
|
Maturing after 1 year
but within 5 years
|
|
|
2,328
|
|
|
|
4.35
|
%
|
|
|
3,746
|
|
|
|
5.93
|
%
|
|
|
2,401
|
|
|
|
5.10
|
%
|
Maturing after 5 years
but within 10 years
|
|
|
14,486
|
|
|
|
4.36
|
%
|
|
|
15,543
|
|
|
|
4.29
|
%
|
|
|
12,608
|
|
|
|
4.46
|
%
|
Maturing after 10 years
|
|
|
5,218
|
|
|
|
3.23
|
%
|
|
|
6,230
|
|
|
|
4.29
|
%
|
|
|
11,104
|
|
|
|
4.04
|
%
|
U.S. Government Agencies
and U.S.-Sponsored Agencies
|
|
|
229,785
|
|
|
|
2.04
|
%
|
|
|
246,185
|
|
|
|
2.11
|
%
|
|
|
261,115
|
|
|
|
2.12
|
%
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing after 1 year
but within 5 years
|
|
|
1,519
|
|
|
|
4.88
|
%
|
|
|
1,551
|
|
|
|
4.88
|
%
|
|
|
1,583
|
|
|
|
4.88
|
%
|
Non-maturing
|
|
|
104
|
|
|
|
0.00
|
%
|
|
|
70
|
|
|
|
0.00
|
%
|
|
|
77
|
|
|
|
0.00
|
%
|
Total
investment securities
|
|
$
|
254,020
|
|
|
|
2.35
|
%
|
|
$
|
273,819
|
|
|
|
2.35
|
%
|
|
$
|
289,064
|
|
|
|
2.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and U.S.-Sponsored Agencies
|
|
$
|
483
|
|
|
|
5.43
|
%
|
|
$
|
623
|
|
|
|
4.68
|
%
|
|
$
|
862
|
|
|
|
4.60
|
%
|
Total
investment securities
|
|
$
|
483
|
|
|
|
5.43
|
%
|
|
$
|
623
|
|
|
|
4.68
|
%
|
|
$
|
862
|
|
|
|
4.60
|
%
|
The yields
on tax-exempt obligations have been computed on a tax equivalent basis. Yields may not represent actual future income to be recorded.
Timing of principal prepayments on mortgage-backed securities may increase or decrease depending on market factors and the borrowers’
ability to make unscheduled principal payments. Fast prepayments on bonds that were purchased with a premium will result in a
lower yield and slower prepayments on premium bonds will result in a higher yield, the opposite would be true for bonds purchased
at a discount. Table Fifteen does not include FHLB Stock, which does not have stated maturity dates or readily available market
values. The balance in FHLB Stock at December 31, 2016, 2015 and 2014 was $3,779,000, $3,779,000 and $3,686,000, respectively.
The carrying
values of available-for-sale securities include net unrealized gains of $916,000, $3,504,000 and $5,618,000 at December 31, 2016,
2015 and 2014, respectively. The carrying values of held-to-maturity securities do not include unrealized gains or losses; however,
the net unrecognized gains at December 31, 2016, 2015 and 2014 were $38,000, $46,000 and $60,000, respectively.
Off-Balance Sheet Arrangements
The
Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the
financing needs of its customers and to reduce its exposure to fluctuations in interest rates. These financial instruments consist
of commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized on the balance sheet.
As of
December 31, 2016, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet
risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar
instruments. At origination, real estate commitments are generally secured by property with a loan-to-value ratio of 55% to 75%.
In addition, the majority of the Company’s commitments have variable interest rates. The following financial instruments
represent off-balance-sheet credit risk:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Commitments to extend
credit (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
lines of credit secured by 1-4 family residences
|
|
$
|
251
|
|
|
$
|
727
|
|
Commercial real estate,
construction and land development commitments secured by real estate
|
|
|
10,027
|
|
|
|
13,999
|
|
Other
unused commitments, principally commercial loans
|
|
|
9,450
|
|
|
|
12,004
|
|
|
|
$
|
19,728
|
|
|
$
|
26,730
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
|
$
|
238
|
|
|
$
|
238
|
|
The Company’s
exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit
is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments
and letters of credit as it does for loans included on the consolidated balance sheets.
Certain
financial institutions have elected to use special purpose vehicles (“SPV”) to dispose of problem assets. The SPV
is typically a subsidiary company with an asset and liability structure and legal status that makes its obligations secure even
if the parent corporation goes bankrupt. Under certain circumstances, these financial institutions may exclude the problem assets
from their reported impaired and nonperforming assets. The Company does not use those vehicles or any other structures to dispose
of problem assets.
Contractual
Obligations
The
Company leases certain facilities at which it conducts its operations. Future minimum lease commitments under non-cancelable operating
leases are noted in Table Sixteen below. Table Sixteen below presents certain of the Company’s contractual obligations as
of December 31, 2016.
Table
Sixteen: Contractual Obligations
(dollars in thousands)
|
|
Payments due by period
|
|
|
|
Total
|
|
|
|
Less than
1 year
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
Long-Term Debt
|
|
$
|
15,500
|
|
|
$
|
3,500
|
|
|
$
|
7,000
|
|
|
$
|
5,000
|
|
|
$
|
—
|
|
Capital Lease Obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Operating Leases
|
|
|
3,963
|
|
|
|
715
|
|
|
|
1,274
|
|
|
|
996
|
|
|
|
978
|
|
Purchase Obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Certificates of Deposit
|
|
|
82,959
|
|
|
|
57,194
|
|
|
|
14,132
|
|
|
|
11,633
|
|
|
|
—
|
|
Other
Long-Term Liabilities Reflected on the Company’s Balance Sheet under GAAP
|
|
|
4,329
|
|
|
|
123
|
|
|
|
113
|
|
|
|
90
|
|
|
|
4,003
|
|
Total
|
|
$
|
106,751
|
|
|
$
|
61,532
|
|
|
$
|
22,519
|
|
|
$
|
17,719
|
|
|
$
|
4,981
|
|
Included
in the table are amounts payable under the Company’s Deferred Compensation Plan, Deferred Fees Plan and salary continuation
agreements listed in the “Other Long-Term Liabilities…” category. At December 31, 2016, these amounts represented
$4,329,000 most of which is anticipated to be primarily payable at least five years in the future.
Accounting Pronouncements
In
January 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-01, “
Recognition and Measurement of Financial Assets and Financial Liabilities.
”
This ASU addresses
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements
to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those
that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment
of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring
a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is
required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments
measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business
entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed
for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit
price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change
in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the
fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by
measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying
notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred
tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01
is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of
the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned
above is not permitted. The Company has performed a preliminary evaluation of the provisions of ASU No. 2016-01. Based on this
evaluation, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the Company’s financial
position, results of operations or cash flows.
In
February 2016, the FASB issued ASU No. 2016-02, “
Leases.
”
Under the new guidance, lessees will be required
to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present
value of a lessee’s obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance
remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases,
and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases
using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model
and the new revenue recognition standard
.
All entities will classify leases to determine how to recognize lease-related
revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of
enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention
is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more
about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods
beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach
for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.
They have the option to use certain relief; full retrospective application is prohibited. The Company is currently evaluating
the provisions of ASU No. 2016-02. The Company has determined that the provisions of ASU No. 2016-02 may result in an increase
in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities, however, the Company
does not expect this to have a material impact on the Company’s financial position, results of operations or cash flows.
In
March 2016, the FASB issued ASU No. 2016-09, “
Improvements to Employee Share-Based Payment Accounting.
” This
ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented
in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax
benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess
tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated.
The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition,
the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather
than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify
for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding
obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld
to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance
did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for
the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required
today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December
15, 2016. Early adoption was permitted, but all of the guidance must be adopted in the same period. The Company has evaluated
the provisions of ASU No. 2016-09 to determine the potential impact of the new standard and has determined that it is not expected
to have a material impact on the Company’s financial position, results of operations or cash flows.
In
June 2016, the FASB issued ASU No. 2016-13,
“Measurement of Credit Losses on Financial Instruments.”
This ASU
significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t
measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance
delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected
loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1)
financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.
This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.
The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized
losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized
as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements
to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies
the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements
regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition,
entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated
by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15,
2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply
the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective (i.e., modified retrospective approach). While the Company is currently evaluating the
provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated
Financial Statements, it has taken steps to prepare for the implementation when it becomes effective, such as forming an internal
task force, gathering pertinent data, consulting with outside professionals, and evaluating its current IT systems.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.
The information required by Item
7A of Form 10-K is contained in the “Market Risk Management” section of Item 7-“Management’s Discussion
and Analysis of Financial Condition and Results of Operations”on page 49.
Item 8. Financial Statements and
Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
Report of Independent Registered Public Accounting Firm-Crowe Horwath LLP
|
|
56
|
|
|
|
Consolidated Balance Sheets, December 31, 2016 and 2015
|
|
57
|
|
|
|
Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014
|
|
58
|
|
|
|
Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014
|
|
59
|
|
|
|
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014
|
|
60
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
|
|
61-62
|
|
|
|
Notes to Consolidated Financial Statements
|
|
63-109
|
All schedules have been omitted since
the required information is not present in amounts sufficient to require submission of the schedule or because the information
required is included in the Consolidated Financial Statements or notes thereto.
|
Crowe Horwath LLP
Independent Member Crowe Horwath International
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Shareholders and Board of Directors
American
River Bankshares
Rancho
Cordova, California
We
have audited the accompanying consolidated balance sheets of American River Bankshares and subsidiaries (the “Company”)
as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income (loss), changes in shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our audit included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of American River Bankshares and subsidiaries as of December 31, 2016 and 2015, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting
principles.
|
/s/ Crowe Horwath LLP
|
|
|
|
Crowe Horwath LLP
|
Sacramento, California
|
|
February 23, 2017
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December
31, 2016 and 2015
(Dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
27,589
|
|
|
$
|
23,727
|
|
Interest-bearing
deposits in banks
|
|
|
999
|
|
|
|
750
|
|
Investment
securities (Note 5):
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
254,020
|
|
|
|
273,819
|
|
Held-to-maturity,
at amortized cost; fair value of $521 in 2016 and $669 in 2015
|
|
|
483
|
|
|
|
623
|
|
Loans
and leases, less allowance for loan and lease losses of $4,822 in 2016 and $4,975 in 2015 (Notes 6, 7, 12 and 17)
|
|
|
324,086
|
|
|
|
289,102
|
|
Premises
and equipment, net (Note 8)
|
|
|
1,362
|
|
|
|
1,407
|
|
Federal
Home Loan Bank of San Francisco stock
|
|
|
3,779
|
|
|
|
3,779
|
|
Other
real estate owned, net
|
|
|
1,348
|
|
|
|
3,551
|
|
Goodwill
(Note 4)
|
|
|
16,321
|
|
|
|
16,321
|
|
Bank-owned
life insurance (Note 16)
|
|
|
14,805
|
|
|
|
14,483
|
|
Accrued
interest receivable and other assets (Notes 11 and 16)
|
|
|
6,658
|
|
|
|
7,078
|
|
|
|
$
|
651,450
|
|
|
$
|
634,640
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
201,113
|
|
|
$
|
190,548
|
|
Interest-bearing
(Note 9)
|
|
|
343,693
|
|
|
|
340,142
|
|
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
544,806
|
|
|
|
530,690
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings (Note 10)
|
|
|
3,500
|
|
|
|
3,500
|
|
Long-term
borrowings (Note 10)
|
|
|
12,000
|
|
|
|
7,500
|
|
Accrued
interest payable and other liabilities (Note 16)
|
|
|
7,294
|
|
|
|
6,875
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
567,600
|
|
|
|
548,565
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Shareholders’
equity (Notes 13 and 14):
|
|
|
|
|
|
|
|
|
Common
stock - no par value; 20,000,000 shares authorized; issued and outstanding – 6,661,726 shares in 2016 and 7,343,649
shares in 2015
|
|
|
42,484
|
|
|
|
49,554
|
|
Retained
earnings
|
|
|
40,822
|
|
|
|
34,418
|
|
Accumulated
other comprehensive income, net of taxes (Note 5)
|
|
|
544
|
|
|
|
2,103
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
83,850
|
|
|
|
86,075
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
651,450
|
|
|
$
|
634,640
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
For
the Years Ended December 31, 2016, 2015 and 2014
(Dollars
in thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees
on loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
14,008
|
|
|
$
|
13,566
|
|
|
$
|
13,609
|
|
Exempt from Federal
income taxes
|
|
|
723
|
|
|
|
345
|
|
|
|
22
|
|
Interest on deposits in banks
|
|
|
7
|
|
|
|
5
|
|
|
|
4
|
|
Interest and dividends on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
5,769
|
|
|
|
6,292
|
|
|
|
5,528
|
|
Exempt
from Federal income taxes
|
|
|
646
|
|
|
|
760
|
|
|
|
802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest income
|
|
|
21,153
|
|
|
|
20,968
|
|
|
|
19,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
(Note 9)
|
|
|
730
|
|
|
|
817
|
|
|
|
1,021
|
|
Interest
on borrowings
|
|
|
180
|
|
|
|
144
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense
|
|
|
910
|
|
|
|
961
|
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
20,243
|
|
|
|
20,007
|
|
|
|
18,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan and lease losses (Note 7)
|
|
|
(1,344
|
)
|
|
|
—
|
|
|
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan and lease losses
|
|
|
21,587
|
|
|
|
20,007
|
|
|
|
19,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
502
|
|
|
|
498
|
|
|
|
562
|
|
Gain on sale and call of investment securities
(Note 5)
|
|
|
314
|
|
|
|
251
|
|
|
|
208
|
|
Income from other real estate owned properties
|
|
|
279
|
|
|
|
335
|
|
|
|
365
|
|
Other income (Note
15)
|
|
|
950
|
|
|
|
931
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
noninterest income
|
|
|
2,045
|
|
|
|
2,015
|
|
|
|
2,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits (Notes 6 and 16)
|
|
|
8,435
|
|
|
|
8,528
|
|
|
|
8,776
|
|
Other real estate
expense
|
|
|
246
|
|
|
|
322
|
|
|
|
364
|
|
Occupancy (Notes
8, 12 and 17)
|
|
|
1,175
|
|
|
|
1,183
|
|
|
|
1,188
|
|
Furniture and equipment
(Notes 8 and 12)
|
|
|
652
|
|
|
|
690
|
|
|
|
724
|
|
Regulatory assessments
|
|
|
328
|
|
|
|
395
|
|
|
|
433
|
|
Other
expense (Notes 4 and 15)
|
|
|
3,000
|
|
|
|
2,962
|
|
|
|
3,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
noninterest expense
|
|
|
13,836
|
|
|
|
14,080
|
|
|
|
14,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision
for income taxes
|
|
|
9,796
|
|
|
|
7,942
|
|
|
|
6,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes (Note 11)
|
|
|
3,392
|
|
|
|
2,674
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,404
|
|
|
$
|
5,268
|
|
|
$
|
4,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (Note 13)
|
|
$
|
0.95
|
|
|
$
|
0.70
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (Note
13)
|
|
$
|
0.94
|
|
|
$
|
0.70
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
per share of issued and outstanding
common
stock
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For
the Years Ended December 31, 2016, 2015 and 2014
(Dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net
