American Riviera Bancorp Announces Results for the Third Quarter of 2023

SANTA BARBARA, Calif., October 26, 2023--(BUSINESS WIRE)--American Riviera Bancorp ("Company") (OTCQX: ARBV), holding company of American Riviera Bank ("Bank"), announced today unaudited net income of $8.3 million ($1.44 per share) for the nine months ended September 30, 2023, compared to $9.5 million ($1.67 per share) earned in the same reporting period in the previous year. Unaudited net income was $2.6 million ($0.46 per share) for the three months ended September 30, 2023, compared to $3.8 million ($0.67 per share) earned in the same reporting period in the previous year.

Jeff DeVine, President and CEO of the Company and the Bank stated, "We are pleased to report that our core deposits increased $19 million this quarter with the majority of the increase from non-interest bearing checking accounts. Our quarterly net income, earnings per share, non-interest expense, and net interest margin were all relatively stable between the second and third quarters of 2023. Although net income year to date in 2023 compared to 2022 has been impacted by rising deposit costs, our Company was able to increase shareholders’ equity by over 12% in the last year. Our core and digital banking upgrade scheduled for completion in the fourth quarter of 2023 is expected to increase internal efficiencies and enhance client functionality in 2024."

Third Quarter Highlights

• The Bank has the highest "Super Premier" rating for financial performance from the Findley Reports and has maintained a "5 Star - Superior" rating from Bauer Financial as of June 30, 2023.

• The Bank was rated "Outstanding" by the Federal Deposit Insurance Corporation in 2023 for its performance under the Community Reinvestment Act.

• Return on average assets for the third quarter ended September 30, 2023, was 0.80%, and return on average equity was 10.98%.

• Total loans were $941.1 million at September 30, 2023, a decrease of $4.3 million or 0.5% from the prior quarter-end, and an increase of $54.9 million or 6.2% from September 30, 2022. The Bank’s loan-to-deposit ratio at September 30, 2023, was 85.4%.

• Non-interest-bearing demand deposits totaled $457.7 million at September 30, 2023, an increase of $15.6 million or 3.5% from the prior quarter-end, and a decrease of $62.1 million or 11.9% from September 30, 2022. Non-interest-bearing demand deposits at September 30, 2023 represent 41.6% of total deposits, an increase from 41.1% one year ago.

• Interest-bearing deposits totaled $643.8 million at September 30, 2023, an increase of $3.4 million or 0.5% from the prior quarter-end, and a decrease of $100.3 million or 13.5% from September 30, 2022. The Federal Reserve’s actions over the last year to rapidly increase interest rates have caused a shift in interest-bearing depositor behavior as some clients have decided to reinvest their excess cash in non-FDIC insured, external investment products.

• The aforementioned increase in total deposits in the third quarter of 2023 allowed the Bank to reduce its Federal Home Loan Bank ("FHLB") advances from $70.0 million at June 30, 2023 to $35.0 million at September 30, 2023, which resulted in a $388,000 reduction in interest expense on borrowings in the third quarter of 2023 versus the prior quarter.

• Total cost of funding sources increased to 1.06% for the third quarter of 2023, compared to 1.02% in the prior quarter, and 0.16% for the same quarter in the prior year. Overall funding costs for the Company have increased due to Federal Reserve policy but remain modest compared to industry averages based on our relationship banking focus.

• On-balance sheet liquidity continues to be substantial with $233.7 million of cash, due from banks, and available-for-sale ("AFS") securities market value at September 30, 2023.

• Access to available sources of liquidity including fed funds lines of credit with correspondent banks, unused secured borrowing capacity with the Federal Home Loan Bank, and unused secured borrowing capacity with the Federal Reserve totaled $380.6 million at September 30, 2023, an increase from $310.2 million at June 30, 2023.

• Allowance for Credit Losses ("ACL") was 1.24% of total loans at September 30, 2023, compared with 1.23% at June 30, 2023, and 1.18% at September 30, 2022. Provision for credit losses for the third quarter of 2023 was $8,000, compared to $163,000 last quarter, and $122,000 for the same quarter last year.

• The Bank maintained strong credit quality with no other real estate owned, no loans 90 days or more past due, and only $2.7 million or 0.29% of total loans on non-accrual status, which are well supported by collateral and reserves.

