plbc20150930_10q.htm

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

 

(Mark One)

 

 

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015

 

 

 

 

TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ___________

 

COMMISSION FILE NUMBER: 000-49883

 

PLUMAS BANCORP

(Exact Name of Registrant as Specified in Its Charter)

 

California

 

75-2987096

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 

 

 

35 S. Lindan Avenue, Quincy, California

 

95971

(Address of Principal Executive Offices)

 

(Zip Code)

 

 

 

Registrant’s Telephone Number, Including Area Code (530) 283-7305

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    No 

 

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

 

Large Accelerated Filer

 ☐ 

Accelerated Filer

Non-Accelerated Filer

 ☐ 

Smaller Reporting Company

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 2, 2015. 4,827,832 shares

 

 
 

 

  

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

PLUMAS BANCORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

   

September 30,

2015

   

December 31,
2014

 
                 

Assets

               

Cash and cash equivalents

  $ 93,964     $ 45,574  

Investment securities available for sale

    89,391       90,320  

Loans, less allowance for loan losses of $5,917 at September 30, 2015 and $5,451 at December 31, 2014

    386,838       366,787  

Premises and equipment, net

    12,442       11,642  

Bank owned life insurance

    12,102       11,845  

Real estate acquired through foreclosure

    2,265       3,590  

Accrued interest receivable and other assets

    9,854       9,104  

Total assets

  $ 606,856     $ 538,862  
                 

Liabilities and Shareholders’ Equity

               
                 

Deposits:

               

Non-interest bearing

  $ 213,406     $ 180,649  

Interest bearing

    325,348       287,242  

Total deposits

    538,754       467,891  

Repurchase agreements

    5,355       9,626  

Note payable

    5,000       1,000  

Subordinated debenture

    -       7,454  

Accrued interest payable and other liabilities

    6,229       6,084  

Junior subordinated deferrable interest debentures

    10,310       10,310  

Total liabilities

    565,648       502,365  
                 

Commitments and contingencies (Note 5)

               
                 

Shareholders’ equity:

               

Common stock, no par value; 22,500,000 shares authorized; issued and outstanding – 4,827,832 shares at September 30, 2015 and 4,799,139 at December 31, 2014

    6,422       6,312  

Retained earnings

    34,415       30,245  

Accumulated other comprehensive income (loss), net

    371       (60

)

Total shareholders’ equity

    41,208       36,497  

Total liabilities and shareholders’ equity

  $ 606,856     $ 538,862  

 

See notes to unaudited condensed consolidated financial statements.     

 

 
1

 

 

 PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2015

   

2014

   

2015

   

2014

 

Interest Income:

                               

Interest and fees on loans

  $ 5,325     $ 4,898     $ 15,415     $ 14,265  

Interest on investment securities

    418       368       1,235       1,122  

Other

    50       36       114       92  

Total interest income

    5,793       5,302       16,764       15,479  

Interest Expense:

                               

Interest on deposits

    134       126       383       390  

Interest on note payable

    51       34       106       98  

Interest on subordinated debenture

    -       191       219       568  

Interest on junior subordinated deferrable interest debentures

    77       79       227       228  

Other

    1       2       4       4  

Total interest expense

    263       432       939       1,288  

Net interest income before provision for loan losses

    5,530       4,870       15,825       14,191  

Provision for Loan Losses

    300       300       900       750  

Net interest income after provision for loan losses

    5,230       4,570       14,925       13,441  

Non-Interest Income:

                               

Service charges

    1,013       1,064       2,958       3,122  

Gain on sale of loans

    617       304       1,591       1,081  

(Loss) gain on sale of investments

    (9

)

    128       21       128  

Other

    425       399       1,343       1,145  

Total non-interest income

    2,046       1,895       5,913       5,476  

Non-Interest Expenses:

                               

Salaries and employee benefits

    2,584       2,287       7,728       7,049  

Occupancy and equipment

    702       699       2,082       2,235  

Other

    1,372       1,302       4,184       4,029  

Total non-interest expenses

    4,658       4,288       13,994       13,313  

Income before provision for income taxes

    2,618       2,177       6,844       5,604  

Provision for Income Taxes

    1,018       850       2,674       2,210  

Net income

  $ 1,600     $ 1,327     $ 4,170     $ 3,394  
                                 

Basic earnings per share

  $ 0.33     $ 0.28     $ 0.87     $ 0.71  

Diluted earnings per share

  $ 0.32     $ 0.27     $ 0.82     $ 0.68  

 

See notes to unaudited condensed consolidated financial statements.

 

 
2

 

 

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2015

   

2014

   

2015

   

2014

 
                                 

Net income

  $ 1,600     $ 1,327     $ 4,170     $ 3,394  

Other comprehensive income (loss):

                               

Change in net unrealized gain (loss)

    934       (334

)

    755       1,188  

Reclassification adjustments for net losses (gains) included net income

    9       (128

)

    (21

)

    (128

)

Net unrealized holding gains (losses)

    943       (462

)

    734       1,060  

Related tax effect:

                               

Change in net unrealized (gain) loss

    (386

)

    138       (312

)

    (491

)

Reclassification of net gains (losses) included in net income

    (3

)

    53       9       53  

Income tax effect

    (389

)

    191       (303

)

    (438

)

Other comprehensive income (loss)

    554       (271

)

    431       622  

Total comprehensive income

  $ 2,154     $ 1,056     $ 4,601     $ 4,016  

      

See notes to unaudited condensed consolidated financial statements.

 

 
3

 

  

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

   

For the Nine Months

 
   

Ended September 30,

 
   

2015

   

2014

 

Cash Flows from Operating Activities:

               

Net income

  $ 4,170     $ 3,394  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for loan losses

    900       750  

Change in deferred loan origination costs/fees, net

    (317

)

    (545

)

Depreciation and amortization

    895       977  

Stock-based compensation expense

    56       57  

Gain on sale of investments

    (21

)

    (128

)

Amortization of investment security premiums

    373       369  

Gain on sale of other vehicles

    (68

)

    (34

)

Gain on sale of OREO

    (73

)

    (100

)

Gain on sale of loans held for sale

    (1,591

)

    (1,081

)

Loans originated for sale

    (20,816

)

    (15,371

)

Proceeds from loan sales

    23,735       16,574  

Provision from change in OREO valuation

    79       226  

Earnings on bank-owned life insurance

    (256

)

    (258

)

(Increase) decrease in accrued interest receivable and other assets

    (675

)

    62  

Increase in accrued interest payable and other liabilities

    145       26  

Net cash provided by operating activities

    6,536       4,918  
                 

Cash Flows from Investing Activities:

               

Proceeds from matured and called available-for-sale investment securities

    2,500       16,044  

Proceeds from principal repayments from available-for-sale government-sponsored mortgage-backed securities

    8,996       7,163  

Purchases of available-for-sale securities

    (22,441

)

    (32,667

)

Proceeds from sale of available-for-sale securities

    12,260       16,325  

Net increase in loans

    (22,951

)

    (25,717

)

Proceeds from sale of other vehicles

    303       202  

Proceeds from sale of OREO

    1,648       2,981  

Purchase of premises and equipment

    (1,611

)

    (101

)

Net cash used in investing activities

    (21,296

)

    (15,770

)

 

Continued on next page.         

 

 
4

 

 

PLUMAS BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

(Continued)

 

   

For the Nine Months

 
   

Ended September 30,

 
   

2015

   

2014

 

Cash Flows from Financing Activities:

               

Net increase in demand, interest bearing and savings deposits

  $ 72,058     $ 28,319  

Net decrease in time deposits

    (1,195

)

    (5,544

)

Net (decrease) increase in securities sold under agreements to repurchase

    (4,271

)

    2,357  

Borrowing (repayment) - note payable

    4,000       (2,000

)

Redemption of subordinated debenture

    (7,500

)

    -  

Net proceeds from exercise of stock options

    58       22  

Net cash provided by financing activities

    63,150       23,154  

Increase in cash and cash equivalents

    48,390       12,302  

Cash and Cash Equivalents at Beginning of Year

    45,574       49,917  

Cash and Cash Equivalents at End of Period

  $ 93,964     $ 62,219  
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash paid during the period for:

               

Interest expense

  $ 871     $ 1,189  

Income taxes

  $ 3,295     $ 1,326  
                 

Non-Cash Investing Activities:

               

Real estate and vehicles acquired through foreclosure

  $ 604     $ 351  
                 

Non-Cash Financing Activities:

               

Common stock retired in connection with the exercise of stock options

  $ 32     $ -  

 

See notes to unaudited condensed consolidated financial statements.        

 

 
5

 

  

PLUMAS BANCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.   GENERAL

 

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.

 

The Bank operates eleven branches in California, including branches in Alturas, Chester, Fall River Mills, Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City, and Truckee. The Bank’s administrative headquarters is in Quincy, California. In addition, the Bank operates a loan administrative and lending office in Reno, Nevada, lending offices specializing in government-guaranteed lending in Auburn, California and Beaverton, Oregon and a commercial/agricultural lending office in Chico, California. 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.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The condensed consolidated financial statements include the accounts of the Company and the accounts of its wholly-owned subsidiary, Plumas Bank. Plumas Statutory Trust I and Plumas Statutory Trust II are not consolidated into the Company’s consolidated financial statements and, accordingly, are accounted for under the equity method. 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 September 30, 2015 and the results of its operations and its cash flows for the three-month and nine-month periods ended September 30, 2015 and 2014. Our condensed consolidated balance sheet at December 31, 2014 is derived from audited financial statements. Certain reclassifications have been made to prior period’s balances to conform to classifications used in 2015.

 

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 2014 Annual Report to Shareholders on Form 10-K. The results of operations for the three-month and nine-month periods ended September 30, 2015 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.

 

Management has determined that because all of the commercial 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 single customer accounts for more than 10% of the revenues of the Company or the Bank.

 

 
6

 

 

3.   INVESTMENT SECURITIES AVAILABLE FOR SALE

 

The amortized cost and estimated fair value of investment securities at September 30, 2015 and December 31, 2014 consisted of the following, in thousands:

 

Available-for-Sale

 

September 30, 2015

 
           

Gross

   

Gross

   

Estimated

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

Debt securities:

                               

U.S. Government-sponsored agencies

  $ 998     $ 2     $ -     $ 1,000  

U.S. Government-sponsored agencies collateralized by mortgage obligations- residential

    71,034       469       (207 )     71,296  

Obligations of states and political subdivisions

    16,726       374       (5 )     17,095  
    $ 88,758     $ 845     $ (212 )   $ 89,391  

 

 

Net unrealized gain on available-for-sale investment securities totaling $633,000 were recorded, net of $262,000 in tax expense, as accumulated other comprehensive income within shareholders' equity at September 30, 2015. During the nine months ended September 30, 2015 the Company sold fifteen available-for-sale investment securities for total proceeds of $12,260,000 recording a $21,000 net gain on sale. The Company realized a gain on sale from eight of these securities totaling $62,000 and a loss on sale on seven securities of $41,000. During the three months ended September 30, 2015 the Company sold seven available-for-sale investment securities for total proceeds of $5,592,000 recording a $9,000 net loss on sale. The Company realized a gain on sale from three of these securities totaling $25,000 and a loss on sale on four securities of $34,000.

 

Available-for-Sale

 

December 31, 2014

 
           

Gross

   

Gross

   

Estimated

 
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

Debt securities:

                               

U.S. Government-sponsored agencies

  $ 7,003     $ 19     $ (20 )   $ 7,002  

U.S. Government-sponsored agencies collateralized by mortgage obligations- residential

    70,610       192       (522 )     70,280  

Obligations of states and political subdivisions

    12,307       234       (9 )     12,532  

Corporate debt

    502       4       -       506  
    $ 90,422     $ 449     $ (551 )   $ 90,320  

 

Net unrealized loss on available-for-sale investment securities totaling $102,000 were recorded, net of $42,000 in tax benefits, as accumulated other comprehensive income within shareholders' equity at December 31, 2014. During the nine and three months ended September 30, 2014 the Company sold fourteen available-for-sale securities for $16,325,000. The Company realized a gain on sale from thirteen of these securities totaling $134,000 and a loss on sale on one security of $6,000.

 

There were no transfers of available-for-sale investment securities during the nine months ended September 30, 2015 and twelve months ended December 31, 2014. There were no securities classified as held-to-maturity at September 30, 2015 or December 31, 2014.

 

 
7

 

 

Investment securities with unrealized losses at September 30, 2015 and December 31, 2014 are summarized and classified according to the duration of the loss period as follows, in thousands:

 

September 30, 2015

                                               
   

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. Government agencies collateralized by mortgage obligations-residential

  $ 11,649     $ 26     $ 12,507     $ 181     $ 24,156     $ 207  

Obligations of states and political subdivisions

    1,495       4       160       1       1,655       5  
    $ 13,144     $ 30     $ 12,667     $ 182     $ 25,811     $ 212  

 

December 31, 2014

                                               
   

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. Government- sponsored agencies

  $ 994     $ 6     $ 2,985     $ 14     $ 3,979     $ 20  

U.S. Government agencies collateralized by mortgage obligations-residential

    4,504       17       28,643       505       33,147       522  

Obligations of states and political subdivisions

    2,014       9       -       -       2,014       9  
    $ 7,512     $ 32     $ 31,628     $ 519     $ 39,140     $ 551  

 

At September 30, 2015, the Company held 129 securities of which 27 were in a loss position. Of the securities in a loss position, 13 were in a loss position for less than twelve months. Of the 27 securities 22 are U.S. Government-sponsored agencies collateralized by residential mortgage obligations and five 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. When analyzing an issuer’s financial condition, management considers the length of time and extent to which the market value has been less than cost; the historical and implied volatility of the security; the financial condition of the issuer of the security; and the Company’s intent and ability to hold the security to recovery. As of September 30, 2015, management does not have the intent to sell these securities nor does it believe it is more likely than not that it will be required to sell these securities before the recovery of its amortized cost basis. Based on the Company’s evaluation of the above and other relevant factors, the Company does not believe the securities that are in an unrealized loss position as of September 30, 2015 are other than temporarily impaired.

