UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

(Mark One)

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

For the quarterly period ended

September 30, ~~2017~~2020

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

For the transition period from

Commission File Number: 0-31525

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

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

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

(916)851-0123

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last ~~report.)~~report)

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, no par value	AMRB	Nasdaq Global Select Market

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.

Yesx Noo

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

Yesx Noo

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

	Large ~~accelerated filer~~Accelerated Filer o	Accelerated ~~filer~~oFilerx
	Non-accelerated filerx ~~(Do not check if a smaller reporting company)~~o	Smaller Reporting Company x
		~~Smaller reporting company~~o
		Emerging ~~growth company~~Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

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

YesoNox

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

No par value Common Stock – ~~6,377,023shares~~5,937,529 shares outstanding at November ~~3, 2017.~~5, 2020

AMERICAN RIVER BANKSHARES

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, ~~2017~~2020

Part I. Page
  Item 1. Financial Statements 3
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 49
  Item 4. Controls and Procedures 50

Part II.

  Item 1. Legal Proceedings 50
  Item 1A. Risk Factors 50
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
  Item 3. Defaults Upon Senior Securities 51
  Item 4. Mine Safety Disclosures 51
  Item 5. Other Information 51
  Item 6. Exhibits 51

Signatures 56

Exhibit Index 57

31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 58
31.2 Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 59
32.1 Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 60

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

Part I.		Page

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	51

Part II.

Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53

Signatures		54

Exhibits

31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	55
31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	56
32.1	Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	57

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

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN RIVER BANKSHARES

CONSOLIDATED BALANCE SHEET

(Unaudited)

~~AMERICAN RIVER BANKSHARES~~

~~CONSOLIDATED BALANCE SHEET~~

~~(Unaudited)~~

(dollars in thousands)	September 30, 2020		December 31, 2019
ASSETS

Cash and due from banks	$	16,559	$	15,258
Interest-bearing deposits in banks		56,469		2,552
Total cash and cash equivalents		73,028		17,810
Investment securities:
Available-for-sale, at fair value		266,917		261,965
Held-to-maturity, at amortized cost; fair value of $16 at September 30, 2020 and $266 at December 31, 2019		15		248
Loans, less allowance for loan losses of $6,616 at September 30, 2020 and $5,138 at December 31, 2019		471,647		393,802
Premises and equipment, net		948		1,191
Federal Home Loan Bank stock		4,212		4,259
Goodwill and other intangible assets		16,321		16,321
Other real estate owned		846		846
Bank owned life insurance		16,021		15,763
Accrued interest receivable and other assets		7,979		8,148
Total assets	$	857,934	$	720,353

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:
Noninterest bearing	$	295,862	$	227,055
Interest-bearing		432,969		377,782
Total deposits		728,831		604,837

Short-term borrowings		12,000		9,000
Long-term borrowings		15,460		10,500
Accrued interest payable and other liabilities		9,959		13,107

Total liabilities		766,250		637,444


Shareholders’ equity:
Preferred stock, 0 par value; 10,000,000 shares authorized; NaN outstanding		—		—
Common stock, 0 par value; 20,000,000 shares authorized; issued and outstanding – 5,938,009 shares at September 30, 2020 and 5,898,878 shares at December 31, 2019		30,855		30,536
Retained earnings		54,290		50,581
Accumulated other comprehensive income, net of taxes		6,539		1,792

Total shareholders’ equity		91,684		82,909
Total liabilities and shareholders’ equity	$	857,934	$	720,353

(dollars in thousands) September 30, December 31,
2017 2016

ASSETS

Cash and due from banks $ 37,233 $ 27,589
Interest-bearing deposits in banks 1,248 999
Investment securities:
Available-for-sale, at fair value 249,879 254,020
Held-to-maturity, at amortized cost 404 483
Loans and leases, less allowance for loan and lease losses of $4,551 at September 30, 2017 and $4,822 at December 31, 2016 322,238 324,086
Premises and equipment, net 1,226 1,362
Federal Home Loan Bank stock 3,932 3,779
Goodwill and other intangible assets 16,321 16,321
Other real estate owned 961 1,348
Bank owned life insurance 15,043 14,805
Accrued interest receivable and other assets 7,159 6,658
$ 655,644 $ 651,450

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:
Noninterest bearing $ 205,938 $ 201,113
Interest-bearing 345,004 343,693
Total deposits 550,942 544,806

Short-term borrowings 2,000 3,500
Long-term borrowings 13,500 12,000
Accrued interest payable and other liabilities 6,947 7,294

Total liabilities 573,389 567,600

Shareholders’ equity:
Preferred stock, no par value; 20,000,000 shares authorized; none Outstanding
Common stock, no par value; 20,000,000 shares authorized;issued and outstanding – 6,392,570 shares at September 30, 2017 and 6,661,726 shares at December 31, 2016 38,139 42,484
Retained earnings 43,437 40,822
Accumulated other comprehensive income, net of taxes 679 544

Total shareholders’ equity 82,255 83,850
$ 655,644 $ 651,450

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF INCOME

(Unaudited)

(dollars in thousands, except per share data)
For the periods ended September 30,	Three months					Nine months					Three months					Nine months
	2017		2016			2017		2016			2020		2019			2020		2019
Interest income:
Interest and fees on loans:
Taxable	$	3,496	$	3,617		$	10,384	$	10,424		$	5,275	$	4,397		$	15,034	$	12,329
Exempt from Federal income taxes		110		189			376		534			202		186			635		501
Interest on Federal funds sold												—		—			—		5
Interest on deposits in banks		4		2			9		5			19		71			73		151
Interest and dividends on investment securities:
Taxable		1,292		1,340			3,978		4,333			1,523		1,846			4,894		5,756
Exempt from Federal income taxes		180		156			496		502			36		55			109		221
Dividends		—		—			13		11
Total interest income		5,082		5,304			15,256		15,809			7,055		6,555			20,745		18,963
Interest expense:
Interest on deposits		224		179			621		545			261		545			1,074		1,558
Interest on borrowings		55		44			152		133			74		82			243		300
Total interest expense		279		223			773		678			335		627			1,317		1,858

Net interest income		4,803		5,081			14,483		15,131			6,720		5,928			19,428		17,105
Provision for loan and lease losses		300		(668	)		300		(668	)

Net interest income after provision for loan and lease losses		4,503		5,749			14,183		15,799
Provision for loan losses												445		120			1,485		480

Net interest income after provision for loan losses												6,275		5,808			17,943		16,625

Noninterest income:
Service charges on deposit accounts		117		124			348		381			115		149			381		409
Gain on sale, call, or impairment of securities		19		33			161		314
Rental income from other real estate owned		—		—			—		106
Gain on sale or call of securities												—		9			38		74
Other noninterest income		241		242			726		715			259		259			743		766
Total noninterest income		377		399			1,235		1,516			374		417			1,162		1,249

Noninterest expense:
Salaries and employee benefits		2,102		2,073			6,336		6,334			2,889		2,898			8,265		8,423
Occupancy		262		295			793		885			258		256			773		768
Furniture and equipment		141		165			439		493			140		120			422		400
Federal Deposit Insurance Corporation assessments		51		77			156		233			62		(47	)		138		48
Expenses related to other real estate owned		4		(30	)		36		330			4		7			27		15
Other expense		752		766			2,350		2,277			870		859			2,730		2,847
Total noninterest expense		3,312		3,346			10,110		10,552			4,223		4,093			12,355		12,501

Income before provision for income taxes		1,568		2,802			5,308		6,763			2,426		2,132			6,750		5,373

Provision for income taxes		459		989			1,718		2,274			647		561			1,798		1,380

Net income	$	1,109	$	1,813		$	3,590	$	4,489		$	1,779	$	1,571		$	4,952	$	3,993

Basic earnings per share	$	0.18	$	0.28		$	0.56	$	0.66		$	0.30	$	0.27		$	0.84	$	0.68
Diluted earnings per share	$	0.17	$	0.27		$	0.55	$	0.66		$	0.30	$	0.27		$	0.84	$	0.68

Cash dividends per share	$	0.05	$	0.00		$	0.15	$	0.00

See notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF ~~COMPRENENSIVE~~COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands, except per share data)
(dollars in thousands)
For the periods ended September 30,	Three months						Nine months						Three months						Nine months
	2017			2016			2017			2016
													2020			2019			2020			2019
Net income	$	1,109		$	1,813		$	3,590		$	4,489		$	1,779		$	1,571		$	4,952		$	3,993
Other comprehensive (loss) income:
(Decrease) increase in net unrealized gains on investment securities		(497	)		(1,306	)		376			2,406			(83	)		972			6,777			6,849
Deferred tax benefit (expense)		199			522			(144	)		(963	)		24			(287	)		(2,003	)		(2,025	)
(Decrease) increase in net unrealized gains on investment securities, net of tax		(298	)		(784	)		232			1,443			(59	)		685			4,774			4,824

Reclassification adjustment for realized gains included in net income		(19	)		(33	)		(161	)		(314	)		—			(9	)		(38	)		(74	)
Tax effect		8			13			64			125			—			3			11			22
Realized gains, net of tax		(11	)		(20	)		(97	)		(189	)		—			(6	)		(27	)		(52	)

Total other comprehensive (loss) income		(309	)		(804	)		135			1,254			(59	)		679			4,747			4,772

Comprehensive income	$	800		$	1,009		$	3,725		$	5,743		$	1,720		$	2,250		$	9,699		$	8,765

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

Accumulated
(dollars in thousands) Common Stock Other Total
Retained Comprehensive Shareholders’
Shares Amount Earnings Income Equity
Balance, January 1, 2016 7,343,649 $ 49,554 $ 34,418 $ 2,103 $ 86,075
Net income 4,489 4,489
Other comprehensive income, net of tax:
Net change in unrealized gains on available-for-sale investment securities 1,254 1,254
Net restricted stock award activity and related compensation expense 28,342 219 219
Stocks option exercised and compensation expense 1,500 43 43
Retirement of common stock (716,897 ) (7,414 ) (7,414 )

Balance, September 30, 2016 6,656,594 $ 42,402 $ 38,907 $ 3,357 $ 84,666

Balance, January 1, 2017 6,661,726 $ 42,484 $ 40,822 $ 544 $ 83,850
Net income 3,590 3,590
Other comprehensive income, net of tax:
Net change in unrealized gains on available-for-sale investment securities 135 135

Cash dividends ($0.15 per share) (975 ) (975 )
Net restricted stock award activity and related compensation expense 22,032 282 282
Stock options exercised 41,898 351 351
Stock option compensation expense — 28 28
Retirement of common stock (333,086 ) (5,006 ) (5,006 )

Balance, September 30, 2017 6,392,570 $ 38,139 $ 43,437 $ 679 $ 82,255

								Accumulated
(dollars in thousands, except per share data)								Other			Total
	Common Stock				Retained			Comprehensive			Shareholders’
	Shares		Amount		Earnings			Income (Loss)			Equity
Balance, January 1, 2019		5,858,428	$	30,103	$	46,494		$	(1,876	)	$	74,721

Net income						3,993						3,993
Other comprehensive income, net of tax:									4,772			4,772
Cash dividends ($0.17 per share)						(1,000	)					(1,000	)
Net restricted stock award activity and related compensation expense		33,660		257								257
Stock options exercised		11,140		95								95
Stock option compensation expense				11								11

Balance, September 30, 2019		5,903,228	$	30,466	$	49,487		$	2,896		$	82,849

Balance, January 1, 2020		5,898,878	$	30,536	$	50,581		$	1,792		$	82,909

Net income						4,952						4,952
Other comprehensive income, net of tax:									4,747			4,747
Cash dividends ($0.21 per share)						(1,243	)					(1,243	)
Net restricted stock award activity and related compensation expense		39,131		315								315
Stock option compensation expense				4								4

Balance, September 30, 2020		5,938,009	$	30,855	$	54,290		$	6,539		$	91,684

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF ~~CASH FLOWS~~
CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(dollars in thousands)
For the nine months ended September 30, 2017 2016

Cash flows from operating activities:
Net income $ 3,590 $ 4,489
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses 300 (668 )
Increase in deferred loan origination fees, net 5 27
Depreciation and amortization 255 326
Gain on sale, call, and impairment of investment securities, net (161 ) (314 )
Amortization of investment security premiums and discounts, net 2,447 2,159
Increase in cash surrender values of life insurance policies (238 ) (239 )
Stock based compensation expense 310 249
(Gain) loss on sale/write-down of other real estate owned (8 ) 207
(Increase) decrease in accrued interest receivable and other assets (581 ) 535
(Decrease) increase in accrued interest payable and other liabilities (347 ) 2,140
Net cash provided by operating activities 5,572 8,911

Cash flows from investing activities:
Proceeds from the sale of available-for-sale investment securities 31,288 12,656
Proceeds from matured available-for-sale investment securities 1,930 600
Proceeds from called available-for-sale investment securities 145 1,165
Purchases of available-for-sale investment securities (63,061 ) (27,608 )
Proceeds from principal repayments for available-for-sale investment securities 31,768 33,749
Proceeds from principal repayments for held-to-maturity investment securities 79 115
Net increase in interest-bearing deposits in banks (249 ) (249 )
Net decrease (increase) in loans 1,543 (21,873 )
Proceeds from sale of other real estate 395 1,005
Net increase in FHLB stock (153 ) —
Purchases of equipment (119 ) (178 )

Net cash provided by (used in) investing activities 3,566 (618 )

								Accumulated
(dollars in thousands, except per share data)								Other			Total
	Common Stock				Retained			Comprehensive			Shareholders’
	Shares		Amount		Earnings			Income (Loss)			Equity
Balance, July 1, 2019		5,903,228	$	30,373	$	48,329		$	2,217		$	80,919

Net income						1,571						1,571
Other comprehensive income, net of tax									679			679
Cash dividends ($0.07 per share)						(413	)					(413	)
Net restricted stock award activity and related compensation expense				90								90
Stock option compensation expense				3								3

Balance, September 30, 2019		5,903,228	$	30,466	$	49,487		$	2,896		$	82,849

Balance, July 1, 2020		5,938,009	$	30,745	$	52,927		$	6,598		$	90,270

Net income						1,779						1,779
Other comprehensive loss, net of tax									(59	)		(59	)
Cash dividends ($0.07 per share)						(416	)					(416	)
Net restricted stock award activity and related compensation expense				110								110

Balance, September 30, 2020		5,938,009	$	30,855	$	54,290		$	6,539		$	91,684

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS ~~(Continued)~~
~~(Unaudited)~~
(Unaudited)

(dollars in thousands)
For the nine months ended September 30, 2017 2016

Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits $ 8,825 $ 17,125
Net decrease in time deposits (2,689 ) (1,650 )
Net (decrease) increase in short-term borrowings (1,500 ) 1,500
Additions to long-term borrowings 3,500 5,000
Transfers from long-term to short-term borrowings (2,000 ) (3,500 )
Proceeds from stock option exercise 351 13
Cash dividends paid (975 ) —
Cash paid to repurchase common stock (5,006 ) (7,414 )

Net cash provided by financing activities $ 506 $ 11,074

Increase in cash and cash equivalents 9,644 19,367

Cash and cash equivalents at beginning of year 27,589 23,727

Cash and cash equivalents at end of period $ 37,233 $ 43,094

(dollars in thousands)
For the nine months ended September 30,	2020			2019
Cash flows from operating activities:
Net income	$	4,952		$	3,993
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,485			480
Increase (decrease) in deferred loan origination fees and costs, net		1,562			(454	)
Depreciation and amortization		331			170
Gain on sale of investment securities, net		(38	)		(74	)
Amortization of investment security premiums and discounts, net		985			1,117
Increase in cash surrender values of life insurance policies		(258	)		(247	)
Stock based compensation expense		319			268
(Increase) decrease in accrued interest receivable and other assets		(2,327	)		479
(Decrease) increase in accrued interest payable and other liabilities		(2,645	)		39

Net cash provided by operating activities		4,366			5,771

Cash flows from investing activities:
Proceeds from the sale of available-for-sale investment securities		4,229			43,213
Proceeds from matured available-for-sale investment securities		—			5,000
Purchases of available-for-sale investment securities		(36,479	)		(56,978	)
Proceeds from principal repayments for available-for-sale investment securities		33,091			33,375
Proceeds from principal repayments for held-to-maturity investment securities		233			36
Net increase in loans		(72,463	)		(34,077	)
Purchases of loans		(8,429	)		(17,373	)
Net decrease (increase) in FHLB stock		47			(327	)
Purchases of equipment		(88	)		(316	)

Net cash used in investing activities		(79,859	)		(27,447	)

~~See Notes to Unaudited Consolidated Financial Statements~~

(Continued)

AMERICAN RIVER BANKSHARES

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)

(dollars in thousands)
For the nine months ended September 30,	2020			2019
Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits	$	128,808		$	24,081
Net decrease in time deposits		(4,814	)		(1,851	)
Net increase in short-term borrowings		3,000			—
Net increase to long-term borrowings		4,960			—
Proceeds from stock options exercised		—			95
Cash dividends paid		(1,243	)		(1,000	)

Net cash provided by financing activities		130,711			21,325

Increase (decrease) in cash and cash equivalents		55,218			(351	)

Cash and cash equivalents at beginning of year		17,810			29,733

Cash and cash equivalents at end of period	$	73,028		$	29,382

Supplemental noncash disclosures:
Right of use asset and obligation recorded upon adoption of ASU 2016-02	$	—		$	3,570

Lease liabilities arising from obtaining right of use assets	$	508		$	—

Cash paid during the year for:
Interest expense	$	1,386		$	1,682
Income taxes	$	1,765		$	1,218

See Notes to Unaudited Consolidated Financial Statements

AMERICAN RIVER BANKSHARES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2017~~2020

1. CONSOLIDATED FINANCIAL STATEMENTS

In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position of American River Bankshares (the “Company”) at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the results of its operations and statement of comprehensive income for the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, its cash flows for the nine-month periods ended September 30, ~~2017~~2020 and ~~2016~~2019 and its statement of changes in shareholders’ equity for the ~~nine months~~nine-month periods ended September 30, ~~2017~~2020 and ~~2016~~2019 in conformity with accounting principles generally accepted in the United States of America.

Certain disclosures normally presented in the notes to the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2016.~~2019. The results of operations for the three-month and nine-month periods ended September 30, ~~2017~~2020 may not necessarily be indicative of the operating results for the full year.

In preparing such financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.

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

2. STOCK-BASED COMPENSATION

Equity Plans

On March 18, 2020, the Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan was approved by the Company’s shareholders on May 21, 2020. At September 30, 2020 there were 19,634 restricted shares outstanding, zero stock options outstanding, and the total number of authorized shares that remain available for issuance under the 2020 Plan, including the 19,634 restricted shares that have not yet vested, was 250,000. The 2020 Plan provides for the following types of stock-based awards: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted performance stock, unrestricted Company stock, and performance units. Under the 2020 Plan, the awards may be granted to employees and directors under incentive and nonqualified option agreements, restricted stock agreements, and other award agreements. The unvested restricted stock under the 2020 Plan have dividend and voting rights. The 2020 Plan requires that the option price may not be less than the fair market value of the stock at the date the option is awarded. The option awards expire on dates determined by the Board of Directors, but not later than ten years from the date of award. The vesting period is generally one to five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors. Outstanding option awards are exercisable until their expiration. New shares are issued upon exercise of an option.

On March 17, 2010, the Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan was approved by the Company’s shareholders on May 20, 2010. ~~In 2000, the Board of Directors adopted and the Company’s shareholders approved a stock option plan (the “2000 Plan”), under which 54,470 options remain outstanding at September 30, 2017.~~ At September 30, ~~2017,~~2020 there were 29,958 stock options and 41,790 restricted shares outstanding. The 2010 Plan expired by its term on March 17, 2020. Accordingly, outstanding awards under the 2010 Plan ~~there were 51,322 stock options~~are exercisable and 79,474 restricted shares outstanding and the total number of authorized shares that remain available for issuance was 1,362,437. The 2010 Plan provides for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted stock; restricted performance stock; unrestricted Company stock; and performance units. Awards under the 2000 Plan were either incentive stock options or nonqualified stock options. Under the 2010 Plan, thewill continue to vest until their expiration, but no new awards may be granted ~~to employees and directors~~ under ~~incentive and nonqualified option agreements,~~the 2010 Plan. The unvested restricted stock ~~agreements,~~under the 2010 Plan have dividend and ~~other awards agreements.~~voting rights. The 2010 Plan ~~and the 2000 Plan (collectively the “Plans”) require~~required that the option price may not be less than the fair market value of the stock at the date the option is awarded. The option awards ~~under the Plans~~ expire on dates determined by the Board of Directors, but not later than ten years from the date of award. All of the stock options previously awarded under the 2010 Plan are fully vested. New shares are issued upon exercise of an option. The initial vesting period isfor restricted stock issued under the 2010 Plan was generally three to five years; however, the vesting period can be modified at the discretion of the Company’s Board of Directors. ~~Outstanding option awards under the Plans are exercisable until their expiration, however, no new options will be awarded under the 2000 Plan. New shares are issued upon exercise of an option.~~

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

Equity Compensation

For the three-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, the compensation cost recognized for equity compensation was ~~$109,000~~$110,000 and ~~$83,000, respectively. The~~$93,000, respectively, and the recognized tax benefit for equity compensation expense was ~~$40,000~~$30,000 and ~~$29,000,~~$25,000, respectively, for the same three-month ~~periods ended September 30, 2017 and 2016.~~periods. For the nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, the compensation cost recognized for equity compensation was ~~$310,000~~$319,000 and ~~$249,000, respectively. The~~$268,000, respectively, and the recognized tax benefit for equity compensation expense was ~~$113,000~~$85,000 and ~~$88,000,~~$69,000, respectively, for the nine-month periods ended September 30, ~~2017~~2020 and ~~2016.~~2019.

At September 30, ~~2017, the total~~2020, there was no unrecognized pre-tax compensation cost related to nonvested stock option awards. At September 30, 2020, the total compensation cost related to restricted stock awards not yet recorded was ~~$71,000.~~$573,000. This amount will be recognized over the next ~~2.75~~4.7 years and the weighted average period of recognizing these costs is expected to be ~~1.4~~1.2 years. At September 30, 2017, the total compensation cost related to restricted stock awards not yet recorded was $474,000. This amount will be recognized over the next 4.6 years and the weighted average period of recognizing these costs is expected to be 1.3 years.

Equity Plans Activity

Stock Options

There were no stock options awarded during the three-month and nine-month periods ended September 30, ~~2017~~2020 or September 30, ~~2016.~~ 2019. A summary of option activity under the Plans as of September 30, ~~2017~~2020 and changes during the period then ended is presented below:

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)		Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2017		186,023	$	12.92		3.7 years	$	741
Outstanding at January 1, 2020										29,958	$	8.79		4.4 years	$	182
Awarded		—		—		—		—		—		—		—		—
Exercised		41,898		8.38		—		—		—		—		—		—
Expired, forfeited or cancelled		38,333		22.88		—		—		—		—		—		—
Outstanding at September 30, 2017		105,792	$	11.10		3.7 years	$	366
Vested at September 30, 2017		76,845	$	11.80		2.2 years	$	233
Non-vested at September 30, 2017		28,947	$	9.24		7.0 years	$	133
Outstanding at September 30, 2020										29,958	$	8.79		3.6 years	$	35

Vested at September 30, 2020										29,958	$	8.79		3.6 years	$	35

Non-vested at September 30, 2020										—	$	—		—	$	0

Restricted Stock

There were no shares of restricted stock awarded during the three-month periods ended September 30, ~~2017~~2020 and ~~2016.~~2019. There were ~~24,982~~39,131 and ~~29,756~~33,968 shares of restricted stock awarded during the nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Award date fair value is determined by the market price of the Company’s common stock on the date of award ($10.17 on February 17, 2016, $10.40 on May 19, 2016, $14.76 on February 16, 2017, and $13.83 on May 18, 2017).

There were no restricted share awards that were fully vested during the three-month ~~period~~periods ended September 30, ~~2017~~2020 and ~~14,382~~2019. There were 21,678 restricted share awards that were fully vested during the nine-month period ended September 30, ~~2017. There were 947 restricted share awards that were fully vested during the three-month period ended September 30, 2016~~2020 and ~~19,166~~15,423 restricted share awards that were fully vested during the nine-month period ended September 30, ~~2016.~~2019. There were zero ~~and 2,950~~ restricted share awards forfeited during the three-month and nine-month periods ended September 30, ~~2017,~~2020, respectively. There were ~~386 and 1,414~~zero restricted share awards forfeited during the three-month and nine-month periods ended September 30, ~~2016,~~2019, respectively. The intrinsic value of nonvested restricted shares at September 30, ~~2017~~2020 was ~~$1,100,000~~$612,000.