income
|
|
$
|
6,404
|
|
|
$
|
5,268
|
|
|
$
|
4,361
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in net unrealized gains on investment securities
|
|
|
(2,274
|
)
|
|
|
(1,863
|
)
|
|
|
3,954
|
|
Deferred
tax benefit (expense)
|
|
|
905
|
|
|
|
745
|
|
|
|
(1,581
|
)
|
(Decrease)
increase in net unrealized gains on investment securities, net of tax
|
|
|
(1,369
|
)
|
|
|
(1,118
|
)
|
|
|
2,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for realized gains included in net income
|
|
|
(314
|
)
|
|
|
(251
|
)
|
|
|
(208
|
)
|
Tax
effect
|
|
|
124
|
|
|
|
101
|
|
|
|
83
|
|
Realized
gains, net of tax
|
|
|
(190
|
)
|
|
|
(150
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive (loss) income
|
|
|
(1,559
|
)
|
|
|
(1,268
|
)
|
|
|
2,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
4,845
|
|
|
$
|
4,000
|
|
|
$
|
6,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For
the Years Ended December 31, 2016, 2015 and 2014
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
Share-
|
|
|
Common
Stock
|
|
Retained
|
|
Income
|
|
holders’
|
|
|
Shares
|
|
Amount
|
|
Earnings
|
|
(Net
of Taxes)
|
|
Equity
|
Balance,
January 1, 2014
|
|
|
8,489,247
|
|
|
|
61,108
|
|
|
|
24,789
|
|
|
|
1,123
|
|
|
|
87,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
4,361
|
|
|
|
—
|
|
|
|
4,361
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gains on available-for-sale investment securities (Note 5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,248
|
|
|
|
2,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of common stock (Note 13)
|
|
|
(424,462
|
)
|
|
|
(4,148
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,148
|
)
|
Net
restricted stock award activity and related compensation expense
|
|
|
24,830
|
|
|
|
147
|
|
|
|
—
|
|
|
|
—
|
|
|
|
147
|
|
Stock
option compensation expense
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2014
|
|
|
8,089,615
|
|
|
|
57,126
|
|
|
|
29,150
|
|
|
|
3,371
|
|
|
|
89,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
5,268
|
|
|
|
—
|
|
|
|
5,268
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gains on available-for-sale investment securities (Note 5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,268
|
)
|
|
|
(1,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of common stock (Note 13)
|
|
|
(790,989
|
)
|
|
|
(7,843
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,843
|
)
|
Net
restricted stock award activity and related compensation expense
|
|
|
45,023
|
|
|
|
236
|
|
|
|
—
|
|
|
|
—
|
|
|
|
236
|
|
Stock
option compensation expense
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
|
|
7,343,649
|
|
|
|
49,554
|
|
|
|
34,418
|
|
|
|
2,103
|
|
|
|
86,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
6,404
|
|
|
|
—
|
|
|
|
6,404
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gains on available-for-sale investment securities (Note 5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,559
|
)
|
|
|
(1,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of common stock (Note 13)
|
|
|
(716,897
|
)
|
|
|
(7,414
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,414
|
)
|
Net
restricted stock award activity and related compensation expense
|
|
|
33,474
|
|
|
|
291
|
|
|
|
—
|
|
|
|
—
|
|
|
|
291
|
|
Stock
options exercised
|
|
|
1,500
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
Stock
option compensation expense
|
|
|
—
|
|
|
|
40
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
|
|
6,661,726
|
|
|
$
|
42,484
|
|
|
$
|
40,822
|
|
|
$
|
544
|
|
|
$
|
83,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2016, 2015 and 2014
(Dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,404
|
|
|
$
|
5,268
|
|
|
$
|
4,361
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan and lease losses
|
|
|
(1,344
|
)
|
|
|
—
|
|
|
|
(541
|
)
|
Increase
(decrease) in deferred loan and lease origination fees, net
|
|
|
1
|
|
|
|
(66
|
)
|
|
|
(26
|
)
|
Depreciation
and amortization
|
|
|
420
|
|
|
|
430
|
|
|
|
438
|
|
Amortization
of investment security premiums and discounts, net
|
|
|
2,940
|
|
|
|
3,160
|
|
|
|
4,647
|
|
Gain
on sale and call of investment securities
|
|
|
(314
|
)
|
|
|
(251
|
)
|
|
|
(208
|
)
|
Increase in
cash surrender value of life insurance policies
|
|
|
(322
|
)
|
|
|
(316
|
)
|
|
|
(284
|
)
|
Gain
on life insurance death benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(99
|
)
|
Deferred
income tax (benefit) expense
|
|
|
(283
|
)
|
|
|
473
|
|
|
|
(74
|
)
|
Stock-based
compensation expense
|
|
|
331
|
|
|
|
271
|
|
|
|
166
|
|
Loss
(gain) on sale or write-down of other real estate owned
|
|
|
118
|
|
|
|
70
|
|
|
|
(66
|
)
|
Fair
value adjustment to acquired other real estate owned
|
|
|
(239
|
)
|
|
|
—
|
|
|
|
—
|
|
Decrease
(increase) in accrued interest receivable and other assets
|
|
|
1,734
|
|
|
|
(723
|
)
|
|
|
298
|
|
Increase
(decrease) in accrued interest payable and other liabilities
|
|
|
419
|
|
|
|
461
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
9,865
|
|
|
|
8,777
|
|
|
|
8,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
the sale of available-for-sale investment securities
|
|
|
12,655
|
|
|
|
23,764
|
|
|
|
23,804
|
|
Proceeds from
called available-for-sale investment securities
|
|
|
1,550
|
|
|
|
—
|
|
|
|
1,160
|
|
Proceeds from
matured available-for-sale investment securities
|
|
|
1,100
|
|
|
|
175
|
|
|
|
105
|
|
Purchases
of available-for-sale investment securities
|
|
|
(47,292
|
)
|
|
|
(62,958
|
)
|
|
|
(83,049
|
)
|
Proceeds from
principal repayments for available-for-sale mortgage-backed securities
|
|
|
46,570
|
|
|
|
49,242
|
|
|
|
41,014
|
|
Proceeds from
principal repayments for held-to-maturity mortgage-backed securities
|
|
|
140
|
|
|
|
239
|
|
|
|
324
|
|
Purchases
of bank owned life insurance
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,350
|
)
|
Net
(increase) decrease in interest-bearing deposits in banks
|
|
|
(249
|
)
|
|
|
250
|
|
|
|
—
|
|
Net
increase in loans and leases
|
|
|
(33,064
|
)
|
|
|
(30,979
|
)
|
|
|
(5,932
|
)
|
Net
proceeds from sale of other real estate owned
|
|
|
1,747
|
|
|
|
1,153
|
|
|
|
2,283
|
|
Death
benefit from life insurance policy
|
|
|
—
|
|
|
|
—
|
|
|
|
252
|
|
Capitalized
additions to other real estate
|
|
|
—
|
|
|
|
(127
|
)
|
|
|
(54
|
)
|
Purchases of
equipment
|
|
|
(375
|
)
|
|
|
(319
|
)
|
|
|
(456
|
)
|
Net
(increase) decrease in FHLB stock
|
|
|
—
|
|
|
|
(93
|
)
|
|
|
(438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(17,218
|
)
|
|
|
(19,653
|
)
|
|
|
(22,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Continued)
For
the Years Ended December 31, 2016, 2015 and 2014
(Dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in demand, interest-bearing and savings deposits
|
|
$
|
15,728
|
|
|
$
|
23,114
|
|
|
$
|
31,545
|
|
Net
decrease in time deposits
|
|
|
(1,612
|
)
|
|
|
(3,117
|
)
|
|
|
(4,542
|
)
|
Cash
paid to repurchase common stock
|
|
|
(7,414
|
)
|
|
|
(7,843
|
)
|
|
|
(4,148
|
)
|
Proceeds
from exercised options
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
Increase
(decrease) in long-term borrowings
|
|
|
4,500
|
|
|
|
—
|
|
|
|
(500
|
)
|
Decrease
in short-term borrowings
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
11,215
|
|
|
|
12,154
|
|
|
|
17,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
3,862
|
|
|
|
1,278
|
|
|
|
4,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
23,727
|
|
|
|
22,449
|
|
|
|
17,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
27,589
|
|
|
$
|
23,727
|
|
|
$
|
22,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
908
|
|
|
$
|
961
|
|
|
$
|
1,234
|
|
Income
taxes
|
|
$
|
2,790
|
|
|
$
|
2,495
|
|
|
$
|
2,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate acquired through foreclosure or deed in lieu of foreclosure
|
|
$
|
1,109
|
|
|
$
|
—
|
|
|
$
|
189
|
|
Loans
resulting from sale of other real estate owned
|
|
$
|
1,686
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
THE
BUSINESS OF THE COMPANY
|
American
River Bankshares (the “Company”) was incorporated under the laws of the State of California in 1995 under the name
of American River Holdings and changed its name in 2004 to American River Bankshares. As a bank holding company, the Company is
authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and regulations thereunder.
As a community oriented regional bank holding company, the principal communities served are located in Sacramento, Placer, Yolo,
El Dorado, Amador, and Sonoma counties.
The
Company owns 100% of the issued and outstanding common shares of its banking subsidiary, American River Bank (“ARB”
or the “Bank”). ARB was incorporated in 1983. ARB accepts checking and savings deposits, offers money market deposit
accounts and certificates of deposit, makes secured and unsecured commercial, secured real estate, and other installment and term
loans and offers other customary banking services. ARB operates four full-service banking offices in Sacramento County, one full-service
banking office in Placer County, two full-service banking offices in Sonoma County, and three full-service banking offices in
Amador County. The Company also owns one inactive subsidiary, American River Financial.
ARB
does not offer trust services or international banking services and does not plan to do so in the near future. The deposits of
ARB are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal limits.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
General
The
accounting and reporting policies of the Company and its subsidiaries conform with accounting principles generally accepted in
the United States of America and prevailing practices within the financial services industry.
Reclassifications
Certain
reclassifications have been made to prior years’ balances to conform to classifications used in 2016. Reclassifications
had no affect on prior year net income or shareholders’ equity.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany
transactions and accounts among the Company and its subsidiaries have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Cash
and Cash Equivalents
For
the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash equivalents.
Generally, Federal funds are sold for one-day periods.
Interest-Bearing
Deposits in Banks
Interest-bearing
deposits in banks mature within one year and are carried at cost.
Investment
Securities
Investments
are classified into the following categories:
|
•
|
Available-for-sale
securities, reported at fair value, with unrealized gains and losses excluded from earnings
and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders’
equity.
|
|
•
|
Held-to-maturity
securities, which management has the positive intent and ability to hold to maturity,
reported at amortized cost, adjusted for the accretion of discounts and amortization
of premiums.
|
Management
determines the appropriate classification of its investments at the time of purchase and may only change the classification in
certain limited circumstances. All transfers between categories are accounted for at fair value. There were no transfers during
the years ended December 31, 2016 and 2015.
Gains
or losses on the sale of investment securities are computed on the specific identification method. Interest earned on investment
securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums.
An
investment security is impaired when its carrying value is greater than its fair value. Investment securities that are impaired
are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation
to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and
duration of the decline and the intent and ability of the Company to retain its investment in the securities for a period of time
sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine
whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that
the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or
that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.
For debt securities, once a decline in value is determined to be other than temporary and management does not intend to sell the
security or it is more likely than not that management will not be required to sell the security before recovery, only the portion
of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge
to other comprehensive income. If management intends to sell the security or it is more likely than not that management will be
required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings.
For equity securities, the entire amount of impairment is recognized through earnings.
Federal
Home Loan Bank Stock
Investments
in Federal Home Loan Bank of San Francisco (the “FHLB”) stock are carried at cost and are redeemable at par with certain
restrictions. Investments in FHLB stock are necessary to participate in FHLB programs.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Loans
and Leases
Loans
and leases that management has both the intent and ability to hold for the foreseeable future or until maturity or payoff are
reported at the principal amounts outstanding, adjusted for unearned income, deferred loan origination fees and costs, purchase
premiums and discounts, write-downs and the allowance for loan and lease losses. Loan and lease origination fees, net of certain
deferred origination costs, and purchase premiums and discounts are recognized as an adjustment to the yield of the related loans
and leases.
For
all classes of loans and leases, the accrual of interest is discontinued when, in the opinion of management, there is an indication
that the borrower may be unable to meet payment requirements within an acceptable time frame relative to the terms stated in the
loan agreement. Upon such discontinuance, all unpaid accrued interest is reversed against current income unless the loan or lease
is well secured and in the process of collection. Interest received on nonaccrual loans and leases is either applied against principal
or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans
and leases are restored to accrual status when the obligation is brought current and has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer
in doubt.
Direct
financing leases are carried net of unearned income. Income from leases is recognized by a method that approximates a level yield
on the outstanding net investment in the lease.
Loan
Sales and Servicing
Included
in the loan and lease portfolio are Small Business Administration (“SBA”) loans and Farm Service Agency guaranteed
loans that may be sold in the secondary market. At the time the loan is sold, the related right to service the loan is either
retained, with the Company earning future servicing income, or released in exchange for a one-time servicing-released premium.
Loans subsequently transferred to the loan portfolio are transferred at the lower of cost or fair value at the date of transfer.
Any difference between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to
yield by the interest method. There were no loans held for sale at December 31, 2016 and 2015.
SBA
and Farm Service Agency loans with unpaid balances of $170,000 and $202,000 were being serviced for others as of December 31,
2016 and 2015, respectively. The Company also serviced loans that are participated with other financial institutions totaling
$7,740,000 and $7,942,000 as of December 31, 2016 and 2015, respectively.
Servicing
rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights retained
are recognized as separate assets or liabilities. Servicing assets or liabilities are initially recorded at fair value and are
subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are
periodically evaluated for impairment. Servicing assets were not considered material for disclosure purposes at December 31, 2016
and 2015.
Allowance
for Loan and Lease Losses
The
allowance for loan and lease losses is an estimate of probable credit losses inherent in the Company’s credit portfolio
that have been incurred as of the balance-sheet date. The allowance is established through a provision for loan and lease losses
which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit
losses and loan growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously
charged off amounts is typically recorded as a recovery to the allowance. The overall allowance consists of two primary components,
specific reserves related to impaired credits and general reserves for inherent probable losses related to credits that are not
impaired.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Allowance
for Loan and Lease Losses
(Continued)
For
all classes of the portfolio, a loan or lease is considered impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms
of the original agreement. Factors considered by management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principle and interest payments when due. Impaired loans are individually evaluated
to determine the extent of impairment, if any, except for smaller-balance loans that are collectively evaluated for credit risk.
When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted
at the credit’s original interest rate, except that as a practical expedient, it may measure impairment based on a credit’s
observable market price, or the fair value of the collateral if the credit is collateral dependent. A loan or lease is collateral
dependent if the repayment of the credit is expected to be provided solely by the sale or operation of the underlying collateral.
For
all portfolio segments, a restructuring of a debt constitutes a troubled debt restructuring (“TDR”) if the Company
grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that
it would not otherwise consider. Restructured workout loans typically present an elevated level of credit risk as the borrowers
are not able to perform according to the original contractual terms. Loans or leases that are reported as TDRs are considered
impaired and measured for impairment as described above.
For
all portfolio segments, the determination of the general reserve for loans and leases that are not impaired is based on estimates
made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications,
and qualitative factors to include economic trends in the Company’s service areas, industry experience and trends, geographic
concentrations, estimated collateral values, the Company’s underwriting policies, the character of the credit portfolio,
and probable losses inherent in the portfolio taken as a whole.
