| x                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      |
|---------------------------------------------|-------------------------------------------------------------------------------------------|
|                                        |                                                                                      |
| For the fiscal year ended December 31, 2010 |
|                                        |                                                                                      |
|                                        | or                                                                                        |
|                                        |                                                                                      |
| o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITUES EXCHANGE ACT OF 1934 |

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

| California                                       |   | 68-0352144                        |
|--------------------------------------------------|--------|-----------------------------------|
| State or other jurisdiction of                   |   | (IRS Employer Identification No.) |
| incorporation or organization                    |   |                              |
|                                             |   |                              |
| 3100 Zinfandel Drive, Rancho Cordova, California |   | 95670                             |
| (Address of principal executive offices)         |   | (Zip code)                        |

| Title of Each Class                                         |   | Name of Each Exchange On Which Registered |
|-------------------------------------------------------------|--------|-------------------------------------------|
|                                                        |   |                                      |
| Common Stock, no par value                                  |   | NASDAQ Global Select Market               |
|                                                        |   |                                      |
| Securities registered pursuant to Section 12(g) of the Act: |
| None                                                        |

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

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|          |           |  Page                                                                                                                      |
|---------------|----------------|---------------------------------------------------------------------------------------------------------------------------------|
| Part I.       |           |                                                                                                                            |
|          |           |                                                                                                                            |   |
|          | Item 1.        | Business                                                                                                                        | 3 |
|          | Item 1A.       | Risk Factors                                                                                                                    | 20 |
|          | Item 1B.       | Unresolved Staff Comments                                                                                                       | 29 |
|          | Item 2.        | Properties                                                                                                                      | 29 |
|          | Item 3.        | Legal Proceedings                                                                                                               | 30 |
|          | Item 4.        | [RESERVED]                                                                                                                      | 30 |
|          |           |                                                                                                                            |   |
| Part II.      |           |                                                                                                                            |
|          |           |                                                                                                                            |   |
|          |  Item 5.  | Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities              | 31 |
|          |  Item 6.  | Selected Financial Data                                                                                                         | 33 |
|          |  Item 7.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                     | 34 |
|          |  Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                                                      | 58 |
|          |  Item 8.  | Financial Statements and Supplementary Data                                                                                     | 58 |
|          |  Item 9.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                            | 108 |
|          |  Item 9A. | Controls and Procedures                                                                                                         | 108 |
|          |  Item 9B. | Other Information                                                                                                               | 108 |
|          |           |                                                                                                                            |   |
| Part III.     |           |                                                                                                                            |
|          |           |                                                                                                                            |   |
|          |  Item 10. | Directors, Executive Officers and Corporate Governance                                                                          | 109 |
|          |  Item 11. | Executive Compensation                                                                                                          | 109 |
|          |  Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                                  | 109 |
|          |  Item 13. | Certain Relationships and Related Transactions, and Director Independence                                                       | 109 |
|          |  Item 14. | Principal Accounting Fees and Services                                                                                          | 109 |
|          |           |                                                                                                                            |   |
| Part IV.      |           |                                                                                                                            |
|          |           |                                                                                                                            |   |
|          |  Item 15. | Exhibits and Financial Statement Schedules                                                                                      | 109 |
|          |           |                                                                                                                            |   |
| Signatures    | 114            |
|          |           |                                                                                                                            |
| Exhibit Index | 115            |
|          |           |                                                                                                                            |   |
|          | 23.1           | Consent of Independent Registered Public Accounting Firm                                                                        | 116 |
|          | 31.1           | Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                             | 117 |
|          | 31.2           | Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                         | 118 |
|          | 32.1           | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 119 |

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PART I

Item 1. Business.

|   | ● | the duration of financial and economic volatility and decline and actions taken by the United States Congress and governmental agencies, including the United States Department of the Treasury, to deal with challenges to the U.S. financial system;                                                                                                    |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | the risks presented by a continued economic recession, which could adversely affect credit quality, collateral values, including real estate collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;                                                                                                         |
|   | ● | variances in the actual versus projected growth in assets and return on assets;                                                                                                                                                                                                                                                                           |
|   | ● | potential continued or increasing loan and lease losses;                                                                                                                                                                                                                                                                                                  |
|   | ● | potential increasing levels of expenses associated with resolving non-performing assets as well as regulatory changes;                                                                                                                                                                                                                                    |
|   | ● | changes in the interest rate environment including interest rates charged on loans, earned on securities investments and paid on deposits and other borrowed funds;                                                                                                                                                                                       |
|   | ● | competitive effects;                                                                                                                                                                                                                                                                                                                                      |
|   | ● | potential declines in fee and other noninterest income earned associated with economic factors as well as regulatory changes;                                                                                                                                                                                                                             |
|   | ● | general economic conditions nationally, regionally, and within our operating markets could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain the quality of our earning assets;                         |
|   | ● | changes in the regulatory environment including government intervention in the U.S. financial system;                                                                                                                                                                                                                                                     |
|   | ● | changes in business conditions and inflation;                                                                                                                                                                                                                                                                                                             |
|   | ● | changes in securities markets, public debt markets, and other capital markets;                                                                                                                                                                                                                                                                            |
|   | ● | potential data processing and other operational systems failures or fraud;                                                                                                                                                                                                                                                                                |
|   | ● | potential continued decline in real estate values in our operating markets;                                                                                                                                                                                                                                                                               |
|   | ● | the effects of uncontrollable events such as terrorism, the threat of terrorism or the impact of the current military conflicts in Afghanistan and Iraq and the conduct of the war on terrorism by the United States and its allies, worsening financial and economic conditions, natural disasters, and disruption of power supplies and communications; |
|   | ● | changes in accounting standards, tax laws or regulations and interpretations of such standards, laws or regulations;                                                                                                                                                                                                                                      |
|   | ● | projected business increases following any future strategic expansion could be lower than expected;                                                                                                                                                                                                                                                       |
|   | ● | the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings;                                                                                                                                                                                                                    |
|   | ● | the reputation of the financial services industry could experience further deterioration, which could adversely affect our ability to access markets for funding and to acquire and retain customers; and                                                                                                                                                 |
|   | ● | the efficiencies we may expect to receive from any investments in personnel and infrastructure may not be realized.                                                                                                                                                                                                                                       |

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|   | ● | Expanded oversight of the accounting profession by creating a new independent public company oversight board to be monitored by the SEC.                                                                                                                                                                            |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | Revised rules on auditor independence to restrict the nature of non-audit services provided to audit clients and to require such services to be pre-approved by the audit committee.                                                                                                                                |
|   | ● | Improved corporate responsibility through mandatory listing standards relating to audit committees, certifications of periodic reports by the CEO and CFO and making issuer interference with an audit a crime.                                                                                                     |
|   | ● | Enhanced financial disclosures, including periodic reviews for largest issuers and real time disclosure of material company information.                                                                                                                                                                            |
|   | ● | Enhanced criminal penalties for a broad array of white collar crimes and increases in the statute of limitations for securities fraud lawsuits.                                                                                                                                                                     |
|   | ● | Disclosure of whether a company has adopted a code of ethics that applies to the company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and disclosure of any amendments or waivers to such code of ethics. |
|   | ● | Disclosure of whether a company’s audit committee of its board of directors has a member of the audit committee who qualifies as an “audit committee financial expert.”                                                                                                                           |
|   | ● | A prohibition on insider trading during pension plan black-out periods.                                                                                                                                                                                                                                             |
|   | ● | Disclosure of off-balance sheet transactions.                                                                                                                                                                                                                                                                       |
|   | ● | A prohibition on personal loans to directors and officers.                                                                                                                                                                                                                                                          |
|   | ● | Conditions on the use of non-GAAP (generally accepted accounting principles) financial measures.                                                                                                                                                                                                                    |
|   | ● | Standards on professional conduct for attorneys requiring attorneys having an attorney-client relationship with a company, among other matters, to report “up the ladder” to the audit committee, another board committee or the entire board of directors certain material violations.                 |
|   | ● | Expedited filing requirements for Form 4 reports of changes in beneficial ownership of securities reducing the filing deadline to within 2 business days of the date a transaction triggers an obligation to report.                                                                                                |
|   | ● | Accelerated filing requirements for Forms 10-K and 10-Q by public companies which qualify as “accelerated filers” to a phased-in reduction of the filing deadline for Form 10-K reports and Form 10-Q reports.                                                                                          |
|   | ● | Disclosure concerning website access to reports on Forms 10-K, 10-Q and 8-K, and any amendments to those reports, by “accelerated filers” as soon as reasonably practicable after such reports and material are filed with or furnished to the SEC.                                                     |
|   | ● | Rules requiring national securities exchanges and national securities associations to prohibit the listing of any security whose issuer does not meet audit committee standards established pursuant to the Act.                                                                                                    |

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|   | ● | The name of the a company’s independent auditor and a description of services, if any, performed for a company during the previous two fiscal years and the period from the end of the most recent fiscal year to the date of filing;                                                                                                                                                                 |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | The annual compensation paid to each director and the five most highly compensated non-director executive officers (including the CEO) during the most recent fiscal year, including all plan and non-plan compensation for all services rendered to a company as specified in Item 402 of Regulation S-K such as grants, awards or issuance of stock, stock options and similar equity-based compensation; |
|   | ● | A description of any loans made to a director at a “preferential” loan rate during the company’s two most recent fiscal years, including the amount and terms of the loans;                                                                                                                                                                                                               |
|   | ● | Whether any bankruptcy was filed by a company or any of its directors or executive officers within the previous 10 years;                                                                                                                                                                                                                                                                                   |
|   | ● | Whether any director or executive officer of a company has been convicted of fraud during the previous 10 years; and                                                                                                                                                                                                                                                                                        |
|   | ● | A description of any material pending legal proceedings other than ordinary routine litigation as specified in Item 103 of Regulation S-K and a description of such litigation where the company was found legally liable by a final judgment or order.                                                                                                                                                     |

|   | ● | identify relevant patterns, practices, and specific forms of activity that are “red flags” of possible identity theft and incorporate those red flags into the program;   |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | detect the occurrence of red flags incorporated into the program;                                                                                                                     |
|   | ● | respond appropriately to any red flags that are detected to prevent and mitigate identity theft; and                                                                                  |
|   | ● | ensure that the program is updated periodically to reflect changes in risks to customers or to the safety and soundness of the financial institution or creditor from identity theft. |

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|   | ● | Changes to Capital Requirements. The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies which will not be lower and could be higher than current regulatory capital and leverage standards for insured depository institutions. Under these requirements, trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by a bank holding company with less than $15 billion in assets. The Dodd-Frank Act requires capital requirements to be counter cyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction consistent with safety and soundness.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | ● | Enhanced Regulatory Supervision. The Dodd-Frank Act increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | ● | Consumer Protection. The Dodd-Frank Act creates the Consumer Financial Protection Bureau (“CFPB”) within the Federal Reserve System. The CFPB is responsible for establishing and implementing rules and regulations under various federal consumer protection laws governing certain consumer products and services. The CFPB has primary enforcement authority over large financial institutions with assets of $10 billion or more, while smaller institutions will be subject to the CFPB’s rules and regulations through the enforcement authority of the federal banking agencies. States are permitted to adopt consumer protection laws and regulations that are more stringent than those laws and regulations adopted by the CFPB and state attorneys general are permitted to enforce consumer protection laws and regulations adopted by the CFPB.                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | ● | Deposit Insurance. The Dodd-Frank Act permanently increases the deposit insurance limit for insured deposits to $250,000 per depositor and extends unlimited deposit insurance to non-interest bearing transaction accounts through December 31, 2012. Other deposit insurance changes under the Dodd-Frank Act include (i) amendment of the assessment base used to calculate an insured depository institution’s deposit insurance premiums paid to the Deposit Insurance Fund (“DIF”) by elimination of deposits and substitution of average consolidated total assets less average tangible equity during the assessment period as the revised assessment base; (ii) increasing the minimum designated reserve ratio of the DIF from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits; (iii) eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds; and (iv) repeal of the prohibition upon the payment of interest on demand deposits to be effective one year after the date of enactment of the Dodd-Frank Act. In December 2010, pursuant to the Dodd-Frank Act, the FDIC increased the reserve ratio of the DIF to 2.0 percent effective January 1, 2011. |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | ● | Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | ● | Transactions with Insiders. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

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|   | ● | Enhanced Lending Limitations. The Dodd-Frank Act strengthens the existing limits on a depository institution’s credit exposure to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ● | Debit Card Interchange Fees. The Dodd-Frank Act requires that the amount of any interchange fee charged by a debit card issuer with respect to a debit card transaction must be reasonable and proportional to the cost incurred by the issuer. Within nine months of enactment of the Dodd-Frank Act, the Federal Reserve Board is required to establish standards for reasonable and proportional fees which may take into account the costs of preventing fraud. The restrictions on interchange fees, however, do not apply to banks that, together with their affiliates, have assets of less than $10 billion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ● | Interstate Branching. The Dodd-Frank Act authorizes national and state banks to establish branch offices in other states to the same extent as a bank chartered by that state would be permitted to branch. Previously, banks could only establish branch offices in other states if the host state expressly permitted out-of-state banks to establish branch offices in that state. Accordingly, banks may be able to enter new markets more freely.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ● | Charter Conversions. Effective one year after enactment of the Dodd-Frank Act, depository institutions that are subject to a cease and desist order or certain other enforcement actions issued with respect to a significant supervisory matter are prohibited from changing their federal or state charters, except in accordance with certain notice, application and other procedures involving the applicable regulatory agencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ● | Compensation Practices. The Dodd-Frank Act provides that the appropriate federal banking regulators must establish standards prohibiting as an unsafe and unsound practice any compensation plan of a bank holding company or other “covered financial institution” that provides an insider or other employee with “excessive compensation” or could lead to a material financial loss to such firm. In June 2010, prior to the enactment of the Dodd-Frank Act, the federal bank regulatory agencies jointly issued the Interagency Guidance on Sound Incentive Compensation Policies (“Guidance”), which requires that financial institutions establish metrics for measuring the risk to the financial institution of such loss from incentive compensation arrangements and implement policies to prohibit inappropriate risk taking that may lead to material financial loss to the institution. Together, the Dodd-Frank Act and the Guidance may impact our compensation policies and arrangements.                                                                    |
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | ● | Corporate Governance. The Dodd-Frank Act will enhance corporate governance requirements to include (i) requiring publicly traded companies to give shareholders a non-binding vote on executive compensation at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders; (ii) authorizing the SEC to promulgate rules that would allow shareholders to nominate their own candidates for election as directors using a company’s proxy materials; (iii) directing the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether or not the company is publicly traded; and (iv) authorizing the SEC to prohibit broker discretionary voting on the election of directors and on executive compensation matters. |

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Item 1A. Risk Factors.

| ● | We are subject to extensive regulation, which could adversely affect our business. |
|---------|------------------------------------------------------------------------------------|

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| ● | Difficult market conditions have adversely affected our business. |
|---------|-------------------------------------------------------------------|

| ● | Worsening economic conditions could adversely affect our business. |
|---------|--------------------------------------------------------------------|

|   | ● | loan delinquencies and defaults may increase;                                                                                                                                            |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | problem assets and foreclosures may increase;                                                                                                                                            |
|   | ● | demand for our products and services may decline;                                                                                                                                        |
|   | ● | low cost or noninterest bearing deposits may decrease;                                                                                                                                   |
|   | ● | collateral for loans may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral as sources of repayment of existing loans; |
|   | ● | foreclosed assets may not be able to be sold;                                                                                                                                            |
|   | ● | volatile securities market conditions could adversely affect valuations of investment portfolio assets; and                                                                              |
|   | ● | reputational risk may increase due to public sentiment regarding the banking industry.                                                                                                   |

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| ● | Non-performing assets take significant time to resolve and adversely affect our results of operations and financial condition. |
|---------|--------------------------------------------------------------------------------------------------------------------------------|

| ● | Tightening of credit markets and liquidity risk could adversely affect our business, financial condition and results of operations. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------|

| ● | We have a concentration risk in real estate related loans. |
|---------|------------------------------------------------------------|

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| ● | Our allowance for loan and lease losses may not be adequate to cover actual losses. |
|---------|-------------------------------------------------------------------------------------|

| ● | Our focus on lending to small to mid-sized community-based businesses may increase our credit risk. |
|---------|-----------------------------------------------------------------------------------------------------|

| ● | The Company has entered into an informal agreement with regulators and noncompliance could have an adverse effect upon the Company. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------|

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| ● | Our business is subject to interest rate risk, and variations in interest rates may negatively affect our financial performance. |
|---------|----------------------------------------------------------------------------------------------------------------------------------|

| ● | Governmental monetary policies and intervention to stabilize the U.S. financial system may affect our business and are beyond our control. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ● | The Bank faces strong competition from banks, financial service companies and other companies that offer banking services, which could adversely affect our business. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ● | Our operations are dependent upon key personnel. |
|---------|--------------------------------------------------|

| ● | Technology implementation problems or computer system failures could adversely affect us. |
|---------|-------------------------------------------------------------------------------------------|

| ● | Information security breaches or other technological difficulties could adversely affect us. |
|---------|----------------------------------------------------------------------------------------------|

| ● | Our controls over financial reporting and related governance procedures may fail or be circumvented. |
|---------|------------------------------------------------------------------------------------------------------|

| ● | We may not be successful in raising additional capital needed in the future. |
|---------|------------------------------------------------------------------------------|

| ● | The effects of legislation in response to current credit conditions may adversely affect us. |
|---------|----------------------------------------------------------------------------------------------|

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| ● | The effects of changes to FDIC insurance coverage limits and assessments are uncertain and increased premiums may adversely affect us. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------|

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| ● | In the future we may be required to recognize impairment with respect to investment securities, including the FHLB stock we hold. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------|

| ● | If the goodwill we have recorded in connection with our acquisition of Bank of Amador becomes impaired, it could have an adverse impact on our earnings and capital. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | The effects of terrorism and other events beyond our control may adversely affect our results of operations. |
|---------|--------------------------------------------------------------------------------------------------------------|

| ● | Future acquisitions and expansion activities may disrupt our business and adversely affect our operating results. |
|---------|-------------------------------------------------------------------------------------------------------------------|

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| ● | We may raise additional capital, which could have a dilutive effect on the existing holders of our common stock and adversely affect the market price of our common stock. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | The price of our common stock may fluctuate significantly, and this may make it difficult for shareholders to resell shares of common stock they own at times or at prices they find attractive. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | actual or anticipated quarterly fluctuations in our operating results and financial condition;                                                                                                                             |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our common stock or those of other financial institutions; |
|   | ● | failure to meet analysts’ revenue or earnings estimates;                                                                                                                                                             |
|   | ● | speculation in the press or investment community generally or relating to our reputation, our market area, our competitors or the financial services industry in general;                                                  |
|   | ● | strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings;                                                                                                              |
|   | ● | actions by our current shareholders, including sales of common stock by existing shareholders and/or directors and executive officers;                                                                                     |

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|   | ● | fluctuations in the stock price and operating results of our competitors;                                                    |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------|
|   | ● | future sales of our equity, equity-related or debt securities;                                                               |
|   | ● | changes in the frequency or amount of dividends or share repurchases;                                                        |
|   | ● | proposed or adopted regulatory changes or developments;                                                                      |
|   | ● | anticipated or pending investigations, proceedings, or litigation that involves or affects us;                               |
|   | ● | trading activities in our common stock, including short-selling;                                                             |
|   | ● | domestic and international economic factors unrelated to our performance; and                                                |
|   | ● | general market conditions and, in particular, developments related to market conditions for the financial services industry. |

| ● | We may be unable or choose not to pay cash dividends in the foreseeable future. |
|---------|---------------------------------------------------------------------------------|

| ● | Anti-takeover provisions in our articles of incorporation and bylaws and California law could make a third party acquisition of us difficult. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------|

Item 1B. Unresolved Staff Comments.

Item 2. Properties.

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Item 3. Legal Proceedings.

Item 4. [RESERVED]

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

|           |   |   |   |   |   |   |
|----------------|--------|--------|--------|--------|--------|--------|
| 2010           |   | High   |   |   | Low    |   |
| First quarter  |   | $      | 8.50   |   |   | $      | 7.50 |   |
| Second quarter |   |   | 8.91   |   |   |   | 7.25 |   |
| Third quarter  |   |   | 7.58   |   |   |   | 5.65 |   |
| Fourth quarter |   |   | 6.49   |   |   |   | 5.50 |   |
|           |   |   |   |   |   |   |
| 2009           |   | High   |   |   | Low    |   |
| First quarter  |   | $      | 10.97  |   |   | $      | 7.02 |   |
| Second quarter |   |   | 12.15  |   |   |   | 7.90 |   |
| Third quarter  |   |   | 10.99  |   |   |   | 7.45 |   |
| Fourth quarter |   |   | 7.98   |   |   |   | 6.00 |   |

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|                                         | (a)                                        | (b)                                   | (c)                                                                                       | (d)                                                                                                                         |
|----------------------------------------------|--------------------------------------------|---------------------------------------|-------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|
|   Period                                | Total Numberof Shares (or Units) Purchased | Average Price Paid Per Share(or Unit) | Total Number of Shares (or Units) Purchased asPart of Publicly Announced Plans orPrograms | Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under thePlans or Programs |
| Month #1October 1 through October 31, 2010   | None                                       | N/A                                   | None                                                                                      | None                                                                                                                        |
| Month #2November 1 through November 30, 2010 | None                                       | N/A                                   | None                                                                                      | None                                                                                                                        |
| Month #3December 1 through December 31, 2010 | None | N/A       | None | None   |
|----------------------------------------------|------|-----------|------|--------|
| Total                                        | None |  N/A | None |   |

----

Item 6. Selected Financial Data.

|                                                          |   | 2010   |    |   | 2009   |   |    | 2008   |   |   | 2007    |   |   | 2006   |    |
|---------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|
| Operations Data:                                              |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |
| Net interest income                                           |   | $      | 22,256  |   |   | $      | 24,032  |   |   | $      | 25,925  |   |   | $      | 26,402  |   |   | $ | 27,066 |   |
| Provision for loan and lease losses                           |   |   | 7,365   |   |   |   | 8,530   |   |   |   | 1,743   |   |   |   | 450     |   |   |   | 320 |   |
| Noninterest income                                            |   |   | 1,804   |   |   |   | 2,269   |   |   |   | 2,168   |   |   |   | 2,599   |   |   |   | 2,443 |   |
| Noninterest expenses                                          |   |   | 16,470  |   |   |   | 15,811  |   |   |   | 14,201  |   |   |   | 14,833  |   |   |   | 14,388 |   |
| Income before income taxes                                    |   |   | 225     |   |   |   | 1,960   |   |   |   | 12,149  |   |   |   | 13,718  |   |   |   | 14,801 |   |
| Income taxes (benefit)                                        |   |   | (251    | )      |   |   | 374     |   |   |   | 4,578   |   |   |   | 5,240   |   |   |   | 5,739 |   |
| Net income                                                    |   | $      | 476     |   |   | $      | 1,586   |   |   | $      | 7,571   |   |   | $      | 8,478   |   |   | $ | 9,062 |   |
|                                                          |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Share Data:                                                   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Earnings per share – basic                              |   | $      | 0.05    |   |   | $      | 0.26    |   |   | $      | 1.30    |   |   | $      | 1.40    |   |   | $ | 1.42 |   |
| Earnings per share – diluted                            |   | $      | 0.05    |   |   | $      | 0.26    |   |   | $      | 1.30    |   |   | $      | 1.39    |   |   | $ | 1.39 |   |
| Cash dividends per share (1)                                  |   | $      | 0.00    |   |   | $      | 0.29    |   |   | $      | 0.57    |   |   | $      | 0.55    |   |   | $ | 0.53 |   |
| Book value per share                                          |   | $      | 9.07    |   |   | $      | 8.87    |   |   | $      | 10.95   |   |   | $      | 10.22   |   |   | $ | 10.00 |   |
| Tangible book value per share                                 |   | $      | 7.37    |   |   | $      | 7.15    |   |   | $      | 7.98    |   |   | $      | 7.23    |   |   | $ | 7.14 |   |
|                                                          |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Balance Sheet Data:                                           |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Assets                                                        |   | $      | 578,940 |   |   | $      | 594,418 |   |   | $      | 563,157 |   |   | $      | 573,685 |   |   | $ | 604,003 |   |
| Loans and leases, net                                         |   |   | 338,533 |   |   |   | 376,322 |   |   |   | 412,356 |   |   |   | 394,975 |   |   |   | 382,993 |   |
| Deposits                                                      |   |   | 465,122 |   |   |   | 469,755 |   |   |   | 437,061 |   |   |   | 455,645 |   |   |   | 493,875 |   |
| Shareholders’ equity                                    |   |   | 89,544  |   |   |   | 87,345  |   |   |   | 63,447  |   |   |   | 59,973  |   |   |   | 62,371 |   |
|                                                          |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Financial Ratios:                                             |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Return on average equity                                      |   |   | 0.53    | %      |   |   | 2.44    | %      |   |   | 12.39   | %      |   |   | 14.01   | % |   |   | 14.48 | % |
| Return on average tangible equity                             |   |   | 0.66    | %      |   |   | 3.31    | %      |   |   | 17.32   | %      |   |   | 19.78   | % |   |   | 20.33 | % |
| Return on average assets                                      |   |   | 0.08    | %      |   |   | 0.28    | %      |   |   | 1.32    | %      |   |   | 1.47    | % |   |   | 1.50 | % |
| Efficiency ratio (2)                                          |   |   | 66.87   | %      |   |   | 58.45   | %      |   |   | 48.92   | %      |   |   | 49.49   | % |   |   | 47.11 | % |
| Net interest margin (2) (3)                                   |   |   | 4.49    | %      |   |   | 4.90    | %      |   |   | 5.03    | %      |   |   | 5.10    | % |   |   | 5.03 | % |
| Net loans and leases to deposits                              |   |   | 72.78   | %      |   |   | 80.11   | %      |   |   | 94.35   | %      |   |   | 86.68   | % |   |   | 77.55 | % |
| Net charge-offs to average loans & leases                 |   |   | 2.12    | %      |   |   | 1.62    | %      |   |   | 0.42    | %      |   |   | 0.11    | % |   |   | 0.03 | % |
| Nonperforming loans and leases to total loans and leases (4)  |   |   | 6.52    | %      |   |   | 5.46    | %      |   |   | 1.49    | %      |   |   | 1.86    | % |   |   | 0.02 | % |
| Allowance for loan and lease losses to total loans and leases |   |   | 2.19    | %      |   |   | 2.06    | %      |   |   | 1.41    | %      |   |   | 1.47    | % |   |   | 1.51 | % |
| Average equity to average assets                              |   |   | 15.28   | %      |   |   | 11.36   | %      |   |   | 10.62   | %      |   |   | 10.52   | % |   |   | 10.38 | % |
|                                                          |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Capital Ratios:                                               |   |   |    |   |   |   |    |   |   |   |    |   |   |   |    |   |   |   |   |   |
| Leverage capital ratio                                        |   |   | 12.55   | %      |   |   | 12.45   | %      |   |   | 8.32    | %      |   |   | 7.72    | % |   |   | 7.81 | % |
| Tier 1 risk-based capital ratio                               |   |   | 19.07   | %      |   |   | 17.13   | %      |   |   | 11.50   | %      |   |   | 10.70   | % |   |   | 11.59 | % |
| Total risk-based capital ratio                                |   |   | 20.33   | %      |   |   | 18.39   | %      |   |   | 10.25   | %      |   |   | 9.45    | % |   |   | 10.34 | % |

| (1) | On July 27, 2009, the Company announced that the Board of Directors temporarily suspended the payment of cash dividends, until such time that it was prudent to reestablish the payment of cash dividends. Regulatory approval will be required before the payment of cash dividends may be reestablished. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Fully taxable equivalent                                                                                                                                                                                                                                                                                   |
| (3) | Excludes the amortization of intangible assets.                                                                                                                                                                                                                                                            |
| (4) | Non-performing loans and leases consist of loans and leases past due 90 days or more and still accruing and nonaccrual loans and leases.                                                                                                                                                                   |

