PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

PLUMAS BANCORP AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 

(in thousands, except shares)

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Continued on next page.

 

 

PLUMAS BANCORP AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

 

 

See notes to unaudited condensed consolidated financial statements.  

 

 

PLUMAS BANCORP AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. THE BUSINESS OF PLUMAS BANCORP

 

During 2002, Plumas Bancorp (the "Company") was incorporated as a bank holding company for the purpose of acquiring Plumas Bank (the "Bank") in a one bank holding company reorganization. This corporate structure gives the Company and the Bank greater flexibility in terms of operation, expansion and diversification. The Company formed Plumas Statutory Trust I ("Trust I") for the sole purpose of issuing trust preferred securities on September 26, 2002. The Company formed Plumas Statutory Trust II ("Trust II") for the sole purpose of issuing trust preferred securities on September 28, 2005. In March 2023 the Trusts were dissolved. Plumas Bancorp's Principal Executive Office is located in Reno, Nevada.

 

The Bank operates thirteen branches in California, including branches in Alturas, Chester, Chico, Fall River Mills, Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City,  Truckee and Yuba City. The Bank's newest branch was opened in April 2023 and is located in Chico, California. The Bank’s administrative headquarters are in Quincy, California. In December 2015 the Bank opened a branch in Reno, Nevada, its first branch outside of California, and in 2018 the Bank purchased a branch located in Carson City, Nevada. In addition, the Bank operates a lending office specializing in government-guaranteed lending in Auburn, California, and a commercial/agricultural lending office in Klamath Falls, Oregon. The Bank's primary source of revenue is generated from providing loans to customers who are predominately small and middle market businesses and individuals residing in the surrounding areas.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of the Company and the consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant intercompany balances and transactions have been eliminated.

 

Plumas Statutory Trust I and Trust II are not consolidated into the Company's consolidated financial statements and, accordingly, are accounted for under the equity method. The Company's investment in Trust I of $374,000 and Trust II of $188,000 are included in accrued interest receivable and other assets on the consolidated balance sheet at December 31, 2022. The junior subordinated deferrable interest debentures issued and guaranteed by the Company and held by Trust I and Trust II are reflected as debt on the consolidated balance sheet at December 31, 2022.  In March 2023 the Company redeemed the debentures and the Trusts were dissolved.

 

The accounting and reporting policies of Plumas Bancorp and subsidiary conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s financial position at  June 30, 2023 and the results of its operations and its cash flows for the three and six-month periods. Our condensed consolidated balance sheet at  December 31, 2022 is derived from audited financial statements.

 

The unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting on Form 10-Q. Accordingly, 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 (“GAAP”) have been omitted. The Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2022 Annual Report to Shareholders on Form 10-K. The results of operations for the three and six-month periods ended June 30, 2023, may not necessarily be indicative of future operating results. 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 periods reported. Actual results could differ significantly from those estimates.

 

Segment Information

 

Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches 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 the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank.

 

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Allowance for Credit Losses - Loans

 

The allowance for credit losses (ACL) is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.

 

Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company identified and accumulated loan cohort historical loss data beginning with the first quarter of 2004 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than seven hundred and fifty million and less than three billion, were utilized to create a minimum loss rate.  In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, California Housing Prices, California gross domestic product, California Retail Trade Earnings and Wall Street Journal Prime Rate.

 

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The ACL on collateral dependent loans is measured using the amortized cost basis of the financial asset less the fair value of the underlying collateral, adjusted for costs to sell when applicable.  If the value of underlying collateral is determined to be less than the recorded amount of the loan, a specific reserve for that loan is recorded. If the Company determines that the loss represented by the specific reserve is uncollectable it records a charge-off for the uncollectable portion.

 

The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:

 

Commercial: Primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in California gross domestic product paired with California unemployment are believed to be corollary to losses associated with these credits.

 

Agricultural: Loans secured by farmland represent unique risks that are associated with the operation of an agricultural business. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by crop production, and livestock are especially vulnerable to two risk factors that are largely outside the control of Company and borrowers: commodity prices and weather conditions.

 

Real estate - residential: The most significant drivers of potential loss within the Company's residential real estate portfolio relate to general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

 

Real estate - commercial: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from ten to twenty-five years with amortization periods from five to thirty years.

 

Construction: While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected construction life of the asset as adjusted for macroeconomic factors.

 

Home equity lines of credit (HELOC): Similar to residential real estate term loans, HELOC performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC.

 

Automobile: Automobile loans are susceptible to three primary risks: non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically, non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors.

 

Other: Other loans primarily consist of consumer loans which are similar in nature to automobile loans and overdrafts.

 

Unfunded commitments: The estimated credit losses associated with these unfunded lending commitments are calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the balance sheet in other liabilities.

 

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Reclassification

 

Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation.  Reclassifications had no effect on prior year net income or shareholders' equity.

 

Accounting Standards Adopted in 2023

 

On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology. This is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases. In addition, ASC 326 made changes to the accounting for available for sale debt securities. 

 

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the Standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining noncredit discount (based on the adjusted amortized costs basis) will be accreted into interest income at the effective interest rate as of adoption. The Company recognized an increase in the ACL for loans totaling $529,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $156,000 in taxes.  Additionally, the Company recognized an increase in the reserve for unfunded commitments of $257,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $76,000 in taxes.

 

On January 1, 2023, the Company adopted ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.  The ASU provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The ASU 2022-06 deferred the sunset date of ASU 2020-04 to December 2024. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements as the Company has an insignificant number of financial instruments applicable to this ASU.

 

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the recognition and measurement guidance for troubled debt restructurings and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. This ASU also requires enhanced disclosure for loans that have been charged off.  The adoption of the ASU provisions did not have a significant impact on the Company’s consolidated financial statements.

 

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3.   INVESTMENT SECURITIES AVAILABLE FOR SALE

 

The amortized cost and estimated fair value of investment securities at June 30, 2023 and December 31, 2022 consisted of the following, in thousands:

 

Available-for-Sale		June 30, 2023
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Debt securities:
U.S. Treasury securities		$	9,963			$	-			$	(229	)		$	9,734
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			251,566				72				(24,394	)			227,244
U.S. Government-agencies collateralized by mortgage obligations - commercial			120,733				158				(14,193	)			106,698
Obligations of states and political subdivisions			141,132				365				(16,253	)			125,244
		$	523,394			$	595			$	(55,069	)		$	468,920

 

Unrealized losses on available-for-sale investment securities totaling $54,474,000 were recorded, net of $16,102,000 in tax benefit, as accumulated other comprehensive loss within shareholders' equity at June 30, 2023.  No securities were sold during the six months ended June 30, 2023.

 

Available-for-Sale		December 31, 2022
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Debt securities:
U.S. Treasury securities		$	9,950			$	-			$	(243	)		$	9,707
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			238,253				214				(24,059	)			214,408
U.S. Government-agencies collateralized by mortgage obligations - commercial			112,142				143				(12,704	)			99,581
Obligations of states and political subdivisions			138,541				243				(17,777	)			121,007
		$	498,886			$	600			$	(54,783	)		$	444,703

 

Unrealized losses on available-for-sale investment securities totaling $54,183,000 were recorded, net of $16,017,000 in tax expense, as accumulated other comprehensive income within shareholders' equity at December 31, 2022. No securities were sold during the six months ended June 30, 2022.

 

There were no transfers of available-for-sale investment securities during the six months ended June 30, 2023 and twelve months ended December 31, 2022. There were no securities classified as held-to-maturity at June 30, 2023 or December 31, 2022.

 

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Investment securities with unrealized losses at June 30, 2023 and December 31, 2022 are summarized and classified according to the duration of the loss period as follows, in thousands:

 

June 30, 2023		Less than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Debt securities:
U.S. Treasury securities		$	2,921			$	57			$	6,813			$	172			$	9,734			$	229
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			96,794				3,265				121,449				21,129				218,243				24,394
U.S. Government-agencies collateralized by mortgage obligations - commercial			43,834				1,866				49,050				12,327				92,884				14,193
Obligations of states and political subdivisions			33,708				665				71,975				15,588				105,683				16,253
		$	177,257			$	5,853			$	249,287			$	49,216			$	426,544			$	55,069

 

December 31, 2022		Less than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Debt securities:
U.S. Treasury securities		$	9,707			$	243			$	-			$	-			$	9,707			$	243
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			140,117				12,070				54,017				11,989				194,134				24,059
U.S. Government-agencies collateralized by mortgage obligations - commercial			42,799				2,845				42,363				9,859				85,162				12,704
Obligations of states and political subdivisions			89,092				11,421				16,768				6,356				105,860				17,777
		$	281,715			$	26,579			$	113,148			$	28,204			$	394,863			$	54,783

 

At June 30, 2023, the Company held 412 securities of which 131 were in a loss position for less than twelve months and 249 were in a loss position for twelve months or more. Of the 412 securities 3 are U.S. Treasury securities, 124 are U.S. Government-sponsored agencies collateralized by residential mortgage obligations, 45 were U.S. Government agencies collateralized by commercial mortgage obligations and 240 were obligations of states and political subdivisions. The unrealized losses relate principally to market rate conditions. All of the securities continue to pay as scheduled. For available-for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized costs basis.  If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income.  At June 30, 2023, neither of the criteria regarding intent or requirement to sell was met for any of securities in an unrealized loss position.

 

The amortized cost and estimated fair value of investment in debt securities at June 30, 2023 by contractual maturity are shown below, in thousands.

 

		Amortized Cost				Estimated Fair Value
Within one year		$	7,528			$	7,432
After one year through five years			10,075				9,838
After five years through ten years			11,053				10,671
After ten years			122,439				107,037
Investment securities not due at a single maturity date:
Government- agencies commercial mortgage-backed securities			120,733				106,698
Government-sponsored agencies residential mortgage-backed securities			251,566				227,244
		$	523,394			$	468,920

 

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

 

Investment securities with amortized costs totaling $302,590,000 and $189,358,000 and estimated fair values totaling $267,514,000 and $166,728,000 at June 30, 2023 and December 31, 2022, respectively, were pledged to secure deposits, repurchase agreements and Federal Reserve Bank borrowings. 

  

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4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

 

Outstanding loans are summarized below, in thousands:

 

		June 30,				December 31,
		2023				2022
Commercial		$	74,958			$	76,680
Agricultural			126,841				122,873
Real estate – residential			14,878				15,324
Real estate – commercial			517,289				516,107
Real estate – construction and land development			56,331				43,420
Equity lines of credit			35,877				35,891
Auto			103,050				96,750
Other			5,990				4,904
Total loans			935,214				911,949
Deferred loan costs, net			2,837				2,736
Loans, amortized cost basis			938,051				914,685
Allowance for credit losses			(13,385	)			(10,717	)
Total net loans		$	924,666			$	903,968

 

To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment rates, California Housing Prices, California gross domestic product, California Retail Trade Earnings and Wall Street Journal Prime Rate. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. At both January 1, 2023, the adoption and implementation date of ASC Topic 326, and June 30, 2023, the Company utilized a reasonable and supportable forecast period of approximately four quarters and obtained the forecast data from publicly available sources. The Company also considered the impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. Management believes that the allowance for credit losses at June 30, 2023 appropriately reflected expected credit losses inherent in the loan portfolio at that date.

 

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of  June 30, 2023 the Bank's nonaccrual loans comprised the entire population of loans individually evaluated.  The Company's policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent. 

 

The implementation of CECL also impacted the Company's ACL on unfunded loan commitments, as the ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company.  The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment.  The funding rate represents management's estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while any related provision expense is included in the provision for credit loss expense.

 

Changes in the allowance for credit losses, in thousands, were as follows:

 

		June 30,				December 31,
		2023				2022
Balance, beginning of period		$	10,717			$	10,352
Cumulative change from adoption of ASU 2016-13			529				-
Provision charged to operations - loans			2,550				1,300
Losses charged to allowance			(738	)			(1,461	)
Recoveries			327				526
Balance, end of period		$	13,385			$	10,717

 

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Salaries and employee benefits totaling $509,000 and $875,000 have been deferred as loan origination costs during the three months ended June 30, 2023 and 2022, respectively. Salaries and employee benefits totaling $1,071,000 and $1,937,000 have been deferred as loan origination costs during the six months ended June 30, 2023 and 2022, respectively.

 

The Company assigns a risk rating to all loans and periodically, but not less than annually, performs detailed reviews of all criticized and classified loans over $100,000 to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by the Company and the Company’s regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan.

 

The risk ratings can be grouped into three major categories, defined as follows:

 

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

 

Substandard – A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful – Loans classified doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass-rated loans.

 

For other loans, which are primarily consumer loans and automobile loans the Company evaluates credit quality based on the aging status of the loan and by payment activity.  

