---

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

FORM 10-K

|                              |                                                                                              
|----------------------------- | ---------------------------------------------------------------------------------------------
|x                             | ANNUAL
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       
|                              |                                                                                              
|                              | For the
  fiscal year ended December 31,
  2007                                              
|                              |                                                                                              
|o                             | TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
  1934
|                              |                                                                                              
|                              | For the
  transition period from __________________________ to
  _____________________       
|                              |                                                                                              
|Commission
  File No. 0-31525

|                                                                 |  |                                        |  | 
|---------------------------------------------------------------- |  | -------------------------------------- |  | 
|AMERICAN
RIVER BANKSHARES                                       
|                                                                
|(Exact name of registrant as specified in its charter)          
|                                                                 | 
|California                                                       |  | 68-0352144                             | 
|                                                                 |  |                                        |  | 
|State or
  other jurisdiction of
  incorporation or organization |  | (IRS
  Employer Identification Number) | 

| |                                                    |            |  | 
| | -------------------------------------------------- | ---------- |  | 
| | 3100 Zinfandel Drive, Rancho
  Cordova, California | 95670      | 
| |                                                   
| | (Address of principal executive
  offices)         | (Zip code) | 

Registrants
  telephone number, including area code 916-851-0123

Securities
  registered pursuant to Section 12(b) of the Act:

| |                              |  |                                             | 
| | ---------------------------- |  | ------------------------------------------- | 
| | 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                                                         

|                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate
  by check mark if the registrant is a well-known seasoned issuer, as defined
  in Rule 405 of the Securities Act.                                                                                                                                                                                                                                                                           
|Yes o No x                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                      
|Indicate
  by check mark if the registrant is not required to file reports pursuant to
  Section 13 or Section 15(d) of the Act.                                                                                                                                                                                                                                                                      
|Yes o No x                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                      
|Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
  required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days.                          Yes x No o
|                                                                                                                                                                                                                                                                                                                                                                                                      
|Indicate
  by check mark if disclosure of delinquent filers pursuant to Item 405 of
  Regulation S-K (§229.405 of this chapter) is not contained herein, and will
  not be contained, to the best of the registrants knowledge, in definitive
  proxy or information statements incorporated by reference in Part III of this
  Form 10-K or any amendment to this Form 10-K.      x                 
|                                                                                                                                                                                                                                                                                                                                                                                                      
|Indicate
  by check mark whether the registrant is a large accelerated filer, an
  accelerated filer, a non-accelerated filer, or a smaller reporting company.
  See the definitions of large accelerated filer, accelerated filer and
  smaller reporting company in Rule 12b-2 of the Exchange Act.                                                                                           

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

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act). Yes o No x

---



State
the aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrants most recently completed second fiscal
quarter. $117,645,000.

Indicate
the number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date.

As of March 5,
2008, the registrants no par value Common Stock totaled 5,540,002 shares
outstanding.

DOCUMENTS INCORPORATED BY
REFERENCE

The
following documents are incorporated by reference into this Form 10-K: Part
III, Items 10 through 14 from Registrants definitive proxy statement for the
2008 annual meeting of shareholders.

2

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AMERICAN RIVER BANKSHARES

INDEX TO ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2007

|              |          |  |                                                                                                                |                                                                                                                                     |      |     | 
|------------- | -------- |  | -------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ---- | --- | 
|Part I.       |          |  |                                                                                                                |                                                                                                                                     | Page
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|              | Item 1.  |  | Business                                                                                                       |                                                                                                                                     | 4   
|              | Item 1A. |  | Risk Factors                                                                                                   |                                                                                                                                     | 15  
|              | Item 1B. |  | Unresolved Staff Comments                                                                                      |                                                                                                                                     | 18  
|              | Item 2.  |  | Properties                                                                                                     |                                                                                                                                     | 18  
|              | Item 3.  |  | Legal Proceedings                                                                                              |                                                                                                                                     | 20  
|              | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                            |                                                                                                                                     | 20  
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|Part II.      |          |  |                                                                                                                |                                                                                                                                     |     
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|              | Item 5.  |  | Market For Registrants Common Equity, Related Stockholder Matters
  and Issuer Purchases of Equity Securities |                                                                                                                                     | 21  
|              | Item 6.  |  | Selected Financial Data                                                                                        |                                                                                                                                     | 23  
|              | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and
  Results of Operations                        |                                                                                                                                     | 24  
|              | Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |                                                                                                                                     | 47  
|              | Item 8.  |  | Financial Statements and Supplementary Data                                                                    |                                                                                                                                     | 47  
|              | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and
  Financial Disclosure                         |                                                                                                                                     | 88  
|              | Item 9A. |  | Controls and Procedures                                                                                        |                                                                                                                                     | 88  
|              | Item 9B. |  | Other Information                                                                                              |                                                                                                                                     | 90  
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|Part III.     |          |  |                                                                                                                |                                                                                                                                    
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|              | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                         |                                                                                                                                     | 90  
|              | Item 11. |  | Executive Compensation                                                                                         |                                                                                                                                     | 90  
|              | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and
  Related Stockholder Matters               |                                                                                                                                     | 90  
|              | Item 13. |  | Certain Relationships and Related Transactions, and Director
  Independence                                    |                                                                                                                                     | 90  
|              | Item 14. |  | Principal Accounting Fees and Services                                                                         |                                                                                                                                     | 90  
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|Part IV.      |          |  |                                                                                                                |                                                                                                                                     |     
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|              | Item 15. |  | Exhibits and Financial Statement Schedules                                                                     |                                                                                                                                     | 91  
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|Signatures    |          |  |                                                                                                                | 96                                                                                                                                 
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|Exhibit Index |          |  | 97                                                                                                            
|              |          |  |                                                                                                                |                                                                                                                                     |      |    
|              | 23.1     |  |                                                                                                                | Consent of
  Independent Registered Accounting Firm                                                                                 |      | 98 
|              | 31.1     |  |                                                                                                                | Certifications
  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
  of 2002                             |      | 99 
|              | 31.2     |  |                                                                                                                | Certifications
  of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
  Act of 2002                         |      | 100
|              | 32.1     |  |                                                                                                                | Certifications
  of Chief Executive Officer and Chief Financial Officer pursuant to Section
  906 of the Sarbanes-Oxley Act of 2002 |      | 101

3

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PART I

Item 1.
Business.

Cautionary Statements Regarding
Forward-Looking Statements

Certain
matters discussed or incorporated by reference in this Annual Report on Form
10-K including, but not limited to, matters described in Item 7 - Managements
Discussion and Analysis of Financial Condition and Results of Operations, are
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act
of 1933, as amended, and subject to the safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may
contain words related to future projections including, but not limited to,
words such as believe, expect, anticipate, intend, may, will,
should, could, would, and variations of those words and similar words
that are subject to risks, uncertainties and other factors that could cause
actual results to differ materially from those projected. Factors
that could cause or contribute to such differences include, but are not limited
to, the following: (1) variances in the actual versus projected growth in
assets; (2) return on assets; (3) loan and lease losses; (4) expenses; (5)
changes in the interest rate environment including interest rates charged on
loans, earned on securities investments and paid on deposits; (6) competition
effects; (7) fee and other noninterest income earned; (8) general economic
conditions nationally, regionally, and in the operating market areas of the
Company and its subsidiaries; (9) changes in the regulatory environment; (10)
changes in business conditions and inflation; (11) changes in securities
markets; (12) data processing
problems; (13) a decline in real estate values in the Companys operating
market areas; (14) the effects of
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, as well as other factors. The factors
set forth under Item 1A - Risk Factors in this report and other cautionary
statements and information set
forth in this report should be carefully considered and understood as being
applicable to all related forward-looking statements contained in this report,
when evaluating the business prospects of the Company and its subsidiaries.

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

Introduction

American
River Bankshares (the Company) is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. The Company was incorporated under
the laws of the State of California in 1995. As a bank holding company, the
Company is authorized to engage in the activities permitted under the Bank
Holding Company Act of 1956, as amended, and regulations thereunder. Its
principal office is located at 3100 Zinfandel Drive, Suite 450, Rancho Cordova,
California 95670 and its telephone number is (916) 851-0123.

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

American
River Bank was incorporated and commenced business in Fair Oaks, California, in
1983 and thereafter moved its headquarters to Sacramento, California in 1985.
American River Bank operates five full service offices and one convenience
office in Sacramento and Placer Counties including the main office located at
1545 River Park Drive, Suite 107, Sacramento and branch offices located at 520
Capitol Mall, Suite 100, Sacramento; 9750 Business Park Drive, Sacramento;
10123 Fair Oaks Boulevard, Fair Oaks and 2240 Douglas Boulevard, Roseville. The
convenience office (limited service office) is located at 3100 Zinfandel
Drive, Suite 450, Rancho Cordova. American
River Bank also operatesthree
full service offices in Sonoma County located at 412 Center Street, Healdsburg;
8733 Lakewood Drive, Windsor and 50 Santa Rosa Avenue, Suite 100, Santa Rosa,
operated under the name North Coast Bank, a division of American River Bank.
North Coast Bank was incorporated and commenced business in 1990 as Windsor
Oaks National Bank in Windsor, California. In 1997, the name was changed to
North Coast Bank. In 2000, North Coast Bank was acquired by the Company as a
separate bank subsidiary. Effective December 31, 2003, North Coast Bank was
merged with and into American River Bank.

4

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On
December 3, 2004, the Company acquired Bank of Amador located in Jackson,
California. Bank of Amador was merged with and into American River Bank and now
operates three full service banking offices as Bank of Amador, a division of American
River Bank within its primary service area of Amador County, in the
cities of Jackson, Pioneer and Ione.

American
River Banks deposits are insured by the Federal Deposit Insurance Corporation
(FDIC) up to applicable legal limits. American River Bank does not offer
trust services or international banking services and does not plan to do so in
the near future. American River Banks primary business is serving the
commercial banking needs of small to mid-sized businesses within those counties
listed above. American River Bank accepts checking and savings deposits, offers
money market deposit accounts and certificates of deposit, makes secured and
unsecured commercial, secured real estate, and other installment and term loans
and offers other customary banking services. American River Bank also conducts
lease financing for most types of business equipment, from computer software to
heavy earth-moving equipment.

American
River Bank owns 100% of two inactive companies, ARBCO and American River
Mortgage. ARBCO was formed in 1984 to conduct real estate development and has
been inactive since 1995. American River Mortgage has been inactive since its
formation in 1994.

During
2007, the Company conducted no significant activities other than holding the
shares of its subsidiaries. However, it is authorized, with the prior approval
of the Board of Governors of the Federal Reserve System (the Board of
Governors), the Companys principal regulator, to engage in a variety of
activities which are deemed closely related to the business of banking.

The
common stock of the Company is registered under the Securities Exchange Act of
1934, as amended, and is listed and traded on the Nasdaq Global Select Market
under the symbol AMRB.

At
December 31, 2007, the Company had consolidated assets of $574 million,
deposits of $456 million and shareholders equity of $60 million.

General

The
Company is a community-oriented bank holding company headquartered in
Sacramento, California. The principal communities served are located in
Sacramento, Placer, Yolo, El Dorado, Sonoma, and Amador counties. The Company
generates most of its revenue by providing a wide range of products and
services to small and middle-market businesses and individuals. The Companys
principal source of revenue comes from interest income. Interest income is
derived from: (i) interest and fees on loans and leases; (ii) interest on
investments (principally government securities); and (iii) interest on Federal
funds sold (funds loaned on a short-term basis to other banks). For the year
ended December 31, 2007, these sources comprised 84.1%, 15.8%, and 0.1%,
respectively, of the Companys interest income.

American
River Banks deposits are not received from a single depositor or group of
affiliated depositors, the loss of any one of which would have a materially
adverse effect on the business of the Company. A material portion of American
River Banks deposits are not concentrated within a single industry or group of
related industries.

As
of December 31, 2007 and December 31, 2006, American River Bank held
$21,500,000 and $16,500,000, respectively, in certificates of deposit for the
State of California. In connection with these deposits, American River Bank is
generally required to pledge securities to secure such deposits, except for the
first $100,000, which are insured by the FDIC.

5

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American
River Bank competes with approximately 41 other banking or savings institutions
in Sacramento County and 35 in Placer County. American River Banks market
share of FDIC insured deposits in the service areas of Sacramento County and
Placer County was approximately 1.3% in each year (based upon the most recent
information made available by the FDIC through June 30, 2007). North Coast
Bank, a division of American River Bank, competes with approximately 23 other
banking or savings institutions in its service areas and its market share of
FDIC insured deposits in the service area of Sonoma County was approximately
..7% (based upon the most recent information made available by the FDIC through
June 30, 2007). Bank of Amador, a division of American River Bank competes with
approximately 7 other banking or savings institutions in its service areas and
its market share of FDIC insured deposits in the service area of Amador County
was approximately 15.7% (based upon the most recent information made available
by the FDIC through June 30, 2007).

Employees

At
December 31, 2007, the Company and its subsidiaries employed 124 persons on a
full-time equivalent basis. The Company believes its employee relations are
good.

Website Access

The
Company maintains a website where certain information about the Company is
posted. Through the website, its annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments thereto, as well as Section
16 Reports and amendments thereto, are available as soon as reasonably
practicable after such material is electronically filed with or furnished to
the SEC. These reports are free of charge and can be accessed through the
address www.amrb.com by selecting the SEC
Filings link located at that address. Once you have selected the SEC Filings link you will have the option
to access the Section 16 Reports or the reports filed on Forms 10-K, 10-Q and
8-K by the Company by selecting the appropriate link.

Supervision and Regulation

General

The
common stock of the Company is subject to the registration requirements of the
Securities Act of 1933, as amended, and the qualification requirements of the
California Corporate Securities Law of 1968, as amended. The Company is also
subject to the periodic reporting requirements of Section 13 of the Securities
Exchange Act of 1934, as amended, which include, but are not limited to,
annual, quarterly and other current reports with the SEC.

American
River Bank is licensed by the California Commissioner of Financial Institutions
(the Commissioner), its deposits are insured by the FDIC up to the applicable
legal limits, and it has chosen not to become a member of the Federal Reserve
System. Consequently, American River Bank is subject to the supervision of, and
is regularly examined by, the Commissioner and the FDIC. The supervision and
regulation includes comprehensive reviews of all major aspects of American
River Banks business and condition, including its capital ratios, allowance
for possible loan and lease losses and other factors. However, no inference
should be drawn that such authorities have approved any such factors. American
River Bankshares and American River Bank are required to file reports with the
Board of Governors, the Commissioner, and the FDIC and provide the additional
information that the Board of Governors, the Commissioner, and the FDIC may
require.

American
River Bankshares is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the Bank Holding Company Act), and is
registered as such with, and subject to the supervision of, the Board of
Governors. The Company is required to obtain the approval of the Board of
Governors before it may acquire all or substantially all of the assets of any
bank, or ownership or control of the voting shares of any bank if, after giving
effect to such acquisition of shares, the Company would own or control more
than 5% of the voting shares of such bank. The Bank Holding Company Act
prohibits the Company from acquiring any voting shares of, or interest in, all
or substantially all of the assets of, a bank located outside the State of
California unless such an acquisition is specifically authorized by the laws of
the state in which such bank is located. Any such interstate acquisition is
also subject to the California law implementing certain provisions of prior
federal law.

The
Company, and any subsidiaries which it may acquire or organize, are deemed to
be affiliates within the meaning of that term as defined in the Federal
Reserve Act. This means, for example, that there are limitations (a) on loans
by American River Bank to affiliates, and (b) on investments by American River
Bank in affiliates stock as collateral for loans to any borrower. The Company
and its subsidiaries are also subject to certain restrictions with respect to
engaging in the underwriting, public sale and distribution of securities.

6

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In
addition, regulations of the Board of Governors under the Federal Reserve Act
require that reserves be maintained by American River Bank in conjunction with
any liability of the Company under any obligation (promissory note,
acknowledgement of advance, bankers acceptance or similar obligation) with a
weighted average maturity of less than seven (7) years to the extent that the
proceeds of such obligations are used for the purpose of supplying funds to
American River Bank for use in its banking business, or to maintain the
availability of such funds.

Capital
Standards

The
Board of Governors and the FDIC have adopted risk-based capital guidelines for
evaluating the capital adequacy of bank holding companies and banks. The
guidelines are designed to make capital requirements sensitive to differences
in risk profiles among banking organizations, to take into account off-balance
sheet exposures and to aid in making the definition of bank capital uniform
internationally. Under the guidelines, American River Bankshares and American
River Bank are required to maintain capital equal to at least 8.0% of its
assets and commitments to extend credit, weighted by risk, of which at least
4.0% must consist primarily of common equity (including retained earnings) and
the remainder may consist of subordinated debt, cumulative preferred stock, or
a limited amount of loan and lease loss reserves.

Assets,
commitments to extend credit, and off-balance sheet items are categorized
according to risk and certain assets considered to present less risk than
others permit maintenance of capital at less than the 8% ratio. For example,
most home mortgage loans are placed in a 50% risk category and therefore
require maintenance of capital equal to 4% of those loans, while commercial
loans are placed in a 100% risk category and therefore require maintenance of
capital equal to 8% of those loans.

Under
the risk-based capital guidelines, assets reported on an institutions balance
sheet and certain off-balance sheet items are assigned to risk categories, each
of which has an assigned risk weight. Capital ratios are calculated by dividing
the institutions qualifying capital by its period-end risk-weighted assets.
The guidelines establish two categories of qualifying capital: Tier 1 capital
(defined to include common shareholders equity and noncumulative perpetual
preferred stock) and Tier 2 capital which includes, among other items, limited
life (and in the case of banks, cumulative) preferred stock, mandatory
convertible securities, subordinated debt and a limited amount of reserve for
credit losses. Tier 2 capital may also include up to 45% of the pretax net
unrealized gains on certain available-for-sale equity securities having readily
determinable fair values (i.e., the excess, if any, of fair market value over
the book value or historical cost of the investment security). The federal
regulatory agencies reserve the right to exclude all or a portion of the
unrealized gains upon a determination that the equity securities are not
prudently valued. Unrealized gains and losses on other types of assets, such as
bank premises and available-for-sale debt securities, are not included in Tier
2 capital, but may be taken into account in the evaluation of overall capital
adequacy and net unrealized losses on available-for-sale equity securities will
continue to be deducted from Tier 1 capital as a cushion against risk. Each
institution is required to maintain a minimum risk-based capital ratio
(including Tier 1 and Tier 2 capital) of 8%, of which at least half must be
Tier 1 capital.

A
leverage capital standard was adopted as a supplement to the risk-weighted
capital guidelines. Under the leverage capital standard, an institution is
required to maintain a minimum ratio of Tier 1 capital to the sum of its quarterly
average total assets and quarterly average reserve for loan losses, less
intangible assets not included in Tier 1 capital. Period-end assets may be used
in place of quarterly average total assets on a case-by-case basis. The Board
of Governors and the FDIC have also adopted a minimum leverage ratio for bank
holding companies as a supplement to the risk-weighted capital guidelines. The
leverage ratio establishes a minimum Tier 1 ratio of 3% (Tier 1 capital to
total assets) for the highest rated bank holding companies or those that have
implemented the risk-based capital market risk measure. All other bank holding
companies must maintain a minimum Tier 1 leverage ratio of 4% with higher
leverage capital ratios required for bank holding companies that have
significant financial and/or operational weakness, a high risk profile, or are
undergoing or anticipating rapid growth.

At
December 31, 2007, American River Bankshares and American River Bank were in
compliance with the risk-weighted capital and leverage ratio guidelines.

7

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Prompt
Corrective Action

The
Board of Governors and the FDIC have adopted regulations implementing a system
of prompt corrective action pursuant to Section 38 of the Federal Deposit
Insurance Act and Section 131 of the FDIC Improvement Act of 1991 (FDICIA).
The regulations establish five capital categories with the following
characteristics: (1) Well capitalized - consisting of institutions with a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater and a leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive or
prompt corrective action directive; (2) Adequately capitalized - consisting
of institutions with a total risk-based capital ratio of 8% or greater, a Tier
1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or
greater, and the institution does not meet the definition of a well
capitalized institution; (3) Undercapitalized - consisting of institutions
with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital
ratio of less than 4%, or a leverage ratio of less than 4%; (4) Significantly
undercapitalized - consisting of institutions with a total risk-based capital
ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%; (5) Critically undercapitalized - consisting
of an institution with a ratio of tangible equity to total assets that is equal
to or less than 2%.

The
regulations established procedures for classification of financial institutions
within the capital categories, filing and reviewing capital restoration plans
required under the regulations and procedures for issuance of directives by the
appropriate regulatory agency, among other matters. The regulations impose
restrictions upon all institutions to refrain from certain actions which would
cause an institution to be classified within any one of the three
undercapitalized categories, such as declaration of dividends or other
capital distributions or payment of management fees, if following the
distribution or payment the institution would be classified within one of the
undercapitalized categories. In addition, institutions which are classified
in one of the three undercapitalized categories are subject to certain
mandatory and discretionary supervisory actions. Mandatory supervisory actions
include (1) increased monitoring and review by the appropriate federal banking
agency; (2) implementation of a capital restoration plan; (3) total asset
growth restrictions; and (4) limitations upon acquisitions, branch expansion,
and new business activities without prior approval of the appropriate federal
banking agency. Discretionary supervisory actions may include (1) requirements
to augment capital; (2) restrictions upon affiliate transactions; (3)
restrictions upon deposit gathering activities and interest rates paid; (4)
replacement of senior executive officers and directors; (5) restrictions upon
activities of the institution and its affiliates; (6) requiring divestiture or
sale of the institution; and (7) any other supervisory action that the
appropriate federal banking agency determines is necessary to further the
purposes of the regulations. Further, the federal banking agencies may not
accept a capital restoration plan without determining, among other things, that
the plan is based on realistic assumptions and is likely to succeed in
restoring the depository institutions capital. In addition, for a capital
restoration plan to be acceptable, the depository institutions parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company under
the guaranty is limited to the lesser of (i) an amount equal to 5 percent of
the depository institutions total assets at the time it became
undercapitalized, and (ii) the amount that is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it were significantly undercapitalized. FDICIA also
restricts the solicitation and acceptance of and interest rates payable on
brokered deposits by insured depository institutions that are not well
capitalized. An undercapitalized institution is not allowed to solicit
deposits by offering rates of interest that are significantly higher than the
prevailing rates of interest on insured deposits in the particular
institutions normal market areas or in the market areas in which such deposits
would otherwise be accepted.

Any
financial institution which is classified as critically undercapitalized must
be placed in conservatorship or receivership within 90 days of such
determination unless it is also determined that some other course of action
would better serve the purposes of the regulations. Critically undercapitalized
institutions are also prohibited from making (but not accruing) any payment of
principal or interest on subordinated debt without prior regulatory approval
and regulators must prohibit a critically undercapitalized institution from
taking certain other actions without prior approval, including (1) entering
into any material transaction other than in the usual course of business,
including investment expansion, acquisition, sale of assets or other similar
actions; (2) extending credit for any highly leveraged transaction; (3)
amending articles or bylaws unless required to do so to comply with any law,
regulation or order; (4) making any material change in accounting methods; (5)
engaging in certain affiliate transactions; (6) paying excessive compensation
or bonuses; and (7) paying interest on new or renewed liabilities at rates
which would increase the weighted average costs of funds beyond prevailing
rates in the institutions normal market areas.

8

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Additional
Regulations

Under
the FDICIA, the federal financial institution agencies have adopted regulations
which require institutions to establish and maintain comprehensive written real
estate policies which address certain lending considerations, including
loan-to-value limits, loan administrative policies, portfolio diversification
standards, and documentation, approval and reporting requirements. The FDICIA
further generally prohibits an insured state bank from engaging as a principal
in any activity that is impermissible for a national bank, absent FDIC
determination that the activity would not pose a significant risk to the Bank
Insurance Fund, and that the bank is, and will continue to be, within
applicable capital standards.

The
Federal Financial Institution Examination Counsel (FFIEC) utilizes the
Uniform Financial Institutions Rating System (UFIRS) commonly referred to as
CAMELS to classify and evaluate the soundness of financial institutions. Bank
examiners use the CAMELS measurements to evaluate capital adequacy, asset
quality, management, earnings, liquidity and sensitivity to market risk.
Effective January 1, 2005, bank holding companies such as the Company, were
subject to evaluation and examination under a revised bank holding company
rating system. The so-called BOPEC rating system implemented in 1979 was
primarily focused on financial condition, consolidated capital and consolidated
earnings. The rating system reflects the change toward analysis of risk
management (as reflected in bank examination under the CAMELS measurements), in
addition to financial factors and the potential impact of nondepository
subsidiaries upon depository institution subsidiaries.

The
federal financial institution agencies have established bases for analysis and
standards for assessing a financial institutions capital adequacy in
conjunction with the risk-based capital guidelines including analysis of
interest rate risk, concentrations of credit risk, risk posed by
non-traditional activities, and factors affecting overall safety and soundness.
The safety and soundness standards for insured financial institutions include
analysis of (1) internal controls, information systems and internal audit
systems; (2) loan documentation; (3) credit underwriting; (4) interest rate
exposure; (5) asset growth; (6) compensation, fees and benefits; and (7)
excessive compensation for executive officers, directors or principal
shareholders which could lead to material financial loss. If an agency
determines that an institution fails to meet any standard, the agency may
require the financial institution to submit to the agency an acceptable plan to
achieve compliance with the standard. If the agency requires submission of a
compliance plan and the institution fails to timely submit an acceptable plan
or to implement an accepted plan, the agency must require the institution to
correct the deficiency. The agencies may elect to initiate enforcement action
in certain cases rather than rely on an existing plan particularly where
failure to meet one or more of the standards could threaten the safe and sound
operation of the institution.

Community
Reinvestment Act (CRA) regulations evaluate banks lending to low and
moderate income individuals and businesses across a four-point scale from
outstanding to substantial noncompliance, and are a factor in regulatory
review of applications to merge, establish new branches or form bank holding
companies. In addition, any bank rated in substantial noncompliance with the
CRA regulations may be subject to enforcement proceedings. In its most recent
exam for CRA compliance, American River Bank has a rating of satisfactory.

Limitations
on Dividends

The
Companys ability to pay cash dividends is subject to restrictions set forth in
the California General Corporation Law. Funds for payment of any cash dividends
by the Company would be obtained from its investments as well as dividends
and/or management fees from its subsidiaries. The payment of cash dividends and/or
management fees by American River Bank is subject to restrictions set forth in
the California Financial Code, as well as restrictions established by the FDIC.
See Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities for more information regarding cash
dividends.

Competition

Competitive
Data

American
River Bank. At June 30, 2007, based on the most recent Data
Book Summary of Deposits in FDIC Insured Commercial and Savings Banks report
at that date, the competing commercial and savings banks had 190 offices in the
cities of Fair Oaks, Rancho Cordova, Roseville and Sacramento, California,
where American River Bank has its 6 Sacramento area offices, 64 offices in the
cities of Healdsburg, Santa Rosa and Windsor, California, where American River
Bank has its 3 Sonoma County offices, and 4 offices in the cities of Jackson,
Pioneer and Ione, California, where American River Bank has its 3 Amador County
offices. Additionally, American River Bank competes with thrifts and, to a
lesser extent, credit unions, finance companies and other financial service
providers for deposit and loan customers.

9

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Larger
banks may have a competitive advantage because of higher lending limits and
major advertising and marketing campaigns. They also perform services, such as
trust services, international banking, discount brokerage and insurance
services, which American River Bank is not authorized nor prepared to offer
currently. American River Bank has made arrangements with its correspondent
banks and with others to provide some of these services for its customers. For
borrowers requiring loans in excess of American River Banks legal lending
limits, American River Bank has offered, and intends to offer in the future,
such loans on a participating basis with its correspondent banks and with other
community banks, retaining the portion of such loans which is within its
lending limits. As of December 31, 2007, American River Banks aggregate legal lending
limits to a single borrower and such borrowers related parties were $9,932,000
on an unsecured basis and $16,554,000 on a fully secured basis based on capital
and allowable reserves of $66,214,000.

American
River Banks business is concentrated in its service area, which primarily
encompasses Sacramento County, South Western Placer County, Sonoma County, and
Amador County. The economy of American River Banks service area is dependent
upon government, manufacturing, tourism, retail sales, agriculture, population
growth and smaller service oriented businesses.

Based
upon the most recent Data Book Summary of Deposits in FDIC Insured Commercial
and Savings Banks report dated June 30, 2007, there were 232 operating
commercial and savings bank offices in Sacramento County with total deposits of
$18,295,666,000. This was a decrease of $455,513,000 over the June 30, 2006
balances. American River Bank held a total of $240,855,000 in deposits,
representing approximately 1.3% of total commercial and savings banks deposits
in Sacramento County as of June 30, 2007.

Based
upon the most recent Data Book Summary of Deposits in FDIC Insured Commercial
and Savings Banks report dated June 30, 2007, there were 117 operating
commercial and savings bank offices in Placer County with total deposits of
$5,719,602,000. This was an increase of $357,972,000 over the June 30, 2006
balances. American River Bank held a total of $72,726,000 in deposits,
representing approximately 1.3% of total commercial and savings banks deposits
in Placer County as of June 30, 2007.

Based
upon the most recent Data Book Summary of Deposits in FDIC Insured Commercial
and Savings Banks report dated June 30, 2007, there were 131 operating
commercial and savings bank offices in Sonoma County with total deposits of
$9,461,232,000. This was an increase of $442,037,000 over the June 30, 2006
balances. American River Bank held a total of $68,870,000 in deposits,
representing approximately 0.7% of total commercial and savings banks deposits
in Sonoma County as of June 30, 2007.

Based
upon the most recent Data Book Summary of Deposits in FDIC Insured Commercial
and Savings Banks report dated June 30, 2007, there were 13 operating
commercial and savings bank offices in Amador County with total deposits of
$636,995,000. This was an increase of $6,468,000 over the June 30, 2006
balances. American River Bank held a total of $99,677,000 in deposits,
representing approximately 15.7% of total commercial and savings banks deposits
in Amador County as of June 30, 2007.

In
1996, pursuant to Congressional mandate, the FDIC reduced bank deposit
insurance assessment rates to a range from $0 to $0.27 per $100 of deposits,
dependent upon a banks risk. In 2005, Congress adopted the Federal Deposit
Insurance Reform Act of 2005 (the Reform Act), which had the effect of
merging the Bank Insurance Fund and the Savings Association Insurance Fund into
a new Deposit Insurance Fund (DIF). The FDIC released final regulations under
the Reform Act on November 2, 2006 that established a revised risk-based
deposit insurance assessment rate system for members of the DIF to insure,
among other matters, that there will be sufficient assessment income for
repayment of DIF obligations and to further refine the differentiation of risk
profiles among institutions as a basis for assessments. Under the new
assessment rate system, the FDIC set the assessment rates that became effective
January 1, 2007 for most institutions from $0.05 to $0.07 per $100 of insured
deposits and established a Designated Reserve Ratio (DRR) for the DIF during
2007 of 1.25% of insured deposits.

The
new assessment rate system consolidates the nine categories of the prior
assessment system into four categories (Risk Categories I, II, III and IV) and
three Supervisory Groups (A, B and C) based upon institutions capital levels
and supervisory ratings. Risk Category I includes all well capitalized
institutions with the highest supervisory ratings. Risk Category II includes
adequately capitalized institutions that are assigned to Supervisory Groups A
and B. Risk Category III includes all undercapitalized institutions that are
assigned to Supervisory Groups A and B and institutions assigned to Supervisory
Group C that are not undercapitalized but have a low supervisory rating. Risk
Category IV includes all undercapitalized institutions that are assigned to
Supervisory Group C.

10

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Based
upon the current risk-based assessment rate schedule, American River Banks
current capital ratios and levels of deposits, American River Bank does not
anticipate a significant increase in operating expenses due to the assessment
rate applicable to it during 2008 compared to 2007.

General
Competitive Factors

In
order to compete with the major financial institutions in their primary service
areas, American River Bank uses to the fullest extent possible the flexibility
which is accorded by their community banks status. This includes an emphasis on
specialized services, local promotional activity, and personal contacts by
their respective officers, directors and employees. They also seek to provide
special services and programs for individuals in their primary service area who
are employed in the agricultural, professional and business fields, such as
loans for equipment, furniture, tools of the trade or expansion of practices or
businesses. In the event there are customers whose loan demands exceed their
respective lending limits, they seek to arrange for such loans on a
participation basis with other financial institutions. They also assist those
customers requiring services not offered by either bank to obtain such services
from correspondent banks.

Commercial
banks compete with savings and loan associations, credit unions, other
financial institutions and other entities for funds. For instance, yields on
corporate and government debt securities and other commercial paper affect the
ability of commercial banks to attract and hold deposits. Commercial banks also
compete for loans with savings and loan associations, credit unions, consumer
finance companies, mortgage companies and other lending institutions.

Banking
is a business that depends on interest rate differentials. In general, the
difference between the interest rate paid by a bank to obtain their deposits
and other borrowings and the interest rate received by a bank on loans extended
to customers and on securities held in a banks portfolio comprise the major
portion of a banks revenues.

The
interest rate differentials of a bank, and therefore their revenues, are
affected not only by general economic conditions, both domestic and foreign,
but also by the monetary and fiscal policies of the United States as set by statutes
and as implemented by federal agencies, particularly the Federal Reserve Board.
The Federal Reserve Board can and does implement national monetary policy, such
as seeking to curb inflation and combat recession, by its open market
operations in United States government securities, adjustments in the amount of
interest free reserves that banks and other financial institutions are required
to maintain, and adjustments to the discount rates applicable to borrowing by
banks from the Federal Reserve Board. These activities influence the growth of
bank loans, investments and deposits and also affect interest rates charged on
loans and paid on deposits. The nature and timing of any future changes in
monetary policies and their impact on American River Bank is not predictable.

Impact
of Legislative and Regulatory Proposals

Since
1996, California law implementing certain provisions of prior federal law has
(1) permitted interstate merger transactions; (2) prohibited
interstate branching through the acquisition of a branch business unit located
in California without acquisition of the whole business unit of the California
bank; and (3) prohibited interstate branching through de novo establishment of
California branch offices. Initial entry into California by an out-of-state
institution must be accomplished by acquisition of or merger with an existing
whole bank which has been in existence for at least five years.

The
federal financial institution agencies, especially the Board of Governors, have
taken steps to increase the types of activities in which bank holding companies
can engage, and to make it easier to engage in such activities.

11

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In
1999, the Gramm-Leach-Bliley Act (the GLB Act) was signed into law. The GLB
Act eliminates most of the remaining depression-era firewalls between banks,
securities firms and insurance companies which was established by The Banking
Act of 1933, also known as the Glass-Steagall Act (Glass-Steagall).
Glass-Steagall sought to insulate banks as depository institutions from the
perceived risks of securities dealing and underwriting, and related activities.
The GLB Act repealed Section 20 of Glass-Steagall which prohibited banks from
affiliating with securities firms. Bank holding companies that can qualify as
financial holding companies can now acquire securities firms or create them
as subsidiaries, and securities firms can now acquire banks or start banking
activities through a financial holding company. The GLB Act includes provisions
which permit national banks to conduct financial activities through a
subsidiary that are permissible for a national bank to engage in directly, as
well as certain activities authorized by statute, or that are financial in
nature or incidental to financial activities to the same extent as permitted to
a financial holding company or its affiliates. This liberalization of United
States banking and financial services regulation applies both to domestic
institutions and foreign institutions conducting business in the United States.
Consequently, the common ownership of banks, securities firms and insurance
firms is now possible, as is the conduct of commercial banking, merchant
banking, investment management, securities underwriting and insurance within a
single financial institution using a financial holding company structure
authorized by the GLB Act.

Prior
to the GLB Act, significant restrictions existed on the affiliation of banks
with securities firms and on the direct conduct by banks of securities dealing
and underwriting and related securities activities. Banks were also (with minor
exceptions) prohibited from engaging in insurance activities or affiliating
with insurers. The GLB Act removed these restrictions and substantially
eliminated the prohibitions under the Bank Holding Company Act on affiliations
between banks and insurance companies. Bank holding companies which qualify as
financial holding companies can now insure, guarantee, or indemnify against
loss, harm, damage, illness, disability, or death; issue annuities; and act as
a principal, agent, or broker regarding such insurance services.