Restricted Stock Shares Weighted
Average
Award
Date Fair
Value
Nonvested at January 1, 2017 71,824 $ 9.69
Awarded 24,982 14.65
Less: Vested 14,382 9.76
Less: Expired, forfeited or cancelled 2,950 10.01
Nonvested at September 30, 2017 79,474 $ 11.22

Restricted Stock	Shares			Weighted Average Award Date Fair Value
Nonvested at January 1, 2020		43,971		$	13.95
Awarded		39,131			12.45
Less: Vested		(21,678	)		13.63
Less: Expired, forfeited or cancelled		—			0
Nonvested at September 30, 2020		61,424		$	13.11

Other Equity Awards

There were no stock appreciation ~~rights;~~rights, restricted performance ~~stock;~~stock, unrestricted Company ~~stock;~~stock, or performance units awarded during the three-month or nine-month month periods ended September 30, ~~2017~~2020 or ~~2016~~2019 or outstanding at September 30, ~~2017~~2020 or December 31, ~~2016.~~2019.

The intrinsic value used for stock options and restricted stock awards was derived from the market price of the Company’s common stock of ~~$13.84~~$9.96 as of September 30, ~~2017.~~2020.

3. COMMITMENTS AND CONTINGENCIES

In the normal course of business there are outstanding various commitments to extend credit which are not reflected in the financial statements, including loan commitments of approximately ~~$11,321,000~~$35,729,000 and 0 standby letters of credit of at September 30, 2020 and loan commitments of approximately $40,324,000 and standby letters of credit of approximately ~~$191,000 at September 30, 2017 and loan commitments of approximately $19,728,000 and standby letters of credit of approximately $238,000~~$300,000 at December 31, ~~2016.~~2019. Such commitments relate primarily to real estate construction loans, revolving lines of credit and other commercial loans. However, all such commitments will not necessarily culminate in actual extensions of credit by the Company during ~~2017~~2020 as some of these are expected to expire without being fully drawn upon.

Standby letters of credit are commitments issued to guarantee the performance or financial obligation of a client to a third party. These guarantees are issued primarily relating to purchases of inventory, insurance programs, performance obligations to government agencies, or as security for real estate rents by commercial clients and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to clients and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The majority of all such commitments are collateralized. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant at September 30, ~~2017~~2020 or December 31, ~~2016.~~2019.

4. EARNINGS PER SHARE COMPUTATION

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period ~~(6,299,914~~(5,876,585 and ~~6,402,647~~5,868,307 shares for the three-month and nine-month periods ended September 30, ~~2017,~~2020, and ~~6,589,125~~5,852,463 and ~~6,800,016~~5,845,242 shares for the three-month and nine-month periods ended September 30, ~~2016)~~2019). Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or restricted stock, result in the issuance of common stock. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period plus the dilutive effect of stock based awards. There were ~~66,118~~9,719 and ~~78,922,~~14,386, respectively, dilutive shares for the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~32,515~~18,453 and ~~28,108,~~18,737, respectively, dilutive shares for the three-month and nine-month periods ended September 30, ~~2016.~~2019. For the three-month ~~periods ended September 30, 2017~~ and ~~2016, there were 32,448 and 99,308 stock options, respectively, that were excluded from the calculation as they were considered antidilutive. For the~~ nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, there were ~~32,448 and 99,308~~zero stock options ~~respectively,~~ that were excluded from the calculation as they were considered antidilutive. Earnings per share is retroactively adjusted for stock dividends and stock splits, if applicable, for all periods presented.

5. INVESTMENT SECURITIES

The amortized cost and estimated fair values of Available-for-Sale and Held-to-Maturity investment securities at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 consisted of the following (dollars in thousands):

Available-for-Sale


	September 30, 2017									September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Entities	$	219,853	$	1,768	$	(1,338	)	$	220,283	$	235,441	$	8,991	$	(745	)	$	243,687
Obligations of states and political subdivisions		22,354		618		(144	)		22,828		15,445		917		—			16,362
Corporate bonds		6,490		185		(7	)		6,668		6,748		120		—			6,868
Equity securities:
Corporate stock		51		49		—			100
	$	248,748	$	2,620	$	(1,489	)	$	249,879	$	257,634	$	10,028	$	(745	)	$	266,917

										December 31, 2019
										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt securities:
U.S. Government Agencies and Sponsored Entities										$	239,617	$	3,371	$	(1,101	)	$	241,887
Obligations of states and political subdivisions											13,308		212		(73	)		13,447
Corporate bonds											6,496		135		—			6,631
										$	259,421	$	3,718	$	(1,174	)	$	261,965

December 31, 2016
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
Debt securities:
U.S. Government Agencies and Sponsored Entities $ 229,118 $ 2,150 $ (1,483 ) $ 229,785
Obligations of states and political subdivisions 22,436 559 (383 ) 22,612
Corporate bonds 1,501 18 — 1,519
Equity securities:
Corporate stock 49 55 — 104
$ 253,104 $ 2,782 $ (1,866 ) $ 254,020

Net unrealized gains on available-for-sale investment securities totaling ~~$1,131,000~~$9,283,000 were recorded, net of ~~$452,000~~$2,744,000 in tax liabilities, as accumulated other comprehensive income within shareholders’ equity at September 30, ~~2017. Proceeds and gross~~2020. There were no sales or realized gains from the sale ~~call, and impairment~~ of available-for-sale investment securities ~~totaled $22,730,000 and $19,000, respectively,~~ for the three-month period ended September 30, ~~2017~~2020 and for the nine-month period ended September 30, ~~2017,~~2020, proceeds and gross realized gains from the sale ~~call,~~ and ~~impairment~~call of available-for-sale investment securities totaled ~~$31,433,000~~$4,229,000 and ~~$161,000,~~$38,000, respectively. There were no transfers of available-for-sale investment securities for the three-month and nine-month periods ended September 30, ~~2017.~~

2020.

Net unrealized gains on available-for-sale investment securities totaling ~~$916,000~~$2,544,000 were recorded, net of ~~$372,000~~$752,000 in tax liabilities, as accumulated other comprehensive ~~income~~loss within shareholders’ equity at December 31, ~~2016.~~2019. Proceeds and gross realized gains from the sale ~~call,~~ and ~~impairment~~call of available-for-sale investment securities totaled ~~$5,534,000~~$13,538,000 and ~~$33,000,~~$9,000, respectively, for the three-month period ended September 30, ~~2016~~2019 and for the nine-month period ended September 30, ~~2016,~~2019, proceeds and gross realized gains from the sale ~~call,~~ and ~~impairment~~call of available-for-sale investment securities totaled ~~$13,821,000~~$43,213,000 and ~~$314,000,~~$74,000, respectively. There were no transfers of available-for-sale investment securities for the three-month and nine-month periods ended September 30, ~~2016.~~2019.

Held-to-Maturity

September 30, 2017
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities:
U.S. Government Agencies and Sponsored Entities $ 404 $ 31 $ — $ 435

December 31, 2016 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Debt securities:
U.S. Government Agencies and Sponsored Entities $ 483 $ 38 $ — $ 521

Held-to-Maturity

September 30, 2020

Gross

Estimated

Amortized

Unrealized

Fair

Cost

Gains

Losses

Value

Debt securities:

U.S. Government Agencies and Sponsored Entities

—

December 31, 2019

Gross

Estimated

Amortized

Unrealized

Fair

Cost

Gains

Losses

Value

Debt securities:

U.S. Government Agencies and Sponsored Entities

248

—

266

There were no sales or transfers of held-to-maturity investment securities for the periods ended September 30, ~~2017~~2020 and September 30, ~~2016.~~ 2019. Investment securities with unrealized losses at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized and classified according to the duration of the loss period as follows (dollars in thousands):

September 30, 2017	Less than 12 Months					12 Months or More					Total

September 30, 2020																Less than 12 Months						12 Months or More					Total
																Fair Value			Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-Sale
																		��
Debt securities:
U.S. Government Agencies and Sponsored Entities																$	32,735		$	(255	)	$	35,932	$	(490	)	$	68,667	$	(745	)
																$	32,735		$	(255	)	$	35,932	$	(490	)	$	68,667	$	(745	)

December 31, 2019																Less than 12 Months						12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value			Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available-for-Sale

Debt securities:
U.S. Government Agencies and Sponsored Entities	$	107,598	$	(1,045	)		18,644		(293	)	$	126,242	$	(1,338	)	$	65,082		$	(438	)	$	38,380	$	(663	)	$	103,462	$	(1,101	)
Obligations of states and political subdivisions		1,136		(7	)		4,627		(137	)		5,763		(144	)		8,060			(73	)		—		—			8,060		(73	)
Corporate bonds		1,983		(7	)		—		—			1,983		(7	)
	$	110,717	$	(1,059	)	$	23,271	$	(430	)	$	133,988	$	(1,489	)	$	73,142		$	(511	)	$	38,380	$	(663	)	$	111,522	$	(1,174	)

December 31, 2016	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:
US Government Agencies and Sponsored Entities	$	111,870	$	(1,415	)	$	5,010	$	(68	)	$	116,880	$	(1,483	)
Obligations of states and political subdivisions		8,319		(383	)		—		—			8,319		(383	)
	$	120,189	$	(1,798	)	$	5,010	$	(68	)	$	125,199	$	(1,866	)

There were no held-to-maturity investment securities with unrealized losses as of September 30, ~~2017~~2020 or December 31, ~~2016.~~2019. At September 30, ~~2017,~~2020, the Company held ~~212~~205 securities of which ~~fifteen~~15 were in a loss position for less than twelve months and 22 were in a loss position for twelve months or more. Of the ~~fifteen~~15 securities in a loss position for ~~greater~~less than twelve months, ~~eleven~~all 15 were U.S. Government Agencies and Sponsored Entities securities and ~~four were obligations~~ of ~~states or political subdivisions.~~

~~At December 31, 2016,~~ the ~~Company held 219 securities of which 70 were in a loss position for less than twelve months and three were in a loss position for twelve months or more. Of the three~~22 securities that were in a loss position for greater than twelve months, all 22were USU.S. Government Agencies and Sponsored ~~Entities.~~ Entities securities.

At December 31, 2019, the Company held 205 securities of which 41 were in a loss position for less than twelve months and 29 were in a loss position for twelve months or more. These 29 securities consisted of mortgage-backed, corporate and municipal securities. The unrealized loss on the Company’s investment securities is primarily driven by interest rates. Because the decline in market value is attributable to a change in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until recovery of fair value, which may be until maturity, management does not consider these investments to be other-than-temporarily impaired.

The amortized cost and estimated fair values of investment securities at September 30, ~~2017~~2020 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		Available-for-Sale				Held-to-Maturity
									Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	—	$	—					$	2,278	$	2,309
After one year through five years		5,450		5,536						500		502
After five years through ten years		18,140		18,704						16,131		16,907
After ten years		5,254		5,256						3,284		3,512
		28,844		29,496						22,193		23,230
Investment securities not due at a single maturity date:
US Government Agencies and Sponsored Entities		219,853		220,283	$	404	$	435
Corporate stock		51		100		—		—
U.S. Government Agencies and Sponsored Entities										235,441		243,687	$	15	$	16
	$	248,748	$	249,879	$	404	$	435	$	257,634	$	266,917	$	15	$	16

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

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

At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the recorded investment in nonperforming loans ~~and leases~~ was ~~approximately $2,317,000 and $19,000, respectively.~~zero. Nonperforming loans ~~and leases~~ include all such loans ~~and leases~~ that are either placed on nonaccrual status or are 90 days past due as to principal or interest but still accrue interest because such loans are well-secured and in the process of collection. The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the contractual terms of the original loan agreement.

At September 30, ~~2017,~~2020 and December 31, 2019, the recorded investment in loans and leases that were considered to be impaired totaled $17,562,000, which includes $2,317,000 in nonaccrual loans and leases and $15,245,000 in performing loans and leases. Of the total impaired loans of $17,562,000, loans totaling $11,354,000 were deemed to require no specific reserve and loans totaling $6,208,000 were deemed to require a related valuation allowance of $404,000. At December 31, 2016, the recorded investment in loans and leases that were considered to be impaired totaled $17,297,000 with a related valuation allowance of $421,000.

~~At September 30, 2017 and December 31, 2016, the balance~~ in other real estate owned (“OREO”) was ~~$961,000 and $1,348,000, respectively.~~$846,000. At September 30, ~~2017,~~2020 the Company did not own any residential OREO properties nor were there any residential properties in the process of foreclosure. During the first ~~and second quarters~~nine months of ~~2017,~~2020, the Company did not add any new or sell any of the OREO properties, nor did we decrease the book value on any of the properties. ~~During the third quarter of 2017, the Company did not add any properties to OREO and sold one single commercial property in Sacramento County with a book value of $387,000 for a gain of $8,000.~~ The September 30, ~~2017~~2020 OREO balance of ~~$961,000~~$846,000 consisted of one parcel of land zoned for commercial use. Included in the other asset balance at June 30, 2020 was a repossessed automobile that was acquired in June 2020 with a book value of $19,000. The loan balance at the time of acquisition was $25,000 and was reduced by $6,000 though a charge to the allowance for loan losses. The asset was sold in early July 2020, for no further loss. Included in the other assets balance at December 30, 2019 is a repossessed automobile acquired in December 2019 with a book value of $517,000 that was sold in the first quarter of 2020 for no loss.

Nonperforming assets at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized as follows:

(dollars in thousands)	September 30, 2020			December 31, 2019
Nonaccrual loans that are current to terms (less than 30 days past due)	$	—		$	—
Nonaccrual loans that are past due		—			—
Loans past due 90 days and accruing interest		—			—
Other real estate owned		846			846
Other assets		—			517
Total nonperforming assets	$	846		$	1,363

Nonperforming loans to total loans		0.00	%		0.00	%
Total nonperforming assets to total assets		0.10	%		0.19	%

1415

(dollars in thousands) September 30,
2017 December 31,
2016

Nonaccrual loans and leases that are current to terms (less
than 30 days past due) $ 2,027 $ 19
Nonaccrual loans and leases that are past due 290 —
Loans and leases past due 90 days and accruing interest — —
Other assets — —
Other real estate owned 961 1,348
Total nonperforming assets $ 3,278 $ 1,367

Nonperforming loans and leases to total loans and leases 0.71 % 0.01 %
Total nonperforming assets to total assets 0.50 % 0.21 %

Impaired loans ~~and leases~~ as of and for the periods ended September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized as follows:

(dollars in thousands) As of September 30, 2017 As of December 31, 2016
Recorded
Investment Unpaid
Principal
Balance Related
Allowance Recorded
Investment Unpaid
Principal
Balance Related
Allowance

With no related allowance recorded:
Commercial $ 2,019 $ 2,692 $ — $ — $ — $ —
Real estate-commercial 9,004 9,583 — 10,910 11,540 —
Real estate-residential 331 418 — 334 421 —
Subtotal $ 11,354 $ 12,693 $ — $ 11,244 $ 11,961 $ —

With an allowance recorded:
Commercial $ — $ — $ — $ 157 $ 157 $ 11
Real estate-commercial 4,098 4,186 284 3,244 3,336 246
Real estate-multi-family 476 476 20 482 482 2
Real estate-residential 1,634 1,634 100 1,813 1,813 133
Agriculture — — — 357 357 29
Subtotal $ 6,208 $ 6,296 $ 404 $ 6,053 $ 6,145 $ 421

Total:
Commercial $ 2,019 $ 2,692 $ — $ 157 $ 157 $ 11
Real estate-commercial 13,102 13,769 283 14,154 14,876 246
Real estate-multi-family 476 476 20 482 482 2
Real estate-residential 1,965 2,052 101 2,147 2,234 133
Agriculture — — — 357 357 29
$ 17,562 $ 18,989 $ 404 $ 17,297 $ 18,106 $ 421

(dollars in thousands)	As of September 30, 2020						As of December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate-commercial	$	5,102	$	5,236	$	—	$	5,530	$	5,664	$	—
Real estate-residential		313		400		—		318		405		—
Subtotal	$	5,415	$	5,636	$	—	$	5,848	$	6,069	$	—

With an allowance recorded:

Real estate-commercial	$	1,565	$	1,625	$	121	$	1,622	$	1,693	$	133
Real estate-residential		128		128		7		134		134		9
Subtotal	$	1,693	$	1,753	$	128	$	1,756	$	1,827	$	142

Total:

Real estate-commercial	$	6,667	$	6,861	$	121	$	7,152	$	7,357	$	133
Real estate-residential		441		528		7		452		539		9
	$	7,108	$	7,389	$	128	$	7,604	$	7,896	$	142

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

Average Recorded Investments
for the three months ended Average Recorded Investments
for the nine months ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016

Commercial $ 2,369 $ 32 $ 2,391 $ 33
Real estate-commercial 13,139 15,369 13,220 15,202
Real estate-multi-family 477 484 479 486
Real estate-residential 1,973 2,169 2,003 2,182
Agriculture — 362 — 365
Consumer — 35 — 36
Total $ 17,958 $ 18,451 $ 18,093 $ 18,304

	Average Recorded Investments for the three months ended				Average Recorded Investments for the nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Real estate-commercial	$	6,761	$	7,231	$	6,798	$	7,347
Real estate-residential		451		460		447		465
Total	$	7,212	$	7,691	$	7,245	$	7,812

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

Interest Income Recognized
for the three months ended Interest Income Recognized
for the nine months ended
September 30,
2017 September 30,
2016 September 30,
2017 September 30,
2016

Commercial $ 115 $ — $ 114 $ 2
Real estate-commercial 320 123 503 567
Real estate-multi-family 17 15 25 25
Real estate-residential 39 24 76 76
Agriculture — 6 — 16
Consumer 2 — 2 —
Total $ 493 $ 168 $ 720 $ 686

	Interest Income Recognized for the three months ended				Interest Income Recognized for the nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Real estate-commercial	$	107	$	110	$	301	$	329
Real estate-residential		5		7		19		19
Total	$	112	$	117	$	320	$	348

7. TROUBLED DEBT RESTRUCTURINGS

During the three and nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, there were no loans that were modified as troubled debt ~~restructurings.~~

restructurings (“TDRs”). There were no payment defaults on ~~troubled debt restructurings~~TDRs within 12 months following the modification for the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~September 30, 2016.~~2019. At September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were no ~~unfunded commitments on those loans considered~~ troubled debt ~~restructures. See also “Impaired Loans and Leases” in Item 2.~~restructured loans that had unfunded commitments.

8. ALLOWANCE FOR LOAN ~~AND LEASE~~ LOSSES

The Company’s loan ~~and lease~~ portfolio allocated by management’s internal risk ratings as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized ~~below:~~below (Commercial “Pass” loans includes $75,804,000 in Paycheck Protection Program (“PPP”) loans at September 30, 2020):

September 30, 2017 Credit Risk Profile by Internally Assigned Grade
(dollars in thousands) Real Estate
Commercial Commercial Multi-family Construction Residential
Grade:
   Pass $ 23,617 $ 163,916 $ 74,619 $ 10,548 $ 15,169
   Watch 106 23,738 4,402 — 1,447
   Special mention 1,011 2,302 — — 712
   Substandard — 290 — — —
   Doubtful 2,019 — — — —
          Total $ 26,753 $ 190,246 $ 79,021 $ 10,548 $ 17,328

Credit Risk Profile by Internally Assigned Grade
Other Credit Exposure
Leases Agriculture Consumer Total
Grade:
   Pass $ 249 $ 1,685 $ 869 $ 290,672
   Watch — — 237 29,930
   Special mention — — 70 4,095
   Substandard — — 10 300
   Doubtful — — — 2,019
          Total $ 249 $ 1,685 $ 1,186 $ 327,016

December 31, 2016	Credit Risk Profile by Internally Assigned Grade
September 30, 2020											Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)													Real Estate
											Commercial		Commercial		Multi-family		Construction		Residential
Grade:
Pass											$	115,561	$	191,302	$	42,739	$	30,193	$	22,958
Watch												195		32,501		—		311		4,762
Special mention												4,400		124		—		—		—
Substandard												—		1,202		—		—		—
Doubtful												—		—		—		—		—
Total											$	120,156	$	225,129	$	42,739	$	30,504	$	27,720

											Credit Risk Profile by Internally Assigned Grade
											Other Credit Exposure
											Agriculture		Consumer						Total
Grade:
Pass											$	6,138	$	28,053					$	436,944
Watch												—		107						37,876
Special mention												—		—						4,524
Substandard												—		—						1,202
Doubtful												—		—						—
Total											$	6,138	$	28,160					$	480,546

December 31, 2019											Credit Risk Profile by Internally Assigned Grade
(dollars in thousands)			Real Estate										Real Estate
	Commercial		Commercial		Multi-family		Construction		Residential		Commercial		Commercial		Multi-family		Construction		Residential
Grade:
Pass	$	31,733	$	166,769	$	68,615	$	6,770	$	12,773	$	38,085	$	208,140	$	56,818	$	23,169	$	28,570
Watch		157		21,328		4,758		2,410		1,773		4,915		6,329		—		—		610
Special mention		721		3,032		—		—		710		19		—		—		—		—
Substandard		2,763		—		—		—		462		—		135		—		—		—
Doubtful or loss		—		—		—		—		—		—		—		—		—		—
Total	$	35,374	$	191,129	$	73,373	$	9,180	$	15,718	$	43,019	$	214,604	$	56,818	$	23,169	$	29,180

											Credit Risk Profile by Internally Assigned Grade
											Other Credit Exposure
											Agriculture		Consumer						Total
Grade:
Pass											$	6,479	$	26,317					$	387,578
Watch												—		75						11,929
Special mention												—		—						19
Substandard												—		—						135
Doubtful												—		—						—
Total											$	6,479	$	26,392					$	399,661

Credit Risk Profile by Internally Assigned Grade
Other Credit Exposure
Leases Agriculture Consumer Total
Grade:
   Pass $ 404 $ 1,945 $ 1,093 $ 290,102
   Watch — 357 316 31,099
   Special mention — — 219 4,682
   Substandard — — 22 3,247
   Doubtful or loss — — — —
          Total $ 404 $ 2,302 $ 1,650 $ 329,130

Tables above do not include loan fees of $2,283,000 at September 30, 2020 and $721,000 at December 31, 2019.

