AMERICAN RIVER BANKSHARES (Form: 10-Q, Received: 05/09/2013 16:53:35)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended	March 31, 2013
or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from		to

Commission File Number: 0-31525

AMERICAN RIVER BANKSHARES
(Exact name of registrant as specified in its charter)


California		68-0352144
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


3100 Zinfandel Drive, Suite 450, Rancho Cordova, California		95670
(Address of principal executive offices)		(Zip Code)

(916) 851-0123
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


	Large accelerated filer o	Accelerated filer o

	Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

No par value Common Stock – 8,903,114 shares outstanding at May 7, 2013

AMERICAN RIVER BANKSHARES

INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2013


Part I.			Page

	Item 1.	Financial Statements	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
	Item 4.	Controls and Procedures	46

Part II.

	Item 1.	Legal Proceedings	47
	Item 1A.	Risk Factors	47
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
	Item 3.	Defaults Upon Senior Securities	48
	Item 4.	Mine Safety Disclosures	48
	Item 5.	Other Information	48
	Item 6.	Exhibits	48

Signatures			52

Exhibit Index			53

	3.2	Bylaws, as amended	54
	31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	96
	31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	97
	32.1	Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	98

	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema
	101.CAL	XBRL Taxonomy Extension Calculation
	101.DEF	XBRL Taxonomy Extension Definition
	101.LAB	XBRL Taxonomy Extension Label
	101.PRE	XBRL Taxonomy Extension Presentation

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN RIVER BANKSHARES

CONSOLIDATED BALANCE SHEET

(Unaudited)

(dollars in thousands)	March 31, 2013		December 31, 2012
ASSETS

Cash and due from banks	$	47,847	$	55,461
Interest-bearing deposits in banks		750		750
Investment securities:
Available-for-sale, at fair value		241,881		231,839
Held-to-maturity, at amortized cost		1,900		2,117
Loans and leases, less allowance for loan and lease losses of $5,903 at March 31, 2013 and $5,781 at December 31, 2012		245,492		252,118
Premises and equipment, net		1,798		1,888
Federal Home Loan Bank stock		3,254		3,254
Goodwill and other intangible assets		16,321		16,321
Other real estate owned		8,946		12,237
Bank owned life insurance		12,511		12,858
Accrued interest receivable and other assets		6,561		7,546
	$	587,261	$	596,389

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:
Noninterest bearing	$	141,259	$	151,201
Interest-bearing		329,597		327,055
Total deposits		470,856		478,256

Short-term borrowings		7,000		2,000
Long-term borrowings		11,000		16,000
Accrued interest payable and other liabilities		5,672		6,139

Total liabilities		494,528		502,395

Commitments and contingencies

Shareholders’ equity:
Preferred stock, no par value; 20,000,000 shares authorized; none Outstanding
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding – 9,105,729 shares at March 31, 2013 and 9,327,203 shares at December 31, 2012		66,353		67,977
Retained earnings		22,354		21,732
Accumulated other comprehensive income, net of taxes		4,026		4,285

Total shareholders’ equity		92,733		93,994
	$	587,261	$	596,389

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

(dollars in thousands, except per share data)
For the three months ended March 31,
	2013		2012

Interest income:
Interest and fees on loans	$	3,642	$	4,316
Interest on deposits in banks		1		3
Interest and dividends on investment securities:
Taxable		788		965
Exempt from Federal income taxes		220		226
Dividends		—		—
Total interest income		4,651		5,510
Interest expense:
Interest on deposits		331		435
Interest on borrowings		76		67
Total interest expense		407		502

Net interest income		4,244		5,008

Provision for loan and lease losses		100		580

Net interest income after provision for loan and lease losses		4,144		4,428

Noninterest income:
Service charges on deposit accounts		151		196
Gain on sale of securities		—		—
Gain on life insurance death benefit		118		64
Rental income from OREO properties		92		233
Other noninterest income		264		200
Total noninterest income		625		693

Noninterest expense:
Salaries and employee benefits		2,217		2,203
Occupancy		301		296
Furniture and equipment		194		190
Federal Deposit Insurance Corporation assessments		126		142
Expenses related to other real estate owned		305		374
Other expense		859		907
Total noninterest expense		4,002		4,112
Income before provision for income taxes		767		1,009
Provision for income taxes		145		297
Net income	$	622	$	712

Basic earnings per share	$	0.07	$	0.07
Diluted earnings per share	$	0.07	$	0.07

Cash dividends per share	$	0.00	$	0.00

See notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands)
For the three months ended March 31,
	2013			2012

Net income	$	622		$	712
Other comprehensive income:
(Decrease) increase in net unrealized gains on investment securities		(432	)		644
Deferred tax benefit (expense)		173			(258	)
(Decrease) increase in net unrealized gains on investment securities, net of tax		(259	)		386

Reclassification adjustment for realized gains included in net income		—			(64	)
Tax effect		—			26
Realized gains, net of tax		—			(38	)

Total other comprehensive (loss) income		(259	)		348
Comprehensive income	$	363		$	1,060

See notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)


(dollars in thousands)	Common Stock								Accumulated Other			Total
							Retained		Comprehensive			Shareholders’
	Shares			Amount			Earnings		Income			Equity
Balance, January 1, 2012		9,890,909			72,016			18,525		3,558			94,099
Net income								3,207					3,207
Other comprehensive income, net of tax:
Net change in unrealized gains on available-for-sale investment securities										727			727

Net restricted stock awarded and related compensation expense		11,683			110								110
Stock option compensation expense					45								45
Retirement of common stock		(575,389	)		(4,194	)							(4,194	)
Balance, December 31, 2012		9,327,203			67,977			21,732		4,285			93,994
Net income								622					622
Other comprehensive income, net of tax:
Net change in unrealized gains on available-for-sale investment securities										(259	)		(259	)

Net restricted stock award activity and related compensation expense		—			24								24
Stock option compensation expense					9								9
Retirement of common stock		(221,474	)		(1,657	)							(1,657	)

Balance, March 31, 2013		9,105,729		$	66,353		$	22,354	$	4,026		$	92,73 3

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

(dollars in thousands)
For the three months ended March 31,


	2013			2012

Cash flows from operating activities:
Net income	$	622		$	712
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		100			580
Increase (decrease) in deferred loan origination fees, net		3			(42	)
Depreciation and amortization		134			200
Gain on sale and call of investment securities		—			(64	)
Amortization of investment security premiums and discounts, net		1,422			982
Gain on life insurance death benefit		(118	)		—
Decrease (increase) in cash surrender values of life insurance policies		46			(65	)
Stock based compensation expense		33			33
Loss on sale and write-down of other real estate owned		93			161
Decrease in accrued interest receivable and other assets		1,157			492
Decrease in accrued interest payable and other liabilities		(467	)		(383	)

Net cash provided by operating activities		3,025			2,606

Cash flows from investing activities:
Proceeds from the sale of available-for-sale investment securities		—			4,713
Proceeds from matured available-for-sale investment securities		—			165
Proceeds from called available-for-sale investment securities		—			195
Purchases of available-for-sale investment securities		(27,425	)		(10,755	)
Proceeds from principal repayments for available- for-sale investment securities		15,528			11,220
Proceeds from principal repayments for held-to- maturity investment securities		218			449
Net decrease in loans		6,091			5,961
Proceeds from sale of other real estate		3,743			467
Capitalized additions to other real estate		(112	)		—
Death benefit from life insurance policy		419			—
Purchases of equipment		(44	)		(75	)

Net cash (used in) provided by investing activities		(1,582	)		12,340

Cash flows from financing activities:
Net (decrease) increase in demand, interest-bearing and savings deposits	$	(7,477	)	$	11,556
Net increase in time deposits		77			2,741
Net decrease in other borrowings		—			(5,000	)
Cash paid to repurchase common stock		(1,657	)		(1,044	)

Net cash (used in) provided by financing activities	$	(9,057	)	$	8,253

(Decrease) increase in cash and cash equivalents		(7,614	)		23,199

Cash and cash equivalents at beginning of year		55,461			23,768

Cash and cash equivalents at end of period	$	47,847		$	46,967

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

1. CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of American River Bankshares (the “Company”) at March 31, 2013 and December 31, 2012, the results of its operations and statement of comprehensive income for the three month periods ended March 31, 2013 and 2012, its cash flows for the three-month periods ended March 31, 2013 and 2012 and its statement of changes in shareholders’ equity for the year ended December 31, 2012 and the three months ended March 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 annual report on Form 10-K. The results of operations for the three-month period ended March 31, 2013 may not necessarily be indicative of the operating results for the full year.

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan and lease losses, the provision for taxes, the valuation of goodwill and the estimated fair value of investment securities, impaired loans and other real estate owned.

Management has determined that since all of the banking products and services offered by the Company are available in each branch office of American River Bank, all branch offices are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate all of the branch offices and report them as a single operating segment. No client accounts for more than ten percent (10%) of revenues for the Company or American River Bank.

2. STOCK-BASED COMPENSATION

Equity Plans

On March 17, 2010, the Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was approved by the Company’s shareholders on May 20, 2010. In 2000, the Board of Directors adopted and the Company’s shareholders approved a stock option plan (the “2000 Plan”), under which 261,521 stock options remain outstanding at March 31, 2013. At March 31, 2013, there were 17,329 stock options and 26,969 restricted shares outstanding and the total number of authorized shares that remain available for issuance under the 2010 Plan was 1,446,739. The 2010 Plan provides for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted stock; restricted performance stock; unrestricted Company stock; and performance units. Awards granted under the 2000 Plan were either incentive stock options or nonqualified stock options. Under the 2010 Plan, the awards may be granted to employees and directors under incentive and nonstatutory agreements and other awards agreements. The 2010 Plan and the 2000 Plan (collectively the “Plans”) require that the option price may not be less than the fair market value of the stock at the date the option is granted. The option awards under the Plans expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period is generally five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors. Outstanding option awards under the Plans are exercisable until their expiration, however, no new options will be awarded under the 2000 Plan. New shares are issued upon exercise of an option.

The grant date fair value of awards is determined by the market price of the Company’s common stock on the date of grant and is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock granted pursuant to such agreements vest in increments over one to five years from the date of grant. The shares awarded to employees and directors under the restricted stock agreements vest on the applicable vesting dates only to the extent the recipient of the shares is then an employee or a director of the Company or one of its subsidiaries, and each recipient will forfeit all of the shares that have not vested on the date his or her employment or service is terminated.

Equity Compensation

For the three-month periods ended March 31, 2013 and 2012, the compensation cost recognized for equity compensation was $33,000 each period. The recognized tax benefit for equity compensation expense was $11,000 and $8,000, for the three-month periods ended March 31, 2013 and 2012, respectively.

At March 31, 2013, the total compensation cost related to nonvested stock option awards not yet recorded is $47,000. This amount will be recognized over the next 4.25 years and the weighted average period of recognizing these costs is expected to be 1.6 years. At March 31, 2013, the total compensation cost related to restricted stock awards not yet recorded is $183,000. This amount will be recognized over the next 4.25 years and the weighted average period of recognizing these costs is expected to be 1.2 years.

Equity Plans Activity

Stock Options

There were no stock options awarded during the three-month periods ended March 31, 2013 and 2012. A summary of option activity under the Plans as of March 31, 2013 and changes during the period then ended is presented below:

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2013		305,670	$	16.71		4.0 years	$	—
Granted		—		—		—		—
Exercised		—		—		—		—
Cancelled		26,820		11.68		—		—
Outstanding at March 31, 2013		278,850	$	17.20		3.8 years	$	8
Vested at March 31, 2013		252,520	$	18.20		3.4 years	$	—
Non-vested at March 31, 2013		26,330	$	7.61		8.0 years	$	8
Expected to vest at March 31, 2013		19,750	$	7.61		8.0 years	$	—

Restricted Stock

There were no shares of restricted stock awarded during the three-month periods ended March 31, 2013 and 2012, respectively . There were no restricted stock awards that were fully vested during the three-month periods ended March 31, 2013 and 2012, respectively. T he intrinsic value of nonvested restricted stock at March 31, 2013 was $203,000.

Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2013		26,969	$	6.79
Awarded		—		—
Less: Vested		—		—
Less: Cancelled		—		—
Nonvested at March 31, 2013		26,969	$	6.79

Other Equity Awards

There were no stock appreciation rights; restricted performance stock; unrestricted Company stock; or performance units awarded during the three-month periods ended March 31, 2013 or 2012.

The intrinsic value used for stock options and restricted stock was derived from the market price of the Company’s common stock of $7.51 as of March 31, 2013.

3. COMMITMENTS AND CONTINGENCIES

In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately $27,668,000 and standby letters of credit of approximately $6,452,000 at March 31, 2013 and loan commitments of approximately $26,518,000 and standby letters of credit of approximately $6,506,000 at December 31, 2012. Such commitments relate primarily to real estate construction loans, revolving lines of credit and other commercial loans. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company during 2013 as some of these are expected to expire without being fully drawn upon.

Standby letters of credit are commitments issued to guarantee the performance or financial obligation of a client to a third party. These guarantees are issued primarily relating to purchases of inventory or as security for real estate rents by commercial clients and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The majority of all such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at March 31, 2013 or December 31, 2012.

4. EARNINGS PER SHARE COMPUTATION

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period (9,209,719 shares and 9,823,269 shares for the three-month periods ended March 31, 2013 and 2012, respectively). Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock, result in the issuance of common stock. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period plus the dilutive effect of stock based awards (10,898 shares for the three-month period ended March 31, 2013 and 10,281 shares for the three-month period ended March 31, 2012). Earnings per share is retroactively adjusted for stock dividends and stock splits for all periods presented. Stock options for 278,850 shares and 355,527 shares of common stock were not considered in computing diluted earnings per common share for the three-month periods ended March 31, 2013 and 2012, respectively, because they were antidilutive.

5. INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities at March 31, 2013 and December 31, 2012 consisted of the following (dollars in thousands):

Available-for-Sale

	March 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
Mortgage-backed securities	$	205,981	$	5,253	$	(427	)	$	210,807
Obligations of states and political subdivisions		27,620		1,761		—			29,381
Corporate bonds		1,506		100		—			1,606
Equity securities:
Corporate stock		64		23		—			87
	$	235,171	$	7,137	$	(427	)	$	241,881

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
Mortgage-backed securities	$	195,444	$	5,661	$	(590	)	$	200,515
Obligations of states and political subdivisions		27,682		1,974		—			29,656
Corporate bonds		1,507		87		—			1,594
Equity securities:
Corporate stock		64		10		—			74
	$	224,697	$	7,732	$	(590	)	$	231,839

Net unrealized gains on available-for-sale investment securities totaling $4,026,000 were recorded, net of $2,684,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at March 31, 2013. There were not any proceeds nor gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2013. There were no transfers of available-for-sale investment securities for the three-month period ended March 31, 2013.

Net unrealized gains on available-for-sale investment securities totaling $4,285,000 were recorded, net of $2,857,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2012. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended March 31, 2012 totaled $4,908,000 and $64,000, respectively. There were no transfers of available-for-sale investment securities for the three-month period ended March 31, 2012.

Held-to-Maturity

March 31, 2013

Gross

Estimated

Amortized

Unrealized

Fair

Cost

Gains

Losses

Value

Debt securities:

Mortgage-backed securities

1,900

128

—

2,028

December 31, 2012

Gross

Estimated

Amortized

Unrealized

Fair

Cost

Gains

Losses

Value

Debt securities:

Mortgage-backed securities

2,117

138

—

2,255

There were no sales or transfers of held-to-maturity investment securities for the periods ended March 31, 2013 and March 31, 2012. Investment securities with unrealized losses at March 31, 2013 and December 31, 2012 are summarized and classified according to the duration of the loss period as follows (dollars in thousands):

March 31, 2013	Less than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-Sale

Debt securities:
Mortgage-backed securities	$	38,658	$	(427	)		—		—	$	38,658	$	(427	)
	$	38,658	$	(427	)	$	—	$	—	$	38,658	$	(427	)

December 31, 2012	Less than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-Sale

Debt securities:
Mortgage-backed securities	$	37,440	$	(590	)		—		—	$	37,440	$	(590	)
	$	37,440	$	(590	)	$	—	$	—	$	37,440	$	(590	)

There were no held-to-maturity investment securities with unrealized losses as of March 31, 2013 or December 31, 2012.

At March 31, 2013, the Company held 206 securities of which 16 were in a loss position for less than twelve months and none were in a loss position for twelve months or more. Of the 16 securities in a loss position, all are mortgage-backed securities. At December 31, 2012, the Company held 196 securities of which 16 were in a loss position for less than twelve months and none were in a loss position for twelve months or more. All 16 securities in a loss position were mortgage-backed securities.

The unrealized loss on the Company’s investments in mortgage-backed securities is primarily driven by interest rates. Because the decline in market value is attributable to a change in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be until maturity, management does not consider these investments to be other-than-temporarily impaired.

The amortized cost and estimated fair values of investment securities at March 31, 2013 by contractual maturity are shown below (dollars in thousands).

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Within one year	$	1,010	$	1,016
After one year through five years		3,382		3,567
After five years through ten years		11,644		12,456
After ten years		13,090		13,948
		29,126		30,987
Investment securities not due at a single maturity date:
Mortgage-backed securities		205,981		210,807	$	1,900	$	2,028
Corporate stock		64		87		—		—
	$	235,171	$	241,881	$	1,900	$	2,028

Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

6. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED

At March 31, 2013 and December 31, 2012, the recorded investment in nonperforming loans and leases was approximately $4,811,000 and $5,474,000, respectively. Nonperforming loans and leases include all such 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 such loans are well-secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the original loan agreement. At March 31, 2013, the recorded investment in loans and leases that were considered to be impaired totaled $24,477,000, which includes $4,811,000 in nonaccrual loans and leases and $19,666,000 in accruing loans and leases. Of the total impaired loans of $24,477,000, loans totaling $11,854,000 were deemed to require no specific reserve and loans totaling $12,623,000 were deemed to require a related valuation allowance of $1,733,000. At December 31, 2012, the recorded investment in loans and leases that were considered to be impaired totaled $26,553,000 and had a related valuation allowance of $1,595,000. If interest had been accruing on the nonperforming loans, such income would have approximated $59,000 and $272,000 for the three months ended March 31, 2013 and 2012.