In
order for a commercial bank to affiliate with a securities firm or an insurance
company pursuant to the GLB Act, its bank holding company must qualify as a
financial holding company. A bank holding company will qualify if (i) its
banking subsidiaries are well capitalized and well managed and (ii) it
files with the Board of Governors a certification to such effect and a
declaration that it elects to become a financial holding company. The amendment
of the Bank Holding Company Act now permits financial holding companies to
engage in activities, and acquire companies engaged in activities, that are
financial in nature or incidental to such financial activities. Financial
holding companies are also permitted to engage in activities that are
complementary to financial activities if the Board of Governors determines that
the activity does not pose a substantial risk to the safety or soundness of depository
institutions or the financial system in general. These standards expand upon
the list of activities closely related to banking which have to date defined
the permissible activities of bank holding companies under the Bank Holding
Company Act.

One
further effect of the GLB Act is to require that federal financial institution
and securities regulatory agencies prescribe regulations to implement the
policy that financial institutions must respect the privacy of their customers
and protect the security and confidentiality of customers non-public personal
information. These regulations require, in general, that financial institutions
(1) may not disclose non-public personal information of customers to
non-affiliated third parties without notice to their customers, who must have
the opportunity to direct that such information not be disclosed; (2) may not
disclose customer account numbers except to consumer reporting agencies; and
(3) must give prior disclosure of their privacy policies before establishing
new customer relationships.

Neither
American River Bankshares or American River Bank have determined whether or
when they may seek to acquire and exercise powers or activities under the GLB
Act, and the extent to which competition will change among financial
institutions affected by the GLB Act has not yet become clear.

On
October 26, 2001, President Bush signed the USA Patriot Act (the Patriot
Act), which includes provisions pertaining to domestic security, surveillance procedures,
border protection, and terrorism laws to be administered by the Secretary of
the Treasury. Title III of the Patriot Act entitled, International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001 includes
amendments to the Bank Secrecy Act which expand the responsibilities of
financial institutions in regard to anti-money laundering activities with
particular emphasis upon international money laundering and terrorism financing
activities through designated correspondent and private banking accounts.

Effective
December 25, 2001, Section 313(a) of the Patriot Act prohibits any insured
financial institution such as American River Bank, from providing correspondent
accounts to foreign banks which do not have a physical presence in any country
(designated as shell banks), subject to certain exceptions for regulated
affiliates of foreign banks. Section 313(a) also requires financial
institutions to take reasonable steps to ensure that foreign bank correspondent
accounts are not being used to indirectly provide banking services to foreign
shell banks, and Section 319(b) requires financial institutions to maintain
records of the owners and agent for service of process of any such foreign
banks with whom correspondent accounts have been established.

12

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Effective
July 23, 2002, Section 312 of the Patriot Act created a requirement for special
due diligence for correspondent accounts and private banking accounts. Under
Section 312, each financial institution that establishes, maintains,
administers, or manages a private banking account or a correspondent account in
the United States for a non-United States person, including a foreign
individual visiting the United States, or a representative of a non-United
States person shall establish appropriate, specific, and, where necessary,
enhanced, due diligence policies, procedures, and controls that are reasonably
designed to detect and record instances of money laundering through those
accounts.

The
Patriot Act contains various provisions in addition to Sections 313(a) and 312
that affect the operations of financial institutions by encouraging cooperation
among financial institutions, regulatory authorities and law enforcement
authorities with respect to individuals, entities and organizations engaged in,
or reasonably suspected of engaging in, terrorist acts or money laundering
activities. The Company and American River Bank are not currently aware of any
account relationships between American River Bank and any foreign bank or other
person or entity as described above under Sections 313(a) or 312 of the Patriot
Act.

Certain
surveillance provisions of the Patriot Act were scheduled to expire on December
31, 2005, and actions to restrict the use of the Patriot Act surveillance
provisions were filed by the ACLU and other organizations. On March 9, 2006,
after temporary extensions of the Patriot Act, President Bush signed the USA
Patriot Improvement and Reauthorization Act of 2005 and the USA Patriot Act
Additional Reauthorizing Amendments Act of 2006, which reauthorized all
expiring provisions of the Patriot Act by making permanent 14 of the 16
provisions and imposed a four-year expiration date on December 31, 2009 on the
other two provisions related to roving surveillance and production of
business records.

The
effects which the Patriot Act and any additional legislation enacted by
Congress may have upon financial institutions is uncertain; however, such
legislation could increase compliance costs and thereby potentially may have an
adverse effect upon the Companys results of operations.

On
July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act
of 2002 (the Act) which responds to recent issues in corporate governance and
accountability. Among other matters, key provisions of the Act and rules
promulgated by the SEC pursuant to the Act include the following:

| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                                                                                   

13

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| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                         

The
Companys securities are listed on the Nasdaq Global Select Market. Consequently,
in addition to the rules promulgated by the SEC pursuant to the Act, the
Company must also comply with the listing standards applicable to Nasdaq listed
companies. The Nasdaq listing standards applicable to the Company include
standards related to (i) director independence, (ii) executive session meetings
of the board, (iii) requirements for audit, nominating and compensation
committee charters, membership qualifications and procedures, (iv) shareholder
approval of equity compensation arrangements, and (v) code of conduct
requirements that comply with the code of ethics under the Act.

The
effect of the Act upon the Company is uncertain; however, the Company has
incurred and it is anticipated that it will continue to incur increased costs to
comply with the Act and the rules and regulations promulgated pursuant to the
Act by the SEC, Nasdaq and other regulatory agencies having jurisdiction over
the Company or the issuance and listing of its securities. The Company does not
currently anticipate, however, that compliance with the Act and such rules and
regulations will have a material adverse effect upon its financial position or
results of its operations or its cash flows.

Effective
January 1, 2003, the California Corporate Disclosure Act (the CCD Act)
required publicly traded corporations incorporated or qualified to do business
in California to disclose information about their past history, auditors,
directors and officers. Effective September 28, 2004, the CCD Act, as currently
in effect and codified at California Corporations Code Section 1502.1, requires
the Company to file with the California Secretary of State and disclose within
150 days after the end of its fiscal year certain information including the
following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                                        

The
Company does not currently anticipate that compliance with the CCD Act will
have a material adverse effect upon its financial position or results of its
operations or its cash flows.

14

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The
Check Clearing for the 21st Century Act (commonly referred to as
Check 21) was signed into law in 2003 and became effective on October 28,
2004. The law facilitates check truncation by creating a new negotiable
instrument called a substitute check which permits banks to truncate original
checks, to process check information electronically and to deliver substitute
checks to banks that want to continue receiving paper checks. Check 21 is
intended to reduce the dependence of the check payment system on physical
transportation networks (which can be disrupted by terrorist attacks of the
type which occurred on September 11, 2001) and to streamline the collection and
return process. The law does not require banks to accept checks in electronic
form nor does it require banks to use the new authority granted by the Act to
create substitute checks. The Company does not currently anticipate that
compliance with the Act will have a material effect upon its financial position
or results of its operations or its cash flows.

The
Board of Governors, the FDIC, the other federal financial institution
regulatory agencies, and the Federal Trade Commission issued a joint press
release on October 31, 2007 and final rules and guidelines effective January 1,
2008, subject to mandatory compliance as of November 1, 2008, implementing
sections 114 and 315 of the Fair and Accurate Credit Transactions Act of 2003
to require financial institutions and other creditors to develop and implement
a written identity theft prevention program. The program must include
reasonable policies and procedures for detecting, preventing, and mitigating
identity theft in connection with certain new and existing covered accounts.
Covered accounts are defined as (i) an account primarily for personal, family,
or household purposes (i.e., consumer accounts), or (ii) any other account for
which there is a reasonably foreseeable risk to customers or the safety and
soundness of the financial institution or creditor from identity theft. The program
must be appropriate to the size and complexity of the financial institution or
creditor and the nature and scope of its activities and should be designed to:

| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

The
regulations include guidelines that each financial institution must consider
and, to the extent appropriate, include in its program and steps that must be
taken to administer the program including (i) obtaining approval of the program
by the board of directors or a committee of the board, (ii) ensuring oversight
of the development, implementation and administration of the program, (iii)
training staff, and (iv) overseeing service provider arrangements. The
guidelines contemplate that existing fraud prevention procedures may be
incorporated into the program.

In
addition to legislative changes, the various Federal and state financial
institution regulatory agencies frequently propose rules and regulations to
implement and enforce already existing legislation. It cannot be predicted
whether or in what form any such rules or regulations will be enacted or the
effect that such regulations may have on American River Bankshares or American
River Bank.

Item 1A.
Risk Factors.

The
Company and its subsidiary, American River Bank, conduct business in an
environment that includes certain risks described below which could have a
material adverse effect on the Companys business, results of operations,
financial condition, future prospects and stock price. You are also referred to
the matters described under the heading Cautionary Statements Regarding
Forward-Looking Statements, in Part I, Item 1 and Part II, Item 7 of this
report on Form 10-K for additional information regarding factors that may
affect the Companys business.

| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | American River Bankshares business is subject to interest
  rate risk, and variations in interest rates may negatively affect its
  financial performance.

15

---



Changes
in the interest rate environment may reduce the Companys net interest income.
It is expected that the Company will continue to realize income from the
differential or spread between the interest earned on loans, securities and
other interest-earning assets, and interest paid on deposits, borrowings and
other interest-bearing liabilities. Net interest spreads are affected by the
difference between the maturities and repricing characteristics of interest-earning assets and
interest-bearing liabilities. In addition, loan volume and yields are affected
by market interest rates on loans, and rising interest rates generally are
associated with a lower volume of loan originations. We cannot assure you that
we can minimize the Companys interest rate risk. In addition, an increase in
the general level of interest rates may adversely affect the ability of certain
borrowers to pay the interest on and principal of their obligations.
Accordingly, changes in levels of market interest rates could materially and
adversely affect the Companys net interest spread, asset quality, loan
origination volume and overall profitability.

| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Governmental monetary policies affect American River
  Bankshares business and are beyond the control of the Company.

The
business of banking is affected significantly by the fiscal and monetary
policies of the federal government and its agencies. Such policies are beyond
the control of the Company. The Company is particularly affected by the
policies established by the Board of Governors in relation to the supply of
money and credit in the United States. The instruments of monetary policy
available to the Board of Governors can be used in varying degrees and
combinations to directly affect the availability of bank loans and deposits, as
well as the interest rates charged on loans and paid on deposits, and this can
and does have a material effect on the Companys business, results of
operations and financial condition.

| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | American River Bankshares subsidiary, American River Bank,
  faces strong competition from banks, financial service companies and other
  companies that offer banking services, which can hurt American River
  Bankshares business.

Increased
competition in the market of the Companys subsidiary, American River Bank, may
result in reduced loans and deposits. Ultimately, it may not be able to compete
successfully against current and future competitors. Many competitors offer the
banking services that are offered by American River Bank in its service area.
These competitors include national and super-regional banks, finance companies,
investment banking and brokerage firms, credit unions, government-assisted farm
credit programs, other community banks and technology-oriented financial
institutions offering online services. In particular, American River Banks
competitors include several major financial companies whose greater resources
may afford them a marketplace advantage by enabling them to maintain numerous
banking locations and mount extensive promotional and advertising campaigns.
Additionally, banks and other financial institutions with larger capitalization
and financial intermediaries not subject to bank regulatory restrictions have
larger lending limits and are thereby able to serve the credit needs of larger
customers. Areas of competition include interest rates for loans and deposits,
efforts to obtain deposits, and range and quality of products and services
provided, including new technology-driven products and services. Technological
innovation continues to contribute to greater competition in domestic and
international financial services markets as technological advances, such as
Internet-based banking services that cross traditional geographic bounds,
enable more companies to provide financial services. If American River Bank is
unable to attract and retain banking customers, it may be unable to continue
its loan growth and level of deposits, which may adversely affect its and the
Companys results of operations, financial condition and future prospects.

| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | Worsening
  economic conditions in Northern California could adversely affect American
  River Bankshares business.

The
Companys subsidiary, American River Bank, conducts banking operations
principally in Northern California. As a result, the Companys financial condition, results of operations
and cash flows are subject to changes in the economic conditions in Northern
California. The Companys business results are dependent in large part upon the
business activity, population, income levels, deposits and real estate activity
in Northern California, and adverse economic conditions could have adverse
effects upon the Company. The State of California is currently experiencing
significant budgetary and fiscal difficulties. The Company can provide no
assurance that conditions in the California economy will not deteriorate or
that such deterioration will not adversely affect the Company. A deterioration
in economic conditions locally, regionally or nationally, including the
economic impact of terrorist activities within and outside California could
result in an economic downturn in Northern California and trigger the following
consequences, any of which could adversely affect the Companys business:

| |   |                                                
| | - | -----------------------------------------------
| |  | loan delinquencies and defaults may increase;  
| |   |                                                
| |  | problem assets and
  foreclosures may increase;

16

---



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | demand for the Companys
  products and services may decline;                                                                                                                         
| |   |                                                                                                                                                                                       
| |  | low cost or non-interest
  bearing deposits may decrease; and                                                                                                                         
| |   |                                                                                                                                                                                       
| |  | 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.

| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | American River Bankshares has a concentration risk in real
  estate related loans.

At
December 31, 2007, approximately 68.0% of the Companys loan and lease
portfolio consisted of real estate related loans. Substantially all of the
Companys real property collateral is located in its operating markets in
Northern California. A substantial decline in real estate values in the
Companys primary market areas could occur as a result of worsening economic
conditions, or other events including natural disasters such as earthquakes,
fires, and floods. Such a decline in values could have an adverse impact on the
Company by limiting repayment of defaulted loans through sale of the real
estate collateral and by likely increasing the number of defaulted loans to the
extent that the financial condition of its borrowers is adversely affected by
such a decline in values. At December 31, 2007, residential construction loans,
including land acquisition and development, totaled $48.8 million or 12.2% of
the Companys total loan portfolio. This was comprised of 38.0% owner-occupied
and 62.0% speculative construction and land loans. Construction, land
acquisition and development lending involve additional risks because funds are
advanced on the security of the project, which is of uncertain value prior to
its completion. Because of the uncertainties inherent in estimating
construction costs, as well as the market value of the completed project and
the effects of governmental regulation on real property, it is relatively
difficult to evaluate accurately the total funds required to complete a project
and the related loan-to-value ratio. As a result, speculative construction
loans often involve the disbursement of substantial funds with repayment
dependent, in part, on the completion of the project and the ability of the
borrower to sell the property, rather than the ability of the borrower or the
guarantor to repay the principal and interest. If our appraisal of the value of
the completed project proves to be overstated, we may have inadequate security
for the repayment of the loan upon completion of construction of the project.
If we are forced to foreclose on a project prior to or at completion due to a
default, there can be no assurance that we will be able to recover all of the
unpaid balance of, and accrued interest on, the loan, a well as related
foreclosure and holding costs. In addition, we may be required to fund
additional amounts to complete the project and may have to hold the property
for an unspecified period of time. The adverse effects of the foregoing matters upon the Companys real
estate portfolio could necessitate a material increase in the provision for
loan and lease losses which could adversely affect the Companys results of
operations, financial condition, and future prospects.

| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | American
  River Bankshares is subject to extensive regulation, which could adversely
  affect its business.

The
Companys operations are subject to extensive regulation by state and local
governmental authorities and are subject to various laws and judicial and
administrative decisions imposing requirements and restrictions on part or all
of its operations. The Company believes that it is in substantial compliance in
all material respects with laws, rules and regulations applicable to the
conduct of its business. Because the Companys business is highly regulated,
the laws, rules and regulations applicable to it are subject to regular
modification and change. There can be no assurance that these laws, rules and
regulations, or any other laws, rules or regulations, will not be adopted in
the future, which could make compliance much more difficult or expensive,
restrict the Companys ability to originate, broker or sell loans, further
limit or restrict the amount of commissions, interest or other charges earned
on loans originated or sold by the Company, or otherwise adversely affect the
Companys results of operations, financial condition, or future prospects.

| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | American
  River Banks allowance for loan and lease losses may not be adequate to cover
  actual losses.

Like
all financial institutions, American River Bank maintains an allowance for loan
and lease losses to provide for loan defaults and non-performance, but its
allowance for loan and lease losses may not be adequate to cover actual loan
and lease losses. In addition, future provisions for loan and lease losses
could materially and adversely affect American River Banks and therefore the
Companys operating results. American River Banks allowance for loan and lease
losses is based on prior experience, as well as an evaluation of the risks in
the current portfolio. The amount of future losses is susceptible to changes in
economic, operating and other conditions, including changes in the local and
California real estate market and interest rates that may be beyond American
River Banks control, and these losses may exceed current estimates. Federal
regulatory agencies, as an integral part of their examination process, review
American River Banks loans and leases and allowance for loan and lease losses.
Although we believe that American River Banks allowance for loan and lease
losses is adequate to cover current losses, we cannot assure you that it will
not further increase the allowance for loan and lease losses or that regulators
will not require it to increase this allowance. Either of these occurrences
could materially and adversely affect the Companys earnings.

17

---



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | American
  River Bankshares and American River Banks operations are dependent upon key
  personnel.

The
future prospects of the Company will be highly dependent on its directors,
executive officers and other key personnel. The success of the Company will, to
some extent, depend on the continued service of its directors and continued
employment of the executive officers, in addition to the Companys ability to
attract and retain experienced banking professionals to serve the Company and
the Bank in other key positions. The unexpected loss of the services of any of
these individuals could have a detrimental effect on the Company and American
River Bank.

| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | Technology
  implementation problems or computer system failures could adversely affect
  American River Bankshares and American River Bank.

The
Companys future prospects will be highly dependent on the ability of American
River Bank to implement changes in technology that affect the delivery of
banking services such as the increased demand for computer access to bank
accounts and the availability to perform banking transactions electronically.
The Banks ability to compete will depend upon it ability to continue to adapt
technology on a timely and cost-effective basis to meet such demands. In
addition, the business and operations of the Company and the Bank will be
susceptible to adverse effects from computer failures, communication and energy
disruption, and the activities of unethical individuals with the technological
ability to cause disruptions or failures of the Banks data processing system.

| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | Information
  security breach or other technology difficulties could adversely affect
  American River Bankshares and American River Bank.

The
Company and the Bank cannot be certain that implementation of safeguards will
eliminate the risk of vulnerability to technological difficulties or failures
or ensure the absence of a breach of information security. The Bank will rely
on the services of various vendors who provide data processing and
communication services to the banking industry. Nonetheless, if information
security is compromised or other technology difficulties or failures occur,
information may be lost or misappropriated, services and operations may be
interrupted and the Company and Bank could be exposed to claims from its
customers as a result. The occurrence of any of these events could adversely
affect the Companys results of operations, financial condition, prospects, and
stock price.

Item 1B. Unresolved Staff Comments.

| |      
| | -----
| | None.

Item 2.
Properties.

The
Company and American River Bank lease eleven and own two of their respective
premises. The Companys headquarters is located at 3100 Zinfandel Drive, Suite
450, Rancho Cordova, California. The office space is located in a six-story
office building. The location also houses a convenience office of American
River Bank that performs limited branch related transactions and business
development. The lease term is ninety-one (91) months and expires on May 6,
2013. The premises consist of 7,378 square feet on the fourth floor of the
building. The space is leased from PGOCC, LLC.

American
River Banks main office is located at 1545 River Park Drive, Suite 107,
Sacramento, California, in a modern, five-story building which has offstreet
parking for its clients. American River Bank leases premises in the building
from EOP-Point West, LLC. The lease term is ten (10) years and expires on March
31, 2010. The premises consist of 9,498 square feet on the ground floor.

18

---



American
River Bank leases premises at 9750 Business Park Drive, Sacramento, California.
The premises are leased from Bradshaw Plaza Group, which is owned in part by
Charles D. Fite, a director of the Company. The lease term is ten (10) years
and expires on November 30, 2016. The premises consist of 3,711 square feet on
the ground floor.

American
River Bank leases premises at 10123 Fair Oaks Boulevard, Fair Oaks, California.
The premises are leased from Marjorie Taylor, a former director of the Company.
The lease term is twelve (12) years and expires on March 1, 2009. The premises
consist of 2,380 square feet on the ground floor.

American
River Bank leases premises at 2240 Douglas Boulevard, Roseville, California.
The premises are leased from Twin Tree Land Company. The lease term is ten (10)
years and expires on November 30, 2016. The premises consist of 3,790 square
feet on the ground floor.

American
River Bank leases premises at 520 Capitol Mall, Sacramento, California. The
premises are leased from 520 Capitol Mall, Inc. The lease term is ten (10)
years and expires on June 1, 2014. The premises consist of 4,010 square feet on
the ground floor.

American
River Bank leases premises at 3330 Cameron Park Drive, Cameron Park, California
for the purpose of a loan production office. The premises are leased from
Sierra Investment Group. The lease term is one (1) year and expires on March
31, 2008. The premises consist of 720 square feet on the ground floor.

North
Coast Bank, a division of American River Bank, leases premises at 8733 Lakewood
Drive, Windsor, California. The premises are leased from R. and R. Partners.
The lease term is two (2) years and expires on December 31, 2008. The premises
consist of 2,200 square feet on the ground floor.

North
Coast Bank, a division of American River Bank, owns premises at 412 Center
Street, Healdsburg, California. The premises were purchased June 1, 1993. The
purchase price for the land and building was $343,849. The building consists of
2,620 square feet. The land consists of 10,835 square feet.

North
Coast Bank, a division of American River Bank, leases premises at 50 Santa Rosa
Avenue, Santa Rosa, California. The premises are leased from HSG Trust. The
lease term is ten (10) years and expires on January 31, 2009. The premises
consist of 7,072 square feet on the ground floor.

Bank
of Amador, a division of American River Bank, leases premises at 422 Sutter
Street, Jackson, California. The premises are leased from the United States
Postal Service. The lease term is five (5) years and expires on May 31, 2011.
The premises consist of 6,400 square feet on the ground floor and second floor.

Bank
of Amador, a division of American River Bank, leases land at 26395 Buckhorn
Ridge Road, Pioneer, California. The premises are leased from Joseph T.
Bellamy, Trustee of the Joseph T. Bellamy 2005 Trust. The lease term is ten
(10) years and expires on October 31, 2017. The premises consist of 1,757
square feet of office space on the ground floor, an attached garage consisting
of approximately 400 square feet and 1,223 feet of office space on the second
floor.

Bank
of Amador, a division of American River Bank, owns premises at 66 Main Street,
Ione, California. The premises were purchased April 1, 1995. The purchase price
for the land and building was $167,500. The building consists of 2,576 square
feet. The land consists of 9,700 square feet.

Bank
of Amador, a division of American River Bank, leases the parking lot at 276
North Main Street, Jackson, California. The parking lot is leased from
Wilhelmina Petkovich. The lease term is on a month-to-month basis.

The
leases on the premises located at 1545 River Park Drive, 9750 Business Park
Drive, 50 Santa Rosa Avenue, 26395 Buckhorn Ridge Road, and 3100 Zinfandel
Drive, contain options to extend for five years.

Included
in the above are two facilities leased from current or former directors of the
Company at terms and conditions which management believes are consistent with
the commercial lease market.

The
foregoing summary descriptions of leased premises are qualified in their
entirety by reference to the lease agreements listed as exhibits in Part IV,
Item 15 of this Form 10-K report.

19

---



Item 3.
Legal Proceedings.

There
are no material legal proceedings adverse to the Company and its subsidiaries
to which any director, officer, affiliate of the Company, or 5% shareholder of
the Company or its subsidiaries, or any associate of any such director,
officer, affiliate or 5% shareholder of the Company or its subsidiaries are a
party, and none of the above persons has a material interest adverse to the
Company or its subsidiaries.

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

Item 4. Submission of Matters to a
Vote of Security Holders.

There were
no matters submitted to a vote of the shareholders during the fourth quarter of
2007.

20

---



PART II

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

Market
Information

The
Companys common stock began trading on the NASDAQ National Stock Market
(Nasdaq) under the symbol AMRB on October 26, 2000. Effective July 3, 2006,
the Companys common stock became listed and traded on the Nasdaq Global Select
Market. The following table shows the high and the low prices for the common
stock, for each quarter during 2007 and 2006, as reported by Nasdaq. The prices
have been adjusted to reflect 5% stock dividends declared in 2007 and in 2006.

|               |  |      |       |     |   |       | 
|-------------- |  | ---- | ----- | --- | - | ----- | 
|               |  |      |       |     |   |       | 
|2007           |  | High |       | Low |  
|               |  |      |       |     |  
|First quarter  |  | $    | 25.23 |     | $ | 22.40 | 
|Second quarter |  |      | 23.33 |     |   | 22.25 | 
|Third quarter  |  |      | 22.76 |     |   | 20.53 | 
|Fourth quarter |  |      | 21.43 |     |   | 15.80 | 

|               |  |      |       |     |   |       | 
|-------------- |  | ---- | ----- | --- | - | ----- | 
|2006           |  | High |       | Low |  
|               |  |      |       |     |  
|First quarter  |  | $    | 26.30 |     | $ | 19.28 | 
|Second quarter |  |      | 26.30 |     |   | 23.36 | 
|Third quarter  |  |      | 24.67 |     |   | 21.95 | 
|Fourth quarter |  |      | 24.26 |     |   | 21.91 | 
|               |  |      |       |     |   |       | 

The closing price
for the Companys common stock on March 4, 2008 was $17.35.

Holders

As
of February 29, 2008, there were approximately 2,688 shareholders of record of
the Companys common stock.

Dividends

The
Company has paid quarterly cash dividends on its common stock since the first
quarter of 2004; prior to that, the Company paid cash dividends twice a year
since 1992. It is currently the intention of the Board of Directors of the
Company to continue payment of cash dividends on a quarterly basis. In 2007 and
2006, the Company declared cash dividends in the amount of $.58 and $.55,
respectively, per common share. The amounts have been adjusted to reflect 5%
stock dividends declared in 2007 and in 2006. 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.

The
California General Corporation Law (the Corporation Law) provides that a
corporation may make a distribution to its shareholders if the corporations
retained earnings equal at least the amount of the proposed distribution. The
Corporation Law further provides that, in the event that sufficient retained
earnings are not available for the proposed distribution, a corporation may
nevertheless make a distribution to its shareholders if it meets two
conditions, which generally stated are as follows: (1) the corporations
assets equal at least 1-1/4 times its liabilities; and (2) the
corporations current assets equal at least its current liabilities or, if the
average of the corporations earnings before taxes on income and before
interest expenses for the two preceding fiscal years was less than the average
of the corporations interest expenses for such fiscal years, then the
corporations current assets must equal at least 1-1/4 times its current
liabilities.

The
Board of Governors generally prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowing or other
arrangements that might adversely affect a bank holding companys financial
position. The Board of Governors policy is that a bank holding company should
not continue its existing rate of cash dividends on its common stock unless its
net income is sufficient to fully fund each dividend and its prospective rate
of earnings retention appears consistent with its capital needs, asset quality
and overall financial condition.

21

---



The
payment of cash dividends by American River Bank is subject to restrictions set
forth in the California Financial Code (the Financial Code). The Financial
Code provides that a bank may not make a cash distribution to its shareholders
in excess of the lesser of (a) the banks retained earnings; or (b) the banks
net income for its last three fiscal years, less the amount of any
distributions made by the bank or by any majority-owned subsidiary of the bank
to the shareholders of the bank during such period. However, a bank may, with
the approval of the Commissioner, make a distribution to its shareholders in an
amount not exceeding the greater of (a) its retained earnings; (b) its net
income for its last fiscal year; or (c) its net income for its current fiscal
year. In the event that the Commissioner determines that the shareholders
equity of a bank is inadequate or that the making of a distribution by the bank
would be unsafe or unsound, the Commissioner may order the bank to refrain from
making a proposed distribution.

The
FDIC may also restrict the payment of dividends by a subsidiary bank if such
payment would be deemed unsafe or unsound or if after the payment of such dividends,
the bank would be included in one of the undercapitalized categories for
capital adequacy purposes pursuant to the FDIC Improvement Act of 1991.

As
of December 31, 2007, American River Bank had $1,941,000 in retained earnings
available for dividend payments to the Company, which in turn could be paid out
to shareholders of the Company.

Stock Repurchases

On
September 20, 2001, the Board of Directors of the Company authorized a stock
repurchase program which calls for the repurchase of up to five percent (5%)
annually of the Companys outstanding shares of common stock. Each year the
Company may repurchase up to 5% of the shares outstanding (adjusted for stock
splits or stock dividends). On October 17, 2007, the Board of Directors of the
Company expanded the stock repurchase program for calendar year 2007 by an
additional $2,000,000. The shares reported in the table as shares that may be
repurchased under the plan represent shares eligible for the calendar year
2007. The repurchases are to be made from time to time in the open market as
conditions allow and will be structured to comply with Commission Rule 10b-18.
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 this repurchase program at any time for any reason.
The following table lists shares repurchased during the quarter ended December
31, 2007 and the maximum amount available to repurchase under the repurchase
plan.

|                                    |  |                                                       |  |                                                |  |                                                                                                           |       |                                                                                                                                       |  |         |  |  |  |                                   | 
|----------------------------------- |  | ----------------------------------------------------- |  | ---------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  |  |  | --------------------------------- | 
|Period                              |  | (a)
  Total Number
  of Shares (or
  Units) Purchased |  | (b)
  Average Price Paid Per Share
  (or Unit) |  | (c)
  Total Number of Shares
  (or Units) Purchased as
  Part of Publicly
  Announced Plans or
  Programs |       | (d)
  Maximum Number (or
  Approximate Dollar Value) of
  Shares (or Units) That May
  Yet Be Purchased Under the
  Plans or Programs | 
|                                    |  |                                                       |  |                                                |  |                                                                                                           |       |                                                                                                                                       |  |         |  |  | 
|Month #1                            |  |                                                       |  |                                                |  |                                                                                                           |       |                                                                                                                                       |  |         |  |  | 
|October 1 through October 31, 2007  |  | 30,000                                                |  |                                                |  | $                                                                                                         | 22.25 |                                                                                                                                       |  | 30,000  |  |  |  | 27,179 sharesplus $2,000,000      | 
|Month #2                            |  |                                                       |  |                                                |  |                                                                                                           |       |                                                                                                                                       |  |         |  |  |  |                                   | 
|November 1 throughNovember 30, 2007 |  | 118,000                                               |  |                                                |  | $                                                                                                         | 21.75 |                                                                                                                                       |  | 118,000 |  |  |  | Zero shares-plan/program complete | 
|Month #3                            |  |                                                       |  |                                                |  |                                                                                                           |       |                                                                                                                                       |  |         |  |  |  |                                   | 
|December 1 throughDecember 31, 2007 |  |                                                      |  |                                                |  | $                                                                                                         |      |                                                                                                                                       |  |        |  |  |  | N/A                               | 
|                                    |  |                                                       |  |                                                |  |                                                                                                           |       |                                                                                                                                       |  |         |  |  |  |                                   | 
|Total                               |  | 148,000                                               |  |                                                |  | $                                                                                                         | 21.85 |                                                                                                                                       |  | 148,000 |  |  |  |                                   | 
|                                    |  |                                                       |  |                                                |  |                                                                                                           |       |                                                                                                                                       |  |         |  |  |  |                                   | 

The
Company repurchased 406,350 shares in 2007, 285,152 shares in 2006, 88,558
shares in 2005, 11,304 shares in 2004, 1,824 shares in 2003 and 79,759 shares
in 2002. Share amounts have been adjusted for stock dividends and/or splits. On
January 16, 2008, the Board of Directors of the Company established a new stock
repurchase program, increasing the annual buyback percentage from 5.0% to 6.5%.

22

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Item
6. Selected Financial Data.

FINANCIAL
SUMMARY-The following table presents certain consolidated
financial information concerning the business of the Company and its
subsidiaries. This information should be read in conjunction with the
Consolidated Financial Statements, the notes thereto, and Managements
Discussion and Analysis included in this report. All per share data has been
retroactively restated to reflect stock dividends and stock splits. In December
2004, the Company completed a merger with Bank of Amador. The merger
transaction was accounted for using the purchase method of accounting and
accordingly the results of their operations are included in the table below.

As of and for the
Years Ended December 31,(In thousands, except per share amounts and ratios)

|                                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|---------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                         |  | 2007 |         | 2006 |   | 2005    |   | 2004 |         | 2003 |  
|STATEMENT OF OPERATIONS DATA:            |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Net interest income                      |  | $    | 26,402  |      | $ | 27,066  |   | $    | 26,462  |      | $ | 19,418  |   | $ | 16,866  |  
|Provision for loan and lease
  losses    |  |      | 450     |      |   | 320     |   |      | 322     |      |   | 895     |   |   | 946     |  
|Other income                             |  |      | 2,599   |      |   | 2,443   |   |      | 2,329   |      |   | 2,395   |   |   | 2,253   |  
|Other expenses                           |  |      | 14,833  |      |   | 14,388  |   |      | 13,493  |      |   | 11,713  |   |   | 10,372  |  
|Income before income taxes               |  |      | 13,718  |      |   | 14,801  |   |      | 14,976  |      |   | 9,205   |   |   | 7,801   |  
|Income taxes                             |  |      | 5,240   |      |   | 5,739   |   |      | 5,792   |      |   | 3,378   |   |   | 3,060   |  
|Net income                               |  | $    | 8,478   |      | $ | 9,062   |   | $    | 9,184   |      | $ | 5,827   |   | $ | 4,741   |  
|Earnings per share  basic               |  | $    | 1.47    |      | $ | 1.49    |   | $    | 1.48    |      | $ | 1.12    |   | $ | 0.98    |  
|Earnings per share  diluted             |  |      | 1.46    |      |   | 1.46    |   |      | 1.45    |      |   | 1.07    |   |   | 0.90    |  
|Cash dividends per share                 |  |      | 0.58    |      |   | 0.55    |   |      | 0.49    |      |   | 0.38    |   |   | 0.24    |  
|                                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Book value per share                     |  |      | 10.73   |      |   | 10.50   |   |      | 10.15   |      |   | 9.59    |   |   | 7.19    |  
|Tangible book value per share            |  |      | 7.60    |      |   | 7.50    |   |      | 7.24    |      |   | 6.61    |   |   | 7.18    |  
|                                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|BALANCE SHEET DATA:                      |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Balance sheet totals-end of
  period:    |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Assets                                   |  | $    | 573,685 |      | $ | 604,003 |   | $    | 612,763 |      | $ | 586,666 |   | $ | 397,393 |  
|Loans and leases, net                    |  |      | 394,975 |      |   | 382,993 |   |      | 365,571 |      |   | 352,467 |   |   | 262,464 |  
|Deposits                                 |  |      | 455,645 |      |   | 493,875 |   |      | 500,706 |      |   | 475,387 |   |   | 322,507 |  
|Shareholders equity                     |  |      | 59,973  |      |   | 62,371  |   |      | 62,746  |      |   | 58,990  |   |   | 35,457  |  
|Average balance sheet amounts:           |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Assets                                   |  | $    | 575,225 |      | $ | 603,040 |   | $    | 596,670 |      | $ | 439,012 |   | $ | 363,175 |  
|Loans and leases                         |  |      | 390,488 |      |   | 381,465 |   |      | 360,319 |      |   | 277,647 |   |   | 248,342 |  
|Earning assets                           |  |      | 524,365 |      |   | 544,794 |   |      | 537,031 |      |   | 400,265 |   |   | 333,800 |  
|Deposits                                 |  |      | 479,344 |      |   | 488,026 |   |      | 494,905 |      |   | 357,420 |   |   | 279,883 |  
|Shareholders equity                     |  |      | 60,533  |      |   | 62,570  |   |      | 60,641  |      |   | 39,163  |   |   | 33,461  |  
|                                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|SELECTED RATIOS:                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                         |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|For the year:                            |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Return on average equity                 |  |      | 14.01   | %    |   | 14.48   | % |      | 15.14   | %    |   | 14.88   | % |   | 14.17   | %
|Return on average assets                 |  |      | 1.47    | %    |   | 1.50    | % |      | 1.54    | %    |   | 1.33    | % |   | 1.31    | %
|Efficiency ratio *                       |  |      | 49.49   | %    |   | 47.11   | % |      | 45.16   | %    |   | 53.12   | % |   | 53.73   | %
|Net interest margin *                    |  |      | 5.10    | %    |   | 5.03    | % |      | 4.98    | %    |   | 4.90    | % |   | 5.10    | %
|Net chargeoffs to average loans &
leases |  |      | 0.11    | %    |   | 0.03    | % |      | 0.04    | %    |   | 0.08    | % |   | 0.08    | %
|At December 31:                          |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Average equity to average assets         |  |      | 10.52   | %    |   | 10.38   | % |      | 10.16   | %    |   | 8.92    | % |   | 9.21    | %
|Leverage capital ratio                   |  |      | 7.72    | %    |   | 7.81    | % |      | 7.66    | %    |   | 8.35    | % |   | 8.96    | %
|Allowance for loan and leases losses to  |  |      |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|total loans and leases                   |  |      | 1.47%   |      |   | 1.51%   |   |      | 1.53%   |      |   | 1.54%   |   |   | 1.48%   |  

*     fully taxable equivalent

23

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

The
following is American River Bankshares managements discussion and analysis of
the significant changes in income and expense accounts for the years ended
December 31, 2007, 2006, and 2005.