• Total shareholders’ equity of $92.4 million at September 30, 2023, has increased $10.2 million or 12.4% from the level reported at September 30, 2022.

• All Bank and Company capital ratios increased in the third quarter of 2023. The Bank’s regulatory capital ratios were all above "well-capitalized" standards.

Third Quarter Earnings

For the third quarter of 2023, unaudited net income was $2.6 million, compared to $2.7 million in the second quarter of 2023, and $3.8 million in the third quarter of 2022.

The Bank continues to grow interest and fees on loans sequentially over the last four quarters from $10.1 million in the third quarter of 2022 to $12.1 million in the third quarter of 2023, representing a $2.0 million or 19.4% increase. However, the cost of funding has also increased sequentially from the historically low levels that existed prior to the Federal Reserve’s aggressive rate increase policy. Interest expense on deposits has increased from $0.3 million in the third quarter of 2022 to $2.5 million in the third quarter of 2023.

At the same time, excess cash and due from banks has moved back to a more normalized level as the Federal Reserve has tightened economic conditions, resulting in a decline in interest on cash and due from which was at elevated levels for most of 2022. Interest on cash and due from peaked at $1.3 million for the fourth quarter of 2022, compared to the current level of $0.2 million in the third quarter of 2023.

Overall interest income in the third quarter of 2023 increased by $1.1 million from the same quarter last year yet was offset by a $2.7 million increase in overall interest expense. Overall interest income for the first nine months of 2023 increased by $6.4 million from the same period last year yet was offset by a $6.7 million increase in overall interest expense. The increase in interest expense is due to higher rates paid on deposits and an increase in borrowed funds.

Non-Interest Income and Expense

Non-interest income was $0.7 million for the third quarter of 2023, compared to $1.0 million for the second quarter of 2023, and $0.8 million for the same quarter last year. Variances between the quarters relate primarily to SBA loan sale premiums, mortgage broker fees, loan swap fees, and loan prepayment fees. Loan swap fees totaled $0.3 million in the second quarter of 2023, and no loan swap fees were received in the third quarter of 2023.

Non-interest expense was $7.9 million for the third quarter of 2023, compared to $8.0 million in the second quarter of 2023, and $7.8 million for the same quarter last year. Expenses in the second and third quarter of 2023 are elevated due to the accrual of non-recurring expenses related to technology upgrades. During the fourth quarter of 2023, the Bank will complete these technology upgrades which are expected to reduce future expenses, enhance customer functionality, and streamline internal processes.

Loans and Asset Quality

Total loans were $941.1 million at September 30, 2023, a decrease of $4.3 million or 0.5% from the prior quarter-end, and an increase of $54.9 million or 6.2% from September 30, 2022.

The Bank adopted the Current Expected Credit Losses ("CECL") accounting standard as of January 1, 2023, and recorded a $1.3 million pre-tax reduction to retained earnings upon adoption, including $0.5 million of additional reserve for unfunded loans recorded in other liabilities. The ACL is unchanged at $11.6 million at September 30, 2023 and June 30, 2023, with resulting coverage ratios of 1.24% and 1.23% respectively of total loans, as compared to $10.5 million or 1.18% at September 30, 2022.

Loan charge-offs totaled zero and loan recoveries totaled $3,000 for the third quarter of 2023. As of September 30, 2023, non-accrual loans totaled $2.7 million, down $0.1 million compared to the previous quarter. $2.1 million of the non-accrual total at September 30, 2023, is comprised of one loan which is real estate secured at a 27% loan-to-value based upon a recent appraisal and is paying full principal and interest payments monthly. Credit quality remains strong.

Deposits & Borrowings

Total deposits were $1.1 billion at September 30, 2023, representing an increase of $19.0 million or 1.8% from June 30, 2023, and a decrease of $162.4 million or 12.8% since September 30, 2022. As a result of the current rate environment, the reduction over the last year in deposit balances is primarily due to some clients deciding to reinvest their excess cash in non-FDIC insured, external investment products. The weighted average cost of deposits for the third quarter of 2023 was 0.90%, compared to 0.73% for the previous quarter, and 0.08% for the same quarter last year. Non-interest-bearing demand deposits represent 41.6% of total deposits at September 30, 2023, an increase from 40.8% at the prior quarter-end, and 41.1% at September 30, 2022.

