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EXCEL - IDEA: XBRL DOCUMENT - AMERICAN RIVER BANKSHARESFinancial_Report.xls
EX-32.1 - EXHIBIT 32.1 - AMERICAN RIVER BANKSHARESex32_1.htm
EX-31.1 - EXHIBIT 31.1 - AMERICAN RIVER BANKSHARESex31_1.htm
EX-31.2 - EXHIBIT 31.2 - AMERICAN RIVER BANKSHARESex31_2.htm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended            March 31, 2015

or

 

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from   to  

 

Commission File Number: 0-31525

 

AMERICAN RIVER BANKSHARES

 

(Exact name of registrant as specified in its charter) 

 

California   68-0352144
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
3100 Zinfandel Drive, Suite 450, Rancho Cordova, California   95670
(Address of principal executive offices)   (Zip Code)

 

(916) 851-0123
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer o Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

No par value Common Stock – 7,705,666 shares outstanding at May 6, 2015

 
 

AMERICAN RIVER BANKSHARES

INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2015

 

Part I.     Page
       
Item 1. Financial Statements   3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   27
Item 3. Quantitative and Qualitative Disclosures About Market Risk   44
Item 4. Controls and Procedures   45
       
Part II.      
       
Item 1. Legal Proceedings   45
Item 1A. Risk Factors   45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   45
Item 3. Defaults Upon Senior Securities   46
Item 4. Mine Safety Disclosures   46
Item 5. Other Information   46
Item 6. Exhibits   46
       
Signatures     51
       
Exhibit Index     52
       
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   53
31.2 Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   54
32.1 Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   55
       
101.INS XBRL Instance Document    
101.SCH XBRL Taxonomy Extension Schema    
101.CAL XBRL Taxonomy Extension Calculation    
101.DEF XBRL Taxonomy Extension Definition    
101.LAB XBRL Taxonomy Extension Label    
101.PRE XBRL Taxonomy Extension Presentation    
2
 

PART I-FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

AMERICAN RIVER BANKSHARES

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

(dollars in thousands)  March 31,   December 31, 
   2015   2014 
ASSETS        
         
Cash and due from banks  $17,047   $22,449 
Interest-bearing deposits in banks   1,000    1,000 
Investment securities:          
Available-for-sale, at fair value   281,423    289,064 
Held-to-maturity, at amortized cost   802    862 
Loans and leases, less allowance for loan and lease losses of $5,308 at March 31, 2015 and $5,301 at December 31, 2014   261,112    258,057 
Premises and equipment, net   1,551    1,518 
Federal Home Loan Bank stock   3,686    3,686 
Goodwill and other intangible assets   16,321    16,321 
Other real estate owned   3,720    4,647 
Bank owned life insurance   14,245    14,167 
Accrued interest receivable and other assets   4,948    5,983 
   $605,855   $617,754 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Deposits:          
Noninterest bearing  $158,590   $155,698 
Interest-bearing   342,569    354,995 
Total deposits   501,159    510,693 
           
Short-term borrowings   3,500    3,500 
Long-term borrowings   7,500    7,500 
Accrued interest payable and other liabilities   5,823    6,414 
           
Total liabilities   517,982    528,107 
           
Commitments and contingencies          
           
Shareholders’ equity:          
Preferred stock, no par value; 20,000,000 shares authorized; none Outstanding          
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding – 7,705,666 shares at March 31, 2015 and 8,089,615 shares at December 31, 2014   53,236    57,126 
Retained earnings   30,106    29,150 
Accumulated other comprehensive income, net of taxes   4,531    3,371 
           
Total shareholders’ equity   87,873    89,647 
   $605,855   $617,754 

 

See Notes to Unaudited Consolidated Financial Statements

3
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

 

(dollars in thousands, except per share data)        
For the three months ended March 31,        
   2015   2014 
         
Interest income:          
Interest and fees on loans  $3,295   $3,455 
Interest on deposits in banks   1    1 
Interest and dividends on investment securities:          
Taxable   1,417    1,339 
Exempt from Federal income taxes   189    201 
Dividends        
Total interest income   4,902    4,996 
Interest expense:          
Interest on deposits   214    262 
Interest on borrowings   34    42 
Total interest expense   248    304 
           
Net interest income   4,654    4,692 
           
Provision for loan and lease losses        
           
Net interest income after provision for loan and lease losses   4,654    4,692 
           
Noninterest income:          
Service charges on deposit accounts   117    156 
Gain on sale of securities   167     
Rental income from OREO properties   71    107 
Other noninterest income   230    239 
Total noninterest income   585    502 
           
Noninterest expense:          
Salaries and employee benefits   2,270    2,120 
Occupancy   293    307 
Furniture and equipment   177    178 
Federal Deposit Insurance Corporation assessments   80    103 
Expenses related to other real estate owned   147    (1)
Other expense   846    946 
Total noninterest expense   3,813    3,653 
Income before provision for income taxes   1,426    1,541 
Provision for income taxes   470    535 
Net income  $956   $1,006 
           
Basic earnings per share  $0.12   $0.12 
Diluted earnings per share  $0.12   $0.12 
           
Cash dividends per share  $0.00   $0.00 

 

See notes to Unaudited Consolidated Financial Statements

4
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF COMPRENENSIVE INCOME

(Unaudited)

 

(dollars in thousands)        
For the three months ended March 31,        
   2015   2014 
         
Net income  $956   $1,006 
Other comprehensive income:          
Increase in net unrealized gains on investment securities   2,101    1,837 
Deferred tax (expense) benefit   (841)   (735)
Increase in net unrealized gains on investment securities, net of tax   1,260    1,102 
           
Reclassification adjustment for realized gains included in net income   (167)    
Tax effect   67     
Realized gains, net of tax   (100)    
           
Total other comprehensive income   1,160    1,102 
Comprehensive income  $2,116   $2,108 

 

See notes to Unaudited Consolidated Financial Statements

5
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

               Accumulated     
(dollars in thousands)  Common Stock       Other   Total 
           Retained   Comprehensive   Shareholders’ 
   Shares   Amount   Earnings   Income   Equity 
Balance, January 1, 2014   8,489,247    61,108    24,789    1,123    87,020 
Net income             4,361         4,361 
Other comprehensive income, net of tax:                         
Net change in unrealized gains on available-for-sale investment securities                  2,248    2,248 
                          
Net restricted stock awarded and related compensation expense   24,830    147              147 
Stock option compensation expense        19              19 
Retirement of common stock   (424,462)   (4,148)             (4,148)
Balance, December 31, 2014   8,089,615    57,126    29,150    3,371    89,647 
                          
Net income             956         956 
Other comprehensive income, net of tax:                         
Net change in unrealized gains on available-for-sale investment securities                  1,160    1,160 
                          
Net restricted stock award activity and related compensation expense   20,532    49              49 
Stock option compensation expense       6              6 
Retirement of common stock   (404,481)   (3,945)             (3,945)
                          
Balance, March 31, 2015   7,705,666   $53,236   $30,106   $4,531   $87,873 

See Notes to Unaudited Consolidated Financial Statements

6
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 

(dollars in thousands)        
For the three months ended March 31,        
   2015   2014 
         