----

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

----

----

----

| Table One: Components of Net Income                |   |   |    |   |   |   |    |   |   |
|----------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                               |   |   |    |   |   |   |    |   |   |
| For the years ended:                               |   | 2010   |    |   | 2009   |   |    | 2008   |   |
| (dollars in thousands)                             |   |   |    |   |   |   |    |   |   |
|                                               |   |   |    |   |   |   |    |   |   |
| Net interest income*                               |   | $      | 22,465  |   |   | $      | 24,331  |   |   | $ | 26,277 |   |
| Provision for loan and lease losses                |   |   | (7,365  | )      |   |   | (8,530  | )      |   |   | (1,743 | ) |
| Noninterest income                                 |   |   | 1,804   |   |   |   | 2,269   |   |   |   | 2,168 |   |
| Noninterest expense                                |   |   | (16,470 | )      |   |   | (15,811 | )      |   |   | (14,201 | ) |
| Benefit from (provision for) income taxes          |   |   | 251     |   |   |   | (374    | )      |   |   | (4,578 | ) |
| Tax equivalent adjustment                          |   |   | (209    | )      |   |   | (299    | )      |   |   | (352 | ) |
|                                               |   |   |    |   |   |   |    |   |   |   |   |   |
| Net income                                         |   | $      | 476     |   |   | $      | 1,586   |   |   | $ | 7,571 |   |
|                                               |   |   |    |   |   |   |    |   |   |   |   |   |
| Average total assets                               |   | $      | 584,114 |   |   | $      | 572,473 |   |   | $ | 575,046 |   |
| Net income as a percentage of average total assets |   |   | 0.08    | %      |   |   | 0.28    | %      |   |   | 1.32 | % |

----

----

| Table Two: Analysis of Net Interest Margin on Earning Assets |
|--------------------------------------------------------------|
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year Ended December 31,                                      |   | 2010 |   |   | 2009 |   |   | 2008 |   |
| (Taxable Equivalent Basis)                                   |   | Avg |   |   |   | Avg |   |   | Avg |   |   |   | Avg |   |   | Avg |   |   |   | Avg |   |
| (dollars in thousands)                                       |   | Balance |   | Interest |   | Yield |   |   | Balance |   | Interest |   | Yield |   |   | Balance |   | Interest |   | Yield |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assets:                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earning assets                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans and leases (1)                                         |   | $ | 362,445 |   | $ | 22,227 |   | 6.13 | % |   | $ | 404,539 |   | $ | 25,378 |   | 6.27 | % |   | $ | 410,293 |   | $ | 28,512 |   | 6.95 | % |
| Taxable investment securities                                |   |   | 122,381 |   |   | 2,840 |   | 2.32 | % |   |   | 67,480 |   |   | 2,763 |   | 4.09 | % |   |   | 79,675 |   |   | 3,711 |   | 4.66 | % |
| Tax-exempt investment securities (2)                         |   |   | 15,628 |   |   | 843 |   | 5.39 | % |   |   | 22,541 |   |   | 1,215 |   | 5.39 | % |   |   | 27,102 |   |   | 1,428 |   | 5.27 | % |
| Corporate stock                                              |   |   | 22 |   |   | — |   | — |   |   |   | 28 |   |   | 6 |   | 21.43 | % |   |   | 172 |   |   | 22 |   | 12.79 | % |
| Federal funds sold                                           |   |   | — |   |   | — |   | — |   |   |   | 11 |   |   | — |   | — |   |   |   | 486 |   |   | 10 |   | 2.06 | % |
| Interest bearing deposits in other banks                     |   |   | 406 |   |   | 5 |   | 1.23 | % |   |   | 1,603 |   |   | 59 |   | 3.68 | % |   |   | 4,838 |   |   | 222 |   | 4.59 | % |
| Total earning assets                                         |   |   | 500,882 |   |   | 25,915 |   | 5.17 | % |   |   | 496,202 |   |   | 29,421 |   | 5.93 | % |   |   | 522,566 |   |   | 33,905 |   | 6.47 | % |
| Cash & due from banks                                    |   |   | 48,318 |   |   |   |   |   |   |   |   | 41,064 |   |   |   |   |   |   |   |   | 19,260 |   |   |   |   |   |   |
| Other assets                                                 |   |   | 43,142 |   |   |   |   |   |   |   |   | 42,208 |   |   |   |   |   |   |   |   | 39,330 |   |   |   |   |   |   |
| Allowance for loan & lease losses                        |   |   | (8,228 | ) |   |   |   |   |   |   |   | (7,001 | ) |   |   |   |   |   |   |   | (6,110 | ) |   |   |   |   |   |
|                                                         |   | $ | 584,114 |   |   |   |   |   |   |   | $ | 572,473 |   |   |   |   |   |   |   | $ | 575,046 |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities & Shareholders’ Equity:                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW & MMDA                                               |   | $ | 182,495 |   |   | 1,327 |   | 0.73 | % |   | $ | 163,141 |   |   | 1,375 |   | 0.84 | % |   | $ | 164,531 |   |   | 1,929 |   | 1.17 | % |
| Savings                                                      |   |   | 41,510 |   |   | 224 |   | 0.54 | % |   |   | 34,392 |   |   | 229 |   | 0.67 | % |   |   | 36,033 |   |   | 324 |   | 0.90 | % |
| Time deposits                                                |   |   | 121,050 |   |   | 1,401 |   | 1.16 | % |   |   | 137,601 |   |   | 2,399 |   | 1.74 | % |   |   | 121,479 |   |   | 3,648 |   | 3.00 | % |
| Other borrowings                                             |   |   | 20,458 |   |   | 498 |   | 2.43 | % |   |   | 49,745 |   |   | 1,087 |   | 2.19 | % |   |   | 59,560 |   |   | 1,727 |   | 2.90 | % |
| Total interest bearing liabilities                           |   |   | 365,513 |   |   | 3,450 |   | 0.94 | % |   |   | 384,879 |   |   | 5,090 |   | 1.32 | % |   |   | 381,603 |   |   | 7,628 |   | 1.99 | % |
| Demand deposits                                              |   |   | 124,122 |   |   |   |   |   |   |   |   | 117,594 |   |   |   |   |   |   |   |   | 126,125 |   |   |   |   |   |   |
| Other liabilities                                            |   |   | 5,221 |   |   |   |   |   |   |   |   | 4,993 |   |   |   |   |   |   |   |   | 6,234 |   |   |   |   |   |   |
| Total liabilities                                            |   |   | 494,856 |   |   |   |   |   |   |   |   | 507,466 |   |   |   |   |   |   |   |   | 513,962 |   |   |   |   |   |   |
| Shareholders’ equity                                   |   |   | 89,258 |   |   |   |   |   |   |   |   | 65,007 |   |   |   |   |   |   |   |   | 61,084 |   |   |   |   |   |   |
|                                                         |   | $ | 584,114 |   |   |   |   |   |   |   | $ | 572,473 |   |   |   |   |   |   |   | $ | 575,046 |   |   |   |   |   |   |
| Net interest income & margin (3)                         |   |   |   |   | $ | 22,465 |   | 4.49 | % |   |   |   |   | $ | 24,331 |   | 4.90 | % |   |   |   |   | $ | 26,277 |   | 5.03 | % |

| (1) | Loan and lease interest includes loan and lease fees of $56,000, $46,000 and $250,000 in 2010, 2009 and 2008, respectively.                                                                                                |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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% in 2010 and 2009 and 35% in 2008. |
| (3) | Net interest margin is computed by dividing net interest income by total average earning assets.                                                                                                                           |

----

| Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses |
|--------------------------------------------------------------------------------------|
| Year ended December 31, 2010 over 2009 (dollars in thousands)                        |   |   |   |   |   |   |
| Increase (decrease) due to change in:                                                |   |   |   |   |   |   |   |   |
|                                                                                 |   |   |   |   |   |   |   |   |
|                                                                                 |   | Volume |   |   | Rate (4) |   |   | Net Change |
| Interest-earning assets:                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loans and leases (1)(2)                                                          |   | $ | (2,641 | ) |   | $ | (510 | ) |   | $ | (3,151 | ) |
| Taxable investment securities                                                        |   |   | 2,248 |   |   |   | (2,171 | ) |   |   | 77 |   |
| Tax-exempt investment securities (3)                                                 |   |   | (373 | ) |   |   | 1 |   |   |   | (372 | ) |
| Corporate stock                                                                      |   |   | (1 | ) |   |   | (5 | ) |   |   | (6 | ) |
| Federal funds sold & other                                                       |   |   | — |   |   |   | — |   |   |   | — |   |
| Interest bearing deposits in other banks                                             |   |   | (44 | ) |   |   | (10 | ) |   |   | (54 | ) |
| Total                                                                                |   |   | (811 | ) |   |   | (2,695 | ) |   |   | (3,506 | ) |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                        |   |   |   |   |   |   |   |   |   |   |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                                                      |   |   | 163 |   |   |   | (211 | ) |   |   | (48 | ) |
| Savings deposits                                                                     |   |   | 47 |   |   |   | (52 | ) |   |   | (5 | ) |
| Time deposits                                                                        |   |   | (289 | ) |   |   | (709 | ) |   |   | (998 | ) |
| Other borrowings                                                                     |   |   | (640 | ) |   |   | 51 |   |   |   | (589 | ) |
| Total                                                                                |   |   | (719 | ) |   |   | (921 | ) |   |   | (1,640 | ) |
| Interest differential                                                                |   | $ | (92 | ) |   | $ | (1,774 | ) |   | $ | (1,866 | ) |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Year Ended December 31, 2009 over 2008 (dollars in thousands)                        |
| Increase (decrease) due to change in:                                                |
|                                                                                 |   | Volume |   |   | Rate (4) |   |   | Net Change |
| Interest-earning assets:                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loans and leases (1)(2)                                                          |   | $ | (400 | ) |   | $ | (2,734 | ) |   | $ | (3,134 | ) |
| Taxable investment securities                                                        |   |   | (568 | ) |   |   | (380 | ) |   |   | (948 | ) |
| Tax-exempt investment securities (3)                                                 |   |   | (240 | ) |   |   | 27 |   |   |   | (213 | ) |
| Corporate stock                                                                      |   |   | (18 | ) |   |   | 2 |   |   |   | (16 | ) |
| Federal funds sold & other                                                       |   |   | (10 | ) |   |   | — |   |   |   | (10 | ) |
| Interest bearing deposits in other banks                                             |   |   | (148 | ) |   |   | (15 | ) |   |   | (163 | ) |
| Total                                                                                |   |   | (1,384 | ) |   |   | (3,100 | ) |   |   | (4,484 | ) |
|                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                        |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                                                      |   |   | (16 | ) |   |   | (538 | ) |   |   | (554 | ) |
| Savings deposits                                                                     |   |   | (15 | ) |   |   | (80 | ) |   |   | (95 | ) |
| Time deposits                                                                        |   |   | 484 |   |   |   | (1,733 | ) |   |   | (1,249 | ) |
| Other borrowings                                                                     |   |   | (285 | ) |   |   | (355 | ) |   |   | (640 | ) |
| Total                                                                                |   |   | 168 |   |   |   | (2,706 | ) |   |   | (2,538 | ) |
| Interest differential                                                                |   | $ | (1,552 | ) |   | $ | (394 | ) |   | $ | (1,946 | ) |

| (1) | The average balance of non-accruing loans and leases is immaterial as a percentage of total loans and leases and, as such, has been included in net loans and leases.                                                      |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Loan and lease fees of $56,000, $46,000 and $250,000 for the years ended December 31, 2010, 2009 and 2008, respectively, 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% in 2010 and 2009 and 35% in 2008. |
| (4) | The rate/volume variance has been included in the rate variance.                                                                                                                                                           |

----

| Table Four: Components of Noninterest Income |
|----------------------------------------------|

|                                                   |   | Year Ended December 31, |    |
|--------------------------------------------------------|--------|-------------------------|---------|
|                                                   |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
| Service charges on deposit accounts                    |   | $                       | 866     |   |   | $ | 1,018 |   |   | $ | 741 |   |
| Merchant fee income                                    |   |                    | 420     |   |   |   | 437 |   |   |   | 482 |   |
| Earnings on Bank owned life insurance                  |   |                    | 277     |   |   |   | 246 |   |   |   | 395 |   |
| Income from residential lending division               |   |                    | — |   |   |   | 7 |   |   |   | 283 |   |
| Accounts receivable servicing fees                     |   |                    | — |   |   |   | 35 |   |   |   | 170 |   |
| Gain (loss) on sale, call and impairment of securities |   |                    | 7       |   |   |   | 270 |   |   |   | (119 | ) |
| Other                                                  |   |                    | 234     |   |   |   | 256 |   |   |   | 216 |   |
|                                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
|                                                   |   | $                       | 1,804   |   |   | $ | 2,269 |   |   | $ | 2,168 |   |

----

|                              |   | Year Ended December 31, |   |
|-----------------------------------|--------|-------------------------|--------|
|                              |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
| Professional fees                 |   | $                       | 1,191  |   |   | $ | 1,061 |   |   | $ | 936 |   |
| Telephone and postage             |   |                    | 336    |   |   |   | 375 |   |   |   | 403 |   |
| Directors’ expense          |   |                    | 371    |   |   |   | 390 |   |   |   | 321 |   |
| Outsourced item processing        |   |                    | 414    |   |   |   | 369 |   |   |   | 391 |   |
| Advertising and promotion         |   |                    | 198    |   |   |   | 232 |   |   |   | 339 |   |
| Stationery and supplies           |   |                    | 208    |   |   |   | 205 |   |   |   | 274 |   |
| Amortization of intangible assets |   |                    | 242    |   |   |   | 263 |   |   |   | 286 |   |
| Other operating expenses          |   |                    | 1,010  |   |   |   | 1,278 |   |   |   | 1,143 |   |
|                              |   |                    |   |   |   |   |   |   |   |   |   |   |
|                              |   | $                       | 3,970  |   |   | $ | 4,173 |   |   | $ | 4,093 |   |

----

| Table Six: Investment Securities Composition     |   |   |    |   |   |   |   |   |   |
|--------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
| (dollars in thousands)                           |   |   |    |   |   |   |   |   |   |
|                                             |   |   |    |   |   |   |   |   |   |
| Available-for-sale (at fair value)               |   | 2010   |    |   | 2009   |   |   | 2008   |   |
| Debt securities:                                 |   |   |    |   |   |   |   |   |   |
| Mortgage-backed securities                       |   | $      | 138,644 |   |   | $      | 76,009 |   |   | $ | 32,232 |   |
| Obligations of states and political subdivisions |   |   | 15,792  |   |   |   | 20,587 |   |   |   | 31,012 |   |
| Equity securities:                               |   |   |    |   |   |   |   |   |   |   |   |   |
| Corporate stock                                  |   |   | 79      |   |   |   | 86     |   |   |   | 90 |   |
| Total available-for-sale investment securities   |   | $      | 154,515 |   |   | $      | 96,682 |   |   | $ | 63,334 |   |
|                                             |   |   |    |   |   |   |   |   |   |   |   |   |
| Held-to-maturity (at amortized cost)             |   |   |    |   |   |   |   |   |   |   |   |   |
| Debt securities:                                 |   |   |    |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities                       |   | $      | 6,149   |   |   | $      | 12,331 |   |   | $ | 24,365 |   |
| Total held-to-maturity investment securities     |   | $      | 6,149   |   |   | $      | 12,331 |   |   | $ | 24,365 |   |

----

|                                |   | December 31, |
|-------------------------------------|--------|--------------|
| (dollars in thousands)              |   | 2010         |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Commercial                          |   | $            | 58,261 |   |   | $ | 72,621 |   |   | $ | 90,625 |   |   | $ | 94,632 |   |   | $ | 85,859 |   |
| Real estate:                        |   |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                          |   |         | 216,076 |   |   |   | 223,685 |   |   |   | 218,626 |   |   |   | 191,774 |   |   |   | 175,643 |   |
| Multi-family                        |   |         | 6,968 |   |   |   | 8,476 |   |   |   | 8,938 |   |   |   | 5,830 |   |   |   | 3,618 |   |
| Construction                        |   |         | 15,971 |   |   |   | 27,482 |   |   |   | 48,664 |   |   |   | 66,022 |   |   |   | 90,314 |   |
| Residential                         |   |         | 26,099 |   |   |   | 26,922 |   |   |   | 24,706 |   |   |   | 20,120 |   |   |   | 8,689 |   |
| Lease financing receivable          |   |         | 2,766 |   |   |   | 3,920 |   |   |   | 4,475 |   |   |   | 4,070 |   |   |   | 6,375 |   |
| Agriculture                         |   |         | 7,202 |   |   |   | 7,472 |   |   |   | 8,015 |   |   |   | 8,177 |   |   |   | 7,362 |   |
| Consumer                            |   |         | 13,202 |   |   |   | 14,253 |   |   |   | 14,796 |   |   |   | 10,750 |   |   |   | 11,712 |   |
|                                |   |         | 346,545 |   |   |   | 384,831 |   |   |   | 418,845 |   |   |   | 401,375 |   |   |   | 389,572 |   |
| Deferred loan fees, net             |   |         | (427 | ) |   |   | (600 | ) |   |   | (571 | ) |   |   | (517 | ) |   |   | (705 | ) |
| Allowance for loan and lease losses |   |         | (7,585 | ) |   |   | (7,909 | ) |   |   | (5,918 | ) |   |   | (5,883 | ) |   |   | (5,874 | ) |
| Total net loans and leases          |   | $            | 338,533 |   |   | $ | 376,322 |   |   | $ | 412,356 |   |   | $ | 394,975 |   |   | $ | 382,993 |   |

----

----

| Table Eight: Non-Performing Loans and Leases |
|----------------------------------------------|
|                                         |   | December 31, |
| (dollars in thousands)                       |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
| Past due 90 days or more and still accruing: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |   | $ | — |   |
| Real estate                                  |   |   | — |   |   |   | — |   |   |   | 444 |   |   |   | 455 |   |   |   | 13 |   |
| Lease financing receivable                   |   |   | — |   |   |   | — |   |   |   | 22 |   |   |   | — |   |   |   | — |   |
| Consumer and other                           |   |   | — |   |   |   | — |   |   |   | 8 |   |   |   | — |   |   |   | — |   |
| Nonaccrual:                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                   |   |   | 3,491 |   |   |   | 6,143 |   |   |   | 261 |   |   |   | 148 |   |   |   | — |   |
| Real estate                                  |   |   | 18,735 |   |   |   | 14,048 |   |   |   | 5,487 |   |   |   | 6,787 |   |   |   | 12 |   |
| Lease financing receivable                   |   |   | 28 |   |   |   | 55 |   |   |   | 19 |   |   |   | 50 |   |   |   | 53 |   |
| Consumer and other                           |   |   | 317 |   |   |   | 718 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Total non-performing loans and leases        |   | $ | 22,571 |   |   | $ | 20,964 |   |   | $ | 6,241 |   |   | $ | 7,440 |   |   | $ | 78 |   |

----

----

----

| Table Nine: Allowance for Loan and Lease Losses                                                 |   |
|-------------------------------------------------------------------------------------------------|--------|
| (dollars in thousands)                                                                          |   |   |   |
|                                                                                            |   | Year Ended December 31, |   |
|                                                                                            |   | 2010 |   |   | 2009 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average loans and leases outstanding                                                            |   | $ | 362,445 |   |   | $ | 404,539 |   |   | $ | 410,293 |   |   | $ | 390,488 |   |   | $ | 381,465 |   |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan & lease losses at beginning of period                                    |   | $ | 7,909 |   |   | $ | 5,918 |   |   | $ | 5,883 |   |   | $ | 5,874 |   |   | $ | 5,679 |   |
| Loans and leases charged off:                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                      |   |   | 2,570 |   |   |   | 2,944 |   |   |   | 422 |   |   |   | 301 |   |   |   | 71 |   |
| Real estate                                                                                     |   |   | 5,048 |   |   |   | 3,257 |   |   |   | 1,114 |   |   |   | 72 |   |   |   | — |   |
| Consumer                                                                                        |   |   | 173 |   |   |   | 216 |   |   |   | 139 |   |   |   | 105 |   |   |   | 1 |   |
| Lease financing receivable                                                                      |   |   | 30 |   |   |   | 171 |   |   |   | 59 |   |   |   | 70 |   |   |   | 78 |   |
| Total                                                                                           |   |   | 7,821 |   |   |   | 6,588 |   |   |   | 1,734 |   |   |   | 548 |   |   |   | 150 |   |
| Recoveries of loans and leases previously charged off:                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                      |   |   | 63 |   |   |   | 33 |   |   |   | 12 |   |   |   | 41 |   |   |   | 6 |   |
| Real estate                                                                                     |   |   | 68 |   |   |   | 1 |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Consumer                                                                                        |   |   | 1 |   |   |   | 8 |   |   |   | — |   |   |   | — |   |   |   | 9 |   |
| Lease financing receivable                                                                      |   |   | — |   |   |   | 7 |   |   |   | 14 |   |   |   | 66 |   |   |   | 10 |   |
| Total                                                                                           |   |   | 132 |   |   |   | 49 |   |   |   | 26 |   |   |   | 107 |   |   |   | 25 |   |
| Net loans and leases charged off                                                                |   |   | 7,689 |   |   |   | 6,539 |   |   |   | 1,708 |   |   |   | 441 |   |   |   | 125 |   |
| Additions to allowance charged to operating expenses                                            |   |   | 7,365 |   |   |   | 8,530 |   |   |   | 1,743 |   |   |   | 450 |   |   |   | 320 |   |
| Allowance for loan and lease losses at end of period                                            |   | $ | 7,585 |   |   | $ | 7,909 |   |   | $ | 5,918 |   |   | $ | 5,883 |   |   | $ | 5,874 |   |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of net charge-offs to average loans and leases outstanding                                |   |   | 2.12 | % |   |   | 1.62 | % |   |   | .42 | % |   |   | .11 | % |   |   | .03 | % |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan and lease losses to average loans and leases outstanding                     |   |   | 2.03 | % |   |   | 2.11 | % |   |   | .42 | % |   |   | .12 | % |   |   | .08 | % |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan and lease losses to loans and leases, net of deferred fees, at end of period |   |   | 2.19 | % |   |   | 2.06 | % |   |   | 1.41 | % |   |   | 1.47 | % |   |   | 1.51 | % |