 

The amortized cost and estimated fair value of investment securities at September 30, 2015 by contractual maturity are shown below, in thousands.

 

   

Amortized Cost

   

Estimated

Fair Value

 

After one year through five years

  $ 998     $ 1,000  

After five years through ten years

    13,108       13,396  

After ten years

    3,618       3,699  

Investment securities not due at a single maturity date:

               

Government-sponsored mortgage-backed securities

    71,034       71,296  
    $ 88,758     $ 89,391  

 

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 $55,457,000 and $57,793,000 and estimated fair values totaling $55,724,000 and $57,636,000 at September 30, 2015 and December 31, 2014, respectively, were pledged to secure deposits and repurchase agreements.

 

 
8

 

 

4.    LOANS AND THE ALLOWANCE FOR LOAN LOSSES

 

Outstanding loans are summarized below, in thousands:

 

   

September 30,

   

December 31,

 
   

2015

   

2014

 
                 

Commercial

  $ 32,898     $ 31,465  

Agricultural

    39,819       35,355  

Real estate - residential

    26,201       29,284  

Real estate – commercial

    182,728       163,306  

Real estate – construction and land development

    20,479       24,572  

Equity lines of credit

    37,872       38,972  

Auto

    48,012       44,618  

Other

    2,777       2,818  
      390,786       370,390  

Deferred loan costs, net

    1,969       1,848  

Allowance for loan losses

    (5,917 )     (5,451 )
    $ 386,838     $ 366,787  

 

 

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

 

   

September 30,

   

December 31,

 
   

2015

   

2014

 
                 

Balance, beginning of year

  $ 5,451     $ 5,517  

Provision charged to operations

    900       1,100  

Losses charged to allowance

    (672 )     (1,913 )

Recoveries

    238       747  

Balance, end of year

  $ 5,917     $ 5,451  

 

 

The recorded investment in impaired loans totaled $6,950,000 and $8,582,000 at September 30, 2015 and December 31, 2014, respectively. The Company had specific allowances for loan losses of $705,000 on impaired loans of $2,375,000 at September 30, 2015 as compared to specific allowances for loan losses of $564,000 on impaired loans of $2,401,000 at December 31, 2014. The balance of impaired loans in which no specific reserves were required totaled $4,575,000 and $6,181,000 at September 30, 2015 and December 31, 2014, respectively. The average recorded investment in impaired loans for the nine months ended September 30, 2015 and September 30, 2014 was $6,892,000 and $7,949,000, respectively. The Company recognized $89,000 and $94,000 in interest income on impaired loans during the nine months ended September 30, 2015 and 2014, respectively. No interest was recognized on impaired loans accounted for on a cash basis during the nine months ended September 30, 2015 and 2014, respectively.

 

Included in impaired loans are troubled debt restructurings. A troubled debt restructuring is a formal restructure of a loan where the Company for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions may be granted in various forms to include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

 

The carrying value of troubled debt restructurings at September 30, 2015 and December 31, 2014 was $4,720,000 and $5,738,000, respectively. The Company has allocated $288,000 and $319,000 of specific reserves on loans to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2015 and December 31, 2014, respectively. The Company has not committed to lend additional amounts on loans classified as troubled debt restructurings at September 30, 2015 and December 31, 2014.

 

 
9

 

 

There were no troubled debt restructurings that occurred during the nine months ended September 30, 2015.

 

During the three and nine month periods ended September 30, 2014, one loan was modified as a troubled debt restructuring.

 

The following table presents information related to the one loan modified as a troubled debt restructuring during the three and nine months ending September 30, 2014, dollars in thousands:

 

   

Number of

Loans

     

Pre-Modification

 Outstanding

Recorded Investment 

     

Post-Modification

Recorded 

Investment 

 

Troubled Debt Restructurings:

                       

Auto

    1     $ 10     $ 10  

Total

    1     $ 10     $ 10  

 

The troubled debt restructuring described above resulted in no allowance for loan losses or charge-offs during the nine months ending September 30, 2014. 

 

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2015 and 2014, respectively.

 

At September 30, 2015 and December 31, 2014, nonaccrual loans totaled $5,024,000 and $6,625,000, respectively. Interest foregone on nonaccrual loans totaled $270,000 and $286,000 for the nine months ended September 30, 2015 and 2014, respectively. Interest foregone on nonaccrual loans totaled $66,000 and $82,000 for the three months ended September 30, 2015 and 2014, respectively. No loans were past due 90 days or more and on accrual status at September 30, 2015 and December 31, 2014.

 

The Company assigns a risk rating to all loans, with the exception of automobile and other loans and periodically, but not less than annually, performs detailed reviews of all such 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 five major categories, defined as follows:

 

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

 

Watch – A Watch loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Watch loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

 

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.

 

 
10

 

 

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.

 

Loss – Loans classified as loss are considered uncollectible and charged off immediately.

 

Other real estate owned totaled $2,265,000 and $3,590,000 at September 30, 2015 and December 31, 2014, respectively. Of these amount $117,000 at September 30, 2015 and $146,000 at December 31, 2014 represent foreclosed residential real estate property. There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2015 or December 31, 2014.

 

 
11

 

 

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

 

September 30, 2015

 

Commercial Credit Exposure

 
   

Credit Risk Profile by Internally Assigned Grade

 

 

Commercial

   

Agricultural

   

Real Estate-

Residential

   

Real Estate-

Commercial

   

Real Estate-

Construction

   

Equity LOC

   

Total

 
Grade:                                                        

Pass

  $ 31,618     $ 39,070     $ 26,041     $ 176,528     $ 19,567     $ 37,359     $ 330,183  

Watch

    695       373       82       2,215       -       146       3,511  

Substandard

    585       376       78       3,985       912       367       6,303  

Doubtful

    -       -       -       -       -       -       -  

Total

  $ 32,898     $ 39,819     $ 26,201     $ 182,728     $ 20,479     $ 37,872     $ 339,997  

December 31, 2014

 

Commercial Credit Exposure

 
   

Credit Risk Profile by Internally Assigned Grade

 

 

 

Commercial

   

Agricultural

   

Real Estate-

Residential

   

Real Estate-

Commercial

   

Real Estate-

Construction

   

Equity LOC

   

Total

 
Grade:                                          

Pass

  $ 30,176     $ 34,609     $ 28,048     $ 156,329     $ 22,924     $ 38,373     $ 310,459  

Watch

    789       355       233       2,297       537       146       4,357  

Substandard

    500       391       1,003       4,680       1,111       453       8,138  

Doubtful

    -       -       -       -       -       -       -  

Total

  $ 31,465     $ 35,355     $ 29,284     $ 163,306     $ 24,572     $ 38,972     $ 322,954  

   

Consumer Credit Exposure

   

Consumer Credit Exposure

 
   

Credit Risk Profile

Based on Payment Activity

   

Credit Risk Profile

Based on Payment Activity

 
   

September 30, 2015

   

December 31, 2014

 
   

Auto

   

Other

   

Total

   

Auto

   

Other

   

Total

 

Grade:

                                               

Performing

  $ 47,924     $ 2,774     $ 50,698     $ 44,523     $ 2,805     $ 47,328  

Non-performing

    88       3       91       95       13       108  

Total

  $ 48,012     $ 2,777     $ 50,789     $ 44,618     $ 2,818     $ 47,436  

 

 
12

 

 

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

 

Nine months ended September 30, 2015:  

Commercial

   

Agricultural

   

Real Estate-

Residential

   

Real Estate-

Commercial

   

Real Estate-

Construction

   

Equity LOC

   

Auto

   

Other

   

Total

 

Allowance for Loan Losses

                                                                       

Beginning balance

  $ 574     $ 225     $ 379     $ 1,701     $ 1,227     $ 691     $ 581     $ 73     $ 5,451  

Charge-offs

    (88 )     (3 )     (132 )     -       (54 )     (59 )     (309 )     (27 )     (672 )

Recoveries

    102       6       6       -       -       4       84       36       238  

Provision

    (30 )     33       80       758       (231 )     (97 )     397       (10 )     900  

Ending balance

  $ 558     $ 261     $ 333     $ 2,459     $ 942     $ 539     $ 753     $ 72     $ 5,917  

Three months ended September 30, 2015:

                                                                       

Allowance for Loan Losses

                                                                       

Beginning balance

  $ 628     $ 242     $ 399     $ 2,140     $ 1,031     $ 534     $ 717     $ 89     $ 5,780  

Charge-offs

    (34 )     -       (79 )     -       1       -       (105 )     (5 )     (222 )

Recoveries

    12       6       2       -       -       1       29       9       59  

Provision

    (48 )     13       11       319       (90 )     4       112       (21 )     300  

Ending balance

  $ 558     $ 261     $ 333     $ 2,459     $ 942     $ 539     $ 753     $ 72     $ 5,917  

Nine months ended September 30, 2014:

                                                                       

Allowance for Loan Losses

                                                                       

Beginning balance

  $ 785     $ 164     $ 638     $ 1,774     $ 944     $ 613     $ 449     $ 150     $ 5,517  

Charge-offs

    (191 )     -       (145 )     (887 )     -       (142 )     (253 )     (84 )     (1,702 )

Recoveries

    50       -       29       5       491       15       33       63       686  

Provision

    (33 )     54       (114 )     636       (238 )     137       311       (3 )     750  

Ending balance

  $ 611     $ 218     $ 408     $ 1,528     $ 1,197     $ 623     $ 540     $ 126     $ 5,251  

Three months ended September 30, 2014:

                                                                       

Allowance for Loan Losses

                                                                       

Beginning balance

  $ 703     $ 211     $ 423     $ 1,686     $ 1,140     $ 603     $ 466     $ 126     $ 5,358  

Charge-offs

    (98 )     -       -       (208 )     -       -       (148 )     (27 )     (481 )

Recoveries

    23       -       2       4       -       2       12       31       74  

Provision

    (17 )     7       (17 )     46       57       18       210       (4 )     300  

Ending balance

  $ 611     $ 218     $ 408     $ 1,528     $ 1,197     $ 623     $ 540     $ 126     $ 5,251  

September 30, 2015:

                                                                       

Allowance for Loan Losses

                                                                       

Ending balance: individually evaluated for impairment

  $ 13     $ -     $ 56     $ 372     $ 232     $ 32     $ -     $ -     $ 705  

Ending balance: collectively evaluated for impairment

  $ 545     $ 261     $ 277     $ 2,087     $ 710     $ 507     $ 753     $ 72     $ 5,212  

Loans

                                                                       

Ending balance

  $ 32,898     $ 39,819     $ 26,201     $ 182,728     $ 20,479     $ 37,872     $ 48,012     $ 2,777     $ 390,786  

Ending balance: individually evaluated for impairment

  $ 100     $ 586     $ 1,601     $ 3,190     $ 1,049     $ 334     $ 87     $ 3     $ 6,950  

Ending balance: collectively evaluated for impairment

  $ 32,798     $ 39,233     $ 24,600     $ 179,538     $ 19,430     $ 37,538     $ 47,925     $ 2,774     $ 383,836  

 

 
13

 

 

December 31, 2014  

Commercial

   

Agricultural

   

Real Estate-

Residential

   

Real Estate-

Commercial

   

Real Estate-

Construction

   

Equity LOC

   

Auto

   

Other

   

Total

 

Allowance for Loan Losses

                                                                       

Ending balance: individually evaluated for impairment

  $ -     $ -     $ 51     $ 65     $ 274     $ 174     $ -     $ -     $ 564  

Ending balance: collectively evaluated for impairment

  $ 574     $ 225     $ 328     $ 1,636     $ 953     $ 517     $ 581     $ 73     $ 4,887  

Loans

                                                                       

Ending balance

  $ 31,465     $ 35,355     $ 29,284     $ 163,306     $ 24,572     $ 38,972     $ 44,618     $ 2,818     $ 370,390  

Ending balance: individually evaluated for impairment

  $ 55     $ 605     $ 2,518     $ 3,643     $ 1,252     $ 415     $ 93     $ 1     $ 8,582  

Ending balance: collectively evaluated for impairment

  $ 31,410     $ 34,750     $ 26,766     $ 159,663     $ 23,320     $ 38,557     $ 44,525     $ 2,817     $ 361,808  

 

 
14

 

 

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

 

September 30, 2015

 

30-89 Days

   

90 Days and

           

Total

                 
   

Past Due

   

Still Accruing

   

Nonaccrual

   

Past Due

   

Current

   

Total

 
                                                 

Commercial

  $ 46     $ -     $ 82     $ 128     $ 32,770     $ 32,898  

Agricultural

    4       -       324       328       39,491       39,819  

Real estate – residential

    19       -       92       111       26,090       26,201  

Real estate – commercial

    177       -       3,189       3,366       179,362       182,728  

Real estate– construction and land

    -       -       912       912       19,567       20,479  

Equity lines of credit

    242       -       334       576       37,296       37,872  

Auto

    525       -       88       613       47,399       48,012  

Other

    17       -       3       20       2,757       2,777  

Total

  $ 1,030     $ -     $ 5,024     $ 6,054     $ 384,732     $ 390,786  

 

 

December 31, 2014

 

30-89 Days

   

90 Days and

           

Total

                 
   

Past Due

   

Still Accruing

   

Nonaccrual

   

Past Due

   

Current

   

Total

 
                                                 

Commercial

  $ 131     $ -     $ 38     $ 169     $ 31,296     $ 31,465  

Agricultural

    -       -       339       339       35,016       35,355  

Real estate – residential

    292       -       985       1,277       28,007       29,284  

Real estate – commercial

    -       -       3,643       3,643       159,663       163,306  

Real estate – construction and land

    345       -       1,111       1,456       23,116       24,572  

Equity Lines of credit

    194       -       415       609       38,363       38,972  

Auto

    601       -       93       694       43,924       44,618  

Other

    43       -       1       44       2,774       2,818  

Total

  $ 1,606     $ -     $ 6,625     $ 8,231     $ 362,159     $ 370,390  

 

 
15

 

 

