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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended DECEMBER 31, 2000
[ ] Transition report pursuant to Section 13 or 15 (d) of Securities Exchange
Act of 1934
Commission File No. 0-31525
AMERICAN RIVER HOLDINGS
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(Exact name of registrant as specified in its charter)
California 68-0352144
- ------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
1545 River Park Drive, Sacramento, California 95815
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(Address of principal executive offices) (Zip code)
(916) 565-6100
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(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing price of the stock, as of March
29, 2001: $29,975,000
Number of shares outstanding of each of the registrant's classes of common
stock, as of March 29, 2001
No par value Common Stock - 2,418,521 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Form 10-K: Part
III, Items 10 through 13 from Registrant's definitive proxy statement for the
2001 annual meeting of shareholders.
The Index to the Exhibits is located at Page 87 Page 1 of 129
PART I
ITEM 1. BUSINESS
Certain matters discussed or incorporated by reference in this Annual
Report on Form 10-K including, but not limited to, matters described in "Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Changes to such risks and uncertainties, which could impact future
financial performance, include, among others, (1) competitive pressures in the
banking industry; (2) changes in the interest rate environment; (3) general
economic conditions, nationally, regionally and in operating market areas; (4)
changes in the regulatory environment; (5) changes in business conditions and
inflation; (6) changes in securities markets; (7) data processing problems; (8)
a decline in real estate values in the Company's market area; and (9) the
California power crisis. Therefore, the information set forth therein should be
carefully considered when evaluating the business prospects of the Company and
its subsidiaries
American River Holdings (the "Company") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended. The Company
was incorporated under the laws of the State of California in 1995. As a bank
holding company, the Company is authorized to engage in the activities permitted
under the Bank Holding Company Act of 1956, as amended, and regulations
thereunder. Its principal office is located at 1545 River Park Drive, Suite 107,
Sacramento, California 95815 and its telephone number is (916) 565-6100.
The Company owns 100% of the issued and outstanding common shares of
American River Bank. American River Bank was incorporated and commenced business
in Fair Oaks, California, in 1983 and thereafter moved its headquarters office
to Sacramento, California in 1985. American River Bank 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 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. American River Bank operates four banking offices in
Placer and Sacramento Counties including the head office at 1545 River Park
Drive, Suite 107, Sacramento, and branch offices at 9750 Business Park Drive,
Sacramento, 10123 Fair Oaks Boulevard, Fair Oaks and 2240 Douglas Boulevard,
Roseville. American River 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.
The Company also owns 100% of First Source Capital formed in July 1999 to
conduct lease financing for most types of business assets, from computer
software to heavy earth-moving equipment. Specific leasing programs are tailored
for vendors of equipment in order to increase their sales. First Source Capital
acts as a lease broker and receives a fee for each lease recorded on the books
of the party acting as the funding source. Various funding sources are utilized
in connection with multiple leasing programs made available by First Source
Capital.
In October 2000, the Company acquired North Coast Bank, National
Association ("North Coast Bank"). Under terms of the merger agreement, the
Company issued shares of its common stock in exchange for all of North Coast
Bank's common stock. The business combination was accounted for on a
pooling-of-interests basis, and as a result, all prior period numbers have been
restated to include those of North Coast Bank. North Coast Bank is a national
banking association, organized in 1990 with its administrative headquarters in
Santa Rosa, California. North Coast Bank operates three full service banking
offices within its primary service areas of Sonoma County, in the cities of
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Healdsburg, Santa Rosa and Windsor. North Coast Bank's primary business is
serving the business or commercial banking needs of small to mid-sized
businesses within Sonoma County.
Other than holding the shares of American River Bank, North Coast Bank
(collectively "the Subsidiary Banks") and First Source Capital, the Company
conducts no significant activities. However, it is authorized, with the prior
approval of the Board of Governors of the Federal Reserve System (the "Board of
Governors"), the Company's principal regulator, to engage in a variety of
activities which are deemed closely related to the business of banking.
At December 31, 2000, the Company had consolidated assets of $284 million,
deposits of $239 million and shareholders' equity of $24 million.
GENERAL
The Company is a community oriented bank holding company headquartered in
Sacramento, California. The principal communities served are located in
Sacramento, Placer, Yolo, El Dorado, Sonoma, Napa, Marin and Mendocino counties.
The Company generates most of its revenue by providing a wide range of products
and services to small and middle-market businesses and individuals. The
Company's principal source of revenues are: (i) interest and fees on loans; (ii)
interest on investments (principally government securities); and (iii) interest
on Federal funds sold (funds loaned on a short-term basis to other banks). For
the year ended December 31, 2000, these sources comprised 81.5%, 16.9%, and
1.6%, respectively, of the Company's interest income.
The Subsidiary Banks' deposits are not received from a single depositor or
group of affiliated depositors, the loss of any one of which would have a
materially adverse effect on the business of the Company. A material portion of
the Subsidiary Banks' deposits are not concentrated within a single industry or
group of related industries.
As of December 31, 2000 and December 31, 1999, American River Bank held
$6,000,000 in certificates of deposit for the State of California. In connection
with these deposits, American River Bank is generally required to pledge
securities to secure such deposits, except for the first $100,000, which are
insured by the FDIC.
American River Bank competes with approximately 37 and 22 other banking or
savings institutions in Sacramento County and Placer County, respectively.
American River Bank's market share of FDIC insured deposits in the service areas
of Sacramento County and Placer County was approximately 1.3% and 1.7%,
respectively (based upon the most recent information made available by the FDIC
through June 30, 2000). North Coast Bank competes with approximately 19 other
banking or savings institutions in its service areas. North Coast Bank's, market
share of FDIC insured deposits in the service area of Sonoma County was
approximately .68% (based upon the most recent information made available by the
FDIC through June 30, 2000).
EMPLOYEES
At December 31, 2000, the Company and its subsidiaries employed 100 persons
on a full-time basis. The Company believes its employee relations are good.
REGULATION AND SUPERVISION OF BANK HOLDING COMPANIES
GENERAL
The common stock of the Company is subject to the registration requirements
of the Securities Act of 1933, as amended, and the qualification requirements of
the California Corporate Securities Law of 1968, as amended. The Company is also
subject to the periodic reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, which include, but are not limited to, annual,
quarterly and other current reports with the Securities and Exchange Commission.
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American River Bank is licensed by the California Commissioner of Financial
Institutions, its deposits are insured by the FDIC, up to the applicable legal
limits and it has chosen not to become a member of the Federal Reserve System.
Consequently, American River Bank is subject to the supervision of, and is
regularly examined by, the California Commissioner of Financial Institutions and
the FDIC. The supervision and regulation includes comprehensive reviews of all
major aspects of American River Bank's business and condition, including its
capital ratios, allowance for possible loan losses and other factors. However,
no inference should be drawn that such authorities have approved any such
factors. American River Holdings and American River Bank are required to file
reports with the Board of Governors of the Federal Reserve System (the "Board of
Governors"), the California Commissioner of Financial Institutions, and the FDIC
and provide the additional information that the Board of Governors, California
Commissioner of Financial Institutions, and FDIC may require.
North Coast Bank is a national bank licensed under the national banking
laws of the United States. North Coast Bank is regularly examined by the Office
of the Comptroller of the Currency and is subject to the supervision of the FDIC
and the Office of the Comptroller of the Currency, and is a member of the
Federal Reserve System. The supervision and regulation includes comprehensive
reviews of all major aspects of North Coast Bank's business and condition,
including its capital ratios, allowance for possible loan losses and other
factors. However, no inference should be drawn that such authorities have
approved any such factors. North Coast Bank is required to file reports with the
Office of the Comptroller of the Currency and the FDIC. North Coast Bank's
deposits are insured by the FDIC up to the applicable legal limits.
First Source Capital is a California corporation which conducts a lease
brokerage business as a permissible non-banking activity under the Federal
Reserve Act. First Source Capital is subject to regulatory supervision by the
Board of Governors and the California Commissioner of Corporations.
American River Holdings is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"),
and is registered as such with, and subject to the supervision of, the Board of
Governors. The Company is required to obtain the approval of the Board of
Governors before it may acquire all or substantially all of the assets of any
bank, or ownership or control of the voting shares of any bank if, after giving
effect to such acquisition of shares, the Company would own or control more than
5% of the voting shares of such bank. The Bank Holding Company Act prohibits the
Company from acquiring any voting shares of, or interest in, all or
substantially all of the assets of, a bank located outside the State of
California unless such an acquisition is specifically authorized by the laws of
the state in which such bank is located. Any such interstate acquisition is also
subject to the provisions of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994.
The Company, and any subsidiaries, which it may acquire or organize, are
deemed to be "affiliates" within the meaning of that term as defined in the
Federal Reserve Act. This means, for example, that there are limitations (a) on
loans by the Subsidiary Banks to affiliates, and (b) on investments by the
Subsidiary Banks in affiliates' stock as collateral for loans to any borrower.
The Company and its subsidiaries are also subject to certain restrictions with
respect to engaging in the underwriting, public sale and distribution of
securities.
In addition, regulations of the Board of Governors under the Federal
Reserve Act require that reserves be maintained by the Subsidiary Banks in
conjunction with any liability of the Company under any obligation (promissory
note, acknowledgement of advance, banker's acceptance or similar obligation)
with a weighted average maturity of less than seven (7) years to the extent that
the proceeds of such obligations are used for the purpose of supplying funds to
the Subsidiary Banks for use in its banking business, or to maintain the
availability of such funds.
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CAPITAL STANDARDS
The Board of Governors, the FDIC, and the Office of the Comptroller of the
Currency have adopted risk-based capital guidelines for evaluating the capital
adequacy of bank holding companies and banks. The guidelines are designed to
make capital requirements sensitive to differences in risk profiles among
banking organizations, to take into account off-balance sheet exposures and to
aid in making the definition of bank capital uniform internationally. Under the
guidelines, American River Holdings, American River Bank, and North Coast Bank
are required to maintain capital equal to at least 8.0% of its assets and
commitments to extend credit, weighted by risk, of which at least 4.0% must
consist primarily of common equity (including retained earnings) and the
remainder may consist of subordinated debt, cumulative preferred stock, or a
limited amount of loan loss reserves.
Assets, commitments to extend credit, and off-balance sheet items are
categorized according to risk and certain assets considered to present less risk
than others permit maintenance of capital at less than the 8% ratio. For
example, most home mortgage loans are placed in a 50% risk category and
therefore require maintenance of capital equal to 4% of those loans, while
commercial loans are placed in a 100% risk category and therefore require
maintenance of capital equal to 8% of those loans.
Under the risk-based capital guidelines, assets reported on an
institution's balance sheet and certain off-balance sheet items are assigned to
risk categories, each of which has an assigned risk weight. Capital ratios are
calculated by dividing the institution's qualifying capital by its period-end
risk-weighted assets. The guidelines establish two categories of qualifying
capital: Tier 1 capital (defined to include common shareholders' equity and
noncumulative perpetual preferred stock) and Tier 2 capital which includes,
among other items, limited life (and in case of banks, cumulative) preferred
stock, mandatory convertible securities, subordinated debt and a limited amount
of reserve for credit losses. Tier 2 capital may also include up to 45% of the
pretax net unrealized gains on certain available-for-sale equity securities
having readily determinable fair values (i.e. the excess, if any, of fair market
value over the book value or historical cost of the investment security). The
federal regulatory agencies reserve the right to exclude all or a portion of the
unrealized gains upon a determination that the equity securities are not
prudently valued. Unrealized gains and losses on other types of assets, such as
bank premises and available-for-sale debt securities, are not included in Tier 2
capital, but may be taken into account in the evaluation of overall capital
adequacy and net unrealized losses on available-for-sale equity securities will
continue to be deducted from Tier 1 capital as a cushion against risk. Each
institution is required to maintain a minimum risk-based capital ratio
(including Tier 1 and Tier 2 capital) of 8%, of which at least half must be Tier
1 capital.
A leverage capital standard was adopted as a supplement to the
risk-weighted capital guidelines. Under the leverage capital standard, an
institution is required to maintain a minimum ratio of Tier 1 capital to the sum
of its quarterly average total assets and quarterly average reserve for loan
losses, less intangibles not included in Tier 1 capital. Period-end assets may
be used in place of quarterly average total assets on a case-by-case basis. The
Board of Governors and the FDIC have also adopted a minimum leverage ratio for
bank holding companies as a supplement to the risk-weighted capital guidelines.
The leverage ratio establishes a minimum Tier 1 ratio of 3% (Tier 1 capital to
total assets) for the highest rated bank holding companies or those that have
implemented the risk-based capital market risk measure. All other bank holding
companies must maintain a minimum Tier 1 leverage ratio of 4% with higher
leverage capital ratios required for bank holding companies that have
significant financial and/or operational weakness, a high risk profile, or are
undergoing or anticipating rapid growth.
At December 31, 2000, American River Holdings, American River Bank and
North Coast Bank were in compliance with the risk-weighted capital and leverage
ratios.
PROMPT CORRECTIVE ACTION
The Board of Governors, FDIC, and Office of the Comptroller of the Currency
have adopted regulations implementing a system of prompt corrective action
pursuant to Section 38 of the Federal Deposit Insurance Act and Section 131 of
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the FDIC Improvement Act of 1991 ("FDICIA"). The regulations establish five
capital categories with the following characteristics: (1) "Well capitalized" -
consisting of institutions with a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio
of 5% or greater, and the institution is not subject to an order, written
agreement, capital directive or prompt corrective action directive; (2)
"Adequately capitalized" - consisting of institutions with a total risk-based
capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or
greater and a leverage ratio of 4% or greater, and the institution does not meet
the definition of a "well capitalized" institution; (3) "Undercapitalized" -
consisting of institutions with a total risk-based capital ratio less than 8%, a
Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less
than 4%; (4) "Significantly undercapitalized" - consisting of institutions with
a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital
ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically
undercapitalized" - consisting of an institution with a ratio of tangible equity
to total assets that is equal to or less than 2%.
The regulations established procedures for classification of financial
institutions within the capital categories, filing and reviewing capital
restoration plans required under the regulations and procedures for issuance of
directives by the appropriate regulatory agency, among other matters. The
regulations impose restrictions upon all institutions to refrain from certain
actions which would cause an institution to be classified within any one of the
three "undercapitalized" categories, such as declaration of dividends or other
capital distributions or payment of management fees, if following the
distribution or payment the institution would be classified within one of the
"undercapitalized" categories. In addition, institutions which are classified in
one of the three "undercapitalized" categories are subject to certain mandatory
and discretionary supervisory actions. Mandatory supervisory actions include (1)
increased monitoring and review by the appropriate federal banking agency; (2)
implementation of a capital restoration plan; (3) total asset growth
restrictions; and (4) limitation upon acquisitions, branch expansion, and new
business activities without prior approval of the appropriate federal banking
agency. Discretionary supervisory actions may include (1) requirements to
augment capital; (2) restrictions upon affiliate transactions; (3) restrictions
upon deposit gathering activities and interest rates paid; (4) replacement of
senior executive officers and directors; (5) restrictions upon activities of the
institution and its affiliates; (6) requiring divestiture or sale of the
institution; and (7) any other supervisory action that the appropriate federal
banking agency determines is necessary to further the purposes of the
regulations. Further, the federal banking agencies may not accept a capital
restoration plan without determining, among other things, that the plan is based
on realistic assumptions and is likely to succeed in restoring the depository
institution's capital. In addition, for a capital restoration plan to be
acceptable, the depository institution's parent holding company must guarantee
that the institution will comply with such capital restoration plan. The
aggregate liability of the parent holding company under the guaranty is limited
to the lesser of (i) an amount equal to 5 percent of the depository
institution's total assets at the time it became undercapitalized, and (ii) the
amount that is necessary (or would have been necessary) to bring the institution
into compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it were
"significantly undercapitalized." FDICIA also restricts the solicitation and
acceptance of and interest rates payable on brokered deposits by insured
depository institutions that are not "well capitalized." An "undercapitalized"
institution is not allowed to solicit deposits by offering rates of interest
that are significantly higher than the prevailing rates of interest on insured
deposits in the particular institution's normal market areas or in the market
areas in which such deposits would otherwise be accepted.
Any financial institution which is classified as "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of such determination unless it is also determined that some other course
of action would better serve the purposes of the regulations. Critically
undercapitalized institutions are also prohibited from making (but not accruing)
any payment of principal or interest on subordinated debt without prior
regulatory approval and regulators must prohibit a critically undercapitalized
institution from taking certain other actions without prior approval, including
(1) entering into any material transaction other than in the usual course of
business, including investment expansion, acquisition, sale of assets or other
similar actions; (2) extending credit for any highly leveraged transaction; (3)
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amending articles or bylaws unless required to do so to comply with any law,
regulation or order; (4) making any material change in accounting methods; (5)
engaging in certain affiliate transactions; (6) paying excessive compensation or
bonuses; and (7) paying interest on new or renewed liabilities at rates which
would increase the weighted average costs of funds beyond prevailing rates in
the institution's normal market areas.
ADDITIONAL REGULATIONS
Under the FDICIA, the federal financial institution agencies have adopted
regulations which require institutions to establish and maintain comprehensive
written real estate policies which address certain lending considerations,
including loan-to-value limits, loan administrative policies, portfolio
diversification standards, and documentation, approval and reporting
requirements. The FDICIA further generally prohibits an insured state bank from
engaging as a principal in any activity that is impermissible for a national
bank, absent FDIC determination that the activity would not pose a significant
risk to the Bank Insurance Fund, and that the bank is, and will continue to be,
within applicable capital standards.
The Federal Financial Institution Examination Counsel ("FFIEC") on December
13, 1996, approved an updated Uniform Financial Institutions Rating System
("UFIRS"). In addition to the five components traditionally included in the
so-called "CAMEL" rating system which has been used by bank examiners for a
number of years to classify and evaluate the soundness of financial institutions
(including capital adequacy, asset quality, management, earnings and liquidity),
UFIRS includes for all bank regulatory examinations conducted on or after
January 1, 1997, a new rating for a sixth category identified as sensitivity to
market risk. Ratings in this category are intended to reflect the degree to
which changes in interest rates, foreign exchange rates, commodity prices or
equity prices may adversely affect an institution's earnings and capital. The
revised rating system is identified as the "CAMELS" system.
The federal financial institution agencies have established bases for
analysis and standards for assessing a financial institution's capital adequacy
in conjunction with the risk-based capital guidelines including analysis of
interest rate risk, concentrations of credit risk, risk posed by non-traditional
activities, and factors affecting overall safety and soundness. The safety and
soundness standards for insured financial institutions include analysis of (1)
internal controls, information systems and internal audit systems; (2) loan
documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset
growth; (6) compensation, fees and benefits; and (7) excessive compensation for
executive officers, directors or principal shareholders which could lead to
material financial loss. If an agency determines that an institution fails to
meet any standard, the agency may require the financial institution to submit to
the agency an acceptable plan to achieve compliance with the standard. If the
agency requires submission of a compliance plan and the institution fails to
timely submit an acceptable plan or to implement an accepted plan, the agency
must require the institution to correct the deficiency. The agencies may elect
to initiate enforcement action in certain cases rather than rely on an existing
plan particularly where failure to meet one or more of the standards could
threaten the safe and sound operation of the institution.
Community Reinvestment Act ("CRA") regulations evaluate banks' lending to
low and moderate income individuals and businesses across a four-point scale
from "outstanding" to "substantial noncompliance," and are a factor in
regulatory review of applications to merge, establish new branches or form bank
holding companies. In addition, any bank rated in "substantial noncompliance"
with the CRA regulations may be subject to enforcement proceedings. American
River Bank and North Coast Bank each have current ratings of "satisfactory" for
CRA compliance.
LIMITATIONS ON DIVIDENDS
The Company's ability to pay cash dividends is subject to restrictions set
forth in the California General Corporation Law. Funds for payment of any cash
dividends by the Company would be obtained from its investments as well as
dividends and/or management fees from its subsidiaries. The payment of cash
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dividends and/or management fees by American River Bank is subject to
restrictions set forth in the California Financial Code, as well as restrictions
established by the FDIC. North Coast Bank's ability to pay cash dividends is
subject to restrictions imposed under the National Bank Act and regulations
promulgated by the Office of the Comptroller of the Currency.
COMPETITION
COMPETITIVE DATA
American River Bank. At June 30, 2000, based on the most recent "Data Book
Summary of Deposits in FDIC Insured Commercial and Savings Banks" report at that
date, the competing commercial and savings banks had 154 offices in the cities
of Fair Oaks, Rancho Cordova, Roseville and Sacramento, California, where
American River Bank has its 4 offices. Additionally, American River Bank
competes with thrifts and, to a lesser extent, credit unions, finance companies
and other financial service providers for deposit and loan customers.
Larger banks may have a competitive advantage because of higher lending
limits and major advertising and marketing campaigns. They also perform
services, such as trust services, international banking, discount brokerage and
insurance services, which American River Bank is not authorized nor prepared to
offer currently. American River Bank has made arrangements with its
correspondent banks and with others to provide some of these services for its
customers. For borrowers requiring loans in excess of American River Bank's
legal lending limits, American River Bank has offered, and intends to offer in
the future, such loans on a participating basis with its correspondent banks and
with other independent banks, including North Coast Bank, retaining the portion
of such loans which is within its lending limits. As of December 31, 2000,
American River Bank's aggregate legal lending limits to a single borrower and
such borrower's related parties were $3,186,000 on an unsecured basis and
$5,293,000 on a fully secured basis based on regulatory capital of $21,173,000.
American River Bank's business is concentrated in its service area, which
primarily encompasses Sacramento County and South Western Placer County. The
economy of American River Bank's service area is dependent upon government,
manufacturing, tourism, retail sales, population growth and smaller service
oriented businesses.