 

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The following table shows the loan portfolio allocated by management's internal risk ratings or payment activity at the dates indicated, in thousands:

 

		Term Loans - Amortized Cost Basis by Origination Year and Risk Grades - As of June 30, 2023
(in thousands)		2023				2022				2021				2020				2019				Prior				Revolving Loans Book Amortized Cost Basis				Revolving Loans Converted to Term Amortized Cost Basis				Total - Amortized Cost Basis
Commercial
Pass		$	6,850			$	23,292			$	11,515			$	4,931			$	5,015			$	6,003			$	15,381			$	-			$	72,987
Special Mention			-				49				421				316				-				21				1,572				-				2,379
Substandard			-				-				197				47				-				-				-				-				244
Total Commercial loans		$	6,850			$	23,341			$	12,133			$	5,294			$	5,015			$	6,024			$	16,953			$	-			$	75,610
Current period gross charge-offs		$	-			$	-			$	40			$	-			$	-			$	9			$	-			$	-			$	49
Agricultural
Pass		$	3,335			$	19,008			$	13,624			$	15,572			$	11,874			$	21,804			$	20,241			$	-			$	105,458
Special Mention			1,265				3,353				97				1,034				-				789				608				-				7,146
Substandard			105				5,013				4,980				-				1,251				986				2,259				-				14,594
Total Agricultural		$	4,705			$	27,374			$	18,701			$	16,606			$	13,125			$	23,579			$	23,108			$	-			$	127,198
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate - Residential
Pass		$	1,396			$	1,073			$	2,282			$	2,490			$	572			$	6,146			$	512			$	-			$	14,471
Special Mention			-				-				-				-				63				-				-				-				63
Substandard			-				-				-				-				-				380				-				-				380
Total Real Estate - Residential		$	1,396			$	1,073			$	2,282			$	2,490			$	635			$	6,526			$	512			$	-			$	14,914
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate -Commercial
Pass		$	30,230			$	109,983			$	83,709			$	91,131			$	40,914			$	147,147			$	7,932			$	-			$	511,046
Special Mention			-				-				-				-				367				2,722				-				-				3,089
Substandard			146				13				-				-				-				2,756				-				-				2,915
Total Real Estate -Commercial		$	30,376			$	109,996			$	83,709			$	91,131			$	41,281			$	152,625			$	7,932			$	-			$	517,050
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Real Estate -Construction
Pass		$	6,906			$	29,460			$	15,650			$	2,628			$	626			$	590			$	-			$	-			$	55,860
Special Mention			-				-				-				-				-				-				-				-				-
Substandard			-				-				-				-				-				-				-				-				-
Total Real Estate -Construction		$	6,906			$	29,460			$	15,650			$	2,628			$	626			$	590			$	-			$	-			$	55,860
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Equity LOC
Pass		$	-			$	-			$	-			$	-			$	-							$	35,028			$	943			$	35,971
Substandard			-				-				-				-				-								161				566				727
Total Equity LOC		$	-			$	-			$	-			$	-			$	-			$	-			$	35,189			$	1,509			$	36,698
Current period gross charge-offs		$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-			$	-
Total
Pass		$	48,717			$	182,816			$	126,780			$	116,752			$	59,001			$	181,690			$	79,094			$	943			$	795,793
Special Mention			1,265				3,402				518				1,350				430				3,532				2,180				-				12,677
Substandard			251				5,026				5,177				47				1,251				4,122				2,420				566				18,860
Total		$	50,233			$	191,244			$	132,475			$	118,149			$	60,682			$	189,344			$	83,694			$	1,509			$	827,330
Current period gross charge-offs		$	-			$	-			$	40			$	-			$	-			$	9			$	-			$	-			$	49
Auto
Performing		$	21,684			$	36,976			$	19,647			$	10,816			$	8,802			$	5,973			$	-			$	-			$	103,898
Non-performing			133				100				143				213				169				40				-				-				798
Total Auto		$	21,817			$	37,076			$	19,790			$	11,029			$	8,971			$	6,013			$	-			$	-			$	104,696
Current period gross charge-offs		$	-			$	99			$	257			$	83			$	102			$	63			$	-			$	-			$	604
Other
Performing		$	115			$	2,160			$	1,002			$	401			$	128			$	1,029			$	175			$	-			$	5,010
Non-performing			1,005				-				10				-				-				-				-				-				1,015
Total Other		$	1,120			$	2,160			$	1,012			$	401			$	128			$	1,029			$	175			$	-			$	6,025
Current period gross charge-offs		$	-			$	51			$	17			$	4			$	9			$	3			$	1			$	-			$	85
Total
Performing		$	21,799			$	39,136			$	20,649			$	11,217			$	8,930			$	7,002			$	175			$	-			$	108,908
Non-performing			1,138				100				153				213				169				40				-				-				1,813
Total		$	22,937			$	39,236			$	20,802			$	11,430			$	9,099			$	7,042			$	175			$	-			$	110,721
Current period gross charge-offs		$	-			$	150			$	314			$	87			$	111			$	75			$	1			$	-			$	738

 

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December 31, 2022		Commercial Credit Exposure
		Credit Risk Profile by Internally Assigned Grade
Grade:		Commercial				Agricultural				Real Estate-Residential				Real Estate-Commercial				Real Estate-Construction				Equity LOC				Total
Pass		$	68,577			$	111,276			$	14,932			$	510,504			$	43,337			$	35,475			$	784,101
Special Mention			8,047				10,651				161				3,934				-				-				22,793
Substandard			56				946				231				1,669				83				416				3,401
Doubtful			-				-				-				-				-				-				-
Total		$	76,680			$	122,873			$	15,324			$	516,107			$	43,420			$	35,891			$	810,295

 

		Consumer Credit Exposure
		Credit Risk Profile Based on Payment Activity
		December 31, 2022
		Auto				Other				Total
Grade:
Performing		$	96,298			$	4,904			$	101,202
Non-performing			452				-				452
Total		$	96,750			$	4,904			$	101,654

 

The following table show information related to impaired loans at December 31, 2022, in thousands.

 

						Unpaid								Average				Interest
		Recorded				Principal				Related				Recorded				Income
As of December 31, 2022:		Investment				Balance				Allowance				Investment				Recognized
With no related allowance recorded:
Commercial		$	-			$	-			$	-			$	-			$	-
Agricultural			232				232				-				235				17
Real estate – residential			509				541				-				514				29
Real estate – commercial			-				-				-				-				-
Real estate – construction & land			94				94				-				98				6
Equity Lines of Credit			244				301				-				254				-
Auto			-				-				-				-				-
Other			-				-				-				-				-
With an allowance recorded:
Commercial		$	-			$	-			$	-			$	-			$	-
Agricultural			-				-				-				-				-
Real estate – residential			169				169				20				170				7
Real estate – commercial			-				-				-				-				-
Real estate – construction & land			-				-				-				-				-
Equity Lines of Credit			-				-				-				-				-
Auto			-				-				-				-				-
Other			-				-				-				-				-
Total:
Commercial		$	-			$	-			$	-			$	-			$	-
Agricultural			232				232				-				235				17
Real estate – residential			678				710				20				684				36
Real estate – commercial			-				-				-				-				-
Real estate – construction & land			94				94				-				98				6
Equity Lines of Credit			244				301				-				254				-
Auto			-				-				-				-				-
Other			-				-				-				-				-
Total		$	1,248			$	1,337			$	20			$	1,271			$	59

 

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The following table shows the ending balance of nonaccrual loans by loan category as of the date indicated:

 

		Non Performing Loans
		June 30, 2023												December 31, 2022
(in thousands)		Nonaccrual with no allowance for credit losses				Total nonaccrual				Past due 90 days or more and still accruing				Nonaccrual with no allowance for credit losses				Total nonaccrual				Past due 90 days or more and still accruing
Commercial		$	-			$	58			$	-			$	-			$	-			$	-
Agricultural			-				847				5,032				-				-				-
Real estate – residential			199				199				-				211				211				-
Real estate – commercial			859				859				-				9				9				-
Real estate – construction & land development			-				-				-				83				83				-
Equity lines of credit			727				727				-				417				417				-
Auto			798				798				-				452				452				-
Other			10				1,015				-				-				-				-
Total Gross Loans		$	2,593			$	4,503			$	5,032			$	1,172			$	1,172			$	-

 

The Company places loans 90 days or more past due on nonaccrual status unless the loan is well secured and in the process of collection. A loan is considered to be in the process of collection if, based on a probable specific event, it is expected that the loan will be repaid or brought current. Generally, this collection period would not exceed 90 days. When a loan is placed on nonaccrual status the Company's general policy is to reverse and charge against current income previously accrued but unpaid interest. Interest income on such loans is subsequently recognized only to the extent that cash is received, and future collection of principal is deemed by management to be probable. Where the collectability of the principal or interest on a loan is considered to be doubtful by management, it is placed on nonaccrual status prior to becoming 90 days delinquent.

 

The following table presents the amortized cost basis of loans on June 30, 2023, that were both experiencing financial difficulty and modified during the six months ended June 30, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.

 

		Term Extension
(in thousands)		Amortized Cost Basis				Total % Class of Financing Receivable
Commercial			1,499				1.98	%
Agricultural			5,246				4.12	%
Real Estate - Residential							0.00	%
Real Estate - Commercial							0.00	%
Real Estate - Construction							0.00	%
Equity LOC							0.00	%
Auto							0.00	%
Other							0.00	%
Total		$	6,745				0.72	%

 

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of June 30, 2023:

 

(in thousands)		Weighted-Average Term Extension (in months)
Commercial			6
Agricultural			10
Real Estate - Residential
Real Estate - Commercial
Real Estate - Construction
Equity LOC
Auto
Other
Total			9.1

 

There were no loans with payment defaults by borrowers experiencing financial difficulty during the quarter ended June 30, 2023, which had material modifications in rate, term or principal forgiveness during the twelve months prior to default.

 

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The following tables show the allocation of the allowance for credit losses at the dates indicated, in thousands:

 

Six Months Ended June 30, 2023:		Commercial				Agricultural				Real Estate-Residential				Real Estate-Commercial				Real Estate-Construction				Equity LOC				Auto				Other				Total
Allowance for credit losses
Beginning balance		$	892			$	1,086			$	138			$	4,980			$	1,500			$	687			$	1,289			$	145			$	10,717
Impact of CECL Adoption			354				148				2				1,488				(951	)			(421	)			9				(100	)			529
Charge-offs			(49	)			-				-				-				-				-				(604	)			(85	)			(738	)
Recoveries			12				-				2				1				-				-				305				7				327
Provision			338				244				27				393				317				135				567				529				2,550
Ending balance		$	1,547			$	1,478			$	169			$	6,862			$	866			$	401			$	1,566			$	496			$	13,385
Three Months Ended June 30, 2023:
Allowance for credit losses
Beginning balance		$	1,475			$	1,307			$	162			$	6,740			$	763			$	330			$	1,504			$	49			$	12,330
Charge-offs			(49	)			-				-				-				-				-				(311	)			(70	)			(430	)
Recoveries			6				-				1								-				-				174				4				185
Provision			115				171				6				122				103				71				199				513				1,300
Ending balance		$	1,547			$	1,478			$	169			$	6,862			$	866			$	401			$	1,566			$	496			$	13,385
Six Months Ended June 30, 2022:
Allowance for credit losses
Beginning balance		$	1,074			$	791			$	168			$	4,549			$	1,325			$	426			$	1,911			$	108			$	10,352
Charge-offs			-				-				-				(19	)			-				-				(419	)			(31	)			(469	)
Recoveries			17				-				2				-				-				-				311				6				336
Provision			(189	)			303				(31	)			(135	)			434				167				97				54				700
Ending balance		$	902			$	1,094			$	139			$	4,395			$	1,759			$	593			$	1,900			$	137			$	10,919
Three Months Ended June 30, 2022:
Allowance for credit losses
Beginning balance		$	893			$	947			$	132			$	4,322			$	1,545			$	554			$	1,880			$	129			$	10,402
Charge-offs			-				-				-				-				-				-				(85	)			(11	)			(96	)
Recoveries			11				-				1				1				-				-				197				3				213
Provision			(2	)			147				6				72				214				39				(92	)			16				400
Ending balance		$	902			$	1,094			$	139			$	4,395			$	1,759			$	593			$	1,900			$	137			$	10,919
June 30, 2022
Allowance for credit losses
Ending balance: individually evaluated for impairment		$	16			$	-			$	23			$	-			$	-			$	-			$	-			$	-			$	39
Ending balance: collectively evaluated for impairment			886				1,094				116				4,395				1,759				593				1,900				137				10,880
Ending balance		$	902			$	1,094			$	139			$	4,395			$	1,759			$	593			$	1,900			$	137			$	10,919
Loans
Ending balance: individually evaluated for impairment		$	19			$	235			$	691			$	97			$	98			$	254			$	-			$	-			$	1,394
Ending balance: collectively evaluated for impairment			84,359				125,572				15,176				447,883				60,793				34,491				87,907				4,577				860,758
Ending balance		$	84,378			$	125,807			$	15,867			$	447,980			$	60,891			$	34,745			$	87,907			$	4,577			$	862,152

