Item
1. Financial Statements.
AMERICAN
RIVER BANKSHARES
CONSOLIDATED
BALANCE SHEET
(Unaudited)
(dollars
in thousands)
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
14,512
|
|
|
$
|
20,987
|
|
Interest-bearing
deposits in banks
|
|
|
14,870
|
|
|
|
1,746
|
|
Federal
funds sold
|
|
|
—
|
|
|
|
7,000
|
|
Total
cash and cash equivalents
|
|
|
29,382
|
|
|
|
29,733
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
276,055
|
|
|
|
294,933
|
|
Held-to-maturity,
at amortized cost
|
|
|
256
|
|
|
|
292
|
|
Loans
and leases, less allowance for loan and lease losses of $4,953 at September 30, 2019 and $4,392 at December 31, 2018
|
|
|
369,940
|
|
|
|
318,516
|
|
Premises
and equipment, net
|
|
|
1,217
|
|
|
|
1,071
|
|
Federal
Home Loan Bank stock
|
|
|
4,259
|
|
|
|
3,932
|
|
Goodwill
and other intangible assets
|
|
|
16,321
|
|
|
|
16,321
|
|
Other
real estate owned
|
|
|
957
|
|
|
|
957
|
|
Bank
owned life insurance
|
|
|
15,676
|
|
|
|
15,429
|
|
Accrued
interest receivable and other assets
|
|
|
7,218
|
|
|
|
6,908
|
|
Total
assets
|
|
$
|
721,281
|
|
|
$
|
688,092
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest
bearing
|
|
$
|
228,517
|
|
|
$
|
214,745
|
|
Interest-bearing
|
|
|
384,387
|
|
|
|
375,929
|
|
Total
deposits
|
|
|
612,904
|
|
|
|
590,674
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
5,000
|
|
|
|
5,000
|
|
Long-term
borrowings
|
|
|
10,500
|
|
|
|
10,500
|
|
Accrued
interest payable and other liabilities
|
|
|
10,028
|
|
|
|
7,197
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
638,432
|
|
|
|
613,371
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, no par value; 10,000,000 shares authorized; none outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, no par value; 20,000,000 shares authorized; issued and outstanding – 5,903,228 shares at September 30, 2019 and
5,858,428 shares at December 31, 2018
|
|
|
30,466
|
|
|
|
30,103
|
|
Retained
earnings
|
|
|
49,487
|
|
|
|
46,494
|
|
Accumulated
other comprehensive income (loss), net of taxes
|
|
|
2,896
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
82,849
|
|
|
|
74,721
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
721,281
|
|
|
$
|
688,092
|
|
See
Notes to Unaudited Consolidated Financial Statements
AMERICAN
RIVER BANKSHARES
CONSOLIDATED
STATEMENT OF INCOME
(Unaudited)
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the periods ended September 30,
|
|
Three
months
|
|
|
Nine
months
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
4,397
|
|
|
$
|
3,405
|
|
|
$
|
12,329
|
|
|
$
|
10,216
|
|
Exempt
from Federal income taxes
|
|
|
186
|
|
|
|
127
|
|
|
|
501
|
|
|
|
383
|
|
Interest
on Federal funds sold
|
|
|
—
|
|
|
|
120
|
|
|
|
5
|
|
|
|
268
|
|
Interest
on deposits in banks
|
|
|
71
|
|
|
|
10
|
|
|
|
151
|
|
|
|
23
|
|
Interest
and dividends on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
1,846
|
|
|
|
1,902
|
|
|
|
5,756
|
|
|
|
4,930
|
|
Exempt
from Federal income taxes
|
|
|
55
|
|
|
|
102
|
|
|
|
221
|
|
|
|
410
|
|
Total
interest income
|
|
|
6,555
|
|
|
|
5,666
|
|
|
|
18,963
|
|
|
|
16,230
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
545
|
|
|
|
346
|
|
|
|
1,558
|
|
|
|
945
|
|
Interest
on borrowings
|
|
|
82
|
|
|
|
63
|
|
|
|
300
|
|
|
|
171
|
|
Total
interest expense
|
|
|
627
|
|
|
|
409
|
|
|
|
1,858
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
5,928
|
|
|
|
5,257
|
|
|
|
17,105
|
|
|
|
15,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan and lease losses
|
|
|
120
|
|
|
|
50
|
|
|
|
480
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan and lease losses
|
|
|
5,808
|
|
|
|
5,207
|
|
|
|
16,625
|
|
|
|
15,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
149
|
|
|
|
119
|
|
|
|
409
|
|
|
|
352
|
|
Gain
on sale or call of securities
|
|
|
9
|
|
|
|
8
|
|
|
|
74
|
|
|
|
19
|
|
Other
noninterest income
|
|
|
259
|
|
|
|
250
|
|
|
|
766
|
|
|
|
758
|
|
Total
noninterest income
|
|
|
417
|
|
|
|
377
|
|
|
|
1,249
|
|
|
|
1,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
2,898
|
|
|
|
2,551
|
|
|
|
8,423
|
|
|
|
7,274
|
|
Occupancy
|
|
|
256
|
|
|
|
267
|
|
|
|
768
|
|
|
|
791
|
|
Furniture
and equipment
|
|
|
120
|
|
|
|
141
|
|
|
|
400
|
|
|
|
415
|
|
Federal
Deposit Insurance Corporation assessments
|
|
|
(47
|
)
|
|
|
52
|
|
|
|
48
|
|
|
|
158
|
|
Expenses
related to other real estate owned
|
|
|
7
|
|
|
|
10
|
|
|
|
15
|
|
|
|
12
|
|
Other
expense
|
|
|
859
|
|
|
|
982
|
|
|
|
2,847
|
|
|
|
2,531
|
|
Total
noninterest expense
|
|
|
4,093
|
|
|
|
4,003
|
|
|
|
12,501
|
|
|
|
11,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
2,132
|
|
|
|
1,581
|
|
|
|
5,373
|
|
|
|
5,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
561
|
|
|
|
428
|
|
|
|
1,380
|
|
|
|
1,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,571
|
|
|
$
|
1,153
|
|
|
$
|
3,993
|
|
|
$
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.27
|
|
|
$
|
0.20
|
|
|
$
|
0.68
|
|
|
$
|
0.64
|
|
Diluted
earnings per share
|
|
$
|
0.27
|
|
|
$
|
0.20
|
|
|
$
|
0.68
|
|
|
$
|
0.64
|
|
See
notes to Unaudited Consolidated Financial Statements
AMERICAN
RIVER BANKSHARES
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the periods ended September 30,
|
|
Three
months
|
|
|
Nine
months
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net
income
|
|
$
|
1,571
|
|
|
$
|
1,153
|
|
|
$
|
3,993
|
|
|
$
|
3,775
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in net unrealized gains (losses) on
investment securities
|
|
|
972
|
|
|
|
(1,606
|
)
|
|
|
6,849
|
|
|
|
(5,516
|
)
|
Deferred
tax (expense) benefit
|
|
|
(287
|
)
|
|
|
511
|
|
|
|
(2,025
|
)
|
|
|
1,760
|
|
Increase
(decrease) in net unrealized gains (losses) on investment securities, net of tax
|
|
|
685
|
|
|
|
(1,095
|
)
|
|
|
4,824
|
|
|
|
(3,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for realized gains included in net income
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
(74
|
)
|
|
|
(19
|
)
|
Tax
effect
|
|
|
3
|
|
|
|
3
|
|
|
|
22
|
|
|
|
6
|
|
Realized
gains, net of tax
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
(52
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive income (loss)
|
|
|
679
|
|
|
|
(1,100
|
)
|
|
|
4,772
|
|
|
|
(3,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
2,250
|
|
|
$
|
53
|
|
|
$
|
8,765
|
|
|
$
|
6
|
|
See
Notes to Unaudited Consolidated Financial Statements
AMERICAN
RIVER BANKSHARES
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Income
(Loss)
|
|
|
Equity
|
|
Balance,
January 1, 2018
|
|
|
6,132,362
|
|
|
$
|
34,463
|
|
|
$
|
42,779
|
|
|
$
|
(321
|
)
|
|
$
|
76,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
3,775
|
|
|
|
|
|
|
|
3,775
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,769
|
)
|
|
|
(3,769
|
)
|
Cash
dividends ($0.15 per share)
|
|
|
|
|
|
|
|
|
|
|
(895
|
)
|
|
|
|
|
|
|
(895
|
)
|
Net
restricted stock award activity and related compensation expense
|
|
|
17,859
|
|
|
|
212
|
|
|
|
1
|
|
|
|
|
|
|
|
213
|
|
Stock
options exercised
|
|
|
13,359
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
Stock
option compensation expense
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Retirement
of common stock
|
|
|
(298,778
|
)
|
|
|
(4,654
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2018
|
|
|
5,864,802
|
|
|
$
|
30,165
|
|
|
$
|
45,660
|
|
|
$
|
(4,090
|
)
|
|
$
|
71,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2019
|
|
|
5,858,428
|
|
|
$
|
30,103
|
|
|
$
|
46,494
|
|
|
$
|
(1,876
|
)
|
|
$
|
74,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
3,993
|
|
|
|
|
|
|
|
3,993
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,772
|
|
|
|
4,772
|
|
Cash
dividends ($0.17 per share)
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(1,000
|
)
|
Net
restricted stock award activity and related compensation expense
|
|
|
33,660
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
257
|
|
Stock
options exercised
|
|
|
11,140
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
Stock
option compensation expense
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2019
|
|
|
5,903,228
|
|
|
$
|
30,466
|
|
|
$
|
49,487
|
|
|
$
|
2,896
|
|
|
$
|
82,849
|
|
See Notes to Unaudited Consolidated
Financial Statements
AMERICAN
RIVER BANKSHARES
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
(dollars
in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
(Loss)
Income
|
|
|
Equity
|
|
Balance,
July 1, 2018
|
|
|
5,864,802
|
|
|
$
|
30,082
|
|
|
$
|
44,801
|
|
|
$
|
(2,990
|
)
|
|
$
|
71,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
1,153
|
|
|
|
|
|
|
|
1,153
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,100
|
)
|
|
|
(1,100
|
)
|
Cash
dividends ($0.05 per share)
|
|
|
|
|
|
|
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
(294
|
)
|
Net
restricted stock award activity and related compensation expense
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
Stock
option compensation expense
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2018
|
|
|
5,864,802
|
|
|
$
|
30,165
|
|
|
$
|
45,660
|
|
|
$
|
(4,090
|
)
|
|
$
|
71,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 1, 2019
|
|
|
5,903,228
|
|
|
$
|
30,373
|
|
|
$
|
48,329
|
|
|
$
|
2,217
|
|
|
$
|
80,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
1,571
|
|
|
|
|
|
|
|
1,571
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679
|
|
|
|
679
|
|
Cash
dividends ($0.07 per share)
|
|
|
|
|
|
|
|
|
|
|
(413
|
)
|
|
|
|
|
|
|
(413
|
)
|
Net
restricted stock award activity and related compensation expense
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
Stock
option compensation expense
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2019
|
|
|
5,903,228
|
|
|
$
|
30,466
|
|
|
$
|
49,487
|
|
|
$
|
2,896
|
|
|
$
|
82,849
|
|
See Notes to Unaudited Consolidated
Financial Statements
AMERICAN RIVER
BANKSHARES
CONSOLIDATED STATEMENT
OF CASH FLOWS
(Unaudited)
(dollars
in thousands)
|
|
|
|
|
|
|
For
the nine months ended September 30,
|
|
2019
|
|
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,993
|
|
|
$
|
3,775
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision
for loan and lease losses
|
|
|
480
|
|
|
|
50
|
|
Decrease
in deferred loan origination fees and costs, net
|
|
|
(454
|
)
|
|
|
(53
|
)
|
Depreciation
and amortization
|
|
|
170
|
|
|
|
201
|
|
Gain
on sale of investment securities, net
|
|
|
(74
|
)
|
|
|
(19
|
)
|
Amortization
of investment security premiums and discounts, net
|
|
|
1,117
|
|
|
|
1,969
|
|
Increase
in cash surrender values of life insurance policies
|
|
|
(247
|
)
|
|
|
(228
|
)
|
Stock
based compensation expense
|
|
|
268
|
|
|
|
234
|
|
Decrease
in accrued interest receivable and other assets
|
|
|
479
|
|
|
|
163
|
|
Increase
(decrease) in accrued interest payable and other liabilities
|
|
|
39
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
5,771
|
|
|
|
5,910
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from the sale of available-for-sale investment securities
|
|
|
43,213
|
|
|
|
24,753
|
|
Proceeds
from matured available-for-sale investment securities
|
|
|
5,000
|
|
|
|
—
|
|
Proceeds
from called available-for-sale investment securities
|
|
|
—
|
|
|
|
1,499
|
|
Purchases
of available-for-sale investment securities
|
|
|
(56,978
|
)
|
|
|
(81,850
|
)
|
Proceeds
from principal repayments for available-for-sale investment securities
|
|
|
33,375
|
|
|
|
33,196
|
|
Proceeds
from principal repayments for held-to-maturity investment securities
|
|
|
36
|
|
|
|
67
|
|
Net
increase in loans
|
|
|
(34,077
|
)
|
|
|
(2,956
|
)
|
Purchases
of loans
|
|
|
(17,373
|
)
|
|
|
—
|
|
Proceed
from sale of loans
|
|
|
—
|
|
|
|
1,349
|
|
Net
increase in FHLB stock
|
|
|
(327
|
)
|
|
|
—
|
|
Purchases
of equipment
|
|
|
(316
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(27,447
|
)
|
|
|
(24,057
|
)
|
(Continued)
AMERICAN RIVER
BANKSHARES
CONSOLIDATED STATEMENT
OF CASH FLOWS (Continued)
(Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
For
the nine months ended September 30,
|
|
2019
|
|
|
2018
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Net
increase in demand, interest-bearing and savings deposits
|
|
$
|
24,081
|
|
|
$
|
22,420
|
|
Net
decrease in time deposits
|
|
|
(1,851
|
)
|
|
|
(2,680
|
)
|
Net
increase in short-term borrowings
|
|
|
—
|
|
|
|
3,000
|
|
Net
decrease to long-term borrowings
|
|
|
—
|
|
|
|
(3,000
|
)
|
Proceeds
from stock options exercised
|
|
|
95
|
|
|
|
123
|
|
Cash
dividends paid
|
|
|
(1,000
|
)
|
|
|
(895
|
)
|
Cash
paid to repurchase common stock
|
|
|
—
|
|
|
|
(4,654
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
$
|
21,325
|
|
|
$
|
14,314
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
|
(351
|
)
|
|
|
(3,833
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
29,733
|
|
|
|
38,467
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
29,382
|
|
|
$
|
34,634
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash
disclosures:
|
|
|
|
|
|
|
|
|
Right
of use asset and obligation recorded upon adoption of ASU 2016-02
|
|
$
|
3,570
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
1,682
|
|
|
$
|
1,113
|
|
Income
taxes
|
|
$
|
1,218
|
|
|
$
|
785
|
|
See Notes to Unaudited
Consolidated Financial Statements
AMERICAN RIVER
BANKSHARES
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
September 30,
2019
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion
of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the consolidated financial position of American River Bankshares (the “Company”) at September
30, 2019 and December 31, 2018, the results of its operations and statement of comprehensive income for the three-month and nine-month
periods ended September 30, 2019 and 2018, its cash flows for the nine-month periods ended September 30, 2019 and 2018 and its
statement of changes in shareholders’ equity for the nine-month periods ended September 30, 2019 and 2018 in conformity
with accounting principles generally accepted in the United States of America.