Cash flows from operating activities:          
Net income  $956   $1,006 
Adjustments to reconcile net income to net cash provided by operating activities:          
(Decrease) increase in deferred loan origination fees, net   (5)   7 
Depreciation and amortization   103    114 
Gain on sale and call of investment securities   (167)    
Amortization of investment security premiums and discounts, net   1,002    1,238 
Increase in cash surrender values of life insurance policies   (78)   (65)
Stock based compensation expense   55    33 
Loss (gain) on sale/write-down of other real estate owned   76    (106)
Decrease in accrued interest receivable and other assets   261    639 
Decrease in accrued interest payable and other liabilities   (591)   (159)
           
Net cash provided by operating activities   1,612    2,707 
           
Cash flows from investing activities:          
Proceeds from the sale of available-for-sale investment securities   9,910     
Proceeds from matured available-for-sale investment securities       270 
Proceeds from called available-for-sale investment securities       105 
Purchases of available-for-sale investment securities   (12,298)   (11,474)
Proceeds from principal repayments for available-for-sale investment securities   11,128    9,277 
Proceeds from principal repayments for held-to-maturity investment securities   60    94 
Net increase in loans   (3,050)   (3,724)
Proceeds from sale of other real estate   851    106 
Purchases of equipment   (136)   (137)
           
Net cash provided by (used in) investing activities   6,465    (5,483)
7
 

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)

 

(dollars in thousands)        
For the three months ended March 31,        
   2015   2014 
Cash flows from financing activities:          
Net (decrease) increase in demand, interest-bearing and savings deposits  $(9,907)  $18,173 
Net increase (decrease) in time deposits   373    (971)
Net decrease in other borrowings       (5,000)
Cash paid to repurchase common stock   (3,945)   (3,243)
           
Net cash (used in) provided by financing activities  $(13,479)  $8,959 
           
(Decrease) increase in cash and cash equivalents   (5,402)   6,183 
           
Cash and cash equivalents at beginning of year   22,449    17,948 
           
Cash and cash equivalents at end of period  $17,047   $24,131 

  

See Notes to Unaudited Consolidated Financial Statements

8
 

AMERICAN RIVER BANKSHARES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

1. CONSOLIDATED FINANCIAL STATEMENTS

 

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of American River Bankshares (the “Company”) at March 31, 2015 and December 31, 2014, the results of its operations and statement of comprehensive income for the three month periods ended March 31, 2015 and 2014, its cash flows for the three-month periods ended March 31, 2015 and 2014 and its statement of changes in shareholders’ equity for the year ended December 31, 2014 and the three months ended March 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

 

Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2014. The results of operations for the three-month period ended March 31, 2015 may not necessarily be indicative of the operating results for the full year.

 

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan and lease losses, stock-based compensation, the valuation of goodwill, and the provision for income taxes.

 

Management has determined that since all of the banking products and services offered by the Company are available in each branch office of American River Bank, all branch offices are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate all of the branch offices and report them as a single operating segment. No client accounts for more than ten percent (10%) of revenues for the Company or American River Bank.

 

2. STOCK-BASED COMPENSATION 

Equity Plans

On March 17, 2010, the Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was approved by the Company’s shareholders on May 20, 2010. In 2000, the Board of Directors adopted and the Company’s shareholders approved a stock option plan (the “2000 Plan”), under which 198,281 stock options remain outstanding at March 31, 2015. At March 31, 2015, there were 50,034 stock options and 53,370 restricted shares outstanding and the total number of authorized shares that remain available for issuance under the 2010 Plan was 1,416,330. The 2010 Plan provides for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted stock; restricted performance stock; unrestricted Company stock; and performance units. Awards under the 2000 Plan were either incentive stock options or nonqualified stock options. Under the 2010 Plan, the awards may be granted to employees and directors under incentive and nonqualified option agreements and other awards agreements. The 2010 Plan and the 2000 Plan (collectively 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 awarded. The option awards under the Plans expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period is generally five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors. Outstanding option awards under the Plans are exercisable until their expiration, however, no new options will be awarded under the 2000 Plan. New shares are issued upon exercise of an option.

9
 

The award date fair value of awards is determined by the market price of the Company’s common stock on the date of award and is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock awarded pursuant to such agreements vest in increments over one to five years from the date of award. The shares awarded to employees and directors under the restricted stock agreements vest on the applicable vesting dates only to the extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment or service is terminated.

Equity Compensation

For the three-month periods ended March 31, 2015 and 2014, the compensation cost recognized for equity compensation was $55,000 and $33,000, respectively. The recognized tax benefit for equity compensation expense was $20,000 and $12,000, for the three-month periods ended March 31, 2015 and 2014, respectively.

At March 31, 2015, the total compensation cost related to nonvested stock option awards not yet recorded is $82,000. This amount will be recognized over the next 4.25 years and the weighted average period of recognizing these costs is expected to be 1.9 years. At March 31, 2015, the total compensation cost related to restricted stock awards not yet recorded is $302,000. This amount will be recognized over the next 4.25 years and the weighted average period of recognizing these costs is expected to be 1.6 years.

Equity Plans Activity

Stock Options

 

There were no stock options awarded during the three-month periods ended March 31, 2015 and 2014. A summary of option activity under the Plans as of March 31, 2015 and changes during the period then ended is presented below:

 

Options  Shares   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value ($000)
 
Outstanding at January 1, 2015   271,700   $16.27    3.1 years   $82 
Granted                
Exercised                
Cancelled   23,385    18.11         
Outstanding at March 31, 2015   248,315   $16.09    3.4 years   $104 
Vested at March 31, 2015   205,202   $17.71    2.3 years   $59 
Non-vested at March 31, 2015   43,113   $8.42    8.7 years   $45 
Expected to vest at March 31, 2015   33,040   $8.42    8.7 years   $ 

 

Restricted Stock

 

There were no shares of restricted stock awarded during the three-month period ended March 31, 2014 and 20,532 shares of restricted stock awarded during the three-month period ended March 31, 2015. There were no restricted stock awards that were fully vested during the three-month periods ended March 31, 2015 and 2014, respectively. The intrinsic value of nonvested restricted stock at March 31, 2015 was $505,000.

10
 
Restricted Stock  Shares   Weighted
Average Grant
Date Fair Value
 
Nonvested at January 1, 2015   32,838   $8.31 
Awarded   20,532    9.41 
Less: Vested        
Less: Cancelled        
Nonvested at March 31, 2015   53,370   $8.73 

  

Other Equity Awards

 

There were no stock appreciation rights; restricted performance stock; unrestricted Company stock; or performance units awarded during the three-month periods ended March 31, 2015 or 2014 or outstanding at March 31, 2015 or December 31, 2014.

 

The intrinsic value used for stock options and restricted stock was derived from the market price of the Company’s common stock of $9.47 as of March 31, 2015.

 

3. COMMITMENTS AND CONTINGENCIES

 

In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $29,916,000 and standby letters of credit of approximately $363,000 at March 31, 2015 and loan commitments of approximately $32,639,000 and standby letters of credit of approximately $356,000 at December 31, 2014. Such commitments relate primarily to real estate construction loans, revolving lines of credit and other commercial loans. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company during 2015 as some of these are expected to expire without being fully drawn upon.

 

Standby letters of credit are commitments issued to guarantee the performance or financial obligation of a client to a third party. These guarantees are issued primarily relating to purchases of inventory, insurance programs, performance obligations to government agencies, or as security for real estate rents by commercial clients and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The majority of all such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at March 31, 2015 or December 31, 2014.