The following tables show information related to impaired loans at the dates indicated, in thousands: 

 

           

Unpaid

           

Average

   

Interest

 
   

Recorded

   

Principal

   

Related

   

Recorded

   

Income

 

As of September 30, 2015:

 

Investment

   

Balance

   

Allowance

   

Investment

   

Recognized

 

With no related allowance recorded:

                                       

Commercial

  $ 67     $ 67             $ 45     $ -  

Agricultural

    586       586               595       15  

Real estate – residential

    1,355       1,366               1,340       59  

Real estate – commercial

    2,009       2,655               2,073       -  

Real estate – construction and land

    249       249               244       -  

Equity lines of credit

    219       270               177       -  

Auto

    87       87               29       -  

Other

    3       3               -       -  

With an allowance recorded:

                                       

Commercial

  $ 33     $ 33     $ 13     $ 21     $ 1  

Agricultural

    -       -       -       -       -  

Real estate – residential

    246       246       56       217       8  

Real estate – commercial

    1,181       1,181       372       1,217       -  

Real estate – construction and land

    800       800       232       819       6  

Equity lines of credit

    115       115       32       115       -  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

Total:

                                       

Commercial

  $ 100     $ 100     $ 13     $ 66     $ 1  

Agricultural

    586       586       -       595       15  

Real estate – residential

    1,601       1,612       56       1,557       67  

Real estate – commercial

    3,190       3,836       372       3,290       -  

Real estate – construction and land

    1,049       1,049       232       1,063       6  

Equity lines of credit

    334       385       32       292       -  

Auto

    87       87       -       29       -  

Other

    3       3       -       -       -  

Total

  $ 6,950     $ 7,658     $ 705     $ 6,892     $ 89  

 

 

           

Unpaid

           

Average

   

Interest

 
   

Recorded

   

Principal

   

Related

   

Recorded

   

Income

 

As of December 31, 2014:

 

Investment

   

Balance

   

Allowance

   

Investment

   

Recognized

 

With no related allowance recorded:

                                       

Commercial

  $ 55     $ 55             $ 61     $ 1  

Agricultural

    605       605               605       51  

Real estate – residential

    1,422       1,433               1,443       80  

Real estate – commercial

    3,389       4,036               2,460       -  

Real estate – construction and land

    495       495               512       9  

Equity lines of credit

    121       121               130       -  

Auto

    93       93               81       -  

Other

    1       1               -       -  

With an allowance recorded:

                                       

Commercial

  $ -     $ -     $ -     $ -     $ -  

Agricultural

    -       -       -       -          

Real estate – residential

    1,096       1,102       51       1,112       11  

Real estate – commercial

    254       254       65       589       -  

Real estate – construction and land

    757       757       274       778       -  

Equity lines of credit

    294       294       174       299       -  

Auto

    -       -       -       -       -  

Other

    -       -       -       -       -  

Total:

                                       

Commercial

  $ 55     $ 55     $ -     $ 61     $ 1  

Agricultural

    605       605       -       605       51  

Real estate – residential

    2,518       2,535       51       2,555       91  

Real estate – commercial

    3,643       4,290       65       3,049       -  

Real estate – construction and land

    1,252       1,252       274       1,290       9  

Equity lines of credit

    415       415       174       429       -  

Auto

    93       93       -       81       -  

Other

    1       1       -       -       -  

Total

  $ 8,582     $ 9,246     $ 564     $ 8,070     $ 152  

 

 
16

 

 

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 $81,733,000 and $89,735,000 and stand-by letters of credit of $15,000 and $0 at September 30, 2015 and December 31, 2014, respectively.

 

Of the loan commitments outstanding at September 30, 2015, $7,082,000 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.

 

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 September 30, 2015 or December 31, 2014.

 

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

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 

(In thousands, except per share data)

 

2015

   

2014

   

2015

   

2014

 

Net Income:

                               

Net income

  $ 1,600     $ 1,327     $ 4,170     $ 3,394  

Earnings Per Share:

                               

Basic earnings per share

  $ 0.33     $ 0.28     $ 0.87     $ 0.71  

Diluted earnings per share

  $ 0.32     $ 0.27     $ 0.82     $ 0.68  

Weighted Average Number of Shares Outstanding:

                               

Basic shares

    4,824       4,795       4,812       4,792  

Diluted shares

    5,067       4,995       5,061       4,970  

 

Shares of common stock issuable under stock options and warrants 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.  Stock options and warrants not included in the computation of diluted earnings per share, due to shares not being in-the-money and having an antidilutive effect, were approximately 53,000 and 238,000 for the three month periods ended September 30, 2015 and 2014, respectively. Stock options and warrants not included in the computation of diluted earnings per share, due to shares not being in-the-money and having an antidilutive effect, were approximately 53,000 and 267,000 for the nine month periods ended September 30, 2015 and 2014, respectively.

 

 
17

 

 

7. STOCK-BASED COMPENSATION

 

Stock Options

 

In 2001, the Company established a Stock Option Plan for which 199,693 shares of common stock remain reserved for issuance to employees and directors and no shares are available for future grants as of September 30, 2015.

 

As of September 30, 2015, all remaining shares in this plan have vested and no compensation cost remains unrecognized.

 

The total fair value of options vested was $49,000 for the nine months ended September 30, 2015 and 2014. The total intrinsic value of options at time of exercise was $202,000 and $30,000 for the nine months ended September 30, 2015 and 2014, respectively.

 

Cash received from option exercises for the nine months ended September 30, 2015 and 2014 was $63,000 and $22,000, respectively. The tax benefit realized for the tax deductions from option exercise totaled $0 and $8,000, respectively, for the nine months ended September 30, 2015 and 2014.

 

A summary of the activity within the 2001 Stock Option Plan follows:

   

Shares

   

Weighted

Average

Exercise

Price

   

Weighted

Average

Remaining

Contractual

Term

(Years)

   

Intrinsic Value

 
                                 

Options outstanding at January 1, 2015

    306,393     $ 7.95                  

Options cancelled

    (74,600

)

    16.26                  

Options exercised

    (32,100

)

    2.95                  

Options outstanding at September 30, 2015

    199,693     $ 5.65       2.7     $ 871,000  

Options exercisable at September 30, 2015

    199,693     $ 5.65       2.7     $ 871,000  

 

 

In May 2013, the Company established the 2013 Stock Option Plan for which 500,000 shares of common stock are reserved and 389,600 shares are available for future grants as of September 30, 2015. The Plan requires that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the stock must be paid in full at the time the option is exercised. Payment in full for the option price must be made in cash, with Company common stock previously acquired by the optionee and held by the optionee for a period of at least six months, in options of the Optionee that are fully vested and exercisable or in any combination of the foregoing. The options expire on dates determined by the Board of Directors, but not later than ten years from the date of grant.

 

There were no options granted during the nine months ended September 30, 2015.

 

During the nine months ended September 30, 2014, a total of 110,400 options were granted with a weighted average exercise price of $6.32. The fair value of each option was estimated on the date of grant using the following assumptions.

 

   

Nine Months Ended

September 30, 2014

 

Expected life of stock options (in years)

    5.2    

Interest rate—stock options

    1.64%    

Volatility—stock options

    63.8%    

Dividend yields

    2.0%    

Weighted-average fair value of options granted during the period

    $3.02    

 

 
18

 

 

As of September 30, 2015, there was $150,000 of total unrecognized compensation cost related to non-vested, share-based compensation arrangements granted under the 2013 Plan. That cost is expected to be recognized over a weighted average period of 2.6 years.

 

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, 2015

    110,400     $ 6.32                  

Options outstanding at September 30, 2015

    110,400     $ 6.32       6.6     $ 284,000  

Options exercisable at September 30, 2015

    27,600     $ 6.32       6.6     $ 71,000  

Expected to vest after September 30, 2015

    71,746     $ 6.32       6.6     $ 184,000  

 

Compensation cost related to stock options recognized in operating results under the two stock option plans was $56,000 and $57,000 for the nine months ended September 30, 2015 and 2014, respectively. The associated income tax benefit recognized was $5,000 for the nine months ended September 30, 2015 and $3,000 for the nine months ended September 30, 2014. Compensation cost related to stock options recognized in operating results under the two stock option plans was $15,000 and $24,000 for the three months ended September 30, 2015 and 2014, respectively. The associated income tax benefit recognized was $1,000 for the three months ended September 30, 2015 and 2014.

 

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 income statement. There have been no significant changes to unrecognized tax benefits or accrued interest and penalties for the nine months ended September 30, 2015.

 

 
19

 

 

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 September 30, 2015 and December 31, 2014 are as follows, in thousands:

 

           

Fair Value Measurements at September 30, 2015 Using:

 

Financial assets:

 

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total Fair Value

 

Cash and cash equivalents

  $ 93,964     $ 93,964                     $ 93,964  

Investment securities

    89,391             $ 89,391               89,391  

Loans, net

    386,838                     $ 386,046       386,046  

FHLB stock

    2,380                            

N/A

 

Accrued interest receivable

    1,770       21       233       1,516       1,770  

Financial liabilities:

                                       

Deposits

    538,754       483,607       55,172               538,779  

Repurchase agreements

    5,355               5,355               5,355  

Note payable

    5,000                       5,000       5,000  

Junior subordinated deferrable interest debentures

    10,310                       6,218       6,218  

Accrued interest payable

    94       7       39       48       94  

 

 

 
20

 

 

           

Fair Value Measurements at December 31, 2014 Using:

 

Financial assets:

 

Carrying Value

   

Level 1

   

Level 2

   

Level 3

   

Total Fair Value

 

Cash and cash equivalents

  $ 45,574     $ 45,574                     $ 45,574  

Investment securities

    90,320             $ 90,320               90,320  

Loans, net

    366,787                     $ 368,442       368,442  

FHLB stock

    2,380                            

N/A

 

Accrued interest receivable

    1,727               281       1,446       1,727  

Financial liabilities:

                                       

Deposits

    467,891       411,549       56,364               467,913  

Repurchase agreements

    9,626               9,626               9,626  

Note payable

    1,000                       1,000       1,000  

Subordinated debenture

    7,454                       7,313       7,313  

Junior subordinated deferrable interest debentures

    10,310                       6,636       6,636  

Accrued interest payable

    72       7       47       18       72  

 

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.

 

The following methods and assumptions were used by management to estimate the fair value of its financial instruments:

 

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

 

Investment securities: Fair values for securities available for sale are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).

 

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

 

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

 

Deposits: The fair values disclosed for demand deposits, including interest and non-interest demand accounts, savings, and certain types of money market accounts are, by definition, equal to the carrying amount at the reporting date resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

 

Repurchase agreements: The fair value of securities sold under repurchase agreements is estimated based on bid quotations received from brokers using observable inputs and are included as Level 2.

 

 
21

 

 

Note payable: The fair value of the Company’s Note Payable is estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

 

Subordinated debentures and Junior subordinated deferrable interest debentures: The fair values of the Company’s Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

 

Accrued interest and payable: The carrying amounts of accrued interest approximate fair value and are considered to be linked in classification to the asset or liability for which they relate.

 

Commitments to extend credit and letters of credit: The fair value of commitments are estimated using the fees currently charged to enter into similar agreements and are not significant and, therefore, not presented. Commitments to extend credit are primarily for variable rate loans and letters of credit.

 

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.

 

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 September 30, 2015 and December 31, 2014, and indicates 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 September 30, 2015 are summarized below, in thousands:

 

           

Fair Value Measurements at September 30, 2015 Using

 
   

Total Fair Value

   

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

   

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable Inputs

(Level 3)

 

Assets:

                               

U.S. Government-sponsored agencies

  $ 1,000     $ -     $ 1,000     $ -  

U.S. Government-sponsored agencies collateralized by mortgage obligations- residential

    71,296               71,296          

Obligations of states and political subdivisions

    17,095               17,095          
    $ 89,391     $ -     $ 89,391     $ -  

 

 
22

 

 

Assets and liabilities measured at fair value on a recurring basis at December 31, 2014 are summarized below, in thousands:

 

           

Fair Value Measurements at December 31, 2014 Using

 
   

Total Fair Value

   

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

   

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable Inputs

(Level 3)

 

Assets:

                               

U.S. Government-sponsored agencies

  $ 7,002     $ -     $ 7,002     $ -  

U.S. Government-sponsored agencies collateralized by mortgage obligations- residential

    70,280               70,280          

Obligations of states and political subdivisions

    12,532               12,532          

Corporate debt

    506               506          
    $ 90,320     $ -     $ 90,320     $ -  

 

 

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. There were no changes in the valuation techniques used during 2015 or 2014. 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.

 

 
23

 

 

Assets and liabilities measured at fair value on a non-recurring basis at September 30, 2015 are summarized below, in thousands:

 

           

Fair Value Measurements at September 30, 2015 Using

         
   

Total Fair Value

   

Quoted Prices in

Active Markets for

Identical Assets (Level 1)

   

Significant Other

Observable Inputs

(Level 2)

   

Significant

Unobservable Inputs

(Level 3)

   

Nine Months Ended

September 30, 2015

Total

Gains

(Losses)

 

Assets:

                                       

Impaired loans:

                                       

Commercial

  $ 4     $ -     $ -     $ 4     $ (13 )

Agricultural

    -                       -       -  

Real estate –residential

    -                       -       -  

Real estate – commercial

    1,225                       1,225       -  

Real estate – construction and land development

    47                       47       (16 )

Equity lines of credit

    83                       83       4  

Auto

    -                       -       -  

Other

    -                       -       -  

Total impaired loans

    1,359       -       -       1,359       (25 )

Other real estate:

                                       

Commercial

    -       -       -       -       (39 )

Real estate – residential

    117                       117       -  

Real estate – commercial

    237                       237       (127 )

Real estate – construction and land development

    1,768                       1,768       114  

Equity lines of credit

    143                       143       (27 )

Total other real estate

    2,265       -       -       2,265       (79 )
    $ 3,624     $ -     $ -     $ 3,624     $ (104 )

 

 
24

 

 

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2014 are summarized below, in thousands:

 

           

Fair Value Measurements at December 31, 2014 Using

 
   

Total Fair Value

   

Quoted Prices in

Active Markets for

Identical Assets (Level 1)

   

Significant Other

Observable Inputs (Level 2)

   

Significant

Unobservable Inputs

(Level 3)

   

Nine Months Ended

September 30, 2014

Total

Gains

(Losses)

 

Assets:

                                       

Impaired loans:

                                       

Commercial

  $ -     $ -     $ -     $ -     $ -  

Agricultural

    -                       -       -  

Real estate – residential

    838                       838       (63 )

Real estate – commercial

    1,479                       1,479       (26 )

Real estate – construction and land development

    27                       27       (130 )

Equity lines of credit

    80                       80       (81 )

Auto

    -                       -       -  

Other

    -                       -       -  

Total impaired loans

    2,424       -       -       2,424       (300 )

Other real estate:

                                       

Real estate – residential

    146                       146       (17 )

Real estate – commercial

    1,052                       1,052       (33 )

Real estate – construction and land development

    1,984                       1,984       (126 )

Equity lines of credit

    408                       408       (51 )

Total other real estate

    3,590       -       -       3,590       (227 )
    $ 6,014     $ -     $ -     $ 6,014     $ (527 )

 

 

The Company has no liabilities which are reported at fair value.

