American River Bank
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American River Bankshares Earnings Per Share Increased by 30% in 2016

Sacramento, CA, July 21, 2016 – American River Bankshares (NASDAQ-GS: AMRB) today reported net income of $1.3 million, or $0.19 per diluted share for the second quarter of 2016 compared to $1.4 million, or $0.18 per diluted share for the second quarter of 2015. For the six months ended June 30, 2016, net income was $2.7 million or $0.39 per diluted share, compared to $2.3 million or $0.30 per diluted share for the six months ended June 30, 2015.

“Second quarter highlights include a $12.9 million, or 18.0% annualized, increase in loans and a year-to-date increase in earnings per share of 30%,” said David Taber, President and CEO of American River Bankshares. “The increase in EPS is a direct result of the increase in net income and the successful stock repurchase programs including the acquisition of another 5% of the Company’s outstanding shares during the quarter.”

Financial Highlights
  • Net loans increased $12.9 million (4%) and core deposits increased $3 million (1%) during the second quarter of 2016.
  • The second quarter 2016 net interest margin was 3.64%, compared to 3.69% for the second quarter of 2015. For the six months ended June 30, 2016, the net interest margin was 3.64%, compared to 3.58% for the six months ended June 30, 2015.
  • Net interest income was $5.0 million in the second quarter 2016, unchanged from the second quarter of 2015. For the six months ended June 30, 2016, net interest income was $10.1 million, compared to $9.7 million for the six months ended June 30, 2015.
  • The allowance for loan and lease losses was $5.1 million (1.65% of total loans and leases) at June 30, 2016, compared to $5.4 million (1.91% of total loans and leases) at June 30, 2015. The allowance for loan and lease losses to nonperforming loans and leases was 486.4% at June 30, 2016, compared to 218.4% at June 30, 2015.
  • Shareholders’ equity was $83.6 million at June 30, 2016 compared to $85.3 million at March 31, 2016 and $88.2 million at June 30, 2015. Tangible book value per share was $10.10 at June 30, 2016 compared to $9.86 at March 31, 2016 and $9.30 at June 30, 2015. Book value per share was $12.56 per share at June 30, 2016 compared to $12.20 per share at March 31, 2016 and $11.41 at June 30, 2015.
  • On April 21, 2016, the Company announced its second 5% Stock Repurchase Program for 2016. During the second quarter of 2016, the Company successfully acquired 5% of its outstanding common shares, a total of 349,715 shares, at an average price of $10.29 per share. During 2016, the Company has repurchased 716,897 shares of its common stock under the 2016 Stock Repurchase Program, also at an average price of $10.29 per share.
  • The Company continues to maintain strong capital ratios. At June 30, 2016 the Leverage ratio was 10.4% compared to 10.6% at March 31, 2016 and 11.5% at June 30, 2015; the Tier 1 Risk-Based Capital ratio was 18.0% compared to 18.9% at March 31, 2016 and 20.0% at June 30, 2015; and the Total Risk-Based Capital ratio was 19.2% compared to 20.2% at March 31, 2016 and 21.3% at June 30, 2015.
Northern California Economic Update, June 30, 2016

Each quarter, management at American River Bank prepares an economic report for internal use that analyzes the recent historical rolling quarters within the three primary markets in which the Company does business – Greater Sacramento Area and Sonoma and Amador Counties. Sources of economic and industry information include: Colliers International, Keegan & Coppin Company, Inc., ycharts/housing, State of California Employment Development Department, US Census, CBRE, Integra Realty Resources, and Sacramento Association of Realtors and Trading Economics.

Overall, 2015 commercial real estate results as well as employment trends have been mostly positive and that trend continues into 2016.

