10-Q

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            June 30, 2015

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 – 7,570,157shares outstanding at August 5, 2015.

AMERICAN RIVER BANKSHARES

INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2015

Part I.		Page
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
Part II.
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	49
Signatures		54
Exhibit Index		55
31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	56
31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	57
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	58
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

2

 PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN RIVER BANKSHARES

CONSOLIDATED BALANCE SHEET

(Unaudited)

(dollars in thousands)	June 30, 2015		December 31, 2014
ASSETS
Cash and due from banks	$	18,009	$	22,449
Interest-bearing deposits in banks		1,000		1,000
Investment securities:
Available-for-sale, at fair value		276,211		289,064
Held-to-maturity, at amortized cost		740		862
Loans and leases, less allowance for loan and lease losses of $5,359 at June 30, 2015 and $5,301 at December 31, 2014		275,353		258,057
Premises and equipment, net		1,461		1,518
Federal Home Loan Bank stock		3,779		3,686
Goodwill and other intangible assets		16,321		16,321
Other real estate owned		3,781		4,647
Bank owned life insurance		14,326		14,167
Accrued interest receivable and other assets		5,909		5,983
	$	616,890	$	617,754
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	173,324	$	155,698
Interest-bearing		338,659		354,995
Total deposits		511,983		510,693
Short-term borrowings		3,500		3,500
Long-term borrowings		7,500		7,500
Accrued interest payable and other liabilities		5,716		6,414
Total liabilities		528,699		528,107
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 – 7,730,157 shares at June 30, 2015 and 8,089,615 shares at December 31, 2014		53,307		57,126
Retained earnings		31,492		29,150
Accumulated other comprehensive income, net of taxes		3,392		3,371
Total shareholders’ equity		88,191		89,647
	$	616,890	$	617,754

See Notes to Unaudited Consolidated Financial Statements

3

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

(dollars in thousands, except per share data)
For the periods ended June 30,	Three months				Six months
	2015		2014		2015		2014
Interest income:
Interest and fees on loans	$	3,424	$	3,520	$	6,719	$	6,975
Interest on deposits in banks		1		1		2		2
Interest and dividends on investment securities:
Taxable		1,657		1,340		3,073		2,678
Exempt from Federal income taxes		191		200		381		402
Dividends		10		6		10		6
Total interest income		5,283		5,067		10,185		10,063
Interest expense:
Interest on deposits		208		254		422		516
Interest on borrowings		36		37		70		79
Total interest expense		244		291		492		595
Net interest income		5,039		4,776		9,693		9,468
Provision for loan and lease losses		—		—		—		—
Net interest income after provision for loan and lease losses		5,039		4,776		9,693		9,468
Noninterest income:
Service charges on deposit accounts		127		149		244		305
Gain on sale of securities		51		17		218		17
Rental income from other real estate owned		90		105		161		212
Other noninterest income		239		237		469		476
Total noninterest income		507		508		1,092		1,010
Noninterest expense:
Salaries and employee benefits		2,045		2,117		4,315		4,237
Occupancy		301		296		594		603
Furniture and equipment		179		188		356		366
Federal Deposit Insurance Corporation assessments		76		91		156		194
Expenses related to other real estate owned		55		123		202		122
Other expense		759		884		1,605		1,830
Total noninterest expense		3,415		3,699		7,228		7,352
Income before provision for income taxes		2,131		1,585		3,557		3,126
Provision for income taxes		745		550		1,215		1,085
Net income	$	1,386	$	1,035	$	2,342	$	2,041
Basic earnings per share	$	0.18	$	0.13	$	0.30	$	0.25
Diluted earnings per share	$	0.18	$	0.13	$	0.30	$	0.25
Cash dividends per share	$	0.00	$	0.00	$	0.00	$	0.00

See notes to Unaudited Consolidated Financial Statements

4

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands, except per share data)
For the periods ended June 30,	Three months						Six months
	2015			2014			2015			2014
Net income	$	1,386		$	1,035		$	2,342		$	2,041
Other comprehensive (loss) income:
Unrealized holding (losses) gains on investment securities arising during the period		(1,847	)		2,479			254			4,316
Deferred tax benefit (expense)		739			(991	)		(102	)		(1,726	)
Unrealized holding (losses) gains on investment securities arising during the period, net of tax		(1,108	)		1,488			152			2,590
Reclassification adjustment for realized gains included in net income		(51	)		(17	)		(218	)		(17	)
Tax effect		20			7			87			7
Realized gains, net of tax		(31	)		(10	)		(131	)		(10	)
Total other comprehensive (loss) income		(1,139	)		1,478			21			2,580
Comprehensive income	$	247		$	2,512		$	2,363		$	4,621

See Notes to Unaudited Consolidated Financial Statements

5

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

									Accumulated
									Other		Total
(dollars in thousands)	Common Stock						Retained		Comprehensive		Shareholders’
	Shares			Amount			Earnings		Income		Equity
Balance, January 1, 2014		8,489,247			61,108			24,789		1,123		87,020
Net income								4,361				4,361
Other comprehensive income, net of tax:
Net change in unrealized gains on available-for-sale investment securities										2,248		2,248
Net restricted stock awarded and related compensation expense		24,830			147							147
Stock option compensation expense					19							19
Retirement of common stock		(424,462	)		(4,148	)						(4,148	)
Balance, December 31, 2014		8,089,615			57,126			29,150		3,371		89,647
Net income								2,342				2,342
Other comprehensive income, net of tax:
Net change in unrealized gains on available-for-sale investment securities										21		21
Net restricted stock award activity and related compensation expense		45,023			111							111
Stock option compensation expense					15							15
Retirement of common stock		(404,481	)		(3,945	)						(3,945	)
Balance, June 30, 2015		7,730,157		$	53,307		$	31,492	$	3,392	$	88,191

See Notes to Unaudited Consolidated Financial Statements

6

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

(dollars in thousands)
For the six months ended June 30,
	2015			2014
Cash flows from operating activities:
Net income	$	2,342		$	2,041
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		—			—
Decrease in deferred loan origination fees, net		(29	)		(65	)
Depreciation and amortization		212			226
Gain on sale and call of investment securities		(218	)		(17	)
Amortization of investment security premiums and discounts, net		1,798			2,451
Increase in cash surrender values of life insurance policies		(159	)		(129	)
Stock based compensation expense		126			71
Loss (gain) on sale and write-down of other real estate owned		68			(106	)
Decrease in accrued interest receivable and other assets		61			162
Decrease in accrued interest payable and other liabilities		(698	)		(731	)
Net cash provided by operating activities		3,503			3,903
Cash flows from investing activities:
Proceeds from the sale of available-for-sale investment securities		15,383			2,632
Proceeds from matured available-for-sale investment securities		—			105
Proceeds from called available-for-sale investment securities		—			270
Purchases of available-for-sale investment securities		(28,393	)		(27,600	)
Proceeds from principal repayments for available-for-sale investment securities		24,317			19,262
Proceeds from principal repayments for held-to-maturity investment securities		122			171
Net (increase) decrease in loans		(17,267	)		5,103
Proceeds from sale of other real estate		924			106
Capitalized additions to other real estate		(126	)		(54	)
Net increase in FHLB stock		(93	)		(438	)
Purchases of equipment		(155	)		(321	)
Net cash used in investing activities		(5,288	)		(764	)

7

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)

(dollars in thousands)
For the six months ended June 30,
	2015			2014
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits	$	1,343		$	10,604
Net decrease in time deposits		(53	)		(3,436	)
Net decrease in short-term borrowings		—			(6,500	)
Net increase in long-term borrowings		—			1,500
Cash paid to repurchase common stock		(3,945	)		(4,148	)
Net cash used in financing activities	$	(2,655	)	$	(1,980	)
(Decrease) increase in cash and cash equivalents		(4,440	)		1,159
Cash and cash equivalents at beginning of year		22,449			17,948
Cash and cash equivalents at end of period	$	18,009		$	19,107

See Notes to Unaudited Consolidated Financial Statements

8

AMERICAN RIVER BANKSHARES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

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 June 30, 2015 and December 31, 2014, the results of its operations and statement of comprehensive income for the three-month and six-month periods ended June 30, 2015 and 2014, its cash flows for the six-month periods ended June 30, 2015 and 2014 and its statement of changes in shareholders’ equity for the year ended December 31, 2014 and the six months ended June 30, 2015 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 2014 annual report on Form 10-K. The results of operations for the three-month and six-month periods ended June 30, 2015 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 198,281 options remain outstanding at June 30, 2015. At June 30, 2015, under the 2010 Plan, there were 76,461 stock options and 60,790 restricted shares outstanding and the total number of authorized shares that remain available for issuance was 1,399,259. 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 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 nonqualified option agreements, restricted stock 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 awarded. 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.

9

The award date fair value of awards is determined by the market price of the Company’s common stock on the date of award and is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock awarded pursuant to such agreements vest in increments over one to five years from the date of award. 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 June 30, 2015 and 2014, the compensation cost recognized for equity compensation was $71,000 and $38,000, respectively. The recognized tax benefit for equity compensation expense was $25,000 and $13,000, respectively, for the three-month periods ended June 30, 2015 and 2014. For the six-month periods ended June 30, 2015 and 2014, the compensation cost recognized for equity compensation was $126,000 and $71,000, respectively. The recognized tax benefit for equity compensation expense was $45,000 and $25,000, respectively, for the six-month periods ended June 30, 2015 and 2014.

At June 30, 2015, the total compensation cost related to nonvested stock option awards not yet recorded was $159,000. This amount will be recognized over the next 5.0 years and the weighted average period of recognizing these costs is expected to be 2.5 years. At June 30, 2015, the total compensation cost related to restricted stock awards not yet recorded was $484,000. This amount will be recognized over the next 5.0 years and the weighted average period of recognizing these costs is expected to be 2.0 years.

Equity Plans Activity

Stock Options

There were 26,427 stock options awarded during the three-month and six-month periods ended June 30, 2015 at an average exercise price of $9.56. There were 32,705 stock options awarded during the three-month and six-month periods ended June 30, 2014 at an average exercise price of $8.85. The weighted average award date fair value of options awarded for the three-month and six-month periods ended June 30, 2015 was $3.24. The weighted average award date fair value of options awarded for the three-month and six-month periods ended June 30, 2014 was $2.44. A summary of option activity under the Plans as of June 30, 2015 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, 2015		271,700	$	16.27		3.1 years	$	82
Awarded		26,427		9.56		—		—
Exercised		—		—		—		—
Cancelled		23,385		18.11		—		—
Outstanding at June 30, 2015		274,742	$	15.47		3.8 years	$	90
Vested at June 30, 2015		215,205	$	17.27		2.4 years	$	62
Non-vested at June 30, 2015		59,537	$	8.96		9.1 years	$	28

Restricted Stock

There were 24,491 and 45,023 shares of restricted stock awarded during the three-month and six-month periods ended June 30, 2015, respectively. There were 24,830 shares of restricted stock awarded during the three-month and six-month periods ended June 30, 2014. Of the restricted shares awarded in 2015, 12,552 restricted shares vest one year from the date of the award, 11,939 vest over five years at 20% per year from the date of the award, and 20,532 are performance based awards and must meet minimum performance criteria before they begin to vest. If the performance metrics are not met, up to 100% of the award may be forfeited and if the performance metrics are exceeded, the awards may be increased by up to 150% of the original award. Of the restricted shares awarded in 2014, 13,560 restricted shares vested one year from the date of the award and 11,270 shares vest over five years at 20% per year from the date of the award. Award date fair value is determined by the market price of the Company’s common stock on the date of award ($9.41 on March 18, 2015, $9.56 on May 22, 2015 and $8.85 on May 22, 2014).

10

There were 17,071 restricted share awards that were fully vested during the three-month and six-month periods ended June 30, 2015 and there were 12,710 restricted share awards that were fully vested during the three-month and six-month periods ended June 30, 2014. There were zero restricted share awards that had been forfeited during the three-month and six-month periods ended June 30, 2015 and June 30, 2014.

Restricted Stock	Shares		Weighted Average Award Date Fair Value
Nonvested at January 1, 2015		32,838	$	8.31
Awarded		45,023		9.49
Less:  Vested		17,071		8.72
Less:  Cancelled		—		—
Nonvested at June 30, 2015		60,790	$	9.07

Other Equity Awards

There were no stock appreciation rights; restricted performance stock; unrestricted Company stock; or performance units awarded during the three-month or six-month month periods ended June 30, 2015 or 2014.

The intrinsic value used for stock options and restricted stock awards was derived from the market price of the Company’s common stock of $9.32 as of June 30, 2015.

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 $33,016,000 and standby letters of credit of approximately $363,000 at June 30, 2015 and loan commitments of approximately $32,639,000 and standby letters of credit of approximately $356,000 at December 31, 2014. 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 2015 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, insurance programs, performance obligations to government agencies, 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 June 30, 2015 or December 31, 2014.

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 (7,659,883 and 7,740,320 shares for the three-month and six-month periods ended June 30, 2015, and 8,082,638 and 8,201,383 for the three-month and six-month periods ended June 30, 2014). 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. There were 14,828 and 13,999, respectively, dilutive shares for the three-month and six-month periods ended June 30, 2015 and 9,276 and 10,515, respectively, dilutive shares for the three-month and six-month periods ended June 30, 2014. For the three-month periods ended June 30, 2015 and 2014, there were 214,066 and 211,024 stock options, respectively, that were excluded from the calculation as they were considered antidilutive. For the six-month periods ended June 30, 2015 and 2014, there were 214,066 and 211,024 stock options, respectively, that were excluded from the calculation as they were considered antidilutive. Earnings per share is retroactively adjusted for stock dividends and stock splits, if applicable, for all periods presented.

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5. INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities at June 30, 2015 and December 31, 2014 consisted of the following (dollars in thousands):

Available-for-Sale

	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	244,244	$	4,686	$	(327	)	$	248,603
Obligations of states and political subdivisions		24,756		1,226		(30	)		25,952
Corporate bonds		1,503		72		—			1,575
Equity securities:
Corporate stock		54		27		—			81
	$	270,557	$	6,011	$	(357	)	$	276,211

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	257,002	$	4,715	$	(602	)	$	261,115
Obligations of states and political subdivisions		24,886		1,423		(20	)		26,289
Corporate bonds		1,504		79		—			1,583
Equity securities:
Corporate stock		54		23		—			77
	$	283,446	$	6,240	$	(622	)	$	289,064

Net unrealized gains on available-for-sale investment securities totaling $5,654,000 were recorded, net of $2,262,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at June 30, 2015. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended June 30, 2015 totaled $5,473,000 and $51,000, respectively, and for the six-month period ended June 30, 2015 totaled $15,383,000 and $218,000, respectively. There were no transfers of available-for-sale investment securities for the three-month and six-month periods ended June 30, 2015.

Net unrealized gains on available-for-sale investment securities totaling $5,618,000 were recorded, net of $2,247,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2014. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended June 30, 2014 totaled $2,615,000 and $17,000, respectively, and for the six-month period ended June 30, 2014 totaled $2,885,000 and $17,000, respectively. There were no transfers of available-for-sale investment securities for the three-month and six-month periods ended June 30, 2014.

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Held-to-Maturity

June 30, 2015
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Debt securities:
U.S. Government Agencies and Sponsored
Agencies	$	740	$	56	$	—	$	796
December 31, 2014
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Debt securities:
U.S. Government Agencies and Sponsored
Agencies	$	862	$	60	$	—	$	922

There were no sales or transfers of held-to-maturity investment securities for the periods ended June 30, 2015 and June 30, 2014. Investment securities with unrealized losses at June 30, 2015 and December 31, 2014 are summarized and classified according to the duration of the loss period as follows (dollars in thousands):

June 30, 2015	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:
U.S. Government Agencies and Sponsored Agencies	$	38,764	$	(289	)		3,746		(38	)	$	42,510	$	(327	)
Obligations of states and political subdivisions		755		(9	)		640		(21	)		1,395		(30	)
	$	39,519	$	(298	)	$	4,386	$	(59	)	$	43,905	$	(357	)
December 31, 2014	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:
U.S. Government Agencies and Sponsored Agencies	$	57,145	$	(503	)	$	10,006	$	(99	)	$	67,151	$	(602	)
Obligations of states and political subdivisions		—		—			649		(20	)		649		(20	)
	$	57,145	$	(503	)	$	10,655	$	(119	)	$	67,800	$	(622	)

There were no held-to-maturity investment securities with unrealized losses as of June 30, 2015 or December 31, 2014.

At June 30, 2015, the Company held 222 securities of which 20 were in a loss position for less than twelve months and three were in a loss position for twelve months or more.  Of the 20 securities in a loss position for less than twelve months, 19 were U.S. Government Agencies and Sponsored Agencies securities and one was obligations of states or political subdivisions and of the three securities that were in a loss position for greater than twelve months, two were U.S. Government Agencies and Sponsored Agencies securities and one was an obligation of a states or political subdivisions.

13

At December 31, 2014, the Company held 223 securities of which 25 were in a loss position for less than twelve months and six were in a loss position for twelve months or more.  Of the 25 securities in a loss position for less than twelve months, 22 were US Government Agencies and Sponsored Agencies securities and three were obligations of states or political subdivisions and of the six securities that were in a loss position for greater than twelve months, five were U.S. Government Agencies and Sponsored Agencies securities and one was an obligation of a states or political subdivisions.

The unrealized loss on the Company’s investments in mortgage-backed securities, obligations of states and political subdivisions, and corporate bonds, 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 June 30, 2015 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	$	175	$	176
After one year through five years		3,810		3,960
After five years through ten years		13,405		14,051
After ten years		8,869		9,340
		26,259		27,527
Investment securities not due at a single maturity date:
Mortgage-backed securities		244,244		248,603	$	740	$	796
Corporate stock		54		81		—		—
	$	270,557	$	276,211	$	740	$	796

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 June 30, 2015 and December 31, 2014, the recorded investment in nonperforming loans and leases was approximately $2,454,000 and $1,653,000, 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 June 30, 2015, the recorded investment in loans and leases that were considered to be impaired totaled $23,816,000, which includes $2,369,000 in nonaccrual loans and leases and $21,447,000 in performing loans and leases. Of the total impaired loans of $23,816,000, loans totaling $12,325,000 were deemed to require no specific reserve and loans totaling $11,491,000 were deemed to require a related valuation allowance of $1,453,000. At December 31, 2014, the recorded investment in loans and leases that were considered to be impaired totaled $25,120,000 and had a related valuation allowance of $1,603,000. If interest had been accruing on the nonperforming loans, such income would have approximated $46,000 and $15,000 for the three months ended June 30, 2015 and 2014, respectively, and approximated $69,000 and $54,000 for the six months ended June 30, 2015 and 2014, respectively.

At June 30, 2015 and December 31, 2014, the balance in other real estate owned (“OREO”) was $3,781,000 and $4,647,000, respectively. At June 30, 2015, the Company did not own any residential OREO properties and there were $338,000 of residential properties in the process of foreclosure. During the first quarter of 2015, the Company sold two adjoining parcels of land in Sacramento County that did not result in a gain or loss at the time of sale; however, prior to sale, the book value of this property was adjusted by $76,000 with a charge to expense during the first quarter of 2015. The Company did not add any properties to OREO during the first quarter of 2015. During the second quarter of 2015, the Company did not foreclose on any property and an OREO property in Amador County consisting of unimproved land was sold. No gain or loss was recorded as a result of the sale.

14

The Company periodically obtains property valuations to determine whether the recorded book value is considered fair value. During the second quarter of 2015, this valuation process did not result in the Company adjusting any book values. 

The June 30, 2015, the OREO balance of $3,781,000 consisted of four properties including two commercial real estate properties in the total amount of $2,522,000 and two commercial unimproved land properties totaling $1,259,000.