4. EARNINGS PER SHARE COMPUTATION

 

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period (7,821,651 shares and 8,321,448 shares for the three-month periods ended March 31, 2015 and 2014, respectively). Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock, result in the issuance of common stock. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period plus the dilutive effect of stock based awards (23,881 shares for the three-month period ended March 31, 2015 and 20,395 shares for the three-month period ended March 31, 2014). For the three-month periods ended March 31, 2015 and 2014, there were 187,639 and 217,247 stock options, respectively, that were excluded from the calculation as they were considered antidilutive. Earnings per share is retroactively adjusted for stock dividends and stock splits, if applicable, for all periods presented.

11
 

5. INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities at March 31, 2015 and December 31, 2014 consisted of the following (dollars in thousands):

 

Available-for-Sale

   March 31, 2015 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 
Debt securities:                    
US Government Agencies and Sponsored Agencies  $247,493   $6,080   $(182)  $253,391 
Obligations of states and political subdivisions   24,820    1,552    (12)   26,360 
Corporate bonds   1,504    84        1,588 
Equity securities:                    
Corporate stock   54    30        84 
   $273,871   $7,746   $(194)  $281,423 
     
   December 31, 2014 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair
Value
 
Debt securities:                    
US Government Agencies and Sponsored Agencies  $257,002   $4,715   $(602)  $261,115 
Obligations of states and political subdivisions   24,886    1,423    (20)   26,289 
Corporate bonds   1,504    79        1,583 
Equity securities:                    
Corporate stock   54    23        77 
   $283,446   $6,240   $(622)  $289,064 

 

Net unrealized gains on available-for-sale investment securities totaling $7,552,000 were recorded, net of $3,021,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at March 31, 2015. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2015 totaled $9,910,000 and $167,000, respectively. There were no transfers of available-for-sale investment securities for the three-month period ended March 31, 2015.

 

Net unrealized gains on available-for-sale investment securities totaling $5,618,000 were recorded, net of $2,247,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2014. There were not any proceeds nor gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2014. There were no transfers of available-for-sale investment securities for the three-month period ended March 31, 2014.

12
 

Held-to-Maturity

 

March 31, 2015 

       Gross   Gross   Estimated 
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Debt securities:                    
US Government Agencies and Sponsored Agencies  $802   $61   $   $863 
                     
December 31, 2014                
       Gross   Gross   Estimated 
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
Debt securities:                    
US Government Agencies and Sponsored Agencies  $862   $60   $   $922 

 

There were no sales or transfers of held-to-maturity investment securities for the periods ended March 31, 2015 and March 31, 2014. Investment securities with unrealized losses at March 31, 2015 and December 31, 2014 are summarized and classified according to the duration of the loss period as follows (dollars in thousands):

 

March 31, 2015  Less than 12 Months   12 Months or More   Total 
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
 
Available-for-Sale                              
                               
Debt securities:                              
US Government Agencies and Sponsored Agencies  $21,658   $(160)   3,905    (22)  $25,563   $(182)
Obligations of states and political subdivisions           653    (12)   653    (12)
   $21,658   $(160)  $4,558   $(34)  $26,216   $(194)
                               
December 31, 2014  Less than 12 Months   12 Months or More   Total 
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
 
Available-for-Sale                              
                               
Debt securities:                              
US Government Agencies and Sponsored Agencies  $57,145   $(503)  $10,006   $(99)  $67,151   $(602)
Obligations of states and political subdivisions           649    (20)   649    (20)
   $57,145   $(503)  $10,655   $(119)  $67,800   $(622)

 

There were no held-to-maturity investment securities with unrealized losses as of March 31, 2015 or December 31, 2014.

 

At March 31, 2015, the Company held 221 securities of which 11 were in a loss position for less than twelve months and three were in a loss position for twelve months or more.  Of the 11 securities in a loss position of less than twelve months, all were US Government Agencies and Sponsored Agencies securities.  Of the three securities in a loss position for greater than twelve months at March 31, 2015, two were US Government Agencies and Sponsored Agencies securities and one was an obligation of a state or political subdivision. At December 31, 2014, the Company held 223 securities of which 25 were in a loss position for less than twelve months and six were in a loss position for twelve months or more.  Of the 25 securities in a loss position for less than twelve months, 22 were US Government Agencies and Sponsored Agencies securities and three were obligations of state or political subdivisions and of the six securities that were in a loss position for greater than twelve months, five were US Government Agencies and Sponsored Agencies securities and one was an obligation of a state or political subdivision.  

13
 

The unrealized loss on the Company’s investment securities is primarily driven by interest rates.  Because the decline in market value is attributable to a change in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be until maturity, management does not consider these investments to be other-than-temporarily impaired.

The amortized cost and estimated fair values of investment securities at March 31, 2015 by contractual maturity are shown below (dollars in thousands).

 

   Available-for-Sale   Held-to-Maturity 
   Amortized
Cost
   Estimated
Fair
Value
   Amortized
Cost
   Estimated
Fair
Value
 
                 
Within one year  $175   $176           
After one year through five years   3,810    3,990           
After five years through ten years   11,859    12,651           
After ten years   10,480    11,131           
    26,324    27,948           
Investment securities not due at a single maturity date:                    
US Government Agencies and Sponsored Agencies   247,493    253,391   $802   $863 
Corporate stock   54    84         
   $273,871   $281,423   $802   $863 

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

6. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED

 

At March 31, 2015 and December 31, 2014, the recorded investment in nonperforming loans and leases was approximately $1,723,000 and $1,653,000, respectively. Nonperforming loans and leases include all such loans and leases that are either placed on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the original loan agreement. At March 31, 2015, the recorded investment in loans and leases that were considered to be impaired totaled $24,967,000, which includes $1,666,000 in nonaccrual loans and leases and $23,301,000 in accruing loans and leases. Of the total impaired loans of $24,967,000, loans totaling $11,027,000 were deemed to require no specific reserve and loans totaling $13,940,000 were deemed to require a related valuation allowance of $1,582,000. At December 31, 2014, the recorded investment in loans and leases that were considered to be impaired totaled $25,120,000 and had a related valuation allowance of $1,603,000. If interest had been accruing on the nonperforming loans, such income would have approximated $23,000 and $39,000 for the three months ended March 31, 2015 and 2014.

 

At March 31, 2015 and December 31, 2014, the recorded investment in other real estate owned (“OREO”) was $3,720,000 and $4,647,000, respectively. During the first quarter of 2015, the Company sold two adjoining parcels of land in Sacramento County that did not result in a gain or loss at the time of sale; however, prior to sale, the book value of this property was adjusted by $76,000 with a charge to expense during the first quarter of 2015. The Company did not add any properties to OREO during the first quarter of 2015.

 

The March 31, 2015 OREO balance of $3,720,000 consists of five properties including two commercial real estate properties in the total amount of $2,395,000, two commercial land properties in the total amount of $1,259,000 and one residential land property in the total amount of $66,000.