At September 30, 2023, the Bank had $25.0 million of short-term, 30 days or less, FHLB advances and another $10.0 million of long-term FHLB advances outstanding at September 30, 2023. At September 30, 2023, the Company also had $10.0 million drawn on a correspondent bank line of credit at a favorable rate of 3.85% and $18.0 million of subordinated notes outstanding at a favorable rate of 3.75%. The weighted average cost on all borrowings for the quarter was 4.33%, resulting in $0.6 million in interest expense. The $63.0 million of total wholesale funding at September 30, 2023, was a $35.0 million reduction from the level of wholesale funding carried at the end of the first and second quarters of 2023.

The Bank’s liquidity position remained strong with a primary liquidity ratio (cash and cash equivalents, deposits held in other banks and unpledged AFS securities as a percentage of total assets) of 17.2% at September 30, 2023, compared to 19.2% at June 30, 2023.

As of September 30, 2023, the Bank had available and unused, secured borrowing capacity with the FHLB of San Francisco totaling $230.8 million. In addition to availability through the Federal Reserve Bank’s Term Funding Program, the Bank also had $110.0 million of unused fed funds lines of credit with correspondent banks at September 30, 2023. Available contingent funding sources remain robust.

Overall uninsured deposits, excluding public agency deposits that are collateralized, are conservatively estimated to be $410.3 million, or 37.3% of total deposit balances as of September 30, 2023. The actual level of uninsured deposits is lower than the percentage stated above, as our knowledgeable bankers have helped clients obtain more than $250,000 of FDIC insurance with vesting structures such as joint accounts, payable upon death accounts, and revocable trust accounts with multiple beneficiaries. In addition, the Bank can offer up to $50 million of FDIC pass-through insurance to clients via the IntraFi network Insured Cash Sweep ("ICS") or Certificate of Deposit Account Registry System ("CDARS") products.

Shareholders’ Equity

Total shareholders’ equity was $92.4 million at September 30, 2023, a $0.4 million or 0.5% decrease since June 30, 2023, and an increase of $10.2 million or 12.4% over the prior year. The tax adjusted unrealized loss on securities, which is a component of equity (accumulated other comprehensive income or "AOCI"), increased from $23.4 million at the end of the second quarter of 2023 to $26.7 million at the end of the third quarter of 2023. The Bank fully expects to receive all principal when the investments mature.

Company Profile

American Riviera Bancorp (OTCQX: ARBV) is a registered bank holding company headquartered in Santa Barbara, California. American Riviera Bank, the 100% owned subsidiary of American Riviera Bancorp, is a full-service community bank focused on serving the lending and deposit needs of businesses and consumers on the Central Coast of California. The state-chartered bank opened for business on July 18, 2006, with the support of local shareholders. Full-service branches are located in Santa Barbara, Montecito, Goleta, Santa Maria, San Luis Obispo, and Paso Robles. The Bank provides commercial business, commercial real estate, residential mortgage, construction, and Small Business Administration lending services as well as convenient online and mobile technology. For thirteen consecutive years, the Bank has been recognized for strong financial performance by the Findley Reports and has received the highest "Super Premier" rating from Findley every year since 2016. The Bank was rated "Outstanding" by the Federal Deposit Insurance Corporation in 2023 for its performance under the Community Reinvestment Act.

Statements concerning future performance, developments or events concerning expectations for growth and market forecasts, and any other guidance on future periods, constitute forward looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations. Specific factors include, but are not limited to, effects of interest rate changes, ability to control costs and expenses, impact of consolidation in the banking industry, financial policies of the US government, and general economic conditions.