 

Year Ended December 31, 2022:
Allowance for credit losses
Beginning balance		$	1,074			$	791			$	168			$	4,549			$	1,325			$	426			$	1,911			$	108			$	10,352
Charge-offs			(207	)			-				-				(19	)			-				-				(1,195	)			(40	)			(1,461	)
Recoveries			27				-				3				2				-				-				482				12				526
Provision			(2	)			295				(33	)			448				175				261				91				65				1,300
Ending balance		$	892			$	1,086			$	138			$	4,980			$	1,500			$	687			$	1,289			$	145			$	10,717
Allowance for credit losses
Ending balance: individually evaluated for impairment		$	-			$	-			$	20			$	-			$	-			$	-			$	-			$	-			$	20
Ending balance: collectively evaluated for impairment			892				1,086				118				4,980				1,500				687				1,289				145				10,697
Ending balance		$	892			$	1,086			$	138			$	4,980			$	1,500			$	687			$	1,289			$	145			$	10,717
Loans
Ending balance: individually evaluated for impairment		$	-			$	232			$	678			$	-			$	94			$	244			$	-			$	-			$	1,248
Ending balance: collectively evaluated for impairment			76,680				122,641				14,646				516,107				43,326				35,647				96,750				4,904				910,701
Ending balance		$	76,680			$	122,873			$	15,324			$	516,107			$	43,420			$	35,891			$	96,750			$	4,904			$	911,949

 

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The following table shows an aging analysis of the loan portfolio by the time past due, in thousands:

 

																		Total
June 30, 2023										90 Days								Past Due
		30-59 Days				60-89 Days				and Still								and
		Past Due				Past Due				Accruing				Nonaccrual				Nonaccrual				Current				Total
Commercial		$	270			$	618			$	-			$	58			$	946			$	74,664			$	75,610
Agricultural			349				-				5,032				847				6,228				120,970				127,198
Real estate – residential			160				424				-				199				783				14,131				14,914
Real estate – commercial			300				275				-				859				1,434				515,616				517,050
Real estate - construction & land			188				-				-				-				188				55,672				55,860
Equity Lines of Credit			987				-				-				727				1,714				34,984				36,698
Auto			1,442				390				0				798				2,630				102,066				104,696
Other			0				8				0				1,015				1,023				5,002				6,025
Total		$	3,696			$	1,715			$	5,032			$	4,503			$	14,946			$	923,105			$	938,051

 

																		Total
December 31, 2022										90 Days								Past Due
		30-89 Days				60-89 Days				and Still								and
		Past Due				Past Due				Accruing				Nonaccrual				Nonaccrual				Current				Total
Commercial		$	750			$	195			$	-			$	-			$	945			$	75,735			$	76,680
Agricultural			877				-				-				-				877				121,996				122,873
Real estate – residential			437				-				-				211				648				14,676				15,324
Real estate - commercial			3,255				-				-				9				3,264				512,843				516,107
Real estate - construction & land			-				-				-				83				83				43,337				43,420
Equity Lines of Credit			665				53				-				417				1,135				34,756				35,891
Auto			1,862				693				-				452				3,007				93,743				96,750
Other			1				14				-				-				15				4,889				4,904
Total		$	7,847			$	955			$	-			$	1,172			$	9,974			$	901,975			$	911,949

 

The following tables present the amortized cost basis of collateral dependent loans by class of loans at  June 30, 2023, in thousands:

 

June 30, 2023
										Commercial -1st				SFR-1st				SFR-2nd				SFR-3rd				Auto				Auto
		Equipment				Crops				Deed				Deed				Deed				Deed				New				Used				Total
Commercial		$	58			$	-			$	-			$	-			$	-							$	-			$	-			$	58
Agricultural			-				847								-				-								-				-				847
Real estate – residential			-				-								199				-								-				-				199
Real estate – commercial			-				-				328				341				44				146								-				859
Real estate - construction & land			-				-								-				-								-				-				-
Equity Lines of Credit			-				-								400				327								-				-				727
Auto			-				-								-				-								676				122				798
Other			-				-								-				-								-				9				9
Total		$	58			$	847			$	328			$	940			$	371			$	146			$	676			$	131			$	3,497

 

There were no new troubled debt restructurings during the twelve months ending December 31, 2022. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the twelve months ended December 31, 2022. 

5. COMMITMENTS AND CONTINGENCIES

 

The Company is party to claims and legal proceedings arising in the ordinary course of business. In the opinion of the Company’s management, the amount of ultimate liability with respect to such proceedings will not have a material adverse effect on the financial condition or result of operations of the Company taken as a whole. In the normal course of business, there are various outstanding commitments to extend credit, which are not reflected in the financial statements, including loan commitments of $191.8 million and $178.7 million and stand-by letters of credit of $108,000 and $0 at June 30, 2023 and December 31, 2022, respectively.

 

Of the loan commitments outstanding at June 30, 2023, $54.1 million are real estate construction loan commitments that are expected to fund within the next twelve months. The remaining commitments primarily relate to revolving lines of credit or other commercial loans, and many of these are expected to expire without being drawn upon. Therefore, the total commitments do not necessarily represent future cash requirements. Each loan commitment and the amount and type of collateral obtained, if any, are evaluated on an individual basis. Collateral held varies, but may include real property, bank deposits, debt or equity securities or business assets.  The reserve for unfunded commitments at June 30, 2023 and December 31, 2022 totaled $924,000 and $341,000, respectively.

 

Stand-by letters of credit are conditional commitments written to guarantee the performance of a customer to a third party. These guarantees are primarily related to the purchases of inventory by commercial customers and are typically short-term in nature. Credit risk is similar to that involved in extending loan commitments to customers and accordingly, evaluation and collateral requirements similar to those for loan commitments are used. The deferred liability related to the Company’s stand-by letters of credit was not significant at June 30, 2023.

 

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6. EARNINGS PER SHARE

 

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted earnings per share.

 

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
(In thousands, except per share data)		2023				2022				2023				2022
Net Income:
Net income		$	6,660			$	5,680			$	14,285			$	11,397
Earnings Per Share:
Basic earnings per share		$	1.14			$	0.97			$	2.44			$	1.95
Diluted earnings per share		$	1.12			$	0.96			$	2.41			$	1.93
Weighted Average Number of Shares Outstanding:
Basic shares			5,862				5,843				5,858				5,834
Diluted shares			5,929				5,909				5,932				5,913

 

Shares of common stock issuable under stock options for which the exercise prices were greater than the average market prices were not included in the computation of diluted earnings per share due to their antidilutive effect. Options having an antidilutive effect during the three and six-month periods ended June 30, 2023, and 2022 totaled 114,994.

7. STOCK-BASED COMPENSATION

 

In May 2022, the Company’s shareholders approved the 2022 Equity Incentive Plan (the “2022 Plan”), which provides for the grant of up to 576,550 shares of common stock, including 126,550 shares that remained available for grant under the 2013 Stock Option Plan when the 2022 Plan was adopted. The 2022 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. The frequency, amount and terms of stock-based awards may be determined by the Board of Directors or its compensation committee, consistent with the terms and purposes of the 2022 plan.

 

In May 2013, the Company established the 2013 Stock Option Plan for which 172,117 shares of common stock are reserved. With the establishment of the Company’s 2022 Equity Incentive Plan, no further options may be issued under the 2013 Stock Option Plan, though options previously granted continue to be outstanding and governed by the plan.

 

No options were granted during the six months ended June 30, 2023 and 2022.

 

A summary of the activity within the 2013 Plan follows: 

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term in Years				Intrinsic Value
Options outstanding at January 1, 2023			189,917			$	21.14
Options exercised			(17,800	)			18.14
Options outstanding at June 30, 2023			172,117			$	21.45				3.5			$	2,450,946
Options exercisable at June 30, 2023			142,267			$	21.41				3.3			$	2,031,573
Expected to vest after June 30, 2023			26,187			$	21.66				4.3			$	367,458

 

---

 

A summary of the activity within the 2022 Plan follows: 

 

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term in Years				Intrinsic Value
Options outstanding at June 30, 2023			117,200				31.00				8.81			$	549,668
Options exercisable at June 30, 2023			-				-				-				-
Expected to vest after June 30, 2023			117,200			$	31.00				8.81			$	549,668

 

As of June 30, 2023, there was $47,831 of total unrecognized compensation cost related to non-vested, share-based compensation under the 2013 plan. That cost is expected to be recognized over a weighted average period of 0.3 years. As of June 30, 2023, there was $840,000 of total unrecognized compensation cost related to non-vested stock options, share-based compensation under the 2022 plan. That cost is expected to be recognized over a weighted average period of 4.0 years.

 

The total fair value of options vested during the six months ended June 30, 2023 and 2022 was $7,000 and $101,000, respectively. The total intrinsic value of options at time of exercise was $385,000 and $819,000 for the six months ended June 30, 2023 and 2022, respectively.

 

Compensation cost related to stock options recognized in operating results under the stock option plan was $86,000 and $59,000 for the three months ended June 30, 2023 and 2022, respectively. The associated income tax benefit recognized was $6,000 and $4,000 for each of the three months ended June 30, 2023 and 2022, respectively. Compensation cost related to stock options recognized in operating results under the stock option plan was $173,000 and $117,000 for the six months ended June 30, 2023 and 2022, respectively. The associated income tax benefit recognized was $13,000 and $8,000 for each of the six months ended June 30, 2023 and 2022, respectively.

Cash received from option exercises under the plans for the six months ended June 30, 2023 and 2022 were $168,000 and $215,000, respectively. The tax benefit realized for the tax deductions from option exercise totaled $63,000 and $53,000 for the six months ended June 30, 2023 and 2022, respectively.

 

During the three months ended September 30, 2022 the Company granted 1,650 shares of restricted stock with a fair value of $31 per share and a one-year vesting period. Compensation costs related to these shares during the three months and six months ended June 30, 2023, totaled $13,000 and $26,000, respectively.  As of June 30, 2023, there was $4,000 of total unrecognized compensation cost related to restricted stock. That cost is expected to be recognized over a weighted average period of 0.1 years.

8. INCOME TAXES

 

The Company files its income taxes on a consolidated basis with its subsidiary. Income tax expense is the total of current year income tax due or refundable and the change in deferred tax assets and liabilities.

 

Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amount 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. A valuation allowance is recognized if, based on the weight of available evidence, management believes it is more likely than not that some portion or all of the deferred tax assets will not be realized. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

 

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

Interest expense and penalties associated with unrecognized tax benefits, if any, are classified as income tax expense in the consolidated statements of income. There have been no significant changes to unrecognized tax benefits or accrued interest and penalties for the six months ended June 30, 2023.

 

 

9. FAIR VALUE MEASUREMENT

 

The Company measures fair value under the fair value hierarchy described below.

 

Level 1: Quoted prices for identical instruments traded in active exchange markets.

 

Level 2: Quoted prices (unadjusted) for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.

 

Level 3: Model based techniques that use one significant assumption not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which may be significant.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Management monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.

 

Management evaluates the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total assets, total liabilities or total earnings.

 

Fair Value of Financial Instruments

 

The carrying amounts and estimated fair values of financial instruments, at June 30, 2023 follows, in thousands:

  

						Fair Value Measurements at June 30, 2023, Using:
		Carrying Value				Level 1				Level 2				Level 3				Total Fair Value
Financial assets:
Cash and cash equivalents		$	91,765			$	91,765			$	-			$	-			$	91,765
Investment securities			468,920				-				468,920				-				468,920
Loans held for sale			384				-				384				-				0
Loans, net			924,666				-				-				900,652				900,652
FHLB stock			6,234				-				-				-				N/A
FRB Stock			1,368				-				-				-				N/A
Accrued interest receivable			7,881				18				2,684				5,179				7,881
Financial liabilities:
Deposits			1,395,160				1,303,837				91,979				-				1,395,816
Repurchase agreements			20,464				-				20,464				-				20,464
Note Payable			10,000				-				-				8,647				8,647
Accrued interest payable			411				23				278				110				411

 

The carrying amounts and estimated fair values of financial instruments, at December 31, 2022 follows, in thousands:

 

						Fair Value Measurements at December 31, 2022 Using:
		Carrying Value				Level 1				Level 2				Level 3				Total Fair Value
Financial assets:
Cash and cash equivalents		$	183,426			$	183,426			$	-			$	-			$	183,426
Investment securities			444,703				-				444,703				-				444,703
Interest rate swaps			2,002				-				2,002				-				2,002
Loans held for sale			2,301				-				2,301				-				2,301
Loans, net			903,968				-				-				884,814				884,814
FHLB stock			4,964				-				-				-				N/A
FRB Stock			1,364				-				-				-				N/A
Accrued interest receivable			7,433				63				2,309				5,061				7,433
Financial liabilities:
Deposits			1,457,809				1,408,623				49,627				-				1,458,250
Repurchase agreements			18,624				-				18,624				-				18,624
Junior subordinated deferrable interest debentures			10,310				-				-				7,770				7,770
Accrued interest payable			81				16				40				25				81

 

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. Those estimates that are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision are included in Level 3. Changes in assumptions could significantly affect the fair values presented.