Based upon the most recent "Data Book Summary of Deposits in FDIC Insured
Commercial and Savings Banks" report dated June 30, 2000, there were 184
operating commercial and savings bank offices in Sacramento County with total
deposits of $11,108,700,000. This was an increase of $615,890,000 over the June
30, 1999 balances. American River Bank held a total of $140,380,000 in deposits,
representing approximately 1.3% of total commercial and savings banks deposits
in Sacramento County as of June 30, 2000.
Based upon the most recent "Data Book Summary of Deposits in FDIC Insured
Commercial and Savings Banks" report dated June 30, 2000, there were 74
operating commercial and savings bank offices in Placer County with total
deposits of $2,502,703,000. This was an increase of $314,070,000 over the June
30, 1999 balances. American River Bank held a total of $43,448,000 in deposits,
representing approximately 1.7% of total commercial and savings banks deposits
in Placer County as of June 30, 2000.
In 1996, pursuant to Congressional mandate, the FDIC reduced bank deposit
insurance assessment rates to a range from $0 to $0.27 per $100 of deposits,
dependent upon a bank's risk. Based upon the risk-based assessment rate
schedule, American River Bank's current capital ratios and levels of deposits,
American River Bank anticipates no change in the assessment rate applicable to
it during 2001 from that in 2000.
North Coast Bank. At June 30, 2000, based on the most recent "Data Book
Summary of Deposits in FDIC Insured Commercial and Savings Banks" report at that
date, the competing commercial and savings banks had 55 offices in the cities of
Healdsburg, Santa Rosa and Windsor, California, where North Coast Bank has its 3
offices. Additionally, North Coast Bank competes with thrifts and, to a lesser
extent, credit unions, finance companies and other financial service providers
for deposit and loan customers.
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North Coast Bank has also made arrangements with its correspondent banks
and with others to provide some of the services for its customers, such as trust
services, international banking, discount brokerage and insurance services,
which North Coast Bank is not authorized nor prepared to offer currently. For
borrowers requiring loans in excess of North Coast Bank's legal lending limits,
North Coast Bank has offered, and intends to offer in the future, such loans on
a participating basis with its correspondent banks and with other independent
banks, including American River Bank, retaining the portion of such loans which
is within its lending limits. As of December 31, 2000, North Coast Bank's
aggregate legal lending limits to a single borrower and such borrower's related
parties were $778,000 based on regulatory capital of $5,186,000.
North Coast Bank's business is concentrated in its service area, which
primarily encompasses Sonoma County. The economy of North Coast Bank's service
area is dependent upon agriculture, tourism, retail sales, population growth and
smaller service oriented businesses.
Based upon the most recent "Data Book Summary of Deposits in FDIC Insured
Commercial and Savings Banks" report dated June 30, 2000, there were 111
operating commercial and savings bank offices in Sonoma County with total
deposits of $6,902,391,000. This was an increase of $1,006,404,000 over the June
30, 1999 balances. North Coast Bank held a total of $47,077,000 in deposits,
representing approximately .7% of total commercial and savings banks deposits in
Sonoma County as of June 30, 2000.
Based upon the risk-based assessment rate schedule implemented by the FDIC
in 1996, North Coast Bank's current capital ratios and levels of deposits, North
Coast Bank anticipates no change in the assessment rate applicable to it during
2001 from that in 2000.
GENERAL COMPETITIVE FACTORS
In order to compete with the major financial institutions in their primary
service areas, community banks such as American River Bank and North Coast Bank
use to the fullest extent possible the flexibility which is accorded by their
independent status. This includes an emphasis on specialized services, local
promotional activity, and personal contacts by their respective officers,
directors and employees. They also seek to provide special services and programs
for individuals in their primary service area who are employed in the
agricultural, professional and business fields, such as loans for equipment,
furniture, tools of the trade or expansion of practices or businesses. In the
event there are customers whose loan demands exceed their respective lending
limits, they seek to arrange for such loans on a participation basis with other
financial institutions. They also assist those customers requiring services not
offered by either bank to obtain such services from correspondent banks.
Commercial banks compete with savings and loan associations, credit unions,
other financial institutions and other entities for funds. For instance, yields
on corporate and government debt securities and other commercial paper affect
the ability of commercial banks to attract and hold deposits. Commercial banks
also compete for loans with savings and loan associations, credit unions,
consumer finance companies, mortgage companies and other lending institutions.
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest rate paid by a bank to obtain their
deposits and other borrowings and the interest rate received by a bank on loans
extended to customers and on securities held in a bank's portfolio comprise the
major portion of a bank's earnings.
The interest rate differentials of a bank, and therefore their earnings,
are affected not only by general economic conditions, both domestic and foreign,
but also by the monetary and fiscal policies of the United States as set by
statutes and as implemented by federal agencies, particularly the Federal
Reserve Board. The Federal Reserve Board can and does implement national
monetary policy, such as seeking to curb inflation and combat recession, by its
open market operations in United States government securities, adjustments in
the amount of interest free reserves that banks and other financial institutions
9
are required to maintain, and adjustments to the discount rates applicable to
borrowing by banks from the Federal Reserve Board. These activities influence
the growth of bank loans, investments and deposits and also affect interest
rates charged on loans and paid on deposits. The nature and timing of any future
changes in monetary policies and their impact on American River Bank and North
Coast Bank are not predictable.
IMPACT OF LEGISLATIVE AND REGULATORY PROPOSALS
Since 1996, California law implementing certain provisions of prior federal
law has (1) permitted interstate merger transactions; (2) prohibited interstate
branching through the acquisition of a branch business unit located in
California without acquisition of the whole business unit of the California
bank; and (3) prohibited interstate branching through de novo establishment of
California branch offices. Initial entry into California by an out-of-state
institution must be accomplished by acquisition of or merger with an existing
whole bank which has been in existence for at least five years.
The federal financial institution agencies, especially the Office of the
Comptroller of the Currency and the Board of Governors, have taken steps to
increase the types of activities in which national banks and bank holding
companies can engage, and to make it easier to engage in such activities. The
Office of the Comptroller of the Currency has issued regulations permitting
national banks to engage in a wider range of activities through subsidiaries.
"Eligible institutions" (those national banks that are well capitalized, have a
high overall rating and a satisfactory CRA rating, and are not subject to an
enforcement order) may engage in activities related to banking through operating
subsidiaries subject to an expedited application process. In addition, a
national bank may apply to the Office of the Comptroller of the Currency to
engage in an activity through a subsidiary in which American River Bank itself
may not engage.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "Act"), which is potentially the most significant
banking legislation in many years. The Act eliminates most of the remaining
depression-era "firewalls" between banks, securities firms and insurance
companies which was established by The Banking Act of 1933, also known as the
Glass-Steagall Act ("Glass-Steagall). Glass-Steagall sought to insulate banks as
depository institutions from the perceived risks of securities dealing and
underwriting, and related activities. The Act repeals Section 20 of
Glass-Steagall which prohibited banks from affiliating with securities firms.
Bank holding companies that can qualify as "financial holding companies" can now
acquire securities firms or create them as subsidiaries, and securities firms
can now acquire banks or start banking activities through a financial holding
company. The Act includes provisions which permit national banks to conduct
financial activities through a subsidiary that are permissible for a national
bank to engage in directly, as well as certain activities authorized by statute,
or that are financial in nature or incidental to financial activities to the
same extent as permitted to a "financial holding company" or its affiliates.
This liberalization of United States banking and financial services regulation
applies both to domestic institutions and foreign institutions conducting
business in the United States. Consequently, the common ownership of banks,
securities firms and insurance firms is now possible, as is the conduct of
commercial banking, merchant banking, investment management, securities
underwriting and insurance within a single financial institution using a
"financial holding company" structure authorized by the Act.
Prior to the Act, significant restrictions existed on the affiliation of
banks with securities firms and on the direct conduct by banks of securities
dealing and underwriting and related securities activities. Banks were also
(with minor exceptions) prohibited from engaging in insurance activities or
affiliating with insurers. The Act removes these restrictions and substantially
eliminates the prohibitions under the Bank Holding Company Act on affiliations
between banks and insurance companies. Bank holding companies which qualify as
financial holding companies can now insure, guarantee, or indemnify against
loss, harm, damage, illness, disability, or death; issue annuities; and act as a
principal, agent, or broker regarding such insurance services.
In order for a commercial bank to affiliate with a securities firm or an
insurance company pursuant to the Act, its bank holding company must qualify as
a financial holding company. A bank holding company will qualify if (i) its
10
banking subsidiaries are "well capitalized" and "well managed" and (ii) it files
with the Board of Governors a certification to such effect and a declaration
that it elects to become a financial holding company. The amendment of the Bank
Holding Company Act now permits financial holding companies to engage in
activities, and acquire companies engaged in activities, that are financial in
nature or incidental to such financial activities. Financial holding companies
are also permitted to engage in activities that are complementary to financial
activities if the Board of Governors determines that the activity does not pose
a substantial risk to the safety or soundness of depository institutions or the
financial system in general. These standards expand upon the list of activities
"closely related to banking" which have to date defined the permissible
activities of bank holding companies under the Bank Holding Company Act.
One further effect of the Act is to require that federal financial
institution and securities regulatory agencies prescribe regulations to
implement the policy that financial institutions must respect the privacy of
their customers and protect the security and confidentiality of customers'
non-public personal information. These regulations require, in general, that
financial institutions (1) may not disclose non-public personal information of
customers to non-affiliated third parties without notice to their customers, who
must have the opportunity to direct that such information not be disclosed; (2)
may not disclose customer account numbers except to consumer reporting agencies;
and (3) must give prior disclosure of their privacy policies before establishing
new customer relationships.
Neither American River Holdings, American River Bank nor North Coast Bank
have determined whether or when they may seek to acquire and exercise new powers
or activities under the Act, and the extent to which competition will change
among financial institutions affected by the Act has not yet become clear.
Certain legislative and regulatory proposals that could affect American
River Holdings, American River Bank, North Coast Bank and the banking business
in general are periodically introduced before the United States Congress, the
California State Legislature and Federal and state government agencies. It is
not known to what extent, if any, legislative proposals will be enacted and what
effect such legislation would have on the structure, regulation and competitive
relationships of financial institutions. It is likely, however, that such
legislation could subject American River Holdings, American River Bank and North
Coast Bank to increased regulation, disclosure and reporting requirements,
competition, and costs of doing business.
In addition to legislative changes, the various Federal and state financial
institution regulatory agencies frequently propose rules and regulations to
implement and enforce already existing legislation. It cannot be predicted
whether or in what form any such rules or regulations will be enacted or the
effect that such regulations may have on American River Holdings, American River
Bank and North Coast Bank.
ITEM 2. PROPERTIES
The Company and its subsidiaries lease seven and own one of their
respective premises. American River Bank's head office is located at 1545 River
Park Drive, Suite 107, Sacramento, California, in a modern, five floor building
which has offstreet parking for its clients. American River Bank leases premises
in the building from Spieker Properties, L.P., a California limited partnership.
The lease term is ten years and expires on March 31, 2010. The premises consist
of 9,498 square feet on the ground floor.
American River Bank leases premises at 9750 Business Park Drive,
Sacramento, California. The office space is leased from Bradshaw Plaza Group,
which is owned in part by Charles D. Fite, a director of the Company. The lease
term is seven years and expires on November 30, 2006. The premises consist of
4,590 square feet on the ground floor.
11
American River Bank leases premises at 10123 Fair Oaks Boulevard, Fair
Oaks, California. The office space is leased from Marjorie Taylor, a director of
the Company. The lease term is 12 years and expires on March 1, 2009. The
premises consist of 2,380 square feet on the ground floor.
American River Bank leases premises at 2240 Douglas Boulevard, Roseville,
California. The office space is leased from Sandalwood Land Company. The lease
term is 10 years and expires on December 18, 2006. The premises consist of 3,790
square feet on the ground floor.
The Company leases premises (used by First Source Capital) at 1540 River
Park Drive, Suite 106, Sacramento California. The office space is leased from
Union Bank of California N.A., as Trustee for Agnes M. Bourn and William B.
Bourn. The one-year lease term expires on February 1, 2002. The premises consist
of 847 square feet on the ground floor.
North Coast Bank leases premises at 8733 Lakewood Drive, Windsor,
California. The office space is leased from Hotel St. Paul Partnership. The
lease term is 10 years and expires on February 1, 2003. The premises consist of
approximately 5,760 square feet on the first and second floors.
North Coast Bank owns premises at 412 Center Street, Healdsburg,
California. The premises were purchased June 1, 1993. The purchase price for the
land and building was $343,849. The building is 2,620 square feet sitting on
10,835 square feet of land.
North Coast Bank leases premises at 50 Santa Rosa Avenue, Santa Rosa,
California. The office space is leased from Rosario LLC. The lease term is ten
(10) years and expires on October 31, 2008. The premises consist of 7,072 square
feet on the ground floor.
The leases on the premises located at 1545 River Park Drive, 9750 Business
Park Drive, 2240 Douglas Boulevard and 50 Santa Rosa Avenue contain options to
extend for five years. Included in the above are two facilities leased from
directors of the Company at terms and conditions which management believes are
consistent with the commercial lease market.
The foregoing summary descriptions of leased premises are qualified in
their entirety by reference to the lease agreements listed as exhibits to this
report.
ITEM 3. THE LEGAL PROCEEDINGS
There are no material legal proceedings adverse to the Company and its
subsidiaries to which any director, officer, affiliate of the Company, or 5%
shareholder of the Company or its subsidiaries, or any associate of any such
director, officer, affiliate or 5% shareholder of the Company or its
subsidiaries are a party, and none of the above persons has a material interest
adverse to the Company or its subsidiaries.
From time to time, the Company and/or its subsidiaries is a party to claims
and legal proceedings arising in the ordinary course of business. The Company's
management is not aware of any material pending legal proceedings to which
either it or its subsidiaries may be a party or has recently been a party, which
will have a material adverse effect on the financial condition or results of
operations of the Company or its subsidiaries, taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders during the
fourth quarter of 2000.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading on the NASDAQ National Market
exchange ("NASDAQ") under the symbol "AMRB" on October 26, 2000. Prior to
October 26, 2000, the common stock was not listed on any exchange and was quoted
on the OTC Bulletin Board under the symbol "AMRB.OB." The following table shows
the high and the low prices for the common stock, for each quarter, as reported
by NASDAQ and the OTC Bulletin Board. The prices have been adjusted to reflect
the 5% stock dividends distributed in 1999 and 2000.
===================================
2000 High Low
- -----------------------------------
First quarter $ 15.24 $ 10.48
Second quarter 14.29 10.00
Third quarter 13.57 12.02
Fourth quarter 15.00 11.79
1999
- -----------------------------------
First quarter $ 16.55 $ 14.21
Second quarter 16.18 14.51
Third quarter 16.55 14.63
Fourth quarter 16.07 13.45
===================================
As of December 31, 2000, there were approximately 1,295 shareholders of
record of the Company's common stock.
The Company has paid cash dividends on its common stock twice a year since
1992, and it is currently the intention of the Board of Directors of the Company
to continue payment of cash dividends on a twice a year basis. There is no
assurance, however, that any dividends will be paid since they are dependent
upon earnings, financial condition and capital requirements of the Company and
its subsidiaries. As of December 31, 2000, the Subsidiary Banks had $6.4 million
in retained earnings available for dividend payments to the Company, which in
turn could be paid out to shareholders of the Company.
See Note 12 to the consolidated financial statements included in this
report for additional information regarding the amount of cash dividends
declared and paid on common stock for the two most recent fiscal years.
13
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL SUMMARY
The following table presents certain consolidated financial information
concerning the business of the Company and its subsidiaries. Prior period
numbers have adjusted to reflect the merger of North Coast Bank, which was
accounted for as a pooling of interests. This information should be read in
conjunction with the Consolidated Financial Statements, the notes thereto, and
Management's Discussion and Analysis included in this report.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share amounts and ratios)
2000 1999 1998 1997 1996
STATEMENT OF OPERATIONS DATA
Net interest income $ 13,585 $ 11,754 $ 10,743 $ 9,582 $ 9,105
Provision for loan or lease losses 672 582 509 605 561
Other income 2,183 1,647 1,433 1,211 1,153
Other expenses 9,329 7,770 7,143 6,563 6,685
Income before income taxes 5,767 5,049 4,524 3,625 3,012
Income taxes 2,221 1,921 1,673 1,278 1,034
Net income $ 3,546 $ 3,128 $ 2,851 $ 2,347 $ 1,978
Earnings per share - basic $ 1.49 $ 1.31 $ 1.19 $ 0.97 $ 0.82
Earnings per share - diluted 1.42 1.24 1.11 0.90 0.80
Cash dividends per share 0.25 0.22 0.19 0.17 0.15
Book value per share 10.19 9.17 8.44 7.71 6.92
BALANCE SHEET DATA:
Balance sheet totals-end of period:
Assets $284,126 $248,540 $220,001 $197,177 $166,176
Loans and leases, net 200,658 157,044 143,132 121,960 108,821
Deposits 239,312 223,077 197,104 176,329 148,670
Shareholders' equity 24,413 20,611 19,168 17,664 15,936
Average balance sheet amounts:
Assets $259,999 $224,960 $201,958 $179,667 $165,368
Loans and leases 175,134 148,369 133,381 115,099 110,696
Earning assets 238,837 207,388 187,071 166,104 153,090
Deposits 230,822 201,180 180,288 161,794 148,805
Shareholders' equity 22,258 19,916 18,434 16,801 15,073
SELECTED RATIOS:
For the year:
Return on average equity 15.93% 15.71% 15.47% 13.97% 13.12%
Return on average assets 1.36% 1.39% 1.41% 1.31% 1.20%
Efficiency ratio * 58.59% 57.48% 58.28% 60.47% 64.85%
Net interest margin * 5.75% 5.72% 5.79% 5.80% 5.98%
Net chargeoffs to average loans & leases 0.14% 0.14% 0.26% 0.52% 0.79%
At December 31:
Average equity to average assets 8.56% 8.85% 9.13% 9.35% 9.11%
Leverage capital ratio 9.39% 9.17% 9.51% 9.85% 9.66%
Allowance for loan & lease losses 1.21% 1.30% 1.17% 1.24% 1.37%
* fully taxable equivalent
14
ITEM 7. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is American River Holdings management's discussion and
analysis of the significant changes in income and expense accounts for the years
ended December 31, 2000, 1999 and 1998.
INTRODUCTION
In addition to the historical information contained herein, this Annual
Report contains certain forward-looking statements. The reader of this Annual
Report should understand that all such forward-looking statements are subject to
various uncertainties and risks that could affect their outcome. The Company's
actual results could differ materially from those suggested by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on securities investments, rates paid on deposits,
competition effects, fee and other noninterest income earned, general economic
conditions, nationally, regionally and in the operating market areas of the
Company and its subsidiaries, changes in the regulatory environment, changes in
business conditions and inflation, changes in securities markets, data
processing problems, a decline in real estate values in the Company's market
area, the California power crisis, as well as other factors. This entire Report
should be read to put such forward-looking statements in context and to gain a
more complete understanding of the uncertainties and risks involved in the
Company's business. This entire Report should be read in conjunction with the
Company's audited financial statements and notes thereto.
OVERVIEW
The Company recorded its 68th consecutive profitable quarter for the
quarter ended December 31, 2000. Net income in 2000 increased 13.4% to
$3,546,000 versus $3,128,000 in 1999. Diluted earnings per share for the two
years were $1.42 and $1.24, respectively. For 2000, the Company realized a
return on average equity of 15.9% and a return on average assets of 1.36%, as
compared to 15.7% and 1.39% for 1999. The net income for 1999 was $277,000
(9.7%) higher than the $2,851,000 recorded in 1998. Diluted earnings per share
in 1998 were $1.11, return on average assets was 1.41% and return on average
equity was 15.5%. The earnings per share for 2000, 1999 and 1998 have been
adjusted for 5 percent stock dividends distributed on December 19, 2000, October
14, 1999 and October 21, 1998. In March of 2000, the Company announced a merger
with North Coast Bank, whereby North Coast Bank would become a subsidiary of the
Company. At September 30, 2000, North Coast had assets of $58.4 million and
operated out of three branches in the Santa Rosa, California area. The
transaction called for .9644 of a share of the Company's common stock to be
exchanged for each outstanding share of North Coast Bank's common stock. The
transaction closed on October 25, 2000 and was accounted for as a pooling of
interests, and as a result, all prior period numbers have been restated to
include those of North Coast Bank. Excluding merger related expenses and other
non-recurring expenses such as NASDAQ listing fees and SEC registration fees,
net income would have been $3,967,000 or an increase of 26.8%; diluted earnings
per share would have been $1.59 or an increase of 28.2%; return on average
equity would have been 17.8% and return on average assets would have been 1.53%.
During 2000, total assets of the Company increased $35,586,000 (14.3%) to a
total of $284,126,000 at year-end. At December 31, 2000, net loans totaled
$200,658,000, up $43,614,000 (27.8%) from the ending balances on December 31,
1999. Deposit growth for the year was 7.3% resulting in ending deposit balances
of $239,312,000. The Company ended 2000 with a Tier 1 capital ratio of 10.6% and
a total risk-based capital ratio of 11.7%.
