SEC Info - Plumas Bancorp - ‘10-Q’ for 6/30/22

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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.

The following discussion and analysis sets forth certain statistical information relating to the Company as of June 30, 2022 and December 31, 2021 and for the three and six-month periods ended June 30, 2022 and 2021. 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, 2021.

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

There have been no changes to the Company’s critical accounting policies from those disclosed in the Company’s 2021 Annual Report to Shareholders on Form 10-K.

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provided for the Paycheck Protection Program (PPP) and additional legislation extended this program into 2021; we have actively participated in the PPP program. The remaining principal balance of PPP loans at June 30, 2022 was $8 million.

On July 1, 2021, pursuant to a previously announced Agreement and Plan of Reorganization and Merger dated as of March 10, 2021 (the “Merger Agreement”) between the Company and Feather River Bancorp, Inc. (“FRB”), FRB merged with and into the Company with the Company continuing as the surviving corporation (the “Merger”). Immediately after the Merger, Bank of Feather River, the wholly owned bank subsidiary of FRB (“BFR”), merged with and into the Bank, with the Bank continuing as the surviving bank. BFR has become our Yuba City branch. The Merger and Bank Merger are collectively referred to as the “Transaction.”

As part of its business strategy, the Company regularly reviews its business strategies and opportunities to enhance the value of its franchise, including through acquisitions. The Transaction is consistent with the Company’s business strategy, which will (1) expand Plumas’ geographic presence into new markets in Northern California, (2) diversify and bring new expertise to Plumas’ agricultural lending business, and (3) strengthen the Company’s talent base.

Pursuant to the terms of the definitive merger agreement between the Company and FRB, each issued and outstanding share of common stock of FRB (the “Common Shares”), was converted into the right to receive, at the election of each holder of Common Shares, either (i) shares of common stock of the Company (“Plumas Common Stock”) or (ii) cash (the “Merger Consideration”). Shareholder elections were subject to proration such that aggregate Merger Consideration payable by the Company was comprised of (i) $4,738,583 in cash (the “Aggregate Cash Amount”) and (ii) 598,020 shares of Plumas Common Stock (the “Aggregate Plumas Share Amount”). Holders of Common Shares received either $19.14 in cash or 0.614 shares of Plumas Common Stock. The value of the total deal consideration was approximately $23.4 million, which is based upon the volume-weighted average trading price of Plumas common stock for the 10 trading days ending on the last trading day immediately preceding July 1, 2021, the closing date of the Merger.

Immediately after the Transaction, the newly combined company, operating as Plumas Bancorp with its banking subsidiary, Plumas Bank, had total assets of approximately $1.5 billion. The estimated fair value of assets acquired at July 1, 2021 was $205.0 million consisting of $28.4 million in cash, $160.4 million in net loans, $1.0 million in core deposit intangible, $5.5 million in goodwill and $9.7 million in other assets. The estimated fair value of deposits assumed totaled $176.7 million consisting of $89.5 million in non-interest bearing transaction accounts, $9.3 million in savings accounts, $45.6 million in money market accounts and $32.3 million in time deposits.

Net Income. The Company recorded net income of $11.4 million for the six months ended June 30, 2022 up $2.5 million from net income of $8.9 million for the six months ended June 30, 2021. Increases of $5.0 million in net interest income and $2.1 million in non-interest income were partially offset by increases of $4.1 million in non-interest expense, $490 thousand in the provision for income taxes and $75 thousand in the provision for loan losses. The annualized return on average assets was 1.41% for the six months ended June 30, 2022 down from 1.50% for the six months ended June 30, 2021. The annualized return on average equity increased from 17.4% during the first half of 2021 to 18.3% during the current period.

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

Net interest income before provision for loan losses. Driven by the acquisition of BFR, organic growth and an increase in market interest rates including a 150 basis point increase in the prime rate, net interest income increased by 5.0 million from $20.4 million during the six months ended June 30, 2021 to $25.4 million for the six months ended June 30, 2022.

