The following is management's discussion and analysis of the significant changes in American River Bankshares' (the "Company") balance sheet accounts between December 31, 2008 and March 31, 2009 and its income and expense accounts for the three-month periods ended March 31, 2009 and 2008. The discussion is designed to provide a better understanding of significant trends related to the Company's financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. This discussion and supporting tables and the consolidated financial statements and related notes appearing elsewhere in this report are unaudited. Interest income and net interest income are presented on a fully taxable equivalent basis (FTE) within management's discussion and analysis.

Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q including, but not limited to, matters described in "Item 2
- Management's Discussion and Analysis of Financial Condition and Results of Operations," are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended, and subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may contain words related to future projections including, but not limited to, words such as "believe," "expect," "anticipate," "intend," "may," "will," "should," "could," "would," and variations of those words and similar words that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected. Factors that could cause or contribute to such differences include, but are not limited to, the following: (1) the duration of financial and economic volatility and actions taken by the United States Congress and governmental agencies, including the United States Department of the Treasury, to deal with challenges to the U.S. financial system; (2) variances in the actual versus projected growth in assets and 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 and other borrowed funds; (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 including government intervention in the U.S. financial system; (10) changes in business conditions and inflation; (11) changes in securities markets, public debt markets, and other capital markets; (12) data processing and other operational systems failures or fraud; (13) a decline in real estate values in the Company's operating market areas; (14) the effects of uncontrollable events such as terrorism, the threat of terrorism or the impact of the current military conflicts in Afghanistan and Iraq and the conduct of the war on terrorism by the United States and its allies, worsening financial and economic conditions, natural disasters, and disruption of power supplies and communications; and (15) changes in accounting standards, tax laws or regulations and interpretations of such standards, laws or regulations, as well as other factors. The factors set forth under "Item 1A - Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and other cautionary statements and information set forth in this Quarterly Report on Form 10-Q should be carefully considered and understood as being applicable to all related forward-looking statements contained in this Quarterly Report on Form 10-Q, when evaluating the business prospects of the Company and its subsidiaries.

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

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 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 factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is an estimate of the 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 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 factors, or some combination of these), the Company has a strategy for supplementing the allowance for loan and lease losses, over the short-term. For further information regarding our allowance for loan and lease losses, see "Allowance for Loan and Lease Losses Activity" discussion later in this Item 2.

Stock-Based Compensation

The Company recognizes compensation expense in an amount equal to the fair value of the share-based payments such as stock options granted to employees. The Company records compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that were outstanding on January 1, 2006 and for all awards granted after that date as they vest. 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 2008 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.

Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements," which among other things, requires enhanced disclosures about financial instruments carried at fair value. SFAS No. 157 establishes a hierarchical disclosure framework associated with the level of observable pricing scenarios utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of the observable pricing scenario. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of observable pricing and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have little or no observable pricing and a higher degree of judgment utilized in measuring fair value. Observable pricing scenarios are impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction.

General Development of Business

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California in 1995. As a bank holding company, the Company is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and regulations thereunder. Its principal office is located at 3100 Zinfandel Drive, Suite 450, Rancho Cordova, California 95670 and its telephone number is (916) 854-0123. The Company employed an equivalent of 119 full-time employees as of March 31, 2009.

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

American River Bank was incorporated and commenced business in Fair Oaks, California, in 1983 and thereafter moved its headquarters to Sacramento, California in 1985. The Bank operates: (1) five full service offices and one convenience office in Sacramento and Placer Counties including the head 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, and the convenience office (limited service office) located at 3100 Zinfandel Drive, Suite 450, Rancho Cordova, and (2) three full service offices in Sonoma County located at 412 Center Street, Healdsburg, 8733 Lakewood Drive, Windsor, and 90 South E Street, Suite 110, Santa Rosa, operated under the name "North Coast Bank, a division of American River Bank." North Coast Bank was acquired by the Company in 2000 as a separate bank subsidiary and was merged with and into American River Bank in 2003. The Company acquired Bank of Amador located in Jackson, California in 2004. 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.

The Bank's deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") up to applicable legal limits. The Bank is also participating in the FDIC Transaction Account Guarantee Program (the "TAGP"). Under the TAGP, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account through December 31, 2009. Coverage under the TAGP is in addition to and separate from the coverage available under the FDIC's general deposit insurance rules. FDIC insurance coverage and assessments are discussed under "Item 1A--Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. The Bank does not offer trust services or international banking services and does not plan to do so in the near future. The Bank's primary business is serving the commercial banking needs of small to mid-sized businesses within those counties listed above. The 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 revolving credit loans and offers other customary banking services. The Bank also conducts lease financing for most types of business equipment, from computer software to heavy earth-moving equipment. The 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 2009, 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."