American Riviera Bancorp and Subsidiaries
Balance Sheets (unaudited)
(dollars in thousands)
			September 30,				September 30,				One Year				One Year
				2023				2022			$ Change				% Change
Assets
	Cash & Due From Banks		$	26,905			$	178,882			$	(151,977	)		-85	%
	Available-for-sale securities			206,842				222,910				(16,068	)		-7	%
	Held-to-maturity securities, net			41,309				41,241				68			0	%
	Loans			941,124				886,208				54,916			6	%
	Allowance For Credit Losses			(11,647	)			(10,500	)			(1,147	)		11	%
	Net Loans			929,477				875,708				53,769			6	%
	Premise & Equipment			14,686				9,649				5,037			52	%
	Goodwill and Other Intangibles			4,934				4,984				(50	)		-1	%
	Other Assets			44,653				38,033				6,620			17	%
Total Assets			$	1,268,806			$	1,371,407			$	(102,601	)		-7	%
Liabilities & Shareholders' Equity
	Non-interest-bearing Deposits		$	457,723			$	519,796			$	(62,073	)		-12	%
	Interest-bearing Deposits			643,750				744,052				(100,302	)		-13	%
	Total Deposits			1,101,473				1,263,848				(162,375	)		-13	%
	Borrowed Funds			63,000				18,000				45,000			250	%
	Other Liabilities			11,976				7,425				4,551			61	%
	Total Liabilities			1,176,449				1,289,273				(112,824	)		-9	%
	Common Stock			67,108				57,123				9,985			17	%
	Retained Earnings			51,972				49,722				2,250			5	%
	Other Capital			(26,723	)			(24,711	)			(2,012	)		08	%
	Total Shareholders' Equity			92,357				82,134				10,223			12	%
Total Liabilities & Shareholders' Equity			$	1,268,806			$	1,371,407			$	(102,601	)		-7	%

American Riviera Bancorp and Subsidiaries
Balance Sheets (unaudited)
(dollars in thousands)
			September 30,				June 30,				March 31,				December 31,				September 30,
				2023				2023				2023				2022				2022
Assets
	Cash & Due From Banks		$	26,905			$	30,428			$	64,252			$	61,801			$	178,882
	Available-for-sale securities			206,842				215,951				223,547				223,281				222,910
	Held-to-maturity securities			41,309				41,295				41,274				41,293				41,241
	Loans			941,124				945,389				924,761				907,685				886,208
	Allowance for Credit Losses (a)			(11,647	)			(11,638	)			(11,468	)			(10,626	)			(10,500	)
	Net Loans			929,477				933,751				913,293				897,059				875,708
	Premise & Equipment			14,686				14,842				14,098				12,347				9,649
	Goodwill and Other Intangibles			4,934				4,936				4,942				4,947				4,984
	Other Assets			44,653				43,851				40,588				40,931				38,033
Total Assets			$	1,268,806			$	1,285,054			$	1,301,994			$	1,281,659			$	1,371,407
Liabilities & Shareholders' Equity
	Non-interest-bearing Deposits		$	457,723			$	442,078			$	460,667			$	478,519			$	519,796
	Interest-bearing Deposits			643,750				640,359				638,986				685,008				744,052
	Total Deposits			1,101,473				1,082,437				1,099,653				1,163,527				1,263,848
	Borrowed Funds			63,000				98,000				98,000				18,000				18,000
	Other Liabilities			11,976				11,819				12,785				13,036				7,425
	Total Liabilities			1,176,449				1,192,256				1,210,438				1,194,563				1,289,273
	Common Stock			67,108				66,836				67,411				66,346				57,123
	Retained Earnings			51,972				49,324				46,251				44,672				49,722
	Other Capital			(26,723	)			(23,362	)			(21,075	)			(23,922	)			(24,711	)
	Total Shareholders' Equity			92,357				92,798				91,556				87,096				82,134
Total Liabilities & Shareholders' Equity			$	1,268,806			$	1,285,054			$	1,301,994			$	1,281,659			$	1,371,407
Note:
(a) CECL was adopted using the modified retrospective method. Results of reporting periods beginning after 1/1/23 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