15
Table One below provides a summary of the components of net income for the
years indicated:
TABLE ONE: COMPONENTS OF NET INCOME
- --------------------------------------------------------------------------------
For the twelve months ended:
(In thousands, except percentages) 2000 1999 1998
---- ---- ----
Net interest income* $ 13,739 $ 11,871 $ 10,824
Provision for loan losses (672) (582) (509)
Non-interest income 2,183 1,647 1,433
Non-interest expense (includes non-recur-
ring expenses of $693 for the twelve
months ended December 31, 2000) (9,329) (7,770) (7,143)
Provision for income taxes (2,221) (1,921) (1,673)
Tax equivalent adjustment (154) (117) (81)
-------- -------- --------
Net income $ 3,546 $ 3,128 $ 2,851
======== ======== ========
- --------------------------------------------------------------------------------
Average total assets $260,000 $225,000 $202,000
Net income as a percentage
of average total assets 1.36% 1.39% 1.41%
Net income as a percentage of
average total assets excluding non-re-
curring expenses 1.53% 1.39% 1.41%
- --------------------------------------------------------------------------------
* 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, securities, federal funds sold and investments
in time deposits) over the interest paid on deposits and borrowed funds. Net
interest margin is net interest income expressed as a percentage of average
earning assets.
The Company's fully taxable equivalent net interest margin was 5.72% in
1999, and 5.75% in 2000. The fully taxable equivalent net interest margin in
dollars was up $1,868,000 (16%) in 2000 over 1999.
The fully taxable equivalent interest income component increased from
$17,346,000 in 1999 to $21,381,000 in 2000, representing a 23.3% increase. The
increase in the fully taxable equivalent interest income for 2000 compared to
the same period in 1999 is broken down by rate (up $1,202,000) and volume (up
$2,833,000). The rate increase can be attributed to six rate increases
implemented by the Company over the past eighteen months in response to the
Federal Reserve Board's increases in the Federal Funds and Discount rates. The
average yield on earning assets increased from 8.36% in 1999 to 8.95% in 2000.
The volume increase was the result of a 15% increase in average earning assets
primarily the result of a concentrated effort on business lending and the
effects of a strong local market. Average loan balances were up $26,765,000
(18%) and average investment securities balances were up $8,214,000 (16%).
Average fed fund balances were down $3,530,000 (-39%).
The fully taxable equivalent interest income component increased $1,088,000
in 1999 from the $16,258,000 recorded in 1998, representing a 6.7% increase. The
increase in the fully taxable equivalent interest income for 1999 compared to
the same period in 1998 is broken down by rate (down $708,000) and volume (up
$1,796,000). The interest income increase in 1999 was primarily the result of an
increase in average outstanding loan balances of $14,988,000, which reflected a
11.2% increase over 1998 balances. This increase contributed an additional
$1,470,000 to interest income and was offset in part by an average 42 basis
point decrease in loan yields that caused a reduction of $626,000 in interest
income. Competitive pressures and three 25 basis point decreases in the prime
rate late in 1998 contributed to the lower yields in 1999. The average yield on
earning assets decreased from 8.69% in 1998 to 8.36% in 1999.
Interest expense increased $2,167,000 (40%) in 2000 over 1999. The average
balances on interest bearing liabilities were $25,362,000 (17%) higher in 2000
versus 1999. The higher balances accounted for $942,000 of the increase in
interest expense. The higher balances were due to internal growth of average
deposits ($23,188,000) and other borrowings ($2,174,000). Rates paid on interest
bearing liabilities increased 71 basis points on a year over year basis and
accounted for $1,225,000 of the interest expense increase for the period.
16
Interest expense increased $41,000 (.8%) in 1999 over 1998. The average
balances on interest bearing liabilities were $15,361,000 (11%) higher in 1999
versus 1998. The higher balances accounted for $625,000 of the increase in
interest expense. Rates paid on interest bearing liabilities decreased 38 basis
points on a year over year basis and offset the expense related to the higher
balances by $584,000.
Table Two, Analysis of Net Interest Margin on Earning Assets, and Table
Three, Analysis of Volume and Rate Changes on Net Interest Income and Expenses,
are provided to enable the reader to understand the components and past trends
of the Company's interest income and expenses. Table Two provides an analysis of
net interest margin on earning assets setting forth average assets, liabilities
and shareholders' equity; interest income earned and interest expense paid and
average rates earned and paid; and the net interest margin on earning assets.
Table Three sets forth a summary of the changes in interest income and interest
expense from changes in average asset and liability balances (volume) and
changes in average interest rates.
TABLE TWO: ANALYSIS OF NET INTEREST MARGIN ON EARNING ASSETS
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000 1999 1998
----------------------------- --------------------------- ---------------------------
(Taxable Equivalent Basis) Avg Avg Avg Avg Avg Avg
(In thousands, except Balance Interest Yield Balance Interest Yield Balance Interest Yield
percentages) ------- -------- ----- ------- -------- ----- ------- -------- -----
ASSETS:
Earning assets
Loans (1) $ 175,134 $ 17,294 9.87% $ 148,369 $ 13,926 9.39% $ 133,381 $ 13,082 9.81%
Taxable investment
securities 41,763 2,644 6.33% 36,252 2,126 5.86% 34,168 2,025 5.93%
Tax-exempt investment
securities (2) 9,232 600 6.50% 6,984 444 6.36% 4,376 281 6.42%
Corporate stock 987 82 8.31% 765 63 8.24% 964 78 8.09%
Federal funds sold 5,493 353 6.43% 9,023 451 5.00% 8,992 475 5.28%
Investments in time
deposits 6,228 408 6.57% 5,995 336 5.60% 5,190 317 6.11%
--------- -------- --------- -------- --------- --------
Total earning assets 238,837 21,381 8.95% 207,388 17,346 8.36% 187,071 16,258 8.69%
-------- -------- --------
Cash & due from banks 15,776 14,089 11,957
Other assets 5,386 3,483 2,930
--------- --------- ---------
$ 259,999 $ 224,960 $ 201,958
========= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
NOW & MMDA $ 87,159 2,834 3.25% $ 72,048 1,801 2.50% $ 64,166 1,814 2.83%
Savings 12,212 297 2.43% 13,054 307 2.35% 12,488 316 2.53%
Time deposits 72,079 4,199 5.83% 63,160 3,208 5.08% 56,574 3,161 5.59%
Other borrowings 4,818 312 6.48% 2,644 159 6.01% 2,317 143 6.17%
--------- -------- --------- -------- --------- --------
Total interest bearing
liabilities 176,268 7,642 4.34% 150,906 5,475 3.63% 135,545 5,434 4.01%
Demand deposits 59,372 52,918 47,060
Other liabilities 2,101 1,220 919
--------- --------- ---------
Total liabilities 237,741 205,044 183,524
Shareholders' equity 22,258 19,916 18,434
--------- --------- ---------
22,258 19,916
$ 259,999 $ 224,960 $ 201,958
========= ========= =========
Net interest income &
margin (3) $ 13,739 5.75% $11,871 5.72% $ 10,824 5.79%
======== ==== ======= ==== ======== ====
(1) Loan interest includes loan fees of $355,000,$402,000 and $345,000 in 2000,
1999 and 1998, respectively.
(2) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
17
TABLE THREE: ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND
EXPENSES
- --------------------------------------------------------------------------------
Year ended December 31, 2000 over 1999 (In thousands)
Increase (decrease) due to change in:
Volume Rate (4) Net Change
------ -------- ----------
Interest-earning assets:
Net loans (1)(2) $ 2,512 $ 856 $ 3,368
Taxable investment securities 323 194 517
Tax exempt investment securities (3) 143 13 156
Corporate stock 18 1 19
Federal funds sold & other (176) 78 (98)
Investment in time deposits 13 60 73
------- ------- -------
Total 2,833 1,202 4,035
------- ------- -------
Interest-bearing liabilities:
Demand deposits 378 655 1,033
Savings deposits (20) 10 (10)
Time deposits 453 538 991
Other borrowings 131 22 153
------- ------- -------
Total 942 1,225 2,167
------- ------- -------
Interest differential $ 1,891 $ (23) $ 1,868
======= ======= =======
Year Ended December 31, 1999 over 1998 (In thousands)
Increase (decrease) due to change in:
Volume Rate (4) Net Change
------ -------- ----------
Interest-earning assets:
Net loans (1)(2) $ 1,470 $ (626) $ 844
Taxable investment securities 124 (23) 101
Tax exempt investment securities (3) 167 (4) 163
Corporate stock (16) 1 (15)
Federal funds sold & other 2 (26) (24)
Investment in time deposits 49 (30) 19
------- ------- -------
Total 1,796 (708) 1,088
------- ------- -------
Interest-bearing liabilities:
Demand deposits 223 (236) (13)
Savings deposits 14 (23) (9)
Time deposits 368 (321) 47
Other borrowings 20 (4) 16
------- ------- -------
Total 625 (584) 41
------- ------- -------
Interest differential $ 1,171 $ (124) $ 1,047
======= ======= =======
(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 $355,000, $402,000 and $345,000 for the years ended December
31, 2000, 1999 and 1998, respectively, have been included in the interest
income computation.
(3) Includes taxable-equivalent adjustments that primarily relate to income on
certain securities that is exempt from federal income taxes. The effective
federal statutory tax rate was 34% for the periods presented.
(4) The rate/volume variance has been included in the rate variance.
PROVISION FOR LOAN AND LEASE LOSSES
The Company provided $672,000 for loan and lease losses in 2000 as compared
to $582,000 for 1999. Net loan charge-offs for 2000 were $239,000 as compared to
$213,000 in 1999. In 2000 and 1999, net loan charge-offs as a percentage of
average loans outstanding was .14%. In 1998, the Company provided $509,000 for
loan and lease losses and net charge-offs were $342,000.
18
SERVICE CHARGES AND FEES AND OTHER INCOME
Noninterest income was up $536,000 (32.5%) to $2,183,000 in 2000 from the
1999 level. The increase in the noninterest income can be attributed to an
increase in service charges (up $65,000 or 12.1%), merchant fee income up
$49,000 or 32.0%), accounts receivable servicing (up $158,000 or 58.1%) and
increased revenue from First Source Capital (up $131,000 or 272.9%) (First
Source Capital was formed during the second half of 1999). The increase in
accounts receivable servicing was a result of adding new clients and increasing
average accounts receivable balances outstanding from $1,505,000 in 1999 to
$2,696,000 (79.1%) in 2000. The increase in service charges and merchant fee
income can be attributable to the 13.4% increase in core deposits (demand and
money market accounts). These accounts allow the Company the opportunity for
more service charge fees and the access to potential merchant accounts. For the
year ended December 31, 1999, noninterest income was up $214,000 (14.9%) to
$1,647,000. Increases were in accounts receivable servicing (up $170,000 or
168.63%) and the State servicing contract (up $58,000 or 89.23%). These
increases were offset by a decrease of $121,000 (47.64%) in loan origination
fees from American River Bank's residential lending division. American River
Bank's residential lending division acts as a broker between American River
Bank's customers and the loan wholesalers. American River Bank receives an
origination fee for loans closed. The increase in accounts receivable servicing
was a result of four new clients and increasing average accounts receivable
balances outstanding from $652,000 in 1998 to $1,505,000 (130.8%) in 1999. The
increase in fees from the State servicing contract was the result of additional
loans serviced for the State of California. The residential lending division
experienced a decrease in loan volume as a direct result of an increase in
mortgage rates, which caused the number of refinances to decrease.
SALARIES AND BENEFITS
Salaries and benefits were $4,961,000 (up $595,000 or 13.6%) for 2000 as
compared to $4,366,000 in 1999. Base salaries increased $469,000, resulting from
normal cost of living raises of roughly 3% or $100,000, increased salaries of
$87,000 at First Source Capital (due to a full year of salaries in 2000),
increased commissions paid out in the Investment Services Division ($23,000) and
salaries paid to the new employees at the new Real Estate Division of North
Coast Bank ($65,000). The remainder of the increase represents market
adjustments made to key employees as a way of retaining their services during a
tight job market and the staffing additions made during the year as the Company
continues to grow. Incentive compensation increased $59,000 (9.0%) as the
Company's incentive compensation is based on the Company's financial
performance. Benefit costs increased commensurate with the salaries. At the end
of 2000, the full time equivalent staff was 100 versus 93 at the end of 1999.
For the year ended December 31, 1999, salaries and benefits were up
$344,000, (8.6%) from 1998. Base salaries increased $270,000, resulting from
normal merit increases, the opening of First Source Capital in July 1999, the
addition of a CFO salary for an entire year compared to three months in 1998 and
additional staffing due to the opening of North Coast Bank's Santa Rosa branch
office in February 1999. Incentive compensation increased $77,000 (13.1%) as the
Company moved closer to the goal of providing small cost of living increases and
higher incentive compensation based on the Company's financial performance.
Benefit costs increased commensurate with the salaries. At the end of 1999, the
full time equivalent staff was 93 versus 87 at the end of 1998.
OCCUPANCY, FURNITURE AND EQUIPMENT
For the year ended December 31, 2000, occupancy and fixed assets expense
was $1,218,000, up $62,000 (5.4%) from 1999. Premises rent payments increased
$58,000 or 11.6% during the year. Annual rent adjustments under the lease
agreements, as well as the opening of the First Source Capital location in the
second half of 1999, represented $20,000 of the rent increase and the remainder
($38,000) resulted from a new lease for the building occupied by the Company's
corporate office and one of American River Bank's branch offices. The new lease
added additional space as well as highly visible signage. Fixed asset
depreciation expense was $247,000 in 2000 compared to $250,000 in 1999,
representing a 1.2% decrease.
19
For the year ended December 31, 1999, occupancy and fixed assets expense
was $1,156,000 up $157,000 (15.7%) from 1998. The majority of the expense is due
to the opening of North Coast Bank's Santa Rosa branch office in February 1999,
which added lease payments of $97,000 and common area maintenance charges of
$22,000. Annual rent adjustments under the lease agreements, as well as the
opening of the First Source Capital location, increased occupancy expense by
$27,000.
OTHER EXPENSES
Other expenses were $3,150,000 (up $902,000 or 40.1%) for 2000 as compared
to $2,248,000 for 1999. These include one-time costs of $693,000 (or roughly
76.8% of the entire increase) associated with the acquisition of North Coast
Bank, NASDAQ listing fees and expenses related to registering the Company with
the SEC. Outsourced item processing expenses were $498,000 (up $88,000 or 21.4%)
in 2000 as compared to $410,000 in 1999. The increase can be attributable to a
below market contract that expired in mid 2000. The contract reverted to
month-to-month expense at market rates upon expiration. Normal price increases
and growth in the Company's operations accounted for slight increases in the
other expense items. The overhead efficiency ratio on a taxable equivalent basis
for 2000 was 58.6% as compared to 57.5% in 1999. Excluding the one-time expenses
described above, the efficiency ratio for 2000 would have been 54.2%.
For the year ended December 31, 1999, other expenses increased $126,000
(5.9%). The opening of North Coast Bank's Santa Rosa branch office in February
1999 contributed to this increase with marketing and business development
expenses and supplies associated with opening the new branch. Normal price
increases and growth in the Company's operations that accounted for slight
increases in the other expense items were offset by a decrease in other real
estate (ORE) expense of $76,000 (49.7%). This decrease was a result of less ORE
in 1999 as compared to 1998 (average balance in ORE for 1999 was $224,000
compared to $807,000 for 1998). No ORE was held at December 31, 1999. The
overhead efficiency ratio on a taxable equivalent basis for 1999 was 57.5% as
compared to 58.3% in 1998.
PROVISION FOR TAXES
The effective tax rate on income was 38.5%, 38.0% and 37.0% in 2000, 1999
and 1998, respectively. The effective tax rate has increased slightly each of
the last three years as a result of the expiration of North Coast Bank's
operating loss carry-forwards in 1998 and increases in taxable income growing
faster than the benefits of investments made in tax-qualified municipal bonds.
The effective tax rate was greater than the federal statutory tax rate due to
state tax expense (net of federal tax effect) of $420,000, $346,000 and $308,000
in these years. Tax-exempt income of $462,000, $339,000 and $215,000 from
investment securities in these years helped to reduce the effective tax rate.
BALANCE SHEET ANALYSIS
The Company's total assets were $284,126,000 at December 31, 2000 as
compared to $248,540,000 at December 31, 1999, representing an increase of
14.3%. The average balances of total assets during 2000 were $259,999,000 which
represent an increase of $35,039,000 (15.6%) over the December 31, 1999 total of
$224,960,000.
LOANS
The Company concentrates its lending activities in six principal areas: 1)
commercial; 2) commercial real estate; 3) real estate construction (both
commercial and residential); 4) real estate residential; 5) agriculture and 6)
consumer loans. Commercial and residential real estate loans are generally
secured by improved property, with original maturities of 5-10 years. At
December 31, 2000, these six categories accounted for approximately 27%, 48%,
13%, 4%, 5% and 3%, respectively, of the Company's loan portfolio. This mix was
relatively unchanged compared to 27%, 45%, 16%, 4%, 4% and 4% at December 31,
1999. Continuing strong economic activity in the Company's market area, combined
20
with ongoing marketing efforts, offset by normal loan paydowns and payoffs,
resulted in net increases in loan balances for all loan categories in 2000 over
1999. Table Four below summarizes the composition of the loan and lease
portfolio for the past five years as of December 31.
TABLE FOUR: LOAN AND LEASE PORTFOLIO COMPOSITION
- ------------------------------------------------------------------------------------------
December 31,
-------------------------------------------------------------
(In thousands) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------
Commercial $ 52,726 $ 42,148 $ 36,916 $ 30,670 $ 33,405
Real estate:
Commercial 97,390 72,142 66,883 62,825 53,817
Construction 27,182 25,784 25,011 13,565 11,362
Residential 8,085 6,234 7,037 8,541 8,056
Agriculture 10,764 7,200 3,416 1,221 --
Consumer 6,413 5,896 5,654 6,140 2,563
Lease financing receivable 1,150 122 364 918 1,517
Deferred loan fees, net (598) (420) (456) (394) (384)
- ------------------------------------------------------------------------------------------
Total loans and leases 203,112 159,106 144,825 123,486 110,336
Allowance for loan and
lease credit losses (2,454) (2,062) (1,693) (1,526) (1,515)
- ------------------------------------------------------------------------------------------
Total net loans and leases $ 200,658 $ 157,044 $ 143,132 $ 121,960 $ 108,821
==========================================================================================
The majority of the Company's loans are direct loans made to individuals
and local businesses. The Company relies substantially on local promotional
activity, personal contacts by bank officers, directors and employees to compete
with other financial institutions. The Company makes loans to borrowers whose
applications include a sound purpose and a viable primary repayment source,
generally supported by a secondary source of repayment.
Commercial loans consist of credit lines for operating needs, loans for
equipment purchases, working capital, and various other business loan products.
Consumer loans include a range of traditional consumer loan products such as
personal lines of credit and loans to finance purchases of autos, boats,
recreational vehicles, mobile homes and various other consumer items.
Construction loans are generally composed of commitments to customers within the
Company's service area for construction of both commercial properties and custom
and semi-custom single-family residences. Other real estate loans consist
primarily of loans secured by first trust deeds on commercial and residential
properties typically with maturities from 3 to 10 years and original loan to
value ratios generally from 65% to 80%. Agriculture loans consist primarily of
development loans to plant vineyards. In general, except in the case of loans
with SBA or Farm Services Agency guarantees, the Company does not make long-term
mortgage loans; however, American River Bank has a residential lending division
to assist customers in securing most forms of longer term single-family mortgage
financing.
Average net loans and leases in 2000 were $175,134,000 which represents an
increase of $26,765,000 (18.0%) over the average in 1999. Loan growth in 2000
resulted from a favorable economy in the Company's market area, new borrowers
developed through the Company's marketing efforts and credit extensions expanded
to existing borrowers. Average loans and leases in 1999 were $148,369,000
representing an increase of $14,988,000 (11.2%) over 1998.
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 portfolio. Management believes its ability to identify and
assess risk and return characteristics of the Company's loan portfolio is
critical for profitability and growth. Management strives to continue its
emphasis on credit quality in the loan approval process, active credit
administration and regular monitoring. With this in mind, management has
designed and implemented a comprehensive loan review and grading system that
functions to continually assess the credit risk inherent in the loan portfolio.
21
Ultimately, underlying trends in economic and business cycles may influence
credit quality. American River Banks' business is concentrated in the Sacramento
Metropolitan Statistical Area, which is a diversified economy, but with a large
State of California government presence and employment base. North Coast Banks'
business is focused on of Sonoma County. Special emphasis is placed within the
three communities in which North Coast Bank has offices, (i.e., Santa Rosa,
Windsor, and Healdsburg). The economy of Sonoma County is diversified with
professional services, manufacturing, agriculture and real estate investment and
construction. The Company has significant extensions of credit and commitments
to extend credit that are secured by real estate. The ultimate recovery of these
loans is generally dependent on the successful operation, 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,
absorption and sale rates; real estate values and rates of return; operating
expenses; inflation; and sufficiency of collateral independent of the real
estate including, in limited instances, personal guarantees.
In extending credit and commitments to borrowers, the Company generally
requires collateral and/or guarantees as security. The repayment of such loans
is expected to come from cash flow or from proceeds from the sale of selected
assets of the borrowers. The Company's requirement for collateral and/or
guarantees is determined on a case-by-case basis in connection with management's
evaluation of the creditworthiness of the borrower. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment,
income-producing properties, residences and other real property. The Company
secures its collateral by perfecting its 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 65.1% of the Company's loan and lease portfolio at
December 31, 2000. Although management believes the concentration to have no
more than the normal risk of collectibility, a substantial decline in the
economy in general, or a decline in real estate values in the Company's primary
market areas in particular, could have an adverse impact on the collectibility
of these loans and require an increase in the provision for loan and lease
losses which could adversely affect the Company's future prospects, results
of operations, profitability and stock price. Management believes that its
lending policies and underwriting standards will tend to minimize losses in an
economic downturn, however, there is no assurance that losses will not occur
under such circumstances. The Company's loan policies and underwriting standards
include, but are not limited to, the following: (1) maintaining a thorough
understanding of the Company's service area and originating a significant
majority of its loans within that area, (2) maintaining a thorough understanding
of borrowers' knowledge, capacity, and market position in their field of
expertise, (3) basing real estate loan approvals not only on market demand for
the project, but also on the borrowers' capacity to support the project
financially in the event it does perform to expectations (whether sale or income
performance), and (4) maintaining conforming and prudent loan to value and loan
to cost ratios based on independent outside appraisals and ongoing inspection
and analysis by the Company's lending officers.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
Management generally places loans on nonaccrual status when they become 90
days past due, unless the loan is well secured and in the process of collection.