14
 

Nonperforming loans and leases and other assets and OREO at March 31, 2015 and December 31, 2014 are summarized as follows (in thousands):

 

   March 31,
2015
   December 31,
2014
 
Nonaccrual loans and leases that are current to terms (less than 30 days past due)  $90   $13 
Nonaccrual loans and leases that are past due   1,633    1,640 
Loans and leases past due 90 days and accruing interest        
Other assets   878    878 
Other real estate owned   3,720    4,647 
Total nonperforming assets  $6,321   $7,178 
           
Nonperforming loans and leases to total loans and leases   0.65%   0.63%
Total nonperforming assets to total assets   1.04%   1.16%

 

Impaired loans and leases as of and for the periods ended March 31, 2015 and December 31, 2014 are summarized as follows:

 

(in thousands)  As of March 31, 2015   As of December 31, 2014 
    Recorded
Investment
   Unpaid
Principal

Balance
   Related
Allowance
   Recorded
Investment
   Unpaid
Principal

Balance
   Related
Allowance
 
With no related allowance recorded:                              
Commercial  $   $   $   $   $   $ 
Real estate-commercial   10,652    10,850        10,684    10,882     
Real estate-multi-family                        
Real estate-construction                        
Real estate-residential   338    338        338    338     
Leases                        
Consumer   37    37        37    37     
Subtotal  $11,027   $11,225   $   $11,059   $11,257   $ 
                               
With an allowance recorded:                              
Commercial  $745   $745   $344   $769   $769   $344 
Real estate-commercial   9,701    9,701    922    9,773    9,773    949 
Real estate-multi-family   493    493    34    496    496    38 
Real estate-construction                        
Real estate-residential   2,508    2,508    233    2,524    2,524    237 
Agriculture   379    379    13    381    381    13 
Consumer   114    114    36    118    118    22 
Subtotal  $13,940   $13,940   $1,582   $14,061   $14,061   $1,603 
                               
Total:                              
Commercial  $745   $745   $344   $769   $769   $344 
Real estate-commercial   20,353    20,551    922    20,457    20,655    949 
Real estate-multi-family   493    493    34    496    496    38 
Real estate-construction                        
Real estate-residential   2,846    2,846    233    2,862    2,862    237 
Agriculture   379    379    13    381    381    13 
Consumer   151    151    36    155    155    22 
   $24,967   $25,165   $1,582   $25,120   $25,318   $1,603 
15
 

The following table presents the average balance related to impaired loans and leases for the periods indicated (in thousands):

 

   Average Recorded Investments
for the three months ended
 
   March 31,
2015
   March 31,
2014
 
         
Commercial   $757   $1,702 
Real estate-commercial   19,928    19,407 
Real estate-multi-family   495    1,646 
Real estate-construction       247 
Real estate-residential   2,854    2,916 
Agriculture   380     
Consumer   153    164 
     Total  $24,567   $26,082 

  

The following table presents the interest income recognized on impaired loans and leases for the periods indicated (in thousands):

 

   Interest Income Recognized
for the three months ended
 
   March 31,
2015
   March 31,
2014
 
         
Commercial   $2   $13 
Real estate-commercial   256    247 
Real estate-multi-family   5    19 
Real estate-construction       3 
Real estate-residential   31    38 
Agriculture   3     
Consumer   1    2 
     Total  $298   $322 

 

7. TROUBLED DEBT RESTRUCTURINGS

At March 31, 2015, there were twelve loans and leases, totaling $8,857,000, that were considered to be troubled debt restructurings. Of these loans and leases, seven were modified and are currently performing (less than ninety days past due) totaling $7,795,000 and five are considered nonperforming (and included in the $983,000 discussed in Note 6), totaling $1,062,000. Of the five TDRs considered nonperforming, two are current to the modified terms. At March 31, 2015 and December 31, 2014, there were no unfunded commitments on those loans considered troubled debt restructures. See also “Impaired Loans and Leases” in Item 2.

The Company has allocated $612,000 and $829,000 of specific reserves to loans whose terms have been modified as troubled debt restructurings as of March 31, 2015 and December 31, 2014.

 

During the three-month period ended March 31, 2015, the terms of certain loans were modified as troubled debt restructurings. The modifications of the terms of these loans were extensions of the maturity date.

16
 

The following table presents loans by class modified as troubled debt restructurings during the three months ended March 31, 2015 (dollars in thousands):

 

       Pre-   Post- 
       Modification   Modification 
       Outstanding   Outstanding 
   Number   Recorded   Recorded 
   of Loans   Investment   Investment 
             
Troubled debt restructurings:               
Real estate – commercial   2   $517   $517 

 

The troubled debt restructurings described above increased the allowance for loan and lease losses by $32,000 and resulted in no charge-offs during the three months ended March 31, 2015. 

 

The following table presents loans by class modified as troubled debt restructurings during the three months ended March 31, 2014 (dollars in thousands):

 

       Pre-   Post- 
       Modification   Modification 
       Outstanding   Outstanding 
   Number   Recorded   Recorded 
   of Loans   Investment   Investment 
             
Troubled debt restructurings:               
Real estate – commercial   4   $4,871   $4,871 

 

The troubled debt restructurings described above increased the allowance for loan and lease losses by $108,000 and resulted in no charge-offs during the three months ended March 31, 2014.

 

There were no payment defaults during the three months ended March 31, 2015 or March 31, 2014 on troubled debt restructurings made in the preceding twelve months.

17
 

8. ALLOWANCE FOR LOAN AND LEASE LOSSES

 

The Company’s loan and lease portfolio allocated by management’s internal risk ratings as of March 31, 2015 and December 31, 2014 are summarized below: 

 

March 31, 2015  Credit Risk Profile by Internally Assigned Grade 
(dollars in thousands)      Real Estate 
   Commercial   Commercial   Multi-family   Construction   Residential 
Grade:                         
Pass  $20,186   $165,499   $13,522   $4,929   $9,352 
Watch   1,220    12,966    501    4,589    2,324 
Special mention   148    14,133        327    752 
Substandard   3,579    3,471            835 
Doubtful or loss                    
Total  $25,133   $196,069   $14,023   $9,845   $13,263 
             
   Credit Risk Profile by Internally Assigned Grade Other Credit Exposure         
   Leases   Agriculture   Consumer       Total 
Grade:                         
Pass  $1,131   $2,185   $3,092      $219,896 
Watch           1,139         22,739 
Special mention       378    268         16,006 
Substandard           176         8,061 
Doubtful or loss                     
Total  $1,131   $2,563   $4,675        $266,702 
     
December 31, 2014  Credit Risk Profile by Internally Assigned Grade 
(dollars in thousands)      Real Estate 
   Commercial   Commercial   Multi-family   Construction   Residential 
Grade:                         
Pass  $20,179   $163,091   $13,663   $3,327   $9,364 
Watch   1,280    13,724    504    4,372    2,504 
Special mention   101    13,583        329    603 
Substandard   3,626    3,473            838 
Doubtful or loss                    
Total  $25,186   $193,871   $14,167   $8,028   $13,309 
             
   Credit Risk Profile by Internally Assigned Grade Other Credit Exposure         
   Leases   Agriculture   Consumer       Total 
Grade:                         
Pass  $1,286   $2,501   $3,424        $216,835 
Watch           1,041         23,425 
Special mention       381    268         15,265 
Substandard           183         8,120 
Doubtful or loss                     
Total  $1,286   $2,882   $4,916        $263,645 
18
 

The allocation of the Company’s allowance for loan and lease losses and by portfolio segment and by impairment methodology are summarized below:

 

March 31, 2015                                        
(dollars in thousands)      Real Estate   Other         
                                         
   Commercial   Commercial   Multi-Family   Construction   Residential   Leases   Agriculture   Consumer   Unallocated   Total 
                                         
Allowance for Loan and Lease Losses                                                     
                                                   
Beginning balance, January 1, 2015  $1,430   $2,317   $130   $583   $399   $2   $62   $124   $254   $5,301 
Provision for loan losses   (33)   (34)   (10)   97    (7)   (1)   (7)   8    (13)    
Loans charged-off                               (2)       (2)
Recoveries   6    1                        2        9 
                                                   
Ending balance, March 31, 2015  $1,403   $2,284   $120   $680   $392   $1   $55   $132   $241   $5,308 
                                                   