The
Company determines a separate allowance for each portfolio segment. These portfolio segments include commercial, real estate construction
(including land and development loans), residential real estate, multi-family real estate, commercial real estate, leases, agriculture,
and consumer loans. The allowance for loan and lease losses attributable to each portfolio segment, which includes both impaired
credits and credits that are not impaired, is combined to determine the Company’s overall allowance, which is included as
a component of loans and leases on the consolidated balance sheet and available for all loss exposures.
The
Company assigns a risk rating to all loans and periodically performs detailed reviews of all such loans over a certain threshold
to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination
by independent specialists engaged by the Company and the Company’s regulators. During the internal reviews, management
monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate
and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each
individual credit. The risk ratings can be grouped into six major categories, defined as follows:
Pass
– A pass loan is a strong credit with no existing or known potential weaknesses deserving of management’s
close attention.
Watch
– A watch credit is a loan or lease that otherwise meets the definition of a standard or minimum acceptable quality
loan, but which requires more than normal attention due to any of the following items: deterioration of borrower financial condition
less severe than those warranting more adverse grading, deterioration of repayment ability and/or collateral value, increased
leverage, adverse effects from a downturn in the economy, local market or industry, adverse changes in local or regional employer,
management changes (including illness, disability, and death), and adverse legal action. Payments are current per the terms of
the agreement. If conditions persist or worsen, a more severe risk grade may be warranted.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
|
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Allowance
for Loan and Lease Losses
(Continued)
Special
Mention
– A special mention credit is a loan or lease that has potential weaknesses that deserve management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the
credit or in the Company’s position at some future date. Special Mention credits are not adversely classified and do not
expose the Company to sufficient risk to warrant adverse classification.
Substandard
– A substandard credit is a loan or lease that is not adequately protected by the current sound worth and paying
capacity of the borrower or the value of the collateral pledged, if any. Credits classified as substandard have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt. Well defined weaknesses include inadequate cash flow or collateral
support, a project’s lack of marketability, failure to complete construction on time or a project’s failure to fulfill
economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies
are not corrected.
Doubtful
– Credits classified as doubtful are loans or leases that have all the weaknesses inherent in those classified as
substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently
known facts, conditions and values, highly questionable and improbable.
Loss
– Credits classified as loss are loans or leases considered uncollectible and charged off immediately.
The
general reserve component of the allowance for loan and lease losses also consists of reserve factors that are based on management’s
assessment of the following for each portfolio segment: (1) inherent credit risk, (2) historical losses and (3) other
qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each
portfolio segment described below.
Real
Estate- Commercial
– Commercial real estate mortgage loans generally possess a higher inherent risk of loss than
other real estate portfolio segments, except land and construction loans. Adverse economic developments or an overbuilt market
impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact
the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient
cash flow to service debt obligations.
Real
Estate- Construction
– These loans generally possess a higher inherent risk of loss than other real estate portfolio
segments. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction
industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in
real estate values significantly impact the credit quality of these loans, as property values determine the economic viability
of construction projects.
Real
Estate- Multi-family
– Multi-family loans are non-construction term mortgages for the acquisition, refinance, or
improvement of residential rental properties with generally more than 4 dwelling units. Underwriting is generally based on borrower
creditworthiness, sufficiency of net operating income to service the bank loan payment, and a prudent loan-to-value ratio, among
other factors.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Allowance
for Loan and Lease Losses
(Continued)
Real
Estate- Residential
– Residential loans are generally loans to purchase or refinance 1-4 unit single-family residences,
either owner-occupied or investor-owned. Some residential loans are short term to match their intended source of repayment through
sale or refinance. The remainder are fixed or floating-rate term first mortgages with an original maturity between 2 and 10 years,
generally with payments based on a 25-30 year amortization.
Commercial
–
Commercial loans generally possess a lower inherent risk of loss than real estate portfolio segments because these loans are
generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows and
economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit
quality of these loans.
Lease
Financing Receivable
–
Leases originated by the bank are non-consumer finance leases (as contrasted with
operating leases) for the acquisition of titled and non-titled business equipment. Leases are generally amortized over a period
from 36 to 84 months, depending on the useful life of the equipment acquired. Residual (balloon) payments at lease end range from
0-20% of original cost, and are a non-optional obligation of the lessee. Lessees are contractually responsible for all costs,
expenses, taxes, and liability associated with the leased equipment.
Agricultural
– Loans secured by crop production and livestock are especially vulnerable to two risk factors that are largely
outside the control of the Company and borrowers: commodity prices and weather conditions.
Consumer
– The consumer loan portfolio is comprised of a large number of small loans scheduled to be amortized over a specific
period. Most installment loans are made directly for consumer purchases, but business loans granted for the purchase of heavy
equipment or industrial vehicles may also be included. Also included in the consumer loan portfolio are home equity lines of credit.
Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality
of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.
Although
management believes the allowance to be adequate, ultimate losses may vary from its estimates. At least quarterly, the Board of
Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic
conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews,
the allowance is adjusted. In addition, the Company’s primary regulators, the FDIC and the California Department of Business
Oversight, as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may
require additions to the allowance based on their judgment about information available at the time of their examinations.
Allowance
for Credit Losses on Off-Balance-Sheet Credit Exposures
The
Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates probable incurred losses using
historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in accrued interest payable
and other liabilities on the consolidated balance sheet.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Other
Real Estate Owned (OREO)
Other
real estate owned includes real estate acquired in full or partial settlement of loan obligations. When property is acquired,
any excess of the recorded investment in the loan balance and accrued interest income over the estimated fair market value of
the property less estimated selling costs is charged against the allowance for loan and lease losses. Any excess of the fair value
over the loan balance less estimated selling costs is recorded as noninterest income-other income. A valuation allowance for losses
on other real estate may be maintained to provide for temporary declines in value. The valuation allowance is established through
a provision for losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or writedowns
resulting from permanent impairments are recorded in other income or expense as incurred. During 2016, the Company received $1,747,000
in net proceeds from the sale of other real estate owned with net gains of $257,000 recognized on the sale. Also during 2016,
the Company realized a market value adjustment as the collateral received in partial settlement of a loan obligation had a fair
value greater than the loan obligation. The market adjustment was recognized as $173,000 in noninterest income and $66,000 was
used to reduce a prior loan loss. During 2015, the Company received $1,153,000 in net proceeds from the sale of other real estate
owned with net losses of $1,000 recognized on the sale. The recorded investment in other real estate owned totaled $1,348,000
and $3,551,000 at December 31, 2016 and 2015, respectively, and had related valuation allowance of zero at each date.
Premises
and Equipment
Premises
and equipment are carried at cost less accumulated depreciation. Land is not depreciated. Depreciation is determined using the
straight-line method over the estimated useful lives of the related assets. The useful life of the building and improvements is
forty years. The useful lives of furniture, fixtures and equipment are estimated to be three to ten years. Leasehold improvements
are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise
disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain
or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred. Impairment
of long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets
which indicate long-lived assets may be impaired.
Goodwill
and Intangible Assets
Business
combinations involving the Company’s acquisition of equity interests or net assets of another enterprise or the assumption
of net liabilities in an acquisition of branches constituting a business may give rise to goodwill. Goodwill represents the excess
of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The value of
goodwill is ultimately derived from the Company’s ability to generate net earnings after the acquisition and is not deductible
for tax purposes. A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment.
For that reason, goodwill is assessed for impairment at least annually. Impairment exists when a reporting unit’s carrying
value of goodwill exceeds its fair value. At December 31, 2016, the Company had one reporting unit and that reporting unit had
positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the
fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it
was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.
Bank-Owned
Life Insurance
The
Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that
can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges
or other amounts due that are probable at settlement.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Income
Taxes
The
Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense represents
each entity’s proportionate share of the consolidated provision for income taxes.
The
Company accounts for income taxes using the balance sheet method, under which deferred tax assets and liabilities are recognized
for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The
deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances
during the year. This amount combined with the current taxes payable or refundable, results in the income tax expense for the
current year. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other
assets.
The
realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely than not”
that all or a portion of the deferred tax assets will not be realized. “More likely than not” is defined as greater
than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight
of that evidence, a valuation allowance is needed. Based upon the Company’s analysis of available evidence, the Company
determined that it is “more likely than not” that all of the deferred income tax assets as of December 31, 2016
and 2015 will be fully realized and therefore no valuation allowance was recorded.
The
Company uses a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions
taken or expected to be taken on a tax return. A tax position is recognized as a benefit only if it is “more likely than
not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The
amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax
positions not meeting the “more likely than not” test, no tax benefit is recorded. Interest expense and penalties
associated with unrecognized tax benefits, if any, are classified as income tax expense in the consolidated statement of income.
Comprehensive
Income
Comprehensive
income is reported in addition to net income for all periods presented. Comprehensive income consists of net income and other
comprehensive income. Unrealized gains and losses on the Company’s available-for-sale investment securities are included
in other comprehensive income (loss), adjusted for realized gains or losses included in net income. Total comprehensive income
and the components of accumulated other comprehensive income (loss) are presented in the consolidated statements of comprehensive
income.
Earnings
Per Share
Basic
earnings per share (“EPS”), which excludes dilution, is computed by dividing income available to common shareholders
by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock, such as stock options or restricted stock, result in the issuance
of common stock that share in the earnings of the Company. The treasury stock method has been applied to determine the dilutive
effect of stock options and restricted stock in computing diluted EPS. Earnings and dividends per share are restated for all stock
splits and stock dividends through the date of issuance of the consolidated financial statements. There were no stock splits or
stock dividends in 2016, 2015 or 2014.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Stock-Based
Compensation
At
December 31, 2016, the Company had two stock-based compensation plans, which are described more fully in Note 13.
Compensation expense, net of related tax benefits, recorded in 2016, 2015 and 2014 totaled $215,000, $176,000 and $107,000,
or $0.03, $0.02 and $0.01 per diluted share, respectively. Compensation expense is recognized over the vesting period on a
straight line accounting basis.
The
fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton based option valuation model that
uses the assumptions noted in the following table. Because Black-Scholes-Merton based option valuation models incorporate ranges
of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on historical volatility of the Company’s
stock and other factors. The Company uses historical data to estimate the dividend yield, option life and forfeiture rate within
the valuation model. The expected option life represents the period of time that options granted are expected to be outstanding.
The risk-free rate for the period representing the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
|
|
2015
|
|
|
2014
|
|
Dividend
yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected
volatility
|
|
|
28.1
|
%
|
|
|
20.7
|
%
|
Risk-free
interest rate
|
|
|
1.92
|
%
|
|
|
2.10
|
%
|
Expected
option life in years
|
|
|
7
|
|
|
|
7
|
|
Weighted
average fair value of options granted during the year
|
|
$
|
3.24
|
|
|
$
|
2.44
|
|
There
were no options granted in 2016 under either stock-based compensation plans.
Restricted
stock awards are grants of shares of the Company’s common stock that are subject to forfeiture until specific conditions
or goals are met. Conditions may be based on continuing employment or service and/or achieving specified performance goals. During
the period of restriction, Plan participants holding restricted share awards have voting and cash dividend rights. The restrictions
lapse in accordance with a schedule or with other conditions determined by the Board of Directors as reflected in each award agreement.
Upon the vesting of each restricted stock award, the Company issues the associated common shares from its inventory of authorized
common shares. All outstanding awards under the Plan immediately vest in the event of a change of control of the Company. The
shares associated with any awards that fail to vest become available for re-issuance under the Plan. The following is a summary
of stock-based compensation information as of or for the years ended December 31, 2016, 2015 and 2014:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(Dollars in thousands)
|
|
Total
intrinsic value of options exercised
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
cash received for option exercises
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
fair value of options vested
|
|
$
|
41
|
|
|
$
|
24
|
|
|
$
|
14
|
|
Total
compensation cost, options and restricted stock
|
|
$
|
331
|
|
|
$
|
271
|
|
|
$
|
166
|
|
Tax
benefit recognized
|
|
$
|
116
|
|
|
$
|
94
|
|
|
$
|
59
|
|
Net
compensation cost, options and restricted stock
|
|
$
|
215
|
|
|
$
|
176
|
|
|
$
|
107
|
|
Total
compensation cost for nonvested option awards not yet recognized
|
|
$
|
99
|
|
|
$
|
165
|
|
|
$
|
104
|
|
Weighted
average years for compensation cost for nonvested options to be recognized
|
|
|
1.3
|
|
|
|
2.0
|
|
|
|
2.1
|
|
Total
compensation cost for restricted stock not yet recognized
|
|
$
|
376
|
|
|
$
|
530
|
|
|
$
|
273
|
|
Weighted
average years for compensation cost for restricted stock to be recognized
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
1.2
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Operating
Segments
While
the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial
performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments
are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable
operating segment.
Recently
Issued Financial Accounting Pronouncements
In
January 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-01, “
Recognition and Measurement of Financial Assets and Financial Liabilities.
”
This ASU addresses
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements
to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those
that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment
of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring
a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is
required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments
measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business
entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed
for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit
price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change
in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the
fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by
measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying
notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred
tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01
is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of
the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned
above is not permitted. The Company has performed a preliminary evaluation of the provisions of ASU No. 2016-01. Based on this
evaluation, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the Company’s financial
position, results of operations or cash flows.
In
February 2016, the FASB issued ASU No. 2016-02, “
Leases.
”
Under the new guidance, lessees will be required
to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present
value of a lessee’s obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance
remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases,
and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases
using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model
and the new revenue recognition standard
.
All entities will classify leases to determine how to recognize lease-related
revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of
enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention
is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more
about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods
beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach
for leases
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
that
exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option
to use certain relief; full retrospective application is prohibited. The Company is currently evaluating the provisions of ASU
No. 2016-02. The Company has determined that the provisions of ASU No. 2016-02 may result in an increase in assets to recognize
the present value of the lease obligations with a corresponding increase in liabilities, however, the Company does not expect
this to have a material impact on the Company’s financial position, results of operations or cash flows.
In
March 2016, the FASB issued ASU No. 2016-09, “
Improvements to Employee Share-Based Payment Accounting.
” This
ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented
in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax
benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess
tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated.
The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition,
the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather
than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify
for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding
obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld
to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance
did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for
the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required
today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December
15, 2016. Early adoption was permitted, but all of the guidance must be adopted in the same period. The Company has evaluated
the provisions of ASU No. 2016-09 to determine the potential impact of the new standard and has determined that it is not expected
to have a material impact on the Company’s financial position, results of operations or cash flows.
In
June 2016, the FASB issued ASU No. 2016-13,
“Measurement of Credit Losses on Financial Instruments.”
This ASU
significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t
measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance
delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected
loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1)
financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures.
This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.
The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized
losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized
as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements
to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies
the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements
regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition,
entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated
by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15,
2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply
the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting
period in which the guidance is effective (i.e., modified retrospective approach). While the Company is currently evaluating the
provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated
Financial Statements, it has taken steps to prepare for the implementation when it becomes effective, such as forming an internal
task force, gathering pertinent data, consulting with outside professionals, and evaluating its current IT systems.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
3.
|
FAIR
VALUE MEASUREMENTS
|
The
following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and
nonrecurring basis as of December 31, 2016 and December 31, 2015. They indicate the fair value hierarchy of the valuation techniques
utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined
by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and
inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are
observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations
where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value
may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the
fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Estimated
fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made
at a specific point in time based on relevant market data and information about the financial instruments. These estimates do
not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial
instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments.