Nonperforming assets at June 30, 2015 and December 31, 2014 are summarized as follows:

(in thousands)	June 30, 2015			December 31, 2014
Nonaccrual loans and leases that are current to terms (less than 30 days past due)	$	96		$	13
Nonaccrual loans and leases that are past due		2,358			1,640
Loans and leases past due 90 days and accruing interest		—			—
Other assets		878			878
Other real estate owned		3,781			4,647
Total nonperforming assets	$	7,113		$	7,178
Nonperforming loans and leases to total loans and leases		0.87	%		0.63	%
Total nonperforming assets to total assets		1.15	%		1.16	%

Impaired loans and leases as of and for the periods ended June 30, 2015 and December 31, 2014 are summarized as follows:

(in thousands)	As of June 30, 2015						As of December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial	$	36	$	36	$	—	$	—	$	—	$	—
Real estate-commercial		11,951		12,584		—		10,684		11,398		—
Real estate-residential		338		425		—		338		425		—
Consumer		—		—		—		37		37		—
Subtotal	$	12,325	$	13,045	$	—	$	11,059	$	11,860	$	—
With an allowance recorded:
Commercial	$	728	$	728	$	540	$	769	$	769	$	344
Real estate-commercial		7,287		7,386		630		9,773		9,857		949
Real estate-multi-family		492		492		7		496		496		38
Real estate-residential		2,496		2,609		232		2,524		2,637		237
Agriculture		376		376		11		381		381		13
Consumer		112		112		33		118		118		22
Subtotal	$	11,491	$	11,703	$	1,453	$	14,061	$	14,258	$	1,603
Total:
Commercial	$	764	$	764	$	540	$	769	$	769	$	344
Real estate-commercial		19,238		19,970		630		20,457		21,255		949
Real estate-multi-family		492		492		7		496		496		38
Real estate-residential		2,834		3,034		232		2,862		3,062		237
Agriculture		376		376		11		381		381		13
Consumer		112		112		33		155		155		22
	$	23,816	$	24,748	$	1,453	$	25,120	$	26,118	$	1,603

15

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				Average Recorded Investments for the six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Commercial	$	757	$	1,610	$	794	$	1,517
Real estate-commercial		19,796		19,218		19,383		19,029
Real estate-multi-family		492		1,644		494		1,642
Real estate-construction		—		246		—		245
Real estate-residential		2,840		2,912		2,848		2,908
Agriculture		377		194		378		389
Consumer		132		164		115		164
Total	$	24,394	$	25,988	$	24,012	$	25,894

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				Interest Income Recognized for the six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Commercial	$	3	$	9	$	5	$	22
Real estate-commercial		216		237		472		484
Real estate-multi-family		7		19		12		38
Real estate-construction		—		3		—		6
Real estate-residential		32		29		63		67
Agriculture		5		10		8		10
Consumer		—		—		1		2
Total	$	263	$	307	$	561	$	629

7. TROUBLED DEBT RESTRUCTURINGS

At June 30, 2015, there were 17 loans and leases that were considered to be troubled debt restructurings. Of these loans and leases, 11 are currently performing (less than ninety days past due) totaling $8,893,000 and six are considered nonperforming (and included in the $2,454,000 discussed in Note 6), totaling $1,871,000. Of the six troubled debt restructurings considered nonperforming, one is current to the modified terms. At June 30, 2015 and December 31, 2014, there were no unfunded commitments on those loans considered troubled debt restructures.

The Company has allocated $734,000 and $829,000 of specific reserves to loans whose terms have been modified as troubled debt restructurings as of June 30, 2015 and December 31, 2014.

During the six-month period ended June 30, 2015, the terms of seven loans were modified as a troubled debt restructuring. The modifications of the terms of these loans were a line of credit converted to a term loan, extensions of the maturity date and/or interest rates lower than the original loan rate.

16

The following table presents loans by class modified as troubled debt restructurings during the three months ended June 30, 2015 (dollars in thousands): 

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Commercial		1	$	47	$	47
Real estate – commercial		2		1,650		1,650
Real estate – residential		1		255		255
Consumer		1		23		23
Total		5	$	1,975	$	1,975

The following table presents loans by class modified as troubled debt restructurings during the six months ended June 30, 2015 (dollars in thousands): 

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Commercial		1	$	47	$	47
Real estate – commercial		4		2,167		2,167
Real estate – residential		1		255		255
Consumer		1		23		23
Total		7	$	2,492	$	2,492

The troubled debt restructurings described above increased the allowance for loan and lease losses by $170,000 and resulted in no charge-offs during the six months ended June 30, 2015. 

The following table presents loans by class modified as troubled debt restructurings during the three months ended June 30, 2014 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Real estate – commercial		1	$	213	$	213
Consumer		1		46		46
Total		2	$	259	$	259

The following table presents loans by class modified as troubled debt restructurings during the six months ended June 30, 2014 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Real estate – commercial		5	$	5,109	$	5,109
Consumer		1		46		46
Total		6	$	5,155	$	5,155

17

The troubled debt restructurings described above increased the allowance for loan and lease losses by $151,000 and resulted in no charge-offs during the six months ended June 30, 2014.  

There were no payment defaults on troubled debt restructurings within 12 months following the modification for the three-month and six-month periods ended June 30, 2014 and June 30, 2015.

8. ALLOWANCE FOR LOAN AND LEASE LOSSES

The Company’s loan and lease portfolio allocated by management’s internal risk ratings as of June 30, 2015 and December 31, 2014 are summarized below:

June 30, 2015	Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)				Real Estate
	Commercial			Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	27,183		$	169,711	$	16,922	$	6,838	$	9,243
Watch		1,247			12,853		498		5,114		2,305
Special mention		—			14,031		—		325		743
Substandard		3,604			1,800		—		—		833
Doubtful		—			—		—		—		—
Total	$	32,034		$	198,395	$	17,420	$	12,277	$	13,124
	Credit Risk Profile by Internally Assigned Grade
	Other Credit Exposure
	Leases			Agriculture		Consumer				Total
Grade:
Pass	$	981		$	2,063	$	2,775			$	235,716
Watch		—			—		1,124				23,141
Special mention		—			376		229				15,704
Substandard		—			—		172				6,409
Doubtful		—			—		—				—
Total	$	981		$	2,439	$	4,300			$	280,970
December 31, 2014			Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)				Real Estate
	Commercial			Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	20,179		$	163,091	$	13,663	$	3,327	$	9,364
Watch		1,280			13,724		504		4,372		2,504
Special mention		101			13,583		—		329		603
Substandard		3,626			3,473		—		—		838
Doubtful or loss		—			—		—		—		—
Total	$	25,186		$	193,871	$	14,167	$	8,028	$	13,309
	Credit Risk Profile by Internally Assigned Grade
	Other Credit Exposure
	Leases			Agriculture		Consumer				Total
Grade:
Pass	$	1,286		$	2,501	$	3,424			$	216,835
Watch		—			—		1,041				23,425
Special mention		—			381		268				15,265
Substandard		—			—		183				8,120
Doubtful or loss		—			—		—				—
Total	$	1,286		$	2,882	$	4,916			$	263,645

18

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

June 30, 2015
(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, 2015	$	1,430	$	2,317		$	130		$	583	$	399		$	2		$	62		$	124		$	254	$	5,301
Provision for loan losses		199		(389	)		(23	)		224		(14	)		—			(12	)		2			13		—
Loans charged off		—		—			—			—		—			(1	)		—			(6	)		—		(7	)
Recoveries		23		40			—			—		—			—			—			2			—		65
Ending balance, June 30, 2015	$	1,652	$	1,968		$	107		$	807	$	385		$	1		$	50		$	122		$	267	$	5,359
Ending balance:
Individually evaluated for impairment	$	540	$	630		$	7		$	—	$	232		$	—		$	11		$	33		$	—	$	1,453
Ending balance:
Collectively evaluated for impairment	$	1,112	$	1,338		$	100		$	807	$	153		$	1		$	39		$	89		$	267	$	3,906
Loans
Ending balance	$	32,034	$	198,395		$	17,420		$	12,277	$	13,124		$	981		$	2,439		$	4,300		$	—	$	280,970
Ending balance:
Individually evaluated for impairment	$	764	$	19,238		$	492		$	—	$	2,834		$	—		$	376		$	112		$	—	$	23,816
Ending balance:
Collectively evaluated for impairment	$	31,270	$	179,157		$	16,928		$	12,277	$	10,290		$	981		$	2,063		$	4,188		$	—	$	257,154
Allowance for Loan and Lease Losses
Beginning balance, March 31, 2015	$	1,403	$	2,284		$	120		$	680	$	392		$	1		$	55		$	132		$	241	$	5,308
Provision for loan losses		232		(355	)		(13	)		127		(7	)		1			(5	)		(6	)		26		—
Loans charged off		—		—			—			—		—			(1	)		—			(4	)		—		(5	)
Recoveries		17		39			—			—		—			—			—			—			—		56
Ending balance, June 30, 2015	$	1,652	$	1,968		$	107		$	807	$	385		$	1		$	50		$	122		$	267	$	5,359

19

December 31, 2014
(dollars in thousands)			Real Estate											Other
	Commercial		Commercial			Multi-Family		Construction			Residential			Leases			Agriculture			Consumer			Unallocated		Total
Ending balance:
Individually evaluated for impairment	$	344	$	949		$	38	$	—		$	237		$	—		$	13		$	22		$	—	$	1,603
Ending balance:
Collectively evaluated for impairment	$	1,086	$	1,368		$	92	$	583		$	162		$	2		$	49		$	102		$	254	$	3,698
Loans
Ending balance	$	25,186	$	193,871		$	14,167	$	8,028		$	13,309		$	1,286		$	2,882		$	4,916		$	—	$	263,645
Ending balance:
Individually evaluated for impairment	$	769	$	20,457		$	496	$	—		$	2,862		$	—		$	381		$	155		$	—	$	25,120
Ending balance:
Collectively evaluated for impairment	$	24,417	$	173,414		$	13,671	$	8,028		$	10,447		$	1,286		$	2,501		$	4,761		$	—	$	238,525
June 30, 2014
(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, 2014	$	885	$	2,401		$	242	$	542		$	825		$	4		$	80		$	161		$	206	$	5,346
Provision for loan losses		365		(291	)		20		(103	)		(122	)		(5	)		(11	)		44			103		—
Loans charged off		—		—			—		—			—			—			—			(74	)		—		(74	)
Recoveries		141		39			—		2			5			3			—			—			—		190
Ending balance, June 30, 2014	$	1,391	$	2,149		$	262	$	441		$	708		$	2		$	69		$	131		$	309	$	5,462
Allowance for Loan and Lease Losses
Beginning balance, March 31, 2014	$	781	$	2,476		$	241	$	485		$	883		$	3		$	73		$	156		$	275	$	5,373
Provision for loan losses		489		(365	)		21		(45	)		(177	)		(1	)		(4	)		48			34		—
Loans charged off		—		—			—		—			—			—			—			(73	)		—		(73	)
Recoveries		121		38			—		1			2			—			—			—			—		162
Ending balance, June 30, 2014	$	1,391	$	2,149		$	262	$	441		$	708		$	2		$	69		$	131		$	309	$	5,462

20

The Company’s aging analysis of the loan and lease portfolio at June 30, 2015 and December 31, 2014 are summarized below:

June 30, 2015
(dollars in thousands)					Past Due								Greater Than
	30-59 Days		60-89 Days		Greater Than		Total Past		Past Due				90 Days and
	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing		Nonaccrual
Commercial:
Commercial	$	—	$	30	$	622	$	652	$	31,382	$	32,034		—	$	652
Real estate:
Commercial		860		—		833		1,693		196,702		198,395		—		1,332
Multi-family		—		—		—		—		17,420		17,420		—		—
Construction		—		—		—		—		12,277		12,277		—		—
Residential		—		—		338		338		12,786		13,124		—		338
Other:
Leases		—		—		—		—		981		981		—		—
Agriculture		—		—		—		—		2,439		2,439		—		—
Consumer		6		36		—		42		4,258		4,300		—		132
Total	$	866	$	66	$	1,793	$	2,725	$	278,245	$	280,970	$	—	$	2,454
December 31, 2014													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	$	513	$	—	$	666	$	1,179	$	24,007	$	25,186		—	$	666
Real estate:
Commercial		507		—		507		1,014		192,857		193,871		—		507
Multi-family		—		—		—		—		14,167		14,167		—		—
Construction		—		—		—		—		8,028		8,028		—		—
Residential		—		—		338		338		12,971		13,309		—		338
Other:
Leases		—		—		—		—		1,286		1,286		—		—
Agriculture		—		—		—		—		2,882		2,882		—		—
Consumer		135		—		—		135		4,781		4,916		—		142
Total	$	1,155	$	—	$	1,511	$	2,666	$	260,979	$	263,645	$	—	$	1,653

21

9. BORROWING ARRANGEMENTS

At June 30, 2015, 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 June 30, 2015 or December 31, 2014.

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-term and long-term) totaling $11,000,000 were outstanding from the FHLB at June 30, 2015, bearing interest rates ranging from 0.45% to 1.91% and maturing between July 20, 2015 and July 12, 2019. Advances totaling $11,000,000 were outstanding from the FHLB at December 31, 2014, bearing interest rates ranging from 0.24% to 1.91% and maturing between March 16, 2015 and July 12, 2019. Remaining amounts available under the borrowing arrangement with the FHLB at June 30, 2015 and December 31, 2014 totaled $75,971,000 and $67,228,000, respectively. 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 June 30, 2015 and December 31, 2014 were $16,244,000 and $17,335,000, respectively. There were no advances outstanding under this borrowing arrangement as of June 30, 2015 and December 31, 2014.

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 respective tax basis. 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 and six-month periods ended June 30, 2015 and 2014.

The combined federal and state effective tax rate for the quarter ended June 30, 2015 was 35.0%, an increase from 34.7% for the second quarter of 2014. For the six months ended June 30, 2015, the combined federal and state effective tax rate was 34.2% compared to 34.7% for the six months ended June 30, 2014. The higher effective tax rate in the second quarter of 2015 compared to the second quarter of 2014 resulted from an increase in pre-tax income and the lower effective tax rate in the first six months of 2015 compared to the first six months of 2014 results from an increase in tax benefits related to tax exempt loan interest. Pre-tax income increased from $1,585,000 in the second quarter of 2014 to $2,131,000 in the second quarter of 2015 and interest on tax exempt loans increased from $3,000 in the first six months of 2014 to $130,000 in the first six months of 2015.

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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 June 30, 2015 and December 31, 2014. 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:
June 30, 2015	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	18,009	$	18,009					$	18,009
Interest-bearing deposits in banks		1,000			$	1,004				1,004
Available-for-sale securities		276,211		32		276,179				276,211
Held-to-maturity securities		740				796				796
FHLB stock		3,779		N/A		N/A		N/A		N/A
Net loans and leases		275,353					$	280,014		280,014
Accrued interest receivable		1,837				1,092		745		1,837
Financial liabilities:
Deposits:
Noninterest-bearing	$	173,324	$	173,324					$	173,324
Savings		57,120		57,120						57,120
Money market		132,551		132,551						132,551
NOW accounts		61,353		61,353						61,353
Time, $100,000 or more		66,626			$	67,164				67,164
Other time		21,009				21,182				21,182
Short-term borrowings		3,500		3,500						3,500
Long-term borrowings		7,500				7,566				7,566
Accrued interest payable		58		2		56				58

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	Carrying		Fair Value Measurements Using:
December 31, 2014	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	22,449	$	22,449	$	—	$	—	$	22,449
Interest-bearing deposits in banks		1,000		—		1,002		—		1,002
Available-for-sale securities		289,064		28		289,036		—		289,064
Held-to-maturity securities		862		—		922		—		922
FHLB stock		3,686		N/A		N/A		N/A		N/A
Net loans and leases:		258,057		—		—		261,421		261,421
Accrued interest receivable		1,858		—		1,150		708		1,858
Financial liabilities:
Deposits:
Noninterest-bearing	$	155,698	$	155,698	$	—	$	—	$	155,698
Savings		58,820		58,820		—		—		58,820
Money market		147,625		147,625		—		—		147,625
NOW accounts		60,862		60,862		—		—		60,862
Time, $100,000 or more		65,569		—		66,203		—		66,203
Other time		22,119		—		22,282		—		22,282
Short-term borrowings		3,500		3,500		—		—		3,500
Long-term borrowings		7,500		—		7,567		—		7,567
Accrued interest payable		59		—		59		—		59

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 June 30, 2015 and December 31, 2014:

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.

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

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.

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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 classification.

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 June 30, 2015 and December 31, 2014.

Assets and liabilities measured at fair value on a recurring and non-recurring basis along with any related gain or loss recognized in the income statement due to fair value changes 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)
June 30, 2015
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
Mortgage-backed securities	$	248,603	$	—	$	248,603	$	—	$	—
Obligations of states and political subdivisions		25,952		—		25,952		—		—
Corporate bonds		1,575		—		1,575		—		—
Corporate stock		81		32		49		—		—
Total recurring	$	276,211	$	32	$	276,179	$	—	$	—
Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial	$	623	$	—	$	—	$	623	$	176
Real estate:
Commercial		4,467		—		—		4,467		(165	)
Multi-family		—		—		—		—		—
Construction		—		—		—		—		—
Residential		338		—		—		338		—
Other:
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other real estate owned		3,781		—		—		3,781		—
Total nonrecurring	$	9,209	$	—	$	—	$	9,209	$	11

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Description			Fair Value Measurements Using						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)
December 31, 2014
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S.Government Agencies and Sponsored Agencies	$	261,115	$	—	$	261,115	$	—	$	—
Corporate Debt securities		1,583		—		1,583		—		—
Obligations of states and political subdivisions		26,289		—		26,289		—		—
Corporate stock		77		28		49		—		—
Total recurring	$	289,064	$	28	$	289,036	$	—	$	—
Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial
Real estate:	$	666	$	—	$	—	$	666	$	14
Commercial		286		—		—		286		—
Other real estate owned		4,404		—		—		4,404		66
Total nonrecurring	$	5,356	$	—	$	—	$	5,356	$	80

There were no significant transfers between Levels 1 and 2 during the three-month and six-month periods ended June 30, 2015 or the twelve months ended December 31, 2014.

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 as Level 1, or evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and are considered as 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 consists of the appraised value 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 OREO are measured at fair value, less costs to sell. Fair values are based on real estate appraisals. These appraisals 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 consists of the appraised value less selling costs ranging from 8% to 10%.

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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, 2014 and June 30, 2015 and its income and expense accounts for the three-month and six-month periods ended June 30, 2015 and 2014. 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 legislation promulgated by the United States Congress and actions taken by governmental agencies, including the United States Department of the Treasury, to deal with challenges to the U.S. financial system;

· the risks presented by economic volatility and 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 loan and lease losses;

· potential 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 increased capital and regulatory compliance requirements and further 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 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 military conflicts in connection with the conduct of the war on terrorism by the United States and its allies, negative 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.

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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, 2014, 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 the award 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.

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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. The most recent annual assessment was performed as of December 31, 2014, and at that time, 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 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 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 June 30, 2015 or 2014 or for the three-month and six-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 101 full-time employees as of June 30, 2015.

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, Gold River, 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 San Jose, and serves the Contra Costa and Alameda County markets through a loan production office in the city of Pleasanton.

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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 2014 and 2015, 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 $1,386,000 for the quarter ended June 30, 2015, which was an increase of $351,000 compared to $1,035,000 reported for the same period of 2014. Diluted earnings per share for the second quarter of 2015 were $0.18 compared to $0.13 recorded in the second quarter of 2014. The return on average equity (“ROAE”) and the return on average assets (“ROAA”) for the second quarter of 2015 were 6.31% and 0.90%, respectively, as compared to 4.80% and 0.70%, respectively, for the same period in 2014.

Net income for the six months ended June 30, 2015 and 2014 was $2,342,000 and $2,041,000, respectively, with diluted earnings per share of $0.30 in 2015 and $0.25 in 2014. For the first six months of 2015, ROAE was 5.36% and ROAA was 0.77% compared to 4.74% and 0.69%, respectively, for the same period in 2014.

Total assets of the Company decreased by $864,000 (0.1%) from $617,754,000 at December 31, 2014 to $616,890,000 at June 30, 2015. Net loans totaled $275,353,000 at June 30, 2015, an increase of $17,296,000 (6.7%) from $258,057,000 at December 31, 2014. Deposit balances at June 30, 2015 totaled $511,983,000, up $1,290,000 (0.3%) from the $510,693,000 at December 31, 2014.

The Company ended the second quarter of 2015 with a leverage capital ratio of 11.5%, a Tier 1 capital ratio of 20.0%, and a total risk-based capital ratio of 21.3% compared to 11.6%, 21.6%, and 22.9%, respectively, at December 31, 2014. 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). 

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Table One: Components of Net Income

(dollars in thousands)	For the three months ended June 30,						For the six months ended June 30,
	2015			2014			2015			2014
Interest income*	$	5,386		$	5,137		$	10,359		$	10,199
Interest expense		(244	)		(291	)		(492	)		(595	)
Net interest income*		5,142			4,846			9,867			9,604
Provision for loan and lease losses		—			—			—			—
Noninterest income		507			508			1,092			1,010
Noninterest expense		(3,415	)		(3,699	)		(7,228	)		(7,352	)
Provision for income taxes		(745	)		(550	)		(1,215	)		(1,085	)
Tax equivalent adjustment		(103	)		(70	)		(174	)		(136	)
Net income	$	1,386		$	1,035		$	2,342		$	2,041
Average total assets	$	615,492		$	595,828		$	612,418		$	596,063
Net income (annualized) as a percentage of average total assets		0.90	%		0.70	%		0.77	%		0.69	%

* 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 3.69% for the three months ended June 30, 2015, 3.66% for the three months ended June 30, 2014, 3.58% for the six months ended June 30, 2015 and 3.63% for the six months ended June 30, 2014.