Ending balance:                                                  
Individually evaluated for impairment  $343   $922   $34   $   $234   $   $13   $36   $   $1,582 
                                                   
Ending balance:                                                  
Collectively evaluated for impairment  $1,060   $1,362   $86   $680   $158   $1   $42   $96   $241   $3,726 
                                                   
Loans                                                  
                                                   
Ending balance  $25,133   $196,069   $14,023   $9,845   $13,263   $1,131   $2,563   $4,675   $   $266,702 
                                                   
Ending balance:                                                  
Individually evaluated for impairment  $745   $20,353   $493   $   $2,847   $   $379   $150   $   $24,967 
                                                   
Ending balance:                                                  
Collectively evaluated for impairment  $24,388   $175,716   $13,530   $9,845   $10,416   $1,131   $2,184   $4,525   $   $241,735 
19
 
December 31, 2014                                        
(dollars in thousands)      Real Estate   Other         
                                         
   Commercial   Commercial   Multi-Family   Construction   Residential   Leases   Agriculture   Consumer   Unallocated   Total 
Ending balance:                                                  
Individually evaluated for impairment  $344   $949   $38   $   $237   $   $13   $22   $   $1,603 
                                                   
Ending balance:                                                  
Collectively evaluated for impairment  $1,086   $1,368   $92   $583   $162   $2   $49   $102   $254   $3,698 
                                                   
Loans                                                  
                                                   
Ending balance  $25,186   $193,871   $14,167   $8,028   $13,309   $1,286   $2,882   $4,916   $   $263,645 
                                                   
Ending balance:                                                  
Individually evaluated for impairment  $769   $20,457   $496   $   $2,862   $   $381   $155   $   $25,120 
                                                   
Ending balance:                                                  
Collectively evaluated for impairment  $24,417   $173,414   $13,671   $8,028   $10,447   $1,286   $2,501   $4,761   $   $238,525 
                                         
March 31, 2014                                        
(dollars in thousands)      Real Estate   Other         
                                         
   Commercial   Commercial   Multi-Family   Construction   Residential   Leases   Agriculture   Consumer   Unallocated   Total 
Allowance for Loan and Lease Losses                                                     
                                                   
Beginning balance, January 1, 2014  $885   $2,401   $242   $542   $825   $4   $80   $161   $206   $5,346 
Provision for loan losses   (124)   74    (1)   (58)   55    (4)   (7)   (4)   69     
Loans charged-off                               (1)       (1)
Recoveries   20    1        1    3    3                28 
                                                   
Ending balance, March 31, 2014  $781   $2,476   $241   $485   $883   $3   $73   $156   $275   $5,373 
20
 

The Company’s aging analysis of the loan and lease portfolio at March 31, 2015 and December 31, 2014 are summarized below:

                                 
March 31, 2015                          Past Due     
(dollars in thousands)          Past Due               Greater Than     
   30-59 Days   60-89 Days   Greater Than   Total Past           90 Days and     
   Past Due   Past Due   90 Days   Due   Current   Total Loans   Accruing   Nonaccrual 
Commercial:                                        
Commercial  $38   $   $644   $682   $24,451   $25,133       $644 
Real estate:                                        
Commercial   866        103    969    195,100    196,069        605 
Multi-family                   14,023    14,023         
Construction   93            93    9,752    9,845         
Residential                   13,263    13,263        338 
Other:                                        
Leases                   1,131    1,131         
Agriculture                   2,563    2,563         
Consumer       162    338    500    4,175    4,675        136 
Total  $997   $162   $1,085   $2,244   $264,458   $266,702   $   $1,723 
                                 
December 31, 2014                          Past Due     
(dollars in thousands)          Past Due               Greater Than     
   30-59 Days   60-89 Days   Greater Than   Total Past           90 Days and     
   Past Due   Past Due   90 Days   Due   Current   Total Loans   Accruing   Nonaccrual 
Commercial:                                        
Commercial  $513   $   $666   $1,179   $24,007   $25,186       $666 
Real estate:                                        
Commercial   507        507    1,014    192,857    193,871        507 
Multi-family                   14,167    14,167         
Construction                   8,028    8,028         
Residential           338    338    12,971    13,309        338 
Other:                                        
Leases                   1,286    1,286         
Agriculture                   2,882    2,882         
Consumer   135            135    4,781    4,916        142 
Total  $1,155   $   $1,511   $2,666   $260,979   $263,645   $   $1,653 
21
 

9. BORROWING ARRANGEMENTS

 

At March 31, 2015, the Company had $17,000,000 of unsecured short-term borrowing arrangements with two of its correspondent banks. There were no advances under the borrowing arrangements as of March 31, 2015 or December 31, 2014.

 

The Company has a line of credit available with the Federal Home Loan Bank of San Francisco (the “FHLB”) which is secured by pledged mortgage loans and investment securities. Borrowings may include overnight advances as well as loans with terms of up to thirty years. Advances (both short-term and long-term) totaling $11,000,000 were outstanding from the FHLB at March 31, 2015, bearing interest rates ranging from 0.45% to 1.91% and maturing between July 20, 2015 and July 12, 2019. Advances totaling $11,000,000 were outstanding from the FHLB at December 31, 2014, bearing interest rates ranging from 0.24% to 1.91% and maturing between March 16, 2015 and July 12, 2019. Remaining amounts available under the borrowing arrangement with the FHLB at March 31, 2015 and December 31, 2014 totaled $74,948,000 and $67,228,000, respectively. In addition, the Company has a secured borrowing agreement with the Federal Reserve Bank of San Francisco. The borrowing can be secured by pledging selected loans and investment securities. Borrowings generally are short-term including overnight advances as well as loans with terms up to ninety days. Amounts available under this borrowing arrangement at March 31, 2015 and December 31, 2014 were $17,618,000 and $17,335,000, respectively. There were no advances outstanding under this borrowing arrangement as of March 31, 2015 and December 31, 2014.

 

10. INCOME TAXES

 

The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for (benefit from) income taxes.

The Company accounts for income taxes using the balance sheet method, under which deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if applicable, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statement of income. There have been no unrecognized tax benefits or accrued interest and penalties for the three-month periods ended March 31, 2015 and 2014.

22
 

11. FAIR VALUE MEASUREMENTS

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2015 and December 31, 2014. They indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

 

The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):

 

   Carrying   Fair Value Measurements Using:     
March 31, 2015  Amount   Level 1   Level 2   Level 3   Total 
                     
Financial assets:                         
Cash and due from banks  $17,047   $17,047             $17,047 
Interest-bearing deposits in banks   1,000        $999         999 
Available-for-sale securities   281,423    35    281,388         281,423 
Held-to-maturity securities   802         863         863 
FHLB stock   3,686    N/A    N/A    N/A    N/A 
Net loans and leases:   261,112             $266,753    266,753 
Accrued interest receivable   1,809         1,067    742    1,809 
Financial liabilities:                         
Deposits:                         
Noninterest-bearing  $158,950   $158,950             $158,950 
Savings   59,951    59,951              59,951 
Money market   132,083    132,083              132,083 
NOW accounts   62,474    62,474              62,474 
Time, $100,000 or more   66,467        $67,058         67,0258 
Other time   21,594         21,772         21,772 
Short-term borrowings   3,500    3,500              3,500 
Long-term borrowings   7,500         7,594         7,594 
Accrued interest payable   60         60         60 
23
 

   Carrying   Fair Value Measurements Using:     
December 31, 2014  Amount   Level 1   Level 2   Level 3   Total 
                     
Financial assets:                         
Cash and due from banks  $22,449   $22,449   $   $   $22,449 
Interest-bearing deposits in banks   1,000        1,002        1,002 
Available-for-sale securities   289,064    28    289,036        289,064 
Held-to-maturity securities   862        922        922 
FHLB stock   3,686    N/A    N/A    N/A    N/A 
Net loans and leases:   258,057            261,421    261,421 
Accrued interest receivable   1,858        1,150    708    1,858 
                          
Financial liabilities:                         
Deposits:                         
Noninterest-bearing  $155,698   $155,698   $   $   $155,698 
Savings   58,820    58,820            58,820 
Money market   147,625    147,625            147,625 
NOW accounts   60,862    60,862            60,862 
Time, $100,000 or more   65,569        66,203        66,203 
Other time   22,119        22,282        22,282 
Short-term borrowings   3,500    3,500            3,500 
Long-term borrowings   7,500        7,567        7,567 
Accrued interest payable   59        59        59 

 

Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented.