 

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.

 

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The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2023 and December 31, 2022, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

 

Assets and liabilities measured at fair value on a recurring basis at June 30, 2023 are summarized below, in thousands:

 

						Fair Value Measurements at
						June 30, 2023 Using
						Quoted
						Prices in
						Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
						Assets				Inputs				Inputs
		Total Fair Value				(Level 1)				(Level 2)				(Level 3)
Assets:
U.S. Treasury securities		$	9,734			$	-			$	9,734			$	-
U.S. Government-sponsored agencies collateralized by mortgage obligations- residential			227,244				-				227,244				-
U.S. Government agencies collateralized by mortgage obligations-commercial			106,698				-				106,698				-
Obligations of states and political subdivisions			125,244				-				125,244				-
		$	468,920			$	-			$	468,920			$	-

 

Assets and liabilities measured at fair value on a recurring basis at December 31, 2022 are summarized below, in thousands:

 

						Fair Value Measurements at
						December 31, 2022 Using
						Quoted
						Prices in
						Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
						Assets				Inputs				Inputs
		Total Fair Value				(Level 1)				(Level 2)				(Level 3)
Assets:
U.S. Treasury securities		$	9,707			$	-			$	9,707			$	-
U.S. Government-sponsored agencies collateralized by mortgage obligations - residential			214,408				-				214,408				-
U.S. Government-agencies collateralized by mortgage obligations - commercial			99,581				-				99,581				-
Obligations of states and political subdivisions			121,007				-				121,007				-
Interest rate swaps			2,002				-				2,002				-
		$	446,705			$	-			$	446,705			$	-

  

The fair value of securities available-for-sale equals quoted market price, if available. If quoted market prices are not available, fair value is determined using quoted market prices for similar securities or matrix pricing. The fair value of the interest rate swap agreements was derived from discounted cash flow analysis based on the terms of the contract and the forward interest rate curve adjusted for our credit risk. There were no changes in the valuation techniques used during 2023 or 2022. Transfers between hierarchy measurement levels are recognized by the Company as of the beginning of the reporting period. Changes in fair market value are recorded in other comprehensive income.

 

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Assets and liabilities measured at fair value on a non-recurring basis at June 30, 2023 are summarized below, in thousands:

  

						Fair Value Measurements at
						June 30, 2023 Using
						Quoted
						Prices in												Total
						Active				Significant								Losses
						Markets for				Other				Significant				Six Months
						Identical				Observable				Unobservable				Ended
						Assets				Inputs				Inputs				June 30,
		Total Fair Value				(Level 1)				(Level 2)				(Level 3)				2023
Assets:
Impaired loans
RE – Agricultural		$	457			$	-			$	-			$	457			$	390
Commercial			26				-				-				26				32
Other			559				-				-				559				446
Total Loans		$	1,042			$	-			$	-			$	1,042			$	868
Other Real Estate:
RE – Residential			83			$	-			$	-			$	83			$	-

 

There were no assets measured at fair value on a non-recurring basis on  December 31, 2022.  The Company has no liabilities which are reported at fair value.

 

The following methods were used to estimate fair value.

 

Collateral-Dependent Impaired Loans: The Bank does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect partial write-downs, through charge-offs or specific reserve allowances, that are based on fair value estimates of the underlying collateral. The fair value estimates for collateral-dependent impaired loans are generally based on recent real estate appraisals or broker opinions, obtained from independent third parties, which are frequently adjusted by management to reflect current conditions and estimated selling costs (Level 3). Impairment charges of $868,000 were recognized during the six months ended June 30, 2023, related to the above impaired loans. No impairment charges were incurred during the six months ended June 30, 2022.

 

Other Real Estate: Nonrecurring adjustments to certain real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. Fair values are generally based on third party appraisals of the property which are commonly adjusted by management to reflect current conditions and selling costs (Level 3). Appraisals for other real estate are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Loan Administration Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On a quarterly basis, the Company compares the actual selling price of similar collateral that has been liquidated to the most recent appraised value for unsold properties to determine what additional adjustment, if any, should be made to the appraisal value to arrive at fair value. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.

 

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2023 and December 31, 2022 (dollars in thousands): 

 

		Fair Value				Fair Value			Valuation			Range (Weighted Average)							Range (Weighted Average)
Description		6/30/2023				12/31/2022			Technique	Significant Unobservable Input		6/30/2023							12/31/2022
Impaired Loans:
RE – Agricultural		$	457			$	-		Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs			54	%			(54	%)
Commercial		$	26				-		Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs			56	%			(56	%)
Other		$	559				-		Discounted cash flow	Probability of default, Loss severity			44	%			(44	%)
Other Real Estate:
RE – Residential		$	83			$	-		Third Party appraisals	Management Adjustments to Reflect Current Conditions and Selling Costs			8	%			(8	%)

 

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10. OTHER COMPREHENSIVE LOSS

The changes in the accumulated balances for each component of other comprehensive loss, net of tax for the twelve months ended December 31, 2022 and the six months ended June 30, 2023 were as follows:

 

		Unrealized				Unrealized				Other Accumulated
		Gains (Losses)				Gain				Comprehensive
		on AFS				Cah Flow Hedge				Income (Loss), net of tax
		Securities
Beginning Balance, January 1, 2022		$	1,666			$	607			$	1,600
Current year-to-date other comprehensive loss			(55,849	)			1,395				(38,356	)
Ending balance, December 31, 2022		$	(54,183	)		$	2,002			$	(36,756	)
Current year-to-date other comprehensive loss			(291	)			(2,002	)			(1,616	)
Ending balance, June 30, 2023		$	(54,474	)		$	-			$	(38,372	)

 

Reclassifications out of accumulated other comprehensive loss for the six months ended June 30, 2023 and June 30, 2022, were as follows:

 

Amounts Reclassified from Accumulated Other Comprehensive Loss
Details about Accumulated Other Comprehensive (Loss) Components		Six months ended June 30, 2023				Six months ended June 30, 2022			Affected Line Item on the Statement of Income
Cash flow hedge
Termination of cash flow hedge		$	1,707			$	-		Non-Interest Income
Tax effect			(505	)			-		Provision for income taxes
Total reclassifications for the period		$	1,202			$	-		Net income

 

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PART I – FINANCIAL INFORMATION

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain matters discussed in this Quarterly Report are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among others, (1) significant increases in competitive pressures in the financial services industry; (2) changes in the interest rate environment resulting in reduced margins; (3) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality; (4) changes in regulatory environment; (5) loss of key personnel; (6) fluctuations in the real estate market; (7) changes in business conditions and inflation; (8) operational risks including data processing systems failures or fraud; and (9) changes in securities markets. Therefore, the information set forth herein should be carefully considered when evaluating the business prospects of Plumas Bancorp (the “Company”).

 

When the Company uses in this Quarterly Report the words “anticipate”, “estimate”, “expect”, “project”, “intend”, “commit”, “believe” and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and stockholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

INTRODUCTION

 

The following discussion and analysis sets forth certain statistical information relating to the Company as of June 30, 2023 and December 31, 2022 and for the three and six-month periods ended June 30, 2023. This discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in Plumas Bancorp’s Annual Report filed on Form 10-K for the year ended December 31, 2022.

 

Plumas Bancorp trades on The NASDAQ Capital Market under the ticker symbol “PLBC”.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

There have been no changes to the Company’s critical accounting policies from those disclosed in the Company’s 2022 Annual Report to Shareholders on Form 10-K.

 

 

 

Net interest income before provision for credit losses. Driven by an increase in market rates, net interest income increased by $8.9 million from $25.5 million during the six months ended June 30, 2022, to $34.4 million for the six months ended June 30, 2023. The increase in net interest income includes an increase of $9.9 million in interest income partially offset by an increase of $1.0 million in interest expense. Interest and fees on loans increased by $4.7 million related both to an increase in average balance and an increase in yield. Average loan balances increased by $77.5 million, while the average yield on loans increased by 61 basis points from 5.12% during the first half of 2022 to 5.73% during the current period. Net loan fees/costs declined from net fees of $511,000 during the 2022 period to net costs of $581,000 during the six months ended June 30, 2023.  This decline is mostly related to a decline in fees earned on PPP loans. The increase in loan yield includes the effect of an increase in market rates during the second half of 2022 and in 2023 partially offset by a decline in PPP fee income. The average prime interest rate increased from 3.62% during the first half of 2022 to 7.92% during the current period. Approximately 21% of the Company's loans are tied to the prime interest rate and most of these reprice within one to three months with a change in prime. Interest and fees on loans held for sale decreased by $383,000 related to a decrease in average balance of $14.6 million from $15.6 million for the six months ended June 30, 2022 to $1.0 million for the six months ended June 30, 2023.  Loans held for sale are tied to the prime interest rate and reprice quarterly.  Yield on loans held for sale increased by 3.59% to 9.13%.

 

Interest on investment securities increased by $4.1 million related to an increase in average investment securities of $148 million to $472 million and an increase in yield of 108 basis points to 3.24%. The increase in loan and investment yields is consistent with the increase in market rates during 2022 and into the first half of 2023. Interest on cash balances increased by $1.5 million related to an increase in the rate paid on these balances from 0.50% during the first half of 2022 to 4.84% during the current period mostly related to an increase in the rate paid on balances held at the Federal Reserve Bank (FRB). The average rate earned on FRB balances increased from 0.52% during the first half of 2022 to 4.82% during the current period. Average interest-bearing cash balances decreased by $237 million to $97 million during the current period.

 

Interest paid on deposit accounts increased for all products mostly related to market conditions.  In total interest paid on deposits increased by $954,000 broken down by product type as follows: Money market accounts - $433,000, Savings accounts - $240,000 and Time deposits - $281,000.  Beginning in April 2023 we began offering a time deposit promotion offering for a limited time 7-month and 11-month time deposits at an interest rate of 4%.  We discontinued this promotion, which generated $46 million in deposits, on June 30, 2023.

 

During March we redeemed our junior subordinated debentures with funding provided by a $10 million borrowing on Plumas Bancorp's line of credit/term loan facility.  Interest expense incurred during the six months ended June 30, 2023, on the junior subordinated debentures totaled $141,000 down from $179,000 during the first half of 2022.  Interest and fees incurred on the line of credit borrowing totaled $141,000 during the current period. Interest expense on other interest-bearing liabilities declined by $25,000 to $9,000 for the six months ended June 30, 2023.

 

Net interest margin for the six months ended June 30, 2023 increased 1.27% to 4.66%, up from 3.39% for the same period in 2022.

 

 

 

		For the Six Months Ended												For the Six Months Ended
		June 30, 2023												June 30, 2022
		Average												Average
		Balance				Interest				Yield/				Balance				Interest				Yield/
		(in thousands)				(in thousands)				Rate				(in thousands)				(in thousands)				Rate
Interest-earning assets:
Loans (2) (3)			916,389			$	26,041				5.73	%		$	838,866			$	21,302				5.12	%
Loans held for sale			1,016				46				9.13	%			15,624				429				5.54	%
Taxable investment securities			347,002				5,752				3.34	%			226,609				2,314				2.06	%
Non-taxable investment securities (1)			125,388				1,841				2.96	%			97,703				1,159				2.39	%
Interest-bearing deposits			97,103				2,330				4.84	%			333,615				829				0.50	%
Total interest-earning assets			1,486,898				36,010				4.88	%			1,512,417				26,033				3.47	%
Cash and due from banks			26,386												51,663
Other assets			75,034												64,634
Total assets		$	1,588,318											$	1,628,714
Interest-bearing liabilities:
Money market deposits		$	232,855			$	555				0.48	%		$	258,833			$	122				0.10	%
Savings deposits			392,899				407				0.21	%			390,812				167				0.09	%
Time deposits			58,057				369				1.28	%			63,045				88				0.28	%
Total deposits			683,811				1,331				0.39	%			712,690				377				0.11	%
Junior subordinated debentures			4,575				141				6.22	%			10,310				179				3.50	%
Other borrowings			5,691				141				5.00	%			-				-				-	%
Repurchase agreements & other			17,687				9				0.10	%			11,987				34				0.57	%
Total interest-bearing liabilities			711,764				1,622				0.46	%			734,987				590				0.16	%
Non-interest-bearing deposits			733,781												755,979
Other liabilities			15,908												11,919
Shareholders' equity			126,865												125,829
Total liabilities & equity		$	1,588,318											$	1,628,714
Cost of funding interest-earning assets (4)											0.22	%											0.08	%
Net interest income and margin (5)						$	34,388				4.66	%						$	25,443				3.39	%

 

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(1)	Not computed on a tax-equivalent basis.
(2)	Average nonaccrual loan balances of $3.0 million for 2023 and $4.2 million for 2022 are included in average loan balances for computational purposes.
(3)	Net (costs) fees included in loan interest income for the six-month periods ended June 30, 2023 and 2022 were ($581,000) and $511,000, respectively.
(4)	Total annualized interest expense divided by the average balance of total earning assets.
(5)	Annualized net interest income divided by the average balance of total earning assets.