Certain disclosures
normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted. The Company believes that the disclosures are adequate to
make the information not misleading. These interim consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December
31, 2018. The results of operations for the three-month and nine-month periods ended September 30, 2019 may not necessarily be
indicative of the operating results for the full year.
In preparing
such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly
from those estimates.
Management has
determined that since all of the banking products and services offered by the Company are available in each branch office of American
River Bank, all branch offices are located within the same economic environment and management does not allocate resources based
on the performance of different lending or transaction activities, it is appropriate to aggregate all of the branch offices and
report them as a single operating segment. No client accounts for more than ten percent (10%) of revenues for the Company or American
River Bank.
Adoption
of New Accounting Standard: On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases”, utilizing
the effective date method under the modified retrospective approach. The Company currently leases nine of its office leases
under operating leases. The Company’s present value of future lease payments as of January 1, 2019 was $3,570,000 which
was recorded as a right-of-use asset included in accrued interest receivable and other assets with an offsetting liability included
in accrued interest payable and other liabilities on the consolidated balance sheet. The effects of adopting ASU No. 2016-02 did
not have a material impact on the Company’s financial position, results of operations or cash flows.
2. STOCK-BASED
COMPENSATION
Equity
Plans
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. At September 30, 2019 there were 29,958 stock options and 50,765
restricted shares outstanding and the total number of authorized shares that remain available for issuance was 1,271,673. 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. Under the 2010 Plan,
the awards may be granted to employees and directors under incentive and nonqualified option agreements, restricted stock agreements,
and other awards agreements. The unvested restricted stock under the 2010 Plan have dividend and voting rights. The 2010 Plan
requires that the option price may not be less than the fair market value of the stock at the date the option is awarded. The
option awards 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 are exercisable until their expiration. New shares are issued upon exercise of an option.
The
award date fair value of awards is determined by the market price of the Company’s common stock on the date of award and
is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock awarded
pursuant to such agreements vest in increments over one to five years from the date of award. The shares awarded to employees
and directors under the restricted stock agreements vest on the 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.
Equity
Compensation
For the three-month
periods ended September 30, 2019 and 2018, the compensation cost recognized for equity compensation was $93,000 and $83,000, respectively
and the recognized tax benefit for equity compensation expense was $25,000 and $21,000, respectively, for the same three-month
periods ended. For the nine-month periods ended September 30, 2019 and 2018, the compensation cost recognized for equity compensation
was $268,000 and $233,000, respectively, and the recognized tax benefit for equity compensation expense was $69,000 and $57,000,
respectively, for the nine-month periods ended September 30, 2019 and 2018, respectively.
At
September 30, 2019, the total unrecognized pre-tax compensation cost related to nonvested stock option awards not yet recorded
was $6,000. This amount will be recognized over the next 1.8 years and the weighted average period of recognizing these costs
is expected to be 0.8 years. At September 30, 2019, the total compensation cost related to restricted stock awards not yet recorded
was $521,000. This amount will be recognized over the next 4.7 years and the weighted average period of recognizing these costs
is expected to be 1.0 years.
Equity
Plans Activity
Stock
Options
There
were no stock options awarded during the three-month and nine-month periods ended September 30, 2019 or September 30, 2018. A
summary of option activity under the Plans as of September 30, 2019 and changes during the period then ended is presented below:
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value ($000)
|
|
Outstanding
at January 1, 2019
|
|
|
41,098
|
|
|
$
|
8.71
|
|
|
|
2.3
years
|
|
|
$
|
215
|
|
Awarded
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(11,140
|
)
|
|
|
8.50
|
|
|
|
—
|
|
|
|
—
|
|
Expired,
forfeited or cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
at September 30, 2019
|
|
|
29,958
|
|
|
$
|
8.79
|
|
|
|
4.6
years
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
at September 30, 2019
|
|
|
27,735
|
|
|
$
|
8.73
|
|
|
|
4.6
years
|
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at September 30, 2019
|
|
|
2,223
|
|
|
$
|
9.56
|
|
|
|
5.6
years
|
|
|
$
|
9
|
|
Restricted
Stock
There
were no shares of restricted stock awarded during the three-month periods ended September 30, 2019 and 2018. There were 33,968
and 22,514 shares of restricted stock awarded during the nine-month periods ended September 30, 2019 and 2018, respectively.
There
were no restricted share awards that were fully vested during the three-month periods ended September 30, 2019 and 2018. There
were 15,423 restricted share awards that were fully vested during the nine-month period ended September 30, 2019 and 25,455 restricted
share awards that were fully vested during the nine-month period ended September 30, 2018. There were zero and 308 restricted
share awards forfeited during the three-month and nine-month periods ended September 30, 2019, respectively. There were zero and
4,655 restricted share awards forfeited during the three-month and nine-month periods ended September 30, 2018, respectively.
The intrinsic value of nonvested restricted shares at September 30, 2019 was $701,000.
Restricted
Stock
|
|
Shares
|
|
|
Weighted
Average Award
Date
Fair Value
|
|
Nonvested
at January 1, 2019
|
|
|
32,528
|
|
|
$
|
14.60
|
|
Awarded
|
|
|
33,968
|
|
|
|
13.67
|
|
Less: Vested
|
|
|
(15,423
|
)
|
|
|
14.55
|
|
Less: Expired,
forfeited or cancelled
|
|
|
(308
|
)
|
|
|
15.58
|
|
Nonvested
at September 30, 2019
|
|
|
50,765
|
|
|
$
|
13.98
|
|
Other
Equity Awards
There
were no stock appreciation rights, restricted performance stock, unrestricted Company stock, or performance units awarded during
the three-month or nine-month month periods ended September 30, 2019 or 2018 or outstanding at September 30, 2019 or December
31, 2018.
The
intrinsic value used for stock options and restricted stock awards was derived from the market price of the Company’s common
stock of $13.80 as of September 30, 2019.
3. COMMITMENTS AND CONTINGENCIES
In the normal
course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements,
including loan commitments of approximately $37,117,000 and standby letters of credit of approximately $300,000 at September 30,
2019 and loan commitments of approximately $34,276,000 and standby letters of credit of approximately $361,000 at December 31,
2018. Such commitments relate primarily to real estate construction loans, revolving lines of credit and other commercial loans.
However, all such commitments will not necessarily culminate in actual extensions of credit by the Company during 2019 as some
of these are expected to expire without being fully drawn upon.
Standby letters
of credit are commitments issued to guarantee the performance or financial obligation of a client to a third party. These guarantees
are issued primarily relating to purchases of inventory, insurance programs, performance obligations to government agencies, or
as security for real estate rents by commercial clients and are typically short-term in nature. Credit risk is similar to that
involved in extending loan commitments to clients and accordingly, evaluation and collateral requirements similar to those for
loan commitments are used. The majority of all such commitments are collateralized. The fair value of the liability related to
these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at September
30, 2019 or December 31, 2018.
4. EARNINGS
PER SHARE COMPUTATION
Basic earnings
per share is computed by dividing net income by the weighted average common shares outstanding for the period (5,852,463 and 5,845,242
shares for the three-month and nine-month periods ended September 30, 2019, and 5,823,345 and 5,886,977 shares for the three-month
and nine-month periods ended September 30, 2018). Diluted earnings per share reflect 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. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the
period plus the dilutive effect of stock based awards. There were 18,453 and 18,737, respectively, dilutive shares for the three-month
and nine-month periods ended September 30, 2019 and 41,482 and 38,700, respectively, dilutive shares for the three-month and nine-month
periods ended September 30, 2018. For the three-month periods ended September 30, 2019 and 2018, there were zero stock options
that were excluded from the calculation as they were considered antidilutive.
For the nine-month
periods ended September 30, 2019 and 2018, there were zero stock options that were excluded from the calculation as they were
considered antidilutive. Earnings per share is retroactively adjusted for stock dividends and stock splits, if applicable, for
all periods presented.
5. INVESTMENT
SECURITIES
The amortized cost
and estimated fair values of Available-for-Sale and Held-to-Maturity investment securities at September 30, 2019 and December
31, 2018 consisted of the following (dollars in thousands):
Available-for-Sale
|
|
September
30, 2019
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
257,664
|
|
|
$
|
4,550
|
|
|
$
|
(898
|
)
|
|
$
|
261,316
|
|
Obligations
of states and political subdivisions
|
|
|
7,785
|
|
|
|
328
|
|
|
|
—
|
|
|
|
8,113
|
|
Corporate
bonds
|
|
|
6,495
|
|
|
|
131
|
|
|
|
—
|
|
|
|
6,626
|
|
|
|
$
|
271,944
|
|
|
$
|
5,009
|
|
|
$
|
(898
|
)
|
|
$
|
276,055
|
|
|
|
December
31, 2018
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
271,685
|
|
|
$
|
984
|
|
|
$
|
(3,620
|
)
|
|
$
|
269,049
|
|
Obligations
of states and political subdivisions
|
|
|
14,440
|
|
|
|
165
|
|
|
|
(205
|
)
|
|
|
14,400
|
|
Corporate
bonds
|
|
|
6,493
|
|
|
|
74
|
|
|
|
(59
|
)
|
|
|
6,508
|
|
U.S.
Treasury securities
|
|
|
4,979
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
4,976
|
|
|
|
$
|
297,597
|
|
|
$
|
1,223
|
|
|
$
|
(3,887
|
)
|
|
$
|
294,933
|
|
Net
unrealized gains on available-for-sale investment securities totaling $4,111,000 were recorded, net of $1,215,000 in tax liabilities,
as accumulated other comprehensive income within shareholders’ equity at September 30, 2019. Proceeds and gross realized
gains from the sale and call of available-for-sale investment securities totaled $13,538,000 and $9,000, respectively, for the
three-month period ended September 30, 2019 and for the nine-month period ended September 30, 2019, proceeds and gross realized
gains from the sale and call of available-for-sale investment securities totaled $43,213,000 and $74,000, respectively. There
were no transfers of available-for-sale investment securities for the three-month and nine-month periods ended September 30, 2019.
Net
unrealized losses on available-for-sale investment securities totaling $2,664,000 were recorded, net of $788,000 in tax liabilities,
as accumulated other comprehensive loss within shareholders’ equity at December 31, 2018. Proceeds and gross realized gains
from the sale and call of available-for-sale investment securities totaled $10,310,000 and $8,000, respectively, for the three-month
period ended September 30, 2018 and for the nine-month period ended September 30, 2018, proceeds and gross realized gains from
the sale and call of available-for-sale investment securities totaled $26,252,000 and $19,000, respectively. There were no transfers
of available-for-sale investment securities for the three-month and nine-month periods ended September 30, 2018.
Held-to-Maturity
September 30,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
256
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2018
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Value
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
292
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
306
|
|
There
were no sales or transfers of held-to-maturity investment securities for the periods ended September 30, 2019 and September 30,
2018. Investment securities with unrealized losses at September 30, 2019 and December 31, 2018 are summarized and classified according
to the duration of the loss period as follows (dollars in thousands):
September
30, 2019
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
Available-for-Sale
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
52,569
|
|
|
$
|
(242
|
)
|
|
$
|
53,438
|
|
|
$
|
(656
|
)
|
|
$
|
106,007
|
|
|
$
|
(898
|
)
|
|
|
$
|
52,569
|
|
|
$
|
(242
|
)
|
|
$
|
53,438
|
|
|
$
|
(656
|
)
|
|
$
|
106,007
|
|
|
$
|
(898
|
)
|
December
31, 2018
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
Available-for-Sale
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
39,267
|
|
|
$
|
(310
|
)
|
|
$
|
138,894
|
|
|
$
|
(3,310
|
)
|
|
$
|
178,161
|
|
|
$
|
(3,620
|
)
|
Obligations
of states and political subdivisions
|
|
|
2,168
|
|
|
|
(28
|
)
|
|
|
5,583
|
|
|
|
(177
|
)
|
|
|
7,751
|
|
|
|
(205
|
)
|
Corporate
bonds
|
|
|
497
|
|
|
|
(4
|
)
|
|
|
1,938
|
|
|
|
(55
|
)
|
|
|
2,435
|
|
|
|
(59
|
)
|
U.S. Treasury
securities
|
|
|
4,976
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,976
|
|
|
|
(3
|
)
|
|
|
$
|
46,908
|
|
|
$
|
(345
|
)
|
|
$
|
146,415
|
|
|
$
|
(3,542
|
)
|
|
$
|
193,323
|
|
|
$
|
(3,887
|
)
|
There
were no held-to-maturity investment securities with unrealized losses as of September 30, 2019 or December 31, 2018. At
September 30, 2019, the Company held 210 securities of which 26 were in a loss position for less than twelve months and 39 were
in a loss position for twelve months or more. Of the 26 securities in a loss position for less than twelve months, all 26
were U.S. Government Agencies and Sponsored Entities securities and of the 39 securities that were in a loss position for greater
than twelve months, all 39 were U.S. Government Agencies and Sponsored Entities securities.
At
December 31, 2018, the Company held 220 securities of which 26 were in a loss position for less than twelve months and 97 were
in a loss position for twelve months or more. Of the 97 securities in a loss position for greater than twelve months at
December 31, 2018, one was a corporate securities, five were municipal securities and 91 were U.S. Government Agencies and Sponsored
Entities securities.
The
unrealized loss on the Company’s investment 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 until maturity, management does not consider these
investments to be other-than-temporarily impaired.
The
amortized cost and estimated fair values of investment securities at September 30, 2019 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
|
|
$
|
755
|
|
|
$
|
758
|
|
|
|
|
|
|
|
|
|
After
one year through five years
|
|
|
2,937
|
|
|
|
2,954
|
|
|
|
|
|
|
|
|
|
After
five years through ten years
|
|
|
7,153
|
|
|
|
7,380
|
|
|
|
|
|
|
|
|
|
After
ten years
|
|
|
3,435
|
|
|
|
3,647
|
|
|
|
|
|
|
|
|
|
|
|
|
14,280
|
|
|
|
14,739
|
|
|
|
|
|
|
|
|
|
Investment
securities not due at a single maturity date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
|
257,664
|
|
|
|
261,316
|
|
|
$
|
256
|
|
|
$
|
275
|
|
|
|
$
|
271,944
|
|
|
$
|
276,055
|
|
|
$
|
256
|
|
|
$
|
275
|
|
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.
6.
IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED
At
September 30, 2019 and December 31, 2018, the recorded investment in nonperforming loans and leases was zero and $27,000, respectively.