 

The following methods and assumptions were used by the Company to estimate the fair values of its financial instruments at March 31, 2015 and December 31, 2014:

Cash and due from banks: The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Interest-bearing deposits in banks: The fair values of interest-bearing deposits in banks are estimated by discounting their future cash flows using rates at each reporting date for instruments with similar remaining maturities offered by comparable financial institutions and are classified as Level 2.

Investment securities: For investment securities, fair values are based on quoted market prices, where available, and are classified as Level 1. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers and are classified as Level 2.

FHLB stock: It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans and leases: Fair values of loans, excluding loans held for sale, are estimated as follows:  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality also resulting in a Level 3 classification. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

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Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. For time deposits, the fair values for fixed rate certificates of deposit are estimated using a discounted cash flow methodology that applies market interest rates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term and long-term borrowings: The fair value of short-term borrowings is estimated to be the carrying amount and is classified as Level 1. The fair value of long-term borrowings is estimated using a discounted cash flow analysis using interest rates currently available for similar debt instruments and are classified as Level 2.

Accrued interest receivable and payable: The carrying amount of accrued interest receivable approximates fair value resulting in a Level 3 classification and the carrying amount of accrued interest payable approximates fair value resulting in a Level 2 classification.

Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments was not material at March 31, 2015 and December 31, 2014.

Assets and liabilities measured at fair value on a recurring and non-recurring basis are presented in the following table:

 

Description      Fair Value Measurements Using   Total Gains 
(dollars in thousands)  Fair Value   Level 1   Level 2   Level 3   (Losses) 
                     
March 31, 2015                    
                     
Assets and liabilities measured on a recurring basis:                         
Available-for-sale securities:                         
US Government Agencies and Sponsored Agencies   $253,391   $   $253,391   $   $ 
Obligations of states and political subdivisions   26,360        26,360         
Corporate bonds   1,588        1,588         
Corporate stock   84    35    49           
Total recurring  $281,423   $35   $281,388   $   $ 
                          
Assets and liabilities measured on a nonrecurring basis:                         
Impaired loans:                         
Commercial  $644   $   $   $644   $ 
Real estate:                         
Commercial   304            304     
Other real estate owned   3,720            3,720    76 
Total nonrecurring  $4,668   $   $   $4,668   $76 
25
 
Description      Fair Value Measurements Using   Total Gains 
(dollars in thousands)  Fair Value   Level 1   Level 2   Level 3   (Losses) 
                     
December 31, 2014                    
                     
Assets and liabilities measured on a recurring basis:                         
Available-for-sale securities:                         
US Government Agencies and Sponsored Agencies  $261,115   $   $261,115   $   $ 
Corporate Debt securities   1,583        1,583           
Obligations of states and political subdivisions   26,289        26,289         
Corporate stock   77    28    49         
Total recurring  $289,064   $28   $289,036   $   $ 
                          
Assets and liabilities measured on a nonrecurring basis:                         
Impaired loans:                         
Commercial  $666   $   $   $666   $14 
Real estate:                         
Commercial   286            286     
                          
Other real estate owned   4,404            4,404    66 
Total nonrecurring  $5,356   $   $   $5,356   $80 

  

There were no transfers between Levels 1 and 2 during the three-month period ended March 31, 2015 or the twelve months ended December 31, 2014.

 

The following methods were used to estimate the fair value of each class of financial instrument above:

Available-for-sale securitiesFair values for investment securities are based on quoted market prices, if available, and are considered as Level 1, or evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and are considered as Level 2. Pricing applications apply available information, as applicable, through processes such as benchmark curves, benchmarking to like securities, sector groupings and matrix pricing.

 

Impaired loans – The fair value of collateral dependent impaired loans adjusted for specific allocations of the allowance for loan losses is generally based on recent real estate appraisals and/or evaluations. These appraisals and/or evaluations may utilize a single valuation approach or a combination of approaches including comparable sales, cost and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income and other available data. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring loans consists of the appraised value less a reserve for past dues taxes and selling costs ranging from 8% to 10%.

 

Other real estate owned – Certain commercial and residential real estate properties classified as OREO are measured at fair value, less costs to sell. Fair values are based on real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales, cost and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income and other available data. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring OREO consists of the appraised value less selling costs ranging from 8% to 10%.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is management’s discussion and analysis of the significant changes in American River Bankshares’ (the “Company”) balance sheet accounts between December 31, 2014 and March 31, 2015 and its income and expense accounts for the three-month periods ended March 31, 2015 and 2014. The discussion is designed to provide a better understanding of significant trends related to the Company’s financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. This discussion and supporting tables and the consolidated financial statements and related notes appearing elsewhere in this report are unaudited. Interest income and net interest income are presented on a fully taxable equivalent basis (FTE) within management’s discussion and analysis. Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q including, but not limited to, matters described in “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended, and subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may contain words related to future projections including, but not limited to, words such as “believe,” “expect,” “anticipate,” “intend,” “may,” “will,” “should,” “could,” “would,” and variations of those words and similar words that are subject to risks, uncertainties and other factors that could cause actual results to differ significantly from those projected. Factors that could cause or contribute to such differences include, but are not limited to, the following:

·the legislation promulgated by the United States Congress and actions taken by governmental agencies, including the United States Department of the Treasury, to deal with challenges to the U.S. financial system;
·the risks presented by economic volatility and recession, which could adversely affect credit quality, collateral values, including real estate collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;
·variances in the actual versus projected growth in assets and return on assets;
·potential loan and lease losses;
·potential expenses associated with resolving nonperforming assets as well as regulatory changes;
·changes in the interest rate environment including interest rates charged on loans, earned on securities investments and paid on deposits and other borrowed funds;
·competitive effects;
·potential declines in fee and other noninterest income earned associated with economic factors, as well as regulatory changes;
·general economic conditions nationally, regionally, and within our operating markets could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain the quality of our earning assets;
·changes in the regulatory environment including increased capital and regulatory compliance requirements and further government intervention in the U.S. financial system;
·changes in business conditions and inflation;
·changes in securities markets, public debt markets, and other capital markets;
·potential data processing and other operational systems failures or fraud;
·potential decline in real estate values in our operating markets;
·the effects of uncontrollable events such as terrorism, the threat of terrorism or the impact of military conflicts in connection with the conduct of the war on terrorism by the United States and its allies, negative financial and economic conditions, natural disasters, and disruption of power supplies and communications;
·changes in accounting standards, tax laws or regulations and interpretations of such standards, laws or regulations;
·projected business increases following any future strategic expansion could be lower than expected;
·the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings;
·the reputation of the financial services industry could experience further deterioration, which could adversely affect our ability to access markets for funding and to acquire and retain customers;
·the efficiencies we may expect to receive from any investments in personnel and infrastructure may not be realized; and
·downgrades in the credit rating of the United States by credit rating agencies.
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The factors set forth under “Item 1A - Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, and other cautionary statements and information set forth in this Quarterly Report on Form 10-Q should be carefully considered and understood as being applicable to all related forward-looking statements contained in this Quarterly Report on Form 10-Q, when evaluating the business prospects of the Company and its subsidiaries.