The allocation of the Company’s allowance for loan ~~and lease~~ losses and by portfolio segment and by impairment methodology are summarized ~~below:~~below (Commercial loans includes $75,804,000 in PPP loans at September 30, 2020, and do not carry any associated allowance for loan loss, as they are 100% guaranteed by the Small Business Administration (“SBA”)):

September 30, 2017
(dollars in thousands) Real Estate Other
Commercial Commercial Multi-Family Construction Residential Leases Agriculture Consumer Unallocated Total

Allowance for Loan
and Lease Losses

Beginning balance, January 1, 2017 $ 855 $ 2,050 $ 851 $ 446 $ 253 $ 1 $ 64 $ 24 $ 278 $ 4,822
Provision for loan losses 240 (16 ) 147 34 (22 ) (40 ) (35 ) (11 ) 3 300
Loans charged-off (673 ) — — — — — — — — (673 )
Recoveries 5 54 — — — 39 — 4 — 102

Ending balance, September 30, 2017 $ 427 $ 2,088 $ 998 $ 480 $ 231 $ — $ 29 $ 17 $ 281 $ 4,551

Ending balance:
Individually evaluated for impairment $ — $ 284 $ 20 $ — $ 100 $ — $ — $ — $ — $ 404

Ending balance:
Collectively evaluated for impairment $ 427 $ 1,804 $ 978 $ 480 $ 131 $ — $ 29 $ 17 $ 281 $ 4,147

Loans

Ending balance $ 26,753 $ 190,246 $ 79,021 $ 10,548 $ 17,328 $ 249 $ 1,685 $ 1,186 $ — $ 327,016

Ending balance:
Individually evaluated for impairment $ 2,019 $ 13,102 $ 476 $ — $ 1,965 $ — $ — $ — $ — $ 17,562

Ending balance:
Collectively evaluated for impairment $ 24,734 $ 177,144 $ 78,545 $ 10,548 $ 15,363 $ 249 $ 1,685 $ 1,186 $ — $ 309,454

Allowance for Loan and Lease Losses

Beginning balance, June 30, 2017 $ 916 $ 2,091 $ 789 $ 457 $ 268 $ 1 $ 59 $ 19 $ 281 $ 4,881
Provision for loan losses 182 (4 ) 209 23 (37 ) (40 ) (30 ) (3 ) — 300
Loans charged off (673 ) — — — — — — — — (673 )
Recoveries 2 1 — — — 39 — 1 — 43

Ending balance, September 30, 2017 $ 427 $ 2,088 $ 998 $ 480 $ 231 $ — $ 29 $ 17 $ 281 $ 4,551

September 30, 2020
(dollars in thousands)				Real Estate										Other
	Commercial			Commercial		Multi-family			Construction		Residential			Agriculture			Consumer			Unallocated		Total
Allowance for Loan Losses

Beginning balance, January 1, 2020	$	950		$	1,906	$	329		$	986	$	281		$	107		$	334		$	245	$	5,138
Provision for loan losses		62			1,136		12			189		44			(19	)		59			2		1,485
Loans charged-off		(27	)		—		—			—		—			—			(6	)		—		(33	)
Recoveries		13			13		—			—		—			—			—			—		26

Ending balance, September 30, 2020	$	998		$	3,055	$	341		$	1,175	$	325		$	88		$	387		$	247	$	6,616

Ending balance:
Individually evaluated for impairment	$	—		$	121	$	—		$	—	$	7		$	—		$	—		$	—	$	128

Ending balance:
Collectively evaluated for impairment	$	998		$	2,934	$	341		$	1,175	$	318		$	88		$	387		$	247	$	6,488

Loans

Ending balance	$	120,156		$	225,129	$	42,739		$	30,504	$	27,720		$	6,138		$	28,160		$	—	$	480,546

Ending balance:
Individually evaluated for impairment	$	—		$	6,667	$	—		$	—	$	441		$	—		$	—		$	—	$	7,108

Ending balance:
Collectively evaluated for impairment	$	120,156		$	218,462	$	42,739		$	30,504	$	27,279		$	6,138		$	28,160		$	—	$	473,438

Allowance for Loan Losses

Beginning balance, July 1, 2020	$	927		$	2,708	$	364		$	1,105	$	359		$	96		$	392		$	247	$	6,198
Provision for loan losses		98			347		(23	)		70		(34	)		(8	)		(5	)		—		445
Loans charged off		(27	)		—		—			—		—			—			—			—		(27	)
Recoveries		—			—		—			—		—			—			—			—		—

Ending balance, September 30, 2020	$	998		$	3,055	$	341		$	1,175	$	325		$	88		$	387		$	247	$	6,616

December 31, 2016
(dollars in thousands) Real Estate Other
Commercial Commercial Multi-Family Construction Residential Leases Agriculture Consumer Unallocated Total
Ending balance:
Individually evaluated for impairment $ 11 $ 246 $ 2 $ — $ 133 $ — $ 29 $ — $ — $ 421
Ending balance:
Collectively evaluated for impairment $ 844 $ 1,804 $ 849 $ 446 $ 120 $ 1 $ 35 $ 24 $ 278 $ 4,401

Loans

Ending balance $ 35,374 $ 191,129 $ 73,373 $ 9,180 $ 15,718 $ 404 $ 2,302 $ 1,650 $ — $ 329,130
Ending balance:
Individually evaluated for impairment $ 157 $ 14,154 $ 482 $ — $ 2,147 $ — $ 357 $ — $ — $ 17,297

Ending balance:
Collectively evaluated for impairment $ 35,217 $ 176,975 $ 72,891 $ 9,180 $ 13,571 $ 404 $ 1,945 $ 1,650 $ — $ 311,833

September 30, 2016
December 31, 2019
(dollars in thousands)				Real Estate										Other															Real Estate											Other
	Commercial			Commercial			Multi-Family		Construction		Residential			Leases		Agriculture			Consumer			Unallocated		Total			Commercial		Commercial			Multi-family			Construction		Residential			Agriculture			Consumer			Unallocated			Total
Allowance for Loan and Lease Losses
Allowance for Loan Losses

Beginning balance, January 1, 2016	$	860		$	2,369		$	228	$	813	$	319		$	1	$	77		$	78		$	230	$	4,975
Ending balance																											$	950	$	1,906		$	329		$	986	$	281		$	107		$	334		$	245		$	5,138

Ending balance:
Individually evaluated for impairment																											$	—	$	133		$	—		$	—	$	9		$	—		$	—		$	—		$	142

Ending balance:
Collectively evaluated for impairment																											$	950	$	1,773		$	329		$	986	$	272		$	107		$	334		$	245		$	4,996

Loans

Ending balance																											$	43,019	$	214,604		$	56,818		$	23,169	$	29,180		$	6,479		$	26,392		$	—		$	399,661

Ending balance:
Individually evaluated for impairment																											$	—	$	7,152		$	—		$	—	$	452		$	—		$	—		$	—		$	7,604

Ending balance:
Collectively evaluated for impairment																											$	43,019	$	207,452		$	56,818		$	23,169	$	28,728		$	6,479		$	26,392		$	—		$	392,057

September 30, 2019
(dollars in thousands)																													Real Estate											Other
																											Commercial		Commercial			Multi-family			Construction		Residential			Agriculture			Consumer			Unallocated			Total
Allowance for Loan Losses

Beginning balance, January 1, 2019																											$	668	$	2,114		$	564		$	267	$	220		$	88		$	192		$	279		$	4,392
Provision for loan losses		(769	)		(64	)	250			39		(53	)		—		(13	)		(97	)		39		(668	)		257		(184	)		(149	)		339		105			29			92			(9	)		480
Loans charged-off		—			(68	)	—			—		—			—		—			—			—		(68	)		—		—			—			—		—			—			—			—			—
Recoveries		658			14		—			—		—			—		—			72			—		744			5		8			—			—		—			—			68			—			81

Ending balance, September 30, 2016	$	749		$	2,251		$	478	$	852	$	266		$	1	$	64		$	53		$	269	$	4,983
Ending balance, September 30, 2019																											$	930	$	1,938		$	415		$	606	$	325		$	117		$	352		$	270		$	4,953

Allowance for Loan and Lease Losses
Allowance for Loan Losses

Beginning balance, June 30, 2016	$	808		$	2,647		$	329	$	725	$	283		$	1	$	73		$	60		$	206	$	5,132
Beginning balance, July 1, 2019																											$	794	$	2,085		$	390		$	454	$	358		$	131		$	318		$	231		$	4,761
Provision for loan losses		(644	)		(330	)	149			127		(17	)		—		(9	)		(7	)		63		(668	)		134		(149	)		25			152		(33	)		(14	)		(34	)		39			120
Loans charged off		—			(68	)	—			—		—			—		—			—			—		(68	)		—		—			—			—		—			—			—			—			—
Recoveries		585			2		—			—		—			—		—			—			—		587			2		2			—			—		—			—			68			—			72

Ending balance, September 30, 2016	$	749		$	2,251		$	478	$	852	$	266		$	1	$	64		$	53		$	269	$	4,983
Ending balance, September 30, 2019																											$	930	$	1,938		$	415		$	606	$	325		$	117		$	352		$	270		$	4,953

The Company’s aging analysis of the loan ~~and lease~~ portfolio at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 are summarized below:

September 30, 2017 Past Due
(dollars in thousands) Past Due Greater Than
30-59 Days 60-89 Days Greater Than Total Past 90 Days and
Past Due Past Due 90 Days Due Current Total Loans Accruing Nonaccrual
Commercial:
Commercial $ — $ — $ — $ — $ 26,753 $ 26,753 $ — $ 2,019
Real estate:
Commercial — 290 — 290 189,956 190,246 — 290
Multi-family — — — — 79,021 79,021 — —
Construction — — — — 10,548 10,548 — —
Residential — — — — 17,328 17,328 — —

Other:
Leases — — — — 249 249 — —
Agriculture — — — — 1,685 1,685 — —
Consumer — — — — 1,186 1,186 — 8

Total $ — $ 290 $ — $ 290 $ 326,726 $ 327,016 $ — $ 2,317

December 31, 2016 Past Due
(dollars in thousands) Past Due Greater Than
30-59 Days 60-89 Days Greater Than Total Past 90 Days and
Past Due Past Due 90 Days Due Current Total Loans Accruing Nonaccrual
Commercial:
Commercial $ — $ — $ — $ — $ 35,374 $ 35,374 $ — $ —
Real estate:
Commercial — — — — 191,129 191,129 — —
Multi-family — — — — 73,373 73,373 — —
Construction — — — — 9,180 9,180 — —
Residential — — — — 15,718 15,718 — —

Other:
Leases — — — — 404 404 — —
Agriculture — — — — 2,302 2,302 — —
Consumer — — — — 1,650 1,650 — 19

Total $ — $ — $ — $ — $ 329,130 $ 329,130 $ — $ 19

September 30, 2020
(dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Past Due Greater Than 89 Days		Total Past Due		Current		Total Loans		Past Due Greater Than 89 Days and Accruing		Nonaccrual
Commercial:
Commercial	$	—	$	—	$	—	$	—	$	120,156	$	120,156	$	—	$	—

Real estate:
Commercial		—		—		—		—		225,129		225,129		—		—
Multi-family		—		—		—		—		42,739		42,739		—		—
Construction		—		—		—		—		30,504		30,504		—		—
Residential		—		—		—		—		27,720		27,720		—		—

Other:
Agriculture		—		—		—		—		6,138		6,138		—		—
Consumer		—		—		—		—		28,160		28,160		—		—

Total	$	—	$	—	$	—	$	—	$	480,546	$	480,546	$	—	$	—

December 31, 2019
(dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Past Due Greater Than 89 Days		Total Past Due		Current		Total Loans		Past Due Greater Than 89 Days and Accruing		Nonaccrual
Commercial:
Commercial	$	—	$	—	$	—	$	—	$	43,019	$	43,019	$	—	$	—

Real estate:
Commercial		—		—		—		—		214,604		214,604		—		—
Multi-family		—		—		—		—		56,818		56,818		—		—
Construction		—		—		—		—		23,169		23,169		—		—
Residential		—		—		—		—		29,180		29,180		—		—

Other:
Agriculture		—		—		—		—		6,479		6,479		—		—
Consumer		75		—		—		—		26,317		26,392		—		—

Total	$	75	$	—	$	—	$	—	$	399,586	$	399,661	$	—	$	—

The Federal Deposit Insurance Corporation (the “FDIC”) is encouraging financial institutions, like American River Bank, to provide borrowers affected in a variety of ways by the COVID-19 outbreak with payment accommodations that facilitate their ability to work through the immediate impact of the virus. Such assistance provided in a prudent manner to borrowers facing short-term setbacks could help the borrower and our community to recover. The FDIC indicated that these loan accommodation programs should be ultimately targeted toward loan repayment, but that if provided in a prudent manner such programs can help borrowers and communities recover from short-term setbacks.

The FDIC suggested that financial institutions should consider ways to address any deferred or skipped payments such as extending the original maturity date or by making those payments due in a balloon payment at the maturity date of the loan. During the second and third quarters of 2020, the Company made arrangements with some of its borrowers to defer principal and interest payments from three to six months and extend the original maturities by a like term, defer principal and interest payments from three to six months, with the amount deferred due at maturity, and defer principle payments for six months, with the amount deferred due at maturity. These arrangements are not considered TDRs as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), provided relief from certain requirements under U.S. GAAP. Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for TDRs under Accounting Standards Codification (“ASC”) 310-40 in certain situations. All of these arrangements met such requirements. The Company continues to accrue interest on all of the loan deferrals. The amount of deferred loans at June 30, 2020 totaled $96,465,000. This balance has been reduced by paydowns, payoffs, or loans returning to normal payments, to $39,576,000 as of September 30, 2020.

9. ~~BORROWING ARRANGEMENTS~~LEASES

The Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, using the alternative transition method whereby comparative periods were not restated. No cumulative effect adjustment to the opening balance of retained earnings was required. The Company also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things allowed the Company to carry forward the historical lease classifications. Additionally, the Company elected the hindsight practical expedient to determine the lease term for existing leases.

The Company leases nine locations for administrative offices and branch locations. All leases were classified as operating leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term. The Company elected to use the practical expedient to not recognize short-term leases on the consolidated balance sheet and instead account for them as executory contracts.

Certain leases include options to renew, with renewal terms that can extend the lease term, typically for five years. Lease assets and liabilities include related options that are reasonably certain of being exercised, however, in the case of those leases that have renewal options, the Company is not including those additional lease terms as the rates are undeterminable and it has been the Company’s historical practice to renegotiate lease terms upon expiration of the original lease terms. The depreciable life of leased assets is limited by the expected lease term.

Adoption of this standard resulted in the Company recognizing a right of use asset and a corresponding lease liability of $3,570,000 on January 1, 2019.

Supplemental lease information at or for the nine months ended September 30, 2020 is as follows:

Balance Sheet

Operating lease asset classified as other assets	$	2,396,000
Operating lease liability classified as other liabilities		2,593,000

Income Statement

Operating lease cost classified as occupancy and equipment expense	$	576,000
Weighted average lease term, in years		5.18
Weighted average discount rate (1)		3.01%
Operating cash flows	$	585,000

(1)	The discount rate was developed by using the fixed rate credit advance borrowing rate at the Federal Home Loan Bank of San Francisco for a term correlating to the remaining life of each lease.

A maturity analysis of the Company’s lease liabilities at September 30, 2020 was as follows:

	Balance
October 1, 2020 to December 31, 2020	$	194,000
January 1, 2021 to December 31, 2021		777,000
January 1, 2022 to December 31, 2022		753,000
January 1, 2023 to December 31, 2023		329,000
January 1, 2024 to December 31, 2024		322,000
Thereafter		985,000
Total lease payments		3,360,000
Less: Interest		(767,000	)
Present value of lease liabilities	$	2,593,000

10. BORROWING ARRANGEMENTS

At September 30, ~~2017,~~2020, the Company had ~~$17,000,000~~$17,000,000 of unsecured short-term borrowing arrangements with two of its correspondent banks. There were no advances under the borrowing arrangements as of September 30, ~~2017~~2020 or December 31, ~~2016.~~2019.

The Company has a line of credit available with the Federal Home Loan Bank of San Francisco (the “FHLB”) which is secured by pledged mortgage loans and investment securities. Borrowings may include overnight advances as well as loans with terms of up to thirty years. Advances (both short-term and long-term) totaling ~~$15,500,000~~$25,500,000 were outstanding from the FHLB at September 30, ~~2017,~~2020, bearing interest rates ranging from ~~1.18%~~0.00% to ~~1.90%~~3.17% and maturing between ~~July 20, 2018~~October 27, 2020 and ~~April 12, 2021.~~November 24, 2023. Advances totaling ~~$15,500,000~~$19,500,000 were outstanding from the FHLB at December 31, ~~2016,~~2019, bearing interest rates ranging from ~~1.01%~~1.31% to ~~1.52%~~3.17% and maturing between ~~May 22, 2017~~January 1, 2020 and ~~July 13, 2020.~~November 24, 2023. Remaining amounts available under the borrowing arrangement with the FHLB at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 totaled ~~$112,239,000~~$139,246,000 and ~~$100,187,000,~~$143,406,000, respectively. In addition, the Company has a secured borrowing agreement with the Federal Reserve Bank of San Francisco. The borrowing can be secured by pledging selected loans and investment securities. Borrowings generally are short-term including overnight advances as well as loans with terms up to ninety days. Amounts available under this borrowing arrangement at September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were ~~$7,281,000~~$6,345,000 and ~~$11,068,000,~~$8,642,000, respectively. There were no advances outstanding under this borrowing arrangement as of September 30, ~~2017~~2020 and December 31, ~~2016.~~2019. On April 9, 2020, the Federal Reserve Bank created the Paycheck Protection Program Lending Facility (“PPPLF”) to allow commercial lenders to pledge Paycheck Protection Program (“PPP”) loans as collateral to borrow against and help commercial lenders fund PPP loans. The term of these loans would be equal to the term of the PPP loans pledged and could be prepaid earlier with no prepayment penalty. At September 30, 2020, an advance totaling $1,960,000 was outstanding under the PPPLF. The Company has pledged $1,960,000 in PPP loans against this advance that matures on April 10, 2022 at a rate of 0.35%. The advance was paid off in full on October 13, 2020. The Company can pledge its remaining unpledged PPP loans as collateral for additional advances, if needed, until December 31, 2020.

~~10.~~ 11. INCOME TAXES

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

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if applicable, is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statement of income. There have been no unrecognized tax benefits or accrued interest and penalties for the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~2016.~~2019.

2122

~~11.~~ 12. FAIR VALUE MEASUREMENTS

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of September 30, ~~2017~~2020 and December 31, ~~2016.~~2019. They indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value measurement is the exchange price to sell the asset or transfer the liability (exit price) in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In ~~general,~~that regard, the authoritative guidance establishes a fair ~~values determined by Level 1~~value hierarchy for valuation inputs ~~utilize~~that gives the highest priority to quoted prices ~~(unadjusted)~~ in active markets for identical assets or liabilities ~~that~~and the ~~Company has the ability~~lowest priority to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputsunobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities ~~in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable~~measured at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may ~~fall into~~be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different ~~levels of~~methodologies or assumptions to determine the fair value ~~hierarchy. In such cases, the level~~of certain financial instruments could result in ~~the~~a different estimate of fair value ~~hierarchy within which~~at the reporting date.

Securities classified as available-for-sale are reported at fair value ~~measurement in its entirety falls has been determined based on~~utilizing Level 1 and Level 2 inputs. For these securities, the ~~lowest level input that is significant to the~~Company obtains fair value ~~measurement in its entirety.~~measurements from an independent pricing service. The ~~Company’s assessment of the significance of a particular input to the~~ fair value ~~measurement in its entirety requires judgment~~measurements consider observable data that may include market spreads, cash flows, the United States Treasury yield curve, live trading levels, trade execution data, dealer quotes, market consensus prepayments speeds, credit information and ~~considers factors specific to~~ the ~~asset or liability.~~

~~Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data~~security’s terms 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.

conditions, among other items. The carrying amounts and estimated fair values of the Company’s financial instruments are as follows (dollars in thousands):

Carrying Fair Value Measurements Using:
September 30, 2017 Amount Level 1 Level 2 Level 3 Total

Financial assets:
Cash and due from banks $ 37,233 $ 37,233 $ — $ — $ 37,233
Interest-bearing deposits in banks 1,248 — 1,248 — 1,248
Available-for-sale securities 249,879 54 249,825 — 249,879
Held-to-maturity securities 404 — 435 — 435
FHLB stock 3,932 N/A N/A N/A N/A
Net loans and leases: 322,238 — 330,342 330,342
Accrued interest receivable 1,919 — 1,000 919 1,919
Financial liabilities:
Deposits:
Noninterest-bearing $ 205,938 $ 205,938 $ — $ — $ 205,938
Savings 66,482 66,482 — — 66,482
Money market 131,545 131,545 — — 131,545
NOW accounts 66,707 66,707 — — 66,707
Time Deposits 80,270 — 86,270 — 86,270
Short-term borrowings 2,000 2,000 — — 2,000
Long-term borrowings 13,500 — 13,474 — 13,474
Accrued interest payable 62 2 60 — 62

2223

Carrying Fair Value Measurements Using:
December 31, 2016 Amount Level 1 Level 2 Level 3 Total
Financial assets:
Cash and due from banks $ 27,589 $ 27,589 $ — $ — $ 28,589
Interest-bearing deposits in banks 999 — 999 — 999
Available-for-sale securities 254,020 60 253,960 — 254,020
Held-to-maturity securities 483 — 521 — 521
FHLB stock 3,779 N/A N/A N/A N/A
Net loans and leases: 324,086 — — 329,110 329,110
Accrued interest receivable 1,824 — 937 887 1,824
Financial liabilities:
Deposits:
Noninterest-bearing $ 201,113 $ 201,113 $ — $ — $ 201,113
Savings 64,740 64,740 — — 64,740
Money market 131,342 131,342 — — 131,342
NOW accounts 64,652 64,652 — — 64,652
Time Deposits 82,959 — 83,720 — 83,720
Short-term borrowings 3,500 3,500 — — 3,500
Long-term borrowings 12.000 — 12,110 — 12,110
Accrued interest payable 62 — 62 — 62


	Carrying		Fair Value Measurements Using:
September 30, 2020	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	16,559	$	16,559	$	—	$	—	$	16,559
Interest-bearing deposits in banks		56,469		54,723		1,746		—		56,469
Available-for-sale securities		266,917		—		266,917		—		266,917
Held-to-maturity securities		15		—		16		—		16
Net loans		471,647		—		—		479,071		479,071
Accrued interest receivable		3,710		—		1,024		2,686		3,710

Financial liabilities:
Deposits:
Noninterest-bearing	$	295,862	$	295,862	$	—	$	—	$	295,862
Savings		85,937		85,937		—		—		85,937
Money market		193,647		193,647		—		—		193,647
Interest checking		84,390		84,390		—		—		84,390
Time Deposits		68,995		—		69,382		—		69,382
Short-term borrowings		12,000		12,000		—		—		12,000
Long-term borrowings		15,460		—		15,966		—		15,966
Accrued interest payable		51		—		51		—		51


	Carrying		Fair Value Measurements Using:
December 31, 2019	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	15,258	$	15,258	$	—	$	—	$	15,258
Interest-bearing deposits in banks		2,552		806		1,746		—		2,552
Available-for-sale securities		261,965		—		261,965		—		261,965
Held-to-maturity securities		248		—		266		—		266
FHLB stock		4,259		—		—		—		—
Net loans:		393,802		—		—		396,089		396,089
Accrued interest receivable		1,929		—		780		1,149		1,929
Financial liabilities:

Deposits:
Noninterest-bearing	$	227,055	$	227,055	$	—	$	—	$	227,055
Savings		75,820		75,820		—		—		75,820
Money market		158,319		158,319		—		—		158,319
NOW accounts		69,834		69,834		—		—		69,834
Time Deposits		73,809		—		73,924		—		73,924
Short-term borrowings		9,000		9,000		—		—		9,000
Long-term borrowings		10,500		—		10,714		—		10,714
Accrued interest payable		120		—		120		—		120

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

~~The following methods and assumptions were used by the Company to estimate the fair values of its financial instruments at September 30, 2017 and December 31, 2016:~~

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

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

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

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

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

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

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

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

~~Off-balance sheet instruments~~: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments was not material at September 30, 2017 and December 31, 2016.

Assets and liabilities measured at fair value on a recurring and non-recurring basis along with any related gain or loss recognized in the income statement due to fair value changes are presented in the following table:

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

September 30, 2017
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
US Government Agencies and Sponsored Agencies $ 220,283 $ — $ 220,283 $ — $ —
Obligations of states and political subdivisions 22,828 — 22,828 — —
Corporate bonds 6,668 — 6,668 — —
Corporate stock 100 54 46 — —
Total recurring $ 249,879 $ 54 $ 249,825 $ — $ —

Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial $ 2,019 $ — $ — $ 2,019 $ (673 )
Real estate:
Commercial 3,482 — — 3,482 —
Residential 330 — — 330 —
Other real estate owned
Land 961 — — 961 —
Total nonrecurring $ 6,792 $ — $ — $ 6,792 $ (673 )

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

December 31, 2016
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
US Government Agencies and Sponsored Entities $ 229,785 $ — $ 229,785 $ — $ —
Corporate Debt securities 1,519 — 1,519
Obligations of states and political subdivisions 22,612 — 22,612 — —
Corporate stock 104 60 44 — —
Total recurring $ 254,020 $ 60 $ 253,960 $ — $ —

Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Real estate:
Commercial $ 3,535 $ — $ — $ 3,535 $ —
Residential 334 �� — — 334 —

Other real estate owned
Commercial 386 — — 386 (25 )
Land 962 — — 962 173

Description			Fair Value Measurements Using:						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)
September 30, 2020
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S. Government Agencies and Sponsored Agencies	$	243,680	$	—	$	243,680	$	—	$	—
Obligations of states and political subdivisions		16,362		—		16,362		—		—
Corporate bonds		6,868		—		6,868		—		—
Total recurring	$	266,917	$	—	$	266,917	$	—	$	—

Assets and liabilities measured on a nonrecurring basis:

Other real estate owned Land	$	846	$	—	$	—	$	846	$	—
Total nonrecurring	$	846	$	—	$	—	$	846	$	—

~~There~~

At September 30, 2020, there were no ~~significant transfers between Levels 1 and 2 during~~impaired loans carried at fair value as the ~~three-month and nine-month periods ended September 30, 2017 or the twelve months ended~~appraised value exceeded carrying value.

Description			Fair Value Measurements Using:						Total Gains
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3		(Losses)
December 31, 2019
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S. Government Agencies and Sponsored Agencies	$	241,887	$	—	$	241,887	$	—	$	—
Obligations of states and political subdivisions		13,447		—		13,447		—		—
Corporate bonds		6,631		—		6,631		—		—
Total recurring	$	261,965	$	—	$	261,965	$	—	$	—

Assets and liabilities measured on a nonrecurring basis:
Other assets:
Repossessed asset	$	517	$	—	$	—	$	517	$	—

Other real estate owned Land		846		—		—		846		—
Total nonrecurring	$	1,363	$	—	$	—	$	1,363	$	—

At December 31, ~~2016.~~2019, there were no impaired loans carried at fair value as the appraised value exceeded carrying value.