Loans are charged off when, in the opinion of management, collection appears
unlikely. Table Five below sets forth nonaccrual loans and loans past due 90
days or more as of year-end for the past five years.
Interest due but excluded from interest income on nonaccrual loans was not
considered material during 2000, 1999 and 1998. In 2000, 1999 and 1998, interest
income recognized from payments received on nonaccrual loans was also not
considered material.
22
The recorded investments in loans that were considered to be impaired
totaled $674,000 and $30,000 at December 31, 2000 and 1999, respectively. The
related allowance for loan losses for these loans at December 31, 2000 and
December 31, 1999 was $86,000 and $12,000, respectively. Management believes
that the allowance allocations are adequate for the inherent risk of those
loans. The average recorded investment in impaired loans for the years ended
December 31, 2000, 1999 and 1998 was $128,000, $279,000 and $254,000,
respectively.
The recorded investment in troubled debt restructurings as of December 31,
2000 was $511,000. There were no loan concentrations in excess of 10% of total
loans not otherwise disclosed as a category of loans as of December 31, 2000.
Management is not aware of any potential problem loans, which were accruing and
current at December 31, 1999 or 2000, where serious doubt exists as to the
ability of the borrower to comply with the present repayment terms.
TABLE FIVE: NON-PERFORMING LOANS
- -----------------------------------------------------------------------------------------
December 31,
------------------------------------------
(In thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------
Past due 90 days or more and still accruing:
Commercial $ -- $ -- $ -- $ 87 $ 18
Real estate -- -- -- -- --
Consumer and other -- -- 7 -- --
- -----------------------------------------------------------------------------------------
Nonaccrual:
Commercial 225 30 110 281 712
Real estate 449 -- -- 98 466
Consumer and other -- -- -- 7 29
- -----------------------------------------------------------------------------------------
Total non-performing loans $ 674 $ 30 $ 117 $ 473 $1,225
=========================================================================================
ALLOWANCE FOR LOAN AND LEASE LOSSES ACTIVITY
The provision for loan and lease losses is based upon management's
evaluation of the adequacy of the existing allowance for loans and leases
outstanding and loan commitments. This allowance is increased by provisions
charged to expense and recoveries, and is reduced by loan charge-offs.
Management determines an appropriate provision based upon the interaction of
three primary factors: (1) loan and lease portfolio growth, (2) a comprehensive
grading and review formula for total loans and leases outstanding, and (3)
estimated inherent credit risk in the portfolio.
Management reserves 2% of credit exposures graded "Special Mention", 15% of
credits classified "Substandard" and 50% of credits classified "Doubtful". These
reserve factors may be adjusted for significant commercial and real estate loans
that are individually evaluated by management for specific risk of loss. The
amounts allocated for "Special Mention", "Substandard" and "Doubtful" represent
$456,000 at December 31, 2000. In addition, reserve factors ranging from 0.375%
to 3.00% are assigned to currently performing loans. These factors are assigned
based on management's assessment of the following for each identified loan type:
(1) inherent credit risk, (2) historical losses and, (3) where the Company has
not experienced losses, historical losses experienced by peer banks. Management
also computes specific and expected loss reserves for loan commitments to
provide for risks of loss inherent in the loan extension process. Finally, a
residual component is maintained to cover uncertainties that could affect
management's estimate of probable losses. This residual component of the
allowance reflects the margin of imprecision inherent in the underlying
assumptions used to estimate losses in specifically graded loans and expected
losses in the performing portfolio.
The Loan Committees of each Subsidiary Bank review the adequacy of the
allowance for loan and lease losses at least quarterly to include consideration
of the relative risks in the portfolio and current economic conditions. The
allowance is adjusted based on that review if, in the judgment of the loan
committees and management, changes are warranted.
23
The allowance for loan and lease losses totaled $2,454,000 or 1.21% of
total loans at December 31, 2000, $2,062,000 or 1.30% of total loans at December
31, 1999, and $1,693,000 or 1.17% at December 31, 1998. During the first quarter
of 2000, $41,000 was transferred out of the allowance for loan and lease losses
account into a separate valuation reserve for the accounts receivable servicing
receivables.
It is the policy of management to maintain the allowance for loan and lease
losses at a level adequate for known and inherent risks in the portfolio. Based
on information currently available to analyze inherent credit risk, including
economic factors, overall credit quality, historical delinquencies and a history
of actual charge-offs, management believes that the provision for loan and lease
losses and the allowance are prudent and adequate. Each Subsidiary Bank
generally makes monthly allocations to the allowance for loan and lease losses.
The budgeted allocations are based on estimates of loss risk and loan growth.
Adjustments may be made based on differences from estimated loan growth, the
types of loans constituting this growth, changes in risk ratings within the
portfolio, and general economic conditions. However, no prediction of the
ultimate level of loans charged off in future years can be made with any
certainty.
24
Table Six below summarizes, for the periods indicated, the activity in the
allowance for loan and lease losses.
TABLE SIX: ALLOWANCE FOR LOAN AND LEASE LOSSES
- --------------------------------------------------------------------------------------------------------
(In thousands, except for
percentages) Year Ended December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
Average loans and leases
outstanding $ 175,134 $ 148,369 $ 133,381 $ 115,099 $ 110,696
- --------------------------------------------------------------------------------------------------------
Allowance for possible loan & lease
losses at beginning of period $ 2,062 $ 1,693 $ 1,526 $ 1,515 $ 1,826
Loans charged off:
Commercial 265 228 478 486 688
Real estate -- -- 22 86 121
Consumer 1 3 7 49 80
- --------------------------------------------------------------------------------------------------------
Total 266 231 507 621 889
- --------------------------------------------------------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial 23 15 165 25 15
Real estate -- -- -- -- --
Consumer 4 3 -- 2 3
- --------------------------------------------------------------------------------------------------------
Total 27 18 165 27 18
- --------------------------------------------------------------------------------------------------------
Net loans charged off 239 213 342 594 871
Amount transferred for accounts
receivable servicing valuation
reserve (41) -- -- -- --
Additions to allowance charged
to operating expenses 672 582 509 605 560
- --------------------------------------------------------------------------------------------------------
Allowance for possible loan and
lease losses at end of period $ 2,454 $ 2,062 $ 1,693 $ 1,526 $ 1,515
- --------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average
loans and leases outstanding .14% .14% .26% .52% .79%
Provision for possible loan and lease
losses to average loans and leases
outstanding .38% .39% .38% .53% .51%
Allowance for possible loan and
lease losses to loans and leases, net
of deferred fees at end of period 1.21% 1.30% 1.17% 1.24% 1.37%
As part of its loan review process, management has allocated the overall
allowance based on specific identified problem loans and historical loss data.
Table Seven below summarizes the allocation of the allowance for loan and lease
losses for the five years ended December 31, 2000.
25
TABLE SEVEN: ALLOWANCE FOR LOAN AND LEASE LOSSES BY LOAN CATEGORY
- -------------------------------------------------------------------------------------------------------------------------
(In thousands,
except percentages) December 31, 2000 December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------------------------------
Percent of loans Percent of loans Percent of loans
in each category in each category in each category
Amount to total loans Amount to total loans Amount to total loans
- -------------------------------------------------------------------------------------------------------------------------
Commercial $ 804 26.5% $ 644 26.5% $ 516 25.7%
Real estate 1,392 65.1% 1,252 65.3% 1,052 68.1%
Agriculture 105 5.3% 78 4.5% 39 2.4%
Consumer 153 3.1% 88 3.7% 86 3.8%
- -------------------------------------------------------------------------------------------------------------------------
Total allocated $2,454 100.0% $2,062 100.0% $1,693 100.0%
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------
Percent of loans Percent of loans
in each category in each category
Amount to total loans Amount to total loans
- ------------------------------------------------------------------------------------------
Commercial $ 477 25.5% $ 840 31.5%
Real estate 877 68.6% 538 66.1%
Agriculture 14 1.0% - -%
Consumer 158 4.9% 137 2.4%
- ------------------------------------------------------------------------------------------
Total allocated $1,526 100.0% $1,515 100.0%
- ------------------------------------------------------------------------------------------
Table Eight below summarizes the allocation of the allowance for accounts
receivable servicing receivable (ARSR) losses at December 31, 2000. Prior to
January 1, 2000, a separate ARSR allowance was not deemed to be material. During
the first quarter of 2000, management determined that the balances in the ARSR
had reached a level that they were considered material and it was management's
intent to continue adding to the ARSR balances, therefore, an allowance was
established.
TABLE EIGHT: ALLOWANCE FOR ACCOUNTS RECEIVABLE SERVICING RECEIVABLE (ARSR)
LOSSES
- ----------------------------------------------------------------------------------------
(In thousands except for percentages) December 31, 2000
- ----------------------------------------------------------------------------------------
Average ARSR outstanding $ 2,696
- ----------------------------------------------------------------------------------------
Allowance for possible ARSR losses at beginning of period $ --
ARSR charged off --
- ----------------------------------------------------------------------------------------
Recoveries of ARSR previously charged off --
- ----------------------------------------------------------------------------------------
Net ARSR charged off --
Amount transferred from the allowance for loan and lease losses 41
Additions to allowance charged to operating expenses 30
- ----------------------------------------------------------------------------------------
Allowance for possible ARSR losses at end of period $ 71
- ----------------------------------------------------------------------------------------
Ratio of net charge-offs to average ARSR outstanding --
Provision for possible ARSR losses to average ARSR outstanding 1.52%
Allowance for possible ARSR losses to ARSR at end of period 2.18%
OTHER REAL ESTATE
At December 31, 2000 and 1999, the Company did not have any ORE properties.
DEPOSITS
At December 31, 2000, total deposits were $239,312,000 representing an
increase of $16,235,000 (7.3%) over the December 31, 1999 balance of
$223,077,000. Management believes that the competitive marketplace the Company
operates in played a significant role in slowing deposit growth in 2000. During
26
1999, deposits increased $25,973,000 (13.2%) from the total of $197,104,000 at
December 31, 1998. State of California certificates of deposit accounted for
$6,000,000 of the deposit growth in 1999. The remainder of the increase in total
deposits is attributable to internal growth in noninterest-bearing demand,
interest-bearing demand, savings and time deposit categories.
CAPITAL RESOURCES
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies is reviewed regularly by management. The
Company's capital position represents the level of capital available to support
continued operations and expansion.
In May of 1997, the board of directors of the Company authorized a stock
repurchase plan. The Company acquired 77,000 shares of its common stock during
1999, 60,000 in 1998 and 25,000 in 1997. These repurchases were made
periodically in the open market with the intention to lessen the dilutive impact
of issuing new shares in connection with stock option plans and in conjunction
with annual distributions of a five percent common stock dividend. As a result
of the acquisition of North Coast Bank during 2000, which was accounted as a
pooling of interests, the Company decided to discontinue the repurchase of its
common stock, therefore, no shares were repurchased in 2000.
The Company and the Subsidiary Banks are subject to certain regulations
issued by the Board of Governors of the Federal Reserve System, the FDIC and the
OCC, which require maintenance of certain levels of capital. At December 31,
2000, shareholders' equity was $24,413,000, representing an increase of
$3,802,000 (18.5%) from $20,611,000 at December 31, 1999. In 1999, shareholders'
equity increased $1.4 million (7.5%) from 1998. The ratio of total risk-based
capital to risk adjusted assets was 11.7% at December 31, 2000 compared to 12.4%
at December 31, 1999. Tier 1 risk-based capital to risk-adjusted assets was
10.6% at December 31, 2000 and 11.3% at December 31, 1999.
Table Nine below lists the Company's actual capital ratios at December 31,
2000 and 1999 as well as the minimum capital ratios for capital adequacy.
TABLE NINE: CAPITAL RATIOS
- ------------------------------------------------------------------------------
At December 31, Minimum Regulatory
Capital to Risk-Adjusted Assets 2000 1999 Capital Requirements
- ------------------------------------------------------------------------------
Leverage ratio 8.7% 8.7% 4.00%
Tier 1 Risk-Based Capital 10.6% 11.3% 4.00%
Total Risk-Based Capital 11.7% 12.4% 8.00%
Capital ratios are reviewed on a regular basis to ensure that capital
exceeds the prescribed regulatory minimums and is adequate to meet future needs.
All ratios are in excess of the regulatory definition of "well capitalized."
See "American River Holdings and Subsidiaries Financial Statements--Note
12, Shareholders' Equity" for a discussion of regulatory capital requirements.
Management believes that the Company's capital is adequate to support current
operations and anticipated growth, cash dividends and future capital
requirements of the Company and its subsidiaries.
MARKET RISK MANAGEMENT
OVERVIEW. Market risk is the risk of loss from adverse changes in market
prices and rates. The Company's market risk arises primarily from interest rate
risk inherent in its loan and deposit functions. The goal for managing the
assets and liabilities of the Company is to maximize shareholder value and
earnings while maintaining a high quality balance sheet without exposing the
Company to undue interest rate risk. The Board of Directors has overall
responsibility for the interest rate risk management policies. Each Subsidiary
27
Bank has an Asset and Liability Management Committee (ALCO) that establishes and
monitors guidelines to control the sensitivity of earnings to changes in
interest rates.
ASSET/LIABILITY MANAGEMENT. Activities involved in asset/liability
management include but are not limited to lending, accepting and placing
deposits and investing in securities. Interest rate risk is the primary market
risk associated with asset/liability management. Sensitivity of earnings to
interest rate changes arises when yields on assets change in a different time
period or in a different amount from that of interest costs on liabilities. To
mitigate interest rate risk, the structure of the balance sheet is managed with
the goal that movements of interest rates on assets and liabilities are
correlated and contribute to earnings even in periods of volatile interest
rates. The asset/liability management policy sets limits on the acceptable
amount of variance in net interest margin and market value of equity under
changing interest environments. The Company uses simulation models to forecast
earnings, net interest margin and market value of equity.
Simulation of earnings is the primary tool used to measure the sensitivity
of earnings to interest rate changes. Using computer-modeling techniques, the
Company is able to estimate the potential impact of changing interest rates on
earnings. A balance sheet forecast is prepared quarterly using inputs of actual
loans, securities and interest bearing liabilities (i.e. deposits/borrowings)
positions as the beginning base. The forecast balance sheet is processed against
three interest rate scenarios. The scenarios include a 200 basis point rising
rate forecast, a flat rate forecast and a 200 basis point falling rate forecast
which take place within a one year time frame. The net interest income is
measured during the year assuming a gradual change in rates over the
twelve-month horizon. The Company's 2001 net interest income, as forecast below,
was modeled utilizing a forecast balance sheet projected from year-end 2000
balances.
Table Ten below summarizes the effect on net interest income (NII) of a
+/-200 basis point change in interest rates as measured against a constant rate
(no change) scenario.
TABLE TEN: INTEREST RATE RISK SIMULATION OF NET INTEREST AS OF DECEMBER 31, 2000
- ----------------------------------------------------------------
(In thousands) $ Change in NII
from Current
12 Month Horizon
----------------
Variation from a constant rate scenario
+200bp $ (31)
-200bp $ 105
The simulations of earnings do not incorporate any management actions,
which might moderate the negative consequences of interest rate deviations.
Therefore, they do not reflect likely actual results, but serve as conservative
estimates of interest rate risk.
American River Bank also uses a second simulation scenario that rate shocks
the balance sheet using a gradual change in rates of +/-200 basis points over a
twelve-month horizon. This scenario provides estimates of the future market
value of equity (MVE). MVE measures the impact on equity due to the changes in
the market values of assets and liabilities as a result of a change in interest
rates. North Coast Bank did not use this type of modeling at December 31, 2000;
however, they are anticipating implementing the additional modeling in 2001.
American River Bank measures the volatility of these benchmarks using a
twelve-month time horizon. Using the December 31, 2000 balance sheet as the base
for the simulation, Table Eleven below summarizes the effect on American River
Bank's market value of equity with shifts of +/-200 basis point changes in
interest rates.
28
TABLE ELEVEN: MARKET VALUE OF EQUITY OF AMERICAN RIVER BANK AS OF DECEMBER 31,
2000
- --------------------------------------------------------------------------------
% Change in MVE $ Change in MVE
12 Month Horizon 12 Month Horizon
---------------- ----------------
Variation from a constant rate scenario
+200bp (8.29)% $(2,496)
-200 bp 8.51% $ 2,563
These results indicate that the balance sheet is liability sensitive since
earnings decrease when interest rates rise. The magnitude of the NII change is
within the Company's policy guidelines. The asset liability management policy
limits aggregate market risk, as measured in this fashion, to an acceptable
level within the context of risk-return trade-offs.
Gap analysis provides another measure of interest rate risk. The Company is
becoming less reliant on gap analysis and in the future will not actively use
gap analysis in managing interest rate risk. It is presented here for
comparative purposes. Interest rate sensitivity is a function of the repricing
characteristics of the portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest-bearing assets and
liabilities are subject to change in interest rates either at replacement,
repricing or maturity. Interest rate sensitivity management focuses on the
maturity of assets and liabilities and their repricing during periods of changes
in market interest rates. Interest rate sensitivity is measured as the
difference between the volumes of assets and liabilities in the current
portfolio that are subject to repricing at various time horizons. The
differences are known as interest sensitivity gaps.
A positive cumulative gap may be equated to an asset sensitive position. An
asset sensitive position in a rising interest rate environment will cause a
bank's interest rate margin to expand. This results as floating or variable rate
loans reprice more rapidly than fixed rate certificates of deposit that reprice
as they mature over time. Conversely, a declining interest rate environment will
cause the opposite effect. A negative cumulative gap may be equated to a
liability sensitive position. A liability sensitive position in a rising
interest rate environment will cause a bank's interest rate margin to contract,
while a declining interest rate environment will have the opposite effect.
As reflected in Table Twelve below, at December 31, 2000, the cumulative
gap through the one-year time horizon indicates a slightly liability sensitive
position. This interest rate sensitivity table categorizes interest-bearing
transaction deposits and savings deposits, also known as non-maturing deposits,
as repricing according to the following assumptions table.
ASSUMPTIONS: The following assumptions were used in the gap analysis with
regards to non-maturing deposits for American River Bank.
- --------------------------------------------------------------------------------------------------
Non-Maturing Deposit Repricing Assumptions
0-3 4-6 7-12 1-2 3-5
Immediate Months Months Months Years Years
DDA-Interest 25% 25% 20% 15% 10% 5%
MMA 25% 25% 20% 15% 15% 0%
Savings 25% 25% 20% 10% 10% 10%
- --------------------------------------------------------------------------------------------------
29
The following assumptions were used in the gap analysis with regards to
non-maturing deposits of North Coast Bank.
- --------------------------------------------------------------------------
Non-Maturing Deposit Repricing Assumptions
0-30 31-90 91-180 181-365
Days Days Days Days
---- ---- ---- ----
DDA-Interest 25% 25% 25% 25%
MMA 25% 25% 25% 25%
Savings 25% 25% 25% 25%
- --------------------------------------------------------------------------
Table Twelve below indicates that Company is slightly liability sensitive
through the one-year time horizon, however, the non-maturing deposit
liabilities, which have the characteristics of immediate repricing, have not
repriced immediately during past interest rate cycles, nor do they actually
reprice according to management's assumptions as indicated above. The
assumptions are merely management's estimate based on past interest rate cycles.
TABLE TWELVE: INTEREST RATE SENSITIVITY
December 31, 2000
- ---------------------------------------------------------------------------------------------
Assets and Liabilities
which mature or reprice within (days):
Non-
(In thousands) 0-90 91-180 181-365 Over 365 repricing Total
- ---------------------------------------------------------------------------------------------
Assets:
Investment securities $ 12,365 $ 2,124 $ 9,450 $ 29,619 $ -- $ 53,558
Loans 113,336 17,366 15,197 57,213 -- 203,112
Other assets -- -- -- -- 27,456 27,456
- ---------------------------------------------------------------------------------------------
Total assets $125,701 $ 19,490 $ 24,647 $ 86,832 $ 27,456 $284,126
=============================================================================================
Liabilities:
Non-interest bearing $ -- $ -- $ -- $ -- $ 64,920 $ 64,920
Interest bearing:
Transaction 11,202 4,741 3,882 2,583 -- 22,408
Money market 31,883 15,085 12,286 12,286 -- 71,540
Savings 6,042 2,618 1,814 1,612 -- 12,086
Time certificates 33,510 18,751 12,102 3,995 -- 68,358
Other borrowings 15,996 6 16 2,056 -- 18,074
Other liabilities -- -- -- -- 2,327 2,327
Shareholders' equity -- -- -- -- 24,413 24,413
- ---------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 98,633 $ 41,201 $ 30,100 $ 22,532 $ 91,660 $284,126
=============================================================================================
Interest rate
sensitivity gap $ 27,068 $(21,711) $ (5,453) $ 64,300 $(64,204)
Cumulative interest
rate sensitivity gap $ 27,068 $ 5,357 $ (96) $ 64,204 --
INFLATION
The impact of inflation on a financial institution differs significantly
from that exerted on manufacturing, or other commercial concerns, primarily
because its assets and liabilities are largely monetary. In general, inflation
primarily affects the Company and it subsidiaries through its effect on market
rates of interest, which affects the Company's ability to attract loan
customers. Inflation affects the growth of total assets by increasing the level
of loan demand, and potentially adversely affects capital adequacy because loan
growth in inflationary periods can increase at rates higher than the rate that
capital grows through retention of earnings which may be generated in the
future. In addition to its effects on interest rates, inflation increases
30
overall operating expenses. Inflation has not had a material effect upon the
results of operations of the Company and its subsidiaries during the periods
ending December 31, 2000, 1999 and 1998.