Forward-looking statements are not guarantees of performance. By their nature, they involve risks, uncertainties and assumptions. The future results and shareholder values may differ significantly from those expressed in these forward-looking statements. You are cautioned not to put undue reliance on any forward-looking statement. Any such statement speaks only as of the date of this report, and in the case of any documents that may be incorporated by reference, as of the date of those documents. We do not undertake any obligation to update or release any revisions to any forward-looking statements, to report any new information, future event or other circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law. However, your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”) on Forms 10-K, 10-Q and 8-K.

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is an estimate of the probable incurred credit loss risk inherent in our loan and lease portfolio as of the balance sheet date. The allowance is based on two basic principles of accounting: (1) “Accounting for Contingencies,” which requires that losses be accrued when it is probable that a loss has occurred at the balance sheet date and such loss can be reasonably estimated; and (2) the “Receivables” topic, which requires that losses be accrued on impaired loans based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan or lease balance.

The allowance for loan and lease losses is determined based upon estimates that can and do change when the actual risk, loss events, or changes in other factors, occur. The analysis of the allowance uses an historical loss view as an indicator of future losses and as a result could differ from the actual losses incurred in the future. If the allowance for loan and lease losses falls below that deemed adequate (by reason of loan and lease growth, actual losses, the effect of changes in risk factors, or some combination of these), the Company has a strategy for supplementing the allowance for loan and lease losses, over the short-term. For further information regarding our allowance for loan and lease losses, see “Allowance for Loan and Lease Losses Activity” discussion later in this Item 2.

Stock-Based Compensation

The Company recognizes compensation expense over the vesting period in an amount equal to the fair value of all share-based payments which consist of stock options and restricted stock awarded to directors and employees. The fair value of each stock option award is estimated on the date of the award and amortized over the service period using a Black-Scholes-Merton based option valuation model that requires the use of assumptions.  Critical assumptions that affect the estimated fair value of each award include expected stock price volatility, dividend yields, option life and the risk-free interest rate.

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Goodwill  

 

Business combinations involving the Company’s acquisition of equity interests or net assets of another enterprise or the assumption of net liabilities in an acquisition of branches constituting a business may give rise to goodwill. Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The value of goodwill is ultimately derived from the Company’s ability to generate net earnings after the acquisition and is not deductible for tax purposes. A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed for impairment on an annual basis. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. The most recent annual assessment was performed as of December 31, 2014, and at that time, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

 

Income Taxes

 

The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for (benefit from) income taxes.

The Company accounts for income taxes using the balance sheet method, under which deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is, if applicable, reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statement of income. There were no unrecognized tax benefits or accrued interest and penalties at March 31, 2015 or 2014 or for the three-month periods then ended.

General Development of Business

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California in 1995. As a bank holding company, the Company is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and regulations thereunder. Its principal office is located at 3100 Zinfandel Drive, Suite 450, Rancho Cordova, California 95670 and its telephone number is (916) 854-0123. The Company employed an equivalent of 101 full-time employees as of March 31, 2015.

The Company owns 100% of the issued and outstanding common shares of its banking subsidiary, American River Bank (the “Bank”), and American River Financial, a California corporation which has been inactive since its incorporation in 2003.

American River Bank was incorporated and commenced business in Fair Oaks, California, in 1983 and thereafter moved its headquarters to Sacramento, California in 1985. American River Bank operates five full service offices in Sacramento and Placer Counties including the main office located at 1545 River Park Drive, Suite 107, Sacramento and branch offices in Sacramento, Gold River, and Roseville; two full service offices in Sonoma County in Healdsburg and Santa Rosa; and three full service banking offices in Amador County in Jackson, Pioneer, and Ione. In addition, American River Bank serves the Santa Clara, Contra Costa, and Alameda County markets through a loan production office in the city of San Jose.

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In 2000, the Company acquired North Coast Bank as a separate bank subsidiary. North Coast Bank was incorporated and commenced business in 1990 as Windsor Oaks National Bank in Windsor, California. In 1997, the name was changed to North Coast Bank. Effective December 31, 2003, North Coast Bank was merged with and into American River Bank. On December 3, 2004, the Company acquired Bank of Amador located in Jackson, California. Bank of Amador was merged with and into American River Bank.

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal limits. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act includes a permanent increase to $250,000 as the maximum FDIC insurance limit per depositor retroactive to January 1, 2008 and the extension of unlimited FDIC insurance for noninterest-bearing transaction accounts effective December 31, 2010 through December 31, 2012. On November 9, 2010, the FDIC implemented a final rule to permanently increase the maximum insurance limit to $250,000 under the Dodd-Frank Act. The unlimited insurance coverage for noninterest bearing transaction accounts was not extended and terminated on December 31, 2012. The $250,000 maximum deposit insurance amount per depositor remains in effect.

American River Bank does not offer trust services or international banking services and does not plan to do so in the near future. American River Bank’s primary business is serving the commercial banking needs of small to mid-sized businesses within those counties listed above. American River Bank accepts checking and savings deposits, offers money market deposit accounts and certificates of deposit, makes secured and unsecured commercial, secured real estate, and other installment and term loans and offers other customary banking services. American River Bank also conducts lease financing for certain types of business equipment. American River Bank owns 100% of two inactive companies, ARBCO and American River Mortgage. ARBCO was formed in 1984 to conduct real estate development and has been inactive since 1995. American River Mortgage has been inactive since its formation in 1994. During 2014 and 2015, the Company conducted no significant activities other than holding the shares of its subsidiaries. However, it is authorized, with the prior approval of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Company’s principal regulator, to engage in a variety of activities which are deemed closely related to the business of banking. The common stock of the Company is registered under the Securities Exchange Act of 1934, as amended, and is listed and traded on the Nasdaq Global Select Market under the symbol “AMRB.”

Overview

The Company recorded net income of $956,000 for the quarter ended March 31, 2015, which was a decrease of $50,000 (5.0%) compared to $1,006,000 reported for the same period of 2014. Diluted earnings per share for the first quarters of 2015 and 2014 were $0.12. The return on average equity (“ROAE”) and the return on average assets (“ROAA”) for the first quarter of 2015 were 4.39% and 0.64%, respectively, as compared to 4.69% and 0.68%, respectively, for the same period in 2014.

 

Total assets of the Company decreased by $11,899,000 (1.9%) from $617,754,000 at December 31, 2014 to $605,855,000 at March 31, 2014. Net loans totaled $261,112,000 at March 31, 2015, up $3,055,000 (1.2%) from $258,057,000 at December 31, 2014. Deposit balances at March 31, 2014 totaled $501,159,000, down $9,534,000 (1.9%) from $510,693,000 at December 31, 2014.