In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in any of these estimates.
The
carrying amounts and estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):
|
|
Carrying
|
|
|
Fair Value Measurements
Using:
|
|
December
31, 2016
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
27,589
|
|
|
$
|
27,589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,589
|
|
Interest-bearing
deposits in banks
|
|
|
999
|
|
|
|
—
|
|
|
|
999
|
|
|
|
—
|
|
|
|
999
|
|
Available-for-sale
securities
|
|
|
254,020
|
|
|
|
60
|
|
|
|
253,960
|
|
|
|
—
|
|
|
|
254,020
|
|
Held-to-maturity
securities
|
|
|
483
|
|
|
|
—
|
|
|
|
521
|
|
|
|
—
|
|
|
|
521
|
|
FHLB
stock
|
|
|
3,779
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans
and leases, net
|
|
|
324,086
|
|
|
|
—
|
|
|
|
—
|
|
|
|
329,110
|
|
|
|
329,110
|
|
Accrued
interest receivable
|
|
|
1,824
|
|
|
|
—
|
|
|
|
937
|
|
|
|
887
|
|
|
|
1,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
201,113
|
|
|
$
|
201,113
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
201,113
|
|
Savings
|
|
|
64,740
|
|
|
|
64,740
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64,740
|
|
Money
market
|
|
|
131,342
|
|
|
|
131,342
|
|
|
|
—
|
|
|
|
—
|
|
|
|
131,342
|
|
NOW
accounts
|
|
|
64,652
|
|
|
|
64,652
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64,652
|
|
Time
Deposits
|
|
|
82,959
|
|
|
|
—
|
|
|
|
83,720
|
|
|
|
—
|
|
|
|
83,720
|
|
Short-term
borrowings
|
|
|
3,500
|
|
|
|
3,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,500
|
|
Long-term borrowings
|
|
|
12,000
|
|
|
|
—
|
|
|
|
12,110
|
|
|
|
—
|
|
|
|
12,110
|
|
Accrued
interest payable
|
|
|
62
|
|
|
|
—
|
|
|
|
62
|
|
|
|
—
|
|
|
|
62
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
3.
|
FAIR
VALUE MEASUREMENTS
(Continued)
|
|
|
Carrying
|
|
|
Fair Value Measurements
Using:
|
|
December
31, 2015
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
23,727
|
|
|
$
|
23,727
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23,727
|
|
Interest-bearing
deposits in banks
|
|
|
750
|
|
|
|
—
|
|
|
|
752
|
|
|
|
—
|
|
|
|
752
|
|
Available-for-sale
securities
|
|
|
273,819
|
|
|
|
24
|
|
|
|
273,795
|
|
|
|
—
|
|
|
|
273,819
|
|
Held-to-maturity
securities
|
|
|
623
|
|
|
|
—
|
|
|
|
669
|
|
|
|
—
|
|
|
|
669
|
|
FHLB
stock
|
|
|
3,779
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Loans
and leases, net
|
|
|
289,102
|
|
|
|
—
|
|
|
|
—
|
|
|
|
292,444
|
|
|
|
292,444
|
|
Accrued
interest receivable
|
|
|
1,885
|
|
|
|
—
|
|
|
|
1,077
|
|
|
|
808
|
|
|
|
1,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
190,548
|
|
|
$
|
190,548
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
190,548
|
|
Savings
|
|
|
59,061
|
|
|
|
59,061
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59,061
|
|
Money
market
|
|
|
135,186
|
|
|
|
135,186
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135,186
|
|
NOW
accounts
|
|
|
61,324
|
|
|
|
61,324
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,324
|
|
Time
Deposits
|
|
|
84,571
|
|
|
|
—
|
|
|
|
85,165
|
|
|
|
—
|
|
|
|
85,165
|
|
Short-term borrowings
|
|
|
3,500
|
|
|
|
3,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,500
|
|
Long-term borrowings
|
|
|
7,500
|
|
|
|
—
|
|
|
|
7,502
|
|
|
|
—
|
|
|
|
7,502
|
|
Accrued
interest payable
|
|
|
60
|
|
|
|
—
|
|
|
|
60
|
|
|
|
—
|
|
|
|
60
|
|
Because
no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates
are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the fair values presented.
The
following methods and assumptions were used by the Company to estimate the fair values of its financial instruments at December
31, 2016 and December 31, 2015:
Cash
and due from banks
: The carrying amounts of cash and short-term instruments approximate fair values and are classified as
Level 1.
Interest-bearing
deposits in banks
: The fair values of interest-bearing deposits in banks are estimated by discounting their future cash flows
using rates at each reporting date for instruments with similar remaining maturities offered by comparable financial institutions
and are classified as Level 2.
Investment
securities
: For investment securities, fair values are based on quoted market prices, where available, and are classified
as Level 1. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities
and indications of value provided by brokers and are classified as Level 2.
FHLB
stock
: FHLB stock is not publically traded, as such, it is not practicable to determine the fair value of FHLB stock due to
restrictions placed on its transferability.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
3.
|
FAIR
VALUE MEASUREMENTS
(Continued)
|
Loans
and leases
: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that
reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level
3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality also resulting in a Level 3 classification.
Impaired loans are valued at the lower of cost or fair value. The methods utilized to estimate the fair value of loans do not
necessarily represent an exit price.
Deposits
:
The fair values disclosed for demand deposits (e.g. interest and non-interest checking, savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amount) resulting
in a Level 1 classification. For time deposits, the fair values for fixed rate certificates of deposit are estimated using a discounted
cash flow methodology that applies market interest rates to a schedule of aggregated expected monthly maturities on time deposits
resulting in a Level 2 classification.
Short-term
and long-term borrowings
: The fair value of short-term borrowings is estimated to be the carrying amount and is classified
as Level 1. The fair value of long-term borrowings is estimated using a discounted cash flow analysis using interest rates currently
available for similar debt instruments and are classified as Level 2.
Accrued
interest receivable and payable
: The carrying amount of accrued interest receivable and accrued interest payable approximates
fair value resulting in a Level 2 or 3 classification consistent with the asset or liability with which it is associated.
Off-balance
sheet instruments
: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged
to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit
standing. The fair value of commitments was not material at December 31, 2016 and December 31, 2015. They are excluded from the
following tables.
Assets
and liabilities measured at fair value on a recurring and non-recurring basis are presented in the following table:
(Dollars
in thousands)
December
31, 2016
|
|
Fair
Value
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Gains
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
229,785
|
|
|
$
|
—
|
|
|
$
|
229,785
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate
Debt Securities
|
|
|
1,519
|
|
|
|
—
|
|
|
|
1,519
|
|
|
|
—
|
|
|
|
—
|
|
Obligations
of states and political subdivisions
|
|
|
22,612
|
|
|
|
—
|
|
|
|
22,612
|
|
|
|
—
|
|
|
|
—
|
|
Corporate
stock
|
|
|
104
|
|
|
|
60
|
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
recurring
|
|
$
|
254,020
|
|
|
$
|
60
|
|
|
$
|
253,960
|
|
|
$
|
—
|
|
|
$
|
—
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
3.
|
FAIR
VALUE MEASUREMENTS
(Continued)
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
Fair
Value
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Gains
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,535
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,535
|
|
|
$
|
—
|
|
Residential
|
|
|
334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
334
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
386
|
|
|
|
(25
|
)
|
Land
|
|
|
961
|
|
|
|
—
|
|
|
|
—
|
|
|
|
961
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonrecurring
|
|
$
|
5,216
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,216
|
|
|
$
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
Fair
Value
|
|
|
Quoted
Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Gains
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
246,185
|
|
|
$
|
—
|
|
|
$
|
246,185
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate
Debt Securities
|
|
|
1,551
|
|
|
|
—
|
|
|
|
1,551
|
|
|
|
—
|
|
|
|
—
|
|
Obligations
of states and political subdivisions
|
|
|
26,013
|
|
|
|
—
|
|
|
|
26,013
|
|
|
|
—
|
|
|
|
—
|
|
Corporate
stock
|
|
|
70
|
|
|
|
24
|
|
|
|
46
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
recurring
|
|
$
|
273,819
|
|
|
$
|
24
|
|
|
$
|
273,795
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,900
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,900
|
|
|
$
|
(334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,522
|
|
|
|
—
|
|
Land
|
|
|
1,029
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,029
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonrecurring
|
|
$
|
7,451
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,451
|
|
|
$
|
(334
|
)
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
3.
|
FAIR
VALUE MEASUREMENTS
(Continued)
|
U.S.
Government Agencies and Sponsored Agencies consist predominately of residential mortgage-backed securities. There were no transfers
between Levels 1 and 2 during the years ended December 31, 2016 or December 31, 2015.
The
following methods were used to estimate the fair value of each class of financial instrument above:
Available-for-sale
securities
–
Fair values for investment securities are based on quoted market prices, if available, and are considered
Level 1, or evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information
and are considered Level 2. Pricing applications apply available information, as applicable, through processes such as benchmark
curves, benchmarking to like securities, sector groupings and matrix pricing.
Impaired
loans
– The fair value of collateral dependent impaired loans adjusted for specific allocations of the allowance for
loan losses is generally based on recent real estate appraisals and/or evaluations. These appraisals and/or evaluations may utilize
a single valuation approach or a combination of approaches including comparable sales, cost and the income approach. Adjustments
are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales
and income and other available data. Such adjustments are usually significant and typically result in a Level 3 classification
of the inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring impaired loans is the sales
comparison approach less a reserve for past dues taxes and selling costs ranging from 8% to 10%.
Other
real estate owned
– Certain commercial and residential real estate properties classified as OREO are measured at fair
value, less costs to sell. Fair values are based on recent real estate appraisals and/or evaluations. These appraisals and/or
evaluations may use a single valuation approach or a combination of approaches including comparable sales, cost and the income
approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between
the comparable sales and income and other available data. Such adjustments are usually significant and typically result in a Level
3 classification of the inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring OREO is the
sales comparison approach less selling costs ranging from 8% to 10%.
|
4.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
At
December 31, 2016 and 2015, goodwill totaled $16,321,000. Goodwill is evaluated annually for impairment and was most recently
evaluated in December 2011 under the provisions of the codification Topic 350,
Goodwill and Other Intangibles.
Management
determined that no impairment recognition was required for the years ended December 31, 2016, 2015 and 2014.
At
December 31, 2016 and 2015, the Company did not have other intangible assets.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The
amortized cost and estimated fair value of investment securities at December 31, 2016 and 2015 consisted of the following (dollars
in thousands):
Available-for-Sale
|
|
|
|
|
|
2016
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
229,118
|
|
|
$
|
2,150
|
|
|
$
|
(1,483
|
)
|
|
$
|
229,785
|
|
Obligations
of states and political subdivisions
|
|
|
22,436
|
|
|
|
559
|
|
|
|
(383
|
)
|
|
|
22,612
|
|
Corporate
Debt Securities
|
|
|
1,501
|
|
|
|
18
|
|
|
|
—
|
|
|
|
1,519
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
stock
|
|
|
49
|
|
|
|
55
|
|
|
|
—
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
253,104
|
|
|
$
|
2,782
|
|
|
$
|
(1,866
|
)
|
|
$
|
254,020
|
|
|
|
2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
244,056
|
|
|
$
|
3,059
|
|
|
$
|
(930
|
)
|
|
$
|
246,185
|
|
Obligations
of states and political subdivisions
|
|
|
24,706
|
|
|
|
1,307
|
|
|
|
—
|
|
|
|
26,013
|
|
Corporate
Debt Securities
|
|
|
1,502
|
|
|
|
49
|
|
|
|
—
|
|
|
|
1,551
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
stock
|
|
|
51
|
|
|
|
19
|
|
|
|
—
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
270,315
|
|
|
$
|
4,434
|
|
|
$
|
(930
|
)
|
|
$
|
273,819
|
|
U.S.
Government Agencies and U.S. Government-sponsored Agencies consist predominately of residential mortgage-backed securities. Net
unrealized gains on available-for-sale investment securities totaling $916,000 were recorded, net of $372,000 in tax liabilities,
as accumulated other comprehensive income within shareholders’ equity at December 31, 2016. Proceeds and gross realized
gains from the sale, impairment and call of available-for-sale investment securities for the year ended December 31, 2016 totaled
$14,205,000 and $314,000, respectively. There were no transfers of available-for-sale investment securities during the
year ended December 31, 2016.
Net
unrealized gains on available-for-sale investment securities totaling $3,504,000 were recorded, net of $1,401,000 in tax liabilities,
as accumulated other comprehensive income within shareholders’ equity at December 31, 2015. Proceeds and gross realized
gains from the sale, impairment and call of available-for-sale investment securities for the year ended December 31, 2015 totaled
$23,764,000 and $251,000, respectively. There were no transfers of available-for-sale investment securities during the year ended
December 31, 2015.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
5.
|
INVESTMENT
SECURITIES
(Continued)
|
Proceeds
and gross realized gains from the sale, impairment and call of available-for-sale investment securities for the year ended December
31, 2014 totaled $24,964,000 and $208,000, respectively.
Held-to-Maturity
|
|
|
|
|
|
2016
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
483
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
521
|
|
|
|
2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
623
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
669
|
|
There
were no sales or transfers of held-to-maturity investment securities for the years ended December 31, 2016, 2015 and 2014.
The
amortized cost and estimated fair value of investment securities at December 31, 2016 by contractual maturity are shown below
(dollars in thousands).
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
one year
|
|
$
|
2,077
|
|
|
$
|
2,099
|
|
|
|
|
|
|
|
|
|
After
one year through five years
|
|
|
2,264
|
|
|
|
2,328
|
|
|
|
|
|
|
|
|
|
After
five years through ten years
|
|
|
14,114
|
|
|
|
14,486
|
|
|
|
|
|
|
|
|
|
After
ten years
|
|
|
5,482
|
|
|
|
5,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities not due at a single maturity date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
|
229,118
|
|
|
|
229,785
|
|
|
$
|
483
|
|
|
$
|
521
|
|
Corporate
stock
|
|
|
49
|
|
|
|
104
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
253,104
|
|
|
$
|
254,020
|
|
|
$
|
483
|
|
|
$
|
521
|
|
Expected
maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
5.
|
INVESTMENT
SECURITIES
(Continued)
|
Investment
securities with amortized costs totaling $44,552,000 and $56,836,000 and estimated fair values totaling $44,944,000 and $57,665,000
were pledged to secure State Treasury funds on deposit, public agency and bankruptcy trustee deposits and borrowing arrangements
(see Note 10) at December 31, 2016 and 2015, respectively.