LIQUIDITY
Liquidity management refers to the Company's ability to provide funds on an
ongoing basis to meet fluctuations in deposit levels as well as the credit needs
and requirements of its clients. Both assets and liabilities contribute to the
Company's liquidity position. Federal funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Company assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. Commitments to fund loans and outstanding
standby letters of credit at December 31, 2000 were approximately $51,201,000
and $875,000, respectively. Such loans relate primarily to revolving lines of
credit and other commercial loans and to real estate construction loans.
The Company's sources of liquidity consist of cash and due from
correspondent banks, overnight funds sold to correspondent banks, unpledged
marketable investments and loans held for sale. On December 31, 2000,
consolidated liquid assets totaled $38.8 million or 13.6% of total assets
compared to $47.6 million or 19.1% of total assets on December 31, 1999. In
addition to liquid assets, the Company maintains short-term lines of credit in
the amount of $17,000,000 with correspondent banks. At December 31, 2000, the
Company had $2,000,000 available under these credit lines. Additionally, the
Subsidiary Banks are members of the Federal Home Loan Bank. At December 31,
2000, the Subsidiary Banks could have arranged for up to $5,856,000 in secured
borrowings from the FHLB. American River Bank also has informal agreements with
various other banks to sell participations in loans, if necessary. The Company
serves primarily a business and professional customer base and, as such, its
deposit base is susceptible to economic fluctuations. Accordingly, management
strives to maintain a balanced position of liquid assets to volatile and
cyclical deposits.
Liquidity is also affected by portfolio maturities and the effect of
interest rate fluctuations on the marketability of both assets and liabilities.
The Company can sell any of its unpledged securities held in the Available for
Sale category to meet liquidity needs. Due to the falling interest rate
environment throughout the last half of 2000, much of the investment portfolio
has experienced significant price appreciation, which has resulted in unrealized
gains. These unrealized gains allow the Company the ability to sell these
securities should the liquidity needs arise. These securities are also available
to pledge as collateral for borrowings if the need should arise. American River
Bank has established a master repurchase agreement with a correspondent bank to
enable such transactions. American River Bank and North Coast Bank can also
pledge securities to borrow from the Federal Reserve Bank and the FHLB.
The maturity distribution of certificates of deposit is set forth in Table
Thirteen below for the periods presented. These deposits are generally more rate
sensitive than other deposits and, therefore, are more likely to be withdrawn to
obtain higher yields elsewhere if available.
31
TABLE THIRTEEN: CERTIFICATES OF DEPOSIT MATURITIES
December 31, 2000
- --------------------------------------------------------------------------------
(In thousands) Over $100,000 Less than $100,000
- --------------------------------------------------------------------------------
Three months or less $14,370 $ 9,806
Over three months through six months 12,389 6,735
Over six months through twelve months 5,918 5,615
Over twelve months 6,330 7,195
- --------------------------------------------------------------------------------
Total $39,007 $29,351
================================================================================
Loan demand also affects the Company's liquidity position. Table Fourteen
below presents the maturities of loans for the period indicated.
TABLE FOURTEEN: LOAN MATURITIES
- --------------------------------------------------------------------------------
December 31, 2000
- --------------------------------------------------------------------------------
One year One year through Over
(In thousands) or less five years five years Total
- --------------------------------------------------------------------------------
Commercial $ 29,790 $ 16,336 $ 7,750 $ 53,876
Real estate 33,031 33,604 66,022 132,657
Agriculture 498 5,495 4,771 10,764
Consumer 2,127 2,766 1,520 6,413
- --------------------------------------------------------------------------------
Total $ 65,446 $ 58,201 $ 80,063 $203,710
================================================================================
Loans shown above with maturities greater than one year include $98,038,000
of floating interest rate loans and $40,227,000 of fixed rate loans.
The maturity distribution and yields of the investment portfolios are
presented in Table Fifteen below. The yields on tax-exempt obligations have been
computed on a tax equivalent basis.
TABLE FIFTEEN: SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------------------------------------
(Taxable Equivalent Basis) Weighted
Amortized Unrealized Unrealized Market Average
(In thousands) Cost Gain Losses Value Yield
- --------------------------------------------------------------------------------------------------------------
December 31, 2000
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 4,350 $ 4 $ (3) $ 4,351 6.021%
Maturing after 1 year but within 5 years 11,804 157 (5) 11,956 6.294%
State & political subdivisions
Maturing within 1 year 200 -- -- 200 6.100%
Maturing after 1 year but within 5 years 1,788 29 (6) 1,811 6.566%
Maturing after 5 years but within 10 Years 381 6 -- 387 6.907%
Maturing after 10 years 7,211 193 (23) 7,381 7.308%
Government guaranteed mortgage-backed
securities 163 -- -- 163 6.765%
Other
Maturing within 1 year 3,950 -- -- 3,950 6.370%
Non maturing 1,366 24 (26) 1,364 5.600%
- --------------------------------------------------------------------------------------------------
Total investment securities $ 31,213 $ 413 $ (63) $ 31,563 6.497%
==================================================================================================
32
- --------------------------------------------------------------------------------------------------------------
(Taxable Equivalent Basis) Weighted
Amortized Unrealized Unrealized Market Average
(In thousands) Cost Gain Losses Value Yield
- --------------------------------------------------------------------------------------------------------------
December 31, 1999
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 6,481 $ 4 $ (6) $ 6,479 6.173%
Maturing after 1 year but within 5 years 12,338 -- (147) 12,191 6.139%
State & political subdivisions
Maturing after 1 year but within 5 years 1,156 -- (27) 1,129 6.426%
Maturing after 5 years but within 10 Years 450 -- (26) 424 6.333%
Maturing after 10 years 7,029 15 (307) 6,737 7.835%
Government guaranteed mortgage-backed
securities 228 -- (3) 225 6.300%
Other
Maturing within 1 year 9,908 -- -- 9,908 6.168%
Maturing after 5 years but within 10 years 252 -- (17) 235 8.652%
Maturing after 10 years 486 25 -- 511 10.135%
Non maturing 922 15 -- 937 3.936%
- --------------------------------------------------------------------------------------------------
Total investment securities $ 39,250 $ 59 $ (533) $ 38,776 6.473%
==================================================================================================
December 31, 1998
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 6,561 $ 34 $ -- $ 6,595 6.172%
Maturing after 1 year but within 5 years 6,049 107 -- 6,156 6.177%
State & political subdivisions
Maturing within 1 year 200 -- -- 200 6.070%
Maturing after 10 years 2,917 96 (4) 3,009 7.378%
Government guaranteed mortgage-backed
securities 530 3 (1) 532 6.090%
Other
Maturing within 1 year 7,952 -- -- 7,952 5.555%
Maturing after 5 years but within 10 years 252 17 -- 269 8.652%
Maturing after 10 years 486 38 -- 524 10.117%
Non maturing 808 9 (2) 815 4.098%
- --------------------------------------------------------------------------------------------------
Total investment securities $ 25,755 $ 304 $ (7) $ 26,052 6.163%
==================================================================================================
December 31, 2000
HELD-TO-MATURITY SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 1,501 $ 2 $ (1) $ 1,502 6.396%
State & political subdivisions
Maturing within 1 year 553 4 -- 557 8.352%
Maturing after 1 year but within 5 years 1,324 16 -- 1,340 6.510%
Maturing after 5 years but within 10 Years 23 -- -- 23 15.840%
Government guaranteed mortgage-backed
securities 9,965 48 (12) 10,001 6.580%
Other
Maturing within 1 year 1,836 1 (3) 1,834 5.838%
Maturing after 1 year but within 5 years 1,253 13 -- 1,266 6.884%
- --------------------------------------------------------------------------------------------------
Total investment securities $ 16,455 $ 84 $ (16) $ 16,523 6.570%
==================================================================================================
33
- --------------------------------------------------------------------------------------------------------------
(Taxable Equivalent Basis) Weighted
Amortized Unrealized Unrealized Market Average
(In thousands) Cost Gain Losses Value Yield
- --------------------------------------------------------------------------------------------------------------
December 31, 1999
HELD-TO-MATURITY SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 1,505 $ -- $ (3) $ 1,502 5.862%
Maturing after 1 year but within 5 years 1,498 3 (4) 1,497 6.397%
State & political subdivisions
Maturing within 1 year 116 2 -- 118 8.250%
Maturing after 1 year but within 5 years 2,041 14 (7) 2,048 6.979%
Maturing after 5 years but within 10 Years 31 -- -- 31 15.840%
Government guaranteed mortgage-backed
securities 11,891 -- (155) 11,736 6.421%
Other
Maturing within 1 year 753 -- (3) 750 5.703%
Maturing after 1 year but within 5 years 2,664 -- (42) 2,622 6.054%
- --------------------------------------------------------------------------------------------------
Total investment securities $ 20,499 $ 19 $ (214) $ 20,304 6.384%
==================================================================================================
December 31, 1998
HELD-TO-MATURITY SECURITIES:
U.S. Treasury and agency securities
Maturing within 1 year $ 1,503 $ 9 $ -- $ 1,512 6.366%
Maturing after 1 year but within 5 years 3,012 63 -- 3,075 6.128%
State & political subdivision
Maturing within 1 year
Maturing after 1 year but within 5 years 1,971 72 (1) 2,042 6.901%
Maturing after 5 years but within 10 Years 238 6 -- 244 8.259%
Government guaranteed mortgage-backed
securities 6,534 8 (45) 6,497 6.421%
Other
Maturing within 1 year 1,837 6 -- 1,843 5.876%
Maturing after 1 year but within 5 years 1,082 2 -- 1,084 5.733%
- --------------------------------------------------------------------------------------------------
Total investment securities $ 16,177 $ 166 $ (46) $ 16,297 6.339%
==================================================================================================
The principal cash requirements of the Company are for expenses incurred in
the support of administration and operations. For nonbanking functions, the
Company is dependent upon the payment of cash dividends from its subsidiaries to
service its commitments. The Company expects that the cash dividends paid by its
subsidiaries to the Company will be sufficient to meet this payment schedule.
OFF-BALANCE SHEET ITEMS
The Company has certain ongoing commitments under operating leases. These
commitments do not significantly impact operating results. See "American River
Holdings and Subsidiaries Financial Statements--Note 11, Commitments and
Contingencies".
As of December 31, 2000, commitments to extend credit and letters of credit
were the only financial instruments with off-balance sheet risk. The Company has
not entered into any contracts for financial derivative instruments such as
futures, swaps, options or similar instruments. Loan commitments and letters of
credit were $51,201,000 and $875,000, respectively, at December 31, 2000, a
decrease from $51,694,000 and $2,461,000, respectively, at December 31, 1999. As
a percentage of net loans and leases these off-balance sheet items represent
25.5%, and 34.5%, respectively.
34
DISCLOSURE OF FAIR VALUE
The Financial Accounting Standards Board (FASB), Statement of Financial
Accounting Standards Number 107, Disclosures about Fair Value of Financial
Statements, requires the disclosure of fair value of most financial instruments,
whether recognized or not recognized in the financial statements. The intent of
presenting the fair values of financial instruments is to depict the market's
assessment of the present value of net future cash flows discounted to reflect
both current interest rates and the market's assessment of the risk that the
cash flows will not occur.
In determining fair values, the Company used the carrying amount for cash
and cash equivalents, accounts receivable, servicing receivable, accrued
interest receivable and accrued interest payable as all of these instruments are
short term in nature. Securities are reflected at quoted market values. Loans
and deposits have a long term time horizon which required more complex
calculations for fair value determination. Loans are grouped into homogeneous
categories and broken down between fixed and variable rate instruments. Loans
with a variable rate, which reprice immediately, are valued at carrying value.
The fair value of fixed rate instruments is estimated by discounting the future
cash flows using current rates. Credit risk and repricing risk factors are
included in the current rates. Fair value for nonaccrual loans is reported at
carrying value and is included in the net loan total. Since the allowance for
loan losses exceeds any potential adjustment for nonaccrual valuation, no
further valuation adjustment has been made.
Demand deposits, savings and certain money market accounts are short term
in nature so the carrying value equals the fair value. For certificates of
deposit, the fair value is estimated by discounting the future cash payments
using the rates currently offered for deposits of similar remaining maturities.
At year-end 2000, the fair values of the Company's financial instruments
are 0.2% above the carrying values versus .03% below the carrying values at
year-end 1999. The change in the calculated fair value percentage relates to the
loan and investment categories and is the result of changes in interest rates in
2000. See "American River Holdings and Subsidiaries Financial Statements--Note
17, Disclosures About Fair Value of Financial Instruments".
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments
and Hedging Activity, which was subsequently amended in June 1999 by SFAS 137
and in June 2000 by SFAS 138. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that
entities recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 137 deferred the
required adoption date to fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS 138 addresses certain issues causing difficulties in
implementing SFAS 133. The Company adopted these statements on January 1, 2001
and, in management's opinion, the implementation of these pronouncements is not
expected to have a material effect on the future consolidated financial
statements.
In September 2000, the FASB issued SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, to replace
SFAS 125 which was issued in June 1996. The original statement addressed issues
related to transfers of financial assets in which the transferor has some
continuing involvement with the transferred assets or with the transferee. SFAS
140 resolves implementation issues which arose as a result of SFAS 125, but
carries forward most of the provisions of the original statement. SFAS 140 is
effective for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. Management does not believe the adoption of this
statement will have a significant impact on its financial statements.
35
The Financial Standards Accounting Board released for comment on February
14, 2001, a revised proposal for the elimination of "pooling of interests"
accounting. The FASB indicated that it would accept comments through March 16,
2001. As proposed, it is currently anticipated that the FASB will issue a final
statement in June 2001, which would likely require, among other matters, that
all mergers initiated after the issuance of the final statement be accounted for
as "purchase" transactions. As proposed, a merger or business combination would
be considered initiated if the major terms of the transaction, including the
exchange or conversion ratio, are publicly announced or otherwise disclosed to
shareholders of the combining companies. The revised proposal contemplates that
goodwill will not be amortized to earnings as originally proposed. Instead,
goodwill would be recognized as an asset in the financial statements, measured
as the excess of the cost of an acquired entity over the net of the amounts
assigned to identifiable assets acquired and liabilities assumed, and then
tested for impairment to assess losses and expensed against earnings only in the
periods in which the recorded value of goodwill exceeded its implied fair value,
based on standards to be specified in the final statement. The effect of the
proposal upon bank mergers is uncertain, however, the goodwill in a purchase
accounting transaction may not be included in the calculation of regulatory
capital requirements and some investment bankers have expressed the view that
the elimination of "pooling of interests" accounting will result in lower merger
premiums for sellers with the possibility of fewer transactions occurring after
the effective date of the final statement.
OTHER MATTERS
The State of California is presently experiencing serious periodic electric
power shortages. It is uncertain whether or when these shortages will be
discontinued. The Company and its subsidiaries could be materially and adversely
affected either directly or indirectly by a severe electric power shortage if
such a shortage caused any of its critical data processing or computer systems
and related equipment to fail, or if the local infrastructure systems such as
telephone systems should fail, or the Company's and its subsidiaries'
significant vendors, suppliers, service providers, customers, borrowers, or
depositors are adversely impacted by their internal systems or those of their
respective customers or suppliers. Material increases in the expenses related to
electric power consumption and the related increase in operating expense could
also have an adverse effect on the Company's future results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A of Form 10-K is contained in Item
7--"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Reports 38-39
Consolidated Balance Sheet, December 31, 2000 and 1999 40
Consolidated Statement of Income for the years ended
December 31, 2000, 1999 and 1998 41-42
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998 43-44
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 45-47
Notes to Consolidated Financial Statements 48-80
All schedules have been omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the Consolidated Financial Statements or
notes thereto.
37
INDEPENDENT AUDITOR'S REPORT
The Shareholders and Board of Directors
American River Holdings and Subsidiaries
We have audited the accompanying consolidated balance sheet of American
River Holdings and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
statements of income, changes in shareholders' equity and cash flows of North
Coast Bank for the year ended December 31, 1998. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for North Coast Bank for 1998, is
based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American River
Holdings and subsidiaries as of December 31, 2000 and 1999, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three-year period ended December 31, 2000, in conformity with
generally accepted accounting principles.
The consolidated financial statements as of December 31, 2000 and 1999 and
for each of the years in the three-year period ended December 31, 2000 have been
restated to reflect the pooling of interests with North Coast Bank as described
in Note 2 to the consolidated financial statements.
/s/ PERRY-SMITH LLP
-------------------
Sacramento, California
February 26, 2001
38
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
North Coast Bank
Santa Rosa, California
We have audited the accompanying balance sheets of North Coast Bank as of
December 31, 1998 and 1997, and the related statements of operations, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North Coast Bank at December
31, 1998 and 1997, and the results of its operations and cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ RICHARDSON & COMPANY
------------------------
February 19, 1999
39
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000 AND 1999
2000 1999
------------- -------------
ASSETS
Cash and due from banks $ 21,236,000 $ 10,900,000
Federal funds sold 8,125,000
Interest-bearing deposits in banks 5,540,000 6,320,000
Investment securities (market value of $48,086,000
in 2000 and $59,080,000 in 1999) (Note 3) 48,018,000 59,275,000
Loans and leases, less allowance for loan and lease
losses of $2,454,000 in 2000 and $2,062,000
in 1999 (Notes 4, 8, 9, 11 and 15) 200,658,000 157,044,000
Premises and equipment, net (Note 5) 1,688,000 1,214,000
Accounts receivable servicing receivables, net
(Notes 6 and 13) 3,180,000 2,123,000
Accrued interest receivable and other assets (Note 10) 3,806,000 3,539,000
------------- -------------
$ 284,126,000 $ 248,540,000
============= =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 64,920,000 $ 58,144,000
Interest bearing (Note 7) 174,392,000 164,933,000
------------- -------------
Total deposits 239,312,000 223,077,000
Short-term borrowings (Note 8) 15,990,000 1,000,000
Long-term debt (Note 9) 2,084,000 2,125,000
Accrued interest payable and other liabilities 2,327,000 1,727,000
------------- -------------
Total liabilities 259,713,000 227,929,000
------------- -------------
Commitments and contingencies (Note 11)
Shareholders' equity (Note 12):
Common stock - no par value; 20,000,000 shares
authorized; issued and outstanding - 2,395,158
shares in 2000 and 2,248,812 shares in 1999 12,320,000 10,438,000
Retained earnings 11,876,000 10,467,000
Accumulated other comprehensive income (loss)
(Notes 3 and 16) 217,000 (294,000)
------------- -------------
Total shareholders' equity 24,413,000 20,611,000
------------- -------------
$ 284,126,000 $ 248,540,000
============= =============
The accompanying notes are an integral part of these financial statements.