Cautionary Statements Regarding
Forward-Looking Statements

Certain
matters discussed or incorporated by reference in this Annual Report on Form
10-K including, but not limited to, matters described in Item 7 - Managements
Discussion and Analysis of Financial Condition and Results of Operations, are
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act
of 1933, as amended, and subject to the safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements may
contain words related to future projections including, but not limited to,
words such as believe, expect, anticipate, intend, may, will,
should, could, would, and variations of those words and similar words
that are subject to risks, uncertainties and other factors that could cause
actual results to differ materially from those projected. Factors that could
cause or contribute to such differences include, but are not limited to, the
following: (1) variances in the actual versus projected growth in assets; (2)
return on assets; (3) loan and lease losses; (4) expenses; (5) changes in the
interest rate environment including interest rates charged on loans, earned on
securities investments and paid on deposits; (6) competition effects; (7) fee
and other noninterest income earned; (8) general economic conditions
nationally, regionally, and in the operating market areas of the Company and
its subsidiaries; (9) changes in the regulatory environment; (10) changes in
business conditions and inflation; (11) changes in securities markets; (12)
data processing problems; (13) a decline in real estate values in the Companys
operating market areas; (14) the effects of 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, as well as
other factors. The factors set forth under Item 1A - Risk Factors in this
report and other cautionary statements and information set forth in this report
should be carefully considered and understood as being applicable to all
related forward-looking statements contained in this report, when evaluating
the business prospects of the Company and its subsidiaries.

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

Critical Accounting Policies

General

The
Companys financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The
financial information contained within our statements is, to a significant
extent, financial information that is based on measures of the financial
effects of transactions and events that have already occurred. We use historical
loss data, peer group experience and the economic environment as factors, among
others, in determining the inherent loss that may be present in our loan and
lease portfolio. Actual losses could differ significantly from the historical
factors that we use. Other estimates that we use are related to the expected
useful lives of our depreciable assets. In addition, GAAP itself may change
from one previously acceptable method to another method. Although the economics
of our transactions would be the same, the timing of events that would impact
our transactions could change.

24

---



Allowance for Loan and Lease Losses

The
allowance for loan and lease losses is an estimate of the credit loss risk in
our loan and lease portfolio. The allowance is based on two basic principles of
accounting: (1) Statement of Financial Accounting Standards (SFAS) No. 5
Accounting for Contingencies, which requires that losses be accrued when it
is probable that a loss  23 has
occurred at the balance sheet date and such loss can be reasonably estimated;
and (2) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which
requires that losses be accrued on impaired loans based on the differences
between the value of collateral, present value of future cash flows or values
that are observable in the secondary market and the loan balance.

The
allowance for loan and lease losses is determined based upon estimates that can
and do change when the actual risk, loss events, or changes in other factors, occur.
The analysis of the allowance uses an historical loss view as an indicator of
future losses and as a result could differ from the loss incurred in the
future. If the allowance for loan and lease losses falls below that deemed
adequate (by reason of loan and lease growth, actual losses, the effect of
changes in risk ratings, or some combination of these factors), the Company has
a strategy for supplementing the allowance for loan and lease losses, over the
short term. For further information regarding our allowance for loan and lease
losses, see Allowance for Loan and Lease Losses Activity discussion later in
this Item 7.

Stock-Based Compensation

Prior
to January 1, 2006 the Company accounted for its stock-based compensation under
the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Because the Companys 2000 Stock Option Plan provides for the
issuance of options at a price of no less than the fair market value at the
date of the grant, no compensation expense was recognized in the financial
statements unless the options were modified after the grant date.

Effective
January 1, 2006, the company adopted Financial Accounting Standards Board (the
FASB) Statement Number 123 (revised 2004) (FAS 123 (R)), Share-Based
Payments on a modified prospective basis. FAS 123 (R) requires all entities to
recognize compensation expense in an amount equal to the fair value of share-based
payments such as stock options granted to employees. The Company is required to
record compensation expense (as previous awards continue to vest) for the
unvested portion of previously granted awards that remain outstanding at the
date of adoption. As a result of adopting Statement 123(R) on January 1, 2006,
the Companys income before provision for income taxes and net income for the
year ended December 31, 2007, was $301,000 and $251,000 lower, respectively,
and for the year ended December 31, 2006 was $221,000 and $184,000,
respectively than if it had continued to account for share-based compensation
under APB Opinion No. 25. Diluted earnings per share and basic earnings per
share for the year ended December 31, 2007 would have increased $0.05 and
$0.04, respectively, and for the year ended December 31, 2006 would have
increased $0.04 and $0.03, respectively, had the Company continued to account
for share-based compensation under APB Opinion No. 25.

The
fair value of each option is estimated on the date of grant and amortized over
the service period using an option pricing model. Critical assumptions that
affect the estimated fair value of each option include expected stock price
volatility, dividend yields, option life and the risk-free interest rate.

Goodwill

Business
combinations involving the Companys acquisition of the 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. 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 a reporting unit level at least
annually following the year of acquisition. The Company performed an evaluation
of the goodwill, recorded as a result of the Bank of Amador acquisition, during
the fourth quarter of 2007 and determined that there was no impairment. While
the Company believes all assumptions utilized in its assessment of goodwill for
impairment are reasonable and appropriate, changes in earnings, the effective
tax rate, historical earnings multiples and the cost of capital could all cause
different results for the calculation of the present value of future cash
flows.

25

---



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. On the
consolidated balance sheet, net deferred tax assets are included in accrued
interest receivable and other assets.

The
provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48) have been applied to all tax positions of the Company as of
January 1, 2007. FIN 48 prescribes a recognition threshold and measurement
standard for the financial statement recognition and measurement of an income
tax position taken, or expected to be taken, in a tax return. Only tax
positions that met the more-likely-than-not recognition threshold on January 1,
2007 were recognized or continue to be recognized upon adoption. The benefit of
a tax position is recognized in the financial statements in the period during
which, based on all available evidence, management believes it is more likely
than not that the position will be sustained upon examination, including the
resolution of appeals or litigation processes, if any. Tax positions taken are
not offset or aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount
of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefits
associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in
the accompanying balance sheet along with any associated interest and penalties
that would be payable to the taxing authorities upon examination. The election
has been made to record interest expense related to tax exposures in tax
expense, if applicable, and the exposure for penalties related to tax exposures
in tax expense, if applicable.

Overview

The
Company recorded its 96th consecutive profitable quarter for the quarter ended
December 31, 2007. Net income in 2007 decreased 6.4% to $8,478,000 versus
$9,062,000 in 2006. Diluted earnings per share for 2007 and 2006 were
identical--$1.46. For 2007, the Company realized a return on average equity of
14.01% and a return on average assets of 1.47%, as compared to 14.48% and 1.50%
for 2006.

Net
income for 2006 was $122,000 (1.3%) lower than the $9,184,000 recorded in 2005.
Diluted earnings per share in 2005 were $1.45, return on average assets was
1.54% and return on average equity was 15.14%. Table One below provides a
summary of the components of net income for the years indicated:

|                                                    |  |      |         |      |   |         |   |   |         |  
|--------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|Table One:
Components of Net Income                 |  |      |         |      |   |         |   |   |         |  
|                                                    |  |      |         |      |   |         |   |   |         |  
|                                                   
|For the
twelve months ended:                        |  | 2007 |         | 2006 |   | 2005    |  
|(dollars in
thousands)                              |  |      |         |      |   |         |   |   |         |  
|                                                    |  |      |         |      |   |         |   |   |         |  
|Net interest
 income*                               |  | $    | 26,749  |      | $ | 27,396  |   | $ | 26,767  |  
|Provision
 for loan and lease losses                |  |      | (450    | )    |   | (320    | ) |   | (322    | )
|Noninterest
 income                                 |  |      | 2,599   |      |   | 2,443   |   |   | 2,329   |  
|Noninterest
 expense                                |  |      | (14,833 | )    |   | (14,388 | ) |   | (13,493 | )
|Provision
 for income taxes                         |  |      | (5,240  | )    |   | (5,739  | ) |   | (5,792  | )
|Tax
 equivalent adjustment                          |  |      | (347    | )    |   | (330    | ) |   | (305    | )
|                                                    |  |      |         |      |   |         |   |   |         |  
|                                                   
|Net income                                          |  | $    | 8,478   |      | $ | 9,062   |   | $ | 9,184   |  
|                                                    |  |      |         |      |   |         |   |   |         |  
|                                                   
|                                                    |  |      |         |      |   |         |   |   |         |  
|Average
 total assets                               |  | $    | 575,225 |      | $ | 603,040 |   | $ | 596,670 |  
|Net income
 as a percentage of average total assets |  |      | 1.47    | %    |   | 1.50    | % |   | 1.54    | %
|                                                   
|                                                    |  |      |         |      |   |         |   |   |         |  

|  |                                      
|- | -------------------------------------
|* | Fully
 taxable equivalent basis (FTE)

26

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All
share and per share data for 2007, 2006 and 2005 have been adjusted for 5%
stock dividends distributed on December 20, 2007, December 22, 2006, and
December 23, 2005.

During
2007, total assets of the Company decreased $30,318,000 (5.0%) to a total of
$573,685,000 at year-end. At December 31, 2007, net loans totaled $394,975,000,
up $11,982,000 (3.1%) from the ending balances on December 31, 2006. Deposits
decreased 7.7% during 2007 resulting in ending deposit balances of
$455,645,000. The Company ended 2007 with a Tier 1 capital ratio of 9.5% and a
total risk-based capital ratio of 10.7%.

Results of Operations

Net Interest Income and Net Interest Margin

Net
interest income represents the excess of interest and fees earned on interest
earning assets (loans, securities, Federal funds sold and investments in time
deposits) over the interest paid on deposits and borrowed funds. Net interest
margin is net interest income expressed as a percentage of average earning
assets.

The Companys fully taxable equivalent net interest margin was 5.10% in
2007 and 5.03% in 2006. The fully taxable equivalent net interest income was
down $647,000 (2.4%) in 2007 compared to 2006.

The
fully taxable equivalent interest income component decreased from $38,284,000 in
2006 to $37,825,000 in 2007, representing a 1.2% decrease. The decrease in the
fully taxable equivalent interest income for 2007 compared to the same period
in 2006 is broken down by rate (up $67,000) and volume (down $526,000). The
rate increase can be attributed to an increase in the yield on the investment
portfolio from 4.41% in 2006 to 4.72% in 2007. The increase in yield results
from matured short-term securities with lower yields being redirected to reduce
borrowings and fund the growth in loans and leaving the investment portfolio
with longer maturity higher yielding investments, thus an overall higher
average yield on the existing portfolio. The volume decrease was the result of
a 3.7% decrease in average earning assets. The Company has made a decision to
use the proceeds from principal reductions and maturing investment securities
to reduce the level of outstanding borrowings and provide funding for loan
growth. This strategy has reduced the average balances on investment securities
by 18.3% from $162,970,000 during 2006 to $133,187,000 during 2007. Average
balances of other borrowings were down $17,010,000 (36.4%) and average loan
balances were up $9,023,000 (2.4%) during the same time period. The increase in
average loans is the result of concentrated focus on business lending.

The
fully taxable equivalent interest income component increased from $33,518,000
in 2005 to $38,284,000 in 2006, representing a 14.2% increase. The increase in
the fully taxable equivalent interest income for 2006 compared to the same
period in 2005 is broken down by rate (up $3,681,000) and volume (up
$1,085,000). The rate increase can be attributed to increases implemented by
the Company during 2004 and 2005 and continuing through the end of 2006 in
response to the Federal Reserve Board (the FRB) increases in the Federal
funds and discount rates. Increases by the FRB have resulted in seventeen 25
basis point increases from June 2004 through December 31, 2006. The overall
increasing interest rate environment during that time frame resulted in a 79
basis point increase in the yield on average earning assets from 6.24% for 2005
to 7.03% for 2006. The volume increase was the result of a 1.5% increase in
average earning assets and a shift in balances from lower earning investment
balance to higher earning loan balances. Average loan balances were up
$21,146,000 (5.9%) in 2006 over the balances in 2005, while average investment
securities balances were down $10,066,000 (6.0%). The increase in average loans
is the result of concentrated focus on business lending, the demand for
commercial real estate and the effects of a favorable local market during this
time frame.

Interest
expense increased $188,000 (1.7%) in 2007 compared to 2006. The increase in
rates paid on interest bearing liabilities resulted in an increase of
$1,097,000 in interest expense. The rates paid on interest bearing liabilities
increased 16 basis points on a year-over-year basis and was a result of the
higher overall interest rate environment. A drop in average balances reduced
much of this increase due to higher rates. The average balances on interest
bearing liabilities were $14,447,000 (3.8%) lower in 2007 versus 2006. The
lower balances accounted for a $909,000 decrease in interest expense. In 2007,
average interest bearing deposits were up $2,563,000 (0.8%) but other
borrowings were down $17,010,000 (36.4%) creating the overall drop in interest
bearing balances. In 2007, the Company focused on reducing the higher cost
borrowings; the decrease in other borrowings accounting for $806,000 in reduced
interest costs from volume compared to 2006. The Company also focused on
bringing in additional checking, money market, and savings accounts, and
reducing higher priced time deposits and as a result, the average balances on
interest checking, money market and savings accounts were up $8,033,000 (4.0%)
adding $119,000 to interest expense attributable to the increased volume, while
the average time deposit balances were down $5,470,000 (4.2%) reducing the
expense by $222,000.

27

---



Interest
expense increased $4,137,000 (61.3%) in 2006 compared to 2005. The increase in
rates paid on interest bearing liabilities resulted in an increase of
$3,561,000 in interest expense. The rates paid on interest bearing liabilities
increased 107 basis points on a year-over-year basis and was a result of the
higher overall interest rate environment as well as an increase in higher cost
other borrowings. The increase in other borrowings is primarily the result of a
decline in deposit balancesboth interest bearing and noninterest bearing. The
decline in deposit balances is primarily related to an increase in the number
of financial institutions in the Sacramento market. In addition, the Company
has seen a decline in the deposit balances in a number of its business accounts
as a result of these businesses paying down debt and/or investing in real
estate or business inventory. Although these balances declined the customer
relationships were maintained and the decreasing deposit balances were replaced
with funds from other borrowing sources. The average balances on interest
bearing liabilities were $5,226,000 (1.4%) higher in 2006 versus 2005. The
higher balances accounted for a $576,000 increase in interest expense. In 2006,
average deposits were down $6,879,000 (1.4%) and other borrowings were up
$11,687,000 (33.4%)

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

28

---



|                                                            
|------------------------------------------------------------
|Table Two: Analysis of Net Interest Margin on Earning Assets
|                                                            

|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|------------------------------------------------- |  | ----------- | ------- | -------- | - | --------- |  | ----------- | ---- | -------- | - | --------- | - | ----------- | ------ | -------- |  | --------- | - | - | ------- | - | - | ------ |  |  | ---- | -
|Year
Ended December 31,                           |  | 2007        |         | 2006     |   | 2005      | 
|                                                  |  |             |         |          |   |           | 
|(Taxable Equivalent Basis)
(dollars in thousands) |  | Avg
Balance |         | Interest |   | Avg
Yield |  | Avg
Balance |      | Interest |   | Avg
Yield |   | Avg
Balance |        | Interest |  | Avg
Yield |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |     
|Assets:                                           |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Earning assets                                    |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Loans and leases (1)                              |  | $           | 390,488 |          | $ | 31,508    |  |             | 8.07 | %        | $ | 381,465   |   | $           | 31,082 |          |  | 8.15      | % | $ | 360,319 |   | $ | 26,536 |  |  | 7.36 | %
|Taxable investment securities                     |  |             | 100,086 |          |   | 4,544     |  |             | 4.54 | %        |   | 129,608   |   |             | 5,545  |          |  | 4.28      | % |   | 141,855 |   |   | 5,436  |  |  | 3.83 | %
|Tax-exempt investment securities (2)              |  |             | 27,745  |          |   | 1,436     |  |             | 5.18 | %        |   | 27,886    |   |             | 1,355  |          |  | 4.86      | % |   | 25,705  |   |   | 1,228  |  |  | 4.78 | %
|Corporate stock                                   |  |             | 407     |          |   | 32        |  |             | 7.86 | %        |   | 559       |   |             | 42     |          |  | 7.51      | % |   | 559     |   |   | 40     |  |  | 7.16 | %
|Federal funds sold                                |  |             | 690     |          |   | 34        |  |             | 4.93 | %        |   | 359       |   |             | 19     |          |  | 5.29      | % |   | 2,826   |   |   | 90     |  |  | 3.18 | %
|Interest bearing balances in other banks          |  |             | 4,949   |          |   | 271       |  |             | 5.48 | %        |   | 4,917     |   |             | 241    |          |  | 4.90      | % |   | 5,767   |   |   | 188    |  |  | 3.26 | %
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Total earning assets                              |  |             | 524,365 |          |   | 37,825    |  |             | 7.21 | %        |   | 544,794   |   |             | 38,284 |          |  | 7.03      | % |   | 537,031 |   |   | 33,518 |  |  | 6.24 | %
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Cash & due from banks                             |  |             | 17,263  |          |   |           |  |             |      |          |   | 28,401    |   |             |        |          |  |           |   |   | 29,566  |   |   |        |  |  |      |  
|Other assets                                      |  |             | 39,529  |          |   |           |  |             |      |          |   | 35,708    |   |             |        |          |  |           |   |   | 35,760  |   |   |        |  |  |      |  
|Allowance for loan & lease losses                 |  |             | (5,932  | )        |   |           |  |             |      |          |   | (5,863    | ) |             |        |          |  |           |   |   | (5,687  | ) |   |        |  |  |      |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|                                                  |  | $           | 575,225 |          |   |           |  |             |      |          | $ | 603,040   |   |             |        |          |  |           |   | $ | 596,670 |   |   |        |  |  |      |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Liabilities & Shareholders
Equity:               |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Interest bearing liabilities:                     |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|NOW & MMDA                                        |  | $           | 173,382 |          |   | 3,781     |  |             | 2.18 | %        | $ | 168,128   |   |             | 3,204  |          |  | 1.91      | % | $ | 185,634 |   |   | 2,247  |  |  | 1.21 | %
|Savings                                           |  |             | 37,690  |          |   | 546       |  |             | 1.45 | %        |   | 34,911    |   |             | 242    |          |  | 0.69      | % |   | 39,102  |   |   | 150    |  |  | 0.38 | %
|Time deposits                                     |  |             | 123,485 |          |   | 5,233     |  |             | 4.24 | %        |   | 128,955   |   |             | 5,231  |          |  | 4.06      | % |   | 113,719 |   |   | 3,249  |  |  | 2.86 | %
|Other borrowings                                  |  |             | 29,680  |          |   | 1,516     |  |             | 5.11 | %        |   | 46,690    |   |             | 2,211  |          |  | 4.74      | % |   | 35,003  |   |   | 1,105  |  |  | 3.16 | %
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|                                                 
|Total interest bearing liabilities                |  |             | 364,237 |          |   | 11,076    |  |             | 3.04 | %        |   | 378,684   |   |             | 10,888 |          |  | 2.88      | % |   | 373,458 |   |   | 6,751  |  |  | 1.81 | %
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Demand deposits                                   |  |             | 144,787 |          |   |           |  |             |      |          |   | 156,032   |   |             |        |          |  |           |   |   | 156,450 |   |   |        |  |  |      |  
|Other liabilities                                 |  |             | 5,668   |          |   |           |  |             |      |          |   | 5,754     |   |             |        |          |  |           |   |   | 6,121   |   |   |        |  |  |      |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Total liabilities                                 |  |             | 514,692 |          |   |           |  |             |      |          |   | 540,470   |   |             |        |          |  |           |   |   | 536,029 |   |   |        |  |  |      |  
|Shareholders equity                              |  |             | 60,533  |          |   |           |  |             |      |          |   | 62,570    |   |             |        |          |  |           |   |   | 60,641  |   |   |        |  |  |      |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|                                                  |  | $           | 575,225 |          |   |           |  |             |      |          | $ | 603,040   |   |             |        |          |  |           |   | $ | 596,670 |   |   |        |  |  |      |  
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  
|Net interest income & Margin (3)                  |  |             |         |          | $ | 26,749    |  |             | 5.10 | %        |   |           |   | $           | 27,396 |          |  | 5.03      | % |   |         |   | $ | 26,767 |  |  | 4.98 | %
|                                                  |  |             |         |          |   |           |  |             |      |          |   |           |   |             |        |          |  |           |   |   |         |   |   |        |  |  |      |  

|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Loan and lease interest
  includes loan and lease fees of $529,000, $873,000 and $1,091,000 in 2007,
  2006 and 2005, 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 34.5% in 2007 and 2006 and 34.0% in 2005.
|    |                                                                                                                                                                                                                                      
|(3) | Net interest margin is
  computed by dividing net interest income by total average earning assets.                                                                                                                                   

29

---



|                                                                                                   
|---------------------------------------------------------------------------------------------------
|Table Three: Analysis of Volume and Rate Changes on Net Interest
  Income and Expenses             
|                                                                                                   
|Year ended December 31, 2007
over 2006 (dollars in thousands)
Increase (decrease) due to change in:

|                                         |  |        |        |          |   |            |   |   |        |  
|---------------------------------------- |  | ------ | ------ | -------- | - | ---------- | - | - | ------ | -
|                                         |  | Volume |        | Rate
(4) |   | Net
Change |  
|                                         |  |        |        |          |   |            |  
|Interest-earning assets:                 |  |        |        |          |   |            |  
|Net loans and leases (1)(2)              |  | $      | 735    |          | $ | (309       | ) | $ | 426    |  
|Taxable investment securities            |  |        | (1,263 | )        |   | 262        |   |   | (1,001 | )
|Tax-exempt investment securities (3)     |  |        | (7     | )        |   | 88         |   |   | 81     |  
|Corporate stock                          |  |        | (11    | )        |   | 1          |   |   | (10    | )
|Federal funds sold & other               |  |        | 18     |          |   | (3         | ) |   | 15     |  
|Interest bearing balances in other banks |  |        | 2      |          |   | 28         |   |   | 30     |  
|                                         |  |        |        |          |   |            |   |   |        |  
|Total                                    |  |        | (526   | )        |   | 67         |   |   | (459   | )
|                                         |  |        |        |          |   |            |   |   |        |  
|                                         |  |        |        |          |   |            |   |   |        |  
|Interest-bearing
  liabilities:          |  |        |        |          |   |            |   |   |        |  
|Demand deposits                          |  |        | 100    |          |   | 477        |   |   | 577    |  
|Savings deposits                         |  |        | 19     |          |   | 285        |   |   | 304    |  
|Time deposits                            |  |        | (222   | )        |   | 224        |   |   | 2      |  
|Other borrowings                         |  |        | (806   | )        |   | 111        |   |   | (695   | )
|                                         |  |        |        |          |   |            |   |   |        |  
|Total                                    |  |        | (909   | )        |   | 1,097      |   |   | 188    |  
|                                         |  |        |        |          |   |            |   |   |        |  
|Interest differential                    |  | $      | 383    |          | $ | (1,030     | ) | $ | (647   | )
|                                         |  |        |        |          |   |            |   |   |        |  

Year Ended December 31, 2006
over 2005 (in thousands)
Increase (decrease) due to change in:

|                                         |  |        |       |          |   |            |  |   |       |  
|---------------------------------------- |  | ------ | ----- | -------- | - | ---------- |  | - | ----- | -
|                                         |  | Volume |       | Rate (4) |   | Net Change | 
|                                         |  |        |       |          |   |            | 
|Interest-earning assets:                 |  |        |       |          |   |            | 
|Net loans and leases (1)(2)              |  | $      | 1,557 |          | $ | 2,989      |  | $ | 4,546 |  
|Taxable investment securities            |  |        | (469  | )        |   | 578        |  |   | 109   |  
|Tax-exempt investment securities (3)     |  |        | 104   |          |   | 23         |  |   | 127   |  
|Corporate stock                          |  |        |      |          |   | 2          |  |   | 2     |  
|Federal funds sold & other               |  |        | (79   | )        |   | 8          |  |   | (71   | )
|Interest bearing balances in other banks |  |        | (28   | )        |   | 81         |  |   | 53    |  
|                                         |  |        |       |          |   |            |  |   |       |  
|Total                                    |  |        | 1,085 |          |   | 3,681      |  |   | 4,766 |  
|                                         |  |        |       |          |   |            |  |   |       |  
|                                         |  |        |       |          |   |            |  |   |       |  
|Interest-bearing
  liabilities:          |  |        |       |          |   |            |  |   |       |  
|Demand deposits                          |  |        | (212  | )        |   | 1,169      |  |   | 957   |  
|Savings deposits                         |  |        | (16   | )        |   | 108        |  |   | 92    |  
|Time deposits                            |  |        | 435   |          |   | 1,547      |  |   | 1,982 |  
|Other borrowings                         |  |        | 369   |          |   | 737        |  |   | 1,106 |  
|                                         |  |        |       |          |   |            |  |   |       |  
|Total                                    |  |        | 576   |          |   | 3,561      |  |   | 4,137 |  
|                                         |  |        |       |          |   |            |  |   |       |  
|Interest differential                    |  | $      | 509   |          | $ | 120        |  | $ | 629   |  
|                                         |  |        |       |          |   |            |  |   |       |  

|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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
  $529,000, $873,000 and $1,091,000 for the years ended December 31, 2007, 2006
  and 2005, 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 34.5% in 2007 and 2006 and 34.0% in 2005.
|    |                                                                                                                                                                                                                                      
|(4) | The rate/volume variance
  has been included in the rate variance.                                                                                                                                                                   

Provision for Loan and Lease Losses

The
Company provided $450,000 for loan and lease losses in 2007 as compared to
$320,000 for 2006.  Net loan charge-offs
for 2007 were $441,000 as compared to $125,000 in 2006.  In 2007, net loan charge-offs as a
percentage of average loans outstanding were. 11% compared to .03% in
2006.  In 2005, the Company provided $322,000
for loan and lease losses and net charge-offs were $139,000. For further information please see
Allowance for Loan and Lease Losses Activity.

30

---



Service
Charges and Fees and Other Income

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

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

|                                         |  |                         |       |      |   |       |  |   |       | 
|---------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                                         |  | Year Ended December 31, |      
|                                         |  |                         |      
|                                         |  | 2007                    |       | 2006 |   | 2005  | 
|                                         |  |                         |       |      |   |       | 
|                                        
|Service charges on deposit accounts      |  | $                       | 743   |      | $ | 783   |  | $ | 672   | 
|Merchant fee income                      |  |                         | 544   |      |   | 549   |  |   | 509   | 
|Bank owned life insurance                |  |                         | 405   |      |   | 256   |  |   | 179   | 
|Income from residential lending division |  |                         | 401   |      |   | 192   |  |   | 283   | 
|Accounts receivable servicing fees       |  |                         | 244   |      |   | 372   |  |   | 356   | 
|Gain on sale of securities               |  |                         | 11    |      |   | 1     |  |   | 48    | 
|Other                                    |  |                         | 251   |      |   | 290   |  |   | 282   | 
|                                         |  |                         |       |      |   |       |  |   |       | 
|                                        
|                                         |  | $                       | 2,599 |      | $ | 2,443 |  | $ | 2,329 | 
|                                         |  |                         |       |      |   |       |  |   |       | 

Noninterest
income was up $156,000 (6.4%) to $2,599,000 in 2007 from the 2006 level. The increase in noninterest income can be
attributed to increases in bank owned life insurance (up $149,000 or 58.2%) and
residential lending fee income (up $209,000 or 108.9%). The Company experienced
a decrease in accounts receivable servicing fees (down $128,000 or 34.4%). The increase in income from bank owned life
insurance was the result of the Company purchasing additional policies
near the end of the fourth quarter of 2006. The increase in fees from
residential lending relates to the Companys decision to expand is Residential
Lending Division by adding four (4) mortgage specialists. These increases were
offset by a reduction of fees from accounts receivable servicing which resulted
from lower overall volume.

Noninterest
income was up $114,000 (4.9%) to $2,443,000 in 2006 from the 2005 level. The increase in noninterest income can be
attributed to increases in fees from service charges (up $111,000 or 16.5%),
increases in fees from merchant income (up $40,000 or 7.9%), and an increase in
bank owned life insurance. The Company experienced a decrease in residential
lending fee income (down $91,000 or 32.2%). The increase in service charges
resulted from a restructuring of the deposit service fee tables. The increase in
income from bank owned life insurance is related to the overall increase in
interest rates. The income from these instruments is interest rate driven, thus
increases in interest rates will result in higher income. The decrease in
income from residential lending is also reflective of the increase in ratesas
interest rates increase the number of refinances decreases.

Salaries
and Benefits

Salaries
and benefits, which include commissions, were $8,396,000 (up $580,000 or 7.4%)
for 2007 as compared to $7,816,000 in 2006. The salary and benefit expense
related to the expanded Residential Lending Division added $259,000 (or 44.7%
of the increase). Payroll taxes (up $34,000), stock option expense (up $57,000)
group health insurance (up $106,000), and retirement costs (up $43,000) also
added to the increased expense. At the end of 2007, the full-time equivalent
staff was 124, down 5 from the 129 at the end of 2006.

Salaries
and benefits were $7,816,000 (up $858,000 or 12.3%) for 2006 as compared to
$6,958,000 in 2005. The increase is primarily the result of market-condition
salary adjustments, additional administrative staff to address the burden of
more stringent compliance and regulatory issues, and the addition of service
personnel to help achieve strategic growth in business banking. In addition,
the adoption of FAS 123(R) in January of 2006 resulted in an increase in
salaries and benefits of $134,000 during 2006. See the Notes to the financial
statements for additional information on FAS 123(R). At the end of 2006, the
full-time equivalent staff was 129, up 6 from the 123 at the end of 2005.

Occupancy,
Furniture and Equipment

Occupancy
expense increased $14,000 (1.0%) during 2007 to $1,398,000, up from $1,384,000
in 2006. The majority of the increase relates to normal rent increases in the
Companys leased facilities. Furniture and equipment expense was $691,000 in
2007 compared to $812,000 in 2006, representing a $121,000 (14.9%) decrease.
The decrease in furniture and equipment expense relates to less amortization of
technology related equipment. Although still being used, certain equipment has
reached its fully depreciated life.

31

---



Occupancy
expense increased $155,000 (12.6%) during 2006 to $1,384,000, up from
$1,229,000 in 2005. The majority of the increase relates to normal rent
increases in the Companys leased facilities and costs associated with the
Companys new administration headquarters office lease at 3100 Zinfandel Drive,
Rancho Cordova CA, which was occupied in October 2005. The new office
contributed $126,000 to the increased occupancy expense. Furniture and
equipment expense was $812,000 in 2006 compared to $918,000 in 2005,
representing a $106,000 (11.5%) decrease. The decrease in furniture and
equipment expense relates to less amortization of technology related equipment.
Although still being used, certain equipment has reached its fully depreciated
life.

Other
Expenses

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

|                                  |  |                         |       |      |   |       |  |   |       | 
|--------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                                  |  | Year Ended December 31, |      
|                                  |  |                         |      
|                                  |  | 2007                    |       | 2006 |   | 2005  | 
|                                  |  |                         |       |      |   |       | 
|                                 
|Professional fees                 |  | $                       | 832   |      | $ | 778   |  | $ | 732   | 
|Telephone and postage             |  |                         | 420   |      |   | 411   |  |   | 439   | 
|Directors expense                |  |                         | 378   |      |   | 311   |  |   | 429   | 
|Outsourced item processing        |  |                         | 374   |      |   | 495   |  |   | 489   | 
|Advertising and promotion         |  |                         | 338   |      |   | 357   |  |   | 331   | 
|Stationery and supplies           |  |                         | 322   |      |   | 335   |  |   | 303   | 
|Amortization of intangible assets |  |                         | 308   |      |   | 330   |  |   | 352   | 
|Donations                         |  |                         | 62    |      |   | 88    |  |   | 82    | 
|Other operating expenses          |  |                         | 1,314 |      |   | 1,271 |  |   | 1,231 | 
|                                  |  |                         |       |      |   |       |  |   |       | 
|                                 
|                                  |  | $                       | 4,348 |      | $ | 4,376 |  | $ | 4,388 | 
|                                  |  |                         |       |      |   |       |  |   |       | 

Other
expenses were $4,348,000 (down $28,000 or 0.6%) for 2007 as compared to
$4,376,000 for 2006. Professional fees increased $54,000 (6.9%) and directors
expense increased $67,000 (21.5%). These increases were offset by reductions in outsourced item processing
(down $121,000 or 24.4%) and advertising, promotion and donations (down $45,000
or 10.1%). The increase in professional fees relates to higher legal and other
professional services to comply with changes in the regulatory environment and
to resolve problem loans. Directors expense increased due to higher overall
fees paid to the Company directors and higher expense related to stock options
accounted for under FAS 123 (R). Item processing expense was lower in
2007 as the Company settled a pricing issue with its vendor. The overhead efficiency ratio on a
taxable equivalent basis for 2007 was 49.5% as compared to 47.1% in 2006.

Other
expenses were $4,376,000 (down $12,000 or 0.3%) for 2006 as compared to
$4,388,000 for 2005. Professional fees increased $46,000 (6.3%) and directors
expense decreased $150,000 (35.0%). The increase in professional fees relates to the Companys decision in
2005 to outsource our network administration and some other IT related
areas. The decrease in directors expense relates to no expense in 2006 from
the former Gross-Up Plan (the Plan) as it was fully funded in 2005the
Company recorded $148,000 in expense in 2005 related to the Plan. The Plan,
which was terminated in August of 2005, compensated for the tax effects of the
exercise of nonstatutory stock options. The Plan named certain non-employee
directors as participants and applied only to those options granted on August
25, 1995. In addition, the 2005 directors expense included $37,000 more in
payment to retired directors that in 2006. The 2006 directors expense also
included $87,000 in stock option expense related to FAS 123 (R), which was
adopted by the Company on January 1, 2006. The overhead efficiency ratio on a taxable equivalent basis for
2006 was 47.1% as compared to 45.2% in 2005.

Provision
for Taxes

The
effective tax rate on income was 38.2%, 38.8% and 38.7% in 2007, 2006 and 2005,
respectively. The effective tax rate was greater than the federal statutory tax
rate due to state tax expense (net of federal tax effect) of $919,000,
$1,006,000 and $1,033,000 in these years. Tax-exempt income of $1,006,000,
$955,000 and $896,000 from investment securities in these years helped to
reduce the effective tax rate.

32

---



Balance Sheet Analysis

The
Companys total assets were $573,685,000 at December 31, 2007 as compared to
$604,003,000 at December 31, 2006, representing a decrease of $30,318,000
(5.0%). The average balances of total assets during 2007 were $575,225,000
which represents a decrease of $27,815,000 (4.6%) compared to the 2006 total of
$603,040,000.