Nonperforming loans and leases include all such loans and leases that are either placed on nonaccrual status or are 90 days past
due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection.
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 contractual terms of the original loan agreement. At September
30, 2019, the recorded investment in loans and leases that were considered to be impaired totaled $7,662,000, all of which were
considered performing loans and leases. Of the total impaired loans of $7,662,000, loans totaling $5,879,000 were deemed to require
no specific reserve and loans totaling $1,783,000 were deemed to require a related valuation allowance of $82,000. At December
31, 2018, the recorded investment in loans and leases that were considered to be impaired totaled $8,702,000. Of the total impaired
loans of $8,702,000, loans totaling $5,968,000 were deemed to require no specific reserve and loans totaling $2,734,000 were deemed
to require a related valuation allowance of $185,000.
At
September 30, 2019 and December 31, 2018, the recorded investment in other real estate owned (“OREO”) was $957,000.
At September 30, 2019 the Company did not own any residential OREO properties nor were there any residential properties in the
process of foreclosure. During the first nine months of 2019, the Company did not add any new or sell any of the OREO properties,
nor did we decrease the book value on any of the properties. The September 30, 2019 OREO balance of $957,000 consisted of one
parcel of land zoned for commercial use.
Nonperforming
assets at September 30, 2019 and December 31, 2018 are summarized as follows:
(dollars
in thousands)
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
Nonaccrual
loans and leases that are current to terms (less than 30 days past due)
|
|
$
|
—
|
|
|
$
|
27
|
|
Nonaccrual
loans and leases that are past due
|
|
|
—
|
|
|
|
—
|
|
Loans
and leases past due 90 days and accruing interest
|
|
|
—
|
|
|
|
—
|
|
Other
real estate owned
|
|
|
957
|
|
|
|
957
|
|
Total
nonperforming assets
|
|
$
|
957
|
|
|
$
|
984
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans and leases to total loans and leases
|
|
|
0.00
|
%
|
|
|
0.01
|
%
|
Total
nonperforming assets to total assets
|
|
|
0.13
|
%
|
|
|
0.14
|
%
|
Impaired
loans and leases as of and for the periods ended September 30, 2019 and December 31, 2018 are summarized as follows:
(dollars
in thousands)
|
|
As
of September 30, 2019
|
|
|
As
of December 31, 2018
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate-commercial
|
|
$
|
5,560
|
|
|
$
|
5,694
|
|
|
$
|
—
|
|
|
$
|
5,645
|
|
|
$
|
5,879
|
|
|
$
|
—
|
|
Real
estate-residential
|
|
|
319
|
|
|
|
406
|
|
|
|
—
|
|
|
|
323
|
|
|
|
410
|
|
|
|
—
|
|
Subtotal
|
|
$
|
5,879
|
|
|
$
|
6,100
|
|
|
$
|
—
|
|
|
$
|
5,968
|
|
|
$
|
6,289
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate-commercial
|
|
$
|
1,645
|
|
|
$
|
1,718
|
|
|
$
|
72
|
|
|
$
|
2,138
|
|
|
$
|
2,217
|
|
|
$
|
132
|
|
Real
estate-residential
|
|
|
138
|
|
|
|
138
|
|
|
|
10
|
|
|
|
596
|
|
|
|
596
|
|
|
|
53
|
|
Subtotal
|
|
$
|
1,783
|
|
|
$
|
1,856
|
|
|
$
|
82
|
|
|
$
|
2,734
|
|
|
$
|
2,813
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate-commercial
|
|
$
|
7,205
|
|
|
$
|
7,412
|
|
|
$
|
72
|
|
|
$
|
7,783
|
|
|
$
|
8,096
|
|
|
$
|
132
|
|
Real
estate-residential
|
|
|
457
|
|
|
|
544
|
|
|
|
10
|
|
|
|
919
|
|
|
|
1,006
|
|
|
|
53
|
|
|
|
$
|
7,662
|
|
|
$
|
7,956
|
|
|
$
|
82
|
|
|
$
|
8,702
|
|
|
$
|
9,102
|
|
|
$
|
185
|
|
The
following table presents the average balance related to impaired loans and leases for the periods indicated (dollars in thousands):
|
|
Average
Recorded Investments
for the three months ended
|
|
|
Average
Recorded Investments
for the nine months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Real
estate-commercial
|
|
$
|
7,231
|
|
|
$
|
8,167
|
|
|
$
|
7,347
|
|
|
$
|
8,231
|
|
Real
estate-residential
|
|
|
460
|
|
|
|
1,063
|
|
|
|
465
|
|
|
|
1,073
|
|
Consumer
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
69
|
|
Total
|
|
$
|
7,691
|
|
|
$
|
9,298
|
|
|
$
|
7,812
|
|
|
$
|
9,373
|
|
The
following table presents the interest income recognized on impaired loans and leases for the periods indicated (dollars in thousands):
|
|
Interest
Income Recognized
for the three months ended
|
|
|
Interest
Income Recognized
for the nine months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Real
estate-commercial
|
|
$
|
110
|
|
|
$
|
120
|
|
|
$
|
329
|
|
|
$
|
341
|
|
Real
estate-residential
|
|
|
7
|
|
|
|
13
|
|
|
|
19
|
|
|
|
41
|
|
Consumer
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
2
|
|
Total
|
|
$
|
117
|
|
|
$
|
134
|
|
|
$
|
348
|
|
|
$
|
384
|
|
7.
TROUBLED DEBT RESTRUCTURINGS
During
the three and nine-month periods ended September 30, 2019, there were no loans that were modified as troubled debt restructurings.
During the three and nine-month periods ended September 30, 2018, there was one $18,000 commercial loan that was modified as a
troubled debt restructuring. The loan was a term out of a line of credit to an amortizing loan with a rate reduction. There were
no payment defaults on troubled debt restructurings within 12 months following the modification for the three-month and nine-month
periods ended September 30, 2019 and September 30, 2018. At September 30, 2019 and December 31, 2018, there were no unfunded commitments
on those loans considered troubled debt restructures. See also “Impaired Loans and Leases” in Item 2.
8.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The
Company’s loan and lease portfolio allocated by management’s internal risk ratings as of September 30, 2019 and December
31, 2018 are summarized below:
September
30, 2019
|
|
Credit
Risk Profile by Internally Assigned Grade
|
|
(dollars
in thousands)
|
|
|
|
|
Real
Estate
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-family
|
|
|
Construction
|
|
|
Residential
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
36,080
|
|
|
$
|
195,428
|
|
|
$
|
57,221
|
|
|
$
|
13,657
|
|
|
$
|
28,355
|
|
Watch
|
|
|
4,978
|
|
|
|
7,151
|
|
|
|
—
|
|
|
|
—
|
|
|
|
623
|
|
Special
mention
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Substandard
|
|
|
—
|
|
|
|
135
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
41,079
|
|
|
$
|
202,714
|
|
|
$
|
57,221
|
|
|
$
|
13,657
|
|
|
$
|
28,978
|
|
|
|
Credit
Risk Profile by Internally Assigned Grade
Other Credit Exposure
|
|
|
|
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
—
|
|
|
$
|
6,570
|
|
|
$
|
24,652
|
|
|
|
|
|
|
$
|
361,963
|
|
Watch
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
|
|
|
|
12,774
|
|
Special
mention
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
21
|
|
Substandard
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
135
|
|
Total
|
|
$
|
—
|
|
|
$
|
6,570
|
|
|
$
|
24,674
|
|
|
|
|
|
|
$
|
374,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2018
|
|
Credit
Risk Profile by Internally Assigned Grade
|
|
(dollars
in thousands)
|
|
|
|
|
Real
Estate
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-family
|
|
|
Construction
|
|
|
Residential
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
29,570
|
|
|
$
|
185,548
|
|
|
$
|
52,301
|
|
|
$
|
5,685
|
|
|
$
|
15,373
|
|
Watch
|
|
|
53
|
|
|
|
13,118
|
|
|
|
3,838
|
|
|
|
—
|
|
|
|
965
|
|
Special
mention
|
|
|
—
|
|
|
|
1,087
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Substandard
|
|
|
27
|
|
|
|
141
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
29,650
|
|
|
$
|
199,894
|
|
|
$
|
56,139
|
|
|
$
|
5,685
|
|
|
$
|
16,338
|
|
|
|
Credit
Risk Profile by Internally Assigned Grade
Other Credit Exposure
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
|
|
|
Total
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
32
|
|
|
$
|
4,419
|
|
|
$
|
10,691
|
|
|
|
|
|
|
$
|
303,619
|
|
Watch
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
|
|
|
|
|
|
17,996
|
|
Special
mention
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
1,088
|
|
Substandard
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
168
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Total
|
|
$
|
32
|
|
|
$
|
4,419
|
|
|
$
|
10,714
|
|
|
|
|
|
|
$
|
322,871
|
|
The
allocation of the Company’s allowance for loan and lease losses and by portfolio segment and by impairment methodology are
summarized below:
September
30, 2019
|
|
|
|
|
Real
Estate
|
|
|
Other
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance
for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance, January 1, 2019
|
|
$
|
668
|
|
|
$
|
2,114
|
|
|
$
|
564
|
|
|
$
|
267
|
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
192
|
|
|
$
|
279
|
|
|
$
|
4,392
|
|
Provision
for loan losses
|
|
|
257
|
|
|
|
(184
|
)
|
|
|
(149
|
)
|
|
|
339
|
|
|
|
105
|
|
|
|
—
|
|
|
|
29
|
|
|
|
92
|
|
|
|
(9
|
)
|
|
|
480
|
|
Loans
charged-off
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
5
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance, September 30, 2019
|
|
$
|
930
|
|
|
$
|
1,938
|
|
|
$
|
415
|
|
|
$
|
606
|
|
|
$
|
325
|
|
|
$
|
—
|
|
|
$
|
117
|
|
|
$
|
352
|
|
|
$
|
270
|
|
|
$
|
4,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
930
|
|
|
$
|
1,866
|
|
|
$
|
415
|
|
|
$
|
606
|
|
|
$
|
315
|
|
|
$
|
—
|
|
|
$
|
117
|
|
|
$
|
352
|
|
|
$
|
270
|
|
|
$
|
4,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
41,079
|
|
|
$
|
202,714
|
|
|
$
|
57,221
|
|
|
$
|
13,657
|
|
|
$
|
28,978
|
|
|
$
|
—
|
|
|
$
|
6,570
|
|
|
$
|
24,674
|
|
|
$
|
—
|
|
|
$
|
374,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
—
|
|
|
$
|
7,205
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
457
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
41,079
|
|
|
$
|
195,509
|
|
|
$
|
57,221
|
|
|
$
|
13,657
|
|
|
$
|
28,521
|
|
|
$
|
—
|
|
|
$
|
6,570
|
|
|
$
|
24,674
|
|
|
$
|
—
|
|
|
$
|
367,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance, June 30, 2019
|
|
$
|
794
|
|
|
$
|
2,085
|
|
|
$
|
390
|
|
|
$
|
454
|
|
|
$
|
358
|
|
|
$
|
—
|
|
|
$
|
131
|
|
|
$
|
318
|
|
|
$
|
231
|
|
|
$
|
4,761
|
|
Provision
for loan losses
|
|
|
134
|
|
|
|
(149
|
)
|
|
|
25
|
|
|
|
152
|
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
(34
|
)
|
|
|
39
|
|
|
|
120
|
|
Loans
charged off
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance, September 30, 2019
|
|
$
|
930
|
|
|
$
|
1,938
|
|
|
$
|
415
|
|
|
$
|
606
|
|
|
$
|
325
|
|
|
$
|
—
|
|
|
$
|
117
|
|
|
$
|
352
|
|
|
$
|
270
|
|
|
$
|
4,953
|
|
December
31, 2018
|
|
|
|
|
Real
Estate
|
|
|
Other
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
—
|
|
|
$
|
132
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
668
|
|
|
$
|
1,982
|
|
|
$
|
564
|
|
|
$
|
267
|
|
|
$
|
167
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
192
|
|
|
$
|
279
|
|
|
$
|
4,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
29,650
|
|
|
$
|
199,894
|
|
|
$
|
56,139
|
|
|
$
|
5,685
|
|
|
$
|
16,338
|
|
|
$
|
32
|
|
|
$
|
4,419
|
|
|
$
|
10,714
|
|
|
$
|
—
|
|
|
$
|
322,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
$
|
—
|
|
|
$
|
7,783
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
919
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment
|
|
$
|
29,650
|
|
|
$
|
192,111
|
|
|
$
|
56,139
|
|
|
$
|
5,685
|
|
|
$
|
15,419
|
|
|
$
|
32
|
|
|
$
|
4,419
|
|
|
$
|
10,714
|
|
|
$
|
—
|
|
|
$
|
314,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
Real
Estate
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Multi-Family
|
|
|
Construction
|
|
|
Residential
|
|
|
Leases
|
|
|
Agriculture
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Allowance
for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance, January 1, 2018
|
|
$
|
447
|
|
|
$
|
2,174
|
|
|
$
|
1,047
|
|
|
$
|
269
|
|
|
$
|
205
|
|
|
$
|
—
|
|
|
$
|
31
|
|
|
$
|
14
|
|
|
$
|
291
|
|
|
$
|
4,478
|
|
Provision
for loan losses
|
|
|
300
|
|
|
|
(208
|
)
|
|
|
(307
|
)
|
|
|
89
|
|
|
|
35
|
|
|
|
(1
|
)
|
|
|
64
|
|
|
|
80
|
|
|
|
(2
|
)
|
|
|
50
|
|
Loans
charged-off
|
|
|
(213
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(213
|
)
|
Recoveries
|
|
|
10
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance, September 30, 2018
|
|
$
|
544
|
|
|
$
|
1,972
|
|
|
$
|
740
|
|
|
$
|
358
|
|
|
$
|
240
|
|
|
$
|
—
|
|
|
$
|
95
|
|
|
$
|
94
|
|
|
$
|
289
|
|
|
$
|
4,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Loan and Lease Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance, June 30, 2018
|
|
$
|
669
|
|
|
$
|
2,100
|
|
|
$
|
839
|
|
|
$
|
298
|
|
|
$
|
239
|
|
|
$
|
—
|
|
|
$
|
49
|
|
|
$
|
11
|
|
|
$
|
287
|
|
|
$
|
4,492
|
|
Provision
for loan losses
|
|
|
87
|
|
|
|
(130
|
)
|
|
|
(99
|
)
|
|
|
60
|
|
|
|
1
|
|
|
|
—
|
|
|
|
46
|
|
|
|
83
|
|
|
|
2
|
|
|
|
50
|
|
Loans
charged off
|
|
|
(213
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(213
|
)
|
Recoveries
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance, September 30, 2018
|
|
$
|
544
|
|
|
$
|
1,972
|
|
|
$
|
740
|
|
|
$
|
358
|
|
|
$
|
240
|
|
|
$
|
—
|
|
|
$
|
95
|
|
|
$
|
94
|
|
|
$
|
289
|
|
|
$
|
4,332
|
|
The
Company’s aging analysis of the loan and lease portfolio at September 30, 2019 and December 31, 2018 are summarized below:
September
30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,079
|
|
|
$
|
41,079
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
202,714
|
|
|
|
202,714
|
|
|
|
—
|
|
|
|
—
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57,221
|
|
|
|
57,221
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,657
|
|
|
|
13,657
|
|
|
|
—
|
|
|
|
—
|
|
Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,978
|
|
|
|
28,978
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,570
|
|
|
|
6,570
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24,674
|
|
|
|
24,674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
374,893
|
|
|
$
|
374,893
|
|
|
$
|
—
|
|
|
$
|
—
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,650
|
|
|
$
|
29,650
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
199,894
|
|
|
|
199,894
|
|
|
|
—
|
|
|
|
—
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,139
|
|
|
|
56,139
|
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,685
|
|
|
|
5,685
|
|
|
|
—
|
|
|
|
—
|
|
Residential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,338
|
|
|
|
16,338
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32
|
|
|
|
32
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,419
|
|
|
|
4,419
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,714
|
|
|
|
10,714
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
322,871
|
|
|
$
|
322,871
|
|
|
$
|
—
|
|
|
$
|
27
|
|
9. LEASES
The
Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, using the alternative transition method whereby
comparative periods were not restated. No cumulative effect adjustment to the opening balance of retained earnings was required.