Commercial Real Estate. In the Greater Sacramento Area, when comparing first quarter 2015 to first quarter 2016, commercial real estate vacancies have improved in all segments. Office vacancy decreased from 14.0% to 13.0%, retail vacancy decreased from 11.2% to 10.2%, and industrial vacancy decreased from 10.4% to 9.8%. In Sonoma County, for the same period (first quarter 2015 compared to first quarter 2016), commercial real estate vacancies have improved in all segments as well. Office vacancy decreased from 17.5% to 15.6%, retail vacancy decreased slightly from 4.0 % to 3.8%, and industrial vacancy decreased from 7.1% to 5.6%.

The Greater Sacramento Area reported positive absorption each quarter over the past 3 years in all segments (office, retail, and industrial). However, in the first quarter of 2016 absorption was negative for both office and retail. This change was primarily the result of two large office building vacancies, and one major retailer closing its doors. Sonoma County has also reported (when data is available) positive absorption each quarter over the past 3 years for all segments, and continues to do so as of first quarter 2016.

In Greater Sacramento, commercial lease rates have been in a relatively narrow range over the last two years through the end of the first quarter 2016 with lease rates ranging from the following: office: $1.66/SF to $1.77/SF; retail: $1.33/SF to $1.40/SF and industrial: $0.35/SF to $0.46/SF. As of first quarter 2016, lease rates per square foot were $1.77 for office, $1.33 for retail, and $0.46 for industrial. As a proxy for Sonoma County, gross lease rates in the City of Santa Rosa for the past two years through the end of the fourth quarter of 2015 have shown some fluctuation in office and industrial segments and decreased in the retail segment. The lease rates during the two year period ranged from: office: $1.47/SF to $1.88/SF, retail: $0.90/SF to $1.52/SF, and industrial: $0.66/SF to $0.95/SF.

The Amador region has the lowest level of commercial real estate concentration in the Bank. There is limited supply for commercial real estate in this region and as a result, minimal information is available.

Employment. National unemployment, which reached a high of 10.0% at October 31, 2009, has dropped steadily over the past few years and has stabilized. Compared to December 2014, national unemployment decreased from 5.6% to 5.0% in December 2015, and decreased further to 4.7% as of May 2016. California unemployment was 9.6% at December 31, 2012, 8.2% at December 31, 2013, 6.9% at December 31, 2014, and 5.9% at December 31, 2015. As of May 2016, the rate decreased to 5.2%. The number of employed Californians continues to increase. There were 17.1 million employed at the end of 2013, 17.6 million employed at the end of 2014, and 17.9 million employed at the end of 2015. The State added another 203,000 jobs during the first six months of 2016.

At December 31, 2014, all three of our markets reported lower unemployment rates than at year end 2013. This trend continued into 2015 and at December 31, 2015, unemployment rates were 5.5% and 4.2% for the Sacramento MSA and Santa Rosa-Petaluma MSA, respectively. As of May 31, 2016, these figures were 4.7% and 3.5%, respectively, both below State unemployment figures. Over the same period, Amador County has been higher than the State every quarter with the exception of the third quarter 2015. Amador County had shown significant improvement from 7.4% at December 31, 2014 to 6.3% at December 31, 2015, and at May 31, 2016 has decreased to 5.3%.

Job growth was positive in all of our markets in 2014, 2015, and as of May 31, 2016. Compared to December 2014, job growth was 1.06%, 2.13% and 0.61% for the Sacramento MSA, Santa Rosa-Petaluma MSA and Amador County, respectively, at December 31, 2015. As of May 31, 2016, job growth was 0.16%, .72% and 1.67% for the Sacramento MSA, Santa Rosa-Petaluma MSA and Amador County, respectively.

Asset Quality and Balance Sheet Review

American River Bankshares’ assets totaled $625.8 million at June 30, 2016, compared to $634.6 million at December 31, 2015, and $616.9 million at June 30, 2015.