The fully taxable equivalent interest income component for the second quarter of 2015 increased $249,000 (4.8%) to $5,386,000 compared to $5,137,000 for the three months ended June 30, 2014. The increase in the fully taxable equivalent interest income for the second quarter of 2015 compared to the same period in 2014 is broken down by rate (down $123,000) and volume (up $372,000). The yield on earning assets decreased from 3.88% during the second quarter of 2014 to 3.87% during the second quarter of 2015. The primary driver in this rate decrease was a decrease in the yield on loans which saw a decrease from 5.64% in the second quarter of 2014 to 5.01% in the second quarter of 2015. While average loans increased from $250,190,000 during the second quarter of 2014 to $276,971,000 during the second quarter of 2015, due to the overall lower interest rate environment, the new loans added were at lower yields than the existing loans. Forgone interest on nonaccrual loans continues to negatively impact the yield on earning assets. During the second quarter of 2015, foregone interest income on nonaccrual loans was approximately $46,000, compared to foregone interest of $15,000 during the second quarter of 2014. The foregone interest of $46,000 had a 3 basis point negative impact on the yield on earning assets. Partially offsetting the decrease in rates on loans was an increase in rates on investments. The yield on investments increased from 2.31% in the second quarter of 2014 to 2.75% in the second quarter of 2015. Part of this increase is related to a special one-time cash dividend from the Home Loan Bank of San Francisco (the “FHLB”) recorded in 2015 in the amount of $136,000 and the remainder was related to the slow down in the mortgage refinance market and the related slower amortization of the premiums paid on the mortgage related bonds. The volume increase of $372,000 was primarily from loans ($377,000). The average balance of earning assets increased $27,317,000 (5.1%) from $531,584,000 in the second quarter of 2014 to $558,901,000 in the second quarter of 2015. When compared to the second quarter of 2014, average investment securities were nearly identical, $280,952,000 for the second quarter of 2015 compared to $280,394,000 for the second quarter of 2014.

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Total fully taxable equivalent interest income for the six months ended June 30, 2015 increased $160,000 (1.6%) to $10,359,000 compared to $10,199,000 for the six months ended June 30, 2014. The breakdown of the fully taxable equivalent interest income for the six months ended June 30, 2015 over the same period in 2014 resulted from a decrease in rate (down $323,000) and an increase in volume (up $483,000). Average earning assets increased $22,358,000 (4.2%) from $534,128,000 during the first six months of 2014 to $556,486,000 for the same period in 2015. During the six month periods, the Company also experienced an increase in interest income due to the rates on investments (up $308,000) but this was more than offset by a reduction in rates on loans (down $631,000). The yield on investments increased from 2.33% in of 2014 to 2.54% in 2015. Part of this increase is related to a special FHLB dividend, as noted above, and the remainder was related to the slow down in the mortgage refinance market and the related slower amortization of the premiums paid on the mortgage related bonds. Average loan balances increased by $15,301,000 (6.0%) from $254,497,000 during 2014 to $269,798,000 during 2015, but the Company did experience a drop in rates on these loans from 5.53% in 2014 to 5.05% in 2015. This decrease is caused by the overall lower interest rate environment. The volume increase of $483,000 is primarily related to the above mentioned increase in loan balances from 2014 to 2015.

Interest expense was $47,000 (16.2%) lower in the second quarter of 2015 versus the prior year period, decreasing from $291,000 to $244,000. The average balances on interest bearing liabilities were $350,391,000 (or $1,442,000 and 0.4% lower) in the second quarter of 2015 compared to $351,833,000 for the same quarter in 2014. The lower balances did not significantly impact the overall interest expense as the volume had very little impact on the decrease in interest expense (up $6,000). The primary decrease in interest expense relates to lower rates (down $53,000). Rates paid on interest bearing liabilities decreased 5 basis points from 0.33% to 0.28% for the second quarter of 2014 compared to the second quarter of 2015.

Interest expense was $103,000 (17.3%) lower in the six-month period ended June 30, 2015 decreasing from $595,000 in 2014 to $492,000 in 2015. The average balances on interest-bearing liabilities were $354,218,000 (up $2,669,000 or 0.8% higher) in the six-month period ended June 30, 2015 compared $351,549,000 in the same period in 2014. Although the average balances where higher, the increases had no impact (up $1,000) as increases in one line item were offset by decreases in another. The primary decrease in interest expense relates to lower rates (down $104,000). Rates paid on interest bearing liabilities decreased 6 basis points from 0.34% to 0.28% for 2014 compared to 2015.

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.

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Table Two: Analysis of Net Interest Margin on Earning Assets

Three Months Ended June 30,	2015								2014
(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)	$	276,971		$	3,462		5.01	%	$	250,190		$	3,520		5.64	%
Taxable investment Securities		254,721			1,657		2.61	%		253,204			1,340		2.12	%
Tax-exempt investment securities (2)		26,202			255		3.90	%		27,102			270		4.00	%
Corporate stock (2)		29			11		152.14	%		88			6		27.35	%
Federal funds sold		—			—		—			—			—		—
Investments in time deposits		978			1		0.41	%		1,000			1		0.40	%
Total earning assets		558,901			5,386		3.87	%		531,584			5,137		3.88	%
Cash & due from banks		22,221								27,904
Other assets		39,715								41,864
Allowance for loan & lease losses		(5,345	)							(5,524	)
	$	615,492							$	595,828
Liabilities & Shareholders’ Equity
Interest bearing liabilities:
Interest checking and money market	$	189,816			62		0.13	%	$	197,753			104		0.21	%
Savings		57,915			9		0.06	%		53,023			9		0.07	%
Time deposits		88,116			137		0.62	%		90,101			141		0.63	%
Other borrowings		14,544			36		0.99	%		10,956			37		1.35	%
Total interest bearing liabilities		350,391			244		0.28	%		351,833			291		0.33	%
Noninterest bearing demand deposits		170,792								151,058
Other liabilities		6,266								6,406
Total liabilities		527,449								509,297
Shareholders’ equity		88,043								86,531
	$	615,492							$	595,828
Net interest income & margin (3)				$	5,142		3.69	%				$	4,846		3.66	%

(1) Loan interest includes loan fees of $56,000 and $190,000, respectively, during the three months ended June 30, 2015 and June 30, 2014. 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 2015 and 2014.

(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 (91 days) and annualized to actual days in the year (365 days).

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Six Months Ended June 30,	2015								2014
(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)	$	269,798		$	6,763		5.05	%	$	254,497		$	6,975		5.53	%
Taxable investment Securities		259,357			3,073		2.39	%		251,413			2,678		2.15	%
Tax-exempt investment securities (2)		26,314			509		3.90	%		27,131			537		3.99	%
Corporate stock (2)		28			12		86.42	%		87			7		16.23	%
Federal funds sold		—			—		—			—			—		—
Interest-bearing deposits in banks		989			2		0.41	%		1,000			2		0.40	%
Total earning assets		556,486			10,359		3.75	%		534,128			10,199		3.85	%
Cash & due from banks		21,746								24,784
Other assets		39,511								42,643
Allowance for loan & lease losses		(5,325	)							(5,492	)
	$	612,418							$	596,063
Liabilities & Shareholders’ Equity
Interest-bearing liabilities:
Interest checking and money market	$	195,141			131		0.14	%	$	196,152			209		0.21	%
Savings		58,405			17		0.06	%		52,995			21		0.08	%
Time deposits		87,907			274		0.63	%		90,921			286		0.63	%
Other borrowings		12,765			70		1.11	%		11,481			79		1.39	%
Total interest-bearing liabilities		354,218			492		0.28	%		351,549			595		0.34	%
Noninterest-bearing demand deposits		163,635								151,368
Other liabilities		6,403								6,405
Total liabilities		524,256								509,322
Shareholders’ equity		88,162								86,741
	$	612,418							$	596,063
Net interest income & margin (3)				$	9,867		3.58	%				$	9,604		3.63	%

(1) Loan interest includes loan fees of $93,000 and $246,000, respectively, during the six months ended June 30, 2015 and June 30, 2014.  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 2015 and 2014.

(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 (181 days) and annualized to actual days in the year (365 days).

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Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
Three Months Ended June 30, 2015 over 2014 (dollars in thousands)
Increase (decrease) due to change in:
Interest-earning assets:	Volume			Rate (4)			Net Change
Net loans (1)(2)	$	377		$	(435	)	$	(58	)
Taxable investment securities		8			309			317
Tax exempt investment securities (3)		(9	)		(6	)		(15	)
Corporate stock		(4	)		9			5
Interest-bearing deposits in banks		—			—			—
Total		372			(123	)		249
Interest-bearing liabilities:
Interest checking and money market		(4	)		(38	)		(42	)
Savings deposits		1			(1	)		—
Time deposits		(3	)		(1	)		(4	)
Other borrowings		12			(13	)		(1	)
Total		6			(53	)		(47	)
Interest differential	$	366		$	(70	)	$	296
Six Months Ended June 30, 2015 over 2014 (dollars in thousands)
Increase (decrease) due to change in:
Interest-earning assets:	Volume			Rate (4)			Net Change
Net loans (1)(2)	$	419		$	(631	)	$	(212	)
Taxable investment securities		85			310			395
Tax exempt investment securities (3)		(16	)		(12	)		(28	)
Corporate stock		(5	)		10			5
Interest-bearing deposits in banks		—			—			—
Total		483			(323	)		160
Interest-bearing liabilities:
Interest checking and money market		(1	)		(77	)		(78	)
Savings deposits		2			(6	)		(4	)
Time deposits		(9	)		(3	)		(12	)
Other borrowings		9			(18	)		(9	)
Total		1			(104	)		(103	)
Interest differential	$	482		$	(219	)	$	263

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

(2) Loan fees of $56,000 and $190,000, respectively, during the three months ended June 30, 2015 and June 30, 2014, and loan fees of $93,000 and $246,000, respectively, during the six months ended June 30, 2015 and June 30, 2014, have been included in the interest income computation.

(3) 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 2015 and 2014.

(4) The rate/volume variance has been included in the rate variance.

Provision for Loan and Lease Losses

The Company did not provide any provision for loan and lease losses for the second quarter of 2015 or 2014. The Company experienced net loan and lease recoveries of $51,000 or (0.07%) (on an annualized basis) of average loans and leases for the three months ended June 30, 2015 compared to net loan and lease recoveries of $89,000 or 0.14% (on an annualized basis) of average loans and leases for the three months ended June 30, 2014. For the first six months of 2015 and 2014 the Company did not make any provisions for loan and lease losses and net loan and lease recoveries were $58,000 or (0.04%) (on an annualized basis) of average loans and leases outstanding in 2015 and $116,000 or (0.09%) (on an annualized basis) of average loans and leases outstanding in 2014. The Company continued to experience an overall improvement in the credit quality of the loan and lease portfolio and a reduction of credit losses. For additional information see the “Allowance for Loan and Lease Losses Activity.”

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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 June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Service charges on deposit accounts	$	127	$	149	$	244	$	305
Gain on sale/call of securities		51		17		218		17
Merchant fee income		99		107		187		209
Bank owned life insurance		81		64		159		129
Income from OREO properties		90		105		161		212
Other		59		66		123		138
Total noninterest income	$	507	$	508	$	1,092	$	1,010

Noninterest income decreased $1,000 (0.2%) to $507,000 for the three months ended June 30, 2015 compared to $508,000 for the three months ended June 30, 2014. The decrease from the second quarter of 2014 to the second quarter of 2015 was primarily related to a decrease in service charge income, which decreased $22,000 (14.8%) from $149,000 in 2014 to $127,000 in 2015 and a decrease in rental income from OREO properties which decreased $15,000 (14.3%) from $105,000 in 2014 to $90,000 in 2015, partially offset by an increase in gain on sale of securities, which increased $34,000 (200.0%) from $17,000 in 2014 to $51,000 in 2015. The decrease in service charges was based upon the Bank closely monitoring large increases in NSF income to ensure that clients incurring these costs are appropriately counselled. The decrease in OREO income resulted from a reduction in income producing OREO properties. The increase in gain on sale of securities was a result of the Bank managing its portfolio in a volatile rate environment.

For the six months ended June 30, 2015, noninterest income increased $82,000 (8.1%) from $1,010,000 to $1,092,000. The increase from the first six months of 2014 compared to the same period in 2015 was primarily related to the gain on sale of securities resulting in income of $218,000 in the first half of 2015 compared to $17,000 for the first half of 2014. The partial offset to this increase was a decrease in service charges of $61,000 (20.0%) from $305,000 in 2014 to $244,000 in 2015 and the decrease in rental income from OREO properties which declined $51,000 (24.1%) from $212,000 in 2014 to $161,000 in 2015.

Noninterest Expense

Noninterest expense decreased $284,000 (7.7%) to $3,415,000 in the second quarter of 2015 compared to $3,699,000 in the second quarter of 2014. Salary and employee benefits expense decreased $72,000 (3.4%) from $2,117,000 during the second quarter of 2014 to $2,045,000 during the second quarter of 2015. The decrease in salaries and benefits resulted from a lower number of full-time equivalent employees (“FTE”). Average FTE decreased from 103 during the second quarter of 2014 to 100 during the second quarter of 2015 due to a few open positions that the Company intends to fill in the third quarter of this year. From the second quarter of 2014, to the second quarter of 2015, occupancy expense increased $6,000 and furniture and equipment expense decreased $9,000. FDIC assessments decreased from $91,000 in the second quarter of 2014 to $76,000 during the second quarter of 2015. OREO related expenses decreased $68,000 (55.3%) during the second quarter of 2015 to $55,000, from $123,000 in the second quarter of 2014. The primary reason for the decrease in OREO related expenses was the reduction in OREO properties reducing carrying costs. Other expenses decreased $125,000 (14.1%) to $759,000 in the second quarter of 2015 compared to $884,000 in the second quarter of 2014. The primary decrease in other expenses relates to lower legal expense which decreased from $155,000 in the second quarter of 2014 to $56,000 in the second quarter of 2015. The decrease in legal expense was primarily the result of the resolution of issues associated with a former OREO property. The fully taxable equivalent efficiency ratio for the second quarter of 2015 decreased to 60.5% from 69.1% for the second quarter of 2014.

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Noninterest expense for the six-month period ended June 30, 2015 was $7,228,000 versus $7,352,000 for the same period in 2014 for a decrease of $124,000 (1.7%). Salaries and benefits expense increased $78,000 (1.8%) from $4,237,000 for the six months ended June 30, 2014 to $4,315,000 for the same period in 2015. Core salaries increased just $24,000 (0.8%) with the remaining $54,000 of the increase related to employee benefits, including 401(k) matching and health care and employer taxes. Occupancy expense decreased $7,000 and furniture and equipment expense decreased $10,000. FDIC assessments decreased $38,000 (19.6%) during 2015 to $156,000, from $194,000 in 2014. The decrease in the FDIC assessments resulted from the Bank’s improved risk assessment category. OREO related expenses increased $80,000 (65.6%) during 2015 to $202,000, from $122,000 in 2014. The increase in OREO expenses is directly related to a $106,000 gain on sale in the first quarter of 2014 which is accounted for as a reduction in OREO expenses. Other expenses decreased $225,000 (12.3%) from $1,830,000 for the six months ended June 30, 2014 to $1,605,000 for the same period in 2015. The decrease in other expenses results from lower legal expenses in 2015. Legal expenses decreased from $319,000 during the first six months of 2014 to $100,000 during the same period in 2015. This decrease is primarily related to a lower number of problem loan credits and the resolution of issues associated with a former OREO property.

The overhead efficiency ratio (fully taxable equivalent), excluding the amortization of intangible assets, for the first six months of 2015 was 66.0% as compared to 69.3% in the same period of 2014.

Provision for Income Taxes

Federal and state income taxes for the quarter ended June 30, 2015 increased by $195,000 (35.5%) from $550,000 in the second quarter of 2014 to $745,000 in the second quarter of 2015.  The combined federal and state effective tax rate for the quarter ended June 30, 2015 was 35.0%, an increase from 34.7% for the second quarter of 2014.  The higher effective tax rate in the second quarter of 2015 compared to 2014 resulted from an increase in taxable income. Pre-tax income increased $546,000 (34.4%) from $1,585,000 in the second quarter of 2014 to $2,131,000 in the second quarter of 2015. For the six months ended June 30, 2015, the provision for income taxes was $1,215,000 with a combined federal and state effective tax rate of 34.2%, compared to a provision of $1,085,000 and a combined federal and state effective tax rate of 34.7% for the six months ended June 30, 2014.  The lower effective tax rate in 2015 resulted from the Company receiving tax benefits from loan production related to local agencies and low income housing. Interest on tax exempt loans increased from $3,000 in the first six months of 2014 to $130,000 in the first six months of 2015.

Balance Sheet Analysis

The Company’s total assets were $616,890,000 at June 30, 2015 compared to $617,754,000 at December 31, 2014, representing a decrease of $864,000 (0.1%). The average assets for the three months ended June 30, 2015 were $615,492,000, which represents an increase of $19,664,000 (3.3%) from the balance of $595,828,000 during the three-month period ended June 30, 2014. The average assets for the six months ended June 30, 2015 were $612,418,000, which represents an increase of $16,355,000 (2.7%) from the average balance of $596,063,000 during the six-month period ended June 30, 2014.

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.

Net unrealized gains on available-for-sale investment securities totaling $5,654,000 were recorded, net of $2,262,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at June 30, 2015 and net unrealized gains on available-for-sale investment securities totaling $5,618,000 were recorded, net of $2,247,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2014.

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Table Five below summarizes the values of the Company’s investment securities held on June 30, 2015 and December 31, 2014.

Table Five: Investment Securities Composition

(dollars in thousands)
Available-for-sale (at fair value)	June 30, 2015		December 31, 2014
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	248,603	$	261,115
Obligations of states and political subdivisions		25,952		26,289
Corporate bonds		1,575		1,583
Corporate stock		81		77
Total available-for-sale investment securities	$	276,211	$	289,064
Held-to-maturity (at amortized cost)
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	740	$	862
Total held-to-maturity investment securities	$	740	$	862

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’s historical lending activities have been 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 $41 million in new loans during the first half of 2015. This production was partially offset by normal pay downs and payoffs, but still resulted in an overall net increase in net loans and leases of $17.3 million (6.7%) from December 31, 2014. The market in which the Company operates has begun to show demand for credit products as the continued low rate environment and expectations for economic expansion have increased refinancing as well as new loan activity. Table Six below summarizes the composition of the loan portfolio as of June 30, 2015 and December 31, 2014. 

Table Six: Loan and Lease Portfolio Composition

(dollars in thousands)	June 30, 2015						December 31, 2014						Change in			Percentage
	$			%			$			%			dollars			change
Commercial	$	32,034			11	%	$	25,186			10	%	$	6,848			27.2	%
Real estate
Commercial		198,395			71	%		193,871			73	%		4,524			2.3	%
Multi-family		17,420			6	%		14,167			5	%		3,253			23.0	%
Construction		12,277			4	%		8,028			3	%		4,249			52.9	%
Residential		13,124			5	%		13,309			5	%		(185	)		(1.4	%)
Lease financing receivable		981			—			1,286			1	%		(305	)		(23.7	%)
Agriculture		2,439			1	%		2,882			1	%		(443	)		(15.4	%)
Consumer		4,300			2	%		4,916			2	%		(616	)		(12.5	%)
Total loans and leases		280,970			100	%		263,645			100	%		17,325			6.6	%
Deferred loan and lease fees, net		(258	)					(287	)					29
Allowance for loan and lease losses		(5,359	)					(5,301	)					(58	)
Total net loans and leases	$	275,353					$	258,057					$	17,296			6.7	%

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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 homeowner equity lines of credit and loans to finance purchases of autos, 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 custom and semi-custom single-family residences. 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 banking 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 led to an increase in 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 June 30, 2015 and December 31, 2014.

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, Contra Costa, and Alameda County markets with loan productions offices in Pleasanton and San Jose. The economies of Santa Clara, Contra Costa and Alameda Counties are 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 and capitalization rates; real estate values, supply and demand factors, and rates of return; operating expenses; inflation and deflation; and sufficiency of repayment sources independent of the real estate including, in some instances, personal guarantees. 

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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, or outright possession among other means.

In management’s judgment, a concentration exists in real estate loans, which represented approximately 86% of the Company’s loan and lease portfolio at June 30, 2015 and December 31, 2014. Management believes that the residential land and residential construction portion of the Company’s loan portfolio carries more than the normal credit risk, 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 decline in the economy in general, or decline in real estate values in the Company’s primary market areas, in particular, could 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 June 30, 2015, 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 $2,454,000 or 0.87% of total loans and leases. The $2,454,000 in nonperforming loans and leases was made up of ten loans. Three of those loans totaling $96,000 were current (less than 30 days past due pursuant to their original or modified terms). Nonperforming loans and leases were $1,653,000 or 0.63% of total loans and leases at December 31, 2014. Specific reserves of $541,000 were held on the nonperforming loans at June 30, 2015 and specific reserves of $353,000 were held on the nonperforming loans at December 31, 2014.

At December 31, 2014, the Company’s nonperforming loans included three real estate loans totaling $845,000; two commercial loans totaling $666,000 and three consumer loans totaling $142,000. During the first quarter of 2015, one real estate loan in the amount of $103,000 was renewed and considered current. The Company also collected approximately $33,000 in principal paydowns. The overall level of nonperforming loans increased $731,000 (42.0%) to $2,454,000 at June 30, 2015 compared to $1,723,000 at March 31, 2015. During the second quarter of 2015, a single real estate loan in the amount of $103,000 was paid off and two loans in the amount of $862,000 were placed on nonperforming status. The Company also collected approximately $28,000 in principal paydowns.  Of the two loans added in the second quarter of 2015, one was real estate secured and the other was a commercial loan, both of which were transferred without an adjustment to the loan balance.

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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 June 30, 2015. Management is not aware of any potential problem loans, which were accruing and current at June 30, 2015, 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. Table Seven below sets forth nonaccrual loans and loans past due 90 days or more as of June 30, 2015 and December 31, 2014.