The Company also elected the package of practical expedients permitted under the transition guidance within the new standard,
which among other things allowed the Company to carry forward the historical lease classifications. Additionally, the Company
elected the hindsight practical expedient to determine the lease term for existing leases.
The
Company leases nine locations for administrative offices and branch locations. All leases were classified as operating leases.
Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized
on a straight-line basis over the lease term. The Company elected to use the practical expedient to not recognize short-term leases
on the consolidated balance sheet and instead account for them as executory contracts.
Certain
leases include options to renew, with renewal terms that can extend the lease term, typically for five years. Lease assets and
liabilities include related options that are reasonably certain of being exercised, however, in the case of those leases that
have renewal options, the Company is not including those additional lease terms as the rates are undeterminable and it has been
the Company’s historical practice to renegotiate lease terms upon expiration of the original lease terms. The depreciable
life of leased assets is limited by the expected lease term.
Adoption
of this standard resulted in the Company recognizing a right of use asset and a corresponding lease liability of $3,570,000 on
January 1, 2019.
Supplemental
lease information at or for the nine months ended September 30, 2019 is as follows:
Balance
Sheet
|
|
|
|
|
Operating
lease asset classified as other assets
|
|
$
|
2,798,000
|
|
Operating
lease liability classified as other liabilities
|
|
|
3,025,000
|
|
Income
Statement
|
|
|
|
|
Operating
lease cost classified as occupancy and equipment expense
|
|
$
|
567,000
|
|
Weighted
average lease term, in years
|
|
|
6.01
|
|
Weighted
average discount rate (1)
|
|
|
3.07
|
%
|
Operating
cash flows
|
|
$
|
565,000
|
|
(1)
|
The
discount rate was developed by using the fixed rate credit advance borrowing rate
at the Federal Home Loan Bank of San Francisco for a term correlating to the remaining
life of each lease.
|
A maturity analysis
of the Company’s lease liabilities at September 30, 2019 was as follows:
|
|
Balance
|
|
October
1, 2019 to December 31, 2019
|
|
$
|
182,000
|
|
January
1, 2020 to December 31, 2020
|
|
|
688,000
|
|
January
1, 2021 to December 31, 2021
|
|
|
633,000
|
|
January
1, 2022 to December 31, 2022
|
|
|
282,000
|
|
January
1, 2023 to December 31, 2023
|
|
|
273,000
|
|
Thereafter
|
|
|
657,000
|
|
Total
lease payments
|
|
|
3,375,000
|
|
Less:
Interest
|
|
|
(350,000
|
)
|
Present
value of lease liabilities
|
|
$
|
3,025,000
|
|
10. BORROWING ARRANGEMENTS
At
September 30, 2019, the Company had $17,000,000 of unsecured short-term borrowing arrangements with two of its correspondent banks.
There were no advances under the borrowing arrangements as of September 30, 2019 or December 31, 2018.
The
Company has a line of credit available with the Federal Home Loan Bank of San Francisco (the “FHLB”) which is secured
by pledged mortgage loans and investment securities. Borrowings may include overnight advances as well as loans with terms of
up to thirty years. Advances (both short-term and long-term) totaling $15,500,000 were outstanding from the FHLB at September
30, 2019, bearing interest rates ranging from 1.31% to 3.17% and maturing between July 13, 2020 and November 24, 2023. Advances
totaling $15,500,000 were outstanding from the FHLB at December 31, 2018, bearing interest rates ranging from 1.18% to 3.17% and
maturing between April 30, 2019 and November 24, 2023. Remaining amounts available under the borrowing arrangement with the FHLB
at September 30, 2019 and December 31, 2018 totaled $131,626,000 and $107,262,000, respectively. In addition, the Company has
a secured borrowing agreement with the Federal Reserve Bank of San Francisco. The borrowing can be secured by pledging selected
loans and investment securities. Borrowings generally are short-term including overnight advances as well as loans with terms
up to ninety days. Amounts available under this borrowing arrangement at September 30, 2019 and December 31, 2018 were $9,322,000
and $8,340,000, respectively. There were no advances outstanding under this borrowing arrangement as of September 30, 2019 and
December 31, 2018.
11. 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 (benefit from) 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 respective
tax basis. 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.
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 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, if applicable, 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. The Company recognizes accrued
interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated
statement of income. There have been no unrecognized tax benefits or accrued interest and penalties for the three-month and nine-month
periods ended September 30, 2019 and 2018.
12.
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 September 30, 2019 and December 31, 2018. 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 2018, the Company adopted the
provisions of Accounting Standard Update 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities”
(“ASU 2016-01”). ASU 2016-01 requires the Company to use the exit price notion when measuring the fair value of financial
instruments. 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:
|
|
|
|
|
September
30, 2019
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
14,512
|
|
|
$
|
14,512
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,512
|
|
Federal
funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest-bearing
deposits in banks
|
|
|
14,870
|
|
|
|
13,124
|
|
|
|
1,746
|
|
|
|
—
|
|
|
|
14,870
|
|
Available-for-sale
securities
|
|
|
276,055
|
|
|
|
—
|
|
|
|
276,055
|
|
|
|
—
|
|
|
|
276,055
|
|
Held-to-maturity
securities
|
|
|
256
|
|
|
|
—
|
|
|
|
275
|
|
|
|
—
|
|
|
|
275
|
|
FHLB
stock
|
|
|
4,259
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net
loans and leases
|
|
|
369,940
|
|
|
|
—
|
|
|
|
—
|
|
|
|
375,167
|
|
|
|
375,167
|
|
Accrued
interest receivable
|
|
|
2,019
|
|
|
|
—
|
|
|
|
762
|
|
|
|
1,157
|
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
228,517
|
|
|
$
|
228,517
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
228,517
|
|
Savings
|
|
|
75,980
|
|
|
|
75,980
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75,980
|
|
Money
market
|
|
|
151,469
|
|
|
|
151,469
|
|
|
|
—
|
|
|
|
—
|
|
|
|
151,469
|
|
NOW
accounts
|
|
|
70,712
|
|
|
|
70,712
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,712
|
|
Time
Deposits
|
|
|
86,226
|
|
|
|
—
|
|
|
|
86,456
|
|
|
|
—
|
|
|
|
86,456
|
|
Short-term
borrowings
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
Long-term
borrowings
|
|
|
10,500
|
|
|
|
—
|
|
|
|
10,802
|
|
|
|
—
|
|
|
|
10,802
|
|
Accrued
interest payable
|
|
|
239
|
|
|
|
4
|
|
|
|
235
|
|
|
|
—
|
|
|
|
235
|
|
|
|
Carrying
|
|
|
Fair
Value Measurements Using:
|
|
|
|
|
December
31, 2018
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
20,987
|
|
|
$
|
20,987
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,987
|
|
Federal
funds sold
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
Interest-bearing
deposits in banks
|
|
|
1,746
|
|
|
|
—
|
|
|
|
1,746
|
|
|
|
—
|
|
|
|
1,746
|
|
Available-for-sale
securities
|
|
|
294,933
|
|
|
|
4,976
|
|
|
|
289,957
|
|
|
|
—
|
|
|
|
294,933
|
|
Held-to-maturity
securities
|
|
|
292
|
|
|
|
—
|
|
|
|
306
|
|
|
|
—
|
|
|
|
306
|
|
FHLB
stock
|
|
|
3,932
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net
loans and leases:
|
|
|
318,516
|
|
|
|
—
|
|
|
|
—
|
|
|
|
315,235
|
|
|
|
315,235
|
|
Accrued
interest receivable
|
|
|
1,959
|
|
|
|
—
|
|
|
|
1,044
|
|
|
|
915
|
|
|
|
1,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
214,745
|
|
|
$
|
214,745
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
214,745
|
|
Savings
|
|
|
72,522
|
|
|
|
72,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,522
|
|
Money
market
|
|
|
145,831
|
|
|
|
145,831
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145,831
|
|
Interest
checking
|
|
|
69,489
|
|
|
|
69,489
|
|
|
|
—
|
|
|
|
—
|
|
|
|
69,489
|
|
Time
Deposits
|
|
|
88,087
|
|
|
|
—
|
|
|
|
88,078
|
|
|
|
—
|
|
|
|
88,078
|
|
Short-term
borrowings
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
Long-term
borrowings
|
|
|
10.500
|
|
|
|
—
|
|
|
|
10,733
|
|
|
|
—
|
|
|
|
10,733
|
|
Accrued
interest payable
|
|
|
63
|
|
|
|
1
|
|
|
|
62
|
|
|
|
—
|
|
|
|
63
|
|
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.
Assets
and liabilities measured at fair value on a recurring and non-recurring basis along with any related gain or loss recognized in
the income statement due to fair value changes are presented in the following table:
Description
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
Total
Gains
|
|
(dollars
in thousands)
|
|
Fair
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
(Losses)
|
|
September
30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
261,316
|
|
|
$
|
—
|
|
|
$
|
261,316
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Obligations
of states and political subdivisions
|
|
|
8,113
|
|
|
|
—
|
|
|
|
8,113
|
|
|
|
—
|
|
|
|
—
|
|
Corporate
bonds
|
|
|
6,626
|
|
|
|
—
|
|
|
|
6,626
|
|
|
|
—
|
|
|
|
—
|
|
Total
recurring
|
|
$
|
276,055
|
|
|
$
|
—
|
|
|
$
|
276,055
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
957
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
957
|
|
|
$
|
—
|
|
Total
nonrecurring
|
|
$
|
957
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
957
|
|
|
$
|
—
|
|
At
September 30, 2019, there were no impaired loans carried at fair value as the appraised value exceeded carrying value.
Description
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
Total
Gains
|
|
(dollars
in thousands)
|
|
Fair
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
(Losses)
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
269,049
|
|
|
$
|
—
|
|
|
$
|
269,049
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate
bonds
|
|
|
6,508
|
|
|
|
—
|
|
|
|
6,508
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
|
14,400
|
|
|
|
—
|
|
|
|
14,400
|
|
|
|
—
|
|
|
|
—
|
|
U.S.
Treasury securities
|
|
|
4,976
|
|
|
|
4,976
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
recurring
|
|
$
|
294,933
|
|
|
$
|
4,976
|
|
|
$
|
289,957
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and liabilities measured on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
5,274
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,274
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned Land
|
|
|
957
|
|
|
|
—
|
|
|
|
—
|
|
|
|
957
|
|
|
|
(4
|
)
|
Total
nonrecurring
|
|
$
|
6,231
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,231
|
|
|
$
|
(4
|
)
|
There were no
significant transfers between Levels 1 and 2 during the three-month and nine-month periods ended September 30, 2019 or the twelve
months ended December 31, 2018.
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%.
13.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 was effective for interim and annual reporting periods
beginning after December 15, 2018; early adoption was 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. Based on evaluation of the Company’s
current lease obligations, the Company has determined that the provisions of ASU No. 2016-02 resulted in an increase in assets
to recognize the present value of the lease obligations with a corresponding increase in liabilities. The Company currently leases
nine of its office leases under operating leases. The Company adopted ASU No. 2016-02 on January 1, 2019. The Company’s
present value of future lease payments as of January 1, 2019 is $3,570,000, to be recorded as a right-of-use asset with an offsetting
liability. Other than the just noted increase in assets and liabilities, the effects of adopting ASU No. 2016-02 did not 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 was
initially scheduled to become effective for interim and annual reporting periods beginning after December 15, 2019, however, on
October 16, 2019, the FASB approved its former tentative decision with respect to the effective date of implementing ASU No. 2016-13.
Subject to the final ASU, which is expected in mid-November, the FASB approved the tentative decision to defer the effective date
of ASU No. 2016-13 for smaller reporting companies, such as the Company, to interim and annual reporting periods beginning after
December 15, 2022; early adoption would still be 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, including if it will early adopt the standard, 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,
evaluating its current IT systems, and purchasing a software solution. The Company has imported current and historical data into
the new software and is currently validating the data and intends to begin processing information, on a test basis, with the new
CECL specific software during 2019 and 2020 and to disclose any material potential impact of this modeling once it becomes available.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following is management’s discussion and analysis of the significant changes in American River Bankshares’ (the “Company”)
balance sheet accounts between December 31, 2018 and September 30, 2019 and its income and expense accounts for the three-month
and nine-month periods ended September 30, 2019 and 2018. The discussion is designed to provide a better understanding of significant
trends related to the Company’s financial condition, results of operations, liquidity, capital resources and interest rate
sensitivity. This discussion and supporting tables and the consolidated financial statements and related notes appearing elsewhere
in this report are unaudited. Interest income and net interest income are presented on a fully taxable equivalent basis (FTE)
within management’s discussion and analysis. Certain matters discussed or incorporated by reference in this Quarterly Report
on Form 10-Q including, but not limited to, matters described in this “Item 2 - Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, 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 significantly from those projected. Factors that could cause or contribute to such differences
include, but are not limited to, the following:
|
·
|
Current
and future legislation and regulation promulgated by the United States Congress and actions
taken by governmental agencies that may impact the U.S. financial system;
|
|
·
|
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;
|
|
·
|
variances
in the actual versus projected growth in assets and return on assets;
|
|
·
|
potential
loan and lease losses;
|
|
·
|
potential
expenses associated with resolving nonperforming assets;
|
|
·
|
changes
in the interest rate environment including interest rates charged on loans, earned on
securities investments and paid on deposits and other borrowed funds;
|
|
·
|
inadequate
internal controls over financial reporting or disclosure controls and procedures;
|
|
·
|
changes
in accounting policies and practices and the effects of adopting ASU No. 2016-13, Measurement
of Credit Losses on Financial Instruments (“CECL”);
|
|
·
|
potential
declines in fee and other noninterest income earned associated with economic factors;
|
|
·
|
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;
|
|
·
|
changes
in the regulatory environment including increased capital and regulatory compliance requirements
and government intervention in the U.S. financial system;
|
|
·
|
changes
in business conditions and inflation;
|
|
·
|
changes
in securities markets, public debt markets, and other capital markets;
|
|
·
|
potential
data processing, cybersecurity and other operational systems failures, breach or fraud;
|
|
·
|
potential
decline in real estate values in our operating markets;
|
|
·
|
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, natural disasters (including earthquakes and wildfires), and disruption
of power supplies and communications;
|
|
·
|
changes
in accounting standards, tax laws or regulations and interpretations of such standards,
laws or regulations;
|
|
·
|
projected
business increases following any future strategic expansion could be lower than expected;
|
|
·
|
the
goodwill we have recorded in connection with acquisitions could become impaired, which
may have an adverse impact on our earnings;
|
|
·
|
our
ability to comply with any regulatory orders or requirements we may become subject to;
|
|
·
|
the
effects and costs of litigation and other legal developments;
|
|
·
|
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
|
|
·
|
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 the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018, and other cautionary statements and information set forth in this Quarterly Report on Form 10-Q should be carefully
considered and understood as being applicable to all related forward-looking statements contained in this Quarterly Report on
Form 10-Q, 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
Quarterly Report on Form 10-Q (“Form 10Q”) contains certain non-GAAP (Generally Accepted Accounting Principles) financial
measures in addition to results presented in accordance with GAAP. These measures include the taxable equivalent basis used
in the computation of the net interest margin and efficiency ratio. Management has presented these non-GAAP financial measures
in this Form 10Q because it believes that they provide useful and comparative information to assess trends in the Company’s
financial position reflected in the current quarter and year-to-date 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 21% 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.