At March 31, 2013 and December 31, 2012, the recorded investment in other real estate owned (“OREO”) was $8,946,000 and $12,237,000, respectively. During the first quarter of 2013, the Company sold six properties with balances of $3,743,000 for a loss of $93,000 and added a single property to OREO with a net book value totaling $432,000. The single property is improved land with a long-term lease for a self-storage facility in Sonoma County.

The Company periodically obtains property valuations to determine whether the recorded book value is considered fair value. During the first quarter of 2013, this valuation process did not result in the Company adjusting the book value of the OREO properties.

The March 31, 2013 OREO balance of $8,946,000 consists of 15 properties including five commercial real estate properties in the total amount of $4,010,000, six residential land properties in the total amount of $3,990,000, two commercial land properties in the total amount of $689,000 and two residential real estate properties in the total amount of $257,000.

Nonperforming loans and leases and OREO at March 31, 2013 and December 31, 2012 are summarized as follows (in thousands):

	March 31, 2013			December 31, 2012
Nonaccrual loans and leases that are current to terms (less than 30 days past due)	$	1,770		$	1,514
Nonaccrual loans and leases that are past due		3,041			3,960
Loans and leases past due 90 days and accruing interest		—			—
Other real estate owned		8,946			12,237
Total nonperforming assets	$	13,757		$	17,111

Nonperforming loans and leases to total loans and leases		1.91	%		2.12	%
Total nonperforming assets to total assets		2.34	%		2.79	%

Impaired loans and leases as of and for the periods ended March 31, 2013 and December 31, 2012 are summarized as follows:

(in thousands)	As of March 31, 2013						As of December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:

Commercial	$	775	$	794	$	—	$	1,248	$	1,407	$	—
Real estate-commercial		10,783		11,505		—		10,882		11,603		—
Real estate-multi-family		—		—		—		—		—		—
Real estate-construction		259		259		—		263		263		—
Real estate-residential		—		92		—		—		—		—
Leases		—		—		—		—		—		—
Consumer		37		109		—		37		109		—
Subtotal	$	11,854	$	12,759	$	—	$	12,430	$	13,382	$	—

With an allowance recorded:

Commercial	$	1,615	$	1,615	$	542	$	1,580	$	1,580	$	480
Real estate-commercial		6,748		6,812		871		8,223		8,287		786
Real estate-multi-family		1,673		1,766		124		1,681		1,774		122
Real estate-construction		—		—		—		—		—		—
Real estate-residential		2,382		2,382		166		2,429		2,483		179
Agriculture		—		—		—		—		—		—
Consumer		205		205		30		210		210		28
Subtotal	$	12,623	$	12,780	$	1,733	$	14,123	$	14,334	$	1,595

Total:

Commercial	$	2,390	$	2,409	$	542	$	2,828	$	2,987	$	480
Real estate-commercial		17,531		18,317		871		19,105		19,890		786
Real estate-multi-family		1,673		1,766		124		1,681		1,774		122
Real estate-construction		259		259		—		263		263		—
Real estate-residential		2,382		2,474		166		2,429		2,483		179
Leases		—		—		—		—		—		—
Agriculture		—		—		—		—		—		—
Consumer		242		314		30		247		319		28
	$	24,477	$	25,539	$	1,733	$	26,553	$	27,716	$	1,595

The following table presents the average balance related to impaired loans and leases for the periods indicated (in thousands):

	Average Recorded Investments for the three months ended
	March 31, 2013		March 31, 2012

Commercial	$	2,436	$	6,757
Real estate-commercial		17,608		15,337
Real estate-multi-family		1,677		1,216
Real estate-construction		261		2,223
Real estate-residential		2,405		2,869
Leases		—		9
Agriculture		—		497
Consumer		245		738
Total	$	24,632	$	29,646

The following table presents the interest income recognized on impaired loans and leases for the periods indicated (in thousands):

	Interest Income Recognized for the three months ended
	March 31, 2013		March 31, 2012

Commercial	$	16	$	240
Real estate-commercial		208		698
Real estate-multi-family		19		44
Real estate-construction		3		19
Real estate-residential		23		154
Leases		—		1
Agriculture		—		3
Consumer		1		43
Total	$	270	$	1,202

7. TROUBLED DEBT RESTRUCTURINGS

At March 31, 2013, there were 26 loans and leases that were considered to be troubled debt restructurings. Of these loans and leases, 13 were modified and are currently performing (less than ninety days past due) totaling $7,300,000 and 13 are considered nonperforming (and included in the $4,811,000 discussed in Note 6), totaling $2,322,000. Of the 13 TDRs considered nonperforming, six are current to the modified terms. At March 31, 2013 and December 31, 2012, there were no unfunded commitments on those loans considered troubled debt restructures. See also “Impaired Loans and Leases” in Item 2.

The Company has allocated $1,160,000 and $1,575,000 of specific reserves to loans whose terms have been modified as troubled debt restructurings as of March 31, 2013 and December 31, 2012.

During the three-month period ended March 31, 2013, the terms of one loan were modified as a troubled debt restructuring. The modification of the terms of such loan was an extension of the maturity date with an interest rate lower than the original loan rate.

The following table presents loans by class modified as troubled debt restructurings during the three months ended March 31, 2013 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment

Troubled debt restructurings:
Real estate – commercial		1	$	438	$	438
Real estate – multi-family		—		—		—
Total		1	$	438	$	438

The troubled debt restructurings described above increased the allowance for loan and lease losses by $50,000 and resulted in no charge offs during the three months ended March 31, 2013.

The following table presents loans by class modified as troubled debt restructurings during the three months ended March 31, 2012:

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment

Troubled debt restructurings:
Commercial		1	$	47	$	47
Real estate – commercial		2		2,210		2,210
Real estate – multi-family		1		265		265
Real estate – residential		3		921		808
Other – agriculture		1		410		410
Other – consumer		2		31		31
Total		10	$	3,884	$	3,771

The troubled debt restructurings described above increased the allowance for loan and lease losses by $40,000 and resulted in charge offs of $113,000 during the three months ended March 31, 2012.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three months ended March 31, 2012:

	Number		Recorded
	of Loans		Investment
Troubled debt restructurings that subsequently defaulted:
Commercial		1	$	863
Real estate – commercial		4		1,260

Total		5	$	2,123

There were no payment defaults during the three months ended March 31, 2013 on troubled debt restructurings made in the preceding twelve months.

8. ALLOWANCE FOR LOAN AND LEASE LOSSES

The Company’s loan and lease portfolio allocated by management’s internal risk ratings as of March 31, 2013 and December 31, 2012 are summarized below:

March 31, 2013	Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)			Real Estate
	Commercial		Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	23,187	$	134,145	$	8,188	$	2,262	$	14,675
Watch		1,666		13,953		1,175		3,068		2,366
Special mention		578		14,324		436		602		1,152
Substandard		1,650		14,500		512		—		695
Doubtful		246		—		—		—		—
Total	$	27,327	$	176,922	$	10,311	$	5,932	$	18,888

	Credit Risk Profile by Internally Assigned Grade Other Credit Exposure
	Leases		Agriculture		Consumer		Total
Grade:
Pass	$	1,332	$	2,928	$	6,340	$	193,057
Watch		—		—		598		22,826
Special mention		—		399		194		17,685
Substandard		1		—		456		17,814
Doubtful		—		—		—		246
Total	$	1,333	$	3,327	$	7,588	$	251,628

December 31, 2012	Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)			Real Estate
		Commercial		Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	25,670	$	134,969	$	7,018	$	3,049	$	13,283
Watch		1,994		14,613		1,181		3,262		2,518
Special mention		653		16,041		441		607		1,163
Substandard		1,804		14,503		515		—		737
Doubtful		690		—		—		—		—
Total	$	30,811	$	180,126	$	9,155	$	6,918	$	17,701

	Credit Risk Profile by Internally Assigned Grade Other Credit Exposure
	Leases		Agriculture		Consumer		Total
Grade:
Pass	$	1,506	$	2,938	$	7,696	$	196,129
Watch		—		—		251		23,819
Special mention		—		402		153		19,460
Substandard		3		—		469		18,031
Doubtful		—		—		—		690
Total	$	1,509	$	3,340	$	8,569	$	258,129

The allocation of the Company’s allowance for loan and lease losses and by portfolio segment and by impairment methodology are summarized below:

March 31, 2013
(dollars in thousands)				Real Estate										Other

	Commercial			Commercial		Multi-Family		Construction			Residential			Leases		Agriculture		Consumer			Unallocated		Total

Allowance for Loan and Lease Losses

Beginning balance, January 1, 2013	$	1,351		$	2,526	$	238	$	594		$	477		$	3	$	87	$	262		$	243	$	5,781
Provision for loan losses		(84	)		140		18		(164	)		62			—		4		(8	)		132		100
Loans charged-off		(10	)		—		—		—			(38	)		—		—		(5	)				(53	)
Recoveries		74			1		—		—			—			—		—		—					75

Ending balance, March 31, 2013	$	1,331		$	2,667	$	256	$	430		$	501		$	3	$	91	$	249		$	375	$	5,903

Ending balance:
Individually evaluated for impairment	$	542		$	871	$	125	$	—		$	165		$	—	$	—	$	30		$	—	$	1,733

Ending balance:
Collectively evaluated for impairment	$	789		$	1,796	$	131	$	430		$	336		$	3	$	91	$	219		$	375	$	4,170

Loans

Ending balance	$	27,327		$	176,922	$	10,311	$	5,932		$	18,888		$	1,333	$	3,327	$	7,588		$	—	$	251,628

Ending balance:
Individually evaluated for impairment	$	2,390		$	17,531	$	1,673	$	259		$	2,382		$	—	$	—	$	242		$	—	$	24,477

Ending balance:
Collectively evaluated for impairment	$	24,937		$	159,391	$	8,638	$	5,673		$	16,506		$	1,333	$	3,327	$	7,346		$	—	$	227,15 1

December 31, 2012
(dollars in thousands)			Real Estate								Other

	Commercial		Commercial		Multi-Family		Construction		Residential		Leases		Agriculture		Consumer		Unallocated		Total
Ending balance:
Individually evaluated for impairment	$	480	$	786	$	122	$	—	$	179	$	—	$	—	$	28	$	—	$	1,595

Ending balance:
Collectively evaluated for impairment	$	871	$	1,740	$	116	$	594	$	298	$	3	$	87	$	234	$	243	$	4,186

Loans

Ending balance	$	30,811	$	180,126	$	9,155	$	6,918	$	17,701	$	1,509	$	3,340	$	8,569	$	—	$	258,129

Ending balance:
Individually evaluated for impairment	$	2,828	$	19,105	$	1,681	$	263	$	2,429	$	—	$	—	$	247	$	—	$	26,553

Ending balance:
Collectively evaluated for impairment	$	27,983	$	161,021	$	7,474	$	6,655	$	15,272	$	1,509	$	3,340	$	8,322	$	—	$	231,576

March 31, 2012
(dollars in thousands)				Real Estate												Other

	Commercial			Commercial			Multi-Family			Construction			Residential			Leases			Agriculture			Consumer			Unallocated			Total
Allowance for Loan and Lease Losses
Beginning balance, January 1, 2012	$	1,536		$	3,156		$	198		$	582		$	609		$	79		$	167		$	348		$	366		$	7,041
Provision for loan losses		(543	)		370			102			(111	)		217			(64	)		289			435			(115	)		580
Loans charged-off		(48	)		(611	)		(8	)		(4	)		(113	)		(8	)		(202	)		(410	)					(1,404	)
Recoveries		—			44			4			—			—			—			—			—						48

Ending balance, March 31, 2012	$	945		$	2,959		$	296		$	467		$	713		$	7		$	254		$	373		$	251		$	6,26 5

The Company’s aging analysis of the loan and lease portfolio at March 31, 2013 and December 31, 2012 are summarized below:


March 31, 2013													Past Due
(dollars in thousands)					Past Due								Greater Than
	30-59 Days		60-89 Days		Greater Than		Total Past						90 Days and
	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing		Nonaccrual
Commercial:
Commercial	$	7	$	—	$	1,771	$	1,778	$	25,549	$	27,327		—	$	1,822
Real estate:
Commercial		2,115		—		633		2,748		174,174		176,922		—		2,600
Multi-family		—		—		—		—		10,311		10,311		—		—
Construction		—		—		—		—		5,932		5,932		—		—
Residential		571		—		172		743		18,145		18,888		—		172
Other:
Leases		—		—		1		1		1,332		1,333		—		1
Agriculture		—		—		—		—		3,327		3,327		—		—
Consumer		225		45		67		337		7,251		7,588		—		216
Total	$	2,918	$	45	$	2,644	$	5,607	$	246,021	$	251,628	$	—	$	4,81 1


December 31, 2012													Past Due
(dollars in thousands)					Past Due								Greater Than
	30-59 Days		60-89 Days		Greater Than		Total Past						90 Days and
	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing		Nonaccrual
Commercial:
Commercial	$	804	$	—	$	1,497	$	2,301	$	28,510	$	30,811		—	$	2,352
Real estate:
Commercial		—		703		700		1,403		178,723		180,126		—		2,687
Multi-family		—		—		—		—		9,155		9,155		—		—
Construction		—		—		—		—		6,918		6,918		—		—
Residential		—		—		210		210		17,491		17,701		—		210
Other:
Leases		—		—		3		3		1,506		1,509		—		3
Agriculture		—		—		—		—		3,340		3,340		—		—
Consumer		—		60		114		174		8,395		8,569		—		222

Total	$	804	$	763	$	2,524	$	4,091	$	254,038	$	258,129	$	—	$	5,47 4

9. BORROWING ARRANGEMENTS

At March 31, 2013, the Company had $17,000,000 of unsecured short-term borrowing arrangements with two of its correspondent banks. There were no advances under the borrowing arrangements as of March 31, 2013 or December 31, 2012.

The Company has a line of credit available with the Federal Home Loan Bank of San Francisco (the “FHLB”) which is secured by pledged mortgage loans and investment securities. Borrowings may include overnight advances as well as loans with terms of up to thirty years. Advances (both short and long-term) totaling $18,000,000 were outstanding from the FHLB at March 31, 2013, bearing interest rates ranging from 0.67% to 2.73% and maturing between May 20, 2013 and July 12, 2019. Advances totaling $18,000,000 were outstanding from the FHLB at December 31, 2012, bearing interest rates ranging from 0.67% to 2.73% and maturing between May 20, 2013 and July 12, 2019. Remaining amounts available under the borrowing arrangement with the FHLB at March 31, 2013 and December 31, 2012 totaled $54,426,000 and $59,254,000, respectively. The decreased borrowing capacity during 2013 resulted from the decrease in the pledged securities collateral. In addition, the Company has a secured borrowing agreement with the Federal Reserve Bank of San Francisco. The borrowing can be secured by pledging selected loans and investment securities. Borrowings generally are short-term including overnight advances as well as loans with terms up to ninety days. Amounts available under this borrowing arrangement at March 31, 2013 and December 31, 2012 were $22,645,000 and $27,448,000, respectively. The decreased borrowing capacity during 2013 resulted from the decrease in the pledged loan collateral. There were no advances outstanding under this borrowing arrangement as of March 31, 2013 and December 31, 2012.

10. INCOME TAXES

The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for (benefit from) income taxes.

The Company accounts for income taxes using the balance sheet method, under which deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if applicable, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statement of income. There have been no unrecognized tax benefits or accrued interest and penalties for the three-month per iods ended March 31, 2013 and 2012.

11. FAIR VALUE MEASUREMENTS

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2013 and December 31, 2012. They indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):


	Carrying		Fair Value Measurements Using:
March 31, 2013	Amount		Level 1		Level 2		Level 3		Total

Financial assets:
Cash and due from banks	$	47,847	$	47,847					$	47,847
Interest-bearing deposits in banks		750			$	750				750
Available-for-sale securities		241,881		28		241,853				241,881
Held-to-maturity securities		1,900				2,028				2,028
FHLB stock		3,254		N/A		N/A		N/A		N/A
Net loans and leases:		245,492					$	246,364		246,364
Accrued interest receivable		1,802						1,802		1,802

Financial liabilities:
Deposits:
Noninterest-bearing	$	141,259	$	141,259					$	141,259
Savings		51,289		51,289						51,289
Money market		126,309		126,309						126,309
NOW accounts		54,941		54,941						54,941
Time, $100,000 or more		71,739			$	75,510				75,510
Other time		25,319				25,538				25,538
Short-term borrowings		7,000		7,000						7,000
Long-term borrowings		11,000				11,014				11,014
Accrued interest payable		124				124				124

	Carrying		Fair Value Measurements Using:
December 31, 2012	Amount		Level 1		Level 2		Level 3		Total

Financial assets:
Cash and due from banks	$	54,461	$	55,461					$	55,461
Interest-bearing deposits in banks		750			$	750				750
Available-for-sale securities		231,839		15		231,824				231,839
Held-to-maturity securities		2,117				2,255				2,255
FHLB stock		3,254		N/A		N/A		N/A		N/A
Net loans and leases:		252,118					$	253,455		253,455
Accrued interest receivable		1,872						1,872		1,872

Financial liabilities:
Deposits:
Noninterest-bearing	$	151,201	$	151,201					$	151,201
Savings		51,539		51,539						51,539
Money market		127,644		127,644						127,644
NOW accounts		50,891		50,891						50,891
Time, $100,000 or more		71,145			$	71,904				71,904
Other time		25,836				26,068				26,068
Short-term borrowings		2,000		2,000						2,000
Long-term borrowings		16,000				16,147				16,147
Accrued interest payable		162				162				162

Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented.

The following methods and assumptions were used by the Company to estimate the fair values of its financial instruments at March 31, 2013 and December 31, 2012:

Cash and due from banks : The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Interest-bearing deposits in banks : The fair values of interest-bearing deposits in banks are estimated by discounting their future cash flows using rates at each reporting date for instruments with similar remaining maturities offered by comparable financial institutions and are classified as Level 2.

Investment securities : For investment securities, fair values are based on quoted market prices, where available, and are classified as Level 1. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers and are classified as Level 2.

Loans and leases : Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality also resulting in a Level 3 classification. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

FHLB stock : It is not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Deposits : The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. For time deposits, the fair values for fixed rate certificates of deposit are estimated using a discounted cash flow methodology that applies market interest rates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term and long-term borrowings : The fair value of short-term borrowings is estimated to be the carrying amount and is classified as Level 1. The fair value of long-term borrowings is estimated using a discounted cash flow analysis using interest rates currently available for similar debt instruments and are classified as Level 2.