 

 

 

		2023 over 2022 change in net interest income
		for the six months ended June 30,
		(in thousands)
		Volume (1)				Rate (2)				Mix (3)				Total
Interest-earning assets:
Loans		$	1,969			$	2,536			$	234			$	4,739
Loans held for sale			(401	)			278				(260	)			(383	)
Taxable investment securities			1,230				1,442				766				3,438
Non-taxable investment securities			328				276				78				682
Interest-bearing deposits			(588	)			7,176				(5,087	)			1,501
Total interest income			2,538				11,708				(4,269	)			9,977
Interest-bearing liabilities:
Money market deposits			(12	)			495				(50	)			433
Savings deposits			1				238				1				240
Time deposits			(7	)			313				(25	)			281
Junior subordinated debentures			(100	)			139				(77	)			(38	)
Other borrowings			-				-				141				141
Repurchase agreements & other			16				(28	)			(13	)			(25	)
Total interest expense			(102	)			1,157				(23	)			1,032
Net interest income		$	2,640			$	10,551			$	(4,246	)		$	8,945

 

---

	(1)	The volume change in net interest income represents the change in average balance divided by the previous year’s rate.
	(2)	The rate change in net interest income represents the change in rate divided by the previous year’s average balance.
	(3)	The mix change in net interest income represents the change in average balance multiplied by the change in rate.

 

Provision for credit losses. Upon adoption of CECL we recorded an increase in the allowance for credit losses of $529,000 and an increase in the reserve for unfunded commitments of $258,000.  During the first six months of 2023 we recorded a provision for credit losses of $2,875,000 an increase of $2,175,000 from $700,000 during the six months ended June 30, 2022. The provision for credit losses during the current period consisted of a provision for credit losses - loans of $2,550,000 and an increase in the reserve for unfunded commitments of $325,000.  The increase in the reserves was principally related to an increase in qualitative reserves related to the continuation of increases in market interest rates and a reduction in economic activity. Additionally, we recorded specific reserves totaling $868,000 on three loans.  As time progresses the results of economic conditions will require CECL model assumption inputs to change and further refinements to the estimation process may also be identified.  See “Analysis of Asset Quality and Allowance for Loan Losses” for a discussion of loan quality trends and the provision for credit losses.

 

 

Allowance for Credit Losses		June 30, 2023				June 30, 2022
Balance, beginning of period		$	10,717			$	10,352
Impact of CECL adoption			529				-
Provision charged to operations			2,550				700
Losses charged to allowance			(738	)			(469	)
Recoveries			327				336
Balance, end of period		$	13,385			$	10,919

 

Reserve for Unfunded Commitments		June 30, 2023				June 30, 2022
Balance, beginning of period		$	341			$	341
Impact of CECL adoption			258				-
Provision charged to operations			325				-
Balance, end of period		$	924			$	341

 

Non-interest income. During the six months ended June 30, 2023, non-interest income totaled $6.1 million, a decrease of $246,000 from $6.3 million during the six months ended June 30, 2022. The largest component of this decrease was a decline in gain on sale of loans of $2.1 million from $2.3 million during the six months ended June 30, 2022 to $219,000 during the current period. We did not sell SBA 7(a)  loans during the second and third quarters of 2021 resulting in an inventory of loans held for sale of $31.3 million at December 31, 2021.  During the first half of  2022 we sold $38.2 million in guaranteed portions of SBA 7(a) loans. This compares to $4.9 million in sales during the current period. Mostly offsetting the decline in SBA gains was a gain of $1.7 million on termination of our interest rate swaps during the first quarter of 2023.   

 

 

 

 

		For the Six Months Ended
		June 30,
		2023				2022				Dollar Change				Percentage Change
Gain on termination of swaps			1,707				-				1,707				100.0	%
Interchange income			1,539				1,615				(76	)			(4.7	)%
Service charges on deposit accounts			1,313				1,170				143				12.2	%
Loan servicing fees			476				422				54				12.8	%
Gain on sale of loans, net			219				2,335				(2,116	)			(90.6	)%
Earnings on life insurance policies			204				187				17				9.1	%
Other			610				585				25				4.3	%
Total non-interest income		$	6,068			$	6,314			$	(246	)			(3.9	)%

 

Non-interest expense.  During the six months ended June 30, 2023, total non-interest expense increased by $2.6 million from $15.7 million during the first half of 2022 to $18.3 million during the current period.  The largest components of this increase were increases in salary and benefit expense of $1.6 million and an increase in occupancy and equipment costs of $345,000. The increase in salary and benefit expense primarily relates to an increase in salary expense and a reduction in the deferral of loan origination costs. Salary expense increased by $728,000 which we attribute to both growth in headcount and merit and promotional salary increases. The largest single component of the increase in salary and benefit expense was a $866,000 reduction in the deferral of loan origination expense as we have seen a reduction in loan demand given the current economic environment especially in SBA 7(a) loans tied to the prime interest rate. Occupancy and equipment costs increased by $345,000, much of which relates to snow removal and other costs attributable to an unusually harsh winter in our service area.

 

The following table describes the components of non-interest expense for the six -month periods ended June 30, 2023 and 2022, dollars in thousands: 

 

		For the Six Months Ended
		June 30,
		2023				2022				Dollar Change				Percentage Change
Salaries and employee benefits		$	9,933			$	8,320			$	1,613				19.4	%
Occupancy and equipment			2,593				2,248				345				15.3	%
Outside service fees			2,175				1,930				245				12.7	%
Professional fees			626				616				10				1.6	%
Advertising and shareholder relations			460				302				158				52.3	%
Director compensation and expense			438				275				163				59.3	%
Telephone and data communication			403				382				21				5.5	%
Deposit insurance			370				372				(2	)			(0.5	)%
Armored car and courier			347				315				32				10.2	%
Business development			305				242				63				26.0	%
Loan collection expenses			217				143				74				51.7	%
Amortization of core deposit intangible			120				144				(24	)			(16.7	)%
Other			336				418				(82	)			(19.6	)%
Total non-interest expense		$	18,323			$	15,707			$	2,616				16.7	%

 

 

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2023

 

Net Income. The Company recorded net income of $6.7 million for the three months ended June 30, 2023 up $1.0 million from net income of $5.7 million for the three months ended June 30, 2022. An increase of $3.8 million in net interest income was partially offset by increases of $1.1 million in non-interest expense, $950,000 in the provision for credit losses, $295,000 in in the provision for income taxes and a reduction of $521,000 in non-interest income.

 

The annualized return on average assets was 1.70% for the three months ended June 30, 2023 up from 1.40% for the three months ended June 30, 2022. The annualized return on average equity increased from 19.0% during the second quarter of 2022 to 20.5% during the current quarter.

 

The following is a detailed discussion of each component of the change in net income.

 

Net interest income before provision for credit losses. Net interest income was $17.2 million for the three months ended June 30, 2023, an increase of $3.8 million from the same period in 2022.  The increase in net interest income includes an increase of $4.5 million in interest income partially offset by an increase of $0.7 million in interest expense. Interest and fees on loans, including loans held for sale, increased by $2.3 million related to growth in the loan portfolio and an increase in yield on the portfolio.  Net loan fees/costs declined from net fees of $200,000 during the 2022 quarter to net costs of $231,000 during the three months ended June 30, 2023.  This decline is mostly related to a decline in fees earned on PPP loans.

 

Including loans held for sale, average loan balances increased by $65 million, while the average yield on these loans increased by 63 basis points from 5.21% during the second quarter of 2022 to 5.84% during the current quarter. The increase in loan yield includes the effect of an increase in market rates during 2023 partially offset by a decline in PPP fee income as described above. The average prime interest rate increased from 3.94% during the second quarter of 2022 to 8.16% during the current quarter.

 

Interest on investment securities increased by $1.9 million from the second quarter of 2022, related to an increase in average investment securities of $141 million to $478 million and an increase in yield on the investment portfolio from 2.31% during the second quarter of 2022 to 3.24% during the current quarter. Interest on interest-earning cash balances increased by $304,000 related to an increase in the rate earned on these balances partially offset by a decrease in average interest-earning cash balances.  The rate paid on interest-earning cash balances increased from 0.84% during the second quarter of 2022 to 5.14% during the current quarter mostly related to an increase in the rate paid on balances held at the Federal Reserve Bank.  The average rate paid on Federal Reserve balances was 0.84% during the second quarter of 2022 and 5.06% during the current quarter. Average interest-earning cash balances declined from $314 million during the second quarter of 2022 to $75 million in the current quarter related to a decline in average deposits and increases in loans and investments.

 

Interest paid on deposit accounts increased for all products mostly related to market conditions.  In total interest paid on deposits increased by $681,000 broken down by product time as follows: Money market account - $282,000, Savings accounts - $123,000 and Time deposits - $276,000.  Beginning in April 2023 we began offering a time deposit promotion offering for a limited time 7-month and 11-month time deposits at an interest rate of 4%.  We discontinued this promotion, which generated $46 million in deposits, on June 30, 2023. During March we redeemed our junior subordinated debentures with funding provided by a $10 million borrowing on Plumas Bancorp's line of credit/term loan facility.  Interest and fees incurred on the line of credit borrowing totaled $113,000 during the current period. Interest expense on other interest-bearing liabilities declined by $9,000 to $7,000 for the three months ended June 30, 2023.

Average interest earning assets during the three months ended June 30, 2023, totaled $1.5 billion, a decrease of $33 million from the same period in 2022.  The average yield on interest earning assets increased 131 basis points to 4.96%, up from 3.65% for the same period in 2022. Net interest margin for the three months ended June 30, 2023, increased 112 basis points to 4.69%, up from 3.57% for the same period in 2022.

 

 

The following table presents for the three-month periods indicated the distribution of consolidated average assets, liabilities and shareholders' equity. It also presents the amounts of interest income from interest earning assets and the resultant annualized yields expressed in both dollars and annualized yield percentages, as well as the amounts of interest expense on interest bearing liabilities and the resultant cost expressed in both dollars and annualized rate percentages. Average balances are based on daily averages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:

 

		For the Three Months Ended												For the Three Months Ended
		June 30, 2023												June 30, 2022
		Average												Average
		Balance				Interest				Yield/				Balance				Interest				Yield/
		(in thousands)				(in thousands)				Rate				(in thousands)				(in thousands)				Rate
Interest-earning assets:
Loans (2) (3)		$	919,751			$	13,388				5.84	%		$	846,358			$	10,992				5.21	%
Loans held for sale			202				5				9.93	%			8,600				123				5.74	%
Taxable investment securities			351,986				2,938				3.35	%			238,477				1,315				2.21	%
Non-taxable investment securities (1)			126,148				927				2.95	%			98,552				626				2.55	%
Interest-bearing deposits			75,233				965				5.14	%			314,289				661				0.84	%
Total interest-earning assets			1,473,320				18,223				4.96	%			1,506,276				13,717				3.65	%
Cash and due from banks			26,050												48,852
Other assets			74,888												68,522
Total assets		$	1,574,258											$	1,623,650
Interest-bearing liabilities:
Money market deposits			229,886			$	338				0.59	%		$	255,088			$	56				0.09	%
Savings deposits			383,599				208				0.22	%			396,868				85				0.09	%
Time deposits			67,986				318				1.88	%			61,955				42				0.27	%
Total deposits			681,471				864				0.51	%			713,911				183				0.10	%
Junior subordinated debentures			-				-				-	%			10,310				90				3.50	%
Other borrowings			10,000				113				4.53	%			-				-				-	%
Repurchase agreements & other			16,900				7				0.17	%			10,135				16				0.63	%
Total interest-bearing liabilities			708,371				984				0.56	%			734,356				289				0.16	%
Non-interest-bearing deposits			718,372												757,655
Other liabilities			17,411												11,935
Shareholders' equity			130,104												119,704
Total liabilities & equity		$	1,574,258											$	1,623,650
Cost of funding interest-earning assets (4)											0.27	%											0.08	%
Net interest income and margin (5)						$	17,239				4.69	%						$	13,428				3.57	%

 

---

(1)	Not computed on a tax-equivalent basis.
(2)	Average nonaccrual loan balances of $3.6 million for 2023 and $3.4 million for 2022 are included in average loan balances for computational purposes.
(3)	Net (costs) fees included in loan interest income for the three-month period ended June 30, 2023 and 2022 were ($231,000) and $200,000, respectively.
(4)	Total annualized interest expense divided by the average balance of total earning assets.
(5)	Annualized net interest income divided by the average balance of total earning assets.