American Riviera Bancorp and Subsidiaries
Statement of Income (unaudited)
(dollars in thousands, except per share data)
			Quarter Ended											Nine Months Ended
			September 30,				September 30,							September 30,				September 30,
				2023				2022			Change				2023				2022			Change
Interest Income
	Interest and Fees on Loans		$	12,134			$	10,161			19	%		$	35,130			$	28,116			25	%
	Fees on PPP Loans			-				199			-100	%			-				1,320			-100	%
	Interest on Securities			1,664				1,539			8	%			5,189				3,496			48	%
	Interest on Due From Banks			221				1,046			-79	%			761				1,726			-56	%
	Total Interest Income			14,019				12,944			8	%			41,080				34,658			19	%
Interest Expense
	Interest Expense on Deposits			2,514				266			846	%			5,753				693			731	%
	Interest Expense on Borrowings			618				169			266	%			2,044				402			409	%
	Total Interest Expense			3,131				435			620	%			7,797				1,094			613	%
Net Interest Income				10,888				12,509			-13	%			33,283				33,564			-1	%
	Provision for Credit Losses			8				122			-94	%			170				1,038			-84	%
Net Interest Income After Provision				10,880				12,387			-12	%			33,112				32,526			2	%
Non-Interest Income
	Service Charges, Commissions and Fees			467				602			-22	%			1,694				1,945			-13	%
	Other Non-Interest Income			225				210			7	%			514				724			-29	%
	Total Non-Interest Income			692				812			-15	%			2,208				2,668			-17	%
Non-Interest Expense
	Salaries and Employee Benefits			4,599				4,717			-2	%	...		14,128				13,353			6	%
	Occupancy and Equipment			862				777			11	%			2,635				2,299			15	%
	Other Non-Interest Expense			2,452				2,260			8	%			7,094				6,273			13	%
	Total Non-Interest Expense			7,912				7,754			2	%			23,858				21,925			9	%
Net Income Before Provision for Taxes				3,660				5,446			-33	%			11,462				13,269			-14	%
Provision for Taxes				1,011				1,645			-39	%			3,154				3,739			-16	%
Net Income			$	2,648			$	3,800			-30	%		$	8,308			$	9,531			-13	%
	Shares Outstanding			5,771,679				5,693,820			1	%			5,771,679				5,693,820			1	%
	Earnings Per Share - Basic		$	0.46			$	0.67			-31	%		$	1.44			$	1.67			-14	%
	Return on Average Assets			0.80	%			1.08	%		-26	%			0.88	%			0.95	%		-7	%
	Return on Average Equity			10.98	%			17.26	%		-36	%			12.31	%			14.72	%		-16	%
	Net Interest Margin			3.47	%			3.69	%		-6	%			3.58	%			3.39	%		6	%
	Note> Share data for prior periods has been adjusted to reflect stock dividends

American Riviera Bancorp and Subsidiaries
Five Quarter Statements of Income (unaudited)
(dollars in thousands, except per share data)
			Three Months Ended
			September 30,			June 30,			March 31,			December 31,			September 30,
			2023			2023			2023			2022			2022
Interest Income
	Interest and Fees on Loans		$	12,134		$	11,794		$	11,200		$	11,081		$	10,160
	Fees on PPP Loans			-			-			1			-			199
	Interest on Securities			1,664			1,792			1,733			1,716			1,539
	Interest on Due From Banks			221			265			276			1,323			1,046
	Total Interest Income			14,019			13,851			13,210			14,120			12,944
Interest Expense
	Interest Expense on Deposits			2,514			1,965			1,274			669			266
	Interest Expense on Borrowings			618			1,006			421			169			169
	Total Interest Expense			3,131			2,971			1,695			838			435
Net Interest Income				10,888			10,880			11,515			13,282			12,509
	Provision for Credit Losses			8			163			-			109			122
Net Interest Income After Provision				10,880			10,717			11,515			13,173			12,387
Non-Interest Income
	Service Charges, Commissions and Fees			467			764			463			522			602
	Other Non-Interest Income			225			222			66			157			210
	Total Non-Interest Income			692			987			529			679			812
Non-Interest Expense
	Salaries and Employee Benefits			4,599			4,588			4,942			4,948			4,717
	Occupancy and Equipment			862			868			905			856			777
	Other Non-Interest Expense			2,452			2,508			2,134			2,561			2,260
	Total Non-Interest Expense			7,912			7,964			7,981			8,365			7,754
Net Income Before Provision for Taxes				3,660			3,740			4,063			5,487			5,446
Provision for Taxes				1,011			1,052			1,090			1,524			1,645
Net Income			$	2,648		$	2,687		$	2,973		$	3,963		$	3,800
	Shares Outstanding			5,771,679			5,772,012			5,763,854			5,692,161			5,693,820
	Earnings Per Share - Basic		$	0.46		$	0.47		$	0.52		$	0.70		$	0.67
	Net Income pre-tax, pre-provision, pre-PPP fees (Non-GAAP)		$	3,668		$	3,902		$	4,062		$	5,596		$	5,369
	Note> Share data for prior periods has been adjusted to reflect stock dividends

