American River Bankshares Marks its 100th Consecutive Profitable Quarter

Sacramento, CA, January 22, 2009 – American River Bankshares (NASDAQ-GS: AMRB) today reported diluted earnings per share (“EPS”) for the fourth quarter of 2008 of $0.32, compared to the $0.36 recorded in the fourth quarter of 2007.  For the year ended December 31, 2008 diluted EPS was $1.30 compared to $1.39 for the year ended December 31, 2007.  Diluted EPS has been adjusted for 5% stock dividends distributed in December 2008 and 2007.  Net income for the fourth quarter of 2008 decreased $316,000 (14.8%) to $1,826,000 from $2,142,000 for the fourth quarter of 2007.  Net income for the year ended December 31, 2008 decreased $907,000 (10.7%) to $7,571,000 from $8,478,000 for the year ended December 31, 2007. 

“For the past 25 years, American River Bankshares has remained consistently profitable through three recessions, two wars in Iraq, the S&L crisis and the general ups and downs of the market,” said David Taber, President and CEO of American River Bankshares.  “As we celebrate our 25th anniversary and 100th consecutive profitable quarter, we take a moment to look back on all we’ve accomplished for our clients and shareholders, but more importantly, we look forward to our future success.”  He continued, “Building our Company on common-sense banking fundamentals has served us well over the last 25 years and we intend to rely on these same fundamentals for the next 25.” 

Net Interest Margin

Net interest margin as a percentage was 5.04% for the fourth quarter of 2008 compared to 5.14% for the third quarter of 2008 and 5.10% for the fourth quarter of 2007.  Net interest income for the fourth quarter of 2008 decreased $296,000 (4.4%) to $6,446,000 from $6,742,000 for the third quarter of 2008 and decreased $120,000 (1.8%) from the fourth quarter of 2007.  Interest income for the fourth quarter of 2008 decreased $485,000 (5.6%) to $8,119,000 from $8,604,000 for the third quarter of 2008 and decreased $943,000 (10.4%) from $9,062,000 for the fourth quarter of 2007.  Net interest margin for the year ended December 31, 2008 was 5.03% compared to 5.10% for the year ended December 31, 2007.  Net interest income for the year ended December 31, 2008 decreased $477,000 (1.8%) to $25,925,000 from $26,402,000 for the year ended December 31, 2007 and interest income decreased $3,925,000 (10.5%) to $33,553,000 from $37,478,000 for the year ended December 31, 2007. 

The average yield on earning assets declined from 7.01% in the fourth quarter of 2007 to 6.34% for the fourth quarter of 2008.  Much of the decline in yields can be attributed to the overall lower interest rate environment in response to the Federal Open Market Committee’s (the “FOMC”) decreases in the Federal funds rate.  Since September of 2007, the “Prime” rate has decreased ten times for a total of 500 basis points resulting in a steady decline in short-term interest rates.  The average balance of earning assets remained consistent with only a slight decrease of 0.5% from $517,824,000 in the fourth quarter of 2007 to $515,217,000 in the fourth quarter of 2008.  While the overall balance was stable during this period, the Company did see a positive change in mix with an increase in average loans balances offset by a corresponding decrease in average investment securities.  Average loan balances were up $24,462,000 (6.2%) to $417,945,000 while average investments securities were down $25,894,000 (21.9%) to $92,422,000.  This is a direct result of the Company’s decision to use the proceeds from principal reductions, sales, and maturing investment securities to provide funding for loan growth.  Foregone interest income during the fourth quarter of 2008 was approximately $125,000, this compares to $272,000 during the fourth quarter of 2007.   Overall, the yield on loans during the fourth quarter of 2008 was 6.70% as compared to 7.73% for the fourth quarter of 2007.

Also reflective of the declining interest rate environment, interest expense for the fourth quarter of 2008 decreased $189,000 (10.2%) to $1,673,000 from $1,862,000 for the third quarter of 2008 and decreased $823,000 (33.0%) from $2,496,000 for the fourth quarter of 2007.  For the year ended December 31, 2008, interest expense decreased $3,448,000 (31.1%) to $7,628,000 from $11,076,000 for the year ended December 31, 2007.  The average cost of funds decreased from 2.74% in the fourth quarter of 2007 to 1.76% for the fourth quarter of 2008.  The average balance of interest bearing liabilities increased 4.8% from $361,289,000 in the fourth quarter of 2007 to $378,529,000 in the fourth quarter of 2008.  This increase resulted primarily from an increase in average other borrowings of $37,638,000 over the same period.  The increased borrowings were used to fund the increase in loans and offset the decrease in average deposits of $37,985,000; primarily in noninterest demand, interest checking and money market accounts.  The Company has taken advantage of the lower borrowing rates available by locking in one to three year funding from its financial partners. 