----

| Table Ten: Allowance for Loan and Lease Losses by Loan Category |   |
|-----------------------------------------------------------------|--------|
| (dollars in thousands)                                          |   |   |   |   |   |   |   |
|                                                            |   | December 31, 2010 |   |   | December 31, 2009 |   |   | December 31, 2008 |   |
|                                                            |   | Amount |   |   | Percent of loans in each category to total loans |   |   | Amount |   |   | Percent of loans in each category to total loans |   |   | Amount |   |   | Percent of loans in each category to total loans |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                      |   | $ | 2,556 |   |   |   | 16.8 | % |   | $ | 2,178 |   |   |   | 18.9 | % |   | $ | 1,644 |   |   |   | 21.6 | % |
| Real estate                                                     |   |   | 4,574 |   |   |   | 76.5 | % |   |   | 5,009 |   |   |   | 74.5 | % |   |   | 4,030 |   |   |   | 71.8 | % |
| Agriculture                                                     |   |   | 228 |   |   |   | 2.1 | % |   |   | 203 |   |   |   | 1.9 | % |   |   | 8 |   |   |   | 1.9 | % |
| Consumer                                                        |   |   | 220 |   |   |   | 3.8 | % |   |   | 426 |   |   |   | 3.7 | % |   |   | 170 |   |   |   | 3.5 | % |
| Lease financing receivable                                      |   |   | 7 |   |   |   | 0.8 | % |   |   | 93 |   |   |   | 1.0 | % |   |   | 66 |   |   |   | 1.2 | % |
| Total allocated                                                 |   | $ | 7,585 |   |   |   | 100.0 | % |   | $ | 7,909 |   |   |   | 100.0 | % |   | $ | 5,918 |   |   |   | 100.0 | % |

|                       |   | December 31, 2007 |   |   | December 31, 2006                                |   |
|----------------------------|--------|-------------------|--------|--------|--------------------------------------------------|--------|
|                       |   | Amount            |   |   | Percent of loans in each category to total loans |   |   | Amount |   |   | Percent of loans in each category to total loans |   |
|                       |   |              |   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                 |   | $                 | 1,369  |   |                                             |   | 23.6 | % |   | $ | 1,269 |   |   |   | 22.1 | % |
| Real estate                |   |              | 4,314  |   |                                             |   | 70.7 | % |   |   | 4,332 |   |   |   | 71.4 | % |
| Agriculture                |   |              | 8      |   |                                             |   | 2.0 | % |   |   | 7 |   |   |   | 1.9 | % |
| Consumer                   |   |              | 108    |   |                                             |   | 2.7 | % |   |   | 131 |   |   |   | 3.0 | % |
| Lease financing receivable |   |              | 84     |   |                                             |   | 1.0 | % |   |   | 135 |   |   |   | 1.6 | % |
| Total allocated            |   | $                 | 5,883  |   |                                             |   | 100.0 | % |   | $ | 5,874 |   |   |   | 100.0 | % |

----

|                         |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                         |   | Amount |   |   | Rate   |   |   | Amount |   |   | Rate |   |   | Amount |   |   | Rate |   |
|                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings:  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLB advances                |   | $      | 7,000  |   |   |   | 2.40   | %      |   | $ | 14,500 |   |   |   | 2.84 | % |   | $ | 43,231 |   |   |   | 1.83 | % |
|                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term borrowings:   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLB advances                |   | $      | 10,000 |   |   |   | 2.41   | %      |   | $ | 17,000 |   |   |   | 2.40 | % |   | $ | 14,000 |   |   |   | 3.19 | % |

|          |   | Short-term |   |   | Long-term    |   |
|---------------|--------|------------|--------|--------|--------------|--------|
| Amount        |   | $7,000     |   |   | $10,000      |   |
| Maturity      |   | 2011       |   |   | 2012 to 2014 |   |
| Average rates |   | 2.40%      |   |   | 2.41%        |   |

----

| Table Eleven: Capital Ratios    |   |            |   |   |               |                 |   |   |   |
|---------------------------------|--------|-----------------|--------|--------|--------------------|----------------------|--------|--------|--------|
|                            |   | At December 31, |   |   | Minimum Regulatory |
| Capital to Risk-Adjusted Assets |   | 2010            |   | 2009   |               | Capital Requirements |
| Leverage ratio                  |   |            | 12.6   | %      |               |                 | 12.4   | %      |   |   | 4.00 | % |
| Tier 1 Risk-Based Capital       |   |            | 19.1   | %      |               |                 | 17.1   | %      |   |   | 4.00 | % |
| Total Risk-Based Capital        |   |            | 20.3   | %      |               |                 | 18.4   | %      |   |   | 8.00 | % |

----

| Table Twelve: Interest Rate Risk Simulation of Net Interest as of December 31, 2010 |
|-------------------------------------------------------------------------------------|
| (dollars in thousands)                                                              |   |   | $ Change in NIIfrom Current12 Month Horizon |   |
| Variation from a constant rate scenario                                             |   |   |   |   |
|                                                                                | +200bp |   |   | $ | 289 |   |
|                                                                                | –200bp |   |   | $ | (1,739 | ) |

----

| Table Thirteen: Certificates of Deposit MaturitiesDecember 31, 2010 |   |
|---------------------------------------------------------------------|--------|
| (dollars in thousands)                                              |   | Less than $100,000 |   |   | Over $100,000 |   |
| Three months or less                                                |   | $ | 9,206 |   |   | $ | 44,878 |   |
| Over three months through six months                                |   |   | 7,255 |   |   |   | 9,239 |   |
| Over six months through twelve months                               |   |   | 8,693 |   |   |   | 11,996 |   |
| Over twelve months                                                  |   |   | 6,937 |   |   |   | 12,034 |   |
|  Total                                                         |   | $ | 32,091 |   |   | $ | 78,147 |   |

----

| Table Fourteen: Loan and Lease Maturities (Gross Loans and Leases) |
|--------------------------------------------------------------------|
| December 31, 2010                                                  |
|                                                               |   | One year |   |   | One year through |   |   | Over |   |   |   |
| (dollars in thousands)                                             |   | or less |   |   | five years |   |   | five years |   | Total |   |
| Commercial                                                         |   | $ | 25,958 |   |   | $ | 27,091 |   |   | $ | 5,212 |   |   | $ | 58,261 |   |
| Real estate                                                        |   |   | 44,295 |   |   |   | 92,509 |   |   |   | 128,310 |   |   |   | 265,114 |   |
| Agriculture                                                        |   |   | 963 |   |   |   | 6,239 |   |   |   | — |   |   |   | 7,202 |   |
| Consumer                                                           |   |   | 1,164 |   |   |   | 4,575 |   |   |   | 7,463 |   |   |   | 13,202 |   |
| Leases                                                             |   |   | 63 |   |   |   | 2,590 |   |   |   | 113 |   |   |   | 2,766 |   |
| Total                                                              |   | $ | 72,443 |   |   | $ | 133,004 |   |   | $ | 141,098 |   |   | $ | 346,545 |   |

| Table Fifteen: Securities Maturities and Weighted Average Yields December 31, |
|-------------------------------------------------------------------------------|
| (Taxable Equivalent Basis)                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   | 2010 |   |   | 2009 |   |   |  2008 |   |
|   (dollars in thousands)                                            |   | CarryingAmount |   |   | WeightedAverageYield |   |   | CarryingAmount |   |   | WeightedAverageYield |   |   | CarryingAmount |   |   | WeightedAverageYield |   |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale securities:                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| State and political subdivisions                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Maturing within 1 year                                                        |   | $ | 499 |   |   | 5.24 | % |   | $ | 3,749 |   |   | 4.40 | % |   | $ | 2,055 |   |   | 4.42 | % |
| Maturing after 1 year but within 5 years                                      |   |   | 5,782 |   |   | 6.07 | % |   |   | 7,397 |   |   | 6.10 | % |   |   | 12,228 |   |   | 5.42 | % |
| Maturing after 5 years but within 10 years                                    |   |   | 5,511 |   |   | 5.78 | % |   |   | 4,473 |   |   | 6.21 | % |   |   | 11,782 |   |   | 6.08 | % |
| Maturing after 10 years                                                       |   |   | 4,000 |   |   | 5.47 | % |   |   | 4,968 |   |   | 5.77 | % |   |   | 4,948 |   |   | 5.77 | % |
| Mortgage-backed securities                                                    |   |   | 138,644 |   |   | 2.84 | % |   |   | 76,009 |   |   | 3.50 | % |   |   | 32,232 |   |   | 4.89 | % |
| Other                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-maturing                                                                  |   |   | 79 |   |   | 0.00 | % |   |   | 86 |   |   | 0.00 | % |   |   | 89 |   |   | 0.00 | % |
| Total investment securities                                                   |   | $ | 154,515 |   |   | 3.14 | % |   | $ | 96,682 |   |   | 3.97 | % |   | $ | 63,334 |   |   | 5.26 | % |
|                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held-to-maturity securities:                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities                                                    |   | $ | 6,149 |   |   | 4.49 | % |   | $ | 12,331 |   |   | 4.48 | % |   | $ | 24,365 |   |   | 4.89 | % |
| Total investment securities                                                   |   | $ | 6,149 |   |   | 4.49 | % |   | $ | 12,331 |   |   | 4.48 | % |   | $ | 24,365 |   |   | 4.89 | % |

----

|                                                                                         |   | December 31, |   |
|----------------------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                                         |   | 2010         |   |   | 2009 |   |
| Commitments to extend credit (dollars in thousands):                                         |   |         |   |   |   |   |
|                                                                                         |   |         |   |   |   |   |   |   |
| Revolving lines of credit secured by 1-4 family residences                                   |   | $            | 5,964  |   |   | $ | 6,615 |   |
| Commercial real estate, construction and land development commitments secured by real estate |   |         | 12,746 |   |   |   | 18,202 |   |
| Other unused commitments, principally commercial loans                                       |   |         | 23,738 |   |   |   | 43,008 |   |
|                                                                                         |   | $            | 42,448 |   |   | $ | 67,825 |   |
|                                                                                         |   |         |   |   |   |   |   |   |
| Letters of credit                                                                            |   | $            | 10,033 |   |   | $ | 10,190 |   |

| Table Sixteen: Contractual Obligations                                                |
|---------------------------------------------------------------------------------------|
| (dollars in thousands)                                                                |   | Payments due by period |   |
|                                                                                  |   |   |   |   | Less than |   |   |   |   |   |   |   |   | More than |   |
|                                                                                  |   | Total |   |   | 1 year |   |   | 1–3 years |   |   | 3–5 years |   |   | 5 years |   |
| Long-Term Debt                                                                        |   | $ | 10,000 |   |   | $ | — |   |   | $ | 5,000 |   |   | $ | 5,000 |   |   | $ | — |   |
| Capital Lease Obligations                                                             |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Operating Leases                                                                      |   |   | 5,026 |   |   |   | 783 |   |   |   | 1,571 |   |   |   | 1,400 |   |   |   | 1,272 |   |
| Purchase Obligations                                                                  |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Other Long-Term Liabilities Reflected on the Company’s Balance Sheet under GAAP |   |   | 2,330 |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,330 |   |
| Total                                                                                 |   | $ | 17,356 |   |   | $ | 783 |   |   | $ | 6,571 |   |   | $ | 6,400 |   |   | $ | 3,602 |   |

----

----

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

|                                                                                                                 |   | Page   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                 |   |   |
| Report of Independent Registered Public Accounting Firm                                                              |   | 59     |
|                                                                                                                 |   |   |
| Consolidated Balance Sheet, December 31, 2010 and 2009                                                               |   | 60     |
|                                                                                                                 |   |   |
| Consolidated Statement of Income for the Years Ended December 31, 2010, 2009 and 2008                                |   | 61     |
|                                                                                                                 |   |   |
| Consolidated Statement of Changes in Shareholders’ Equity for the Years Ended December 31, 2010, 2009 and 2008 |   | 62     |
|                                                                                                                 |   |   |
| Consolidated Statement of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008                            |   | 63-64  |
|                                                                                                                 |   |   |
| Notes to Consolidated Financial Statements                                                                           |   | 65-107 |

----

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

| /s/ Perry-Smith LLP    |   |
|------------------------|--------|
| Sacramento, California |   |
| March 3, 2011          |   |

----

CONSOLIDATED BALANCE SHEET

|                                                                                                                                            |   | 2010   |    |   | 2009   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                                                                                                            |   |   |    |   |   |   |
| ASSETS                                                                                                                                          |   |   |    |   |   |   |
| Cash and due from banks                                                                                                                         |   | $      | 31,871  |   |   | $      | 58,493 |   |
| Interest-bearing deposits in banks                                                                                                              |   |   | 2,248   |   |   |   |   |   |
| Investment securities (Note 5):                                                                                                                 |   |   |    |   |   |   |   |   |
| Available-for-sale, at fair value                                                                                                               |   |   | 154,515 |   |   |   | 96,682 |   |
| Held-to-maturity, at amortized cost                                                                                                             |   |   | 6,149   |   |   |   | 12,331 |   |
| Loans and leases, less allowance for loan and lease losses of $7,585 in 2010 and $7,909 in 2009 (Notes 6, 7, 12 and 17)                         |   |   | 338,533 |   |   |   | 376,322 |   |
| Premises and equipment, net (Note 8)                                                                                                            |   |   | 2,026   |   |   |   | 2,094 |   |
| Federal Home Loan Bank of San Francisco stock                                                                                                   |   |   | 3,486   |   |   |   | 3,922 |   |
| Other real estate owned, net (Note 2)                                                                                                           |   |   | 2,696   |   |   |   | 2,508 |   |
| Goodwill (Note 4)                                                                                                                               |   |   | 16,321  |   |   |   | 16,321 |   |
| Intangible assets (Note 4)                                                                                                                      |   |   | 402     |   |   |   | 644 |   |
| Accrued interest receivable and other assets (Notes 11 and 16)                                                                                  |   |   | 20,693  |   |   |   | 25,101 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
|                                                                                                                                            |   | $      | 578,940 |   |   | $      | 594,418 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                      |   |   |    |   |   |   |   |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| Deposits:                                                                                                                                       |   |   |    |   |   |   |   |   |
| Noninterest-bearing                                                                                                                             |   | $      | 126,636 |   |   | $      | 118,328 |   |
| Interest-bearing (Note 9)                                                                                                                       |   |   | 338,486 |   |   |   | 351,427 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| Total deposits                                                                                                                                  |   |   | 465,122 |   |   |   | 469,755 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| Short-term borrowings (Note 10)                                                                                                                 |   |   | 7,000   |   |   |   | 14,500 |   |
| Long-term borrowings (Note 10)                                                                                                                  |   |   | 10,000  |   |   |   | 17,000 |   |
| Accrued interest payable and other liabilities (Note 16)                                                                                        |   |   | 7,274   |   |   |   | 5,818 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| Total liabilities                                                                                                                               |   |   | 489,396 |   |   |   | 507,073 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| Commitments and contingencies (Note 12)                                                                                                         |   |   |    |   |   |   |   |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| Shareholders’ equity (Notes 13 and 14):                                                                                                   |   |   |    |   |   |   |   |   |
| Common stock - no par value; 20,000,000 shares authorized; issued and outstanding – 9,874,867 shares in 2010 and 9,845,533 shares in 2009 |   |   | 71,814  |   |   |   | 71,578 |   |
| Retained earnings                                                                                                                               |   |   | 16,021  |   |   |   | 15,545 |   |
| Accumulated other comprehensive income, net of taxes (Notes 5 and 18)                                                                           |   |   | 1,709   |   |   |   | 222 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
| Total shareholders’ equity                                                                                                                |   |   | 89,544  |   |   |   | 87,345 |   |
|                                                                                                                                            |   |   |    |   |   |   |   |   |
|                                                                                                                                            |   | $      | 578,940 |   |   | $      | 594,418 |   |

----

CONSOLIDATED STATEMENT OF INCOME

|                                                                                          |   | 2010   |    |   | 2009   |   |   | 2008   |   |
|-----------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|
|                                                                                          |   |   |    |   |   |   |   |   |   |
| Interest income:                                                                              |   |   |    |   |   |   |   |   |   |
| Interest and fees on loans and leases                                                         |   | $      | 22,227  |   |   | $      | 25,378 |   |   | $ | 28,512 |   |
| Interest on Federal funds sold                                                                |   |   |    |   |   |   |   |   |   |   | 10 |   |
| Interest on deposits in banks                                                                 |   |   | 5       |   |   |   | 59     |   |   |   | 222 |   |
| Interest and dividends on investment securities:                                              |   |   |    |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                       |   |   | 2,840   |   |   |   | 2,763  |   |   |   | 3,711 |   |
| Exempt from Federal income taxes                                                              |   |   | 634     |   |   |   | 917    |   |   |   | 1,080 |   |
| Dividends                                                                                     |   |   |    |   |   |   | 5      |   |   |   | 18 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Total interest income                                                                         |   |   | 25,706  |   |   |   | 29,122 |   |   |   | 33,553 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Interest expense:                                                                             |   |   |    |   |   |   |   |   |   |   |   |   |
| Interest on deposits (Note 9)                                                                 |   |   | 2,952   |   |   |   | 4,003  |   |   |   | 5,901 |   |
| Interest on borrowings (Note 10)                                                              |   |   | 498     |   |   |   | 1,087  |   |   |   | 1,727 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Total interest expense                                                                        |   |   | 3,450   |   |   |   | 5,090  |   |   |   | 7,628 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Net interest income                                                                           |   |   | 22,256  |   |   |   | 24,032 |   |   |   | 25,925 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Provision for loan and lease losses (Note 7)                                                  |   |   | 7,365   |   |   |   | 8,530  |   |   |   | 1,743 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Net interest income after provision for loan and lease losses                                 |   |   | 14,891  |   |   |   | 15,502 |   |   |   | 24,182 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Noninterest income:                                                                           |   |   |    |   |   |   |   |   |   |   |   |   |
| Service charges                                                                               |   |   | 866     |   |   |   | 1,018  |   |   |   | 741 |   |
| Gain (loss) on sale, call and impairment of investment securities (Note 5)                    |   |   | 7       |   |   |   | 270    |   |   |   | (119 | ) |
| Other income (Note 15)                                                                        |   |   | 931     |   |   |   | 981    |   |   |   | 1,546 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Total noninterest income                                                                      |   |   | 1,804   |   |   |   | 2,269  |   |   |   | 2,168 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Noninterest expense:                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits (Notes 6 and 16)                                               |   |   | 7,876   |   |   |   | 7,279  |   |   |   | 7,687 |   |
| FDIC assessments                                                                              |   |   | 1,423   |   |   |   | 770    |   |   |   | 151 |   |
| Occupancy (Notes 8, 12 and 17)                                                                |   |   | 1,271   |   |   |   | 1,389  |   |   |   | 1,495 |   |
| Other real estate expense                                                                     |   |   | 1,210   |   |   |   | 1,441  |   |   |   | 1 |   |
| Furniture and equipment (Notes 8 and 12)                                                      |   |   | 720     |   |   |   | 759    |   |   |   | 774 |   |
| Other expense (Notes 4 and 15)                                                                |   |   | 3,970   |   |   |   | 4,173  |   |   |   | 4,093 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Total noninterest expense                                                                     |   |   | 16,470  |   |   |   | 15,811 |   |   |   | 14,201 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Income before provision for income taxes                                                      |   |   | 225     |   |   |   | 1,960  |   |   |   | 12,149 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| (Benefit from) provision for income taxes (Note 11)                                           |   |   | (251    | )      |   |   | 374    |   |   |   | 4,578 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Net income                                                                                    |   | $      | 476     |   |   | $      | 1,586  |   |   | $ | 7,571 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Basic earnings per share (Note 13)                                                            |   | $      | 0.05    |   |   | $      | 0.26   |   |   | $ | 1.30 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share (Note 13)                                                          |   | $      | 0.05    |   |   | $      | 0.26   |   |   | $ | 1.30 |   |
|                                                                                          |   |   |    |   |   |   |   |   |   |   |   |   |
| Cash dividends per share of issued and outstanding common stock, adjusted for stock dividends |   | $      | — |   |   | $      | 0.29   |   |   | $ | 0.57 |   |

----

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

|                                                                                |   | Common Stock |      |   | Retained Earnings |   |   | Accumulated Other Comprehensive Income (Net of Taxes) |   |   | Total Shareholders’ Equity |   |   | Total Comprehensive Income |   |
|-------------------------------------------------------------------------------------|--------|--------------|-----------|--------|-------------------|--------|--------|-------------------------------------------------------|--------|--------|----------------------------------|--------|--------|----------------------------|--------|
|                                                                                |   | Shares       |      |   | Amount            |   |   |                                                  |   |   |                             |   |   |                       |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |
| Balance, January 1, 2008                                                            |   |         | 5,590,277 |   |              | $      | 45,668 |                                                  |   | $      | 14,204                           |   |   | $                          | 101    |   |   | $ | 59,973 |   |   |   |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |
| Comprehensive income (Note 18):                                                     |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |
| Net income                                                                          |   |         |      |   |              |   |   |                                                  |   |   | 7,571                            |   |   |                       |   |   |   |   | 7,571 |   |   | $ | 7,571 |   |
| Other comprehensive income, net of tax:                                             |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Net change in unrealized gains on available-for-sale investment securities          |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       | 296    |   |   |   | 296 |   |   |   | 296 |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income                                                          |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   | $ | 7,867 |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Cash dividend ($0.57 per share) (Note 14)                                           |   |         |      |   |              |   |   |                                                  |   |   | (3,317                           | )      |   |                       |   |   |   |   | (3,317 | ) |   |   |   |   |
| Fractional shares redeemed for stock dividend                                       |   |         |      |   |              |   | (10    | )                                                     |   |   |                             |   |   |                       |   |   |   |   | (10 | ) |   |   |   |   |
| 5% stock dividend (Note 13)                                                         |   |         | 275,048   |   |              |   | 2,841  |                                                  |   |   | (2,841                           | )      |   |                       |   |   |   |   |   |   |   |   |   |   |
| Stock options exercised                                                             |   |         | 37,258    |   |              |   | 354    |                                                  |   |   |                             |   |   |                       |   |   |   |   | 354 |   |   |   |   |   |
| Stock option compensation                                                           |   |         |      |   |              |   | 290    |                                                  |   |   |                             |   |   |                       |   |   |   |   | 290 |   |   |   |   |   |
| Retirement of common stock (Note 13)                                                |   |         | (110,300  | )      |              |   | (1,710 | )                                                     |   |   |                             |   |   |                       |   |   |   |   | (1,710 | ) |   |   |   |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2008                                                          |   |         | 5,792,283 |   |              |   | 47,433 |                                                  |   |   | 15,617                           |   |   |                       | 397    |   |   |   | 63,447 |   |   |   |   |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (Note 18):                                                     |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                          |   |         |      |   |              |   |   |                                                  |   |   | 1,586                            |   |   |                       |   |   |   |   | 1,586 |   |   | $ | 1,586 |   |
| Other comprehensive loss, net of tax:                                               |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Net change in unrealized gains on available-for-sale investment securities          |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       | (175   | ) |   |   | (175 | ) |   |   | (175 | ) |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income                                                          |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   | $ | 1,411 |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Cash dividend ($0.29 per share) (Note 14)                                           |   |         |      |   |              |   |   |                                                  |   |   | (1,658                           | )      |   |                       |   |   |   |   | (1,658 | ) |   |   |   |   |
| Issuance of new shares, net of issuance costs ($6.25 per share)                     |   |         | 4,048,000 |   |              |   | 23,901 |                                                  |   |   |                             |   |   |                       |   |   |   |   | 23,901 |   |   |   |   |   |
| Stock options exercised                                                             |   |         | 5,250     |   |              |   | 34     |                                                  |   |   |                             |   |   |                       |   |   |   |   | 34 |   |   |   |   |   |
| Stock option compensation                                                           |   |         |      |   |              |   | 210    |                                                  |   |   |                             |   |   |                       |   |   |   |   | 210 |   |   |   |   |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2009                                                          |   |         | 9,845,533 |   |              |   | 71,578 |                                                  |   |   | 15,545                           |   |   |                       | 222    |   |   |   | 87,345 |   |   |   |   |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (Note 18):                                                     |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                          |   |         |      |   |              |   |   |                                                  |   |   | 476                              |   |   |                       |   |   |   |   | 476 |   |   | $ | 476 |   |
| Other comprehensive income, net of tax:                                             |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Net change in unrealized gains on available-for-sale investment securities (Note 5) |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       | 1,487  |   |   |   | 1,487 |   |   |   | 1,487 |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income                                                          |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   | $ | 1,963 |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Restricted stock awarded and related compensation expense                           |   |         | 29,334    |   |              |   | 47     |                                                  |   |   |                             |   |   |                       |   |   |   |   | 47 |   |   |   |   |   |
| Stock option compensation                                                           |   |         |      |   |              |   | 189    |                                                  |   |   |                             |   |   |                       |   |   |   |   | 189 |   |   |   |   |   |
|                                                                                |   |         |      |   |              |   |   |                                                  |   |   |                             |   |   |                       |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2010                                                          |   |         | 9,874,867 |   |              | $      | 71,814 |                                                  |   | $      | 16,021                           |   |   | $                          | 1,709  |   |   | $ | 89,544 |   |   |   |   |   |