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

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

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

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

~~12.~~

13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In ~~May 2014,~~June 2016, the Financial Accounting Standards Board (the “FASB”) and the International Accounting Standards Board (the “IASB”) jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP and International Financial Reporting Standards (“IFRS”). Previous revenue recognition guidance in GAAP consisted of broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved disclosure requirements; and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, ~~“Revenue from Contracts with Customers.”~~ The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard was initially effective for public entities for interim and annual reporting periods beginning after December 15, 2016; early adoption was not permitted. However, in August 2015, the FASB issued ASU No. 2015-14, ~~“Revenue from Contracts with Customers - Deferral of the Effective Date”~~ which deferred the effective date by one year (i.e., interim and annual reporting periods beginning after December 15, 2017). For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. In addition, the FASB has begun to issue targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08, ~~“Principal versus Agent Considerations (Reporting Revenue Gross versus Net),”~~ ~~ASU No. 2016-10,~~ ~~“Identifying Performance Obligations and Licensing,”~~ ~~ASU No. 2016-12,~~ ~~“Narrow-Scope Improvements and Practical Expedients,”~~ ~~and ASU No. 2016-20~~ ~~“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”~~Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the Company does not expect the new guidance to have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company is continuing its overall assessment of revenue streams and reviewing contracts potentially affected by the ASU including deposit related fees, interchange fees, and merchant income, to determine the potential impact the new guidance is expected to have on the Company’s financial position, results of operations or cash flows. In addition, the Company continues to follow certain implementation issues relevant to the banking industry which are still pending resolution. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach.

~~In January 2016, the FASB issued ASU No. 2016-01, “~~~~Recognition and Measurement of Financial Assets and Financial Liabilities.~~” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. The Company has performed an evaluation of the provisions of ASU No. 2016-01. Based on this evaluation, the Company has determined that ASU No. 2016-01 will not have a material impact on the Company’s financial position, results of operations or cash flows.

~~In February 2016, the FASB issued ASU No. 2016-02, “~~~~Leases.~~”Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee’s obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard.All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. The Company is currently evaluating the provisions of ASU No. 2016-02. Based on the initial evaluation of the Company’s current lease obligations, the Company has determined that the provisions of ASU No. 2016-02 may result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities, however, the Company does not expect this to have a material impact on the Company’s financial position, results of operations or cash flows.

~~In March 2016, the FASB issued ASU No. 2016-09, “~~~~Improvements to Employee Share-Based Payment Accounting.~~” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminated the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance also requires an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 was effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption was permitted, but all of the guidance must be adopted in the same period. The Company adopted the provisions of ASU No. 2016-09 in the first quarter of 2017. The Company recorded a benefit of $118,000 for the three months ended September 30, 2017 and a benefit of $186,000 for the nine months ended September 30, 2017, related to the adoption of ASU No. 2016-09.

~~In June 2016, the FASB~~ issued ASU No. 2016-13, ““Measurement of Credit Losses on Financial Instruments.”This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize ~~improvements~~changes to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for ~~loan and lease~~credit losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 iswas initially scheduled to become effective for the Company for interim and annual reporting periods beginning after December 15, ~~2019;~~2019, however, on November 15, 2019 the FASB issued ASU 2019-10 delaying the effective date for smaller reporting companies, such as the Company, to interim and annual reporting periods beginning after December 15, 2022; early adoption is still permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). While the Company is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements, including if it will early adopt the standard, it has taken steps to prepare for the implementation when it becomes effective, such as forming an internal task force, gathering pertinent data, consulting with outside professionals, ~~and~~ evaluating its current IT ~~systems.~~systems, and purchasing a software solution. The Company has imported current and historical data into the new software and is currently validating the data and intends to begin processing information, on a test basis, with the new CECL specific software during 2021 and to disclose any material potential impact of this modeling once it becomes available.

In ~~March of 2017,~~August 2018, the FASB issued ASU ~~No. 2017-08, “~~2018-13,~~Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.”~~ ~~This guidance shortens the amortization period for premiums on certain callable debt securities~~ “Fair Value Measurement (Topic 820). – Disclosure Framework - Changes to the ~~earliest call date (with an explicit, noncontingent call feature~~Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 remove disclosures that ~~is callable at a fixed price~~no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and ~~on a preset dates), rather than contractual maturity date~~add disclosure requirements identified as ~~currently required under GAAP.~~relevant. ASU 2017-08 does not impact instruments without preset call dates such as mortgage-backed securities. For instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of ASU 2017-08. ASU 2017-08 is2018-13 became effective for ~~fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption is permitted. Accordingly, effective January of 2017,~~ the Company ~~early adopted~~on January 1, 2020. The effects of adopting ASU ~~2017-08 and the adoption was immaterial to~~No. 2018-13 did not have a material impact on the Company’s financial position, results of operations or cash flows.

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14. NOVEL CORONAVIRUS PANDEMIC (“COVID-19”)

The COVID-19 pandemic has placed significant health, economic and other major pressures on the individuals and communities we serve, the state of California, the United States and the entire world. We have implemented a number of procedures in response to the pandemic to support the safety and wellbeing of our employees and clients, and the financial viability of our clients, that continue through the date of this report:

We have addressed the safety of our ten branches and our corporate office, following the guidelines of the Centers for Disease Control. While our branches generally remain open to clients, we have taken steps, and continue to evaluate those steps, to push as much traffic and transactions as possible to our digital and electronic channels and our night depositories, and many of our employees can and are working remotely;

We hold regular executive meetings to address issues that change rapidly;

	·	Provided extensions and loan payment deferrals to our borrowers effected by COVID-19 provided such clients were not 30 days past due; and
	·	We have been participating in the Paycheck Protection Program (“PPP”) under CARES Act to help provide potentially forgivable loans to our business clients to provide them with additional working capital to enable them to retain their employees. During the second quarter of 2020, we funded 477 PPP loans totaling $80,154,000. We did not fund any PPP loans during the third quarter of 2020. We believe these loans and our participation in the program are good for our clients and the communities we serve.

We continue to closely monitor this pandemic and expect to make future changes to respond to the pandemic as this situation continues to evolve.

The potential financial impact is unknown at this time. However, if the economic downturn currently being experienced is sustained, it may adversely impact industries within our business footprint and impair the ability of the Company’s borrowers to fulfill their contractual obligations and reduce our opportunity to create new client relationships. This could cause the Company to experience a material adverse effect to its business operations, asset valuations, financial condition and results of operations. Material adverse effects may include losses in earnings, higher loan loss provisions, and valuation impairments on the Company’s loans, investments, goodwill, or deferred tax assets.

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

The following is management’s discussion and analysis of the significant changes in American River Bankshares’ (the “Company”) balance sheet accounts between December 31, ~~2016~~2019 and September 30, ~~2017~~2020 and its income and expense accounts for the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~2016.~~2019. 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”)~~(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 this “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, Section 27A of the Securities Act of 1933, as amended, and subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may contain words related to future projections including, but not limited to, words such as “believe,” “expect,” “anticipate,” “intend,” “may,” “will,” “should,” “could,” “would,” and variations of those words and similar words that are subject to risks, uncertainties and other factors that could cause actual results to differ significantly from those projected. Factors that could cause or contribute to such differences include, but are not limited to, the following:

The adverse effects of the COVID-19 pandemic on the economy, our business, borrowers, customers and employees and the impact of local, state and federal governments in response to the pandemic, including various government stimulus packages;

current and future legislation and regulation promulgated by the United States Congress and actions taken by governmental agencies that may impact the U.S. financial system;

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

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

potential loan ~~and lease~~ losses;

potential expenses associated with resolving ~~non-performing assets as well as regulatory changes;~~nonperforming assets;

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

competitive effects;

inadequate internal controls over financial reporting or disclosure controls and procedures;

changes in accounting policies and practices and the effects of adopting ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“CECL”);

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

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

changes in the regulatory environment including increased capital and regulatory compliance requirements and government intervention in the U.S. financial system;

changes in business conditions and inflation;

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

potential data processing, cybersecurity and other operational systems failures, breach or fraud;

potential decline in real estate values in our operating markets;

the effects of uncontrollable events such as terrorism, the threat of terrorism or the impact of military conflicts in connection with the conduct of the war on terrorism by the United States and its allies, ~~negative financial~~natural disasters (including earthquakes and ~~economic conditions, natural disasters,~~wildfires), pandemic disease and viruses, and disruption of power supplies and communications;

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

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

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

our ability to comply with any regulatory orders or requirements we may become subject to;

the effects and costs of litigation and other legal developments;

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

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

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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, ~~2016,~~2019, and other cautionary statements and information set forth in this Quarterly Report on Form 10-Q should also 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.

~~Subsequent Event~~Potential Impact of COVID-19

~~On October 27, 2017, David Taber resigned from his~~2020 began with optimism based off the progress made in 2019, but that was stalled when the novel coronavirus pandemic (“COVID-19”) arrived and created a global health crisis that has set off an economic crisis causing significant disruption in the local, national and global economies and financial markets. Continuation and further spread of COVID-19 could cause additional quarantines, shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The disruptions in the economy will impair the ability of some of our borrowers to make their loan payments, which could result in significant increases in delinquencies, defaults, foreclosures, declining collateral values, and credit losses on our loans. Similarly, because of changing economic and market conditions, we may be required to recognize credit losses on the investment securities we hold as well. COVID-19 may also materially disrupt banking and other financial activity generally and may result in a decline in demand for our products and services, including loans and deposits which could negatively impact our liquidity position ~~as President~~ and ~~Chief Executive Officer~~our growth strategy. Any one or more of these developments could have a material adverse effect on our business, operations, consolidated financial condition, and consolidated results of operations.

In response to the anticipated economic effects of COVID-19, the Board of Governors of the ~~Company. He also resigned~~Federal Reserve System (the “FRB”) has taken a number of actions that have significantly affected the financial markets in the United States, including actions intended to result in substantial decreases in market interest rates, including reducing the target federal funds range by 150 basis points during the first quarter of 2020 to 0% and announcing further quantitative easing in response to the expected economic downturn caused by COVID-19. We expect that these reductions in interest rates, among other actions of the FRB and the Federal government generally, especially if prolonged, could adversely affect our net interest income, margins and profitability.

In addition to preparing the Company to handle the impact of the economic crisis, protecting the health and wellbeing of our employees and the financial viability of our clients, is now our highest priority. The Company quickly put its pandemic plan into action to adjust to the impact of the health issues from the ~~Company’s~~COVID-19 pandemic on our employees and our clients. We have been working with our clients by assisting them with loan payment deferrals and maintaining service at all of our branch locations, subject to reduced operating hours. We are encouraging the use of our digital and electronic channels and our night depositories, all the while adhering to the ever-evolving State and Federal guidelines. We have been participating in the Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to help provide loans to our business clients to provide them with additional working capital to enable them to retain their employees.

We believe the COVID-19 pandemic has already impacted our local economy when Federal, State and local shelter-in-place recommendations were enacted in our markets in March 2020 causing many businesses to close and workers to be furloughed or become unemployed. Essential purpose entities such as medical professionals, food and agricultural businesses, and transportation and logistical businesses were exempted from the closures; however, unemployment rates are increasing in our local market area. Prior to the pandemic unemployment rates were at all-time lows. At the end of February 2020, the unemployment rate in Sacramento County was 3.7%, in Sonoma County it was 2.8%, and in Amador County it was 4.4%. By the end of May 2020, these numbers increased to 14.1% in Sacramento County, 12.7%, in Sonoma County, and 15.1% in Amador County. With some businesses allowed to reopen these rates have decreased some to 10.3% in Sacramento County, 7.7%, in Sonoma County, and 9.3% in Amador County as of August 31, 2020. While shelter-in-place restrictions were eased in our markets during the second quarter of 2020, and just as many businesses were opening, new restrictions were put in place, essentially eliminating the progress that had been made until later in the third quarter when selected areas had the restrictions eased again.

The Company has taken measures to protect the health and safety of its employees by implementing remote work arrangements to the full extent possible, and by adjusting banking offices hours and operational measures to promote social distancing. The Company will continue to analyze economic conditions in our geographic markets and perform stress testing of our investment and loan portfolios. The Company does not currently have a stock repurchase program in place. Our Board of Directors will evaluate whether or not to implement a program following such time that the economic impact of the COVID-19 has been assessed and ~~from all~~minimized. On October 22, 2020, the Company announced a $0.07 per share cash dividend payable on November 18, 2020 to shareholders of ~~his positions~~record on November 4, 2020. Future cash dividend decisions will consider, among other business considerations, the impact of COVID-19 on the Company’s capital and liquidity levels. Based on the Company’s current capital levels, historical conservative underwriting policies, low loan-to-deposit ratio, concentration and geographical diversification of the loan portfolio, the Company currently expects to be able to manage the economic risks and uncertainties associated with the ~~Company’s wholly-owned subsidiary, American River Bank. Mr. Taber’s resignation~~COVID-19 pandemic with sufficient liquidity and capital levels.

While the Company is not exposed to large oil and gas, airline, or the ~~result~~entertainment industries we have been evaluating the exposure to potentially increased loan losses related to the COVID-19 pandemic and have identified the following industry segments most impacted by the pandemic as of ~~any disagreement~~September 30, 2020:

Industry	Loan Balance			Percentage of total non PPP loans outstanding (1)
Hospitality		—			N/A
Churches	$	18,203,000			4.5	%
Restaurants	$	5,777,000			1.4	%
Eldercare	$	6,615,000			1.6	%
School/childcare	$	4,572,000			1.1	%
Recreation (golf/sportsclubs)	$	1,934,000			0.5	%
Oil/Gas	$	6,194,000	(2)		1.5	%

(1)

The PPP loans are 100% guaranteed by the SBA. By removing them from the total loans outstanding in this calculation, we believe the table represents a more reflective picture of the risk in the loan portfolio. The percentage of loans outstanding is, therefore, calculated excluding the PPP loans from the total loans.

(2)

Of this total, $1,920,000 is to three gas stations with convenience stores; $3,318,000 is to a gas station, convenience store and car wash; $642,000 is to an auto restoration company; and $314,000 is to a drive though oil change and car wash facility.

The Company is closely monitoring the effects of the pandemic on our loan and deposit clients. We are focusing on assessing the risks in our loan portfolio and working with our borrowers to minimize potential loan losses. We have implemented loan programs to allow borrowers to defer loan principal and interest payments. See “Working with Borrowers” for more information on loan deferrals. As of September 30, 2020, the Company ~~on any matter relating to the Company’s operations, policies or practices. On October 18, 2017, the Company’s Board~~had funded 477 PPP loans totaling $80,154,000, of Directors appointed Mr. David Ritchie as the President and Chief Executive Officer of the Company and American River Bank effective November 6, 2017, and as a member of the Board of Directors of the Company and American River Bank effective November 1, 2017. See the Form 8-K filed by the Company on October 27, 2017 with the Securities and Exchange Commission for additional disclosure regarding the leadership change.which 473 PPP loans totaling $75,804,000 remained at September 30, 2020.

Use of Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q (“Form 10Q”) contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures in addition to results presented in accordance with GAAP. These measures include ~~tangible book value and~~the taxable equivalent ~~basis.~~basis used in the computation of the net interest margin and efficiency ratio. Management has presented these non-GAAP financial measures in this Form 10Q because it believes that they provide useful and comparative information to assess trends in the Company’s financial position reflected in the current quarter and year-to-date results and facilitate comparison of our performance with the performance of our peers.

Net Interest Margin and Efficiency Ratio (non-GAAP financial measures)

In accordance with industry standards, certain designated net interest income amounts are presented on a taxable equivalent basis, including the calculation of net interest margin and the efficiency ratio. The Company believes the presentation of net interest margin on a taxable equivalent basis using a ~~34%~~21% effective tax rate allows comparability of net interest margin with industry peers by eliminating the effect of the differences in portfolios attributable to the proportion represented by both taxable and tax-exempt loans and investments. The efficiency ratio is a measure of a banking company’s overhead as a percentage of its revenue. The Company derives this ratio by dividing total noninterest expense by the sum of the taxable equivalent net interest income and the total noninterest income.

~~Tangible Equity (non-GAAP financial measures)~~

~~Tangible common stockholders’ equity (tangible book value) excludes goodwill and other intangible assets. The Company believes the exclusion~~Reconciliation of ~~goodwill and other intangible assets to create “tangible equity” facilitates the comparison~~Annualized Net Interest Margin, Fully Tax Equivalent (non-GAAP)

(dollars in thousands)	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Net interest income (GAAP)	$	6,720		$	5,928		$	19,428		$	17,105
Tax equivalent adjustment		49			49			154			148
Net interest income - tax equivalent adjusted (non-GAAP)	$	6,769		$	5,977		$	19,582		$	17,253

Average earning assets	$	787,756		$	655,937		$	739,412		$	642,605
Net interest margin (GAAP)		3.39	%		3.59	%		3.51	%		3.56	%
Net interest margin (non-GAAP)		3.42	%		3.62	%		3.54	%		3.59	%

Reconciliation of ~~results for ongoing business operations. The Company’s management internally assesses its performance based, in part, on these non-GAAP financial measures.~~Non-GAAP Measure – Efficiency Ratio

(dollars in thousands)	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Net interest income (GAAP)	$	6,720		$	5,928		$	19,428		$	17,105
Tax equivalent adjustment		49			49			154			148
Net interest income – tax-equivalent adjusted (non-GAAP)	$	6,769		$	5,977		$	19,582		$	17,253
Noninterest income		374			417			1,162			1,249
Total income		7,143			6,394			20,744			18,502
Total noninterest expense		4,223			4,093			12,355			12,501
Efficiency ratio, fully tax-equivalent (non-GAAP)		59.12	%		64.01	%		59.56	%		67.57	%

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

The allowance for loan ~~and lease~~ losses is determined based upon estimates that can and do change when the actual risk, loss events, or changes in other factors, occur. The analysis of the allowance uses ana historical loss view as an indicator of future losses and as a result could differ from the actual losses incurred in the future. Although management believes the allowance to be adequate, ultimate losses may vary from its estimates. At least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the relative risks in the portfolio, current economic conditions and other factors. If the ~~allowance for loan~~Board of Directors and ~~lease losses falls below~~management determine 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~~are warranted based on those reviews, the allowance ~~for loan and lease losses, over the short-term.~~is adjusted. 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.~~Activity.”

~~Stock-Based Compensation~~

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

~~Goodwill~~

Business combinations involving the Company’s acquisition of equity interests or net assets of another enterprise or the assumption of net liabilities in an acquisition of branches constituting a business may give rise to goodwill. Goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The value of goodwill is ultimately derived from the Company’s ability to generate net earnings after the acquisition and is not deductible for tax purposes. A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed for impairment on an annual basis. Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. The most recent annual assessment was performed as of December 31, 2016, and at that time, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.

~~Income Taxes~~

The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for (benefit from) income taxes. The Company accounts for income taxes using the balance sheet method, under which deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is, if applicable, reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if applicable, as a component of interest expense in the consolidated statement of income. There were no unrecognized tax benefits or accrued interest and penalties at September 30, 2017 or 2016 or for the three-month periods then ended.

General Development of Business

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California in 1995. As a bank holding company, the Company is authorized to engage in the activities permitted under the Bank Holding Company Act of 1956, as amended, and regulations ~~thereunder.Its~~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 97101 full-time employees as of September 30, ~~2017.~~2020.

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

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

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

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

American River Bank does not offer trust services or international banking services and does not plan to do so in the near future. American River Bank’s primary business is serving the commercial banking needs of small to mid-sized businesses within those counties listed above. American River Bank accepts checking and savings deposits, offers money market deposit accounts and certificates of deposit, makes secured and unsecured commercial, secured real estate, and other installment and term loans and offers other customary banking services. American River Bank ~~also conducts lease financing for certain types of business equipment. American River Bank~~ owns 100% of two inactive companies, ARBCO and American River Mortgage. ARBCO was formed in 1984 to conduct real estate development and has been inactive since 1995. American River Mortgage has been inactive since its formation in 1994. During ~~2016~~2020 and ~~2017,~~2019, the Company conducted no significant activities other than holding the shares of its subsidiaries. However, it is authorized, with the prior approval of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), the Company’s principal regulator, to engage in a variety of activities which are deemed closely related to the business of banking. The common stock of the Company is registered under the Securities Exchange Act of 1934, as amended, and is listed and traded on the Nasdaq Global Select Market under the symbol “AMRB.”

Overview

The Company recorded net income of ~~$1,109,000~~$1,779,000 for the quarter ended September 30, ~~2017,~~2020, which was ~~a decrease~~an increase of ~~$704,000~~$208,000 compared to ~~$1,813,000~~$1,571,000 reported for the same period of ~~2016.~~2019. Diluted earnings per share for the third quarter of ~~2017~~2020 were ~~$0.17~~$0.30 compared to $0.27 recorded in the third quarter of ~~2016.~~2019. The return on average equity (“ROAE”) and the return on average assets (“ROAA”) for the third quarter of ~~2017~~2020 were ~~5.37%~~7.79% and ~~0.68%~~0.82%, respectively, as compared to ~~8.62%~~7.65% and ~~1.13%~~0.88%, respectively, for the same period in ~~2016.~~2019.

Net income for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 was ~~$3,590,000~~$4,952,000 and ~~$4,489,000,~~$3,993,000, respectively, with diluted earnings per share of ~~$0.55~~$0.84 in ~~2017~~2020 and ~~$0.66~~$0.68 in ~~2016.~~2019. For the first nine months of ~~2017,~~2020, ROAE was ~~5.82%~~7.52% and ROAA was ~~0.74%~~0.82% compared to ~~7.12%~~6.81% and ~~0.95%~~0.77%, respectively, for the same period in ~~2016.~~2019.

Total assets of the Company increased by ~~$4,194,000 (0.6%)~~$137,581,000, or 19.1%, from ~~$651,450,000~~$720,353,000 at December 31, ~~2016~~2019 to ~~$655,644,000~~$857,934,000 at September 30, ~~2017.~~2020. Net loans totaled ~~$322,238,000~~$471,647,000 at September 30, ~~2017, a decrease~~2020, an increase of ~~$1,848,000 (0.6%~~$77,845,000 or (19.8%) from ~~$324,086,000~~$393,802,000 at December 31, ~~2016.~~2019. Deposit balances at September 30, ~~2017~~2020 totaled ~~$550,942,000,~~$728,831,000, an increase of ~~$6,136,000 (1.1%)~~$123,994,000, or 20.5%, from the ~~$544,806,000~~$604,837,000 at December 31, ~~2016.~~2019.

The Company ended the third quarter of ~~2017~~2020 with a leverage capital ratio of ~~10.3%~~8.2%, a Tier 1 capital ratio of ~~18.8%~~15.3%, and a total risk-based capital ratio of ~~20.0%~~16.5% compared to ~~10.5%~~9.2%, ~~19.0%~~14.8%, and ~~20.3%~~15.9%, respectively, at December 31, ~~2016.~~2019. Table One below provides a summary of the components of net income for the periods indicated (See the “Results of Operations” section that follows for an explanation of the fluctuations in the individual components).

~~Table~~

~~One: Components of Net Income~~

(dollars in thousands) For the three months ended
September 30, For the nine months ended
September 30,
2017 2016 2017 2016
Interest income* $ 5,180 $ 5,412 $ 15,553 $ 16,152
Interest expense (279 ) (223 ) (773 ) (678 )
Net interest income* 4,901 5,189 14,780 15,474
Provision for loan and lease losses (300 ) 668 (300 ) 668
Noninterest income 377 399 1,235 1,516
Noninterest expense (3,312 ) (3,346 ) (10,110 ) (10,552 )
Provision for income taxes (459 ) (989 ) (1,718 ) (2,274 )
Tax equivalent adjustment (98 ) (108 ) (297 ) (343 )
Net income $ 1,109 $ 1,813 $ 3,590 $ 4,489

Average total assets $ 649,427 $ 635,561 $ 649,845 $ 632,120
Net income (annualized) as a percentage of average total assets 0.68 % 1.13 % 0.74 % 0.95 %

Table One: Components of Net Income

(dollars in thousands)	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Interest income*	$	7,104		$	6,604		$	20,899		$	19,111
Interest expense		(335	)		(627	)		(1,317	)		(1,858	)
Net interest income*		6,769			5,977			19,582			17,253
Provision for loan losses		(445	)		(120	)		(1,485	)		(480	)
Noninterest income		374			417			1,162			1,249
Noninterest expense		(4,223	)		(4,093	)		(12,355	)		(12,501	)
Provision for income taxes		(647	)		(561	)		(1,798	)		(1,380	)
Tax equivalent adjustment		(49	)		(49	)		(154	)		(148	)
Net income	$	1,779		$	1,571		$	4,952		$	3,993

Average total assets	$	861,843		$	708,698		$	802,388		$	695,364
Net income (annualized) as a percentage of average total assets		0.82	%		0.88	%		0.82	%		0.77	%

*Fully taxable equivalent basis (FTE)

Results of Operations

Net Interest Income and Net Interest Margin

Net interest income represents the excess of interest and fees earned on interest earning assets (loans, ~~and leases,~~ securities, Federal funds sold and investments in time deposits) over the interest paid on interest-bearing deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. The Company’s net interest margin was ~~3.32%~~3.42% for the three months ended September 30, ~~2017, 3.65%~~2020, 3.62% for the three months ended September 30, ~~2016, 3.39%~~2019, 3.54% for the nine months ended September 30, ~~2017~~2020 and ~~3.64%~~3.59% for the nine months ended September 30, ~~2016.~~2019.