Table Seven: Nonperforming Loans and Leases
(dollars in thousands)	June 30,		December 31,
	2015		2014
Past due 90 days or more and still accruing:
Commercial	$	—	$	—
Real estate		—		—
Lease financing receivable		—		—
Agriculture		—		—
Consumer		—		—
Nonaccrual:
Commercial		652		666
Real estate		1,670		845
Lease financing receivable		—		—
Agriculture		—		—
Consumer		132		142
Total nonperforming loans	$	2,454	$	1,653

The net interest due on nonaccrual loans and leases but excluded from interest income was $46,000 for the three months ended June 30, 2015, compared to foregone interest of $15,000 during the three months ended June 30, 2014. The net interest due on nonaccrual loans and leases but excluded from interest income was $69,000 for the six months ended June 30, 2015, compared to foregone interest of $54,000 during the six months ended June 30, 2014.

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’s 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 with outstanding principal balances in excess of $25,000. The Company identifies troubled debt restructures by reviewing each renewal, modification, or extension of a loan with a screening document.  This document is designed to identify any characteristics of such a loan that would qualify it as a troubled debt restructure.  If the characteristics are not present that would qualify a loan as a troubled debt restructure, it is deemed to be a modification.  

At June 30, 2015, the recorded investment in loans and leases that were considered to be impaired totaled $23,816,000, which includes $21,447,000 in performing loans and leases. Of the total impaired loans of $23,816,000, loans totaling $12,325,000 were deemed to require no specific reserve and loans totaling $11,491,000 were deemed to require a related valuation allowance of $1,453,000. Of the $12,325,000 impaired loans that did not carry a specific reserve there were $4,806,000 in loans or leases that had previous partial charge-offs and $7,519,000 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 $25,120,000 at December 31, 2014. Of the total impaired loans of $25,120,000, loans totaling $11,059,000 were deemed to require no specific reserve and loans totaling $14,061,000 were deemed to require a related valuation allowance of $1,603,000.

The Company has been operating in a market that has recently experienced sporadic improvement 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 second quarter of 2015, the Company had net recoveries of $51,000 with no provision. In the second quarter of 2014, the Company had net recoveries of $89,000 with no provision.

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At June 30, 2015, there were 11 loans and leases that were modified and are currently performing (less than ninety days past due) totaling $8,892,000 and six loans and leases that are considered nonperforming (and included in Table Seven above), totaling $1,871,000, that are considered troubled debt restructures. These troubled debt restructures have a specific reserve of $734,000. As of June 30, 2015, of the 17 troubled debt restructures, there were six extensions, five rate reductions, three changes in terms, and three lines of credit converted to term loans. All were performing as agreed except for two extensions, two changes in terms and two term outs. The Company generally requires troubled debt restructures 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 probable losses inherent in the loan and lease portfolio, which is based upon management’s estimate 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 ALLL totaled $5,359,000 or 1.91% of total loans and leases at June 30, 2015 compared to $5,301,000 or 2.01% of total loans and leases at December 31, 2014. The Company establishes general and specific reserves in accordance with accounting principles generally accepted in the United States of America. The ALLL is composed of 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 ALLL as a percentage of non-performing loans and leases was 218.4% at June 30, 2015 and 320.7% at December 31, 2014. The ALLL as a percentage of impaired loans and leases was 22.4% at June 30, 2015 and 20.1% at December 31, 2014. Of the total non-performing and impaired loans and leases outstanding as of June 30, 2015, there were $5,550,000 in loans or leases that had been reduced by partial charge-offs of $931,000. As these loan or lease balances are charged off, the remaining balances, following analysis, normally do not initially require specific reserves and are not eligible for general reserves. The impact of this on credit ratios is such that the Company’s ALLL 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 ALLL when management believes that the collectability of the principal is unlikely. As previously discussed in the “Impaired Loans and Leases” section, certain loans are evaluated for impairment. Generally, if a loan is collateralized by real estate, and considered collateral dependent, the impaired portion will be charged off to the allowance for loan and lease losses unless it in the process of collection, in which case a specific reserve may be warranted. If the collateral is other than real estate and considered impaired, a specific reserve may be warranted.

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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						Six Months
	Ended June 30,						Ended June 30,
	2015			2014			2015			2014
Average loans and leases outstanding	$	276,971		$	250,190		$	269,788		$	254,497
Allowance for loan and lease losses at beginning of period	$	5,308		$	5,373		$	5,301		$	5,346
Loans and leases charged off:
Commercial		—			—			—			—
Real estate		—			—			—			—
Lease financing receivable		(1	)		—			(1	)		—
Agriculture		—			—			—			—
Consumer		(4	)		(73	)		(6	)		(74	)
Total		(5	)		(73	)		(7	)		(74	)
Recoveries of loans and leases previously charged off:
Commercial		17			121			23			141
Real estate		39			41			40			46
Lease financing receivable		—			—			—			3
Agriculture		—			—			—			—
Consumer		—			—			2			—
Total		56			162			65			190
Net loans and leases charged off		51			(89	)		58			116
Additions to allowance charged to operating expenses		—			—			—			—
Allowance for loan and lease losses at end of period	$	5,359		$	5,462		$	5,359		$	5,462
Ratio of net charge-offs to average loans and leases outstanding (annualized)		-0.07	%		-0.14	%		-0.04	%		-0.09	%
Provision of allowance for loan and lease losses to average loans and leases outstanding (annualized)		0.00	%		0.00	%		0.00	%		0.00	%
Allowance for loan and lease losses to loans and leases net of deferred fees at end of period		1.91	%		2.17	%		1.91	%		2.17	%

Other Real Estate Owned

At June 30, 2015, the Company had four other real estate owned (“OREO”) properties totaling $3,781,000. This compares to seven properties totaling $4,647,000 at December 31, 2014 and ten properties totaling $6,864,000 at June 30, 2014. During the second quarter of 2015, the Company did not foreclose on any property and an OREO property in Amador County consisting of unimproved land was sold. No gain or loss was recorded as a result of the sale. Also during the second quarter of 2015, an existing commercial property increased in book value due to $126,000 in capitalized improvements. There were no other valuation adjustments to the book value of the existing OREO properties during the second quarter of 2015. At June 30, 2015, there was not a valuation reserve. This compares to a reserve balance of $156,000 at December 31, 2014 and $105,000 at June 30, 2014. The Company believes that all four OREO properties owned at June 30, 2015 are carried approximately at fair value.

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Deposits

At June 30, 2015, total deposits were $511,983,000 representing a $1,290,000 (0.3%) increase from the December 31, 2014 balance of $510,693,000. The Company’s deposit growth plan for 2015 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. In addition, the Company evaluated the rate structure on some of the higher cost money market accounts and reduced the interest rates on some relationships. During the first six months of 2015, the Company experienced deposit account increases in noninterest-bearing ($17,626,000 or 11.3%) and interest-bearing checking ($491,000 or 0.8%) and decreases in money market ($15,074,000 or 10.2%), savings ($1,700,000 or 2.9%), and time deposits ($53,000 or 0.1%). The decrease in the money market account deposits is related to the decrease in interest rates described above.

Other Borrowed Funds

Other borrowings outstanding as of June 30, 2015 and December 31, 2014, consist of advances (both long-term and short-term) from the FHLB. Table Nine below summarizes these borrowings.

Table Nine: Other Borrowed Funds
(dollars in thousands)
	June 30, 2015					December 31, 2014
	Amount		Rate			Amount		Rate
Short-term borrowings:
FHLB advances	$	3,500		1.01	%	$	3,500		0.92	%
Long-term borrowings:
FHLB advances	$	7,500		1.39	%	$	7,500		1.39	%

The maximum amount of short-term borrowings at any month-end during the first six months of 2015 and 2014 was $3,500,000 and $3,000,000, 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	$	3,500		$	7,500
Maturity		2015-2016			2016 to 2019
Weighted average rates		1.01	%		1.39	%

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 current 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.

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At June 30, 2015, shareholders’ equity was $88,191,000, representing a decrease of $1,456,000 (1.6%) from $89,647,000 at December 31, 2014. The decrease results from repurchases of common stock exceeding the additions from other comprehensive income, net income for the period, and the stock based compensation. The ratio of total risk-based capital to risk adjusted assets was 21.3% at June 30, 2015 and 22.9% at December 31, 2014. Tier 1 risk-based capital to risk-adjusted assets was 20.0% at June 30, 2015 and 21.6% at December 31, 2014. The leverage ratio was 11.5% at June 30, 2015 and 11.6% at December 31, 2014.

Table Ten below lists the Company’s and American River Bank’s capital ratios at June 30, 2015 and December 31, 2014 as well as the minimum capital ratios for capital adequacy.

Table Ten: Capital Ratios
Capital to Risk-Adjusted Assets	At June 30, 2015			At December 31, 2014			Minimum Regulatory Capital Requirements
American River Bankshares
Leverage Ratio		11.5	%		11.6	%		4.0	%
Tier 1 Risk-Based Capital		20.0	%		21.6	%		6.0	%
Total Risk-Based Capital		21.3	%		22.9	%		8.0	%
American River Bank
Leverage Ratio		11.6	%		11.7	%		4.0	%
Common Equity Tier 1 Risk-Based Capital		19.8	%		N/A			4.5	%
Tier 1 Risk-Based Capital		19.8	%		21.7	%		6.0	%
Total Risk-Based Capital		21.0	%		22.9	%		8.0	%

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 both the Company and American River Bank met all of their capital adequacy requirements as of June 30, 2015 and December 31, 2014.

In July 2013, the federal bank regulatory agencies issued interim final rules that revised the risk-based capital requirements in order to 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 of 2010. The Basel III reforms reflected in the final rules include an increase in the risk-based capital requirements and certain changes to capital components and the calculation of risk-weighted assets.

Effective January 1, 2015, banking organizations like American River Bank must comply with new minimum capital ratio requirements to be phased-in between January 1, 2015 and January 1, 2019, 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%.

In addition, a “capital conservation buffer,” is established which when fully phased-in will 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 will 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 will be phased-in between January 1, 2016 and January 1, 2019. If the capital ratio levels of a banking organization fall below the capital conservation buffer amount, the organization will be subject to limitations on (i) the payment of dividends; (ii) discretionary bonus payments; (iii) discretionary payments under Tier 1 instruments; and (iv) engaging in share repurchases.

The federal bank regulatory agencies also implemented 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 became effective January 1, 2015 and 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%).

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On January 21, 2015, the Company approved and authorized a stock repurchase program for 2015 (the “2015 Program”). The repurchase target of 5% of the outstanding common shares was reached in the first quarter of 2015 and on July 15, 2015, the Company approved and authorized an increase to this stock repurchase program. See Part II, Item 2, for additional disclosure regarding the 2015 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 June 30, 2015 and 2014.

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 June 30, 2015 were approximately $33,016,000 and $363,000, 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 June 30, 2015, consolidated liquid assets totaled $226.4 million or 36.7% of total assets compared to $234.7 million or 38.0% of total assets on December 31, 2014. 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 June 30, 2015, the Company had $17,000,000 available under these credit lines. Additionally, the Bank is a member of the FHLB. At June 30, 2015, the Bank could have arranged for up to $86,971,000 in secured borrowings from the FHLB. These borrowings are secured by pledged mortgage loans and investment securities. At June 30, 2015, the Company had advances, borrowings and commitments (including letters of credit) outstanding of $11,000,000, leaving $75,971,000 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 June 30, 2015, the Company’s borrowing capacity at the Federal Reserve Bank was $16,244,000. 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. Furthermore, the Bank can pledge additional unencumbered securities to borrow from the Federal Reserve Bank of San Francisco and the FHLB.

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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 June 30, 2015 and December 31, 2014, 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 $33,379,000 and $32,995,000 at June 30, 2015 and December 31, 2014, respectively. As a percentage of net loans and leases these off-balance sheet items represent 12.1% and 12.8%, 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 an Enterprise 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, with specialized software built for this specific purpose for financial institutions, the Company is able to estimate the potential impact of changing interest rates on earnings, net interest margin and market value of equity. A balance sheet is prepared using detailed inputs of actual loans, securities and interest-bearing liabilities (i.e. deposits/borrowings). The balance sheet is processed using multiple interest rate scenarios. The scenarios include a rising rate forecast, a flat rate forecast and a falling rate forecast which take place within a one-year time frame. The net interest income is measured over one and two-year periods assuming a gradual change in rates over the twelve-month horizon. The simulation modeling attempts to estimate changes in the Company’s net interest income utilizing a detailed current balance sheet.

47

After a review of the model results as of June 30, 2015, the Company does not consider the fluctuations from the base case, 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 June 30, 2015. 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 June 30, 2015, there have been no changes in the Company’s internal control over financial reporting that have materially 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, 2014, filed with the Securities and Exchange Commission on February 27, 2015.

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

During 2014, the Company approved and authorized a stock repurchase program for 2014 (the “2014 Program”). The 2014 Program authorized the repurchase during 2014 of up to 5% of the outstanding shares of the Company’s common stock, or approximately 424,462 shares. During 2014, the Company repurchased 424,462 shares of its common stock at an average price of $9.77 per share. On January 21, 2015, the Company approved and authorized a stock repurchase program for 2015 (the “2015 Program”). The 2015 Program authorized the repurchase during 2015 of up to 5% of the outstanding shares of the Company’s common stock, or approximately 404,481 shares based on the 8,089,615 shares outstanding as of December 31, 2014. Any repurchases under the 2015 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 2015 Program will be retired. The number, price and timing of the repurchases will be at the Company’s sole discretion and the 2015 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 2015 Program at any time without notice. During the first quarter of 2015, the Company repurchased the targeted amount of 404,481 shares of its common stock at an average price of $9.70 per share. On July 17, 2015, the Company approved and authorized an increase in the 2015 Program. The increase authorizes the repurchase during the remainder of 2015 of up to 5% of the outstanding shares of the Company’s common stock, or approximately an additional 386,508 shares based on the 7,730,157 shares outstanding as of June 30, 2015.

48

The following table lists shares repurchased during the quarter ended June 30, 2015 and the maximum amount available to repurchase under the repurchase plan. The table does not include the additional shares authorized to be repurchased effective July 17, 2015.

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 April 1 through April 30, 2015	—	—	—	—
Month #2 May 1 through May 31, 2015	—	—	—	—
Month #3 June 1 through June 30, 2015	—	—	—	—
Total	—	—	—	—

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, incorporated by reference from Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2013, filed with the Commission on May 9, 2013.
(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.

49

(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 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.
*(10.4)	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 and first amendment thereto dated January 21, 2015, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 23, 2015.
*(10.5)	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.
*(10.6)	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.
*(10.7)	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.
*(10.8)	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.
*(10.9)	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.
*(10.10)	Registrant’s 2000 Stock Option Plan with forms of Nonqualified Stock Option Agreement and Incentive Stock Option Agreement. **
*(10.11)	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.
(10.12)	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.
*(10.13)	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.

50

*(10.14)	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.
(10.15)	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.
(10.16)	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.
(10.17)	Managed Services Agreement between American River Bankshares and Fidelity Information Services, LLC successor to 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 and 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 January 14, 2015.
*(10.18)	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; 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, the Ninth Amendment thereto, incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Commission on January 16, 2014 and the Tenth Amendment thereto, incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Commission on January 27, 2015.
*(10.19)	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.
*(10.20)	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.
*(10.21)	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.
*(10.22)	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.

51

*(10.23)	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.
(10.24)	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.
(10.25)	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.
(10.26)	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.
*(10.27)	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.
*(10.28)	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.
*(10.29)	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 and form of restricted stock award agreement incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 20, 2015.
(10.30)	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, and the amended agreement dated March 6, 2015 with ACI Worldwide Corp., successor to Postilion, Inc., incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 12, 2015.
*(10.31)	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.
(10.32)	Lease agreement dated February 6, 2014, between American River Bank and Gold River Village Associates, a California Limited Partnership, related to 11220 Gold River Express Drive, Gold River, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 10, 2014.
(10.33)	Lease agreement dated February 12, 2014, between American River Bank and 520 Capitol Mall Inc., a Delaware corporation, related to 520 Capitol Mall, Suite 200, Sacramento, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 18, 2014.

52

*(10.34)	Employment Agreement dated June 2, 2014, between American River Bank and Loren E. Hunter, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 2, 2014.
*(10.35)	Salary Continuation Agreement between American River Bank and Loren E. Hunter, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 11, 2014.
*(10.36)	Registrant’s Performance Based Restricted Stock Awards Program, incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Commission on March 20, 2015.
(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.

53

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
August 5, 2015	By: /s/ DAVID T. TABER
	David T. Taber
	President and Chief Executive Officer
	AMERICAN RIVER BANKSHARES
August 5, 2015	By: /s/ MITCHELL A. DERENZO
	Mitchell A. Derenzo
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

54

EXHIBIT INDEX

Exhibit Number	Description	Page
31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	56
31.2	Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	57
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.	58

55

EX-31.1

EXHIBIT 31.1

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

I, David T. Taber, certify that:

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

2. 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;

3. 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;

4. 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

5. 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: August 5, 2015

By: /s/DAVID T. TABER

President and Chief Executive Officer

56

EX-31.2

EXHIBIT 31.2

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

I, Mitchell A. Derenzo, certify that:

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

2. 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;

3. 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;

4. 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

5. 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: August 5, 2015

By: /s/MITCHELL A. DERENZO

Executive Vice President and Chief Financial Officer

57

EX-32.1

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 June 30, 2015

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:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (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

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

Dated: August 5, 2015	By: /s/ DAVID T. TABER
	David T. Taber
	President and Chief Executive Officer
Dated: August 5, 2015	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.

58

XML

8. ALLOWANCE FOR LOAN AND LEASE LOSSES - Aging analysis (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Total Past Due	$ 2,725	$ 2,666
Current	278,245	260,979
Total Loans	280,970	263,645
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	2,454	1,653
Commercial
Total Past Due	652	1,179
Current	31,382	24,007
Total Loans	32,034	25,186
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	652	666
Commercial | 30 -59 Days Past Due
Total Past Due	0	513
Commercial | 60 -89 Days Past Due
Total Past Due	30	0
Commercial | Past Due Greater Than 90 Days
Total Past Due	622	666
Real estate-commercial
Total Past Due	1,693	1,014
Current	196,702	192,857
Total Loans	198,395	193,871
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	1,332	507
Real estate-commercial | 30 -59 Days Past Due
Total Past Due	860	507
Real estate-commercial | 60 -89 Days Past Due
Total Past Due	0	0
Real estate-commercial | Past Due Greater Than 90 Days
Total Past Due	833	507
Real estate-multi-family
Total Past Due	0	0
Current	17,420	14,167
Total Loans	17,420	14,167
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	0	0
Real estate-multi-family | 30 -59 Days Past Due
Total Past Due	0	0
Real estate-multi-family | 60 -89 Days Past Due
Total Past Due	0	0
Real estate-multi-family | Past Due Greater Than 90 Days
Total Past Due	0	0
Real estate-construction
Total Past Due	0	0
Current	12,277	8,028
Total Loans	12,277	8,028
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	0	0
Real estate-construction | 30 -59 Days Past Due
Total Past Due	0	0
Real estate-construction | 60 -89 Days Past Due
Total Past Due	0	0
Real estate-construction | Past Due Greater Than 90 Days
Total Past Due	0	0
Real Estate Residential
Total Past Due	338	338
Current	12,786	12,971
Total Loans	13,124	13,309
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	338	338
Real Estate Residential | 30 -59 Days Past Due
Total Past Due	0	0
Real Estate Residential | 60 -89 Days Past Due
Total Past Due	0	0
Real Estate Residential | Past Due Greater Than 90 Days
Total Past Due	338	338
Leases
Total Past Due	0	0
Current	981	1,286
Total Loans	981	1,286
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	0	0
Leases | 30 -59 Days Past Due
Total Past Due	0	0
Leases | 60 -89 Days Past Due
Total Past Due	0	0
Leases | Past Due Greater Than 90 Days
Total Past Due	0	0
Agriculture
Total Past Due	0	0
Current	2,439	2,882
Total Loans	2,439	2,882
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	0	0
Agriculture | 30 -59 Days Past Due
Total Past Due	0	0
Agriculture | 60 -89 Days Past Due
Total Past Due	0	0
Agriculture | Past Due Greater Than 90 Days
Total Past Due	0	0
Consumer
Total Past Due	42	135
Current	4,258	4,781
Total Loans	4,300	4,916
Past Due Greater Than 90 Days and Accruing	0	0
Nonaccrual	132	142
Consumer | 30 -59 Days Past Due
Total Past Due	6	135
Consumer | 60 -89 Days Past Due
Total Past Due	36	0
Consumer | Past Due Greater Than 90 Days
Total Past Due	$ 0	$ 0

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6. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED - Nonaccrual loans (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Total nonperforming assets	$ 7,113	$ 7,178
Nonperforming loans and leases to total loans and leases	0.87%	0.63%
Total nonperforming assets to total assets	1.15%	1.16%
Nonaccrual loans and leases that are current to terms (less than 30 days past due)
Total nonperforming assets	$ 96	$ 13
Nonaccrual loans and leases that are past due
Total nonperforming assets	2,358	1,640
Loans and leases past due 90 days and accruing interest
Total nonperforming assets	0	0
Other assets
Total nonperforming assets	878	878
Other real estate owned
Total nonperforming assets	$ 3,781	$ 4,647