Investment
securities with unrealized losses at December 31, 2016 and 2015 are summarized and classified according to the duration of the
loss period as follows (dollars in thousands):
|
|
2016
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
111,870
|
|
|
$
|
(1,415
|
)
|
|
$
|
5,010
|
|
|
$
|
(68
|
)
|
|
$
|
116,880
|
|
|
$
|
(1,483
|
)
|
Obligations
of states and political subdivisions
|
|
|
8,319
|
|
|
|
(383
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,319
|
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,189
|
|
|
$
|
(1,798
|
)
|
|
$
|
5,010
|
|
|
$
|
(68
|
)
|
|
$
|
125,199
|
|
|
$
|
(1,866
|
)
|
|
|
|
|
|
|
2015
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Agencies
|
|
$
|
93,265
|
|
|
$
|
(813
|
)
|
|
$
|
5,251
|
|
|
$
|
(117
|
)
|
|
$
|
98,516
|
|
|
$
|
(930
|
)
|
Obligations
of states and political subdivisions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,265
|
|
|
$
|
(813
|
)
|
|
$
|
5,251
|
|
|
$
|
(117
|
)
|
|
$
|
98,516
|
|
|
$
|
(930
|
)
|
At
December 31, 2016, the Company held 219 securities of which 70 were in a loss position for less than twelve months and three were
in a loss position for twelve months or more. These three securities were are mortgage-backed securities.
The
unrealized loss on the Company’s investments in securities is primarily driven by interest rates. Because the decline in
market value is attributable to a change in interest rates and not credit quality, and because the Company has the ability and
intent to hold these investments until recovery of fair value, which may be maturity, management does not consider these investments
to be other-than-temporarily impaired.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Outstanding
loans and leases are summarized as follows (dollars in thousands):
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Real
estate – commercial
|
|
$
|
191,129
|
|
|
$
|
199,591
|
|
Real
estate – construction
|
|
|
9,180
|
|
|
|
14,533
|
|
Real
estate – multi-family
|
|
|
73,373
|
|
|
|
23,494
|
|
Real
estate – residential
|
|
|
15,718
|
|
|
|
14,200
|
|
Commercial
|
|
|
35,374
|
|
|
|
36,195
|
|
Lease
financing receivable
|
|
|
404
|
|
|
|
732
|
|
Agriculture
|
|
|
2,302
|
|
|
|
2,431
|
|
Consumer
|
|
|
1,650
|
|
|
|
3,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329,130
|
|
|
|
294,298
|
|
|
|
|
|
|
|
|
|
|
Deferred
loan and lease origination fees, net
|
|
|
(222
|
)
|
|
|
(221
|
)
|
Allowance
for loan and lease losses
|
|
|
(4,822
|
)
|
|
|
(4,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
324,086
|
|
|
$
|
289,102
|
|
Certain
loans are pledged as collateral for available borrowings with the FHLB and the Federal Reserve Bank of San Francisco (the “FRB”).
Pledged loans totaled $190,181,000 and $160,626,000 at December 31, 2016 and 2015, respectively (see Note 10).
The
components of the Company’s lease financing receivable are summarized as follows (dollars in thousands):
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Future
lease payments receivable
|
|
$
|
422
|
|
|
$
|
774
|
|
Residual
interests
|
|
|
—
|
|
|
|
—
|
|
Unearned
income
|
|
|
(18
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
Net
lease financing receivable
|
|
$
|
404
|
|
|
$
|
732
|
|
Future
lease payments receivable are as follows (dollars in thousands):
Year
Ending
December 31,
|
|
|
|
2017
|
|
$
|
211
|
|
2018
|
|
|
178
|
|
2019
|
|
|
33
|
|
2020
|
|
|
—
|
|
2021
|
|
|
—
|
|
|
|
|
|
|
Total
lease payments receivable
|
|
$
|
422
|
|
Salaries
and employee benefits totaling $289,000, $257,000 and $244,000 have been deferred as loan and lease origination costs for the
years ended December 31, 2016, 2015 and 2014, respectively.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
|
The
following tables show the activity in the allowance for loan and lease losses for the years ended December 31, 2016, 2015 and
2014 and the allocation of the allowance for loan and lease losses as of December 31, 2016, 2015 and 2014 by portfolio segment
and by impairment methodology (dollars in thousands):
|
|
December
31, 2016
|
|
|
|
|
|
Real
Estate
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance
for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
860
|
|
|
$
|
2,369
|
|
|
$
|
228
|
|
|
$
|
813
|
|
|
$
|
319
|
|
|
$
|
1
|
|
|
$
|
77
|
|
|
$
|
78
|
|
|
$
|
230
|
|
|
$
|
4,975
|
|
Provision
for loan losses
|
|
|
(665
|
)
|
|
|
(653
|
)
|
|
|
623
|
|
|
|
(474
|
)
|
|
|
(66
|
)
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(144
|
)
|
|
|
48
|
|
|
|
(1,344
|
)
|
Loans charged-off
|
|
|
—
|
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
(127
|
)
|
Recoveries
|
|
|
660
|
|
|
|
427
|
|
|
|
—
|
|
|
|
107
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124
|
|
|
|
—
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance allocated to portfolio segments
|
|
$
|
855
|
|
|
$
|
2,050
|
|
|
$
|
851
|
|
|
$
|
446
|
|
|
$
|
253
|
|
|
$
|
1
|
|
|
$
|
64
|
|
|
$
|
24
|
|
|
$
|
278
|
|
|
$
|
4,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
11
|
|
|
$
|
246
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
844
|
|
|
$
|
1,804
|
|
|
$
|
849
|
|
|
$
|
446
|
|
|
$
|
120
|
|
|
$
|
1
|
|
|
$
|
35
|
|
|
$
|
24
|
|
|
$
|
278
|
|
|
$
|
4,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
35,374
|
|
|
$
|
191,129
|
|
|
$
|
73,373
|
|
|
$
|
9,180
|
|
|
$
|
15,718
|
|
|
$
|
404
|
|
|
$
|
2,302
|
|
|
$
|
1,650
|
|
|
$
|
—
|
|
|
$
|
329,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
157
|
|
|
$
|
14,154
|
|
|
$
|
482
|
|
|
$
|
—
|
|
|
$
|
2,147
|
|
|
$
|
—
|
|
|
$
|
357
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
35,217
|
|
|
$
|
176,975
|
|
|
$
|
72,891
|
|
|
$
|
9,180
|
|
|
$
|
13,571
|
|
|
$
|
404
|
|
|
$
|
1,945
|
|
|
$
|
1,650
|
|
|
$
|
—
|
|
|
$
|
311,833
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
|
|
December
31, 2015
|
|
|
|
|
|
|
Real
Estate
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance
for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,430
|
|
|
$
|
2,317
|
|
|
$
|
130
|
|
|
$
|
583
|
|
|
$
|
399
|
|
|
$
|
2
|
|
|
$
|
62
|
|
|
$
|
124
|
|
|
$
|
254
|
|
|
$
|
5,301
|
|
Provision
for loan losses
|
|
|
(84
|
)
|
|
|
—
|
|
|
|
98
|
|
|
|
230
|
|
|
|
(193
|
)
|
|
|
—
|
|
|
|
15
|
|
|
|
(42
|
)
|
|
|
(24
|
)
|
|
|
—
|
|
Loans charged-off
|
|
|
(609
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(616
|
)
|
Recoveries
|
|
|
123
|
|
|
|
52
|
|
|
|
—
|
|
|
|
—
|
|
|
|
113
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance allocated to portfolio segments
|
|
$
|
860
|
|
|
$
|
2,369
|
|
|
$
|
228
|
|
|
$
|
813
|
|
|
$
|
319
|
|
|
$
|
1
|
|
|
$
|
77
|
|
|
$
|
78
|
|
|
$
|
230
|
|
|
$
|
4,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
25
|
|
|
$
|
598
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
204
|
|
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
835
|
|
|
$
|
1,771
|
|
|
$
|
223
|
|
|
$
|
813
|
|
|
$
|
115
|
|
|
$
|
1
|
|
|
$
|
39
|
|
|
$
|
49
|
|
|
$
|
230
|
|
|
$
|
4,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
36,195
|
|
|
$
|
199,591
|
|
|
$
|
23,494
|
|
|
$
|
14,533
|
|
|
$
|
14,200
|
|
|
$
|
732
|
|
|
$
|
2,431
|
|
|
$
|
3,122
|
|
|
$
|
—
|
|
|
$
|
294,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
121
|
|
|
$
|
17,866
|
|
|
$
|
488
|
|
|
$
|
—
|
|
|
$
|
2,452
|
|
|
$
|
—
|
|
|
$
|
370
|
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
21,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
36,074
|
|
|
$
|
181,725
|
|
|
$
|
23,006
|
|
|
$
|
14,533
|
|
|
$
|
11,748
|
|
|
$
|
732
|
|
|
$
|
2,061
|
|
|
$
|
3,054
|
|
|
$
|
—
|
|
|
$
|
272,933
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
|
|
December
31, 2014
|
|
|
|
|
|
|
Real
Estate
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance
for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
885
|
|
|
$
|
2,401
|
|
|
$
|
242
|
|
|
$
|
542
|
|
|
$
|
825
|
|
|
$
|
4
|
|
|
$
|
80
|
|
|
$
|
161
|
|
|
$
|
206
|
|
|
$
|
5,346
|
|
Provision
for loan losses
|
|
|
289
|
|
|
|
(135
|
)
|
|
|
(205
|
)
|
|
|
39
|
|
|
|
(443
|
)
|
|
|
(5
|
)
|
|
|
(18
|
)
|
|
|
(111
|
)
|
|
|
48
|
|
|
|
(541
|
)
|
Loans charged-off
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
(76
|
)
|
Recoveries
|
|
|
256
|
|
|
|
51
|
|
|
|
93
|
|
|
|
2
|
|
|
|
17
|
|
|
|
3
|
|
|
|
—
|
|
|
|
150
|
|
|
|
—
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance allocated to portfolio segments
|
|
$
|
1,430
|
|
|
$
|
2,317
|
|
|
$
|
130
|
|
|
$
|
583
|
|
|
$
|
399
|
|
|
$
|
2
|
|
|
$
|
62
|
|
|
$
|
124
|
|
|
$
|
254
|
|
|
$
|
5,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
344
|
|
|
$
|
949
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
237
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
1,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
1,086
|
|
|
$
|
1,368
|
|
|
$
|
92
|
|
|
$
|
583
|
|
|
$
|
162
|
|
|
$
|
2
|
|
|
$
|
49
|
|
|
$
|
102
|
|
|
$
|
254
|
|
|
$
|
3,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
25,186
|
|
|
$
|
193,871
|
|
|
$
|
14,167
|
|
|
$
|
8,028
|
|
|
$
|
13,309
|
|
|
$
|
1,286
|
|
|
$
|
2,882
|
|
|
$
|
4,916
|
|
|
$
|
—
|
|
|
$
|
263,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
769
|
|
|
$
|
20,457
|
|
|
$
|
496
|
|
|
$
|
—
|
|
|
$
|
2,862
|
|
|
$
|
—
|
|
|
$
|
381
|
|
|
$
|
155
|
|
|
$
|
—
|
|
|
$
|
25,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
24,417
|
|
|
$
|
173,414
|
|
|
$
|
13,671
|
|
|
$
|
8,028
|
|
|
$
|
10,447
|
|
|
$
|
1,286
|
|
|
$
|
2,501
|
|
|
$
|
4,761
|
|
|
$
|
—
|
|
|
$
|
238,525
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
The
following tables show the loan portfolio allocated by management’s internal risk ratings as of December 31, 2016 and
2015 (dollars in thousands):
|
|
December
31, 2016
|
|
|
|
Credit
Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
Real
Estate
|
|
|
Other
Credit Exposure
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
31,733
|
|
|
$
|
166,769
|
|
|
$
|
68,615
|
|
|
$
|
6,770
|
|
|
$
|
12,773
|
|
|
$
|
404
|
|
|
$
|
1,945
|
|
|
$
|
1,093
|
|
|
$
|
290,102
|
|
Watch
|
|
|
157
|
|
|
|
21,328
|
|
|
|
4,758
|
|
|
|
2,410
|
|
|
|
1,773
|
|
|
|
—
|
|
|
|
357
|
|
|
|
316
|
|
|
|
31,099
|
|
Special
mention
|
|
|
721
|
|
|
|
3,032
|
|
|
|
—
|
|
|
|
—
|
|
|
|
710
|
|
|
|
—
|
|
|
|
—
|
|
|
|
219
|
|
|
|
4,682
|
|
Substandard
|
|
|
2,763
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
462
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
3,247
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,374
|
|
|
$
|
191,129
|
|
|
$
|
73,373
|
|
|
$
|
9,180
|
|
|
$
|
15,718
|
|
|
$
|
404
|
|
|
$
|
2,302
|
|
|
$
|
1,650
|
|
|
$
|
329,130
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
Credit
Risk Profile by Internally Assigned Grade
|
|
|
|
|
|
|
Real
Estate
|
|
|
Other
Credit Exposure
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
32,216
|
|
|
$
|
172,755
|
|
|
$
|
23,001
|
|
|
$
|
6,371
|
|
|
$
|
10,593
|
|
|
$
|
732
|
|
|
$
|
2,061
|
|
|
$
|
2,136
|
|
|
$
|
249,865
|
|
Watch
|
|
|
1,073
|
|
|
|
17,318
|
|
|
|
493
|
|
|
|
8,162
|
|
|
|
2,099
|
|
|
|
—
|
|
|
|
370
|
|
|
|
378
|
|
|
|
29,893
|
|
Special
mention
|
|
|
—
|
|
|
|
8,363
|
|
|
|
—
|
|
|
|
—
|
|
|
|
697
|
|
|
|
—
|
|
|
|
—
|
|
|
|
433
|
|
|
|
9,493
|
|
Substandard
|
|
|
2,906
|
|
|
|
1,155
|
|
|
|
—
|
|
|
|
—
|
|
|
|
811
|
|
|
|
—
|
|
|
|
—
|
|
|
|
175
|
|
|
|
5,047
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,195
|
|
|
$
|
199,591
|
|
|
$
|
23,494
|
|
|
$
|
14,533
|
|
|
$
|
14,200
|
|
|
$
|
732
|
|
|
$
|
2,431
|
|
|
$
|
3,122
|
|
|
$
|
294,298
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
The
following tables show an aging analysis of the loan portfolio at December 31, 2016 and 2015 (dollars in thousands):
|
|
December
31, 2016
|
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
Past
Due
Greater
Than
90 Days
|
|
|
Total
Past
Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Past
Due
Greater Than
90 Days and
Accruing
|
|
|
Nonaccrual
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
35,374
|
|
|
$
|
35,374
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
191,129
|
|
|
|
191,129
|
|
|
|
—
|
|
|
|
—
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,373
|
|
|
|
73,373
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,181
|
|
|
|
9,181
|
|
|
|
—
|
|
|
|
—
|
|
Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,719
|
|
|
|
15,719
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
404
|
|
|
|
404
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,302
|
|
|
|
2,302
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,650
|
|
|
|
1,650
|
|
|
|
—
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
329,130
|
|
|
$
|
329,130
|
|
|
$
|
—
|
|
|
$
|
19
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
|
|
December
31, 2015
|
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
Past
Due
Greater
Than
90 Days
|
|
|
Total
Past
Due
|
|
|
Current
|
|
|
Total
Loans
|
|
|
Past
Due
Greater Than
90 Days and
Accruing
|
|
|
Nonaccrual
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
30
|
|
|
$
|
36,165
|
|
|
$
|
36,195
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
359
|
|
|
|
499
|
|
|
|
858
|
|
|
|
198,733
|
|
|
|
199,591
|
|
|
|
—
|
|
|
|
1,155
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,494
|
|
|
|
23,494
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,533
|
|
|
|
14,533
|
|
|
|
—
|
|
|
|
—
|
|
Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
338
|
|
|
|
338
|
|
|
|
13,862
|
|
|
|
14,200
|
|
|
|
—
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
732
|
|
|
|
732
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,431
|
|
|
|
2,431
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
367
|
|
|
|
—
|
|
|
|
—
|
|
|
|
367
|
|
|
|
2,755
|
|
|
|
3,122
|
|
|
|
—
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
367
|
|
|
$
|
359
|
|
|
$
|
867
|
|
|
$
|
1,593
|
|
|
$
|
292,705
|
|
|
$
|
294,298
|
|
|
$
|
—
|
|
|
$
|
1,643
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
The
following tables show information related to impaired loans as of and for the years ended December 31, 2016, 2015 and 2014
(dollars in thousands):
|
|
December
31, 2016
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
10,910
|
|
|
|
11,540
|
|
|
|
—
|
|
|
|
11,011
|
|
|
|
558
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Residential
|
|
|
334
|
|
|
|
421
|
|
|
|
—
|
|
|
|
337
|
|
|
|
15
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,244
|
|
|
$
|
11,961
|
|
|
$
|
—
|
|
|
$
|
11,348
|
|
|
$
|
577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
157
|
|
|
$
|
157
|
|
|
$
|
11
|
|
|
$
|
161
|
|
|
$
|
11
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
3,244
|
|
|
|
3,336
|
|
|
|
246
|
|
|
|
3,308
|
|
|
|
168
|
|
Multi-family
|
|
|
482
|
|
|
|
482
|
|
|
|
2
|
|
|
|
485
|
|
|
|
33
|
|
Residential
|
|
|
1,813
|
|
|
|