Accrued interest receivable and payable : The carrying amount of accrued interest receivable approximates fair value resulting in a Level 3 classification and the carrying amount of accrued interest payable approximates fair value resulting in a Level 2.

Off-balance sheet instruments : Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments was not material at March 31, 2013 and December 31, 2012.

Assets and liabilities measured at fair value on a recurring and non-recurring basis are presented in the following table:

Description			Fair Value Measurements Using						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)

March 31, 2013

Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
Mortgage-backed securities	$	210,807	$	—	$	210,807	$	—	$	—
Obligations of states and political subdivisions		29,381		—		29,381		—		—
Corporate bonds		1,606		—		1,606		—		—
Corporate stock		87		28		59
Total recurring	$	241,881	$	28	$	241,853	$	—	$	—

Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial	$	—	$	—	$	—	$	—	$	3
Real estate:
Commercial		705		—		—		705		—
Multi-family		—		—		—		—		—
Construction		—		—		—		—		—
Residential		173		—		—		173		(21	)
Other real estate owned		8,946		—		—		8,946		(40	)
Total nonrecurring	$	9,824	$	—	$	—	$	9,824	$	(58	)

Description			Fair Value Measurements Using						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)

December 31, 2012

Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
Mortgage-backed securities	$	200,515	$	—	$	200,515	$	—	$	—
Corporate Debt securities		1,594		—		1,594
Obligations of states and political subdivisions		29,656		—		29,656		—		—
Corporate stock		74		15		59		—		—
Total recurring	$	231,839	$	15	$	231,824	$	—	$	—

Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial	$	776	$	—	$	—	$	776	$	(106	)
Real estate:
Commercial		432		—		—		432		(68	)
Construction		210		—		—		210		(72	)
Other real estate owned		12,237		—		—		12,237		(1,002	)
Total nonrecurring	$	13,655	$	—	$	—	$	13,655	$	(1,248	)

There were no transfers between Levels 1 and 2 during the three-month periods ended March 31, 2013 or the twelve months ended December 31, 2012.

The following methods were used to estimate the fair value of each class of financial instrument above:

Available-for-sale securities – Fair values for investment securities are based on quoted market prices, if available, and are considered Level 1, or evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and are considered Level 2. Pricing applications apply available information, as applicable, through processes such as benchmark curves, benchmarking to like securities, sector groupings and matrix pricing.

Impaired loans – The fair value of collateral dependent impaired loans adjusted for specific allocations of the allowance for loan losses is generally based on recent real estate appraisals and/or evaluations. These appraisals and/or evaluations may utilize a single valuation approach or a combination of approaches including comparable sales, cost and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income and other available data. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring loans is the sales comparison approach less a reserve for past dues taxes and selling costs ranging from 8% to 10%.

Other real estate owned – Certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals and/or evaluations. These appraisals and/or evaluations may use a single valuation approach or a combination of approaches including comparable sales, cost and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income and other available data. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. The valuation technique used for all Level 3 nonrecurring OREO is the sales comparison approach less selling costs ranging from 8% to 10%.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is management’s discussion and analysis of the significant changes in American River Bankshares’ (the “Company”) balance sheet accounts between December 31, 2012 and March 31, 2013 and its income and expense accounts for the three-month periods ended March 31, 2013 and 2012. The discussion is designed to provide a better understanding of significant trends related to the Company’s financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. This discussion and supporting tables and the consolidated financial statements and related notes appearing elsewhere in this report are unaudited. Interest income and net interest income are presented on a fully taxable equivalent basis (FTE) within management’s discussion and analysis. Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q including, but not limited to, matters described in “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended, and subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may contain words related to future projections including, but not limited to, words such as “believe,” “expect,” “anticipate,” “intend,” “may,” “will,” “should,” “could,” “would,” and variations of those words and similar words that are subject to risks, uncertainties and other factors that could cause actual results to differ significantly from those projected. Factors that could cause or contribute to such differences include, but are not limited to, the following:

	·	the duration of financial and economic volatility and decline and actions taken by the United States Congress and governmental agencies, including the United States Department of the Treasury, to deal with challenges to the U.S. financial system;

	·	the risks presented by a continued economic recession, which could adversely affect credit quality, collateral values, including real estate collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;

	·	variances in the actual versus projected growth in assets and return on assets;

	·	potential continued or increasing loan and lease losses;

	·	potential increasing levels of expenses associated with resolving nonperforming assets as well as regulatory changes;

	·	changes in the interest rate environment including interest rates charged on loans, earned on securities investments and paid on deposits and other borrowed funds;

	·	competitive effects;

	·	potential declines in fee and other noninterest income earned associated with economic factors as well as regulatory changes;

	·	general economic conditions nationally, regionally, and within our operating markets could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain the quality of our earning assets;

	·	changes in the regulatory environment including government intervention in the U.S. financial system;

	·	changes in business conditions and inflation;

	·	changes in securities markets, public debt markets, and other capital markets;

	·	potential data processing and other operational systems failures or fraud;

	·	potential continued decline in real estate values in our operating markets;

	·	the effects of uncontrollable events such as terrorism, the threat of terrorism or the impact of the current military conflicts in Afghanistan and Iraq and the conduct of the war on terrorism by the United States and its allies, worsening financial and economic conditions, natural disasters, and disruption of power supplies and communications;

	·	changes in accounting standards, tax laws or regulations and interpretations of such standards, laws or regulations;

	·	projected business increases following any future strategic expansion could be lower than expected;

	·	the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings;

	·	the reputation of the financial services industry could experience further deterioration, which could adversely affect our ability to access markets for funding and to acquire and retain customers;

	·	the efficiencies we may expect to receive from any investments in personnel and infrastructure may not be realized; and

downgrades in the credit rating of the United States by credit rating agencies.

The factors set forth under “Item 1A - Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, and other cautionary statements and information set forth in this Quarterly Report on Form 10-Q should be carefully considered and understood as being applicable to all related forward-looking statements contained in this Quarterly Report on Form 10-Q, when evaluating the business prospects of the Company and its subsidiaries.

Forward-looking statements are not guarantees of performance. By their nature, they involve risks, uncertainties and assumptions. The future results and shareholder values may differ significantly from those expressed in these forward-looking statements. You are cautioned not to put undue reliance on any forward-looking statement. Any such statement speaks only as of the date of this report, and in the case of any documents that may be incorporated by reference, as of the date of those documents. We do not undertake any obligation to update or release any revisions to any forward-looking statements, to report any new information, future event or other circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law. However, your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”) on Forms 10-K, 10-Q and 8-K.

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is an estimate of the probable incurred credit loss risk inherent in our loan and lease portfolio as of the balance sheet date. The allowance is based on two basic principles of accounting: (1) “Accounting for Contingencies,” which requires that losses be accrued when it is probable that a loss has occurred at the balance sheet date and such loss can be reasonably estimated; and (2) the “Receivables” topic, which requires that losses be accrued on impaired loans based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan or lease balance.

The allowance for loan and lease losses is determined based upon estimates that can and do change when the actual risk, loss events, or changes in other factors, occur. The analysis of the allowance uses an historical loss view as an indicator of future losses and as a result could differ from the actual losses incurred in the future. If the allowance for loan and lease losses falls below that deemed adequate (by reason of loan and lease growth, actual losses, the effect of changes in risk factors, or some combination of these), the Company has a strategy for supplementing the allowance for loan and lease losses, over the short-term. For further information regarding our allowance for loan and lease losses, see “Allowance for Loan and Lease Losses Activity” discussion later in this Item 2.

Stock-Based Compensation

The Company recognizes compensation expense over the vesting period in an amount equal to the fair value of all share-based payments which consist of stock options and restricted stock awarded to directors and employees. The fair value of each stock option award is estimated on the date of grant and amortized over the service period using a Black-Scholes-Merton based option valuation model that requires the use of assumptions. Critical assumptions that affect the estimated fair value of each award include expected stock price volatility, dividend yields, option life and the risk-free interest rate.

Goodwill

Business combinations involving the Company’s acquisition of equity interests or net assets of another enterprise or the assumption of net liabilities in an acquisition of branches constituting a business may give rise to goodwill. Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The value of goodwill is ultimately derived from the Company’s ability to generate net earnings after the acquisition and is not deductible for tax purposes. A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed for impairment on an annual basis. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At December 31, 2012, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

Income Taxes

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is, if applicable, reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statement of income. There were no unrecognized tax benefits or accrued interest and penalties at March 31, 2013 or 2012 or for the three-month periods then ended.

General Development of Business

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California in 1995. As a bank holding company, the Company is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and regulations thereunder. Its principal office is located at 3100 Zinfandel Drive, Suite 450, Rancho Cordova, California 95670 and its telephone number is (916) 854-0123. The Company employed an equivalent of 112 full-time employees as of March 31, 2013.

The Company owns 100% of the issued and outstanding common shares of its banking subsidiary, American River Bank (the “Bank”), and American River Financial, a California corporation which has been inactive since its incorporation in 2003.

American River Bank was incorporated and commenced business in Fair Oaks, California, in 1983 and thereafter moved its headquarters to Sacramento, California in 1985. American River Bank operates five full service offices in Sacramento and Placer Counties including the main office located at 1545 River Park Drive, Suite 107, Sacramento and branch offices in Sacramento, Fair Oaks, and Roseville; two full service offices in Sonoma County in Healdsburg and Santa Rosa; and three full service banking offices in Amador County in Jackson, Pioneer, and Ione. In addition, American River Bank operates a loan production office in Santa Clara County, in the city of Campbell.

In 2000, the Company acquired North Coast Bank as a separate bank subsidiary. North Coast Bank was incorporated and commenced business in 1990 as Windsor Oaks National Bank in Windsor, California. In 1997, the name was changed to North Coast Bank. Effective December 31, 2003, North Coast Bank was merged with and into American River Bank. On December 3, 2004, the Company acquired Bank of Amador located in Jackson, California. Bank of Amador was merged with and into American River Bank.

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal limits. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act includes a permanent increase to $250,000 as the maximum FDIC insurance limit per depositor retroactive to January 1, 2008 and the extension of unlimited FDIC insurance for noninterest-bearing transaction accounts effective December 31, 2010 through December 31, 2012. On November 9, 2010, the FDIC implemented a final rule to permanently increase the maximum insurance limit to $250,000 under the Dodd-Frank Act. The unlimited insurance coverage for noninterest bearing transaction accounts was not extended and terminated on December 31, 2012. The $250,000 maximum deposit insurance amount per depositor remains in effect.

American River Bank does not offer trust services or international banking services and does not plan to do so in the near future. American River Bank’s primary business is serving the commercial banking needs of small to mid-sized businesses within those counties listed above. American River Bank accepts checking and savings deposits, offers money market deposit accounts and certificates of deposit, makes secured and unsecured commercial, secured real estate, and other installment and term loans and offers other customary banking services. American River Bank also conducts lease financing for certain types of business equipment. American River Bank owns 100% of two inactive companies, ARBCO and American River Mortgage. ARBCO was formed in 1984 to conduct real estate development and has been inactive since 1995. American River Mortgage has been inactive since its formation in 1994. During 2013, the Company conducted no significant activities other than holding the shares of its subsidiaries. However, it is authorized, with the prior approval of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Company’s principal regulator, to engage in a variety of activities which are deemed closely related to the business of banking. The common stock of the Company is registered under the Securities Exchange Act of 1934, as amended, and is listed and traded on the Nasdaq Global Select Market under the symbol “AMRB.”

Overview

The Company recorded net income of $622,000 for the quarter ended March 31, 2013, which was a decrease of $90,000 compared to $712,000 reported for the same period of 2012. Diluted earnings per share for the first quarter of 2013 and 2012 were $0.07. The return on average equity (“ROAE”) and the return on average assets (“ROAA”) for the first quarter of 2013 were 2.70% and 0.43%, respectively, as compared to 3.03% and 0.49%, respectively, for the same period in 2012.

Total assets of the Company decreased by $9,128,000 (1.5%) from $596,389,000 at December 31, 2012 to $587,261,000 at March 31, 2013. Net loans totaled $245,492,000 at March 31, 2013, down $6,626,000 (2.6%) from $252,118,000 at December 31, 2012. Deposit balances at March 31, 2013 totaled $470,856,000, down $7,400,000 (1.5%) from the $478,256,000 at December 31, 2012.

The Company ended the first quarter of 2013 with a leverage capital ratio of 12.8%, a Tier 1 capital ratio of 24.4%, and a total risk-based capital ratio of 25.6% compared to 12.8%, 23.9%, and 25.1%, respectively, at December 31, 2012. Table One below provides a summary of the components of net income for the periods indicated (See the “Results of Operations” section that follows for an explanation of the fluctuations in the individual components).

Table One: Components of Net Income

(dollars in thousands)	For the three months ended March 31,
	2013			2012
Interest income*	$	4,724		$	5,585
Interest expense		(407	)		(502	)
Net interest income*		4,317			5,083
Provision for loan and lease losses		(100	)		(580	)
Noninterest income		625			693
Noninterest expense		(4,002	)		(4,112	)
Provision for income taxes		(145	)		(297	)
Tax equivalent adjustment		(73	)		(75	)
Net income	$	622		$	712

Average total assets	$	585,956		$	582,398
Net income (annualized) as a percentage of average total assets		0.43	%		0.49	%

* Fully taxable equivalent basis (FTE)

Results of Operations

Net Interest Income and Net Interest Margin

Net interest income represents the excess of interest and fees earned on interest earning assets (loans and leases, securities, Federal funds sold and investments in time deposits) over the interest paid on interest-bearing deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. The Company’s net interest margin was 3.53% for the three months ended March 31, 2013 and 4.01% for the three months ended March 31, 2012.

The fully taxable equivalent interest income component for the first quarter of 2013 decreased $861,000 (15.4%) to $4,724,000 compared to $5,585,000 for the three months ended March 31, 2012. The decrease in the fully taxable equivalent interest income for the first quarter of 2013 compared to the same period in 2012 is broken down by rate (down $394,000) and volume (down $467,000). The rate decrease can be attributed to the overall lower interest rate environment and lower average loan balances replaced with higher average investment securities. While forgone interest on nonaccrual loans has decreased, it continues to negatively impact the yield on earning assets. During the first quarter of 2013, foregone interest income on nonaccrual loans was approximately $59,000, compared to foregone interest of $272,000 during the first quarter of 2012. The foregone interest of $59,000 had a 5 basis point negative impact on the yield on earning assets. The average balance of earning assets decreased $14,675,000 (2.9%) from $510,144,000 in the first quarter of 2012 to $495,469,000 in the first quarter of 2013. In addition, there continues to be a significant change in the average earning asset mix during these periods, due to an increase in investment securities, offset by a decrease in loan balances. Principal reductions from loan balances were invested into investment securities. When compared to the first quarter of 2012, average loan balances were down $43,134,000 (14.5%) to $253,964,000 for the first quarter of 2013 and average investment securities were up $28,959,000 (13.7%) to $240,755,000 for the first quarter of 2013. The overall low interest rate environment and the change in the asset mix (lower loan totals and higher investment security totals) resulted in a 53 basis point decrease in the yield on average earning assets from 4.40% for the first quarter of 2012 to 3.87% for the first quarter of 2013. The volume decrease of $467,000 occurred mainly as a result of the decrease in average loans. The market in which the Company operates continues to see a slowdown in new loan volume as existing and potential new borrowers continue to pay down debt and delay expansion plans.

Interest expense was $407,000 or $95,000 (18.9%) lower in the first quarter of 2013 versus the prior year period. The average balances on interest bearing liabilities were $1,953,000 (0.6%) lower in the first quarter of 2013 compared to the same quarter in 2012. The slightly lower balances did not significantly impact the overall interest expense, as the lower rate was the main cause for the decrease in interest expense. The net $95,000 decrease in interest expense during the first quarter of 2013 compared to the first quarter of 2012 was due to lower rates (down $97,000) and volume (up $2,000). The Company focused its marketing efforts on replacing higher cost time deposits with lower cost checking, savings, and money market accounts. Average time deposit balances were down $1,767,000 (1.8%) during the first quarter of 2013 compared to the first quarter of 2012. In addition, the Company is strategically managing the interest expense by reducing some of the higher interest rate tiered money market accounts and this led to a decrease in average interest checking and money market accounts from $183,696,000 in the first quarter of 2012 to $178,296,000 during the first quarter of 2013. The decreases in time and money market deposits were offset by increases in average savings and noninterest deposit balances. Average savings account balances were up $2,807,000 (5.8%) from $48,477,000 in the first quarter of 2012 to $51,284,000 during the first quarter of 2013 and average noninterest bearing deposit balances were up $6,694,000 (4.9%) from $134,770,000 in the first quarter of 2012 to $141,764,000 during the first quarter of 2013. The Company continues to have success attracting new deposit relationships as a direct result of its business development efforts. Rates paid on interest bearing liabilities decreased 10 basis points from 0.58% to 0.48% for the first quarter of 2012 compared to the first quarter of 2013.

Table Two, Analysis of Net Interest Margin on Earning Assets, and Table Three, Analysis of Volume and Rate Changes on Net Interest Income and Expenses, are provided to enable the reader to understand the components and trends of the Company’s interest income and expenses. Table Two provides an analysis of net interest margin on earning assets setting forth average assets, liabilities and shareholders’ equity; interest income earned and interest expense paid and average rates earned and paid; and the net interest margin on earning assets. Table Three sets forth a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates.

Table Two: Analysis of Net Interest Margin on Earning Assets

Three Months Ended March 31,	2013								2012
(Taxable Equivalent Basis) (dollars in thousands)	Avg Balance			Interest		Avg Yield (4)			Avg Balance			Interest		Avg Yield (4)
Assets
Earning assets:
Loans and leases (1)	$	253,964		$	3,642		5.82	%	$	297,098		$	4,316		5.84	%
Taxable investment Securities		211,143			788		1.51	%		182,975			965		2.12	%
Tax-exempt investment securities (2)		29,595			293		4.02	%		28,812			301		4.20	%
Corporate stock (2)		17			—		—			9			—		—
Federal funds sold		—			—		—			—			—		—
Investments in time deposits		750			1		0.54	%		1,250			3		0.97	%
Total earning assets		495,469			4,724		3.87	%		510,144			5,585		4.40	%
Cash & due from banks		45,536								32,902
Other assets		50,811								46,330
Allowance for loan & lease losses		(5,860	)							(6,978	)
	$	585,956							$	582,398

Liabilities & Shareholders’ Equity
Interest bearing liabilities:
Interest checking and money market	$	178,296			128		0.29	%	$	183,696			192		0.42	%
Savings		51,284			24		0.19	%		48,477			29		0.24	%
Time deposits		97,118			179		0.75	%		98,885			214		0.87	%
Other borrowings		18,000			76		1.71	%		15,593			67		1.73	%
Total interest bearing liabilities		344,698			407		0.48	%		346,651			502		0.58	%
Noninterest bearing demand deposits		141,764								134,770
Other liabilities		6,204								6,493
Total liabilities		492,666								487,914
Shareholders’ equity		93,290								94,484
	$	585,956							$	582,398
Net interest income & margin (3)				$	4,317		3.53	%				$	5,083		4.01	%

(1)

Loan interest includes loan fees of $62,000 and $4,000, respectively, during the three months ended March 31, 2013 and March 31, 2012. Average loan balances include non-performing loans.