----

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                                 |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|--------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                                                                 |   |   |    |   |   |   |    |   |   |
| Cash flows from operating activities:                                                |   |   |    |   |   |   |    |   |   |
| Net income                                                                           |   | $      | 476     |   |   | $      | 1,586   |   |   | $ | 7,571 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:    |   |   |    |   |   |   |    |   |   |   |   |   |
| Provision for loan and lease losses                                                  |   |   | 7,365   |   |   |   | 8,530   |   |   |   | 1,743 |   |
| (Decrease) increase in deferred loan and lease origination fees, net                 |   |   | (173    | )      |   |   | 29      |   |   |   | 54 |   |
| Depreciation and amortization                                                        |   |   | 785     |   |   |   | 832     |   |   |   | 822 |   |
| Amortization of investment security premiums and discounts, net                      |   |   | 2,689   |   |   |   | 399     |   |   |   | 137 |   |
| Provision for accounts receivable servicing receivable allowance for losses          |   |   | (4      | )      |   |   | 171     |   |   |   |   |   |
| (Gain) loss on sale, call and impairment of investment securities                    |   |   | (7      | )      |   |   | (270    | )      |   |   | 119 |   |
| Increase in cash surrender value of life insurance policies                          |   |   | (277    | )      |   |   | (246    | )      |   |   | (395 | ) |
| Provision for deferred income taxes                                                  |   |   | (327    | )      |   |   | (957    | )      |   |   | (446 | ) |
| Stock-based compensation expense                                                     |   |   | 236     |   |   |   | 210     |   |   |   | 290 |   |
| Tax benefit from exercise of stock options                                           |   |   |    |   |   |   | (12     | )      |   |   | (85 | ) |
| Loss on sale/write-down of other real estate owed                                    |   |   | 908     |   |   |   | 1,106   |   |   |   |   |   |
| Decrease (increase) in accrued interest receivable and other assets                  |   |   | 3,991   |   |   |   | (6,705  | )      |   |   | 1,762 |   |
| Increase (decrease) in accrued interest payable and other liabilities                |   |   | 1,456   |   |   |   | 1,228   |   |   |   | (1,035 | ) |
|                                                                                 |   |   |    |   |   |   |    |   |   |   |   |   |
| Net cash provided by operating activities                                            |   |   | 17,118  |   |   |   | 5,901   |   |   |   | 10,537 |   |
|                                                                                 |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash flows from investing activities:                                                |   |   |    |   |   |   |    |   |   |   |   |   |
| Proceeds from the sale of investment securities                                      |   |   | 9,032   |   |   |   | 9,995   |   |   |   | 24,225 |   |
| Proceeds from called available-for-sale investment securities                        |   |   | 670     |   |   |   | 1,080   |   |   |   | 1,455 |   |
| Proceeds from matured available-for-sale investment securities                       |   |   | 3,365   |   |   |   | 2,954   |   |   |   | 11,615 |   |
| Purchases of available-for-sale investment securities                                |   |   | (90,443 | )      |   |   | (61,448 | )      |   |   | (29,629 | ) |
| Proceeds from principal repayments for available-for-sale mortgage-backed securities |   |   | 19,204  |   |   |   | 13,517  |   |   |   | 8,137 |   |
| Proceeds from principal repayments for held-to-maturity mortgage-backed securities   |   |   | 6,310   |   |   |   | 12,163  |   |   |   | 10,469 |   |
| Net (increase) decrease in interest-bearing deposits in banks                        |   |   | (2,248  | )      |   |   | 4,248   |   |   |   | 703 |   |
| Net decrease (increase) in loans and leases                                          |   |   | 26,307  |   |   |   | 23,238  |   |   |   | (21,335 | ) |
| Net decrease in accounts receivable servicing receivables                            |   |   | 40      |   |   |   | 1,029   |   |   |   | 430 |   |
| Proceeds from sale of other real estate owned                                        |   |   | 3,195   |   |   |   | 2,808   |   |   |   | 61 |   |
| Purchases of equipment                                                               |   |   | (475    | )      |   |   | (548    | )      |   |   | (670 | ) |
| Capitalized additions to other real estate owned                                     |   |   |    |   |   |   | (26     | )      |   |   |   |   |
| Net decrease (increase) in FHLB stock                                                |   |   | 436     |   |   |   |    |   |   |   | (1,122 | ) |
|                                                                                 |   |   |    |   |   |   |    |   |   |   |   |   |
| Net cash (used in) provided by investing activities                                  |   |   | (24,607 | )      |   |   | 9,010   |   |   |   | 4,339 |   |

----

|                                                                       |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|----------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                                                       |   |   |    |   |   |   |    |   |   |
| Cash flows from financing activities:                                      |   |   |    |   |   |   |    |   |   |
| Net increase (decrease) in demand, interest-bearing and savings deposits   |   | $      | 18,554  |   |   | $      | 32,249  |   |   | $ | (35,198 | ) |
| Net (decrease) increase in time deposits                                   |   |   | (23,187 | )      |   |   | 445     |   |   |   | 16,614 |   |
| (Decrease) increase in long-term borrowings                                |   |   | (7,000  | )      |   |   | 3,000   |   |   |   | 14,000 |   |
| Decrease in short-term borrowings                                          |   |   | (7,500  | )      |   |   | (28,731 | )      |   |   | (8,372 | ) |
| Exercise of stock options                                                  |   |   |    |   |   |   | 22      |   |   |   | 269 |   |
| Tax benefit from exercise of stock options                                 |   |   |    |   |   |   | 12      |   |   |   | 85 |   |
| Cash paid to repurchase common stock                                       |   |   |    |   |   |   |    |   |   |   | (1,710 | ) |
| Payment of cash dividends                                                  |   |   |    |   |   |   | (2,486  | )      |   |   | (3,329 | ) |
| Cash paid for fractional shares                                            |   |   |    |   |   |   |    |   |   |   | (10 | ) |
| Net proceeds from stock issuance                                           |   |   |    |   |   |   | 23,901  |   |   |   |   |   |
|                                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| Net cash (used in) provided by in financing activities                     |   |   | (19,133 | )      |   |   | 28,412  |   |   |   | (17,651 | ) |
|                                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| (Decrease) increase in cash and cash equivalents                           |   |   | (26,622 | )      |   |   | 43,323  |   |   |   | (2,775 | ) |
|                                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash and cash equivalents at beginning of year                             |   |   | 58,493  |   |   |   | 15,170  |   |   |   | 17,945 |   |
|                                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash and cash equivalents at end of year                                   |   | $      | 31,871  |   |   | $      | 58,493  |   |   | $ | 15,170 |   |
|                                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                          |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash paid during the year for:                                             |   |   |    |   |   |   |    |   |   |   |   |   |
| Interest expense                                                           |   | $      | 3,526   |   |   | $      | 5,208   |   |   | $ | 7,913 |   |
| Income taxes                                                               |   | $      | 190     |   |   | $      | 2,452   |   |   | $ | 5,010 |   |
|                                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| Non-cash investing activities:                                             |   |   |    |   |   |   |    |   |   |   |   |   |
| Real estate acquired through foreclosure                                   |   | $      | 4,274   |   |   | $      | 4,793   |   |   | $ | 2,158 |   |
| Net change in unrealized gains on available-for-sale investment securities |   | $      | 2,471   |   |   | $      | (296    | )      |   | $ | 502 |   |
|                                                                       |   |   |    |   |   |   |    |   |   |   |   |   |
| Non-cash financing activities:                                             |   |   |    |   |   |   |    |   |   |   |   |   |
| Dividends declared and unpaid                                              |   |   |    |   |   |   |    |   |   | $ | 828 |   |

----

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| 1.     | THE BUSINESS OF THE COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | American River Bankshares (the “Company”) was incorporated under the laws of the State of California in 1995 under the name of American River Holdings and changed its name in 2004 to American River Bankshares. 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. As a community oriented bank holding company, the principal communities served are located in Sacramento, Placer, Yolo, El Dorado, Amador, and Sonoma counties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | The Company owns 100% of the issued and outstanding common shares of its banking subsidiary, American River Bank (“ARB” or the “Bank”). ARB was incorporated in 1983. ARB 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. ARB operates five banking offices in Sacramento and Placer counties, two banking offices in Sonoma County under the name North Coast Bank, a division of ARB, and three banking offices in Amador County under the name Bank of Amador, a division of ARB. The Company also owns one inactive subsidiary, American River Financial.                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | ARB does not offer trust services or international banking services and does not plan to do so in the near future. The deposits of ARB are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal limits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | The Bank was participating in the Federal Deposit Insurance Corporation’s (FDIC) Transaction Account Guarantee Program. Under that program, through December 31, 2010, all noninterest-bearing transaction accounts were fully guaranteed by the FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee Program was in addition to and separate from the coverage available under the FDIC’s general deposit insurance rules. Although coverage under the Transaction Account Guarantee Program expired December 31, 2010, the FDIC adopted a final rule amending its deposit insurance regulations on November 15, 2010 to implement Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act providing for unlimited deposit insurance for noninterest-bearing transaction accounts for two years starting December 31, 2010.                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | In February 2010, in connection with the Bank’s regularly scheduled 2009 FDIC examination, the Bank entered into a Memorandum of Understanding (Memorandum) with the FDIC and the California Department of Financial Institutions (the “DFI”). The Memorandum covers actions to be taken by the Board of Directors and management to enhance BSA compliance; reduce the Bank’s level of classified assets and further strengthen and improve the Bank’s asset quality; requesting regulatory approval prior to paying any cash dividends; and maintaining the Bank’s Tier 1 leverage capital ratio at not less than 8% and a total risk-based capital ratio of not less than 11%. As of December 31, 2010, the foregoing capital ratios for the Bank were 11.8% and 19.2%, respectively. The Company believes that it is currently in compliance in all material respects with the actions described in the Memorandum. Consequently, the Company does not expect these actions to significantly change its business strategy in any material respect. |

| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                             |
|   | General                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                             |
|   | The accounting and reporting policies of the Company and its subsidiaries conform with accounting principles generally accepted in the United States of America and prevailing practices within the financial services industry. |
|   |                                                                                                                                                                                                                             |
|   | Reclassifications                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                             |
|   | Certain reclassifications have been made to prior years’ balances to conform to classifications used in 2010.                                                                                                              |

----

| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and accounts have been eliminated in consolidation.                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | For the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash equivalents. Generally, Federal funds are sold for one-day periods.                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | Investment Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |
|   | Investments are classified into the following categories:                                                                                                                                                                                                                                                                                                                                                                                                                           |

|   |   | ● | Available-for-sale securities, reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders’ equity. |
|--------|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |    |                                                                                                                                                                                                                           |
|   |   | ● | Held-to-maturity securities, which management has the positive intent and ability to hold to maturity, reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums.                       |

|   | Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value. There were no transfers in the years ended December 31, 2010 and 2009. As of December 31, 2010 and 2009, the Company did not have any trading securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |
|   | Gains or losses on the sale of investment securities are computed on the specific identification method. Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |
|   | An investment security is impaired when its carrying value is greater than its fair value. Investment securities that are impaired are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the securities for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary and management does not intend to sell the security or it is more likely than not that management will not be required to sell the security before recovery, only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive income (loss). If management intends to sell the security or it is more likely than not that management will be required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings. |

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Federal Home Loan Bank Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Investments in Federal Home Loan Bank of San Francisco (the “FHLB”) stock are carried at cost and are redeemable at par with certain restrictions. Investments in FHLB stock are necessary to participate in FHLB programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Loans and Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Loans and leases are reported at the principal amounts outstanding, adjusted for unearned income, deferred loan origination fees and costs, purchase premiums and discounts, write-downs and the allowance for loan and lease losses. Loan and lease origination fees, net of certain deferred origination costs, and purchase premiums and discounts, are recognized as an adjustment to the yield of the related loans and leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The accrual of interest on loans and leases is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payment requirements within an acceptable time frame relative to the terms stated in the loan agreement. Upon such discontinuance, all unpaid accrued interest is reversed against current income unless the loan or lease is well secured and in the process of collection. Interest received on nonaccrual loans and leases is either applied against principal or reported as interest income, according to management’s judgment as to the collectibility of principal. Generally, loans and leases are restored to accrual status when the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Direct financing leases are carried net of unearned income. Income from leases is recognized by a method that approximates a level yield on the outstanding net investment in the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Loan Sales and Servicing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Included in the loan and lease portfolio are Small Business Administration (SBA) loans and Farm Service Agency guaranteed loans that may be sold in the secondary market. At the time the loan is sold, the related right to service the loan is either retained, with the Company earning future servicing income, or released in exchange for a one-time servicing-released premium. A portion of this premium may be required to be refunded if the borrower defaults or the loan prepays within ninety days of the settlement date. There were no sales of loans subject to these recourse provisions at December 31, 2010, 2009 and 2008. Loans subsequently transferred to the loan portfolio are transferred at the lower of cost or market value at the date of transfer. Any difference between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield by the interest method. There were no loans held for sale at December 31, 2010 and 2009. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | SBA and Farm Service Agency loans with unpaid balances of $449,000 and $503,000 were being serviced for others as of December 31, 2010 and 2009, respectively. The Company also serviced loans that are participated with other financial institutions totaling $6,673,000 and $6,764,000 as of December 31, 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights retained are recognized as separate assets or liabilities. Servicing assets or liabilities are recorded at the difference between the contractual servicing fees and adequate compensation for performing the servicing, and are subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are periodically evaluated for impairment. Servicing assets were not considered material for disclosure purposes at December 31, 2010 and 2009.                                                                                                                                                                                                                                                                                                                                                                |

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Allowance for Loan and Lease Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The allowance for loan and lease losses is an estimate of credit losses inherent in the Company’s credit portfolio that have been incurred as of the balance-sheet date. The allowance is established through a provision for loan and lease losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan growth. Credit exposures determined to be uncollectible are charged against the allowance. Cash received on previously charged off amounts is recorded as a recovery to the allowance. The overall allowance consists of two primary components, specific reserves related to impaired credits and general reserves for inherent losses related to credits that are not impaired.                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the original agreement. Loans determined to be impaired are individually evaluated for impairment. When a loan or lease is impaired, the Company measures impairment based on the present value of expected future cash flows discounted at the credit’s effective interest rate, except that as a practical expedient, it may measure impairment based on a credit’s observable market price, or the fair value of the collateral if the credit is collateral dependent. A loan or lease is collateral dependent if the repayment of the credit is expected to be provided solely by the underlying collateral. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | A restructuring of a debt constitutes a troubled debt restructuring (“TDR”) if the Company for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured workout loans typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. Loans or leases that are reported as TDRs are considered impaired and measured for impairment as described above.                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The determination of the general reserve for loans and leases that are not impaired is based on estimates made by management, to include, but not limited to, consideration of historical losses by portfolio segment, internal asset classifications, and qualitative factors to include economic trends in the Company’s service areas, industry experience and trends, geographic concentrations, estimated collateral values, the Company’s underwriting policies, the character of the credit portfolio, and probable losses inherent in the portfolio taken as a whole.                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The Company determines a separate allowance for each portfolio segment. These portfolio segments include commercial and industrial, real estate construction (including land and development loans), residential real estate, multi-family real estate, commercial real estate, leases, agriculture and consumer loans. The allowance for loan and lease losses attributable to each portfolio segment, which includes both impaired credits and credits that are not impaired, is combined to determine the Company’s overall allowance, which is included on the consolidated balance sheet and available for all loss exposures.                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The Company assigns a risk rating to all loans except pools of homogeneous loans and periodically performs detailed reviews of all such loans over a certain threshold to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by the Company and the Company’s regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual credit. The risk ratings can be grouped into six major categories, defined as follows:                                                       |

|   |   | Pass – A pass loan is a strong credit with no existing or known potential weaknesses deserving of management’s close attention. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

----

| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|--------|--------------------------------------------------------|
|   |                                                   |
|   | Allowance for Loan and Lease Losses (Continued)        |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   | Watch – A watch credit is a loan or lease that otherwise meets the definition of a standard or minimum acceptable quality loan, but which requires more than normal attention due to any of the following items: deterioration of borrower financial condition less severe than those warranting more adverse grading, deterioration of repayment ability and/or collateral value, increased leverage, adverse effects from a downturn in the economy, local market or industry, adverse changes in local or regional employer, management changes (including illness, disability, and death), and adverse legal action. Payments are current per the terms of the agreement. If conditions persist or worsen, a more severe risk grade may be warranted. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   | Special Mention – A special mention credit is a loan or lease that has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit or in the Company’s position at some future date. Special Mention credits are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   | Substandard – A substandard credit is a loan or lease that is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Credits classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or a project’s failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   | Doubtful – Credits classified as doubtful are loans or leases that have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   | Loss – Credits classified as loss are loans or leases considered uncollectible and charged off immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The general reserve component of the allowance for loan and lease losses also consists of reserve factors that are based on management’s assessment of the following for each portfolio segment: (1) inherent credit risk, (2) historical losses and (3) other qualitative factors. These reserve factors are inherently subjective and are driven by the repayment risk associated with each portfolio segment described below. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   | Land and construction – Land and construction loans generally possess a higher inherent risk of loss than other real estate portfolio segments. A major risk arises from the necessity to complete projects within specified cost and time lines. Trends in the construction industry significantly impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real estate values significantly impact the credit quality of these loans, as property values determine the economic viability of construction projects.                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   | Commercial real estate – Commercial real estate mortgage loans generally possess a higher inherent risk of loss than other real estate portfolio segments, except land and construction loans. Adverse economic developments or an overbuilt market impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for properties to produce sufficient cash flow to service debt obligations.                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|--------|--------------------------------------------------------|
|   |                                                   |
|   | Allowance for Loan and Lease Losses (Continued)        |

|   | Commercial and industrial – Commercial and industrial loans generally possess a lower inherent risk of loss than real estate portfolio segments because these loans are generally underwritten to existing cash flows of operating businesses. Debt coverage is provided by business cash flows and economic trends influenced by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans.                                                                                                                                                                   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Multi-family – Multi-family loans are non-construction term mortgages for the acquisition, refinance, or improvement of residential rental properties with generally more than 4 dwelling units. Underwriting is generally based on borrower creditworthiness, sufficiency of net operating income to service the bank loan payment, and a prudent loan-to-value ratio, among other factors.                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Residential – Residential loans are generally loans to purchase or refinance 1-4 unit single-family residences, either owner-occupied or investor-owned. Some residential loans are short term to match their intended source of repayment through sale or refinance. The remainder are fixed or floating-rate term first mortgages with an original maturity between 2 and 10 years, generally with payments based on a 25-30 year amortization.                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Leases – Leases originated by the bank are non-consumer finance leases (as contrasted with operating leases) for the acquisition of titled and non-titled business equipment. Leases are generally amortized over a period from 36 to 84 months, depending on the useful life of the equipment acquired. Residual (balloon) payments at lease end range from 0-20% of original cost, and are a non-optional obligation of the lessee. Lessees are contractually responsible for all costs, expenses, taxes, and liability associated with the leased equipment.                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Agricultural land and production – Loans secured by crop production and livestock are especially vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Home equity lines of credit – The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of loss than other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Installment – An installment loan portfolio is usually comprised of a large number of small loans scheduled to be amortized over a specific period. Most installment loans are made directly for consumer purchases, but business loans granted for the purchase of heavy equipment or industrial vehicles may also be included. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.                    |

|   | Although management believes the allowance to be adequate, ultimate losses may vary from its estimates. At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the Board of Directors and management determine that changes are warranted based on those reviews, the allowance is adjusted. In addition, the Company’s primary regulators, the FDIC and the DFI, as an integral part of their examination process, review the adequacy of the allowance. These regulatory agencies may require additions to the allowance based on their judgment about information available at the time of their examinations. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Allowance for Credit Losses on Off-Balance-Sheet Credit Exposures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company also maintains a separate allowance for off-balance-sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance-sheet commitments is included in accrued interest payable and other liabilities on the consolidated balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Other Real Estate Owned                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Other real estate owned includes real estate acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property less estimated selling costs is charged against the allowance for loan and lease losses. A valuation allowance for losses on other real estate may be maintained to provide for temporary declines in value. The allowance is established through a provision for losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or writedowns resulting from permanent impairments are recorded in other income or expense as incurred. During 2010, the Company received $3,195,000 in net proceeds from the sale of other real estate owned with net losses of $103,000 recognized on the sale. During 2009, the Company received $2,808,000 in net proceeds from the sale of other real estate owned with net losses of $17,000 recognized on the sale. The recorded investment in other real estate owned totaled $2,796,000 and $2,523,000 at December 31, 2010 and 2009, respectively, and had related valuation allowances of $100,000 and $15,000, respectively. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Premises and equipment are carried at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets. The useful life of the building and improvements is forty years. The useful lives of furniture, fixtures and equipment are estimated to be three to ten years. Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred. Impairment of long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets which indicate long-lived assets may be impaired.                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Goodwill and Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 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 in transactions accounted for under the purchase method of accounting. 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 at least annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Intangible assets are comprised of core deposit intangibles which represent the estimated fair value of the long-term deposit relationships that were assumed when the Company acquired Bank of Amador in December 2004. Core deposit intangibles are amortized using a method that approximates the expected run-off of the deposit base, which, in this case, is eight years. Management evaluates the recoverability and remaining useful life annually to determine whether events or circumstances warrant a revision to the intangible assets or the remaining amortization period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | 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 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. The deferred provision for income taxes is the result of the net change in the deferred tax asset and deferred tax liability balances during the year. This amount, combined with the current taxes payable or refundable, results in the income tax expense for the current year. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred tax assets will not be realized. “More likely than not” is defined as greater than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Based upon the Company’s analysis of available evidence, the Company determined that it is “more likely than not” that all of the deferred income tax assets as of December 31, 2010 and 2009 will be fully realized and therefore no valuation allowance was recorded. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The Company uses a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Interest expense and penalties associated with unrecognized tax benefits, if any, are classified as income tax expense in the consolidated statement of income.                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s available-for-sale investment securities are included in other comprehensive income (loss), adjusted for realized gains or losses included in net income. Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the consolidated statement of changes in shareholders’ equity.                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Basic earnings per share (“EPS”), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock that shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS. EPS is retroactively adjusted for stock splits and stock dividends for all periods presented. There were no stock splits or stock dividends in 2010.                                                                                                                                                                                                                                                                                                            |

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | At December 31, 2010, the Company has two stock-based compensation plans, which are described more fully in Note 13. Compensation expense, net of related tax benefits, recorded in 2010, 2009 and 2008 totaled $204,000, $155,000 and $254,000, or $0.02, $0.03 and $0.04 per diluted share, respectively. Compensation expense is recognized over the vesting period on a straight line accounting basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton based option valuation model that uses the assumptions noted in the following table. Because Black-Scholes-Merton based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Restricted stock awards are grants of shares of the Company’s common stock that are subject to forfeiture until specific conditions or goals are met. Conditions may be based on continuing employment or service and/or achieving specified performance goals. During the period of restriction, Plan participants holding restricted share awards have no voting or cash dividend rights. The restrictions lapse in accordance with a schedule or with other conditions determined by the Board of Directors as reflected in each award agreement. Upon the vesting of each restricted stock award, the Company issues the associated common shares from its inventory of authorized common shares. All outstanding awards under the Plan immediately vest in the event of a change of control of the Company. The shares associated with any awards that fail to vest become available for re-issuance under the Plan. |

|                                                           |   | 2009   |   |   | 2008           |   |
|----------------------------------------------------------------|--------|--------|--------|--------|----------------|--------|
|                                                           |   |   |   |   |           |   |
| Dividend yield                                                 |   | 6.74%  |   |   | 3.53% to 4.62% |   |
| Expected volatility                                            |   | 24.6%  |   |   | 21.3% to 24.3% |   |
| Risk-free interest rate                                        |   | 2.18%  |   |   | 3.38% to 3.45% |   |
| Expected option life in years                                  |   | 7      |   |   | 7              |   |
| Weighted average fair value of options granted during the year |   | $0.69  |   |   | $2.75          |   |

|   | There were no options granted in 2010 under either stock-based compensation plans. |
|--------|------------------------------------------------------------------------------------|

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                              |
|   | Stock-Based Compensation (Continued)                                                                                              |
|   |                                                                                                                              |
|   | The following is a summary of stock-based compensation information as of or for the years ended December 31, 2010, 2009 and 2008: |

|                                                                                |   | 2010                   |    |   | 2009   |   |   | 2008   |   |
|-------------------------------------------------------------------------------------|--------|------------------------|---------|--------|--------|--------|--------|--------|--------|
|                                                                                |   | (Dollars in thousands) |    |
|                                                                                |   |                   |    |   |   |   |   |   |   |
| Total intrinsic value of options exercised                                          |   | $                      | — |   |   | $      | 28     |   |   | $ | 285 |   |
|                                                                                |   |                   |    |   |   |   |   |   |   |   |   |   |
| Aggregate cash received for option exercises                                        |   | $                      | — |   |   | $      | 22     |   |   | $ | 269 |   |
| Total fair value of options vested                                                  |   | $                      | 248     |   |   | $      | 298    |   |   | $ | 254 |   |
| Total compensation cost, options and restricted stock                               |   | $                      | 236     |   |   | $      | 210    |   |   | $ | 290 |   |
| Tax benefit recognized                                                              |   | $                      | 32      |   |   | $      | 55     |   |   | $ | 36 |   |
| Net compensation cost, options and restricted stock                                 |   | $                      | 204     |   |   | $      | 155    |   |   | $ | 254 |   |
| Total compensation cost for nonvested option awards not yet recognized              |   | $                      | 216     |   |   | $      | 377    |   |   | $ | 717 |   |
| Weighted average years for compensation cost for nonvested options to be recognized |   |                   | 1.1     |   |   |   | 1.5    |   |   |   | 2.9 |   |
| Total compensation cost for restricted stock not yet recognized                     |   | $                      | 158     |   |   |   |   |   |   |   |   |   |
| Weighted average years for compensation cost for restricted stock to be recognized  |   |                   | 1.7     |   |   |   |   |   |   |   |   |   |

|   | There were no restricted stock awards in 2009 or 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Adoption of New Financial Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Transfers of Financial Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update (“ASU”) 2009-16, Accounting for Transfers of Financial Assets (Statement 166), which amends previously issued accounting guidance to enhance accounting and reporting for transfers of financial assets, including securitizations or continuing exposure to the risks related to transferred financial assets. Prior to the issuance of Statement 166, transfers under participation agreements and other partial loan sales fell under the general guidance for transfers of financial assets. Statement 166 introduces a new definition for a participating interest along with the requirement for partial loan sales to meet the definition of a participating interest for sale treatment to occur. If a participation or other partial loan sale does not meet the definition, the portion sold should remain on the books and the proceeds recorded as a secured borrowing until the definition is met. Additionally, existing provisions were retained which require (i) the transferred assets to be isolated from the originating institution (transferor), (ii) that the transferor does not maintain effective control through certain agreements to repurchase or redeem the transferred assets and (iii) that the purchasing institution (transferee) has the right to pledge or exchange the assets acquired. The new provisions became effective on January 1, 2010 and early adoption was not permitted. The impact of adoption was not material to the Company’s consolidated financial position, results of operations or cash flows. |