Investment Securities

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

|                                                  |  |      |        |      |   |         |  |   |         | 
|------------------------------------------------- |  | ---- | ------ | ---- | - | ------- |  | - | ------- | 
|Table Six: Investment Securities Composition      |  |      |        |      |   |         |  |   |         | 
|                                                  |  |      |        |      |   |         |  |   |         | 
|(dollars in
thousands)                            |  |      |        |      |   |         |  |   |         | 
|Available-for-sale
(at fair value)                |  | 2007 |        | 2006 |   | 2005    | 
|                                                  |  |      |        |      |   |         |  |   |         | 
|Debt
 securities:                                 |  |      |        |      |   |         |  |   |         | 
|U.S. Government agencies                          |  | $    | 16,506 |      | $ | 28,123  |  | $ | 49,119  | 
|Mortgage-backed securities                        |  |      | 31,066 |      |   | 33,236  |  |   | 36,326  | 
|Obligations of states and political
 subdivisions |  |      | 31,111 |      |   | 41,224  |  |   | 37,106  | 
|Corporate debt securities                         |  |      |       |      |   | 1,003   |  |   | 1,014   | 
|Equity
 securities:                               |  |      |        |      |   |         |  |   |         | 
|Corporate stock                                   |  |      | 287    |      |   | 623     |  |   | 624     | 
|                                                  |  |      |        |      |   |         |  |   |         | 
|Total
 available-for-sale investment securities   |  | $    | 78,970 |      | $ | 104,209 |  | $ | 124,189 | 
|                                                  |  |      |        |      |   |         |  |   |         | 
|Held-to-maturity
 (at amortized cost)             |  |      |        |      |   |         |  |   |         | 
|                                                  |  |      |        |      |   |         |  |   |         | 
|Debt
 securities:                                 |  |      |        |      |   |         |  |   |         | 
|Mortgage-backed securities                        |  | $    | 34,754 |      | $ | 44,031  |  | $ | 45,012  | 
|                                                  |  |      |        |      |   |         |  |   |         | 
|Total
 held-to-maturity investment securities     |  | $    | 34,754 |      | $ | 44,031  |  | $ | 45,012  | 
|                                                  |  |      |        |      |   |         |  |   |         | 

See
Table Fifteen for a breakdown of the investment securities by maturity and the
corresponding weighted average yields.

Loans and Leases

The
Company concentrates its lending activities in the following principal areas:
(1) commercial; (2) commercial real estate; (3) multi-family real estate; (4)
real estate construction (both commercial and residential); (5) residential
real estate; (6) lease financing receivable; (7) agriculture; and (8) consumer
loans. At December 31, 2007, these categories accounted for approximately 26%,
48%, 2%, 16%, 2%, 1%, 2% and 3%, respectively, of the Companys loan portfolio.
This mix was relatively unchanged compared to 22%, 45%, 1%, 23%, 2%, 2%, 2% and
3% at December 31, 2006. Continuing economic activity in the Companys market
area, new borrowers developed through the Companys marketing efforts, and
credit extensions expanded to existing borrowers resulted in the Company originating
over $161 million in new loans. The Company reported net increases in balances
for commercial ($19,608,000 or 22.8%), commercial real estate ($16,131,000 or
9.2%), multi-family real estate ($2,212,000 or 6.1%), residential real estate
($596,000 or 6.9%), and agriculture ($815,000 or 11.1%). The Company
experienced a decrease in real estate construction ($24,292,000 or 26.9%),
lease financing receivable ($2,305,000 or 36.2%), and consumer loans ($962,000
or 8.2%) as a result of paydowns. Table Seven below summarizes the composition
of the loan and lease portfolio for the past five years as of December 31.

33

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|                                                  |  |              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|------------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|Table Seven: Loan and Lease Portfolio Composition |  |              |         |      |   |         |   |      |         |      |   |         |   |   |        
|                                                  |  |              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                                  |  |              |         |      |   |         |   |      |        
|                                                  |  | December 31, |        
|                                                  |  |              |        
|(dollars in
thousands)                            |  | 2007         |         | 2006 |   | 2005    |   | 2004 |         | 2003 |  
|                                                  |  |              |         |      |   |         |   |      |         |      |  
|Commercial                                        |  | $            | 105,467 |      | $ | 85,859  |   | $    | 77,971  |      | $ | 66,864  |   | $ | 57,346  |  
|Real estate:                                      |  |              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Commercial                                        |  |              | 191,774 |      |   | 175,643 |   |      | 154,500 |      |   | 166,263 |   |   | 142,249 |  
|Multi-family                                      |  |              | 5,830   |      |   | 3,618   |   |      | 3,767   |      |   | 2,660   |   |   | 5,301   |  
|Construction                                      |  |              | 66,022  |      |   | 90,314  |   |      | 103,048 |      |   | 90,162  |   |   | 37,434  |  
|Residential                                       |  |              | 9,285   |      |   | 8,689   |   |      | 4,680   |      |   | 5,236   |   |   | 1,508   |  
|Lease
 financing receivable                       |  |              | 4,070   |      |   | 6,375   |   |      | 7,967   |      |   | 9,994   |   |   | 9,276   |  
|Agriculture                                       |  |              | 8,177   |      |   | 7,362   |   |      | 8,129   |      |   | 8,252   |   |   | 8,027   |  
|Consumer                                          |  |              | 10,750  |      |   | 11,712  |   |      | 11,900  |      |   | 9,417   |   |   | 5,950   |  
|                                                  |  |              |         |      |   |         |   |      |         |      |  
|                                                  |  |              | 401,375 |      |   | 389,572 |   |      | 371,962 |      |   | 358,848 |   |   | 267,091 |  
|Deferred
 loan fees, net                          |  |              | (517    | )    |   | (705    | ) |      | (712    | )    |   | (885    | ) |   | (678    | )
|Allowance
 for loan and lease losses              |  |              | (5,883  | )    |   | (5,874  | ) |      | (5,679  | )    |   | (5,496  | ) |   | (3,949  | )
|                                                  |  |              |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Total net
 loans and leases                       |  | $            | 394,975 |      | $ | 382,993 |   | $    | 365,571 |      | $ | 352,467 |   | $ | 262,464 |  
|                                                  |  |              |         |      |   |         |   |      |         |      |   |         |   |   |         |  

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

Commercial
loans consist of credit lines for operating needs, loans for equipment
purchases, working capital, and various other business loan products. Consumer
loans include a range of traditional consumer loan products such as personal
lines of credit and loans to finance purchases of autos, boats, recreational
vehicles, mobile homes and various other consumer items. Construction loans are
generally comprised of commitments to customers within the Companys service
area for construction of commercial properties, multi-family properties and
custom and semi-custom single-family residences. Other real estate loans
consist primarily of loans secured by first trust deeds on commercial and
residential properties typically with maturities from 3 to 10 years and
original loan to value ratios generally from 65% to 75%. Agriculture loans
consist primarily of vineyard loans and development loans to plant vineyards.
In general, except in the case of loans under SBA programs or Farm Services
Agency guarantees, the Company does not make long-term mortgage loans; however,
American River Bank has a residential lending division to assist customers in
securing most forms of longer term single-family mortgage financing. American
River Bank acts as a broker between American River Banks clients and the loan wholesalers.
American River Bank receives an origination fee for loans closed.

Subprime
loans generally refer to residential mortgages made to higher-risk borrowers
with lower credit and/or income histories. Many of these subprime loans were
made with adjustable interest rates that reset upward after an introductory
period. Such subprime loans coupled with declines in housing prices have led to
an increase in default rates resulting in many instances of increased
foreclosure rates as the adjustable interest rates reset to higher levels. The
Company does not have any subprime loans on its books at December 31, 2007.

Average net loans and leases in 2007 were $390,488,000 which represents an
increase of $9,023,000 (2.4%) over the average in 2006. Average net loans and
leases in 2006 were $381,465,000 which represents an increase of $21,146,000
(5.9%) over the average in 2005. Loan growth in 2007 and 2006 resulted from a
concentrated effort to increase commercial relationships, a favorable economy in
the Companys market area, new borrowers developed through the Companys
marketing efforts, and credit extensions expanded to existing borrowers.

Risk Elements

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

34

---



Ultimately,
underlying trends in economic and business cycles may influence credit quality.
American River Banks business is concentrated in the Sacramento Metropolitan
Statistical Area, which is a diversified economy, but with a large State of
California government presence and employment base, in Sonoma County, through
North Coast Bank, a division of American River Bank, whose business is focused
on businesses within the three communities in which it has offices (Santa Rosa,
Windsor, and Healdsburg) and in Amador County, through Bank of Amador, a
division of American River Bank, whose business is focused on businesses and
consumers within the three communities in which it has offices (Jackson,
Pioneer, and Ione) as well as a diversified residential construction loan
business in numerous Northern California counties. The economy of Sonoma County
is diversified with professional services, manufacturing, agriculture and real
estate investment and construction, while the economy of Amador County is
reliant upon government, services, retail trade, manufacturing industries and
Indian gaming.

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

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

In
managements judgment, a concentration exists in real estate loans which
represented approximately 68.0% of the Companys loan and lease portfolio at
December 31, 2007, down from 71.4% at December 31, 2006. Management believes
that the residential land and residential construction portion of the Companys
loan portfolio carries more than the normal credit risk it has seen in the past
several years, due primarily to severely curtailed demand for new and resale
residential property, a large supply of unsold residential land and new and
resale homes, and observed reductions in values throughout the Companys market
area. Management has responded by evaluating loans that it considers to carry
any material risk above the normal risk of collectability, and taking actions
where possible to reduce credit risk exposure by methods that include, but are
not limited to, seeking liquidation of the loan by the borrower, seeking
additional tangible collateral or other repayment support, converting the
property through judicial or non-judicial foreclosure proceedings, and other
collection techniques. Management currently believes that it maintains its allowance
for loan and lease loss at levels adequate to reflect the loss risk inherent in
its total loan portfolio.

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

35

---



Nonaccrual, Past Due and Restructured Loans
and Leases

Management
generally places loans and leases on nonaccrual status when they become 90 days
past due, unless the loan or lease is well secured and in the process of
collection. Loans and leases are charged off when, in the opinion of
management, collection appears unlikely.

The
recorded investments in nonaccrual loans and leases that were accruing and 90
days or more past due totaled $7,440,000 and $78,000 at December 31, 2007 and 2006,
respectively. The change in nonaccrual loans primarily relates to two loans
totaling $6,648,000 or 89.4% of the total nonaccrual loans. The first loan in
the approximate amount of $4.6 million is a loan in which the Company
participates with other lenders. The Company has a net 29% interest in the loan
and a loan balance of $1.3 million. The loan had an original commitment of $6.9
million and loan to cost ratio of 75%. The loan is a lot development loan for
29 single family residential lots, 47 townhouses and 3 commercial lots located
in Amador County with a current appraisal that exceeds the principal and
accrued interest balance of the loan. Non-judicial foreclosure proceedings were
commenced related to the loan by the filing of a notice of default. The second
loan in the approximate amount of $5.3 million is a commercial loan for a
mini-storage facility in El Dorado County with an original loan to value ratio
dating back to 2002 of 59.8% and a current appraisal that exceeds the principal
and accrued interest balance of the loan. Non-judicial foreclosure proceedings
were commenced related to the second loan by the filing of a notice of default
and legal proceedings where initiated related to judicial foreclosure and the
appointment of a receiver to protect the Companys interest in rents. Both of
these loans have been evaluated for impairment in accordance with FASB 114 and
have been assigned specific reserves. The related allowance for losses for the
nonaccrual loans and leases at December 31, 2007 and December 31, 2006 was
$964,000 and $26,000, respectively. Management believes that the allowance
allocations are adequate for the inherent risk of those loans and leases. The
average recorded investment in nonaccrual loans and leases for the years ended December
31, 2007, 2006 and 2005 was $872,000, $137,000 and $271,000, respectively.

Interest
due but excluded from interest income on nonaccrual loans and leases was
$252,000 during 2007 and not significant during 2006 and 2005. In 2007, 2006
and 2005, interest income recognized from payments received on nonaccrual loans
and leases was not significant.

Table
Eight below sets forth nonaccrual loans and leases and loans and leases past
due 90 days or more as of year-end for the past five years.

|                                              |  |              |       |  |   |      |  |   |      |  |   |      |  |   |      | 
|--------------------------------------------- |  | ------------ | ----- |  | - | ---- |  | - | ---- |  | - | ---- |  | - | ---- | 
|Table Eight: Non-Performing Loans and
 Leases |  |              |       |  |   |      |  |   |      |  |   |      |  |   |     
|                                              |  |              |       |  |   |      |  |   |      |  |   |      |  |   |     
|                                             
|                                              |  | December
31, |      
|                                              |  |              |       |  |   |      |  |   |      |  |   |      |  |   |      | 
|(dollars in thousands)                        |  |              | 2007  |  |   | 2006 |  |   | 2005 |  |   | 2004 |  |   | 2003 | 
|                                              |  |              |       |  |   |      |  |   |      |  |   |      |  |   |      | 
|Past due 90
 days or more and still accruing: |  |              |       |  |   |      |  |   |      |  |   |      |  |   |      | 
|Commercial                                    |  | $            |      |  | $ |     |  | $ | 24   |  | $ |     |  | $ | 2    | 
|Real estate                                   |  |              | 455   |  |   | 13   |  |   |     |  |   |     |  |   |     | 
|Lease financing receivable                    |  |              |      |  |   |     |  |   |     |  |   | 11   |  |   |     | 
|Consumer and other                            |  |              |      |  |   |     |  |   |     |  |   |     |  |   |     | 
|Nonaccrual:                                   |  |              |       |  |   |      |  |   |      |  |   |      |  |   |      | 
|Commercial                                    |  |              | 148   |  |   |     |  |   |     |  |   | 52   |  |   |     | 
|Real estate                                   |  |              | 6,787 |  |   | 12   |  |   | 15   |  |   | 113  |  |   |     | 
|Lease financing receivable                    |  |              | 50    |  |   | 53   |  |   | 52   |  |   | 71   |  |   | 179  | 
|Consumer and other                            |  |              |      |  |   |     |  |   |     |  |   |     |  |   |     | 
|                                              |  |              |       |  |   |      |  |   |      |  |   |      |  |   |      | 
|Total
 non-performing loans and leases        |  | $            | 7,440 |  | $ | 78   |  | $ | 91   |  | $ | 247  |  | $ | 181  | 
|                                              |  |              |       |  |   |      |  |   |      |  |   |      |  |   |      | 

There
were no loan or lease concentrations in excess of 10% of total loans and leases
not otherwise disclosed as a category of loans and leases as of December 31,
2007. Management is not aware of any potential problem loans or leases, which
were accruing and current at December 31, 2007 or 2006, where serious doubt
exists as to the ability of the borrower to comply with the present repayment
terms.

36

---



Impaired Loans

The
Company considers a loan to be impaired when, based on current information and
events, it is probable that it will be unable to collect all amounts due
(principal and interest) according to the contractual terms of the loan
agreement. The measurement of impairment may be based on (i) the present value
of the expected cash flows of the impaired loan discounted at the loans
original effective interest rate, (ii) the observable market price of the
impaired loan or (iii) the fair value of the collateral of a
collateral-dependent loan. The Company does not apply this definition to smaller-balance loans that are
collectively evaluated for credit risk. In assessing impairment, the Company
reviews all nonaccrual loans with outstanding principal balances in excess of
$250,000. The recorded investment in loans and leases that were considered to
be impaired totaled $6,634,000 at December 31, 2007 and had a related valuation
allowance of $764,000. The average recorded investment in impaired loans and
leases during 2007 was approximately $1,412,000. There were no loans or leases
considered to be impaired at December 31, 2006.

Allowance
for Loan and Lease Losses Activity

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

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

The
allowance for loan and lease losses totaled $5,883,000 or 1.47% of total loans
and leases at December 31, 2007, $5,874,000 or 1.51% of total loans and leases
at December 31, 2006, and $5,679,000 or 1.53% at December 31, 2005. The Company
establishes general reserves in accordance with Statement of Accounting
Standards (SFAS) No. 5., Accounting for Contingencies, and specific
reserves in accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. The ALLL is maintained by categories of the loan and
lease portfolio based on loan type and loan rating; however, the entire
allowance is available to cover actual loan and lease losses. While management
uses available information to recognize possible losses on loans and leases,
future additions to the allowance may be necessary, based on changes in
economic conditions and other matters. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Companys ALLL. Such agencies may require the Company to provide additions
to the allowance based on their judgment of information available to them at
the time of their examination.

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

Table Nine below summarizes, for the periods
indicated, the activity in the ALLL.

37

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|                                                | 
|----------------------------------------------- | 
|Table Nine: Allowance for Loan and Lease Losses | 
|                                                | 
|(dollars in thousands)                          | 

|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|------------------------------------------------------------------------------------------------ |  | ----------------------- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                                 |  | Year Ended
December 31, |        
|                                                                                                 |  |                         |        
|                                                                                                 |  | 2007                    |         | 2006 |   | 2005    |   | 2004 |         | 2003 |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Average loans and leases
 outstanding                                                            |  | $                       | 390,488 |      | $ | 381,465 |   | $    | 360,319 |      | $ | 277,647 |   | $ | 248,342 |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Allowance for loan & lease losses at beginning of
period                                         |  | $                       | 5,874   |      | $ | 5,679   |   | $    | 5,496   |      | $ | 3,949   |   | $ | 3,197   |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Loans and leases charged
 off:                                                                   |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Commercial                                                                                       |  |                         | 301     |      |   | 71      |   |      | 72      |      |   |        |   |   | 13      |  
|Real estate                                                                                      |  |                         | 72      |      |   |        |   |      |        |      |   |        |   |   |        |  
|Consumer                                                                                         |  |                         | 105     |      |   | 1       |   |      |        |      |   | 1       |   |   | 8       |  
|Lease financing receivable                                                                       |  |                         | 70      |      |   | 78      |   |      | 134     |      |   | 268     |   |   | 333     |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Total                                                                                            |  |                         | 548     |      |   | 150     |   |      | 206     |      |   | 269     |   |   | 354     |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Recoveries of loans and leases previously charged off:                                           |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Commercial                                                                                       |  |                         | 41      |      |   | 6       |   |      | 9       |      |   | 57      |   |   | 113     |  
|Real estate                                                                                      |  |                         |        |      |   |        |   |      |        |      |   |        |   |   | 47      |  
|Consumer                                                                                         |  |                         |        |      |   | 9       |   |      | 2       |      |   | 3       |   |   |        |  
|Lease financing receivable                                                                       |  |                         | 66      |      |   | 10      |   |      | 56      |      |   |        |   |   |        |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Total                                                                                            |  |                         | 107     |      |   | 25      |   |      | 67      |      |   | 60      |   |   | 160     |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Net loans and leases
 charged off                                                                |  |                         | 441     |      |   | 125     |   |      | 139     |      |   | 209     |   |   | 194     |  
|Allowance acquired in merger                                                                     |  |                         |        |      |   |        |   |      |        |      |   | 861     |   |   |        |  
|Additions to allowance charged to operating expenses                                             |  |                         | 450     |      |   | 320     |   |      | 322     |      |   | 895     |   |   | 946     |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Allowance for loan and lease losses at end of period                                             |  | $                       | 5,883   |      | $ | 5,874   |   | $    | 5,679   |      | $ | 5,496   |   | $ | 3,949   |  
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Ratio of net charge-offs to average loans and leases
outstanding                                 |  |                         | .11     | %    |   | .03     | % |      | .04     | %    |   | .08     | % |   | .08     | %
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Provision for loan and lease losses to average loans and leases
 outstanding                     |  |                         | .12     | %    |   | .08     | % |      | .09     | %    |   | .32     | % |   | .38     | %
|                                                                                                 |  |                         |         |      |   |         |   |      |         |      |   |         |   |   |         |  
|Allowance for loan and lease losses to loans and leases, net of
 deferred fees, at end of period |  |                         | 1.47    | %    |   | 1.51    | % |      | 1.53    | %    |   | 1.54    | % |   | 1.48    | %

As
part of its loan review process, management has allocated the overall allowance
based on specific identified problem loans and leases, qualitative factors,
uncertainty inherent in the estimation process and historical loss data. A risk
exists that future losses cannot be precisely quantified or attributed to
particular loans or leases or classes of loans and leases. Management continues
to evaluate the loan and lease portfolio and assesses current economic
conditions that will affect managements conclusion as to future allowance
levels. Table Ten below summarizes the allocation of the allowance for loan and
lease losses for the five years ended December 31, 2007.

38

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Table Ten: Allowance for Loan
and Lease Losses by Loan Category


---

(dollars in thousands)


|                           |  |                   |       |                                                  |       |                   |  |                                                  |       |        |       |                                                  |  |   |       |  |       |   | 
|-------------------------- |  | ----------------- | ----- | ------------------------------------------------ | ----- | ----------------- |  | ------------------------------------------------ | ----- | ------ | ----- | ------------------------------------------------ |  | - | ----- |  | ----- | - | 
|                           |  | December 31, 2007 |       | December 31, 2006                                |       | December 31, 2005 | 
|                           |  |                   |       |                                                  |       |                   | 
|                           |  | 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                 |  | $                 | 1,334 |                                                  | 26.3  | %                 |  | $                                                | 1,269 |        | 22.1  | %                                                |  | $ | 1,056 |  | 21.0  | % | 
|Real estate                |  |                   | 4,314 |                                                  | 68.0  | %                 |  |                                                  | 4,332 |        | 71.4  | %                                                |  |   | 3,948 |  | 71.5  | % | 
|Agriculture                |  |                   | 8     |                                                  | 2.0   | %                 |  |                                                  | 7     |        | 1.9   | %                                                |  |   | 213   |  | 2.2   | % | 
|Consumer                   |  |                   | 108   |                                                  | 2.7   | %                 |  |                                                  | 131   |        | 3.0   | %                                                |  |   | 246   |  | 3.2   | % | 
|Lease financing receivable |  |                   | 84    |                                                  | 1.0   | %                 |  |                                                  | 135   |        | 1.6   | %                                                |  |   | 216   |  | 2.1   | % | 
|                           |  |                   |       |                                                  |       |                   |  |                                                  |       |        |       |                                                  |  |   |       |  |       |   | 
|Total allocated            |  | $                 | 5,883 |                                                  | 100.0 | %                 |  | $                                                | 5,874 |        | 100.0 | %                                                |  | $ | 5,679 |  | 100.0 | % | 
|                           |  |                   |       |                                                  |       |                   |  |                                                  |       |        |       |                                                  |  |   |       |  |       |   | 

|                            |  |                   |       |                                                  |       |        |  |                                                  |       |  |       |   | 
|--------------------------- |  | ----------------- | ----- | ------------------------------------------------ | ----- | ------ |  | ------------------------------------------------ | ----- |  | ----- | - | 
|                            |  | December 31, 2004 |       | December 31, 2003                                |      
|                            |  |                   |       |                                                  |       |        |  |                                                  |       |  |       |   | 
|                            |  | Amount            |       | Percent of
loans
in each category
to total loans |       | Amount |  | Percent of
loans
in each category
to total loans |      
|                            |  |                   |       |                                                  |       |        |  |                                                  |       |  |       |   | 
|Commercial                  |  | $                 | 1,028 |                                                  | 18.6  | %      |  | $                                                | 865   |  | 21.5  | % | 
|Real estate                 |  |                   | 3,825 |                                                  | 73.7  | %      |  |                                                  | 2,579 |  | 69.8  | % | 
|Agriculture                 |  |                   | 110   |                                                  | 2.3   | %      |  |                                                  | 201   |  | 3.0   | % | 
|Consumer                    |  |                   | 220   |                                                  | 2.6   | %      |  |                                                  | 91    |  | 2.2   | % | 
|Lease financing
 receivable |  |                   | 313   |                                                  | 2.8   | %      |  |                                                  | 213   |  | 3.5   | % | 
|                            |  |                   |       |                                                  |       |        |  |                                                  |       |  |       |   | 
|Total
 allocated            |  | $                 | 5,496 |                                                  | 100.0 | %      |  | $                                                | 3,949 |  | 100.0 | % | 
|                            |  |                   |       |                                                  |       |        |  |                                                  |       |  |       |   | 

The
allocation presented should not be interpreted as an indication that charges to
the allowance for loan and lease losses will be incurred in these amounts or
proportions, or that the portion of the allowance allocated to each loan and
lease category represents the total amounts available for charge-offs that may
occur within these categories.

Other Real Estate

At
December 31, 2007 and 2006, the Company had $61,000 and zero in other real
estate properties, respectively.

Deposits

At
December 31, 2007, total deposits were $455,645,000 representing a decrease of
$38,230,000 (7.7%) compared to the December 31, 2006 balance of $493,875,000.
The Companys deposit growth plan for 2007 was to concentrate its efforts on
increasing noninterest-bearing demand, interest-bearing money market and NOW
accounts, and savings accounts. However, due to the competitive rate
environment, the Company experienced decreases in noninterest bearing
($27,908,000 or 17.4%) and savings ($1,254,000 or 3.4%), but did have increases
in money market ($4,632,000 or 3.8%) and NOW accounts ($1,763,000 or 4.2%).
During 2007, the Company chose not to compete with the higher rate paying
competitors and as a result time deposits decreased $15,463,000 (11.7%) from
the total of $131,829,000 at December 31, 2006.

39

---



Other Borrowed Funds

Other
borrowings outstanding as of December 31, 2007 consist of advances from the
Federal Home Loan Bank (the FHLB). The following table summarizes these
borrowings (dollars in thousands):

|                             |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|---------------------------- |  | ------ | ------ | ---- | ---- | ------ |  | ---- | ------ | ------ | ---- | ---- |  | - | ------ |  | ---- | - | 
|                             |  | 2007   |        | 2006 |      | 2005   | 
|                             |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|                             |  | Amount |        | Rate |      | Amount |  | Rate |        | Amount |      | Rate | 
|                             |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|Short-term
 borrowings:      |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|FHLB advances                |  | $      | 51,603 |      | 3.61 | %      |  | $    | 37,270 |        | 5.08 | %    |  | $ | 39,386 |  | 3.73 | % | 
|                             |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|Total
 short-term borrowings |  | $      | 51,603 |      | 3.61 | %      |  | $    | 37,270 |        | 5.08 | %    |  | $ | 39,386 |  | 3.73 | % | 
|                             |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|                            
|Long-term
 borrowings:       |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|FHLB advances                |  | $      |        |      |      |        |  | $    | 5,000  |        | 4.92 | %    |  | $ | 4,270  |  | 4.10 | % | 
|                             |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 
|Total long-term
 borrowings  |  | $      |        |      |      |        |  | $    | 5,000  |        | 4.92 | %    |  | $ | 4,270  |  | 4.10 | % | 
|                             |  |        |        |      |      |        |  |      |        |        |      |      |  |   |        |  |      |   | 

The
maximum amount of short-term borrowings at any month-end during 2007, 2006 and
2005, was $51,603,000, $64,489,000, and $39,386,000, respectively. The FHLB
advances are collateralized by loans and securities pledged to the FHLB. The
following is a breakdown of rates and maturities on FHLB advances (dollars in
thousands):

|               |  |            |        |           |  |     | 
|-------------- |  | ---------- | ------ | --------- |  | --- | 
|               |  | Short Term |        | Long Term | 
|               |  |            |        |           |  |     | 
|Amount         |  | $          | 51,603 |           |  | N/A | 
|Maturity       |  |            | 2008   |           |  |     | 
|Average
 rates |  |            | 3.61   | %         |  |     | 

The
Company has also been issued a total of $3,750,000 in letters of credit by the
FHLB 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 2007 or 2006 and management does not expect to draw upon these lines in the
future.

Capital Resources

The
current and projected capital position of the Company and the impact of capital
plans and long-term strategies is reviewed regularly by management. The
Companys capital position represents the level of capital available to support
continuing operations and expansion.

On
September 20, 2001, the Company announced a plan to repurchase, as conditions
warrant, up to 5% annually of the Companys common stock. Each year the Company
may repurchase up to 5% of the shares outstanding (adjusted for stock splits or
stock dividends). In addition to the 5% repurchase plan, the Company announced
an additional plan on October 17, 2007 that allowed the Company to purchase up
to $2,000,000 in additional shares for the calendar year 2007. The repurchases
are to be made from time to time in the open market as conditions allow and
will be structured to comply with SEC Rule 10b-18. 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 these
repurchase programs at any time for any reason. The Company repurchased 406,350
shares in 2007, 285,152 shares in 2006, 88,558 shares in 2005, 11,304 shares in
2004, 1,824 shares in 2003 and 79,759 shares in 2002. See Stock Repurchases
under Item 5 on page 21 for more information regarding the stock repurchase
plan.

40

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The
Company and American River Bank are subject to certain regulatory capital
requirements administered by the Board of Governors of the Federal Reserve System
and the Federal Deposit Insurance Corporation. Failure to meet these minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Companys consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, banks must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Companys and American
River Banks capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors. At December 31, 2007, shareholders equity was $59,973,000,
representing a decrease of $2,398,000 (3.8%) from $62,371,000 at December 31,
2006. This decrease was attributable principally to the retention of earnings
offset by the payment of cash dividends and the repurchase of Company stock. In
2006, shareholders equity decreased $375,000 (0.6%) from 2005. The ratio of
total risk-based capital to risk adjusted assets was 10.7% at December 31, 2007
compared to 11.6% at December 31, 2006. Tier 1 risk-based capital to
risk-adjusted assets was 9.5% at December 31, 2007 and 10.3% at December 31,
2006.

Table
Eleven below lists the Companys actual capital ratios at December 31, 2007 and
2006 as well as the minimum capital ratios for capital adequacy.

|                                |  |                 |      |                                         |  |      |   |      |   | 
|------------------------------- |  | --------------- | ---- | --------------------------------------- |  | ---- | - | ---- | - | 
|Table Eleven: Capital Ratios    |  |                 |      |                                         |  |      |   |      |   | 
|                                |  |                 |      |                                         |  |      |   |      |   | 
|                               
|                                |  | At December 31, |      | Minimum Regulatory
Capital Requirements | 
|Capital to Risk-Adjusted Assets |  | 2007            |      | 2006                                    |  |     
|                                |  |                 |      |                                         |  |      |  
|Leverage
 ratio                 |  |                 | 7.7  | %                                       |  | 7.8  | % | 4.00 | % | 
|Tier 1
 Risk-Based Capital      |  |                 | 9.5  | %                                       |  | 10.3 | % | 4.00 | % | 
|Total
 Risk-Based Capital       |  |                 | 10.7 | %                                       |  | 11.6 | % | 8.00 | % | 

Capital
ratios are reviewed on a regular basis to ensure that capital exceeds the
prescribed regulatory minimums and is adequate to meet future needs. American
River Banks ratios are in excess of the regulatory definition of well
capitalized.

Management
believes that the Companys capital is adequate to support current operations
and anticipated growth, cash dividends and future capital requirements of the
Company and its subsidiaries.

Market Risk Management

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

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

Simulation
of earnings is the primary tool used to measure the sensitivity of earnings to
interest rate changes. Using computer-modeling techniques, the Company is able
to estimate the potential impact of changing interest rates on earnings. A
balance sheet forecast is prepared quarterly using inputs of actual loans and
leases, securities and interest bearing liabilities (i.e. deposits/borrowings)
positions as the beginning base. The forecast balance sheet is processed
against three interest rate scenarios. The scenarios include a 200 basis point
rising rate forecast, a flat rate forecast and a 200 basis point falling rate
forecast which take place within a one year time frame. The net interest income
is measured during the year assuming a gradual change in rates over the
twelve-month horizon. The simulation modeling indicated below attempts to
estimate changes in the Companys net interest income utilizing a forecast
balance sheet projected from year-end balances. Table Twelve below summarizes
the effect on net interest income (NII) of a ±200 basis point change in
interest rates as measured against a constant rate (no change) scenario.

41

---



|                                                                                     |                                          |                                               |   |       | 
|------------------------------------------------------------------------------------ | ---------------------------------------- | --------------------------------------------- | - | ----- | 
|Table Twelve: Interest Rate Risk Simulation of Net Interest as of
 December 31, 2007
|                                                                                     |                                          |                                               |   |      
|(dollars in thousands)                                                              
|                                                                                    
|                                                                                     |                                          | $ Change in NII
from Current
12 Month Horizon |  
|                                                                                     |                                          |                                               |   |       | 
|                                                                                     | Variation
 from a constant rate scenario |                                               |   |       | 
|                                                                                     | +200bp                                   |                                               | $ | 51    | 
|                                                                                     | -200bp                                   |                                               | $ | (298) | 

The
simulations of earnings do not incorporate any management actions, which might
moderate the negative consequences of interest rate deviations. Therefore, they
do not reflect likely actual results, but serve as reasonable estimates of
interest rate risk.

Interest Rate Sensitivity Analysis

Interest
rate sensitivity is a function of the repricing characteristics of the
portfolio of assets and liabilities. These repricing characteristics are the
time frames within which the interest-bearing assets and liabilities are
subject to change in interest rates either at replacement, repricing or
maturity. Interest rate sensitivity management focuses on the maturity of
assets and liabilities and their repricing during periods of changes in market
interest rates. Interest rate sensitivity is measured as the difference between
the volumes of assets and liabilities in the current portfolio that are subject
to repricing at various time horizons. The differences are known as interest
sensitivity gaps. A positive cumulative gap may be equated to an asset
sensitive position. An asset sensitive position in a rising interest rate
environment will cause a banks interest rate margin to expand. This results as
floating or variable rate loans reprice more rapidly than fixed rate
certificates of deposit that reprice as they mature over time. Conversely, a
declining interest rate environment will cause the opposite effect. A negative
cumulative gap may be equated to a liability sensitive position. A liability
sensitive position in a rising interest rate environment will cause a banks
interest rate margin to contract, while a declining interest rate environment
will have the opposite effect.

Inflation

The
impact of inflation on a financial institution differs significantly from that
exerted on manufacturing, or other commercial concerns, primarily because its
assets and liabilities are largely monetary. In general, inflation primarily
affects the Company through its effect on market rates of interest, which
affects the Companys ability to attract loan customers. Inflation affects the
growth of total assets by increasing the level of loan demand, and potentially
adversely affects capital adequacy because loan growth in inflationary periods
can increase at rates higher than the rate that capital grows through retention
of earnings which may be generated in the future. In addition to its effects on
interest rates, inflation increases overall operating expenses. Inflation has
not had a material effect upon the results of operations of the Company during
the years ended December 31, 2007, 2006 and 2005.

Liquidity

Liquidity
management refers to the Companys ability to provide funds on an ongoing basis
to meet fluctuations in deposit levels as well as the credit needs and
requirements of its clients. Both assets and liabilities contribute to the
Companys liquidity position. Federal funds lines, short-term investments and
securities, and loan and lease repayments contribute to liquidity, along with
deposit increases, while loan and lease funding and deposit withdrawals
decrease liquidity. The Company assesses the likelihood of projected funding
requirements by reviewing historical funding patterns, current and forecasted
economic conditions and individual client funding needs. Commitments to fund
loans and outstanding standby letters of credit at December 31, 2007 were
approximately $112,633,000 and $7,537,000, respectively. Such loan commitments
relate primarily to revolving lines of credit and other commercial loans and to
real estate construction loans. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.

42

---



The
Companys sources of liquidity consist of cash and due from correspondent
banks, overnight funds sold to correspondent banks, unpledged marketable
investments and loans held for sale. On December 31, 2007, consolidated liquid
assets totaled $47.1 million or 8.2% of total assets compared to $68.7 million
or 11.4% of total assets on December 31, 2006. In addition to liquid assets,
the Company maintains short-term lines of credit in the amount of $52,000,000
with correspondent banks. At December 31, 2007, the Company had $52,000,000
available under these credit lines. Additionally, American River Bank is a
member of the FHLB. At December 31, 2007, American River Bank could have
arranged for up to $134,984,000 in secured borrowings from the FHLB. These
borrowings are secured by pledged mortgage loans and investment securities. At
December 31, 2007, the Company had $79,631,000 available under these secured
borrowing arrangements. American River Bank also has informal agreements with
various other banks to sell participations in loans, if necessary. The Company
serves primarily a business and professional customer base and, as such, its
deposit base is susceptible to economic fluctuations. Accordingly, management
strives to maintain a balanced position of liquid assets to volatile and
cyclical deposits.