(2)

Includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes. The effective federal statutory tax rate was 34% for 2013 and 2012.

(3)

Net interest margin is computed by dividing net interest income by total average earning assets.

(4)

Average yield is calculated based on actual days in the period (90 days for 2013 and 91 for 2012) and annualized to actual days in the year (365 days for 2013 and 366 days for 2012).

Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
Three Months Ended March 31, 2013 over 2012 (dollars in thousands)
Increase (decrease) due to change in:

Interest-earning assets:	Volume			Rate (4)			Net Change
Net loans (1)(2)	$	(621	)	$	(53	)	$	(674	)
Taxable investment securities		147			(324	)		(177	)
Tax exempt investment securities (3)		8			(16	)		(8	)
Corporate stock		—			—			—
Federal funds sold		—			—			—
Interest-bearing deposits in banks		(1	)		(1	)		(2	)
Total		(467	)		(394	)		(861	)
Interest-bearing liabilities:
Interest checking and money market		(6	)		(58	)		(64	)
Savings deposits		2			(7	)		(5	)
Time deposits		(4	)		(31	)		(35	)
Other borrowings		10			(1	)		9
Total		2			(97	)		(95	)
Interest differential	$	(469	)	$	(297	)	$	(766	)

(1)

The average balance of non-accruing loans is immaterial as a percentage of total loans and has been included in net loans.

(2)

Loan interest includes loan fees of $62,000 and $4,000, respectively, during the three months ended March 31, 2013 and March 31, 2012, which have been included in the interest income computation.

(3)

(4)

The rate/volume variance has been included in the rate variance.

Provision for Loan and Lease Losses

The Company provided $100,000 for loan and lease losses for the first quarter of 2013 as compared to $580,000 for the first quarter of 2012. The Company experienced net loan and lease recoveries of $22,000 or (0.04%) (on an annualized basis) of average loans and leases for the three months ended March 31, 2013 compared to net loan and lease charge-offs of $1,356,000 or 1.84% (on an annualized basis) of average loans and leases for the three months ended March 31, 2013. The Company has continued to add to the allowance for loan and lease losses for 2013 as we continue to have a higher than historical average level of nonperforming loans and leases. The high level of nonperforming loans and leases is due to the impact that the overall challenging economy in the Company’s market areas and in the United States has had on the Company’s borrowers. For additional information see the “Allowance for Loan and Lease Losses Activity.”

Noninterest Income

Table Four below provides a summary of the components of noninterest income for the periods indicated (dollars in thousands):

Table Four: Components of Noninterest Income

	Three Months Ended March 31,
	2013		2012
Service charges on deposit accounts	$	151	$	196
Gain on sale/call of securities		—		64
Merchant fee income		107		128
Bank owned life insurance		190		66
Income from OREO properties		92		163
Other		85		76
Total noninterest income	$	625	$	693

Noninterest income decreased $68,000 (9.8%) to 625,000 for the three months ended March 31, 2013 as compared to $693,000 for the three months ended March 31, 2012. The decrease from the first quarter of 2013 to the first quarter of 2012 was primarily related to lower service charges on deposit accounts, a decrease in gains from sale of investment securities, and a decrease in income from OREO properties offset by a higher income from bank owned life insurance. Service charges on deposit accounts decreased from $196,000 in 2012 to $151,000 in 2013. The decrease is primarily related to lower fees collected on overdrawn deposit accounts. Income from OREO properties decreased from $163,000 in 2012 to $92,000 in 2013 resulting from lower rents received from foreclosed office buildings, as the Company has been able to sell many of the properties. Gains on sale of investment securities decreased from $64,000 in 2012 to zero in 2013 as the Company did not sell any investment securities during the first quarter of 2013. These decreases were partially offset higher income from bank owned life insurance, primarily from death benefit proceeds of a life insurance policy on a former director, resulting in tax-free income of $118,000.

Noninterest Expense

Noninterest expense decreased $110,000 (2.7%) to a total of $4,002,000 in the first quarter of 2013 compared to $4,112,000 in the first quarter of 2012. Salary and employee benefits expense increased $14,000 (0.1%) from $2,203,000 during the first quarter of 2012 to $2,217,000 during the first quarter of 2013. On a quarter-over-quarter basis, occupancy expense increased $5,000 (1.7%) and furniture and equipment expense increased $4,000 (2.1%). FDIC assessments decreased $16,000 (11.3%) during the first quarter of 2013 to $126,000, from $142,000 in the first quarter of 2012. OREO related expenses decreased $69,000 (18.4%) during the first quarter of 2013 to $305,000, from $374,000 in the first quarter of 2012. Other expense decreased $48,000 (5.3%) to a total of $859,000 in the first quarter of 2013 versus the first quarter of 2012. The decrease in the FDIC assessments resulted from the change in the FDIC assessment methodology from a deposit based system to an asset risk-based system. The decrease in OREO expenses is directly related to sales of a number of OREO properties, particularly the office buildings, over the past six months. The Company acquired multiple office buildings in 2012, and while these properties do produce rental income, as reported above, they also require a significant amount of expense to maintain. By selling these properties the Company was able to reduce the maintenance related expenses. The reduction in other expense is primarily related to a decrease in the amortization of the core deposit intangible related to the Bank of Amador purchase from $50,000 in the first quarter of 2012 to zero in the first quarter of 2013 as the intangible asset was fully amortized in late 2012. The fully taxable equivalent efficiency ratio for the first quarter of 2013 increased to 80.95% from 70.33% for the first quarter of 2012. This increase in the efficiency ratio is related to a decrease in net interest income.

Provision for Income Taxes

Federal and state income taxes for the quarter ended March 31, 2013 decreased $152,000 from $297,000 in the first quarter of 2012 to $145,000 in the first quarter of 2013. The effective tax rate for the quarter ended March 31, 2013 was 18.9% compared to 29.4% for the first quarter of 2012. The lower effective tax rate in 2013 resulted from the normal tax benefits such as the benefits of tax-free income related to municipal bonds, bank owned life insurance, and the benefits of Enterprise Zone credits on our State tax return. During the first quarter of 2013, the tax-free bank owned life insurance increased significantly due to the death benefit proceeds of a life insurance policy on a former director.

Balance Sheet Analysis

The Company’s total assets were $587,261,000 at March 31, 2013 as compared to $596,389,000 at December 31, 2012, representing a decrease of $9,128,000 (1.5%). The average assets for the three months ended March 31, 2013 were $585,956,000, which represents an increase of $3,558,000 or 0.6% over the balance of $582,398,000 during the three-month period ended March 31, 2012.

Investment Securities

The Company classifies its investment securities as available-for-sale or held-to-maturity. The Company’s intent is to hold all securities classified as held-to-maturity until maturity and management believes that it has the ability to do so. Securities available-for-sale may be sold to implement asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors. Table Five below summarizes the values of the Company’s investment securities held on March 31, 2013 and December 31, 2012.

Table Five: Investment Securities Composition

(dollars in thousands) Available-for-sale (at fair value)	March 31, 2013		December 31, 2012
Debt securities:
Mortgage-backed securities	$	210,807	$	200,515
Obligations of states and political subdivisions		29,381		29,656
Corporate bonds		1,606		1,594
Corporate stock		87		74
Total available-for-sale investment securities	$	241,881	$	231,839
Held-to-maturity (at amortized cost)
Debt securities:
Mortgage-backed securities	$	1,900	$	2,117
Total held-to-maturity investment securities	$	1,900	$	2,117

Net unrealized gains on available-for-sale investment securities totaling $4,026,000 were recorded, net of $2,684,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at March 31, 2013 and net unrealized gains on available-for-sale investment securities totaling $4,285,000 were recorded, net of $2,857,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2012.

Management periodically evaluates each investment security in a loss position for other than temporary impairment relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations. Management has the ability and intent to hold securities with established maturity dates until recovery of fair value, which may be until maturity, and believes it will be able to collect all amounts due according to the contractual terms for all of the underlying investment securities; therefore, management does not consider these investments to be other-than-temporarily impaired.

Loans and Leases

The Company concentrates its lending activities in the following principal areas: (1) commercial; (2) commercial real estate; (3) multi-family real estate; (4) real estate construction (both commercial and residential); (5) residential real estate; (6) lease financing receivable; (7) agriculture; and (8) consumer loans. The Company’s continuing focus in our market area, new borrowers developed through the Company’s marketing efforts, and credit extensions expanded to existing borrowers resulted in the Company originating $8 million in new loans during the first three months of 2013. However, normal pay downs, loan charge-offs, and loans transferred to OREO resulted in an overall net decrease in total loans and leases of $6,501,000 (2.5%) from December 31, 2012. The market in which the Company operates continues to see significant challenges in creating loan volume as existing borrowers continue to pay down debt and delay expansion plans. Table Six below summarizes the composition of the loan portfolio as of March 31, 2013 and December 31, 2012.

Table Six: Loan and Lease Portfolio Composition

(dollars in thousands)	March 31, 2013						December 31, 2012						Change in			Percentage
	$			%			$			%			dollars			change
Commercial	$	27,327			11	%	$	30,811			12	%	$	(3,484	)		(11.3	%)
Real estate
Commercial		176,922			70	%		180,126			70	%		(3,204	)		(1.8	%)
Multi-family		10,311			4	%		9,155			3	%		1,156			12.6	%
Construction		5,932			2	%		6,918			3	%		(986	)		(14.3	%)
Residential		18,888			8	%		17,701			7	%		1,187			6.7	%
Lease financing receivable		1,333			1	%		1,509			1	%		(176	)		(11.7	%)
Agriculture		3,327			1	%		3,340			1	%		(13	)		(0.4	%)
Consumer		7,588			3	%		8,569			3	%		(981	)		(11.4	%)
Total loans and leases		251,628			100	%		258,129			100	%		(6,501	)		(2.5	%)
Deferred loan and lease fees, net		(233	)					(230	)					(3	)
Allowance for loan and lease losses		(5,903	)					(5,781	)					(122	)
Total net loans and leases	$	245,492					$	252,118					$	(6,626	)		(2.6	%)

A significant portion of the Company’s loans and leases are direct loans and leases made to individuals and local businesses. The Company relies substantially on local promotional activity and personal contacts by American River Bank officers, directors and employees to compete with other financial institutions. The Company makes loans and leases to borrowers whose applications include a sound purpose and a viable primary repayment source, generally supported by a secondary source of repayment.

Commercial loans consist of credit lines for operating needs, loans for equipment purchases, working capital, and various other business loan products. Consumer loans include a range of traditional consumer loan products such as personal lines of credit and loans to finance purchases of boats, recreational vehicles, mobile homes and various other consumer items. Construction loans are generally comprised of commitments to customers within the Company’s service area for construction of commercial properties, multi-family properties and 1-4 family residential income properties. Other real estate loans consist primarily of loans secured by first trust deeds on commercial, multi-family, and residential properties typically with maturities from 3 to 10 years and original loan-to-value ratios generally from 65% to 75%. Agriculture loans consist primarily of vineyard loans and development loans to plant vineyards. In general, except in the case of loans under SBA programs or Farm Services Agency guarantees, the Company does not make long-term mortgage loans.

“Subprime” real estate loans generally refer to residential mortgages made to higher-risk borrowers with lower credit and/or income histories. Within the industry, many of these loans were originated with adjustable interest rates that reset upward after an introductory period. These “subprime” loans coupled with declines in housing prices have led to an increase in the banking industry’s default rates resulting in many instances of increased foreclosure rates as the adjustable interest rates reset to higher levels. The Company did not have any such “subprime” loans at March 31, 2013 and December 31, 2012.

Risk Elements

The Company assesses and manages credit risk on an ongoing basis through a total credit culture that emphasizes excellent credit quality, extensive internal monitoring and established formal lending policies. Additionally, the Company contracts with an outside loan review consultant to periodically review the existing loan and lease portfolio. Management believes its ability to identify and assess risk and return characteristics of the Company’s loan and lease portfolio is critical for profitability and growth. Management strives to continue its emphasis on credit quality in the loan and lease approval process, through active credit administration and regular monitoring. With this in mind, management has designed and implemented a comprehensive loan and lease review and grading system that functions to continually assess the credit risk inherent in the loan and lease portfolio.

Ultimately, underlying trends in economic and business cycles influence credit quality. American River Bank’s business is concentrated in the Sacramento Metropolitan Statistical Area, which is a diversified economy, but with a large State of California government presence and employment base; in Sonoma County, which is focused on businesses within the two communities in which the Bank has offices (Santa Rosa and Healdsburg); and in Amador County, in which the Bank is primarily focused on businesses within the three communities in which it has offices (Jackson, Pioneer, and Ione). The economy of Sonoma County is diversified with professional services, manufacturing, agriculture and real estate investment and construction, while the economy of Amador County is reliant upon government, services, retail trade, manufacturing industries and Indian gaming. The Company has recently entered the Santa Clara County market with a loan production office in Campbell. The economy of Santa Clara County is diversified with professional services, manufacturing, technology related companies, real estate investment and construction.

The Company has significant extensions of credit and commitments to extend credit that are secured by real estate. The ultimate repayment of these loans is generally dependent on personal or business cash flows or the sale or refinancing of the real estate. The Company monitors the effects of current and expected market conditions and other factors on the collectability of real estate loans. The more significant factors management considers involve the following: lease rates and terms, vacancy rates, absorption and sale rates, capitalization rates, real estate values, supply and demand factors, rates of return, operating expenses, inflation and deflation, and sufficiency of repayment sources independent of the real estate including, in some instances, personal guarantees.

In extending credit and commitments to borrowers, the Company generally requires collateral and/or guarantees as security. The repayment of such loans is expected to come from cash flow or from proceeds from the sale of selected assets of the borrowers. The Company’s requirement for collateral and/or guarantees is determined on a case-by-case basis in connection with management’s evaluation of the creditworthiness of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, income-producing properties, residences and other real property. The Company secures its collateral by perfecting its security interest in business assets, obtaining deeds of trust, taking possession of the collateral, or by other legal means.

In management’s judgment, a concentration exists in real estate loans, which represented approximately 84% of the Company’s loan and lease portfolio at March 31, 2013, an increase from 83% at December 31, 2012. Management believes that the residential land and residential construction portion of the Company’s loan portfolio carries more than the normal credit risk it has seen in the past several years. This is due primarily to severely curtailed demand for new and resale residential property; a large supply of unsold residential land and new and resale homes; and observed reductions in values throughout the Company’s market area. Management has responded by evaluating loans that it considers to carry any significant risk above the normal risk of collectability by taking actions where possible to reduce credit risk exposure by methods that include, but are not limited to, seeking liquidation of the loan by the borrower, seeking additional tangible collateral or other repayment support, converting the property through judicial or non-judicial foreclosure proceedings, and other collection techniques. Management currently believes that it maintains its allowance for loan and lease losses at levels adequate to reflect the loss risk inherent in its total loan portfolio.

A continued substantial further decline in the economy in general, or a continued additional decline in real estate values in the Company’s primary market areas, in particular, could continue to have an adverse impact on the collectability of real estate loans and require an increase in the provision for loan and lease losses. This could adversely affect the Company’s future prospects, results of operations, profitability and stock price. Management believes that its lending practices and underwriting standards are structured with the intent to minimize losses; however, there is no assurance that losses will not occur. The Company’s loan practices and underwriting standards include, but are not limited to, the following: (1) maintaining a thorough understanding of the Company’s service area and originating a significant majority of its loans within that area, (2) maintaining a thorough understanding of borrowers’ knowledge, capacity, and market position in their field of expertise, (3) basing real estate loan approvals not only on market demand for the project, but also on the borrowers’ capacity to support the project financially in the event it does not perform to expectations (whether sale or income performance), and (4) maintaining conforming and prudent loan-to-value and loan-to-cost ratios based on independent outside appraisals and ongoing inspection and analysis by the Company’s lending officers or contracted third-party professionals.

Nonperforming, Past Due and Restructured Loans and Leases

At March 31, 2013, nonperforming loans and leases (those loans and leases on nonaccrual status and those loans and leases still accruing and past due 90 days or more) were $4,811,000 or 1.91% of total loans and leases. The $4,811,000 in nonperforming loans and leases was made up of 23 loans and one lease. Eight of those loans totaling $1,770,000 were current (less than 30 days past due pursuant to their original or modified terms). Nonperforming loans and leases were $5,474,000 or 2.12% of total loans and leases at December 31, 2012. Specific reserves of $589,000 were held on the nonperforming loans at March 31, 2013 and specific reserves of $528,000 were held on the nonperforming loans at December 31, 2012.

The overall level of nonperforming loans decreased $663,000 (12.1%) to $4,811,000 at March 31, 2013 compared to $5,474,000 at December 31, 2012. At December 31, 2012, the Company’s nonperforming loans included eleven real estate loans totaling $2,897,000; ten commercial loans totaling $2,352,000; five consumer loans totaling $222,000; and one lease totaling $3,000. During the first quarter of 2013, one property, with a loan in the amount of $432,000, was moved to OREO, two loans incurred charge-offs in the amount of $48,000 and one loan in the amount of $1,000 was paid off. The Company also collected approximately $182,000 in principal paydowns.

The net interest due on nonaccrual loans and leases but excluded from interest income was approximately $59,000 for the three months ended March 31, 2013, compared to foregone interest of approximately $272,000 during the same period in 2012.

There were no loan or lease concentrations in excess of 10% of total loans and leases not otherwise disclosed as a category of loans and leases as of March 31, 2013. Management is not aware of any potential problem loans, which were accruing and current at March 31, 2013, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms and that would result in a significant loss to the Company apart from those loans identified in the Bank’s impairment analysis. Table Seven below sets forth nonaccrual loans and loans past due 90 days or more as of March 31, 2013 and December 31, 2012.