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| 2.     | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Adoption of New Financial Accounting Standards (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Fair Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | In January 2010, the FASB issued FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements, which amends and clarifies existing standards to require additional disclosures regarding fair value measurements. Specifically, the standard requires disclosure of the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. This standard clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities—previously separate fair value disclosures were required for each major category of assets and liabilities. This standard also clarifies the requirement to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. Except for the requirement to disclose information about purchases, sales, issuances, and settlements in the reconciliation of recurring Level 3 measurements on a gross basis, these disclosures are effective for the year ended December 31, 2010. The requirement to separately disclose purchases, sales, issuances, and settlements of recurring Level 3 measurements becomes effective for the Company for the year beginning on January 1, 2011. The Company adopted this new accounting standard as of January 1, 2010 and the impact of adoption was not material to the Company’s consolidated financial position, results of operations or cash flows. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Disclosures about Credit Quality                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | In July 2010, the FASB issued FASB ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 requires more robust and disaggregated disclosures about the credit quality of financing receivables (loans) and allowances for loan and lease losses, including disclosure about credit quality indicators, past due information and modifications of finance receivables. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on and after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this guidance has significantly expanded disclosure requirements related to accounting policies and disclosures related to the allowance for loan and lease losses but did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

----

| 3.     | FAIR VALUE MEASUREMENTS                                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                               |
|   | The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (dollars in thousands): |

|                                            |   | December 31, 2010 |    |   | December 31, 2009   |   |
|-------------------------------------------------|--------|-------------------|---------|--------|---------------------|--------|
|                                            |   | CarryingAmount    |    |   | Estimated FairValue |   |   | CarryingAmount |   |   | Estimated FairValue |   |
|                                            |   |              |    |   |                |   |   |   |   |   |   |   |
| Financial assets:                               |   |              |    |   |                |   |   |   |   |   |   |   |
| Cash and due from banks                         |   | $                 | 31,871  |   |                | $      | 31,871 |   |   | $ | 58,493 |   |   | $ | 58,493 |   |
| Interest-bearing deposits in banks              |   |              | 2,248   |   |                |   | 2,248 |   |   |   |   |   |   |   |   |   |
| Investment securities                           |   |              | 160,664 |   |                |   | 160,987 |   |   |   | 109,013 |   |   |   | 109,571 |   |
| Loans and leases, net                           |   |              | 338,533 |   |                |   | 332,964 |   |   |   | 376,322 |   |   |   | 370,057 |   |
| FHLB stock                                      |   |              | 3,486   |   |                |   | 3,486 |   |   |   | 3,922 |   |   |   | 3,922 |   |
| Accounts receivable servicing receivables       |   |              |    |   |                |   |   |   |   |   | 35 |   |   |   | 35 |   |
| Accrued interest receivable                     |   |              | 1,876   |   |                |   | 1,876 |   |   |   | 1,941 |   |   |   | 1,941 |   |
| Cash surrender value of life insurance policies |   |              | 11,019  |   |                |   | 11,019 |   |   |   | 10,742 |   |   |   | 10,742 |   |
|                                            |   |              |    |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                          |   |              |    |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                        |   | $                 | 465,122 |   |                | $      | 465,985 |   |   | $ | 469,755 |   |   | $ | 470,530 |   |
| Short-term borrowings                           |   |              | 7,000   |   |                |   | 7,000 |   |   |   | 14,500 |   |   |   | 14,500 |   |
| Long-term borrowings                            |   |              | 10,000  |   |                |   | 10,523 |   |   |   | 17,000 |   |   |   | 17,816 |   |
| Accrued interest payable                        |   |              | 268     |   |                |   | 268 |   |   |   | 344 |   |   |   | 344 |   |

|   | 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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 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 value of its financial instruments at December 31, 2010 and 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Cash and due from banks: For cash and due from banks, the carrying amount is estimated to be fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Investment securities: For investment securities, fair values are based on quoted market prices, where available. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

----

| 3.     | FAIR VALUE MEASUREMENTS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Loans and leases: For variable-rate loans and leases that reprice frequently with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans and leases are estimated using discounted cash flow analyses, using interest rates being offered at each reporting date for loans and leases with similar terms to borrowers of comparable creditworthiness. The carrying amount of accrued interest receivable approximates its fair value. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | FHLB stock: The carrying amount of FHLB stock approximates its fair value. This investment is carried at cost and is redeemable at par with certain restrictions.                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Accounts receivable servicing receivables: The carrying amount of accounts receivable servicing receivables approximates their fair value because of the relatively short period of time between the origination of the receivables and their expected collection.                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Cash surrender value of life insurance policies: The fair value of life insurance policies are based on cash surrender values at each reporting date as provided by insurers.                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Deposits: The fair values for non-maturing deposits are, by definition, equal to the amount payable on demand at the reporting date represented by their carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis using interest rates offered at each reporting date for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Short-term and long-term borrowings: The fair value of short-term borrowings is estimated to be the carrying amount. The fair value of long-term borrowings is estimated using a discounted cash flow analysis using interest rates currently available for similar debt instruments.                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Commitments to extend credit: The fair value of commitments are based on fees currently charged to enter into similar agreements, net of origination fees. These fees were not material at December 31, 2010 and 2009.                                                                                                                                                                                                                                                                         |

----

| 3.     | FAIR VALUE MEASUREMENTS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2010 and 2009. 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. |

| (dollars in thousands)                                   |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |
|----------------------------------------------------------|--------|------------|---------|--------|---------------------------------------------------------------|--------|---------|----------------------------------------------|--------|---------|------------------------------------------|--------|--------|--------------|---------|
| December 31, 2010                                        |   | Fair Value |    |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |    | Significant Other Observable Inputs(Level 2) |   |    | Significant Unobservable Inputs(Level 3) |   |   | Total Losses |    |
|                                                     |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |
| Assets and liabilities measured on a recurring basis:    |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |
|                                                     |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |
| Available-for-sale securities:                           |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |
| Mortgage-backed securities                               |   | $          | 138,644 |   |                                                          |   |    |                                         | $      | 138,644 |                                     |   |   |         |    |   |   |
| Obligations of states and political subdivisions         |   |       | 15,792  |   |                                                          |   |    |                                         |   | 15,792  |                                     |   |   |         |    |   |   |
| Corporate stock                                          |   |       | 79      |   |                                                          | $      | 75      |                                         |   |    | 4                                        |   |   |         |    |   |   |   |
|                                                     |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |
| Total recurring                                          |   | $          | 154,515 |   |                                                          | $      | 75      |                                         |   | $       | 154,440                                  |   |   | $            | — |   |   | $ | — |   |
|                                                     |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |   |   |
| Assets and liabilities measured on a nonrecurring basis: |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |   |   |
| Impaired loans:                                          |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |   |   |
| Commercial:                                              |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |   |   |
| Commercial                                               |   | $          | 4,197   |   |                                                          |   |    |                                         |   | $       | 3,870                                    |   |   | $            | 327     |   |   | $ | (275 | ) |
| Real estate:                                             |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |   |   |
| Commercial                                               |   |       | 18,504  |   |                                                          |   |    |                                         |   |    | 6,388                                    |   |   |         | 12,116  |   |   |   | (381 | ) |
| Multi-family                                             |   |       | 1,214   |   |                                                          |   |    |                                         |   |    |                                     |   |   |         | 1,214   |   |   |   | (93 | ) |
| Construction                                             |   |       | 2,298   |   |                                                          |   |    |                                         |   |    | 2,298                                    |   |   |         |    |   |   |   | (952 | ) |
| Residential                                              |   |       | 2,098   |   |                                                          |   |    |                                         |   |    | 1,085                                    |   |   |         | 1,013   |   |   |   | (162 | ) |
| Other:                                                   |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |   |   |
| Leases                                                   |   |       | 27      |   |                                                          |   |    |                                         |   |    |                                     |   |   |         | 27      |   |   |   |   |   |
| Agriculture                                              |   |       | 129     |   |                                                          |   |    |                                         |   |    | 129                                      |   |   |         |    |   |   |   |   |   |
| Consumer                                                 |   |       | 490     |   |                                                          |   |    |                                         |   |    |                                     |   |   |         | 490     |   |   |   | 109 |   |
| Other real estate owned                                  |   |       | 2,696   |   |                                                          |   |    |                                         |   |    | 2,696                                    |   |   |         |    |   |   |   | (908 | ) |
|                                                     |   |       |    |   |                                                          |   |    |                                         |   |    |                                     |   |   |         |    |   |   |   |   |   |
| Total nonrecurring                                       |   | $          | 31,653  |   |                                                          | $      | — |                                         |   | $       | 16,466                                   |   |   | $            | 15,187  |   |   | $ | (2,662 | ) |

----

| 3. | FAIR VALUE MEASUREMENTS (Continued) |
|----|-------------------------------------|

| (dollars in thousands)                                   |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |
|----------------------------------------------------------|--------|------------|--------|--------|---------------------------------------------------------------|--------|---------|----------------------------------------------|--------|--------|------------------------------------------|--------|--------|--------------|---------|
| December 31, 2009                                        |   | Fair Value |   |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   |    | Significant Other Observable Inputs(Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |   | Total Losses |    |
|                                                     |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |
| Assets and liabilities measured on a recurring basis:    |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |
| Available-for-sale securities:                           |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |
| Mortgage-backed securities                               |   | $          | 76,009 |   |                                                          |   |    |                                         | $      | 76,009 |                                     |   |   |         |    |   |   |
| Obligations of states and political subdivisions         |   |       | 20,587 |   |                                                          |   |    |                                         |   | 20,587 |                                     |   |   |         |    |   |   |
| Corporate stock                                          |   |       | 86     |   |                                                          | $      | 78      |                                         |   |   | 8                                        |   |   |         |    |   |   |   |
|                                                     |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |
| Total recurring                                          |   | $          | 96,682 |   |                                                          | $      | 78      |                                         |   | $      | 96,604                                   |   |   | $            | — |   |   | $ | — |   |
|                                                     |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Assets and liabilities measured on a nonrecurring basis: |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Impaired loans:                                          |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Commercial:                                              |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Commercial                                               |   | $          | 5,092  |   |                                                          |   |    |                                         |   | $      | 4,614                                    |   |   | $            | 478     |   |   | $ | (1,238 | ) |
| Real estate:                                             |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Commercial                                               |   |       | 7,946  |   |                                                          |   |    |                                         |   |   | 6,919                                    |   |   |         | 1,027   |   |   |   | (923 | ) |
| Multi-family                                             |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Construction                                             |   |       | 3,758  |   |                                                          |   |    |                                         |   |   | 2,929                                    |   |   |         | 829     |   |   |   | (1,453 | ) |
| Residential                                              |   |       | 822    |   |                                                          |   |    |                                         |   |   | 822                                      |   |   |         |    |   |   |   |   |   |
| Other:                                                   |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Leases                                                   |   |       | 21     |   |                                                          |   |    |                                         |   |   | 21                                       |   |   |         |    |   |   |   |   |   |
| Agriculture                                              |   |       | 322    |   |                                                          |   |    |                                         |   |   | 322                                      |   |   |         |    |   |   |   | (19 | ) |
| Consumer                                                 |   |       | 500    |   |                                                          |   |    |                                         |   |   | 454                                      |   |   |         | 46      |   |   |   |   |   |
| Other real estate owned                                  |   |       | 2,508  |   |                                                          |   |    |                                         |   |   | 2,508                                    |   |   |         |    |   |   |   | (1,089 | ) |
|                                                     |   |       |   |   |                                                          |   |    |                                         |   |   |                                     |   |   |         |    |   |   |   |   |   |
| Total nonrecurring                                       |   | $          | 20,969 |   |                                                          | $      | — |                                         |   | $      | 18,589                                   |   |   | $            | 2,380   |   |   | $ | (4,722 | ) |

|   | There were no significant transfers between Levels 1 and 2 during the years ended December 31, 2010 and 2009.                                                                                                                                                                                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Impaired loans with a carrying value of $30,711,000 at December 31, 2010 were written down to $28,957,000, resulting in an impairment charge of $1,754,000, which was included in earnings for the period. Impaired loans with a carrying value of $22,094,000 at December 31, 2009 were written down to a fair value of $18,461,000, resulting in an impairment charge of $3,633,000, which was included in earnings for the period.           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Other real estate owned with a carrying value of $3,604,000 at December 31, 2010 was written down to $2,696,000, resulting in an impairment charge of $908,000, which was included in earnings for the period. Other real estate owned with a carrying value of $3,597,000 at December 31, 2009 was written down to a fair value of $2,508,000, resulting in an impairment charge of $1,089,000, which was included in earnings for the period. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | There were no material changes in the valuation techniques used during 2010. 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, or evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information. Pricing applications apply available information, as applicable, through processes such as benchmark curves, benchmarking to like securities, sector groupings and matrix pricing.         |

----

| 3.     | FAIR VALUE MEASUREMENTS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | Impaired loans – The fair value of impaired loans is based on the fair value of the collateral for all collateral dependent loans and is estimated using a discounted cash flow model for other impaired loans.                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | Other real estate owned – Other real estate owned represents real estate which the Company has taken control of in partial or full satisfaction of loans. The fair value of other real estate owned is based on property appraisals at the time of transfer and as appropriate thereafter, less costs to sell.                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.     | GOODWILL AND OTHER INTANGIBLE ASSETS                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | At December 31, 2010 and 2009, goodwill totaled $16,321,000. Goodwill is evaluated annually for impairment under the provisions of the codification Topic 350, Goodwill and Other Intangibles. Management determined that no impairment recognition was required for the years ended December 31, 2010, 2009 and 2008. Goodwill is not deductible for tax purposes.                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | Other intangible assets are comprised of core deposit intangibles totaling $402,000 and $644,000 at December 31, 2010 and 2009, respectively. Amortization of the intangible included in other expense totaled $242,000, $263,000 and $286,000 for the years ended December 31, 2010, 2009 and 2008, respectively. The remaining balance will be amortized over the next 1.9 years and is estimated as follows (dollars in thousands): |

| Year Ending December 31, |   |   |   |
|--------------------------|--------|--------|--------|
|                     |   |   |   |
| 2011                     |   | $      | 219    |   |
| 2012                     |   |   | 183    |   |
|                     |   |   |   |   |
|                     |   | $      | 402    |   |

| 5.     | INVESTMENT SECURITIES                                                                                                                                 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                  |
|   | The amortized cost and estimated fair value of investment securities at December 31, 2010 and 2009 consisted of the following (dollars in thousands): |
|   |                                                                                                                                                  |
|   | Available-for-Sale                                                                                                                                    |

|                                                  |   | 2010           |    |
|-------------------------------------------------------|--------|----------------|---------|
|                                                  |   | Amortized Cost |    |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
|                                                  |   |           |    |   |   |   |   |   |   |   |   |   |
| Debt securities:                                      |   |           |    |   |   |   |   |   |   |   |   |   |
| U.S. Government guaranteed mortgage-backed securities |   | $              | 135,915 |   |   | $ | 3,156 |   |   | $ | (427 | ) |   | $ | 138,644 |   |
| Obligations of states and political subdivisions      |   |           | 15,675  |   |   |   | 242 |   |   |   | (125 | ) |   |   | 15,792 |   |
| Equity securities:                                    |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate stock                                       |   |           | 77      |   |   |   | 8 |   |   |   | (6 | ) |   |   | 79 |   |
|                                                  |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | $              | 151,667 |   |   | $ | 3,406 |   |   | $ | (558 | ) |   | $ | 154,515 |   |

----

| 5.     | INVESTMENT SECURITIES (Continued) |
|--------|-----------------------------------|
|   |                              |
|   | Available-for-Sale (Continued)    |

|                                                  |   | 2009           |   |
|-------------------------------------------------------|--------|----------------|--------|
|                                                  |   | Amortized Cost |   |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
|                                                  |   |           |   |   |   |   |   |   |   |   |   |   |
| Debt securities:                                      |   |           |   |   |   |   |   |   |   |   |   |   |
| U.S. Government guaranteed mortgage-backed securities |   | $              | 75,823 |   |   | $ | 772 |   |   | $ | (586 | ) |   | $ | 76,009 |   |
| Obligations of states and political subdivisions      |   |           | 20,400 |   |   |   | 347 |   |   |   | (160 | ) |   |   | 20,587 |   |
| Equity securities:                                    |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate stock                                       |   |           | 82     |   |   |   | 11 |   |   |   | (7 | ) |   |   | 86 |   |
|                                                  |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | $              | 96,305 |   |   | $ | 1,130 |   |   | $ | (753 | ) |   | $ | 96,682 |   |

|   | Net unrealized gains on available-for-sale investment securities totaling $2,848,000 were recorded, net of $1,139,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2010. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the year ended December 31, 2010 totaled $9,702,000 and $7,000, respectively. There were no transfers of available-for-sale investment securities during the year ended December 31, 2010. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Net unrealized gains on available-for-sale investment securities totaling $377,000 were recorded, net of $155,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at December 31, 2009. Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the year ended December 31, 2009 totaled $11,075,000 and $270,000, respectively. There were no transfers of available-for-sale investment securities during the year ended December 31, 2009.  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Proceeds and gross realized gains from the sale and call of available-for-sale investment securities for the year ended December 31, 2008 totaled $25,680,000 and $126,000, respectively.                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | During 2008 management determined that one equity security (FNMA Preferred Stock) had a loss considered to be other-than-temporary. The Company recorded an impairment charge of $245,000 in 2008.                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Held-to-Maturity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|                                                  |   | 2010           |   |
|-------------------------------------------------------|--------|----------------|--------|
|                                                  |   | Amortized Cost |   |   | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | Estimated Fair Value |   |
|                                                  |   |           |   |   |   |   |   |   |   |   |   |   |
| Debt securities:                                      |   |           |   |   |   |   |   |   |   |   |   |   |
| U.S. Government guaranteed mortgage-backed securities |   | $              | 6,149  |   |   | $ | 323 |   |   | $ | — |   |   | $ | 6,472 |   |

----

| 5.     | INVESTMENT SECURITIES (Continued) |
|--------|-----------------------------------|
|   |                              |
|   | Held to Maturity (Continued)      |

|                                                  |   | 2010                 |   |
|-------------------------------------------------------|--------|----------------------|--------|
|                                                  |   |  Amortized Cost |   |   | Gross Unrealized Gains |   |   | GrossUnrealized Losses |   |   | Estimated Fair Value |   |
|                                                  |   |                 |   |   |   |   |   |   |   |   |   |   |
| Debt securities:                                      |   |                 |   |   |   |   |   |   |   |   |   |   |
| U.S. Government guaranteed mortgage-backed securities |   | $                    | 12,331 |   |   | $ | 558 |   |   | $ | — |   |   | $ | 12,889 |   |

|   | There were no sales or transfers of held-to-maturity investment securities for the years ended December 31, 2010, 2009 and 2008.                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                      |
|   | The amortized cost and estimated fair value of investment securities at December 31, 2010 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                                          |   | $                    | 495     |   |                 | $      | 499 |   |   |   |   |   |   |   |
| After one year through five years                        |   |                 | 5,657   |   |                 |   | 5,782 |   |   |   |   |   |   |   |
| After five years through ten years                       |   |                 | 5,433   |   |                 |   | 5,511 |   |   |   |   |   |   |   |
| After ten years                                          |   |                 | 4,090   |   |                 |   | 4,000 |   |   |   |   |   |   |   |
|                                                     |   |                 |    |   |                 |   |   |   |   |   |   |   |   |   |
|                                                     |   |                 | 15,675  |   |                 |   | 15,792 |   |   |   |   |   |   |   |
|                                                     |   |                 |    |   |                 |   |   |   |   |   |   |   |   |   |
| Investment securities not due at a single maturity date: |   |                 |    |   |                 |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities                               |   |                 | 135,915 |   |                 |   | 138,644 |   |   | $ | 6,149 |   |   | $ | 6,472 |   |
| Corporate stock                                          |   |                 | 77      |   |                 |   | 79 |   |   |   |   |   |   |   |   |   |
|                                                     |   |                 |    |   |                 |   |   |   |   |   |   |   |   |   |   |   |
|                                                     |   | $                    | 151,667 |   |                 | $      | 154,515 |   |   | $ | 6,149 |   |   | $ | 6,472 |   |

|   | 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.                                                                                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                       |
|   | Investment securities with amortized costs totaling $47,729,000 and $58,510,000 and estimated fair values totaling $49,839,000 and $59,816,000 were pledged to secure treasury tax and loan accounts, State Treasury funds on deposit, public agency and bankruptcy trustee deposits and borrowing arrangements (see Note 10) at December 31, 2010 and 2009, respectively. |

----

| 5.     | INVESTMENT SECURITIES (Continued)                                                                                                                                                        |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                     |
|   | Investment securities with unrealized losses at December 31, 2010 and 2009 are summarized and classified according to the duration of the loss period as follows (dollars in thousands): |

|                                                  |   | 2010                |   |
|-------------------------------------------------------|--------|---------------------|--------|
|                                                  |   | 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 guaranteed mortgage-backed securities |   | $                   | 29,535 |   |   | $ | (427 | ) |   |   |   |   |   |   |   | $ | 29,535 |   |   | $ | (427 | ) |
| Obligations of states and political subdivisions      |   |                | 5,169  |   |   |   | (125 | ) |   |   |   |   |   |   |   |   | 5,169 |   |   |   | (125 | ) |
| Corporate stock                                       |   |                | 5      |   |   |   | (2 | ) |   | $ | 5 |   |   | $ | (4 | ) |   |   | 10 |   |   |   | (6 | ) |
|                                                  |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | $                   | 34,709 |   |   | $ | (554 | ) |   | $ | 5 |   |   | $ | (4 | ) |   | $ | 34,714 |   |   | $ | (558 | ) |

|                                                  |   | 2009                |   |
|-------------------------------------------------------|--------|---------------------|--------|
|                                                  |   | 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 guaranteed mortgage-backed securities |   | $                   | 41,046 |   |   | $ | (527 | ) |   | $ | 2,752 |   |   | $ | (59 | ) |   | $ | 43,798 |   |   | $ | (586 | ) |
| Obligations of states and political subdivisions      |   |                | 4,081  |   |   |   | (80 | ) |   |   | 2,641 |   |   |   | (80 | ) |   |   | 6,722 |   |   |   | (160 | ) |
| Corporate stock                                       |   |                | 5      |   |   |   | (3 | ) |   |   | 3 |   |   |   | (4 | ) |   |   | 8 |   |   |   | (7 | ) |
|                                                  |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | $                   | 45,132 |   |   | $ | (610 | ) |   | $ | 5,396 |   |   | $ | (143 | ) |   | $ | 50,528 |   |   | $ | (753 | ) |

|   | At December 31, 2010, the Company held 168 securities of which 29 were in a loss position for less than twelve months and 5 were in a loss position for twelve months or more. Of the 34 securities 15 are mortgage-backed securities, 11 are obligations of states and political sub-divisions and 8 are corporate stocks.                                                                                                                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The unrealized loss on the Company’s investments in mortgage-backed securities and obligations of states and political sub-divisions 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 maturity, management does not consider these investments to be other-than-temporarily impaired. |