Reconciliation
of Annualized Net Interest Margin, Fully Tax Equivalent (non-GAAP)
(dollars
in thousands)
|
|
For
the three months
ended September 30,
|
|
|
For
the nine months
ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net
interest income (GAAP)
|
|
$
|
5,928
|
|
|
$
|
5,257
|
|
|
$
|
17,105
|
|
|
$
|
15,114
|
|
Tax
equivalent adjustment
|
|
|
49
|
|
|
|
45
|
|
|
|
148
|
|
|
|
159
|
|
Net
interest income - tax equivalent adjusted (non-GAAP)
|
|
$
|
5,977
|
|
|
$
|
5,302
|
|
|
$
|
17,253
|
|
|
$
|
15,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
earning assets
|
|
$
|
655,937
|
|
|
$
|
611,743
|
|
|
$
|
642,605
|
|
|
$
|
607,299
|
|
Net
interest margin (GAAP)
|
|
|
3.59
|
%
|
|
|
3.41
|
%
|
|
|
3.56
|
%
|
|
|
3.33
|
%
|
Net
interest margin (non-GAAP)
|
|
|
3.62
|
%
|
|
|
3.44
|
%
|
|
|
3.59
|
%
|
|
|
3.36
|
%
|
Reconciliation
of Non-GAAP Measure – Efficiency Ratio
(dollars
in thousands)
|
|
For
the three months ended
September 30,
|
|
|
For
the nine months
ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net
interest income (GAAP)
|
|
$
|
5,928
|
|
|
$
|
5,257
|
|
|
$
|
17,105
|
|
|
$
|
15,114
|
|
Tax
equivalent adjustment
|
|
|
49
|
|
|
|
45
|
|
|
|
148
|
|
|
|
159
|
|
Net
interest income – tax-equivalent adjusted (non-GAAP)
|
|
$
|
5,977
|
|
|
$
|
5,302
|
|
|
$
|
17,253
|
|
|
$
|
15,273
|
|
Noninterest
income
|
|
|
417
|
|
|
|
377
|
|
|
|
1,249
|
|
|
|
1,129
|
|
Total
income
|
|
|
6,394
|
|
|
|
5,555
|
|
|
|
18,502
|
|
|
|
16,402
|
|
Total
noninterest expense
|
|
|
4,093
|
|
|
|
4,003
|
|
|
|
12,501
|
|
|
|
11,181
|
|
Efficiency
ratio, fully tax-equivalent (non-GAAP)
|
|
|
64.01
|
%
|
|
|
70.49
|
%
|
|
|
67.57
|
%
|
|
|
68.17
|
%
|
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.
General
Development of Business
The
Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated
under the laws of the State of California in 1995. As a bank holding company, the Company is authorized to engage in the activities
permitted under the Bank Holding Company Act of 1956, as amended, and regulations thereunder. Its principal office is located
at 3100 Zinfandel Drive, Suite 450, Rancho Cordova, California 95670 and its telephone number is (916) 854-0123. The Company employed
an equivalent of 104 full-time employees as of September 30, 2019.
The
Company owns 100% of the issued and outstanding common shares of its banking subsidiary, American River Bank (the “Bank”),
and American River Financial, a California corporation which has been inactive since its incorporation in 2003.
American
River Bank was incorporated and commenced business in Fair Oaks, California, in 1983 and thereafter moved its headquarters to
Sacramento, California in 1985. American River Bank operates five full service offices in Sacramento and Placer Counties including
the main office located at 1545 River Park Drive, Suite 107, Sacramento and branch offices in Sacramento, Gold River, and Roseville;
two full service offices in Sonoma County in Healdsburg and Santa Rosa; and three full service offices in Amador County in Jackson,
Pioneer, and Ione.
The
Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal
limits. American River Bank does not offer trust services or international banking services and does not plan to do so in the
near future. American River Bank’s primary business is serving the commercial banking needs of small to mid-sized businesses
within those counties listed above. American River Bank accepts checking and savings deposits, offers money market deposit accounts
and certificates of deposit, makes secured and unsecured commercial, secured real estate, and other installment and term loans
and offers other customary banking services. American River Bank also conducts lease financing for certain types of business equipment.
American River Bank owns 100% of two inactive companies, ARBCO and American River Mortgage. ARBCO was formed in 1984 to conduct
real estate development and has been inactive since 1995. American River Mortgage has been inactive since its formation in 1994.
During 2019 and 2018, the Company conducted no significant activities other than holding the shares of its subsidiaries. However,
it is authorized, with the prior approval of the Board of Governors of the Federal Reserve System (the “Federal Reserve
Board”), the Company’s principal regulator, to engage in a variety of activities which are deemed closely related
to the business of banking. The common stock of the Company is registered under the Securities Exchange Act of 1934, as amended,
and is listed and traded on the Nasdaq Global Select Market under the symbol “AMRB.”
Overview
The
Company recorded net income of $1,571,000 for the quarter ended September 30, 2019, which was an increase of $418,000 compared
to $1,153,000 reported for the same period of 2018. Diluted earnings per share for the third quarter of 2019 were $0.27 compared
to $0.20 recorded in the third quarter of 2018. The return on average equity (“ROAE”) and the return on average assets
(“ROAA”) for the third quarter of 2019 were 7.65% and 0.88%, respectively, as compared to 6.37% and 0.68%, respectively,
for the same period in 2018.
Net
income for the nine months ended September 30, 2019 and 2018 was $3,993,000 and $3,775,000, respectively, with diluted earnings
per share of $0.68 in 2019 and $0.64 in 2018. For the first nine months of 2019, ROAE was 6.81% and ROAA was 0.77% compared to
6.95% and 0.74%, respectively, for the same period in 2018.
Total
assets of the Company increased by $33,189,000 (4.8%) from $688,092,000 at December 31, 2018 to $721,281,000 at September 30,
2019. Net loans totaled $369,940,000 at September 30, 2019, an increase of $51,424,000 (16.1%) from $318,516,000 at December 31,
2018. Deposit balances at September 30, 2019 totaled $612,904,000, an increase of $22,230,000 (3.8%) from $590,674,000 at December
31, 2018.
The
Company ended the third quarter of 2019 with a leverage capital ratio of 9.2%, a Tier 1 capital ratio of 15.4%, and a total risk-based
capital ratio of 16.6% compared to 8.9%, 16.1%, and 17.3%, respectively, at December 31, 2018. Table One below provides a summary
of the components of net income for the periods indicated (See the “Results of Operations” section that follows for
an explanation of the fluctuations in the individual components).
Table One: Components of Net Income
(dollars
in thousands)
|
|
For
the three months ended
September 30,
|
|
|
For
the nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Interest
income*
|
|
$
|
6,604
|
|
|
$
|
5,711
|
|
|
$
|
19,111
|
|
|
$
|
16,389
|
|
Interest
expense
|
|
|
(627
|
)
|
|
|
(409
|
)
|
|
|
(1,858
|
)
|
|
|
(1,116
|
)
|
Net
interest income*
|
|
|
5,977
|
|
|
|
5,302
|
|
|
|
17,253
|
|
|
|
15,273
|
|
Provision
for loan and lease losses
|
|
|
(120
|
)
|
|
|
(50
|
)
|
|
|
(480
|
)
|
|
|
(50
|
)
|
Noninterest
income
|
|
|
417
|
|
|
|
377
|
|
|
|
1,249
|
|
|
|
1,129
|
|
Noninterest
expense
|
|
|
(4,093
|
)
|
|
|
(4,003
|
)
|
|
|
(12,501
|
)
|
|
|
(11,181
|
)
|
Provision
for income taxes
|
|
|
(561
|
)
|
|
|
(428
|
)
|
|
|
(1,380
|
)
|
|
|
(1,237
|
)
|
Tax
equivalent adjustment
|
|
|
(49
|
)
|
|
|
(45
|
)
|
|
|
(148
|
)
|
|
|
(159
|
)
|
Net
income
|
|
$
|
1,571
|
|
|
$
|
1,153
|
|
|
$
|
3,993
|
|
|
$
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total assets
|
|
$
|
708,698
|
|
|
$
|
673,959
|
|
|
$
|
695,364
|
|
|
$
|
680,056
|
|
Net
income (annualized) as a percentage of average total assets
|
|
|
0.88
|
%
|
|
|
0.68
|
%
|
|
|
0.77
|
%
|
|
|
0.74
|
%
|
*
Fully taxable equivalent basis (FTE)
Results of Operations
Net Interest Income and
Net Interest Margin
Net
interest income represents the excess of interest and fees earned on interest earning assets (loans and leases, securities, Federal
funds sold and investments in time deposits) over the interest paid on interest-bearing deposits and borrowed funds. Net interest
margin is net interest income expressed as a percentage of average earning assets. The Company’s net interest margin was
3.62% for the three months ended September 30, 2019, 3.44% for the three months ended September 30, 2018, 3.59% for the nine months
ended September 30, 2019 and 3.36% for the nine months ended September 30, 2018.
The
fully taxable equivalent interest income component for the third quarter of 2019 increased $893,000 (15.6%) to $6,604,000 compared
to $5,711,000 for the three months ended September 30, 2018. The increase in the fully taxable equivalent interest income for
the third quarter of 2019 compared to the same period in 2018 is broken down by rate (up $227,000) and volume (up $666,000). The
primary driver in this rate increase was an increase in the yield on loans which saw an increase from 4.71% in the third quarter
of 2018 to 4.98% in the third quarter of 2019. The increased yield in 2019 compared to 2018 was due to the overall higher interest
rate environment. The yield on earning assets increased from 3.70% during the third quarter of 2018 to 3.99% during the third
quarter of 2019.
The
volume increase of $666,000 was primarily from an increase in loans ($806,000) and interest bearing balances in banks ($68,000),
partially offset by a decrease in investment balances ($208,000). Average loans balances increased $68,970,000, (or 22.7%), from
$299,934,000 during the third quarter of 2018 to $368,160,000 during the third quarter of 2019; average interest bearing balances
in banks increased $11,916,000, (or 682.5%), from $1,746,000 during the third quarter of 2018 to $13,662,000 during the third
quarter of 2019; and the average investment balances decreased $11,589,000, (or 4.1%), from $285,704,000 during the third quarter
of 2018 to $274,115,000 during the third quarter of 2019.
Total
fully taxable equivalent interest income for the nine months ended September 30, 2019 increased $2,722,000 (16.6%) to $19,111,000
compared to $16,389,000 for the nine months ended September 30, 2018. The breakdown of the decrease in fully taxable equivalent
interest income for the nine months ended September 30, 2019 over the same period in 2018 resulted from an increase in rate (up
$1,304,000) and in volume (up $1,418,000). The primary driver in this rate increase was an increase in the yield on loans which
increased from 4.70% in 2018 to 4.94% in 2019 and an increase in yields on the investment portfolio which increased from 2.58%
in 2018 to 2.84% in 2019. The increased yield in 2019 compared to 2018 was due to the overall higher interest rate environment.
The yield on earning assets increased from 3.61% during 2018 to 3.98% during 2019. The volume increase of $1,418,000 was primarily
from an increase in loans ($1,600,000), and average interest bearing balances in banks ($97,000), partially offset by a decrease
in investment balances ($14,000) and in Fed fund balances ($265,000). Average loans balances increased $45,767,000, (or 15.1%),
from $303,951,000 during the first nine months of 2018 to $349,718,000 during the first nine months of 2019; the average interest
bearing balances in banks increased $7,352,000, (or 421.6%), from $1,744,000 during the first nine months of 2018 to $9,096,000
during the first nine months of 2019; and average Fed fund balances decreased $19,908,000, (or 98.9%), from $20,139,000 during
the first nine months of 2018 to $231,000 during the first nine months of 2019.
Interest
expense was $218,000 (or 53.3%) higher in the third quarter of 2019 versus the prior year period, increasing from $409,000 to
$627,000. The $218,000 increase in interest expense during the third quarter of 2019 compared to the third quarter of 2018 was
due to higher rates (up $184,000) and higher volume (up $34,000). The increase in interest expense can be attributed to an increase
in rates paid on deposit and borrowing balances during a higher interest rate environment. Rates paid on interest bearing liabilities
increased 21 basis points from 0.43% to 0.64% for the third quarter of 2018 compared to the same period in 2019. The largest increase
due to rates occurred in interest checking and money market accounts and in the time deposits. The rate paid on interest checking
and money market accounts increased from 0.12% during the third quarter of 2018 to 0.29% during the third quarter of 2019 and
accounted for $92,000 of the $184,000 increase attributed to rates. The rate paid on time deposit accounts increased from 1.42%
during the third quarter of 2018 to 1.75% during the third quarter of 2019 and accounted for $72,000 of the $184,000 increase
attributed to rates. The volume increase of $34,000 was attributed to an increase in average time deposit balances which increased
from $77,411,000 during the third quarter of 2018 to $86,938,000 during the third quarter of 2018.