The Company recorded net income of $1,283,000 for the quarter ended March 31, 2009, which was $550,000 (30.0%) below the $1,833,000 reported for the same period of 2008. Diluted earnings per share for the first quarter of 2009 were $0.22 compared to $0.31 recorded in the first quarter of 2008. The return on average equity (ROAE) and the return on average assets (ROAA) for the first quarter of 2009 were 8.15% and 0.90%, respectively, as compared to 12.26% and 1.28%, respectively, for the same period in 2008.

Total assets of the Company decreased by $6,822,000 (1.2%) from $563,157,000 at December 31, 2008 to $556,335,000 at March 31, 2009. Net loans totaled $410,323,000 at March 31, 2009, down $2,033,000 (0.5%) from $412,356,000 at December 31, 2008. Deposit balances at March 31, 2009 totaled $436,941,000, consistent with the $437,061,000 at December 31, 2008.

The Company ended the first quarter of 2009 with a Tier 1 capital ratio of 10.5% and a total risk-based capital ratio of 11.7% compared to 10.2% and 11.5%, respectively, at December 31, 2008. Table One below provides a summary of the components of net income for the periods indicated (See the "Results of Operations" section that follows for an explanation of the fluctuations in the individual components).

Table One: Components of Net Income

                                                               For the three months
                                                                  ended March 31

(dollars in thousands)                                          2009           2008


Net interest income*                                        $      6,425    $    6,427
Provision for loan losses                                         (1,229 )        (337 )
Noninterest income                                                   510           585
Noninterest expense                                               (3,601 )      (3,629 )
Provision for income taxes                                          (736 )      (1,128 )
Tax equivalent adjustment                                            (86 )         (85 )


Net income                                                  $      1,283    $    1,833



Average total assets                                        $    577,601    $  573,901
Net income (annualized) as a percentage of average total
assets                                                              0.90 %        1.28 %

* Fully taxable equivalent basis (FTE)

Net Interest Income and Net Interest Margin

Net interest income represents the excess of interest and fees earned on interest earning assets (loans and leases, securities, Federal funds sold and investments in time deposits) over the interest paid on interest-bearing deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. The Company's net interest margin was 5.08% for the three months ended March 31, 2009 up 14 basis points from 4.94% for the three months ended March 31, 2008.

The fully taxable equivalent interest income component for the first quarter of 2009 decreased $826,000 (9.5%) to $7,837,000 compared to $8,663,000 for the three months ended March 31, 2008. The decrease in the fully taxable equivalent interest income for the first quarter of 2009 compared to the same period in 2008 is broken down by rate (down $858,000) and volume (up $32,000). The rate decrease can be attributed to decreases implemented by the Company during 2007 and 2008 in response to the Federal Reserve Board (the "FRB") decreases in the Federal funds and discount rates. Decreases by the FRB have resulted in ten rate drops totaling 500 basis points since September 2007. The decrease in rates was partially mitigated be less interest forgone on non-accrual loans in 2009 compared to 2008. Interest income forgone on non-accrual loans was approximately $181,000 during the first quarter of 2009 compared to $336,000 for the same period in 2008. The overall decreasing interest rate environment and the net positive effect of the lower non-accrual loans resulted in a 46 basis point decrease in the yield on average earning assets from 6.66% for 2008 to 6.20% for 2009. The volume increase occurred despite a 2.1% decrease in average earning assets as a result of a shift in the mix of earning assets from lower earning investments to higher earning loans. The change in mix of earning assets was primarily the result of the Company's decision to use the proceeds from principal reductions and maturing investment securities to provide funding for loan growth. This strategy has reduced the average balances on investment securities by 20.6% from $114,822,000 during the first quarter of 2008 to $91,208,000 during the first quarter of 2009, while average loan balances increased $14,273,000 or 3.5% from $403,506,000 during the first quarter of 2008 to $417,779,000 during the first quarter of 2009. The increase in average loans is the result of the Company's continued concentrated focus on business lending.