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2. STOCK-BASED COMPENSATION - Option activity (Details) - 6 months ended Jun. 30, 2015 - Options Shares - USD ($) $ / shares in Units, $ in Thousands	Total
Outstanding	271,700
Granted	26,427
Exercised	0
Cancelled	23,385
Outstanding	274,742
Number of options vested	215,205
Nonvested, Shares	59,537
Weighted average exercise price, outstanding beginning	$ 16.27
Granted	9.56
Exercised	0
Cancelled	18.11
Weighted average exercise price, outstanding ending	15.47
Weighted average exercise price of vested stock options (in dollars per share)	17.27
Weighted average exercise price of nonvested stock options (in dollars per share)	$ 8.96
Weighted years to maturity outstanding beginning	3 years 1 month 6 days
Weighted years to maturity outstanding Ending	3 years 9 months 18 days
Weighted average remaining contractual term in years, vested	2 years 4 months 24 days
Weighted average remaining contractual term in years, non-vested	9 years 1 month 6 days
Aggregate Intrinsic Value, options outstanding, beginning	$ 82
Aggregate Intrinsic Value, options outstanding, ending	90
Aggregate Intrinsic Value, options vested	62
Aggregate Intrinsic Value, options non-vested	$ 28

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11. FAIR VALUE MEASUREMENTS - Assets and liabilities measured at fair value on recurring and non-recurring basis (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Non Recurring
Impaired loans:
Total gain (losses)	$ 11	$ 80
US Government Agencies and Sponsored Agencies | Fair Value
Available-for-sale securities:
Asset fair value disclosure recurring	248,603	261,115
US Government Agencies and Sponsored Agencies | Level 2
Available-for-sale securities:
Asset fair value disclosure recurring	248,603	261,115
Obligations of states and political subdivisions | Fair Value
Available-for-sale securities:
Asset fair value disclosure recurring	25,952	26,289
Obligations of states and political subdivisions | Level 2
Available-for-sale securities:
Asset fair value disclosure recurring	25,952	26,289
Corporate bonds | Fair Value
Available-for-sale securities:
Asset fair value disclosure recurring	1,575
Corporate bonds | Level 2
Available-for-sale securities:
Asset fair value disclosure recurring	1,575
Corporate stock | Fair Value
Available-for-sale securities:
Asset fair value disclosure recurring	81	77
Corporate stock | Level 1
Available-for-sale securities:
Asset fair value disclosure recurring	32	28
Corporate stock | Level 2
Available-for-sale securities:
Asset fair value disclosure recurring	49	49
Commercial
Impaired loans:
Total gain (losses)	176	14
Commercial | Fair Value
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	623	666
Commercial | Level 3
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	623	666
Real estate-commercial
Impaired loans:
Total gain (losses)	(165)
Real estate-commercial | Fair Value
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	4,467	286
Real estate-commercial | Level 3
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	4,467	286
Other real estate owned
Impaired loans:
Total gain (losses)		66
Other real estate owned | Fair Value
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	3,781	4,404
Other real estate owned | Level 3
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	3,781	4,404
Corporate Debt securities | Fair Value
Available-for-sale securities:
Asset fair value disclosure recurring		1,583
Corporate Debt securities | Level 2
Available-for-sale securities:
Asset fair value disclosure recurring		1,583
Recurring | Fair Value
Available-for-sale securities:
Asset fair value disclosure recurring	276,211	289,064
Recurring | Level 1
Available-for-sale securities:
Asset fair value disclosure recurring	32	28
Recurring | Level 2
Available-for-sale securities:
Asset fair value disclosure recurring	276,179	289,036
Non Recurring | Fair Value
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	9,209	5,356
Non Recurring | Level 3
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	9,209	$ 5,356
Real Estate Residential | Fair Value
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	338
Real Estate Residential | Level 3
Impaired loans:
Assets, Fair Value Disclosure, Nonrecurring	$ 338

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8. ALLOWANCE FOR LOAN AND LEASE LOSSES - Internal risk ratings (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Total	$ 280,970	$ 263,645
Real estate-commercial
Total	198,395	193,871
Real estate-multi-family
Total	17,420	14,167
Leases
Total	981	1,286
Agriculture
Total	2,439	2,882
Commercial
Total	32,034	25,186
Real estate-construction
Total	12,277	8,028
Real Estate Residential
Total	13,124	13,309
Consumer
Total	4,300	4,916
Pass
Total	235,716	216,835
Pass | Commercial
Total	27,183	20,179
Pass | Real estate-commercial
Total	169,711	163,091
Pass | Real estate-multi-family
Total	16,922	13,663
Pass | Real Estate Construction
Total	6,838	3,327
Pass | Real Estate Residential
Total	9,243	9,364
Pass | Leases
Total	981	1,286
Pass | Agriculture
Total	2,063	2,501
Pass | Consumer
Total	2,775	3,424
Watch
Total	23,141	23,425
Watch | Commercial
Total	1,247	1,280
Watch | Real estate-commercial
Total	12,853	13,724
Watch | Real estate-multi-family
Total	498	504
Watch | Real Estate Construction
Total	5,114	4,372
Watch | Real Estate Residential
Total	2,305	2,504
Watch | Leases
Total	0	0
Watch | Agriculture
Total	0	0
Watch | Consumer
Total	1,124	1,041
Special mention
Total	15,704	15,265
Special mention | Commercial
Total	0	101
Special mention | Real estate-commercial
Total	14,031	13,583
Special mention | Real estate-multi-family
Total	0	0
Special mention | Real Estate Construction
Total	325	329
Special mention | Real Estate Residential
Total	743	603
Special mention | Leases
Total	0	0
Special mention | Agriculture
Total	376	381
Special mention | Consumer
Total	229	268
Substandard
Total	6,409	8,120
Substandard | Commercial
Total	3,604	3,626
Substandard | Real estate-commercial
Total	1,800	3,473
Substandard | Real estate-multi-family
Total	0	0
Substandard | Real Estate Construction
Total	0	0
Substandard | Real Estate Residential
Total	833	838
Substandard | Leases
Total	0	0
Substandard | Agriculture
Total	0	0
Substandard | Consumer
Total	172	183
Doubtful or loss
Total	0	0
Doubtful or loss | Commercial
Total	0	0
Doubtful or loss | Real estate-commercial
Total	0	0
Doubtful or loss | Real estate-multi-family
Total	0	0
Doubtful or loss | Real Estate Construction
Total	0	0
Doubtful or loss | Real Estate Residential
Total	0	0
Doubtful or loss | Leases
Total	0	0
Doubtful or loss | Agriculture
Total	0	0
Doubtful or loss | Consumer
Total	$ 0	$ 0

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2. STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2015

STOCK-BASED COMPENSATION

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 198,281 options remain outstanding at June 30, 2015. At June 30, 2015, under the 2010 Plan, there were 76,461 stock options and 60,790 restricted shares outstanding and the total number of authorized shares that remain available for issuance was 1,399,259. 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 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 nonqualified option agreements, restricted stock 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 awarded. 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 award date fair value of awards is determined by the market price of the Company’s common stock on the date of award and is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock awarded pursuant to such agreements vest in increments over one to five years from the date of award. 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 June 30, 2015 and 2014, the compensation cost recognized for equity compensation was $71,000 and $38,000, respectively. The recognized tax benefit for equity compensation expense was $25,000 and $13,000, respectively, for the three-month periods ended June 30, 2015 and 2014. For the six-month periods ended June 30, 2015 and 2014, the compensation cost recognized for equity compensation was $126,000 and $71,000, respectively. The recognized tax benefit for equity compensation expense was $45,000 and $25,000, respectively, for the six-month periods ended June 30, 2015 and 2014.

At June 30, 2015, the total compensation cost related to nonvested stock option awards not yet recorded was $159,000. This amount will be recognized over the next 5.0 years and the weighted average period of recognizing these costs is expected to be 2.5 years. At June 30, 2015, the total compensation cost related to restricted stock awards not yet recorded was $484,000. This amount will be recognized over the next 5.0 years and the weighted average period of recognizing these costs is expected to be 2.0 years.

Equity Plans Activity

Stock Options

There were 26,427 stock options awarded during the three-month and six-month periods ended June 30, 2015 at an average exercise price of $9.56. There were 32,705 stock options awarded during the three-month and six-month periods ended June 30, 2014 at an average exercise price of $8.85. The weighted average award date fair value of options awarded for the three-month and six-month periods ended June 30, 2015 was $3.24. The weighted average award date fair value of options awarded for the three-month and six-month periods ended June 30, 2014 was $2.44. A summary of option activity under the Plans as of June 30, 2015 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, 2015		271,700	$	16.27		3.1 years	$	82
Awarded		26,427		9.56		—		—
Exercised		—		—		—		—
Cancelled		23,385		18.11		—		—
Outstanding at June 30, 2015		274,742	$	15.47		3.8 years	$	90
Vested at June 30, 2015		215,205	$	17.27		2.4 years	$	62
Non-vested at June 30, 2015		59,537	$	8.96		9.1 years	$	28

Restricted Stock

There were 24,491 and 45,023 shares of restricted stock awarded during the three-month and six-month periods ended June 30, 2015, respectively. There were 24,830 shares of restricted stock awarded during the three-month and six-month periods ended June 30, 2014. Of the restricted shares awarded in 2015, 12,552 restricted shares vest one year from the date of the award, 11,939 vest over five years at 20% per year from the date of the award, and 20,532 are performance based awards and must meet minimum performance criteria before they begin to vest. If the performance metrics are not met, up to 100% of the award may be forfeited and if the performance metrics are exceeded, the awards may be increased by up to 150% of the original award. Of the restricted shares awarded in 2014, 13,560 restricted shares vested one year from the date of the award and 11,270 shares vest over five years at 20% per year from the date of the award. Award date fair value is determined by the market price of the Company’s common stock on the date of award ($9.41 on March 18, 2015, $9.56 on May 22, 2015 and $8.85 on May 22, 2014).

There were 17,071 restricted share awards that were fully vested during the three-month and six-month periods ended June 30, 2015 and there were 12,710 restricted share awards that were fully vested during the three-month and six-month periods ended June 30, 2014. There were zero restricted share awards that had been forfeited during the three-month and six-month periods ended June 30, 2015 and June 30, 2014.

Restricted Stock	Shares		Weighted Average Award Date Fair Value
Nonvested at January 1, 2015		32,838	$	8.31
Awarded		45,023		9.49
Less:  Vested		17,071		8.72
Less:  Cancelled		—		—
Nonvested at June 30, 2015		60,790	$	9.07

Other Equity Awards

There were no stock appreciation rights; restricted performance stock; unrestricted Company stock; or performance units awarded during the three-month or six-month month periods ended June 30, 2015 or 2014.

The intrinsic value used for stock options and restricted stock awards was derived from the market price of the Company’s common stock of $9.32 as of June 30, 2015.

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4. EARNINGS PER SHARE COMPUTATION (Details Narrative) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Earnings Per Share Computation Details Narrative
Weighted average common shares outstanding	7,659,883	8,082,638	7,740,320	8,201,383
Dilutive effect of stock based awards	14,828	9,276	13,999	10,515
Antidilutive stock option excluded from earnings per share			214,066	211,024

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3. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Commitments
Loan commitments
Commitments	$ 33,016	$ 32,639
Standby letters of credit
Commitments	$ 363	$ 356

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5. INVESTMENT SECURITIES - Amortized Cost, Unrealized Gains, Unrealized Losses And Estimated Fair Values (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Available for sale securities, Amortized Cost	$ 270,557	$ 283,446
Available for sale securities, Unrealized Gains	6,011	6,240
Available for sale securities, Unrealized Losses	(357)	(622)
Available for sale securities, Estimated Fair Value	276,211	289,064
Held-to-Maturity Debt securities Amortized Cost	740
Held-to-Maturity Debt securities Estimated Fair Value	796	922
US Government Agencies and Sponsored Agencies
Available for sale securities, Amortized Cost	244,244	257,002
Available for sale securities, Unrealized Gains	4,686	4,715
Available for sale securities, Unrealized Losses	(327)	(602)
Available for sale securities, Estimated Fair Value	248,603	261,115
Held-to-Maturity Debt securities Amortized Cost	740	862
Held-to-Maturity Debt securities Gross Unrealized Gains	56	60
Held-to-Maturity Debt securities Gross Unrealized Losses	0	0
Held-to-Maturity Debt securities Estimated Fair Value	796	922
Obligations of states and political subdivisions
Available for sale securities, Amortized Cost	24,756	24,886
Available for sale securities, Unrealized Gains	1,226	1,423
Available for sale securities, Unrealized Losses	(30)	(20)
Available for sale securities, Estimated Fair Value	25,952	26,289
Corporate Bonds
Available for sale securities, Amortized Cost	1,503	1,504
Available for sale securities, Unrealized Gains	72	79
Available for sale securities, Unrealized Losses	0	0
Available for sale securities, Estimated Fair Value	1,575	1,583
Equity Securities - Corporate Stock
Available for sale securities, Amortized Cost	54	54
Available for sale securities, Unrealized Gains	27	23
Available for sale securities, Unrealized Losses	0	0
Available for sale securities, Estimated Fair Value	81	$ 77
Held-to-Maturity Debt securities Amortized Cost	0
Held-to-Maturity Debt securities Estimated Fair Value	$ 0

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5. INVESTMENT SECURITIES - Investment securities with unrealized losses (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Less than 12 months, Estimated Fair Value	$ 39,519	$ 57,145
Less than 12 months, Unrealized Loss	(298)	(503)
12 months or more, Estimated Fair Value	4,386	10,655
12 months or more, Unrealized Loss	(59)	(119)
Total Estimated Fair Value	43,905	67,800
Total Unrealized Loss	(357)	(622)
US Government Agencies and Sponsored Agencies
Less than 12 months, Estimated Fair Value	38,764	57,145
Less than 12 months, Unrealized Loss	(289)	(503)
12 months or more, Estimated Fair Value	3,746	10,006
12 months or more, Unrealized Loss	(38)	(99)
Total Estimated Fair Value	42,510	67,151
Total Unrealized Loss	(327)	(602)
Obligations of states and political subdivisions
Less than 12 months, Estimated Fair Value	755	0
Less than 12 months, Unrealized Loss	(9)	0
12 months or more, Estimated Fair Value	640	649
12 months or more, Unrealized Loss	(21)	(20)
Total Estimated Fair Value	1,395	649
Total Unrealized Loss	$ (30)	$ (20)

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1. CONSOLIDATED FINANCIAL STATEMENTS

6 Months Ended

Jun. 30, 2015

CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2015 and December 31, 2014, the results of its operations and statement of comprehensive income for the three-month and six-month periods ended June 30, 2015 and 2014, its cash flows for the six-month periods ended June 30, 2015 and 2014 and its statement of changes in shareholders’ equity for the year ended December 31, 2014 and the six months ended June 30, 2015 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 2014 annual report on Form 10-K. The results of operations for the three-month and six-month periods ended June 30, 2015 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.

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5. INVESTMENT SECURITIES - Amortized cost and estimated fair values (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Within one year, Amortized Cost	$ 175
After one through five years, Amortized Cost	3,810
After five through ten years, Amortized Cost	13,405
After ten years, Amortized Cost	8,869
Total Amortized Cost	26,259
Within one year, Estimated Fair Value	176
After one through five years, Estimated Fair Value	3,960
After five through ten years, Estimated Fair Value	14,051
After ten years, Estimated Fair Value	9,340
Total Estimated Fair Value	27,527
Equity securities, Amortized Cost	270,557
Equity securities, Estimated Fair Value	276,211
Held-to-Maturity Amortized Cost	740
Held-to-Maturity Estimated Fair Value	796	$ 922
US Government Agencies and Sponsored Agencies
Equity securities, Amortized Cost	244,244
Equity securities, Estimated Fair Value	248,603
Held-to-Maturity Amortized Cost	740	862
Held-to-Maturity Estimated Fair Value	796	$ 922
Equity Securities - Corporate Stock
Equity securities, Amortized Cost	54
Equity securities, Estimated Fair Value	81
Held-to-Maturity Amortized Cost	0
Held-to-Maturity Estimated Fair Value	$ 0

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9. BORROWING ARRANGEMENTS (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Borrowing Arrangements
Unsecured short-term borrowing arrangements with two of its correspondent banks	$ 17,000
FHLB advances	$ 11,000	$ 11,000
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate, Minimum	0.45%	0.24%
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate, Maximum	1.91%	1.91%
Remaining amounts available under the borrowing arrangement with the FHLB	$ 75,971	$ 67,228
Secured borrowing agreement with the Federal Reserve Bank of San Francisco	$ 16,244	$ 17,335

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CONSOLIDATED BALANCE SHEET (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
ASSETS
Cash and due from banks	$ 18,009	$ 22,449
Interest-bearing deposits in banks	1,000	1,000
Investment securities:
Available-for-sale, at fair value	276,211	289,064
Held-to-maturity, at amortized cost	740	862
Loans and leases, less allowance for loan and lease losses of $5,359 at June 30, 2015 and $5,301 at December 31, 2014	275,353	258,057
Premises and equipment, net	1,461	1,518
Federal Home Loan Bank stock	3,779	3,686
Goodwill and other intangible assets	16,321	16,321
Other real estate owned	3,781	4,647
Bank owned life insurance	14,326	14,167
Accrued interest receivable and other assets	5,909	5,983
Total Assets	616,890	617,754
Deposits:
Noninterest bearing	173,324	155,698
Interest-bearing	338,659	354,995
Total deposits	511,983	510,693
Short-term borrowings	3,500	3,500
Long-term borrowings	7,500	7,500
Accrued interest payable and other liabilities	5,716	6,414
Total liabilities	$ 528,699	$ 528,107
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value: 2,000,000 shares authorized: none Outstanding	$ 0	$ 0
Common stock, no par value; 20,000,000 shares authorized; issued and outstanding - 7,730,157 shares at June 30, 2015 and 8,089,615 shares at December 31, 2014	53,307	57,126
Retained earnings	31,492	29,150
Accumulated other comprehensive income, net of taxes	3,392	3,371
Total shareholders' equity	88,191	89,647
Total liabilities and shareholders' euity	$ 616,890	$ 617,754

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Retained Earnings	Accumulated Other Comprehensive Income	Total
Begining Balance, Amount at Dec. 31, 2013	$ 61,108	$ 24,789	$ 1,123	$ 87,020
Begining Balance, Shares at Dec. 31, 2013	8,489,247
Net income		4,361		4,361
Net change in unrealized gains on available-for-sale investment securities			2,248	2,248
Net restricted stock awarded and related compensation expense, Amount	$ 147			147
Net restricted stock awarded and related compensation expense, Shares	24,830
Stock option compensation expense, Amount	$ 19			19
Retirement of common stock, Amount	$ (4,148)			(4,148)
Retirement of common stock, Shares	(424,462)
Ending Balance, Amount at Dec. 31, 2014	$ 57,126	29,150	3,371	89,647
Ending Balance, Shares at Dec. 31, 2014	8,089,615
Net income		2,342
Net change in unrealized gains on available-for-sale investment securities			21
Net restricted stock awarded and related compensation expense, Amount	$ 111
Net restricted stock awarded and related compensation expense, Shares	45,023
Stock option compensation expense, Amount	$ 15
Retirement of common stock, Amount	$ (3,945)
Retirement of common stock, Shares	(404,481)
Ending Balance, Amount at Jun. 30, 2015	$ 53,307	$ 31,492	$ 3,392	$ 88,191
Ending Balance, Shares at Jun. 30, 2015	7,730,157

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6. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED - Impaired loans and leases (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Impaired Loans and Leases	$ 24,394	$ 25,988	$ 24,012	$ 25,894
Interest income recognized on impaired loans and leases	263	307	561	629
Commercial
Impaired Loans and Leases	757	1,610	794	1,517
Interest income recognized on impaired loans and leases	3	9	5	22
Real estate-commercial
Impaired Loans and Leases	19,796	19,218	19,383	19,029
Interest income recognized on impaired loans and leases	216	237	472	484
Real estate-multi-family
Impaired Loans and Leases	492	1,644	494	1,642
Interest income recognized on impaired loans and leases	7	19	12	38
Real estate-construction
Impaired Loans and Leases	0	246	0	245
Interest income recognized on impaired loans and leases	0	3	0	6
Real Estate Residential
Impaired Loans and Leases	2,840	2,912	2,848	2,908
Interest income recognized on impaired loans and leases	32	29	63	67
Agriculture
Impaired Loans and Leases	377	194	378	389
Interest income recognized on impaired loans and leases	5	10	8	10
Consumer
Impaired Loans and Leases	132	164	115	164
Interest income recognized on impaired loans and leases	$ 0	$ 0	$ 1	$ 2

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7. TROUBLED DEBT RESTRUCTURINGS (Tables)

6 Months Ended

Jun. 30, 2015

Troubled Debt Restructurings Tables

TROUBLED DEBT RESTRUCTURINGS

The following table presents loans by class modified as troubled debt restructurings during the three months ended June 30, 2015 (dollars in thousands): 

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Commercial		1	$	47	$	47
Real estate – commercial		2		1,650		1,650
Real estate – residential		1		255		255
Consumer		1		23		23
Total		5	$	1,975	$	1,975

The following table presents loans by class modified as troubled debt restructurings during the six months ended June 30, 2015 (dollars in thousands): 