Liquidity
is also affected by portfolio maturities and the effect of interest rate
fluctuations on the marketability of both assets and liabilities. The Company
can sell any of its unpledged securities held in the available-for-sale
category to meet liquidity needs. These securities are also available to pledge
as collateral for borrowings if the need should arise. American River Bank has
established a master repurchase agreement with a correspondent bank to enable
such transactions. American River Bank can also pledge securities to borrow
from the FRB and the FHLB.

The
principal cash requirements of the Company are for expenses incurred in the
support of administration and operations. For nonbanking functions, the Company
is dependent upon the payment of cash dividends from its subsidiaries to
service its commitments. The Company expects that the cash dividends paid by
American River Bank to the Company will be sufficient to meet this payment
schedule. The maturity distribution of certificates of deposit is set forth in
Table Thirteen below for the periods presented. These deposits are generally
more rate sensitive than other deposits and, therefore, are more likely to be
withdrawn to obtain higher yields elsewhere if available.

Table Thirteen:
Certificates of Deposit MaturitiesDecember 31, 2007

|                                       |  |                    |        |               |   |        | 
|-------------------------------------- |  | ------------------ | ------ | ------------- | - | ------ | 
|                                       |  |                    |        |               |   |        | 
|(dollars in
thousands)                 |  | Less than $100,000 |        | Over $100,000 |  
|                                       |  |                    |        |               |   |        | 
|Three months
 or less                  |  | $                  | 14,773 |               | $ | 45,893 | 
|Over three
 months through six months  |  |                    | 8,705  |               |   | 12,638 | 
|Over six
 months through twelve months |  |                    | 9,592  |               |   | 8,418  | 
|Over twelve
 months                    |  |                    | 7,573  |               |   | 8,774  | 
|                                       |  |                    |        |               |   |        | 
|Total                                  |  | $                  | 40,643 |               | $ | 75,723 | 
|                                       |  |                    |        |               |   |        | 

Loan
and lease demand also affects the Companys liquidity position. Table Fourteen
below presents the maturities of loans and leases for the period indicated.

Table Fourteen: Loan
and Lease Maturities (Gross Loans and Leases)

|                       |  |                  |         |                            |   |                 |  |       |         |  |   |         | 
|---------------------- |  | ---------------- | ------- | -------------------------- | - | --------------- |  | ----- | ------- |  | - | ------- | 
|                       |  |                  |         |                            |   |                 |  |       |         |  |   |         | 
|December 31,
2007      |  |                  |         |                            |   |                 |  |       |         |  |   |         | 
|                      
|                       |  |                  |         |                            |   |                 |  |       |         |  |   |         | 
|(dollars in
thousands) |  | One year
or less |         | One yearthrough
five years |   | Over
five years |  | Total |        
|                       |  |                  |         |                            |   |                 |  |       |         |  |   |         | 
|Commercial             |  | $                | 47,343  |                            | $ | 41,743          |  | $     | 16,381  |  | $ | 105,467 | 
|Real estate            |  |                  | 74,459  |                            |   | 54,049          |  |       | 144,403 |  |   | 272,911 | 
|Agriculture            |  |                  | 2,344   |                            |   | 5,195           |  |       | 638     |  |   | 8,177   | 
|Consumer               |  |                  | 930     |                            |   | 3,090           |  |       | 6,730   |  |   | 10,750  | 
|Leases                 |  |                  | 475     |                            |   | 2,860           |  |       | 735     |  |   | 4,070   | 
|                       |  |                  |         |                            |   |                 |  |       |         |  |   |         | 
|Total                  |  | $                | 125,551 |                            | $ | 106,937         |  | $     | 168,887 |  | $ | 401,375 | 
|                       |  |                  |         |                            |   |                 |  |       |         |  |   |         | 

Loans
and leases shown above with maturities greater than one year include
$206,091,000 of floating interest rate loans and $69,733,000 of fixed rate
loans and leases.

43

---



The carrying
amount, maturity distribution and
weighted average yield of the Companys investment securities
available-for-sale and held-to-maturity portfolios are presented in Table
Fifteen below. The yields on tax-exempt obligations have been computed on a tax
equivalent basis. Table Fifteen does not include FHLB Stock, which does not
have stated maturity dates or readily available market values. The balance in
FHLB Stock at December 31, 2007, 2006 and 2005 was $2,800,000, $3,071,000 and
$2,608,000, respectively.

Table Fifteen:
Securities Maturities and Weighted Average Yields
December 31, 2007, 2006 and 2005

|                                                |  |                 |        |                        |  |                 |  
|----------------------------------------------- |  | --------------- | ------ | ---------------------- |  | --------------- | -
|                                                |  |                 |        |                        |  |                 |  
|(Taxable
Equivalent Basis)                      |  |                 |        |                        |  |                 |  
|                                               
|                                                |  | 2007            |        | 2006                   |  | 2005            |  
|                                                |  |                 |        |                        |  |                 |  
|(dollars in
thousands)                          |  | Carrying
Amount |        | Weighted
Average
Yield |  | Carrying
Amount |  
|                                                |  |                 |        |                        |  |                 |  
|                                               
|Available-for-sale securities:                  |  |                 |        |                        |  |                 |  
|U.S. Treasury and agency securities             |  |                 |        |                        |  |                 |  
|Maturing within 1 year                          |  | $               | 13,072 |                        |  | 3.77            | %
|Maturing after 1 year but within 5 years        |  |                 | 3,434  |                        |  | 3.84            | %
|State & political subdivisions                  |  |                 |        |                        |  |                 |  
|Maturing within 1 year                          |  |                 | 2,363  |                        |  | 4.15            | %
|Maturing after 1 year but within 5 years        |  |                 | 11,561 |                        |  | 5.17            | %
|Maturing after 5 years but within 10
years      |  |                 | 9,810  |                        |  | 6.38            | %
|Maturing after 10 years                         |  |                 | 7,377  |                        |  | 6.28            | %
|Government sponsored mortgage-backed securities |  |                 | 31,066 |                        |  | 4.30            | %
|Other                                           |  |                 |        |                        |  |                 |  
|Maturing within 1 year                          |  |                 |       |                        |  |                |  
|Maturing after 1 year but within 5 years        |  |                 |       |                        |  |                |  
|Non maturing                                    |  |                 | 287    |                        |  | 4.44            | %
|                                                |  |                 |        |                        |  |                 |  
|Total investment securities                     |  | $               | 78,970 |                        |  | 4.76            | %
|                                                |  |                 |        |                        |  |                 |  
|                                               
|Held-to-maturity securities:                    |  |                 |        |                        |  |                 |  
|Government sponsored mortgage-backed securities |  | $               | 34,754 |                        |  | 4.69            | %
|                                                |  |                 |        |                        |  |                 |  
|Total investment securities                     |  | $               | 34,754 |                        |  | 4.69            | %
|                                                |  |                 |        |                        |  |                 |  

The
carrying values of available-for-sale securities include net unrealized gains
(losses) of $171,000, ($957,000) and ($1,279,000) at December 31, 2007, 2006
and 2005, respectively. The carrying values of held-to-maturity securities do
not include unrealized gains or losses, however, the net unrealized gains
(losses) at December 31, 2007, 2006 and 2005 were $101,000, ($311,000) and
($354,000), respectively.

Off-Balance Sheet Arrangements

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

As
of December 31, 2007, commitments to extend credit and letters of credit were
the only financial instruments with off-balance sheet risk. The Company has not
entered into any contracts for financial derivative instruments such as
futures, swaps, options or similar instruments. Real estate commitments are
generally secured by property with a loan-to-value ratio of 65% to 75%. In
addition, the majority of the Companys commitments have variable interest
rates.

44

---



The
Companys exposure to credit loss in the event of nonperformance by the other
party for commitments to extend credit and letters of credit is represented by
the contractual amount of those instruments. The Company uses the same credit
policies in making commitments and letters of credit as it does for loans
included on the consolidated balance sheet. The following financial instruments
represent off-balance-sheet credit:

|                                                                                              |  |              |         |      |   |         | 
|--------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | 
|                                                                                              |  | December 31, |        
|                                                                                              |  |              |        
|                                                                                              |  | 2007         |         | 2006 |  
|                                                                                              |  |              |         |      |  
|Commitments to extend credit (dollars in thousands):                                          |  |              |         |      |   |         | 
|                                                                                             
|Revolving lines of credit secured by 1-4 family
 residences                                   |  | $            | 8,252   |      | $ | 9,144   | 
|Commercial real estate, construction and
 land development commitments secured by real estate |  |              | 31,881  |      |   | 45,752  | 
|Other unused commitments, principally
 commercial loans                                       |  |              | 72,500  |      |   | 59,686  | 
|                                                                                              |  |              |         |      |   |         | 
|                                                                                              |  | $            | 112,633 |      | $ | 114,582 | 
|                                                                                              |  |              |         |      |   |         | 
|                                                                                             
|Letters of credit                                                                             |  | $            | 7,537   |      | $ | 5,701   | 
|                                                                                              |  |              |         |      |   |         | 

Certain
financial institutions have elected to use special purpose vehicles (SPV) to
dispose of problem assets. The SPV is typically a subsidiary company with an
asset and liability structure and legal status that makes its obligations
secure even if the parent corporation goes bankrupt. Under certain
circumstances, these financial institutions may exclude the problem assets from
their reported impaired and non-performing assets. The Company does not use
those vehicles or any other structures to dispose of problem assets.

Contractual Obligations

The
Company leases certain facilities at which it conducts its operations. Future
minimum lease commitments under non-cancelable operating leases are noted in
Table Sixteen below. Table Sixteen below presents certain of the Companys
contractual obligations as of December 31, 2007. Included in the table are
amounts payable under the Companys Deferred Compensation and Deferred Fees
Plans and are listed in the Other Long-Term Liabilities category. These
amounts represented $1,769,000 and are anticipated to be primarily payable at
least five years in the future.

|                                                                                 |  |                        |       |                 |   |           |  |           |       |                   |   |       |  |   |       | 
|-------------------------------------------------------------------------------- |  | ---------------------- | ----- | --------------- | - | --------- |  | --------- | ----- | ----------------- | - | ----- |  | - | ----- | 
|Table Sixteen:
Contractual Obligations                                           |  |                        |      
|                                                                                
|(dollars in thousands)                                                           |  |                        |      
|                                                                                
|                                                                                 |  | Payments due by period |      
|                                                                                 |  |                        |      
|                                                                                 |  | Total                  |       | Less than1 year |   | 1-3 years |  | 3-5 years |       | More than 5 years |  
|                                                                                 |  |                        |       |                 |   |           |  |           |       |                   |  
|Long-Term Debt                                                                   |  | $                      |      |                 | $ |          |  | $         |      |                   | $ |      |  | $ |      | 
|Capital Lease Obligations                                                        |  |                        |      |                 |   |          |  |           |      |                   |   |      |  |   |      | 
|Operating Leases                                                                 |  |                        | 5,075 |                 |   | 1,016     |  |           | 1,546 |                   |   | 1,149 |  |   | 1,364 | 
|Purchase Obligations                                                             |  |                        |      |                 |   |          |  |           |      |                   |   |      |  |   |      | 
|Other Long-Term Liabilities Reflected on
 the Companys Balance Sheet under GAAP |  |                        | 1,769 |                 |   |          |  |           |      |                   |   |      |  |   | 1,769 | 
|                                                                                 |  |                        |       |                 |   |           |  |           |       |                   |   |       |  |   |       | 
|Total                                                                            |  | $                      | 6,844 |                 | $ | 1,016     |  | $         | 1,546 |                   | $ | 1,149 |  | $ | 3,133 | 
|                                                                                 |  |                        |       |                 |   |           |  |           |       |                   |   |       |  |   |       | 

Accounting Pronouncements

In
September 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurements.
SFAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS 157 applies
whenever other standards require (or permit) assets or liabilities to be
measured at fair value but does not expand the use of fair value in any new
circumstances. In this standard, the FASB clarifies the principle that fair
value should be based on the assumptions market participants would use when
pricing the asset or liability. In support of this principle, SFAS 157
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. The provisions of SFAS 157 are effective for
financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. The provisions should be
applied prospectively, except for certain specifically identified financial
instruments. The Company adopted SFAS 157 on January 1, 2008 and
management does not believe its adoption will have a material impact on the
Companys financial position, results of operations or cash flows.

45

---



In
February 2007, the FASB issued Statement No. 159 (SFAS 159), The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115.
This standard permits an entity to choose to measure many financial instruments
and certain other items at fair value at specified election dates. The
entity will report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date. The
fair value option (a) may be applied instrument by instrument, with a few
exceptions, such as investments otherwise accounted for by the equity method,
(b) is irrevocable (unless a new election date occurs), and (c) is applied only
to entire instruments and not to portions of instruments. The Company adopted
SFAS 159 on January 1, 2008 and management did not elect the fair value option
for any of its financial instruments.

In
September 2006, the FASB ratified the consensuses reached by the Task Force on
Issue No. 06-4 (EITF 06-04), Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements. A question arose when an employer
enters into an endorsement split-dollar life insurance arrangement related to
whether the employer should recognize a liability for the future
benefits or premiums to be provided to the employee. EITF 06-04 indicates that
an employer should recognize a liability for future benefits and that a
liability for the benefit obligation has not been settled through the purchase
of an endorsement type policy. An entity should apply the provisions of EITF
06-04 either through a change in accounting principle through a
cumulative-effect adjustment to retained earnings as of the beginning of the
year of adoption or a change in accounting principle through retrospective
application to all prior periods. The provisions of EITF 06-04 are effective
for fiscal years beginning after December 15, 2007. The Company adopted the provisions
of EITF 06-04 on January 1, 2008 and management determined that the adoption of
EITF 06-04 will not have an impact on the financial position, results of
operations or cash flows of the Company.

In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations(SFAS No. 141R). SFAS
No. 141(R), among other things, establishes principles and requirements for how
the acquirer in a business combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired business, (ii) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and
(iii) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination.
TheCompanyis required to adopt SFAS No. 141(R) for
all business combinations for which the acquisition date is on or after January
1, 2009. Earlier
adoption is prohibited. This standard will changetheaccounting treatment for
business combinations on a
prospective basis.

Other Matters

Effects
of Terrorism. The
terrorist actions on September 11, 2001 and thereafter and the current military
conflicts primarily in Afghanistan and Iraq have had significant adverse
effects upon the United States economy. Whether the terrorist activities in the
future and the actions of the United States and its allies in combating
terrorism on a worldwide basis will adversely impact the Company and the extent
of such impact is uncertain. Such economic deterioration could adversely affect
the Companys future results of operations by, among other matters, reducing
the demand for loans and other products and services offered by the Company,
increasing nonperforming loans and the amounts reserved for loan and lease
losses, and causing a decline in the Companys stock price.

46

---



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

The information required by Item 7A of Form 10-K is
contained in the Market Risk Management section of Item 7-Managements
Discussion and Analysis of Financial Condition and Results of Operations on
pages 41-42.

Item 8.
Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                   |  |      
|------------------------------------------------------------------------------------------------------------------ |  | -----
|                                                                                                                   |  | Page 
|Report of Independent Registered
  Public Accounting Firm                                                          |  | 48   
|                                                                                                                   |  |      
|Consolidated Balance Sheet, December
  31, 2007 and 2006                                                           |  | 49   
|                                                                                                                   |  |      
|Consolidated
  Statement of Income for the Years Ended
  December 31, 2007, 2006 and 2005                          |  | 50   
|                                                                                                                   |  |      
|Consolidated
  Statement of Changes in Shareholders Equity
  for the Years Ended December 31, 2007, 2006 and 2005 |  | 51   
|                                                                                                                   |  |      
|Consolidated
  Statement of Cash Flows for the Years Ended
  December 31, 2007, 2006 and 2005                      |  | 52-53
|                                                                                                                   |  |      
|Notes to Consolidated Financial
  Statements                                                                       |  | 54-86

All schedules have been omitted since the required
information is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the Consolidated
Financial Statements or notes thereto.

47

---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The
Shareholders and Board of Directors
American River Bankshares

We
have audited the accompanying consolidated balance sheet of American River
Bankshares and subsidiaries (the Company) as of December 31, 2007 and 2006
and the related consolidated statements of income, changes in shareholders
equity and cash flows for each of the years in the three-year period ended
December 31, 2007. These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American River Bankshares and subsidiaries as of December 31, 2007 and 2006,
and the consolidated results of their operations and their consolidated cash
flows for each of the years in the three-year period ended December 31, 2007,
in conformity with accounting principles generally accepted in the United
States of America.

We
have also audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Companys internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 5, 2008
expressed an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.

| |                     | 
| | ------------------- | 
| | /s/ Perry-Smith LLP | 

Sacramento,
California
March 5, 2008

48

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

CONSOLIDATED
BALANCE SHEET

December 31, 2007 and 2006
(Dollars in thousands)

|                                                                                                                                              |  |      |         |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                                                                              |  | 2007 |         | 2006 |  
|                                                                                                                                              |  |      |         |      |  
|ASSETS                                                                                                                                        |  |      |         |      |  
|Cash and due from banks                                                                                                                       |  | $    | 16,245  |      | $ | 25,352  |  
|Federal funds sold                                                                                                                            |  |      | 1,700   |      |   |         |  
|                                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                              |  |      |         |      |   |         |  
|Total cash and cash equivalents                                                                                                               |  |      | 17,945  |      |   | 25,352  |  
|                                                                                                                                              |  |      |         |      |   |         |  
|Interest-bearing deposits in banks                                                                                                            |  |      | 4,951   |      |   | 4,951   |  
|Investment securities (Note 4):                                                                                                               |  |      |         |      |   |         |  
|Available for sale, at fair value                                                                                                             |  |      | 78,970  |      |   | 104,209 |  
|Held to maturity, at amortized cost                                                                                                           |  |      | 34,754  |      |   | 44,031  |  
|Loans and leases, less allowance for loan
  and lease losses of $5,883 in 2007 and  $5,874 in 2006 (Notes 5, 11 and 16)                       |  |      | 394,975 |      |   | 382,993 |  
|Premises and equipment, net (Note 6)                                                                                                          |  |      | 1,983   |      |   | 1,846   |  
|Federal Home Loan Bank stock                                                                                                                  |  |      | 2,800   |      |   | 3,071   |  
|Accounts receivable servicing receivables,
  net (Note 7)                                                                                     |  |      | 1,666   |      |   | 2,581   |  
|Goodwill (Note 3)                                                                                                                             |  |      | 16,321  |      |   | 16,321  |  
|Intangible assets (Note 3)                                                                                                                    |  |      | 1,193   |      |   | 1,501   |  
|Accrued interest receivable and other
  assets (Notes 10 and 15)                                                                              |  |      | 18,127  |      |   | 17,147  |  
|                                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                             
|                                                                                                                                              |  | $    | 573,685 |      | $ | 604,003 |  
|                                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                              |  |      |         |      |   |         |  
|LIABILITIES AND
  SHAREHOLDERS EQUITY                                                                                                        |  |      |         |      |   |         |  
|                                                                                                                                              |  |      |         |      |   |         |  
|Deposits:                                                                                                                                     |  |      |         |      |   |         |  
|Noninterest bearing                                                                                                                           |  | $    | 132,666 |      | $ | 160,574 |  
|Interest bearing (Note 8)                                                                                                                     |  |      | 322,979 |      |   | 333,301 |  
|                                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                             
|Total deposits                                                                                                                                |  |      | 455,645 |      |   | 493,875 |  
|                                                                                                                                              |  |      |         |      |   |         |  
|Short-term borrowings (Note 9)                                                                                                                |  |      | 51,603  |      |   | 37,270  |  
|Long-term borrowings (Note 9)                                                                                                                 |  |      |         |      |   | 5,000   |  
|Accrued interest payable and other
  liabilities (Note 15)                                                                                    |  |      | 6,464   |      |   | 5,487   |  
|                                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                             
|Total liabilities                                                                                                                             |  |      | 513,712 |      |   | 541,632 |  
|                                                                                                                                              |  |      |         |      |   |         |  
|Commitments and contingencies (Note 11)                                                                                                       |  |      |         |      |   |         |  
|                                                                                                                                              |  |      |         |      |   |         |  
|Shareholders equity (Notes 12 and 13):                                                                                                       |  |      |         |      |   |         |  
|Common stock - no par value; 20,000,000
  shares authorized; issued and outstanding  5,590,277 shares in 2007 and
  5,657,346 shares in 2006 |  |      | 45,668  |      |   | 48,246  |  
|Retained earnings                                                                                                                             |  |      | 14,204  |      |   | 14,690  |  
|Accumulated other comprehensive income
  (loss), net of taxes (Notes 4 and 17)                                                                |  |      | 101     |      |   | (565    | )
|                                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                             
|Total shareholders equity                                                                                                                    |  |      | 59,973  |      |   | 62,371  |  
|                                                                                                                                              |  |      |         |      |   |         |  
|                                                                                                                                             
|                                                                                                                                              |  | $    | 573,685 |      | $ | 604,003 |  
|                                                                                                                                              |  |      |         |      |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.

49

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

For the Years Ended December 31, 2007, 2006
and 2005
(Dollars in thousands, except per share data)

|                                                                                                |  |      |        |      |   |        |  |   |        | 
|----------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------ | 
|                                                                                                |  | 2007 |        | 2006 |   | 2005   | 
|                                                                                                |  |      |        |      |   |        | 
|Interest income:                                                                                |  |      |        |      |   |        |  |   |        | 
|Interest and fees on loans and leases                                                           |  | $    | 31,508 |      | $ | 31,081 |  | $ | 26,536 | 
|Interest on Federal funds sold                                                                  |  |      | 34     |      |   | 19     |  |   | 90     | 
|Interest on deposits in banks                                                                   |  |      | 271    |      |   | 241    |  |   | 188    | 
|Interest and dividends on investment
  securities:                                              |  |      |        |      |   |        |  |   |        | 
|Taxable                                                                                         |  |      | 4,544  |      |   | 5,545  |  |   | 5,436  | 
|Exempt from Federal income taxes                                                                |  |      | 1,095  |      |   | 1,034  |  |   | 931    | 
|Dividends                                                                                       |  |      | 26     |      |   | 34     |  |   | 32     | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Total interest income                                                                           |  |      | 37,478 |      |   | 37,954 |  |   | 33,213 | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Interest expense:                                                                               |  |      |        |      |   |        |  |   |        | 
|Interest on deposits (Note 8)                                                                   |  |      | 9,560  |      |   | 8,677  |  |   | 5,646  | 
|Interest on borrowings (Note 9)                                                                 |  |      | 1,516  |      |   | 2,211  |  |   | 1,105  | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Total interest expense                                                                          |  |      | 11,076 |      |   | 10,888 |  |   | 6,751  | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Net interest income                                                                             |  |      | 26,402 |      |   | 27,066 |  |   | 26,462 | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Provision for loan and lease losses (Note
  5)                                                  |  |      | 450    |      |   | 320    |  |   | 322    | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Net interest income after provision for
  loan and lease losses                                 |  |      | 25,952 |      |   | 26,746 |  |   | 26,140 | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Noninterest income:                                                                             |  |      |        |      |   |        |  |   |        | 
|Service charges                                                                                 |  |      | 743    |      |   | 783    |  |   | 672    | 
|Gain on sale of investment securities (Note
  4)                                                |  |      | 11     |      |   | 1      |  |   | 48     | 
|Other income (Note 14)                                                                          |  |      | 1,845  |      |   | 1,659  |  |   | 1,609  | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Total noninterest income                                                                        |  |      | 2,599  |      |   | 2,443  |  |   | 2,329  | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Noninterest expense:                                                                            |  |      |        |      |   |        |  |   |        | 
|Salaries and employee benefits (Notes 5 and
  15)                                               |  |      | 8,396  |      |   | 7,816  |  |   | 6,958  | 
|Occupancy (Notes 6 and 11)                                                                      |  |      | 1,398  |      |   | 1,384  |  |   | 1,229  | 
|Furniture and equipment (Notes 6 and 11)                                                        |  |      | 691    |      |   | 812    |  |   | 918    | 
|Other expense (Notes 3 and 14)                                                                  |  |      | 4,348  |      |   | 4,376  |  |   | 4,388  | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Total noninterest expense                                                                       |  |      | 14,833 |      |   | 14,388 |  |   | 13,493 | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Income before provision for income taxes                                                        |  |      | 13,718 |      |   | 14,801 |  |   | 14,976 | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Provision for income taxes (Note 10)                                                            |  |      | 5,240  |      |   | 5,739  |  |   | 5,792  | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Net income                                                                                      |  | $    | 8,478  |      | $ | 9,062  |  | $ | 9,184  | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Basic earnings per share (Note 12)                                                              |  | $    | 1.47   |      | $ | 1.49   |  | $ | 1.48   | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Diluted earnings per share (Note 12)                                                            |  | $    | 1.46   |      | $ | 1.46   |  | $ | 1.45   | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 
|Cash dividends per share of issued and
  outstanding common stock, adjusted for stock dividends |  | $    | 0.58   |      | $ | 0.55   |  | $ | 0.49   | 
|                                                                                                |  |      |        |      |   |        |  |   |        | 

The accompanying notes are an integral part
of these consolidated financial statements.

50

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS
EQUITY

For the Years Ended December 31, 2007, 2006 and 2005
(Dollars in thousands)

|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------ | --------- | ------------------- | - | -------------------------------------------------------------------- | - | ---------------------------------- | ------ | ---------------------------------- | - | ------ | - | - | ------ | - | - | ------ | -
|                                                                                         |  |              |           | Retained
  Earnings |   | Accumulated
  Other
  Comprehensive
  Income (Loss)
  (Net of Taxes) |   | Total
  Share-
  holders
  Equity |        | Total
  Compre-
  hensive
  Income |  
|                                                                                         |  |              |           |                     |   |                                                                      |  
|                                                                                         |  |              |           |                     |   |                                                                      |  
|                                                                                         |  | Common Stock |           |                     |   |                                                                      |  
|                                                                                         |  |              |           |                     |   |                                                                      |  
|                                                                                         |  | Shares       |           | Amount              |   |                                                                      |   |                                    |       
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |  
|Balance, January 1, 2005                                                                 |  |              | 5,314,732 |                     | $ | 42,557                                                               |   | $                                  | 15,878 |                                    | $ | 555    |   | $ | 58,990 |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Comprehensive income (Note 17):                                                          |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Net income                                                                               |  |              |           |                     |   |                                                                      |   |                                    | 9,184  |                                    |   |        |   |   | 9,184  |   | $ | 9,184  |  
|Other comprehensive loss, net of tax:                                                    |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Net change in unrealized gains on
available-for-sale investment
  securities             |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   | (1,312 | ) |   | (1,312 | ) |   | (1,312 | )
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Total comprehensive income                                                               |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   | $ | 7,872  |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Cash dividend ($.49 per share)                                                           |  |              |           |                     |   |                                                                      |   |                                    | (3,012 | )                                  |   |        |   |   | (3,012 | ) |   |        |  
|Fractional shares redeemed                                                               |  |              | (1        | )                   |   | (32                                                                  | ) |                                    |        |                                    |   |        |   |   | (32    | ) |   |        |  
|5% stock dividend                                                                        |  |              | 266,801   |                     |   | 6,021                                                                |   |                                    | (6,021 | )                                  |   |        |   |   |        |   |   |        |  
|Stock options exercised                                                                  |  |              | 113,309   |                     |   | 945                                                                  |   |                                    |        |                                    |   |        |   |   | 945    |   |   |        |  
|Retirement of common stock (Note 12)                                                     |  |              | (90,362   | )                   |   | (2,017                                                               | ) |                                    |        |                                    |   |        |   |   | (2,017 | ) |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Balance, December 31, 2005                                                               |  |              | 5,604,479 |                     |   | 47,474                                                               |   |                                    | 16,029 |                                    |   | (757   | ) |   | 62,746 |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Cumulative effect of adopting Staff Accounting Bulletin No. 108, net
  of taxes (Note 2) |  |              |           |                     |   |                                                                      |   |                                    | (214   | )                                  |   |        |   |   | (214   | ) |   |        |  
|Comprehensive income (Note 17):                                                          |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Net income                                                                               |  |              |           |                     |   |                                                                      |   |                                    | 9,062  |                                    |   |        |   |   | 9,062  |   | $ | 9,062  |  
|Other comprehensive income, net of tax:                                                  |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Net change
in unrealized
  losses on available-for-sale investment securities (Note 4)   |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   | 192    |   |   | 192    |   |   | 192    |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Total comprehensive income                                                               |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   | $ | 9,254  |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Cash dividend ($.55 per share)                                                           |  |              |           |                     |   |                                                                      |   |                                    | (3,332 | )                                  |   |        |   |   | (3,332 | ) |   |        |  
|Fractional shares redeemed for stock dividend                                            |  |              |           |                     |   |                                                                      |   |                                    | (21    | )                                  |   |        |   |   | (21    | ) |   |        |  
|5% stock dividend                                                                        |  |              | 268,346   |                     |   | 6,834                                                                |   |                                    | (6,834 | )                                  |   |        |   |   |        |   |   |        |  
|Stock options exercised                                                                  |  |              | 43,162    |                     |   | 441                                                                  |   |                                    |        |                                    |   |        |   |   | 441    |   |   |        |  
|Stock option compensation (Note 12)                                                      |  |              |           |                     |   | 221                                                                  |   |                                    |        |                                    |   |        |   |   | 221    |   |   |        |  
|Retirement of common stock (Note 12)                                                     |  |              | (258,641  | )                   |   | (6,724                                                               | ) |                                    |        |                                    |   |        |   |   | (6,724 | ) |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Balance, December 31, 2006                                                               |  |              | 5,657,346 |                     |   | 48,246                                                               |   |                                    | 14,690 |                                    |   | (565   | ) |   | 62,371 |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Comprehensive income (Note 17):                                                          |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Net income                                                                               |  |              |           |                     |   |                                                                      |   |                                    | 8,478  |                                    |   |        |   |   | 8,478  |   | $ | 8,478  |  
|Other comprehensive income, net of tax:                                                  |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Net change
in unrealized gains
  on available-for-sale investment securities (Note 4)    |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   | 666    |   |   | 666    |   |   | 666    |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Total comprehensive income                                                               |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   | $ | 9,144  |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Cash dividend ($.58 per share)                                                           |  |              |           |                     |   |                                                                      |   |                                    | (3,319 | )                                  |   |        |   |   | (3,319 | ) |   |        |  
|Fractional shares redeemed for stock dividend                                            |  |              | (6        | )                   |   | (9                                                                   | ) |                                    |        |                                    |   |        |   |   | (9     | ) |   |        |  
|5% stock dividend                                                                        |  |              | 265,683   |                     |   | 5,645                                                                |   |                                    | (5,645 | )                                  |   |        |   |   |        |   |   |        |  
|Stock options exercised                                                                  |  |              | 54,569    |                     |   | 679                                                                  |   |                                    |        |                                    |   |        |   |   | 679    |   |   |        |  
|Stock option compensation (Note 12)                                                      |  |              |           |                     |   | 301                                                                  |   |                                    |        |                                    |   |        |   |   | 301    |   |   |        |  
|Retirement of common stock (Note 12)                                                     |  |              | (387,315  | )                   |   | (9,194                                                               | ) |                                    |        |                                    |   |        |   |   | (9,194 | ) |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  
|Balance, December 31, 2007                                                               |  |              | 5,590,277 |                     | $ | 45,668                                                               |   | $                                  | 14,204 |                                    | $ | 101    |   | $ | 59,973 |   |   |        |  
|                                                                                         |  |              |           |                     |   |                                                                      |   |                                    |        |                                    |   |        |   |   |        |   |   |        |  

The accompanying notes are an integral part of these consolidated
financial statements.

