American River Bankshares Reports Second Quarter 2009 Financial

Sacramento, CA, July 27, 2009 – American River Bankshares (NASDAQ-GS: AMRB) today reported net income of $579,000 or $0.10 per diluted share for the six months ended June 30, 2009, compared to $3,814,000 or $0.65 per diluted share for the six months ended June 30, 2008. The Company realized a net loss of $704,000 or ($0.12) per diluted share for the second quarter of 2009 compared to net income of $1,981,000 or $0.34 for the second quarter of 2008.  The per-share operating results have been adjusted for a 5% stock dividend distributed in December 2008. 

AMRB recorded income before income taxes and loan and lease losses (or pre-tax pre-provision earnings) of $5,676,000 and a net interest margin of 4.98% for the six months ended June 30, 2009, compared to $6,690,000 and 4.96% for the six months ended June 30, 2008.  For the second quarter of 2009, pre-tax pre-provision earnings were $2,428,000 and net interest margin was 4.87%, compared to $3,392,000 and 4.99% for the second quarter of 2008.

“Reporting the first quarterly loss in over twenty-five years is a disappointment, and is directly related to our $3.8 million loan loss provision and $253,000 special assessment payment to the FDIC,” said David Taber, President and CEO of American River Bankshares.  “We’re being prudent with our evaluation of the loan portfolio and as a result, we have built our allowance to $7.8 million or 1.91% of total loans and leases.”

Taber continued, “While it is hard to look past the short term impact these issues have on profitability, we are proactively addressing the challenges faced by some of our borrowers and are pleased with both our ability to maintain a stable net interest margin and our pre-tax pre-provision earnings of $5.7 million during the first half of 2009.”

During the second quarter of 2009, the Company declared a quarterly cash dividend of $0.143 per share.  The Company did not repurchase any of its common stock in the first half of 2009.  As the dividend payout for the first half of 2009 exceeded net income, the Board of Directors has decided it is in the Company’s best interest to continue to build capital and temporarily suspend both the cash dividend and the stock repurchase plan. 

“The Board of Directors felt it necessary to make the difficult decision to suspend the cash dividend due to the current economic challenges that both the Company and country are facing,” said Charles Fite, Chairman of American River Bankshares.  “It is in the best interest to our Company's long-term success to stick to our plan of building capital and increasing our reserves.” 

Net Interest Margin

Net interest income for the second quarter of 2009 decreased $377,000 (5.9%) to $6,018,000 from $6,395,000 for the second quarter of 2008 and for the six months ended June 30, 2009 decreased $380,000 (3.0%) to $12,357,000 from $12,737,000 for the six months ended June 30, 2008.  Interest income for the second quarter of 2009 decreased $931,000 (11.3%) to $7,321,000 from $8,252,000 for the second quarter of 2008 and for the six months ended June 30, 2009 decreased $1,758,000 (10.4%) to $15,072,000 from $16,830,000 for the six months ended June 30, 2008.  Interest expense for the second quarter of 2009 decreased $554,000 (29.8%) to $1,303,000 from $1,857,000 for the second quarter of 2008 and for the six months ended June 30, 2009 decreased $1,378,000 (33.7%) to $2,715,000 from $4,093,000 for the six months ended June 30, 2008.   

The average yield on earning assets declined from 6.42% in the second quarter of 2008 to 5.91% for the second quarter of 2009 and declined from 6.54% for the six months ended June 30, 2008 to 6.06% for the six months ended June 30, 2009.  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 decreased 3.8% from $522,550,000 in the second quarter of 2008 to $502,445,000 in the second quarter of 2009 and decreased 3.0% from $523,037,000 for the six months ended June 30, 2008 to $507,425,000 for the six months ended June 30, 2009.  While the overall balance decreased slightly during the three and six-month periods, the Company did see a positive change in mix with an increase in average loan balances offset by a corresponding decrease in average investment securities. 