1,813
|
|
|
|
133
|
|
|
|
1,837
|
|
|
|
87
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
357
|
|
|
|
357
|
|
|
|
29
|
|
|
|
364
|
|
|
|
21
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,053
|
|
|
$
|
6,145
|
|
|
$
|
421
|
|
|
$
|
6,155
|
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
157
|
|
|
$
|
157
|
|
|
$
|
11
|
|
|
$
|
161
|
|
|
$
|
11
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
14,154
|
|
|
|
14,876
|
|
|
|
246
|
|
|
|
14,319
|
|
|
|
726
|
|
Multi-family
|
|
|
482
|
|
|
|
482
|
|
|
|
2
|
|
|
|
485
|
|
|
|
34
|
|
Residential
|
|
|
2,147
|
|
|
|
2,234
|
|
|
|
133
|
|
|
|
2,174
|
|
|
|
102
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
357
|
|
|
|
357
|
|
|
|
29
|
|
|
|
364
|
|
|
|
21
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,297
|
|
|
$
|
18,106
|
|
|
$
|
421
|
|
|
$
|
17,503
|
|
|
$
|
897
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
|
|
December
31, 2015
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
12,269
|
|
|
|
12,902
|
|
|
|
—
|
|
|
|
12,345
|
|
|
|
595
|
|
Residential
|
|
|
338
|
|
|
|
338
|
|
|
|
—
|
|
|
|
338
|
|
|
|
—
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,607
|
|
|
$
|
13,240
|
|
|
$
|
—
|
|
|
$
|
12,683
|
|
|
$
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
121
|
|
|
$
|
121
|
|
|
$
|
25
|
|
|
$
|
99
|
|
|
$
|
9
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
5,597
|
|
|
|
5,693
|
|
|
|
598
|
|
|
|
4,953
|
|
|
|
320
|
|
Multi-family
|
|
|
488
|
|
|
|
488
|
|
|
|
5
|
|
|
|
492
|
|
|
|
29
|
|
Residential
|
|
|
2,114
|
|
|
|
2,201
|
|
|
|
204
|
|
|
|
2,140
|
|
|
|
91
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
370
|
|
|
|
370
|
|
|
|
38
|
|
|
|
375
|
|
|
|
18
|
|
Consumer
|
|
|
68
|
|
|
|
68
|
|
|
|
29
|
|
|
|
76
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,758
|
|
|
$
|
8,941
|
|
|
$
|
899
|
|
|
$
|
8,135
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
121
|
|
|
$
|
121
|
|
|
$
|
25
|
|
|
$
|
99
|
|
|
$
|
9
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
17,866
|
|
|
|
18,595
|
|
|
|
598
|
|
|
|
17,298
|
|
|
|
915
|
|
Multi-family
|
|
|
488
|
|
|
|
488
|
|
|
|
5
|
|
|
|
492
|
|
|
|
29
|
|
Residential
|
|
|
2,452
|
|
|
|
2,539
|
|
|
|
204
|
|
|
|
2,478
|
|
|
|
91
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
370
|
|
|
|
370
|
|
|
|
38
|
|
|
|
375
|
|
|
|
18
|
|
Consumer
|
|
|
68
|
|
|
|
68
|
|
|
|
29
|
|
|
|
76
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,365
|
|
|
$
|
22,181
|
|
|
$
|
899
|
|
|
$
|
20,818
|
|
|
$
|
1,062
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
|
|
December
31, 2014
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
10,684
|
|
|
|
10,882
|
|
|
|
—
|
|
|
|
10,512
|
|
|
|
518
|
|
Residential
|
|
|
338
|
|
|
|
338
|
|
|
|
—
|
|
|
|
340
|
|
|
|
7
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
37
|
|
|
|
37
|
|
|
|
—
|
|
|
|
37
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,059
|
|
|
$
|
11,257
|
|
|
$
|
—
|
|
|
$
|
10,889
|
|
|
$
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
769
|
|
|
$
|
769
|
|
|
$
|
344
|
|
|
$
|
758
|
|
|
$
|
4
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
9,773
|
|
|
|
9,773
|
|
|
|
949
|
|
|
|
8,917
|
|
|
|
562
|
|
Multi-family
|
|
|
496
|
|
|
|
496
|
|
|
|
38
|
|
|
|
501
|
|
|
|
20
|
|
Residential
|
|
|
2,524
|
|
|
|
2,524
|
|
|
|
237
|
|
|
|
2,553
|
|
|
|
114
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
381
|
|
|
|
381
|
|
|
|
13
|
|
|
|
386
|
|
|
|
21
|
|
Consumer
|
|
|
118
|
|
|
|
118
|
|
|
|
22
|
|
|
|
123
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,061
|
|
|
$
|
14,061
|
|
|
$
|
1,603
|
|
|
$
|
13,238
|
|
|
$
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
769
|
|
|
$
|
769
|
|
|
$
|
344
|
|
|
$
|
758
|
|
|
$
|
7
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
20,457
|
|
|
|
20,655
|
|
|
|
949
|
|
|
|
19,429
|
|
|
|
1,080
|
|
Multi-family
|
|
|
496
|
|
|
|
496
|
|
|
|
38
|
|
|
|
501
|
|
|
|
20
|
|
Residential
|
|
|
2,862
|
|
|
|
2,862
|
|
|
|
237
|
|
|
|
2,893
|
|
|
|
121
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
381
|
|
|
|
381
|
|
|
|
13
|
|
|
|
386
|
|
|
|
21
|
|
Consumer
|
|
|
155
|
|
|
|
155
|
|
|
|
22
|
|
|
|
160
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,120
|
|
|
$
|
25,318
|
|
|
$
|
1,603
|
|
|
$
|
24,127
|
|
|
$
|
1,253
|
|
The
recorded investment in loans and leases that were considered to be impaired totaled $17,297,000 at December 31, 2016 and had a
related valuation allowance of $421,000. The average recorded investment in impaired loans and leases during 2016 was approximately
$17,503,000.
The
recorded investment in loans and leases that were considered to be impaired totaled $21,365,000 at December 31, 2015 and had a
related valuation allowance of $899,000. The average recorded investment in impaired loans and leases during 2015 was approximately
$20,818,000.
Non-accrual
loans and leases totaled approximately $19,000 and $1,643,000 at December 31, 2016 and 2015, respectively. There were no loans
and leases past due 90 days or more and still accruing interest at December 31, 2016 and December 31, 2015. Interest income on
non-accrual loans is generally recognized on a cash basis and was approximately $115,000, $59,000 and $84,000 for the years ended
December 31, 2016, 2015 and 2014.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
7.
|
ALLOWANCE
FOR LOAN AND LEASE LOSSES
(Continued)
|
Troubled
Debt Restructurings
There
were no modifications considered as troubled debt restructurings made during the period ended December 31, 2016. During the period
ended December 31, 2015, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms
of such loans included one or a combination of the following: a reduction of the stated interest rate or an extension of the maturity
date.
Modifications
involving a reduction of the stated interest rate of the loan were for periods ranging from three years to nine years. Modifications
involving an extension of the maturity date were for periods ranging from six months to nine years.
The
Company has not committed to lend additional amounts as of December 31, 2016 to borrowers with outstanding loans that are classified
as troubled debt restructurings.
There
were no payment defaults on troubled debt restructurings within 12 months following the modification during the year ended December
31, 2016.
A
loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
The
following table presents loans by class modified as troubled debt restructurings during the year ended December 31, 2015 (dollars
in thousands):
|
|
Number
of Loans
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
|
|
|
|
|
|
|
|
Troubled
debt restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1
|
|
|
$
|
26
|
|
|
$
|
26
|
|
Consumer
|
|
|
1
|
|
|
|
23
|
|
|
|
23
|
|
Real
estate – residential
|
|
|
2
|
|
|
|
407
|
|
|
|
407
|
|
Real
estate – commercial
|
|
|
1
|
|
|
|
644
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
$
|
1,100
|
|
|
$
|
1,100
|
|
The
troubled debt restructurings described above increased the allowance for loan and lease losses by $59,000 and resulted in no charge-offs
of during the year ended December 31, 2015.
The
Company has not committed to lend additional amounts as of December 31, 2015 to borrowers with outstanding loans that are classified
as troubled debt restructurings.
There
were no payment defaults on troubled debt restructurings within 12 months following the modification during the year ended December
31, 2015.
In
order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that
the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation
is performed under the Company’s internal underwriting policy.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
8.
|
PREMISES
AND EQUIPMENT
|
Premises
and equipment consisted of the following (dollars in thousands):
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
206
|
|
|
$
|
206
|
|
Building
and improvements
|
|
|
830
|
|
|
|
845
|
|
Furniture,
fixtures and equipment
|
|
|
5,973
|
|
|
|
5,831
|
|
Leasehold
improvements
|
|
|
1,688
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,697
|
|
|
|
8,447
|
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(7,335
|
)
|
|
|
(7,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,362
|
|
|
$
|
1,407
|
|
Depreciation
and amortization included in occupancy and furniture and equipment expense totaled $420,000, $430,000 and $438,000 for the years
ended December 31, 2016, 2015 and 2014, respectively.
|
9.
|
INTEREST-BEARING
DEPOSITS
|
Interest-bearing
deposits consisted of the following (dollars in thousands):
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
64,740
|
|
|
$
|
59,061
|
|
Money
market
|
|
|
131,342
|
|
|
|
135,186
|
|
NOW
accounts
|
|
|
64,652
|
|
|
|
61,324
|
|
Time,
$250,000 or more
|
|
|
45,836
|
|
|
|
46,827
|
|
Other
time
|
|
|
37,123
|
|
|
|
37,744
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
343,693
|
|
|
$
|
340,142
|
|
The
Company held $29,000,000 in certificates of deposit for the State of California as of December 31, 2016 and 2015. This amount
represents 5.3% of total deposit balances at December 31, 2016 and 5.5% at December 31, 2015.
Aggregate
annual maturities of time deposits are as follows (dollars in thousands):
Year
Ending
December 31,
|
|
|
|
|
|
|
|
2017
|
|
$
|
57,194
|
|
2018
|
|
|
8,854
|
|
2019
|
|
|
5,278
|
|
2020
|
|
|
3,163
|
|
2021
|
|
|
8,470
|
|
Thereafter
|
|
|
—
|
|
|
|
|
|
|
|
|
$
|
82,959
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
9.
|
INTEREST-BEARING
DEPOSITS
(Continued)
|
Interest
expense recognized on interest-bearing deposits consisted of the following (dollars in thousands):
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
19
|
|
|
$
|
29
|
|
|
$
|
40
|
|
Money
market
|
|
|
128
|
|
|
|
218
|
|
|
|
383
|
|
NOW
accounts
|
|
|
18
|
|
|
|
26
|
|
|
|
36
|
|
Time
Deposits
|
|
|
565
|
|
|
|
544
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
730
|
|
|
$
|
817
|
|
|
$
|
1,021
|
|
|
10.
|
BORROWING
ARRANGEMENTS
|
The
Company has $17,000,000 in unsecured short-term borrowing arrangements to purchase Federal funds with two of its correspondent
banks. There were no advances under the borrowing arrangements as of December 31, 2016 and 2015.
In
addition, the Company has a line of credit available with the FHLB which is secured by pledged mortgage loans (see Note 6) and
investment securities (see Note 5). Borrowings may include overnight advances as well as loans with a term of up to thirty years.
Advances totaling $15,500,000 were outstanding from the FHLB at December 31, 2016, bearing fixed interest rates ranging from 1.01%
to 1.52% and maturing between May 22, 2017 and July 13, 2020. Advances totaling $11,000,000 were outstanding from the FHLB at
December 31, 2015, bearing fixed interest rates ranging from 0.45% to 1.91% and maturing between January 19, 2016 and July 12,
2019. Amounts available under the borrowing arrangement with the FHLB at December 31, 2016 and 2015 totaled $100,187,000
and $78,326,000, respectively.
In
addition, the Company entered into a secured borrowing agreement with the FRB in 2008. The borrowing arrangement is secured by
pledging selected loans (see Note 6) and investment securities (see Note 5). There were no advances outstanding as of December
31, 2016 and 2015. Amounts available under the borrowing arrangement with the FRB at December 31, 2016 and 2015 totaled $11,068,000
and $11,371,000, respectively.
The
following table summarizes these borrowings (dollars in thousands):
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
portion of borrowings
|
|
$
|
3,500
|
|
|
|
1.01
|
%
|
|
$
|
3,500
|
|
|
|
1.28
|
%
|
Long-term
borrowings
|
|
|
12,000
|
|
|
|
1.32
|
%
|
|
|
7,500
|
|
|
|
1.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,500
|
|
|
|
1.25
|
%
|
|
$
|
11,000
|
|
|
|
1.26
|
%
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
10.
|
BORROWING
ARRANGEMENTS
(Continued)
|
Maturities
on these borrowings are as follows (dollars in thousands):
Year
Ending
December 31,
|
|
|
|
|
|
|
|
2017
|
|
$
|
3,500
|
|
2018
|
|
|
2,000
|
|
2019
|
|
|
5,000
|
|
2020
|
|
|
5,000
|
|
2021
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
|
|
|
|
|
|
|
$
|
15,500
|
|
The
provision for (benefit from) income taxes for the years ended December 31, 2016, 2015, and 2014 consisted of the following (dollars
in thousands):
|
|
Federal
|
|
|
State
|
|
|
Total
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
2,701
|
|
|
$
|
974
|
|
|
$
|
3,675
|
|
Deferred
|
|
|
(308
|
)
|
|
|
25
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
2,393
|
|
|
$
|
999
|
|
|
$
|
3,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,482
|
|
|
$
|
719
|
|
|
$
|
2,201
|
|
Deferred
|
|
|
409
|
|
|
|
64
|
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
1,891
|
|
|
$
|
783
|
|
|
$
|
2,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,754
|
|
|
$
|
612
|
|
|
$
|
2,366
|
|
Deferred
|
|
|
(99
|
)
|
|
|
25
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$
|
1,655
|
|
|
$
|
637
|
|
|
$
|
2,292
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
11.
|
INCOME
TAXES
(Continued)
|
Deferred
tax assets (liabilities) consisted of the following (dollars in thousands):
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Allowance
for loan and lease losses
|
|
$
|
2,207
|
|
|
$
|
2,275
|
|
Other
real estate owned
|
|
|
—
|
|
|
|
30
|
|
Deferred
compensation
|
|
|
2,688
|
|
|
|
2,519
|
|
Future
state tax deduction
|
|
|
347
|
|
|
|
241
|
|
Other
|
|
|
197
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
5,439
|
|
|
|
5,317
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized
gains on available-for-sale investment securities
|
|
|
(372
|
)
|
|
|
(1,401
|
)
|
Future
liability of state deferred tax assets
|
|
|
(392
|
)
|
|
|
(401
|
)
|
Deferred
loan costs
|
|
|
(229
|
)
|
|
|
(223
|
)
|
Federal
Home Loan Bank stock dividends
|
|
|
(211
|
)
|
|
|
(211
|
)
|
Other
real estate owned
|
|
|
(77
|
)
|
|
|
—
|
|
Premises
and equipment
|
|
|
(38
|
)
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
Total
deferred tax liabilities
|
|
|
(1,319
|
)
|
|
|
(2,509
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
4,120
|
|
|
$
|
2,808
|
|
The
Company and its subsidiaries file income tax returns in the United States and California jurisdictions. There are currently no
pending federal, state or local income tax examinations by tax. Furthermore, with few exceptions, the Company is no longer subject
to the examination by federal taxing authorities for the years ended before December 31, 2013 and by state and local taxing authorities
for years before December 31, 2012. The unrecognized tax benefits and changes therein and the interest and penalties accrued
by the Company as of December 31, 2016 were not significant.