 

The following methods were used to estimate fair value.

 

Impaired Loans: The fair value of collateral dependent impaired loans with specific allocations of the allowance for loan losses or loans that have been subject to partial charge-offs are generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Total losses of $25,000 and $300,000 represent impairment charges recognized during the nine months ended September 30, 2015 and 2014, respectively, related to the above impaired loans.

 

 
25

 

 

Other Real Estate: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach.

 

Appraisals for both collateral-dependent impaired loans and 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 September 30, 2015 and December 31, 2014 (dollars in thousands):

 

                       

Range

   

Range

 

Description

 

Fair Value 9/30/15

   

Fair Value 12/31/2014

 

Valuation Technique

Significant Unobservable Input

 

(Weighted Average)

9/30/2015

   

(Weighted Average)

12/31/2014

 

Impaired Loans:

                                                           

Commercial

  $ 4     $ -  

Sales Comparison

Adjustment for differences between comparable sales

    0% - 28%       (12% )       N/A            
                                                             

Real estate – residential

  $ -     $ 838  

Sales Comparison

Adjustment for differences between comparable sales

      N/A                   8%         (8% )
                                                             

Real estate – commercial

  $ 1,225     $ 1,479  

Sales Comparison

Adjustment for differences between comparable sales

    9% - 12%       (10% )     9% - 12%       (10% )
                                                             

Construction and land

  $ 47     $ 27  

Sales Comparison

Adjustment for differences between comparable sales

      8%          (8% )       8%         (8% )
                                                             

Equity lines of credit

  $ 83     $ 80  

Sales Comparison

Adjustment for differences between comparable sales

      8%         (8% )       8%         (8% )
                                                             

Other Real Estate:

                                                           

Real estate – residential

  $ 117     $ 146  

Sales Comparison

Adjustment for differences between comparable sales

      10%          (10% )       10%         (10% )

Real estate – commercial

  $ 237     $ 1,052  

Sales Comparison

Adjustment for differences between comparable sales

      10%          (10% )       10%         (10% )

Construction and land

  $ 1,768     $ 1,984  

Sales Comparison

Adjustment for differences between comparable sales

      10%          (10% )       10%         (10% )

Equity lines of credit

  $ 143     $ 408  

Sales Comparison

Adjustment for differences between comparable sales

      10%          (10% )       10%         (10% )

 

 
26

 

 

10. Adoption of New Accounting Standards

 

Recently Adopted Accounting Pronouncements

 

In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 did not have a material impact on the Company's Financial Statements.

 

In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The Update improves the financial reporting of repurchase agreements and other similar transactions through a change in accounting for repurchase-to-maturity transactions and repurchase financings, and the introduction of two new disclosure requirements. New disclosures are required for (1) transfers accounted for as sales in transactions that are economically similar to repurchase agreements, in which the transferor retains substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction and (2) repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings about the nature of collateral pledged and the time to maturity of those transactions The adoption of ASU No. 2014-11 did not have a material impact on the Company's Financial Statements.

 

Pending Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers. This update to the ASC is the culmination of efforts by the FASB and the International Accounting Standards Board (IASB) to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 supersedes Topic 605 – Revenue Recognition and most industry-specific guidance. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 describes a 5-step process entities can apply to achieve the core principle of revenue recognition and requires disclosures sufficient to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and the significant judgments used in determining that information.

 

This update was originally effective for annual reporting periods beginning on or after December 15, 2016 and interim periods therein and requires expanded disclosures. In July 2015 the FASB issued a deferral of ASU 2014-09 of one year making it effective for annual reporting periods beginning on or after December 15, 2017 while also providing for early adoption but not before the original effective date. The Company is currently evaluating the effects of ASU 2014-09 on its financial statements and disclosures, if any.

 

 
27

 

 

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, maybe 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 September 30, 2015 and December 31, 2014 and for the nine and three month periods ended September 30, 2015 and 2014. 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, 2014.

 

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 2014 Annual Report to Shareholders on Form 10-K.

 

This discussion should be read in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto, appearing elsewhere in this report.

 

 
28

 

 

OVERVIEW - NINE MONTHS ENDED SEPTEMBER 30, 2015

 

Net income increased by $776 thousand from $3.4 million during the nine months ended September 30, 2014 to $4.2 million during the current nine month period. Earnings benefited from increases of $1.6 million in net interest income and $437 thousand in non-interest income. Partially offsetting these increases in revenue were a $150 thousand increase in the provision for loan losses, a $681 thousand increase in non-interest expense and an increase in income tax expense of $464 thousand. Diluted earnings per share increased by $0.14 to $0.82 for the nine months ended September 30, 2015 compared to $0.68 during the nine months ended September 30, 2014.

 

Funded by a $71 million increase in deposits; total assets at September 30, 2015 increased by $68 million to $607 million from $539 million at December 31, 2014. Cash and due from banks increased by $48.4 million from $46 million at December 31, 2014 to $94 million at September 30, 2015 and net loans increased by $20.1 million from $367 million at December 31, 2014 to $387 million at September 30, 2015.

 

Deposits totaled $538.8 million at September 30, 2015, an increase of $70.9 million from $467.9 million at December 31, 2014. Increases included $32.8 million in non-interest bearing demand deposits, $10.2 million in interest bearing transaction accounts (NOW) accounts and $29.1 million in savings and money market accounts. Time deposits declined by $1.2 million. Shareholders’ equity increased by $4.7 million from $36.5 million at December 31, 2014 to $41.2 million at September 30, 2015.

 

The annualized return on average assets was 0.99% for the nine months ended September 30, 2015 up from 0.87% for the nine months ended September 30, 2014. The annualized return on average equity increased from 13.7% during the first nine months of 2014 to 14.3% during the current nine month period.

 

The following is a detailed discussion of each component affecting change in net income and the composition of our balance sheet.

 

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

 

Net interest income before provision for loan losses. Net interest income, on a nontax-equivalent basis, for the nine months ended September 30, 2015 was $15.8 million, an increase of $1.6 million from the $14.2 million earned during the same period in 2014. The increase in net interest income includes an increase of $1.3 million in interest income and a decline of $349 thousand in interest expense. Net interest margin, which benefited from an increase in loans as a percentage of interest earning assets, an increase in yield on investment securities and a reduction in interest expense on subordinated debentures, increased 12 basis points, or 3%, to 4.13%, up from 4.01% for the same period in 2014.

 

Interest income increased by $1.3 million, or 8%, to $16.8 million for the nine months ended September 30, 2015, up from $15.5 million during the same period in 2014. Interest and fees on loans increased by $1.1 million to $15.4 million for the nine months ended September 30, 2015 as compared to $14.3 million during the same period in 2014. The Company’s average loan balances were $384 million for the nine months ended September 30, 2015, up $35 million, or 10%, from $349 million for the same period in 2014. The Company is focused on growing loan balances through a balanced and diversified approach. The following table compares loan balances by type at September 30, 2015 and 2014.

 

(dollars in thousands)

 

Balance at End of Period

   

Percent of Loans in Each Category to Total Loans

   

Balance at End of Period

   

Percent of Loans in Each Category to Total Loans

 
   

09/30/15

   

09/30/15

   

09/30/14

   

09/30/14

 

Commercial

  $ 32,898       8.4 %   $ 33,583       9.3 %

Agricultural

    39,819       10.2 %     34,624       9.5 %

Real estate - residential

    26,201       6.7 %     28,321       7.8 %

Real estate – commercial

    182,728       46.8 %     162,184       44.7 %

Real estate – construction

    20,479       5.2 %     21,356       5.9 %

Equity Lines of Credit

    37,872       9.7 %     37,665       10.4 %

Auto

    48,012       12.3 %     40,754       11.2 %

Other

    2,777       0.7 %     4,244       1.2 %

Total Gross Loans

  $ 390,786       100 %   $ 362,731       100 %

 

 
29

 

 

The average rate earned on the Company’s loan balances decreased by 9 basis points to 5.37% during the first nine months of 2015 compared to 5.46% during the first nine months of 2014. We attribute much of the decrease in yield to price competition in our service area.

 

Interest on investment securities increased by $113 thousand as a result of an increase in yield of 13 basis points from 1.70% during the first nine months of 2014 to 1.83% during the nine months ended September 30, 2015. The average balance in investment securities increased from $88.0 million during the first nine months of 2014 to $90.0 million during the nine months ended September 30, 2015. During the current period yield benefited from an increase in municipal securities as a percentage of total securities and a reduction in securities of U.S. Government-sponsored agencies. At September 30, 2015 municipal securities totaled $17.1 million or 19% of the investment portfolio compared to $10.1 million or 12% of the portfolio at September 30, 2014. U.S. Government-sponsored agencies were $1.0 million at September 30, 2015 and $7.0 million at September 30, 2014.

 

Interest expense on deposits decreased by $7 thousand, or 2%, to $383 thousand for the nine months ended September 30, 2015, down from $390 thousand during the 2014 period. This decrease relates to decreases in the average balance and rate paid on time deposits.

 

Interest on time deposits declined by $27 thousand. Average time deposits declined by $5.0 million from $59.8 million during the nine months ended September 30, 2014 to $54.8 million during the current period. We attribute much of the reduction in time deposit to the unusually low interest rate environment as we have seen a movement out of time into more liquid deposit types. The average rate paid on time deposits decreased from 0.37% during the nine months ended September 30, 2014 to 0.33% during the current period. This decrease primarily relates to a decline in market rates paid in the Company’s service area and the maturity of higher rate time deposits.

 

Partially offsetting the decrease in interest expense on time deposits was a $19 thousand increase in interest expense on savings accounts related to growth in this deposit category. Average savings balances increased from $101.3 million during the nine months ended September 30, 2014 to $116.3 million during the current nine month period. Plumas Bank’s savings accounts provide an attractive interest rate in the current rate environment and we have seen continued growth in savings accounts for the last few years. The average rate paid on savings accounts was 16 basis points during both periods.

 

Interest expense on other interest-bearing liabilities decreased by $342 thousand from $898 thousand during the nine months ended September 30, 2014 to $556 thousand during the current nine month period. On April 15, 2013, to help fund the repurchase of preferred stock during 2013, the Company issued a $7.5 million subordinated debenture. On April 16, 2015 we paid off the subordinated debenture resulting in a reduction in interest expense related to this debt of $349 thousand from $568 thousand during the first nine months of 2014 to $219 thousand during the current period.

 

Interest expense on the Company’s note payable increased by $8 thousand to $106 thousand during the nine months ended September 30, 2015. This increase was related to an increase in average borrowings on this note from $2.7 million during the 2014 period to $3.5 million during the nine months ended September 30, 2015. During April of 2015 we borrowed an additional $4 million on the note bringing the balance to $5 million. This $4 million along with a dividend from Plumas Bank to Plumas Bancorp were used to fund the payoff of the subordinated debenture. The average rate paid on the note payable was 4.08% during 2015 and 4.79% during the nine months ended September 30, 2014.

 

Interest expense on junior subordinated debentures, which decreased by $1 thousand to $227 thousand, fluctuates with changes in the 3-month London Interbank Offered Rate (LIBOR) rate.

 

 
30

 

 

The following table presents for the nine-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, 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 Nine Months Ended September 30, 2015

   

For the Nine Months Ended September 30, 2014

 
   

Average Balance

(in thousands)

   

Interest

(in thousands)

   

Yield/
Rate

   

Average Balance

(in thousands)

   

Interest

(in thousands)

   

Yield/
Rate

 
                                                 

Interest-earning assets:

                                               

Loans (1) (2) (3)

  $ 383,652     $ 15,415       5.37

%

  $ 349,090     $ 14,265       5.46

%

Investment securities (1)

    89,994       1,235       1.83

%

    88,039       1,122       1.70

%

Interest-bearing deposits

    38,291       114       0.40

%

    35,553       92       0.35

%

Total interest-earning assets

    511,937       16,764       4.38

%

    472,682       15,479       4.38

%

Cash and due from banks

    17,243                       15,742                  

Other assets

    33,063                       35,682                  

Total assets

  $ 562,243                     $ 524,106                  
                                                 

Interest-bearing liabilities:

                                               

NOW deposits

  $ 86,734       58       0.09

%

  $ 82,630       57       0.09

%

Money market deposits

    46,131       49       0.14

%

    47,191       49       0.14

%

Savings deposits

    116,309       139       0.16

%

    101,277       120       0.16

%

Time deposits

    54,768       137       0.33

%

    59,807       164       0.37

%

Total deposits

    303,942       383       0.17

%

    290,905       390       0.18

%

Note Payable

    3,476       106       4.08

%

    2,736       98       4.79

%

Subordinated debentures

    2,874       219       10.19

%

    7,351       568       10.33

%

Junior subordinated debentures

    10,310       227       2.94

%

    10,310       228       2.96

%

Other interest-bearing liabilities

    6,410       4       0.08

%

    6,567       4       0.08

%

Total interest-bearing liabilities

    327,012       939       0.38

%

    317,869       1,288       0.54

%

                                                 

Non-interest bearing deposits

    190,312                       167,048                  

Other liabilities

    5,862                       6,111                  

Shareholders' equity

    39,057                       33,078                  

Total liabilities & equity

  $ 562,243                     $ 524,106                  
                                                 

Cost of funding interest-earning assets (4)

                    0.25

%

                    0.37

%

Net interest income and margin (5)

          $ 15,825       4.13

%

          $ 14,191       4.01

%

 


(1)    Not computed on a tax-equivalent basis.