When compared to the second quarter of 2008, average loan balances were up $5,862,000 (1.4%) to $410,959,000 for the second quarter of 2009 and when compared to the first six months of 2008, average loan balances were up $10,046,000 (2.5%) for the six months ended June 30, 2009 while average investment securities were down $22,248,000 (20.0%) to $89,061,000 for the second quarter of 2009 and down $22,956,000 (20.3%) for the six months ended June 30, 2009.  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 and to offset decreases in deposit balances.  Foregone interest income on nonaccrual loans during the second quarter of 2009 was approximately $378,000, compared to $260,000 during the second quarter of 2008.   Foregone interest income on nonaccrual loans for the six months ended June 30, 2009 was approximately $647,000, compared to $597,000 for the six months ended June 30, 2008.  Overall, the yield on loans during the second quarter of 2009 was 6.21% as compared to 6.90% for the second quarter of 2008 and 6.37% for the six months ended June 30, 2009 compared to 7.06% for the six months ended June 30, 2008, reflective of the declining rate environment and the higher amounts of foregone interest.

The average cost of funds decreased from 1.96% in the second quarter of 2008 to 1.36% for the second quarter of 2009.  The average balance of interest bearing liabilities increased 0.6% from $380,969,000 in the second quarter of 2008 to $383,067,000 in the second quarter of 2009.  This increase resulted primarily from an increase in average time deposits of $16,973,000 (13.8%).  The increased time deposits were used to offset the decrease in noninterest demand and money market accounts.  For the six months ended June 30, 2009, the average cost of funds decreased 0.76% to 1.41%, down from 2.17% reported in the first half of 2008.  The average balance of interest bearing liabilities increased 2.4% from $379,541,000 in the first half of 2008 to $388,569,000 in the first half quarter of 2009. 

Loan Growth and Asset Quality

Net loans as of June 30, 2009 decreased $4,240,000 (1.1%) to $398,191,000 from $402,431,000 as of June 30, 2008 and decreased $14,165,000 (3.4%) from $412,356,000 as of December 31, 2008.  Net loan balances decreased $10,258,000 (2.5%) from the balances as of March 31, 2009.  Average loan balances decreased $6,820,000 (1.6%) from $417,779,000 during the first quarter of 2009 to $410,959,000 during the second quarter of 2009.  Real estate loans increased $12,736,000 (4.5%) to $297,023,000 as of June 30, 2009 from $284,287,000 as of June 30, 2008, but decreased $3,911,000 (1.3%) from $300,934,000 as of December 31, 2008, and decreased $3,912,000 (1.3%) from March 31, 2009.  Commercial loans decreased $18,474,000 (18.2%) to $82,799,000 as of June 30, 2009 from $101,273,000 as of June 30, 2008, decreased $7,826,000 (8.6%) from $90,625,000 as of December 31, 2008, and decreased $5,578,000 (6.3%) from March 31, 2009.   

The loan portfolio at June 30, 2009 included: real estate loans of $297,023,000 (73% of the portfolio), commercial loans of $82,799,000 (20% of the portfolio) and other loans, which consist mainly of leases and consumer loans of $267,220,00 (7% of the portfolio).  The real estate loan portfolio at June 30, 2009 includes: business property loans of $120,961,000 (41% of the real estate portfolio), investor commercial real estate of $102,057,000 (34% of the real estate portfolio), construction and land development of $38,176,000 (13% of the real estate portfolio) and other, which consists of residential and multi-family real estate of $35,829,000 (12% of the real estate portfolio).   