Loan Growth and Asset Quality

Net loans as of December 31, 2008 increased $17,381,000 (4.4%) to $412,356,000 from $394,975,000 as of December 31, 2007.  Real estate loans increased $17,188,000 (6.1%) to $300,934,000 as of December 31, 2008 from $283,746,000 as of December 31, 2007 and commercial loans decreased $4,007,000 (4.2%) to $90,625,000 as of December 31, 2008 from $94,632,000 as of December 31, 2007.   

The loan portfolio at December 31, 2008 included: real estate loans of $300,934,000 (72% of the portfolio), commercial loans of  $90,625,000 (22% of the portfolio) and other, which consists mainly of leases and consumer loans of $27,286,000 (6% of the portfolio).  The real estate loan portfolio at December 31, 2008 includes: business property loans of $120,887,000 (40% of the real estate portfolio), investor commercial real estate of $97,739,000 (33% of the real estate portfolio), construction and land development of $48,664,000 (16% of the real estate portfolio) and other, which consists of residential and multi-family real estate of $33,644,000 (11% of the real estate portfolio).   

At December 31, 2008, the allowance for loan and lease losses was $5,918,000 compared with $5,883,000 at December 31, 2007.  The provision for loan and lease losses was $835,000 for the fourth quarter of 2008, compared to $381,000 for the third quarter of 2008 and $135,000 for the fourth quarter of 2007.  For the year ended December 31, 2008 the provision for loan and lease losses was $1,743,000 compared to $450,000 for 2007.  The allowance as a percentage of loans and leases was 1.41% at December 31, 2008, compared to 1.47% at December 31, 2007.  Net chargeoffs for the fourth quarter of 2008 were $1,100,000 compared to $309,000 for the third quarter of 2008 and $141,000 for the fourth quarter of 2007.  For the year ended December 31, 2008 net chargeoffs were $1,708,000 compared to $441,000 for 2007.  Non-performing loans and leases as of December 31, 2008 were 1.49% of total loans and leases compared to 1.86% one year ago. 

Non-performing assets were $8,399,000 at December 31, 2008 compared to $7,501,000 at December 31, 2007 and non-performing assets to total assets as of December 31, 2008 were 1.49% compared to 1.31% one year ago.  Loans past due over 30 days increased to $7,812,000 at December 31, 2008 from $7,026,000 at December 31, 2007.  The level of nonperforming assets of $8,399,000 is down $719,000 (7.9%) from the $9,118,000 balance as of September 30, 2008.  During the fourth quarter of 2008, one loan for $466,000 was paid current and is now considered performing and five loans totaling $4,405,000 were partially or fully charged off in the amount of $1,026,000, one of which was foreclosed upon and is now carried as “other real estate owned (OREO)”.  The Company has three OREO properties totaling $2,158,000.  The Company evaluates non-performing loans for impairment and assigns specific reserves when necessary.  After the chargeoffs recorded through December 31, 2008, specific reserves of $788,000 were held on the non-performing loans considered to be impaired. 

During the fourth quarter of 2008, four additional loans in the amount of $496,000 were placed on the non-performing list.  Of these four loans, two loans totaling $252,000 are real estate secured and two loans totaling $244,000 are unsecured.  In addition, the Company has three loans totaling $474,000 that are over 90 days past due and still accruing interest.

Deposits and Borrowed Funds

Total deposits as of December 31, 2008 decreased $18,584,000 (4.1%) to $437,061,000 from $455,645,000 as of December 31, 2007.  Noninterest-bearing deposits decreased $13,523,000 (10.2%) from December 31, 2007 to December 31, 2008, while interest-bearing deposits decreased $5,061,000 (1.6%) during the same period.  Other borrowings, which includes both short- and long-term borrowings, increased $5,628,000 (10.9%) from $51,603,000 at December 31, 2007 to $57,231,000 at December 31, 2008. 