40
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- -----------
Interest income:
Interest and fees on loans $17,294,000 $13,926,000 $13,082,000
Interest on Federal funds sold 353,000 451,000 475,000
Interest on deposits in banks 408,000 336,000 317,000
Interest and dividends on investment
securities:
Taxable 2,609,000 2,112,000 2,013,000
Exempt from Federal income
taxes 462,000 339,000 215,000
Dividends 101,000 65,000 75,000
----------- ----------- -----------
Total interest income 21,227,000 17,229,000 16,177,000
----------- ----------- -----------
Interest expense:
Interest on deposits (Note 7) 7,330,000 5,316,000 5,291,000
Interest on short-term borrowings
(Note 8) 183,000 28,000 8,000
Interest on long-term debt (Note 9) 129,000 131,000 135,000
----------- ----------- -----------
Total interest expense 7,642,000 5,475,000 5,434,000
----------- ----------- -----------
Net interest income 13,585,000 11,754,000 10,743,000
Provision for loan and lease losses
(Note 4) 672,000 582,000 509,000
----------- ----------- -----------
Net interest income after
provision for loan and
lease losses 12,913,000 11,172,000 10,234,000
----------- ----------- -----------
Non-interest income:
Service charges 602,000 537,000 535,000
Gain on sale of investment securities,
net (Note 3) 13,000 7,000
Other income (Notes 6 and 13) 1,568,000 1,110,000 891,000
----------- ----------- -----------
Total non-interest income 2,183,000 1,647,000 1,433,000
----------- ----------- -----------
(Continued)
41
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---------- ---------- ----------
Other expenses:
Salaries and employee benefits
(Notes 4 and 14) $4,961,000 $4,366,000 $4,022,000
Occupancy (Notes 5 and 11) 771,000 699,000 556,000
Furniture and equipment (Notes 5
and 11) 447,000 457,000 443,000
Other expense (Notes 2 and 13) 3,150,000 2,248,000 2,122,000
---------- ---------- ----------
Total other expenses 9,329,000 7,770,000 7,143,000
---------- ---------- ----------
Income before income
taxes 5,767,000 5,049,000 4,524,000
Income taxes (Note 10) 2,221,000 1,921,000 1,673,000
---------- ---------- ----------
Net income $3,546,000 $3,128,000 $2,851,000
========== ========== ==========
Basic earnings per share (Note 12) $ 1.49 $ 1.31 $ 1.19
========== ========== ==========
Diluted earnings per share (Note 12) $ 1.42 $ 1.24 $ 1.11
========== ========== ==========
Cash dividends per share of issued and
outstanding common stock, adjusted
for stock splits and dividends $ .25 $ .22 $ .19
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
42
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Accumulated
Other
Common Stock Compre- Compre-
--------------------------- Retained hensive Shareholders' hensive
Shares Amount Earnings Income (Loss) Equity Income
--------- --------------- ------------ --------------- ------------ -------------
Balance, January 1, 1998, restated 2,122,183 $ 9,254,000 $ 8,278,000 $ 133,000 $ 17,665,000
Comprehensive income (Note 16):
Net income 2,851,000 2,851,000 $ 2,851,000
Other comprehensive income,
net of tax: Unrealized
gains on available-for-
sale investment securities 52,000 52,000 52,000
------------
Total comprehensive income $ 2,903,000
============
Cash dividends (357,000) (357,000)
5% stock dividend 81,751 1,531,000 (1,531,000)
Fractional shares redeemed (5,000) (5,000)
Stock options exercised 63,931 613,000 613,000
Retirement of common stock (Note 12) (90,054) (1,651,000) (1,651,000)
--------- --------------- ------------ --------------- ------------
Balance, December 31, 1998 2,177,811 9,747,000 9,236,000 185,000 19,168,000
Comprehensive income (Note 16):
Net income 3,128,000 3,128,000 $ 3,128,000
Other comprehensive loss, net
of tax: Unrealized losses on
available-for-sale investment
securities (479,000) (479,000) (479,000)
------------
Total comprehensive income $ 2,649,000
============
Cash dividends (416,000) (416,000)
5% stock dividend 85,879 1,474,000 (1,474,000)
Fractional shares redeemed (7,000) (7,000)
Stock options exercised 74,742 692,000 692,000
Retirement of common stock (Note 12) (89,753) (1,475,000) (1,475,000)
--------- --------------- ------------ --------------- ------------
Balance, December 31, 1999 2,248,679 10,438,000 10,467,000 (294,000) 20,611,000
--------- --------------- ------------ --------------- ------------
(Continued)
43
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Accumulated
Other
Common Stock Compre- Compre-
--------------------------- Retained hensive Shareholders' hensive
Shares Amount Earnings Income (Loss) Equity Income
--------- --------------- ------------ --------------- ------------ -------------
Balance, December 31, 1999 2,248,679 $ 10,438,000 $ 10,467,000 $ (294,000) $ 20,611,000
Comprehensive income (Note 16):
Net income 3,546,000 3,546,000 $ 3,546,000
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities (Note 3) 511,000 511,000 511,000
------------
Total comprehensive income $ 4,057,000
============
Cash dividends (535,000) (535,000)
5% stock dividend 113,742 1,596,000 (1,596,000)
Fractional shares redeemed (6,000) (6,000)
Stock options exercised 32,737 286,000 286,000
--------- --------------- ------------ --------------- ------------
Balance, December 31, 2000 2,395,158 $ 12,320,000 $ 11,876,000 $ 217,000 $ 24,413,000
========= =============== ============ =============== ============
2000 1998
--------------- ------------
Disclosure of reclassification amount, net of taxes (Note 16):
Unrealized holding gains arising during the year $ 519,000 $ 56,000
Less: reclassification adjustment for gains included in net income 8,000 4,000
--------------- ------------
Net unrealized holding gains on available-for-sale investment securities $ 511,000 $ 52,000
=============== =============
The accompanying notes are an integral part of these financial statements.
44
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 3,546,000 $ 3,128,000 $ 2,851,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 672,000 582,000 509,000
Increase (decrease) in deferred
loan origination fees, net 178,000 (36,000) 61,000
Net gain on the sale of available-
for-sale investment securities (13,000) (7,000)
Depreciation and amortization 359,000 277,000 376,000
Accretion of investment
security discounts, net (251,000) (54,000) (60,000)
Loss on sale of other real estate 3,000
Provision for losses on other
real estate 7,000 104,000
Provision for accounts receivable
servicing asset 30,000
Increase in accrued interest
receivable and other assets (336,000) (406,000) (306,000)
Increase in accrued interest
payable and other liabilities 503,000 132,000 809,000
Deferred taxes (289,000) (107,000) (216,000)
----------- ----------- -----------
Net cash provided by
operating activities 4,399,000 3,526,000 4,121,000
----------- ----------- -----------
(Continued)
45
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from the sale of available-
for-sale investment securities $ 20,000 $ 1,996,000 $ 599,000
Proceeds from the redemption of
Federal Home Loan Bank stock 554,000
Proceeds from called available-for-
sale investment securities 250,000
Proceeds from matured available-
for-sale investment securities 22,500,000 23,820,000 32,470,000
Proceeds from called held-to-
maturity investment securities 155,000
Proceeds from matured held-to-
maturity investment securities 2,365,000 3,330,000 1,750,000
Purchases of available-for-sale
investment securities (14,745,000) (39,391,000) (29,827,000)
Purchases of held-to-maturity
investment securities (487,000) (10,865,000) (6,553,000)
Proceeds from principal repayments
for available-for-sale mortgage-
backed securities 65,000 301,000
Proceeds from principal repayments
for held-to-maturity mortgage-
related securities 1,918,000 3,047,000 4,906,000
Net decrease (increase) in interest-
bearing deposits in banks 780,000 (612,000) (1,059,000)
Net increase in loans (44,412,000) (14,270,000) (21,856,000)
Net increase in accounts receivable
servicing receivables (1,128,000) (934,000) (906,000)
Purchases of equipment (799,000) (479,000) (236,000)
Proceeds from the sale of other
real estate 450,000 291,000
Purchase of other real estate (23,000)
Capitalized other real estate costs (4,000)
------------ ------------ ------------
Net cash used in
investing activities (33,214,000) (33,607,000) (20,198,000)
------------ ------------ ------------
(Continued)
46
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand, interest-
bearing and savings deposits $ 18,174,000 $ 15,539,000 $ 12,236,000
Net (decrease) increase in time
deposits (1,939,000) 10,434,000 8,539,000
Repayment of Federal Home Loan
Bank advance (41,000) (39,000) (36,000)
Increase in short-term borrowings 14,990,000 1,000,000
Exercise of stock options 286,000 692,000 613,000
Cash paid to repurchase common
stock (1,475,000) (1,651,000)
Payment of cash dividends (438,000) (386,000) (338,000)
Cash paid for fractional shares (6,000) (7,000) (5,000)
------------ ------------ ------------
Net cash provided by
financing activities 31,026,000 25,758,000 19,358,000
------------ ------------ ------------
Increase (decrease) in
cash and cash
equivalents 2,211,000 (4,323,000) 3,281,000
Cash and cash equivalents at
beginning of year 19,025,000 23,348,000 20,067,000
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 21,236,000 $ 19,025,000 $ 23,348,000
============ ============ ============
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest expense $ 7,599,000 $ 5,520,000 $ 5,417,000
Income taxes $ 2,279,000 $ 1,957,000 $ 1,418,000
Non-cash investing activities:
Real estate acquired through
foreclosure $ 128,000
Net change in unrealized gain
on available-for-sale
investment securities $ 824,000 $ (771,000) $ 85,000
Non-cash financing activities:
Dividends declared, adjusted for
stock splits and dividends, $.13
per share in 2000, $.11 per share
in 1999 and $.10 per share in
1998 $ 312,000 $ 215,000 $ 185,000
The accompanying notes are an integral part of these financial statements.
47
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
American River Holdings (the "Company") was incorporated on January 24,
1995 and subsequently obtained approval from the Board of Governors of the
Federal Reserve System to be a bank holding company. On June 16, 1995,
American River Bank (ARB) consummated a merger with American River Holdings
that was effected through the exchange of one share of the Company's stock
for each share of ARB's stock. On June 29, 1999, First Source Capital was
incorporated as a wholly-owned subsidiary of American River Holdings,
providing equipment lease brokerage services to businesses. On October 25,
2000, the Company consummated a merger with North Coast Bank, National
Association (NCB). The merger qualified as a tax-free exchange and was
accounted for under the pooling-of-interests method of accounting.
Information concerning common stock, stock option plans, and per share data
has been restated on an equivalent share basis. ARB and NCB generate most
of their revenue by providing a wide range of products and services to
small and middle-market businesses and individuals throughout Sacramento,
Placer, Yolo, El Dorado, Sonoma, Napa, Marin and Mendocino counties.
The accounting and reporting policies of the Company and its subsidiaries
conform with generally accepted accounting principles and prevailing
practices within the financial services industry.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' balances to
conform to classifications used in 2000.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany transactions
and accounts have been eliminated in consolidation.
INVESTMENT SECURITIES
Investments are classified into the following categories:
o Available-for-sale securities, reported at fair value, with
unrealized gains and losses excluded from earnings and reported,
net of taxes, as accumulated other comprehensive income (loss)
within shareholders' equity.
o Held-to-maturity securities, which management has the positive
intent and ability to hold, reported at amortized cost, adjusted
for the accretion of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at
the time of purchase and may only change the classification in certain
limited circumstances. All transfers between categories are accounted for
at fair value.
48
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENT SECURITIES (Continued)
Gains or losses on the sale of investment securities are computed on the
specific identification method. Interest earned on investment securities is
reported in interest income, net of applicable adjustments for accretion of
discounts and amortization of premiums. In addition, unrealized losses that
are other than temporary are recognized in earnings for all investments.
LOANS AND LEASES
Loans and leases are stated at principal balances outstanding. Interest is
accrued daily based upon outstanding loan and lease balances. However,
when, in the opinion of management, loans and leases are considered to be
impaired and the future collectibility of interest and principal is in
serious doubt, loans and leases are placed on nonaccrual status and the
accrual of interest income is suspended. Any interest accrued but unpaid is
charged against income. Payments received are applied to reduce principal
to the extent necessary to ensure collection. Subsequent payments on these
loans and leases, or payments received on nonaccrual loans or leases for
which the ultimate collectibility of principal is not in doubt, are applied
first to earned but unpaid interest and then to principal.
An impaired loan or lease is measured based on the present value of
expected future cash flows discounted at the instrument's effective
interest rate or, as a practical matter, at the instrument's observable
market price or the fair value of collateral if the loan or lease is
collateral dependent. A loan or lease is considered impaired when, based on
current information and events, it is probable that the Company will be
unable to collect all amounts due (including both principal and interest)
in accordance with the contractual terms of the loan or lease agreement.
Loan and lease origination fees, commitment fees, direct loan and lease
origination costs and purchase premiums and discounts on loans and leases
are deferred and recognized as an adjustment of yield, to be amortized to
interest income over the contractual term of the loan or lease. The
unamortized balance of deferred fees and costs is reported as a component
of net loans and leases.
49
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOAN SALES AND SERVICING
Included in the portfolio are Small Business Administration (SBA) and
Farmer Mac guaranteed loans that may be sold in the secondary market. Loans
held for sale are carried at the lower of cost or market value. Market
value is determined by the specific identification method as of the balance
sheet date or the date that the purchasers have committed to purchase the
loans. At the time the loan is sold, the related right to service the loan
is either retained, with the Company earning future servicing income, or
released in exchange for a one-time servicing-released premium. A portion
of this premium may be required to be refunded if the borrower defaults or
the loan prepays within ninety days of the settlement date. However, there
were no sales of loans subject to these recourse provisions at December 31,
2000, 1999 and 1998. Loans subsequently transferred to the loan portfolio
are transferred at the lower of cost or market value at the date of
transfer. Any difference between the carrying amount of the loan and its
outstanding principal balance is recognized as an adjustment to yield by
the interest method. There were no loans held for sale at December 31, 2000
and 1999.
SBA and Farmer Mac loans with unpaid balances of $4,511,000 and $5,085,000
were being serviced for others as of December 31, 2000 and 1999,
respectively. The Company also serviced loans that are participated with
other financial institutions totaling $13,388,000 and $11,566,000 as of
December 31, 2000 and 1999, respectively. In addition, the Company serviced
loans originated by others totaling $25,820,000 and $21,517,000 as of
December 31, 2000 and 1999, respectively.
Servicing rights acquired through 1) a purchase or 2) the origination of
loans which are sold or securitized with servicing rights retained are
recognized as separate assets or liabilities. Servicing assets or
liabilities are recorded at the difference between the contractual
servicing fees and adequate compensation for performing the servicing, and
are subsequently amortized in proportion to and over the period of the
related net servicing income or expense. Servicing assets are periodically
evaluated for impairment. Servicing assets were not considered material for
disclosure purposes.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is maintained to provide for
probable losses related to impaired loans and leases and other losses on
loans and leases identified by management as doubtful, substandard and
special mention, as well as losses that can be expected to occur in the
normal course of business related to currently performing loans and leases.
The determination of the allowance is based on estimates made by
management, to include consideration of the character of the loan and lease
portfolio, specifically identified problem loans and leases, inherent risk
of loss in the portfolio taken as a whole and economic conditions in the
Company's service areas.
50
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)
Commercial and real estate loans and leases determined to be impaired or
classified are individually evaluated by management for specific risk of
loss. In addition, reserve factors are assigned to currently performing
loans and leases based on management's assessment of the following for each
identified loan and lease type: (1) inherent credit risk, (2) historical
losses and, (3) where the Company has not experienced losses, the loss
experience of peer banks. Management also computes specific and expected
loss reserves for loan and lease commitments. Finally, a residual component
is maintained to cover the margin of imprecision inherent in the
assumptions used to estimate losses. These estimates are particularly
susceptible to changes in the economic environment and market conditions.
The Company's Loan Committee reviews the adequacy of the allowance for loan
and lease losses at least quarterly, to include consideration of the
relative risks in the portfolio and current economic conditions. The
allowance is adjusted based on that review if, in the judgment of the Loan
Committee and management, changes are warranted.
The allowance is established through a provision for loan and lease losses
which is charged to expense. Additions to the allowance are expected to
maintain the adequacy of the total allowance after credit losses and loan
growth. The allowance for loan and lease losses at December 31, 2000 and
1999, respectively, reflect management's estimate of losses in the
portfolio.
OTHER REAL ESTATE
Other real estate includes real estate acquired in full or partial
settlement of loan obligations. When property is acquired, any excess of
the recorded investment in the loan balance and accrued interest income
over the estimated fair market value of the property is charged against the
allowance for loan and lease losses. A valuation allowance for losses on
other real estate is maintained to provide for temporary declines in value.
The allowance is established through a provision for losses on other real
estate which is included in other expenses. Subsequent gains or losses on
sales or writedowns resulting from permanent impairments are recorded in
other income or expense as incurred. There was no other real estate held by
the Company at December 31, 2000 and 1999.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost. Depreciation is determined
using the straight-line method over the estimated useful lives of the
related assets. The useful life of building and improvements is forty
years. The useful lives of furniture, fixtures and equipment are estimated
to be three to ten years. Leasehold improvements are amortized over the
life of the asset or the term of the related lease, whichever is shorter.
When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation or amortization are removed from the accounts, and
any resulting gain or loss is recognized in income for the period. The cost
of maintenance and repairs is charged to expense as incurred.
51
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company files its income taxes on a consolidated basis with its
subsidiaries. The allocation of income tax expense (benefit) represents
each entity's proportionate share of the consolidated provision for income
taxes.
Deferred tax assets and liabilities are recognized for the tax consequences
of temporary differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. On the balance sheet, net deferred tax assets are included in
accrued interest receivable and other assets.
CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and due from banks and
Federal funds sold are considered to be cash equivalents. Generally,
Federal funds are sold for one day periods.
EARNINGS PER SHARE
Basic earnings per share (EPS), which excludes dilution, is computed by
dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock, such as stock options, result in the issuance of common
stock which shares in the earnings of the Company. The treasury stock
method has been applied to determine the dilutive effect of stock options
in computing diluted EPS. Earnings per share is retroactively adjusted for
stock splits and stock dividends for all periods presented. In addition,
earnings per share have been restated on an equivalent share basis for all
periods presented in connection with the merger previously noted.
STOCK-BASED COMPENSATION
Stock options are accounted for under the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's stock at
the date of grant over the exercise price. However, if the fair value of
stock-based compensation computed under a fair value based method, as
prescribed in Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, is material to the financial
statements, pro forma net income and earnings per share are disclosed as if
the fair value method had been applied.
52
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
NEW FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 133, Accounting for Derivative
Instruments and Hedging Activity, which was subsequently amended in June
1999 by SFAS 137 and in June 2000 by SFAS 138. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that entities recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. SFAS 137 deferred the required adoption date to fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS 138 addresses
certain issues causing difficulties in implementing SFAS 133. The Company
adopted these statements on January 1, 2001 and, in management's opinion,
the implementation of these pronouncements is not expected to have a
material effect on the future consolidated financial statements.
In September 2000, the FASB issued SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, to
replace SFAS 125 which was issued in June 1996. The original statement
addressed issues related to transfers of financial assets in which the
transferor has some continuing involvement with the transferred assets or
with the transferee. SFAS 140 resolves implementation issues which arose as
a result of SFAS 125, but carries forward most of the provisions of the
original statement. SFAS 140 is effective for transfers occurring after
March 31, 2001 and for disclosures relating to securitization transactions
and collateral for fiscal years ending after December 15, 2000. Management
does not believe the adoption of this statement will have a significant
impact on its financial statements.
2. MERGER
On October 25, 2000, the Company completed a merger with NCB by exchanging
486,685 shares of its common stock (after adjustment for fractional shares)
for all of the common stock of NCB. Each share of NCB was exchanged for
.9644 of a share of the Company. In addition, NCB stock options were
converted at the same exchange ratio into options to purchase 154,278
shares of the Company's common stock.
53
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. MERGER (Continued)
The merger has been accounted for as a pooling-of-interests and,
accordingly, all prior period financial statements have been restated to
include the combined results of operations, financial position and cash
flows of the Company and NCB. Information concerning common stock, stock
option plans and per share data has been restated on an equivalent share
basis.
There were no material transactions between NCB and the Company prior to
the mergers, and the effects of conforming the accounting policies of NCB
to those of the Company were not material.
Selected financial information for the combining entities included in the
consolidated statements of income for the period ended October 25, 2000
(unaudited) and the two years ended December 31, 1999 and 1998 is a
follows:
October 25,
2000 December 31, December 31,
(Unaudited) 1999 1998
----------- ----------- -----------
Net interest income:
American River Holdings and
Subsidiaries $ 8,271,000 $ 9,299,000 $ 8,726,000
North Coast Bank 2,499,000 2,455,000 2,017,000
----------- ----------- -----------
Combined $10,770,000 $11,754,000 $10,743,000
=========== =========== ===========
Net income:
American River Holdings and
Subsidiaries $ 2,532,000 $ 2,901,000 $ 2,505,000
North Coast Bank 420,000 227,000 346,000
----------- ----------- -----------
Combined $ 2,952,000 $ 3,128,000 $ 2,851,000
=========== =========== ===========
54
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at
December 31, 2000 and 1999 consisted of the following:
AVAILABLE-FOR-SALE:
2000
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 16,154,000 $ 161,000 $ (8,000) $ 16,307,000
U.S. Government guar-
anteed mortgage-
backed securities 163,000 163,000
Obligations of states
and political sub-
divisions 9,580,000 228,000 (29,000) 9,779,000
Corporate stock 1,050,000 24,000 (26,000) 1,048,000
Federal Home Loan
Bank stock 204,000 204,000
Federal Reserve
Bank stock 112,000 112,000
Commercial paper 3,950,000 3,950,000
------------ ------------ ------------ ------------
$ 31,213,000 $ 413,000 $ (63,000) $ 31,563,000
============ ============ ============ ============
Net unrealized gains on available-for-sale investment securities totaling
$350,000 were recorded, net of $133,000 in tax liabilities, as accumulated
other comprehensive income within shareholders' equity. Proceeds and gross
realized gains from the sale of available-for-sale investment securities
for the year ended December 31, 2000 totaled $20,000 and $13,000,
respectively. Proceeds from the redemption of Federal Home Loan Bank stock,
at cost, totaled $554,000 for the year ended December 31, 2000.
55
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. INVESTMENT SECURITIES (Continued)
AVAILABLE-FOR-SALE: (Continued)
1999
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 18,819,000 $ 4,000 $ (153,000) $ 18,670,000
U.S. Government guar-
anteed mortgage-
backed securities 228,000 (3,000) 225,000
Obligations of states
and political sub-
divisions 8,635,000 15,000 (360,000) 8,290,000
Corporate stock 825,000 40,000 (17,000) 848,000
Federal Home Loan
Bank stock 723,000 723,000
Federal Reserve
Bank stock 112,000 112,000
Commercial paper 9,908,000 9,908,000
------------ ------------ ------------ ------------
$ 39,250,000 $ 59,000 $ (533,000) $ 38,776,000
============ ============ ============ ============
Net unrealized losses on available-for-sale investment securities totaling
$474,000 were recorded, net of $180,000 in tax benefits, as accumulated
other comprehensive loss within shareholders' equity. Proceeds from the
sale of available-for-sale investment securities for the year ended
December 31, 1999 totaled $1,996,000. No gains or losses were recognized.
Proceeds and gross realized gains from the sale of available-for-sale
investment securities totaled $599,000 and $7,000, respectively, for the
year ended December 31, 1998.
56
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. INVESTMENT SECURITIES (Continued)
HELD-TO-MATURITY:
2000
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 1,501,000 $ 2,000 $ (1,000) $ 1,502,000
Obligations of states
and political sub-
divisions 1,900,000 20,000 1,920,000
Government guaran-
teed mortgage-
backed secur-
ities 9,944,000 48,000 (12,000) 9,980,000
Corporate debt
securities 3,089,000 14,000 (3,000) 3,100,000
Other debt securities 21,000 21,000
------------ ------------ ------------ ------------
$ 16,455,000 $ 84,000 $ (16,000) $ 16,523,000
============ ============ ============ ============
1999
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Government
agencies $ 3,003,000 $ 3,000 $ (7,000) $ 2,999,000
Obligations of states
and political sub-
divisions 2,188,000 16,000 (7,000) 2,197,000
Government guaran-
teed mortgage-
backed secur-
ities 11,891,000 (155,000) 11,736,000
Corporate debt
securities 3,387,000 (45,000) 3,342,000
Other debt securities 30,000 30,000
------------ ------------ ------------ ------------
$ 20,499,000 $ 19,000 $ (214,000) $ 20,304,000
============ ============ ============ ============
There were no sales or transfers of held-to-maturity investment securities
for the years ended December 31, 2000, 1999 and 1998.