At June 30, 2009, the allowance for loan and lease losses was $7,758,000 (1.91% of total loans and leases) compared with $6,111,000 (1.50% of total loans and leases) at June 30, 2008, $5,918,000 (1.41% of total loans and leases) at December 31, 2008, and $5,839.000 (1.40% of total loans and leases) at March 31, 2009.  The provision for loan and lease losses was $3,800,000 for the second quarter of 2009, compared to $190,000 for the second quarter of 2008 and for the six months ended June 30, 2009, the provision was $5,029,000 compared to $527,000 for the six months ended June 30, 2008.  Net chargeoffs for the second quarter of 2009 were $1,881,000 compared to $96,000 for the second quarter of 2008 and for the six months ended June 30, 2009, net chargeoffs were $3,189,000 compared to $299,000 for the six months ended June 20, 2008.  Non-performing loans and leases as of June 30, 2009 were $20,946,000 or 5.16% of total loans and leases compared to $14,265,000 or 3.49% one year ago and $6,241,000 or 1.49% as of December 31, 2008.  Loans and leases past due 30 to 89 days decreased to $8,251,000 at June 30, 2009 from $10,135,000 at June 30, 2008 but increased from $7,812,000 at December 31, 2008 and $6,226,000 at March 31, 2009.

Non-performing assets were $24,293,000 at June 30, 2009 compared to $14,625,000 at June 30, 2008, $8,399,000 at December 31, 2008, and $10,919,000 at March 31, 2009.  Non-performing assets to total assets as of June 30, 2009 were 4.40% compared to 2.46% one year ago, 1.49% as of December 31, 2008, and 1.96% as of March 31, 2009.  Non-performing assets consist of the following as of June 30, 2009.

Non-performing assets

Balance

Non-performing loans that are current to terms* (six loans or leases)

$7,040,000

Non-performing loans paid off subsequent to quarter end (one loan)

294,000

Non-performing loans that are past due (26 loans or leases)

13,563,000

Loans past due 90 or more days and still accruing (two leases)

49,000

Other real estate owned  (net) (twelve properties)

3,347,000

$24,293,000

* loans that are current (less than 30 days past due) pursuant to original or modified terms

The Company evaluates non-performing loans for impairment and assigns specific reserves when necessary.  After the chargeoffs recorded through June 30, 2009, specific reserves of $1,862,000 were held on the non-performing loans considered to be impaired.  In addition, at June 30, 2009, there were eight loans that were modified and considered troubled debt restructures totaling $6,245,000. 

Other Real Estate Owned

At June 30, 2009, the Company had twelve other real estate owned (“OREO”) properties totaling $3,647,000 with a corresponding reserve of $300,000.  This compares to three properties totaling $2,158,000 at December 31, 2008 and no OREO at June 30, 2008.  At March 31, 2009, the Company had eight OREO properties totaling $4,478,000, and during the second quarter of 2009, the Company sold two properties totaling $1.9 million and added six properties for $1.1 million.

Deposits and Borrowed Funds

Total deposits as of June 30, 2009 decreased $9,591,000 (2.1%) to $449,609,000 from $459,200,000 as of June 30, 2008, but increased $12,548,000 (2.9%) from $437,061,000 as of December 31, 2008 and $12,668,000 (2.9%) as of March 31, 2009.  Noninterest-bearing deposits decreased $12,684,000 (9.9%) to $115,036,000 as of June 30, 2009 from $127,720,000 as of June 30, 2008 and decreased $4,107,000 (3.4%) from $119,143,000 as of December 31, 2008 and increased $716,000 (0.6%) from $114,320,000 as of March 31, 2009.  Interest-bearing deposits increased $3,093,000 (0.9%) to $334,573,000 as of June 30, 2009 from $331,480,000 as of June 30, 2008 and increased $16,655,000 (5.2%) from $317,918,000 as of December 31, 2008 and increased $10,327,000 (3.2%) from $324,246,000 as of March 31, 2009.  Other borrowings, which include both short- and long-term borrowings, decreased $17,803,000 (33.1%) to $36,000,000 as of June 30, 2009 from $53,803,000 as of June 30, 2008, decreased $21,231,000 (37.1%) from $57,231,000 at December 31, 2008, and decreased $12,621,000 (26.0%) from $48,621,000 as of March 31, 2009. 