51

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2007, 2006
and 2005
(Dollars in thousands)

|                                                                                              |  |      |         |      |   |         |   |   |         |  
|--------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                              |  | 2007 |         | 2006 |   | 2005    |  
|                                                                                              |  |      |         |      |   |         |  
|                                                                                             
|Cash flows from operating activities:                                                         |  |      |         |      |   |         |   |   |         |  
|Net income                                                                                    |  | $    | 8,478   |      | $ | 9,062   |   | $ | 9,184   |  
|Adjustments to reconcile net income to net
  cash provided by (used in) operating activities: |  |      |         |      |   |         |   |   |         |  
|Provision for loan and lease losses                                                           |  |      | 450     |      |   | 320     |   |   | 322     |  
|Decrease in deferred loan and lease
  origination fees, net                                   |  |      | (188    | )    |   | (7      | ) |   | (173    | )
|Depreciation and amortization                                                                 |  |      | 840     |      |   | 951     |   |   | 1,014   |  
|Amortization of investment security
  premiums and discounts, net                             |  |      | 254     |      |   | 659     |   |   | 1,099   |  
|Provision for accounts receivable servicing
  receivable allowance for losses                 |  |      | (3      | )    |   | 11      |   |   | 35      |  
|Gain on sale of investment securities                                                         |  |      | (11     | )    |   | (1      | ) |   | (48     | )
|Increase in cash surrender value of life
  insurance policies                                 |  |      | (404    | )    |   | (192    | ) |   | (178    | )
|Provision for deferred income taxes                                                           |  |      | (240    | )    |   | (1,003  | ) |   | (422    | )
|Stock option compensation expense                                                             |  |      | 301     |      |   | 221     |   |   |         |  
|Tax benefit from exercise of stock
options                                                    |  |      | (236    | )    |   | (149    | ) |   | (469    | )
|(Increase) decrease in accrued interest
  receivable and other assets                         |  |      | (501    | )    |   | 857     |   |   | 648     |  
|Increase (decrease) in accrued interest payable
  and other liabilities                       |  |      | 986     |      |   | (525    | ) |   | (12,604 | )
|                                                                                              |  |      |         |      |   |         |   |   |         |  
|                                                                                              |  |      |         |      |   |         |   |   |         |  
|Net cash provided by (used in) operating
  activities                                         |  |      | 9,726   |      |   | 10,204  |   |   | (1,592  | )
|                                                                                              |  |      |         |      |   |         |   |   |         |  
|                                                                                              |  |      |         |      |   |         |   |   |         |  
|Cash flows from investing activities:                                                         |  |      |         |      |   |         |   |   |         |  
|Proceeds from the sale of investment
  securities                                             |  |      | 6,506   |      |   | 3,259   |   |   | 6,964   |  
|Proceeds from called available-for-sale
  investment securities                               |  |      | 1,170   |      |   | 400     |   |   | 280     |  
|Proceeds from matured available-for-sale
  investment securities                              |  |      | 17,485  |      |   | 21,150  |   |   | 20,180  |  
|Purchases of available-for-sale investment
  securities                                       |  |      |         |      |   | (7,275  | ) |   | (41,596 | )
|Purchases of held-to-maturity investment
  securities                                         |  |      | (967    | )    |   | (9,489  | ) |   | (16,901 | )
|Proceeds from principal repayments for
  available-for-sale mortgage-backed securities        |  |      | 2,711   |      |   | 2,275   |   |   | 3,411   |  
|Proceeds from principal repayments for
  held-to-maturity mortgage-backed securities          |  |      | 8,496   |      |   | 10,305  |   |   | 12,495  |  
|Net (increase) decrease in interest-bearing
  deposits in banks                               |  |      |         |      |   | (107    | ) |   | 1,095   |  
|Net increase in loans and leases                                                              |  |      | (12,302 | )    |   | (17,733 | ) |   | (13,242 | )
|Net decrease (increase) in accounts
  receivable servicing receivables                        |  |      | 918     |      |   | (592    | ) |   | 374     |  
|Purchases of equipment                                                                        |  |      | (672    | )    |   | (379    | ) |   | (886    | )
|Purchase of single premium life insurance
  policies                                          |  |      |         |      |   | (4,432  | ) |   |         |  
|Net decrease (increase) in FHLB stock                                                         |  |      | 271     |      |   | (463    | ) |   | (450    | )
|                                                                                              |  |      |         |      |   |         |   |   |         |  
|                                                                                              |  |      |         |      |   |         |   |   |         |  
|Net cash provided by (used in) investing
  activities                                         |  |      | 23,616  |      |   | (3,081  | ) |   | (28,276 | )
|                                                                                              |  |      |         |      |   |         |   |   |         |  

(Continued)

52

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)For the Years Ended December 31, 2007, 2006
and 2005
(Dollars in thousands)

|                                                                                   |  |      |         |      |   |         |   |   |        |  
|---------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | - | ------ | -
|                                                                                   |  | 2007 |         | 2006 |   | 2005    |  
|                                                                                   |  |      |         |      |   |         |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|Cash flows from financing activities:                                              |  |      |         |      |   |         |   |   |        |  
|Net (decrease) increase in demand,
  interest-bearing and savings deposits         |  | $    | (22,767 | )    | $ | (19,768 | ) | $ | 12,722 |  
|Net (decrease) increase in time deposits                                           |  |      | (15,463 | )    |   | 12,937  |   |   | 12,597 |  
|(Decrease) increase in long-term borrowings                                        |  |      | (5,000  | )    |   | 730     |   |   | (5,562 | )
|Increase (decrease) in short-term
  borrowings                                     |  |      | 14,333  |      |   | (2,116  | ) |   | 14,929 |  
|Exercise of stock options                                                          |  |      | 443     |      |   | 292     |   |   | 476    |  
|Tax benefit from exercise of stock options                                         |  |      | 236     |      |   | 149     |   |   | 469    |  
|Cash paid to repurchase common stock                                               |  |      | (9,194  | )    |   | (6,724  | ) |   | (2,017 | )
|Payment of cash dividends                                                          |  |      | (3,328  | )    |   | (3,325  | ) |   | (2,754 | )
|Cash paid for fractional shares                                                    |  |      | (9      | )    |   | (21     | ) |   | (32    | )
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|Net cash (used in) provided by financing
  activities                              |  |      | (40,749 | )    |   | (17,846 | ) |   | 30,828 |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|(Decrease) increase in cash and cash
  equivalents                                 |  |      | (7,407  | )    |   | (10,723 | ) |   | 960    |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|Cash and cash equivalents at beginning of
  year                                   |  |      | 25,352  |      |   | 36,075  |   |   | 35,115 |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|Cash and cash equivalents at end of year                                           |  | $    | 17,945  |      | $ | 25,352  |   | $ | 36,075 |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|Supplemental disclosure of cash flow
  information:                                |  |      |         |      |   |         |   |   |        |  
|Cash paid during the year for:                                                     |  |      |         |      |   |         |   |   |        |  
|Interest expense                                                                   |  | $    | 11,197  |      | $ | 10,815  |   | $ | 6,509  |  
|Income taxes                                                                       |  | $    | 5,403   |      | $ | 6,665   |   | $ | 5,990  |  
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|Non-cash investing activities:                                                     |  |      |         |      |   |         |   |   |        |  
|Net change in unrealized gain (loss) on
  available-for-sale investment securities |  | $    | 1,128   |      | $ | 322     |   | $ | (2,159 | )
|                                                                                   |  |      |         |      |   |         |   |   |        |  
|Non-cash financing activities:                                                     |  |      |         |      |   |         |   |   |        |  
|Dividends declared and unpaid                                                      |  | $    | 839     |      | $ | 848     |   | $ | 841    |  
|Adjustments to goodwill                                                            |  |      |         |      |   |         |   | $ | 238    |  
|Cumulative effect of adopting SAB 108, net
  of taxes                              |  |      |         |      | $ | 214     |   |   |        |  
|Tax benefit from exercise of stock options                                         |  | $    | 236     |      | $ | 149     |   | $ | 469    |  

The accompanying notes are an integral part of these consolidated financial statements.
53

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

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). 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 six banking offices in Sacramento and Placer
  counties, three 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 (BNKA), a division of ARB.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Bank of
  Amador located in Jackson, California was merged with and into ARB in
  December 2004 and now operates as Bank of Amador, a division of ARB. The
  merger transaction was accounted under the purchase method of accounting and
  accordingly the results of their operations have been included in the
  consolidated financial statements since the date of acquisition.                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company
  also owns one inactive subsidiary, American River Financial.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The deposits
  of ARB are insured by the Federal Deposit Insurance Corporation (the FDIC)
  up to applicable legal limits. ARB does not offer trust services or
  international banking services and does not plan to do so in the near future.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | 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.                                                                                                                                                                                                         

54

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AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | 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. As of December 31, 2007 and 2006, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  
|   | Investment
  securities are evaluated for impairment 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,
  the value of the security is reduced and a corresponding charge to earnings
  is recognized.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  
|   | Federal Home
  Loan Bank Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  
|   | Investments in
  Federal Home Loan Bank (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

55

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Loans and
  Leases (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 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
  payments as they become due. 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 Farmer Mac 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, 2007, 2006 and 2005.
  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, 2007 and 2006.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | SBA and
  Farmer Mac loans with unpaid balances of $847,000 and $1,218,000 were being
  serviced for others as of December 31, 2007 and 2006, respectively. The
  Company also serviced loans that are participated with other financial
  institutions totaling $7,797,000 and $11,642,000 as of December 31, 2007 and
  2006, 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, 2007 and 2006.                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Allowance
  for Loan and Lease Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The
  allowance for loan and lease losses is maintained to provide for probable
  losses related to impaired loans and leases and other probable losses on
  loans and leases identified by management as doubtful, substandard and
  special mention, as well as losses that can be expected to occur in the
  normal course of business related to currently performing loans and leases.
  The determination of the allowance is based on estimates made by management,
  to include consideration of the character of the loan and lease portfolio
  including concentrations, types of lending, specifically identified problem
  loans and leases, inherent risk of loss in the portfolio taken as a whole and
  economic conditions in the Companys service areas.                                                                                                                                                                                                                                                        

56

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Allowance
  for Loan and Lease Losses (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The
  methodology for evaluating the adequacy of the allowance for loan and lease
  losses has two basic elements: first, the identification of impaired loans
  and the measurement of impairment for each individual loan identified; and
  second, a method for estimating a general allowance for loan and lease
  losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | A loan or
  lease is considered impaired when it is probable that all contractual
  principal and interest payments due will not be collected in accordance with
  the terms of the loan or lease agreement. Impairment on individually
  identified loans or leases that are not collateral dependent is measured
  based on the present value of expected future cash flows discounted at each
  loan or leases original effective interest rate. For loans that are
  collateral dependent, impairment is measured based on the fair value of the
  collateral less estimated selling costs.                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | In
  estimating the general allowance for loan and lease losses, the balance of
  the loan portfolio is grouped into segments that have common characteristics,
  such as loan type, collateral type or risk rating. Loans typically segregated
  by risk rating are those that have been assigned ratings (using regulatory
  definitions) of special mention, substandard and doubtful. Loans graded loss
  are generally charged off immediately.                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | For each
  general allowance portfolio segment, loss factors are applied to calculate
  the required allowance. These loss factors are based upon historical loss
  rates adjusted for qualitative factors representing other significant factors
  affecting loan portfolio including economic factors, credit policy and
  underwriting, management and staff effectiveness, trends in delinquencies and
  losses, and concentrations.                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The
  Companys Loan Committee reviews the adequacy of the allowance for loan and
  lease losses at least quarterly, to include consideration of the relative
  risks in the portfolio and current economic conditions. The allowance is
  adjusted based on that review if, in the judgment of the Loan Committee and
  management, changes are warranted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 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 and lease
  growth. Although management believes the allowance for loan and lease losses
  to be adequate, ultimate losses may vary from their estimates. In addition,
  the FDIC and California Department of Financial Institutions, as an integral
  part of their examination process, review the allowance for loan and lease
  losses. These agencies may require additions to the allowance for loan and
  lease losses based on their judgment about information available at the time
  of their examinations.                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Other Real
Estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Other real
  estate 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 is 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. There was $61,000 in other real estate
  at December 31, 2007 and none at December 31, 2006.

57

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 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.                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | 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. On the consolidated balance sheet, net deferred tax assets are
  included in accrued interest receivable and other assets.                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | On January
  1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
  Interpretation No. 48, Accounting for
  Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the
  accounting for uncertainty in income taxes recognized in an enterprises
  financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48
  prescribes a recognition threshold and measurement standard for the financial
  statement recognition and measurement of an income tax position taken or
  expected to be taken in a tax return. In addition, FIN 48 provides guidance
  on derecognition, classification, interest and penalties, accounting in
  interim periods, disclosure and transition.                                                                                                                                                                                                                    

58

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Income Taxes (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The
  provisions of FIN 48 have been applied to all tax positions of the Company as
  of January 1, 2007. Only tax positions that met the more-likely-than-not
  recognition threshold on January 1, 2007 were recognized or continue to be
  recognized upon adoption. The Company previously recognized income tax
  positions based on managements estimate of whether it was reasonably
  possible that a liability had been incurred for unrecognized income tax
  benefits by applying FASB Statement No. 5, Accounting
  for Contingencies. The adoption of FIN 48 did not have a material
  impact on the Companys financial position, results of operations or cash
  flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | When tax
  returns are filed, it is highly certain that some positions taken would be
  sustained upon examination by the taxing authorities, while others are
  subject to uncertainty about the merits of the position taken or the amount
  of the position that would be ultimately sustained. The benefit of a tax
  position is recognized in the financial statements in the period during
  which, based on all available evidence, management believes it is more likely
  than not that the position will be sustained upon examination, including the
  resolution of appeals or litigation processes, if any. Tax positions taken
  are not offset or aggregated with other positions. Tax positions that meet
  the more-likely-than-not recognition threshold are measured as the largest
  amount of tax benefit that is more than 50 percent likely of being realized
  upon settlement with the applicable taxing authority. The portion of the
  benefits associated with tax positions taken that exceeds the amount measured
  as described above is reflected as a liability for unrecognized tax benefits
  in the accompanying balance sheet along with any associated interest and
  penalties that would be payable to the taxing authorities upon examination.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Interest
  expense and penalties associated with unrecognized tax benefits 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 which
  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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

59

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Stock-Based
 Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | At December
 31, 2007, the Company has two stock-based compensation plans, which are
 described more fully in Note 12. Prior to January 1, 2006, the Company
 accounted for the plans under the recognition and measurement provisions of
 Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
 and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation,
 and FASB Statement No. 148, Accounting for
 Stock-Based Compensation  Transition and Disclosure. No
 stock-based employee compensation cost was recognized for options granted for
 the year ended December 31, 2005 in the consolidated statement of income, as
 all options granted under the plans had an exercise price equal to the market
 value of the underlying common stock on the date of grant. Effective January
 1, 2006, the Company adopted the fair value recognition provisions of FASB
 Statement No. 123(R), Share-Based Payment,
 using the modified prospective transition method. Under that transition
 method, compensation cost recognized in fiscal years 2007 and 2006 includes:
 (a) compensation cost for all share-based payments vesting after January 1,
 2006 that were granted prior to, but not yet vested as of January 1, 2006
 based on the grant-date fair value estimated in accordance with the original provisions
 of Statement No. 123, and (b) compensation cost for all share-based payments
 vesting after January 1, 2006 that were granted subsequent to January 1,
 2006, based on the grant-date fair value estimated in accordance with the
 provisions of Statement No. 123(R). Results for prior periods have not been
 restated and there was no one-time effect resulting from the adoption of FASB
 Statement No. 123(R). Compensation expense, net of related tax benefits,
 recorded in 2007 and 2006 as a result of applying this accounting standard
 totaled $251,000 and $184,000, or $.04 and $.03 per diluted share,
 respectively. Compensation expense is recognized over the vesting period on a
 straight line accounting basis.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company
 followed the alternative transition method allowed under FASB 123R-3, Transition Election Related to Accounting for Tax
 Effects of Share-Based Payment Awards, which provides for a
 simplified method to establish the beginning balance of the additional
 paid-in capital pool (APIC pool) related to the tax effects of employee
 share-based compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The
 following table illustrates the effect on net income and earnings per share
 as if the Company had applied the fair value recognition provisions of FASB
 Statement No. 123 to stock-based compensation for the year ended December 31,
 2005. Pro forma adjustments to the Companys consolidated net income and
 earnings per share are disclosed during the years in which the options become
 vested (dollars in thousands, except per share data).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                                                                                                       |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----- | -
|Net income, as reported                                                                                                                |  | $ | 9,184 |  
|Deduct: Total stock-based compensation
 expensedetermined under the fair value based method forall awards, net of
 related tax effects |  |   | (88   | )
|                                                                                                                                       |  |   |       |  
|                                                                                                                                       |  |   |       |  
|Pro forma net income                                                                                                                   |  | $ | 9,096 |  
|                                                                                                                                       |  |   |       |  
|                                                                                                                                       |  |   |       |  
|Basic earnings per share - as reported                                                                                                 |  | $ | 1.48  |  
|Basic earnings per share - pro forma                                                                                                   |  | $ | 1.46  |  
|                                                                                                                                       |  |   |       |  
|Diluted earnings per share - as reported                                                                                               |  | $ | 1.45  |  
|Diluted earnings per share - pro forma                                                                                                 |  | $ | 1.45  |  

60

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Stock-Based
Compensation (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | 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 is derived from guidance provided in the
 Securities and Exchange Commissions Staff Accounting Bulletin No. 107 and
 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.

|                                                                |  |      |      |      |   |      |   |   |               |  
|--------------------------------------------------------------- |  | ---- | ---- | ---- | - | ---- | - | - | ------------- | -
|                                                                |  | 2007 |      | 2006 |   | 2005 |  
|                                                                |  |      |      |      |   |      |  
|                                                                |  |      |      |      |   |      |   |   |               |  
|Dividend yield                                                  |  |      | 2.33 | %    |   | 2.16 | % |   | 2.27% to 2.71 | %
|Expected volatility                                             |  |      | 21.6 | %    |   | 29.6 | % |   | 30.3% to 31.4 | %
|Risk-free interest rate                                         |  |      | 4.68 | %    |   | 4.70 | % |   | 3.96% to 4.08 | %
|Expected option life in years                                   |  |      | 7    |      |   | 7    |   |   | 7             |  
|Weighted average fair value of options
 granted during the year |  | $    | 6.06 |      | $ | 7.94 |   | $ | 5.63          |  

| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | The
 following is a summary of stock option information as of or for the year
 ended December 31, 2007, 2006 and 2005:

|                                                                 |  |                        |     |      |   |      |  |   |       | 
|---------------------------------------------------------------- |  | ---------------------- | --- | ---- | - | ---- |  | - | ----- | 
|                                                                 |  | 2007                   |     | 2006 |   | 2005 | 
|                                                                 |  |                        |     |      |   |      | 
|                                                                 |  | (Dollars in thousands) |    
|                                                                 |  |                        |     |      |   |      |  |   |       | 
|Total intrinsic value of options exercised                       |  | $                      | 832 |      | $ | 791  |  | $ | 2,062 | 
|                                                                 |  |                        |     |      |   |      |  |   |       | 
|Aggregate cash received for option
 exercises                    |  | $                      | 444 |      | $ | 292  |  | $ | 476   | 
|Total fair value of options vested                               |  | $                      | 263 |      | $ | 154  |  |   |       | 
|Total compensation cost                                          |  | $                      | 301 |      | $ | 221  |  |   |       | 
|Tax benefit recognized                                           |  | $                      | 50  |      | $ | 37   |  |   |       | 
|Net compensation cost                                            |  | $                      | 251 |      | $ | 184  |  |   |       | 
|Total compensation cost for nonvested
 awards not yet recognized |  | $                      | 894 |      | $ | 828  |  |   |       | 
|Weighted average years to be recognized                          |  |                        | 2.2 |      |   | 2.4  |  |   |       | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cumulative
 Effect of Adopting Staff Accounting Bulletin No. 108                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | In September
 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
 Bulletin (SAB) No. 108 Considering the
 Effects of Prior Year Misstatements When Quantifying Misstatements in Current
 Year Financial Statements, which provides interpretive guidance on
 how registrants should quantify financial statement misstatements. Under SAB
 108 registrants are required to consider both a rollover method which
 focuses primarily on the income statement impact of misstatements and the
 iron curtain method which focuses primarily on the balance sheet impact of
 misstatements. The transition provisions of SAB 108 permit a registrant to
 adjust retained earnings for the cumulative effect of immaterial errors
 relating to prior years. The Company was required to adopt SAB 108 in the
 fourth quarter of 2006.

61

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Cumulative
 Effect of Adopting Staff Accounting Bulletin No. 108 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Historically,
 the Company evaluated uncorrected differences utilizing the rollover
 approach. Management believes that the impact of errors related to unrecorded
 compensated absences was immaterial to prior fiscal years under the rollover
 method. Under SAB 108 management must assess materiality using both the
 rollover method and the iron-curtain method. Under the iron-curtain method,
 the cumulative effect of unrecorded compensated absences was material to the
 Companys 2006 financial statements and, therefore, management recorded an
 adjustment to decrease the opening 2006 retained earnings balance in the amount
 of $214,000, increase other liabilities in the amount of $350,000 and
 increase deferred tax assets by $136,000 in accordance with the
 implementation guidance in SAB 108.                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Impact of
 New Financial Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Fair Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In September
 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurements. SFAS 157
 defines fair value, establishes a framework for measuring fair value and
 expands disclosures about fair value measurements. SFAS 157 applies whenever
 other standards require (or permit) assets or liabilities to be measured at
 fair value but does not expand the use of fair value in any new
 circumstances. In this standard, the FASB clarifies the principle that fair
 value should be based on the assumptions market participants would use when
 pricing the asset or liability. In support of this principle, SFAS 157
 establishes a fair value hierarchy that prioritizes the information used to
 develop those assumptions. The provisions of SFAS 157 are effective for financial
 statements issued for fiscal years beginning after November 15, 2007 and
 interim periods within those fiscal years. The provisions should be applied
 prospectively, except for certain specifically identified financial
 instruments. The Company adopted SFAS 157 on January 1, 2008 and management
 does not believe its adoption will have a material impact on the Companys
 financial position, results of operations or cash flows.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Fair Value Option for Financial Assets and Financial Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In February
 2007, the FASB issued Statement No. 159 (SFAS 159), The Fair Value Option for Financial Assets and
 Financial Liabilities  Including an Amendment of FASB Statement No. 115.
 This standard permits an entity to choose to measure many financial
 instruments and certain other items at fair value at specified election
 dates. The entity will report unrealized gains and losses on items for which
 the fair value option has been elected in earnings at each subsequent
 reporting date. The fair value option (a) may be applied instrument by
 instrument, with a few exceptions, such as investments otherwise accounted
 for by the equity method, (b) is irrevocable (unless a new election date
 occurs), and (c) is applied only to entire instruments and not to portions of
 instruments. The Company adopted SFAS 159 on January 1, 2008 and management
 did not elect the fair value option for any of its financial instruments.                                                                                                                                                                                                                                                                                        

62

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Impact of
 New Financial Accounting Standards (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Accounting for Deferred Compensation and Postretirement Benefit
 Aspects of Endorsement Split-Dollar Life Insurance Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In September
 2006, the FASB ratified the consensuses reached by the Task Force on Issue
 No. 06-4 (EITF 06-04), Accounting for
 Deferred Compensation and Postretirement Benefit Aspects of Endorsement
 Split-Dollar Life Insurance Arrangements. A question arose when an
 employer enters into an endorsement split-dollar life insurance arrangement
 related to whether the employer should recognize a liability for the future
 benefits or premiums to be provided to the employee. EITF 06-04 indicates
 that an employer should recognize a liability for future benefits and that a
 liability for the benefit obligation has not been settled through the
 purchase of an endorsement type policy. An entity should apply the provisions
 of EITF 06-04 either through a change in accounting principle through a
 cumulative-effect adjustment to retained earnings as of the beginning of the
 year of adoption or a change in accounting principle through retrospective
 application to all prior periods. The provisions of EITF 06-04 are effective
 for fiscal years beginning after December 15, 2007. The Company adopted the
 provisions of EITF 06-04 on January 1, 2008 and management determined that
 the adoption of EITF 06-04 will not have an impact on the financial position,
 results of operations or cash flows of the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Accounting for Business Combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In December
 2007, the FASB issued Statement of Financial Accounting Standards No. 141
 (revised 2007), Business Combinations(SFAS
 No. 141R). SFAS No. 141(R), among other things, establishes principles and
 requirements for how the acquirer in a business combination (i) recognizes
 and measures in its financial statements the identifiable assets acquired,
 the liabilities assumed, and any noncontrolling interest in the acquired business,
 (ii) recognizes and measures the goodwill acquired in the business
 combination or a gain from a bargain purchase, and (iii) determines what
 information to disclose to enable users of the financial statements to
 evaluate the nature and financial effects of the business combination. The
 Company is required to adopt SFAS No. 141(R) for all business combinations
 for which the acquisition date is on or after January 1, 2009. Earlier
 adoption is prohibited. This standard will change the accounting treatment
 for business combinations on a prospective basis.                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3. | GOODWILL AND OTHER INTANGIBLE ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | At December
 31, 2007 and 2006, goodwill totaled $16,321,000. Goodwill is evaluated
 annually for impairment under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets,
 and management determined that no impairment recognition was required for the
 years ended December 31, 2007, 2006 and 2005. Goodwill is not deductible for
 tax purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Other
 intangible assets are comprised of core deposit intangibles totaling
 $1,193,000 and $1,501,000 at December 31, 2007 and 2006, respectively.
 Amortization included in other expense totaled $308,000, $330,000 and
 $352,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
 The remaining balance will be amortized over 4.9 years. Amortization expense
 for the next five years is estimated as follows (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |  |                          |  |  |   |     | 
| |  | ------------------------ |  |  | - | --- | 
| |  | Year Ending
December 31, |  |  |   |     | 
| |  |                          |  |  |   |     | 
| |  | 2008                     |  |  | $ | 286 | 
| |  | 2009                     |  |  |   | 264 | 
| |  | 2010                     |  |  |   | 242 | 
| |  | 2011                     |  |  |   | 219 | 
| |  | 2012                     |  |  |   | 182 | 

63

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | INVESTMENT SECURITIES                                                                                                                                  
|   |                                                                                                                                                        
|   | The
 amortized cost and estimated fair value of investment securities at December
 31, 2007 and 2006 consisted of the following (dollars in thousands):
|   |                                                                                                                                                        
|   | Available-for-Sale                                                                                                                                     

|                                                  |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
|------------------------------------------------- |  | -------------- | ------ | ---------------------- | - | ----------------------- |  | -------------------- | ---- | - | - | ------ | 
|                                                  |  | 2007           |       
|                                                  |  |                |       
|                                                  |  | Amortized
Cost |        | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Estimated
Fair
Value |     
|                                                  |  |                |        |                        |   |                         |  |                      |     
|                                                  |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
|Debt
 securities:                                 |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
|U.S. Government agencies                          |  | $              | 16,539 |                        | $ | 8                       |  | $                    | (41  | ) | $ | 16,506 | 
|Mortgage-backed securities                        |  |                | 31,174 |                        |   | 13                      |  |                      | (121 | ) |   | 31,066 | 
|Obligations of states and political
 subdivisions |  |                | 30,758 |                        |   | 452                     |  |                      | (99  | ) |   | 31,111 | 
|Equity
 securities:                               |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
|Corporate stock                                   |  |                | 328    |                        |   | 24                      |  |                      | (65  | ) |   | 287    | 
|                                                  |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
|                                                  |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
|                                                  |  | $              | 78,799 |                        | $ | 497                     |  | $                    | (326 | ) | $ | 78,970 | 
|                                                  |  |                |        |                        |   |                         |  |                      |      |   |   |        | 

|                                                  |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|------------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | -------------------- | ------ | - | - | ------- | 
|                                                  |  | 2006           |        
|                                                  |  |                |        
|                                                  |  | Amortized
Cost |         | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Estimated
Fair
Value |       
|                                                  |  |                |         |                        |   |                         |  |                      |       
|                                                  |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Debt
 securities:                                 |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|U.S. Government agencies                          |  | $              | 28,532  |                        |   |                         |  | $                    | (409   | ) | $ | 28,123  | 
|Mortgage-backed securities                        |  |                | 33,930  |                        | $ | 9                       |  |                      | (703   | ) |   | 33,236  | 
|Obligations of states and political
 subdivisions |  |                | 41,115  |                        |   | 407                     |  |                      | (298   | ) |   | 41,224  | 
|Corporate debt securities                         |  |                | 1,005   |                        |   |                         |  |                      | (2     | ) |   | 1,003   | 
|Equity
 securities:                               |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|Corporate stock                                   |  |                | 584     |                        |   | 50                      |  |                      | (11    | ) |   | 623     | 
|                                                  |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|                                                  |  |                |         |                        |   |                         |  |                      |        |   |   |         | 
|                                                  |  | $              | 105,166 |                        | $ | 466                     |  | $                    | (1,423 | ) | $ | 104,209 | 
|                                                  |  |                |         |                        |   |                         |  |                      |        |   |   |         | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Net
 unrealized gains on available-for-sale investment securities totaling
 $171,000 were recorded, net of $70,000 in tax liabilities, as accumulated
 other comprehensive income within shareholders equity at December 31, 2007.
 Proceeds and gross realized gains from the sale of available-for-sale
 investment securities for the year ended December 31, 2007 totaled $4,726,000
 and $25,000, respectively. There were no transfers of available-for-sale
 investment securities during the year ended December 31, 2007.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Net
 unrealized losses on available-for-sale investment securities totaling
 $957,000 were recorded, net of $392,000 in tax benefits, as accumulated other
 comprehensive loss within shareholders equity at December 31, 2006. Proceeds
 and gross realized gains from the sale of available-for-sale investment
 securities for the year ended December 31, 2006 totaled $3,259,000 and
 $1,000, respectively. There were no transfers of available-for-sale
 investment securities during the year ended December 31, 2006.    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Proceeds and
 gross realized gains from the sale of available-for-sale investment
 securities for the year ended December 31, 2005 totaled $6,964,000 and
 $48,000, respectively.                                                                                                                                                                                                                                                                                                                                                  

64

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                 
|-- | --------------------------------
|4. | INVESTMENT SECURITIES(Continued)
|   |                                 
|   | Held-to-Maturity                

| |                            |  |                |        |                        |   |                         |  |                      |     |   |   |        | 
| | -------------------------- |  | -------------- | ------ | ---------------------- | - | ----------------------- |  | -------------------- | --- | - | - | ------ | 
| |                            |  | 2007           |       
| |                            |  |                |       
| |                            |  | Amortized
Cost |        | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Estimated
Fair
Value |    
| |                            |  |                |        |                        |   |                         |  |                      |    
| |                            |  |                |        |                        |   |                         |  |                      |    
| | Debt
 securities:          |  |                |        |                        |   |                         |  |                      |     |   |   |        | 
| | Mortgage-backed securities |  | $              | 34,754 |                        | $ | 199                     |  | $                    | (98 | ) | $ | 34,855 | 
| |                            |  |                |        |                        |   |                         |  |                      |     |   |   |        | 

| |                            |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
| | -------------------------- |  | -------------- | ------ | ---------------------- | - | ----------------------- |  | -------------------- | ---- | - | - | ------ | 
| |                            |  | 2006           |       
| |                            |  |                |       
| |                            |  | Amortized
Cost |        | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Estimated
Fair
Value |     
| |                            |  |                |        |                        |   |                         |  |                      |     
|
| | Debt
 securities:          |  |                |        |                        |   |                         |  |                      |      |   |   |        | 
| | Mortgage-backed securities |  | $              | 44,031 |                        | $ | 69                      |  | $                    | (380 | ) | $ | 43,720 | 
| |                            |  |                |        |                        |   |                         |  |                      |      |   |   |        | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Proceeds and
 gross realized losses from the sale of held-to-maturity investment securities
 for the year ended December 31, 2007 totaled $1,780,000 and $14,000,
 respectively. There were no sales of held-to-maturity investment securities
 for the years ended December 31, 2006 and 2005 and no transfers of
 held-to-maturity investment securities for the years ended December 31, 2007,
 2006 and 2005.
| |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The
 amortized cost and estimated fair value of investment securities at December
 31, 2007 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                                          |  | $                  | 15,475 |                      | $ | 15,436         |  |                      |        |  |   |        | 
| | After one
 year through five years                        |  |                    | 14,939 |                      |   | 14,995         |  |                      |        |  |   |        | 
| | After five
 years through ten years                       |  |                    | 9,556  |                      |   | 9,809          |  |                      |        |  |   |        | 
| | After ten
 years                                          |  |                    | 7,327  |                      |   | 7,377          |  |                      |        |  |   |        | 
| |                                                           |  |                    |        |                      |   |                |  |                      |        |  |   |        | 
| |                                                           |  |                    |        |                      |   |                |  |                      |        |  |   |        | 
| |                                                           |  |                    | 47,297 |                      |   | 47,617         |  |                      |        |  |   |        | 
| |                                                           |  |                    |        |                      |   |                |  |                      |        |  |   |        | 
| | Investment
 securities not due at a single maturity date: |  |                    |        |                      |   |                |  |                      |        |  |   |        | 
| | Mortgage-backed securities                                |  |                    | 31,174 |                      |   | 31,066         |  | $                    | 34,754 |  | $ | 34,855 | 
| | Corporate stock                                           |  |                    | 328    |                      |   | 287            |  |                      |        |  |   |        | 
| |                                                           |  |                    |        |                      |   |                |  |                      |        |  |   |        | 
| |                                                           |  |                    |        |                      |   |                |  |                      |        |  |   |        | 
| |                                                           |  | $                  | 78,799 |                      | $ | 78,970         |  | $                    | 34,754 |  | $ | 34,855 | 
| |                                                           |  |                    |        |                      |   |                |  |                      |        |  |   |        | 

| |                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 $64,007,000 and $62,347,000 and estimated
 fair values totaling $63,926,000 and $61,240,000 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
 9) at December 31, 2007 and 2006, respectively.

65

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | INVESTMENT SECURITIES (Continued)                                                                                                                                                          
|   |                                                                                                                                                                                            
|   | Investment
 securities with unrealized losses at December 31, 2007 and 2006 are summarized
 and classified according to the duration of the loss period as follows
 (dollars in thousands):

| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| | ------------------------------------------------- |  | ------------------- | ----- | ----------------- | - | ---------- | - | ----------------- | ------ | ---------- | - | ----------------- | - | - | ------ |  | - | ---- | -
| |                                                   |  | 2007                |      
| |                                                   |  |                     |      
|
| |                                                   |  | Less
than 12 Months |       | 12
Months or More |   | Total      |  
| |                                                   |  |                     |       |                   |   |            |  
| |                                                   |  | Fair
Value          |       | Unrealized
Losses |   | Fair
Value |   | Unrealized
Losses |        | Fair
Value |   | Unrealized
Losses |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |  
| | Available-for-Sale                                |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| | Debt securities:                                  |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| | U.S. Government agencies                          |  |                     |       |                   |   |            |   | $                 | 11,552 |            | $ | (41               | ) | $ | 11,552 |  | $ | (41  | )
| | Mortgage-backed securities                        |  |                     |       |                   |   |            |   |                   | 30,136 |            |   | (121              | ) |   | 30,136 |  |   | (121 | )
| | Obligations of states and political sub-divisions |  | $                   | 1,484 |                   | $ | (62        | ) |                   | 6,944  |            |   | (37               | ) |   | 8,428  |  |   | (99  | )
| | Corporate stock                                   |  |                     |       |                   |   |            |   |                   | 186    |            |   | (65               | ) |   | 186    |  |   | (65  | )
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| |                                                   |  | $                   | 1,484 |                   | $ | (62        | ) | $                 | 48,818 |            | $ | (264              | ) | $ | 50,302 |  | $ | (326 | )
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| | Held-to-Maturity                                  |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| | Debt securities:                                  |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  
| | Mortgage-backed securities                        |  | $                   | 1,192 |                   | $ | (2         | ) | $                 | 14,838 |            | $ | (96               | ) | $ | 16,030 |  | $ | (98  | )
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |      |  

| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| | ------------------------------------------------- |  | ------------------- | ----- | ----------------- | - | ---------- | - | ----------------- | ------ | ---------- | - | ----------------- | - | - | ------ |  | - | ------ | -
| |                                                   |  | 2006                |      
| |                                                   |  |                     |      
|
| |                                                   |  | Less
than 12 Months |       | 12
Months or More |   | Total      |  
| |                                                   |  |                     |       |                   |   |            |  
| |                                                   |  | Fair
Value          |       | Unrealized
Losses |   | Fair
Value |   | Unrealized
Losses |        | Fair
Value |   | Unrealized
Losses |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |  
| | Available-for-Sale                                |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| | Debt securities:                                  |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| | U.S. Government agencies                          |  |                     |       |                   |   |            |   | $                 | 28,123 |            | $ | (409              | ) | $ | 28,123 |  | $ | (409   | )
| | Mortgage-backed securities                        |  |                     |       |                   |   |            |   |                   | 32,150 |            |   | (703              | ) |   | 32,150 |  |   | (703   | )
| | Obligations of states and political
sub-divisions |  | $                   | 7,285 |                   | $ | (50        | ) |                   | 16,650 |            |   | (247              | ) |   | 23,935 |  |   | (297   | )
| | Corporate debt securities                         |  |                     |       |                   |   |            |   |                   | 1,003  |            |   | (2                | ) |   | 1,003  |  |   | (2     | )
| | Corporate stock                                   |  |                     |       |                   |   |            |   |                   | 239    |            |   | (12               | ) |   | 239    |  |   | (12    | )
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| |                                                   |  | $                   | 7,285 |                   | $ | (50        | ) | $                 | 78,165 |            | $ | (1,373            | ) | $ | 85,450 |  | $ | (1,423 | )
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| | Held-to-Maturity                                  |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| | Debt securities:                                  |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  
| | Mortgage-backed securities                        |  | $                   | 2,250 |                   | $ | (7         | ) | $                 | 29,672 |            | $ | (373              | ) | $ | 31,922 |  | $ | (380   | )
| |                                                   |  |                     |       |                   |   |            |   |                   |        |            |   |                   |   |   |        |  |   |        |  

66

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | INVESTMENT SECURITIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | At December
 31, 2007, the unrealized loss on the Companys investments in U.S. Government
 agencies, 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | At December
 31, 2007, the unrealized loss on the Companys investments in corporate stock
 is related to a single investment that is in a loss position of $65,000 that
 has been evaluated by management for other-than-temporary impairment.
 Management does not consider this investment to be other-thantemporarily
 impaired.                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|5. | LOANS AND LEASES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Outstanding
 loans and leases are summarized as follows (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |                                                |  |              |         |      |   |         |  
| | ---------------------------------------------- |  | ------------ | ------- | ---- | - | ------- | -
| |                                                |  | December 31, |        
| |                                                |  |              |        
| |                                                |  | 2007         |         | 2006 |  
| |                                                |  |              |         |      |  
| |                                                |  |              |         |      |  
| | Real estate
  commercial                      |  | $            | 191,774 |      | $ | 175,643 |  
| | Real estate
  construction                    |  |              | 66,022  |      |   | 90,314  |  
| | Real estate
  multi-family                    |  |              | 5,830   |      |   | 3,618   |  
| | Real estate
  residential                     |  |              | 9,285   |      |   | 8,689   |  
| | Commercial                                     |  |              | 105,467 |      |   | 85,859  |  
| | Lease
 financing receivable                    |  |              | 4,070   |      |   | 6,375   |  
| | Agriculture                                    |  |              | 8,177   |      |   | 7,362   |  
| | Consumer                                       |  |              | 10,750  |      |   | 11,712  |  
| |                                                |  |              |         |      |   |         |  
| |                                                |  |              |         |      |   |         |  
| |                                                |  |              | 401,375 |      |   | 389,572 |  
| |                                                |  |              |         |      |   |         |  
| | Deferred
 loan and lease origination fees, net |  |              | (517    | )    |   | (705    | )
| | Allowance
 for loan and lease losses           |  |              | (5,883  | )    |   | (5,874  | )
| |                                                |  |              |         |      |   |         |  
| |                                                |  |              |         |      |   |         |  
| |                                                |  | $            | 394,975 |      | $ | 382,993 |  
| |                                                |  |              |         |      |   |         |  

| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain
 loans are pledged as collateral for available borrowings with the FHLB.
 Pledged loans totaled $171,709,000 and $201,830,000 at December 31, 2007 and
 2006, respectively (see Note 9).
| |                                                                                                                                                                                                 
| | The
 components of the Companys leases receivable are summarized as follows
 (dollars in thousands):                                                                                           

| |                                   |  |              |       |      |   |       |  
| | --------------------------------- |  | ------------ | ----- | ---- | - | ----- | -
| |                                   |  | December 31, |      
| |                                   |  |              |      
| |                                   |  | 2007         |       | 2006 |  
| |                                   |  |              |       |      |  
| |                                   |  |              |       |      |  
| | Future lease
 payments receivable |  | $            | 4,388 |      | $ | 6,883 |  
| | Residual
 interests               |  |              | 75    |      |   | 226   |  
| | Unearned
 income                  |  |              | (393  | )    |   | (734  | )
| |                                   |  |              |       |      |   |       |  
| |                                   |  |              |       |      |   |       |  
| | Net lease financing receivable    |  | $            | 4,070 |      | $ | 6,375 |  
| |                                   |  |              |       |      |   |       |  