Interest
expense was $742,000 (or 66.5%) higher in the nine-month period ended September 30, 2019 increasing from $1,116,000 in 2018 to
$1,858,000 in 2019. The increase is related to rates (up $627,000) and volume (up $115,000). The largest increase due to rates
occurred in interest checking and money market accounts and in the time deposits. The rate paid on interest checking and money
market accounts increased from 0.12% during the first nine months of 2018 to 0.24% during the first nine months of 2019 and accounted
for $183,000 of the $627,000 increase attributed to rates. The rate paid on time deposit accounts increased from 1.24% during
the first nine months of 2018 to 1.78% during the first nine months of 2019 and accounted for $356,000 of the $627,000 increase
attributed to rates. The volume increase of $115,000 was attributed to an increase in average time deposit balances which increased
from $78,761,000 during the first nine months of 2018 to $87,655,000 during the first nine months of 2019 and accounted for $82,000
of the $115,000 increase and an increase in average other borrowings which increased from $15,544,000 during the first nine months
of 2018 to $19,341,000 during the first nine months of 2019 and accounted for $42,000 of the $115,000 increase.
Table
Two, Analysis of Net Interest Margin on Earning Assets, and Table Three, Analysis of Volume and Rate Changes on Net Interest Income
and Expenses, are provided to enable the reader to understand the components and trends of the Company’s interest income
and expenses. Table Two provides an analysis of net interest margin on earning assets setting forth average assets, liabilities
and shareholders’ equity; interest income earned and interest expense paid and average rates earned and paid; and the net
interest margin on earning assets.
Table
Three sets forth a summary of the changes in interest income and interest expense from changes in average asset and liability
balances (volume) and changes in average interest rates.
Table
Two: Analysis of Net Interest Margin on Earning Assets
Three
Months Ended September 30,
|
|
2019
|
|
|
2018
|
|
(Taxable
Equivalent Basis)
(dollars in thousands)
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
(4)
|
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
(4)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
loans and leases (1)
|
|
$
|
346,598
|
|
|
$
|
4,397
|
|
|
|
5.03
|
%
|
|
$
|
286,261
|
|
|
$
|
3,405
|
|
|
|
4.72
|
%
|
Tax-exempt
loans and leases (2)
|
|
|
21,562
|
|
|
|
224
|
|
|
|
4.12
|
%
|
|
|
13,673
|
|
|
|
152
|
|
|
|
4.41
|
%
|
Taxable
investment securities
|
|
|
267,012
|
|
|
|
1,846
|
|
|
|
2.74
|
%
|
|
|
270,014
|
|
|
|
1,902
|
|
|
|
2.79
|
%
|
Tax-exempt
investment securities (2)
|
|
|
7,103
|
|
|
|
66
|
|
|
|
3.69
|
%
|
|
|
15,690
|
|
|
|
122
|
|
|
|
3.08
|
%
|
Federal
funds sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
%
|
|
|
24,359
|
|
|
|
120
|
|
|
|
1.95
|
%
|
Interest-bearing
deposits in banks
|
|
|
13,662
|
|
|
|
71
|
|
|
|
2.06
|
%
|
|
|
1,746
|
|
|
|
10
|
|
|
|
2.27
|
%
|
Total
earning assets
|
|
|
655,937
|
|
|
|
6,604
|
|
|
|
3.99
|
%
|
|
|
611,743
|
|
|
|
5,711
|
|
|
|
3.70
|
%
|
Cash
& due from banks
|
|
|
17,215
|
|
|
|
|
|
|
|
|
|
|
|
26,272
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
40,406
|
|
|
|
|
|
|
|
|
|
|
|
40,343
|
|
|
|
|
|
|
|
|
|
Allowance
for loan & lease losses
|
|
|
(4,860
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,399
|
)
|
|
|
|
|
|
|
|
|
Total
average assets
|
|
$
|
708,698
|
|
|
|
|
|
|
|
|
|
|
$
|
673,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
$
|
211,930
|
|
|
|
155
|
|
|
|
0.29
|
%
|
|
$
|
212,872
|
|
|
|
63
|
|
|
|
0.12
|
%
|
Savings
|
|
|
74,738
|
|
|
|
7
|
|
|
|
0.04
|
%
|
|
|
72,580
|
|
|
|
6
|
|
|
|
0.03
|
%
|
Time
deposits
|
|
|
86,938
|
|
|
|
383
|
|
|
|
1.75
|
%
|
|
|
77,411
|
|
|
|
277
|
|
|
|
1.42
|
%
|
Other
borrowings
|
|
|
15,614
|
|
|
|
82
|
|
|
|
2.08
|
%
|
|
|
15,630
|
|
|
|
63
|
|
|
|
1.60
|
%
|
Total
interest bearing liabilities
|
|
|
389,220
|
|
|
|
627
|
|
|
|
0.64
|
%
|
|
|
378,493
|
|
|
|
409
|
|
|
|
0.43
|
%
|
Noninterest
bearing demand deposits
|
|
|
227,644
|
|
|
|
|
|
|
|
|
|
|
|
216,732
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
10,368
|
|
|
|
|
|
|
|
|
|
|
|
6,887
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
627,232
|
|
|
|
|
|
|
|
|
|
|
|
602,112
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
81,466
|
|
|
|
|
|
|
|
|
|
|
|
71,847
|
|
|
|
|
|
|
|
|
|
Total
average liabilities and shareholders’ equity
|
|
$
|
708,698
|
|
|
|
|
|
|
|
|
|
|
$
|
673,959
|
|
|
|
|
|
|
|
|
|
Net
interest income & margin (3)
|
|
|
|
|
|
$
|
5,977
|
|
|
|
3.62
|
%
|
|
|
|
|
|
$
|
5,302
|
|
|
|
3.44
|
%
|
|
(1)
|
Loan
interest includes loan fees of $18,000 and $100,000, respectively, during the three months
ended September 30, 2019 and September 30, 2018. Average loan balances
include nonperforming loans.
|
|
(2)
|
Includes
taxable-equivalent adjustments that primarily relate to income on certain securities
that is exempt from federal income taxes. The effective federal statutory tax rate was
21% for 2019 and 2018.
|
|
(3)
|
Net
interest margin is computed by dividing net interest income by total average earning
assets.
|
|
(4)
|
Average
yield is calculated based on actual days in the period (92 days) and annualized to actual
days in the year (365 days).
|
Nine
Months Ended September 30,
|
|
2019
|
|
|
2018
|
|
(Taxable
Equivalent Basis)
(dollars in thousands)
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
(4)
|
|
|
Avg
Balance
|
|
|
Interest
|
|
|
Avg
Yield
(4)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
loans and leases (1)
|
|
$
|
330,312
|
|
|
$
|
12,329
|
|
|
|
4.99
|
%
|
|
$
|
290,142
|
|
|
$
|
10,216
|
|
|
|
4.71
|
%
|
Tax-exempt
loans and leases (2)
|
|
|
19,406
|
|
|
|
604
|
|
|
|
4.16
|
%
|
|
|
13,809
|
|
|
|
458
|
|
|
|
4.43
|
%
|
Taxable
investment securities
|
|
|
272,738
|
|
|
|
5,756
|
|
|
|
2.82
|
%
|
|
|
261,482
|
|
|
|
4,930
|
|
|
|
2.52
|
%
|
Tax-exempt
investment securities (2)
|
|
|
10,822
|
|
|
|
266
|
|
|
|
3.29
|
%
|
|
|
19,983
|
|
|
|
494
|
|
|
|
3.31
|
%
|
Federal
funds sold
|
|
|
231
|
|
|
|
5
|
|
|
|
2.89
|
%
|
|
|
20,139
|
|
|
|
268
|
|
|
|
1.78
|
%
|
Interest-bearing
deposits in banks
|
|
|
9,096
|
|
|
|
151
|
|
|
|
2.22
|
%
|
|
|
1,744
|
|
|
|
23
|
|
|
|
1.76
|
%
|
Total
earning assets
|
|
|
642,605
|
|
|
|
19,111
|
|
|
|
3.98
|
%
|
|
|
607,299
|
|
|
|
16,389
|
|
|
|
3.61
|
%
|
Cash
& due from banks
|
|
|
16,356
|
|
|
|
|
|
|
|
|
|
|
|
37,537
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
41,048
|
|
|
|
|
|
|
|
|
|
|
|
39,678
|
|
|
|
|
|
|
|
|
|
Allowance
for loan & lease losses
|
|
|
(4,645
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,458
|
)
|
|
|
|
|
|
|
|
|
Total
average assets
|
|
$
|
695,364
|
|
|
|
|
|
|
|
|
|
|
$
|
680,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
$
|
208,607
|
|
|
|
369
|
|
|
|
0.24
|
%
|
|
$
|
219,797
|
|
|
|
196
|
|
|
|
0.12
|
%
|
Savings
|
|
|
73,596
|
|
|
|
21
|
|
|
|
0.04
|
%
|
|
|
70,785
|
|
|
|
19
|
|
|
|
0.04
|
%
|
Time
deposits
|
|
|
87,655
|
|
|
|
1,168
|
|
|
|
1.78
|
%
|
|
|
78,761
|
|
|
|
730
|
|
|
|
1.24
|
%
|
Other
borrowings
|
|
|
19,341
|
|
|
|
300
|
|
|
|
2.07
|
%
|
|
|
15,544
|
|
|
|
171
|
|
|
|
1.47
|
%
|
Total
interest-bearing liabilities
|
|
|
389,199
|
|
|
|
1,858
|
|
|
|
0.64
|
%
|
|
|
384,887
|
|
|
|
1,116
|
|
|
|
0.39
|
%
|
Noninterest-bearing
demand deposits
|
|
|
217,760
|
|
|
|
|
|
|
|
|
|
|
|
215,537
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
10,019
|
|
|
|
|
|
|
|
|
|
|
|
7,013
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
616,978
|
|
|
|
|
|
|
|
|
|
|
|
607,437
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
78,386
|
|
|
|
|
|
|
|
|
|
|
|
72,619
|
|
|
|
|
|
|
|
|
|
Total
average liabilities and shareholders’ equity
|
|
$
|
695,364
|
|
|
|
|
|
|
|
|
|
|
$
|
680,056
|
|
|
|
|
|
|
|
|
|
Net
interest income & margin (3)
|
|
|
|
|
|
$
|
17,253
|
|
|
|
3.59
|
%
|
|
|
|
|
|
$
|
15,273
|
|
|
|
3.36
|
%
|
|
(1)
|
Loan
interest includes loan fees of $194,000 and $474,000, respectively, during the nine months
ended September 30, 2019 and September 30, 2018. Average loan balances include nonperforming
loans.
|
|
(2)
|
Includes
taxable-equivalent adjustments that primarily relate to income on certain securities
that is exempt from federal income taxes. The effective federal statutory tax rate was
21% for 2019 and 2018.
|
|
(3)
|
Net
interest margin is computed by dividing net interest income by total average earning
assets.
|
|
(4)
|
Average
yield is calculated based on actual days in the period (273 days) and annualized to actual
days in the year (365 days).
|
Table
Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
Three Months
Ended September 30, 2019 over 2018 (dollars in thousands)
Increase
(decrease) due to change in:
Interest-earning
assets:
|
|
Volume
|
|
|
Rate
(4)
|
|
|
Net
Change
|
|
Taxable
loans and leases (1)
|
|
$
|
718
|
|
|
$
|
274
|
|
|
$
|
992
|
|
Tax-exempt
loans and leases (2)
|
|
|
88
|
|
|
|
(16
|
)
|
|
|
72
|
|
Taxable
investment securities
|
|
|
(21
|
)
|
|
|
(35
|
)
|
|
|
(56
|
)
|
Tax
exempt investment securities (3)
|
|
|
(67
|
)
|
|
|
11
|
|
|
|
(56
|
)
|
Federal
funds sold
|
|
|
(120
|
)
|
|
|
—
|
|
|
|
(120
|
)
|
Interest-bearing
deposits in banks
|
|
|
68
|
|
|
|
(7
|
)
|
|
|
61
|
|
Total
|
|
|
666
|
|
|
|
227
|
|
|
|
893
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
|
—
|
|
|
|
92
|
|
|
|
92
|
|
Savings
deposits
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
Time
deposits
|
|
|
34
|
|
|
|
72
|
|
|
|
106
|
|
Other
borrowings
|
|
|
—
|
|
|
|
19
|
|
|
|
19
|
|
Total
|
|
|
34
|
|
|
|
184
|
|
|
|
218
|
|
Interest
differential
|
|
$
|
632
|
|
|
$
|
43
|
|
|
$
|
675
|
|
Nine
Months Ended September 30, 2019 over 2018 (dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) due to change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
Volume
|
|
|
Rate
(4)
|
|
|
Net
Change
|
|
Taxable
loans and leases (1)
|
|
$
|
1,414
|
|
|
$
|
699
|
|
|
$
|
2,113
|
|
Tax-exempt
loans and leases (2)
|
|
|
186
|
|
|
|
(40
|
)
|
|
|
146
|
|
Taxable
investment securities
|
|
|
212
|
|
|
|
614
|
|
|
|
826
|
|
Tax
exempt investment securities (3)
|
|
|
(226
|
)
|
|
|
(2
|
)
|
|
|
(228
|
)
|
Federal
funds sold
|
|
|
(265
|
)
|
|
|
2
|
|
|
|
(263
|
)
|
Interest-bearing
deposits in banks
|
|
|
97
|
|
|
|
31
|
|
|
|
128
|
|
Total
|
|
|
1,418
|
|
|
|
1,304
|
|
|
|
2,722
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking and money market
|
|
|
(10
|
)
|
|
|
183
|
|
|
|
173
|
|
Savings
deposits
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
Time
deposits
|
|
|
82
|
|
|
|
356
|
|
|
|
438
|
|
Other
borrowings
|
|
|
42
|
|
|
|
87
|
|
|
|
129
|
|
Total
|
|
|
115
|
|
|
|
627
|
|
|
|
742
|
|
Interest
differential
|
|
$
|
1,303
|
|
|
$
|
677
|
|
|
$
|
1,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
average balance of non-accruing loans is immaterial as a percentage of total loans and,
as such, has been included in net loans.
|
|
(2)
|
Loan
fees of $18,000 and $100,000, respectively, during the three months ended September 30,
2019 and September 30, 2018, and loan fees of $194,000 and $474,000, respectively, during
the nine months ended September 30, 2019 and September 30, 2018, have been included in
the interest income computation.
|
|
(3)
|
Includes
taxable-equivalent adjustments that primarily relate to income on certain securities
that is exempt from federal income taxes. The effective federal statutory
tax rate was 21% for 2019 and 2018.
|
|
(4)
|
The
rate/volume variance has been included in the rate variance.
|
Provision for Loan and
Lease Losses
The
Company added $120,000 to the provision for loan and lease losses for the third quarter of 2019 compared to $50,000 in the third
quarter of 2018. The Company experienced net loan and lease recoveries of $72,000 or 0.08% (on an annualized basis) of average
loans and leases for the three months ended September 30, 2019 compared to net loan and lease losses of ($210,000) or 0.28% (on
an annualized basis) of average loans and leases for the three months ended September 30, 2018. As a result of the loan growth
in 2019, the Company added $480,000 to the allowance for loan and lease losses during the first nine months of 2019. This compares
to additions of $50,000 to the allowance for loan and lease losses during the first nine months of 2018. Net loan and lease recoveries
were $81,000 (0.03%) (on an annualized basis) of average loans and leases outstanding in 2019 and net loan and lease losses of
($196,000) or 0.09% (on an annualized basis) of average loans and leases outstanding in 2018. The Company continues to experience
an overall improvement in the credit quality of the loan and lease portfolio and a reduction of credit losses. For additional
information see the “Allowance for Loan and Lease Losses Activity.”