Table Seven: Nonperforming Loans and Leases
(dollars in thousands)	March 31,		December 31,
	2013		2012
Past due 90 days or more and still accruing:
Commercial	$	—	$	—
Real estate		—		—
Lease financing receivable		—		—
Agriculture		—		—
Consumer		—		—
Nonaccrual:
Commercial		1,822		2,352
Real estate		2,772		2,897
Lease financing receivable		1		3
Agriculture		—		—
Consumer		216		222
Total nonperforming loans	$	4,811	$	5,474

Impaired Loans and Leases

The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the original contractual terms of the loan or lease agreement. The measurement of impairment may be based on (i) the present value of the expected cash flows of the impaired loan or lease discounted at the loan or lease’s original effective interest rate, (ii) the observable market price of the impaired loan or lease, or (iii) the fair value of the collateral of a collateral-dependent loan. The Company does not apply this definition to smaller-balance loans or leases that are collectively evaluated for credit risk. In assessing whether a loan or lease is impaired, the Company typically reviews loans or leases graded substandard or lower with outstanding principal balances in excess of $100,000, as well as, loans considered troubled debt restructures (“TDR”) with outstanding principal balances in excess of $25,000. Furthermore, the Company considers a TDR to no longer be impaired if: (i) the borrower has exhibited sustained satisfactory performance, at a market rate of interest, of at least six months (and the TDR is no longer reportable); (ii) management maintains adequate documentation to support the borrower’s ability to continue to service the debt; and (iii) management determines during its periodic analysis that it is no longer probable that the Company will not be able to collect all amounts due per contractual terms. The Company adheres to this process in its quarterly impairment analysis by reserving under “Accounting for Contingencies” for any TDRs which meet these criteria.

The Company identifies TDRs by reviewing each renewal, modification, or extension of a loan with a screening document. This document is designed to identify any characteristic of such a loan that would qualify it as a TDR. If the characteristics are not present that would qualify a loan as a TDR, it is deemed to be a modification.

At March 31, 2013, the recorded investment in loans and leases that were considered to be impaired totaled $24,477,000, which includes $19,727,000 in performing loans and leases. Of the total impaired loans of $24,477,000, loans totaling $11,854,000 were deemed to require no specific reserve and loans totaling $12,623,000 were deemed to require a related valuation allowance of $1,733,000. Of the $11,854,000 impaired loans that did not carry a specific reserve there were $416,000 in loans or leases that had previous partial charge-offs and $11,438,000 in loans or leases that were analyzed and determined not to require a specific reserve or charge-off because the collateral value or discounted cash flow value exceeded the loan or lease balance. The recorded investment in loans and leases that were considered to be impaired totaled $26,553,000 at December 31, 2012. Of the total impaired loans of $26,553,000, loans totaling $12,430,000 were deemed to require no specific reserve and loans totaling $14,123,000 were deemed to require a related valuation allowance of $1,595,000.

The Company has been operating in a market that has experienced significant decreases in real estate values of commercial, residential, land, and construction properties. As such, the Company is focused on monitoring collateral values for those loans considered collateral dependent. The collateral evaluations performed by the Company are updated as necessary, which is generally once every six months, and are reviewed by a qualified credit officer. In the first quarter of 2013, the Company had net loan recoveries of $22,000 with a provision of $100,000. In the first quarter of 2012, the Company had net loan charge-offs of $1,356,000 with a provision of $580,000.

At March 31, 2013, there were thirteen loans and leases that were modified and are currently performing (less than ninety days past due) totaling $7,300,000 and thirteen loans and leases that are considered nonperforming (and included in Table Seven above), totaling $2,322,000, that are considered TDRs. These TDRs have a specific reserve of $1,160,000. As of March 31, 2013, of the twenty-six TDRs, there were ten extensions, seven changes in terms, seven rate reductions, one term out, and one interest only structure change. All were performing as agreed except for six extensions, one change to an amortizing loan, and one interest only structure change. The Company generally requires TDRs that are on non-accrual status to make six consecutive payments on the restructured loan or lease prior to returning the loan or lease to accrual status.

Allowance for Loan and Lease Losses Activity

The Company maintains an allowance for loan and lease losses (“ALLL”) to cover incurred probable losses inherent in the loan and lease portfolio as of the balance sheet date, which is based upon management’s estimated range of those losses. The ALLL is established through a provision for loan and lease losses and is increased by provisions charged against current earnings and recoveries and reduced by charge-offs. Actual losses for loans and leases can vary significantly from this estimate. The methodology and assumptions used to calculate the allowance are continually reviewed as to their appropriateness given the most recent losses realized and other factors that influence the estimation process. The model assumptions and resulting allowance level are adjusted accordingly as these factors change.

The adequacy of the ALLL and the level of the related provision for loan and lease losses is determined based on management’s judgment after consideration of numerous factors including but not limited to: (i) local and regional economic conditions, (ii) the financial condition of the borrowers, (iii) loan impairment and the related level of expected charge-offs, (iv) evaluation of industry trends, (v) industry and other concentrations, (vi) loans and leases which are contractually current as to payment terms but demonstrate a higher degree of risk as identified by management, (vii) continuing evaluations of the performing loan portfolio, (viii) ongoing review and evaluation of problem loans identified as having loss potential, (ix) quarterly review by the Board of Directors, and (x) assessments by banking regulators and other third parties. Management and the Board of Directors evaluate the ALLL and determine its appropriate level considering objective and subjective measures, such as knowledge of the borrowers’ business, valuation of collateral, the determination of impaired loans or leases and exposure to potential losses.

The allowance for loan and lease losses totaled $5,903,000 or 2.35% of total loans and leases at March 31, 2013 compared to $5,781,000 or 2.24% of total loans and leases at December 31, 2012. The Company establishes general and specific reserves in accordance with the generally accepted accounting principles. The ALLL is maintained by categories of the loan and lease portfolio based on loan type and loan rating; however, the entire allowance is available to cover actual loan and lease losses. While management uses available information to recognize possible losses on loans and leases, future additions to the allowance may be necessary, based on changes in economic conditions and other matters. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ALLL. Such agencies may require the Company to provide additions to the allowance based on their judgment of information available to them at the time of their examination.

The allowance for loans and leases as a percentage of non-performing loans and leases was 122.7% at March 31, 2013 and 105.6% at December 31, 2012. The allowance for loans and leases as a percentage of impaired loans and leases was 24.1% at March 31, 2013 and 21.8% at December 31, 2012. Of the total impaired loans and leases outstanding as of March 31, 2013, there were $1,854,000 in loans or leases that had been reduced by partial charge-offs of $970,000. As these loan or lease balances are charged off, the remaining balances, following analysis, normally do not initially require specific reserves. The impact of this on credit ratios is such that the Company’s allowance for loan and lease losses as a percentage may be lower, because the partial charge-offs have reduced the potential future losses related to those credits.

The Company’s policy with regard to loan or lease charge-offs continues to be that a loan or lease is charged off against the allowance for loan and lease losses when management believes that the collectability of the principal is unlikely. Generally, a loan or lease is charged off, or partially charged down, when estimated losses related to impaired loans and leases are identified. If the loan is collateralized by real estate the impaired portion will be charged off to the allowance for loan and lease losses unless the loan or lease is in the process of collection, in which case a specific reserve may be warranted. If the collateral is other than real estate the Company will typically charge-off the impaired portion of a loan or lease, unless the loan or lease is in the process of collection, in which case a specific reserve may be warranted.

It is the policy of management to maintain the allowance for loan and lease losses at a level believed to be adequate for known and inherent risks in the portfolio. Our 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. Based on information currently available to analyze inherent credit risk, including economic factors, overall credit quality, historical delinquencies and a history of actual charge-offs, management believes that the provision for loan and lease losses and the allowance for loan and lease losses are prudent and adequate. Adjustments may be made based on differences from estimated loan and lease growth, the types of loans constituting this growth, changes in risk ratings within the portfolio, and general economic conditions. However, no prediction of the ultimate level of loans and leases charged off in future periods can be made with any certainty. Table Eight below summarizes, for the periods indicated, the activity in the ALLL.

Table Eight: Allowance for Loan and Lease Losses

(dollars in thousands)	Three Months Ended March 31,
	2013			2012

Average loans and leases outstanding	$	253,964		$	297,098

Allowance for loan and lease losses at beginning of period	$	5,781		$	7,041

Loans and leases charged off:
Commercial		(10	)		(48	)
Real estate		(38	)		(736	)
Lease financing receivable		—			(8	)
Agriculture		—			(202	)
Consumer		(5	)		(410	)
Total		(53	)		(1,404	)
Recoveries of loans and leases previously charged off:
Commercial		74			—
Real estate		1			48
Lease financing receivable		—			—
Agriculture		—			—
Consumer		—			—
Total		75			48
Net loans and leases charged off		22			(1,356	)
Additions to allowance charged to operating expenses		100			580
Allowance for loan and lease losses at end of period	$	5,903		$	6,265
Ratio of net charge-offs to average loans and leases outstanding (annualized)		(0.04	%)		1.84	%
Provision of allowance for loan and lease losses to average loans and leases outstanding (annualized)		0.16	%		0.79	%
Allowance for loan and lease losses to loans and leases net of deferred fees at end of period		2.35	%		2.16	%

Other Real Estate Owned

At March 31, 2013, the Company had 15 other real estate owned (“OREO”) properties totaling $8,946,000. This compares to 20 properties totaling $12,237,000 at December 31, 2012. During the first quarter of 2013, the Company sold six properties with balances of $3,875,000 for a loss of $93,000 and added a single property to OREO with a net book value totaling $432,000. The single property is improved land with a long-term lease for a self-storage facility in Sonoma County.

The Company periodically obtains property valuations as part of the process of determining whether the recorded book value represents fair value. During the first quarter of 2013, this valuation process did not result in the Company adjusting the book value of the OREO properties. At March 31, 2013, OREO included a valuation reserve balance of $41,000. This compares to a valuation reserve balance of $175,000 at December 31, 2012. The Company believes that all 15 OREO properties owned at March 31, 2013 are carried approximately at fair value.

Deposits

At March 31, 2013, total deposits were $470,856,000 representing a $7,400,000 (1.5%) decrease from the December 31, 2012 balance of $478,256,000. The Company’s deposit growth plan for 2013 is to concentrate its efforts on increasing noninterest-bearing demand, interest-bearing money market and NOW accounts, and savings accounts while allowing higher cost time deposits to mature and close or renew at lower rates. The Company experienced increases in interest-bearing checking ($4,050,000 or 8.0%) and time deposits ($77,000 or <0.01%) accounts and decreases in noninterest-bearing ($9,942,000 or 7.0%), money market accounts ($1,335,000 or 1.0%), and savings ($250,000 or <0.01%), during the first quarter of 2013. The primary reason for the decrease in noninterest-bearing deposits is related to deposit holders utilizing their liquid deposits to take advantage of the real estate market to purchase property and or pay off existing real estate loans.

Other Borrowed Funds

Other borrowings outstanding as of March 31, 2013 and December 31, 2012, consist of advances (both long-term and short-term) from the Federal Home Loan Bank of San Francisco (“FHLB”). Table Nine below summarizes these borrowings.

Table Nine: Other Borrowed Funds
(dollars in thousands)
	March 31, 2013					December 31, 2012
	Amount		Rate			Amount		Rate
Short-term borrowings:
FHLB advances	$	7,000		2.14	%	$	2,000		0.67	%
Long-term borrowings:
FHLB advances	$	11,000		1.39	%	$	16,000		1.81	%

The maximum amount of short-term borrowings at any month-end during the first three months of 2013 and 2012 was $7,000,000 and zero, respectively. The FHLB advances are collateralized by loans and securities pledged to the FHLB. The following is a breakdown of rates and maturities on FHLB advances (dollars in thousands):

	Short-term			Long-term
Amount	$	7,000		$	11,000
Maturity		2014			2014 to 2019
Weighted average rates		2.14	%		1.39	%

The Company has also been issued a total of $7,500,000 in letters of credit by the FHLB which are pledged to secure Local Agency Deposits. The letters of credit act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. The letters of credit were not drawn upon in 2013 or 2012 and management does not currently expect to draw upon these lines in the foreseeable future. See “Liquidity” below for additional information on FHLB borrowings.

Capital Resources

The Company and American River Bank are subject to certain regulatory capital requirements administered by the Federal Reserve Board and the Federal Deposit Insurance Corporation (the “FDIC”). Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, banks must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and American River Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

At March 31, 2013, shareholders’ equity was $92,733,000, representing a decrease of $1,261,000 (1.3%) from $93,994,000 at December 31, 2012. The decrease results from repurchases of common stock and the decrease in other comprehensive income exceeding the additions from net income for the period and the stock based compensation. The ratio of total risk-based capital to risk adjusted assets was 24.4% at March 31, 2013 and 23.9% at December 31, 2012. Tier 1 risk-based capital to risk-adjusted assets was 25.6% at March 31, 2013 and 25.1% at December 31, 2012. The leverage ratio was 12.8% at March 31, 2013 and December 31, 2012.

Table Ten below lists the Company’s actual capital ratios at March 31, 2013 and December 31, 2012 as well as the minimum capital ratios for capital adequacy.

Table Ten: Capital Ratios
Capital to Risk-Adjusted Assets	At March 31, 2013			At December 31, 2012			Minimum Regulatory Capital Requirements
Leverage ratio		12.8	%		12.8	%		4.00	%
Tier 1 Risk-Based Capital		24.4	%		23.9	%		4.00	%
Total Risk-Based Capital		25.6	%		25.1	%		8.00	%

Capital ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory requirements and is adequate to meet future needs. Management believes that Company and American River Bank were in compliance with the current risk-weighted capital and leverage ratio guidelines as of March 31, 2013 and December 31, 2012.

On June 7, 2012, the federal bank regulatory agencies published notices of proposed rulemakings that would revise and replace the current capital requirements. The proposed rules implement the “Basel III” regulatory capital reforms released by the Basel Committee on Banking Supervision and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rules were subject to a comment period through October 22, 2012 and a projected effective date of January 1, 2013. After receipt of extensive comments and lobbying efforts on behalf of financial institutions, particularly smaller community banks, the federal bank regulatory agencies jointly issued a release on November 9, 2012 to delay the effective date of Basel III. No further effective date was announced pending further review by the federal bank regulatory agencies. Therefore, it is uncertain when the proposed rules may become effective and whether the proposed rules will be implemented in the form proposed or modified in response to comments or subject to other changes that may have a material impact upon the rules as originally proposed and their application to our Company.

As originally proposed, the rules included new minimum capital ratio requirements to be phased in between January 1, 2013 and January 1, 2015, which would consist of the following: (i) a new common equity Tier 1 capital to total risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital to total risk weighted assets ratio of 6% (increased from 4%); (iii) a total capital to total risk weighted assets ratio of 8% (unchanged from current rules); and (iv) a Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%. Certain additional changes to the calculation of risk-weighted assets and Tier 1 capital components will affect the capital ratio requirements.

The proposed rules would have also established a “capital conservation buffer,” which would require maintenance of a minimum of 2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum capital ratio requirements described above. The 2.5% buffer would increase the minimum capital ratios to (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new buffer requirement would be phased in between January 2016 and January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital ratio level fell below the buffer amount.

The federal bank regulatory agencies also proposed changes to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital ratios begin to show signs of weakness. These changes would take effect January 1, 2015 and would require insured depository institutions to meet the following increased capital ratio requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

On December 17, 2009, the Company filed a Current Report with the SEC on Form 8-K announcing the completion of an offering of approximately $24 million of its common stock. Effective July 27, 2009, the Company temporarily suspended both the payment of cash dividends and stock repurchases. On December 20, 2012, the Company approved and authorized a stock repurchase program for 2013 (the “2013 Program”). See Part II, Item 2, for additional disclosure regarding the 2013 Program.

Inflation

The impact of inflation on a financial institution differs significantly from that exerted on manufacturing or other commercial concerns primarily because its assets and liabilities are largely monetary. In general, inflation primarily affects the Company and it subsidiaries through its effect on market rates of interest, which affects the Company’s ability to attract loan customers. Inflation affects the growth of total assets by increasing the level of loan demand and potentially adversely affects capital adequacy because loan growth in inflationary periods can increase at rates higher than the rate that capital grows through retention of earnings which may be generated in the future. In addition to its effects on interest rates, inflation increases overall operating expenses. Inflation has not had a significant effect upon the results of operations of the Company and its subsidiaries during the periods ended March 31, 2013 and 2012.

Liquidity

Liquidity management refers to the Company’s ability to provide funds on an ongoing basis to meet fluctuations in deposit levels as well as the credit needs and requirements of its clients. Both assets and liabilities contribute to the Company’s liquidity position. Federal funds lines, short-term investments and securities, and loan and lease repayments contribute to liquidity, along with deposit increases, while loan and lease funding and deposit withdrawals decrease liquidity. The Company assesses the likelihood of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual client funding needs. Commitments to fund loans and outstanding standby letters of credit at March 31, 2013 were approximately $27,668,000 and $6,452,000, respectively. Such loan commitments relate primarily to revolving lines of credit and other commercial loans and to real estate construction loans. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company’s sources of liquidity consist of cash and due from correspondent banks, overnight funds sold to correspondent banks, unpledged marketable investments and loans held for sale and/or pledged for secured borrowings. At March 31, 2013, consolidated liquid assets totaled $219.7 million or 37.4% of total assets compared to $216.5 million or 36.3% of total assets on December 31, 2012. In addition to liquid assets, the Company maintains two short-term unsecured lines of credit in the amount of $17,000,000 with two of its correspondent banks. At March 31, 2013, the Company had $17,000,000 available under these credit lines. Additionally, the Bank is a member of the FHLB. At March 31, 2013, the Bank could have arranged for up to $79,926,000 in secured borrowings from the FHLB. These borrowings are secured by pledged mortgage loans and investment securities. At March 31, 2013, the Company had advances, borrowings and commitments (including letters of credit) outstanding of $25,500,000, leaving $54,426,000 available under these FHLB secured borrowing arrangements. American River Bank also has a secured borrowing arrangement with the Federal Reserve Bank of San Francisco. The borrowing can be secured by pledging selected loans and investment securities. At March 31, 2013, the Company’s borrowing capacity at the Federal Reserve Bank was $22,645,000. The Company serves primarily a business and professional customer base and, as such, its deposit base is susceptible to economic fluctuations. Accordingly, management strives to maintain a balanced position of liquid assets and borrowing capacity to offset the potential runoff of these volatile and/or cyclical deposits.