57
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment securities at
December 31, 2000 by contractual maturity are shown below. 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.
Available-for-Sale Held-to-Maturity
------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
Within one year $ 8,500,000 $ 8,501,000 $ 3,890,000 $ 3,893,000
After one year
through five years 13,592,000 13,767,000 2,577,000 2,606,000
After five years
through ten years 381,000 387,000 23,000 23,000
After ten years 7,211,000 7,381,000
----------- ----------- ----------- -----------
29,684,000 30,036,000 6,490,000 6,522,000
Investment securities
not due at a single
maturity date:
SBA loan pools 21,000 21,000
Government guaran-
teed mortgage-
backed securities 163,000 163,000 9,944,000 9,980,000
Corporate stock 989,000 987,000
Federal Home Loan
Bank stock 204,000 204,000
Federal Reserve
Bank stock 112,000 112,000
Other investments 61,000 61,000
----------- ----------- ----------- -----------
$31,213,000 $31,563,000 $16,455,000 $16,523,000
=========== =========== =========== ===========
Investment securities with amortized costs totaling $7,732,000 and
$8,271,000 and market values totaling $7,794,000 and $8,199,000 were
pledged to secure treasury tax and loan accounts, State Treasury funds on
deposit, and short-term borrowing arrangements at December 31, 2000 and
1999, respectively.
58
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. LOANS AND LEASES
Outstanding loans and leases are summarized as follows:
December 31,
------------------------------
2000 1999
------------- -------------
Real estate - commercial $ 97,390,000 $ 72,142,000
Real estate - construction 27,182,000 25,784,000
Real estate - residential 8,085,000 6,234,000
Commercial 52,726,000 42,148,000
Lease financing receivable 1,150,000 122,000
Agriculture 10,764,000 7,200,000
Consumer 6,413,000 5,896,000
------------- -------------
203,710,000 159,526,000
Deferred loan and lease fees, net (598,000) (420,000)
Allowance for loan and lease losses (2,454,000) (2,062,000)
------------- -------------
$ 200,658,000 $ 157,044,000
============= =============
Certain loans have been pledged to secure borrowing arrangements (see Notes
8 and 9).
Changes in the allowance for loan and lease losses were as follows:
Year Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Balance, beginning of year $ 2,062,000 $ 1,693,000 $ 1,526,000
Provision charged to operations 672,000 582,000 509,000
Losses charged to allowance (266,000) (231,000) (507,000)
Amounts transferred to accounts
receivable servicing receivables
valuation reserve (Note 6) (41,000)
Recoveries 27,000 18,000 165,000
----------- ----------- -----------
Balance, end of year $ 2,454,000 $ 2,062,000 $ 1,693,000
=========== =========== ===========
At December 31, 2000 and 1999, nonaccrual loans totaled $674,000 and
$30,000, respectively. Interest foregone on nonaccrual loans for the years
ended December 31, 2000, 1999 and 1998 was not material.
59
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. LOANS AND LEASES (Continued)
The recorded investment in loans and leases that were considered to be
impaired totaled $674,000 and $30,000 at December 31, 2000 and 1999,
respectively. The related allowance for loan and lease losses for these
loans and leases at December 31, 2000 and 1999 was $86,000 and $12,000,
respectively. The average recorded investment in impaired loans and leases
for the years ended December 31, 2000, 1999 and 1998 was $128,000, $279,000
and $254,000, respectively. Interest income recognized on impaired loans
and leases using a cash-basis method for the years ended December 31, 2000,
1999 and 1998 was not material.
Salaries and employee benefits totaling $530,000, $502,000 and $488,000
have been deferred as loan and lease origination costs for the years ended
December 31, 2000, 1999 and 1998, respectively.
5. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
--------------------------
2000 1999
----------- -----------
Land $ 149,000 $ 149,000
Building and improvements 213,000 213,000
Furniture, fixtures and equipment 3,334,000 2,746,000
Leasehold improvements 759,000 612,000
----------- -----------
4,455,000 3,720,000
Less accumulated depreciation
and amortization (2,767,000) (2,506,000)
----------- -----------
$ 1,688,000 $ 1,214,000
=========== ===========
Depreciation and amortization included in occupancy and furniture and
equipment expenses totaled $325,000, $324,000 and $357,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
6. ACCOUNTS RECEIVABLE SERVICING RECEIVABLES
The Company purchases existing accounts receivable on a discounted basis
from selected borrowers and assumes the related billing and collection
responsibilities. Accounts receivable servicing fees included in other
income totaled $430,000, $272,000 and $102,000 for the years ended December
31, 2000, 1999 and 1998, respectively (see Note 13).
60
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. ACCOUNTS RECEIVABLE SERVICING RECEIVABLES (Continued)
Activity in the valuation reserve for accounts receivable servicing
receivables for the year ended December 31, 2000 was as follows:
Amounts transferred from the allowance
for loan and lease losses (Note 4) $41,000
Provision charged to operations 30,000
-------
Balance, end of year $71,000
=======
7. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
December 31,
---------------------------
2000 1999
------------ ------------
Savings $ 12,086,000 $ 12,738,000
Money market 71,540,000 62,870,000
NOW accounts 22,408,000 19,028,000
Time, $100,000 or more 39,007,000 41,116,000
Other time 29,351,000 29,181,000
------------ ------------
$174,392,000 $164,933,000
============ ============
Aggregate annual maturities of time deposits are as follows:
Year Ending
December 31,
------------
2001 $54,833,000
2002 2,878,000
2003 2,931,000
2004 3,699,000
2005 4,017,000
-----------
$68,358,000
===========
61
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INTEREST-BEARING DEPOSITS (Continued)
Interest expense recognized on interest-bearing deposits consisted of the
following:
Year Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Savings $ 297,000 $ 307,000 $ 316,000
Money market 2,587,000 1,576,000 1,564,000
NOW accounts 247,000 226,000 251,000
Time, $100,000 or more 2,318,000 1,677,000 1,570,000
Other time 1,881,000 1,530,000 1,590,000
---------- ---------- ----------
$7,330,000 $5,316,000 $5,291,000
========== ========== ==========
8. SHORT-TERM BORROWING ARRANGEMENTS
The Company has a total of $17,000,000 in unsecured short-term borrowing
arrangements with four of its correspondent banks. Advances totaling
$8,000,000 and $7,000,000 were outstanding from two of its correspondent
banks at December 31, 2000, bearing interest rates of 7.25% and 6.50%,
respectively. There were no borrowings outstanding under these arrangements
at December 31, 1999.
In addition, the Company has a line of credit available with the Federal
Home Loan Bank totaling $1,401,000 which is secured by pledged mortgage
loans with carrying values totaling approximately $2,680,000. Future
borrowings may include overnight advances as well as loans with a term of
up to thirty years. An advance totaling $990,000 was outstanding from the
Federal Home Loan Bank at December 31, 2000, bearing an interest rate of
6.63% and a maturity date of January 22, 2001. An advance totaling
$1,000,000 was outstanding at December 31, 1999, bearing an interest rate
of 5.9% and a maturity date of April 12, 2000.
9. LONG-TERM DEBT
The Company can borrow up to $4,455,000 from the Federal Home Loan Bank on
either a short-term or long-term basis, secured by qualifying mortgage
loans with unpaid balances of $7,738,000 at December 31, 2000. Long-term
debt consisted of an advance from the Federal Home Loan Bank totaling
$2,084,000 and $2,125,000 at December 31, 2000 and 1999, respectively,
bearing a fixed interest rate of 6.13%, due in monthly installments of
approximately $14,000, including principal and interest, with the final
principal payment of $1,711,000 due December 21, 2007.
62
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. LONG-TERM DEBT (Continued)
Future minimum principal payments on long-term debt are as follows:
Year Ending
December 31,
------------
2001 $ 45,000
2002 47,000
2003 50,000
2004 54,000
2005 57,000
Thereafter 1,831,000
----------
$2,084,000
==========
10. INCOME TAXES
The provision for income taxes for the years ended December 31, 2000, 1999
and 1998 consisted of the following:
Federal State Total
----------- ----------- -----------
2000
----
Current $ 1,854,000 $ 656,000 $ 2,510,000
Deferred (231,000) (58,000) (289,000)
----------- ----------- -----------
Income tax expense $ 1,623,000 $ 598,000 $ 2,221,000
=========== =========== ===========
1999
----
Current $ 1,501,000 $ 527,000 $ 2,028,000
Deferred (90,000) (17,000) (107,000)
----------- ----------- -----------
Income tax expense $ 1,411,000 $ 510,000 $ 1,921,000
=========== =========== ===========
1998
----
Current $ 1,374,000 $ 515,000 $ 1,889,000
Deferred (157,000) (59,000) (216,000)
----------- ----------- -----------
Income tax expense $ 1,217,000 $ 456,000 $ 1,673,000
=========== =========== ===========
63
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. INCOME TAXES (Continued)
Deferred tax assets (liabilities) consisted of the following at December
31, 2000 and 1999:
2000 1999
----------- ----------
Deferred tax assets:
Allowance for loan losses $ 851,000 $ 674,000
Future benefit of State tax deduction 232,000 162,000
Bank premises and equipment 2,000 24,000
Unrealized loss on available-for-sale
investment securities 180,000
Deferred compensation 80,000 41,000
Other 8,000 8,000
----------- -----------
Total deferred tax assets 1,173,000 1,089,000
----------- -----------
Deferred tax liabilities:
Discount on purchased loans (41,000) (57,000)
Future liability of State deferred tax assets (73,000) (53,000)
Unrealized gain on available-for-sale invest-
ment securities (133,000)
Federal Home Loan Bank stock dividends (20,000) (37,000)
Other (12,000)
----------- -----------
Total deferred tax liabilities (267,000) (159,000)
----------- -----------
Net deferred tax assets $ 906,000 $ 930,000
=========== ===========
The provision for income taxes differs from amounts computed by applying
the statutory Federal income tax rate to operating income before income
taxes. The significant items comprising these differences for the years
ended December 31, 2000, 1999 and 1998 consisted of the following:
2000 1999 1998
--------------------- --------------------- ---------------------
Amount Rate % Amount Rate % Amount Rate %
----------- ------ ----------- ------ ----------- ------
Federal income tax
expense, at
statutory rate $ 1,961,000 34.0 $ 1,717,000 34.0 $ 1,538,000 34.0
State franchise tax,
net of Federal tax
effect 420,000 7.3 346,000 6.9 308,000 6.8
Tax benefit of interest
on obligations of
states and political
subdivisions (139,000) (2.4) (105,000) (2.1) (63,000) (1.4)
Tax benefit of corpor-
ate dividends (16,000) (.3) (12,000) (.2) (15,000) (.3)
Other (5,000) (.1) (25,000) (.6) (95,000) (2.1)
----------- ---- ----------- ---- ----------- ----
Total income
tax expense $ 2,221,000 38.5 $ 1,921,000 38.0 $ 1,673,000 37.0
=========== ==== =========== ==== =========== ====
64
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its branch facilities, administrative offices and
various equipment under noncancelable operating leases which expire on
various dates through the year 2009 and have five year renewal options.
Certain branch facilities are leased from members of the Board of Directors
(see Note 15).
Future minimum lease payments are as follows:
Year Ending
December 31,
------------
2001 $ 615,000
2002 632,000
2003 542,000
2004 549,000
2005 566,000
Thereafter 1,611,000
----------
$4,515,000
==========
Rental expense included in occupancy expense, net of related rental income,
totaled $564,000, $509,000 and $393,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business in order to meet the financing needs of
its customers and to reduce its exposure to fluctuations in interest rates.
These financial instruments consist of commitments to extend credit and
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
uses the same credit policies in making commitments and letters of credit
as it does for loans included on the balance sheet.
65
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
The following financial instruments represent off-balance-sheet credit
risk:
December 31,
-------------------------
2000 1999
----------- -----------
Commitments to extend credit:
Revolving lines of credit secured by
1-4 family residences $ 1,773,000 $ 1,743,000
Commercial real estate, construction
and land development commitments
secured by real estate 18,635,000 15,951,000
Other commercial commitments not
secured by real estate 2,150,000 1,113,000
Credit card arrangements 418,000 397,000
Other unused commitments 28,225,000 32,490,000
----------- -----------
$51,201,000 $51,694,000
=========== ===========
Letters of credit $ 875,000 $ 2,461,000
=========== ===========
Real estate commitments are generally secured by property with a
loan-to-value ratio of 65% to 80%. In addition, the majority of the
Company's commitments have variable interest rates.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any conditions established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. Each client's
creditworthiness is evaluated on a case-by-case basis. The amount of
collateral obtained, if deemed necessary upon extension of credit, is based
on management's credit evaluation of the borrower. Collateral held varies,
but may include accounts receivable, inventory, equipment and deeds of
trust on residential real estate and income-producing commercial
properties.
Letters of credit are conditional commitments issued to guarantee the
performance or financial obligation of a client to a third party. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loans to clients.
66
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. COMMITMENTS AND CONTINGENCIES (Continued)
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Company grants real estate mortgage, real estate construction,
commercial, agricultural and consumer loans to clients throughout
Sacramento, Placer, Yolo, El Dorado, Sonoma, Napa, Marin and Mendocino
counties.
Although the subsidiaries have diversified loan and lease portfolios, a
substantial portion of their portfolios are secured by commercial and
residential real estate. However, personal and business income represent
the primary source of repayment for a majority of these loans.
CORRESPONDENT BANKING AGREEMENTS
The Company maintains funds on deposit with other federally insured
financial institutions under correspondent banking agreements. Uninsured
deposits totaled $8,492,000 at December 31, 2000.
FEDERAL RESERVE REQUIREMENTS
Banks are required to maintain reserves with the Federal Reserve Bank equal
to a percentage of their reservable deposits. Reserve balances held with
the Federal Reserve Bank totaled $2,539,000 and $696,000 at December 31,
2000 and 1999, respectively.
CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to such actions will not materially affect
the financial position or results of operations of the Company.
12. SHAREHOLDERS' EQUITY
DIVIDENDS
Upon declaration by the Board of Directors of the Company, all shareholders
of record will be entitled to receive dividends. Under applicable Federal
laws, the Comptroller of the Currency (OCC) restricts the total dividend
payment of any national banking association in any calendar year to the net
income of the year, as defined, combined with the net income for the two
preceding years, less distributions made to shareholders during the same
three-year period. In addition, the California Financial Code restricts the
total dividend payment of any state banking association in any calendar
year to the lesser of (1) the bank's retained earnings or (2) the bank's
net income for its last three fiscal years, less distributions made to
shareholders during the same three-year period. At December 31, 2000, the
subsidiaries had $6,425,000 in retained earnings available for dividend
payments to the Company.
67
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. SHAREHOLDERS' EQUITY (Continued)
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:
Weighted
Average
Number of
Net Shares Per-Share
For the Year Ended Income Outstanding Amount
-------------------------------- ---------- ----------- --------
DECEMBER 31, 2000
Basic earnings per share $3,546,000 2,376,433 $ 1.49
========
Effect of dilutive stock options 122,812
---------- ---------
Diluted earnings per share $3,546,000 2,499,245 $ 1.42
========== ========= ========
DECEMBER 31, 1999
Basic earnings per share $3,128,000 2,389,293 $ 1.31
========
Effect of dilutive stock options 129,501
---------- ---------
Diluted earnings per share $3,128,000 2,518,794 $ 1.24
========== ========= ========
DECEMBER 31, 1998
Basic earnings per share $2,851,000 2,398,091 $ 1.19
========
Effect of dilutive stock options 173,296
---------- ---------
Diluted earnings per share $2,851,000 2,571,387 $ 1.11
========== ========= ========
STOCK OPTION PLANS
In 2000 and 1995, the Board of Directors adopted stock option plans for
which 711,116 shares of common stock are reserved for issuance to employees
and directors under incentive and nonstatutory agreements. The plans
require that the option price may not be less than the fair market value of
the stock at the date the option is granted. The purchase price of
exercised options is payable in full in cash or shares of the Company's
common stock owned by the optionee at the time the option is exercised. The
options expire on dates determined by the Board of Directors, but not later
than ten years from the date of grant. Options vest ratably over a five
year period. Outstanding options under the 1995 plans are exercisable until
their expiration; however, no new options will be granted under this plan.
68
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTION PLANS (Continued)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation expense has been recognized for
its stock option plans. Had compensation cost been determined based on the
fair value at grant date for awards in 1995 through 1999 consistent with
the provisions of SFAS No.123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below. Pro
forma compensation expense is recognized in the years in which the options
become vested.
Year Ended December 31,
---------------------------------------------
2000 1999 1998
------------- ------------- -------------
Net earnings - as reported $ 3,546,000 $ 3,128,000 $ 2,851,000
Net earnings - pro forma $ 3,357,000 $ 2,949,000 $ 2,744,000
Basic earnings per share - as reported $ 1.49 $ 1.31 $ 1.19
Basic earnings per share - pro forma $ 1.41 $ 1.23 $ 1.14
Diluted earnings per share - as reported $ 1.42 $ 1.24 $ 1.11
Diluted earnings per share - pro forma $ 1.34 $ 1.17 $ 1.07
The fair value of each option is estimated on the date of grant using an
option-pricing model with the following assumptions. No options were
granted for the year ended December 31, 2000.
Year Ended December 31,
------------------------
1999 1998
--------- ---------
Dividend yield 1.53% 1.13%
Expected volatility 72.17% 32.20%
Risk-free interest rate 6.10% 5.07%
Expected option life 10 years 10 years
69
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTION PLANS (Continued)
A summary of the combined activity within the plans follows:
2000 1999 1998
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- --------- ------- --------
Options outstanding,
beginning of year 498,448 $ 8.57 530,665 $ 7.92 463,999 $ 5.98
Options granted 63,663 $ 12.89 140,152 $ 12.86
Options exercised (35,347) $ 7.06 (81,956) $ 5.47 (72,601) $ 5.06
Options canceled (19,977) $ 16.12 (13,924) $ 7.55 (885) $ 5.53
------- ------- -------
Options outstanding,
end of year 443,124 $ 8.32 498,448 $ 8.57 530,665 $ 7.92
======= ======= =======
Options exercisable,
end of year 328,854 $ 7.19 268,830 $ 7.02 249,090 $ 6.03
======= ======= =======
Weighted average
fair value of options
granted during the
year $ 5.03 $ 4.80
A summary of options outstanding at December 31, 2000 follows:
Number of Weighted Number of
Options Average Options
Range of Outstanding Remaining Exercisable
Exercise December 31, Contractual December 31,
Prices 2000 Life 2000
------- ------- --------- -------
$ 5.53 49,531 5.8 years 47,776
$ 5.76 176,661 4.6 years 176,661
$ 6.13 8,855 3.2 years 8,855
$ 7.54 7,543 5.0 years 5,372
$ 8.64 48,099 9.0 years 18,731
$ 9.15 55,508 7.7 years 33,306
$ 10.15 29,536 6.4 years 14,950
$ 14.64 10,500 8.9 years 2,100
$ 14.97 8,269 8.0 years 1,654
$ 16.12 48,622 7.7 years 19,449
------- -------
443,124 328,854
======= =======
70
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. SHAREHOLDERS' EQUITY (Continued)
COMMON STOCK REPURCHASE PROGRAM
During 1997, the Board of Directors authorized the annual repurchase of up
to five percent of the Company's common stock in conjunction with recurring
annual distributions of a five percent common stock dividend. Repurchases
are generally made in the open market at market prices.
REGULATORY CAPITAL
The Company and its subsidiaries are subject to certain regulatory capital
requirements administered by the Board of Governors of the Federal Reserve
System, the Office of the Comptroller of the Currency (OCC) and Federal
Deposit Insurance Corporation (FDIC). Failure to meet these minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the subsidiaries 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 its subsidiaries' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiaries to maintain minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1
capital to average assets. Each of these components is defined in the
regulations. Management believes that the Company and its subsidiaries meet
all their capital adequacy requirements as of December 31, 2000.
In addition, the most recent notification from the OCC and FDIC categorized
each of the subsidiaries as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
subsidiaries must maintain minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios as set forth below. There are no conditions or
events since that notification that management believes have changed the
categories.