(2)

Average nonaccrual loan balances of $5.7 million for 2015 and $7.0 million for 2014 are included in average loan balances for computational purposes.

(3)

Net loan costs included in loan interest income for the nine-month periods ended September 30, 2015 and 2014 were $498,000 and $433,000, 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.

    

 
31

 

 

The following table sets forth changes in interest income and interest expense for the nine-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:

 

    2015 over 2014 change in net interest income

for the nine months ended September 30

 
    (in thousands)  
                         
   

Volume (1)

   

Rate (2)

   

Mix (3)

   

Total

 
                                 

Interest-earning assets:

                               

Loans

  $ 1,412     $ (239

)

  $ (23

)

  $ 1,150  

Investment securities

    25       86       2       113  

Interest bearing deposits

    7       14       1       22  

Total interest income

    1,444       (139

)

    (20

)

    1,285  

Interest-bearing liabilities:

                               

NOW deposits

    3       (2

)

    -       1  

Money market deposits

    (1

)

    1       -       -  

Savings deposits

    18       1       -       19  

Time deposits

    (14

)

    (14

)

    1       (27

)

Note payable

    27       (15

)

    (4

)

    8  

Subordinated debentures

    (346

)

    (7

)

    4       (349

)

Junior subordinated debentures

    -       (1

)

    -       (1

)

Other

    -       -       -       -  

Total interest expense

    (313

)

    (37

)

    1       (349

)

Net interest income

  $ 1,757     $ (102

)

  $ (21

)

  $ 1,634  

 


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

(2)      The rate change in net interest income represents the change in rate multiplied 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 loan losses.   During the nine months ended September 30, 2015 we recorded a provision for loan losses of $900 thousand up $150 thousand from the $750 thousand provision recorded during the nine months ended September 30, 2014. See “Analysis of Asset Quality and Allowance for Loan Losses” for a discussion of loan quality trends and the provision for loan losses.

 

The allowance for loan losses is maintained at a level that management believes will be appropriate to absorb probable incurred losses on existing loans based on an evaluation of the collectability of the loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to repay their loan. The allowance for loan losses is based on estimates, and ultimate losses may vary from the current estimates. These estimates are reviewed not less than quarterly and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.

 

Based on information currently available, management believes that the allowance for loan losses is appropriate to absorb probable incurred losses in the portfolio. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period.

 

Non-interest income. During the nine months ended September 30, 2015 non-interest income totaled $5.9 million an increase of $437 thousand from the nine months ended September 30, 2014. The largest component of this increase was an increase of $510 thousand in gains on the sale of government guaranteed SBA loans. During the current period, proceeds from SBA loan sales totaled $23.7 million resulting in a gain on sale of $1.6 million. This compares to proceeds of $16.6 million and a gain on sale of $1.1 million during the first nine months of 2014. Loan servicing income, which increased by $49 thousand, represents servicing income received on the guaranteed portion of SBA loans sold into the secondary market. At September 30, 2015 we were servicing over $86 million in guaranteed portions of loans an increase of $12 million from over $74 million at September 30, 2014. Other non-interest income increased by $151 thousand to $679 thousand mostly related to an increase of $117 thousand in dividends received on Federal Home Loan Bank of San Francisco (FHLB) stock. Of the $117 thousand, $88 thousand was a one-time special dividend paid by the FHLB during June 2015. The largest decrease in non-interest income was $164 thousand in service charge income most of which was related to a reduction in NSF and overcharge income which we attribute to improved economic conditions as well as working with our customers to help them reduce NSF activity. Additionally, gain on sale of investments declined by $107 thousand from $128 thousand during the nine months ended September 30, 2014 to $21 thousand during the current nine month period.

 

 
32

 

 

The following table describes the components of non-interest income for the nine-month periods ended September 30, 2015 and 2014, dollars in thousands:

   

For the Nine Months

                 
   

Ended September 30

                 
   

2015

   

2014

   

Dollar

Change

   

Percentage

Change

 

Service charges on deposit accounts

  $ 2,958     $ 3,122     $ (164

)

    (5.3

)%

Gain on sale of loans, net

    1,591       1,081       510       47.2

%

Loan servicing fees

    408       359       49       13.6

%

Earnings on life insurance policies

    256       258       (2

)

    (0.8

)%

Gain on sale of investments

    21       128       (107

)

    (83.6

)%

Other

    679       528       151       28.6

%

Total non-interest income

  $ 5,913     $ 5,476     $ 437       8.0

%

 

Non-interest expense. During the nine months ended September 30, 2015, total non-interest expense increased by $681 thousand, or 5%, to $14.0 million, up from $13.3 million for the comparable period in 2014. While the Company continued to experience declines in several categories of non-interest expense, these were offset by increases in other items the largest of which were $679 thousand in salary and benefit expense and $233 thousand in professional fees. The largest declines in non-interest expense were $153 thousand in occupancy and equipment expense, $170 thousand in OREO costs and $148 thousand in the provision from change in OREO valuation.

 

The increase in salary and benefits includes an increase in salary expense, exclusive of commissions, of $354 thousand mostly related to merit and promotion increases, new hires including two loan officers; one serving Reno, Nevada and one located in Chico, California and a branch manager for our new Reno, Nevada location. Other significant increases in salary and benefit expense include an increase of $165 thousand in commission expense, $89 thousand in 401k plan contributions and a reduction of $46 thousand in the deferral of loan origination costs. The increase in commission expense is mostly related to an increase in SBA activity. Effective January 1, 2015, we reestablished a 401k matching benefit resulting in $89 thousand in matching contributions.

 

The largest component of the increase in professional fees was an increase of $135 thousand in legal fees related to loan collection activities and general corporate matters including costs associated with our Redding branch acquisition and our future Reno, Nevada branch.. The second largest increase in professional fees was an increase of $52 thousand in audit expense related to lending functions, including the cost of our semi-annual loan review, an annual review of our SBA loan operations by the SBA and a review of our loan compliance systems.

 

The decline in occupancy and equipment expense includes several reductions the largest of which was a savings of $100 thousand in equipment expense and maintenance. During 2014 equipment expense was high as we chose to replace all of our personal computers running Windows XP with machines running Windows 7. The decline in OREO costs includes a decrease in OREO legal expense of $124 thousand and a decline in repair and maintenance costs of $44 thousand. During 2014 we incurred $138 thousand in legal costs, related to OREO, pursuing additional recoveries on selected OREO properties through legal channels. In addition, OREO repair expense during 2014 totaled $84 thousand much of which was used to fix up several properties in an effort to increase their marketability.

 

 
33

 

 

OREO represents real property taken by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. When other real estate is acquired, any excess of the Bank’s recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property less costs to sell is charged against the allowance for loan losses. A valuation allowance for losses on other real estate is maintained to provide for temporary declines in value. The allowance is established through a provision for subsequent losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or from impairment are recorded as incurred. The provision from change in OREO valuation declined by $148 thousand from $227 thousand during the nine months ended September 30, 2014 to $79 thousand during the current period. During the first three months of 2015 we recorded a net credit provision of $129 thousand. The credit resulted from a significant increase in value of one OREO property based on a recent appraisal. This property was originally transferred to OREO at a value, net of estimated costs selling costs, of $1 million. Subsequently, based on declines in value it was written down to $0.7 million with a $0.3 million valuation allowance; however, recently the surrounding area in which the property is located has enjoyed significant new business activity and the value of this property has increased resulting in a reduction in the valuation allowance of $0.2 million. The $0.2 million was offset by declines in value on other OREO properties.

 

The following table describes the components of non-interest expense for the nine-month periods ended September 30, 2015 and 2014, dollars in thousands:

 

   

For the Nine Months

                 
   

Ended September 30

                 
   

2015

   

2014

   

Dollar

Change

   

Percentage

Change

 

Salaries and employee benefits

  $ 7,728     $ 7,049     $ 679       9.6

%

Occupancy and equipment

    2,082       2,235       (153

)

    (6.8

)%

Outside service fees

    1,506       1,529       (23

)

    (1.5

)%

Professional fees

    572       339       233       68.7

%

Deposit insurance

    278       292       (14

)

    (4.8

)%

Telephone and data communication

    276       250       26       10.4

%

Business development

    251       206       45       21.8

%

Director compensation and retirement

    227       219       8       3.7

%

Advertising and shareholder relations

    212       197       15       7.6

%

Armored car and courier

    175       168       7       4.2

%

Loan and collection expenses

    161       144       17       11.8

%

OREO costs

    153       323       (170

)

    (52.6

)%

Stationery and supplies

    82       94       (12

)

    (12.8

)%

Provision from change in OREO valuation

    79       227       (148

)

    (65.2

)%

Insurance expense

    72       (7

)

    79       1,128.6

%

Postage

    30       33       (3

)

    (9.1

)%

Gain on sale of OREO

    (73

)

    (100

)

    27       27.0

%

Other

    183       115       68       59.1

%

Total non-interest expense

  $ 13,994     $ 13,313     $ 681       5.1

%

 

Provision for income taxes. The Company recorded an income tax provision of $2.7 million, or 39.1% of pre-tax income for the nine months ended September 30, 2015. This compares to an income tax provision of $2.2 million, or 39.4% of pre-tax income for the nine months ended September 30, 2014. The percentages for 2015 and 2014 differ from the statutory rate as tax exempt income such as earnings on Bank owned life insurance and municipal investment income decrease the tax provision.

 

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 measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is "more likely than not" that all or a portion of the deferred tax asset will not be realized. "More likely than not" is defined as greater than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Based upon the analysis of available evidence, management has determined that it is "more likely than not" that all deferred income tax assets as of September 30, 2015 and December 31, 2014 will be fully realized and therefore no valuation allowance was recorded. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.

 

 
34

 

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015

 

Net Income. The Company recorded net income of $1.6 million for the three months ended September 30, 2015, up $273 thousand from net income of $1.3 million for the three months ended September 30, 2014. An increase of $660 thousand in net interest income and $151 thousand in non-interest income was partially offset by increases of $370 thousand in non-interest expense and $168 thousand in the provision for income taxes.

 

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

 

Net interest income before provision for loan losses. Net interest income, on a nontax-equivalent basis, was $5.5 million for the three months ended September 30, 2015, an increase of $660 thousand, or 14%, from $4.9 million for the same period in 2014. The increase in net interest income includes an increase of $491 thousand in interest income and a decline of $169 thousand in interest expense. Related to an increase in yield on investment securities and a decline in interest expense, net interest margin for the three months ended September 30, 2015 increased 7 basis points, or 2%, to 4.08%, up from 4.01% for the same period in 2014.

 

Interest income increased by 9%, to $5.8 million for the three months ended September 30, 2015, up from $5.3 million during the same period in 2014. Related to an increase in average loan balances, interest and fees on loans increased $427 thousand to $5.3 million for the three months ended September 30, 2015 as compared to $4.9 million during the third quarter of 2014. The Company’s average loan balances were $392 million for the three months ended September 30, 2015, up $34 million, or 10%, from $358 million for the same period in 2014. The average yield on loans was 5.38% during the third quarter of 2015 down slightly from 5.42% for same quarter in 2014.

 

Interest on investment securities increased by $50 thousand as a result of an increase in yield of 12 basis points from 1.74% during the third quarter of 2015 to 1.86% during the three months ended September 30, 2015 and an increase in average balance from $84.0 million in 2014 to $89.3 million in 2015. The increase in yield includes an increase in municipal securities as a percentage of total securities and a reduction in securities of U.S. Government-sponsored agencies.

 

Interest expense on deposits increased by $8 thousand, or 6%, to $134 thousand for the three months ended September 30, 2015, up from $126 thousand during the 2014 quarter. This increase relates an increase in average balance in savings accounts partially offset by a decrease in the average balance of time deposits.

 

Interest expense on savings accounts increased by $10 thousand to $51 thousand during the third quarter of 2015. Average savings balances increased from $103.4 million during the three months ended September 30, 2014 to $124.6 million during the current quarter. Plumas Bank’s savings accounts provide an attractive interest rate in the current rate environment and we have seen continued growth in savings accounts for the last few years. The average rate paid on savings accounts was 16 basis points during both periods.

 

Interest on time deposits declined from $50 thousand during the three months ending September 30, 2014 to $46 thousand during the current quarter. Average time deposits declined by $3.2 million from $57.8 million during the three months ended September 30, 2014 to $54.6 million during the current quarter. We attribute much of the reduction in time deposits to the unusually low interest rate environment as we have seen a movement out of time into more liquid deposit types.

 

Interest expense on other interest-bearing liabilities decreased by $177 thousand from $306 thousand during the three months ended September 30, 2014 to $129 thousand during the current quarter related to the redemption of the Company’s subordinated debenture on April 16, 2015. Interest expense related to the subordinated debenture during the third quarter of 2014 was $191 thousand. Partially offsetting this $191 thousand savings was an increase in interest on our note payable. Interest expense on the Company’s note payable increased by $17 thousand to $51 thousand during the three months ended September 30, 2015. This increase is related to an increase in average borrowings on this note from $2.2 million during the third quarter of 2014 to $5.0 million during the three months ended September 30, 2015. The average rate paid on the note payable was 4.05% during the three months ended September 30, 2015 and 6.08% during the third quarter of 2014. The rate was elevated during the 2014 quarter related to an adjustment to the amortization of the loan fee paid on the note payable.