Liquidity is also affected by portfolio maturities and the effect of interest rate fluctuations on the marketability of both assets and liabilities. The Company can sell any of its unpledged securities held in the available-for-sale category to meet liquidity needs. The Bank has established a master repurchase agreement with a correspondent bank to enable such transactions. Furthermore, the Bank can pledge additional unencumbered securities to borrow from the Federal Reserve Bank of San Francisco and the FHLB.

Off-Balance Sheet Items

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its exposure to fluctuations in interest rates. These financial instruments consist of commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company applies the same credit policies to commitments and letters of credit as it does for loans included on the consolidated balance sheet. As of March 31, 2013 and December 31, 2012, commitments to extend credit and standby letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and standby letters of credit were $34,120,000 and $33,024,000 at March 31, 2013 and December 31, 2012, respectively. As a percentage of net loans and leases these off-balance sheet items represent 13.9% and 13.1%, respectively.

The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results.

Website Access

American River Bankshares maintains a website where certain information about the Company is posted. Through the website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments thereto, as well as Section 16 Reports and amendments thereto, are available as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). These reports are free of charge and can be accessed through the address www.americanriverbank.com by clicking on the Investor Relations / SEC Filings link located at that address. Once you have selected the SEC Filings link you will have the option to access the Section 16 Reports or the other above-referenced reports filed by the Company by selecting the appropriate link.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk Management

Overview . Market risk is the risk of loss from adverse changes in market prices and rates. The Company’s market risk arises primarily from interest rate risk inherent in its loan, investment and deposit functions. The goal for managing the assets and liabilities of the Company is to maximize shareholder value and earnings while maintaining a high quality balance sheet without exposing the Company to undue interest rate risk. The Board of Directors has overall responsibility for the interest rate risk management policies. The Company has a Risk Management Committee, made up of Company management that establishes and monitors guidelines to control the sensitivity of earnings to changes in interest rates.

Asset/Liability Management . Activities involved in asset/liability management include but are not limited to lending, accepting and placing deposits and investing in securities. Interest rate risk is the primary market risk associated with asset/liability management. Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different amount from that of interest costs on liabilities. To mitigate interest rate risk, the structure of the balance sheet is managed with the goal that movements of interest rates on assets and liabilities are correlated and contribute to earnings even in periods of volatile interest rates. The asset/liability management policy sets limits on the acceptable amount of variance in net interest margin and market value of equity under changing interest environments. The Company uses simulation models to forecast earnings, net interest margin and market value of equity.

Simulation of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Using computer-modeling techniques, the Company is able to estimate the potential impact of changing interest rates on earnings. A balance sheet forecast is prepared quarterly using inputs of actual loans, securities and interest-bearing liabilities (i.e. deposits/borrowings) positions as the beginning base. The forecast balance sheet is processed against three interest rate scenarios. The scenarios include a 200 basis point rising rate forecast, a flat rate forecast and a 200 basis point falling rate forecast which take place within a one-year time frame. The net interest income is measured during the year assuming a gradual change in rates over the twelve-month horizon. The simulation modeling indicated below attempts to estimate changes in the Company’s net interest income utilizing a forecast balance sheet projected from the end of period balances.

Table Eleven below summarizes the effect on net interest income (NII) of a ±200 basis point change in interest rates as measured against a constant rate (no change) scenario.

Table Eleven: Interest Rate Risk Simulation of Net Interest as of March 31, 2013 and December 31, 2012

(dollars in thousands)	$ Change in NII from Current 12 Month Horizon March 31, 2013			$ Change in NII from Current 12 Month Horizon December 31, 2012
Variation from a constant rate scenario
+200bp	$	610		$	968
-200bp	$	(1,321	)	$	(1,106	)

Management does not consider the fluctuations, as outlined in the table above, to have a material impact on the Company’s projected results and are within the tolerance levels outlined in the Company’s interest rate risk polices. The simulations of earnings do not incorporate any management actions, which might moderate the negative consequences of interest rate deviations. Therefore, they do not reflect likely actual results, but serve as reasonable estimates of interest rate risk.

Item 4. Controls and Procedures.

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2013. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely making known to them material information relating to the Company and the Company’s consolidated subsidiaries required to be disclosed in the Company’s reports filed or submitted under the Exchange Act.

During the quarter ended March 31, 2013, there have been no changes in the Company’s internal control over financial reporting that have significantly affected, or are reasonably likely to materially affect, these controls.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company and/or its subsidiaries is a party to claims and legal proceedings arising in the ordinary course of business. The Company’s management is not aware of any significant pending legal proceedings to which either it or its subsidiaries may be a party or has recently been a party, which will have a significant adverse effect on the financial condition or results of operations of the Company or its subsidiaries, taken as a whole.

Item 1A. Risk Factors.

There have been no significant changes in the risk factors previously disclosed in the Company’s Form 10-K for the period ended December 31, 2012, filed with the Securities and Exchange Commission on February 28, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During 2012, the Company approved and authorized a stock repurchase program for 2012 (the “2012 Program”). The 2012 Program authorized the repurchase during 2012 of up to 6% of the outstanding shares of the Company’s common stock, or approximately 593,500 shares. During 2012, the Company repurchased 575,389 shares of its common stock at an average price of $7.29 per share. On December 20, 2012, the Company approved and authorized a stock repurchase program for 2013 (the “2013 Program”). The 2013 Program authorizes the repurchase during 2013 of up to 10% of the outstanding shares of the Company’s common stock, or approximately 932,700 shares based on the 9,327,203 shares outstanding as of December 20, 2012. Any repurchases under the 2013 Program will be made from time to time by the Company in the open market as conditions allow. All such transactions will be structured to comply with SEC Rule 10b-18 and all shares repurchased under the 2013 Program will be retired. The number, price and timing of the repurchases will be at the Company’s sole discretion and the 2013 Program may be re-evaluated depending on market conditions, capital and liquidity needs or other factors. Based on such re-evaluation, the Board of Directors may suspend, terminate, modify or cancel the 2013 Program at any time without notice.

The following table lists shares repurchased during the quarter ended March 31, 2013 and the maximum amount available to repurchase under the repurchase plan.


Period	(a)		(b)		(c)		(d)
	Total Number of Shares (or Units) Purchased		Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
Month #1 January 1 through January 31, 2013		0	$	—		0		932,720
Month #2 February 1 through February 28, 2013		151,474	$	7.40		151,474		781,246
Month #3 March 1 through March 31, 2013		70,000	$	7.50		70,000		711,246
Total		221,474	$	7.43		221,474		N/A

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.


	Exhibit Number		Document Description

	(2.1)		Agreement and Plan of Reorganization and Merger by and among the Registrant, ARH Interim National Bank and North Coast Bank, N.A., dated as of March 1, 2000 (included as Annex A). **

	(2.2)		Agreement and Plan of Reorganization and Merger by and among the Registrant, American River Bank and Bank of Amador, dated as of July 8, 2004 (included as Annex A). ***

	(3.1)		Articles of Incorporation, as amended, incorporated by reference from Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2011, filed with the Commission on May 10, 2011.

	(3.2)		Bylaws, as amended.

	(4.1)		Specimen of the Registrant’s common stock certificate, incorporated by reference from Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed with the Commission on August 11, 2004.

	(10.1)		Lease agreement between American River Bank and Spieker Properties, L.P., a California limited partnership, dated April 1, 2000, related to 1545 River Park Drive, Suite 107, Sacramento, California (**) and the Second Amendment thereto dated August 27, 2010, with HINES VAF II SACRAMENTO PROPERTIES, L.P., a Delaware limited partnership, the successor to Spieker Properties, L.P., incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on August 30, 2010.

	(10.2)		Lease agreement between American River Bank and Bradshaw Plaza Associates, Inc. dated November 27, 2006, related to 9750 Business Park Drive, Sacramento, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2006.

	(10.3)		Lease agreement between American River Bank and Marjorie Wood Taylor, Trustee of the Marjorie Wood-Taylor Trust, dated April 5, 1984, and addendum thereto dated July 16, 1997, related to 10123 Fair Oaks Boulevard, Fair Oaks, California (**) and Amendment No. 2 thereto dated May 14, 2009, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 15, 2009.

	(10.4)		Lease agreement between American River Bank and LUM YIP KEE, Limited (formerly Sandalwood Land Company) dated August 28, 1996, related to 2240 Douglas Boulevard, Suite 100, Roseville, California (**) and Amendment No. 1 thereto dated July 28, 2006, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 31, 2006.

	*(10.5)		Registrant’s Deferred Compensation Plan, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 3, 2012.


	*(10.6)		Registrant’s Deferred Fee Plan, incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 3, 2012.

	(10.7)		Lease agreement between American River Bank and 520 Capitol Mall, Inc., dated August 19, 2003, related to 520 Capitol Mall, Suite 100, Sacramento, California, incorporated by reference from Exhibit 10.29 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed with the Commission on November 7, 2003 and the First Amendment thereto dated April 21, 2004, incorporated by reference from Exhibit 10.37 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed with the Commission on August 11, 2004.

	*(10.8)		Employment Agreement between Registrant and David T. Taber dated June 2, 2006, incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 30, 2006.

	*(10.9)		Salary Continuation Agreement, as amended on December 31, 2012, between American River Bank and Mitchell A. Derenzo, incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 2, 2013.

	*(10.10)		Salary Continuation Agreement, as amended on December 31, 2012, between the Registrant and David T. Taber, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 2, 2013.

	*(10.11)		Salary Continuation Agreement, as amended on February 21, 2008, between American River Bank and Douglas E. Tow, incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008.

	*(10.12)		Registrant’s 2000 Stock Option Plan with forms of Nonqualified Stock Option Agreement and Incentive Stock Option Agreement. **

	*(10.13)		Registrant’s 401(k) Plan dated December 23, 2008, incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K, filed with the Commission on December 24, 2008.

	(10.14)		Lease agreement between Bank of Amador, a division of American River Bank, and the United States Postal Service, dated May 24, 2011, related to 424 Sutter Street, Jackson, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 25, 2011.

	*(10.15)		Salary Continuation Agreement, as amended on February 21, 2008, between Bank of Amador, a division of American River Bank, and Larry D. Standing and related Endorsement Split Dollar Agreement, incorporated by reference from Exhibit 99.4 to the Registrant’s Report on Form 8-K, filed with the Commission on February 22, 2008.

	*(10.16)		Director Retirement Agreement, as amended on February 21, 2008, between Bank of Amador, a division of American River Bank, and Larry D. Standing, incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008.

	(10.17)		Item Processing Agreement between American River Bank and Fidelity Information Services, Inc., dated April 30, 2012, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 4, 2012.

	(10.18)		Lease agreement between Registrant and One Capital Center, a California limited partnership, dated May 17, 2005, related to 3100 Zinfandel Drive, Rancho Cordova, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 18, 2005 and the First Amendment thereto dated April 23, 2010, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on April 23, 2010.


	(10.19)		Managed Services Agreement between American River Bankshares and ProNet Solutions, Inc., dated June 25, 2012, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 27, 2012.

	*(10.20)		American River Bankshares 2005 Executive Incentive Plan, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 27, 2005; the First Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 17, 2006; the Second Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 23, 2007; the Third Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008; the Fourth Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 20, 2009; the Fifth Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 18, 2010; the Sixth Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 17, 2011; the Seventh Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 17, 2012; and the Eight Amendment thereto, incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Commission on January 31, 2013.

	*(10.21)		American River Bankshares Director Emeritus Program, incorporated by reference from Exhibit 10.33 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed with the Commission on August 8, 2006.

	*(10.22)		Employment Agreement dated September 20, 2006, between American River Bankshares and Mitchell A. Derenzo, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 20, 2006.

	*(10.23)		Employment Agreement dated September 20, 2006, between American River Bankshares and Kevin B. Bender, incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 20, 2006.

	*(10.24)		Salary Continuation Agreement, as amended on December 31, 2012, between American River Bank and Kevin B. Bender, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 2, 2013.

	*(10.25)		Salary Continuation Agreement, as amended on February 21, 2008, between American River Bank and Raymond F. Byrne, incorporated by reference from Exhibit 99.7 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008.

	(10.26)		Lease agreement dated May 23, 2007 between Bank of Amador, a division of American River Bank, and Joseph Bellamy, Trustee of the Joseph T. Bellamy 2005 Trust, related to 26395 Buckhorn Ridge Road, Pioneer, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 24, 2007 and the First Amendment thereto, dated October 15, 2007, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 16, 2007.

	(10.27)		Lease agreement dated December 23, 2008, between North Coast Bank, a division of American River Bank, and 90 E Street LLC, related to 90 E Street, Santa Rosa, California, incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 24, 2008.

	(10.28)		Customer Service Agreement dated January 4, 2010, between American River Bankshares and TriNet HR Corporation, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 5, 2010.


	*(10.29)		Form of Indemnification Agreement entered into on January 20, 2010, between American River Bankshares and its Directors and certain named executive officers, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 22, 2010.

	*(10.30)		Form of Indemnification Agreement entered into on January 20, 2010, between American River Bank and its Directors and certain named executive officers, incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 22, 2010.

	*(10.31)		Registrant’s 2010 Equity Incentive Plan, incorporated by reference from the Registrant’s Definitive Proxy Statement for its 2010 Annual Meeting of Shareholders, filed with the Commission on April 9, 2010.

	*(10.32)		Employment Agreement dated February 1, 2012, between American River Bank and Robert H. Muttera, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 8, 2012.

	(10.33)		Subscription and Services Agreement between American River Bank and Postilion, Inc., dated June 19, 2012, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 21, 2012.

	(10.34)		Salary Continuation Agreement between American River Bank and Robert H. Muttera, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 4, 2013.

	(14.1)		Registrant’s Code of Ethics, incorporated by reference from Exhibit 14.1 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2003, filed with the Commission on March 19, 2004.

	(21.1)		The Registrant’s only subsidiaries are American River Bank, a California banking corporation, and American River Financial, a California corporation.

	(31.1)		Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	(31.2)		Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	(32.1)		Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.INS		XBRL Instance Document****
	101.SCH		XBRL Taxonomy Extension Schema****
	101.CAL		XBRL Taxonomy Extension Calculation****
	101.DEF		XBRL Taxonomy Extension Definition****
	101.LAB		XBRL Taxonomy Extension Label****
	101.PRE		XBRL Taxonomy Extension Presentation****

			*Denotes management contracts, compensatory plans or arrangements.

			**Incorporated by reference to Registrant’s Registration Statement on Form S-4 (No. 333-36326) filed with the Commission on May 5, 2000.

			***Incorporated by reference to Registrant’s Registration Statement on Form S-4 (No. 333-119085) filed with the Commission on September 17, 2004.

			****These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AMERICAN RIVER BANKSHARES

May 7, 2013	By: /s/ DAVID T. TABER

	David T. Taber
	President and
	Chief Executive Officer

	AMERICAN RIVER BANKSHARES

May 7, 2013	By: /s/ MITCHELL A. DERENZO

	Mitchell A. Derenzo
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit Number	Description	Page

3.2	Bylaws, as amended.	54

31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	96

31.2	Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	97

32.1	Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	98

Exhibit 3.2
AMERICAN RIVER BANKSHARES

RESOLUTION

AMENDMENT TO BYLAWS

WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Bankshares hereby adopts this resolution to fix the number of directors to nine
(9) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2. In witness thereof, the undersigned, Stephen H. Waks, Corporate Secretary of American River Bankshares, has executed this resolution.

/s/ STEPHEN H. WAKS
---------------------------
Stephen H. Waks
Corporate Secretary
July 18, 2012

AMERICAN RIVER BANKSHARES

RESOLUTION
AMENDMENT TO BYLAWS

WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Bankshares hereby adopts this resolution to fix the number of directors to eight
(8) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2. In witness thereof, the undersigned, Stephen H. Waks, Corporate Secretary of American River Bankshares, has executed this resolution.

/s/ STEPHEN H. WAKS
---------------------------
Stephen H. Waks
Corporate Secretary
April 4, 2011

AMERICAN RIVER BANKSHARES

RESOLUTION
AMENDMENT TO BYLAWS

WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Bankshares hereby adopts this resolution to fix the number of directors to ten
(10) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2. In witness thereof, the undersigned, Stephen H. Waks, Corporate Secretary of American River Bankshares, has executed this resolution.

/s/ STEPHEN H. WAKS
---------------------------
Stephen H. Waks
Corporate Secretary
March 18, 2009

AMERICAN RIVER BANKSHARES

RESOLUTION
AMENDMENT TO BYLAWS

/s/ STEPHEN H. WAKS
---------------------------
Stephen H. Waks
Corporate Secretary
March 21, 2007

American River Bankshares

Amendment to Bylaws

Section 6.4 of Article VI of the American River Bankshares Bylaws shall be amended to read in its entirety as follows:

Section 6.4. Certificates of Stock. Every holder of shares of the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairperson or the vice chairperson of the board or the president or a vice president and by the secretary or an assistant secretary or the chief financial officer or an assistant financial officer, certifying the number of shares and the class or series of shares owned by the shareholder. The signatures on the certificates may be facsimile signatures. If any officer, transfer agent or registrar who has signed a certificate or whose facsimile signature has been placed upon the certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

Except as provided in this Section 6.4, no new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and canceled at the same time. The Board may, however, in case any certificate for shares is alleged to have been lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, and the corporation may require that the corporation be given a bond or other adequate security sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.

Prior to the due presentment for registration of transfer in the stock transfer book of the corporation, the registered owner shall be treated as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as expressly provided otherwise by the laws of the state of California.

Notwithstanding any other provision of these bylaws and Article VI,
Section 6.4 thereof, the corporation shall be entitled to issue in its discretion uncertificated securities in compliance with California Corporations Code Section 416(b), as amended, subject to the right of a holder of shares of the corporation to request issuance of a certificate in compliance with the provisions of this Section 6.4.