Net loans totaled $305.1 million at June 30, 2016, an increase from $289.1 million at December 31, 2015 and $275.4 million at June 30, 2015. The loan portfolio at June 30, 2016 included: real estate loans of $269.1 million (86% of the portfolio), commercial loans of $36.2 million (11% of the portfolio) and other loans, which consist mainly of leases and consumer loans of $5.2 million (3% of the portfolio). The real estate loan portfolio at June 30, 2016 includes: owner-occupied commercial real estate loans of $78.8 million (29% of the real estate portfolio), investor commercial real estate loans of $124.6 million (46% of the real estate portfolio), construction and land development loans of $13.8 million (5% of the real estate portfolio) and other loans, which consists of residential and multi-family real estate loans of $51.9 million (20% of the real estate loan portfolio).

Nonperforming assets (“NPAs”) include nonperforming loans and leases, other real estate owned (“OREO”), and other assets. Nonperforming loans includes all 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 these loans are well-secured and in the process of collection. Nonperforming loans decreased $1.4 million (56.0%) from $2.5 million at June 30, 2015 to $1.1 million at June 30, 2016. Nonperforming loans decreased $500,000 (31.3%) from $1.6 million at December 31, 2015. NPAs declined to $2.8 million at June 30, 2016 from $6.1 million at December 31, 2015 and from $7.1 million at June 30, 2015. The NPAs to total assets ratio stood at 0.45% at the end of June 2016, down from 0.96% at December 2015 and 1.15% one year ago.

At June 30, 2016, the Company had two OREO properties totaling $896,000. This compares to three OREO properties totaling $3.6 million at December 31, 2015 and four OREO properties totaling $3.8 million at June 30, 2015. During the second quarter of 2016, the Company did not add or sell any property. There was no OREO valuation allowance recorded at June 30, 2016, December 31, 2015, or June 30, 2015.

Loans measured for impairment were $20.8 million at the end of June 2016, a decrease compared to $21.4 million at December 31, 2015, and $23.8 million a year ago. Specific reserves of $904,000 were held on the impaired loans at June 30, 2016, compared to $899,000 at December 31, 2015 and $1,453,000 at June 30, 2015. There was no provision for loan and lease losses for the second quarters of 2016 and 2015. The Company had net recoveries of $50,000 in the second quarter of 2016 compared to net recoveries of $51,000 in the second quarter of 2015. For the first six months of 2016, the Company had net recoveries of $157,000 compared to net recoveries of $58,000 in the first six months of 2015. The Company maintains the allowance for loan and lease losses at a level believed to be adequate for known and inherent risks in the portfolio. The methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan and lease losses that management believes is appropriate at each reporting date.

Investment securities, which excludes $3.8 million in stock of the Federal Home Loan Bank of San Francisco (“FHLB Stock”), totaled $255.0 million at June 30, 2016, down 7.1% from $274.4 million at December 31, 2015 and 7.9% from $277.0 million at June 30, 2015. At June 30, 2016, the investment portfolio was comprised of 90% U.S. Government agencies or U.S. Government-sponsored agencies (primarily mortgage-backed securities), 9% obligations of states and political subdivisions, and 1% corporate bonds.

At June 30, 2016, total deposits were $525.9 million, compared to $530.7 million at December 31, 2015 and $512.0 million one year ago. Core deposits increased 4.5% to $443.3 million at June 30, 2016 from $424.3 million at June 30, 2015 and decreased 0.6% from $446.1 million at December 31, 2015. The Company considers all deposits except time deposits as core deposits.

At June 30, 2016, noninterest-bearing demand deposits accounted for 37% of total deposits, interest-bearing demand accounts were 12%, savings deposits were 11%, money market balances accounted for 24% and time certificates were 16% of total deposits. At June 30, 2015, noninterest-bearing demand deposits accounted for 34% of total deposits, interest-bearing demand accounts were 12%, savings deposits were 11%, money market balances accounted for 26% and time certificates were 17% of total deposits.

Shareholders’ equity decreased to $83.6 million at June 30, 2016 compared to $86.1 million at December 31, 2015 and from $88.2 million at June 30, 2015. The $2.5 million (2.9%) decrease in equity from December 31, 2015 was due primarily to a decrease in common stock of $7.3 million related to repurchases made under the 2016 Stock Repurchase Program, partially offset by an increase in Retained Earnings of $2.7 million due to the net income for the year and a $2.1 million increase in accumulated other comprehensive income related to an increase in the unrealized gain on securities. In 2016, the Company repurchased 716,897 shares of its common stock at an average price of $10.29 per share.