 

 
35

 

 

 

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 September 30, 2015

   

For the Three Months Ended September 30, 2014

 
   

Average Balance

(in thousands)

   

Interest

(in thousands)

   

Yield/
Rate

   

Average Balance

(in thousands)

   

Interest

(in thousands)

   

Yield/
Rate

 

Interest-earning assets:

                                               

Loans (1) (2) (3)

  $ 392,523     $ 5,325       5.38

%

  $ 358,254     $ 4,898       5.42

%

Investment securities (1)

    89,301       418       1.86

%

    84,019       368       1.74

%

Other

    55,966       50       0.35

%

    40,077       36       0.36

%

Total interest-earning assets

    537,790       5,793       4.27

%

    482,350       5,302       4.36

%

Cash and due from banks

    17,797                       18,389                  

Other assets

    32,851                       34,967                  

Total assets

  $ 588,438                     $ 535,706                  
                                                 

Interest-bearing liabilities:

                                               

NOW deposits

  $ 89,885       20       0.09

%

  $ 82,423       19       0.09

%

Money market deposits

    48,026       17       0.14

%

    45,869       16       0.14

%

Savings deposits

    124,628       51       0.16

%

    103,362       41       0.16

%

Time deposits

    54,630       46       0.33

%

    57,780       50       0.34

%

Total deposits

    317,169       134       0.17

%

    289,434       126       0.17

%

Note payable

    5,000       51       4.05

%

    2,217       34       6.08

%

Subordinated debentures

    -       -       -

%

    7,390       191       10.25

%

Junior subordinated debentures

    10,310       77       2.96

%

    10,310       79       3.04

%

Other interest-bearing liabilities

    4,873       1       0.08

%

    6,796       2       0.12

%

Total interest-bearing liabilities

    337,352       263       0.31

%

    316,147       432       0.54

%

                                                 

Non-interest bearing deposits

    205,134                       178,890                  

Other liabilities

    5,588                       6,342                  

Shareholders' equity

    40,364                       34,327                  

Total liabilities & equity

  $ 588,438                     $ 535,706                  

Cost of funding interest-earning assets (4)

                    0.19

%

                    0.35

%

Net interest income and margin (5)

          $ 5,530       4.08

%

          $ 4,870       4.01

%

 


(1) Not computed on a tax-equivalent basis.

(2)

Average nonaccrual loan balances of $5.1 million for 2015 and $6.3 million for 2014 are included in average loan balances for computational purposes.

(3)

Net loan costs included in loan interest income for the three-month periods ended September 30, 2015 and 2014 were $144,000 and $170,000, 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.

    

 
36

 

 

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:

 

   

2015 over 2014 change in net interest income

for the three months ended September 30

 
   

(in thousands)

 

 
   

Volume (1)

   

Rate (2)

   

Mix (3)

   

Total

 
                                 

Interest-earning assets:

                               

Loans

  $ 469     $ (38

)

  $ (4

)

  $ 427  

Investment securities

    23       25       2       50  

Interest bearing deposits

    14       -       -       14  

Total interest income

    506       (13

)

    (2 )     491  
                                 

Interest-bearing liabilities:

                               

NOW deposits

    2       (1

)

    -       1  

Money market deposits

    1       -       -       1  

Savings deposits

    8       1       1       10  

Time deposits

    (3

)

    (1

)

    -       (4

)

Note payable

    42       (11

)

    (14

)

    17  

Subordinated debentures

    (191

)

    -       -       (191

)

Junior subordinated debentures

    -       (2

)

    -       (2

)

Other

    -       (1

)

    -       (1

)

                                 

Total interest expense

    (141

)

    (15

)

    (13

)

    (169

)

                                 

Net interest income

  $ 647     $ 2     $ 11     $ 660  

 


(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 loan losses. The Company recorded a $300 thousand provision for loan losses for the three months ended September 30, 2015 and 2014.

 

The allowance for loan losses is maintained at a level that management believes will be appropriate to absorb probable incurred losses on existing loans based on an evaluation of the collectability of the loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to repay their loan. The allowance for loan losses is based on estimates, and ultimate losses may vary from the current estimates. These estimates are reviewed not less than quarterly and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.

 

Based on information currently available, management believes that the allowance for loan losses is appropriate to absorb probable incurred losses in the portfolio. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period. See “Analysis of Asset Quality and Allowance for Loan Losses” for further discussion of loan quality trends and the provision for loan losses.

 

Non-interest income. During the three months ended September 30, 2015 non-interest income increased by $151 thousand to $2.0 million up from $1.9 million during the three months ended September 30, 2014. The largest component of this decrease was an increase in gain on sale of SBA loans of $313 thousand from $304 thousand during the 2014 quarter to $617 thousand during the three months ended September 30, 2015. Partially offsetting this increase in gain on sale of SBA loans was a decrease of $137 thousand in gain on sale of investment securities from a gain of $128 thousand during the third quarter of 2014 to a loss of $9 thousand during the current quarter. Service charge income decreased by $51 thousand most of which was related to a reduction in NSF and overcharge income.

 

 
37

 

 

The following table describes the components of non-interest income for the three-month periods ended September 30, 2015 and 2014, dollars in thousands:

 

   

For the Three Months

                 
   

Ended September 30

                 
   

2015

   

2014

   

Dollar

Change

   

Percentage

Change

 

Service charges on deposit accounts

  $ 1,013     $ 1,064     $ (51

)

    (4.8

)%

Gain on sale of loans, net

    617       304       313       103.0

%

Loan serving fees

    146       128       18       14.1

%

Earnings on life insurance policies

    85       86       (1

)

    (1.2

)%

(Loss) gain on sale of investment securities

    (9

)

    128       (137

)

    (107.0

)%

Other

    194       185       9       4.9

%

Total non-interest income

  $ 2,046     $ 1,895     $ 151       8.0

%

 

Non-interest expense. During the three months ended September 30, 2015, total non-interest expense increased by $370 thousand, or 9%, to $4.7 million, up from $4.3 million for the comparable period in 2014. While the Company continued to experience declines in several categories of non-interest expense, these were offset by increases in other items the largest of which was $297 thousand in salary and benefit expense. Other increases of note were $129 thousand in professional fees and $89 thousand in insurance expense. The largest reductions in expense were $42 thousand in OREO expense, $56 thousand in the provision for change in OREO valuation and $53 thousand in gain on sale of OREO.

 

The increase in salary and benefits includes an increase in salary expense, exclusive of commissions, of $81 thousand mostly related to merit and promotion increases. In addition, during 2015 we hired a loan officer to service the northern Nevada market and a branch manager for our new Reno, Nevada location. Other significant increases in salary and benefit expense include an increase of $93 thousand in commission expense related to the increase in SBA sales and an $88 thousand reduction in the deferral of loan origination costs. As discussed in the nine month analysis the increase in professional costs is primarily related to an increase in legal expense mostly related to loan collection activities. Insurance expense during the three months ended September 30, 2014 included a one-time adjustment to accrued life insurance costs totaling approximately $90 thousand.

 

 
38

 

 

The following table describes the components of non-interest expense for the three-month periods ended September 30, 2015 and 2014, dollars in thousands:

 

   

For the Three Months

                 
   

Ended September 30,

                 
   

2015

   

2014

   

Dollar

Change

   

Percentage

Change

 

Salaries and employee benefits

  $ 2,584     $ 2,287     $ 297       13.0

%

Occupancy and equipment

    702       699       3       0.4

%

Outside service fees

    521       510       11       2.2

%

Professional fees

    217       88       129       146.6

%

Telephone and data communication

    94       84       10       11.9

%

Deposit insurance

    90       86       4       4.7

%

Business development

    86       75       11       14.7

%

Director compensation and retirement

    78       77       1       1.3

%

Advertising and shareholder relations

    64       66       (2

)

    (3.0

)%

Armored car and courier

    61       59       2       3.4

%

OREO costs

    54       96       (42

)

    (43.8

)%

Provision from change in OREO valuation

    36       92       (56

)

    (60.9

)%

Loan and collection expenses

    31       46       (15

)

    (32.6

)%

Stationery and supplies

    28       34       (6

)

    (17.6

)%

Insurance expense

    22       (67

)

    89       132.8

%

Postage

    10       11       (1

)

    (9.1

)%

Gain on sale of OREO

    (62

)

    (9

)

    (53

)

    588.9

%

Other

    42       54       (12

)

    (22.2

)%

Total non-interest expense

  $ 4,658     $ 4,288     $ 370       8.6

%


Provision for income taxes.
The Company recorded income tax expense of 1.0 million, or 38.9% of pre-tax income for the three months ended September 30, 2015. This compares to income tax expense of $850 thousand, or 39.0% of pre-tax income for the three months ended September 30, 2014. The percentages for 2015 and 2014 differ from the statutory rate as tax exempt income such as earnings on Bank owned life insurance and municipal investment income decrease taxable income.

 

 
39

 

  

FINANCIAL CONDITION

 

Loan Portfolio. Gross loans increased by $20.4 million, an annualized rate of over 7%, from $370.4 million at December 31, 2014 to $390.8 million at September 30, 2015. The increase in loan balances during the nine month period ended September 30, 2015 relates to growth in the Company’s commercial real estate, commercial, agricultural and automobile portfolios. The Company continues to manage the mix of its loan portfolio consistent with its identity as a community bank serving the financing needs of all sectors of the area it serves. Although the Company offers a broad array of financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These commercial 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, automobile loans, agricultural loans and equity lines of credit.

 

(dollars in thousands)

 

Balance at End

of Period

   

Percent of

Loans in Each

Category to

Total Loans

   

Balance at End

of Period

   

Percent of Loans

in Each

Category to

Total Loans

 
   

09/30/15

   

09/30/15

   

12/31/14

   

12/31/14

 

Commercial

  $ 32,898       8.4 %   $ 31,465       8.5 %

Agricultural

    39,819       10.2 %     35,355       9.5 %

Real estate - residential

    26,201       6.7 %     29,284       7.9 %

Real estate – commercial

    182,728       46.8 %     163,306       44.1 %

Real estate – construction

    20,479       5.2 %     24,572       6.6 %

Equity Lines of Credit

    37,872       9.7 %     38,972       10.5 %

Auto

    48,012       12.3 %     44,618       12.1 %

Other

    2,777       0.7 %     2,818       0.8 %

Total Gross Loans

  $ 390,786       100 %   $ 370,390       100 %

 

Construction and land development loans represented 5.2% and 6.6% of the loan portfolio as of September 30, 2015 and December 31, 2014, respectively. The construction and land development portfolio component has been identified by Management as a higher-risk loan category.  The quality of the construction and land development category is highly dependent on property values both in terms of the likelihood of repayment once the property is transacted by the current owner as well as the level of collateral the Company has securing the loan in the event of default.  Loans in this category are characterized by the speculative nature of commercial and residential development properties and can include property in various stages of development. The decline in these loans as a percentage of the Company’s loan portfolio from over 21% at December 31, 2007 to less than 7% during the last two years reflects management’s efforts, which began in 2009, to reduce its exposure to construction and land development loans.

 

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 74% of the total loan portfolio at September 30, 2015 and December 31, 2014. Moreover, the business activities of the Company currently are focused in the California counties of Plumas, Nevada, Placer, Lassen, Modoc, Shasta, and Sierra and in Washoe County 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 residential and 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. At September 30, 2015 and December 31, 2014, approximately 71% of the Company's loan portfolio was comprised of variable rate loans. At September 30, 2015 and December 31, 2014, 43% and 42%, respectively of the variable loans were at their respective floor rate. While real estate mortgage, 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. The most significant change has been an increase in indirect auto lending with automobile loans increasing from 2.5% of gross loans at December 31, 2011 to 12.3% of gross loans at September 30, 2015. The automobile portfolio provides diversification to the loan portfolio in terms of rate, term and balance as these loans tend to have a much shorter term and balance than commercial real-estate loans and are fixed rate. While the automobile loan portfolio has grown significantly in recent years, we anticipate that going forward growth in the portfolio will level off as we are reaching a point where our new production is being mostly offset by pay-downs and payoffs in the portfolio. This is in line with our long term expectations for this portfolio. The Company remains committed to the agricultural industry in Northeastern California and will continue to pursue high quality agricultural loans. Agricultural loans include both commercial and commercial real estate loans. The Company’s agricultural loan balances totaled $39.8 million and $35.4 million at September 30, 2015 and December 31, 2014, respectively.

 

 
40

 

 

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 impaired 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 on a monthly basis 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.

 

The Company has implemented MARC to develop an action plan to significantly reduce nonperforming assets. It 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 at least monthly and reports to the Board of Directors.

 

More specifically, a formal plan to effect repayment and/or disposition of every significant nonperforming loan relationship is developed and documented for review and on-going oversight by the MARC. Some of the strategies used include but are not limited to: 1) obtaining additional collateral, 2) obtaining additional investor cash infusion, 3) sale of the promissory note to an outside party, 4) proceeding with foreclosure on the underlying collateral, and 5) legal action against borrower/guarantors to encourage settlement of debt and/or collect any deficiency balance owed. Each step includes a benchmark timeline to track progress.

 

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.

 

The allowance for loan losses is established through charges to earnings in the form of the provision for loan losses. Loan losses are charged to and recoveries are credited to the allowance for loan losses. The allowance for loan losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in the loan portfolio. The adequacy of the allowance for loan losses is based upon management's continuing assessment of various factors affecting the collectability of loans; including current economic conditions, maturity of the portfolio, size of the portfolio, industry concentrations, borrower credit history, collateral, the existing allowance for loan losses, independent credit reviews, current charges and recoveries to the allowance for loan losses and the overall quality of the portfolio as determined by management, regulatory agencies, and independent credit review consultants retained by the Company. There is no precise method of predicting specific losses or amounts which may ultimately be charged off on particular segments of the loan portfolio. The collectability of a loan is subjective to some degree, but must relate to the borrower’s financial condition, cash flow, quality of the borrower’s management expertise, collateral and guarantees, and state of the local economy.

 

Formula allocations are calculated by applying loss factors to outstanding loans with similar characteristics. Loss factors are based on the Company’s historical loss experience as adjusted for changes in the business cycle and may be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. Historical loss data from the beginning of the latest business cycle are incorporated in the loss factors.