/s/ STEPHEN H. WAKS
--------------------------------
Stephen H. Waks
Corporate Secretary
March 17, 2007

AMERICAN RIVER BANKSHARES

AMENDMENT TO BYLAWS

Section 3.4 of Article III of the American River Bankshares Bylaws shall be amended to read in its entirety as follows:

Section 3.4. Election and Term of Office. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, the annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in
Section 3.5, begin immediately after their election and shall continue until their respective successors are elected and qualified. Notwithstanding the rule stated herein that directors shall be elected annually, each director continuing to serve as such at the time of an annual or special meeting of the shareholders shall nevertheless continue as a director until the expiration of the term to which he or she was previously elected by the shareholders, or until his or her prior death, resignation or removal.

The following wording shall be deleted from Section 3.4 of Article III:

In the event that the authorized number of directors shall be fixed at nine (9) or more, the board of directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist of one-third of the directors or as close an approximation as possible. The initial term of office of the directors of Class I shall expire at the annual meeting to be held during fiscal year 2001, the initial term of office of the directors of Class II shall expire at the annual meeting to be held during fiscal year 2002 and the initial term of office of the directors of Class III shall expire at the annual meeting to be held during fiscal year 2003. At each annual meeting, commencing with the annual meeting to be held during fiscal year 2001, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the third annual meeting next succeeding his or her election until his or her successor shall have been duly elected and qualified. In the event that the authorized number of directors shall be fixed with at least six (6) but less than nine (9), the board of directors shall be divided into two classes, designated Class I and Class II. Each class shall consist of one-half of the directors or as close an approximation as possible. At each annual meeting, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the second annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified. Notwithstanding the rule that the classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior death, resignation or removal. At such annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the board of directors shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes.

This Section 3.4 may be amended or repealed only by approval of the board of directors and the outstanding shares (as defined in Section 152 of the California General Corporation Law) voting as a single class, notwithstanding
Section 903 of the California General Corporation Law.

AMERICAN RIVER BANKSHARES

RESOLUTION
AMENDMENT TO BYLAWS

WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Bankshares hereby adopts this resolution to fix the number of directors to eight (8) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2. In witness thereof, the undersigned, Stephen H. Waks, Corporate Secretary of American River Bankshares, has executed this resolution.

/s/ STEPHEN H. WAKS
---------------------------
Stephen H. Waks
Corporate Secretary
April 20, 2005

WHEREAS, Article VII, section 7.1, provides that the Board of Directors may adopt, amend, or repeal the Bylaws, be it hereby

RESOLVED, that the Board of Directors has determined that it is in the best interests of the Corporation to amend the Corporations Bylaws to effect the name change to American River Bankshares to coincide with the Articles of Incorporation.

This unanimous consent may be executed in one or more counterparts, all of which taken together shall constitute the same consent and when signed by all of the Directors of the Corporation, maybe certified as having been unanimously adopted by the Board of Directors of the Corporation as of the execution date. This written consent shall be filed in the Minute Book of the Corporation and become a part of the records of this corporation.

/s/ AMADOR S. BUSTOS    Dated: 7/30/04           /s/ WILLIAM A. ROBOTHAM     Dated: 8/02/04
-----------------------        -------------     -------------------------          -------
Amador S. Bustos                                 William A. Robotham


/s/ CHARLES D. FITE     Dated: July 30, 2004     /s/ DAVID T. TABER          Dated: 7/30/04
-----------------------        -------------     -------------------------          -------
Charles D. Fite                                  David T. Taber


/s/ ROBERT J. FOX       Dated: 7/31/04           /s/ ROGER J. TAYLOR         Dated: 8/04/04
-----------------------        -------------     -------------------------          -------
Robert J. Fox                                    Roger J. Taylor, D.D.S


/s/ S.J. GALLINA        Dated: 7-30-04           /s/ STEPHEN H. WAKS         Dated: 7-30-04
-----------------------        -------------     -------------------------          -------
Sam J. Gallina                                   Stephen H. Waks, Esq.


                                                 /s/ MICHAEL A. ZIEGLER      Dated: 7/31/04
                                                 -------------------------          -------
                                                 Michael A. Ziegler

AMERICAN RIVER BANKSHARES

UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS

AMENDMENT TO BYLAWS

The undersigned, constituting all member of the Board of Directors of American River Bankshares (the "Corporation"), a corporation duly organized and existing under the laws of the state of California, so hereby consent to the following corporate action, subject to Section 603 of the California Code and pursuant to
Section 3.13 of Bylaws of this Corporation, and having the same force and effect as unanimous action taken at a duly notice and called meeting of the Board of Directors.

WHEREAS, the Board of Directors deemed it to be in the best interests of the Corporation and its Shareholders to amend Article One of the Corporation's Articles of Incorporation to change the name of the Corporation from American River Holdings to American River Bankshares in order to align the Corporation's name more closely with its business focus on financial services; and

WHEREAS, the Board of Directors of the Corporation approved and adopted a resolution amending the Article One of the Articles of Incorporation changing the name of the Corporation to American River Bankshares on April 21, 2004; and

WHEREAS, the Shareholders of the Corporation approved the resolution by a total number of 3,375,418 shares to amend the Corporation's Articles of Incorporation changing the name of the Corporation to American River Bankshares at the Annual Meeting of Shareholders held May 20, 2004; and

WHEREAS, the Certificate of Approval of Name Change of the Corporation to American River Bankshares was formally endorsed and filed with the Secretary of State and with the Department of Financial Institutions on May 20, 2004; and

AMENDMENT OF BYLAWS FIXING NUMBER OF DIRECTORS

WHEREAS, Article III, Section 3.2, provides for the authorized number of directors of the corporation of not less than eight (8) nor more than fifteen
(15); and

WHEREAS, Article III, Section 3.2, provides that the exact number of directors shall be fixed from time to time within the range specified by resolution adopted by the Board;

RESOLVED, that the Board of Directors of American River Holdings hereby adopts this resolution to fix the number of directors at nine (9) until changed by a resolution duly adopted by the Board, as specified in Article III, Section 3.2.

In witness thereof, the undersigned, Stephen H. Waks, Corporate Secretary of American River Bankshares, has executed this resolution.

Stephen H. Waks
Corporate Secretary
January 21, 2004

Article II of the Bylaws of American River Holdings is amended as follows:

1. The title of Section 2.2 of Article II is hereby revised to read "Annual Meetings; Shareholder Proposals."

2. The following new paragraph is added at the end of Section 2.2:

"Notice of proposals which shareholders intend to present at any annual meeting of shareholders and wish to be included in the proxy statement of management of the corporation distributed in connection with such annual meeting must be received at the principal executive offices of the corporation not less than 120 days prior to the date on which, during the previous year, management's proxy statement for the previous year's annual meeting was first distributed to shareholders. Any such proposal, and the proponent shareholder, must comply with the eligibility requirements set forth in Rule 14a-8 of the Securities and Exchange Commission."

3. The following new sentences are added at the end of Section 2.12:

"The proxy solicited by management for any annual meeting of shareholders shall confer discretionary authority upon management's proxy holders to vote with respect to any shareholder proposal offered at such meeting, the proponent of which has not notified the corporation, within the time period specified by Section 4 of these Bylaws, of his or her intention to present such proposal at the annual meeting. Specific reference to such voting authority shall be made in management's proxy statement for each annual meeting."

AMERICAN RIVER HOLDINGS

SECRETARY'S CERTIFICATE

1. The undersigned hereby certifies that she is the duly appointed Secretary of American River Holdings and is serving in that capacity in accordance with the Bylaws of the association.

2. The undersigned further certifies that the attached amended Section 2.2 and 2.12 of Article II of bylaws of American River Holdings have been duly adopted and are in full force.

Date:  January 17, 2001
                                        /s/ MARJORIE G. TAYLOR
                                        -------------------------------
                                        Marjorie G. Taylor
                                        Secretary, American River Holdings

"SECTION 2.8. VOTING. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 2.9 of this Article II.

Voting of shares of the corporation shall in all cases be subject to the provisions of Sections 700 through 711, inclusive, of the Code.

The shareholders' vote may be by voice or ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal (other than the election of directors), but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the articles of incorporation.

No holder of any class of stock of the corporation shall be entitled to cumulate votes in connection with any election of directors of the corporation.

In any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Votes against the director and votes withheld shall have no legal effect."

AMERICAN RIVER HOLDINGS

SECRETARY'S CERTIFICATE

1. The undersigned hereby certifies that she is the duly appointed Secretary of American River Holdings and is serving in that capacity in accordance with the Bylaws of the Corporation.

2 The undersigned further certifies that the attached amended Section 2.8 of Article II of the bylaws of American River Holdings has been duly adopted and is in full force and effect.

Date:  December 20, 2000               /s/ MARJORIE G. TAYLOR
                                       ----------------------
                                       Marjorie G. Taylor
                                       Secretary, American River Holdings

"SECTION 3.4. ELECTION AND TERM OF OFFICE. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, the annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in
Section 3.5, begin immediately after their election and shall continue until their respective successors are elected and qualified. In the event that the authorized number of directors shall be fixed at nine (9) or more, the board of directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist of one-third of the directors or as close an approximation as possible. The initial term of office of the directors of Class I shall expire at the annual meeting to be held during fiscal year 2001, the initial term of office of the directors of Class II shall expire at the annual meeting to be held during fiscal year 2002 and the initial term of office of the directors of Class III shall expire at the annual meeting to be held during fiscal year 2003. At each annual meeting, commencing with the annual meeting to be held during fiscal year 2001, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the third annual meeting next succeeding his or her election until his or her successor shall have been duly elected and qualified. In the event that the authorized number of directors shall be fixed with at least six (6) but less than nine (9), the board of directors shall be divided into two classes, designated Class I and Class II. Each class shall consist of one-half of the directors or as close an approximation as possible. At each annual meeting, each of the successors to the directors of the class whose term shall have expired at such annual meeting shall be elected for a term running until the second annual meeting next succeeding his or her election and until his or her successor shall have been duly elected and qualified. Notwithstanding the rule that the classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior death, resignation or removal. At such annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the board of directors shall designate one or more directorships whose term then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes.

AMERICAN RIVER HOLDINGS

SECRETARY'S CERTIFICATE

1. The undersigned hereby certifies that she is the duly appointed Secretary of American River Holdings and is serving in that capacity in accordance with the Bylaws of the Corporation.

2 The undersigned further certifies that the attached amended Section 3.4 of Article III of the bylaws of American River Holdings has been duly adopted and is in full force and effect.

Date:  December 20, 2000               /s/ MARJORIE G. TAYLOR
                                       ----------------------
                                       Marjorie G. Taylor
                                       Secretary, American River Holdings

AMERICAN RIVER HOLDINGS

RESOLUTION

AMENDMENT TO BYLAWS

WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Holdings hereby adops this resolution to fix the number of directors to nine (9) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2.

In witness thereof, the undersigned, Marjorie G. Taylor, Corporate Secretary of American River Holdings, has executed this resolution.

Marjorie G. Taylor
Corporate Secretary
January 20, 1999

AMERICAN RIVER HOLDINGS

RESOLUTION
AMENDMENT TO BYLAWS

WHEREAS Article III, Section 3.2. provides that the exact number of directors can be fixed from time to time within the range specified in this section, the Board of Directors of American River Holdings hereby adopts this resolution to fix the number of directors to 10 (ten) until changed by an amendment of the articles of incorporation or by a resolution duly adopted by the board, as specified in Article III, Section 3.2.

In witness thereof, the undersigned, Marjorie G. Taylor, Corporate Secretary of American River Holdings, has executed this resolution.

Marjorie G. Taylor
Corporate Secretary
January 21, 1998

BYLAWS

AMERICAN RIVER HOLDINGS

ARTICLE I

OFFICES

SECTION 1.1. PRINCIPAL OFFICE. The principal executive office of the corporation is hereby located at such place as the board of directors (the "board") shall determine. The board is hereby granted full power and authority to change said principal executive office from one location to another.

SECTION 1.2. OTHER OFFICES. Other business offices may, at any time, be established by the board at such other places as it deems appropriate.

ARTICLE II

MEETINGS OF SHAREHOLDERS

SECTION 2.1. PLACE OF MEETINGS. Meetings of shareholders may be held at such place within or outside the state of California designated by the board. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation.

SECTION 2.2. ANNUAL MEETING. The annual meeting of shareholders shall be held for the election of directors on a date and at a time designated by the board. The date so designated shall be within fifteen (15) months after the last annual meeting. At such meeting, directors shall be elected, and any other proper business within the power of the shareholders may be transacted.

SECTION 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the board, the chairperson of the board, the president, or by the holders of shares entitled to cast not less than ten percent (10%) of the votes at such meeting. If a special meeting is called by any person or persons other than the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or by registered mail to the chairperson of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after receipt of the request. If the notice is not given

within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing in this paragraph shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board may be held.

SECTION 2.4. NOTICE OF MEETINGS. Written notice, in accordance with Section 2.5 of this Article II, of each annual or special meeting of shareholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of the annual meeting, those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.

If action is proposed to be taken at any meeting for approval of (a) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code, as amended (the "Code"), (b) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (c) a reorganization of the corporation, pursuant to Section 1201 of the Code, (d) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (e) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall also state the general nature of that proposal.

SECTION 2.5. MANNER OF GIVING NOTICE. Notice of a shareholders' meeting shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office or if published at least once in a newspaper of general circulation in the county in which the principal executive office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. An affidavit of mailing or other means of giving any notice in accordance with the above provisions, executed by the secretary, assistant secretary or any transfer agent, shall be prima facie evidence of the giving of the notice.

If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders.

SECTION 2.6. QUORUM. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

SECTION 2.7. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy at the meeting, but in the absence of a quorum (except as provided in Section 2.6 of this Article II) no other business may be transacted at such meeting.

When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, when any shareholders' meeting is adjourned for more than 45 days from the date set for the original meeting, or, if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.

SECTION 2.8. VOTING. The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 2.9 of this Article II.

Voting of shares of the corporation shall in all cases be subject to the provisions of Sections 700 through 711, inclusive, of the Code.

voting the remaining shares or vote them against the proposal (other than the election of directors), but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the articles of incorporation.

Subject to the following sentence and the provisions of Section 708 of the Code, every shareholder entitled to vote at any election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes for any candidate or candidates pursuant to the preceding sentence unless such candidate's or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting and prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination.

SECTION 2.9. RECORD DATE. The board may fix, in advance, a record date for the determination of the shareholders entitled to notice of any meeting or to vote or to receive payment of any dividend or other distribution, or allotment of any rights, or to exercise any rights in respect of any other lawful action. The record date so fixed shall be not more than 60 days nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or to exercise rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record date. A record date for a meeting of shareholders shall apply to any adjournment of the meeting unless the board fixes a new record date for the adjourned meeting. The board shall fix a new record date if the meeting is adjourned for more than 45 days.

If no record date is fixed by the board, the record date for determining shareholders entitled to notice of or to vote at a

meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice of the meeting is given or, if notice is waived, the close of business on the business day next preceding the day on which the meeting is held. The record date for determining shareholders for any purpose other than as set forth in this Section 2.9 or Section 2.11 of this Article II shall be at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action, whichever is later.

SECTION 2.10. CONSENT OF ABSENTEES. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, who was not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes of the meeting, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of this Article II, the waiver of notice, consent or approval shall state the general nature of the proposal.

SECTION 2.11. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Subject to Section 603 of the Code, any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken, is signed by the holders of the outstanding shares, or their proxies, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records; provided, however, that (1) unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval without a meeting by less than unanimous consent shall be given, as provided by Section 603(b) of the Code, and (2) in the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote

for the election of directors; provided, however, that subject to applicable law, a director may be elected at any time to fill a vacancy on the board that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. Any written consent may be revoked by a writing received by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary.

Unless a record date for voting purposes be fixed as provided in Section 2.9 of this Article II, the record date for determining shareholders entitled to give consent pursuant to this Section 2.11, when no prior action by the board has been taken, shall be the day on which the first written consent is given.

SECTION 2.12. PROXIES. Every person entitled to vote shares or execute written consents has the right to do so either in person or by one or more persons authorized by a written proxy executed and dated by such shareholder and filed with the secretary of the corporation prior to the convening of any meeting of the shareholders at which any such proxy is to be used or prior to the use of such written consent. A validly executed proxy which does not state that it is irrevocable continues in full force and effect unless: (1) revoked by the person executing it prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting of shareholders, by attendance at such meeting and voting in person by the person executing the proxy; or (2) written notice of the death or incapacity of the maker of the proxy is received by the corporation before the vote pursuant thereto is counted; provided, however, that no proxy shall be valid after the expiration of 11 months from the date of its execution unless otherwise provided in the proxy.

SECTION 2.13. INSPECTORS OF ELECTION. In advance of any meeting of shareholders, the board may appoint any persons other than nominees for office as inspectors of election to act at such meeting and any adjournment thereof. If no inspectors of election are so appointed, or if any persons so appointed fail to appear or refuse to act, the chairperson of any such meeting may, and on the request of any shareholder or shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present shall determine whether one (1) or three (3) inspectors are to be appointed.

The duties of such inspectors shall be as prescribed by Section 707(b) of the Code and shall include: determining the number of shares outstanding and the voting power of each; determining the shares represented at the meeting; determining the existence of a quorum; determining the authenticity, validity and the effect of

proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and doing such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.

SECTION 2.14. CONDUCT OF MEETINGS. The president shall preside at all meetings of the shareholders and shall conduct each such meeting in a businesslike and fair manner, but shall not be obligated to follow any technical, formal or parliamentary rules or principles of procedure. The presiding officer's rulings on procedural matters shall be conclusive and binding on all shareholders, unless at the time of ruling a request for a vote is made to the shareholders entitled to vote and represented in person or by proxy at the meeting, in which case the decision of a majority of such shares shall be conclusive and binding on all shareholders. Without limiting the generality of the foregoing, the presiding officer shall have all the powers usually vested in the presiding officer of a meeting of shareholders.

ARTICLE III

DIRECTORS

SECTION 3.1. POWERS. Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to actions required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the day-to-day operations of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the board shall have the following powers in addition to the other powers enumerated in these bylaws:

(a) to select and remove all the other officers, agents and employees of the corporation, prescribe any qualifications, powers and duties for them that are consistent with law, the articles of incorporation or these bylaws, fix their compensation, and require from them security for faithful service;

(b) to conduct, manage and control the affairs and business of the corporation and to make such rules and regulations therefor not inconsistent with law, the articles of incorporation or these bylaws, as they may deem best;

(c) to adopt, make and use a corporate seal, to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as in their judgment they may deem best;

(d) to authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful;

(e) to borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory and capital notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor and any agreements pertaining thereto;

(f) to prescribe the manner in which and the person or persons by whom any or all of the checks, drafts, notes, contracts and other corporate instruments shall be executed;

(g) to appoint and designate, by resolution adopted by a majority of the authorized number of directors, one or more committees, each consisting of two or more directors, including the appointment of alternate members of any committee who may replace any absent member at any meeting of the committee; and

(h) generally, to do and perform every act or thing whatever that may pertain to or be authorized by the board of directors of a corporation incorporated under the laws of this state.