The fully taxable equivalent interest income component for the third quarter of ~~2017 decreased $232,000 (4.3%~~2020 increased $500,000 (7.6%) to ~~$5,180,000~~$7,104,000 compared to ~~$5,412,000~~$6,604,000 for the three months ended September 30, ~~2016.~~2019. The ~~decrease~~increase in the fully taxable equivalent interest income for the third quarter of ~~2017~~2020 compared to the same period in ~~2016~~2019 is broken down by rate (down ~~$441,000)~~$943,000) and volume (up ~~$209,000)~~$1,443,000). The yield on earning assets decreased from ~~3.81%~~3.99% during the third quarter of ~~2016~~2019 to ~~3.51%~~3.59% during the third quarter of ~~2017.~~2020. The ~~primary driver~~lower interest rate environment led to decreases in ~~this rate decrease was a decrease in the yield~~yields on loans ~~which saw a decrease~~(which decreased from ~~5.01%~~4.98% in the third quarter of ~~2016~~2019 to ~~4.48%~~4.64% in the third quarter of ~~2017 and a decrease in the yield on~~2020), investments ~~which saw a decrease~~(which decreased from ~~2.38%~~2.77% in the third quarter of ~~2016~~2019 to ~~2.33%~~2.37% in the third quarter of ~~2017. While average~~2020), and interest-bearing balances in banks (which decreased from 2.06% in the third quarter of 2019 to 0.14% in the third quarter of 2020). The lower yield led to decreases in loan interest of $429,000, investment income of $262,000 and interest from deposit in banks of $252,000. The increase in interest income was driven by increased loan balances, which led to an additional $1,327,000 in interest income, as well as increased balances in interest-deposit in banks which led to an additional $200,000 in interest income. The increased income on loans resulted from a higher balance of loans. Loans increased ~~$15,580,000 (5.1%~~$104,757,000 (28.5%) from ~~$307,324,000~~$368,160,000 in the third quarter of 2019 to $472,917,000 in the third quarter of 2020. Of the $104,757,000 increase in loans, $75,804,000 was related to PPP. These PPP loans carried an interest rate of 1% and added just $194,000 in interest income for the quarter, however, the SBA also paid the Company a processing fee ranging between 1% and 5%, which is amortized (net of costs) over the two-year life of the loans. The net fees added during the third quarter related to these PPP loans was $441,000. Average interest-balances in banks increased $38,578,000, (or 282.4%), from $13,662,000 during the third quarter of ~~2016~~2019 to ~~$322,904,000~~$52,240,000 during the third quarter of 2017, due to the overall lower interest rate environment, the new loans added were at lower yields than the existing loans. The decrease in the yield on the investment portfolio is also due primarily to the lower rate environment as principal paydowns were reinvested at lower rates. The volume increase of $209,000 was primarily from an increase in average loans ($188,000) and investment balances ($21,000). The average balance of earning assets increased $19,941,000 (3.5%) from $565,070,000 in the third quarter of 2016 to $585,011,000 in the third quarter of 2017. When compared to the third quarter of 2016, average investment securities increased $4,112,000 (1.6%) from $256,747,000 for the third quarter of 2016 compared to $260,859,000 for the third quarter of 2017.2020.

Total fully taxable equivalent interest income for the nine months ended September 30, ~~2017 decreased $599,000 (3.7%~~2020 increased $1,788,000 (9.4%) to ~~$15,553,000~~$20,899,000 compared to ~~$16,152,000~~$19,111,000 for the nine months ended September 30, ~~2016.~~2019. The breakdown of the ~~decrease~~increase in fully taxable equivalent interest income for the nine months ended September 30, ~~2017~~2020 over the same period in ~~2016~~2019 resulted from a decrease in rate (down ~~$1,173,000)~~$1,548,000) and an increase in volume (up ~~$574,000)~~$3,336,000). The primary driver in this rate decrease was a decrease in the yields on loans which decreased from 4.94% in 2019 to 4.80% in 2020, on the investment portfolio which decreased from 2.84% in 2019 to 2.56% in 2020, and a decrease in the yields on interest-bearing balances in banks which decreased from 2.22% in 2019 to 0.26% in 2020. The decreased yield in 2020 compared to 2019 was due to the overall lower interest rate environment. The decreased yield earned on loans, investments and interest-bearing balances in banks was the reason the yield on earning assets decreased from 3.98% in 2019 to 3.78% in 2020. The volume increase of $3,336,000 was primarily from an increase in loans ($3,333,000) and interest-deposit in banks ($483,000), partially offset by a decrease in investment balances ($475,000). Average ~~earning assets~~loans balances increased ~~$14,625,000 (2.6%~~$89,577,000, (or 25.6%), from ~~$568,075,000~~$349,718,000 during the first nine months of ~~2016~~2019 to $582,700,000 for the same period in 2017. During the nine month periods, the Company also experienced a decrease in interest income due to the rates earned on loans (down $903,000) and investments (down $273,000). The yield on loans decreased from 4.93% in 2016 to 4.55% in 2017 and the yield on investments decreased from 2.52% in 2016 to 2.38% in 2017. These decreases were caused by the overall lower interest rate environment. Average loan balances increased by $18,179,000 (6.0%) from $301,645,000$439,295,000 during 2016 to $319,824,000 during 2017. The volume increase of $574,000 is primarily related to the above mentioned increase in loan balances from 2016 to 2017, which accounted for a $650,000 increase in interest income and was partially offset by a decrease in average investment balances. Average investment securities decreased $3,769,000 (1.4%) from $265,436,000 for the first nine months of ~~2016 compared to $261,667,000 for~~2020; the average interest-deposit in banks increased $29,040,000, (or 319.3%), from $9,096,000 during the first nine months of ~~2017.~~2019 to $38,136,000 during the first nine months of 2020; and average investment balances decreased $21,579,000, (or 7.6%), from $283,560,000 during the first nine months of 2019 to $261,981,000 during the first nine months of 2020. Of the $89,577,000 increase in loans, $38,958,000 was related to PPP. These PPP loans added $333,000 in interest income for the year and the net fees for the year related to these PPP loans was $748,000.

Interest expense was ~~$56,000 (25.1%~~$292,000 (or 46.6%) ~~higher~~lower in the third quarter of ~~2017~~2020 versus the prior year period, ~~increasing~~decreasing from ~~$223,000~~$627,000 to ~~$279,000.~~$335,000. The ~~$56,000 increase~~$292,000 decrease in interest expense during the third quarter of ~~2017~~2020 compared to the third quarter of ~~2016~~2019 was due to ~~higher~~lower rates ~~(up $58,000)~~(down $326,000) and higher volume ~~(down $2,000)~~(up $34,000). While average balances on interest bearing liabilities were $356,547,000 or $9,374,000 (2.7%) higher in the third quarter of 2017 compared to $347,173,000 for the same quarter in 2016, the increased balances were in the low cost checking and savings accounts and there was aThe decrease in ~~the higher~~ interest ~~bearing time deposits. This resulted in a decrease of $2,000 based on the overall higher volume. The increase in deposit~~ expense can be attributed to ~~an increase~~a decrease in rates paid on deposit and borrowing balances during a lower interest rate environment. Rates paid on interest bearing liabilities decreased 23 basis points from 0.64% to 0.29% for the third quarter of 2019 compared to the same period in 2020. The largest decrease due to rates occurred in the time ~~deposit balances.~~deposits. Some of these time deposits are indexed to the three- or six-month treasury rates which have ~~increased~~decreased over the past twelve months. ~~Rates paid~~Interest expense on ~~interest bearing liabilities increased five basis points~~time deposits decreased by $255,000, or 66.6%, from ~~0.26%~~$383,000 in the third quarter of ~~2016~~2019 to ~~0.31% for~~$128,000 in the ~~same period~~third quarter of 2020. Average time deposit balances decreased by $17,669,000, or (20.3%), from $86,938,000 in ~~2017.~~the third quarter of 2019 to $69,269,000 in the third quarter of 2020. Of the decrease in expense related to time deposits of $255,000, $177,000 was related to rate and $78,000 was related to volume. The volume increase of $34,000 was attributed to an increase in the lower cost interest checking and money market balances which increased $67,174,000 (31.7%) from $211,930,000 in third quarter of 2019 to $279,104,000 in the third quarter of 2020 and in other borrowings which increased $11,846,000 (75.9%) from $15,614,000 in third quarter of 2019 to $27,460,000 in the third quarter of 2020.

Interest expense was ~~$95,000 (14.0%~~$541,000 (or 29.1%) ~~higher~~lower in the nine-month period ended September 30, ~~2017 increasing~~2020 decreasing from ~~$678,000~~$1,858,000 in ~~2016~~2019 to ~~$773,000~~$1,317,000 in ~~2017.~~2020. The ~~increase~~decrease is related to rates ~~(up $116,000)~~(down $452,000) and volume (down ~~$21,000)~~$89,000). ~~The increase~~Rates paid on interest bearing liabilities decreased 23 basis points from 0.64% to 0.41% for the first nine months of 2019 compared to the first nine months of 2020. Of the $452,000 decrease in interest expense ~~can be attributed~~related to ~~an increase in~~rates, $386,000 is related to lower rates paid on time deposit balances. Some of these time deposits are indexed to the ~~three- or~~three-or six-month treasury rates which have ~~increased~~decreased over the past twelve months. ~~Rates paid~~Net interest expense on ~~interest bearing liabilities increased three basis points~~time deposits decreased by $620,000, or 53.1%, from ~~0.26%~~$1,168,000 in ~~2016~~2019 to ~~0.29%~~$548,000 in ~~2017. Average~~2020 while the average time deposit balances ondecreased by $17,570,000, or 20.0%, from $87,655,000 in 2019 to $70,085,000 in 2020. Of the decrease in expense from time deposits of $620,000, $386,000 was related to rate and $234,000 was related to volume. Partially offsetting the decrease in time deposit expense due to rates and volume was an increase in interest ~~bearing liabilities were $358,592,000 or $9,089,000 (2.6%) higher in 2017 compared to $349,503,000 in 2016. The increased balances were in the low cost~~ checking and ~~savings accounts~~money market balances which increased $49,890,000 (23.9%) from $208,607,000 in 2019 to $258,497,000 in 2020 and ~~there was a decrease~~ in ~~the higher interest bearing time deposits. This resulted~~other borrowings which increased $3,535,000 (18.3%) from $19,341,000 in ~~a decrease of $21,000 based on the overall higher volume.~~2019 to $22,876,000 in 2020.

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

Table Three sets forth a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates.

Table Two: Analysis of Net Interest Margin on Earning Assets

Three Months Ended September 30,	2017								2016								2020								2019
(Taxable Equivalent Basis) (dollars in thousands)	Avg Balance			Interest		Avg Yield (4)			Avg Balance			Interest		Avg Yield (4)			Avg Balance			Interest		Avg Yield (4)			Avg Balance			Interest		Avg Yield (4)
Assets
Earning assets:
Taxable loans and leases (1)	$	308,679		$	3,496		4.49	%	$	289,795		$	3,617		4.97	%
Tax-exempt loans and leases (2)		14,225			147		4.10	%		17,529			254		5.76	%

Taxable investment Securities		237,907			1,292		2.15	%		232,858			1,340		2.29	%
Taxable loans (1)																	$	452,301		$	5,275		4.64	%	$	346,598		$	4,397		5.03	%
Tax-exempt loans (2)																		20,616			244		4.71	%		21,562			224		4.12	%
Taxable investment securities																		257,171			1,523		2.36	%		267,012			1,846		2.74	%
Tax-exempt investment securities (2)		22,855			241		4.18	%		23,811			199		3.32	%		5,428			43		3.15	%		7,103			66		3.69	%
Corporate stock (2)		97			—		—			78			—		—
Federal funds sold		—			—		—			—			—		—
Investments in time deposits		1,248			4		1.27	%		999			2		0.80	%
Interest-bearing deposits in banks																		52,240			19		0.14	%		13,662			71		2.06	%
Total earning assets		585,011			5,180		3.51	%		565,070			5,412		3.81	%		787,756			7,104		3.59	%		655,937			6,604		3.99	%
Cash & due from banks		30,229								37,343								39,524								17,215
Other assets		39,063								38,618								40,845								40,406
Allowance for loan & lease losses		(4,876	)							(5,470	)
	$	649,427							$	635,561

Allowance for loan losses																		(6,282	)							(4,860	)
Total average assets																	$	861,843							$	708,698
Liabilities & Shareholders’ Equity
Interest bearing liabilities:
Interest checking and money market	$	195,270			34		0.07	%	$	188,292			35		0.07	%	$	279,104			126		0.18	%	$	211,930			155		0.29	%
Savings		65,458			6		0.04	%		60,925			4		0.03	%		83,140			7		0.03	%		74,738			7		0.04	%
Time deposits		80,232			184		0.91	%		82,771			140		0.67	%		69,269			128		0.74	%		86,938			383		1.75	%
Other borrowings		15,587			55		1.40	%		15,185			44		1.15	%		27,460			74		1.07	%		15,614			82		2.08	%
Total interest bearing liabilities		356,547			279		0.31	%		347,173			223		0.26	%		458,973			335		0.29	%		389,220			627		0.64	%
Noninterest bearing demand deposits		203,473								198,655								301,505								227,644
Other liabilities		7,482								6,031								10,476								10,368
Total liabilities		567,502								551,859								770,954								627,232
Shareholders’ equity		81,925								83,702								90,889								81,466
Total average liabilities and shareholders’ equity																	$	861,843							$	708,698
Net interest income & margin (3)																				$	6,769		3.42	%				$	5,977		3.62	%
	$	649,427							$	635,561
Net interest income & margin (3)				$	4,901		3.32	%				$	5,189		3.65	%

(1)

Loan interest includes loan fees of ~~$1,000~~$446,000 and ~~$102,000,~~$18,000, respectively, during the three months ended September 30, ~~2017~~2020 and September 30, ~~2016.~~2019. Includes $441,000 in net fees from PPP loans during the third quarter of 2020. Average loan balances include nonperforming 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%~~21% for ~~2017~~2020 and ~~2016.~~2019.

(3)

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

(4)

Average yield is calculated based on actual days in the period (92 days) and annualized to actual days in the year ~~(365~~(366 days ~~in 2017~~for 2020 and ~~366 days in 2016)~~365 days).

Nine Months Ended September 30, 2017 2016
(Taxable Equivalent Basis)
(dollars in thousands) Avg
Balance Interest Avg
Yield (4) Avg
Balance Interest Avg
Yield (4)
Assets
Earning assets:
Taxable loans and leases (1) $ 305,467 $ 10,384 4.54 % $ 284,782 $ 10,424 4.89 %
Tax-exempt loans and leases (2) 14,357 503 4.68 % 16,863 716 5.67 %
Taxable investment Securities 238,775 3,978 2.23 % 241,129 4,333 2.40 %
Tax-exempt investment securities (2) 22,797 663 3.89 % 24,233 660 3.64 %
Corporate stock (2) 95 16 22.52 % 74 14 25.27 %
Federal funds sold — — — — — —
Interest-bearing deposits in banks 1,209 9 1.00 % 994 5 0.67 %
Total earning assets 582,700 15,553 3.57 % 568,075 16,152 3.80 %
Cash & due from banks 32,902 31,209
Other assets 39,099 38,027
Allowance for loan & lease losses (4,856 ) (5,191 )
$ 649,845 $ 632,120

Liabilities & Shareholders’ Equity
Interest-bearing liabilities:
Interest checking and money market $ 197,606 104 0.07 % $ 188,405 110 0.08 %
Savings 64,072 16 0.03 % 59,940 14 0.03 %
Time deposits 81,385 501 0.82 % 83,222 421 0.68 %
Other borrowings 15,529 152 1.31 % 17,936 133 0.99 %
Total interest-bearing liabilities 358,592 773 0.29 % 349,503 678 0.26 %
Noninterest-bearing demand deposits 201,227 192,103
Other liabilities 7,559 6,262
Total liabilities 567,378 547,868
Shareholders’ equity 82,467 84,252
$ 649,845 $ 632,120
Net interest income & margin (3) $ 14,780 3.39 % $ 15,474 3.64 %

Nine Months Ended September 30,	2020								2019
(Taxable Equivalent Basis) (dollars in thousands)	Avg Balance			Interest		Avg Yield (4)			Avg Balance			Interest		Avg Yield (4)
Assets
Earning assets:
Taxable loans (1)	$	417,667		$	15,034		4.81	%	$	330,312		$	12,329		4.99	%
Tax-exempt loans (2)		21,628			767		4.74	%		19,406			604		4.16	%
Taxable investment securities		256,566			4,894		2.55	%		272,738			5,756		2.82	%
Tax-exempt investment securities (2)		5,415			131		3.23	%		10,822			266		3.29	%
Federal funds sold		—			—		-%			231			5		2.89	%
Interest-bearing deposits in banks		38,136			73		0.26	%		9,096			151		2.22	%
Total earning assets		739,412			20,899		3.78	%		642,605			19,111		3.98	%
Cash & due from banks		28,212								16,356
Other assets		40,507								41,048
Allowance for loan losses		(5,743	)							(4,645	)
Total average assets	$	802,388							$	695,364

Liabilities & Shareholders’ Equity
Interest-bearing liabilities:
Interest checking and money market	$	258,497			505		0.26	%	$	208,607			369		0.24	%
Savings		78,869			21		0.04	%		73,596			21		0.04	%
Time deposits		70,085			548		1.04	%		87,655			1,168		1.78	%
Other borrowings		22,876			243		1.42	%		19,341			300		2.07	%
Total interest-bearing liabilities		430,327			1,317		0.41	%		389,199			1,858		0.64	%
Noninterest-bearing demand deposits		273,016								217,760
Other liabilities		11,140								10,019
Total liabilities		714,483								616,978
Shareholders’ equity		87,905								78,386
Total average liabilities and shareholders’ equity	$	802,388							$	695,364
Net interest income & margin (3)				$	19,582		3.54	%				$	17,253		3.59	%

(1)

Loan interest includes loan fees of ~~$121,000~~$990,000 and ~~$197,000,~~$194,000, respectively, during the nine months ended September 30, ~~2017~~2020 and September 30, ~~2016.~~2019. Includes $748,000 in net fees from PPP loans during 2020. Average loan balances include nonperforming loans.

(2)

(3)

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

(4)

Average yield is calculated based on actual days in the period ~~(273~~(274 days for ~~2017~~2020 and ~~274~~273 days for ~~2016)~~2019) and annualized to actual days in the year ~~(365~~(366 days for ~~2017~~2020 and ~~366~~365 days for ~~2016)~~2019).

Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
Three Months Ended September 30, 2017 over 2016 (dollars in thousands)
Increase (decrease) due to change in:
Interest-earning assets: Volume Rate (4) Net
Change
Taxable loans and leases (1) $ 236 $ (357 ) $ (121 )
Tax-exempt loans and leases (2) (48 ) (59 ) (107 )
Taxable investment securities 29 (77 ) (48 )
Tax exempt investment securities (3) (8 ) 50 42
Corporate stock — — —
Interest-bearing deposits in banks — 2 2
Total 209 (441 ) (232 )
Interest-bearing liabilities:
Interest checking and money market 1 (2 ) (1 )
Savings deposits — 2 2
Time deposits (4 ) 48 44
Other borrowings 1 10 11
Total (2 ) 58 56
Interest differential $ 211 $ (499 ) $ (288 )

Nine Months Ended September 30, 2017 over 2016 (dollars in thousands)
Increase (decrease) due to change in:

Interest-earning assets: Volume Rate (4) Net
Change
Taxable loans and leases (1) $ 756 $ (796 ) $ (40 )
Tax-exempt loans and leases (2) (106 ) (107 ) (213 )
Taxable investment securities (42 ) (313 ) (355 )
Tax exempt investment securities (3) (39 ) 42 3
Corporate stock 4 (2 ) 2
Interest-bearing deposits in banks 1 3 4
Total 574 (1,173 ) (599 )
Interest-bearing liabilities:
Interest checking and money market 5 (11 ) (6 )
Savings deposits 1 1 2
Time deposits (9 ) 89 80
Other borrowings (18 ) 37 19
Total (21 ) 116 95
Interest differential $ 595 $ (1,289 ) $ (694 )

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

Three Months Ended September 30, 2020 over 2019 (dollars in thousands)
Increase (decrease) due to change in:

Interest-earning assets:	Volume			Rate (4)			Net Change
Taxable loans (1)	$	1,337		$	(459	)	$	878
Tax-exempt loans (2)		(10	)		30			20
Taxable investment securities		(68	)		(255	)		(323	)
Tax exempt investment securities (3)		(16	)		(7	)		(23	)
Interest-bearing deposits in banks		200			(252	)		(52	)
Total		1,443			(943	)		500
Interest-bearing liabilities:
Interest checking and money market		49			(78	)		(29	)
Savings deposits		1			(1	)		—
Time deposits		(78	)		(177	)		(255	)
Other borrowings		62			(70	)		(8	)
Total		34			(326	)		(292	)
Interest differential	$	1,409		$	(617	)	$	792

Nine Months Ended September 30, 2020 over 2019 (dollars in thousands)
Increase (decrease) due to change in:

Interest-earning assets:	Volume			Rate (4)			Net Change
Taxable loans (1)	$	3,264		$	(559	)	$	2,705
Tax-exempt loans (2)		69			94			163
Taxable investment securities		(342	)		(520	)		(862	)
Tax exempt investment securities (3)		(133	)		(2	)		(135	)
Federal funds sold		(5	)		—			(5	)
Interest-bearing deposits in banks		483			(561	)		(78	)
Total		3,336			(1,548	)		1,788
Interest-bearing liabilities:
Interest checking and money market		88			48			136
Savings deposits		2			(2	)		—
Time deposits		(234	)		(386	)		(620	)
Other borrowings		55			(112	)		(57	)
Total		(89	)		(452	)		(541	)
Interest differential	$	3,425		$	(1,096	)	$	2,329

(1)

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

(2)

Loan fees of ~~$1,000~~$446,000 and ~~$102,000,~~$18,000, respectively, during the three months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, and loan fees of ~~$121,000~~$990,000 and ~~$197,000,~~$194,000, respectively, during the nine months ended September 30, ~~2017~~2020 and September 30, ~~2016,~~2019, have been included in the interest income computation. The three and nine- month periods in 2020 include $414,000 and $748,000, respectively, in net fees from PPP loans.

(3)

(4)

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

Provision for Loan ~~and Lease~~ Losses

The Company added $445,000 to the provision for loan losses for the third quarter of 2020 compared to $120,000 in the third quarter of 2019. The Company experienced net loan ~~and lease~~ losses of ~~$630,000~~$27,000 or ~~0.77%~~0.02% (on an annualized basis) of average loans ~~and leases~~ for the three months ended September 30, ~~2017~~2020 compared to net loan ~~and lease~~ recoveries of ~~$519,000~~($72,000) or ~~0.67%~~0.08% (on an annualized basis) of average loans ~~and leases~~ for the three months ended September 30, ~~2016. As a result of the loan losses in 2017, the~~2019. The Company added ~~$300,000~~$1,485,000 to the allowance for loan ~~and lease~~ losses during ~~the third quarter. Due to the loan recoveries experienced in 2016, the Company reversed $668,000 from the allowance for loan and lease losses during the third quarter. For~~ the first nine months of ~~2017, the Company added $300,000~~2020. This compares to additions of $480,000 to the allowance for loan ~~and lease loss allowance and net~~losses during the first nine months of 2019. Net loan ~~and lease~~ losses were ~~$571,000 or 0.24%~~$7,000 (0.00%) (on an annualized basis) of average loans ~~and leases~~ outstanding in ~~2017. The Company reversed $668,000 from the loan and lease loss allowance~~2020 and net loan ~~and lease~~ recoveries were ~~$676,000~~($81,000) or ~~0.30%~~0.03% (on an annualized basis) of average loans ~~and leases~~ outstanding in ~~2016. Despite a single loan charge-off of $673,000 during the third quarter of 2017, the~~2019.

The Company ~~continued~~continues to experience an overall improvement in the credit quality of the loan ~~and lease~~ portfolio and a reduction of credit losses, however, due to the uncertain economic impact on the Company’s borrowers due to COVID-19, the $445,000 addition to the provision for loan losses during the third quarter of 2020 and the $1,485,000 addition to the provision for loan ~~recoveries.~~losses during 2020 was warranted. For additional information see the “Allowance for Loan Losses Activity” and ~~Lease Losses Activity.~~“Potential Impact of COVID-19.”