Net Interest Income

The net interest income during the second quarters of 2016 and 2015 remained consistent at $5.0 million and for the six months ended June 30, 2016, net interest income increased 4.1% to $10.1 million from $9.7 million for the six months ended June 30, 2015. The net interest margin as a percentage of average earning assets was 3.64% in the second quarter of 2016, compared to 3.63% in the first quarter of 2016 and 3.69% in the second quarter of 2015. For the six months ended June 30, 2016, the net interest margin was 3.64% compared to 3.58% for the six months ended June 30, 2015. Interest income for the second quarter of 2016 decreased 1.9% to $5.2 million from $5.3 million for the second quarter of 2015 and for the six months ended June 30, 2016, interest income increased 2.9% to $10.5 million from $10.2 million for the six months ended June 30, 2015. Interest expense for the second quarter of 2016 decreased 9.4% to $221,000 from $244,000 for the second quarter of 2015 and for the six months ended June 30, 2016 decreased 7.5% to $455,000 from $492,000 for the six months ended June 30, 2015.

The average tax equivalent yield on earning assets decreased from 3.87% in the second quarter of 2015 to 3.80% for the second quarter of 2016 and for the six months ended June 30, 2016 increased to 3.80% from 3.75% for the six months ended June 30, 2015. The decrease in yield on earning assets from the second quarter of 2015 to the second quarter of 2016 results from a special one-time cash dividend received in June of 2015 from the Federal Home Loan Bank of San Francisco in the amount of $136,000, which was recorded as income on investments. This one-time dividend resulted in an increase in the yield on earning assets of 0.10%, which would have been 3.77% if the dividend was excluded. Without the cash dividend the yield on earning asset would have increased from 3.77% in the second quarter of 2015 to 3.80% in the second quarter of 2016. The increase in yields can be attributed to a change in the mix with higher earning average loans increasing and lower earning average investments decreasing. Average loan balances increased from $269,798,000 in the first six months of 2015 to $297,764,000 during the first six months of 2016 while average investment balances decreased from $285,699,000 during the first six months of 2015 to $269,828,000 during the first six months of 2016.

The average balance of earning assets increased $6.9 million (1.2%) from $558.9 million in the second quarter of 2015 to $565.8 million in the second quarter of 2016 and for the six months ended June 30, 2016, increased $12.1 million (2.2%) to $568.6 million from $556.5 million for the six months ended June 30, 2015.

The average cost of funds decreased from 0.28% in the second quarter of 2015 and the first six months of 2015 to 0.26% in the second quarter of 2016 and the first six months of 2016. Average deposits increased $15.2 million (3.0%) from $506.6 million during the second quarter of 2015 to $521.8 million during the second quarter of 2016 and $15.0 million (3.0%) from $505.1 million from the first half of 2015 to $520.1 million to the first half of 2016. Average borrowings decreased from $14.5 million during the second quarter of 2015 to $14.3 million during the second quarter of 2016 and increased from $12.8 million from the first half of 2015 to $19.3 million to the first half of 2016.

Noninterest Income and Expense

Noninterest income for the second quarter of 2016 was $363,000, down from $507,000 in the second quarter of 2015 and was consistent for the six months ended June 30, 2016 and 2015, at $1.1 million. On a quarter over quarter basis, the decrease in noninterest income was predominately related to a decrease in income from OREO properties from $90,000 in the second quarter of 2015 to zero in 2016 and a decrease in gain on sale of securities from $51,000 in 2015 to a loss of $1,000 in 2016. The decrease in OREO income results from the sale of an income producing OREO property in March 2016. On a year over year basis, the steadiness in noninterest income was primarily due to an increase in the gain on sale of securities partially offset by a decrease in rental income from OREO properties. Gain on sale of securities was $281,000 in the first half of 2016 compared to $218,000 for the first half of 2015 and rental income from OREO properties was $161,000 in 2015 compared to $106,000 in 2016. The increase in gain on sale of securities was a result of the Bank managing its portfolio in a volatile rate environment.