SECTION 3.2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of directors of the corporation shall not be less than eight (8) nor more than fifteen (15) until changed by an amendment of the articles of incorporation or by a bylaw amending this Section 3.2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote. The exact number of directors shall be fixed from time to time, within the range specified in the articles of incorporation or in this Section 3.2: (i) by a resolution duly adopted by the board; (ii) by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of the outstanding shares entitled to vote; or (iii) by approval of the shareholders (as defined in Section 153 of the Code.

SECTION 3.3. NOMINATIONS OF DIRECTORS. Nominations for election of members of the board may be made by the board or by any holder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations (other than for persons named in the notice of the meeting called for the election of directors) shall be made in writing and shall be delivered or mailed to the

president of the corporation by the later of: (i) the close of business twenty-one (21) days prior to any meeting of shareholders called for the election of directors; or (ii) ten (10) days after the date of mailing of notice of the meeting to shareholders. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; (f) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution owned beneficially by the nominee or by the notifying shareholder and the identities and locations of any such institutions; and (g) whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The notification shall be signed by the nominating shareholder and by each nominee, and shall be accompanied by a written consent to be named as a nominee for election as a director from each proposed nominee. Nominations not made in accordance with these procedures shall be disregarded by the chairperson of the meeting, and upon his or her instructions, the inspectors of election shall disregard all votes cast for each such nominee. The foregoing requirements do not apply to the nomination of a person to replace a proposed nominee who has become unable to serve as a director between the last day for giving notice in accordance with this paragraph and the date of election of directors if the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee.

A copy of the preceding paragraph shall be set forth in the notice to shareholders of any meeting at which directors are to be elected.

SECTION 3.4. ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of shareholders, but if any annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. Each director shall hold office until the next annual meeting and until a successor has been elected and qualified.

SECTION 3.5. VACANCIES. Vacancies on the board, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the next annual meeting and until such director's successor has been elected and qualified. A vacancy on the board created by the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of all of the outstanding shares.

The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote.

Any director may resign effective upon giving written notice to the chairperson of the board, the president, secretary, or the board, unless the notice specifies a later time for the effectiveness of such resignation. If the board accepts the resignation of a director tendered to take effect at a future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become effective.

A vacancy or vacancies on the board shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased, or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting.

The board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office.

SECTION 3.6. PLACE OF MEETINGS. Regular or special meetings of the board shall be held at any place within or outside the state of California which has been designated in the notice of meeting or if there is no notice, at the principal executive office of the corporation, or at a place designated by resolution of the board or by the written consent of the board. Any regular or special meeting is valid wherever held if held upon written consent of all members of the board given either before or after the meeting and filed with the secretary of the corporation.

SECTION 3.7. REGULAR MEETINGS. Immediately following each annual meeting of shareholders, the board shall hold a regular meeting for the purpose of organization, any desired election of officers and the transaction of other business. Notice of this meeting shall not be required.

Other regular meetings of the board shall be held without notice either on the third Wednesday of each month at the hour of 7:00 p.m., or at such different date and time as the board may from time to time fix by resolution; provided, however, should said day fall upon a legal holiday observed by the corporation at its principal executive office, then said meeting shall be held at

the same time and place on the next succeeding full business day of the corporation. Call and notice of all regular meetings of the board are hereby dispensed with.

SECTION 3.8. SPECIAL MEETINGS. Special meetings of the board for any purpose or purposes may be called at any time by the chairperson of the board, the president, any vice president, the secretary or by any two directors.

Special meetings of the board shall be held upon four days' written notice by mail or 48 hours' notice delivered personally or by telephone, telegraph, telex or other similar means of communication. Any such notice shall be addressed or delivered to each director at the director's address as shown upon the records of the corporation or as given to the corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. Such notice may, but need not, specify the purpose of the meeting, or the place if the meeting is to be held at the principal executive office of the corporation.

Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means or by facsimile transmission, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient whom the person giving the notice has reason to believe will promptly communicate it to the recipient.

SECTION 3.9. QUORUM. A majority of the authorized number of directors constitutes a quorum of the board for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board, unless a greater number be required by the articles of incorporation and subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest) and Section 317(e) of the Code (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

SECTION 3.10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of the board may participate in a meeting through use of a conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one

another. Participation in a meeting pursuant to this Section 3.10 constitutes presence in person at such meeting.

SECTION 3.11. WAIVER OF NOTICE. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes of the meeting, whether before or after the meeting, or who attends the meeting without protesting, before the meeting or at its commencement, the lack of notice to such director. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

SECTION 3.12. ADJOURNMENT. A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting to the directors who were not present at the time of the adjournment.

SECTION 3.13. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board may be taken without a meeting if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Such action by written consent shall have the same effect as a unanimous vote of the board.

SECTION 3.14. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the board. This Section 3.14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation for those services.

SECTION 3.15. RIGHTS OF INSPECTION. Every director of the corporation shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts.

SECTION 3.16. REMOVAL OF DIRECTOR WITHOUT CAUSE. Any or all of the directors of the corporation may be removed without cause if the removal is approved by the outstanding shares, subject to the following:

(a) Except if the corporation has a classified board, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect the director if

voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected.

(b) When by the provisions of the articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series.

(c) When the corporation has a classified board, a director may not be removed if the votes cast against removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors elected at the most recent annual meeting of shareholders, or if greater, the number of directors for whom removal is being sought, were then being elected.

SECTION 3.17. REMOVAL OF DIRECTORS BY SHAREHOLDER'S SUIT. The superior court of the proper county may, at the suit of the shareholders holding at least 10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.

ARTICLE IV

OFFICERS

SECTION 4.1. OFFICERS. The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board, a chairperson of the board, a vice chairperson of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant financial officers and such other officers as may be elected or appointed in accordance with the provisions of Section 4.3 of this Article IV. One person may hold two or more offices, except those of president and secretary.

SECTION 4.2. APPOINTMENT. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 4.3 or Section 4.5 of this Article IV, shall be chosen by, and shall serve at the pleasure of, the board, and shall hold their respective offices until their resignation,

removal or other disqualification from service, or until their respective successors shall be appointed, subject to the rights, if any, of an officer under any contract of employment.

SECTION 4.3. SUBORDINATE OFFICERS. The board may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each to hold office for such period, have such authority and perform such duties as are provided in these bylaws or as the board may from time to time determine.

SECTION 4.4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board at any time, or, except in the case of an officer chosen by the board, by any officer upon whom such power of removal may be conferred by the board.

Any officer may resign at any time by giving written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 4.5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointment to such office.

SECTION 4.6. CHAIRPERSON. The chairperson of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board and exercise and perform such other powers and duties as may be assigned from time to time by the board.

SECTION 4.7. VICE CHAIRPERSON. The vice chairperson of the board, if there shall be such an officer, shall, in the absence of the chairperson of the board, preside at all meetings of the board and exercise and perform such other powers and duties as may be assigned from time to time by the board.

SECTION 4.8. PRESIDENT. Subject to such powers, if any, as may be given by the board to the chairperson of the board, if there shall be such an officer, the president is the general manager and chief executive officer of the corporation and has, subject to the control of the board, general supervision, direction and control of the business and affairs of the corporation. The president shall preside at all meetings of the shareholders and in the absence of both the chairperson of the board and the vice chairperson, or if there be none, at all meetings of the board. The president has the general powers and duties of management usually vested in the office of president and chief executive officer of a corporation and such other powers and duties as may be prescribed by the board.

SECTION 4.9. VICE PRESIDENT. In the absence or disability of the president, the vice presidents in order of their rank as fixed by the board or, if not ranked, the vice president designated by the board, shall perform all the duties of the president and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the bylaws, the board, the president or the chairperson of the board.

SECTION 4.10. SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board may order, a book of minutes of all meetings of shareholders, the board and its committees, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice or waivers of notice thereof given, the names of those present at the board and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, a copy of the bylaws of the corporation at the principal executive office or business office in accordance with Section 213 of the Code. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, if one is appointed, a record of its shareholders, or a duplicate record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each.

The secretary shall give, or cause to be given, notice of all the meetings of the shareholders, of the board and of any committees thereof required by these bylaws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board.

SECTION 4.11. ASSISTANT SECRETARY. The assistant secretary or the assistant secretaries, in the order of their seniority, shall, in the absence or disability of the secretary, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the secretary and shall have such additional powers and discharge such duties as may be assigned from time to time by the president or by the board.

SECTION 4.12. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of the properties and financial and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent to the shareholders of the corporation such financial statements and reports that by law or these bylaws are required to be sent to them. The books of

account shall at all times be open to inspection by any director of the corporation.

The chief financial officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board, shall render to the president and directors, whenever they request it, an account of all transactions engaged in as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board.

SECTION 4.13. ASSISTANT FINANCIAL OFFICER. The assistant financial officer or the assistant financial officers, in the order of their seniority, shall, in the absence or disability of the chief financial officer, or in the event of such officer's refusal to act, perform the duties and exercise the powers of the chief financial officer, and shall have such additional powers and discharge such duties as may be assigned from time to time by the president or by the board.

SECTION 4.14. SALARIES. The salaries of the officers shall be fixed from time to time by the board and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation.

SECTION 4.15. OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices, except those of president and secretary, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity.

SECTION 4.16. INABILITY TO ACT. In the case of absence or inability to act of any officer of the corporation and of any person herein authorized to act in his or her place, the board may from time to time delegate the powers or duties of such officer to any other officer, or any director or other person whom it may select.

ARTICLE V

INDEMNIFICATION

SECTION 5.1. DEFINITIONS. For use in this Article V, certain terms are defined as follows:

(a) "Agent": A director, officer, employee or agent of the corporation or a person who is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise (including service with respect to employee benefit plans and service on creditors' committees with respect to any proceeding under

the Bankruptcy Code, assignment for the benefit of creditors or other liquidation of assets of a debtor of the corporation), or a person who was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation.

(b) "Loss": All expenses, liabilities, and losses including attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article.

(c) "Proceeding": Any threatened, pending or completed action, suit or proceeding including any and all appeals, whether civil, criminal, administrative or investigative.

SECTION 5.2. RIGHT TO INDEMNIFICATION. Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness or otherwise) in any Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was an Agent, is entitled to indemnification. Agent shall be indemnified and held harmless by the corporation to the fullest extent authorized by law. The right to indemnification conferred in this Article V shall be a contract right. It is the corporation's intention that these bylaws provide indemnification in excess of that expressly permitted by Section 317 of the Code, as authorized by the corporation's articles of incorporation.

SECTION 5.3. AUTHORITY TO ADVANCE EXPENSES. The right to indemnification provided in Section 5.2 of these bylaws shall include the right to be paid, in advance of a Proceeding's final disposition, expenses incurred in defending that Proceeding, PROVIDED, HOWEVER, that if required by the California General Corporation Law, as amended, the payment of expenses in advance of the final disposition of the Proceeding shall be made only upon delivery to the corporation of an undertaking by or on behalf of the Agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized under this Article V or otherwise. The Agent's obligation to reimburse the corporation for advances shall be unsecured and no interest shall be charged thereon.

SECTION 5.4. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 5.2 or 5.3 of these bylaws is not paid in full by the corporation within thirty (30) days after a written claim has been received by the corporation, the claimant may at any time there-after bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses (including attorneys' fees) of prosecuting such claim. It shall be a defense

to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition) that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that the indemnification of the claimant is proper under the circumstances because he or she has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not already met the applicable standard of conduct.

SECTION 5.5. PROVISIONS NONEXCLUSIVE. The rights conferred on any person by this Article V shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the articles of incorporation, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the articles of incorporation, agreement, or vote of the shareholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence.

SECTION 5.6. AUTHORITY TO INSURE. The corporation may purchase and maintain insurance to protect itself and any Agent against any Loss asserted against or incurred by such person, whether or not the corporation would have the power to indemnify the Agent against such Loss under applicable law or the provisions of this Article V. If the corporation owns all or a portion of the shares of the company issuing the insurance policy, the company and/or the policy must meet one of the two sets of conditions set forth in Section 317 of the Code.

SECTION 5.7. SURVIVAL OF RIGHTS. The rights provided by this Article V shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such person.

SECTION 5.8. SETTLEMENT OF CLAIMS. The corporation shall not be liable to indemnify any Agent under this Article V: (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award, if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.

SECTION 5.9. EFFECT OF AMENDMENT. Any amendment, repeal or modification of

this Article V shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal or modification.

SECTION 5.10. SUBROGATION. Upon payment under this Article V, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.

SECTION 5.11. NO DUPLICATION OF PAYMENTS. The corporation shall not be liable under this Article V to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote or otherwise) of the amounts otherwise indemnifiable hereunder.

ARTICLE VI

OTHER PROVISIONS

SECTION 6.1. INSPECTION OF CORPORATE RECORDS.

(a) A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who hold at least one percent (1%) of the outstanding voting shares and have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the corporation shall have an absolute right to do either or both of the following:

(i) inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days' prior written demand upon the corporation; or

(ii) obtain from the transfer agent, if any, for the corporation, upon written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors and their shareholdings, as of the most recent record date for which it has been compiled, or as of a date specified by the shareholder subsequent to the date of demand. The corporation shall have a responsibility to cause the transfer agent to comply with this Section 6.1;

(b) The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust

certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate. A written demand for such inspection shall be accompanied by a statement in reasonable detail of the purpose of the inspection.

(c) The accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board shall be open to inspection upon written demand on the corporation by any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interest as a shareholder or as a holder of such voting trust certificate. The right of inspection created by this Section 6.1(c) shall extend to the records of each subsidiary of the corporation. A written demand for such inspection shall be accompanied by a statement in reasonable detail of the purpose of the inspection.

(d) Any inspection and copying under this Section 6.1 may be made in person or by agent or attorney.

SECTION 6.2. INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office in California the original or a copy of these bylaws as amended to date, which shall be open to inspection by shareholders at all reasonable times during office hours.

SECTION 6.3. EXECUTION OF DOCUMENTS, CONTRACTS. Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract, share certificate, initial transaction statement or written statement, conveyance or other instrument in writing and any assignment or endorsement thereof executed or entered into between the corporation and any other person, when signed by the chairperson of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant financial officer of the corporation, or when stamped with a facsimile signature of such appropriate officers in the case of share certificates, shall be valid and binding upon the corporation in the absence of actual knowledge on the part of the other person that the signing officers did not have authority to execute the same. Any such instruments may be signed by any other person or persons and in such manner as from time to time shall be determined by the board, and unless so authorized by the board, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount.

SECTION 6.4. CERTIFICATES OF STOCK. Every holder of shares of the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairperson or the vice chairperson of the board or the president or a vice president and by the secretary or an assistant secretary or the chief financial

officer or an assistant financial officer, certifying the number of shares and the class or series of shares owned by the shareholder. The signatures on the certificates may be facsimile signatures. If any officer, transfer agent or registrar who has signed a certificate or whose facsimile signature has been placed upon the certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

Except as provided in this Section 6.4, no new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time. The board may, however, in case any certificate for shares is alleged to have been lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, and the corporation may require that the corporation be given a bond or other adequate security sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.

SECTION 6.5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or any other officer or officers authorized by the board or the president are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares or other securities of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised either by any such officer in person or by any other person authorized to do so by proxy or power of attorney duly executed by said officer.

SECTION 6.6. SEAL. The corporate seal of the corporation shall consist of two concentric circles, between which shall be the name of the corporation, and in the center shall be inscribed the word "Incorporated" and the date of its incorporation.

SECTION 6.7. FISCAL YEAR. The fiscal year of the corporation shall begin on the first day of January and end on the 31st day of December of each year.

SECTION 6.8. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the Code and the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.

SECTION 6.9. BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence, clause or phrase of these bylaws which, upon being construed in the manner provided in this
Section 6.9, shall be contrary to or inconsistent with any applicable provision of the Code or other applicable laws of the state of California or of the United States shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these bylaws, it being hereby declared that these bylaws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal.

ARTICLE VII

AMENDMENTS

SECTION 7.1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation and provided also that a bylaw reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16 2/3 percent of the outstanding shares entitled to vote.

SECTION 7.2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 7.1 of this Article VII, bylaws, other than a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa, may be adopted, amended or repealed by the board.

CERTIFICATE OF SECRETARY

I, the undersigned, do hereby certify:

1. That I am the duly elected and acting secretary of American River Holdings, a California corporation; and

2. That the foregoing Bylaws, comprising 22 pages, constitute the Bylaws of American River Holdings as duly adopted by action of the board of directors of American River Holdings duly taken on, February 15, 1995.

/s/ MARJORIE G. TAYLOR
-------------------------
Marjorie G. Taylor
Secretary

EXHIBIT 31.1

Certifications under Section 302 of the Sarbanes-Oxley Act of 2002

I, David T. Taber, certify that:

I have reviewed this quarterly report on Form 10-Q of American River Bankshares;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


	Date: May 7, 2013

	By: /s/ DAVID T. TABER
	President and Chief Executive Officer

EXHIBIT 31.2

Certifications under Section 302 of the Sarbanes-Oxley Act of 2002

I, Mitchell A. Derenzo, certify that:

I have reviewed this quarterly report on Form 10-Q of American River Bankshares;

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	Date: May 7, 2013

	By: /s/ MITCHELL A. DERENZO
	Executive Vice President and Chief Financial Officer

EXHIBIT 32.1

Certification of

American River Bankshares

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

regarding Quarterly Report on Form 10-Q for the quarter ended March 31, 2013

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of American River Bankshares, a California corporation (the “Company”), does hereby certify that:

The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Dated: March 7, 2013		By: /s/ DAVID T. TABER
			David T. Taber
			President and Chief Executive Officer

	Dated: March 7, 2013		By: /s/ MITCHELL A. DERENZO
			Mitchell A. Derenzo
			Executive Vice President and
			Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to American River Bankshares and will be retained by American River Bankshares and furnished to the Securities and Exchange Commission or its staff upon request.