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Commercial		1	$	47	$	47
Real estate – commercial		4		2,167		2,167
Real estate – residential		1		255		255
Consumer		1		23		23
Total		7	$	2,492	$	2,492

The following table presents loans by class modified as troubled debt restructurings during the three months ended June 30, 2014 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Real estate – commercial		1	$	213	$	213
Consumer		1		46		46
Total		2	$	259	$	259

The following table presents loans by class modified as troubled debt restructurings during the six months ended June 30, 2014 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Real estate – commercial		5	$	5,109	$	5,109
Consumer		1		46		46
Total		6	$	5,155	$	5,155

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7. TROUBLED DEBT RESTRUCTURINGS (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($) Integer	Jun. 30, 2014 USD ($) Integer	Jun. 30, 2015 USD ($) Integer	Jun. 30, 2014 USD ($) Integer	Dec. 31, 2014 USD ($)
Number of loans | Integer	5	2	7	6
Premodification outstanding recorded investment	$ 1,975	$ 259	$ 2,492	$ 5,155
Post-modification outstanding recorded investment	1,975	$ 259	2,492	$ 5,155
Modified troubled debt restructurings	$ 734		$ 734		$ 829
Commercial
Number of loans | Integer	1		1
Premodification outstanding recorded investment	$ 47		$ 47
Post-modification outstanding recorded investment	$ 47		$ 47
Real estate-commercial
Number of loans | Integer	2	1	4	5
Premodification outstanding recorded investment	$ 1,650	$ 213	$ 2,167	$ 5,109
Post-modification outstanding recorded investment	$ 1,650	$ 213	$ 2,167	$ 5,109
Real Estate Residential
Number of loans | Integer	1		1
Premodification outstanding recorded investment	$ 255		$ 255
Post-modification outstanding recorded investment	$ 255		$ 255
Consumer
Number of loans | Integer	1	1	1	1
Premodification outstanding recorded investment	$ 23	$ 46	$ 23	$ 46
Post-modification outstanding recorded investment	$ 23	$ 46	$ 23	$ 46

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11. FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2015

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

Schedule of Assets and Associated Liabilities Accounted for as Secured Borrowings

	Carrying		Fair Value Measurements Using:
June 30, 2015	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	18,009	$	18,009					$	18,009
Interest-bearing deposits in banks		1,000			$	1,004				1,004
Available-for-sale securities		276,211		32		276,179				276,211
Held-to-maturity securities		740				796				796
FHLB stock		3,779		N/A		N/A		N/A		N/A
Net loans and leases		275,353					$	280,014		280,014
Accrued interest receivable		1,837				1,092		745		1,837
Financial liabilities:
Deposits:
Noninterest-bearing	$	173,324	$	173,324					$	173,324
Savings		57,120		57,120						57,120
Money market		132,551		132,551						132,551
NOW accounts		61,353		61,353						61,353
Time, $100,000 or more		66,626			$	67,164				67,164
Other time		21,009				21,182				21,182
Short-term borrowings		3,500		3,500						3,500
Long-term borrowings		7,500				7,566				7,566
Accrued interest payable		58		2		56				58

	Carrying		Fair Value Measurements Using:
December 31, 2014	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	22,449	$	22,449	$	—	$	—	$	22,449
Interest-bearing deposits in banks		1,000		—		1,002		—		1,002
Available-for-sale securities		289,064		28		289,036		—		289,064
Held-to-maturity securities		862		—		922		—		922
FHLB stock		3,686		N/A		N/A		N/A		N/A
Net loans and leases		258,057		—		—		261,421		261,421
Accrued interest receivable		1,858		—		1,150		708		1,858
Financial liabilities:
Deposits:
Noninterest-bearing	$	155,698	$	155,698	$	—	$	—	$	155,698
Savings		58,820		58,820		—		—		58,820
Money market		147,625		147,625		—		—		147,625
NOW accounts		60,862		60,862		—		—		60,862
Time, $100,000 or more		65,569		—		66,203		—		66,203
Other time		22,119		—		22,282		—		22,282
Short-term borrowings		3,500		3,500		—		—		3,500
Long-term borrowings		7,500		—		7,567		—		7,567
Accrued interest payable		59		—		59		—		59

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques

Description			Fair Value Measurements Using						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)
June 30, 2015
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
Mortgage-backed securities	$	248,603	$	—	$	248,603	$	—	$	—
Obligations of states and political subdivisions		25,952		—		25,952		—		—
Corporate bonds		1,575		—		1,575		—		—
Corporate stock		81		32		49		—		—
Total recurring	$	276,211	$	32	$	276,179	$	—	$	—
Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial	$	623	$	—	$	—	$	623	$	176
Real estate:
Commercial		4,467		—		—		4,467		(165	)
Multi-family		—		—		—		—		—
Construction		—		—		—		—		—
Residential		338		—		—		338		—
Other:
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other real estate owned		3,781		—		—		3,781		—
Total nonrecurring	$	9,209	$	—	$	—	$	9,209	$	11

Description			Fair Value Measurements Using						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)
December 31, 2014
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S.Government Agencies and Sponsored Agencies	$	261,115	$	—	$	261,115	$	—	$	—
Corporate Debt securities		1,583		—		1,583		—		—
Obligations of states and political subdivisions		26,289		—		26,289		—		—
Corporate stock		77		28		49		—		—
Total recurring	$	289,064	$	28	$	289,036	$	—	$	—
Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial
Real estate:	$	666	$	—	$	—	$	666	$	14
Commercial		286		—		—		286		—
Other real estate owned		4,404		—		—		4,404		66
Total nonrecurring	$	5,356	$	—	$	—	$	5,356	$	80

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CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net income	$ 2,342	$ 2,041
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	0	0
Decrease in deferred loan origination fees, net	(29)	(65)
Depreciation and amortization	212	226
Gain on sale and call of investment securities	(218)	(17)
Amortization of investment security premiums and discounts, net	1,798	2,451
Increase in cash surrender values of life insurance policies	(159)	(129)
Stock based compensation expense	126	71
Loss (gain) on sale and write-down of other real estate owned	68	(106)
Decrease in accrued interest receivable and other assets	61	162
Decrease in accrued interest payable and other liabilities	(698)	(731)
Net cash provided by operating activities	3,503	3,903
Cash flows from investing activities:
Proceeds from the sale of available-for-sale investment securities	15,383	2,632
Proceeds from matured available-for-sale investment securities	0	105
Proceeds from called available-for-sale investment securities	0	270
Purchases of available-for-sale investment securities	(28,393)	(27,600)
Proceeds from principal repayments for available-for-sale investment securities	24,317	19,262
Proceeds from principal repayments for held-to-maturity investment securities	122	171
Net (increase) decrease in loans	(17,267)	5,103
Proceeds from sale of other real estate	924	106
Capitalized additions to other real estate	(126)	(54)
Net increase in FHLB stock	(93)	(438)
Purchases of equipment	(155)	(321)
Net cash used in investing activities	(5,288)	(764)
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits	1,343	10,604
Net decrease in time deposits	(53)	(3,436)
Net decrease in short-term borrowings	0	(6,500)
Net increase in long-term borrowings	0	1,500
Cash paid to repurchase common stock	(3,945)	(4,148)
Net cash used in financing activities	(2,655)	(1,980)
(Decrease) increase in cash and cash equivalents	(4,440)	1,159
Cash and cash equivalents at beginning of year	22,449	17,948
Cash and cash equivalents at end of period	$ 18,009	$ 19,107

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CONSOLIDATED BALANCE SHEET (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
ASSETS
Allowance for loan and lease losses (in dollars)	$ 5,359	$ 5,301
Preferred stock, no par value (in dollars per share)	$ 0.00	$ 0.00
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, no par value (in dollars per share)	$ 0.00	$ 0.00
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	7,730,157	8,089,615
Common stock, shares outstanding	7,730,157	8,089,615

XML

10. INCOME TAXES

6 Months Ended

Jun. 30, 2015

INCOME TAXES

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 respective tax basis. 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 and six-month periods ended June 30, 2015 and 2014.

The combined federal and state effective tax rate for the quarter ended June 30, 2015 was 35.0%, an increase from 34.7% for the second quarter of 2014. For the six months ended June 30, 2015, the combined federal and state effective tax rate was 34.2% compared to 34.7% for the six months ended June 30, 2014. The higher effective tax rate in the second quarter of 2015 compared to the second quarter of 2014 resulted from an increase in pre-tax income and the lower effective tax rate in the first six months of 2015 compared to the first six months of 2014 results from an increase in tax benefits related to tax exempt loan interest. Pre-tax income increased from $1,585,000 in the second quarter of 2014 to $2,131,000 in the second quarter of 2015 and interest on tax exempt loans increased from $3,000 in the first six months of 2014 to $130,000 in the first six months of 2015.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 05, 2015
Document and Entity Information:
Entity Registrant Name	AMERICAN RIVER BANKSHARES
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Entity Central Index Key	0001108236
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		7,570,157
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

XML

11. FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2015

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

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 June 30, 2015 and December 31, 2014. 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:
June 30, 2015	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	18,009	$	18,009					$	18,009
Interest-bearing deposits in banks		1,000			$	1,004				1,004
Available-for-sale securities		276,211		32		276,179				276,211
Held-to-maturity securities		740				796				796
FHLB stock		3,779		N/A		N/A		N/A		N/A
Net loans and leases		275,353					$	280,014		280,014
Accrued interest receivable		1,837				1,092		745		1,837
Financial liabilities:
Deposits:
Noninterest-bearing	$	173,324	$	173,324					$	173,324
Savings		57,120		57,120						57,120
Money market		132,551		132,551						132,551
NOW accounts		61,353		61,353						61,353
Time, $100,000 or more		66,626			$	67,164				67,164
Other time		21,009				21,182				21,182
Short-term borrowings		3,500		3,500						3,500
Long-term borrowings		7,500				7,566				7,566
Accrued interest payable		58		2		56				58

	Carrying		Fair Value Measurements Using:
December 31, 2014	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	22,449	$	22,449	$	—	$	—	$	22,449
Interest-bearing deposits in banks		1,000		—		1,002		—		1,002
Available-for-sale securities		289,064		28		289,036		—		289,064
Held-to-maturity securities		862		—		922		—		922
FHLB stock		3,686		N/A		N/A		N/A		N/A
Net loans and leases		258,057		—		—		261,421		261,421
Accrued interest receivable		1,858		—		1,150		708		1,858
Financial liabilities:
Deposits:
Noninterest-bearing	$	155,698	$	155,698	$	—	$	—	$	155,698
Savings		58,820		58,820		—		—		58,820
Money market		147,625		147,625		—		—		147,625
NOW accounts		60,862		60,862		—		—		60,862
Time, $100,000 or more		65,569		—		66,203		—		66,203
Other time		22,119		—		22,282		—		22,282
Short-term borrowings		3,500		3,500		—		—		3,500
Long-term borrowings		7,500		—		7,567		—		7,567
Accrued interest payable		59		—		59		—		59

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 June 30, 2015 and December 31, 2014:

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.

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

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.

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 classification.

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 June 30, 2015 and December 31, 2014.

Assets and liabilities measured at fair value on a recurring and non-recurring basis along with any related gain or loss recognized in the income statement due to fair value changes 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)
June 30, 2015
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
Mortgage-backed securities	$	248,603	$	—	$	248,603	$	—	$	—
Obligations of states and political subdivisions		25,952		—		25,952		—		—
Corporate bonds		1,575		—		1,575		—		—
Corporate stock		81		32		49		—		—
Total recurring	$	276,211	$	32	$	276,179	$	—	$	—
Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial	$	623	$	—	$	—	$	623	$	176
Real estate:
Commercial		4,467		—		—		4,467		(165	)
Multi-family		—		—		—		—		—
Construction		—		—		—		—		—
Residential		338		—		—		338		—
Other:
Agriculture		—		—		—		—		—
Consumer		—		—		—		—		—
Other real estate owned		3,781		—		—		3,781		—
Total nonrecurring	$	9,209	$	—	$	—	$	9,209	$	11

Description			Fair Value Measurements Using						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)
December 31, 2014
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S.Government Agencies and Sponsored Agencies	$	261,115	$	—	$	261,115	$	—	$	—
Corporate Debt securities		1,583		—		1,583		—		—
Obligations of states and political subdivisions		26,289		—		26,289		—		—
Corporate stock		77		28		49		—		—
Total recurring	$	289,064	$	28	$	289,036	$	—	$	—
Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial
Real estate:	$	666	$	—	$	—	$	666	$	14
Commercial		286		—		—		286		—
Other real estate owned		4,404		—		—		4,404		66
Total nonrecurring	$	5,356	$	—	$	—	$	5,356	$	80

There were no significant transfers between Levels 1 and 2 during the three-month and six-month periods ended June 30, 2015 or the twelve months ended December 31, 2014.

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 as Level 1, or evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and are considered as 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 consists of the appraised value 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 OREO are measured at fair value, less costs to sell. Fair values are based on real estate appraisals. These appraisals 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 consists of the appraised value less selling costs ranging from 8% to 10%.

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CONSOLIDATED STATEMENT OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Interest income:
Interest and fees on loans	$ 3,424	$ 3,520	$ 6,719	$ 6,975
Interest on deposits in banks	1	1	2	2
Interest and dividends on investment securities:
Taxable	1,657	1,340	3,073	2,678
Exempt from Federal income taxes	191	200	381	402
Dividends	10	6	10	6
Total interest income	5,283	5,067	10,185	10,063
Interest expense:
Interest on deposits	208	254	422	516
Interest on borrowings	36	37	70	79
Total interest expense	244	291	492	595
Net interest income	5,039	4,776	9,693	9,468
Provision for loan and lease losses	0	0	0	0
Net interest income after provision for loan and lease losses	5,039	4,776	9,693	9,468
Noninterest income:
Service charges on deposit accounts	127	149	244	305
Gain on sale of securities	51	17	218	17
Rental income from OREO properties	90	105	161	212
Other noninterest income	239	237	469	476
Total noninterest income	507	508	1,092	1,010
Noninterest expense:
Salaries and employee benefits	2,045	2,117	4,315	4,237
Occupancy	301	296	594	603
Furniture and equipment	179	188	356	366
Federal Deposit Insurance Corporation assessments	76	91	156	194
Expenses related to other real estate owned	55	123	202	122
Other expense	759	884	1,605	1,830
Total noninterest expense	3,415	3,699	7,228	7,352
Income before provision for income taxes	2,131	1,585	3,557	3,126
Provision for income taxes	745	550	1,215	1,085
Net income	$ 1,386	$ 1,035	$ 2,342	$ 2,041
Basic earnings per share	$ 0.18	$ 0.13	$ 0.3	$ 0.25
Diluted earnings per share	0.18	0.13	0.3	0.25
Cash dividends per share	$ 0	$ 0	$ 0	$ 0

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5. INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2015

INVESTMENTS SECURITIES (Tables)

INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities at June 30, 2015 and December 31, 2014 consisted of the following (dollars in thousands):

Available-for-Sale

	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	244,244	$	4,686	$	(327	)	$	248,603
Obligations of states and political subdivisions		24,756		1,226		(30	)		25,952
Corporate bonds		1,503		72		—			1,575
Equity securities:
Corporate stock		54		27		—			81
	$	270,557	$	6,011	$	(357	)	$	276,211

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	257,002	$	4,715	$	(602	)	$	261,115
Obligations of states and political subdivisions		24,886		1,423		(20	)		26,289
Corporate bonds		1,504		79		—			1,583
Equity securities:
Corporate stock		54		23		—			77
	$	283,446	$	6,240	$	(622	)	$	289,064

Net unrealized gains on available-for-sale investment securities totaling $5,654,000 were recorded, net of $2,262,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at June 30, 2015. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended June 30, 2015 totaled $5,473,000 and $51,000, respectively, and for the six-month period ended June 30, 2015 totaled $15,383,000 and $218,000, respectively. There were no transfers of available-for-sale investment securities for the three-month and six-month periods ended June 30, 2015.

Net unrealized gains on available-for-sale investment securities totaling $5,618,000 were recorded, net of $2,247,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2014. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the three-month period ended June 30, 2014 totaled $2,615,000 and $17,000, respectively, and for the six-month period ended June 30, 2014 totaled $2,885,000 and $17,000, respectively. There were no transfers of available-for-sale investment securities for the three-month and six-month periods ended June 30, 2014.

Held-to-Maturity

June 30, 2015
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Debt securities:
U.S. Government Agencies and Sponsored
Agencies	$	740	$	56	$	—	$	796
December 31, 2014
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Debt securities:
U.S. Government Agencies and Sponsored
Agencies	$	862	$	60	$	—	$	922

There were no sales or transfers of held-to-maturity investment securities for the periods ended June 30, 2015 and June 30, 2014. Investment securities with unrealized losses at June 30, 2015 and December 31, 2014 are summarized and classified according to the duration of the loss period as follows (dollars in thousands):

June 30, 2015	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:
U.S. Government Agencies and Sponsored Agencies	$	38,764	$	(289	)		3,746		(38	)	$	42,510	$	(327	)
Obligations of states and political subdivisions		755		(9	)		640		(21	)		1,395		(30	)
	$	39,519	$	(298	)	$	4,386	$	(59	)	$	43,905	$	(357	)
December 31, 2014	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:
U.S. Government Agencies and Sponsored Agencies	$	57,145	$	(503	)	$	10,006	$	(99	)	$	67,151	$	(602	)
Obligations of states and political subdivisions		—		—			649		(20	)		649		(20	)
	$	57,145	$	(503	)	$	10,655	$	(119	)	$	67,800	$	(622	)

There were no held-to-maturity investment securities with unrealized losses as of June 30, 2015 or December 31, 2014.

At June 30, 2015, the Company held 222 securities of which 20 were in a loss position for less than twelve months and three were in a loss position for twelve months or more.  Of the 20 securities in a loss position for less than twelve months, 19 were U.S. Government Agencies and Sponsored Agencies securities and one was obligations of states or political subdivisions and of the three securities that were in a loss position for greater than twelve months, two were U.S. Government Agencies and Sponsored Agencies securities and one was an obligation of a states or political subdivisions.

At December 31, 2014, the Company held 223 securities of which 25 were in a loss position for less than twelve months and six were in a loss position for twelve months or more.  Of the 25 securities in a loss position for less than twelve months, 22 were US Government Agencies and Sponsored Agencies securities and three were obligations of states or political subdivisions and of the six securities that were in a loss position for greater than twelve months, five were U.S. Government Agencies and Sponsored Agencies securities and one was an obligation of a states or political subdivisions.

The unrealized loss on the Company’s investments in mortgage-backed securities, obligations of states and political subdivisions, and corporate bonds, 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 June 30, 2015 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	$	175	$	176
After one year through five years		3,810		3,960
After five years through ten years		13,405		14,051
After ten years		8,869		9,340
		26,259		27,527
Investment securities not due at a single maturity date:
Mortgage-backed securities		244,244		248,603	$	740	$	796
Corporate stock		54		81		—		—
	$	270,557	$	276,211	$	740	$	796

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.

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4. EARNINGS PER SHARE COMPUTATION

6 Months Ended

Jun. 30, 2015

EARNINGS PER SHARE COMPUTATION

EARNINGS PER SHARE COMPUTATION

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period (7,659,883 and 7,740,320 shares for the three-month and six-month periods ended June 30, 2015, and 8,082,638 and 8,201,383 for the three-month and six-month periods ended June 30, 2014). 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. There were 14,828 and 13,999, respectively, dilutive shares for the three-month and six-month periods ended June 30, 2015 and 9,276 and 10,515, respectively, dilutive shares for the three-month and six-month periods ended June 30, 2014. For the three-month periods ended June 30, 2015 and 2014, there were 214,066 and 211,024 stock options, respectively, that were excluded from the calculation as they were considered antidilutive. For the six-month periods ended June 30, 2015 and 2014, there were 214,066 and 211,024 stock options, respectively, that were excluded from the calculation as they were considered antidilutive. Earnings per share is retroactively adjusted for stock dividends and stock splits, if applicable, for all periods presented.