67

---



AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                          
|-- | -------------------------------------------------------------------------
|5. | LOANS AND LEASES(Continued)                                              
|   |                                                                          
|   | Future lease payments receivable are as follows
  (dollars in thousands):

|                                  |  |  |   |       | 
|--------------------------------- |  |  | - | ----- | 
|Year Ending                       |  |  |   |       | 
|December 31,                      |  |  |   |       | 
|                                  |  |  |   |       | 
|                                  |  |  |   |       | 
|2008                              |  |  | $ | 2,289 | 
|2009                              |  |  |   | 1,012 | 
|2010                              |  |  |   | 532   | 
|2011                              |  |  |   | 327   | 
|2012                              |  |  |   | 214   | 
|Thereafter                        |  |  |   | 14    | 
|                                  |  |  |   |       | 
|                                  |  |  |   |       | 
|Total lease payments
  receivable |  |  | $ | 4,388 | 
|                                  |  |  |   |       | 

Changes
in the allowance for loan and lease losses were as follows (dollars in
thousands):

| |                                 |  |                         |       |      |   |       |   |   |       |  
| | ------------------------------- |  | ----------------------- | ----- | ---- | - | ----- | - | - | ----- | -
| |                                 |  | Year Ended December 31, |      
| |                                 |  |                         |      
| |                                 |  | 2007                    |       | 2006 |   | 2005  |  
| |                                 |  |                         |       |      |   |       |  
| |                                 |  |                         |       |      |   |       |  
| | Balance, beginning of year      |  | $                       | 5,874 |      | $ | 5,679 |   | $ | 5,496 |  
| | Provision charged to operations |  |                         | 450   |      |   | 320   |   |   | 322   |  
| | Losses charged to allowance     |  |                         | (548  | )    |   | (150  | ) |   | (206  | )
| | Recoveries                      |  |                         | 107   |      |   | 25    |   |   | 67    |  
| |                                 |  |                         |       |      |   |       |   |   |       |  
| |                                 |  |                         |       |      |   |       |   |   |       |  
| | Balance, end of
  year          |  | $                       | 5,883 |      | $ | 5,874 |   | $ | 5,679 |  
| |                                 |  |                         |       |      |   |       |   |   |       |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The recorded investment in loans and leases that
  were considered to be impaired totaled $6,637,000 at December 31, 2007 and
  had a related valuation allowance of $764,000. The average recorded
  investment in impaired loans and leases during 2007 was approximately
  $407,000. There were no loans or leases considered to be impaired at December
  31, 2006.                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Non-accrual loans and leases totaled approximately
  $6,985,000 and $65,000 at December 31, 2007 and 2006, respectively. Loans and
  leases past due 90 days or more and still accruing at December 31, 2007 and
  2006 were $455,000 and $13,000, respectively. Interest income on non-accrual
  loans is generally recognized on a cash basis and was not significant for the
  years ended December 31, 2007, 2006 and 2005. Interest foregone on
  non-accrual loans totaled $252,000 for the year ended December 31, 2007. Interest
  foregone on non-accrual loans for the years ended December 31, 2006 and 2005
  was not significant.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Salaries and employee benefits totaling $1,030,000,
  $1,183,000 and $1,395,000 have been deferred as loan and lease origination
  costs for the years ended December 31, 2007, 2006 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                  

68

---



AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                            
|-- | ---------------------------------------------------------------------------
|6. | PREMISES AND EQUIPMENT                                                     
|   |                                                                            
|   | Premises and equipment consisted of the following
  (dollars in thousands):

| |                                                  |  |              |        |      |   |        |  
| | ------------------------------------------------ |  | ------------ | ------ | ---- | - | ------ | -
| |                                                  |  | December 31, |       
| |                                                  |  |              |       
| |                                                  |  | 2007         |        | 2006 |  
| |                                                  |  |              |        |      |  
| |                                                  |  |              |        |      |  
| | Land                                             |  | $            | 206    |      | $ | 206    |  
| | Building and improvements                        |  |              | 1,094  |      |   | 873    |  
| | Furniture, fixtures and equipment                |  |              | 6,518  |      |   | 6,267  |  
| | Leasehold improvements                           |  |              | 1,293  |      |   | 1,141  |  
| |                                                  |  |              |        |      |   |        |  
| |                                                  |  |              |        |      |   |        |  
| |                                                  |  |              | 9,111  |      |   | 8,487  |  
| | Less accumulated
  depreciation and amortization |  |              | (7,128 | )    |   | (6,641 | )
| |                                                  |  |              |        |      |   |        |  
| |                                                  |  |              |        |      |   |        |  
| |                                                  |  | $            | 1,983  |      | $ | 1,846  |  
| |                                                  |  |              |        |      |   |        |  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Depreciation and amortization included in occupancy
  and furniture and equipment expense totaled $535,000, $623,000 and $672,000
  for the years ended December 31, 2007, 2006 and 2005, respectively.                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|7. | ACCOUNTS
  RECEIVABLE SERVICING RECEIVABLES                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company purchases existing accounts receivable
  on a discounted basis from selected merchants and assumes the related billing
  and collection responsibilities on a recourse basis. Accounts receivable
  servicing fees included in other income totaled $244,000, $372,000 and
  $356,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
  The valuation allowance for these receivables is not significant.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|8. | INTEREST-BEARING DEPOSITS                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Interest-bearing deposits consisted of the following
  (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                           

| |                        |  |              |         |      |   |         | 
| | ---------------------- |  | ------------ | ------- | ---- | - | ------- | 
| |                        |  | December 31, |        
| |                        |  |              |        
| |                        |  | 2007         |         | 2006 |  
| |                        |  |              |         |      |  
| |                        |  |              |         |      |  
| | Savings                |  | $            | 35,639  |      | $ | 36,893  | 
| | Money market           |  |              | 127,397 |      |   | 122,765 | 
| | NOW accounts           |  |              | 43,577  |      |   | 41,814  | 
| | Time, $100,000 or more |  |              | 75,723  |      |   | 82,569  | 
| | Other time             |  |              | 40,643  |      |   | 49,260  | 
| |                        |  |              |         |      |   |         | 
| |                        |  |              |         |      |   |         | 
| |                        |  | $            | 322,979 |      | $ | 333,301 | 
| |                        |  |              |         |      |   |         | 

69

---



AMERICAN
RIVER BANKSHARES AND SUBSIDIARIES

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|   |                                                                                      
|-- | -------------------------------------------------------------------------------------
|8. | INTEREST-BEARING DEPOSITS
  (Continued)                                              
|   |                                                                                      
|   | Aggregate annual maturities of time deposits are as
  follows (dollars in thousands):

|                         |  |  |   |         | 
|------------------------ |  |  | - | ------- | 
|Year Ending
December 31, |  |  |   |         | 
|                         |  |  |   |         | 
|                         |  |  |   |         | 
|2008                     |  |  | $ | 100,019 | 
|2009                     |  |  |   | 7,749   | 
|2010                     |  |  |   | 3,095   | 
|2011                     |  |  |   | 4,886   | 
|2012                     |  |  |   | 596     | 
|Thereafter               |  |  |   | 21      | 
|                         |  |  |   |         | 
|                         |  |  |   |         | 
|                         |  |  | $ | 116,366 | 
|                         |  |  |   |         | 

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

| |                        |  |                         |       |      |   |       |  |   |       | 
| | ---------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
| |                        |  | Year Ended December 31, |      
| |                        |  |                         |      
| |                        |  | 2007                    |       | 2006 |   | 2005  | 
| |                        |  |                         |       |      |   |       | 
| |                        |  |                         |       |      |   |       | 
| | Savings                |  | $                       | 546   |      | $ | 242   |  | $ | 150   | 
| | Money market           |  |                         | 3,668 |      |   | 3,074 |  |   | 2,164 | 
| | NOW accounts           |  |                         | 113   |      |   | 130   |  |   | 83    | 
| | Time, $100,000 or more |  |                         | 3,167 |      |   | 3,092 |  |   | 1,620 | 
| | Other time             |  |                         | 2,066 |      |   | 2,139 |  |   | 1,629 | 
| |                        |  |                         |       |      |   |       |  |   |       | 
| |                        |  |                         |       |      |   |       |  |   |       | 
| |                        |  | $                       | 9,560 |      | $ | 8,677 |  | $ | 5,646 | 
| |                        |  |                         |       |      |   |       |  |   |       | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|9. | BORROWING ARRANGEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company has a total of $52,000,000 in unsecured
  short-term borrowing arrangements to purchase Federal funds with four of its
  correspondent banks. There were no advances under the borrowing arrangements
  as of December 31, 2007 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In addition, the Company has a line of credit
  available with the Federal Home Loan Bank which is secured by pledged
  mortgage loans (see Note 5) and investment securities (see Note 4).
  Borrowings may include overnight advances as well as loans with a term of up
  to thirty years. Advances totaling $51,603,000 were outstanding from the
  Federal Home Loan Bank at December 31, 2007, bearing fixed interest rates
  ranging from 3.25% to 5.21% and maturing between January 2, 2008 and October
  30, 2008. Advances totaling $42,270,000 were outstanding from the Federal
  Home Loan Bank at December 31, 2006, bearing fixed interest rates ranging
  from 2.66% to 6.13% and maturing between January 3, 2007 and April 7, 2008.
  Amounts available under the borrowing arrangement with the Federal Home Loan
  Bank at December 31, 2007 and 2006 totaled $79,631,000 and $87,091,000,
  respectively.

70

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

|   |                                                                  
|-- | -----------------------------------------------------------------
|9. | BORROWING ARRANGEMENTS (Continued)                               
|   |                                                                  
|   | The
  following table summarizes these borrowings (in thousands):

| |                                    |  |              |        |                       |  |        |   |                       |        |  |  |      |  
| | ---------------------------------- |  | ------------ | ------ | --------------------- |  | ------ | - | --------------------- | ------ |  |  | ---- | -
| |                                    |  | December 31,
| |                                    |  |              |       
| |                                    |  | 2007         |        | 2006                  | 
| |                                    |  |              |        |                       | 
| |                                    |  | Amount       |        | Weighted
Average
Rate |  | Amount |   | Weighted
Average
Rate |       
| |                                    |  |              |        |                       |  |        |   |                       |       
| |                                    |  |              |        |                       |  |        |   |                       |       
| | Short-term
  portion of borrowings |  | $            | 51,603 |                       |  | 3.61   | % | $                     | 37,270 |  |  | 5.08 | %
| | Long-term
  borrowings             |  |              |        |                       |  |        |   |                       | 5,000  |  |  | 4.92 | %
| |                                    |  |              |        |                       |  |        |   |                       |        |  |  |      |  
|
| |                                    |  | $            | 51,603 |                       |  | 3.61   | % | $                     | 42,270 |  |  | 5.06 | %
| |                                    |  |              |        |                       |  |        |   |                       |        |  |  |      |  
| |                                    |  |              |        |                       |  |        |   |                       |        |  |  |      |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  has also been issued $3,750,000 in letters of credit by the Federal Home Loan
  Bank 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 2007 and management does not expect to draw upon these lines in the
  future.

|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|10. | INCOME TAXES                                                                                                                               
|    |                                                                                                                                            
|    | The provision
  for income taxes for the years ended December 31, 2007, 2006, and 2005
  consisted of the following (dollars in thousands):

| |                            |  |         |       |       |   |       |   |   |        |  
| | -------------------------- |  | ------- | ----- | ----- | - | ----- | - | - | ------ | -
| |                            |  | Federal |       | State |   | Total |  
| |                            |  |         |       |       |   |       |  
| | 2007                       |  |         |       |       |   |       |   |   |        |  
|
| | Current                    |  | $       | 3,986 |       | $ | 1,494 |   | $ | 5,480  |  
| | Deferred                   |  |         | (163  | )     |   | (77   | ) |   | (240   | )
| |                            |  |         |       |       |   |       |   |   |        |  
|
| | Provision for income taxes |  | $       | 3,823 |       | $ | 1,417 |   | $ | 5,240  |  
| |                            |  |         |       |       |   |       |   |   |        |  
|
| | 2006                       |  |         |       |       |   |       |   |   |        |  
|
| | Current                    |  | $       | 5,076 |       | $ | 1,666 |   | $ | 6,742  |  
| | Deferred                   |  |         | (878  | )     |   | (125  | ) |   | (1,003 | )
| |                            |  |         |       |       |   |       |   |   |        |  
|
| | Provision for income taxes |  | $       | 4,198 |       | $ | 1,541 |   | $ | 5,739  |  
| |                            |  |         |       |       |   |       |   |   |        |  
|
| | 2005                       |  |         |       |       |   |       |   |   |        |  
|
| | Current                    |  | $       | 4,706 |       | $ | 1,508 |   | $ | 6,214  |  
| | Deferred                   |  |         | (481  | )     |   | 59    |   |   | (422   | )
| |                            |  |         |       |       |   |       |   |   |        |  
|
| | Provision for income taxes |  | $       | 4,225 |       | $ | 1,567 |   | $ | 5,792  |  
| |                            |  |         |       |       |   |       |   |   |        |  

71

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|10. | INCOME TAXES (Continued)                                                              
|    |                                                                                       
|    | Deferred tax
  assets (liabilities) consisted of the following (dollars in thousands):

| |                                                                 |  |              |        |      |   |        |  
| | --------------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------ | -
| |                                                                 |  | December 31, |       
| |                                                                 |  |              |       
| |                                                                 |  | 2007         |        | 2006 |  
| |                                                                 |  |              |        |      |  
|
| | Deferred tax assets:                                            |  |              |        |      |   |        |  
| | Allowance for loan and lease losses                             |  | $            | 2,532  |      | $ | 2,532  |  
| | Future benefit of State tax deduction                           |  |              | 485    |      |   | 580    |  
| | Deferred compensation                                           |  |              | 1,371  |      |   | 1,172  |  
| | Unrealized losses on available-for-sale
  investment securities |  |              |        |      |   | 409    |  
| | Other                                                           |  |              | 262    |      |   | 237    |  
| |                                                                 |  |              |        |      |   |        |  
|
| | Total deferred tax assets                                       |  |              | 4,650  |      |   | 4,930  |  
| |                                                                 |  |              |        |      |   |        |  
|
| | Deferred tax liabilities:                                       |  |              |        |      |   |        |  
| | Core deposit intangible                                         |  |              | (547   | )    |   | (682   | )
| | Unrealized gains on available-for-sale
  investment securities  |  |              | (65    | )    |   |        |  
| | Investment market to market                                     |  |              | (91    | )    |   | (129   | )
| | Future liability of State deferred tax
  assets                 |  |              | (242   | )    |   | (215   | )
| | Deferred loan costs                                             |  |              | (423   | )    |   | (438   | )
| | Federal Home Loan Bank stock dividends                          |  |              | (211   | )    |   | (161   | )
| |                                                                 |  |              |        |      |   |        |  
|
| | Total deferred tax liabilities                                  |  |              | (1,579 | )    |   | (1,625 | )
| |                                                                 |  |              |        |      |   |        |  
|
| | Net deferred tax assets                                         |  | $            | 3,071  |      | $ | 3,305  |  
| |                                                                 |  |              |        |      |   |        |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 2004 and by state and local taxing
  authorities for years before December 31, 2003. The unrecognized tax benefits
  and the interest and penalties accrued by the Company as of December 31, 2007
  were not significant.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The
  provision for income taxes differs from amounts computed by applying the
  statutory Federal income tax rate of 35.0% to income before income taxes. The
  significant items comprising these differences consisted of the following:                                                                                                                                                                                                                                                                                                                                                       

| |                                                                               |  |                         |      |      |  |      |    |  |      |   
| | ----------------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | -- |  | ---- | --
| |                                                                               |  | Year Ended December 31, |     
| |                                                                               |  |                         |     
| |                                                                               |  | 2007                    |      | 2006 |  | 2005 |   
| |                                                                               |  |                         |      |      |  |      |   
| | Federal income tax statutory rate                                             |  |                         | 35.0 | %    |  | 35.0 | %  |  | 34.0 | % 
| | State franchise tax, net of Federal tax
  effect                              |  |                         | 6.7  | %    |  | 6.8  | %  |  | 6.9  | % 
| | Tax benefit of interest on obligations of
  states and political subdivisions |  |                         | (2.5 | )%   |  | (2.2 | )% |  | (2.0 | )%
| | Tax-exempt income from life insurance
  policies                              |  |                         | (1.0 | )%   |  | (0.5 | )% |  | (0.4 | )%
| | Stock option compensation expense                                             |  |                         | 0.4  | %    |  | 0.3  | %  |  |      |   
| | Other                                                                         |  |                         | (0.4 | )%   |  | (0.6 | )% |  | 0.2  | % 
| |                                                                               |  |                         |      |      |  |      |    |  |      |   
|
| | Effective tax rate                                                            |  |                         | 38.2 | %    |  | 38.8 | %  |  | 38.7 | % 
| |                                                                               |  |                         |      |      |  |      |    |  |      |   

72

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11. | 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
  2017. Certain of the leases have five year renewal options. Two of the branch
  facilities are leased from current or former members of the Companys Board
  of Directors (see Note 16).
|    |                                                                                                                                                                                                                                                                                                                                                                       
|    | Future
  minimum lease payments are as follows (dollars in thousands):                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                       

| |  |  |                          |  |   |       |  | 
| |  |  | ------------------------ |  | - | ----- |  | 
| |  |  | Year Ending
December 31, |  |   |       |  | 
| |  |  |                          |  |   |       |  | 
| |  |  | 2008                     |  | $ | 1,016 |  | 
| |  |  | 2009                     |  |   | 862   |  | 
| |  |  | 2010                     |  |   | 683   |  | 
| |  |  | 2011                     |  |   | 587   |  | 
| |  |  | 2012                     |  |   | 562   |  | 
| |  |  | Thereafter               |  |   | 1,365 |  | 
| |  |  |                          |  |   |       |  | 
|
| |  |  |                          |  | $ | 5,075 |  | 
| |  |  |                          |  |   |       |  | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Rental
  expense included in occupancy, furniture and equipment expense totaled
  $1,061,000, $1,035,000 and $887,000 for the years ended December 31, 2007,
  2006 and 2005, 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 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, |        
| |                                                                                                |  |              |        
| |                                                                                                |  | 2007         |         | 2006 |  
| |                                                                                                |  |              |         |      |  
|
| | Commitments to extend credit:                                                                  |  |              |         |      |   |         | 
| | Revolving lines of credit secured by 1-4
  family residences                                   |  | $            | 8,252   |      | $ | 9,144   | 
| | Commercial real estate, construction and
  land development commitments secured by real estate |  |              | 31,881  |      |   | 45,752  | 
| | Other unused commitments, principally
  commercial loans                                       |  |              | 72,500  |      |   | 59,686  | 
| |                                                                                                |  |              |         |      |   |         | 
|
| |                                                                                                |  | $            | 112,633 |      | $ | 114,582 | 
| |                                                                                                |  |              |         |      |   |         | 
|
| | Standby letters of credit                                                                      |  | $            | 7,537   |      | $ | 5,701   | 
| |                                                                                                |  |              |         |      |   |         | 

73

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11. | COMMITMENTS AND CONTINGENCIES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Financial
  Instruments With Off-Balance-Sheet Risk (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Real estate
  commitments are generally secured by property with a loan-to-value ratio of
  65% 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, 2007
  and 2006. 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 68% and 71% of the Companys loan portfolio at
  December 31, 2007 and 2006, respectively. Although management believes such
  concentrations to have no more than the normal risk of collectibility, a
  substantial decline in the economy in general, or a 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. Uninsured deposits
  totaled $2,902,000 at December 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

74

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12. | 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,
  2007                |  |            |       |                                               |  |                  |  |   |      | 
|                                  
|Basic
  earnings per share         |  | $          | 8,478 |                                               |  | 5,765            |  | $ | 1.47 | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|Effect of
  dilutive stock options |  |            |       |                                               |  | 60               |  |   |      | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|                                  
|Diluted
  earnings per share       |  | $          | 8,478 |                                               |  | 5,825            |  | $ | 1.46 | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|                                  
|December 31,
  2006                |  |            |       |                                               |  |                  |  |   |      | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|Basic
  earnings per share         |  | $          | 9,062 |                                               |  | 6,091            |  | $ | 1.49 | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|Effect of
  dilutive stock options |  |            |       |                                               |  | 112              |  |   |      | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|                                  
|Diluted
  earnings per share       |  | $          | 9,062 |                                               |  | 6,203            |  | $ | 1.46 | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|                                  
|December 31,
  2005                |  |            |       |                                               |  |                  |  |   |      | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|Basic
  earnings per share         |  | $          | 9,184 |                                               |  | 6,196            |  | $ | 1.48 | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|Effect of
  dilutive stock options |  |            |       |                                               |  | 127              |  |   |      | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 
|                                  
|Diluted
  earnings per share       |  | $          | 9,184 |                                               |  | 6,323            |  | $ | 1.45 | 
|                                   |  |            |       |                                               |  |                  |  |   |      | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Stock Option
  Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In 2000 and
  1995, the Board of Directors adopted stock option plans under which options
  may be granted to employees and directors under incentive and nonstatutory
  agreements. Both of these plans have been approved by the Companys
  shareholders. At December 31, 2007, grants outstanding combined with shares
  available for future grants totaled 613,044 shares under these plans. The
  plans require that the option price may not be less than the fair market
  value of the stock at the date the option is granted. The purchase price of
  exercised options is payable in full in cash or shares of the Companys
  common stock owned by the optionee at the time the option is exercised. The
  options expire on dates determined by the Board of Directors, but not later
  than ten years from the date of grant. Options vest ratably over a five year
  period. Outstanding options under the 1995 plan are exercisable until their
  expiration; however, no new options will be granted under this plan. The
  Plans do not provide for the settlement of awards in cash and new shares are
  issued upon the exercise of options.

75

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|12. | SHAREHOLDERS EQUITY (Continued)                                                                                     
|    |                                                                                                                      
|    | Stock Option
  Plans (Continued)                                                                                     
|    |                                                                                                                      
|    | A summary of
  the outstanding and vested stock option activity for the year ended December
  31, 2007 is as follows:

|                                                                          |  |             |         |                                           |   |        |  |                                       |         |   |   |         | 
|------------------------------------------------------------------------- |  | ----------- | ------- | ----------------------------------------- | - | ------ |  | ------------------------------------- | ------- | - | - | ------- | 
|                                                                          |  | Outstanding |         | Nonvested                                 |  
|                                                                          |  |             |         |                                           |  
|                                                                          |  | Shares      |         | Weighted
Average
Exercise
Price
Per Share |   | Shares |  | Weighted
Average
Fair Value
Per Share |        
|                                                                          |  |             |         |                                           |   |        |  |                                       |        
|                                                                          |  |             |         |                                           |   |        |  |                                       |        
|Balance, January 1, 2007                                                  |  |             | 342,318 |                                           | $ | 15.54  |  |                                       | 179,902 |   | $ | 5.99    | 
|                                                                          | 
|Options granted                                                           |  |             | 65,601  |                                           | $ | 24.57  |  |                                       | 65,601  |   | $ | 6.07    | 
|Options vested                                                            |  |             |         |                                           |   |        |  |                                       | (48,409 | ) | $ | 5.44    | 
|Options exercised                                                         |  |             | (57,297 | )                                         | $ | 7.74   |  |                                       |         |   |   |         | 
|Options expired or canceled                                               |  |             | (18,312 | )                                         | $ | 22.86  |  |                                       | (18,312 | ) | $ | 5.97    | 
|                                                                          |  |             |         |                                           |   |        |  |                                       |         |   |   |         | 
|                                                                          |  |             |         |                                           |   |        |  |                                       |         |   |   |         | 
|Balance, December 31, 2007                                                |  |             | 332,310 |                                           | $ | 18.33  |  |                                       | 178,782 |   | $ | 6.17    | 
|                                                                          |  |             |         |                                           |   |        |  |                                       |         |   |   |         | 
|                                                                          |  |             |         |                                           |   |        |  |                                       |         |   |   |         | 
|A summary of
  exercisable options as of December 31, 2007 is as follows: |  |             |         |                                           |   |        | 
|                                                                          |  |             |         |                                           |   |        |  |                                       |         |   |   |         | 
|Number of vested stock options                                            |  |             |         |                                           |   |        |  |                                       |         |   |   | 153,528 | 
|Weighted average exercise price per share                                 |  |             |         |                                           |   |        |  |                                       |         |   | $ | 13.76   | 
|Aggregate intrinsic value                                                 |  |             |         |                                           |   |        |  |                                       |         |   | $ | 694,000 | 
|Weighted average remaining contractual term
  in years                    |  |             |         |                                           |   |        |  |                                       |         |   |   | 4.69    | 

A summary of options outstanding at
  December 31, 2007 follows:

|                         |       |                                                 |  |                                             |         |                                                 |  |            |  |  |         | 
|------------------------ | ----- | ----------------------------------------------- |  | ------------------------------------------- | ------- | ----------------------------------------------- |  | ---------- |  |  | ------- | 
|Range of
Exercise Prices |       | Number of
Options
Outstanding
December 31,
2007 |  | Weighted
Average
Remaining
Contractual
Life |         | Number of
Options
Exercisable
December 31,
2007 | 
|                         |       |                                                 |  |                                             |         |                                                 | 
|                         |       |                                                 |  |                                             |         |                                                 |  |            |  | 
|$                        | 4.29  |                                                 |  |                                             | 10,175  |                                                 |  | 2.05 years |  |  | 10,175  | 
|$                        | 4.55  |                                                 |  |                                             | 6,202   |                                                 |  | .75 years  |  |  | 6,202   | 
|$                        | 7.28  |                                                 |  |                                             | 5,712   |                                                 |  | 1.85 years |  |  | 5,712   | 
|$                        | 7.45  |                                                 |  |                                             | 4,632   |                                                 |  | 1.05 years |  |  | 4,632   | 
|$                        | 8.02  |                                                 |  |                                             | 25,699  |                                                 |  | .75 years  |  |  | 25,699  | 
|$                        | 12.25 |                                                 |  |                                             | 37,525  |                                                 |  | 5.25 years |  |  | 30,111  | 
|$                        | 13.29 |                                                 |  |                                             | 883     |                                                 |  | 5.45 years |  |  | 706     | 
|$                        | 17.62 |                                                 |  |                                             | 53,151  |                                                 |  | 6.35 years |  |  | 31,521  | 
|$                        | 19.01 |                                                 |  |                                             | 26,248  |                                                 |  | 7.05 years |  |  | 9,545   | 
|$                        | 19.15 |                                                 |  |                                             | 35,994  |                                                 |  | 7.65 years |  |  | 15,360  | 
|$                        | 25.22 |                                                 |  |                                             | 66,236  |                                                 |  | 8.15 years |  |  | 13,865  | 
|$                        | 24.57 |                                                 |  |                                             | 59,853  |                                                 |  | 9.25 years |  |  |         | 
|                         |       |                                                 |  |                                             |         |                                                 |  |            |  |  |         | 
|                         |       |                                                 |  |                                             |         |                                                 |  |            |  |  |         | 
|                         |       |                                                 |  |                                             | 332,310 |                                                 |  |            |  |  | 153,528 | 
|                         |       |                                                 |  |                                             |         |                                                 |  |            |  |  |         | 

76

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|12. | SHAREHOLDERS EQUITY (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Common Stock
  Repurchase Program                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On September
  20, 2001, the Board of Directors of the Company authorized a stock repurchase
  program which calls for the repurchase of up to five percent (5%) annually of
  the Companys outstanding shares of common stock. The repurchases are to be
  made from time to time in the open market as conditions allow. The Board of
  Directors has reserved the right to suspend, terminate, modify or cancel this
  repurchase program at any time for any reason. On October 17, 2007, the Board
  of Directors of the Company expanded the stock repurchase program for
  calendar year 2007 by an additional $2,000,000.                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Stock
  Dividend                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Board of
  Directors declared 5% stock dividends on November 21, 2007, November 15, 2006
  and November 16, 2005. All per share and stock option data included in the
  consolidated financial statements have been retroactively restated to reflect
  the stock dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|13. | 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 2006, ARB requested, and received approval for, a
  one-time payment of $2,500,000. At December 31, 2007, ARB had $1,941,000 in
  retained earnings available for dividend payments to the Company.                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company
  has paid quarterly cash dividends on its common stock since the first quarter
  of 2004; prior to that, the Company paid cash dividends twice a year since
  1992. It is currently the intention of the Board of Directors of the Company
  to continue payment of cash dividends on a quarterly basis. In 2007, 2006 and
  2005, the Company declared cash dividends in the amount of $.58, $.55 and
  $.49, respectively, per common share. The amounts have been adjusted to
  reflect 5% stock dividends declared in 2007 and in 2006. 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.                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | 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. Under capital adequacy guidelines and the regulatory
  framework for prompt corrective action, the banking subsidiaries must meet
  specific capital guidelines that involve quantitative measures of their
  assets, liabilities and certain off-balance-sheet items as calculated under
  regulatory accounting practices. The Companys and ARBs capital amounts and
  classification are also subject to qualitative judgments by the regulators
  about components, risk weightings and other factors.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Quantitative
  measures established by regulation to ensure capital adequacy require the
  Company and its banking subsidiary to maintain minimum amounts and ratios of
  total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
  average assets. Each of these components is defined in the regulations.
  Management believes that the Company and its banking subsidiary met all their
  capital adequacy requirements as of December 31, 2007 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

77

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13. | REGULATORY MATTERS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Regulatory
 Capital (Continued)                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | In addition,
 the most recent notifications from the FDIC categorized ARB as well
 capitalized 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 below.
 There are no conditions or events since those notifications that management
 believes have changed the categories.

|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|------------------------------------------------------- |  | ---------------------- | ------ | ----- |  | ------ | - | ----- | ------ |  |  | ---- | -
|                                                        |  | December 31,           |       
|                                                        |  |                        |       
|                                                        |  | 2007                   |        | 2006  | 
|                                                        |  |                        |        |       | 
|                                                        |  | Amount                 |        | Ratio |  | Amount |   | Ratio |       
|                                                        |  |                        |        |       |  |        |   |       |       
|                                                        |  | (dollars in thousands) |       
|Leverage Ratio                                          |  |                        |        |       |  |        |   |       |        |  |  |      |  
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|American River Bankshares and Subsidiaries              |  | $                      | 42,358 |       |  | 7.7    | % | $     | 45,114 |  |  | 7.8  | %
|Minimum regulatory requirement                          |  | $                      | 21,956 |       |  | 4.0    | % | $     | 23,097 |  |  | 4.0  | %
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|American River Bank                                     |  | $                      | 42,616 |       |  | 7.8    | % | $     | 45,842 |  |  | 8.0  | %
|Minimum requirement for Well-Capitalized
 institution |  | $                      | 27,375 |       |  | 5.0    | % | $     | 28,825 |  |  | 5.0  | %
|Minimum regulatory requirement                          |  | $                      | 21,900 |       |  | 4.0    | % | $     | 23,060 |  |  | 4.0  | %
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|Tier 1 Risk-Based Capital Ratio                         |  |                        |        |       |  |        |   |       |        |  |  |      |  
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|American River Bankshares and Subsidiaries              |  | $                      | 42,358 |       |  | 9.5    | % | $     | 45,114 |  |  | 10.3 | %
|Minimum regulatory requirement                          |  | $                      | 17,926 |       |  | 4.0    | % | $     | 17,450 |  |  | 4.0  | %
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|American River Bank                                     |  | $                      | 42,616 |       |  | 9.6    | % | $     | 45,842 |  |  | 10.5 | %
|Minimum requirement for Well-Capitalized
 institution |  | $                      | 26,775 |       |  | 6.0    | % | $     | 26,087 |  |  | 6.0  | %
|Minimum regulatory requirement                          |  | $                      | 17,850 |       |  | 4.0    | % | $     | 17,391 |  |  | 4.0  | %
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|Total Risk-Based Capital Ratio                          |  |                        |        |       |  |        |   |       |        |  |  |      |  
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|American River Bankshares and Subsidiaries              |  | $                      | 47,963 |       |  | 10.7   | % | $     | 50,572 |  |  | 11.6 | %
|Minimum regulatory requirement                          |  | $                      | 35,874 |       |  | 8.0    | % | $     | 34,932 |  |  | 8.0  | %
|                                                        |  |                        |        |       |  |        |   |       |        |  |  |      |  
|American River Bank                                     |  | $                      | 48,198 |       |  | 10.8   | % | $     | 51,282 |  |  | 11.8 | %
|Minimum requirement for Well-Capitalized
 institution |  | $                      | 44,656 |       |  | 10.0   | % | $     | 43,522 |  |  | 10.0 | %
|Minimum regulatory requirement                          |  | $                      | 35,725 |       |  | 8.0    | % | $     | 34,818 |  |  | 8.0  | %

|    |                                                                             
|--- | ----------------------------------------------------------------------------
|14. | OTHER NONINTEREST INCOME AND EXPENSE                                        
|    |                                                                             
|    | Other
 noninterest income consisted of the following (dollars in thousands):

|                                             |  |                         |       |      |   |       |  |   |       | 
|-------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                                             |  | Year Ended December 31, |      
|                                             |  |                         |      
|                                             |  | 2007                    |       | 2006 |   | 2005  | 
|                                             |  |                         |       |      |   |       | 
|                                             |  |                         |       |      |   |       |  |   |       | 
|Merchant fee
 income                         |  | $                       | 544   |      | $ | 549   |  | $ | 509   | 
|Accounts
 receivable servicing fees (Note 7) |  |                         | 244   |      |   | 372   |  |   | 356   | 
|Income from
 residential lending division    |  |                         | 401   |      |   | 256   |  |   | 283   | 
|Bank owned
 life insurance                   |  |                         | 404   |      |   | 192   |  |   | 178   | 
|Other                                        |  |                         | 252   |      |   | 290   |  |   | 283   | 
|                                             |  |                         |       |      |   |       |  |   |       | 
|                                             |  |                         |       |      |   |       |  |   |       | 
|                                             |  | $                       | 1,845 |      | $ | 1,659 |  | $ | 1,609 | 
|                                             |  |                         |       |      |   |       |  |   |       | 

78

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                              
|--- | -----------------------------------------------------------------------------
|14. | OTHER
NONINTEREST INCOME AND EXPENSE(Continued)                              
|    |                                                                              
|    | Other
 noninterest expense consisted of the following (dollars in thousands):

|                                   |  |                         |       |      |   |       |  |   |       | 
|---------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                                   |  | Year Ended December 31, |      
|                                   |  |                         |      
|                                   |  | 2007                    |       | 2006 |   | 2005  | 
|                                   |  |                         |       |      |   |       | 
|                                   |  |                         |       |      |   |       |  |   |       | 
|Professional
 fees                 |  | $                       | 832   |      | $ | 778   |  | $ | 732   | 
|Telephone
 and postage             |  |                         | 420   |      |   | 411   |  |   | 439   | 
|Directors
 expense                |  |                         | 378   |      |   | 311   |  |   | 429   | 
|Outsourced
 item processing        |  |                         | 374   |      |   | 495   |  |   | 489   | 
|Advertising
 and promotion         |  |                         | 338   |      |   | 357   |  |   | 331   | 
|Stationery
 and supplies           |  |                         | 322   |      |   | 335   |  |   | 303   | 
|Amortization
 of intangible assets |  |                         | 308   |      |   | 330   |  |   | 352   | 
|Donations                          |  |                         | 62    |      |   | 88    |  |   | 82    | 
|Other
 operating expenses          |  |                         | 1,314 |      |   | 1,271 |  |   | 1,231 | 
|                                   |  |                         |       |      |   |       |  |   |       | 
|                                   |  |                         |       |      |   |       |  |   |       | 
|                                   |  | $                       | 4,348 |      | $ | 4,376 |  | $ | 4,388 | 
|                                   |  |                         |       |      |   |       |  |   |       | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|15. | EMPLOYEE BENEFIT PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | American
 River Bankshares 401(k) Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The American
 River Bankshares 401(k) Plan commenced 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
 (made after January 1, 2004) are 100% vested upon entering the plan. The
 Companys contributions made prior to January 1, 2004 vest at a rate of 20%
 per year over a five year period. The Companys contributions totaled
 $227,000, $217,000 and $220,000 for the years ended December 31, 2007, 2006
 and 2005, 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, 8.7% at December 31, 2007. Deferred
 compensation, including interest earned, totaled $1,769,000, $1,488,000 and
 $1,147,000 at December 31, 2007, 2006 and 2005, respectively. The expense
 recognized under this plan totaled $142,000, $113,000 and $78,000 for the
 years ended December 31, 2007, 2006 and 2005, respectively.

