American Riviera Bank announced Tuesday that it reported unaudited net income of $228,000 for the quarter ending March 31, while reducing nonaccrual loans by 45 percent from Dec. 31, 2009.

“With the highest capital ratio of any bank in Santa Barbara, we will be here for a long time to serve the loan and deposit needs of our community,” said Jeff DeVine, the bank’s CEO and president. “We continue to see a flight to safety as evidenced in the growth of our deposits. Our strong net interest margin will serve to further strengthen our bank today and into the future.”

The bank’s deposits reached $108 million at March 31, a 2.6 percent increase from Dec. 31, 2009. Although loan balances declined to $100 million at March 31 from $106 million at Dec. 31, 2009, the bank continues to generate new loans and originated nearly $3 million in new loans during the first three months of 2010.

The bank’s net interest margin continues to increase, reaching 4.46 percent for the quarter ended March 31, up from 4.35 percent for the quarter ended Dec. 31, 2009.

During the first quarter of 2010, the bank made significant improvements in loan quality, reducing total nonaccrual loans to $4.7 million, a 45 percent reduction compared with Dec. 31, 2009.

The bank recorded $53,000 in loan loss provisions for the quarter, net of $187,000 in recoveries. Despite these improvements in the loan portfolio, the bank continues to maintain a strong 2.82 percent loan loss allowance as a percentage of loans. Because of the bank’s heightened awareness of economic factors, 66 percent of the $2.8 million reserve is general and unrelated to specific loans. All carrying values for nonaccrual loans and other real estate owned are supported by recent appraisals and impairment, if any, has already been charged off in conformity with the bank’s accounting policies.

The bank’s unaudited net income for the quarter ended March 31 of $228,000 includes $53,000 in provision for loan losses and a $70,000 reduction in the fair value of other real estate owned. The bank continues to maintain a strong capital position with Tier 1 capital to total assets of more than 13 percent as of March 31, well above the regulatory guideline of 5 percent for well-capitalized institutions.

— Michelle Martinich is senior vice president and chief financial officer for American Riviera Bank.