Noninterest expense remained consistent at $3.4 million for the second quarters of 2016 and 2015 and for the six months ended June 30, 2016 and 2015, remained consistent at $7.2 million. While there were many fluctuations in expense related items between the second quarters of 2015 and 2016, two areas of note would be an increase in salaries and benefits of $56,000 and a decrease in OREO expense of $35,000. On a year over year basis, OREO related expense increased $158,000 and salaries and benefits decreased by $54,000. In addition, the Company also experienced a decrease in operating losses of $48,000 from 2015 to 2016.

The fully taxable equivalent efficiency ratio for the second quarter of 2016 increased to 62.3% from 60.5% for the second quarter of 2015 and for the six months ended June 30, 2016, decreased to 63.2% from 66.0% for the six months ended June 30, 2015.

Provision for Income Taxes

Federal and state income taxes for the quarter ended June 30, 2016 decreased by $93,000 from $745,000 in the second quarter of 2015 to $652,000 in the second quarter of 2016 and increased from $1.2 million in the first six months of 2015 to $1.3 million in the first half of 2016. The higher provision for taxes in the first six months of 2016 compared to the first six months of 2015 resulted from an increase in taxable income partially offset by the increase in tax benefits related to tax exempt loan interest.

Earnings Conference Call

The second quarter earnings conference call will be held Thursday, July 21, 2016 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). David T. Taber, President and Chief Executive Officer, and Mitchell A. Derenzo, Executive Vice President and Chief Financial Officer, both of American River Bankshares, will lead a live presentation and answer analysts’ questions. Shareholders, analysts and other interested parties are invited to join the call by dialing (888) 517-2513 and entering the Conference ID 7773553#. A recording of the call will be available approximately twenty-four hours after the call’s completion on AmericanRiverBank.com.

About American River Bankshares

American River Bankshares [NASDAQ-GS: AMRB] is the parent company of American River Bank, a regional bank serving Northern California since 1983. We give business owners more REACH by offering financial expertise and exceptional service to complement a full suite of banking products and services. Our honest approach, commitment to community and focus on profitability is intended to lead our clients to greater success. For more information, call (800) 544-0545 or visit AmericanRiverBank.com.

Use of Non-GAAP Financial Measures

This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures in addition to results presented in accordance with GAAP. These measures include tangible book value and taxable equivalent basis. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company’s financial position reflected in the current quarter and year-to-date results and facilitate comparison of our performance with the performance of our peers.

Net Interest Margin and Efficiency Ratio (non-GAAP financial measures)

In accordance with industry standards, certain designated net interest income amounts are presented on a
taxable equivalent basis, including the calculation of net interest margin and the efficiency ratio. The Company believes the presentation of net interest margin on a taxable equivalent basis using a 34% effective tax rate allows comparability of net interest margin with industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt loans and investments.

Tangible Equity (non-GAAP financial measures)

Tangible common stockholders' equity (tangible book value) excludes goodwill and other intangible assets. The Company believes the exclusion of goodwill and other intangible assets to create “tangible equity” facilitates the comparison of results for ongoing business operations. The Company’s management internally assesses its performance based, in part, on these non-GAAP financial measures.

Forward-Looking Statements

Certain statements contained herein are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Actual results may differ materially from the results in these forward-looking statements. Factors that might cause such a difference include, among other matters, changes in interest rates, economic conditions, governmental regulation and legislation, credit quality, and competition affecting the Company’s businesses generally; the risk of natural disasters and future catastrophic events including terrorist related incidents; and other factors discussed in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2015, and in subsequent reports filed on Form 10-Q and Form 8-K. The Company does not undertake any obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or otherwise, except as required by law.

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