The
provision for income taxes differs from amounts computed by applying the statutory Federal income tax rate of 34% in 2016, 2015
and 2014 to income before income taxes. The significant items comprising these differences consisted of the following:
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Federal
income tax statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State
franchise tax, net of Federal tax effect
|
|
|
7.1
|
%
|
|
|
6.5
|
%
|
|
|
6.3
|
%
|
Tax
benefit of interest on loans to/investments in states and political subdivisions
|
|
|
(4.7
|
)%
|
|
|
(4.5
|
)%
|
|
|
(4.0
|
)%
|
Tax-exempt
income from life insurance policies
|
|
|
(1.1
|
)%
|
|
|
(1.3
|
)%
|
|
|
(1.9
|
)%
|
Equity
compensation expense
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Other
|
|
|
(0.8
|
)%
|
|
|
(1.1
|
)%
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
34.6
|
%
|
|
|
33.7
|
%
|
|
|
34.5
|
%
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
12.
|
COMMITMENTS
AND CONTINGENCIES
|
Leases
The
Company leases branch facilities, administrative offices and various equipment under noncancelable operating leases which expire
on various dates through the year 2024. Certain of the leases have five year renewal options. One of the branch facilities is
leased from a current member of the Company’s Board of Directors (see Note 17).
Future
minimum lease payments are as follows (dollars in thousands):
Year
Ending
December 31,
|
|
|
|
|
|
|
|
2017
|
|
$
|
715
|
|
2018
|
|
|
691
|
|
2019
|
|
|
583
|
|
2020
|
|
|
515
|
|
2021
|
|
|
481
|
|
Thereafter
|
|
|
978
|
|
|
|
|
|
|
|
|
$
|
3,963
|
|
Rental
expense included in occupancy, furniture and equipment expense totaled $858,000, $837,000 and $872,000 for the years ended December
31, 2016, 2015 and 2014, respectively.
Financial
Instruments With Off-Balance-Sheet Risk
The
Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the
financing needs of its customers and to reduce its exposure to fluctuations in interest rates. These financial instruments consist
of commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized on the consolidated balance sheet.
The
Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies
in making commitments and standby letters of credit as it does for loans included on the consolidated balance sheet.
The
following financial instruments represent off-balance-sheet credit risk (dollars in thousands):
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Commitments
to extend credit:
|
|
|
|
|
|
|
|
|
Revolving
lines of credit secured by 1-4 family residences
|
|
$
|
251
|
|
|
$
|
727
|
|
Commercial
real estate, construction and land development commitments secured by real estate
|
|
|
10,027
|
|
|
|
13,999
|
|
Other
unused commitments, principally commercial loans
|
|
|
9,450
|
|
|
|
12,004
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,728
|
|
|
$
|
26,730
|
|
|
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
$
|
238
|
|
|
$
|
238
|
|
At
inception, real estate commitments are generally secured by property with a loan to value ratio of 55% to 75%. In addition, the
majority of the Company’s commitments have variable rates.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
12.
|
COMMITMENTS
AND CONTINGENCIES
(Continued)
|
Financial
Instruments With Off-Balance-Sheet Risk
(Continued)
Commitments
to extend credit are agreements to lend to a client as long as there is no violation of any conditions established in the contract.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of
the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained,
if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held
varies but may include accounts receivable, inventory, equipment and deeds of trust on real estate and income-producing commercial
properties.
Standby
letters of credit are conditional commitments issued to guarantee the performance or financial obligation of a client to a third
party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to clients.
Significant
Concentrations of Credit Risk
The
Company grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to clients throughout
Northern California.
In
management’s judgment, a concentration exists in real estate-related loans which represented approximately 88% and 86% of
the Company’s loan portfolio at December 31, 2016 and 2015, respectively. A continued substantial decline in the economy
in general, or a continued decline in real estate values in the Company’s primary market areas in particular, could have
an adverse impact on collectability of these loans. However, personal and business income represents the primary source of repayment
for a majority of these loans.
Correspondent
Banking Agreements
The
Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements.
The Company had $6,237,000 in uninsured deposits at December 31, 2016. The Company had $4,126,000 in uninsured deposits at December
31, 2015.
Contingencies
The
Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management,
the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or
results of operations of the Company.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Earnings
Per Share
A
reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows (dollars
and shares in thousands, except per share data):
For
the Year Ended
|
|
Net
Income
|
|
|
Weighted
Average
Number of
Shares
Outstanding
|
|
|
Per-Share
Amount
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
6,404
|
|
|
|
6,747
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive stock-based compensation
|
|
|
—
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
6,404
|
|
|
|
6,783
|
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
5,268
|
|
|
|
7,561
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive stock-based compensation
|
|
|
—
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
5,268
|
|
|
|
7,579
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
4,361
|
|
|
|
8,130
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive stock-based compensation
|
|
|
—
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
4,361
|
|
|
|
8,144
|
|
|
$
|
0.54
|
|
Stock
options for 98,783 shares, 188,735 shares and 211,024 shares of common stock were not considered in computing diluted earnings
per common share for the years ended December 31, 2016, 2015 and 2014, respectively, because they were antidilutive.
Stock
Based Compensation
In
2000, the Board of Directors adopted and the Company’s shareholders approved a stock option plan (the “2000 Plan”),
under which 109,562 options remain outstanding at December 31, 2016. On March 17, 2010, the Board of Directors adopted the 2010
Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was approved by the Company’s shareholders on May 20,
2010. The total number of authorized shares that are available for issuance under the 2010 Plan is 1,376,819. The 2010 Plan provides
for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights;
restricted stock; restricted performance stock; unrestricted Company stock; and performance units. Awards granted under the 2000
Plan were either incentive stock options or nonqualified stock options. The 2010 Plan and the 2000 Plan (collectively the “Plans”),
under which equity incentives may be granted to employees and directors under incentive and nonstatutory agreements, require that
the option price may not be less than the fair value of the stock at the date the option is granted. The option awards under the
Plans expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period
is generally five years; however, the vesting period can be modified at the discretion of the
Company’s Board of Directors. Outstanding option awards under the Plans are exercisable until their expiration; however,
no new options will be awarded under the 2000 Plan. The Plans do not provide for the settlement of awards in cash and new shares
are issued upon exercise of an option.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
13.
|
SHAREHOLDERS’
EQUITY
(Continued)
|
Stock
Based Compensation
(Continued)
A
summary of the outstanding and nonvested stock option activity for the year ended December 31, 2016 is as follows:
|
|
Outstanding
|
|
|
Nonvested
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
Per Share
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2016
|
|
|
248,411
|
|
|
$
|
15.19
|
|
|
|
59,528
|
|
|
$
|
2.78
|
|
Options
granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Options
vested
|
|
|
—
|
|
|
$
|
—
|
|
|
|
(15,285
|
)
|
|
$
|
2.69
|
|
Options
exercised
|
|
|
(1,500
|
)
|
|
$
|
8.50
|
|
|
|
—
|
|
|
$
|
—
|
|
Options
expired or canceled
|
|
|
(60,888
|
)
|
|
$
|
22.29
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
|
|
186,023
|
|
|
$
|
12.92
|
|
|
|
44,243
|
|
|
$
|
2.81
|
|
A
summary of options as of December 31, 2016 is as follows:
Nonvested:
|
|
|
|
|
Weighted
average exercise price of nonvested stock options
|
|
$
|
9.05
|
|
Aggregate
intrinsic value of nonvested stock options
|
|
$
|
268,085
|
|
Weighted
average remaining contractual term in years of nonvested stock options
|
|
|
7.71
|
|
|
|
|
|
|
Vested:
|
|
|
|
|
Number
of vested stock options
|
|
|
141,780
|
|
Number
of options expected to vest
|
|
|
44,243
|
|
Weighted
average exercise price per share
|
|
$
|
14.12
|
|
Aggregate
intrinsic value
|
|
$
|
472,875
|
|
Weighted
average remaining contractual term in years
|
|
|
2.41
|
|
Range
of Exercise Prices
|
|
Number
of
Options
Outstanding
December 31,
2016
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Number
of
Options
Exercisable
December
31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
$7.07-
$11.66
|
|
|
113,667
|
|
|
|
5.60
years
|
|
|
|
69,430
|
|
$11.67-
$18.10
|
|
|
36,808
|
|
|
|
1.15
years
|
|
|
|
36,802
|
|
$18.11
- $24.07
|
|
|
35,548
|
|
|
|
0.14
years
|
|
|
|
35,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,023
|
|
|
|
|
|
|
|
141,780
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
13.
|
SHAREHOLDERS’
EQUITY
(Continued)
|
Restricted
Stock
There
were 34,888 shares of restricted stock awarded during 2016. Of the 34,888 restricted common shares, 10,094 will vest one year
from the date of the award and 1,829 will vest 20% per year from the date of the award. The remaining 22,965 are considered performance
based awards. The awards can be earned based upon the stock performance of the Company’s common stock in relationship to
the common stock of the Company’s peer group. The number of shares can be adjusted by up to 150% of the award if outstanding
performance is reached or can be forfeited if minimum performance is not reached. Of the 22,965 performance based awards issued
in 2016, 5,312 were additional awards based on performance of the Company’s common stock and related to the awards initially
awarded in 2015 for the 2015-2016 performance period. The additional shares were earned as the target was exceeded and the employees
received 125% of the initial award. The remaining 17,833 awards are related to the 2016-2017 performance period and vest one year
and a day after the two year performance period or January 1, 2019. The weighted average contractual term over which the restricted
stock will vest is 1.50 years. There were 45,023 shares of restricted stock awarded during 2015. Of the 45,023 restricted common
shares, 12,552 will vest one year from the date of the award and 11,939 will vest 20% per year from the date of the award. The
remaining 20,532 are considered performance based awards. The awards can be earned based upon the stock performance of the Company’s
common stock in relationship to the common stock of the Company’s peer group. The number of shares can be adjusted by up
to 150% of the award if outstanding performance is reached or can be forfeited if minimum performance is not reached. The awards
vest one year and a day after the two year performance period or January 1, 2018. The weighted average contractual term over which
the restricted stock will vest is 1.64 years.
Restricted
Stock
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2016
|
|
|
57,516
|
|
|
$
|
9.21
|
|
|
|
|
|
|
|
|
|
|
Awarded
|
|
|
34,888
|
|
|
$
|
10.14
|
|
Vested
|
|
|
(19,166
|
)
|
|
$
|
9.10
|
|
Cancelled
|
|
|
(1,414
|
)
|
|
$
|
9.32
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at December 31, 2016
|
|
|
71,824
|
|
|
$
|
9.69
|
|
The
shares awarded to employees and directors under the restricted stock agreements vest on applicable vesting dates only to the extent
the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will
forfeit all of the shares that have not vested on the date his or her employment or service is terminated. New shares are issued
upon vesting of the restricted common stock.
Dividends
Upon
declaration by the Board of Directors of the Company, all shareholders of record will be entitled to receive dividends. There
is no assurance, however, that any dividends will be paid in the future since they are subject to regulatory restrictions, and
dependent upon earnings, financial condition and capital requirements of the Company and its subsidiaries. There were no cash
dividends declared or paid in 2016, 2015 or 2014.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
14.
|
REGULATORY
MATTERS
(Continued)
|
Dividends
(Continued)
As
a California corporation, the Company’s ability to pay cash dividends is subject to restrictions set forth in the California
General Corporation Law (the “Corporation Law”). The Corporation Law provides that neither a corporation nor any of
its subsidiaries shall make a distribution to the corporation’s shareholders unless the board of directors has determined
in good faith either of the following: (1) the amount of retained earnings of the corporation immediately prior to the distribution
equals or exceeds the sum of (A) the amount of the proposed distribution plus (B) the preferential dividends arrears amount; or
(2) immediately after the distribution, the value of the corporation’s assets would equal or exceed the sum of its total
liabilities plus the preferential rights amount. The good faith determination of the board of directors may be based upon (1)
financial statements prepared on the basis of reasonable accounting practices and principles, (2) a fair valuation, or (3) any
other method reasonable under the circumstances; provided, that a distribution may not be made if the corporation or subsidiary
making the distribution is, or is likely to be, unable to meet its liabilities (except those whose payment is otherwise adequately
provided for) as they mature. The term “preferential dividends arrears amount” means the amount, if any, of cumulative
dividends in arrears on all shares having a preference with respect to payment of dividends over the class or series to which
the applicable distribution is being made, provided that if the articles of incorporation provide that a distribution can be made
without regard to preferential dividends arrears amount, then the preferential dividends arrears amount shall be zero. The term
“preferential rights amount” means the amount that would be needed if the corporation were to be dissolved at the
time of the distribution to satisfy the preferential rights, including accrued but unpaid dividends, of other shareholders upon
dissolution that are superior to the rights of the shareholders receiving the distribution, provided that if the articles of incorporation
provide that a distribution can be made without regard to any preferential rights, then the preferential rights amount shall be
zero.
In
addition, the California Financial Code restricts the total dividend payment of any state banking corporation in any calendar
year to the lesser of (1) the bank’s retained earnings or (2) the bank’s net income for its last three fiscal years,
less distributions made to shareholders during the same three-year period. In addition, subject to prior regulatory approval,
any state banking corporation may request an exception to this restriction.
Regulatory
Capital
The
Company and ARB are subject to certain regulatory capital requirements administered by the Board of Governors of the Federal Reserve
System and the FDIC. Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated
financial statements.
Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, banks must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company’s and American River Bank’s capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings and other factors. As of December 31, 2016 and 2015,
the most recent regulatory notification categorized American River Bank as well capitalized under the regulatory framework for
prompt corrective action plan. There are no conditions or events since that notification that management believes have changed
the Bank’s categories.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
14.
|
REGULATORY
MATTERS
(Continued)
|
Regulatory
Capital
(Continued)
Effective
January 1, 2015, bank holding companies with consolidated assets of $1 Billion or more and banks like American River Bank must
comply with new minimum capital ratio requirements to be phased-in between January 1, 2015 and January 1, 2019, which would consist
of the following: (i) a new common equity Tier 1 capital to total risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital to
total risk weighted assets ratio of 6% (increased from 4%); (iii) a total capital to total risk weighted assets ratio of 8% (unchanged
from current rules); and (iv) a Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%.
In
addition, a “capital conservation buffer,” is established which when fully phased-in will require maintenance of a
minimum of 2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum capital ratio
requirements described above. The 2.5% buffer will increase the minimum capital ratios to (i) a common equity Tier 1 capital ratio
of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new buffer requirement will be phased-in
between January 1, 2016 and January 1, 2019. If the capital ratio levels of a banking organization fall below the capital conservation
buffer amount, the organization will be subject to limitations on (i) the payment of dividends; (ii) discretionary bonus payments;
(iii) discretionary payments under Tier 1 instruments; and (iv) engaging in share repurchases.
To
be categorized as well capitalized, ARB must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table below.
Management
believes that the Company and ARB met all their capital adequacy requirements as of December 31, 2016 and 2015.
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars
in thousands)
|
|
Leverage
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bankshares and Subsidiaries
|
|
$
|
66,985
|
|
|
|
10.5
|
%
|
|
$
|
67,651
|
|
|
|
11.0
|
%
|
Minimum
regulatory requirement
*
|
|
$
|
25,513
|
|
|
|
4.6
|
%
|
|
$
|
24,673
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bank
|
|
$
|
67,369
|
|
|
|
10.6
|
%
|
|
$
|
68,079
|
|
|
|
11.0
|
%
|
Minimum
requirement for “Well-Capitalized” institution
|
|
$
|
31,874
|
|
|
|
5.0
|
%
|
|
$
|
30,826
|
|
|
|
5.0
|
%
|
Minimum
regulatory requirement
*
|
|
$
|
25,499
|
|
|
|
4.6
|
%
|
|
$
|
24,661
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Equity Tier 1 Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bank
|
|
$
|
67,369
|
|
|
|
18.9
|
%
|
|
$
|
68,079
|
|
|
|
19.1
|
%
|
Minimum
requirement for “Well-Capitalized” institution
|
|
$
|
23,132
|
|
|
|
6.5
|
%
|
|
$
|
23,237
|
|
|
|
6.5
|
%
|
Minimum
regulatory requirement
*
|
|
$
|
16,014
|
|
|
|
5.1
|
%
|
|
$
|
16,065
|
|
|
|
4.5
|
%
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
14.
|
REGULATORY
MATTERS
(Continued)
|
|
|
|
|
Regulatory
Capital (Continued)
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(Dollars
in thousands)
|
|
Tier
1 Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bankshares and Subsidiaries
|
|
$
|
66,985
|
|
|
|
19.0
|
%
|
|
$
|
67,651
|
|
|
|
19.3
|
%
|
Minimum
regulatory requirement
*
|
|
$
|
21,128
|
|
|
|
6.6
|
%
|
|
$
|
20,988
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bank
|
|
$
|
67,369
|
|
|
|
18.9
|
%
|
|
$
|
68,079
|
|
|
|
19.1
|
%
|
Minimum
requirement for “Well-Capitalized” institution
|
|
$
|
28,499
|
|
|
|
8.0
|
%
|
|
$
|
28,559
|
|
|
|
8.0
|
%
|
Minimum
regulatory requirement
*
|
|
$
|
21,352
|
|
|
|
6.6
|
%
|
|
$
|
21,420
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bankshares and Subsidiaries
|
|
$
|
71,392
|
|
|
|
20.3
|
%
|
|
$
|
72,031
|
|
|
|
20.6
|
%
|
Minimum
regulatory requirement*
|
|
$
|
28,204
|
|
|
|
8.6
|
%
|
|
$
|
27,984
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bank
|
|
$
|
71,822
|
|
|
|
20.2
|
%
|
|
$
|
72,548
|
|
|
|
20.3
|
%
|
Minimum
requirement for “Well-Capitalized” institution
|
|
$
|
35,624
|
|
|
|
10.0
|
%
|
|
$
|
35,750
|
|
|
|
10.0
|
%
|
Minimum
regulatory requirement
*
|
|
$
|
28,499
|
|
|
|
8.6
|
%
|
|
$
|
28,559
|
|
|
|
8.0
|
%
|
|
|
*
Ratio for regulatory requirement includes the capital conservation buffer of 0.625% as
of December 31, 2016.
|
|
15.
|
OTHER NONINTEREST INCOME AND EXPENSE
|
Other noninterest
income consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Merchant
fee income
|
|
$
|
377
|
|
|
$
|
378
|
|
|
$
|
413
|
|
Increase in cash surrender
value of life insurance policies (Note 16)
|
|
|
322
|
|
|
|
316
|
|
|
|
284
|
|
Other
|
|
|
251
|
|
|
|
237
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
950
|
|
|
$
|
931
|
|
|
$
|
1,042
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
15.
|
OTHER
NONINTEREST INCOME AND EXPENSE
(Continued)
|
Other noninterest expense consisted of the following (dollars in thousands):
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
$
|
995
|
|
|
$
|
863
|
|
|
$
|
1,182
|
|
Outsourced
item processing
|
|
|
366
|
|
|
|
360
|
|
|
|
355
|
|
Directors’
expense
|
|
|
417
|
|
|
|
402
|
|
|
|
394
|
|
Telephone
and postage
|
|
|
357
|
|
|
|
368
|
|
|
|
357
|
|
Stationery
and supplies
|
|
|
141
|
|
|
|
143
|
|
|
|
193
|
|
Advertising
and promotion
|
|
|
129
|
|
|
|
164
|
|
|
|
160
|
|
Other
operating expenses
|
|
|
595
|
|
|
|
662
|
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,000
|
|
|
$
|
2,962
|
|
|
$
|
3,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
EMPLOYEE
BENEFIT PLANS
|
American
River Bankshares 401(k) Plan
The
American River Bankshares 401(k) Plan has been in place since January 1, 1993 and is available to all employees. Under the plan,
the Company will match 100% of each participant’s contribution up to 3% of annual compensation plus 50% of the next 2% of
annual compensation. Employer Safe Harbor matching contributions are 100% vested upon entering the plan. The Company’s contributions
totaled $195,000, $202,000 and $178,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Employee
Stock Purchase Plan
The
Company contracts with an administrator for an Employee Stock Purchase Plan which allows employees to purchase the Company’s
stock at fair market value as of the date of purchase. The Company bears all costs of administering the Plan, including broker’s
fees, commissions, postage and other costs actually incurred.
American
River Bankshares Deferred Compensation Plan
The
Company has established a Deferred Compensation Plan for certain members of the management team and a Deferred Fee Agreement for
Non-Employee Directors for the purpose of providing the opportunity for participants to defer compensation. Participants of the
management team, who are selected by a committee designated by the Board of Directors, may elect to defer annually a minimum of
$5,000 or a maximum of eighty percent of their base salary and all of their cash bonus. Directors may also elect to defer up to
one hundred percent of their monthly fees. The Company bears all administration costs and accrues interest on the participants’
deferred balances at a rate based on U.S. Government Treasury rates plus 4.0%. This rate was 5.76% at December 31, 2016. Deferred
compensation, including interest earned, totaled $2,994,000 and $2,837,000 at December 31, 2016 and 2015, respectively. The
expense recognized under this plan totaled $168,000, $156,000 and $150,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
Salary
Continuation Plan
The
Company has agreements to provide certain current executives, or their designated beneficiaries, with annual benefits for up to
15 years after retirement or death. These benefits are substantially equivalent to those available under life insurance policies
purchased by the Company on the lives of the executives. The Company accrues for these future benefits from the effective date
of the agreements until the executives’ expected
final payment dates in a systematic and rational manner. As of December 31, 2016 and 2015, the Company had accrued $1,335,000
and $1,252,000, respectively, for potential benefits payable. This payable approximates the then present value of the benefits
expected to be provided at retirement and is included in accrued interest payable and other liabilities on the consolidated balance
sheet. The expense recognized under this plan totaled $178,000, $168,000 and $142,000 for the years ended December 31, 2016,
2015 and 2014, respectively.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
16.
|
EMPLOYEE
BENEFIT PLANS
(Continued)
|
Salary
Continuation Plan
(Continued)
In
connection with these plans, the Company invested in single premium life insurance policies with cash surrender values totaling
$14,803,000 and $14,482,000 at December 31, 2016 and 2015, respectively. On the consolidated balance sheet, the cash surrender
value of life insurance policies is included in accrued interest receivable and other assets. Tax-exempt income on these policies,
net of expense, totaled approximately $322,000, $316,000 and $383,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
In 2014 $99,000 of this tax-exempt income was from the death benefit proceeds of a life insurance policy on a former employee.
|
17.
|
RELATED
PARTY TRANSACTIONS
|
During
the normal course of business, the Company enters into transactions with related parties, including Directors and affiliates.
The following is a summary of the aggregate activity involving related party borrowers during 2016 (dollars in thousands):
Balance,
January 1, 2016
|
|
$
|
3,231
|
|
|
|
|
|
|
Disbursements
|
|
|
—
|
|
Amounts
repaid
|
|
|
(2,491
|
)
|
|
|
|
|
|
Balance,
December 31, 2016
|
|
$
|
740
|
|
There
are no undisbursed commitments to related parties as of December 31, 2016.
The
Company also leases one of its branch facilities from a current member of the Company’s Board of Directors. Rental payments
to the Director totaled $110,000, $108,000 and $107,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
18.
|
PARENT
ONLY CONDENSED FINANCIAL STATEMENTS
|
CONDENSED
BALANCE SHEETS
December
31, 2016
and 2015
(Dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
259
|
|
|
$
|
191
|
|
Investment
in subsidiaries
|
|
|
84,234
|
|
|
|
86,503
|
|
Other
assets
|
|
|
347
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,840
|
|
|
$
|
87,027
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
$
|
990
|
|
|
$
|
952
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
990
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
42,484
|
|
|
|
49,554
|
|
Retained
earnings
|
|
|
40,822
|
|
|
|
34,418
|
|
Accumulated
other comprehensive income, net of taxes
|
|
|
544
|
|
|
|
2,103
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
83,850
|
|
|
|
86,075
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
84,840
|
|
|
$
|
87,027
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
18.
|
PARENT
ONLY CONDENSED FINANCIAL STATEMENTS
(Continued)
|
CONDENSED
STATEMENTS OF INCOME
For
the Years Ended December 31, 2016, 2015 and 2014
(Dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared by subsidiaries – eliminated in consolidation
|
|
$
|
7,675
|
|
|
$
|
7,900
|
|
|
$
|
4,250
|
|
Management
fee from subsidiaries – eliminated in consolidation Other income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income
|
|
|
7,675
|
|
|
|
7,900
|
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
|
91
|
|
|
|
97
|
|
|
|
89
|
|
Directors’
expense
|
|
|
285
|
|
|
|
285
|
|
|
|
280
|
|
Other
expenses
|
|
|
203
|
|
|
|
204
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
579
|
|
|
|
586
|
|
|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before equity in undistributed income of subsidiaries
|
|
|
7,096
|
|
|
|
7,314
|
|
|
|
3,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in (distributed) undistributed income of subsidiaries
|
|
|
(930
|
)
|
|
|
(2,287
|
)
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
6,166
|
|
|
|
5,027
|
|
|
|
4,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
238
|
|
|
|
241
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,404
|
|
|
$
|
5,268
|
|
|
$
|
4,361
|
|
AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
18.
|
PARENT
ONLY CONDENSED FINANCIAL STATEMENTS
(Continued)
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2016, 2015 and 2014
(Dollars
in thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,404
|
|
|
$
|
5,268
|
|
|
$
|
4,361
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed
(undistributed) earnings of subsidiaries
|
|
|
2,088
|
|
|
|
2,287
|
|
|
|
(453
|
)
|
Equity-based
compensation expense
|
|
|
331
|
|
|
|
271
|
|
|
|
166
|
|
Increase
in other assets
|
|
|
(1,393
|
)
|
|
|
(206
|
)
|
|
|
(44
|
)
|
Increase
in other liabilities
|
|
|
39
|
|
|
|
36
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
7,469
|
|
|
|
7,656
|
|
|
|
4,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from exercised options
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
Cash
paid to repurchase common stock
|
|
|
(7,414
|
)
|
|
|
(7,843
|
)
|
|
|
(4,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(7,401
|
)
|
|
|
(7,843
|
)
|
|
|
(4,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
68
|
|
|
|
(187
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
191
|
|
|
|
378
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
259
|
|
|
$
|
191
|
|
|
$
|
378
|
|
Selected Quarterly Information
(Unaudited)
(In thousands, except
per share and price range of common stock)
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
5,276
|
|
|
$
|
5,229
|
|
|
$
|
5,304
|
|
|
$
|
5,344
|
|
Net interest income
|
|
|
5,042
|
|
|
|
5,008
|
|
|
|
5,081
|
|
|
|
5,112
|
|
Provision for loan and lease losses
|
|
|
—
|
|
|
|
—
|
|
|
|
(668
|
)
|
|
|
(676
|
)
|
Noninterest income
|
|
|
754
|
|
|
|
363
|
|
|
|
399
|
|
|
|
529
|
|
Noninterest expense
|
|
|
3,791
|
|
|
|
3,415
|
|
|
|
3,346
|
|
|
|
3,284
|
|
Income before taxes
|
|
|
2,005
|
|
|
|
1,956
|
|
|
|
2,802
|
|
|
|
3,033
|
|
Net
income
|
|
|
1,372
|
|
|
|
1,304
|
|
|
|
1,813
|
|
|
|
1,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.19
|
|
|
$
|
.19
|
|
|
$
|
.28
|
|
|
$
|
.29
|
|
Diluted earnings per share
|
|
|
.19
|
|
|
|
.19
|
|
|
|
.27
|
|
|
|
.29
|
|
Cash dividends per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Price
range, common stock
|
|
|
$9.71-10.98
|
|
|
|
$9.69-10.97
|
|
|
|
$10.15-10.91
|
|
|
|
$10.59-15.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
4,902
|
|
|
$
|
5,283
|
|
|
$
|
5,458
|
|
|
$
|
5,325
|
|
Net interest income
|
|
|
4,654
|
|
|
|
5,039
|
|
|
|
5,218
|
|
|
|
5,096
|
|
Provision for loan and lease losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Noninterest income
|
|
|
585
|
|
|
|
507
|
|
|
|
490
|
|
|
|
433
|
|
Noninterest expense
|
|
|
3,813
|
|
|
|
3,415
|
|
|
|
3,432
|
|
|
|
3,420
|
|
Income before taxes
|
|
|
1,426
|
|
|
|
2,131
|
|
|
|
2,276
|
|
|
|
2,109
|
|
Net
income
|
|
|
956
|
|
|
|
1,386
|
|
|
|
1,469
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.12
|
|
|
$
|
.18
|
|
|
$
|
.20
|
|
|
$
|
.20
|
|
Diluted earnings per share
|
|
|
.12
|
|
|
|
.18
|
|
|
|
.20
|
|
|
|
.20
|
|
Cash dividends per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Price
range, common stock
|
|
|
$9.23-9.98
|
|
|
|
$9.10-9.95
|
|
|
|
$9.15-10.35
|
|
|
|
$9.40-11.19
|
|