----

| 6.     | LOANS AND LEASES                                                               |
|--------|--------------------------------------------------------------------------------|
|   |                                                                           |
|   | Outstanding loans and leases are summarized as follows (dollars in thousands): |

|                                          |   | December 31, |    |
|-----------------------------------------------|--------|--------------|---------|
|                                          |   | 2010         |    |   | 2009 |   |
|                                          |   |         |    |   |   |   |
| Real estate – commercial                |   | $            | 216,076 |   |   | $ | 223,685 |   |
| Real estate – construction              |   |         | 15,971  |   |   |   | 27,482 |   |
| Real estate – multi-family              |   |         | 6,968   |   |   |   | 8,476 |   |
| Real estate – residential               |   |         | 26,099  |   |   |   | 26,922 |   |
| Commercial                                    |   |         | 58,261  |   |   |   | 72,621 |   |
| Lease financing receivable                    |   |         | 2,766   |   |   |   | 3,920 |   |
| Agriculture                                   |   |         | 7,202   |   |   |   | 7,472 |   |
| Consumer                                      |   |         | 13,202  |   |   |   | 14,253 |   |
|                                          |   |         |    |   |   |   |   |   |
|                                          |   |         | 346,545 |   |   |   | 384,831 |   |
|                                          |   |         |    |   |   |   |   |   |
| Deferred loan and lease origination fees, net |   |         | (427    | ) |   |   | (600 | ) |
| Allowance for loan and lease losses           |   |         | (7,585  | ) |   |   | (7,909 | ) |
|                                          |   |         |    |   |   |   |   |   |
|                                          |   | $            | 338,533 |   |   | $ | 376,322 |   |

|   | Certain loans are pledged as collateral for available borrowings with the FHLB and the Federal Reserve Bank of San Francisco (the “FRB”). Pledged loans totaled $201,749,000 and $222,923,000 at December 31, 2010 and 2009, respectively (see Note 10). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                 |
|   | The components of the Company’s lease financing receivable are summarized as follows (dollars in thousands):                                                                                                                                                   |

|                             |   | December 31, |   |
|----------------------------------|--------|--------------|--------|
|                             |   | 2010         |   |   | 2009 |   |
|                             |   |         |   |   |   |   |
| Future lease payments receivable |   | $            | 2,908  |   |   | $ | 4,246 |   |
| Residual interests               |   |         | 104    |   |   |   | 85 |   |
| Unearned income                  |   |         | (246   | ) |   |   | (411 | ) |
|                             |   |         |   |   |   |   |   |   |
| Net lease financing receivable   |   | $            | 2,766  |   |   | $ | 3,920 |   |

|   | Future lease payments receivable are as follows (dollars in thousands): |
|--------|-------------------------------------------------------------------------|

| Year Ending December 31,        |   |   |   |
|---------------------------------|--------|--------|--------|
|                            |   |   |   |
| 2011                            |   | $      | 1,165  |   |
| 2012                            |   |   | 955    |   |
| 2013                            |   |   | 553    |   |
| 2014                            |   |   | 151    |   |
| 2015                            |   |   | 84     |   |
|                            |   |   |   |   |
| Total lease payments receivable |   | $      | 2,908  |   |

|   | Salaries and employee benefits totaling $453,000, $674,000 and $910,000 have been deferred as loan and lease origination costs for the years ended December 31, 2010, 2009 and 2008, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 7.     | ALLOWANCE FOR LOAN AND LEASE LOSSES                                                        |
|--------|--------------------------------------------------------------------------------------------|
|   |                                                                                       |
|   | Changes in the allowance for loan and lease losses were as follows (dollars in thousands): |

|                            |   | Year Ended December 31, |   |
|---------------------------------|--------|-------------------------|--------|
|                            |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                            |   |                    |   |   |   |   |   |   |   |
| Balance, beginning of year      |   | $                       | 7,909  |   |   | $ | 5,918 |   |   | $ | 5,883 |   |
| Provision charged to operations |   |                    | 7,365  |   |   |   | 8,530 |   |   |   | 1,743 |   |
| Losses charged to allowance     |   |                    | (7,821 | ) |   |   | (6,588 | ) |   |   | (1,734 | ) |
| Recoveries                      |   |                    | 132    |   |   |   | 49 |   |   |   | 26 |   |
|                            |   |                    |   |   |   |   |   |   |   |   |   |   |
| Balance, end of year            |   | $                       | 7,585  |   |   | $ | 7,909 |   |   | $ | 5,918 |   |

----

| 7.     | ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)                                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                     |
|   | Allocation of the allowance for loan and lease losses as of December 31, 2010 by portfolio segment and by impairment methodology (dollars in thousands): |

|                                           |   |       |   |   | Real Estate |   |    | Other        |   |   |         |   |   |        |    |
|------------------------------------------------|--------|------------|--------|--------|-------------|--------|---------|--------------|--------|--------|--------------|--------|--------|-------------|---------|
|                                           |   | Commercial |   |   | Commercial  |   |    | Multi-Family |   |   | Construction |   |   | Residential |    |   | Leases |   |   | Agriculture |   |   | Consumer |   |   | Unallocated |   |   | Total |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for Loan and Lease Losses            |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance allocated to portfolio segments |   | $          | 2,574  |   |        | $      | 2,715   |         |   | $      | 115          |   |   | $           | 1,090   |   |   | $ | 581 |   |   | $ | 7 |   |   | $ | 131 |   |   | $ | 221 |   |   | $ | 151 |   |   | $ | 7,585 |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance:                                |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment          |   | $          | 274    |   |        | $      | 1,160   |         |   | $      | 22           |   |   | $           | — |   |   | $ | 152 |   |   | $ | — |   |   | $ | — |   |   | $ | 11 |   |   | $ | — |   |   | $ | 1,619 |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance:                                |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collectively evaluated for impairment          |   | $          | 2,300  |   |        | $      | 1,555   |         |   | $      | 93           |   |   | $           | 1,090   |   |   | $ | 429 |   |   | $ | 7 |   |   | $ | 131 |   |   | $ | 210 |   |   | $ | 151 |   |   | $ | 5,966 |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                          |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance                                 |   | $          | 58,261 |   |        | $      | 216,076 |         |   | $      | 6,968        |   |   | $           | 15,971  |   |   | $ | 26,099 |   |   | $ | 2,766 |   |   | $ | 7,202 |   |   | $ | 13,202 |   |   | $ | — |   |   | $ | 346,545 |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance:                                |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment          |   | $          | 8,257  |   |        | $      | 21,186  |         |   | $      | 2,596        |   |   | $           | 4,695   |   |   | $ | 2,676 |   |   | $ | — |   |   | $ | 129 |   |   | $ | 698 |   |   | $ | — |   |   | $ | 40,237 |   |
|                                           |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ending balance:                                |   |       |   |   |        |   |    |         |   |   |         |   |   |        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collectively evaluated for impairment          |   | $          | 50,004 |   |        | $      | 194,890 |         |   | $      | 4,372        |   |   | $           | 11,276  |   |   | $ | 23,423 |   |   | $ | 2,766 |   |   | $ | 7,073 |   |   | $ | 12,504 |   |   | $ | — |   |   | $ | 306,308 |   |

----

| 7. | ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued) |
|----|-------------------------------------------------|

|   | The loan portfolio allocated by management’s internal risk ratings as of December 31, 2010 (dollars in thousands): |
|--------|--------------------------------------------------------------------------------------------------------------------------|

|            |   | Credit Risk Profile by Internally Assigned Grade |   |
|-----------------|--------|--------------------------------------------------|--------|
|            |   |                                             |   |   | Real Estate |   |
|            |   | Commercial                                       |   |   | Commercial |   |   | Multi-Family |   |   | Construction |   |   | Residential |   |
|            |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Grade:          |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass            |   | $                                                | 39,335 |   |   | $ | 175,319 |   |   | $ | 4,371 |   |   | $ | 7,884 |   |   | $ | 21,928 |   |
| Watch           |   |                                             | 3,515  |   |   |   | 11,021 |   |   |   | 1,214 |   |   |   | 1,632 |   |   |   |   |   |
| Special mention |   |                                             | 4,228  |   |   |   | 11,713 |   |   |   |   |   |   |   | 1,178 |   |   |   | 953 |   |
| Substandard     |   |                                             | 11,012 |   |   |   | 18,023 |   |   |   | 1,383 |   |   |   | 5,277 |   |   |   | 3,218 |   |
| Doubtful        |   |                                             | 171    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|            |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total           |   | $                                                | 58,261 |   |   | $ | 216,076 |   |   | $ | 6,968 |   |   | $ | 15,971 |   |   | $ | 26,099 |   |

|            |   | Other Credit ExposureCredit Risk Profile by Internally Assigned Grade |   |
|-----------------|--------|-----------------------------------------------------------------------|--------|
|            |   | Leases                                                                |   |   | Agriculture |   |   | Consumer |   |
|            |   |                                                                  |   |   |   |   |   |   |   |
| Grade:          |   |                                                                  |   |   |   |   |   |   |   |
| Pass            |   | $                                                                     | 2,740  |   |   | $ | 6,484 |   |   | $ | 12,277 |   |
| Watch           |   |                                                                  |   |   |   |   | 589 |   |   |   | 514 |   |
| Special mention |   |                                                                  |   |   |   |   |   |   |   |   | 178 |   |
| Substandard     |   |                                                                  | 26     |   |   |   | 129 |   |   |   | 217 |   |
| Doubtful        |   |                                                                  |   |   |   |   |   |   |   |   | 16 |   |
|            |   |                                                                  |   |   |   |   |   |   |   |   |   |   |
| Total           |   | $                                                                     | 2,766  |   |   | $ | 7,202 |   |   | $ | 13,202 |   |

----

| 7.     | ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)                                   |
|--------|-----------------------------------------------------------------------------------|
|   |                                                                              |
|   | Aging analysis of the loan portfolio at December 31, 2010 (dollars in thousands): |

|         |   | 30-59 Days Past Due |   |   | 60-89 Days Past Due |   |   | Past Due Greater Than 90 Days |   |   | Total Past Due |   |   | Current |   |   | Total Loans |   |    | Past Due Greater Than 90 Days and Accruing |   |   | Nonaccrual |   |
|--------------|--------|---------------------|--------|--------|---------------------|--------|--------|-------------------------------|--------|--------|----------------|--------|--------|---------|--------|--------|-------------|--------|---------|--------------------------------------------|--------|--------|------------|--------|
|         |   |                |   |   |                |   |   |                          |   |   |           |   |   |    |   |   |        |   |    |                                       |   |   |       |   |
| Commercial:  |   |                |   |   |                |   |   |                          |   |   |           |   |   |    |   |   |        |   |    |                                       |   |   |       |   |
| Commercial   |   | $                   | 219    |   |                | $      | 19     |                          |   | $      | 3,346          |   |   | $       | 3,584  |   |        | $      | 54,677  |                                       |   | $      | 58,261     |   |   |   |   |   |   | $ | 3,491 |   |
|         |   |                |   |   |                |   |   |                          |   |   |           |   |   |    |   |   |        |   |    |                                       |   |   |       |   |   |   |   |   |   |   |   |   |
| Real estate: |   |                |   |   |                |   |   |                          |   |   |           |   |   |    |   |   |        |   |    |                                       |   |   |       |   |   |   |   |   |   |   |   |   |
| Commercial   |   |                | 1,207  |   |                |   | 3,140  |                          |   |   | 10,101         |   |   |    | 14,448 |   |        |   | 201,628 |                                       |   |   | 216,076    |   |   |   |   |   |   |   | 10,975 |   |
| Multi-family |   |                |   |   |                |   |   |                          |   |   | 1,383          |   |   |    | 1,383  |   |        |   | 5,585   |                                       |   |   | 6,968      |   |   |   |   |   |   |   | 1,383 |   |
| Construction |   |                |   |   |                |   | 1,835  |                          |   |   | 2,859          |   |   |    | 4,694  |   |        |   | 11,277  |                                       |   |   | 15,971     |   |   |   |   |   |   |   | 4,694 |   |
| Residential  |   |                | 795    |   |                |   | 366    |                          |   |   | 1,149          |   |   |    | 2,310  |   |        |   | 23,789  |                                       |   |   | 26,099     |   |   |   |   |   |   |   | 1,554 |   |
|         |   |                |   |   |                |   |   |                          |   |   |           |   |   |    |   |   |        |   |    |                                       |   |   |       |   |   |   |   |   |   |   |   |   |
| Other:       |   |                |   |   |                |   |   |                          |   |   |           |   |   |    |   |   |        |   |    |                                       |   |   |       |   |   |   |   |   |   |   |   |   |
| Leases       |   |                |   |   |                |   |   |                          |   |   | 28             |   |   |    | 28     |   |        |   | 2,738   |                                       |   |   | 2,766      |   |   |   |   |   |   |   | 28 |   |
| Agriculture  |   |                |   |   |                |   |   |                          |   |   | 129            |   |   |    | 129    |   |        |   | 7,073   |                                       |   |   | 7,202      |   |   |   |   |   |   |   | 129 |   |
| Consumer     |   |                | 123    |   |                |   | 8      |                          |   |   | 221            |   |   |    | 352    |   |        |   | 12,850  |                                       |   |   | 13,202     |   |   |   |   |   |   |   | 317 |   |
|         |   |                |   |   |                |   |   |                          |   |   |           |   |   |    |   |   |        |   |    |                                       |   |   |       |   |   |   |   |   |   |   |   |   |
| Total        |   | $                   | 2,344  |   |                | $      | 5,368  |                          |   | $      | 19,216         |   |   | $       | 26,928 |   |        | $      | 319,617 |                                       |   | $      | 346,545    |   |   | $ | — |   |   | $ | 22,571 |   |

----

| 7.     | ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)                                       |
|--------|---------------------------------------------------------------------------------------|
|   |                                                                                  |
|   | Impaired loans as of and for the year ended December 31, 2010 (dollars in thousands): |

|                                |   | Recorded Investment |   |   | Unpaid Principal Balance |   |   | Related Allowance |   |   | Average Recorded Investment |   |   | Interest Income Recognized |   |
|-------------------------------------|--------|---------------------|--------|--------|--------------------------|--------|--------|-------------------|--------|--------|-----------------------------|--------|--------|----------------------------|--------|
|                                |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |
| With no related allowance recorded: |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |
| Commercial:                         |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |
| Commercial                          |   | $                   | 5,026  |   |                     | $      | 5,418  |              |   |   |                        |   | $      | 5,042                      |   |   | $ | 137 |   |
| Real estate:                        |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |
| Commercial                          |   |                | 9,066  |   |                     |   | 12,149 |              |   |   |                        |   |   | 14,013                     |   |   |   | 424 |   |
| Multi-family                        |   |                | 1,382  |   |                     |   | 2,382  |              |   |   |                        |   |   | 1,383                      |   |   |   | 70 |   |
| Construction                        |   |                | 4,695  |   |                     |   | 7,064  |              |   |   |                        |   |   | 6,545                      |   |   |   | 43 |   |
| Residential                         |   |                | 1,663  |   |                     |   | 1,835  |              |   |   |                        |   |   | 1,593                      |   |   |   | 50 |   |
| Other:                              |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |
| Agriculture                         |   |                | 129    |   |                     |   | 322    |              |   |   |                        |   |   | 206                        |   |   |   | 4 |   |
| Consumer                            |   |                | 207    |   |                     |   | 207    |              |   |   |                        |   |   | 317                        |   |   |   | 16 |   |
|                                |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |
|                                |   | $                   | 22,168 |   |                     | $      | 29,377 |              |   | $      | —                     |   |   | $                          | 29,099 |   |   | $ | 744 |   |
|                                |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| With an allowance recorded:         |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial:                         |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial                          |   | $                   | 3,231  |   |                     | $      | 3,231  |              |   | $      | 274                         |   |   | $                          | 3,452  |   |   | $ | 196 |   |
| Real estate:                        |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial                          |   |                | 12,120 |   |                     |   | 12,584 |              |   |   | 1,160                       |   |   |                       | 9,369  |   |   |   | 456 |   |
| Multi-family                        |   |                | 1,214  |   |                     |   | 1,214  |              |   |   | 22                          |   |   |                       | 1,321  |   |   |   | 44 |   |
| Residential                         |   |                | 1,013  |   |                     |   | 1,013  |              |   |   | 152                         |   |   |                       | 861    |   |   |   | 51 |   |
| Other:                              |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Consumer                            |   |                | 491    |   |                     |   | 491    |              |   |   | 11                          |   |   |                       | 492    |   |   |   | 24 |   |
|                                |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
|                                |   | $                   | 18,069 |   |                     | $      | 18,533 |              |   | $      | 1,619                       |   |   | $                          | 15,495 |   |   | $ | 771 |   |
|                                |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Total:                              |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial:                         |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial                          |   | $                   | 8,257  |   |                     | $      | 8,649  |              |   | $      | 274                         |   |   | $                          | 8,494  |   |   | $ | 333 |   |
| Real estate:                        |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Commercial                          |   |                | 21,186 |   |                     |   | 24,733 |              |   |   | 1,160                       |   |   |                       | 23,382 |   |   |   | 880 |   |
| Multi-family                        |   |                | 2,596  |   |                     |   | 3,596  |              |   |   | 22                          |   |   |                       | 2,704  |   |   |   | 114 |   |
| Construction                        |   |                | 4,695  |   |                     |   | 7,064  |              |   |   |                        |   |   |                       | 6,545  |   |   |   | 43 |   |
| Residential                         |   |                | 2,676  |   |                     |   | 2,848  |              |   |   | 152                         |   |   |                       | 2,454  |   |   |   | 101 |   |
| Other:                              |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
| Agriculture                         |   |                | 129    |   |                     |   | 322    |              |   |   |                        |   |   |                       | 206    |   |   |   | 4 |   |
| Consumer                            |   |                | 698    |   |                     |   | 698    |              |   |   | 11                          |   |   |                       | 809    |   |   |   | 40 |   |
|                                |   |                |   |   |                     |   |   |              |   |   |                        |   |   |                       |   |   |   |   |   |   |
|                                |   | $                   | 40,237 |   |                     | $      | 47,910 |              |   | $      | 1,619                       |   |   | $                          | 44,594 |   |   | $ | 1,515 |   |

----

| 7.     | ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The recorded investment in loans and leases that were considered to be impaired totaled $40,237,000 at December 31, 2010 and had a related valuation allowance of $1,619,000. The average recorded investment in impaired loans and leases during 2010 was approximately $44,594,000.                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | The recorded investment in loans and leases that were considered to be impaired totaled $41,937,000 at December 31, 2009 and had a related valuation allowance of $3,810,000. The average recorded investment in impaired loans and leases during 2009 was approximately $29,947,000.                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Non-accrual loans and leases totaled approximately $22,571,000 and $20,964,000 at December 31, 2010 and 2009, respectively. There were no loans and leases past due 90 days or more and still accruing interest at December 31, 2010 and 2009. Interest income on non-accrual loans is generally recognized on a cash basis and was approximately $338,000 and $79,000 for the years ended December 31, 2010 and 2009, and not significant for 2008. Interest foregone on non-accrual loans was approximately $1,736,000, $1,281,000 and $647,000 for the years ended December 31, 2010, 2009 and 2008, respectively. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 8.     | PREMISES AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Premises and equipment consisted of the following (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|                                           |   | December 31, |   |
|------------------------------------------------|--------|--------------|--------|
|                                           |   | 2010         |   |   | 2009 |   |
|                                           |   |         |   |   |   |   |
| Land                                           |   | $            | 206    |   |   | $ | 206 |   |
| Building and improvements                      |   |         | 734    |   |   |   | 730 |   |
| Furniture, fixtures and equipment              |   |         | 5,180  |   |   |   | 7,017 |   |
| Leasehold improvements                         |   |         | 1,567  |   |   |   | 1,758 |   |
|                                           |   |         |   |   |   |   |   |   |
|                                           |   |         | 7,687  |   |   |   | 9,711 |   |
|                                           |   |         |   |   |   |   |   |   |
| Less accumulated depreciation and amortization |   |         | (5,661 | ) |   |   | (7,617 | ) |
|                                           |   |         |   |   |   |   |   |   |
|                                           |   | $            | 2,026  |   |   | $ | 2,094 |   |

|   | Depreciation and amortization included in occupancy and furniture and equipment expense totaled $543,000, $569,000 and $539,000 for the years ended December 31, 2010, 2009 and 2008, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                |
| 9.     | INTEREST-BEARING DEPOSITS                                                                                                                                                                           |
|   |                                                                                                                                                                                                |
|   | Interest-bearing deposits consisted of the following (dollars in thousands):                                                                                                                        |

|                   |   | December 31, |    |
|------------------------|--------|--------------|---------|
|                   |   | 2010         |    |   | 2009 |   |
|                   |   |         |    |   |   |   |
| Savings                |   | $            | 45,537  |   |   | $ | 36,234 |   |
| Money market           |   |         | 137,636 |   |   |   | 131,614 |   |
| NOW accounts           |   |         | 45,075  |   |   |   | 50,154 |   |
| Time, $100,000 or more |   |         | 78,147  |   |   |   | 98,061 |   |
| Other time             |   |         | 32,091  |   |   |   | 35,364 |   |
|                   |   |         |    |   |   |   |   |   |
|                   |   | $            | 338,486 |   |   | $ | 351,427 |   |

----

| 9.     | INTEREST-BEARING DEPOSITS (Continued)                                                                                                                                                                      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                       |
|   | The Company held $29,000,000 in certificates of deposit for the State of California as of December 31, 2010 and 2009. This amount represents 6.2% of total deposit balances at December 31, 2010 and 2009. |
|   |                                                                                                                                                                                                       |
|   | Aggregate annual maturities of time deposits are as follows (dollars in thousands):                                                                                                                        |

| Year Ending December 31, |   |   |    |
|--------------------------|--------|--------|---------|
|                     |   |   |    |
| 2011                     |   | $      | 91,267  |   |
| 2012                     |   |   | 9,350   |   |
| 2013                     |   |   | 5,952   |   |
| 2014                     |   |   | 1,333   |   |
| 2015                     |   |   | 2,249   |   |
| Thereafter               |   |   | 87      |   |
|                     |   |   |    |   |
|                     |   | $      | 110,238 |   |

|   | Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands): |
|--------|-------------------------------------------------------------------------------------------------------------|

|                   |   | Year Ended December 31, |   |
|------------------------|--------|-------------------------|--------|
|                   |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                   |   |                    |   |   |   |   |   |   |   |
| Savings                |   | $                       | 224    |   |   | $ | 229 |   |   | $ | 324 |   |
| Money market           |   |                    | 1,268  |   |   |   | 1,304 |   |   |   | 1,861 |   |
| NOW accounts           |   |                    | 59     |   |   |   | 71 |   |   |   | 68 |   |
| Time, $100,000 or more |   |                    | 806    |   |   |   | 1,481 |   |   |   | 2,249 |   |
| Other time             |   |                    | 595    |   |   |   | 918 |   |   |   | 1,399 |   |
|                   |   |                    |   |   |   |   |   |   |   |   |   |   |
|                   |   | $                       | 2,952  |   |   | $ | 4,003 |   |   | $ | 5,901 |   |

| 10.    | BORROWING ARRANGEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The Company has a $10,000,000 unsecured short-term borrowing arrangement to purchase Federal funds with one of its correspondent banks. There were no advances under the borrowing arrangement as of December 31, 2010 and 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | In addition, the Company has a line of credit available with the FHLB which is secured by pledged mortgage loans (see Note 6) and investment securities (see Note 5). Borrowings may include overnight advances as well as loans with a term of up to thirty years. Advances totaling $17,000,000 were outstanding from the FHLB at December 31, 2010, bearing fixed interest rates ranging from 1.85% to 3.78% and maturing between March 2, 2011 and January 13, 2014. Advances totaling $31,500,000 were outstanding from the FHLB at December 31, 2009, bearing fixed interest rates ranging from 1.60% to 3.78% and maturing between January 19, 2010 and January 13, 2014. Amounts available under the borrowing arrangement with the FHLB at December 31, 2010 and 2009 totaled $55,160,000 and $54,047,000, respectively. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | In addition, the Company entered into a secured borrowing agreement with the FRB in 2008. The borrowing is secured by pledging selected loans (see Note 6) and investment securities (see Note 5). There were no advances outstanding as of December 31, 2010 and 2009. Amounts available under the borrowing arrangement with the FRB at December 31, 2010 and 2009 totaled $30,702,000 and $36,353,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                           |

----

| 10.    | BORROWING ARRANGEMENTS (Continued)                              |
|--------|-----------------------------------------------------------------|
|   |                                                            |
|   | The following table summarizes these borrowings (in thousands): |

|                             |   | December 31, |
|----------------------------------|--------|--------------|
|                             |   | 2010         |   | 2009 |
|                             |   | Amount       |   |   | Weighted Average Rate |   | Amount |   |   | Weighted Average Rate |
|                             |   |         |   |   |   |   |   |   |   |   |   |   |
| Short-term portion of borrowings |   | $            | 7,000 |   |   | 2.40 | % |   | $ | 14,500 |   |   | 2.84 | % |
| Long-term borrowings             |   |         | 10,000 |   |   | 2.41 | % |   |   | 17,000 |   |   | 2.40 | % |
|                             |   |         |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |   | $            | 17,000 |   |   | 2.40 | % |   | $ | 31,500 |   |   | 2.60 | % |

|   | The Company has also been issued $9,000,000 in letters of credit by the FHLB, included in the amounts available from the FHLB previously discussed, which have been pledged to secure Local Agency Deposits. The letters of credit act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. The letters of credit were not drawn upon in 2010 and management does not expect these lines to be drawn in the future. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 11.    | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The (benefit from) provision for income taxes for the years ended December 31, 2010, 2009, and 2008 consisted of the following (dollars in thousands):                                                                                                                                                                                                                                                                                                               |

|                       |   | Federal |   |   | State  |   |   | Total  |   |
|----------------------------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|                       |   |    |   |   |   |   |   |   |   |
| 2010                       |   |    |   |   |   |   |   |   |   |
|                       |   |    |   |   |   |   |   |   |   |
| Current                    |   | $       | 2      |   |   | $      | 74     |   |   | $ | 76 |   |
| Deferred                   |   |    | (140   | )      |   |   | (187   | )      |   |   | (327 | ) |
|                       |   |    |   |   |   |   |   |   |   |   |   |   |
| Benefit from income taxes  |   | $       | (138   | )      |   | $      | (113   | )      |   | $ | (251 | ) |
|                       |   |    |   |   |   |   |   |   |   |   |   |   |
| 2009                       |   |    |   |   |   |   |   |   |   |   |   |   |
|                       |   |    |   |   |   |   |   |   |   |   |   |   |
| Current                    |   | $       | 824    |   |   | $      | 507    |   |   | $ | 1,331 |   |
| Deferred                   |   |    | (540   | )      |   |   | (417   | )      |   |   | (957 | ) |
|                       |   |    |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes |   | $       | 284    |   |   | $      | 90     |   |   | $ | 374 |   |
|                       |   |    |   |   |   |   |   |   |   |   |   |   |
| 2008                       |   |    |   |   |   |   |   |   |   |   |   |   |
|                       |   |    |   |   |   |   |   |   |   |   |   |   |
| Current                    |   | $       | 3,617  |   |   | $      | 1,407  |   |   | $ | 5,024 |   |
| Deferred                   |   |    | (263   | )      |   |   | (183   | )      |   |   | (446 | ) |
|                       |   |    |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes |   | $       | 3,354  |   |   | $      | 1,224  |   |   | $ | 4,578 |   |