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8. ALLOWANCE FOR LOAN AND LEASE LOSSES (Tables)

6 Months Ended

Jun. 30, 2015

Allowance For Loan And Lease Losses Tables

Schedule Of Recorded Investment Evaluated Based On Internal Risk Ratings

June 30, 2015	Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)				Real Estate
	Commercial			Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	27,183		$	169,711	$	16,922	$	6,838	$	9,243
Watch		1,247			12,853		498		5,114		2,305
Special mention		—			14,031		—		325		743
Substandard		3,604			1,800		—		—		833
Doubtful		—			—		—		—		—
Total	$	32,034		$	198,395	$	17,420	$	12,277	$	13,124
	Credit Risk Profile by Internally Assigned Grade
	Other Credit Exposure
	Leases			Agriculture		Consumer				Total
Grade:
Pass	$	981		$	2,063	$	2,775			$	235,716
Watch		—			—		1,124				23,141
Special mention		—			376		229				15,704
Substandard		—			—		172				6,409
Doubtful		—			—		—				—
Total	$	981		$	2,439	$	4,300			$	280,970
December 31, 2014			Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)				Real Estate
	Commercial			Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	20,179		$	163,091	$	13,663	$	3,327	$	9,364
Watch		1,280			13,724		504		4,372		2,504
Special mention		101			13,583		—		329		603
Substandard		3,626			3,473		—		—		838
Doubtful or loss		—			—		—		—		—
Total	$	25,186		$	193,871	$	14,167	$	8,028	$	13,309
	Credit Risk Profile by Internally Assigned Grade
	Other Credit Exposure
	Leases			Agriculture		Consumer				Total
Grade:
Pass	$	1,286		$	2,501	$	3,424			$	216,835
Watch		—			—		1,041				23,425
Special mention		—			381		268				15,265
Substandard		—			—		183				8,120
Doubtful or loss		—			—		—				—
Total	$	1,286		$	2,882	$	4,916			$	263,645

Summary Of Analysis Of Allowance For Loan Losses

June 30, 2015
(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, 2015	$	1,430	$	2,317		$	130		$	583	$	399		$	2		$	62		$	124		$	254	$	5,301
Provision for loan losses		199		(389	)		(23	)		224		(14	)		—			(12	)		2			13		—
Loans charged off		—		—			—			—		—			(1	)		—			(6	)		—		(7	)
Recoveries		23		40			—			—		—			—			—			2			—		65
Ending balance, June 30, 2015	$	1,652	$	1,968		$	107		$	807	$	385		$	1		$	50		$	122		$	267	$	5,359
Ending balance:
Individually evaluated for impairment	$	540	$	630		$	7		$	—	$	232		$	—		$	11		$	33		$	—	$	1,453
Ending balance:
Collectively evaluated for impairment	$	1,112	$	1,338		$	100		$	807	$	153		$	1		$	39		$	89		$	267	$	3,906
Loans
Ending balance	$	32,034	$	198,395		$	17,420		$	12,277	$	13,124		$	981		$	2,439		$	4,300		$	—	$	280,970
Ending balance:
Individually evaluated for impairment	$	764	$	19,238		$	492		$	—	$	2,834		$	—		$	376		$	112		$	—	$	23,816
Ending balance:
Collectively evaluated for impairment	$	31,270	$	179,157		$	16,928		$	12,277	$	10,290		$	981		$	2,063		$	4,188		$	—	$	257,154
Allowance for Loan and Lease Losses
Beginning balance, March 31, 2015	$	1,403	$	2,284		$	120		$	680	$	392		$	1		$	55		$	132		$	241	$	5,308
Provision for loan losses		232		(355	)		(13	)		127		(7	)		1			(5	)		(6	)		26		—
Loans charged off		—		—			—			—		—			(1	)		—			(4	)		—		(5	)
Recoveries		17		39			—			—		—			—			—			—			—		56
Ending balance, June 30, 2015	$	1,652	$	1,968		$	107		$	807	$	385		$	1		$	50		$	122		$	267	$	5,359

December 31, 2014
(dollars in thousands)			Real Estate											Other
	Commercial		Commercial			Multi-Family		Construction			Residential			Leases			Agriculture			Consumer			Unallocated		Total
Ending balance:
Individually evaluated for impairment	$	344	$	949		$	38	$	—		$	237		$	—		$	13		$	22		$	—	$	1,603
Ending balance:
Collectively evaluated for impairment	$	1,086	$	1,368		$	92	$	583		$	162		$	2		$	49		$	102		$	254	$	3,698
Loans
Ending balance	$	25,186	$	193,871		$	14,167	$	8,028		$	13,309		$	1,286		$	2,882		$	4,916		$	—	$	263,645
Ending balance:
Individually evaluated for impairment	$	769	$	20,457		$	496	$	—		$	2,862		$	—		$	381		$	155		$	—	$	25,120
Ending balance:
Collectively evaluated for impairment	$	24,417	$	173,414		$	13,671	$	8,028		$	10,447		$	1,286		$	2,501		$	4,761		$	—	$	238,525
June 30, 2014
(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, 2014	$	885	$	2,401		$	242	$	542		$	825		$	4		$	80		$	161		$	206	$	5,346
Provision for loan losses		365		(291	)		20		(103	)		(122	)		(5	)		(11	)		44			103		—
Loans charged off		—		—			—		—			—			—			—			(74	)		—		(74	)
Recoveries		141		39			—		2			5			3			—			—			—		190
Ending balance, June 30, 2014	$	1,391	$	2,149		$	262	$	441		$	708		$	2		$	69		$	131		$	309	$	5,462
Allowance for Loan and Lease Losses
Beginning balance, March 31, 2014	$	781	$	2,476		$	241	$	485		$	883		$	3		$	73		$	156		$	275	$	5,373
Provision for loan losses		489		(365	)		21		(45	)		(177	)		(1	)		(4	)		48			34		—
Loans charged off		—		—			—		—			—			—			—			(73	)		—		(73	)
Recoveries		121		38			—		1			2			—			—			—			—		162
Ending balance, June 30, 2014	$	1,391	$	2,149		$	262	$	441		$	708		$	2		$	69		$	131		$	309	$	5,462

Summary Of Activity In Allowance For Loan Losses By Loan Class

June 30, 2015
(dollars in thousands)					Past Due								Greater Than
	30-59 Days		60-89 Days		Greater Than		Total Past		Past Due				90 Days and
	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing		Nonaccrual
Commercial:
Commercial	$	—	$	30	$	622	$	652	$	31,382	$	32,034		—	$	652
Real estate:
Commercial		860		—		833		1,693		196,702		198,395		—		1,332
Multi-family		—		—		—		—		17,420		17,420		—		—
Construction		—		—		—		—		12,277		12,277		—		—
Residential		—		—		338		338		12,786		13,124		—		338
Other:
Leases		—		—		—		—		981		981		—		—
Agriculture		—		—		—		—		2,439		2,439		—		—
Consumer		6		36		—		42		4,258		4,300		—		132
Total	$	866	$	66	$	1,793	$	2,725	$	278,245	$	280,970	$	—	$	2,454
December 31, 2014													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	$	513	$	—	$	666	$	1,179	$	24,007	$	25,186		—	$	666
Real estate:
Commercial		507		—		507		1,014		192,857		193,871		—		507
Multi-family		—		—		—		—		14,167		14,167		—		—
Construction		—		—		—		—		8,028		8,028		—		—
Residential		—		—		338		338		12,971		13,309		—		338
Other:
Leases		—		—		—		—		1,286		1,286		—		—
Agriculture		—		—		—		—		2,882		2,882		—		—
Consumer		135		—		—		135		4,781		4,916		—		142
Total	$	1,155	$	—	$	1,511	$	2,666	$	260,979	$	263,645	$	—	$	1,653

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2. STOCK BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2015

STOCK BASED COMPENSATION. (Tables)

Schedule of Share-based Compensation, Stock Options, Activity

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2015		271,700	$	16.27		3.1 years	$	82
Awarded		26,427		9.56		—		—
Exercised		—		—		—		—
Cancelled		23,385		18.11		—		—
Outstanding at June 30, 2015		274,742	$	15.47		3.8 years	$	90
Vested at June 30, 2015		215,205	$	17.27		2.4 years	$	62
Non-vested at June 30, 2015		59,537	$	8.96		9.1 years	$	28

Schedule of Nonvested Share Activity

Restricted Stock	Shares		Weighted Average Award Date Fair Value
Nonvested at January 1, 2015		32,838	$	8.31
Awarded		45,023		9.49
Less:  Vested		17,071		8.72
Less:  Cancelled		—		—
Nonvested at June 30, 2015		60,790	$	9.07

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8. ALLOWANCE FOR LOAN AND LEASE LOSSES

6 Months Ended

Jun. 30, 2015

Schedule of Troubled Debt Restructurings on Financing Receivables (Tables)

ALLOWANCE FOR LOAN AND LEASE LOSSES

The Company’s loan and lease portfolio allocated by management’s internal risk ratings as of June 30, 2015 and December 31, 2014 are summarized below:

June 30, 2015	Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)				Real Estate
	Commercial			Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	27,183		$	169,711	$	16,922	$	6,838	$	9,243
Watch		1,247			12,853		498		5,114		2,305
Special mention		—			14,031		—		325		743
Substandard		3,604			1,800		—		—		833
Doubtful		—			—		—		—		—
Total	$	32,034		$	198,395	$	17,420	$	12,277	$	13,124
	Credit Risk Profile by Internally Assigned Grade
	Other Credit Exposure
	Leases			Agriculture		Consumer				Total
Grade:
Pass	$	981		$	2,063	$	2,775			$	235,716
Watch		—			—		1,124				23,141
Special mention		—			376		229				15,704
Substandard		—			—		172				6,409
Doubtful		—			—		—				—
Total	$	981		$	2,439	$	4,300			$	280,970
December 31, 2014			Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)				Real Estate
	Commercial			Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	20,179		$	163,091	$	13,663	$	3,327	$	9,364
Watch		1,280			13,724		504		4,372		2,504
Special mention		101			13,583		—		329		603
Substandard		3,626			3,473		—		—		838
Doubtful or loss		—			—		—		—		—
Total	$	25,186		$	193,871	$	14,167	$	8,028	$	13,309
	Credit Risk Profile by Internally Assigned Grade
	Other Credit Exposure
	Leases			Agriculture		Consumer				Total
Grade:
Pass	$	1,286		$	2,501	$	3,424			$	216,835
Watch		—			—		1,041				23,425
Special mention		—			381		268				15,265
Substandard		—			—		183				8,120
Doubtful or loss		—			—		—				—
Total	$	1,286		$	2,882	$	4,916			$	263,645

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

June 30, 2015
(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, 2015	$	1,430	$	2,317		$	130		$	583	$	399		$	2		$	62		$	124		$	254	$	5,301
Provision for loan losses		199		(389	)		(23	)		224		(14	)		—			(12	)		2			13		—
Loans charged off		—		—			—			—		—			(1	)		—			(6	)		—		(7	)
Recoveries		23		40			—			—		—			—			—			2			—		65
Ending balance, June 30, 2015	$	1,652	$	1,968		$	107		$	807	$	385		$	1		$	50		$	122		$	267	$	5,359
Ending balance:
Individually evaluated for impairment	$	540	$	630		$	7		$	—	$	232		$	—		$	11		$	33		$	—	$	1,453
Ending balance:
Collectively evaluated for impairment	$	1,112	$	1,338		$	100		$	807	$	153		$	1		$	39		$	89		$	267	$	3,906
Loans
Ending balance	$	32,034	$	198,395		$	17,420		$	12,277	$	13,124		$	981		$	2,439		$	4,300		$	—	$	280,970
Ending balance:
Individually evaluated for impairment	$	764	$	19,238		$	492		$	—	$	2,834		$	—		$	376		$	112		$	—	$	23,816
Ending balance:
Collectively evaluated for impairment	$	31,270	$	179,157		$	16,928		$	12,277	$	10,290		$	981		$	2,063		$	4,188		$	—	$	257,154
Allowance for Loan and Lease Losses
Beginning balance, March 31, 2015	$	1,403	$	2,284		$	120		$	680	$	392		$	1		$	55		$	132		$	241	$	5,308
Provision for loan losses		232		(355	)		(13	)		127		(7	)		1			(5	)		(6	)		26		—
Loans charged off		—		—			—			—		—			(1	)		—			(4	)		—		(5	)
Recoveries		17		39			—			—		—			—			—			—			—		56
Ending balance, June 30, 2015	$	1,652	$	1,968		$	107		$	807	$	385		$	1		$	50		$	122		$	267	$	5,359

December 31, 2014
(dollars in thousands)			Real Estate											Other
	Commercial		Commercial			Multi-Family		Construction			Residential			Leases			Agriculture			Consumer			Unallocated		Total
Ending balance:
Individually evaluated for impairment	$	344	$	949		$	38	$	—		$	237		$	—		$	13		$	22		$	—	$	1,603
Ending balance:
Collectively evaluated for impairment	$	1,086	$	1,368		$	92	$	583		$	162		$	2		$	49		$	102		$	254	$	3,698
Loans
Ending balance	$	25,186	$	193,871		$	14,167	$	8,028		$	13,309		$	1,286		$	2,882		$	4,916		$	—	$	263,645
Ending balance:
Individually evaluated for impairment	$	769	$	20,457		$	496	$	—		$	2,862		$	—		$	381		$	155		$	—	$	25,120
Ending balance:
Collectively evaluated for impairment	$	24,417	$	173,414		$	13,671	$	8,028		$	10,447		$	1,286		$	2,501		$	4,761		$	—	$	238,525
June 30, 2014
(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, 2014	$	885	$	2,401		$	242	$	542		$	825		$	4		$	80		$	161		$	206	$	5,346
Provision for loan losses		365		(291	)		20		(103	)		(122	)		(5	)		(11	)		44			103		—
Loans charged off		—		—			—		—			—			—			—			(74	)		—		(74	)
Recoveries		141		39			—		2			5			3			—			—			—		190
Ending balance, June 30, 2014	$	1,391	$	2,149		$	262	$	441		$	708		$	2		$	69		$	131		$	309	$	5,462
Allowance for Loan and Lease Losses
Beginning balance, March 31, 2014	$	781	$	2,476		$	241	$	485		$	883		$	3		$	73		$	156		$	275	$	5,373
Provision for loan losses		489		(365	)		21		(45	)		(177	)		(1	)		(4	)		48			34		—
Loans charged off		—		—			—		—			—			—			—			(73	)		—		(73	)
Recoveries		121		38			—		1			2			—			—			—			—		162
Ending balance, June 30, 2014	$	1,391	$	2,149		$	262	$	441		$	708		$	2		$	69		$	131		$	309	$	5,462

The Company’s aging analysis of the loan and lease portfolio at June 30, 2015 and December 31, 2014 are summarized below:

June 30, 2015
(dollars in thousands)					Past Due								Greater Than
	30-59 Days		60-89 Days		Greater Than		Total Past		Past Due				90 Days and
	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing		Nonaccrual
Commercial:
Commercial	$	—	$	30	$	622	$	652	$	31,382	$	32,034		—	$	652
Real estate:
Commercial		860		—		833		1,693		196,702		198,395		—		1,332
Multi-family		—		—		—		—		17,420		17,420		—		—
Construction		—		—		—		—		12,277		12,277		—		—
Residential		—		—		338		338		12,786		13,124		—		338
Other:
Leases		—		—		—		—		981		981		—		—
Agriculture		—		—		—		—		2,439		2,439		—		—
Consumer		6		36		—		42		4,258		4,300		—		132
Total	$	866	$	66	$	1,793	$	2,725	$	278,245	$	280,970	$	—	$	2,454
December 31, 2014													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	$	513	$	—	$	666	$	1,179	$	24,007	$	25,186		—	$	666
Real estate:
Commercial		507		—		507		1,014		192,857		193,871		—		507
Multi-family		—		—		—		—		14,167		14,167		—		—
Construction		—		—		—		—		8,028		8,028		—		—
Residential		—		—		338		338		12,971		13,309		—		338
Other:
Leases		—		—		—		—		1,286		1,286		—		—
Agriculture		—		—		—		—		2,882		2,882		—		—
Consumer		135		—		—		135		4,781		4,916		—		142
Total	$	1,155	$	—	$	1,511	$	2,666	$	260,979	$	263,645	$	—	$	1,653

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

6 Months Ended

Jun. 30, 2015

IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED

IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED

At June 30, 2015 and December 31, 2014, the recorded investment in nonperforming loans and leases was approximately $2,454,000 and $1,653,000, 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 June 30, 2015, the recorded investment in loans and leases that were considered to be impaired totaled $23,816,000, which includes $2,369,000 in nonaccrual loans and leases and $21,447,000 in performing loans and leases. Of the total impaired loans of $23,816,000, loans totaling $12,325,000 were deemed to require no specific reserve and loans totaling $11,491,000 were deemed to require a related valuation allowance of $1,453,000. At December 31, 2014, the recorded investment in loans and leases that were considered to be impaired totaled $25,120,000 and had a related valuation allowance of $1,603,000. If interest had been accruing on the nonperforming loans, such income would have approximated $46,000 and $15,000 for the three months ended June 30, 2015 and 2014, respectively, and approximated $69,000 and $54,000 for the six months ended June 30, 2015 and 2014, respectively.

At June 30, 2015 and December 31, 2014, the balance in other real estate owned (“OREO”) was $3,781,000 and $4,647,000, respectively. At June 30, 2015, the Company did not own any residential OREO properties and there were $338,000 of residential properties in the process of foreclosure. During the first quarter of 2015, the Company sold two adjoining parcels of land in Sacramento County that did not result in a gain or loss at the time of sale; however, prior to sale, the book value of this property was adjusted by $76,000 with a charge to expense during the first quarter of 2015. The Company did not add any properties to OREO during the first quarter of 2015. During the second quarter of 2015, the Company did not foreclose on any property and an OREO property in Amador County consisting of unimproved land was sold. No gain or loss was recorded as a result of the sale.

The Company periodically obtains property valuations to determine whether the recorded book value is considered fair value. During the second quarter of 2015, this valuation process did not result in the Company adjusting any book values. 

The June 30, 2015, the OREO balance of $3,781,000 consisted of four properties including two commercial real estate properties in the total amount of $2,522,000 and two commercial unimproved land properties totaling $1,259,000.

Nonperforming assets at June 30, 2015 and December 31, 2014 are summarized as follows:

(in thousands)	June 30, 2015			December 31, 2014
Nonaccrual loans and leases that are current to terms (less than 30 days past due)	$	96		$	13
Nonaccrual loans and leases that are past due		2,358			1,640
Loans and leases past due 90 days and accruing interest		—			—
Other assets		878			878
Other real estate owned		3,781			4,647
Total nonperforming assets	$	7,113		$	7,178
Nonperforming loans and leases to total loans and leases		0.87	%		0.63	%
Total nonperforming assets to total assets		1.15	%		1.16	%

Impaired loans and leases as of and for the periods ended June 30, 2015 and December 31, 2014 are summarized as follows:

(in thousands)	As of June 30, 2015						As of December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial	$	36	$	36	$	—	$	—	$	—	$	—
Real estate-commercial		11,951		12,584		—		10,684		11,398		—
Real estate-residential		338		425		—		338		425		—
Consumer		—		—		—		37		37		—
Subtotal	$	12,325	$	13,045	$	—	$	11,059	$	11,860	$	—
With an allowance recorded:
Commercial	$	728	$	728	$	540	$	769	$	769	$	344
Real estate-commercial		7,287		7,386		630		9,773		9,857		949
Real estate-multi-family		492		492		7		496		496		38
Real estate-residential		2,496		2,609		232		2,524		2,637		237
Agriculture		376		376		11		381		381		13
Consumer		112		112		33		118		118		22
Subtotal	$	11,491	$	11,703	$	1,453	$	14,061	$	14,258	$	1,603
Total:
Commercial	$	764	$	764	$	540	$	769	$	769	$	344
Real estate-commercial		19,238		19,970		630		20,457		21,255		949
Real estate-multi-family		492		492		7		496		496		38
Real estate-residential		2,834		3,034		232		2,862		3,062		237
Agriculture		376		376		11		381		381		13
Consumer		112		112		33		155		155		22
	$	23,816	$	24,748	$	1,453	$	25,120	$	26,118	$	1,603

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				Average Recorded Investments for the six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Commercial	$	757	$	1,610	$	794	$	1,517
Real estate-commercial		19,796		19,218		19,383		19,029
Real estate-multi-family		492		1,644		494		1,642
Real estate-construction		—		246		—		245
Real estate-residential		2,840		2,912		2,848		2,908
Agriculture		377		194		378		389
Consumer		132		164		115		164
Total	$	24,394	$	25,988	$	24,012	$	25,894

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				Interest Income Recognized for the six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Commercial	$	3	$	9	$	5	$	22
Real estate-commercial		216		237		472		484
Real estate-multi-family		7		19		12		38
Real estate-construction		—		3		—		6
Real estate-residential		32		29		63		67
Agriculture		5		10		8		10
Consumer		—		—		1		2
Total	$	263	$	307	$	561	$	629

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7. TROUBLED DEBT RESTRUCTURINGS

6 Months Ended

Jun. 30, 2015

TROUBLED DEBT RESTRUCTURINGS

TROUBLED DEBT RESTRUCTURINGS

At June 30, 2015, there were 17 loans and leases that were considered to be troubled debt restructurings. Of these loans and leases, 11 are currently performing (less than ninety days past due) totaling $8,893,000 and six are considered nonperforming (and included in the $2,454,000 discussed in Note 6), totaling $1,871,000. Of the six troubled debt restructurings considered nonperforming, one is current to the modified terms. At June 30, 2015 and December 31, 2014, there were no unfunded commitments on those loans considered troubled debt restructures.

The Company has allocated $734,000 and $829,000 of specific reserves to loans whose terms have been modified as troubled debt restructurings as of June 30, 2015 and December 31, 2014.

During the six-month period ended June 30, 2015, the terms of seven loans were modified as a troubled debt restructuring. The modifications of the terms of these loans were a line of credit converted to a term loan, extensions of the maturity date and/or interest rates lower than the original loan rate.