 

The discretionary allocation is based upon management’s evaluation of various loan segment conditions that are not directly measured in the determination of the formula and specific allowances. The conditions may include, but are not limited to, general economic and business conditions affecting the key lending areas of the Company, credit quality trends, collateral values, loan volumes and concentrations, and other business conditions.

 

 
41

 

 

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

 

   

For the Nine Months Ended September 30,

      For the Year Ended December 31  
   

2015

   

2014

   

2014

   

2013

   

2012

 
 

(dollars in thousands)

Balance at beginning of period

  $ 5,451     $ 5,517     $ 5,517     $ 5,686     $ 6,908  

Charge-offs:

                                       

Commercial and agricultural

    91       191       191       401       1,159  

Real estate mortgage

    132       1,032       1,015       419       616  

Real estate construction

    54       -       106       735       1,524  

Consumer (includes equity LOC & Auto)

    395       479       601       360       602  

Total charge-offs

    672       1,702       1,913       1,915       3,901  

Recoveries:

                                       

Commercial and agricultural

    108       50       89       140       66  

Real estate mortgage

    6       34       19       109       8  

Real estate construction

    -       491       491       -       81  

Consumer (includes equity LOC & Auto)

    124       111       148       97       174  

Total recoveries

    238       686       747       346       329  

Net charge-offs

    (434 )     (1,016 )     (1,166 )     (1,569 )     (3,572 )

Provision for loan losses

    900       750       1,100       1,400       2,350  

Balance at end of period

  $ 5,917     $ 5,251     $ 5,451     $ 5,517     $ 5,686  

Net charge-offs during the period to average loans (annualized for the nine month periods)

    0.15 %     0.39 %     0.33 %     0.49 %     1.18 %

Allowance for loan losses to total loans

    1.51 %     1.45 %     1.47 %     1.63 %     1.80 %

 

During the nine months ended September 30, 2015 we recorded a provision for loan losses of $900 thousand up $150 thousand from the $750 thousand provision recorded during the nine months ended September 30, 2014. Net charge-offs totaled $434 thousand a decrease of $582 thousand from $1.0 million during the nine months ended September 30, 2014.

 

The following table provides a breakdown of the allowance for loan losses at September 30, 2015 and December 31, 2014:

 

(dollars in thousands)

 

Balance at

End of Period

   

Percent of

Loans in Each

Category to

Total Loans

   

Balance at

End of Period

   

Percent of

Loans in Each

Category to

Total Loans

 
   

2015

   

2015

   

2014

   

2014

 

Commercial and agricultural

  $ 819       18.6 %   $ 799       18.0 %

Real estate mortgage

    2,792       53.5 %     2,080       52.0 %

Real estate construction

    942       5.2 %     1,227       6.6 %

Consumer (includes equity LOC & Auto)

    1,364       22.7 %     1,345       23.4 %

Total

  $ 5,917       100.0 %   $ 5,451       100.0 %

 

The allowance for loan losses totaled $5.9 million at September 30, 2015 and $5.5 million at December 31, 2014. Specific reserves related to impaired loans increased by $141 thousand from $564 thousand at December 31, 2014 to $705 thousand at September 30, 2015. The largest single increase was a $372 thousand reserve on one commercial real estate loan representing 31% of the balance of this loan.   At least quarterly the Company evaluates each specific reserve and if it determines that the loss represented by the specific reserve is uncollectable it records a charge-off for the uncollectable portion. General reserves were $5.2 million at September 30, 2015 and $4.9 million at December 31, 2014. The allowance for loan losses as a percentage of total loans was 1.51% at September 30, 2015 and 1.47% at December 31, 2014. The percentage of general reserves to unimpaired loans increased slightly from 1.35% at December 31, 2014 to 1.36% at September 30, 2015.

 

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.

 

 
42

 

 

Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. The amount of impaired loans is not directly comparable to the amount of nonperforming loans disclosed later in this section. The primary difference between impaired loans and nonperforming loans is that impaired loan recognition considers not only loans 90 days or more past due, restructured loans and nonaccrual loans but also may include identified problem loans other than delinquent loans where it is considered probable that we will not collect all amounts due to us (including both principal and interest) in accordance with the contractual terms of the loan agreement.

 

A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the Company, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. Restructured workout loans typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. Loans that are reported as TDRs are considered impaired and measured for impairment as described above.

 

Loans restructured (TDRs) and not included in nonperforming loans in the following table totaled $2.0 million at September 30, 2015 and $2.0 million, $4.5 million, $5.4 million and $8.6 million at December 31, 2014, 2013, 2012 and 2011, respectively.

 

For additional information related to restructured loans see Note 4 of the Company’s Condensed Consolidated Financial Statements in this quarterly report on form 10Q.

 

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

 

   

At September 30,

   

At December 31,

 
   

2015

   

2014

   

2013

   

2012

   

2011

 
   

(dollars in thousands)

 
                                         

Nonaccrual loans

  $ 5,024     $ 6,625     $ 5,519     $ 13,683     $ 16,757  

Loans past due 90 days or more and still accruing

    -       -       17       15       72  

Total nonperforming loans

    5,024       6,625       5,536       13,698       16,829  

Other real estate owned

    2,265       3,590       6,399       5,295       8,623  

Other vehicles owned

    53       13       60       41       57  

Total nonperforming assets

  $ 7,342     $ 10,228     $ 11,995     $ 19,034     $ 25,509  

Interest income forgone on nonaccrual loans

  $ 270     $ 345     $ 280     $ 646     $ 510  

Interest income recorded on a cash basis on nonaccrual loans

  $ -     $ 31     $ 22     $ 192     $ 285  

Nonperforming loans to total loans

    1.29 %     1.79 %     1.64 %     4.35 %     5.73 %

Nonperforming assets to total assets

    1.21 %     1.90 %     2.33 %     3.98 %     5.60 %

 

Nonperforming loans at September 30, 2015 were $5.0 million, a decrease of $1.6 million from the $6.6 million balance at December 31, 2014. Specific reserves on nonaccrual loans totaled $635 thousand at September 30, 2015 and $522 thousand at December 31, 2014. Performing loans past due thirty to eighty-nine days decreased by $576 thousand from $1.6 million at December 31, 2014 to $1.0 million at September 30, 2015.

 

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 decreased by $1.8 million from $8.1 million at December 31, 2014 to $6.3 million at September 30, 2015. Loans classified as watch decreased by $0.9 million from $4.4 million at December 31, 2014 to $3.5 million at September 30, 2015. At September 30, 2015, $1.4 million of performing loans were classified as substandard. Further deterioration in the credit quality of individual performing substandard loans or other adverse circumstances could result in the need to place these loans on nonperforming status.

 

 
43

 

 

At September 30, 2015 and December 31, 2014, the Company's recorded investment in impaired loans totaled $6.9 million and $8.6 million, respectively. The specific allowance for loan losses related to impaired loans totaled $705 thousand and $564 thousand at September 30, 2015 and December 31, 2014, respectively. Additionally, $0.7 million has been charged off against the impaired loans at September 30, 2015 and December 31 2014.

 

It is the policy of management to make additions to the allowance for loan losses so that it remains appropriate to absorb the inherent risk of loss in the portfolio. Management believes that the allowance at September 30, 2015 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.

 

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 twelve properties totaling $2.3 million at September 30, 2015 and fifteen properties totaling $3.6 million at December 31, 2014. Nonperforming assets as a percentage of total assets were     1.21% at September 30, 2015 and 1.90% at December 31, 2014.

 

The following table provides a summary of the change in the number and balance of OREO properties for the nine months ended September 30, 2015 and 2014, dollars in thousands:

 

   

Nine Months Ended September 30,

 
   

#

   

2015

   

#

   

2014

 

Beginning Balance

    15     $ 3,590       26     $ 6,399  

Additions

    4       329       6       639  

Dispositions

    (7)       (1,575

)

    (13)       (2,890

)

Provision from change in OREO valuation

            (79

)

            (227

)

Ending Balance

    12     $ 2,265       19     $ 3,921  

 

Investment Portfolio and Federal Funds Sold. Total investment securities were $89.4 million at September 30, 2015 and $90.3 million as of December 31, 2014. During the nine months ended September 30, 2015 we sold fifteen available-for-sale investment securities having a value of $12.3 million and recorded a net gain of $21 thousand. The investment portfolio at September 30, 2015 consisted of $72.3 million in securities of U.S. Government-sponsored agencies and 66 municipal securities totaling $17.1 million. Included in the $90.3 million at December 31, 2014 were $77.3 million in securities of U.S. Government-sponsored agencies and 52 municipal securities totaling $12.5 million and one corporate security totaling $0.5 million.

 

There were no Federal funds sold at September 30, 2015 and December 31, 2014; however, the Bank maintained interest earning balances at the Federal Reserve Bank (FRB) totaling $70.6 million at September 30, 2015 and $22.9 million at December 31, 2014. These balances currently earn 25 basis points.

 

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. Deposits totaled $538.8 million at September 30, 2015, an increase of $70.9 million from $467.9 million at December 31, 2014. Increases included $32.8 million in non-interest bearing demand deposits, $10.2 million in NOW accounts and $29.1 million in savings and money market accounts. Time deposits declined by $1.2 million, much of which we attribute to migration into other types of deposits given the low rates and lack of liquidity associated with time deposits.

 

 
44

 

 

The Company continues to manage the mix of its deposits consistent with its identity as a community bank serving the financial needs of its customers. The following table shows the distribution of deposits by type at September 30, 2015 and December 31, 2014.

 

(dollars in thousands)

 

Balance at

End of

Period

   

Percent of

Deposits in

Each

Category

   

Balance at

End of

Period

   

Percent of

Deposits in

Each Category

 
   

09/30/15

   

09/30/15

   

12/31/14

   

12/31/14

 

Non-interest bearing

  $ 213,406       39.6 %   $ 180,649       38.6 %

NOW

    92,329       17.1 %     82,144       17.6 %

Money Market

    50,117       9.3 %     42,499       9.1 %

Savings

    127,755       23.7 %     106,257       22.7 %

Time

    55,147       10.3 %     56,342       12.0 %

Total Deposits

  $ 538,754       100 %   $ 467,891       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. In order to assist in meeting any funding demands, the Company maintains a secured borrowing arrangement with the FHLB. There were no brokered deposits at September 30, 2015 or December 31, 2014.

 

Short-term Borrowing Arrangements. The Company is a member of the FHLB and can borrow up to $163,000,000 from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $243,000,000. The Company is required to hold FHLB stock as a condition of membership. At September 30, 2015 and December 31, 2014, the Company held $2,380,000 of FHLB stock which is recorded as a component of other assets. Based on this level of stock holdings at September 30, 2015, the Company can borrow up to $88,159,000. To borrow the $163,000,000 in available credit the Company would need to purchase $2.0 million in additional FHLB stock. In addition to its FHLB borrowing line, the Company has unsecured short-term borrowing agreements with three of its correspondent banks in the amounts of $20 million, $11 million and $10 million. There were no outstanding borrowings under the FHLB or the correspondent bank borrowing lines at September 30, 2015 or December 31, 2014.

 

Note Payable. The Bancorp has the ability to borrow up to $7.5 million on a promissory note (the “Note”) payable to an unrelated commercial bank (the “Lender”). The Note bears interest at the U.S. "Prime Rate" plus three-quarters percent per annum, 4.00% at September 30, 2015 and December 31, 2014, matures on October 24, 2015 and is secured by 100 shares of Plumas Bank stock representing the Company's 100% ownership interest in Plumas Bank. The outstanding balance on this Note was $5,000,000 and $1,000,000 at September 30, 2015 and December 31, 2014. On April 16, 2015 we borrowed $4,000,000 on this Note which, along with a cash dividend from the Bank, was used to pay off our $7.5 million subordinated debenture. Interest expense related to the Note for the nine months ended September 30, 2015 and 2014 was $106,000 and $98,000, respectively. Under the Note the Bank is subject to several negative and affirmative covenants including, but not limited to providing timely financial information, maintaining specified levels of capital, restrictions on additional borrowings, and meeting or exceeding certain capital and asset quality ratios. The Bank was in compliance with all such requirements at September 30, 2015 and December 31, 2014.

 

Effective October 1, 2015 the Lender replaced the Note with two new borrowing arrangements. The $5 million outstanding on the Note was converted to a term loan (the “Term Loan”) which matures on October 1, 2018. The Term Loan requires quarterly principal payments of $125,000. In addition, the Lender has provided the Bancorp with a $2.5 million line of credit (the “LOC”) which matures on October 1, 2016. There is no balance outstanding on the LOC as of the date of this filing. Both the Term Loan and the LOC bear interest at a rate of the U.S. "Prime Rate" plus one-half percent per annum and are secured by 100 shares of Plumas Bank stock representing the Company's 100% ownership interest in Plumas Bank.   Under the Term Loan and the LOC the Bank is subject to several negative and affirmative covenants similar to the covenants under the Note, but in several cases less restrictive.

 

 
45

 

 

Repurchase Agreements. In 2011 Plumas Bank introduced a new product for their larger business customers which use repurchase agreements as an alternative to interest-bearing deposits. The balance in this product at September 30, 2015 was $5.4 million a decrease of $4.2 million from the December 31, 2014 balance of $9.6 million. Interest paid on this product is similar to that which is paid on the Bank’s money market account; however, these are not deposits and are not FDIC insured.

 

Subordinated Debenture. On April 15, 2013, to help fund the repurchase of preferred stock during 2013, the Company issued a $7.5 million subordinated debenture. The subordinated debt had an interest rate of 7.5% per annum and a term of 8 years with no prepayment allowed during the first two years and was made in conjunction with an eight-year warrant to purchase up to 300,000 shares of the Bancorp’s common stock, no par value at an exercise price, subject to anti-dilution adjustments, of $5.25 per share. The effective yield on the debenture for the nine months ended September 30, 2015 was 10.2% which was in excess of the 7.5% rate due to amortization of a $75 thousand commitment fee and a discount recorded on issuance of $318 thousand. As previously discussed under the heading Note Payable on April 16, 2015 the Bancorp paid off the subordinated debt. Interest expense related to the subordinated debt for the nine months ended September 30, 2015 and 2014 totaled $219,000 and $568,000, respectively.