----

| 11.    | INCOME TAXES (Continued)                                                             |
|--------|--------------------------------------------------------------------------------------|
|   |                                                                                 |
|   | Deferred tax assets (liabilities) consisted of the following (dollars in thousands): |

|                                                         |   | December 31, |   |
|--------------------------------------------------------------|--------|--------------|--------|
|                                                         |   | 2010         |   |   | 2009 |   |
|                                                         |   |         |   |   |   |   |
| Deferred tax assets:                                         |   |         |   |   |   |   |
| Allowance for loan and lease losses                          |   | $            | 3,401  |   |   | $ | 3,546 |   |
| Future benefit of state tax deduction                        |   |         |   |   |   |   | 123 |   |
| Other real estate owned                                      |   |         | 703    |   |   |   | 280 |   |
| Deferred compensation                                        |   |         | 1,747  |   |   |   | 1,715 |   |
| Other                                                        |   |         | 236    |   |   |   | 218 |   |
|                                                         |   |         |   |   |   |   |   |   |
| Total deferred tax assets                                    |   |         | 6,087  |   |   |   | 5,882 |   |
|                                                         |   |         |   |   |   |   |   |   |
| Deferred tax liabilities:                                    |   |         |   |   |   |   |   |   |
| Core deposit intangible                                      |   |         | (180   | ) |   |   | (289 | ) |
| Unrealized gains on available-for-sale investment securities |   |         | (1,139 | ) |   |   | (155 | ) |
| Investment mark to market                                    |   |         | (17    | ) |   |   | (24 | ) |
| Future liability of state deferred tax assets                |   |         | (459   | ) |   |   | (372 | ) |
| Deferred loan costs                                          |   |         | (310   | ) |   |   | (355 | ) |
| Federal Home Loan Bank stock dividends                       |   |         | (238   | ) |   |   | (268 | ) |
| Premises and equipment                                       |   |         | (15    | ) |   |   |   |   |
|                                                         |   |         |   |   |   |   |   |   |
| Total deferred tax liabilities                               |   |         | (2,358 | ) |   |   | (1,463 | ) |
|                                                         |   |         |   |   |   |   |   |   |
| Net deferred tax assets                                      |   | $            | 3,729  |   |   | $ | 4,419 |   |

|   | The Company and its subsidiaries file income tax returns in the United States and California jurisdictions. There are currently no pending federal, state or local income tax examinations by tax authorities. With few exceptions, the Company is no longer subject to the examination by federal taxing authorities for the years ended before December 31, 2006 and by state and local taxing authorities for years before December 31, 2005. The unrecognized tax benefits and changes therein and the interest and penalties accrued by the Company as of December 31, 2010 were not significant. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rate of 34.0% in 2010, 34.0% in 2009 and 35.0% in 2008 to income before income taxes. The significant items comprising these differences consisted of the following:                                                                                                                                                                                                                                                                                                                         |

|                                                                        |   | Year Ended December 31, |   |
|-----------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                        |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                                                        |   |                    |   |   |   |   |   |   |   |
| Federal income tax statutory rate                                           |   |                    | 34.0   | % |   |   | 34.0 | % |   |   | 35.0 | % |
| State franchise tax, net of Federal tax effect                              |   |                    | (29.5  | )% |   |   | 3.0 | % |   |   | 6.6 | % |
| Tax benefit of interest on obligations of states and political subdivisions |   |                    | (93.0  | )% |   |   | (15.2 | )% |   |   | (2.9 | )% |
| Tax-exempt income from life insurance policies                              |   |                    | (42.0  | )% |   |   | (4.3 | )% |   |   | (1.1 | )% |
| Stock option compensation expense                                           |   |                    | 17.0   | % |   |   | 1.3 | % |   |   | 0.5 | % |
| Other                                                                       |   |                    | 1.9    | % |   |   | 0.3 | % |   |   | (0.4 | )% |
|                                                                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Effective tax rate                                                          |   |                    | (111.6 | )% |   |   | 19.1 | % |   |   | 37.7 | % |

----

| 12.    | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                     |
|   | Leases                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                     |
|   | The Company leases branch facilities, administrative offices and various equipment under noncancelable operating leases which expire on various dates through the year 2019. Certain of the leases have five year renewal options. One of the branch facilities is leased from a current member of the Company’s Board of Directors (see Note 17). |
|   |                                                                                                                                                                                                                                                                                                                                                     |
|   | Future minimum lease payments are as follows (dollars in thousands):                                                                                                                                                                                                                                                                                     |

| Year Ending December 31, |   |   |   |
|--------------------------|--------|--------|--------|
|                     |   |   |   |
| 2011                     |   | $      | 783    |   |
| 2012                     |   |   | 783    |   |
| 2013                     |   |   | 788    |   |
| 2014                     |   |   | 729    |   |
| 2015                     |   |   | 671    |   |
| Thereafter               |   |   | 1,272  |   |
|                     |   |   |   |   |
|                     |   | $      | 5,026  |   |

|   | Rental expense included in occupancy, furniture and equipment expense totaled $956,000, $1,050,000 and $1,110,000 for the years ended December 31, 2010, 2009 and 2008, respectively.                                                                                                                                                                                                                                                                                                              |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Financial Instruments With Off-Balance-Sheet Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | 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 standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the consolidated balance sheet. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and standby letters of credit as it does for loans included on the consolidated balance sheet.                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                                                                |

|                                                                                         |   | December 31, |   |
|----------------------------------------------------------------------------------------------|--------|--------------|--------|
|                                                                                         |   | 2010         |   |   | 2009 |   |
|                                                                                         |   |         |   |   |   |   |
| Commitments to extend credit:                                                                |   |         |   |   |   |   |
| Revolving lines of credit secured by 1-4 family residences                                   |   | $            | 5,964  |   |   | $ | 6,615 |   |
| Commercial real estate, construction and land development commitments secured by real estate |   |         | 12,746 |   |   |   | 18,202 |   |
| Other unused commitments, principally commercial loans                                       |   |         | 23,738 |   |   |   | 43,008 |   |
|                                                                                         |   |         |   |   |   |   |   |   |
|                                                                                         |   | $            | 42,448 |   |   | $ | 67,825 |   |
|                                                                                         |   |         |   |   |   |   |   |   |
| Standby letters of credit                                                                    |   | $            | 10,033 |   |   | $ | 10,190 |   |

----

| 12.    | COMMITMENTS AND CONTINGENCIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Financial Instruments With Off-Balance-Sheet Risk (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | At inception, real estate commitments are generally secured by property with a loan to value ratio of 55% to 75%. In addition, the majority of the Company’s commitments have variable interest rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, equipment and deeds of trust on residential real estate and income-producing commercial properties. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Standby letters of credit are conditional commitments issued to guarantee the performance or financial obligation of a client to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to clients. 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 December 31, 2010 and 2009. The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used.                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Significant Concentrations of Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to clients throughout Sacramento, Placer, Yolo, Amador, El Dorado, and Sonoma counties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | In management’s judgment, a concentration exists in real estate-related loans which represented approximately 76% and 74% of the Company’s loan portfolio at December 31, 2010 and 2009, respectively. A continued substantial decline in the economy in general, or a continued decline in real estate values in the Company’s primary market areas in particular, could have an adverse impact on collectibility of these loans. However, personal and business income represent the primary source of repayment for a majority of these loans.                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Correspondent Banking Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. The Company did not have any uninsured deposits at December 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or results of operations of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

| 13.    | SHAREHOLDERS’ EQUITY                                                                                                                                                           |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                 |
|   | Earnings Per Share                                                                                                                                                                   |
|   |                                                                                                                                                                                 |
|   | A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows (dollars and shares in thousands, except per share data): |

| For the Year Ended               |   | Net Income |   |   | Weighted Average Number of Shares Outstanding |   |   | Per-Share Amount |   |
|----------------------------------|--------|------------|--------|--------|-----------------------------------------------|--------|--------|------------------|--------|
|                             |   |       |   |   |                                          |   |   |             |   |
| December 31, 2010                |   |       |   |   |                                          |   |   |             |   |
|                             |   |       |   |   |                                          |   |   |             |   |
| Basic earnings per share         |   | $          | 476    |   |                                          |   | 9,846  |             |   | $ | 0.05 |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Effect of dilutive stock options |   |       |   |   |                                          |   | 3      |             |   |   |   |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Diluted earnings per share       |   | $          | 476    |   |                                          |   | 9,849  |             |   | $ | 0.05 |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| December 31, 2009                |   |       |   |   |                                          |   |   |             |   |   |   |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Basic earnings per share         |   | $          | 1,586  |   |                                          |   | 6,031  |             |   | $ | 0.26 |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Effect of dilutive stock options |   |       |   |   |                                          |   | 7      |             |   |   |   |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Diluted earnings per share       |   | $          | 1,586  |   |                                          |   | 6,038  |             |   | $ | 0.26 |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| December 31, 2008                |   |       |   |   |                                          |   |   |             |   |   |   |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Basic earnings per share         |   | $          | 7,571  |   |                                          |   | 5,811  |             |   | $ | 1.30 |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Effect of dilutive stock options |   |       |   |   |                                          |   | 14     |             |   |   |   |   |
|                             |   |       |   |   |                                          |   |   |             |   |   |   |   |
| Diluted earnings per share       |   | $          | 7,571  |   |                                          |   | 5,825  |             |   | $ | 1.30 |   |

|   | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | In 2000, the Board of Directors adopted and the Company’s shareholders approved a stock option plan (the “2000 Plan”), under which 379,571 options remain outstanding at December 31, 2010. On March 17, 2010, the Board of Directors adopted the 2010 Equity Incentive Plan. The 2010 Plan was approved by the Company’s shareholders on May 20, 2010. The total number of authorized shares that are available for issuance under the 2010 Plan is 1,447,495. The 2010 Plan provides for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted stock; restricted performance stock; unrestricted Company stock; and performance units. Awards granted under the 2000 Plan were either incentive stock options or nonqualified stock options. The 2010 Plan and the 2000 Plan (collectively the “Plans”), under which equity incentives may be granted to employees and directors under incentive and nonstatutory agreements, require that the option price may not be less than the fair market value of the stock at the date the option is granted. The option awards under the Plans expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period is generally five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors. Outstanding option awards under the Plans are exercisable until their expiration; however, no new options will be awarded under the 2000 Plan. The Plans do not provide for the settlement of awards in cash and new shares are issued upon exercise of an option. |

----

| 13.    | SHAREHOLDERS’ EQUITY (Continued)                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                              |
|   | Stock Based Compensation (Continued)                                                                              |
|   |                                                                                                              |
|   | A summary of the outstanding and vested stock option activity for the year ended December 31, 2010 is as follows: |

|                        |   | Outstanding |    |   | Nonvested                                 |   |
|-----------------------------|--------|-------------|---------|--------|-------------------------------------------|--------|
|                        |   | Shares      |    |   | Weighted Average Exercise Price Per Share |   |   | Shares |   |   | Weighted Average Fair Value Per Share |   |
|                        |   |        |    |   |                                      |   |   |   |   |   |   |   |
| Balance, January 1, 2010    |   |        | 381,021 |   |                                      | $      | 17.20 |   |   |   | 180,597 |   |   | $ | 3.19 |   |
|                        |   |        |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Options vested              |   |        |    |   |                                      |   |   |   |   |   | (59,352 | ) |   | $ | 4.08 |   |
| Options expired or canceled |   |        | (1,450  | )      |                                      | $      | 22.15 |   |   |   | (1,450 | ) |   | $ | 5.12 |   |
|                        |   |        |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2010  |   |        | 379,571 |   |                                      | $      | 17.18 |   |   |   | 119,795 |   |   | $ | 2.73 |   |

| A summary of options as of December 31, 2010 is as follows:                     |   |   |    |   |
|---------------------------------------------------------------------------------|--------|--------|---------|--------|
|                                                                            |   |   |    |   |
| Weighted average exercise price of nonvested stock options                      |   | $      | 15.09   |   |
| Aggregate intrinsic value of nonvested stock options                            |   | $      | — |   |
| Weighted average remaining contractual term in years of nonvested stock options |   |   | 7.18    |   |
|                                                                            |   |   |    |   |
| Number of vested stock options                                                  |   |   | 259,776 |   |
| Weighted average exercise price per share                                       |   | $      | 18.15   |   |
| Aggregate intrinsic value                                                       |   | $      | — |   |
| Weighted average remaining contractual term in years                            |   |   | 4.72    |   |

| Range of Exercise Prices |        | Number of Options OutstandingDecember 31, 2010 |   | Weighted Average RemainingContractual Life |    | Number of Options ExercisableDecember 31, 2010 |       |
|--------------------------|-------------|------------------------------------------------|--------|--------------------------------------------|---------|------------------------------------------------|------------|
|                     |        |                                           |   |                                       |    |                                           |       |   |
| $                        | 8.50-11.66  |                                           |   |                                       | 61,903  |                                           | 8.14 years |   |   | 12,398 |   |
| $                        | 11.67-12.37 |                                           |   |                                       | 33,562  |                                           | 2.22 years |   |   | 33,562 |   |
| $                        | 12.38-12.65 |                                           |   |                                       | 1,575   |                                           | 7.39 years |   |   | 630 |   |
| $                        | 12.66-16.18 |                                           |   |                                       | 927     |                                           | 2.39 years |   |   | 927 |   |
| $                        | 16.19-16.77 |                                           |   |                                       | 58,942  |                                           | 7.15 years |   |   | 23,576 |   |
| $                        | 16.78-18.10 |                                           |   |                                       | 48,399  |                                           | 3.31 years |   |   | 48,399 |   |
| $                        | 18.11-18.23 |                                           |   |                                       | 36,174  |                                           | 4.27 years |   |   | 36,169 |   |
| $                        | 18.24-24.07 |                                           |   |                                       | 138,089 |                                           | 5.50 years |   |   | 104,115 |   |
|                     |        |                                           |   |                                       |    |                                           |       |   |   |   |   |
|                     |        |                                           |   |                                       | 379,571 |                                           |       |   |   | 259,776 |   |

----

| 13.    | SHAREHOLDERS’ EQUITY (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Stock Based Compensation (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | During the third quarter of 2010, the Company awarded 29,334 shares of restricted common stock under the Company’s 2010 Equity Incentive Plan to certain employees and to directors. Grant date fair value is determined by the market price of the Company’s common stock at the date of grant. The aggregate value of these shares at the grant date amounts to approximately $205,000 or $6.99 per share and is recognized ratably as compensation expense or director expense over the vesting periods. The shares of common stock granted pursuant to such agreements vest in increments over one to five years from the date of grant. The Company recognized $47,000 in compensation expense and director expense related to restricted stock in 2010. The intrinsic value of the restricted stock outstanding at December 31, 2010 was approximately $176,000. The weighted average contractual term over which the restricted stock will vest is 1.68 years as of December 31, 2010. 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. New shares are issued upon vesting of the restricted common stock. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Common Stock Repurchase Program                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | On January 16, 2008, the Board of Directors of the Company authorized a stock repurchase program that allows for the repurchase of up to six and one half percent (6.5%) annually of the Company’s outstanding shares of common stock. The repurchases under this plan can be made from time to time in the open market as conditions allow. Management reports monthly to the Board of Directors on the status of the repurchase program. The Board of Directors has reserved the right to suspend, terminate, modify or cancel the repurchase programs at any time for any reason. The 6.5% percent program announced in 2008 replaced a program announced in 2001 whereby the Company had the ability to repurchase up to five percent (5.0%) annually of the Company’s outstanding shares of common stock. On July 24, 2009, the Board of Directors temporarily suspended the Company’s stock repurchase program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Stock Dividend                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The Board of Directors declared a 5% stock dividend November 19, 2008. As appropriate, per share and relevant data in the consolidated financial statements have been retroactively restated to reflect the stock dividend.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 14.    | REGULATORY MATTERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Upon declaration by the Board of Directors of the Company, all shareholders of record will be entitled to receive dividends. The California Financial Code restricts the total dividend payment of any state banking association in any calendar year to the lesser of (1) the bank’s retained earnings or (2) the bank’s net income for its last three fiscal years, less distributions made to shareholders during the same three-year period. In addition, subject to prior regulatory approval, any state banking association may request an exception to this restriction. In May, September and December 2008, and in March and June of 2009, ARB requested, and received approval for, equal payments of $1,000,000. The effect of the payments is such that ARB could continue to provide dividends to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

----

| 14.    | REGULATORY MATTERS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Dividends (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | In 2009 and 2008, the Company declared cash dividends in the amount of $0.29 and $0.57, respectively, per common share. The amounts have been adjusted to reflect 5% stock dividends declared in 2008. There is no assurance, however, that any dividends will be paid in the future since they are subject to regulatory restrictions, and dependent upon earnings, financial condition and capital requirements of the Company and its subsidiaries. On July 24, 2009, the Board of Directors temporarily suspended the payment of cash dividends until such time as it is prudent to reestablish payment of cash dividends. As a result there were no cash dividends declared or paid in 2010. Currently, any future cash dividends from the Bank to the Company will require prior regulatory approval. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Regulatory Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The Company and ARB are subject to certain regulatory capital requirements administered by the Board of Governors of the Federal Reserve System and 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. As a result of a regularly scheduled 2009 FDIC examination, management entered into a Memorandum of Understanding (MOU) with its regulators to take certain actions, including maintenance of certain capital ratios as described in “Note 1, The Business of the Company” herein.                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Under capital adequacy guidelines, the Company and ARB 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. These quantitative measures are established by regulation and require that minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets be maintained. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | ARB is also subject to additional capital guidelines under the regulatory framework for prompt corrective action. To be categorized as well capitalized, ARB must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Management believes that the Company and ARB met all their capital adequacy requirements as of December 31, 2010 and 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|                                                                                                         |   | December 31,           |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------|
|                                                                                                         |   | 2010                   |   | 2009 |
|                                                                                                         |   | Amount                 |   |   | Ratio |   | Amount |   |   | Ratio |
|                                                                                                         |   | (dollars in thousands) |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| Leverage Ratio                                                                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| American River Bankshares and Subsidiaries                                                                   |   | $                      | 71,112 |   |   | 12.6 | % |   | $ | 70,158 |   |   | 12.4 | % |
| Minimum regulatory requirement                                                                               |   | $                      | 22,663 |   |   | 4.0 | % |   | $ | 22,535 |   |   | 4.0 | % |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| American River Bank                                                                                          |   | $                      | 66,371 |   |   | 11.8 | % |   | $ | 65,385 |   |   | 11.7 | % |
| Minimum requirement for “Well-Capitalized” institution under prompt corrective action provisions |   | $                      | 28,207 |   |   | 5.0 | % |   | $ | 28,059 |   |   | 5.0 | % |
| Minimum regulatory requirement                                                                               |   | $                      | 22,566 |   |   | 4.0 | % |   | $ | 22,447 |   |   | 4.0 | % |

----

| 14.    | REGULATORY MATTERS (Continued) |
|--------|--------------------------------|
|   |                           |
|   | Regulatory Capital (Continued) |

|                                                                                                         |   | December 31,           |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------|
|                                                                                                         |   | 2010                   |   | 2009 |
|                                                                                                         |   | Amount                 |   |   | Ratio |   | Amount |   |   | Ratio |
|                                                                                                         |   | (dollars in thousands) |   |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 Risk-Based Capital Ratio                                                                              |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| American River Bankshares and Subsidiaries                                                                   |   | $                      | 71,112 |   |   | 19.1 | % |   | $ | 70,158 |   |   | 17.1 | % |
| Minimum regulatory requirement                                                                               |   | $                      | 14,913 |   |   | 4.0 | % |   | $ | 16,384 |   |   | 4.0 | % |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| American River Bank                                                                                          |   | $                      | 66,371 |   |   | 17.9 | % |   | $ | 65,385 |   |   | 16.0 | % |
| Minimum requirement for “Well-Capitalized” institution under prompt corrective action provisions |   | $                      | 22,239 |   |   | 6.0 | % |   | $ | 24,463 |   |   | 6.0 | % |
| Minimum regulatory requirement                                                                               |   | $                      | 14,826 |   |   | 4.0 | % |   | $ | 16,309 |   |   | 4.0 | % |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Risk-Based Capital Ratio                                                                               |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| American River Bankshares and Subsidiaries                                                                   |   | $                      | 75,809 |   |   | 20.3 | % |   | $ | 75,313 |   |   | 18.4 | % |
| Minimum regulatory requirement                                                                               |   | $                      | 30,058 |   |   | 8.0 | % |   | $ | 32,989 |   |   | 8.0 | % |
|                                                                                                         |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| American River Bank                                                                                          |   | $                      | 71,041 |   |   | 19.2 | % |   | $ | 70,516 |   |   | 17.3 | % |
| Minimum requirement for “Well-Capitalized” institution under prompt corrective action provisions |   | $                      | 37,357 |   |   | 10.0 | % |   | $ | 41,050 |   |   | 10.0 | % |
| Minimum regulatory requirement                                                                               |   | $                      | 29,886 |   |   | 8.0 | % |   | $ | 32,840 |   |   | 8.0 | % |

| 15.    | OTHER NONINTEREST INCOME AND EXPENSE                                        |
|--------|-----------------------------------------------------------------------------|
|   |                                                                        |
|   | Other noninterest income consisted of the following (dollars in thousands): |

|                                                                  |   | Year Ended December 31, |   |
|-----------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                  |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                                                  |   |                    |   |   |   |   |   |   |   |
| Merchant fee income                                                   |   | $                       | 420    |   |   | $ | 437 |   |   | $ | 482 |   |
| Accounts receivable servicing fees                                    |   |                    |   |   |   |   | 35 |   |   |   | 170 |   |
| Income from residential lending division                              |   |                    |   |   |   |   | 7 |   |   |   | 283 |   |
| Increase in cash surrender value of life insurance policies (Note 16) |   |                    | 277    |   |   |   | 246 |   |   |   | 395 |   |
| Other                                                                 |   |                    | 234    |   |   |   | 256 |   |   |   | 216 |   |
|                                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                                                  |   | $                       | 931    |   |   | $ | 981 |   |   | $ | 1,546 |   |

----

| 15.    | OTHER NONINTEREST INCOME AND EXPENSE (Continued)                             |
|--------|------------------------------------------------------------------------------|
|   |                                                                         |
|   | Other noninterest expense consisted of the following (dollars in thousands): |

|                              |   | Year Ended December 31, |   |
|-----------------------------------|--------|-------------------------|--------|
|                              |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                              |   |                    |   |   |   |   |   |   |   |
| Professional fees                 |   | $                       | 1,191  |   |   | $ | 1,061 |   |   | $ | 936 |   |
| Outsourced item processing        |   |                    | 414    |   |   |   | 369 |   |   |   | 391 |   |
| Directors’ expense          |   |                    | 371    |   |   |   | 390 |   |   |   | 321 |   |
| Telephone and postage             |   |                    | 336    |   |   |   | 375 |   |   |   | 403 |   |
| Amortization of intangible assets |   |                    | 242    |   |   |   | 263 |   |   |   | 286 |   |
| Stationery and supplies           |   |                    | 208    |   |   |   | 205 |   |   |   | 274 |   |
| Advertising and promotion         |   |                    | 198    |   |   |   | 232 |   |   |   | 339 |   |
| Other operating expenses          |   |                    | 1,010  |   |   |   | 1,278 |   |   |   | 1,143 |   |
|                              |   |                    |   |   |   |   |   |   |   |   |   |   |
|                              |   | $                       | 3,970  |   |   | $ | 4,173 |   |   | $ | 4,093 |   |

| 16.    | EMPLOYEE BENEFIT PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | American River Bankshares 401(k) Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The American River Bankshares 401(k) Plan has been in place since January 1, 1993 and is available to all employees. Under the plan, the Company will match 100% of each participants’ contribution up to 3% of annual compensation plus 50% of the next 2% of annual compensation. Employer Safe Harbor matching contributions are 100% vested upon entering the plan. The Company’s contributions totaled $173,000, $176,000 and $200,000 for the years ended December 31, 2010, 2009 and 2008, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | Employee Stock Purchase Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The Company contracts with an administrator for an Employee Stock Purchase Plan which allows employees to purchase the Company’s stock at fair market value as of the date of purchase. The Company bears all costs of administering the Plan, including broker’s fees, commissions, postage and other costs actually incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | American River Bankshares Deferred Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | The Company has established a Deferred Compensation Plan for certain members of the management team and a Deferred Fee Agreement for Non-Employee Directors for the purpose of providing the opportunity for participants to defer compensation. Participants of the management team, who are selected by a committee designated by the Board of Directors, may elect to defer annually a minimum of $5,000 or a maximum of eighty percent of their base salary and all of their cash bonus. Directors may also elect to defer up to one hundred percent of their monthly fees. The Company bears all administration costs and accrues interest on the participants’ deferred balances at a rate based on U.S. Government Treasury rates plus 4.0%. This rate was 6.5% at December 31, 2010. Deferred compensation, including interest earned, totaled $2,330,000, $2,167,000 and $2,023,000 at December 31, 2010, 2009 and 2008, respectively. The expense recognized under this plan totaled $150,000, $116,000 and $142,000 for the years ended December 31, 2010, 2009 and 2008, respectively. |