Noninterest Income
Table
Four below provides a summary of the components of noninterest income for the periods indicated:
Table Four:
Components of Noninterest Income
(dollars
in thousands)
|
|
Three
Months
Ended
September 30,
|
|
|
Nine
Months
Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Service
charges on deposit accounts
|
|
$
|
149
|
|
|
$
|
119
|
|
|
$
|
409
|
|
|
$
|
352
|
|
Gain
on sale of securities
|
|
|
9
|
|
|
|
8
|
|
|
|
74
|
|
|
|
19
|
|
Merchant
fee income
|
|
|
105
|
|
|
|
105
|
|
|
|
294
|
|
|
|
324
|
|
Bank
owned life insurance
|
|
|
83
|
|
|
|
77
|
|
|
|
248
|
|
|
|
228
|
|
Other
|
|
|
71
|
|
|
|
68
|
|
|
|
224
|
|
|
|
206
|
|
Total
noninterest income
|
|
$
|
417
|
|
|
$
|
377
|
|
|
$
|
1,249
|
|
|
$
|
1,129
|
|
Noninterest
income increased $40,000 (10.6%) to $417,000 for the three months ended September 30, 2019 compared to $377,000 during the three
months ended September 30, 2018. The increase from the third quarter of 2018 to the third quarter of 2019 was primarily related
to an increase in service charges on deposit accounts which increased $30,000 from $119,000 in 2018 to $149,000 in 2019.
Noninterest
income increased $120,000 (or 10.6%) from $1,129,000 during the first nine months of 2019 to $1,249,000 during the first nine
months of 2018. The increase from the first nine months of 2018 compared to the same period in 2019 was primarily related to an
increase in gain on sale of securities (up $55,000 or 289.5%) resulting in income of $19,000 in the first nine months of 2018
compared to $74,000 for the first nine months of 2019 and an increase in service charges on deposit accounts which increased $57,000
(16.2%) from $352,000 in 2018 to $409,000 in 2019.
Noninterest Expense
Noninterest
expense increased $90,000 (2.2%) from $4,003,000 in the third quarter of 2018 to $4,093,000 in the third quarter of 2019. Salary
and employee benefits expense increased $347,000 (13.6%) from $2,551,000 during the third quarter of 2018 to $2,898,000 during
the third quarter of 2019. The increase in salaries and benefits expense resulted from filling some vacant positions, normal cost
of living increases and promotions and higher incentive accruals as a result of the increased loan activity. Average full-time
equivalent employees was 101 during the third quarter of 2019 compared to 100 during the third quarter of 2018. Occupancy expense
decreased $11,000 (4.1%) and furniture and equipment expense decreased $21,000 (14.9%) from the third quarter of 2018 to the third
quarter of 2019. FDIC assessments decreased $99,000 (190.4%) from the third quarter of 2018 to the third quarter of 2019. OREO
related expenses decreased $3,000 (30.0%) during the third quarter of 2019 compared to the third quarter of 2018. Other expenses
decreased $123,000 (12.5%) to $859,000 in the third quarter of 2019 compared to $982,000 in the third quarter of 2018. The decreased
FDIC assessments result from the FDIC insurance fund reaching the target of 1.38% and the Company being able to use the Small
Bank Assessment Credits, awarded to banks like American River Bank, which essentially gave banks a credit for the assessments
paid for the second quarter of 2019 and allowed them to forgo the assessment expense for the third quarter of 2019. The most significant
decrease in other expenses relates to lower advertising and business development expenses which decreased $62,000 (43.1%) from
$144,000 in the third quarter of 2018 to $82,000 during the third quarter of 2019 and relates to the Company better analyzing
its business development opportunities which allowed the Company to more precisely target its marketing expenses. Telephone expense
also decreased $47,000 (42.0%) from $112,000 in the third quarter of 2018 to $65,000 during the third quarter of 2019 and relates
to the Company converted to a more cost-effective telephone system. The fully taxable equivalent efficiency ratio for the third
quarter of 2019 decreased to 64.0% from 70.5% for the third quarter of 2018.
Noninterest
expense for the nine-month period ended September 30, 2019 was $12,501,000 compared to $11,181,000 for the same period in 2018
for an increase of $1,320,000 (11.8%). Salaries and employee benefits expense increased $1,149,000 (15.8%) from $7,274,000 for
the nine months ended September 30, 2018 to $8,423,000 for the same period in 2019. The increase in salaries and benefits expense
resulted from filling some vacant positions, hiring additional relationship managers, replacing the Chief Credit Officer in May
2018, higher incentive accruals for the loan production team, and normal cost of living increases and promotions. Average full-time
equivalent employees was 102 during 2019 compared to 96 during 2018. Occupancy expense decreased $23,000 (2.9%) and furniture
and equipment expense decreased $15,000 (3.6%). FDIC assessments decreased $110,000 (69.6%). OREO related expenses increased $3,000
(25.0%) during 2018 to $15,000, from $12,000 in 2018. Other expenses increased $316,000 (12.5%) from $2,531,000 for the nine months
ended September 30, 2018 to $2,847,000 for the same period in 2019. The decreased FDIC assessments result from the FDIC insurance
fund reaching the target of 1.38% and the Company being able to use the Small Bank Assessment Credits. There were numerous line
items that make up the $316,000 increase in other expenses including advertising and business development (increased $96,000),
correspondent bank charges (increased $201,000), and professional fees (increased $72,000).
The
overhead efficiency ratio (fully taxable equivalent) for the first nine months of 2019 was 67.6% as compared to 68.2% in the same
period of 2018.
Provision for
Income Taxes
Federal
and state income taxes for the quarter ended September 30, 2019 increased $133,000 (31.1%) from $428,000 in the third quarter
of 2018 to $561,000 in the third quarter of 2019. The combined federal and state effective tax rate for the quarter ended September
30, 2019 was 26.3%, compared to 27.1% for the third quarter of 2018. The effective tax rate decreased during this period despite
the higher level of taxable income as the Company benefitted from a higher level of tax exempt loans during the third quarter
of 2019 as compared to the third quarter of 2018. Average tax exempt loans were $13,673,000 during the third quarter of 2018 compared
to $20,486,000 during the third quarter of 2019. Federal and state income taxes increased $143,000 (11.6%) from $1,237,000 in
the nine months ended September 30, 2018 to $1,380,000 for the nine months ended September 30, 2019. For the nine months ended
September 30, 2018, the combined federal and state effective tax rate was 25.7% compared to 24.7% for the nine months ended September
30, 2018.
The
higher effective tax rate in 2019 compared to 2018 is related to the tax treatment of equity based compensation under Accounting
Standards Update 2016-09 (“ASU 2016-09”). Under ASU 2016-09, if the market value of the Company’s stock price
on the date restricted stock vests is higher than the Company’s stock price on the date the restricted stock was awarded
the Company receives a tax credit for the difference in values and if the market price on the vesting date is lower than the stock
price on the award date the Company recognizes additional tax expense. In the first nine months of 2018, the Company recognized
a $135,000 tax credit under ASU 2016-09 and in the first nine months of 2019 the Company recognized a $32,000 tax credit under
ASU 2016-09. There were $3,000 and $2,000 in tax credits recognized under ASU 2016-09 and in the three months ended September
30, 2019 and September 30, 2018, respectively.
Balance Sheet
Analysis
The
Company’s total assets were $721,281,000 at September 30, 2019 compared to $688,092,000 at December 31, 2018, representing
an increase of $33,189,000 (4.8%). The average assets for the three months ended September 30, 2019 were $708,698,000, which represents
an increase of $34,739,000 (5.2%) from the average balance of $673,959,000 during the three-month period ended September 30, 2018.
The average assets for the nine months ended September 30, 2019 were $695,364,000, which represents an increase of $15,308,000
(2.3%) from the average balance of $680,056,000 during the nine-month period ended September 30, 2018.
Federal
Funds
The
balance held in correspondent banks classified as Federal funds at September 30, 2019, was zero compared to $7,000,000 at December
31, 2018. The primary reason for the decrease in Federal funds since December 31, 2018 is directly related to the increase in
loan balances during the same period.
Investment
Securities
Table
Five below summarizes the values of the Company’s investment securities held on September 30, 2019 and December 31, 2018.
Table Five: Investment Securities
Composition
(dollars
in thousands)
|
|
|
|
|
|
|
Available-for-sale
(at fair value)
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
261,316
|
|
|
$
|
269,049
|
|
Obligations
of states and political subdivisions
|
|
|
8,113
|
|
|
|
14,400
|
|
Corporate
bonds
|
|
|
6,626
|
|
|
|
6,508
|
|
U.S.
Treasury bonds
|
|
|
—
|
|
|
|
4,976
|
|
Total
available-for-sale investment securities
|
|
$
|
276,055
|
|
|
$
|
294,933
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
(at amortized cost)
|
|
|
|
|
|
|
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
U.S.
Government Agencies and Sponsored Entities
|
|
$
|
256
|
|
|
$
|
292
|
|
Total
held-to-maturity investment securities
|
|
$
|
256
|
|
|
$
|
292
|
|
The
Company classifies its investment securities as available-for-sale or held-to-maturity. The Company’s intent is to hold
all securities classified as held-to-maturity until maturity and management believes that it has the ability to do so. Securities
available-for-sale may be sold to implement asset/liability management strategies and in response to changes in interest rates,
prepayment rates and similar factors.
Net
unrealized gains on available-for-sale investment securities totaling $4,111,000 were recorded, net of $1,215,000 in tax liabilities,
as accumulated other comprehensive income within shareholders’ equity at September 30, 2019 and net unrealized losses on
available-for-sale investment securities totaling $2,664,000 were recorded, net of $788,000 in tax benefits, as accumulated other
comprehensive loss within shareholders’ equity at December 31, 2018.
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.
Loans and Leases
The
Company’s historical lending activities have been 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. The Company’s continuing focus in our market area,
new borrowers developed through the Company’s marketing efforts, and credit extensions expanded to existing borrowers resulted
in the Company originating $106.2 million in new loans during the first nine months of 2019. This production was partially offset
by pay downs and payoffs, but resulted in an overall increase in net loans and leases of $51,424,000 (16.1%) from December 31,
2018.
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 networking, local promotional activity, and personal contacts by American River Bank officers,
directors and employees to compete with other financial institutions. The Company makes loans and leases to borrowers whose applications
include a sound purpose and a viable primary repayment source, generally supported by a secondary source of repayment. Commercial
loans consist of credit lines for operating needs, loans for equipment purchases, working capital, and various other business
loan products. Consumer loans include a range of traditional consumer loan products such as personal lines of credit and homeowner
equity lines of credit and loans to finance purchases of autos (including classic and collectors autos), boats, recreational vehicles,
mobile homes and various other consumer items. Construction loans are generally comprised of commitments to customers within the
Company’s service area for construction of commercial properties, multi-family properties and custom and semi-custom single-family
residences. Other real estate loans consist primarily of loans secured by first trust deeds on commercial, multi-family, and residential
properties typically with maturities from 3 to 10 years and original loan-to-value ratios generally from 65% to 75%. Agriculture
loans consist primarily of first trust deed loans on properties that produce grapes, fruit, and nut loans. In general, except
in the case of loans under SBA programs or Farm Services Agency guarantees, the Company does not make long-term residential mortgage
loans.
Table
Six below summarizes the composition of the loan portfolio as of September 30, 2019 and December 31, 2018.
Table Six: Loan
and Lease Portfolio Composition
(dollars
in thousands)
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
|
Change
in
|
|
|
Percentage
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
dollars
|
|
|
change
|
|
Commercial
|
|
$
|
41,079
|
|
|
|
11
|
%
|
|
$
|
29,650
|
|
|
|
9
|
%
|
|
$
|
11,429
|
|
|
|
38.6
|
%
|
Real
estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
202,714
|
|
|
|
54
|
%
|
|
|
199,894
|
|
|
|
62
|
%
|
|
|
2,820
|
|
|
|
1.4
|
%
|
Multi-family
|
|
|
57,221
|
|
|
|
15
|
%
|
|
|
56,139
|
|
|
|
18
|
%
|
|
|
1,082
|
|
|
|
1.9
|
%
|
Construction
|
|
|
13,657
|
|
|
|
4
|
%
|
|
|
5,685
|
|
|
|
2
|
%
|
|
|
7,972
|
|
|
|
140.2
|
%
|
Residential
|
|
|
28,978
|
|
|
|
8
|
%
|
|
|
16,338
|
|
|
|
5
|
%
|
|
|
12,640
|
|
|
|
77.4
|
%
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
%
|
|
|
32
|
|
|
|
—
|
%
|
|
|
(32
|
)
|
|
|
(100.0
|
%)
|
Agriculture
|
|
|
6,570
|
|
|
|
2
|
%
|
|
|
4,419
|
|
|
|
1
|
%
|
|
|
2,151
|
|
|
|
48.7
|
%
|
Consumer
|
|
|
24,674
|
|
|
|
6
|
%
|
|
|
10,714
|
|
|
|
3
|
%
|
|
|
13,960
|
|
|
|
130.3
|
%
|
Total
loans and leases
|
|
|
374,893
|
|
|
|
100
|
%
|
|
|
322,871
|
|
|
|
100
|
%
|
|
|
52,022
|
|
|
|
16.1
|
%
|
Deferred
loan fees and costs, net
|
|
|
—
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
Allowance
for loan and lease losses
|
|
|
(4,953
|
)
|
|
|
|
|
|
|
(4,392
|
)
|
|
|
|
|
|
|
(461
|
)
|
|
|
|
|
Total
net loans and leases
|
|
$
|
369,940
|
|
|
|
|
|
|
$
|
318,516
|
|
|
|
|
|
|
$
|
51,424
|
|
|
|
16.1
|
%
|
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 serviced markets in Santa Clara,
Contra Costa, and Alameda Counties through a loan production office. In the fourth quarter of 2016, the Company discontinued operating
the loan production office, however, the Company continues to service loans originated through these offices. The economies of
Santa Clara, Contra Costa and Alameda Counties are diversified with professional services, manufacturing, technology related companies,
real estate investment and construction.
The
Company has significant extensions of credit and commitments to extend credit that are secured by real estate. The ultimate repayment
of these loans is generally dependent on personal or business cash flows or the sale or refinancing of the real estate. The Company
monitors the effects of current and expected market conditions and other factors on the collectability of real estate loans. The
more significant factors management considers involve the following: lease rates and terms, vacancy rates, absorption and sale
rates and capitalization rates; real estate values, supply and demand factors, and rates of return; operating expenses; inflation
and deflation; and sufficiency of repayment sources independent of the real estate including, in some instances, personal guarantees.