Noninterest Income

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

Table Four: Components of Noninterest Income

(dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Service charges on deposit accounts	$	115	$	149	$	381	$	409
Gain on sale of securities		—		9		38		74
Merchant fee income		98		105		274		294
Bank owned life insurance		89		83		258		248
Other		72		71		211		224
Total noninterest income	$	374	$	417	$	1,162	$	1,249

Three Months
Ended
September 30,

Nine Months
Ended
September 30,

2017 2016 2017 2016
Service charges on deposit accounts $ 117 $ 124 $ 348 $ 381
Gain on sale/call/impairment of securities 19 33 161 314
Merchant fee income 106 98 302 277
Bank owned life insurance 82 80 238 239
Income from OREO properties — — — 106
Other 53 64 186 199
Total noninterest income $ 377 $ 399 $ 1,235 $ 1,516

Noninterest income decreased ~~$22,000 (5.5%~~$43,000 (10.3%) to ~~$377,000~~$374,000 for the three months ended September 30, ~~2017~~2020 compared to ~~$399,000 for~~$417,000 during the three months ended September 30, ~~2016.~~2019. The decrease from the third quarter of ~~2016~~2019 to the third quarter of ~~2017~~2020 was primarily related to a decrease in service charges on deposit accounts which decreased $34,000 from $149,000 in 2019 to $115,000 in 2020.

Noninterest income decreased $87,000 (or 7.0%) from $1,249,000 during the first nine months of 2020 to $1,162,000 during the first nine months of 2019. The decrease from the first nine months of 2020 compared to the same period in 2019 was primarily related to a decrease in gain on sale of securities ~~which decreased $14,000 from $33,000~~(down $36,000 or 48.6%) resulting in ~~2016 to $19,000~~income of $74,000 in ~~2017.~~

~~For the nine months ended September 30, 2017, noninterest income decreased $281,000 (18.5%) from $1,516,000 to $1,235,000. The decrease from~~ the first nine months of ~~2016~~2019 compared to $38,000 for the ~~same period in 2017 was primarily related to the decrease in rental income from OREO properties which declined $106,000 from $106,000 in 2016 to zero in 2017~~first nine months of 2020 and a decrease in ~~gain~~service charges on ~~sale of securities,~~deposit accounts which decreased ~~$153,000~~$28,000 (6.8%) from ~~$314,000~~$409,000 in ~~2016~~2019 to ~~$161,000~~$381,000 in ~~2017. The decrease in OREO income resulted from the sale of the Bank’s only remaining income producing OREO property in the first quarter of 2016.~~2020.

Noninterest Expense

Noninterest expense ~~decreased $34,000 (1.0%~~increased $130,000 (3.2%) from ~~$3,346,000~~$4,093,000 in the third quarter of ~~2016~~2019 to ~~$3,312,000~~$4,223,000 in the third quarter of ~~2017.~~2020. Salary and employee benefits expense ~~increased $29,000 (1.4%~~decreased $9,000 (0.3%) from ~~$2,073,000~~$2,898,000 during the third quarter of ~~2016~~2019 to ~~$2,102,000~~$2,889,000 during the third quarter of ~~2017. The increase in salaries~~2020. Average full-time equivalent employees was 101 during the third quarter of 2020 and ~~benefits resulted from an increase in other employee benefits, including health insurance and 401(k) matching, which increased $49,000 (15.3%) from $321,000 in 2016 to $370,000 in 2017.~~2019. Occupancy expense ~~decreased $33,000 (11.2%~~increased $2,000 (0.8%) and furniture and equipment expense ~~decreased $24,000 (14.5%~~increased $20,000 (16.6%) from the third quarter of ~~2016~~2019 to the third quarter of ~~2017.~~2020. FDIC assessments ~~decreased $26,000 (33.8%)~~increased $109,000 from the third quarter of ~~2016~~2019 to the third quarter of 2017. The decrease in the FDIC assessments relates to a lower assessment rate as a result of the Deposit Insurance Fund reaching the FDIC’s target level of 1.15% during 2016, which resulted in lower assessments for community banks such as American River Bank.2020. OREO related expenses ~~increased $34,000~~decreased $3,000 (42.9%) during the third quarter of ~~2017 from a credit~~2020 compared to the third quarter of ~~$30,000~~2019. Other expenses increased $11,000 (1.3%) to $870,000 in the third quarter of ~~2016~~2020 compared to ~~an expense of $4,000~~$859,000 in the third quarter of ~~2017.~~2019. The ~~primary reason~~increased FDIC assessments result from a credit received in 2019 as the FDIC insurance fund reaching the target of 1.38% and the Company being able to use the Small Bank Assessment Credits, awarded to banks like American River Bank, which essentially gave banks a credit for the ~~decrease in OREO related expenses was a gain on sale~~assessments paid for the second quarter of ~~$43,000 recorded in~~2019 and allowed them to forgo the assessment expense for the third quarter of ~~2016, which exceeded the normal operating costs for the quarter. Other expenses decreased $14,000 (1.8%) to $752,000 in the third quarter of 2017 compared to $766,000 in the third quarter of 2016.~~2019. The fully taxable equivalent efficiency ratio for the third quarter of ~~2017 increased~~2020 decreased to ~~62.8%~~59.1% from ~~59.9%~~64.0% for the third quarter of ~~2016.~~2019.

Noninterest expense for the nine-month period ended September 30, ~~2017~~2020 was ~~$10,110,000~~$12,355,000 compared to ~~$10,552,000~~$12,501,000 for the same period in ~~2016~~2019 for a decrease of ~~$442,000 (4.2%~~$146,000 (1.2%). Salaries and employee benefits expense ~~increased $2,000~~decreased $158,000 (1.9%) from ~~$6,334,000~~$8,423,000 for the nine months ended September 30, ~~2016~~2019 to ~~$6,336,000~~$8,265,000 for the same period in ~~2017.~~2020. The decrease in salaries and benefits expense resulted from an increase in the deferral of direct loan origination costs, which reduced salary expense. Total origination costs for 2020 were $635,000 compared to $340,000 for 2019. Of the $635,000 in deferred loan origination costs recorded in 2020, $332,000 was related to PPP loans. The benefit from the deferred loan origination costs was partially offset by normal cost of living increases and promotions and higher allocations to the earned but unpaid personal time. Salary expense increased $49,000 (0.9%) from $5,707,000 in 2019 to $5,756,000 in 2020. Expenses related to accruals for paid time off increased $42,000 (22.5%) from $187,000 in 2019 to $229,000 in 2020. Average full-time equivalent employees was 102 in 2019 compared to 101 during 2020. Occupancy expense ~~decreased $92,000 (10.4%~~increased $5,000 (0.7%) and furniture and equipment expense ~~decreased $54,000 (11.0%~~increased $22,000 (5.5%). FDIC assessments ~~decreased $77,000 (33.0%~~increased $90,000 (187.5%). OREO related expenses ~~decreased $294,000 (89.1%~~increased $12,000 (80.0%) during ~~2017~~2020 to ~~$36,000,~~$27,000, from ~~$330,000~~$15,000 in ~~2016. The decrease in OREO expenses is directly related to a $376,000 property write-down partially offset by a $117,000 gain on sale, both items occurring in the first quarter of 2016.~~2019. Other expenses ~~increased $73,000 (3.2%~~decreased $117,000 (4.1%) from ~~$2,277,000~~$2,847,000 for the nine months ended September 30, ~~2016~~2019 to ~~$2,350,000~~$2,730,000 for the same period in ~~2017.~~ 2020. The increased FDIC assessments result from the Small Bank Assessment Credits received in 2019. There were numerous line items that make up the $117,000 decrease in other expenses including advertising and business development. Advertising and business development decreased $253,000 (58.7%) from $431,000 in 2019 to $178,000 in 2020. Partially offsetting the reduced advertising and business development costs was a $70,000 expense related to a retirement plan payment to the estate of a director who passed away during the second quarter of 2020 and internet processing which increased $74,000 (42.3%) from $175,000 in 2019 to $249,000 in 2020.

The overhead efficiency ratio (fully taxable equivalent) for the first nine months of ~~2017~~2020 was ~~63.1%~~59.6% as compared to ~~62.1%~~67.6% in the same period of ~~2016.~~2019.

Provision for Income Taxes

Federal and state income taxes for the quarter ended September 30, ~~2017 decreased $530,000 (53.6%~~2020 increased $86,000 (15.3%) from ~~$989,000~~$561,000 in the third quarter of ~~2016~~2019 to ~~$459,000~~$647,000 in the third quarter of ~~2017~~2020 and ~~decreased $556,000 (24.5%~~increased $418,000 (30.3%), from ~~$2,274,000~~$1,380,000 in the nine months ended September 30, ~~2016~~2019 to ~~$1,718,000~~$1,798,000 for the nine months ended September 30, ~~2017.~~2020. The combined federal and state effective tax rate for the quarter ended September 30, ~~2017~~2020 was ~~29.3%~~26.7%, compared to ~~35.3%~~26.3% for the third quarter of ~~2016.~~2019 and for the nine months ended September 30, 2020, the effective tax rate was 26.7% compared to 25.7% for the nine months ended September 30, 2019. The higher taxes and effective tax rate in 2020 compared to 2019 is related to a higher level of taxable income, a lower level of benefits from tax exempt municipal bonds, and the tax treatment of equity based compensation under Accounting Standards Update 2016-09 (“ASU 2016-09”).

Taxable income increased $294,000 (13.8%) from $2,132,000 in the third quarter of 2019 to $2,426,000 in the third quarter of 2020, and increased $1,377,000 (25.6%) from $5,373,000 in the first nine months of 2019 to $6,750,000 in the first nine months of 2020. Under ASU 2016-09, if the market value of the Company’s stock price on the date restricted stock vests is higher than the Company’s stock price on the date the restricted stock was awarded the Company receives a tax credit for the difference in values and if the market price on the vesting date is lower than the stock price on the award date the Company recognizes additional tax expense.

In the third quarter of 2019 the Company recognized a $3,000 tax credit under ASU 2016-09 and in the third quarter of 2020 the Company recognized a $4,000 tax credit under ASU 2016-09. For the nine months ended September 30, ~~2017,~~2019, the ~~combined federal~~Company recognized a $32,000 tax credit under ASU 2016-09 and ~~state effective tax rate was 32.4% compared to 33.6% for~~in the nine months ended September 30, ~~2016.~~2020, the Company recognized a $34,000 tax expense under ASU 2016-09. The ~~lower effective~~average balance of tax ~~rate~~exempt municipal bonds decreased $1,675,000 (23.6%) from $7,103,000 in the third quarter of 2017 results from tax benefits realized under ASU 2016-09. The Company adopted ASU 2016-09 in 2017 and the benefit for the third quarter of 2017 was $118,000. The lower provision for taxes in 2017 resulted from a lower level of taxable income. Taxable income decreased $1,234,000 (44.0%) from $2,802,0002019 to $5,428,000 in the third quarter of ~~2016 to $1,568,000 in the third quarter of 2017~~2020, and decreased ~~$1,455,000 (21.5%~~$5,407,000 (50.0%) from ~~$6,763,000~~$10,822,000 in the first nine months of ~~2016~~2019 to ~~$5,308,000 during~~$5,415,000 in the ~~same period in 2017. For the~~first nine months ~~ended September 30, 2017, the Company recognized a benefit~~ of ~~$186,000 related to the adoption of ASU No. 2016-09.~~2020.

Balance Sheet Analysis

The Company’s total assets were ~~$655,644,000~~$857,934,000 at September 30, ~~2017~~2020 compared to ~~$651,450,000~~$720,353,000 at December 31, ~~2016,~~2019, representing an increase of ~~$4,194,000 (0.6%~~$137,581,000 (19.1%). The average assets for the three months ended September 30, ~~2017~~2020 were ~~$649,427,000,~~$861,843,000, which represents an increase of ~~$13,866,000 (2.2%~~$153,145,000 (21.6%) from the average balance of ~~$635,561,000~~$708,698,000 during the three-month period ended September 30, ~~2016.~~2019. The average assets for the nine months ended September 30, ~~2017~~2020 were ~~$649,845,000,~~$802,388,000, which represents an increase of ~~$17,725,000 (2.8%~~$107,024,000 (15.4%) from the average balance of ~~$632,120,000~~$695,364,000 during the nine-month period ended September 30, ~~2016.~~2019.

Cash and Cash Equivalents

The balance held in cash and cash equivalents at September 30, 2020, was $73,038,000 compared to $17,810,000 at December 31, 2019 an increase of $55,228,000 (310.1%). The primary reason for the increase in cash and cash equivalents since December 31, 2019 is directly related to the increase in deposit balances during the same period.

Investment Securities

Table Five below summarizes the values of the Company’s investment securities held on September 30, 2020 and December 31, 2019.

Table Five: Investment Securities Composition

(dollars in thousands)
Available-for-sale (at fair value)	September 30, 2020		December 31, 2019
Debt securities:
U.S. Government Agencies and Sponsored Entities	$	243,687	$	241,887
Obligations of states and political subdivisions		16,362		13,447
Corporate bonds		6,868		6,631
Total available-for-sale investment securities	$	266,917	$	261,965

Held-to-maturity (at amortized cost)
Debt securities:
U.S. Government Agencies and Sponsored Entities	$	15	$	248
Total held-to-maturity investment securities	$	15	$	248

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

~~Table Five below summarizes the values of the Company’s investment securities held on September 30, 2017 and December 31, 2016.~~

~~Table Five: Investment Securities Composition~~

(dollars in thousands)
Available-for-sale (at fair value) September 30,
2017 December 31,
2016
Debt securities:
U.S. Government Agencies and Sponsored Agencies $ 220,283 $ 229,785
Obligations of states and political subdivisions 22,828 22,612
Corporate bonds 6,668 1,519
Corporate stock 100 104
Total available-for-sale investment securities $ 249,879 $ 254,020

~~Held-to-maturity (at amortized cost)~~

Debt securities:
U.S. Government Agencies and Sponsored Agencies $ 404 $ 483
Total held-to-maturity investment securities $ 404 $ 483

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

Loans ~~and Leases~~

The Company’s historical lending activities have been in the following principal areas: (1) commercial; (2) commercial real estate; (3) multi-family real estate; (4) real estate construction (both commercial and residential); (5) residential real estate; (6) ~~lease financing receivable; (7)~~ agriculture; and ~~(8)~~(7) consumer loans. The Company’s continuing focus in our market area, new borrowers developed through the Company’s marketing efforts, and credit extensions expanded to existing borrowers resulted in the Company ~~adding $26~~originating $63.5 million in new loans during the first nine months of ~~2017.~~2020. In addition to the $63.5 million in new production the Company also originated 477 PPP loans totaling $80.2 million. This production was partially offset by ~~higher than anticipated~~ pay downs and payoffs, and excluding the PPP loans resulted in an overall ~~net decrease~~increase in net loans ~~and leases~~ of ~~$1,848,000 (0.6%~~$3,636,000 (0.9%) from ~~$324,086,000 at~~ December 31, ~~2016 to $322,238,000 at~~2019. At September 30, ~~2017. Despite the decrease in~~2020, gross PPP loans were $75,804,000 and had related fees of $1,595,000, for a net balance of $74,209,000. These PPP loans were recorded as commercial loans. At September 30, 2020, net loans in 2017, the market in which the Company operates has begun to show demand for credit products as the continued low rate environment and expectations for economic expansion have increased refinancing as well as new loan activity. Table Six below summarizes the composition of the loan portfolio as of September 30, 2017 and December 31, 2016. excluding net PPP loans were $397,438,000.

~~Table Six: Loan and Lease Portfolio Composition~~

(dollars in thousands) September 30, 2017 December 31, 2016 Change in Percentage
$ % $ % dollars change
Commercial $ 26,753 8 % $ 35,374 11 % $ (8,621 ) (24.4 %)
Real estate
Commercial 190,246 58 % 191,129 58 % (883 ) (0.5 %)
Multi-family 79,021 24 % 73,373 22 % 5,648 7.7 %
Construction 10,548 3 % 9,180 3 % 1,368 14.9 %
Residential 17,328 5 % 15,718 5 % 1,610 10.2 %
Lease financing receivable 249 0 % 404 — % (155 ) (38.4 %)
Agriculture 1,685 1 % 2,302 1 % (617 ) (26.8 %)
Consumer 1,186 1 % 1,650 — % (464 ) (28.1 %)
Total loans and leases 327,016 100 % 329,130 100 % (2,114 ) (0.6 %)
Deferred loan and lease fees, net (227 ) (222 ) (5 )
Allowance for loan and lease losses (4,551 ) (4,822 ) 271
Total net loans and leases $ 322,238 $ 324,086 $ (1,848 ) (0.6 %)

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

Commercial loans consist of credit lines for operating needs, loans for equipment purchases, working capital, and various other business loan products. Consumer loans include a range of traditional consumer loan products such as personal lines of credit and homeowner equity lines of credit and loans to finance purchases of autos (including classic and collectors autos), boats, recreational vehicles, mobile homes and various other consumer items. Construction loans are generally comprised of commitments to customers within the Company’s service area for construction of commercial properties, multi-family properties and custom and semi-custom single-family residences. Other real estate loans consist primarily of loans secured by first trust deeds on commercial, multi-family, and residential properties typically with maturities from 3three to 10ten years and original loan-to-value ratios generally from 65% to 75%. Agriculture loans consist primarily of ~~vineyard~~first trust deed loans on properties that produce grapes, fruit, and nut loans. In general, except in the case of loans under SBA programs or Farm Services Agency guarantees, the Company does not make long-term residential mortgage loans.

~~“Subprime” real estate~~

Table Six below summarizes the composition of the loan portfolio in dollars and as a percentage of total loans ~~generally refer to residential mortgages made to higher-risk borrowers with lower credit and/or income histories. Within the banking industry, many~~as of these loans are originated with adjustable interest rates that reset upward after an introductory period. These “subprime” loans coupled with declines in housing prices led to an increase in default rates during the last recession, resulting in many instances of increased foreclosure rates as the adjustable interest rates reset to higher levels. The Company did not have any such “subprime” loans at September 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

Table Six: Loan Portfolio Composition

(dollars in thousands)	September 30, 2020						December 31, 2019						Change in			Percentage
	$			%			$			%			dollars			change
Commercial (1)	$	120,156			25	%	$	43,019			11	%	$	77,137			179.3	%
Real estate
Commercial		225,129			47	%		214,604			54	%		10,525			4.9	%
Multi-family		42,739			9	%		56,818			14	%		(14,079	)		(24.8	%)
Construction		30,504			6	%		23,169			6	%		7,335			31.6	%
Residential		27,720			6	%		29,180			7	%		(1,460	)		(5.0	%)
Agriculture		6,138			1	%		6,479			2	%		(341	)		(5.3	%)
Consumer		28,160			6	%		26,392			6	%		1,768			6.7	%
Total loans		480,546			100	%		399,661			100	%		80,885			20.2	%
Deferred loan fees and costs, net		(2,283	)					(721	)					(1,562	)
Allowance for loan losses		(6,616	)					(5,138	)					(1,478	)
Total net loans	$	471,647					$	393,802					$	77,845			19.8	%

(1)	The September 30, 2020 balance includes $75,804,000 in PPP loans.

Risk Elements

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

Ultimately, underlying trends in economic and business cycles influence credit quality. American River Bank’s business is concentrated in the Sacramento Metropolitan Statistical Area, which is a diversified economy, but with a large State of California government presence and employment base; in Sonoma County, which is focused on businesses within the two communities in which the Bank has offices (Santa Rosa and Healdsburg); and in Amador County, in which the Bank is primarily focused on businesses within the three communities in which it has offices (Jackson, Pioneer, and Ione). The economy of Sonoma County is diversified with professional services, manufacturing, agriculture and real estate investment and construction, while the economy of Amador County is reliant upon government, services, retail trade, manufacturing industries and Indian gaming. The Company serviced markets in Santa Clara, Contra Costa, and Alameda Counties through a loan production office. In the fourth quarter of 2016, the Company discontinued operating the loan production office. The economies of Santa Clara, Contra Costa and Alameda Counties are diversified with professional services, manufacturing, technology related companies, real estate investment and construction.

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

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 flows 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 ~~90%~~81% of the Company’s loan ~~and lease~~ portfolio at September 30, ~~2017~~2020 and ~~88% as of~~ December 31, ~~2016.~~2019. The September 30, 2020 figure excludes the PPP loans, which are 100% guaranteed by the SBA. Management believes that the residential land and construction portion of the Company’s loan portfolio carries a reasonable level of credit risk. As of September 30, ~~2017,~~2020, outstanding unimproved residential land ~~commitments~~and construction loans were ~~$2,381,000~~$7,744,000 (or just ~~0.8%~~2.4% of the total real estate loans). Of the ~~$2,381,000, $2,326,000 (98%~~$7,744,000, $1,617,000 (20.9%) was represented by one amortizing loan, which was considered well-secured, with a favorable loan-to-value ratio. Management currently believes that it maintains its allowance for loan ~~and lease~~ losses at levels adequate to reflect the loss risk inherent in its total loan portfolio.

A decline in the economy in general, or decline in real estate values in the Company’s market areas, in particular, could have an adverse impact on the collectability of real estate loans and require an increase in the provision for loan ~~and lease~~ losses. This could adversely affect the Company’s future prospects, results of operations, profitability and stock price. See “Potential Impact of COVID-19.” Management believes that its lending practices and underwriting standards are structured with the intent to minimize losses; however, there is no assurance that losses will not occur. The Company’s loan practices and underwriting standards include, but are not limited to, the following: (1) maintaining a thorough understanding of the Company’s market 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.

~~Northern California Wildfires~~

Beginning on October 8, 2017, much of the North Bay region of Northern California was struck by massive wildfires. It is too early to estimate the losses to property but experts are predicting it will be in the billions of dollars and the near term economic impact may be significant. Our two offices in Healdsburg and Santa Rosa were not damaged. Some of the Company’s clients did lose their homes, but we do not have loans on those properties. At this time, we believe that losses to commercial or business property that secure our loans is not material. At September 30, 2017, we had approximately 8% of total loans in the Sonoma County market, the majority of which are secured by commercial property. Management is closely monitoring the situation and continues to respond to the immediate needs of clients and employees. It is not possible at this time to assess the full scope of this disaster or its impact on our clients and the economy of the region.

Nonperforming, Past Due and Restructured Loans ~~and Leases~~

~~At September 30, 2017, nonperforming~~Management places loans ~~and leases (those loans and leases~~ on nonaccrual status ~~and those loans and leases still accruing and~~when they become 90 days past due ~~90 days~~ or ~~more) were $2,317,000~~if a loss is expected, unless the loan is well secured and in the process of collection. Loans are partially or ~~0.71%~~fully charged off when, in the opinion of ~~total loans and leases.~~management, collection of such amount appears unlikely. The ~~$2,317,000~~recorded investments in nonperforming loans, and leases was made up of three loans. Two of those loans totaling $2,027,000 were current (less than 30 days past due pursuant to their original or modified terms). Nonperforming loans and leases were $19,000 or 0.01% of total loans and leases at December 31, 2016. There were no specific reserves held on the nonperforming loans at September 30, 2017 or at December 31, 2016.

The overall level of nonperforming loans decreased $2,000 (10.5%) to $17,000 during the first quarter of 2017 from $19,000 at December 31, 2016, and decreased further by $5,000 (29.4%) during the second quarter of 2017 and increased by $2,305,000 (192.1%) during the third quarter of 2017. At December 31, 2016, the Company’s nonperforming loans included two consumer loans totaling $19,000. At September 30, 2017, the Company’s nonperforming loans included one real estate loan totaling $290,000, one consumer loan totaling $8,000 and one commercial loan totaling $2,019,000. The $2,019,000 commercial loan is a shared national credit to a large retailer purchased by the Company in 2013. The initial loan balance was $3,000,000 and has since paid as agreed down to $2,692,000. In September 2017, the retailer filed for bankruptcy reorganization. At that time the loan was placed on nonaccrual and the balance was reduced to $673,000 through a $673,000 loss charged to the loan loss allowance. This bankruptcy filing occurred late in the third quarter and the Company used the latest information available to perform the impairment analysis. As more information becomes available, the Company will update the impairment analysis, which ~~could lead to further charges to the loan loss allowance.~~

~~Table Seven below sets forth~~includes nonaccrual loans and loans ~~past due~~that were 90 days or more ~~as of~~past due and on accrual, totaled zero at both September 30, ~~2017~~2020 and December 31, ~~2016.~~2019, respectively.

Table Seven: Nonperforming Loans and Leases
(dollars in thousands)
September 30, December 31,
2017 2016
Past due 90 days or more and still accruing:
Commercial $ — $ —
Real estate — —
Lease financing receivable — —
Agriculture — —
Consumer — —
Nonaccrual:
Commercial 2,019 —
Real estate 290 —
Lease financing receivable — —
Agriculture — —
Consumer 8 19
Total nonperforming loans $ 2,317 $ 19

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 September 30, ~~2017.~~2020. Management is not aware of any potential problem loans, which were accruing and current at September 30, ~~2017,~~2020, where serious doubt exists as to the ability of the borrower to comply with the present repayment terms and that would result in a significant loss to the ~~Company.~~Company apart from those loans identified in the Bank’s impairment analysis.