 

 

The following table sets forth changes in interest income and interest expense for the three-month periods indicated and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates:

 

		2023 over 2022 change in net interest income
		for the three months ended June 30,
		(in thousands)
		Volume (1)				Rate (2)				Mix (3)				Total
Interest-earning assets:
Loans		$	953			$	1,328			$	115			$	2,396
Loans held for sale			(120	)			90				(88	)			(118	)
Taxable investment securities			626				675				322				1,623
Non-taxable investment securities			175				98				28				301
Interest-bearing deposits			(503	)			3,370				(2,563	)			304
Total interest income			1,131				5,561				(2,186	)			4,506
Interest-bearing liabilities:
Money market deposits			(6	)			319				(31	)			282
Savings deposits			(3	)			130				(4	)			123
Time deposits			4				248				24				276
Junior subordinated debentures			(90	)			-				-				(90	)
Other borrowings			-				-				113				113
Repurchase agreements & other			11				(12	)			(8	)			(9	)
Total interest expense			(84	)			685				94				695
Net interest income		$	1,215			$	4,876			$	(2,280	)		$	3,811

 

---

	(1)	The volume change in net interest income represents the change in average balance divided by the previous year’s rate.
	(2)	The rate change in net interest income represents the change in rate divided by the previous year’s average balance.
	(3)	The mix change in net interest income represents the change in average balance multiplied by the change in rate.

 

Provision for credit losses. During the three months ended June 30, 2023 and 2022 we recorded a provision for credit losses - loans of $1,300,000 and $400,000, respectively.  See “Analysis of Asset Quality and Allowance for Loan Losses” for a discussion of loan quality trends and the provision for credit losses.

 

Non-interest income. Non-interest income decreased by $521,000 to $2.1 million during the current quarter from $2.7 million during the three months ended June 30, 2022. The largest component of this decrease was a decline in gains on sale of SBA loans of $645,000.  During the current quarter we sold one loan totaling $652,000.  This compares to sales of $14.1 million during the second quarter of 2022. 

 

 

 

The following table describes the components of non-interest income for the three-month periods ended June 30, 2023 and 2022, dollars in thousands: 

 

		For the Three Months Ended
		June 30,
		2023				2022				Dollar Change				Percentage Change
Interchange income			824				853				(29	)			(3.4	)%
Service charges on deposit accounts			694				604				90				14.9	%
Loan servicing fees			241				212				29				13.7	%
Earnings on life insurance policies			100				93				7				7.5	%
(Loss) gain on sale of loans, net			(11	)			634				(645	)			(101.7	)%
Other			295				268				27				10.1	%
Total non-interest income		$	2,143			$	2,664			$	(521	)			(19.6	)%

 

Non-interest expense. During the three months ended June 30, 2023, total non-interest expense increased by $1.1 million from $8.0 million during the second quarter of 2022 to $9.1 million during the current quarter.  The largest components of this increase were an increase in salary and benefit expense of $628,000, an increase in outside service fees of $159,000 and an increase in occupancy and equipment costs of $142,000. The increase in salary and benefit expense primarily relates to an increase in salary expense and a reduction in the deferral of loan origination costs. Salary expense increased by $440,000 which we attribute primarily to merit and promotional salary increases.  In addition, our full-time equivalent employee count has increased from 172 on June 30, 2022, to 176 on June 30, 2023. The deferral of loan origination costs declined by $366,000 from the second quarter of 2022 as we have seen a reduction in loan demand given the current economic environment especially in SBA 7(a) loans tied to the prime interest rate. The increase in outside service fees was spread among several different categories, the largest of which were network administration, investment management fees, and interchange expense. Occupancy and equipment costs increased by $142,000, much of which relates to snow removal and other costs attributable to an unusually harsh winter in our service area and the opening of our new Chico, California branch during the second quarter of 2023.

 

The following table describes the components of non-interest expense for the three-month periods ended June 30, 2023 and 2022, dollars in thousands: 

 

		For the Three Months Ended
		June 30,
		2023				2022				Dollar Change				Percentage Change
Salaries and employee benefits		$	4,866			$	4,238			$	628				14.8	%
Occupancy and equipment			1,253				1,111				142				12.8	%
Outside service fees			1,181				1,022				159				15.6	%
Professional fees			284				337				(53	)			(15.7	)%
Advertising and shareholder relations			281				190				91				47.9	%
Telephone and data communication			203				191				12				6.3	%
Director compensation and expense			196				134				62				46.3	%
Deposit insurance			182				175				7				4.0	%
Armored car and courier			182				167				15				9.0	%
Business development			166				127				39				30.7	%
Loan collection expenses			87				75				12				16.0	%
Amortization of core deposit intangible			60				72				(12	)			(16.7	)%
Other			157				194				(37	)			(19.1	)%
Total non-interest expense		$	9,098			$	8,033			$	1,065				13.3	%

 

Provision for income taxes. The Company recorded an income tax provision of $2.3 million, or 25.5% of pre-tax income, for the three months ended June 30, 2023. This compares to an income tax provision of $2.0 million, or 25.7% of pre-tax income, for the three months ended June 30, 2022. The percentages for 2023 and 2022 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal loan and securities interest decrease taxable income.

 

 

FINANCIAL CONDITION

 

Total assets at June 30, 2023 were $1.6 billion, a decrease of $48.1 million from December 31, 2022. Investment securities increased by $24.2 million from $444.7 million at December 31, 2022, to $468.9 million at June 30, 2023.  Net loans increased by $20.7 million from $904.0 million on December 31, 2022, to $925 million at June 30, 2023. These increases were offset by a decrease in cash and equivalents of $91.7 million to $91.7 million, and a decrease in all other assets of $1.3 million.  Deposits totaled $1.4 billion at June 30, 2023, a decrease of $62.6 million from December 31, 2022. Shareholders’ equity increased by $9.6 million from $119.0 million at December 31, 2022, to $128.6 million at June 30, 2023.

 

Loan Portfolio. Gross loans totaled $935.2 million, an increase of $23.3 million from December 31, 2022. The largest areas of growth in the Company’s loan portfolio were $12.9 million in construction loans, $6.3 million in auto loans, $4.0 million in agricultural loans and $1.2 million in commercial real estate loans.  The largest decline in loan balances was $1.7 million in commercial loans. Although the Company offers a broad array of financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These loans offer diversification as to industries and types of businesses, thus limiting material exposure in any industry concentrations. The Company offers both fixed and floating rate loans and obtains collateral in the form of real property, business assets and deposit accounts, but looks to business and personal cash flows as its primary source of repayment. 

 

As shown in the following table the Company's largest lending categories are commercial real estate loans, agricultural loans, commercial loans and auto loans.  

 

						Percent of								Percent of
						Loans in Each								Loans in Each
		Balance at End				Category to				Balance at End				Category to
(dollars in thousands)		of Period				Total Loans				of Period				Total Loans
		06/30/2023				06/30/2023				12/31/2022				12/31/2022
Commercial		$	74,958				8.0	%		$	76,680				8.4	%
Agricultural			126,841				13.6	%			122,873				13.5	%
Real estate – residential			14,878				1.6	%			15,324				1.7	%
Real estate – commercial			517,289				55.3	%			516,107				56.6	%
Real estate – construction & land			56,331				6.0	%			43,420				4.8	%
Equity Lines of Credit			35,877				3.8	%			35,891				3.9	%
Auto			103,050				11.0	%			96,750				10.6	%
Other			5,990				0.7	%			4,904				0.5	%
Total Gross Loans		$	935,214				100	%		$	911,949				100	%

 

The Company’s real estate related loans, including real estate mortgage loans, real estate construction and land development loans, consumer equity lines of credit, and agricultural loans secured by real estate, comprised 76% of the total loan portfolio at June 30, 2023. Moreover, the business activities of the Company currently are focused in the California counties of Butte, Lassen, Modoc, Nevada, Placer, Plumas, Shasta and Sutter and in Washoe and Carson City Counties in Northern Nevada. Consequently, the results of operations and financial condition of the Company are dependent upon the general trends in these economies and, in particular, the commercial real estate markets. In addition, the concentration of the Company's operations in these areas of Northeastern California and Northwestern Nevada exposes it to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in these regions.

 

The rates of interest charged on variable rate loans are set at specific increments in relation to the Company's lending rate or other indexes such as the published prime interest rate or U.S. Treasury rates and vary with changes in these indexes. The frequency in which variable rate loans reprice can vary from one day to several years. At June 30, 2023 and December 31, 2022, approximately 79% and 80%, respectively of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 21% of the Company’s loan portfolio; these loans reprice within one day to three months of a change in the prime rate. The remainder of the Company's variable rate loans mostly consist of commercial real estate loans tied to U.S. Treasury rates and reprice every five years.  While real estate mortgage, agricultural, commercial and consumer lending remain the foundation of the Company's historical loan mix, some changes in the mix have occurred due to the changing economic environment and the resulting change in demand for certain loan types.

 

 

Analysis of Asset Quality and Allowance for Loan Losses. The Company attempts to minimize credit risk through its underwriting and credit review policies. The Company’s credit review process includes internally prepared credit reviews as well as contracting with an outside firm to conduct periodic credit reviews. The Company’s management and lending officers evaluate the loss exposure of classified and nonaccrual loans on a quarterly basis, or more frequently as loan conditions change. The Management Asset Resolution Committee (MARC) reviews the asset quality of criticized and past due loans monthly and reports the findings to the full Board of Directors. In management's opinion, this loan review system helps facilitate the early identification of potential criticized loans. MARC also provides guidance for the maintenance and timely disposition of OREO properties including developing financing and marketing programs to incent individuals to purchase OREO. MARC consists of the Bank’s Chief Executive Officer, Chief Financial Officer and Chief Credit Officer, and the activities are governed by a formal written charter. The MARC meets monthly and reports to the Board of Directors.

 

On January 1, 2023, the Company adopted ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases.

 

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchase credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the Standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of adoption. The Company recognized an increase in the ACL for loans totaling $529,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $156,000 in taxes.  Additionally, the Company recognized an increase in the reserve for unfunded commitments of $257,000, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $76,000 in taxes.

 

The allowance for credit losses is established through charges to earnings in the form of the provision for credit losses. Loan losses are charged to, and recoveries are credited to the allowance for credit losses. The allowance for credit losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in the loan portfolio.

 

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. The Company's policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of June 30, 2023, the Bank's nonaccrual loans comprised the entire population of loans individually evaluated.  The Company's policy is that nonaccrual loans also represent the subset of loans in which borrowers are experiencing financial difficulty such that an evaluation of the source of repayment is required to determine if the nonaccrual loans should be categorized as collateral dependent. 

 

The implementation of CECL also impacted the Company's ACL on unfunded loan commitments, as the ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company.  The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment.  The funding rate represents management's estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while the related provision expense is included in the provision for credit loss expense.

 

 

 

The following table provides certain information for the dates indicated with respect to the Company's allowance for credit losses as well as charge-off and recovery activity.