Interest expense was $824,000 (36.9%) lower in the first quarter of 2009 versus the prior year period. The average balances on interest bearing liabilities were $16,017,000 (4.2%) higher in the first quarter of 2009 compared to the same quarter in 2008. The higher balances accounted for a $278,000 increase in interest expense. Average borrowings were up $22,308,000 (40.3%) as the Company used borrowings as a funding source for the increased loan balances as average deposit balances declined. Average deposit balances decreased $21,577,000 or 4.8% from $451,645,000 during the first quarter of 2008 to $430,068,000 during the first quarter of 2009. Although the number of deposit relationships and accounts remains relatively stable, the average balances in those accounts have experienced a decrease over the past twelve months. As a result of the lower overall interest rate environment, the decrease in rates accounted for a $1,102,000 reduction in interest expense for the three-month period ended March 31, 2009. Rates paid on interest bearing liabilities decreased 93 basis points from the first quarter of 2008 to the first quarter of 2009 from 2.38% to 1.45%. The rate on average borrowings dropped 185 basis points during that same time period from 3.58% to 1.73%.

Table Two: Analysis of Net Interest Margin on Earning Assets

Three Months Ended
March 31,                                  2009                                      2008


(Taxable Equivalent
Basis)                       Avg                         Avg           Avg                         Avg
(dollars in thousands)     Balance      Interest      Yield (4)      Balance      Interest      Yield (4)


Assets
Earning assets:
Loans and leases (1)      $ 417,779    $    6,718           6.52 %  $ 403,506    $    7,244           7.22 %
Taxable investment
securities                   64,665           735           4.61 %     87,971         1,000           4.57 %
Tax-exempt investment
securities (2)               26,516           351           5.37 %     26,607           348           5.26 %
Corporate stock (2)              27             -           0.00 %        244             4           6.59 %
Federal funds sold               38             -           0.00 %        249             2           3.23 %
Investments in time
deposits                      3,643            33           3.67 %      4,943            65           5.29 %

Total earning assets        512,668         7,837           6.20 %    523,520         8,663           6.66 %

Cash & due from banks        28,654                                    16,686
Other assets                 42,063                                    39,411
Allowance for loan &
lease losses                 (5,784 )                                  (5,916 )

                          $ 577,601                                 $ 573,901


Liabilities &
Shareholders' Equity
Interest bearing
liabilities:
Interest checking and
money market              $ 150,408           318           0.86 %  $ 168,500           597           1.42 %
Savings                      32,423            54           0.68 %     36,301            86           0.95 %
Time deposits               133,655           709           2.15 %    117,976         1,060           3.61 %
Other borrowings             77,645           331           1.73 %     55,337           493           3.58 %

Total interest bearing
liabilities                 394,131         1,412           1.45 %    378,114         2,236           2.38 %

Noninterest bearing
demand deposits             113,582                                   128,868
Other liabilities             6,068                                     6,785

Total liabilities           513,781                                   513,767
Shareholders' equity         63,820                                    60,134

                          $ 577,601                                 $ 573,901

Net interest income &
margin (3)                             $    6,425           5.08 %               $    6,427           4.94 %

(1) Loan interest includes loan fees of $10,000 and $110,000 during the three months ending March 31, 2009 and March 31, 2008, respectively. Average loan balances include non-performing loans.

(2) Includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes. The effective federal statutory tax rate was 34% for 2009 and 35% for 2008.

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

(4) Average yield is calculated based on actual days in quarter (90 days for 2009 and 91 days for 2008) and annualized to actual days in year (365 days in 2009 and 366 days in 2008).

Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses

Three Months Ended March 31, 2009 over 2008 (dollars in thousands)

       Interest-earning assets:                Volume    Rate (4)    Net Change

       Net loans (1)(2)                        $   312   $    (838 ) $      (526 )
       Taxable investment securities              (259 )        (6 )        (265 )
       Tax exempt investment securities (3)          2           1             3
       Corporate stock                              (4 )         -            (4 )
       Federal funds sold                           (2 )         -            (2 )
       Investment in time deposits                 (17 )       (15 )         (32 )

       Total                                        32        (858 )        (826 )

       Interest-bearing liabilities:
       Interest checking and money market          (61 )      (218 )        (279 )
       Savings deposits                             (9 )       (23 )         (32 )
       Time deposits                               147        (498 )        (351 )
       Other borrowings                            201        (363 )        (162 )

       Total                                       278      (1,102 )        (824 )

       Interest differential                   $  (246 ) $     244   $        (2 )

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

(2) Loan fees of $10,000 and $110,000 during the three months ending March 31, 2009 and March 31, 2008, respectively, have been included in the interest income computation.

(3) Includes taxable-equivalent adjustments that primarily relate to income on certain securities that is exempt from federal income taxes. The effective federal statutory tax rate was 34% for 2009 and 35% for 2008.

. . .