American Riviera Bancorp and Subsidiaries
Selected Financial Highlights (unaudited)
(dollars in thousands, except per share data)
			At or for the Three Months Ended
			September 30,				June 30,				March 31,				December 31,				September 30,
				2023				2023				2023				2022				2022
Income and performance ratios:
	Net Income		$	2,648			$	2,687			$	2,973			$	3,963			$	3,800
	Earnings per share - basic (f)			0.46				0.47				0.52				0.70				0.67
	Return on average assets			0.80	%			0.85	%			0.98	%			1.14	%			1.08	%
	Return on average equity			10.98	%			11.84	%			14.22	%			19.12	%			17.26	%
	Cost of Funds			1.06	%			1.02	%			0.59	%			0.26	%			0.16	%
	Cost of Deposits			0.90	%			0.73	%			0.45	%			0.21	%			0.08	%
	Net interest margin			3.47	%			3.51	%			3.76	%			3.94	%			3.69	%
	Efficiency ratio (b)			68.79	%			66.97	%			65.52	%			60.21	%			58.58	%
Asset quality:
	Allowance for credit losses		$	11,647			$	11,638			$	11,468			$	10,626			$	10,500
	Nonperforming assets			2,708				2,818				2,955				3,066				6,337
	Allowance for credit losses / total loans and leases			1.24	%			1.23	%			1.24	%			1.17	%			1.18	%
	Net charge-offs / average loans and leases (annualized)			0.00	%			0.00	%			0.00	%			0.00	%			-0.04	%
	Texas ratio (a)			2.73	%			2.83	%			3.01	%			3.30	%			6.07	%
Capital ratios for American Riviera Bank (c):
	Tier 1 risk-based capital			12.14	%			12.02	%			11.96	%			11.85	%			11.68	%
	Total risk-based capital			13.28	%			13.17	%			13.12	%			12.89	%			12.73	%
	Tier 1 leverage ratio			10.12	%			9.95	%			9.67	%			8.83	%			8.48	%
Capital ratios for American Riviera Bancorp (c):
	Tier 1 risk-based capital			10.52	%			10.39	%			10.32	%			10.22	%			10.05	%
	Total risk-based capital			13.31	%			13.22	%			13.21	%			12.99	%			12.87	%
	Tier 1 leverage ratio			8.77	%			8.60	%			8.32	%			7.62	%			7.29	%
	Tangible common equity ratio			6.92	%			6.86	%			6.68	%			6.43	%			5.65	%
Equity and share related (f):
	Common equity		$	92,357			$	92,798			$	91,556			$	87,096			$	82,134
	Book value per share			16.00				16.08				15.88				15.30				14.43
	Tangible book value per share			15.15				15.22				15.03				14.43				13.55
	Tangible book value per share, excluding AOCI (d)			19.78				19.27				18.68				18.63				17.89
	Stock closing price per share			16.15				15.20				16.81				17.00				17.15
	Number of shares issued and outstanding (e)			5,771.68				5,772.01				5,763.85				5,692.16				5,693.82

Notes:
	(a) The sum of Nonperforming assets and Other Real Estate Owned, divided by the sum of Total Shareholder Equity and Total Allowance for Credit Losses (less Preferred Stock and Intangible Assets).
	(b) Annualized Operating Expense excluding Provision for Credit Losses minus Annualized Extraordinary Expense, divided by Annualized Interest Income including Loan Fees minus Annualized Interest Expense plus Annualized Non-Interest Income minus Annualized Extraordinary Income, expressed as a percentage.
	(c) Current period capital ratios are preliminary.
	(d) Accumulated Other Comprehensive Income (AOCI), is comprised of the tax adjusted unrealized loss on securities and is presented as Other Capital on the Balance Sheet.
	(e) Prior period number of shares issued and outstanding are adjusted for respective 10% stock dividend recorded as of November 24, 2022.
	(f) Share data for prior periods has been adjusted to reflect stock dividends

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Contacts

American Riviera Bank
www.americanriviera.bank
805-965-5942
Michelle Martinich