----

| 16.    | EMPLOYEE BENEFIT PLANS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | Salary Continuation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | The Company has agreements to provide certain current executives, or their designated beneficiaries, with annual benefits for up to 15 years after retirement or death. These benefits are substantially equivalent to those available under life insurance policies purchased by the Company on the lives of the executives. The Company accrues for these future benefits from the effective date of the agreements until the executives’ expected final payment dates in a systematic and rational manner. As of December 31, 2010 and 2009, the Company had accrued $867,000 and $764,000, respectively, for potential benefits payable. This payable approximates the then present value of the benefits expected to be provided at retirement. The expense recognized under this plan totaled $153,000, $141,000 and $188,000 for the years ended December 31, 2010, 2009 and 2008, respectively. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | In connection with these plans, the Company invested in single premium life insurance policies with cash surrender values totaling $11,019,000 and $10,742,000 at December 31, 2010 and 2009, respectively. On the consolidated balance sheet, the cash surrender value of life insurance policies is included in accrued interest receivable and other assets. Tax-exempt income on these policies, net of expense, totaled approximately $277,000, $246,000 and $395,000 for the years ended December 31, 2010, 2009 and 2008, respectively.                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 17.    | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | During the normal course of business, the Company enters into transactions with related parties, including Directors and affiliates. These transactions include borrowings from the Company with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers during 2010 (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

| Balance, January 1, 2010                                      |   | $      | 4,051  |   |
|---------------------------------------------------------------|--------|--------|--------|--------|
|                                                          |   |   |   |   |
| Disbursements                                                 |   |   | 38     |   |
| Amounts repaid                                                |   |   | (113   | )      |
|                                                          |   |   |   |   |
| Balance, December 31, 2010                                    |   | $      | 3,976  |   |
|                                                          |   |   |   |   |
| Undisbursed commitments to related parties, December 31, 2010 |   | $      | 5      |   |

|   | The Company also leases one of its branch facilities from a current member of the Company’s Board of Directors. Rental payments to the Director totaled $101,000, $87,000 and $85,000 for the years ended December 31, 2010, 2009 and 2008, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 18.    | OTHER COMPREHENSIVE INCOME (LOSS)                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                      |
|   | At December 31, 2010, 2009 and 2008, the Company had other comprehensive income (loss) as follows (dollars in thousands): |

|                                                                       |   | Before Tax |   |   | Tax Expense |   |   | After Tax |   |
|----------------------------------------------------------------------------|--------|------------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                                       |   |       |   |   |        |   |   |      |   |
| For the Year Ended December 31, 2010                                       |   |       |   |   |        |   |   |      |   |
|                                                                       |   |       |   |   |        |   |   |      |   |
| Other comprehensive income:                                                |   |       |   |   |        |   |   |      |   |
| Unrealized holding gain                                                    |   | $          | 2,478  |   |        | $      | (987   | )         |   | $ | 1,491 |   |
| Less reclassification adjustment for realized gains included in net income |   |       | 7      |   |        |   | (3     | )         |   |   | 4 |   |
|                                                                       |   |       |   |   |        |   |   |      |   |   |   |   |
|                                                                       |   | $          | 2,471  |   |        | $      | (984   | )         |   | $ | 1,487 |   |
|                                                                       |   |       |   |   |        |   |   |      |   |   |   |   |
| For the Year Ended December 31, 2009                                       |   |       |   |   |        |   |   |      |   |   |   |   |
|                                                                       |   |       |   |   |        |   |   |      |   |   |   |   |
| Other comprehensive loss:                                                  |   |       |   |   |        |   |   |      |   |   |   |   |
| Unrealized holding loss                                                    |   | $          | (26    | )      |        | $      | 10     |      |   | $ | (16 | ) |
| Less reclassification adjustment for realized gains included in net income |   |       | 270    |   |        |   | (111   | )         |   |   | 159 |   |
|                                                                       |   |       |   |   |        |   |   |      |   |   |   |   |
|                                                                       |   | $          | (296   | )      |        | $      | 121    |      |   | $ | (175 | ) |
|                                                                       |   |       |   |   |        |   |   |      |   |   |   |   |
| For the Year Ended December 31, 2008                                       |   |       |   |   |        |   |   |      |   |   |   |   |
|                                                                       |   |       |   |   |        |   |   |      |   |   |   |   |
| Other comprehensive income:                                                |   |       |   |   |        |   |   |      |   |   |   |   |
| Unrealized holding gains                                                   |   | $          | 628    |   |        | $      | (258   | )         |   | $ | 370 |   |
| Less reclassification adjustment for realized gains included in net income |   |       | 126    |   |        |   | (52    | )         |   |   | 74 |   |
|                                                                       |   |       |   |   |        |   |   |      |   |   |   |   |
|                                                                       |   | $          | 502    |   |        | $      | (206   | )         |   | $ | 296 |   |

----

| 19. | PARENT ONLY CONDENSED FINANCIAL STATEMENTS |
|-----|--------------------------------------------|

|                                                 |   | 2010   |   |   | 2009   |   |
|------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                 |   |   |   |   |   |   |
| ASSETS                                               |   |   |   |   |   |   |
|                                                 |   |   |   |   |   |   |
| Cash and due from banks                              |   | $      | 6,157  |   |   | $      | 6,067 |   |
| Investment in subsidiaries                           |   |   | 84,803 |   |   |   | 82,572 |   |
| Other assets                                         |   |   | 2,461  |   |   |   | 2,165 |   |
|                                                 |   |   |   |   |   |   |   |   |
|                                                 |   | $      | 93,421 |   |   | $      | 90,804 |   |
|                                                 |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY           |   |   |   |   |   |   |   |
|                                                 |   |   |   |   |   |   |   |   |
| Liabilities:                                         |   |   |   |   |   |   |   |   |
| Other liabilities                                    |   | $      | 3,877  |   |   | $      | 3,459 |   |
|                                                 |   |   |   |   |   |   |   |   |
| Total liabilities                                    |   |   | 3,877  |   |   |   | 3,459 |   |
|                                                 |   |   |   |   |   |   |   |   |
| Shareholders’ equity:                          |   |   |   |   |   |   |   |   |
| Common stock                                         |   |   | 71,814 |   |   |   | 71,578 |   |
| Retained earnings                                    |   |   | 16,021 |   |   |   | 15,545 |   |
| Accumulated other comprehensive income, net of taxes |   |   | 1,709  |   |   |   | 222 |   |
|                                                 |   |   |   |   |   |   |   |   |
| Total shareholders’ equity                     |   |   | 89,544 |   |   |   | 87,345 |   |
|                                                 |   |   |   |   |   |   |   |   |
|                                                 |   | $      | 93,421 |   |   | $      | 90,804 |   |

----

| 19. | PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued) |
|-----|--------------------------------------------------------|

|                                                                   |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                   |   |   |   |   |   |   |   |   |   |
| Income:                                                                |   |   |   |   |   |   |   |   |   |
| Dividends declared by subsidiaries – eliminated in consolidation |   |   |   |   |   | $      | 1,655  |   |   | $ | 4,560 |   |
| Management fee from subsidiaries – eliminated in consolidation   |   | $      | 4,057  |   |   |   | 4,057  |   |   |   | 3,706 |   |
| Other income                                                           |   |   | 29     |   |   |   | 26     |   |   |   | 39 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total income                                                           |   |   | 4,086  |   |   |   | 5,738  |   |   |   | 8,305 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                         |   |   | 3,125  |   |   |   | 2,696  |   |   |   | 2,582 |   |
| Professional fees                                                      |   |   | 360    |   |   |   | 404    |   |   |   | 390 |   |
| Directors’ expense                                               |   |   | 308    |   |   |   | 325    |   |   |   | 248 |   |
| Other expenses                                                         |   |   | 645    |   |   |   | 684    |   |   |   | 668 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total expenses                                                         |   |   | 4,438  |   |   |   | 4,109  |   |   |   | 3,888 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) income before equity in undistributed income of subsidiaries    |   |   | (352   | )      |   |   | 1,629  |   |   |   | 4,417 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in undistributed (distributed) income of subsidiaries           |   |   | 699    |   |   |   | (49    | )      |   |   | 3,113 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before income taxes                                             |   |   | 347    |   |   |   | 1,580  |   |   |   | 7,530 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax benefit                                                     |   |   | 129    |   |   |   | 6      |   |   |   | 41 |   |
|                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                             |   | $      | 476    |   |   | $      | 1,586  |   |   | $ | 7,571 |   |

----

| 19. | PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued) |
|-----|--------------------------------------------------------|

|                                                                              |   | 2010   |    |   | 2009   |   |    | 2008   |   |
|-----------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                                                              |   |   |    |   |   |   |    |   |   |
| Cash flows from operating activities:                                             |   |   |    |   |   |   |    |   |   |
| Net income                                                                        |   | $      | 476     |   |   | $      | 1,586   |   |   | $ | 7,571 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |   |    |   |   |   |    |   |   |   |   |   |
| (Distributed) undistributed earnings of subsidiaries                              |   |   | (699    | )      |   |   | 49      |   |   |   | (3,113 | ) |
| Decrease in dividends receivable from subsidiaries                                |   |   |    |   |   |   |    |   |   |   | 840 |   |
| Equity-based compensation expense                                                 |   |   | 236     |   |   |   | 210     |   |   |   | 291 |   |
| Increase in other assets                                                          |   |   | (193    | )      |   |   | (267    | )      |   |   | (104 | ) |
| Increase (decrease) in other liabilities                                          |   |   | 418     |   |   |   | 495     |   |   |   | 220 |   |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Net cash provided by operating activities                                         |   |   | 238     |   |   |   | 2,073   |   |   |   | 5,705 |   |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash flows from investing activities:                                             |   |   |    |   |   |   |    |   |   |   |   |   |
| Purchase of equipment                                                             |   |   | (148    | )      |   |   | (50     | )      |   |   | (26 | ) |
| Investment in subsidiary                                                          |   |   |    |   |   |   | (19,000 | )      |   |   |   |   |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Net cash used in investing activities                                             |   |   | (148    | )      |   |   | (19,050 | )      |   |   | (26 | ) |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash flows from financing activities:                                             |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash dividends paid                                                               |   |   |    |   |   |   | (2,486  | )      |   |   | (3,328 | ) |
| Exercise of stock options, including tax benefit                                  |   |   |    |   |   |   | 33      |   |   |   | 354 |   |
| Cash paid to repurchase common stock                                              |   |   |    |   |   |   |    |   |   |   | (1,710 | ) |
| Cash paid for fractional shares                                                   |   |   |    |   |   |   |    |   |   |   | (10 | ) |
| Net proceeds from stock issuance                                                  |   |   |    |   |   |   | 23,901  |   |   |   |   |   |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Net cash provided by (used in) financing activities                               |   |   | — |   |   |   | 21,448  |   |   |   | (4,694 | ) |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Net increase in cash and cash equivalents                                         |   |   | 90      |   |   |   | 4,471   |   |   |   | 985 |   |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash and cash equivalents at beginning of year                                    |   |   | 6,067   |   |   |   | 1,596   |   |   |   | 611 |   |
|                                                                              |   |   |    |   |   |   |    |   |   |   |   |   |
| Cash and cash equivalents at end of year                                          |   | $      | 6,157   |   |   | $      | 6,067   |   |   | $ | 1,596 |   |

----

| Selected Quarterly Information (Unaudited)                       |   |
|------------------------------------------------------------------|--------|
| (In thousands, except per share and price range of common stock) |   |
|                                                             |   |
|                                                             |   | March 31, |   |   | June 30, |   |   | September 30, |   |   | December 31, |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                  |   | $ | 6,714 |   |   | $ | 6,473 |   |   | $ | 6,344 |   |   | $ | 6,175 |   |
| Net interest income                                              |   |   | 5,772 |   |   |   | 5,582 |   |   |   | 5,506 |   |   |   | 5,396 |   |
| Provision for loan and lease losses                              |   |   | 1,641 |   |   |   | 2,011 |   |   |   | 2,025 |   |   |   | 1,688 |   |
| Noninterest income                                               |   |   | 461 |   |   |   | 460 |   |   |   | 441 |   |   |   | 442 |   |
| Noninterest expense                                              |   |   | 4,185 |   |   |   | 4,055 |   |   |   | 3,972 |   |   |   | 4,258 |   |
| Income (loss) before taxes                                       |   |   | 407 |   |   |   | (24 | ) |   |   | (50 | ) |   |   | (108 | ) |
| Net income                                                       |   |   | 306 |   |   |   | 54 |   |   |   | 39 |   |   |   | 77 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share                                         |   | $ | .03 |   |   | $ | .01 |   |   | $ | .00 |   |   | $ | .01 |   |
| Diluted earnings per share                                       |   |   | .03 |   |   |   | .01 |   |   |   | .00 |   |   |   | .01 |   |
| Cash dividends per share                                         |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Price range, common stock                                        |   | $ | 7.50-8.50 |   |   | $ | 7.50-8.50 |   |   | $ | 5.65-7.58 |   |   | $ | 5.50-6.49 |   |

| 2009                                |   |   |       |   |   |   |       |   |   |   |       |   |
|-------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|------------|--------|
|                                |   |   |       |   |   |   |       |   |   |   |       |   |
| Interest income                     |   | $      | 7,751      |   |   | $      | 7,321      |   |   | $      | 7,163      |   |   | $ | 6,887 |   |
| Net interest income                 |   |   | 6,339      |   |   |   | 6,018      |   |   |   | 5,928      |   |   |   | 5,747 |   |
| Provision for loan and lease losses |   |   | 1,229      |   |   |   | 3,800      |   |   |   | 1,001      |   |   |   | 2,500 |   |
| Noninterest income                  |   |   | 510        |   |   |   | 649        |   |   |   | 597        |   |   |   | 513 |   |
| Noninterest expense                 |   |   | 3,601      |   |   |   | 4,239      |   |   |   | 4,268      |   |   |   | 3,703 |   |
| Income (loss) before taxes          |   |   | 2,019      |   |   |   | (1,372     | )      |   |   | 1,256      |   |   |   | 57 |   |
| Net income (loss)                   |   |   | 1,283      |   |   |   | (704       | )      |   |   | 827        |   |   |   | 180 |   |
|                                |   |   |       |   |   |   |       |   |   |   |       |   |   |   |   |   |
| Basic earnings (loss) per share     |   | $      | .22        |   |   | $      | (0.12      | )      |   | $      | .14        |   |   | $ | .03 |   |
| Diluted earnings (loss) per share   |   |   | .22        |   |   |   | (0.12      | )      |   |   | .14        |   |   |   | .03 |   |
| Cash dividends per share            |   |   | .143       |   |   |   | .143       |   |   |   | —    |   |   |   | — |   |
| Price range, common stock           |   | $      | 7.02-10.97 |   |   | $      | 7.90-12.15 |   |   | $      | 7.45-10.99 |   |   | $ | 6.00-7.98 |   |

----

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures.

|   | /s/ DAVID T. TABER                    |   | /s/ MITCHELL A. DERENZO      |   |
|--------|---------------------------------------|--------|------------------------------|--------|
|   | David T. Taber                        |   | Mitchell A. Derenzo          |   |
|   | President and Chief Executive Officer |   | Executive Vice President and |   |
|   |                                  |   | Chief Financial Officer      |   |

Item 9B. Other Information.

----

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accounting Fees and Services.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

| (a)    | (1)Financial Statements. Listed and included in Part II, Item 8. |
|--------|------------------------------------------------------------------|
|   |                                                             |
|   | (2)Financial Statement Schedules. Not applicable.                |
|   |                                                             |   |   |
|   | (3)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 June 30, 2009, filed with the Commission on August 13, 2009. |

----

|   | (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 June 30, 2008, filed with the Commission on August 8, 2008.                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | (4.1)   |   | Specimen of the Registrant’s common stock certificate, incorporated by reference from Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed with the Commission on August 11, 2004.                                                                                                                                                                                                                                                                                                                                                       |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | (10.1)  |   | Lease agreement between American River Bank and Spieker Properties, L.P., a California limited partnership, dated April 1, 2000, related to 1545 River Park Drive, Suite 107, Sacramento, California (**) and the Second Amendment thereto dated August 27, 2010, with HINES VAF II SACRAMENTO PROPERTIES, L.P., a Delaware limited partnership, the successor to Spieker Properties, L.P., incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on August 30, 2010.                                                             |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | (10.2)  |   | Lease agreement between American River Bank and Bradshaw Plaza, Associates, Inc. dated November 27, 2006, related to 9750 Business Park Drive, Sacramento, California incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2006.                                                                                                                                                                                                                                                                                 |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | (10.3)  |   | Lease agreement between American River Bank and Marjorie Wood Taylor, Trustee of the Marjorie Wood-Taylor Trust, dated April 5, 1984, and addendum thereto dated July 16, 1997, related to 10123 Fair Oaks Boulevard, Fair Oaks, California (**) and Amendment No. 2 thereto dated May 14, 2009, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 15, 2009.                                                                                                                                                           |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | (10.4)  |   | Lease agreement between American River Bank and LUM YIP KEE, Limited (formerly Sandalwood Land Company) dated August 28, 1996, related to 2240 Douglas Boulevard, Suite 100, Roseville, California (**) and Amendment No. 1 thereto dated July 28, 2006, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 31, 2006.                                                                                                                                                                                                  |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | *(10.5) |   | Registrant’s Deferred Compensation Plan, incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | *(10.6) |   | Registrant’s Deferred Fee Plan, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | (10.7)  |   | Lease agreement between American River Bank and 520 Capitol Mall, Inc., dated August 19, 2003, related to 520 Capitol Mall, Suite 100, Sacramento, California, incorporated by reference from Exhibit 10.29 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed with the Commission on November 7, 2003 and the First Amendment thereto dated April 21, 2004, incorporated by reference from Exhibit 10.37 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed with the Commission on August 11, 2004. |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | *(10.8) |   | Employment Agreement between Registrant and David T. Taber dated June 2, 2006, incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 30, 2006.                                                                                                                                                                                                                                                                                                                                                                             |
|   |    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | *(10.9) |   | Salary Continuation Agreement, as amended on February 21, 2008, 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 February 22, 2008.                                                                                                                                                                                                                                                                                                                                  |

----

|   | *(10.10) |   | Salary Continuation Agreement, as amended on February 21, 2008, 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 February 22, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | *(10.11) |   | Salary Continuation Agreement, as amended on February 21, 2008, between American River Bank and Douglas E. Tow, incorporated by reference from Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | *(10.12) |   | Registrant’s 2000 Stock Option Plan with forms of Nonqualified Stock Option Agreement and Incentive Stock Option Agreement. **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | *(10.13) |   | Registrant’s 401(k) Plan dated December 23, 2008, incorporated by reference from Exhibit 99.1 to the Current Report on Form 8-K, filed with the Commission on December 24, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | (10.14)  |   | Lease agreement between Bank of Amador and the United States Postal Service, dated April 24, 2001, related to 424 Sutter Street, Jackson, California (***) and the First Amendment thereto, dated June 5, 2006, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 6, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | *(10.15) |   | Salary Continuation Agreement, as amended on February 21, 2008, between Bank of Amador, a division of American River Bank, and Larry D. Standing and related Endorsement Split Dollar Agreement, incorporated by reference from Exhibit 99.4 to the Registrant’s Report on Form 8-K, filed with the Commission on February 22, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | *(10.16) |   | Director Retirement Agreement, as amended on February 21, 2008, between Bank of Amador, a division of American River Bank, and Larry D. Standing, incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | (10.17)  |   | Item Processing Agreement between American River Bank and Fidelity Information Services, Inc., dated April 22, 2005, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on April 27, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | (10.18)  |   | Lease agreement between Registrant and One Capital Center, a California limited partnership, dated May 17, 2005, related to 3100 Zinfandel Drive, Rancho Cordova, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 18, 2005 and the First Amendment thereto dated April 23, 2010, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on April 23, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | (10.19)  |   | Managed Services Agreement between American River Bankshares and ProNet Solutions, Inc., dated June 16, 2009, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 18, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | *(10.20) |   | American River Bankshares 2005 Executive Incentive Plan, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 27, 2005; the First Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 17, 2006; the Second Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 23, 2007; the Third Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008, the Fourth Amendment thereto, incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Commission on March 20, 2009, and the Fifth Amendment thereto, incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Commission on March 18, 2010. |

----

|   | *(10.21) |   | American River Bankshares Director Emeritus Program, incorporated by reference from Exhibit 10.33 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, filed with the Commission on August 8, 2006.                                                                                                                                                                                                                                                                                                                                      |
|--------|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.22) |   | Employment Agreement dated September 20, 2006, between American River Bankshares and Mitchell A. Derenzo, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 20, 2006.                                                                                                                                                                                                                                                                                                                    |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.23) |   | Employment Agreement dated September 20, 2006, between American River Bankshares and 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 September 20, 2006.                                                                                                                                                                                                                                                                                                                         |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.24) |   | 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.                                                                                                                                                                                                                                                                                                                        |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.25) |   | Employment Agreement dated September 20, 2006, between American River Bank and Raymond F. Byrne, incorporated by reference from Exhibit 99.5 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September 20, 2006.                                                                                                                                                                                                                                                                                                                             |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.26) |   | Salary Continuation Agreement, as amended on February 21, 2008, between American River Bank and Kevin B. Bender, incorporated by reference from Exhibit 99.6 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 22, 2008.                                                                                                                                                                                                                                                                                                              |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.27) |   | 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.                                                                                                                                                                                                                                                                                                             |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | (10.28)  |   | 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. |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | (10.29)  |   | Sublease agreement dated December 23, 2008, between North Coast Bank, a division of American River Bank, and Chicago Title Company, a California Corporation; and 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 99.2 and 99.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 24, 2008.                                                                         |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | (10.30)  |   | 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.                                                                                                                                                                                                                                                                                                                  |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.31) |   | 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.                                                                                                                                                                                                                                                                  |
|   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | *(10.32) |   | 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.                                                                                                                                                                                                                                                                        |

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|   | *(10.33) |   | 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. |
|--------|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |     |   |                                                                                                                                                                                                                     |
|   | (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.                                                              |
|   |     |   |                                                                                                                                                                                                                     |
|   | (23.1)   |   | Consent of Perry-Smith LLP.                                                                                                                                                                                              |
|   |     |   |                                                                                                                                                                                                                     |
|   | (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 Registrant by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                        |
|   |     |   |                                                                                                                                                                                                                     |
|   |     |   | *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.                                                                  |

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SIGNATURES

|          | AMERICAN RIVER BANKSHARES                    |
|---------------|----------------------------------------------|
|          |                                         |   |
| March 3, 2011 | By:                                          | /s/ DAVID T. TABER |
|          | David T. Taber                               |
|          | Chief Executive Officer                      |
|          | (Principal Executive Officer)                |
|          |                                         |   |
| March 3, 2011 | By:                                          | /s/ MITCHELL A. DERENZO |
|          | Mitchell A. Derenzo                          |
|          | Chief Financial Officer                      |
|          | (Principal Financial and Accounting Officer) |

| Signature               |   | Title                                        |   | Date    |
|-------------------------|--------|----------------------------------------------|--------|---------|
|                    |   |                                         |   |    |
| /s/ CHARLES D. FITE     |   | Director, Chairman                           |   | 3/03/11 |
| Charles D. Fite         |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ ROGER J. TAYLOR     |   | Director, Vice Chairman                      |   | 3/03/11 |
| Roger J. Taylor         |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ AMADOR S. BUSTOS    |   | Director                                     |   | 3/03/11 |
| Amador S. Bustos        |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ MITCHELL A. DERENZO |   | Chief Financial Officer                      |   | 3/03/11 |
| Mitchell A. Derenzo     |   | (Principal Financial and Accounting Officer) |   |    |
|                    |   |                                         |   |    |
| /s/ DORENE C. DOMINGUEZ |   | Director                                     |   | 3/03/11 |
| Dorene C. Dominguez     |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ ROBERT J. FOX       |   | Director                                     |   | 3/03/11 |
| Robert J. Fox           |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ WILLIAM A. ROBOTHAM |   | Director                                     |   | 3/03/11 |
| William A. Robotham     |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ DAVID T. TABER      |   | Director, Chief Executive Officer            |   | 3/03/11 |
| David T. Taber          |   | (Principal Executive Officer)                |   |    |
|                    |   |                                         |   |    |
| /s/ STEPHEN H. WAKS     |   | Director                                     |   | 3/03/11 |
| Stephen H. Waks         |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ PHILIP A. WRIGHT    |   | Director                                     |   | 3/03/11 |
| Philip A. Wright        |   |                                         |   |    |
|                    |   |                                         |   |    |
| /s/ MICHAEL A. ZIEGLER  |   | Director                                     |   | 3/03/11 |
| Michael A. Ziegler      |   |                                         |   |    |

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EXHIBIT INDEX

| Exhibit Number | Description                                                                                                                                              | Page   |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                                                     |   |
| 23.1           | Consent of Perry-Smith LLP                                                                                                                               | 116    |
|           |                                                                                                                                                     |   |
| 31.1           | Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                      | 117    |
|           |                                                                                                                                                     |   |
| 31.2           | Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                      | 118    |
|           |                                                                                                                                                     |   |
| 32.1           | Certification of American River Bankshares Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 119    |

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