The following table presents loans by class modified as troubled debt restructurings during the three months ended June 30, 2015 (dollars in thousands): 

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Commercial		1	$	47	$	47
Real estate – commercial		2		1,650		1,650
Real estate – residential		1		255		255
Consumer		1		23		23
Total		5	$	1,975	$	1,975

The following table presents loans by class modified as troubled debt restructurings during the six months ended June 30, 2015 (dollars in thousands): 

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Commercial		1	$	47	$	47
Real estate – commercial		4		2,167		2,167
Real estate – residential		1		255		255
Consumer		1		23		23
Total		7	$	2,492	$	2,492

The troubled debt restructurings described above increased the allowance for loan and lease losses by $170,000 and resulted in no charge-offs during the six months ended June 30, 2015. 

The following table presents loans by class modified as troubled debt restructurings during the three months ended June 30, 2014 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Real estate – commercial		1	$	213	$	213
Consumer		1		46		46
Total		2	$	259	$	259

The following table presents loans by class modified as troubled debt restructurings during the six months ended June 30, 2014 (dollars in thousands):

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number		Recorded		Recorded
	of Loans		Investment		Investment
Troubled debt restructurings:
Real estate – commercial		5	$	5,109	$	5,109
Consumer		1		46		46
Total		6	$	5,155	$	5,155

The troubled debt restructurings described above increased the allowance for loan and lease losses by $151,000 and resulted in no charge-offs during the six months ended June 30, 2014.  

There were no payment defaults on troubled debt restructurings within 12 months following the modification for the three-month and six-month periods ended June 30, 2014 and June 30, 2015.

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9. BORROWING ARRANGEMENTS

6 Months Ended

Jun. 30, 2015

Borrowing Arrangements

BORROWING ARRANGEMENTS

At June 30, 2015, 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 June 30, 2015 or December 31, 2014.

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-term and long-term) totaling $11,000,000 were outstanding from the FHLB at June 30, 2015, bearing interest rates ranging from 0.45% to 1.91% and maturing between July 20, 2015 and July 12, 2019. Advances totaling $11,000,000 were outstanding from the FHLB at December 31, 2014, bearing interest rates ranging from 0.24% to 1.91% and maturing between March 16, 2015 and July 12, 2019. Remaining amounts available under the borrowing arrangement with the FHLB at June 30, 2015 and December 31, 2014 totaled $75,971,000 and $67,228,000, respectively. 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 June 30, 2015 and December 31, 2014 were $16,244,000 and $17,335,000, respectively. There were no advances outstanding under this borrowing arrangement as of June 30, 2015 and December 31, 2014.

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6. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED - Nonperforming assets (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
With no related allowance recorded: Recorded Investment	$ 12,325	$ 11,059
With no related allowance recorded: Unpaid Principal Balance	13,045	11,860
With an allowance recorded: Recorded Investment	11,491	14,061
With an allowance recorded: Unpaid Principal Balance	11,703	14,258
With an allowance recorded: Related Allowance	1,453	1,603
Recorded Investment	23,816	25,120
Unpaid Principal Balance	24,748	26,118
Related Allowance	1,453	1,603
Commercial
With no related allowance recorded: Recorded Investment	36	0
With no related allowance recorded: Unpaid Principal Balance	36	0
With an allowance recorded: Recorded Investment	728	769
With an allowance recorded: Unpaid Principal Balance	728	769
With an allowance recorded: Related Allowance	540	344
Recorded Investment	764	769
Unpaid Principal Balance	764	769
Related Allowance	540	344
Real estate-commercial
With no related allowance recorded: Recorded Investment	11,951	10,684
With no related allowance recorded: Unpaid Principal Balance	12,584	11,398
With an allowance recorded: Recorded Investment	7,287	9,773
With an allowance recorded: Unpaid Principal Balance	7,386	9,857
With an allowance recorded: Related Allowance	630	949
Recorded Investment	19,238	20,457
Unpaid Principal Balance	19,970	21,255
Related Allowance	630	949
Real estate-multi-family
With an allowance recorded: Recorded Investment	492	496
With an allowance recorded: Unpaid Principal Balance	492	496
With an allowance recorded: Related Allowance	7	38
Recorded Investment	492	496
Unpaid Principal Balance	492	496
Related Allowance	7	38
Real Estate Residential
With no related allowance recorded: Recorded Investment	338	338
With no related allowance recorded: Unpaid Principal Balance	425	425
With an allowance recorded: Recorded Investment	2,496	2,524
With an allowance recorded: Unpaid Principal Balance	2,609	2,637
With an allowance recorded: Related Allowance	232	237
Recorded Investment	2,834	2,862
Unpaid Principal Balance	3,034	3,062
Related Allowance	232	237
Agriculture
With an allowance recorded: Recorded Investment	376	381
With an allowance recorded: Unpaid Principal Balance	376	381
With an allowance recorded: Related Allowance	11	13
Recorded Investment	376	381
Unpaid Principal Balance	376	381
Related Allowance	11	13
Consumer
With no related allowance recorded: Recorded Investment		37
With no related allowance recorded: Unpaid Principal Balance		37
With an allowance recorded: Recorded Investment	112	118
With an allowance recorded: Unpaid Principal Balance	112	118
With an allowance recorded: Related Allowance	33	22
Recorded Investment	112	155
Unpaid Principal Balance	112	155
Related Allowance	$ 33	$ 22

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6. IMPAIRED AND NONPERFORMING LOANS AND LEASES AND OTHER REAL ESTATE OWNED (Tables)

6 Months Ended

Jun. 30, 2015

Impaired And Nonperforming Loans And Leases And Other Real Estate Owned Tables

Schedule of Nonperforming loans and leases and other assets and OREO

(in thousands)	June 30, 2015			December 31, 2014
Nonaccrual loans and leases that are current to terms (less than 30 days past due)	$	96		$	13
Nonaccrual loans and leases that are past due		2,358			1,640
Loans and leases past due 90 days and accruing interest		—			—
Other assets		878			878
Other real estate owned		3,781			4,647
Total nonperforming assets	$	7,113		$	7,178
Nonperforming loans and leases to total loans and leases		0.87	%		0.63	%
Total nonperforming assets to total assets		1.15	%		1.16	%

Schedule of Impaired Financing Receivables

(in thousands)	As of June 30, 2015						As of December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial	$	36	$	36	$	—	$	—	$	—	$	—
Real estate-commercial		11,951		12,584		—		10,684		11,398		—
Real estate-residential		338		425		—		338		425		—
Consumer		—		—		—		37		37		—
Subtotal	$	12,325	$	13,045	$	—	$	11,059	$	11,860	$	—
With an allowance recorded:
Commercial	$	728	$	728	$	540	$	769	$	769	$	344
Real estate-commercial		7,287		7,386		630		9,773		9,857		949
Real estate-multi-family		492		492		7		496		496		38
Real estate-residential		2,496		2,609		232		2,524		2,637		237
Agriculture		376		376		11		381		381		13
Consumer		112		112		33		118		118		22
Subtotal	$	11,491	$	11,703	$	1,453	$	14,061	$	14,258	$	1,603
Total:
Commercial	$	764	$	764	$	540	$	769	$	769	$	344
Real estate-commercial		19,238		19,970		630		20,457		21,255		949
Real estate-multi-family		492		492		7		496		496		38
Real estate-residential		2,834		3,034		232		2,862		3,062		237
Agriculture		376		376		11		381		381		13
Consumer		112		112		33		155		155		22
	$	23,816	$	24,748	$	1,453	$	25,120	$	26,118	$	1,603

Schedule of Average Balance Recorded to Imapired Loans and Leases

	Average Recorded Investments for the three months ended				Average Recorded Investments for the six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Commercial	$	757	$	1,610	$	794	$	1,517
Real estate-commercial		19,796		19,218		19,383		19,029
Real estate-multi-family		492		1,644		494		1,642
Real estate-construction		—		246		—		245
Real estate-residential		2,840		2,912		2,848		2,908
Agriculture		377		194		378		389
Consumer		132		164		115		164
Total	$	24,394	$	25,988	$	24,012	$	25,894

Schedule of interest income recognized on impaired loans and leases

	Interest Income Recognized for the three months ended				Interest Income Recognized for the six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
Commercial	$	3	$	9	$	5	$	22
Real estate-commercial		216		237		472		484
Real estate-multi-family		7		19		12		38
Real estate-construction		—		3		—		6
Real estate-residential		32		29		63		67
Agriculture		5		10		8		10
Consumer		—		—		1		2
Total	$	263	$	307	$	561	$	629

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2. STOCK-BASED COMPENSATION - Restricted Stock (Details) - 6 months ended Jun. 30, 2015 - Restricted stock - $ / shares	Total
Restricted Stock Nonvested beginning balance	32,838
Awarded	45,023
Less: Vested	17,071
Less: Cancelled	0
Restricted Stock Nonvested ending balance	60,790
Weighted Average Grant Date Fair Value Nonvested beginning balance	$ 8.31
Awarded	9.49
Less: Vested	8.72
Less: Cancelled	0
Weighted Average Grant Date Fair Value Nonvested ending balance	$ 9.07

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11. FAIR VALUE MEASUREMENTS - Carrying amounts and estimated fair values (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Financial assets:
Cash and due from banks	$ 18,009	$ 22,449
Interest-bearing deposits in banks	1,000	1,000
Available-for-sale securities	276,211	289,064
Held-to-maturity securities	796	922
FHLB stock	3,779	3,686
Net loans and leases:	280,014	261,421
Accrued interest receivable	1,837	1,858
Deposits:
Noninterest-bearing	173,324	155,698
Savings	57,120	58,820
Money market	132,551	147,625
NOW accounts	61,353	60,862
Time, $100,000 or more	67,164	66,203
Other time	21,182	22,282
Short-term borrowings	3,500	3,500
Long-term borrowings	7,566	7,567
Accrued interest payable	58	59
Level 1
Financial assets:
Cash and due from banks	18,009	22,449
Available-for-sale securities	32	28
Deposits:
Noninterest-bearing	173,324	155,698
Savings	57,120	58,820
Money market	132,551	147,625
NOW accounts	61,353	60,862
Short-term borrowings	3,500	3,500
Accrued interest payable	2
Level 2
Financial assets:
Interest-bearing deposits in banks	1,004	1,002
Available-for-sale securities	276,179	289,036
Held-to-maturity securities	796	922
Accrued interest receivable	1,092	1,150
Deposits:
Time, $100,000 or more	67,164	66,203
Other time	21,182	22,282
Long-term borrowings	7,566	7,567
Accrued interest payable	56	59
Level 3
Financial assets:
Net loans and leases:	280,014	261,421
Accrued interest receivable	745	708
Carrying Amount
Financial assets:
Cash and due from banks	18,009	22,449
Interest-bearing deposits in banks	1,000	1,000
Available-for-sale securities	276,211	289,064
Held-to-maturity securities	740	862
FHLB stock	3,779	3,686
Net loans and leases:	275,353	258,057
Accrued interest receivable	1,837	1,858
Deposits:
Noninterest-bearing	173,324	155,698
Savings	57,120	58,820
Money market	132,551	147,625
NOW accounts	61,353	60,862
Time, $100,000 or more	66,626	65,569
Other time	21,009	22,119
Short-term borrowings	3,500	3,500
Long-term borrowings	7,500	7,500
Accrued interest payable	$ 58	$ 59

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
Net income	$ 1,386	$ 1,035	$ 2,342	$ 2,041
Other comprehensive (loss) income:
Unrealized holding (losses) gains on investment securities arising during the period	(1,847)	2,479	254	4,316
Deferred tax benefit (expense)	739	(991)	(102)	(1,726)
Unrealized holding (losses) gains on investment securities arising during the period, net of tax	(1,108)	1,488	152	2,590
Reclassification adjustment for realized gains included in net income	(51)	(17)	(218)	(17)
Tax effect	20	7	87	7
Realized gains, net of tax	(31)	(10)	(131)	(10)
Total other comprehensive (loss) income	(1,139)	1,478	21	2,580
Comprehensive income	$ 247	$ 2,512	$ 2,363	$ 4,621

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3. COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2015

COMMITMENTS AND CONTINGENCIES

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 $33,016,000 and standby letters of credit of approximately $363,000 at June 30, 2015 and loan commitments of approximately $32,639,000 and standby letters of credit of approximately $356,000 at December 31, 2014. 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 2015 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, insurance programs, performance obligations to government agencies, 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 June 30, 2015 or December 31, 2014.

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2. STOCK-BASED COMPENSATION - Equity Plans and Compensation (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Share based compensation	$ 71	$ 38	$ 126	$ 71
Tax benefit of equity compensation expense			45	$ 25
Compensation cost related to nonvested stock option awards not yet recorded	159		159
Compensation cost related to restricted stock awards not yet recorded	$ 484		$ 484
2000 Plan
Stock options outstanding under Equity Incentive Plan	198,281		198,281
2010 Plan
Stock options outstanding under Equity Incentive Plan	76,461		76,461
Authorized shares that remain available for issuance under the 2010 Plan	1,399,259		1,399,259
Options Shares
Stock options outstanding under Equity Incentive Plan	274,742		274,742		271,700
Period for recognition			5 years
Weighted average costs is expected period			2 years 6 months
Restricted stock
Period for recognition			5 years
Weighted average costs is expected period			2 years

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8. ALLOWANCE FOR LOAN AND LEASE LOSSES - Allowance Roll-forward (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Allowance for Loan and Lease Losses Beginning balance	$ 5,308	$ 5,373	$ 5,301	$ 5,346
Provision for loan losses	0	0	0	0
Loans charged off	(5)	(73)	(7)	(74)
Recoveries	56	162	65	190
Allowance for Loan and Lease Losses Ending balance	5,359	5,462	5,359	5,462
Allowance related to: Loans individually evaluated for impairment	(1,453)		(1,453)		$ (1,603)
Allowance related to: Loans collectively evaluated for impairment	3,906		3,906		3,698
Loans	280,970		280,970		263,645
Loans individually evaluated for impairment	23,816		23,816		25,120
Loans collectively evaluated for impairment	257,154		257,154		238,525
Commercial
Allowance for Loan and Lease Losses Beginning balance	1,403	781	1,430	885
Provision for loan losses	232	489	199	365
Loans charged off	0	0	0	0
Recoveries	17	121	23	141
Allowance for Loan and Lease Losses Ending balance	1,652	1,391	1,652	1,391
Allowance related to: Loans individually evaluated for impairment	(540)		(540)		(344)
Allowance related to: Loans collectively evaluated for impairment	1,112		1,112		1,086
Loans	32,034		32,034		25,186
Loans individually evaluated for impairment	764		764		769
Loans collectively evaluated for impairment	31,270		31,270		24,417
Real estate-commercial
Allowance for Loan and Lease Losses Beginning balance	2,284	2,476	2,317	2,401
Provision for loan losses	(355)	(365)	(389)	(291)
Loans charged off	0	0	0	0
Recoveries	39	38	40	39
Allowance for Loan and Lease Losses Ending balance	1,968	2,149	1,968	2,149
Allowance related to: Loans individually evaluated for impairment	(630)		(630)		(949)
Allowance related to: Loans collectively evaluated for impairment	1,338		1,338		1,368
Loans	198,395		198,395		193,871
Loans individually evaluated for impairment	19,238		19,238		20,457
Loans collectively evaluated for impairment	179,157		179,157		173,414
Real estate-multi-family
Allowance for Loan and Lease Losses Beginning balance	120	241	130	242
Provision for loan losses	(13)	21	(23)	20
Loans charged off	0	0	0	0
Recoveries	0	0	0	0
Allowance for Loan and Lease Losses Ending balance	107	262	107	262
Allowance related to: Loans individually evaluated for impairment	(7)		(7)		(38)
Allowance related to: Loans collectively evaluated for impairment	100		100		92
Loans	17,420		17,420		14,167
Loans individually evaluated for impairment	492		492		496
Loans collectively evaluated for impairment	16,928		16,928		13,671
Real estate-construction
Allowance for Loan and Lease Losses Beginning balance	680	485	583	542
Provision for loan losses	127	(45)	224	(103)
Loans charged off	0	0	0	0
Recoveries	0	1	0	2
Allowance for Loan and Lease Losses Ending balance	807	441	807	441
Allowance related to: Loans individually evaluated for impairment	0		0		0
Allowance related to: Loans collectively evaluated for impairment	807		807		583
Loans	12,277		12,277		8,028
Loans individually evaluated for impairment	0		0		0
Loans collectively evaluated for impairment	12,277		12,277		8,028
Real Estate Residential
Allowance for Loan and Lease Losses Beginning balance	392	883	399	825
Provision for loan losses	(7)	(177)	(14)	(122)
Loans charged off	0	0	0	0
Recoveries	0	2	0	5
Allowance for Loan and Lease Losses Ending balance	385	708	385	708
Allowance related to: Loans individually evaluated for impairment	(232)		(232)		(237)
Allowance related to: Loans collectively evaluated for impairment	153		153		162
Loans	13,124		13,124		13,309
Loans individually evaluated for impairment	2,834		2,834		2,862
Loans collectively evaluated for impairment	10,290		10,290		10,447
Leases
Allowance for Loan and Lease Losses Beginning balance	1	3	2	4
Provision for loan losses	1	(1)	0	(5)
Loans charged off	(1)	0	(1)	0
Recoveries	0	0	0	3
Allowance for Loan and Lease Losses Ending balance	1	2	1	2
Allowance related to: Loans individually evaluated for impairment	0		0		0
Allowance related to: Loans collectively evaluated for impairment	1		1		2
Loans	981		981		1,286
Loans individually evaluated for impairment	0		0		0
Loans collectively evaluated for impairment	981		981		1,286
Agriculture
Allowance for Loan and Lease Losses Beginning balance	55	73	62	80
Provision for loan losses	(5)	(4)	(12)	(11)
Loans charged off	0	0	0	0
Recoveries	0	0	0	0
Allowance for Loan and Lease Losses Ending balance	50	69	50	69
Allowance related to: Loans individually evaluated for impairment	(11)		(11)		(13)
Allowance related to: Loans collectively evaluated for impairment	39		39		49
Loans	2,439		2,439		2,882
Loans individually evaluated for impairment	376		376		381
Loans collectively evaluated for impairment	2,063		2,063		2,501
Consumer
Allowance for Loan and Lease Losses Beginning balance	132	156	124	161
Provision for loan losses	(6)	48	2	44
Loans charged off	(4)	(73)	(6)	(74)
Recoveries	0	0	2	0
Allowance for Loan and Lease Losses Ending balance	122	131	122	131
Allowance related to: Loans individually evaluated for impairment	(33)		(33)		(22)
Allowance related to: Loans collectively evaluated for impairment	89		89		102
Loans	4,300		4,300		4,916
Loans individually evaluated for impairment	112		112		155
Loans collectively evaluated for impairment	4,188		4,188		4,761
Unallocated
Allowance for Loan and Lease Losses Beginning balance	241	275	254	206
Provision for loan losses	26	34	13	103
Loans charged off	0	0	0	0
Recoveries	0	0	0	0
Allowance for Loan and Lease Losses Ending balance	267	$ 309	267	$ 309
Allowance related to: Loans individually evaluated for impairment	0		0		0
Allowance related to: Loans collectively evaluated for impairment	267		267		254
Loans	0		0		0
Loans individually evaluated for impairment	0		0		0
Loans collectively evaluated for impairment	$ 0		$ 0		$ 0

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5. INVESTMENTS SECURITIES (Tables)

6 Months Ended

Jun. 30, 2015

INVESTMENTS SECURITIES (Tables)

Available-for-sale Securities

Available-for-Sale

	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	244,244	$	4,686	$	(327	)	$	248,603
Obligations of states and political subdivisions		24,756		1,226		(30	)		25,952
Corporate bonds		1,503		72		—			1,575
Equity securities:
Corporate stock		54		27		—			81
	$	270,557	$	6,011	$	(357	)	$	276,211

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	257,002	$	4,715	$	(602	)	$	261,115
Obligations of states and political subdivisions		24,886		1,423		(20	)		26,289
Corporate bonds		1,504		79		—			1,583
Equity securities:
Corporate stock		54		23		—			77
	$	283,446	$	6,240	$	(622	)	$	289,064

Held-to-maturity Securities

Held-to-Maturity

June 30, 2015
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Debt securities:
U.S. Government Agencies and Sponsored
Agencies	$	740	$	56	$	—	$	796
December 31, 2014
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Debt securities:
U.S. Government Agencies and Sponsored
Agencies	$	862	$	60	$	—	$	922

Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value

June 30, 2015	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:
U.S. Government Agencies and Sponsored Agencies	$	38,764	$	(289	)		3,746		(38	)	$	42,510	$	(327	)
Obligations of states and political subdivisions		755		(9	)		640		(21	)		1,395		(30	)
	$	39,519	$	(298	)	$	4,386	$	(59	)	$	43,905	$	(357	)
December 31, 2014	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:
U.S. Government Agencies and Sponsored Agencies	$	57,145	$	(503	)	$	10,006	$	(99	)	$	67,151	$	(602	)
Obligations of states and political subdivisions		—		—			649		(20	)		649		(20	)
	$	57,145	$	(503	)	$	10,655	$	(119	)	$	67,800	$	(622	)

Available-for-sale Securities, Debt Maturities, Basis of Allocation

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	175	$	176
After one year through five years		3,810		3,960
After five years through ten years		13,405		14,051
After ten years		8,869		9,340
		26,259		27,527
Investment securities not due at a single maturity date:
Mortgage-backed securities		244,244		248,603	$	740	$	796
Corporate stock		54		81		—		—
	$	270,557	$	276,211	$	740	$	796