2000 1999
-------------------- --------------------
Amount Ratio Amount Ratio
----------- ----- ----------- -----
Leverage Ratio
--------------
American River Holdings and Subsidiaries $24,069,000 8.7% $20,753,000 8.7%
Minimum regulatory requirement $11,096,000 4.0% $ 9,590,000 4.0%
American River Bank $19,275,000 8.9% $16,414,000 8.5%
Minimum requirement for "Well-Capitalized" institution $10,833,000 5.0% $ 9,635,000 5.0%
Minimum regulatory requirement $ 8,666,000 4.0% $ 7,708,000 4.0%
71
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL (Continued)
2000 1999
---------------------- ----------------------
Amount Ratio Amount Ratio
-------------- ------ ------------- ------
LEVERAGE RATIO (Continued)
North Coast Bank $ 4,630,000 8.0% $ 4,012,000 8.5%
Minimum requirement for "Well-Capitalized" institution $ 2,885,000 5.0% $ 2,353,000 5.0%
Minimum regulatory requirement $ 2,308,000 4.0% $ 1,882,000 4.0%
TIER 1 RISK-BASED CAPITAL RATIO
American River Holdings and Subsidiaries $ 24,069,000 10.6% $ 20,753,000 11.3%
Minimum regulatory requirement $ 9,061,000 4.0% $ 7,358,000 4.0%
American River Bank $ 19,275,000 11.0% $ 16,414,000 11.4%
Minimum requirement for "Well-Capitalized" institution $ 10,529,000 6.0% $ 8,639,000 6.0%
Minimum regulatory requirement $ 7,019,000 4.0% $ 5,759,000 4.0%
North Coast Bank $ 4,630,000 9.1% $ 4,012,000 10.0%
Minimum requirement for "Well-Capitalized" institution $ 3,060,000 6.0% $ 2,395,000 6.0%
Minimum regulatory requirement $ 2,040,000 4.0% $ 1,597,000 4.0%
TOTAL RISK-BASED CAPITAL RATIO
American River Holdings and Subsidiaries $ 26,523,000 11.7% $ 22,815,000 12.4%
Minimum regulatory requirement $ 18,122,000 8.0% $ 14,716,000 8.0%
American River Bank $ 21,173,000 12.1% $ 18,093,000 12.6%
Minimum requirement for "Well-Capitalized" institution $ 17,548,000 10.0% $ 14,398,000 10.0%
Minimum regulatory requirement $ 14,038,000 8.0% $ 11,518,000 8.0%
North Coast Bank $ 5,186,000 10.2% $ 4,395,000 11.0%
Minimum requirement for "Well-Capitalized" institution $ 5,101,000 10.0% $ 3,992,000 10.0%
Minimum regulatory requirement $ 4,081,000 8.0% $ 3,194,000 8.0%
13. OTHER INCOME AND EXPENSE
Other income consisted of the following:
Year Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Accounts receivable servicing fees
(Note 6) $ 430,000 $ 272,000 $ 102,000
Merchant fee income 202,000 153,000 136,000
Income from residential lending
division 142,000 133,000 254,000
Financial services income 203,000 124,000 50,000
Other 591,000 428,000 349,000
---------- ---------- ----------
$1,568,000 $1,110,000 $ 891,000
========== ========== ==========
72
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. OTHER INCOME AND EXPENSE (Continued)
Other expense consisted of the following:
Year Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Professional fees $ 307,000 $ 229,000 $ 235,000
Outsourced item processing 498,000 410,000 379,000
Merger, NASDAQ listing and SEC
registration expenses (Note 2) 693,000
Telephone and postage 263,000 249,000 228,000
Advertising and promotion 235,000 200,000 143,000
Stationery and supplies 176,000 192,000 163,000
Directors' compensation 175,000 194,000 201,000
Other operating expenses 803,000 774,000 773,000
---------- ---------- ----------
$3,150,000 $2,248,000 $2,122,000
========== ========== ==========
14. EMPLOYEE BENEFIT PLANS
AMERICAN RIVER BANK 401(K) PLAN
The American River Bank 401(k) Plan commenced January 1, 1993 and is
available to all employees. Under the plan, the Bank will match 50% of each
participants' contribution up to a maximum of 6% of their annual
compensation. Employer contributions vest at a rate of 20% per year over a
five year period and totaled $77,000, $72,000 and $64,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
NORTH COAST BANK 401(K) PLAN
The North Coast Bank 401(k) Savings Plan commenced January 1, 1993 and is
available to employees meeting certain service requirements. Under the
plan, employees may defer a selected percentage of their annual
compensation. The contribution to the plan is discretionary and is
allocated as follows:
o A matching contribution to be determined by the Board of
Directors each plan year under which a percentage of each
participant's contribution is matched.
o Additional employer contributions to the plan may be made at the
discretion of the Board of Directors and shall be allocated in
the same ratio as each participant's contribution bears to total
compensation.
Employer contributions totaled $18,000, $13,000 and $9,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
Effective January 1, 2001, the North Coast Bank 401(k) Plan merged into the
American River Bank 401(k) Plan and the plan was renamed the American River
Holdings 401(k) Profit Sharing and Salary Deferral Plan.
73
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. EMPLOYEE BENEFIT PLANS EMPLOYEE BENEFIT PLANS (Continued)
EMPLOYEE STOCK PURCHASE PLAN
The Company is the administrator of an Employee Stock Purchase Plan which
allows employees to purchase the Company's stock at fair market value as of
the date of purchase. The Company bears all costs of administering the
Plan, including broker's fees, commissions, postage and other costs
actually incurred.
DEFERRED COMPENSATION PLAN
Effective May 1, 1998, American River Bank established a Deferred
Compensation Plan for certain members of the management group and the
Deferred Fee Agreement for Directors for the purpose of providing the
opportunity to participants to defer compensation. Participants, who are
selected by a Committee designated by the Board of Directors, may elect to
defer annually a minimum of $5,000 or a maximum of eighty percent of their
base salary and all of their cash bonus. Directors may also elect to defer
up to one hundred percent of their monthly fees. American River Bank bears
all administration costs, and funds the interest earned on participant
deferrals at a rate based on U.S. Government Treasury rates. Deferred
compensation, including interest earned, totaled $179,000, $90,000 and
$12,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
15. RELATED PARTY TRANSACTIONS
During the normal course of business, the Company enters into transactions
with related parties, including Directors and affiliates. These
transactions include borrowings from the Company with substantially the
same terms, including rates and collateral, as loans to unrelated parties.
The following is a summary of the aggregate activity involving related
party borrowers during 2000:
Balance, January 1, 2000 $ 3,758,000
Disbursements 2,186,000
Amounts repaid (2,149,000)
-----------
Balance, December 31, 2000 $ 3,795,000
===========
Undisbursed commitments to related parties,
December 31, 2000 $ 2,061,000
===========
The Company also leases premises from members of the Board of Directors
(see Note 11). Rental payments to the Directors totaled $105,000, $106,000
and $102,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
74
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. COMPREHENSIVE INCOME
Comprehensive income is reported in addition to net income for all periods
presented. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of other comprehensive income (loss)
that historically has not been recognized in the calculation of net income.
Unrealized gains and losses on the Company's available-for-sale investment
securities are included in other comprehensive income (loss). Total
comprehensive income and the components of accumulated other comprehensive
income (loss) are presented in the Statement of Changes in Shareholders'
Equity.
At December 31, 2000, 1999 and 1998, the Company held securities classified
as available-for-sale which had unrealized gains (losses) as follows:
Tax
Before (Expense) After
Tax Benefit Tax
--------- --------- ---------
FOR THE YEAR ENDED DECEMBER 31, 2000
Other comprehensive income:
Unrealized holding gains $ 837,000 $(318,000) $ 519,000
Less: reclassification adjustment for
net gains included in net income 13,000 (5,000) 8,000
--------- --------- ---------
Total other comprehensive
income $ 824,000 $(313,000) $ 511,000
========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 1999
Other comprehensive loss:
Unrealized holding losses $(771,000) $ 292,000 $(479,000)
========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 1998
Other comprehensive income:
Unrealized holding gains $ 92,000 $ (36,000) $ 56,000
Less: reclassification adjustment for
net gains included in net income 7,000 (3,000) 4,000
--------- --------- ---------
Total other comprehensive
income $ 85,000 $ (33,000) $ 52,000
========= ========= =========
75
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the fair values presented.
The following methods and assumptions were used by the Company to estimate
the fair value of its financial instruments at December 31, 2000 and 1999:
CASH AND CASH EQUIVALENTS AND SHORT-TERM BORROWINGS: For cash and cash
equivalents and short-term borrowings, the carrying amount is estimated to
be fair value.
INTEREST-BEARING DEPOSITS IN BANKS: The fair values of interest-bearing
deposits in banks are estimated by discounting their future cash flows
using rates at each reporting date for instruments with similar remaining
maturities offered by comparable financial institutions.
INVESTMENT SECURITIES: For investment securities, fair values are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using quoted market prices for similar
securities and indications of value provided by brokers.
LOANS AND LEASES: For variable-rate loans and leases that reprice
frequently with no significant change in credit risk, fair values are based
on carrying values. The fair values for other loans and leases are
estimated using discounted cash flow analyses, using interest rates being
offered at each reporting date for loans and leases with similar terms to
borrowers of comparable creditworthiness. The carrying amount of accrued
interest receivable approximates its fair value.
ACCOUNTS RECEIVABLE SERVICING RECEIVABLES: The carrying amount of accounts
receivable servicing receivables approximates their fair value because of
the relatively short period of time between the origination of the
receivables and their expected collection.
76
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
DEPOSITS: The fair values for demand deposits are, by definition, equal to
the amount payable on demand at the reporting date represented by their
carrying amount. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow analysis using interest rates
offered at each reporting date for certificates with similar remaining
maturities. The carrying amount of accrued interest payable approximates
its fair value.
LONG-TERM DEBT: The fair value of long-term debt is estimated using a
discounted cash flow analysis using interest rates currently available for
similar debt instruments.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are primarily
for variable rate loans. For these commitments, there is no difference
between the committed amounts and their fair values. Commitments to fund
fixed rate loans and letters of credit are at rates which approximate fair
value at each reporting date.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
December 31, 2000 December 31, 1999
--------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
Financial assets:
Cash and due from banks $ 21,236,000 $ 21,236,000 $ 10,900,000 $ 10,900,000
Federal funds sold 8,125,000 8,125,000
Interest-bearing deposits
in banks 5,540,000 5,582,000 6,320,000 6,320,000
Investment securities 48,018,000 48,086,000 59,275,000 59,080,000
Loans and leases 200,658,000 201,036,000 157,044,000 156,611,000
Accounts receivable servicing
receivables 3,180,000 3,180,000 2,123,000 2,123,000
Accrued interest receivable 1,884,000 1,884,000 1,469,000 1,470,000
------------ ------------ ------------ ------------
$280,516,000 $281,004,000 $245,256,000 $244,629,000
============ ============ ============ ============
Financial liabilities:
Deposits $239,312,000 $240,304,000 $223,077,000 $223,055,000
Short-term borrowings 15,990,000 15,990,000 1,000,000 1,000,000
Long-term debt 2,084,000 2,089,000 2,125,000 2,028,000
Accrued interest payable 297,000 297,000 254,000 254,000
------------ ------------ ------------ ------------
$257,683,000 $258,680,000 $226,456,000 $226,337,000
============ ============ ============ ============
Off-balance-sheet financial
instruments:
Commitments to extend
credit $ 51,201,000 $ 51,201,000 $ 51,694,000 $ 51,694,000
Letters of credit 875,000 875,000 2,461,000 2,461,000
------------ ------------ ------------ ------------
$ 52,076,000 $ 52,076,000 $ 54,155,000 $ 54,155,000
============ ============ ============ ============
77
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEET
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 337,000 $ 327,000
Investment in subsidiaries 24,313,000 20,366,000
Dividends receivable from subsidiaries 312,000 215,000
Other assets 7,000 6,000
------------ ------------
$ 24,969,000 $ 20,914,000
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Dividends payable to shareholders $ 312,000 $ 215,000
Other liabilities 244,000 88,000
------------ ------------
Total liabilities 556,000 303,000
------------ ------------
Shareholders' equity:
Common stock 12,320,000 10,438,000
Retained earnings 11,876,000 10,467,000
Accumulated other comprehensive income
(loss) 217,000 (294,000)
------------ ------------
Total shareholders' equity 24,413,000 20,611,000
------------ ------------
$ 24,969,000 $ 20,914,000
============ ============
78
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---------- ---------- ----------
Income:
Dividends declared by subsidiaries -
eliminated in consolidation $ 887,000 $1,368,000 $1,558,000
---------- ---------- ----------
Expenses:
Salaries and employee benefits 221,000
Merger, NASDAQ and SEC
registration expenses 460,000
Professional fees 26,000 19,000 33,000
Directors' compensation 62,000 80,000 103,000
Other expenses 42,000 31,000 20,000
---------- ---------- ----------
Total expenses 811,000 130,000 156,000
---------- ---------- ----------
Income before equity in
undistributed income of
subsidiaries 76,000 1,238,000 1,402,000
Equity in undistributed income of
subsidiaries 3,158,000 1,839,000 1,389,000
---------- ---------- ----------
Income before income taxes 3,234,000 3,077,000 2,791,000
Income tax benefit 312,000 51,000 60,000
---------- ---------- ----------
Net income $3,546,000 $3,128,000 $2,851,000
========== ========== ==========
79
AMERICAN RIVER HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 3,546,000 $ 3,128,000 $ 2,851,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiaries (3,255,000) (1,869,000) (1,408,000)
(Increase) decrease in other assets (1,000) 15,000 13,000
Increase in other liabilities 156,000 88,000
----------- ----------- -----------
Net cash provided by operating
activities 446,000 1,362,000 1,456,000
----------- ----------- -----------
Cash flows used in investing activities:
Investment in leasing company (100,000)
----------- ----------- -----------
Cash flows from financing activities:
Cash dividends paid (438,000) (386,000) (338,000)
Exercise of stock options 8,000 692,000 610,000
Cash paid to repurchase common stock (1,475,000) (1,651,000)
Cash paid for fractional shares (6,000) (7,000) (5,000)
----------- ----------- -----------
Net cash used in financing activities (436,000) (1,176,000) (1,384,000)
----------- ----------- -----------
Net increase in cash and cash
equivalents 10,000 86,000 72,000
Cash and cash equivalents at beginning
of year 327,000 241,000 169,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 337,000 $ 327,000 $ 241,000
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Non-cash investing activities:
Net change in unrealized gain on available-
for-sale investment securities $ 824,000 $ (771,000) $ 85,000
Non-cash financing activities:
Dividends declared, adjusted for stock
splits and dividends, $.13 per share in
2000, $.11 per share in 1999 and
$.10 per share in 1998 $ 312,000 $ 215,000 $ 185,000
80
SELECTED QUARTERLY INFORMATION (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share and price range of common stock)
- -------------------------------------------------------------------------------------------------------------
March 31 June 30, September 30, December 31,
- -------------------------------------------------------------------------------------------------------------
2000
Interest income $4,826 $5,075 $5,533 $5,793
Net interest income 3,157 3,285 3,469 3,674
Provision for loan and lease loss 133 145 171 223
Non-interest income 501 574 540 568
Non-interest expense 2,089 2,316 2,333 2,591
Income before taxes 1,436 1,398 1,505 1,428
Net income 890 857 916 883
- -------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .38 $ .36 $ .38 $ .37
Diluted earnings per share .36 .35 .37 .35
Cash dividends per share -- .12 -- .13
- -------------------------------------------------------------------------------------------------------------
Price range, common stock $ 10.48-15.24 $ 10.00-14.29 $ 12.02-13.57 $ 11.79-15.00
=============================================================================================================
1999
Interest income $4,109 $4,201 $4,310 $4,609
Net interest income 2,799 2,901 2,936 3,118
Provision for loan and lease loss 124 139 169 150
Non-interest income 338 378 439 492
Non-interest expense 1,861 1,910 1,983 2,016
Income before taxes 1,152 1,230 1,223 1,444
Net income 710 757 764 897
- -------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .30 $ .31 $ .32 $ .38
Diluted earnings per share .28 .30 .31 .36
Cash dividends per share -- .10 -- .12
- -------------------------------------------------------------------------------------------------------------
Price range, common stock $ 14.21-16.55 $ 14.51-16.18 $ 14.63-16.55 $ 13.45-16.07
=============================================================================================================
The earnings per share and price range have been adjusted for 5% stock dividends
in 1999 and 2000.
81
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change in the independent accountants engaged to audit
the financial statements of the Company and its subsidiaries during the last two
fiscal years ended December 31, 2000. There have been no disagreements with such
independent accountants during the last two fiscal years ended December 31,
2000, on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
2001 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
2001 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
2001 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in the Company's Proxy Statement for the
2001 Annual Meeting of Shareholders which will be filed pursuant to Regulation
14A.
82
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Financial Statements. Listed and included in Part II, Item 8.
(2)Financial Statement Schedules. Not applicable.
(3)Exhibits.
Exhibit
Number Document Description
------ --------------------
(2.1) Agreement and Plan of Reorganization and Merger by and among the
Registrant, ARH Interim National Bank and North Coast Bank, N.A.,
dated as of March 1, 2000 (included as Annex A). **
(3.1) Articles of Incorporation, as amended.
(3.2) Bylaws, as amended.
(4.1) Specimen of the Registrant's common stock certificate. **
(10.1) Lease agreement between American River Bank and Spieker
Properties, L.P., a California limited partnership, dated April
1, 2000, related to 1545 River Park Drive, Suite 107, Sacramento,
California. **
(10.2) Lease agreement and addendum between American River Bank and
Bradshaw Plaza Group each dated January 31, 2000, related to 9750
Business Park Drive, Sacramento, California. **
(10.3) Lease agreement between American River Bank and Marjorie G.
Taylor dated April 5, 1984, and addendum dated July 16, 1997,
related to 10123 Fair Oaks Boulevard, Fair Oaks, California. **
(10.4) Lease agreement between American River Bank and Sandalwood Land
Company dated August 28, 1996, related to 2240 Douglas Boulevard,
Suite 100, Roseville, California. **
(10.5) Lease agreement between American River Holdings and Union Bank of
California dated June 29, 1999, related to 1540 River Park Drive,
Suite 108, Sacramento, California. **
*(10.6) American River Holdings 1995 Stock Option Plan. **
*(10.7) Form of Nonqualified Stock Option Agreement under the 1995 Stock
Option Plan. **
*(10.8) Form of Incentive Stock Option Agreement under the 1995 Stock
Option Plan. **
*(10.9) American River Bank 401(k) Plan and amendment no. 1 dated April
1, 1998. **
*(10.10) American River Holdings Stock Option Gross-Up Plan and Agreement,
as amended, dated May 20, 1998. **
*(10.11) American River Bank Deferred Compensation Plan dated May 1,
1998. **
*(10.12) American River Bank Deferred Fee Plan dated April 1, 1998. **
83
*(10.16) American River Bank Employee Severance Policy dated March 18,
1998. **
*(10.17) American River Bank Employee Stock Purchase Plan. **
*(10.18) Employment agreement with David T. Taber dated August 16, 2000,
incorporated by reference from Exhibit 10.18 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
2000 filed with the Commission on November 14, 2000.
*(10.19) Employment agreement with William L. Young dated August 16, 2000,
incorporated by reference from Exhibit 10.19 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
2000 filed with the Commission on November 14, 2000.
*(10.20) American River Holdings Incentive Compensation Plan for the Year
Ended December 31, 2000, incorporated by reference from Exhibit
10.20 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2000 filed with the Commission on
November 14, 2000.
(10.21) Amendment #1 dated March 1, 2001 to the lease agreement between
American River Holdings and Union Bank of California dated June
29, 1999, related to 1540 River Park Drive, Suite 108 and Suite
106, Sacramento, California.
*(10.22) First Amendment dated December 20, 2000 to the American River
Bank Deferred Compensation Plan dated May 1, 1998.
(21.1) The Registrant's only subsidiaries are American River Bank, North
Coast Bank, N.A. ( as of October 25, 2000) and First Source
Capital.
(23.1) Consent of Perry-Smith LLP
(23.2) Consent of Richardson & Company
*Denotes management contracts, compensatory plans or arrangements.
**Incorporated by reference to registrant's Registration Statement on Form
S-4 (No. 333-36326) filed with the Commission on May 5, 2000.
(b) Reports on Form 8-K
None
An Annual Report for the fiscal year ended December 31, 2000, and Notice of
Annual Meeting and Proxy Statement for the Company's 2001 Annual Meeting will be
mailed to security holders subsequent to the date of filing this Report. Copies
of said materials will be furnished to the Commission in accordance with the
Commission's Rules and Regulations.
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN RIVER HOLDINGS
MARCH 29, 2001 By: /s/ DAVID T. TABER
----------------------
David T. Taber
Chief Executive Officer
(Principal Executive Officer)
MARCH 29, 2001 By: /s/ MITCHELL A. DERENZO
---------------------------
Mitchell A. Derenzo
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ SAM J. GALLINA Director, Chairman 3/29/01
- ------------------
Sam J. Gallina
/s/ ROGER J. TAYLOR Director, Vice Chairman 3/29/01
- -------------------
Roger J. Taylor
/s/ JAMES O. BURPO Director 3/29/01
- ------------------
James O. Burpo
/s/ M. EDGAR DEAS Director 3/29/01
- -----------------
M. Edgar Deas
/s/ CHARLES D. FITE Director 3/29/01
- -------------------
Charles D. Fite
/s/ WAYNE C. MATTHEWS Director 3/29/01
- ---------------------
Wayne C. Matthews
/s/ DAVID T. TABER Director 3/29/01
- ------------------
David T. Taber
85
Signature Title Date
/s/ MARJORIE G. TAYLOR Director 3/29/01
- ----------------------
Marjorie G. Taylor
/s/ STEPHEN H. WAKS Director 3/29/01
- -------------------
Stephen H. Waks
/s/ LARRY L. WASEM Director 3/29/01
- ------------------
Larry L. Wasem
/s/ WILLIAM L. YOUNG Director 3/29/01
- --------------------
William L. Young
86
EXHIBIT INDEX
Exhibit Number Description Page
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation, as amended 88-93
3.2 Bylaws, as amended 94-123
10.21 Amendment #1 dated March 1, 2001 to the lease
agreement between American River Holdings and
Union Bank of California dated June 29, 1999,
related to 1540 River Park Drive, Suite 108
and Suite 106, Sacramento, California 124-125
10.22 First Amendment dated December 20, 2000 to the
American River Bank Deferred Compensation Plan
dated May 1, 1998 126-127
23.1 Consent of Perry-Smith LLP 128
23.2 Consent of Richardson & Company 129
87