79

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|15. | 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, 2007 and 2006, the Company
 had accrued $521,000 and $352,000, 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 $169,000, $126,000 and $115,000 for the years ended December 31,
 2007, 2006 and 2005, respectively.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Under these
 plans, the Company invested in single premium life insurance policies with
 cash surrender values totaling $10,101,000 and $9,697,000 at December 31,
 2007 and 2006, 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 $404,000, $192,000 and $178,000 for the years
 ended December 31, 2007, 2006 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|16. | 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
 2007 (dollars in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                               |  |   |       |  
|-------------------------------------------------------------- |  | - | ----- | -
|Balance,
 January 1, 2007                                      |  | $ | 2,239 |  
|                                                               |  |   |       |  
|Disbursements                                                  |  |   | 1,354 |  
|Amounts repaid                                                 |  |   | (168  | )
|                                                               |  |   |       |  
|                                                               |  |   |       |  
|Balance,
 December 31, 2007                                    |  | $ | 3,425 |  
|                                                               |  |   |       |  
|                                                               |  |   |       |  
|Undisbursed
 commitments to related parties, December 31, 2007 |  | $ | 31    |  
|                                                               |  |   |       |  

| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
 also leases two of its branch facilities from current or former members of
 the Companys Board of Directors. Rental payments to the Directors totaled
 $106,000, $118,000 and $115,000 for the years ended December 31, 2007, 2006
 and 2005, respectively.

80

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|17. | OTHER COMPREHENSIVE INCOME (LOSS)                                                                                            
|    |                                                                                                                              
|    | At December
  31, 2007, 2006 and 2005, the Company had other comprehensive income (loss) as
  follows (dollars in thousands):

|                                                                             |  |            |        |                       |   |           |   |   |        |  
|---------------------------------------------------------------------------- |  | ---------- | ------ | --------------------- | - | --------- | - | - | ------ | -
|                                                                             |  | Before
Tax |        | Tax
(Expense)
Benefit |   | After
Tax |  
|                                                                             |  |            |        |                       |   |           |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|For the Year Ended December 31, 2007                                         |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|Other comprehensive income:                                                  |  |            |        |                       |   |           |   |   |        |  
|Unrealized holding gains                                                     |  | $          | 1,153  |                       | $ | (472      | ) | $ | 681    |  
|Less reclassification adjustment for
  realized gains included in net income |  |            | 25     |                       |   | (10       | ) |   | 15     |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  | $          | 1,128  |                       | $ | (462      | ) | $ | 666    |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|For the Year Ended December 31, 2006                                         |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|Other comprehensive income:                                                  |  |            |        |                       |   |           |   |   |        |  
|Unrealized holding gains                                                     |  | $          | 323    |                       | $ | (130      | ) | $ | 193    |  
|Less reclassification adjustment for
  realized gains included in net income |  |            | 1      |                       |   |           |   |   | 1      |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  | $          | 322    |                       | $ | (130      | ) | $ | 192    |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|For the Year Ended December 31, 2005                                         |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|Other comprehensive loss:                                                    |  |            |        |                       |   |           |   |   |        |  
|Unrealized holding losses                                                    |  | $          | (2,111 | )                     | $ | 827       |   | $ | (1,284 | )
|Less reclassification adjustment for
  realized gains included in net income |  |            | 48     |                       |   | (20       | ) |   | 28     |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  |            |        |                       |   |           |   |   |        |  
|                                                                             |  | $          | (2,159 | )                     | $ | 847       |   | $ | (1,312 | )
|                                                                             |  |            |        |                       |   |           |   |   |        |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|18. | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
  INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | 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, 2007 and 2006:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Cash and
  cash equivalents: For cash and cash equivalents, the
  carrying amount is estimated to be fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

81

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|18. | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | 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.                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | 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, 2007 and 2006.                                                                                                                                                                                                                                                                                

82

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

|    |                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------
|18. | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued)                                                                
|    |                                                                                                                                 
|    | The carrying
  amounts and estimated fair values of the Companys financial instruments are
  as follows (dollars in thousands):

|                                                  |  |                   |         |                      |   |                 |  |                      |         |  |   |         | 
|------------------------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------- |  | -------------------- | ------- |  | - | ------- | 
|                                                  |  | December 31, 2007 |         | December 31, 2006    |  
|                                                  |  |                   |         |                      |  
|                                                  |  | Carrying
Amount   |         | Estimated
Fair
Value |   | Carrying
Amount |  | Estimated
Fair
Value |        
|                                                  |  |                   |         |                      |   |                 |  |                      |        
|                                                 
|Financial assets:                                 |  |                   |         |                      |   |                 |  |                      |         |  |   |         | 
|Cash and cash equivalents                         |  | $                 | 17,945  |                      | $ | 17,945          |  | $                    | 25,352  |  | $ | 25,352  | 
|Interest-bearing deposits in banks                |  |                   | 4,951   |                      |   | 4,963           |  |                      | 4,951   |  |   | 4,955   | 
|Investment securities                             |  |                   | 113,724 |                      |   | 113,825         |  |                      | 148,240 |  |   | 147,929 | 
|Loans and leases, net                             |  |                   | 394,975 |                      |   | 393,047         |  |                      | 382,993 |  |   | 382,630 | 
|FHLB stock                                        |  |                   | 2,800   |                      |   | 2,800           |  |                      | 3,071   |  |   | 3,071   | 
|Accounts receivable servicing receivables         |  |                   | 1,666   |                      |   | 1,666           |  |                      | 2,581   |  |   | 2,581   | 
|Accrued interest receivable                       |  |                   | 2,691   |                      |   | 2,691           |  |                      | 3,131   |  |   | 3,131   | 
|Cash surrender value of life insurance
  policies |  |                   | 10,101  |                      |   | 10,101          |  |                      | 9,697   |  |   | 9,697   | 
|                                                 
|Financial liabilities:                            |  |                   |         |                      |   |                 |  |                      |         |  |   |         | 
|Deposits                                          |  | $                 | 455,645 |                      | $ | 456,250         |  | $                    | 493,875 |  | $ | 494,512 | 
|Short-term borrowings                             |  |                   | 51,603  |                      |   | 51,603          |  |                      | 37,270  |  |   | 37,270  | 
|Long-term borrowings                              |  |                   |         |                      |   |                 |  |                      | 5,000   |  |   | 4,942   | 
|Accrued interest payable                          |  |                   | 747     |                      |   | 747             |  |                      | 868     |  |   | 868     | 

83

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

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

CONDENSED BALANCE SHEET

December 31, 2007 and 2006(Dollars in
thousands)

|                                                             |  |      |        |      |   |        |  
|------------------------------------------------------------ |  | ---- | ------ | ---- | - | ------ | -
|                                                             |  | 2007 |        | 2006 |  
|                                                             |  |      |        |      |  
|                                                             |  |      |        |      |   |        |  
|ASSETS                                                       |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|Cash and due
 from banks                                     |  | $    | 611    |      | $ | 308    |  
|Investment
 in subsidiaries                                  |  |      | 60,231 |      |   | 63,100 |  
|Dividends
 receivable from subsidiaries                      |  |      | 840    |      |   | 300    |  
|Other assets                                                 |  |      | 1,873  |      |   | 1,434  |  
|                                                             |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|                                                             |  | $    | 63,555 |      | $ | 65,142 |  
|                                                             |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|LIABILITIES AND
 SHAREHOLDERS EQUITY                        |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|Liabilities:                                                 |  |      |        |      |   |        |  
|Dividends payable to shareholders                            |  | $    | 839    |      | $ | 848    |  
|Other liabilities                                            |  |      | 2,743  |      |   | 1,923  |  
|                                                             |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|Total liabilities                                            |  |      | 3,582  |      |   | 2,771  |  
|                                                             |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|Shareholders
 equity:                                       |  |      |        |      |   |        |  
|Common stock                                                 |  |      | 45,668 |      |   | 48,246 |  
|Retained earnings                                            |  |      | 14,204 |      |   | 14,690 |  
|Accumulated other comprehensive income
 (loss), net of taxes |  |      | 101    |      |   | (565   | )
|                                                             |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|Total shareholders equity                                   |  |      | 59,973 |      |   | 62,371 |  
|                                                             |  |      |        |      |   |        |  
|                                                             |  |      |        |      |   |        |  
|                                                             |  | $    | 63,555 |      | $ | 65,142 |  
|                                                             |  |      |        |      |   |        |  

84

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

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

CONDENSED STATEMENT OF INCOME

For the Years Ended December 31, 2007, 2006
and 2005(Dollars in thousands)

|                                                                  |  |      |        |      |   |        |   |   |       | 
|----------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ----- | 
|                                                                  |  | 2007 |        | 2006 |   | 2005   |  
|                                                                  |  |      |        |      |   |        |  
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Income:                                                           |  |      |        |      |   |        |   |   |       | 
|Dividends declared by subsidiaries
 - eliminated in consolidation |  | $    | 12,575 |      | $ | 9,570  |   | $ | 6,522 | 
|Management fee from subsidiaries -
 eliminated in consolidation   |  |      | 3,332  |      |   | 3,174  |   |   | 2,760 | 
|Other income                                                      |  |      | 39     |      |   | 20     |   |   | 19    | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Total income                                                      |  |      | 15,946 |      |   | 12,764 |   |   | 9,301 | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Expenses:                                                         |  |      |        |      |   |        |   |   |       | 
|Salaries and employee benefits                                    |  |      | 2,766  |      |   | 2,647  |   |   | 2,338 | 
|Professional fees                                                 |  |      | 384    |      |   | 386    |   |   | 225   | 
|Directors expense                                                |  |      | 288    |      |   | 237    |   |   | 339   | 
|Other expenses                                                    |  |      | 696    |      |   | 726    |   |   | 611   | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Total expenses                                                    |  |      | 4,134  |      |   | 3,996  |   |   | 3,513 | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Income before equity in undistributed
 income of subsidiaries     |  |      | 11,812 |      |   | 8,768  |   |   | 5,788 | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Equity in
 undistributed (distributed) income of subsidiaries     |  |      | (3,637 | )    |   | (28    | ) |   | 3,107 | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Income before income taxes                                        |  |      | 8,175  |      |   | 8,740  |   |   | 8,895 | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Income tax
 benefit                                               |  |      | 303    |      |   | 322    |   |   | 289   | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|                                                                  |  |      |        |      |   |        |   |   |       | 
|Net income                                                        |  | $    | 8,478  |      | $ | 9,062  |   | $ | 9,184 | 
|                                                                  |  |      |        |      |   |        |   |   |       | 

85

---



AMERICAN RIVER BANKSHARES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

|    |                                                       
|--- | ------------------------------------------------------
|19. | PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
|    |                                                       
|    | CONSOLIDATED STATEMENT OF CASH FLOWS                  

For the Years Ended
December 31, 2007, 2006 and 2005(Dollars in
thousands)

| |                                                                                     |  |      |         |      |   |        |   |   |         |  
| | ----------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------ | - | - | ------- | -
| |                                                                                     |  | 2007 |         | 2006 |   | 2005   |  
| |                                                                                     |  |      |         |      |   |        |  
|
| | Cash flows from operating activities:                                               |  |      |         |      |   |        |   |   |         |  
| | Net income                                                                          |  | $    | 8,478   |      | $ | 9,062  |   | $ | 9,184   |  
| | Adjustments to reconcile net income to net
  cash provided by operating activities: |  |      |         |      |   |        |   |   |         |  
| | Undistributed (distributed) earnings of
  subsidiaries                              |  |      | 3,637   |      |   | 28     |   |   | (3,107  | )
| | (Increase) decrease in dividends receivable
  from subsidiaries                     |  |      | (540    | )    |   | 542    |   |   | 9,143   |  
| | Stock option compensation expense                                                   |  |      | 301     |      |   | 221    |   |   |         |  
| | (Increase) decrease in other assets                                                 |  |      | (500    | )    |   | (206   | ) |   | 74      |  
| | Increase (decrease) in other liabilities                                            |  |      | 820     |      |   | 32     |   |   | (692    | )
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
|
| | Net cash provided by operating
activities                                           |  |      | 12,196  |      |   | 9,679  |   |   | 14,602  |  
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
|
| | Cash flows from investing activities:                                               |  |      |         |      |   |        |   |   |         |  
| | Cash paid to Bank of Amador shareholders                                            |  |      |         |      |   |        |   |   | (12,730 | )
| | Purchase of equipment                                                               |  |      | (41     | )    |   | (58    | ) |   | (353    | )
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
|
| | Net cash used in investing activities                                               |  |      | (41     | )    |   | (58    | ) |   | (13,083 | )
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
|
| | Cash flows from financing activities:                                               |  |      |         |      |   |        |   |   |         |  
| | Cash dividends paid                                                                 |  |      | (3,328  | )    |   | (3,325 | ) |   | (2,753  | )
| | Exercise of stock options, including tax
  benefit                                  |  |      | 679     |      |   | 441    |   |   | 945     |  
| | Cash paid to repurchase common stock                                                |  |      | (9,194  | )    |   | (6,724 | ) |   | (2,017  | )
| | Cash paid for fractional shares                                                     |  |      | (9      | )    |   | (21    | ) |   | (32     | )
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
|
| | Net cash used in financing activities                                               |  |      | (11,852 | )    |   | (9,629 | ) |   | (3,857  | )
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
|
| | Net increase (decrease) in cash and cash
  equivalents                              |  |      | 303     |      |   | (8     | ) |   | (2,338  | )
|
| | Cash and cash equivalents at beginning of
  year                                    |  |      | 308     |      |   | 316    |   |   | 2,654   |  
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
|
| | Cash and cash equivalents at end of year                                            |  | $    | 611     |      | $ | 308    |   | $ | 316     |  
| |                                                                                     |  |      |         |      |   |        |   |   |         |  
| | Non-cash financing activities:                                                      |  |      |         |      |   |        |   |   |         |  
| | Dividends declared and unpaid                                                       |  | $    | 839     |      | $ | 848    |   | $ | 841     |  
| | Cumulative effect of adopting SAB 108, net
  of taxes                               |  |      |         |      | $ | 214    |   |   |         |  

86

---



|                                                                  
|------------------------------------------------------------------
|Selected Quarterly Information
  (Unaudited)                      
|                                                                  
|                                                                  
|(In thousands, except per share and price range of
  common stock)
|                                                                  

|                                    |  |   |             |  |   |             |  |   |               |  |   |              | 
|----------------------------------- |  | - | ----------- |  | - | ----------- |  | - | ------------- |  | - | ------------ | 
|                                    |  |   | March 31,   |  |   | June 30,    |  |   | September 30, |  |   | December 31, | 
|                                    |  |   |             |  |   |             |  |   |               |  |   |              | 
|                                    |  |   |             |  |   |             |  |   |               |  |   |              | 
|2007                                |  |   |             |  |   |             |  |   |               |  |   |              | 
|                                    |  |   |             |  |   |             |  |   |               |  |   |              | 
|Interest income                     |  | $ | 9,464       |  | $ | 9,498       |  | $ | 9,454         |  | $ | 9,062        | 
|Net interest income                 |  |   | 6,547       |  |   | 6,609       |  |   | 6,680         |  |   | 6,566        | 
|Provision for loan and lease losses |  |   | 121         |  |   | 144         |  |   | 50            |  |   | 135          | 
|Noninterest income                  |  |   | 641         |  |   | 724         |  |   | 669           |  |   | 565          | 
|Noninterest expense                 |  |   | 3,692       |  |   | 3,779       |  |   | 3,796         |  |   | 3,566        | 
|Income before taxes                 |  |   | 3,375       |  |   | 3,410       |  |   | 3,503         |  |   | 3,430        | 
|Net income                          |  |   | 2,086       |  |   | 2,098       |  |   | 2,152         |  |   | 2,142        | 
|                                    |  |   |             |  |   |             |  |   |               |  |   |              | 
|                                   
|Basic earnings per share            |  | $ | .36         |  | $ | .36         |  | $ | .37           |  | $ | .38          | 
|Diluted earnings per share          |  |   | .35         |  |   | .36         |  |   | .37           |  |   | .38          | 
|Cash dividends per share            |  |   | .143        |  |   | .143        |  |   | .143          |  |   | .150         | 
|                                    |  |   |             |  |   |             |  |   |               |  |   |              | 
|Price range, common stock           |  | $ | 22.40-25.23 |  | $ | 22.25-23.33 |  | $ | 20.53-22.76   |  | $ | 15.80-21.43  | 
|                                    |  |   |             |  |   |             |  |   |               |  |   |              | 

|                                    |  |   |             |  |   |             |  |   |             |  |   |             | 
|----------------------------------- |  | - | ----------- |  | - | ----------- |  | - | ----------- |  | - | ----------- | 
|2006                                |  |   |             |  |   |             |  |   |             |  |   |             | 
|                                    |  |   |             |  |   |             |  |   |             |  |   |             | 
|Interest income                     |  | $ | 9,117       |  | $ | 9,463       |  | $ | 9,737       |  | $ | 9,637       | 
|Net interest income                 |  |   | 6,792       |  |   | 6,699       |  |   | 6,798       |  |   | 6,777       | 
|Provision for loan and lease losses |  |   | 84          |  |   | 156         |  |   | 30          |  |   | 50          | 
|Noninterest income                  |  |   | 634         |  |   | 597         |  |   | 605         |  |   | 607         | 
|Noninterest expense                 |  |   | 3,638       |  |   | 3,622       |  |   | 3,602       |  |   | 3,526       | 
|Income before taxes                 |  |   | 3,704       |  |   | 3,518       |  |   | 3,771       |  |   | 3,808       | 
|Net income                          |  |   | 2,243       |  |   | 2,137       |  |   | 2,275       |  |   | 2,407       | 
|                                    |  |   |             |  |   |             |  |   |             |  |   |             | 
|                                   
|Basic earnings per share            |  | $ | .36         |  | $ | .34         |  | $ | .37         |  | $ | .41         | 
|Diluted earnings per share          |  |   | .35         |  |   | .34         |  |   | .37         |  |   | .40         | 
|Cash dividends per share            |  |   | .136        |  |   | .136        |  |   | .136        |  |   | .143        | 
|                                    |  |   |             |  |   |             |  |   |             |  |   |             | 
|Price range, common stock           |  | $ | 19.28-26.30 |  | $ | 23.36-26.30 |  | $ | 21.95-24.67 |  | $ | 21.91-24.26 | 
|                                    |  |   |             |  |   |             |  |   |             |  |   |             | 

The earnings per share, cash
dividends, and price range have been adjusted for 5% stock dividends in 2007
and 2006.

87

---



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

There
has been no change in the independent accountants engaged to audit the
financial statements of the Company and its subsidiaries during the last two
fiscal years ended December 31, 2007. There have been no disagreements with
such independent accountants during the last two fiscal years ended December
31, 2007, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.

Item
9A. Controls and Procedures.

Effectiveness of Disclosure
Controls and Procedures

The
Company, under the supervision and with the participation of its management,
including the Chief Executive Officer and the Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December
31, 2007. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that the Companys disclosure controls and
procedures are effective in timely making known to them material information
relating to the Company and the Companys consolidated subsidiaries required to
be disclosed in the Companys reports filed or submitted under the Exchange
Act.

During
the quarter ended December 31, 2007, there have been no changes in the
Companys internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, these controls.

Report of Management on Internal
Control Over Financial Reporting

Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company (as defined in Rule 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended).

The
Companys management, including the Chief Executive Officer and Chief Financial
Officer, has assessed the effectiveness of the Companys internal control over
financial reporting as of December 31, 2007. In making this assessment,
management used the criteria applicable to the Company as set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework.Based
upon such assessment, management believes that, as of December 31, 2007, the
Companys internal control over financial reporting is effective based upon
those criteria.

Perry-Smith
LLP, the independent registered public accounting firm that audited the
Companys consolidated financial statements included in this Annual Report
under Item 8, Financial Statements and Supplementary Data, has issued a report
with respect to the Companys internal control over financial reporting. The
report of Perry-Smith LLP is set forth immediately below.

|                                       |  |                                                      
|-------------------------------------- |  | -----------------------------------------------------
|/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

88

---



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

|                                                     
|-----------------------------------------------------
|                                                     
|To
 the Board of Directors
 American River Bankshares

We
have audited American River Bankshares and subsidiaries (the Company)
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Companys management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Report of Management on
Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial reporting based on our
audit.

We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In
our opinion, American River Bankshares and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2007, based on the COSO criteria.

We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
American River Bankshares and subsidiaries as of December 31, 2007 and 2006,
and the related consolidated statements of income, changes in stockholders
equity, and cash flows for each of the years in the three-year period ended
December 31, 2007 and our report dated March 5, 2008 expressed an unqualified
opinion.

| |  |                    
| |  | -------------------
| |  | /s/ Perry-Smith LLP

Sacramento, California
March 5, 2008

89

---



Item
9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and
Corporate Governance.

The
information required by Item 10 of Form 10-K is incorporated by reference to
the information contained in the Companys Proxy Statement for the 2008 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.

Item 11. Executive Compensation.

The
information required by Item 11 of Form 10-K is incorporated by reference to
the information contained in the Companys Proxy Statement for the 2008 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.

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

The
information required by Item 12 of Form 10-K is incorporated by reference to
the information contained in the Companys Proxy Statement for the 2008 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.

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

The
information required by Item 13 of Form 10-K is incorporated by reference to
the information contained in the Companys Proxy Statement for the 2008 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.

Item
14. Principal Accounting Fees and Services.

The
information required by Item 14 of Form 10-K is incorporated by reference to the
information contained in the Companys Proxy Statement for the 2008 Annual
Meeting of Shareholders which will be filed pursuant to Regulation 14A.

90

---



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,
 2004, filed with the Commission on August 11, 2004.                                                                                                                                                                     
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | (3.2)          |  | Bylaws, as
 amended, incorporated by reference from Exhibit 3.2 to the Registrants
 Quarterly Report on Form 10-Q for the period ended March 31, 2006, filed with
 the Commission on May 9, 2006.                                                                                                                                                                                           
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | (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. **                                                                                                                                                                                  
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | (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
 Report on Form 8-K, filed with the Commission on November 28, 2006.                                                                                
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | (10.3)         |  | Lease agreement
 between American River Bank and Marjorie G. Taylor dated April 5, 1984, and
 addendum thereto dated July 16, 1997, related to 10123 Fair Oaks Boulevard,
 Fair Oaks,California. **                                                                                                                                                                                          
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | (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 Report on Form 8-K, filed with the Commission on July 31, 2006.
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | *(10.5)        |  | Registrants
 1995 Stock Option Plan. **                                                                                                                                                                                                                                                                                                                                                     
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | *(10.6)        |  | Form of
 Nonqualified Stock Option Agreement under the 1995 Stock Option Plan. **                                                                                                                                                                                                                                                                                                            
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                              
| | *(10.7)        |  | Form of
 Incentive Stock Option Agreement under the 1995 Stock Option Plan. **                                                                                                                                                                                                                                                                                                               

91

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| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *(10.8)  |  | Registrants
 Stock Option Gross-Up Plan and Agreement, as amended, dated May 20, 1998. **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *(10.9)  |  | Registrants
 Deferred Compensation Plan, incorporated by reference from Exhibit 99.2 to
 the Registrants Report on Form 8-K, filed with the Commission on May 30,
 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *(10.10) |  | Registrants
 Deferred Fee Plan, incorporated by reference from Exhibit 99.1 to the
 Registrants Report on Form 8-K, filed with the Commission on May 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (10.11)  |  | Lease
 agreement and addendum between North Coast Bank, N.A. and Rosario LLC, each
 dated September 1, 1998, related to 50 Santa Rosa Avenue, Santa Rosa,
 California. **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (10.12)  |  | 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.                                                                                                                                                                                                             
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *(10.13) |  | Employment
 Agreement between Registrant and David T. Taber dated June 2, 2006,
 incorporated by reference from Exhibit 99.3 to the Registrants Report on
 Form 8-K, filed with the Commission on May 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (10.14)  |  | Lease
 agreement between R & R Partners, a California General Partnership and
 North Coast Bank, dated July 1, 2003, related to 8733 Lakewood Drive, Suite
 A, Windsor, California, incorporated by reference from Exhibit 10.32 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; the First Amendment thereto, dated January 2,
 2006, incorporated by reference from Exhibit 99.1 to the Registrants
 Report on Form 8-K, filed with the Commission on January 3, 2006; and the
 Second Amendment thereto, dated
 December 8, 2006, incorporated by reference from Exhibit 10.39 to the
 Registrants Quarterly Report on Form 10-Q for the period ended March 31,
 2007, filed with the Commission on May 7, 2007.
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *(10.15) |  | Salary
 Continuation Agreement, as amended on June 2, 2006, between American River
 Bank and Mitchell A. Derenzo, incorporated by reference from Exhibit 99.9 to
 the Registrants Report on Form 8-K, filed with the Commission on May 30, 2006
 and the Salary Continuation Agreement Modification dated January 3, 2007,
 incorporated by reference from Exhibit 99.6 to the Registrants Report on
 Form 8-K, filed with the Commission on January 5, 2007.                                                                                                                                                                                                                                                                                                                                                 
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *(10.16) |  | Salary
 Continuation Agreement, as amended on June 2, 2006, between the Registrant
 and David T. Taber, incorporated by reference from Exhibit 99.7 to the
 Registrants Report on Form 8-K, filed with the Commission on May 30, 2006
 and the Salary Continuation Agreement Modification dated January 3, 2007,
 incorporated by reference from Exhibit 99.4 to the Registrants Report on
 Form 8-K, filed with the Commission on January 5, 2007.                                                                                                                                                                                                                                                                                                                                                           
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *(10.17) |  | Salary
 Continuation Agreement, as amended on June 2, 2006, between American River
 Bank and Douglas E. Tow, incorporated by reference from Exhibit 99.8 to the
 Registrants Report on Form 8-K, filed with the Commission on May 30, 2006,
 and the Salary Continuation Agreement Modification dated January 3, 2007,
 incorporated by reference from Exhibit 99.5 to the Registrants Report on
 Form 8-K, filed with the Commission on January 5, 2007.                                                                                                                                                                                                                                                                                                                                                     

92

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| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *(10.18) |  | Registrants
 2000 Stock Option Plan with forms of Nonqualified Stock Option Agreement and
 Incentive Stock Option Agreement. **                                                                                                                                                                                                                                                                                                                                                                                                   
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | *(10.19) |  | Registrants
 401(k) Plan dated September 20, 2004, incorporated by reference from Exhibit
 10.38 to the Registrants Quarterly Report on Form 10-Q for the period ended
 September 30, 2004, filed with the Commission on November 12, 2004.                                                                                                                                                                                                                                                                                      
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (10.20)  |  | 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 Report on Form 8-K, filed with the
 Commission on June 6, 2006.                                                                                                                                                                               
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | *(10.21) |  | Salary
 Continuation Agreement, as amended on June 2, 2006, 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
 99.5 to the Registrants Report on Form 8-K, filed with the Commission on May
 30, 2006.                                                                                                                                                                                                    
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | *(10.22) |  | Director
 Retirement Agreement, as amended on June 2, 2006, between Bank of Amador, a
 division of American River Bank, and Larry D. Standing, incorporated by
 reference from Exhibit 99.6 to the Registrants Report on Form 8-K, filed
 with the Commission on May 30, 2006.                                                                                                                                                                                                                                                    
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | *(10.23) |  | Employment
 Agreement dated June 2, 2006 between Bank of Amador, a division of American
 River Bank, and Larry D. Standing, incorporated by reference from Exhibit
 99.4 to the Registrants Report on Form 8-K, filed with the Commission on May
 30, 2006.                                                                                                                                                                                                                                                                       
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (10.24)  |  | 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 Report on Form 8-K, filed with the Commission on
 April 27, 2005.                                                                                                                                                                                                                                                                          
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (10.25)  |  | 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 Report on Form 8-K, filed with the Commission on May 18, 2005.                                                                                                                                                                                                                   
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (10.26)  |  | Managed
 Services Agreement between American River Bankshares and ProNet Solutions,
 Inc., dated September 8, 2005, incorporated by reference from Exhibit 99.1 to
 the Registrants Report on Form 8-K, filed with the Commission on September
 9, 2005.                                                                                                                                                                                                                                                                          
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | *(10.27) |  | American
 River Bankshares 2005 Executive Incentive Plan, incorporated by reference
 from Exhibit 99.1 to the Registrants 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 Report on Form 8-K, filed
 with the Commission on March 17, 2006; and the Second Amendment thereto,
 incorporated by reference from Exhibit 99.1 to the Registrants Report on
 Form 8-K, filed with the Commission on March 23, 2007.
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | *(10.28) |  | 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.                                                                                                                                                                                                                                                                                            
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | *(10.29) |  | 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 Report on Form 8-K, filed with the Commission on September 20,
 2006.                                                                                                                                                                                                                                                                                  

93

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| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *(10.30) |  | 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 Report on Form 8-K, filed with the Commission on September 20,
 2006.                                                                                                                                                                                                                                                                                                              
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *(10.31) |  | 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 Report on Form 8-K, filed with the Commission on September 20,
 2006.                                                                                                                                                                                                                                                                                                             
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *(10.32) |  | 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 Report
 on Form 8-K, filed with the Commission on September 20, 2006.                                                                                                                                                                                                                                                                                                                   
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *(10.33) |  | Salary
 Continuation Agreement, dated January 3, 2007, between American River Bank
 and Kevin B. Bender, incorporated by reference from Exhibit 99.1 to the
 Registrants Report on Form 8-K, filed with the Commission on January 5,
 2007.                                                                                                                                                                                                                                                                                                              
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *(10.34) |  | Salary
 Continuation Agreement, dated January 3, 2007, between American River Bank
 and Raymond F. Byrne, incorporated by reference from Exhibit 99.3 to the
 Registrants Report on Form 8-K, filed with the Commission on January 5,
 2007.                                                                                                                                                                                                                                                                                                             
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (10.35)  |  | Lease agreement
 between American River Bank and Sierra Investment Group, LLC, dated April 1,
 2007, related to 3330 Cameron Park Drive, Suite 150, Cameron Park, California
 incorporated by reference from Exhibit 10.40 to the Registrants Quarterly
 Report on Form 10-Q for the period ended March 31, 2007, filed with the
 Commission on May 7, 2007.                                                                                                                                                                                             
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (10.36)  |  | 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 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 Report on Form 8-K, filed
 with the Commission on October 16, 2007.
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (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 and American River
 Financial.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (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.                                                                                                                                                                                                                                                                                                                                                                                                               

94

---



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

An
Annual Report for the fiscal year ended December 31, 2007 and Notice of Annual
Meeting and Proxy Statement for the Companys 2008 Annual Meeting will be
mailed to security holders subsequent to the date of filing this Report. Copies
of said materials will be furnished to the Commission in accordance with the
Commissions Rules and Regulations.

95

---



SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|               |                           |                                              
|-------------- | ------------------------- | ---------------------------------------------
|               | AMERICAN RIVER
BANKSHARES
|               |                           |                                              
|March 5,
 2008 | By:                       | /s/ DAVID T.
 TABER                          
|               |                           |                                              
|               |                           | David T.
 Taber                              
|               |                           | Chief
 Executive Officer                     
|               |                           | (Principal
 Executive Officer)               
|               |                          
|               |                          
|March 5,
 2008 | By:                       | /s/ MITCHELL
 A. DERENZO                     
|               |                           |                                              
|               |                           | Mitchell A.
 Derenzo                         
|               |                           | Chief
 Financial Officer                     
|               |                           | (Principal
 Financial and Accounting Officer)

Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.

|                         |  |                          |  |        
|------------------------ |  | ------------------------ |  | -------
|Signature                |  | Title                    |  | Date   
|                         |  |                          |  |        
|/s/ CHARLES
 D. FITE     |  | Director,
 Chairman      |  | 3/05/08
|                         |  |                          |  |        
|Charles D.
 Fite         |  |                          |  |        
|                         |  |                          |  |        
|/s/ ROGER J.
 TAYLOR     |  | Director,
 Vice Chairman |  | 3/05/08
|                         |  |                          |  |        
|Roger J.
 Taylor         |  |                          |  |        
|                         |  |                          |  |        
|/s/ AMADOR
 S. BUSTOS    |  | Director                 |  | 3/05/08
|                         |  |                          |  |        
|Amador S.
 Bustos        |  |                          |  |        
|                         |  |                          |  |        
|/s/ DORENE
 C. DOMINGUEZ |  | Director                 |  | 3/05/08
|                         |  |                          |  |        
|Dorene C.
 Dominguez     |  |                          |  |        
|                         |  |                          |  |        
|/s/ ROBERT
 J. FOX       |  | Director                 |  | 3/05/08
|                         |  |                          |  |        
|Robert J.
 Fox           |  |                          |  |        
|                         |  |                          |  |        
|/s/ WILLIAM
 A. ROBOTHAM |  | Director                 |  | 3/05/08
|                         |  |                          |  |        
|William A.
 Robotham     |  |                          |  |        
|                         |  |                          |  |        
|/s/ DAVID T.
 TABER      |  | Director                 |  | 3/05/08
|                         |  |                          |  |        
|David T.
 Taber          |  |                          |  |        
|                         |  |                          |  |        
|/s/ STEPHEN
 H. WAKS     |  | Director                 |  | 3/05/08
|                         |  |                          |  |        
|Stephen H.
 Waks         |  |                          |  |        
|                         |  |                          |  |        
|/s/ MICHAEL
 A. ZIEGLER  |  | Director                 |  | 3/04/08
|                         |  |                          |  |        
|Michael A.
 Ziegler      |  |                          |  |        

96

---



EXHIBIT INDEX

|               |  |                                                                                                                                                            |  |      | 
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | 
|Exhibit Number |  | Description                                                                                                                                                |  | Page
|               |  |                                                                                                                                                            |  |     
|               |  |                                                                                                                                                            |  |     
|23.1           |  | Consent of
 Perry-Smith LLP                                                                                                                                |  | 98   | 
|               |  |                                                                                                                                                            |  |      | 
|31.1           |  | Certifications
 of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002                                                      |  | 99   | 
|               |  |                                                                                                                                                            |  |      | 
|               |  |                                                                                                                                                            |  |      | 
|31.2           |  | Certifications
 of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
 of 2002                                                      |  | 100  | 
|               |  |                                                                                                                                                            |  |      | 
|               |  |                                                                                                                                                            |  |      | 
|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 |  | 101  | 

97

---