In
extending credit and commitments to borrowers, the Company generally requires collateral and/or guarantees as security. The repayment
of such loans is expected to come from cash flows or from proceeds from the sale of selected assets of the borrowers. The Company’s
requirement for collateral and/or guarantees is determined on a case-by-case basis in connection with management’s evaluation
of the creditworthiness of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant
and equipment, income-producing 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 81% of the Company’s
loan and lease portfolio at September 30, 2019 and 86% as of December 31, 2018. Management believes that the residential land
portion of the Company’s loan portfolio carries a reasonable level of credit risk. As of September 30, 2019, outstanding
unimproved residential land commitments were $5,803,000 (or just 1.5% of the total real estate loans). Of the $5,803,000, $2,025,000,
or 35%, was represented by one amortizing loan, which was considered well-secured, with a favorable loan-to-value ratio.
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 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 market 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.
Nonperforming,
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 zero and $27,000 at
September 30, 2019 and December 31, 2018, respectively. The $27,000 in nonperforming loans and leases at December 31, 2018 was
comprised of one commercial loan relationship with two loans totaling $27,000, both of which were current to terms. Because these
loans were current and had shown a pattern of consistent, timely payments, the loans were upgraded to accrual status during the
second quarter of 2019.
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 September 30, 2019. Management is not aware of any potential problem loans, which were accruing and current at
September 30, 2019, 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.
Table
Seven below sets forth nonaccrual loans and loans past due 90 days or more as of September 30, 2019 and December 31, 2018.
Table
Seven: Nonperforming Loans and Leases
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
Past
due 90 days or more and still accruing:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
—
|
|
Real
estate
|
|
|
—
|
|
|
|
—
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
Nonaccrual:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
27
|
|
Real
estate
|
|
|
—
|
|
|
|
—
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
Total
nonperforming loans
|
|
$
|
—
|
|
|
$
|
27
|
|
There
were no loans that were considered past due between 30 and 89 days at September 30, 2019 or December 31, 2018.
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.
At
September 30, 2019, the recorded investment in loans and leases that were considered to be impaired totaled $7,662,000, all of
which were considered performing loans and leases. Of the total impaired loans of $7,662,000, loans totaling $5,879,000 were deemed
to require no specific reserve and loans totaling $1,783,000 were deemed to require a related valuation allowance of $82,000.
At December 31, 2018, the recorded investment in loans and leases that were considered to be impaired totaled $8,702,000. Of the
total impaired loans of $8,702,000, loans totaling $5,968,000 were deemed to require no specific reserve and loans totaling $2,734,000
were deemed to require a related valuation allowance of $185,000.
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 is focused on monitoring collateral values for those loans
considered collateral dependent. For collateral dependent loans the Company performs an internal evaluation or obtains an updated
appraisal, as necessary. In the third quarter of 2019, the Company had net loan recoveries of $71,000 with $120,000
in provisions for loan and lease losses. Despite the Company’s continued improvement in the credit quality of the loan and
lease portfolio, due to the net growth in the loans outstanding during 2019, management believes the $120,000 addition to the
provision for loan and lease losses was warranted. In the third quarter of 2018, the Company had net loan losses of $210,000 and
a provision of $50,000.
During
the quarters ended September 30, 2019 and September 30, 2018, there were no loans that were modified as troubled debt restructurings.
There were no payment defaults on troubled debt restructurings within 12 months following the modification for the three-month
and nine-month periods ended September 30, 2019.
There
were no payment defaults on troubled debt restructurings within 12 months following the modification for the three-month and nine-month
periods ended September 30, 2018. At September 30, 2019 and December 31, 2018 there were no unfunded commitments on those loans
considered troubled debt restructures.
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. Table Eight below summarizes, for the periods indicated, the activity in the ALLL.
Table Eight:
Allowance for Loan and Lease Losses
(dollars
in thousands)
|
|
Three
Months
Ended September 30,
|
|
|
Nine
Months
Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Average
loans and leases outstanding
|
|
$
|
368,160
|
|
|
$
|
299,934
|
|
|
$
|
349,718
|
|
|
$
|
303,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan and lease losses at beginning of period
|
|
$
|
4,761
|
|
|
$
|
4,492
|
|
|
$
|
4,392
|
|
|
$
|
4,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and leases charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
—
|
|
|
|
(213
|
)
|
|
|
—
|
|
|
|
(213
|
)
|
Real
estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
—
|
|
|
|
(213
|
)
|
|
|
—
|
|
|
|
(213
|
)
|
Recoveries
of loans and leases previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2
|
|
|
|
1
|
|
|
|
5
|
|
|
|
10
|
|
Real
estate
|
|
|
2
|
|
|
|
2
|
|
|
|
8
|
|
|
|
6
|
|
Lease
financing receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Agriculture
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
68
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
Total
|
|
|
72
|
|
|
|
3
|
|
|
|
81
|
|
|
|
17
|
|
Net
loans and leases recovered (charged off)
|
|
|
72
|
|
|
|
(210
|
)
|
|
|
81
|
|
|
|
(196
|
)
|
Additions
to allowance charged to operating expenses
|
|
|
120
|
|
|
|
50
|
|
|
|
480
|
|
|
|
50
|
|
Allowance
for loan and lease losses at end of period
|
|
$
|
4,953
|
|
|
$
|
4,332
|
|
|
$
|
4,953
|
|
|
$
|
4,332
|
|
Ratio
of net (recoveries) charge-offs to average loans and leases outstanding (annualized)
|
|
|
-0.08
|
%
|
|
|
0.28
|
%
|
|
|
-0.03
|
%
|
|
|
0.09
|
%
|
Provision
of allowance for loan and lease losses to
average loans and leases outstanding (annualized)
|
|
|
0.13
|
%
|
|
|
0.07
|
%
|
|
|
0.18
|
%
|
|
|
0.02
|
%
|
Allowance
for loan and lease losses to loans and leases net of deferred fees at end of period
|
|
|
1.32
|
%
|
|
|
1.38
|
%
|
|
|
1.32
|
%
|
|
|
1.38
|
%
|
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 borrower’s business, valuation of collateral, the determination of impaired loans or
leases and exposure to potential losses.
The
ALLL totaled $4,953,000 or 1.32% of total loans and leases at September 30, 2019 compared to $4,392,000 or 1.38% of total loans
and leases at December 31, 2018. 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
ALLL as a percentage of impaired loans and leases was 64.6% at September 30, 2019 and 50.5% at December 31, 2018. Of the total
nonperforming and impaired loans and leases outstanding as of September 30, 2019, there were $801,000 in loans or leases that
had been reduced by partial charge-offs of $294,000.
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.
Other Real Estate
Owned
At
September 30, 2019 and December 31, 2018, the Company had one other real estate owned (“OREO”) property totaling $957,000.
During 2019, the Company did not acquire or sell any OREO properties nor were there any impairment charges to this property. There
was no valuation allowance at September 30, 2019 nor at year-end 2018. The Company believes that the OREO property owned at September
30, 2019 was carried approximately at fair value.
Deposits
At
September 30, 2019, total deposits were $612,904,000 representing a $22,230,000 (3.8%) increase from the December 31, 2018 balance
of $590,674,000. The Company’s deposit growth plan for 2019 is to concentrate its efforts on increasing noninterest-bearing
demand, interest-bearing money market and NOW accounts, and savings accounts while continuing to focus on maintaining an overall
lower cost of funds than our peer group while at the same time retaining our high-valued deposit relationships. The Company’s
balances in interest-bearing checking, savings, and time, in total, remained relatively unchanged from December 31, 2018, however,
noninterest-bearing checking increased $13,772,000 (6.4%) and money market accounts increased $5,638,000 (3.9%).
Other
Borrowed Funds
Other
borrowings outstanding as of September 30, 2019 and December 31, 2018, consist of advances (both long-term and short-term) from
the FHLB. Table Nine below summarizes these borrowings.
Table Nine:
Other Borrowed Funds
(dollars
in thousands)
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Short-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
advances
|
|
$
|
5,000
|
|
|
|
1.31
|
%
|
|
$
|
5,000
|
|
|
|
1.32
|
%
|
Long-term
borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
advances
|
|
$
|
10,500
|
|
|
|
2.48
|
%
|
|
$
|
10,500
|
|
|
|
2.02
|
%
|
The
maximum amount of short-term borrowings at any month-end during the first nine months of 2019 and 2018 was $16,000,000 and $6,500,000,
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
|
|
$
|
5,000
|
|
|
$
|
10,500
|
|
Maturity
|
|
|
2020
|
|
|
|
2021
to 2023
|
|
Weighted
average rates
|
|
|
1.31
|
%
|
|
|
2.48
|
%
|
Capital
Resources
The
Company and American River Bank are subject to certain regulatory capital requirements administered by the Federal Reserve Board
and the Federal Deposit Insurance Corporation (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 current 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. Table Ten below lists the Company’s and American River Bank’s
capital ratios at September 30, 2019 and December 31, 2018 as well as the minimum regulatory requirements.
Table
Ten: Capital Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
Regulatory Capital
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
Requirements
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
American
River Bankshares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage
Ratio
|
|
|
9.2
|
%
|
|
|
8.9
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier
1 Risk-Based Capital
|
|
|
15.4
|
%
|
|
|
16.1
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Total
Risk-Based Capital
|
|
|
16.6
|
%
|
|
|
17.3
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
River Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage
Ratio
|
|
|
9.3
|
%
|
|
|
9.0
|
%
|
|
|
6.5
|
%
|
|
|
5.9
|
%
|
Common
Equity Tier 1 Risk-Based Capital
|
|
|
15.6
|
%
|
|
|
16.2
|
%
|
|
|
7.0
|
%
|
|
|
6.4
|
%
|
Tier
1 Risk-Based Capital
|
|
|
15.6
|
%
|
|
|
16.2
|
%
|
|
|
8.5
|
%
|
|
|
7.9
|
%
|
Total
Risk-Based Capital
|
|
|
16.7
|
%
|
|
|
17.4
|
%
|
|
|
10.5
|
%
|
|
|
9.9
|
%
|
At
September 30, 2019, shareholders’ equity was $82,849,000, representing an increase of $8,128,000 (10.9%) from $74,721,000
at December 31, 2018. The increase results from net income for the period ($3,993,000), stock based compensation ($363,000), and
the increase from other comprehensive income ($4,772,000), exceeding the payment of cash dividends ($1,000,000).
Capital
ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory requirements, are adequate to
meet future needs, and whether to raise additional capital or return capital to shareholders. Management believes that both the
Company and American River Bank met all of their capital adequacy requirements as of September 30, 2019 and December 31, 2018.
Effective
January 1, 2015, bank holding companies with consolidated assets of $1 Billion or more ($3 Billion or more effective August 30,
2018) and banks like American River Bank must comply with new minimum capital ratio requirements, which 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%; (iii) a total capital to total risk weighted assets ratio of 8%; and (iv) a Tier 1 capital to adjusted average
total assets (“leverage”) ratio of 4%.
In
addition, a “capital conservation buffer,” was established which is now fully phased-in and requires 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 increases 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 was phased-in
between January 1, 2016 and January 1, 2019. The buffer requirement for 2018 was 1.875% and became fully phased in on January
1, 2019, increasing to 2.50%. 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.
On
January 24, 2018, the Company approved and authorized a 5% stock repurchase program for 2018 (the “2018 Program”).
See Part II, Item 2, for additional disclosure regarding the 2018 Program. In addition, on February 13, 2019 and May 15, 2019,
the Company paid cash dividends of $0.05 per common share to shareholders of record on January 30, 2019 and May 1, 2019, respectively,
and on August 14, 2019 the Company paid cash dividends of $0.07 per common share to shareholders of record on July 31, 2019. These
2019 quarterly cash dividends follow four quarterly cash dividends, totaling $0.20 per share, paid in 2018.
Inflation
The
impact of inflation on a financial institution differs significantly from that exerted on manufacturing or other commercial concerns
primarily because its assets and liabilities are largely monetary. In general, inflation primarily affects the Company and its
subsidiaries through its effect on market rates of interest, which affects the Company’s ability to attract loan customers.
Inflation affects the growth of total assets by increasing the level of loan demand and potentially adversely affects capital
adequacy because loan growth in inflationary periods can increase at rates higher than the rate that capital grows through retention
of earnings which may be generated in the future. In addition to its effects on interest rates, inflation increases overall operating
expenses. Inflation has not had a significant effect upon the results of operations of the Company and its subsidiaries during
the periods ended September 30, 2019 and 2018.
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 September 30, 2019 were approximately
$37,117,000 and $300,000, respectively. Such loan commitments relate primarily to revolving lines of credit and other commercial
loans and to real estate construction loans. Since some of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
The
Company’s sources of liquidity consist of cash and due from correspondent banks, overnight funds sold to correspondent banks,
unpledged marketable investments and loans held for sale and/or pledged for secured borrowings. At September 30, 2019, consolidated
liquid assets totaled $152.0 million or 21.1% of total assets compared to $226.5 million or 32.9% of total assets on December
31, 2018. In addition to liquid assets, the Company maintains two short-term unsecured lines of credit in the amount of $17,000,000
with two of its correspondent banks. At September 30, 2019, the Company had $17,000,000 available under these credit lines. Additionally,
the Bank is a member of the FHLB. At September 30, 2019, the Bank could have arranged for up to $147,126,000 in secured borrowings
from the FHLB. These borrowings are secured by pledged mortgage loans and investment securities. At September 30, 2019, the Bank
had advances, borrowings and commitments (including letters of credit) outstanding of $15,500,000, leaving $131,626,000 available
under these FHLB secured borrowing arrangements. The Bank also has a secured borrowing arrangement with the Federal Reserve Bank
of San Francisco. The borrowing can be secured by pledging selected loans and investment securities. At September 30, 2019, the
Bank’s borrowing capacity at the Federal Reserve Bank was $9,322,000. 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 and borrowing capacity to offset the potential runoff of these volatile and/or 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.
Furthermore, the Bank can pledge additional unencumbered securities to borrow from the Federal Reserve Bank of San Francisco and
the FHLB.
Off-Balance Sheet Items
The
Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the
financing needs of its customers and to reduce its exposure to fluctuations in interest rates. These financial instruments consist
of commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized on the balance sheet.
The
Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and
letters of credit is represented by the contractual amount of those instruments. The Company applies the same credit policies
to commitments and letters of credit as it does for loans included on the consolidated balance sheet. As of September 30, 2019
and December 31, 2018, commitments to extend credit and standby letters of credit were the only financial instruments with off-balance
sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options
or similar instruments. Loan commitments and standby letters of credit were $37,417,000 and $34,637,000 at September 30, 2019
and December 31, 2018, respectively. As a percentage of net loans and leases these off-balance sheet items represent 10.1% and
10.9%, respectively. See also, Note 3 to the unaudited consolidated financial statements included herein for additional information
about the Company’s off-balance sheet items. The Company has certain ongoing commitments under operating leases. These commitments
do not significantly impact operating results.