 

		For the Six Months Ended								For the Year Ended
(dollars in thousands)		June 30,								December 31,
		2023				2022				2022				2021				2020
Balance at beginning of period		$	10,717			$	10,352			$	10,352			$	9,902			$	7,243
Impact of CECL Adoption			529				-				-				-				-
Adjusted balance			11,246				10,352				10,352				9,902				7,243
Charge-offs:
Commercial			49				19				207				188				131
Agricultural			-				-				-				-				-
Real estate – residential			-				-				-				-				-
Real estate – commercial			-				-				19				-				-
Real estate – construction & land			-				-				-				-				-
Equity Lines of Credit			-				-				-				-				-
Auto			604				419				1,195				703				574
Other			85				31				40				47				82
Total charge-offs			738				469				1,461				938				787
Recoveries:
Commercial			12				17				27				72				34
Agricultural			-				-				-				-				-
Real estate – residential			2				2				3				3				15
Real estate – commercial			1				-				2				8				8
Real estate – construction & land			-				-				-				-				-
Equity Lines of Credit			-				-				-				4				4
Auto			305				311				482				136				200
Other			7				6				12				40				10
Total recoveries			327				336				526				263				271
Net charge-offs			411				133				935				675				516
Provision for credit losses			2,550				700				1,300				1,125				3,175
Balance at end of period		$	13,385			$	10,919			$	10,717			$	10,352			$	9,902
Net charge-offs during the period to average loans (annualized for the six-month periods)			0.09	%			0.03	%			0.11	%			0.09	%			0.07	%
Allowance for credit losses to total loans			1.43	%			1.27	%			1.18	%			1.23	%			1.40	%

 

The following table provides a breakdown of the allowance for credit losses at June 30, 2023 and December 31, 2022:

 

						Percent of								Percent of
						Loans in Each								Loans in Each
		Balance at End				Category to				Balance at End				Category to
(dollars in thousands)		of Period				Total Loans				of Period				Total Loans
		6/30/2023				6/30/2023				12/31/2022				12/31/2022
Commercial		$	1,547				8.0	%		$	892				8.4	%
Agricultural			1,478				13.6	%			1,086				13.5	%
Real estate – residential			169				1.6	%			138				1.7	%
Real estate – commercial			6,862				55.3	%			4,980				56.6	%
Real estate – construction & land development			866				6.0	%			1,500				4.8	%
Equity Lines of Credit			401				3.8	%			687				3.9	%
Auto			1,566				11.0	%			1,289				10.6	%
Other			496				0.7	%			145				0.5	%
Total		$	13,385				100	%		$	10,717				100	%

 

 

 

The Company places loans 90 days or more past due on nonaccrual status unless the loan is well secured and in the process of collection. A loan is considered to be in the process of collection if, based on a probable specific event, it is expected that the loan will be repaid or brought current. Generally, this collection period would not exceed 90 days. When a loan is placed on nonaccrual status the Company's general policy is to reverse and charge against current income previously accrued but unpaid interest. Interest income on such loans is subsequently recognized only to the extent that cash is received, and future collection of principal is deemed by management to be probable. Where the collectability of the principal or interest on a loan is considered to be doubtful by management, it is placed on nonaccrual status prior to becoming 90 days delinquent.

 

 

 

The following table sets forth the amount of the Company's nonperforming assets as of the dates indicated.

 

		At
		June 30,				At December 31,
		2023				2022				2021				2020
		(dollars in thousands)
Nonaccrual loans		$	4,503			$	1,172			$	4,863			$	2,536
Loans past due 90 days or more and still accruing			5,032				-				-				-
Total nonperforming loans			9,535				1,172				4,863				2,536
Other real estate owned			83				-				487				403
Other vehicles owned			18				18				47				31
Total nonperforming assets		$	9,636			$	1,190			$	5,397			$	2,970
Interest income forgone on nonaccrual loans		$	179			$	121			$	381			$	119
Interest income recorded on a cash basis on nonaccrual loans		$	-			$	-			$	-			$	-
Nonperforming loans to total loans			1.02	%			0.13	%			0.58	%			0.36	%
Nonperforming assets to total assets			0.61	%			0.07	%			0.33	%			0.27	%

 

Nonperforming loans at June 30, 2023 were $9.5 million, an increase of $8.3 million from $1.2 million at December 31, 2022.  Included in the $9.5 million were $5 million in loans to one customer which were over 90 days past due but not nonaccrual.  These loans, which were modified during June, were brought current in July. Performing loans past due thirty to eighty-nine days were $5.4 million on June 30, 2023 down from $8.8 million on December 31, 2022.

 

A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Total substandard loans increased by $15.5 million from $3.4 million on December 31, 2022 to $18.9 million on June 30, 2023. Loans classified as special mention decreased by $10.1 million from $22.8 million on December 31, 2022 to $12.7 million on June 30, 2023.  The increase in substandard loans is primarily related to agricultural loans to one borrower.  At June 30, 2023 the loans to this borrower are on accrual status; however, they could move to nonaccrual if the borrower's financial condition worsens, the Bank's collateral position in respect to these loans deteriorates, or if the borrower is unable to meet their payment obligations. 

 

It is the policy of management to make additions to the allowance for credit losses so that it remains appropriate to absorb the inherent risk of loss in the portfolio. Management believes that the allowance on June 30, 2023 is appropriate. However, the determination of the amount of the allowance is judgmental and subject to economic conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the allowance may occur in future periods.

 

Loans Held for Sale. Included in the loan portfolio are loans which are 75% to 90% guaranteed by the Small Business Administration (SBA), US Department of Agriculture Rural Business Cooperative Service (RBS) and Farm Services Agency (FSA). The guaranteed portion of these loans may be sold to a third party, with the Bank retaining the unguaranteed portion. The Company can receive a premium in excess of the adjusted carrying value of the loan at the time of sale.

 

As of June 30, 2023, and December 31, 2022, the Company had $384,000 and $2.3 million, respectively, in SBA government guaranteed loans held for sale.  Loans held for sale are recorded at the lower of cost or fair value and therefore may be reported at fair value on a non-recurring basis. The fair values for loans held for sale are based on either observable transactions of similar instruments or formally committed loan sale prices.

 

 

OREO represents real property acquired by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. Repossessed assets include vehicles and other commercial assets acquired under agreements with delinquent borrowers. OREO holdings represented one property totaling $83,000 at June 30, 2023 and 2 properties totaling $369,000 at June 30, 2022. There were no OREO properties at December 31, 2022. Nonperforming assets as a percentage of total assets were 0.61% at June 30, 2023 and 0.07% at December 31, 2022.

 

The following table provides a summary of the change in the number and balance of OREO properties for the six months ended June 30, 2023 and 2022 (dollars in thousands): 

 

		Six Months Ended June 30,
		#				2023				#				2022
Beginning Balance			-			$	-				3			$	487
Additions			1				83				-				-
Dispositions			-				-				1				(118	)
Provision from change in OREO valuation			-				-				-				-
Ending Balance			1			$	83				2			$	369

 

Investment Portfolio and Federal Funds Sold. Total investment securities were $468.9 million as of June 30, 2023 and $444.7 million as of December 31, 2022.  Net unrealized losses on available-for-sale investment securities totaling $54,474,000 were recorded, net of $16,102,000 in tax benefit, as accumulated other comprehensive loss within shareholders' equity at June 30, 2023.   Net unrealized losses on available-for-sale investment securities totaling $54.2 million were recorded, net of $16.0 million in tax benefit, as accumulated other comprehensive income within shareholders' equity at December 31, 2022. No securities were sold during the six months ended June 30, 2023 and 2022.

 

The investment portfolio at June 30, 2023 consisted of $9.7 million in U.S. Treasury securities, $227.3 million in securities of U.S. Government-sponsored agencies, $106.7 million in securities of U.S. Government-agencies and 240 municipal securities totaling $125.2 million. The investment portfolio at December 31, 2022 consisted of $9.7 million in U.S. Treasury securities, $214.4 million in securities of U.S. Government-sponsored agencies, $99.6 million in securities of U.S. Government-agencies and 239 municipal securities totaling $121.0 million.

 

There were no Federal funds sold at June 30, 2023 and December 31, 2022; however, the Bank maintained interest earning balances at the Federal Reserve Bank totaling $61.3 million at June 30, 2023 and $154.4 million at December 31, 2022. The balance, on June 30, 2023, earns interest at the rate of 5.15%.

 

The Company classifies its investment securities as available-for-sale or held-to-maturity. Currently all securities are classified as available-for-sale. Securities classified as available-for-sale may be sold to implement the Company's asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors. 

 

Deposits. Total deposits decreased by $62.6 million from $1.5 billion at December 31, 2022, to $1.4 billion at June 30, 2023. The decrease in deposits includes decreases of $50.1 million in demand deposits, $30.1 million in money market accounts, $24.5 million in savings accounts partially offset by an increase in time deposits of  $42.1 million. Beginning in April 2023 we began offering a time deposit promotion offering for a limited time 7-month and 11-month time deposits at an interest rate of 4%.  We discontinued this promotion, which generated $46 million in deposits, on June 30, 2023. We attribute much of the decrease in total deposits to the current interest rate environment as we have seen some deposits leave for higher rates and some customers reluctant to borrow to fund operating expense and instead have drawn down their excess deposit balances.

 

 

The following table shows the distribution of deposits by type at June 30, 2023 and December 31, 2022.  

 

						Percent of								Percent of
						Deposits in Each								Deposits in Each
		Balance at End				Category to				Balance at End				Category to
(dollars in thousands)		of Period				Total Deposits				of Period				Total Deposits
		06/30/2023				06/30/2023				12/31/2022				12/31/2022
Non-interest bearing		$	716,438				51.4	%		$	766,549				52.6	%
Money Market			213,386				15.3	%			237,924				16.3	%
Savings			374,013				26.8	%			404,150				27.7	%
Time			91,323				6.5	%			49,186				3.4	%
Total Deposits		$	1,395,160				100	%		$	1,457,809				100	%

 

Deposits represent the Bank's primary source of funds. Deposits are primarily core deposits in that they are demand, savings and time deposits generated from local businesses and individuals. These sources are considered to be relatively stable, long-term relationships thereby enhancing steady growth of the deposit base without major fluctuations in overall deposit balances. The Company experiences, to a small degree, some seasonality with the slower growth period between November through April, and the higher growth period from May through October. To assist in meeting any funding demands, the Company maintains several borrowing agreements as described below. There were no brokered deposits at June 30, 2023 or December 31, 2022.

 

Estimated uninsured deposits totaled $458 million and $460 million at December 31,2022 and June 30, 2023, respectively. Uninsured amounts are estimated based on the portion of the account balances in excess of FDIC insurance limits. 

 

The following table presents the maturity distribution of the portion of time deposits in excess of the FDIC insurance limit.

 

Maturity Distribution of Estimated Uninsured Time Deposits
		June 30,			December 31
(dollars in thousands)		2023			2022
Remaining maturity:
Three months or less		$	2,091	$	1,790
After three through six months			2,246		257
After six through twelve months			12,947		1,688
After twelve months			257		76
Total		$	17,541	$	3,811

 

Repurchase Agreements. The Bank offers a repurchase agreement product for its larger customers which use securities sold under agreements to repurchase as an alternative to interest-bearing deposits. Securities sold under agreements to repurchase totaling $20.5 million and $18.6 million at June 30, 2023 and December 31, 2022, respectively are secured by U.S. Government agency securities with a carrying amount of $36.4 million and $29.6 million at June 30, 2023 and December 31, 2022, respectively. Interest paid on this product is similar to, but less than, that which is paid on the Bank’s money market accounts; however, these are not deposits and are not FDIC insured.

 

Short-term Borrowing Arrangements. The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $231 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $397 million. The Company is required to hold FHLB stock as a condition of membership. At June 30, 2023, the Company held $6.2 million of FHLB stock which is recorded as a component of other assets. 

 

The Company is also eligible to participate in the Bank Term Lending Program. The Federal Reserve Board, on March 12, 2023, announced the creation of a new Bank Term Funding Program (BTFP). The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par.  At June 30, 2023, $96 million in par value of securities were pledged as collateral under the BTFP.

 

In addition to its FHLB borrowing line and the BTFP, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB, FRB or the correspondent banks at June 30, 2023 and June 30, 2022 Note Payable.

 

During 2021 and until January 25, 2022, the Company maintained a $15 million line of credit facility with one of its correspondent banks (the "Note"). Interest on the Note was payable at the "Prime Rate". There were no borrowings on the Note.

 

On January 25, 2022, the Company replaced this facility with a $15 million Loan Agreement (the “Loan Agreement”) and Promissory Note (the “Term Note”). The Term Note matures on January 25, 2035 and can be prepaid at any time.  During the initial three years of the Loan Agreement the Term Note functions as an interest only revolving line of credit.  Beginning on year four the Term Note converts into a term loan requiring semi-annual principal and interest payments and no further advances can be made. The proceeds of this lending facility shall be used by the Company for general corporation purposes, and to provide capital injections into the Bank. The Term Note bears interest at a fixed rate of 3.85% for the first 5 years and then at a floating interest rate linked to WSJ Prime Rate for the remaining eight-year term. The Loan Agreement provides for a $187,500 loan fee. The Note is secured by the common stock of the Bank. The Loan Agreement contains certain financial and non-financial covenants, which include, but are not limited to, a minimum leverage ratio at the Bank, a minimum total risk-based capital ratio at the Bank, a maximum Texas Ratio at the Bank, a minimum level of Tier 1 capital at the Bank and a return on average assets needed to generate a 1.25X debt service coverage ratio. The Loan Agreement also contains customary events of default, including, but not limited to, failure to pay principal or interest, the commencement of certain bankruptcy proceedings, and certain adverse regulatory events affecting the Company or the Bank. Upon the occurrence of an event of default under the Loan Agreement, the Company’s obligations under the Loan Agreement may be accelerated. In March 2023 the Company borrowed $10 million on this note and used the proceeds to redeem its Trust Preferred securities as described below. The Company was in compliance with all covenants related to the Term Note at June 30, 2023. 