Table Seven below sets forth nonaccrual loans and loans past due 90 days or more as of September 30, 2020 and December 31, 2019.

Table Seven: Nonperforming Loans
(dollars in thousands)
	September 30,		December 31,
	2020		2019
Past due 90 days or more and still accruing:
Commercial	$	—	$	—
Real estate		—		—
Agriculture		—		—
Consumer		—		—
Nonaccrual:
Commercial		—		—
Real estate		—		—
Agriculture		—		—
Consumer		—		—
Total nonperforming loans	$	—	$	—

There were no loans that were considered past due between 30 and 89 days at September 30, 2020 and $75,000 at December 31, 2019.

Impaired Loans ~~and Leases~~

The Company considers a loan to be impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due (principal and interest) according to the original contractual terms of the loan ~~or lease~~ agreement. The measurement of impairment may be based on (i) the present value of the expected cash flows of the impaired loan ~~or lease~~ discounted at the loan’s ~~or lease’s~~ original effective interest rate, (ii) the observable market price of the impaired loan, ~~or lease,~~ or (iii) the fair value of the collateral of a collateral-dependent loan. The Company does not apply this definition to smaller-balance loans ~~or leases~~ that are collectively evaluated for credit risk. In assessing whether a loan ~~or lease~~ is impaired, the Company typically reviews loans ~~or leases~~ graded substandard or lower with outstanding principal balances in excess of $100,000, as well as loans considered troubled debt restructures with outstanding principal balances in excess of $25,000. The Company identifies troubled debt restructures by reviewing each renewal, modification, or extension of a loan with a screening document. This document is designed to identify any characteristics of such a loan that would qualify it as a troubled debt restructure. If the characteristics are not present that would qualify a loan as a troubled debt restructure, it is deemed to be a modification.

At September 30, ~~2017,~~2020, the recorded investment in loans ~~and leases~~ that were considered to be impaired totaled ~~$17,562,000,~~$7,108,000, all of which ~~includes $15,245,000 in~~are considered performing ~~loans and leases.~~loans. Of the total impaired loans of ~~$17,562,000,~~$7,108,000, loans totaling ~~$11,354,000~~$5,415,000 were deemed to require no specific reserve and loans totaling ~~$6,208,000~~$1,693,000 were deemed to require a related valuation allowance of ~~$404,000.~~$128,000. Of the ~~$11,354,000~~$5,415,000 impaired loans that did not carry a specific reserve there were ~~$5,831,000~~$469,000 in loans ~~or leases~~ that had previous partial charge-offs and ~~$5,523,000~~$4,946,000 in loans ~~or leases~~ that were analyzed and determined not to require a specific reserve or charge-off because the collateral value or discounted cash flow value exceeded the loan ~~or lease~~ balance. The recorded investment in loans ~~and leases~~ that were considered to be impaired totaled ~~$17,297,000~~$7,604,000 at December 31, ~~2016.~~2019. Of the total impaired loans of ~~$17,297,000,~~$7,604,000, loans totaling ~~$11,244,000~~$5,848,000 were deemed to require no specific reserve and loans totaling ~~$6,053,000~~$1,756,000 were deemed to require a related valuation allowance of ~~$421,000.~~$142,000.

~~The~~

Prior to 2013, the Company ~~has~~had been operating in a market that ~~has recently~~had experienced ~~sporadic improvement~~significant decreases in real estate values of commercial, residential, land, and construction properties. As such, the Company is focused on monitoring collateral values for those loans considered collateral dependent. For collateral dependent loans ~~in excess of $250,000,~~ the Company performs an internal evaluation or obtains an updated appraisal, as ~~necessary, which is generally once every twelve months.~~necessary. In the third quarter of ~~2017,~~2020, the Company had net loan losses of ~~$630,000 and a~~$27,000 with $445,000 in provisions for loan losses. For the nine months ended September 30, 2020, the Company had net loan losses of $7,000 with $1,485,000 in provisions for loan losses. Despite the Company’s continued improvement in the credit quality of the loan portfolio, due to the uncertain economic impact on the Company’s borrowers due to COVID-19, management believes that the $445,000 addition to the provision for loan losses during the third quarter of ~~$300,000.~~2020 was warranted. In the third quarter of ~~2016,~~2019, the Company had net loan ~~and lease~~ recoveries of ~~$519,000 and a negative provision of $668,000 (i.e., a reduction of $668,000~~$72,000 with $120,000 in ~~the allowance~~provisions for loan and lease ~~losses).~~losses and for the nine months ended September 30, 2019, the Company had net recoveries of $81,000 with $480,000 in provisions for loan losses.

During the quarters ended September 30, ~~2017~~2020 and ~~2016,~~September 30, 2019, there were no loans that were modified as troubled debt restructurings. There were no payment defaults ~~during the three months ended September 30, 2017 or September 30, 2016~~ on troubled debt restructurings ~~made in~~within 12 months following the ~~preceding twelve months.~~modification for the three-month and nine-month periods ended September 30, 2020.

There were no payment defaults on troubled debt restructurings within 12 months following the modification for the three-month and nine-month periods ended September 30, 2019. At September 30, ~~2017~~2020 and December 31, ~~2016~~2019 there were no unfunded commitments on those loans considered troubled debt restructures.

Working with Borrowers

The FDIC is encouraging financial institutions, like American River Bank, to provide borrowers affected in a variety of ways by the COVID-19 outbreak with payment accommodations that facilitate their ability to work through the immediate impact of the virus. Such assistance provided in a prudent manner to borrowers facing short-term setbacks could help the borrower and our community to recover. The FDIC indicated that these loan accommodation programs should be ultimately targeted toward loan repayment, but that if provided in a prudent manner such programs can help borrowers and communities recover from short-term setbacks.

The FDIC suggested that financial institutions should consider ways to address any deferred or skipped payments such as extending the original maturity date or by making those payments due in a balloon payment at the maturity date of the loan. As of June 30, 2020, the Company had made 107 such loan payment deferrals totaling $96,465,000. During the third quarter 2020, two additional loans totaling $2,980,000 were extended loan payment deferrals and four loans that had previously been provided loan payment deferrals totaling $2,123,000 paid off in full. In addition, during the third quarter 69 loans that had previously been granted loan payment deferrals began making their loan payments and are no longer on a loan deferral program. As of September 30, 2020, 39 loans totaling $39,576,000 were on a loan deferral program and of these loans, four loans totaling $4,074,000 were in their initial deferral period while 32 loans totaling $35,502,000 were provided an additional deferral period either after their initial deferral period ended or prior to the ending of their initial deferral period. The following arrangements had been made for borrowers requesting these loan deferrals:

Three loans totaling $2,992,000 that had payments deferred for principal and interest for three months with the maturity extended three months;

One loan totaling $30,000 that had payments deferred payments for principal and interest for four months with the maturity extended four months;

Twenty-eight loans totaling $30,894,000 that had payments deferred for principal and interest for six months with the maturity extended six months;

One loan totaling $25,000 that had payments deferred for principal and interest for three months, due at maturity;

One loan totaling $3,723,000 that had payments deferred for principal and interest for four months, due at maturity;

Two loans totaling $1,912,000 that had principal payments deferred but were paying interest only for six months, maturity was not extended.

The Company continues to accrue interest on all of the loan deferrals. The Company expects to continue to work with its borrowers and make prudent credit arrangements as needed, while intending to continue to act in a safe and sound manner. The Company has continued to keep in close contact with the borrowers that have been granted the remaining 39 loan payment deferrals and continued to monitor those loans that have begun making their loan payments to track their payment history and evaluate whether it is appropriate to upgrade or downgrade the individual loan ratings. None of the borrowers that had been granted loan deferrals were more than 30 days past due immediately preceding the deferral date, and for those that have resumed making payments, none are more than 30 days past due at September 30, 2020.

Allowance for Loan ~~and Lease~~ Losses Activity

The Company maintains an allowance for loan ~~and lease~~ losses (“ALLL”) to cover probable losses inherent in the loan ~~and lease~~ portfolio, which is based upon management’s estimate of those losses. The ALLL is established through a provision for loan ~~and lease~~ losses and is increased by provisions charged against current earnings and recoveries and reduced by charge-offs.

Actual losses for loans ~~and leases~~ can vary significantly from this estimate. The methodology and assumptions used to calculate the allowance are continually reviewed as to their appropriateness given the most recent losses realized and other factors that influence the estimation process. The model assumptions and resulting allowance level are adjusted accordingly as these factors change. Table Eight below summarizes, for the periods indicated, the activity in the ALLL.

Table Eight: Allowance for Loan Losses

(dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Average loans outstanding	$	472,917		$	368,160		$	439,295		$	349,718

Allowance for loan losses at beginning of period	$	6,198		$	4,761		$	5,138		$	4,392
Loans charged off:
Commercial		(27	)		—			(27	)		—
Real estate		—			—			—			—
Agriculture		—			—			—			—
Consumer		—			—			(6	)		—
Total		(27	)		—			(33	)		—
Recoveries of loans previously charged off:
Commercial		—			2			13			5
Real estate		—			2			13			8
Agriculture		—			—			—			—
Consumer		—			68			—			68
Total		—			72			26			81
Net loans (charged off) recovered		(27	)		72			(7	)		81
Additions to allowance charged to operating expenses		445			120			1,485			480
Allowance for loan losses at end of period	$	6,616		$	4,953		$	6,616		$	4,953
Ratio of net charge-offs (recoveries) to average loans outstanding (annualized)		0.02	%		-0.08	%		0.00	%		-0.03	%
Provision of allowance for loan losses to average loans outstanding (annualized)		0.37	%		0.13	%		0.45	%		0.18	%
Allowance for loan losses to loans net of deferred fees at end of period		1.38	%		1.32	%		1.38	%		1.32	%
Allowance for loan losses to non PPP loans net of deferred fees at end of period		1.64	%		1.32	%		1.64	%		1.32	%

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

The ALLL totaled $6,616,000 or 1.38% of total loans at September 30, 2020 compared to $5,138,000 or 1.29% of total loans at December 31, 2019. Excluding the 100% SBA guaranteed PPP loans, which do not carry the same risk as the rest of the loan portfolio, the ALLL to total loans was 1.64% at September 30, 2020. The Company establishes general and specific reserves in accordance with accounting principles generally accepted in the United States of America. The ALLL is composed of categories of the loan ~~and lease~~ portfolio based on loan type and loan rating; however, the entire allowance is available to cover actual loan ~~and lease~~ losses. While management uses available information to recognize possible losses on loans, ~~and leases,~~ future additions to the allowance may be necessary, based on changes in economic conditions and other matters. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ALLL. Such agencies may require the Company to provide additions to the allowance based on their judgment of information available to them at the time of their examination. The ALLL totaled $4,551,000 or 1.39% of total loans and leases at September 30, 2017 compared to $4,822,000 or 1.47% of total loans and leases at December 31, 2016. Table Eight below summarizes, for the periods indicated, the activity in the ALLL.

4445

~~Table Eight: Allowance for Loan and Lease Losses~~

(dollars in thousands) Three Months
Ended September 30, Nine Months
Ended September 30,
2017 2016 2017 2016

Average loans and leases outstanding $ 322,904 $ 307,324 $ 319,824 $ 301,645

Allowance for loan and lease losses at beginning of period $ 4,881 $ 5,132 $ 4,822 $ 4,975

Loans and leases charged off:
     Commercial (673 ) — (673 ) —
     Real estate — (68 ) — (68 )
     Lease financing receivable — — — —
     Agriculture — — — —
     Consumer — — — —
Total (673 ) (68 ) (673 ) (68 )
Recoveries of loans and leases previously charged off:
     Commercial 2 585 5 658
     Real estate 1 2 54 14
     Lease financing receivable 39 — 39 —
     Agriculture — — — —
     Consumer 1 — 4 72
Total 43 587 102 744
Net loans and leases charged off (recovered) 630 (519 ) 571 (676 )
Additions (reductions) to allowance charged (credited) to operating expenses 300 (668 ) 300 (668 )
Allowance for loan and lease losses at end of period $ 4,551 $ 4,983 $ 4,551 $ 4,983
Ratio of net charge-offs (recoveries) to average loans and leases outstanding (annualized) 0.77 % -0.67 % 0.24 % -0.30 %
Provision of allowance for loan and lease
losses to average loans and leases
outstanding (annualized) 0.37 % -0.86 % 0.13 % -0.30 %
Allowance for loan and lease losses to loans and leases net of deferred fees  at end of period 1.39 % 1.57 % 1.39 % 1.57 %

The ALLL as a percentage of impaired loans ~~and leases~~ was ~~25.9%~~93.1% at September 30, ~~2017~~2020 and ~~27.9%~~67.6% at December 31, ~~2016.~~2019. Of the total nonperforming and impaired loans ~~and leases~~ outstanding as of September 30, ~~2017,~~2020, there were ~~$5,831,000~~$648,000 in loans ~~or leases~~ that had been reduced by partial charge-offs of $1,340,000. As these loan or lease balances are charged off, the remaining balances, following analysis, normally do not initially require specific reserves and are not eligible for general reserves. The impact of this on credit ratios is such that the Company’s ALLL as a percentage may be lower, because the partial charge-offs have reduced the potential future losses related to those credits.$281,000.

The Company’s policy with regard to loan ~~or lease~~ charge-offs continues to be that a loan ~~or lease~~ is charged off against the ALLL when management believes that the collectability of the principal is unlikely. As previously discussed in the “Impaired ~~Loans and Leases”~~Loans” section, certain loans are evaluated for impairment. Generally, if a loan is collateralized by real estate or other collateral, and considered collateral dependent, the impaired portion will be charged off to the allowance for loan ~~and lease~~ losses unless it is in the process of collection, in which case a specific reserve may be warranted. ~~If the collateral is other than real estate and considered impaired, a specific reserve may be warranted.~~

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. Formula allocations are calculated by applying historical loss factors to outstanding loans with similar characteristics. Historical loss factors are based upon the Company’s loss experience. These historical loss factors are adjusted for changes in the business cycle and for significant factors that, in management’s judgment, affect the collectability of the loan portfolio as of the evaluation date. The discretionary allocation is based upon management’s evaluation of various loan segment conditions that are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of the Company, credit quality trends, collateral values, loan volumes and concentrations, and other business conditions. 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~~is 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.

Other Real Estate Owned

At September 30, ~~2017,~~2020 and December 31, 2019, the Company had one other real estate owned (“OREO”) property ~~with a book value of $961,000. This is a reduction of $387,000 (28.7%) from the $1,348,000 reported as of December 31, 2016.~~totaling $846,000. During ~~the third quarter of 2017,~~2020, the Company did not ~~foreclose on~~acquire or sell any ~~property and sold one~~ OREO ~~property that had a book value of $387,000 and recorded an $8,000 gain on sale.~~properties nor were there any impairment charges to this property. There ~~were~~was no valuation ~~adjustments to the book value of the existing OREO properties during the third quarter of 2017.~~allowance at September 30, 2020 nor at year-end 2019. The Company believes that the OREO property owned at September 30, ~~2017 is~~2020 was carried approximately at fair value.

~~Deposits~~Other Assets

Other assets consists of bank owned life insurance, accrued interest receivable and other assets. There was no significant change in the balance in bank owned life insurance at September 30, 2020 ($16,021,000) compared to December 31, 2019 ($15,763,000). Accrued interest receivable and other assets decreased from $8,148,000 at December 31, 2019 to $7,979,000 at September 30, 2020, a decrease of $169,000 (2.1%). A portion of this decrease is related to a decrease in the lease right-of-use-asset related to the Company’s adoption of ASU 2016-02 during 2019 which decreased $479,000 (16.7%), from $2,875,000 at December 31, 2019 to $2,396,000 at September 30, 2020. There were no repossessed automobiles at September 30, 2020, compared to $517,000 at December 31, 2019.

Deposits

At September 30, ~~2017,~~2020, total deposits were ~~$550,942,000~~$728,831,000 representing a ~~$6,136,000 (1.1%~~$123,994,000 (20.5%) increase from the December 31, ~~2016~~2019 balance of ~~$544,806,000.~~$604,837,000. The Company’s deposit growth plan for ~~2017~~2020 is to concentrate its efforts on increasing noninterest-bearing demand, interest-bearing money market and NOW accounts, and savings accounts while ~~allowing higher~~continuing to focus on maintaining an overall lower cost of funds than our peer group while at the same time ~~deposits to mature and close or renew at lower rates.~~retaining our high-valued deposit relationships. During the first nine months of ~~2017,~~2020, the ~~Company~~Company’s experienced ~~deposit account~~ increases in noninterest-bearing ~~accounts~~checking ($~~4,825,000~~69,807,000 or ~~2.4%~~30.3%), interest-bearing checking ($~~2,055,000~~14,556,000 or ~~3.2%~~20.8%), money market ~~accounts~~savings ($~~203,000~~35,328,000 or ~~0.2%~~22.3%), and savings ($~~1,742,000~~10,117,000 or ~~2.7%~~13.3%), and a decrease in time deposits ($~~2,689,000~~4,814,000 or ~~3.2%~~6.5%). Some of the deposit increase can be attributed to our business accounts depositing the funds received from their PPP loans into their accounts held at American River Bank, as well as, balance increases due to the deferral payroll tax payments and other government programs.

Other Borrowed Funds

Other borrowings outstanding as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, consist of advances (both long-term and short-term) from the FHLB. Table Nine below summarizes these borrowings.

Table Nine: Other Borrowed Funds

(dollars in thousands)


	September 30, 2017					December 31, 2016					September 30, 2020					December 31, 2019
	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
Short-term borrowings:
FHLB advances	$	2,000		1.37	%	$	3,500		1.01	%	$	12,000		0.32	%	$	9,000		1.46	%
Long-term borrowings:
FRBSF advances											$	1,960		0.35	%		—		—
FHLB advances	$	13,500		1.41	%	$	12,000		1.32	%	$	13,500		1.81	%	$	10,500		2.48	%

The maximum amount of short-term borrowings at any month-end during the first nine months of ~~2017~~2020 and ~~2016~~2019 was ~~$3,500,000~~$17,000,000 and ~~$28,500,000,~~$25,000,000, respectively. The FHLB advances are collateralized by loans and securities pledged to the FHLB. The FRBSP advances are collateralized by PPP loans pledged to the FRBSF under the Paycheck Protection Program Lending Facility. The following is a breakdown of rates and maturities on FHLB and FRBSF advances (dollars in thousands):

Short-term Long-term
Amount $ 2,000 $ 9,000
Maturity 2018 2018 to 2021
Weighted average rates 1.37 % 1.41 %

	Short-term			Long-term
Amount	$	12,000		$	15,460
Maturity		2020 to 2021			2021 to 2023
Weighted average rates		0.32	%		1.62	%

Capital Resources

The Company and American River Bank are subject to certain regulatory capital requirements administered by the Board of Governors of the Federal Reserve ~~Board~~System and the Federal Deposit Insurance Corporation (the “FDIC”). Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under ~~current~~ capital adequacy guidelines and the regulatory framework for prompt corrective action, ~~banking organizations~~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 September 30, 2017, shareholders’ equity was $82,255,000, representing a decrease~~

While the Company has elected to adopt the community bank leverage ratio framework in which it is no longer required to report the risk-based capital ratios, we believe reporting them to our shareholders allows them to compare the ratios of ~~$1,595,000 (1.9%) from $83,850,000 at December 31, 2016. The decrease resulted from repurchases~~companies of ~~common stock ($5,006,000)~~similar size and, the payment of cash dividends ($975,000) exceeding the additions from other comprehensive income ($135,000), net income for the period ($3,590,000), and the stock based compensation ($661,000). The Company’s ratio of Total Risk-Based Capital to risk adjusted assets was 20.00% at September 30, 2017 and 20.3% at December 31, 2016. Its Tier 1 Risk-Based Capital to risk-adjusted assets was 18.8% at September 30, 2017 and 19.0% at December 31, 2016. Its Leverage Ratio was 10.3% at September 30, 2017 and 10.5% at December 31, 2016.therefore, are presented below. Table Ten below lists the Company’s and American River Bank’s capital ratios at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019 as well as the minimum ~~capital ratios~~regulatory requirements.

Table Ten: Capital Ratios
	September 30,			December 31,			Minimum Regulatory Capital Requirements
	2020			2019			2020			2019
American River Bankshares
Leverage Ratio		8.2	%		9.2	%		N/A			N/A
Tier 1 Risk-Based Capital		15.3	%		14.8	%		N/A			N/A
Total Risk-Based Capital		16.5	%		15.9	%		N/A			N/A

American River Bank
Leverage Ratio		8.3	%		9.3	%		6.5	%		6.5	%
Common Equity Tier 1 Risk-Based Capital		15.4	%		14.9	%		N/A			7.0	%
Tier 1 Risk-Based Capital		15.4	%		14.9	%		N/A			8.5	%
Total Risk-Based Capital		16.7	%		16.1	%		N/A			10.5	%

At September 30, 2020, shareholders’ equity was $91,684,000, representing an increase of $8,775,000 (10.6%) from $82,909,000 at December 31, 2019. The increase results from net income for ~~capital adequacy~~the period ($4,952,000), stock based compensation ($319,000), and the ~~minimum requirement for a well-capitalized institution.~~

Table Ten: Capital Ratios
Capital to Risk-Adjusted Assets September 30,
2017 December 31,
2016 Minimum
Regulatory
Capital
Requirements Well-Capitalized
Minimum
Requirements
American River Bankshares
Leverage Ratio 10.3 % 10.5 % 4.0 % N/A
Tier 1 Risk-Based Capital 18.8 % 19.0 % 6.0 % N/A
Total Risk-Based Capital 20.0 % 20.3 % 8.0 % N/A

American River Bank
Leverage Ratio 10.4 % 10.6 % 4.0 % 5.0 %
Common Equity Tier 1 Risk-Based Capital 18.6 % 18.9 % 4.5 % 6.5 %
Tier 1 Risk-Based Capital 18.6 % 18.9 % 6.0 % 8.0 %
Total Risk-Based Capital 19.8 % 20.2 % 8.0 % 10.0 %

~~Capital ratios are reviewed on a regular basis to ensure that capital exceeds~~increase from other comprehensive income ($4,747,000), exceeding the ~~prescribed regulatory requirements and is adequate to meet future needs. Management believes that both the Company and American River Bank met all~~payment of ~~their capital adequacy requirements as of September 30, 2017 and December 31, 2016.~~cash dividends ($1,243,000).

In July 2013, the federal bank regulatory agencies issued interim final rules that revised the risk-based capital requirements in order to implement the “Basel III” regulatory capital reforms released by the Basel Committee on Banking Supervision and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Basel III reforms reflected in the final rules include an increase in the risk-based capital requirements and certain changes to capital components and the calculation of risk-weighted assets.

Effective January 1, 2015, bank holding companies with consolidated assets of $1 Billion or more ($3 Billion or more effective August 30, 2018) and banks like American River Bank must comply with ~~new~~ minimum capital ratio requirements ~~to be phased-in between January 1, 2015 and January 1, 2019,~~ which have been fully phased in. The capital requirements consist of the following: (i) a ~~new~~ common equity Tier 1 capital to total risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital to total risk weighted assets ratio of 6% ~~(increased from 4%)~~; (iii) a total capital to total risk weighted assets ratio of 8% ~~(unchanged from current rules)~~; and (iv) a Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%.

In addition, a “capital conservation buffer,” iswas established which ~~when fully phased-in will require~~requires maintenance of a minimum of 2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum capital ratio requirements described above. The 2.5% buffer ~~will increase~~increases the minimum capital ratios to (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The ~~new~~ buffer requirement ~~will be phased-in between January 1, 2016 and January 1, 2019. The buffer requirement for 2017 is 1.25% and will increase gradually to 2.50% by~~became fully phased in on January 1, 2019. If the capital ratio levels of a banking organization fall below the capital conservation buffer amount, the organization will be subject to limitations on (i) the payment of dividends; (ii) discretionary bonus payments; (iii) discretionary payments under Tier 1 instruments; and (iv) engaging in share repurchases.

The federal bank regulatory agencies also implemented changes to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital ratios begin to show signs of weakness. These changes became effective January 1, 2015On February 12, 2020, May 15, 2020, and require insured depository institutions to meet the following increased capital ratio requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

On January 25, 2017, the Company approved and authorized a 5% stock repurchase program for 2017 (the “2017 Program”). During the first six months of 2017, the Company completed the 2017 Program by repurchasing 333,086 shares of its common stock at an average price of $14.99 per share. On October 18, 2017, the Company approved and authorized an increase to this stock repurchase program. The repurchase target was also 5% of the outstanding common shares and is effective for the remainder of 2017. See Part II, Item 2, for additional disclosure regarding the 2017 Program. In addition, on January 25, 2017, the Company announced that it was reinstituting a quarterly cash dividend program and on February 22, 2017,August 12, 2020, the Company paid ~~a $0.05~~cash dividends of $0.07 per common share ~~cash dividend~~ to shareholders of record on ~~February 8, 2017. The Company has subsequently declared three additional $0.05~~January 29, 2020, April 29, 2020, and July 29, 2020, respectively. These 2020 quarterly cash dividends follow four quarterly cash dividends, totaling $0.24 per share, paid in 2019. Capital ratios are reviewed on a regular basis to ensure that capital exceeds the prescribed regulatory requirements and is adequate to meet future needs. Accordingly, we cannot provide any assurance that we will continue to pay cash ~~dividends.~~dividends at the same historical rates, or at all. Management believes that both the Company and American River Bank met all of their capital adequacy requirements as of September 30, 2020 and December 31, 2019.