Noninterest Income and Expense

Noninterest income for the second quarter of 2009 increased $10,000 (1.6%) to $649,000 from $639,000 for the second quarter of 2008 and for the six months ended June 30, 2009 decreased $65,000 (5.3%) to $1,159,000 from $1,224,000 for the six months ended June 30 2008.  The decrease from the first half of 2008 to the first half of 2009 was primarily related to lower income from fees from accounts receivable servicing ($64,000 or 68%), lower income from fees on residential lending ($178,000 or 962%) and lower income from bank owned life insurance ($86,000 or 43%).  The decrease was offset by an increase in higher service charges on deposit accounts ($139,000 or 39%) and gains on sales of securities which was $160,000, up from $33,000 in the first half of 2008. 

Noninterest expense for the second quarter of 2009 increased $597,000 (16.4%) to $4,239,000 from $3,642,000 for the second quarter of 2008 and for the six months ended June 30, 2009 increased $569,000 (7.8%) to $7,840,000 from $7,271,000.  Much of this increase is related to an increase in costs associated with maintaining the Company’s OREO.  The total OREO expense for the six months ended June 30, 2009 was $567,000, including a $300,000 reserve, compared to zero for the same period in 2008.  In addition, FDIC insurance increased by $383,000 from $26,000 for the six months ended June 30, 2008 to $409,000 in 2009. These cost increases were partially offset by reductions in salaries and benefits.  Total salaries and benefits decreased $395,000 (9.6%) from the first half of 2008 to the first half of 2009.  Most of this decrease resulted from a reduction in the number of full-time equivalent employees and a reduction in the Company’s performance based incentive accrual. 

The fully taxable equivalent efficiency ratio for the second quarter of 2009 increased to 61.81% from 50.13% for the second quarter of 2008 and for the six months ended June 30, 2009 increased to 56.32% from 50.43% for the six months ended June 30, 2008. 

Income Taxes

The Company recorded a benefit for income taxes for the quarter ended June 30, 2009 of $668,000, resulting in an effective tax benefit rate of 48.7%, compared to a tax provision of $1,221,000, or an effective tax rate of 38.1%, for the quarter ended June 30, 2008. The provision for income taxes for the six months ended June 30, 2009 was $68,000, resulting in an effective tax rate of 10.5%, compared to $2,349,000, or an effective tax rate of 38.1%, for the same period in 2008.  The lower effective tax rate in 2009 results from the Company realizing the benefits of tax free income related to such items as municipal bonds and bank owned life insurance against an overall lower amount of taxable income.

Capital

Total shareholders’ equity at June 30, 2009 was $62,276,000, up $1,209,000 (2.0%) from $61,067,000 at June 30, 2008, down $1,171,000 (1.8%) from $63,447,000 at December 31, 2008, and down $1,653,000 (2.6%) from $63,929,000 at March 31, 2009.  The Company’s subsidiary, American River Bank, remains above the well-capitalized regulatory guidelines. At June 30, 2009, American River Bank’s leverage ratio was 8.23%, the Tier 1 risk based ratio was 10.65% and the Total Risk Based Capital ratio was 11.91%.  These ratios were all up significantly from one year ago.  At June 30, 2008, American River Bank’s leverage ratio was 7.84%, the Tier 1 risk based ratio was 9.75% and the Total Risk Based Capital ratio was 11.00%. 

Performance Metrics

Performance measures for the second quarter of 2009 (annualized): the Return on Average Assets (ROAA) was –0.50%, Return on Average Equity (ROAE) was –4.41% and Return on Average Tangible Equity (ROATE) was –6.01% compared to the ROAA of 1.38%, ROAE of 13.11% and ROATE of 18.38%, during the second quarter of 2008.  For the six months ended June 30, 2009, the Company had a ROAA of 0.20%, ROAE of 1.83% and ROATE of 2.50% compared to a ROAA of 1.33%, ROAE of 12.69% and ROATE of 17.84% for the six months ended June 30, 2008.

Earnings Conference Call

The second quarter earnings conference call will be held Monday, July 27, 2009 at 4:00 p.m. Pacific Time (7:00 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 # 21059117.  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 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, 2008, 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.

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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