 

Interest expense recognized by the Company for the six months ended June 30, 2023, on the Term Note totaled $141,000.

 

Junior Subordinated Deferrable Interest Debentures/ Trust Preferred Securities. On February 9, 2023, Plumas Bancorp submitted redemption notices to redeem $6,000,000 of trust preferred securities of Plumas Statutory Trust I (“Trust I”) and $4,000,000 of trust preferred securities of Plumas Statutory Trust II (“Trust II”). The trust preferred securities are being redeemed, along with an aggregate of $310,000 in common securities issued by the trusts and held by the Company and 100% of the Company’s junior subordinated debentures due 2032 held by Trust I and 100% of the Company’s junior subordinated debentures due 2035 held by Trust II underlying the trust preferred securities.

The trust preferred securities of Plumas Statutory Trust II were redeemed on March 15, 2023 and the trust preferred securities of Plumas Statutory Trust I were redeemed on March 27, 2023. The redemption prices for the junior subordinated debentures were equal to 100% of the respective principal amounts, which total $10,000,000, plus accrued interest up to the redemption date. The proceeds from the redemption of the junior subordinated debentures were simultaneously applied to redeem all of the outstanding common securities and the outstanding trust preferred securities at a price of 100% of the aggregate principal amount of the trust preferred securities plus accumulated but unpaid distributions up to the redemption date. Funding for the redemption was provided from borrowings on our Term Note as described above.

 

Interest expense recognized by the Company for the six months ended June 30, 2023 and 2022 related to the subordinated debentures totaled $141,000 and $179,000, respectively.

 

Interest Rate Swaps

 

From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes.  These financial instruments are not used for trading or speculative purposes.  On May 26, 2020 we entered into two separate interest rate swap agreements, effectively converting our $10 million in Subordinated Debentures to fixed obligations. During the first quarter of 2023 we terminated these swaps recording a $1.7 million gain on termination.  

 

Capital Resources

  

Shareholders’ equity increased by $9.6 million from $119.0 million at December 31, 2022 to $128.6 million at June 30, 2023. The $9.6 million increase was related to net income during the six months ended June 30, 2023, of $14.3 million and stock option and restricted stock activity of $367,000 partially offset by shareholder dividends of $2.9 million, an increase in accumulated other comprehensive loss of $1.6 million and $554,000 related to the cumulative change from adoption of ASU 2016-13.

 

It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the payment of cash dividends. Such dividends help promote shareholder value and capital adequacy by enhancing the marketability of the Company’s stock. All authority to provide a return to the shareholders in the form of a cash or stock dividend or split rests with the Board of Directors. The Board will periodically, but on no regular schedule, review the appropriateness of a cash dividend payment. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. The Company is subject to various restrictions on the payment of dividends.  The Company paid a quarterly cash dividend of $0.25 per share on May 15, 2023 and February 15, 2023 and a quarterly cash dividend of $0.16 per share on February 15, 2022, May 16, 2022, August 15, 2022, and November 15, 2022, and a quarterly cash dividend of 14 cents per share on February 15, 2021, May 17, 2021, August 16, 2021, and November 15, 2021.

 

Capital Standards. The Company uses a variety of measures to evaluate its capital adequacy. Management reviews these capital measurements on a monthly basis and takes appropriate action to ensure that they are within established internal and external guidelines. The FDIC has promulgated risk-based capital guidelines for all state non-member banks such as the Bank. These guidelines establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures.

 

In July, 2013, the federal bank regulatory agencies adopted rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. depository organizations, sometimes called “Basel III,” that increased the minimum regulatory capital requirements for bank holding companies and depository institutions and implemented strict eligibility criteria for regulatory capital instruments. The Basel III capital rules include a minimum common equity Tier 1 ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets). The minimum capital levels required to be considered “well capitalized” include a common equity Tier 1 ratio of 6.5%, a Tier 1 risk-based capital ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%.  In addition, the Basel III capital rules require that banking organizations maintain a capital conservation buffer of 2.5% above the minimum capital requirements in order to avoid restrictions on their ability to pay dividends, repurchase stock or pay discretionary bonuses. Including the capital conservation buffer of 2.5%, the Basel III capital rules require the following minimum ratios for a bank holding company or bank to be considered well capitalized: a common equity Tier 1 capital ratio of 7.0%; a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. At June 30, 2023 and December 31, 2022, the Bank’s capital ratios exceeded the thresholds necessary to be considered “well capitalized” under the Basel III framework.

 

Under the FRB’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (the “Policy Statement”), qualifying bank holding companies with less than $3 billion in consolidated assets are exempt from the Basel III consolidated capital rules. The Company qualifies for treatment under the Policy Statement and is not currently subject to the Basel III consolidated capital rules at the bank holding company level. The Basel III capital rules continue to apply to the Bank.

 

 

 

 

In 2019, the federal bank regulators issued a rule establishing a “community bank leverage ratio” (the ratio of a bank’s tier 1 capital to average total consolidated assets) that qualifying institutions with less than $10 billion in assets may elect to use in lieu of the generally applicable leverage and risk-based capital requirements under Basel III. A qualifying banking organization that elects to use the new ratio will be considered to have met all applicable federal regulatory capital and leverage requirements, including the minimum capital levels required to be considered “well capitalized” if it maintains a community bank leverage ratio exceeding 9%.  The new rule became effective on January 1, 2020.  Plumas Bank has chosen not to opt into the community bank leverage ratio at this time.

 

 

 

 

										Minimum Amount of Capital Required
																		To be Well-Capitalized
										For Capital								Under Prompt
		Actual								Adequacy Purposes (1)								Corrective Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
June 30, 2023
Common Equity Tier 1 Ratio		$	167,106				15.0	%		$	50,191				4.5	%		$	72,498				6.5	%
Tier 1 Leverage Ratio			167,106				10.3	%			64,653				4.0	%			80,816				5.0	%
Tier 1 Risk-Based Capital Ratio			167,106				15.0	%			66,921				6.0	%			89,228				8.0	%
Total Risk-Based Capital Ratio			181,053				16.2	%			89,228				8.0	%			111,535				10.0	%
December 31, 2022
Common Equity Tier 1 Ratio		$	157,361				14.7	%		$	48,218				4.5	%		$	69,648				6.5	%
Tier 1 Leverage Ratio			157,361				9.2	%			68,078				4.0	%			85,098				5.0	%
Tier 1 Risk-Based Capital Ratio			157,361				14.7	%			64,291				6.0	%			85,721				8.0	%
Total Risk-Based Capital Ratio			168,419				15.7	%			85,721				8.0	%			107,151				10.0	%

 

(1) Does not include amounts required to maintain the capital conservation buffer under the new capital rules.

 

Management believes that Plumas Bank currently meets all its capital adequacy requirements.

 

The current and projected capital positions of the Bank and the impact of capital plans and long-term strategies are reviewed regularly by management. The Company policy is to maintain the Bank’s ratios above the prescribed well-capitalized ratios at all times.

 

Off-Balance Sheet Arrangements

 

Loan Commitments. In the normal course of business, there are various commitments outstanding to extend credits that are not reflected in the financial statements. Commitments to extend credit and letters of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Annual review of commercial credit lines, letters of credit and ongoing monitoring of outstanding balances reduces the risk of loss associated with these commitments. As of June 30, 2023, the Company had $191.8 million in unfunded loan commitments and $108,000 in letters of credit. This compares to $178.7 million in unfunded loan commitments and no letters of credit at December 31, 2022. Of the $191.8 million in unfunded loan commitments, $127.7 million and $64.1 million represented commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at June 30, 2023, $127.6 million were secured by real estate, of which $72.9 million was secured by commercial real estate and $54.7 million was secured by residential real estate mostly in the form of equity lines of credit. The commercial loan commitments not secured by real estate primarily represent business lines of credit, while the consumer loan commitments not secured by real estate primarily represent revolving credit card lines and overdraft protection lines. Since some of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements.

 

Operating Leases. The Company leases three depository branches, one of which is a land lease on which we own the building, two lending offices, three administrative offices and two non-branch automated teller machine locations.  The expiration dates of the leases vary, with the first such lease expiring during 2024 and the last such lease expiring during 2044. Including variable lease expense, total rent expense was $319,000 and $300,000 during the six months ended June 30, 2023 and 2022, respectively.

 

Liquidity

 

The Company manages its liquidity to provide the ability to generate funds to support asset growth, meet deposit withdrawals (both anticipated and unanticipated), fund customers' borrowing needs and satisfy maturity of short-term borrowings. The Company’s liquidity needs are managed using assets or liabilities, or both. On the asset side, in addition to cash and due from banks, the Company maintains an investment portfolio which includes unpledged U.S. Government-sponsored agency securities that are classified as available-for-sale. On the liability side, liquidity needs are managed by offering competitive rates on deposit products and the use of established lines of credit.

 

The Company is a member of the Federal Home Loan Bank of San Francisco (FHLB) and can borrow up to $231 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $397 million. The Company is also eligible to participate in the Bank Term Lending Program. The Company has pledged as collateral under the BTFP securities with a par value of $96 million.  In addition to its FHLB borrowing line and the BTFP, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB, FRB or the correspondent banks at June 30, 2023, and June 30, 2022.

 

Customer deposits are the Company’s primary source of funds. Total deposits decreased by $62.6 million from $1.5 billion at December 31, 2022, to $1.4 billion at June 30, 2023.  Deposits are held in various forms with varying maturities. The Company estimates that it has approximately $460 million in uninsured deposits.  Of this amount, $101 million represents deposits that are collateralized such as deposits of states, municipalities and tribal accounts.

 

The Company’s securities portfolio, Federal funds sold, FHLB advances, and cash and due from banks serve as the primary sources of liquidity, providing adequate funding for loans during periods of high loan demand. During periods of decreased lending, funds obtained from the maturing or sale of investments, loan payments, and new deposits are invested in short-term earning assets, such as cash held at the FRB, Federal funds sold and investment securities, to serve as a source of funding for future loan growth. Management believes that the Company’s available sources of funds, including borrowings, will provide adequate liquidity for its operations in the foreseeable future.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of June 30, 2023.  The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2023.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

 

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company and/or its subsidiary are a party to claims and legal proceedings arising in the ordinary course of business. In the opinion of the Company's management, the amount of ultimate liability with respect to such proceedings will not have a material adverse effect on the financial condition or results of operations of the Company taken as a whole.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this Form 10-Q you should carefully consider the risk factors that appeared under Item 1A, “Risk Factors” in the Company’s 2022 Annual Report. There are no material changes from the risk factors included within the Company’s 2022 Annual Report.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following documents are included or incorporated by reference in this Quarterly Report on Form 10Q:

 

          (a) None.

 

(b) None.

 

(c) None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 

ITEM 6. EXHIBITS

 

 

3.1	Articles of Incorporation as amended of Registrant included as Exhibit 3.1 to the Registrant’s Form S-4, File No. 333-84534, which is incorporated by reference herein.
3.2	Bylaws of Registrant as amended on May 17, 2023 included as Exhibit 3.01 to the Registrant’s Form 8-K for May 18, 2023, which is incorporated by this reference herein.
3.3	Amendment of the Articles of Incorporation of Registrant dated November 1, 2002, is included as Exhibit 3.3 to the Registrant’s 10-Q for September 30, 2005, which is incorporated by this reference herein.
3.4	Amendment of the Articles of Incorporation of Registrant dated August 17, 2005, is included as Exhibit 3.4 to the Registrant’s 10-Q for September 30, 2005, which is incorporated by this reference herein.
4	Specimen form of certificate for Plumas Bancorp included as Exhibit 4 to the Registrant’s Form S-4, File No. 333-84534, which is incorporated by reference herein.
4.1	Description of Securities of Plumas Bancorp Registered Under Section 12 of the Exchange Act, is included as Exhibit 4.1 to the Registrant's 10-K for December 31, 2019, which is incorporated by this reference herein.
10.1*	Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Steven M. Coldani adopted on May 17, 2023.
10.2*	Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Robert J. McClintock adopted on May 17, 2023.
10.3*	Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Terrance J. Reeson adopted on May 17, 2023.
10.4*	Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Daniel E. West adopted on May 17, 2023.
10.5*	Director Retirement Agreement of Michonne R. Ascuaga.
10.6*	Director Retirement Agreement of Heidi S. Gansert.
10.7*	Director Retirement Agreement of Richard F. Kenny.
31.1*	Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated August 9, 2023.
31.2*	Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated August 9, 2023.
32.1*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 9, 2023.
32.2*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 9, 2023.

 

 

101.INS*	Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*	Filed herewith

 

 

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.

 

PLUMAS BANCORP
(Registrant)
Date: August 9, 2023
	/s/ Richard L. Belstock
	Richard L. Belstock
	Chief Financial Officer
	/s/ Andrew J. Ryback
	Andrew J. Ryback
	Director, President and Chief Executive Officer