 

Junior Subordinated Deferrable Interest Debentures. Plumas Statutory Trust I and II are business trusts formed by the Company with capital of $310,000 and $163,000, respectively, for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company.

 

During 2002, Plumas Statutory Trust I issued 6,000 Floating Rate Capital Trust Pass-Through Securities ("Trust Preferred Securities" or “TRUPS”), with a liquidation value of $1,000 per security, for gross proceeds of $6,000,000. During 2005, Plumas Statutory Trust II issued 4,000 Trust Preferred Securities with a liquidation value of $1,000 per security, for gross proceeds of $4,000,000. The entire proceeds were invested by Trust I in the amount of $6,186,000 and Trust II in the amount of $4,124,000 in Floating Rate Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") issued by the Company, with identical maturity, repricing and payment terms as the Trust Preferred Securities. The Subordinated Debentures represent the sole assets of Trusts I and II.

 

Trust I’s Subordinated Debentures mature on September 26, 2032, bear a current interest rate of 3.73% (based on 3-month LIBOR plus 3.40%), with repricing and payments due quarterly. Trust II’s Subordinated Debentures mature on September 28, 2035, bear a current interest rate of 1.82% (based on 3-month LIBOR plus 1.48%), with repricing and payments due quarterly. Both Trusts I and II have the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the Subordinated Debentures.

 

Interest expense recognized by the Company for the nine months ended September 30, 2015 and 2014 related to the junior subordinated debentures was $227 thousand and $228 thousand, respectively.

 

CAPITAL RESOURCES

 

Related to total comprehensive income of $4.6 million shareholders’ equity increased from $36.5 million at December 31, 2014 to $41.2 million at September 30, 2015.

 

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). 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. No common cash dividends were paid during the last six years.

 

The Company is subject to various restrictions on the payment of dividends.

 

On April 15, 2015, Plumas Bank paid a cash dividend to Plumas Bancorp of $4 million; $3.5 million of this dividend along with $4 million in borrowings on the Note were used to pay off the Subordinated Debenture.

 

Capital Standards.

 

The Company uses a variety of measures to evaluate its capital adequacy, with risk-based capital ratios calculated separately for the Company and the Bank. 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.

 

 
46

 

 

 

In July, 2013, the federal bank regulatory agencies approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. The phase-in period for the final rules began on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments.

 

The Board of Governors of the Federal Reserve System has adopted final amendments to the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) ( the “Policy Statement”) that, among other things, raised from $500 million to $1 billion the asset threshold to qualify for the Policy Statement. Plumas Bancorp qualifies for treatment under the Policy Statement and is no longer subject to consolidated capital rules at the bank holding company level.

 

The following table sets forth the Bank's actual capital amounts and ratios (dollar amounts in thousands):

 

                   

Amount of Capital Required

 
                                   

To be Well-Capitalized

 
                   

For Capital

   

Under Prompt

 
   

Actual

   

Adequacy Purposes

   

Corrective Provisions

 
   

Amount

   

Ratio

   

Amount

   

Ratio

   

Amount

   

Ratio

 

September 30, 2015

                                               

Common Equity Tier 1 Ratio

  $ 54,533       12.6 %   $ 19,417       4.5 %   $ 28,047       6.5 %

Tier 1 Leverage Ratio

    54,533       9.3 %     23,515       4.0 %     29,394       5.0 %

Tier 1 Risk-Based Capital Ratio

    54,533       12.6 %     25,890       6.0 %     34,520       8.0 %

Total Risk-Based Capital Ratio

    59,936       13.9 %     34,520       8.0 %     43,150       10.0 %
                                                 

December 31, 2014

                                               

Common Equity Tier 1 Ratio

    N/A       N/A       N/A       N/A       N/A       N/A   

Tier 1 Leverage Ratio

  $ 53,925       9.8 %   $ 22,144       4.0 %   $ 27,643       5.0 %

Tier 1 Risk-Based Capital Ratio

    53,925       13.2 %     16,344       4.0 %     24,517       6.0 %

Total Risk-Based Capital Ratio

    59,039       14.4 %     32,689       8.0 %     40,860       10.0 %

 

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

 

The current and projected capital positions of the Company and 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 September 30, 2015, the Company had $81.7 million in unfunded loan commitments and $15 thousand in letters of credit. This compares to $89.7 million in unfunded loan commitments and no letters of credit at December 31, 2014. Of the $81.7 million in unfunded loan commitments, $43.6 million and $38.1 million represented commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at September 30, 2015, $44.2 million were secured by real estate, of which $16.4 million was secured by commercial real estate and $27.8 million was secured by residential real estate 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.

 

 
47

 

 

Operating Leases. The Company leases two depository branches, three lending offices, one loan administration office and two non-branch automated teller machine locations. Total rental expenses under all operating leases totaled $181 thousand and $182 thousand during nine months ended September 30, 2015 and 2014, respectively. The expiration dates of the leases vary, with the first such lease expiring during 2015 and the last such lease expiring during 2020.

 

Recent Developments. On February 26, 2015 Plumas Bank announced that it had filed an application with the FDIC to establish a full-service branch in Reno, Nevada. On April 16, 2015, Plumas Bank purchased a building for $1,050,000 to house this branch located at 5050 Meadowood Mall Circle, Reno, Nevada. In addition, the Company has budgeted approximately $1.4 million in costs for the remodeling of the branch including the cost of furniture, fixtures and equipment. The Company has received all required regulatory approvals to operate this new branch which is expected to open during December 2015.

 

On April 21, 2015 Plumas Bank announced that it had signed a purchase and assumption agreement to acquire the Redding, California branch of Rabobank N.A. The Company received all required regulatory approvals required to purchase this branch. The transaction, which closed on July 31, 2015, resulted in the acquisition of approximately $10 million in deposits. No loans were acquired as part of the transaction. Effective with the closing of the transaction, Plumas Bank consolidated and merged its existing branch in Redding into the newly acquired branch.

 

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, satisfy maturity of short-term borrowings and maintain reserve requirements. 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 charging competitive offering rates on deposit products and the use of established lines of credit.

 

The Company is a member of the FHLB and can borrow up to $163,000,000 from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $243,000,000. See “Short-term Borrowing Arrangements” for additional information on our FHLB borrowing capacity. In addition to its FHLB borrowing line, the Company has unsecured short-term borrowing agreements with three of its correspondent banks in the amounts of $20 million, $11 million and $10 million. There were no outstanding borrowings under the FHLB or the correspondent bank borrowing lines at September 30, 2015 or December 31, 2014.

 

Customer deposits are the Company’s primary source of funds. Deposits totaled $538.8 million at September 30, 2015, an increase of $70.9 million from $467.9 million at December 31, 2014. Deposits are held in various forms with varying maturities. 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.

 

 
48

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company we are not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation of the Company's disclosure controls and procedures as of the end of the Company’s fiscal quarter ended September 30, 2015 (as defined in Exchange Act Rule 13a—15(e), have concluded that the Company's disclosure controls and procedures are adequate and effective for purposes of Rule 13a—15(e) in timely alerting them to material information relating to the Company required to be included in the Company's filings with the SEC under the Securities Exchange Act of 1934.

 

There were no changes in internal control over financial reporting during the fiscal quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company and/or its subsidiaries 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

 

As a smaller reporting company we are not required to provide the information required by this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(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.

 

 
49

 

 

ITEM 6. EXHIBITS

 

The following documents are included or incorporated by reference in this Quarterly Report on Form 10Q:

 

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 March 16, 2011 included as exhibit 3.2 to the Registrant’s Form 10-K for December 31, 2010, 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.

 

 

 

10.1

 

Executive Salary Continuation Agreement of Andrew J. Ryback dated December 17, 2008, is included as exhibit 10.1 to the Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein.

 

 

 

10.2

 

Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included as Exhibit 10.2 to the Registrant’s 8-K filed on October 17, 2005, which is incorporated by this reference herein.

  

  

  

10.4

  

Stock Purchase Warrant dated April 15, 2013, is included as Exhibit 10.4 to the Registrant’s 10-Q filed on May 10, 2013, which is incorporated by this reference herein.

  

  

  

10.5

  

Subordinated Debenture Purchase Agreement dated April 15, 2013, is included as Exhibit 10.5 to the Registrant’s 10-Q filed on November 7, 2013, which is incorporated by this reference herein.

  

  

  

10.6

  

Promissory Note Dated October 24, 2013, is included as Exhibit 10.6 to the Registrant’s 10-Q filed on May 10, 2013, which is incorporated by this reference herein.

  

  

  

10.8

  

Director Retirement Agreement of John Flournoy dated March 21, 2007, is included as Exhibit 10.8 to Registrant’s 10-Q for March 31, 2007, which is incorporated by this reference herein.

  

  

  

10.18

 

Amended and Restated Director Retirement Agreement of Daniel E. West dated May 10, 2000, is included as Exhibit 10.18 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

 

 

 

10.19

 

Consulting Agreement of Daniel E. West dated May 10, 2000, is included as Exhibit 10.19 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

 

 

 

10.21

 

Amended and Restated Director Retirement Agreement of Alvin G. Blickenstaff dated April 19, 2000, is included as Exhibit 10.21 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

 

 

 

10.22

 

Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is included as Exhibit 10.22 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

 

 

 

10.24

 

Amended and Restated Director Retirement Agreement of Gerald W. Fletcher dated May 10, 2000, is included as Exhibit 10.24 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

 

 

 

10.25

 

Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is included as Exhibit 10.25 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

 

 
50

 

 

10.27

 

Amended and Restated Director Retirement Agreement of Arthur C. Grohs dated May 9, 2000, is included as Exhibit 10.27 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

 

 

 

10.28

 

Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is included as Exhibit 10.28 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

  

  

  

10.33

  

Amended and Restated Director Retirement Agreement of Terrance J. Reeson dated April 19, 2000, is included as Exhibit 10.33 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

  

  

  

10.34

  

Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is included as Exhibit 10.34 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.

  

  

  

10.37

  

Deferred Fee Agreement of Alvin Blickenstaff is included as Exhibit 10.37 to the Registrant’s 10-Q for March 31, 2009, which is incorporated by this reference herein.

  

  

  

10.41

 

Form of Indemnification Agreement (Plumas Bancorp) is included as Exhibit 10.41 to the Registrant’s 10-Q for March 31, 2009, which is incorporated by this reference herein. 

  

  

 

10.42

  

Form of Indemnification Agreement (Plumas Bank) is included as Exhibit 10.42 to the Registrant’s 10-Q for March 31, 2009, which is incorporated by this reference herein.

 

 

 

10.43

 

Plumas Bank 401(k) Profit Sharing Plan as amended is included as exhibit 99.1 of the Form S-8 filed February 14, 2003, File No. 333-103229, which is incorporated by this reference herein.

 

 

 

10.47 

 

2013 Stock Option Plan is included as exhibit 99.1 of the Form S-8 filed September 12, 2013, which is incorporated by this reference herein.

  

  

  

10.48

  

Specimen Form of Incentive Stock Option Agreement under the 2013 Stock Option Plan is included as exhibit 99.2 of the Form S-8 filed September 12, 2013, which is incorporated by this reference herein.

  

  

  

10.49

  

Specimen Form of Nonqualified Stock Option Agreement under the 2013 Stock Option Plan is included as exhibit 99.3 of the Form S-8 filed September 12, 2013, which is incorporated by this reference herein.

  

  

  

10.50

  

Executive Salary Continuation Agreement of Rose Dembosz, is included as exhibit 10.50 to the Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein.

  

  

  

10.51

  

First Amendment to Split Dollar Agreement of Andrew J. Ryback, is included as exhibit 10.51 to the Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein.

  

  

  

10.64

  

First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Alvin Blickenstaff adopted on September 19, 2007, is included as Exhibit 10.64 to the Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein.

  

  

  

10.65

  

First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Arthur C. Grohs adopted on September 19, 2007, is included as Exhibit 10.65 to the Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein.

  

  

  

10.66

  

Director Retirement Agreement of Robert McClintock, is included as Exhibit 10.66 to the Registrant’s 10-K filed on March 23, 2012, which is incorporated by this reference herein.

 

  

  

10.67

  

First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Terrance J. Reeson adopted on September 19, 2007, is included as Exhibit 10.67 to the Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein.

  

  

  

10.69

  

First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Daniel E. West adopted on September 19, 2007, is included as Exhibit 10.69 to the Registrant’s 8-K filed on September 25, 2007, which is incorporated by this reference herein.

 

 
51

 

 

10.70

  

First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for Gerald W. Fletcher adopted on October 9, 2007, is included as Exhibit 10.70 to the Registrant’s 10-Q for September 30, 2007, which is incorporated by this reference herein.

  

  

  

11

  

Computation of per share earnings appears in the attached 10-Q under Plumas Bancorp and Subsidiary Notes to Condensed Consolidated Financial Statements as Footnote 6 – Earnings Per Share.

  

  

  

31.1*

  

Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated November 4, 2015.

  

  

  

31.2*

  

Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated November 4, 2015.

  

  

  

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 November 4, 2015.

  

  

  

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 November 4, 2015.

  

  

  

101.INS*

  

XBRL Instance Document.

  

  

  

101.SCH*

  

XBRL Taxonomy Schema.

  

  

  

101.CAL*

  

XBRL Taxonomy Calculation Linkbase.

  

  

  

101.DEF*

  

XBRL Taxonomy Definition Linkbase.

  

  

  

101.LAB*

  

XBRL Taxonomy Label Linkbase.

  

  

  

101.PRE*

  

XBRL Taxonomy Presentation Linkbase.

     

*

  

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: November 4, 2015

 

 

   

/s/ Richard L. Belstock


 


 

Richard L. Belstock
Chief Financial Officer

     
    /s/ Andrew J. Ryback


 


 

Andrew J. Ryback

 President and Chief Executive Officer