Inflation

The impact of inflation on a financial institution differs significantly from that exerted on manufacturing or other commercial concerns primarily because its assets and liabilities are largely monetary. In general, inflation primarily affects the Company and itits subsidiaries through its effect on market rates of interest, which affects the Company’s ability to attract loan customers. Inflation affects the growth of total assets by increasing the level of loan demand and potentially adversely affects capital adequacy because loan growth in inflationary periods can increase at rates higher than the rate that capital grows through retention of earnings which may be generated in the future. In addition to its effects on interest rates, inflation increases overall operating expenses. Inflation has not had a significant effect upon the results of operations of the Company and its subsidiaries during the periods ended September 30, ~~2017~~2020 and ~~2016.~~2019.

Liquidity

~~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 September 30, ~~2017~~2020 were approximately ~~$11,321,000~~$35,729,000 and ~~$191,000,~~zero, respectively. Such loan commitments relate primarily to revolving lines of credit and other commercial loans and to real estate construction loans. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company’s sources of liquidity consist of cash and due from correspondent banks, overnight funds sold to correspondent banks, unpledged marketable investments and loans ~~held for sale and/or~~ pledged for secured borrowings. At September 30, ~~2017,~~2020, consolidated liquid assets totaled ~~$212.2~~$165.5 million or ~~32.4%~~19.3% of total assets compared to ~~$224.2~~$141.5 million or ~~34.4%~~19.6% of total assets on December 31, ~~2016.~~2019. In addition to liquid assets, the Company maintains two short-term unsecured lines of credit in the amount of $17,000,000 with two of its correspondent banks. At September 30, ~~2017,~~2020, the Company had $17,000,000 available under these credit lines. Additionally, the Bank is a member of the FHLB. At September 30, ~~2017,~~2020, the Bank could have arranged for up to ~~$127,739,000~~$164,746,000 in secured borrowings from the FHLB. These borrowings are secured by pledged mortgage loans and investment securities. At September 30, ~~2017,~~2020, the Bank had advances, borrowings and commitments (including letters of credit) outstanding of ~~$15,500,000,~~$25,500,000, leaving ~~$112,239,000~~$139,246,000 available under these FHLB secured borrowing arrangements. The Bank also has a secured borrowing arrangement with the Federal Reserve Bank of San Francisco. The borrowing can be secured by pledging selected loans and investment securities. At September 30, ~~2017,~~2020, the Bank’s borrowing capacity at the Federal Reserve Bank was ~~$7,281,000.~~$6,345,000. In April 2020, the Company entered into a borrowing arrangement with the Federal Reserve Bank of San Francisco to participate in the Paycheck Protection Program Lending Facility (“PPPLF”). The PPPLF allows commercial lenders to pledge PPP loans as collateral for advances up to the term of the original PPP loans, through December 31, 2020. At September 30, 2020, the Company had $1,960,000 pledged and borrowed under the PPPLF, and $73,844,000 in remaining PPP loans that could be pledged as collateral for future advances under the PPPLF. The Company serves primarily a business and professional customer base and, as such, its deposit base is susceptible to economic fluctuations. Accordingly, management strives to maintain a balanced position of liquid assets and borrowing capacity to offset the potential runoff of these volatile and/or cyclical deposits.

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

Off-Balance Sheet Items

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

The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company applies the same credit policies to commitments and letters of credit as it does for loans included on the consolidated balance sheet. As of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, commitments to extend credit and standby letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and standby letters of credit were ~~$11,512,000~~$35,729,000 and ~~$19,966,000~~$40,624,000 at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. As a percentage of net loans ~~and leases~~ these off-balance sheet items represent ~~3.6%~~6.9% and ~~6.2%~~10.3%, respectively. See also, Note 3 “Commitments and Contingencies” to the unaudited consolidated financial statements included herein for additional information about the Company’s off-balance sheet items.

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

~~Website Access~~

~~The Company maintains a website where certain~~ See also, Note 9 “Leases” to the unaudited consolidated financial statements included herein for additional 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.americanriverbank.com by accessing the~~Investor Relations~~ ~~link, then the~~~~Company News~~ ~~link, then 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.~~Company’s leases.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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

Simulation of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Using computer-modeling techniques, with specialized software built for this specific purpose for financial institutions, the Company is able to estimate the potential impact of changing interest rates on earnings, net interest margin and market value of equity. A balance sheet is prepared using detailed inputs of actual loans, securities and interest-bearing liabilities (i.e., deposits/borrowings). The balance sheet is processed using multiple interest rate scenarios. The scenarios include a rising rate forecast, a flat rate forecast and a falling rate forecast which take place within a one-year time frame. The net interest income is measured over ~~one~~one-year and two-year periods assuming a gradual change in rates over the twelve-month horizon. The simulation modeling attempts to estimate changes in the Company’s net interest income utilizing a detailed current balance sheet.

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.

Table Eleven below summarizes the effect on net interest income (NII) of a ±100 and ±200 basis point change in interest rates as measured against a constant rate (no change) scenario.

Table Eleven: Interest Rate Risk Simulation of Net Interest as of September 30, 2020

(dollars in thousands)	$ Change in NII from Current 12 Month Horizon			$ Change in NII from Current 24 Month Horizon
Variation from a constant rate scenario
+100bp	$	589		$	2,028
+200bp	$	1,143		$	4,050
-100bp	$	(301	)	$	(1,503	)
-200bp	$	(715	)	$	(2,928	)

After a review of the model results as of September 30, ~~2017,~~2020, the Company does not consider the fluctuations from the base case, to have a material impact on the Company’s projected results and are within the tolerance levels outlined in the Company’s interest rate risk polices. The simulations of earnings do not incorporate any management actions, which might moderate the negative consequences of interest rate deviations. Therefore, they do not reflect likely actual results, but serve as reasonable estimates of interest rate risk.

Item 4. Controls and Procedures.

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, ~~2017.~~2020. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures ~~are~~were effective ~~in timely making known to them material information relating to~~as of the ~~Company and~~end of the ~~Company’s consolidated subsidiaries required to be disclosed in the Company’s reports filed or submitted under the Exchange Act.~~period covered by this report.

During the quarter ended September 30, ~~2017,~~2020, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no significant changes in the risk factors previously disclosed in the Company’s Form 10-K for the period ended December 31, ~~2016,~~2019, filed with the Securities and Exchange Commission on February ~~24, 2017.~~21, 2020, except as described below.

The COVID-19 pandemic has significantly impacted the State of California and our business. We have already experienced an adverse impact on our business as result of the pandemic. The ultimate impact of the COVID-19 pandemic on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. We, and many of our clients, have been adversely affected by the COVID-19 pandemic. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering-in-place requirements in many states and communities. Our operations, like those of other financial institutions, are significantly influenced by economic conditions in California, including the strength of the real estate market and construction industry. As a result, the demand for our products and services has been, and may continue to be, adversely impacted.

Furthermore, the pandemic could influence the recognition of credit losses in our loan portfolios and increase our allowance for credit losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. For the nine months ending September 30, 2020, we increased our allowance for loan losses by $1,485,000, primarily as a result of the COVID-19 pandemic. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairments in future periods on the securities we hold as well as reductions in other comprehensive income. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic, and we have already temporarily reduced hours at our branches and staff are working remotely. In response to the pandemic, we have implemented loan programs to allow borrowers to defer loan principal and interest payments and are participating in the PPP under the CARES Act to help provide loans to our business clients to provide them with additional working capital to enable them to retain their employees. The extent to which the COVID-19 pandemic continues to negatively impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

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

~~On January 20, 2016,~~

The Company did not repurchase any shares during 2019 or the ~~Company approved~~first nine months of 2020 and ~~authorized~~does not currently have a stock repurchase program for 2016 (the “2016 Program”). The 2016 Program authorized the repurchase during 2016 of up to 5% of the outstanding shares of the Company’s common stock. In addition, on April 20, 2016, the Company approved and authorized an additional amount of 5% to be purchased under the 2016 Program. During 2016, the Company repurchased 716,897 shares of its common stock at an average price of $10.34 per share. Repurchases under the 2016 Program were made from time to time by the Company in ~~the open market. All such transactions were structured to comply with Securities and Exchange Commission Rule 10b-18 and all shares repurchased under the 2016 Program were retired.~~place.

On January 25, 2017, the Company approved and authorized a stock repurchase program for 2017 (the “2017 Program”). The 2017 Program authorized the repurchase during 2017 of up to 5% of the outstanding shares of the Company’s common stock, or approximately 333,086 shares based on the 6,661,726 shares outstanding as of December 31, 2016. During the first six months of 2017, the Company repurchased 333,086 shares of its common stock at an average price of $14.99 per share. On October 18, 2017, the Company approved and authorized an increase in the 2017 Program. The increase authorized the repurchase during the remainder of 2017 of up to 5% of the outstanding shares of the Company’s common stock, or approximately an additional 319,624 shares based on the 6,392,480 shares outstanding as of September 30, 2017. Repurchases under the 2017 Program have been, and will be, made from time to time by the Company in the open market. All such transactions are structured to comply with Securities and Exchange Commission Rule 10b-18 and all shares repurchased under the 2017 Program have been or will be retired upon purchase. The following table lists shares repurchased during the quarter ended September 30, 2017 and the maximum amount available to repurchase under the repurchase plan. Since the initial 2017 Program was completed in the first six months of 2017, and the increase to the 2017 Program was not approved until October 18, 2017, there is no data to report in the table for the quarter ended September 30, 2017.

~~Period~~

~~(a)~~

~~(b)~~

~~(c)~~

~~(d)~~

~~Total Number of Shares (or Units) Purchased~~

~~Average Price Paid Per Share~~

~~(or Unit)~~

~~Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs~~

~~Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs~~

~~Month #1~~

~~July 1 through~~

~~July 31, 2017~~

~~Month #2~~

~~August 1 through~~

~~August 31, 2017~~

~~Month #3~~

~~September 1 through~~

~~September 30, 2017~~

~~Total~~

~~N/A~~

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

~~Item 6. Exhibits.~~

	~~Exhibit~~ ~~Number~~	~~Document Description~~

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

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

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

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

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

~~(10.1)~~

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

~~(10.2)~~

Lease agreement between American River Bank and Bradshaw Plaza Associates, Inc. dated November 27, 2006, related to 9750 Business Park Drive, Sacramento, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2006 ~~and theFirst Amendment thereto dated July 1, 2016, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 6, 2016.~~

*(10.3)

~~Registrant’s Deferred Compensation Plan, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 3, 2012~~ ~~and thefirst amendment thereto dated January 21, 2015, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 23, 2015.~~

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

*(10.5)

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

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

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

*(10.8)

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

*(10.9)

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

*(10.10)

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

~~(10.11)~~

Lease agreement between American River Bank, and the United States Postal Service, dated July 13, 2017, related to 424 Sutter Street, Jackson, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 14, 2017.

*(10.12)

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

*(10.13)

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

Item 6. Exhibits.

Exhibit	~~(10.14)~~
Number		Document Description

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

~~(10.15)~~

~~Lease agreement between Registrant and MSCP Capital~~Point West Office Investors LLC, ~~(successor to PGOCC,~~a Delaware limited liability company, Nelson Point West LLC, a Delaware limited liability company and ~~One Capital Center),~~Bridgewood Point West LP, a Delaware limited partnership ~~dated May 17, 2005, related to 3100 Zinfandel Drive, Rancho Cordova,~~and American River Bank, a California ~~incorporated~~corporation (incorporated by reference ~~from~~to Exhibit 99.1 ~~to the Registrant’s Current Report on Form 8-K,~~ filed with the ~~Commission on May 18, 2005~~ ~~and theFirst and Second Amendments thereto dated April 22, 2010, incorporated by reference from Exhibit 99.1 to the~~ Registrant’s ~~Current Report on~~ Form 8-K ~~filed with the Commission on April 23, 2010,~~ ~~and theThird Amendment thereto dated June 28, 2016, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 1, 2016.~~

~~(10.16)~~

Managed Services Agreement between American River Bankshares and Fidelity Information Services, LLC successor to ProNet Solutions, Inc., dated June 25, 2012, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 27, 2012 ~~and theFirst Amendment thereto, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 14, 2015.~~

*(10.17)

*(10.18)

American River Bankshares Director Emeritus Program, incorporated by reference from Exhibit 10.34 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.

*(10.19)

Employment Agreement dated September 20, 2006, between American River Bankshares and Mitchell A. Derenzo, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on September ~~20, 2006.~~14, 2020).

*(10.20)

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

*(10.21)

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

*(10.22)

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

~~(10.23)~~

Lease agreement dated May 23, 2007 between Bank of Amador, a division of American River Bank, and Joseph Bellamy, Trustee of the Joseph T. Bellamy 2005 Trust, related to 26395 Buckhorn Ridge Road, Pioneer, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on May 24, 2007 ~~theFirst Amendment thereto, dated October 15, 2007, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 16, 2007,~~ ~~and theSecond Amendment thereto, dated October 16, 2017, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 17, 2017.~~

	~~(10.24)~~	Lease agreement dated December 23, 2008, between North Coast Bank, a division of American River Bank, and 90 E Street LLC, related to 90 E Street, Santa Rosa, California, incorporated by reference from Exhibit 99.3 to the Registrant’s Current Report on Form 8-K, filed with the Commission on December 24, 2008.

(31.1)	~~(10.25)~~	Customer Service Agreement dated January 4, 2010, between American River Bankshares and TriNet HR Corporation, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on January 5, 2010.

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

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

	*(10.28)	Registrant’s 2010 Equity Incentive Plan, incorporated by reference from the Registrant’s Definitive Proxy Statement for its 2010 Annual Meeting of Shareholders, filed with the Commission on April 9, 2010 ~~andform of restricted stock award agreement incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 20, 2015.~~

	~~(10.29)~~	Subscription and Services Agreement between American River Bank and Postilion, Inc., dated June 19, 2012, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 21, 2012, ~~and the~~amended agreement dated March 6, 2015 with ACI Worldwide Corp., successor to Postilion, Inc., incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on March 12, 2015.

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

~~(10.31)~~

Lease agreement dated February 6, 2014, between American River Bank and Gold River Village Associates, a California Limited Partnership, related to 11220 Gold River Express Drive, Gold River, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 10, 2014.

~~(10.32)~~

Lease agreement dated February 12, 2014, between American River Bank and 520 Capitol Mall Inc., a Delaware corporation, related to 520 Capitol Mall, Suite 200, Sacramento, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on February 18, 2014.

*(10.33)

Employment Agreement dated June 2, 2014, between American River Bank and Loren E. Hunter, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on June 2, 2014.

*(10.34)

Salary Continuation Agreement between American River Bank and Loren E. Hunter, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 11, 2014.

*(10.35)

~~Registrant’s Performance Based Restricted Stock Awards Program, incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Commission on March 20, 2015.~~

~~(10.36)~~

Lease agreement dated July 11, 2016, between American River Bank and DDS Properties, a California General Partnership, related to 2510 Douglas Blvd., Roseville, California, incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on July 12, 2016.

*(10.37)

Separation and Release Agreement dated October 27, 2017, between the Registrant and David T. Taber, incorporated by reference from Exhibit 10.36 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 27, 2017.

*(10.38)

Employment Agreement dated October 27, 2017, between the Registrant and David E. Ritchie, Jr., incorporated by reference from Exhibit 10.37 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 27, 2017.

	~~(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.

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

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

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

101.INS	~~101.INS~~	XBRL Instance Document~~**~~
101.SCH	~~101.SCH~~	XBRL Taxonomy Extension Schema~~**~~
101.CAL	~~101.CAL~~	XBRL Taxonomy Extension Calculation~~**~~
101.DEF	~~101.DEF~~	XBRL Taxonomy Extension Definition~~**~~
101.LAB	~~101.LAB~~	XBRL Taxonomy Extension Label~~**~~
101.PRE	~~101.PRE~~	XBRL Taxonomy Extension Presentation~~**~~
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
		*Denotes management contracts, compensatory plans or arrangements.
		*Filed herewith
		**~~Incorporated by reference to Registrant’s Registration Statement on Form S-4 (No. 333-36326) filed with the Commission on May 5, 2000.~~

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

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

5553

SIGNATURES

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

	AMERICAN RIVER BANKSHARES

November ~~6, 2017~~5, 2020	By: ~~/s/~~	/s/ DAVID E. RITCHIE, JR.
		David E. Ritchie, Jr.
		President and
		Chief Executive Officer

	AMERICAN RIVER BANKSHARES

November ~~6, 2017~~5, 2020	By: ~~/s/~~	/s/ MITCHELL A. DERENZO
		Mitchell A. Derenzo
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

5654

~~EXHIBIT INDEX~~

Exhibit Number Description Page
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 59

31.2 Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 60

32.1 Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 61

Part I.		Page
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50

Part II.

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51

Signatures		56

Exhibit Index		57

31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	58
31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	59
32.1	Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	60

Restricted Stock	Shares		Weighted Average Award Date Fair Value
Nonvested at January 1, 2017		71,824	$	9.69
Awarded		24,982		14.65
Less: Vested		14,382		9.76
Less: Expired, forfeited or cancelled		2,950		10.01
Nonvested at September 30, 2017		79,474	$	11.22

(dollars in thousands)	September 30, 2017			December 31, 2016

Nonaccrual loans and leases that are current to terms (less than 30 days past due)	$	2,027		$	19
Nonaccrual loans and leases that are past due		290			—
Loans and leases past due 90 days and accruing interest		—			—
Other assets		—			—
Other real estate owned		961			1,348
Total nonperforming assets	$	3,278		$	1,367

Nonperforming loans and leases to total loans and leases		0.71	%		0.01	%
Total nonperforming assets to total assets		0.50	%		0.21	%

(dollars in thousands)	As of September 30, 2017						As of December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance

With no related allowance recorded:
Commercial	$	2,019	$	2,692	$	—	$	—	$	—	$	—
Real estate-commercial		9,004		9,583		—		10,910		11,540		—
Real estate-residential		331		418		—		334		421		—
Subtotal	$	11,354	$	12,693	$	—	$	11,244	$	11,961	$	—

With an allowance recorded:
Commercial	$	—	$	—	$	—	$	157	$	157	$	11
Real estate-commercial		4,098		4,186		284		3,244		3,336		246
Real estate-multi-family		476		476		20		482		482		2
Real estate-residential		1,634		1,634		100		1,813		1,813		133
Agriculture		—		—		—		357		357		29
Subtotal	$	6,208	$	6,296	$	404	$	6,053	$	6,145	$	421

Total:
Commercial	$	2,019	$	2,692	$	—	$	157	$	157	$	11
Real estate-commercial		13,102		13,769		283		14,154		14,876		246
Real estate-multi-family		476		476		20		482		482		2
Real estate-residential		1,965		2,052		101		2,147		2,234		133
Agriculture		—		—		—		357		357		29
	$	17,562	$	18,989	$	404	$	17,297	$	18,106	$	421

September 30, 2017													Past Due
(dollars in thousands)					Past Due								Greater Than
	30-59 Days		60-89 Days		Greater Than		Total Past						90 Days and
	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing		Nonaccrual
Commercial:
Commercial	$	—	$	—	$	—	$	—	$	26,753	$	26,753	$	—	$	2,019
Real estate:
Commercial		—		290		—		290		189,956		190,246		—		290
Multi-family		—		—		—		—		79,021		79,021		—		—
Construction		—		—		—		—		10,548		10,548		—		—
Residential		—		—		—		—		17,328		17,328		—		—

Other:
Leases		—		—		—		—		249		249		—		—
Agriculture		—		—		—		—		1,685		1,685		—		—
Consumer		—		—		—		—		1,186		1,186		—		8

Total	$	—	$	290	$	—	$	290	$	326,726	$	327,016	$	—	$	2,317

December 31, 2016													Past Due
(dollars in thousands)					Past Due								Greater Than
	30-59 Days		60-89 Days		Greater Than		Total Past						90 Days and
	Past Due		Past Due		90 Days		Due		Current		Total Loans		Accruing		Nonaccrual
Commercial:
Commercial	$	—	$	—	$	—	$	—	$	35,374	$	35,374	$	—	$	—
Real estate:
Commercial		—		—		—		—		191,129		191,129		—		—
Multi-family		—		—		—		—		73,373		73,373		—		—
Construction		—		—		—		—		9,180		9,180		—		—
Residential		—		—		—		—		15,718		15,718		—		—

Other:
Leases		—		—		—		—		404		404		—		—
Agriculture		—		—		—		—		2,302		2,302		—		—
Consumer		—		—		—		—		1,650		1,650		—		19

Total	$	—	$	—	$	—	$	—	$	329,130	$	329,130	$	—	$	19

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

September 30, 2017
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
US Government Agencies and Sponsored Agencies	$	220,283	$	—	$	220,283	$	—	$	—
Obligations of states and political subdivisions		22,828		—		22,828		—		—
Corporate bonds		6,668		—		6,668		—		—
Corporate stock		100		54		46		—		—
Total recurring	$	249,879	$	54	$	249,825	$	—	$	—

Assets and liabilities measured on a nonrecurring basis:
Impaired loans:
Commercial	$	2,019	$	—	$	—	$	2,019	$	(673	)
Real estate:
Commercial		3,482		—		—		3,482		—
Residential		330		—		—		330		—
Other real estate owned Land		961		—		—		961		—
Total nonrecurring	$	6,792	$	—	$	—	$	6,792	$	(673	)

Table Three: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
Three Months Ended September 30, 2017 over 2016 (dollars in thousands)
Increase (decrease) due to change in:
Interest-earning assets:	Volume			Rate (4)			Net Change
Taxable loans and leases (1)	$	236		$	(357	)	$	(121	)
Tax-exempt loans and leases (2)		(48	)		(59	)		(107	)
Taxable investment securities		29			(77	)		(48	)
Tax exempt investment securities (3)		(8	)		50			42
Corporate stock		—			—			—
Interest-bearing deposits in banks		—			2			2
Total		209			(441	)		(232	)
Interest-bearing liabilities:
Interest checking and money market		1			(2	)		(1	)
Savings deposits		—			2			2
Time deposits		(4	)		48			44
Other borrowings		1			10			11
Total		(2	)		58			56
Interest differential	$	211		$	(499	)	$	(288	)

Nine Months Ended September 30, 2017 over 2016 (dollars in thousands)
Increase (decrease) due to change in:

Interest-earning assets:	Volume			Rate (4)			Net Change
Taxable loans and leases (1)	$	756		$	(796	)	$	(40	)
Tax-exempt loans and leases (2)		(106	)		(107	)		(213	)
Taxable investment securities		(42	)		(313	)		(355	)
Tax exempt investment securities (3)		(39	)		42			3
Corporate stock		4			(2	)		2
Interest-bearing deposits in banks		1			3			4
Total		574			(1,173	)		(599	)
Interest-bearing liabilities:
Interest checking and money market		5			(11	)		(6	)
Savings deposits		1			1			2
Time deposits		(9	)		89			80
Other borrowings		(18	)		37			19
Total		(21	)		116			95
Interest differential	$	595		$	(1,289	)	$	(694	)

(dollars in thousands)
Available-for-sale (at fair value)	September 30, 2017		December 31, 2016
Debt securities:
U.S. Government Agencies and Sponsored Agencies	$	220,283	$	229,785
Obligations of states and political subdivisions		22,828		22,612
Corporate bonds		6,668		1,519
Corporate stock		100		104
Total available-for-sale investment securities	$	249,879	$	254,020

Table Ten: Capital Ratios
Capital to Risk-Adjusted Assets	September 30, 2017			December 31, 2016			Minimum Regulatory Capital Requirements			Well-Capitalized Minimum Requirements
American River Bankshares
Leverage Ratio		10.3	%		10.5	%		4.0	%		N/A
Tier 1 Risk-Based Capital		18.8	%		19.0	%		6.0	%		N/A
Total Risk-Based Capital		20.0	%		20.3	%		8.0	%		N/A

American River Bank
Leverage Ratio		10.4	%		10.6	%		4.0	%		5.0	%
Common Equity Tier 1 Risk-Based Capital		18.6	%		18.9	%		4.5	%		6.5	%
Tier 1 Risk-Based Capital		18.6	%		18.9	%		6.0	%		8.0	%
Total Risk-Based Capital		19.8	%		20.2	%		8.0	%		10.0	%

Exhibit Number	Description	Page
31.1	Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	59

31.2	Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	60

32.1	Certification of American River Bankshares by its Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	61