 

The Company ended the first quarter of 2015 with a leverage capital ratio of 11.4%, a Tier 1 capital ratio of 20.1%, and a total risk-based capital ratio of 21.4% compared to 11.6%, 21.6%, and 22.9%, respectively, at December 31, 2014. In addition, at March 31, 2015, the Company’s Common Equity Tier 1 ratio, which went in effect in 2015, was 20.1%. Table One below provides a summary of the components of net income for the periods indicated (See the “Results of Operations” section that follows for an explanation of the fluctuations in the individual components).

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Table One: Components of Net Income     
(dollars in thousands)  For the three months ended
March 31,
 
   2015   2014 
Interest income*  $4,973   $5,062 
Interest expense   (248)   (304)
Net interest income*   4,725    4,758 
Provision for loan and lease losses        
Noninterest income   585    502 
Noninterest expense   (3,813)   (3,653)
Provision for income taxes   (470)   (535)
Tax equivalent adjustment   (71)   (66)
Net income  $956   $1,006 
           
Average total assets  $609,308   $596,317 
Net income (annualized) as a percentage of average total assets   0.64%   0.68%

* Fully taxable equivalent basis (FTE)

 

Results of Operations

Net Interest Income and Net Interest Margin

Net interest income represents the excess of interest and fees earned on interest earning assets (loans and leases, securities, Federal funds sold and investments in time deposits) over the interest paid on interest-bearing deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. The Company’s net interest margin was 3.46% for the three months ended March 31, 2015 and 3.60% for the three months ended March 31, 2014.

The fully taxable equivalent interest income component for the first quarter of 2015 decreased $89,000 (1.8%) to $4,973,000 compared to $5,062,000 for the three months ended March 31, 2014. The decrease in the fully taxable equivalent interest income for the first quarter of 2015 compared to the same period in 2014 is broken down by rate (down $207,000) and volume (up $118,000). The yield on earning assets decreased from 3.83% during the first quarter of 2014 to 3.64% during the first quarter of 2015. The primary driver in this rate decrease was a decrease in the yield on loans which saw a decrease from 5.41% in the first quarter of 2014 to 5.10% in the first quarter of 2015. While average loans increased from $258,851,000 during the first quarter of 2014 to $262,546,000 during the first quarter of 2015, due to the overall lower interest rate environment, the new loans added were at lower yields than those that paid down. While forgone interest on nonaccrual loans has decreased, it continues to negatively impact the yield on earning assets. During the first quarter of 2015, foregone interest income on nonaccrual loans was approximately $23,000, compared to foregone interest of $39,000 during the first quarter of 2014. The foregone interest of $23,000 had a 2 basis point negative impact on the yield on earning assets. The volume increase of $118,000 was from both loans ($49,000) and investments ($69,000). The average balance of earning assets increased $9,345,000 (1.7%) from $536,701,000 in the first quarter of 2014 to $554,046,000 in the first quarter of 2015. When compared to the first quarter of 2014, average investment securities were up $13,650,000 (4.9%) to $290,500,000 for the first quarter of 2015.

Interest expense was $248,000 or $56,000 (18.4%) lower in the first quarter of 2015 versus $304,000 in the first quarter of 2014. The net $56,000 decrease in interest expense during the first quarter of 2015 compared to the first quarter of 2014 was due to lower rates (down $50,000) and volume (down $6,000). The average balances on interest bearing liabilities were $6,828,000 (1.9%) higher in the first quarter of 2015 compared to the same quarter in 2014, increasing from $351,261,000 in the first quarter of 2014 to $358,089,000 in the first quarter of 2015. The slightly higher balances did not significantly impact the overall interest expense, as these higher balances occurred in the lower cost checking and savings products while the Company experienced decreases in the average balances of time deposits and other borrowings. The Company focused its marketing efforts on replacing higher cost time deposits and borrowings with lower cost checking, savings, and money market accounts. Average time deposit balances were down $4,053,000 (4.4%) during the first quarter of 2015 compared to the first quarter of 2014 and average borrowings were down $1,044,000 (8.7%) during the same time period. Average interest checking, money market, and savings accounts increased from $247,501,000 in the first quarter of 2014 to $259,426,000 during the first quarter of 2015. Rates paid on interest bearing liabilities decreased seven basis points from 0.35% to 0.28% for the first quarter of 2014 compared to the first quarter of 2015. The lower rates paid on the interest bearing liabilities accounted for the majority on the decrease in interest expense.

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Table Two, Analysis of Net Interest Margin on Earning Assets, and Table Three, Analysis of Volume and Rate Changes on Net Interest Income and Expenses, are provided to enable the reader to understand the components and trends of the Company’s interest income and expenses. Table Two provides an analysis of net interest margin on earning assets setting forth average assets, liabilities and shareholders’ equity; interest income earned and interest expense paid and average rates earned and paid; and the net interest margin on earning assets. Table Three sets forth a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates.

Table Two: Analysis of Net Interest Margin on Earning Assets

Three Months Ended March 31,  2015   2014 
(Taxable Equivalent Basis)
(dollars in thousands)
 

Avg
Balance

  

 

Interest

  

Avg
Yield (4)

  

Avg
Balance

  

 

Interest

  

Avg
Yield (4)

 
Assets                              
Earning assets:                              
Loans and leases (1)  $262,546   $3,301    5.10%  $258,851   $3,455    5.41%
Taxable investment Securities   264,046    1,416    2.17%   249,605    1,338    2.17%
Tax-exempt investment securities (2)   26,428    254    3.90%   27,160    267    3.99%
Corporate stock (2)   26    1    15.60%   85    1    4.77%
Federal funds sold                        
Investments in time deposits   1,000    1    0.41%   1,000    1    0.41%
Total earning assets   554,046    4,973    3.64%   536,701    5,062    3.83%
Cash & due from banks   21,265              21,627           
Other assets   39,302              43,447           
Allowance for loan & lease losses   (5,405)             (5,458)          
   $609,308             $596,317           
                               
Liabilities & Shareholders’ Equity                              
Interest bearing liabilities:                              
Interest checking and money market  $200,525    69    0.14%  $194,534    105    0.22%
Savings   58,901    8    0.06%   52,967    12    0.09%
Time deposits   87,696    137    0.63%   91,749    145    0.64%
Other borrowings   10,967    34    1.26%   12,011    42    1.42%
Total interest bearing liabilities   358,089    248    0.28%   351,261    304    0.35%
Noninterest bearing demand deposits   156,399              151,681           
Other liabilities   6,537              6,421           
Total liabilities   521,025              509,363           
Shareholders’ equity   88,283              86,954           
   $609,308             $596,317           
Net interest income & margin (3)       $4,725    3.46%       $4,758    3.60%

 

(1)Loan interest includes loan fees of $37,000 and $56,000, respectively, during the three months ended March 31, 2015 and March 31, 2014.  Average loan balances include non-performing loans.
(2)Includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes. The effective federal statutory tax rate was 34% for 2015 and 2014.
(3)Net interest margin is computed by dividing net interest income by total average earning assets.
(4)Average yield is calculated based on actual days in the period (90 days) and annualized to actual days in the year (365 days).
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Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses 
Three Months Ended March 31, 2015 over 2014 (dollars in thousands) 
Increase (decrease) due to change in: 

              
Interest-earning assets:  Volume   Rate (4)    Net Change 
Net loans (1)(2)  $49   $(203)   $(154)
Taxable investment securities   77    1     78 
Tax exempt investment securities (3)   (7)   (6)    (13)
Corporate stock   (1)   1      
Federal funds sold             
Interest-bearing deposits in banks             
Total   118