Noninterest Income and Expense

Noninterest income for the fourth quarter of 2008 increased $52,000 (11.7%) to $498,000 from $446,000 for the third quarter of 2008 but decreased $67,000 (11.9%) from $565,000 for the fourth quarter of 2007.  Noninterest income for the year ended December 31, 2008 decreased $431,000 (16.6%) to $2,168,000 from $2,599,000 for the same period in 2007.  Noninterest expense for the fourth quarter of 2008 decreased $458,000 (12.4%) to $3,236,000 from $3,694,000 for the third quarter of 2008 and decreased $330,000 (9.3%) from $3,566,000 for the fourth quarter of 2007.  Noninterest expense for the year ended December 31, 2008 decreased $632,000 (4.3%) from $14,833,000 to $14,201,000. Much of the decrease in noninterest expense in the fourth quarter 2008 was related to a reduction in the Company’s incentive compensation accrual as Company performance targets were not met.  The fully taxable equivalent efficiency ratio for the fourth quarter of 2008 improved, decreasing to 45.03% from 49.76% for the third quarter of 2008 and from 48.37% for the fourth quarter of 2008.  For the year ended December 31, 2008, the fully taxable equivalent efficiency ratio was 48.92%, a decrease from 49.49% at December 31, 2007. 

Income Taxes

Income taxes for the fourth quarter of 2008 decreased $135,000 (11.4%) to $1,047,000 from $1,182,000 for the third quarter of 2008 and decreased $241,000 (18.7%) from $1,288,000 for the fourth quarter of 2007.  For the year ended December 31, 2008, income taxes decreased $662,000 (12.6%) from $5,240,000 to $4,578,000.  The effective tax rate for the quarter ended December 31, 2008 was 36.4%, a decrease from 38.0% during the third quarter of 2008 and from the 37.6% during the fourth quarter of 2007.  The effective tax rate for the year ended December 31, 2008 was 37.7%, down slightly from the 38.2% during the year ended December 31, 2007.

Capital

Total shareholders’ equity at December 31, 2008 was $63,447,000, up $3,474,000 (5.8%) from December 31, 2007.  During the fourth quarter of 2008, the Company repurchased an additional 4,800 shares of its common stock for a total of 110,300 shares repurchased for the year ended December 31, 2008.  The Company also declared and distributed a 5% stock dividend and declared a quarterly cash dividend of $0.143 per share. 

The Company’s subsidiary, American River Bank, remains above the well-capitalized regulatory guidelines. At December 31, 2008, American River Bank’s leverage ratio was 8.4%, the Tier 1 risk based ratio was 10.4% and the Total Risk Based Capital ratio was 11.6%.  At December 31, 2007, the Company’s leverage ratio was 8.3%, the Tier 1 risk based ratio was 10.2% and the Total Risk Based Capital ratio was 11.5%. 

Performance Metrics

American River Bankshares continues a long history of enhancing shareholder value with its 100th consecutive profitable quarter.  Performance measures for the fourth quarter of 2008 (annualized): the Return on Average Assets (ROAA) was 1.28%, Return on Average Equity (ROAE) was 11.71% and Return on Average Tangible Equity (ROATE) was 16.23%.  For the year ended December 31, 2008, the Company had a ROAA of 1.32%, ROAE of 12.39% and ROATE of 17.32%. 

Earnings Conference Call

The fourth quarter earnings conference call will be held Thursday, January 22, 2009 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time).  David T. Taber, President and CEO, and Mitchell A. Derenzo, Executive Vice President and Chief Financial Officer, both of American River Bankshares, will lead a live forty-five minute presentation and answer questions.   Shareholders, analysts and other interested parties are invited to join the call by dialing (877) 584-2599 and entering the Conference ID # 80698694.  A recording of the call will be available twenty-four hours after the call’s completion on http://amrb.podbean.com

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About American River Bankshares

American River Bankshares [NASDAQ – GS: AMRB] is the parent company of American River Bank (“ARB”), a community business bank serving Sacramento, CA that operates a family of financial services providers, including North Coast Bank [a division of “ARB”] in Sonoma County and Bank of Amador [a division of “ARB”] in Amador County.  For more information, please call 916-851-0123 or visit www.amrb.com; www.americanriverbank.com; www.northcoastbank.com; or www.bankofamador.com.

Forward-Looking Statement

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 of 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, 2007, 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.

Investor Contact:
Mitchell A. Derenzo
Chief Financial Officer
American River Bankshares
916-231-6723

Media Contact:
Diana Walery
Corporate Communications
American River Bankshares
916-231-6717

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