The increase in net interest income includes an increase of $5.1 million in interest income partially offset by an increase of $83 thousand in interest expense. Interest and fees on loans increased by $2.6 million related to an increase in average loan balances primarily related to the acquisition of BFR. The effect of the increase in average balance was partially offset by a decline in yield which included a reduction in PPP fees. During the current period we recorded amortization of loan fees, net of loan costs, on PPP loans totaling $1.0 million, a decrease of $1.5 million from $2.5 million during the six months ended June 30, 2021. PPP fees included in income include both the normal amortization of fees on loans in our PPP portfolio and the effect of PPP loan forgiveness.

Average loan balances increased by $114 million, while the average yield on loans decreased by 9 basis points from 5.21% during the first half of 2021 to 5.12% during the current period. The reduction in loan yield includes the effect of the decline in PPP fee income as described above. Interest and fees on loans held for sale increased by $286 thousand related to an increase in average balance of $10.6 million from $5.0 million for the six months ended June 30, 2021 to $15.6 million for the six months ended June 30, 2022.

Interest on investment securities, including both taxable and non-taxable securities, increased by $1.5 million, related to an increase in average total investment securities of $117 million from $207 million during the six months ended June 30, 2021 to $324 million during the current period and an increase in yield on investments from 1.9% during the six months ended June 30, 2021 to 2.16% during the six months ended June 30, 2022. Interest on interest-bearing deposits, which mostly relates to cash held at the Federal Reserve Bank of San Francisco (FRBSF), increased by $725 thousand related to both an increase in the rate paid on these balances and an increase in average balance. The rate paid on interest-bearing deposits balances increased from 0.11% during the first half of 2021 to 0.50% during the current period mostly related to an increase in the average rate paid on balances held at the FRBSF from 0.10% during the first six months of 2021 to 0.52% during the current period. Average interest-bearing deposit balances increased by $135 million to $333.6 million during the current period.

Net interest margin for the six months ended June 30, 2022 decreased 23 basis points to 3.39%, down from 3.62% for the same period in 2021.

The following table presents for the six-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:

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

Provision for loan losses. During the six months ended June 30, 2022 and 2021 we recorded a provision for loan losses of $700 thousand and $625 thousand, respectively. See “Analysis of Asset Quality and Allowance for Loan Losses” for a discussion of loan quality trends and the provision for loan losses.

Non-interest income. During the six months ended June 30, 2022, non-interest income totaled $6.3 million, an increase of $2.1 million from $4.2 million during the six months ended June 30, 2021. The largest component of this increase was an increase in gain on sale of loans of $1.7 million. During the six months ended June 30, 2022 we sold $38.2 million in guaranteed portions of SBA loans. This compares to sales of $7.4 million during the six months ended June 30, 2021. We did not sell SBA loans during the second and third quarters of 2021. Loans held for sale at December 31, 2021 and June 30, 2022 were $31.3 million and $4.6 million, respectively. During the six months ended June 30, 2022 and 2021, $14.2 million and $14.9 million in guaranteed portions of SBA loans were originated for sale.

Other non-interest income increased by $179 thousand, the largest component of which was $90 thousand in insurance proceeds related to fire damage at our Greenville, California branch. This branch was heavily damaged in the wildfires that swept through Northern California during the summer of 2021.

The following table describes the components of non-interest income for the six-month periods ended June 30, 2022 and 2021, dollars in thousands:

Non-interest expense. During the six months ended June 30, 2022 non-interest expense increased by $4.1 million. The largest components of this increase were $2.6 million in salary and benefit expense, $454 thousand in occupancy and equipment costs, $313 thousand in outside service fees and $210 thousand in deposit insurance expense. During the six months ended June 30, 2021 the Company qualified for the Employee Retention Credit (ERC). The ERC was made available under the Coronavirus Aid, Relief, and Economic Security Act and modified and extended under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. We recorded an ERC of $1.1 million during the second quarter of 2021 as a reduction of salary and benefit expense. The other two largest increases in salary and benefit expense were $1.2 million in salary expense and $356 thousand in bonus expense. The increase in salary expense includes the effect of the acquisition of Bank of Feather River as well as other additions to personnel and merit and promotional increases. Full time equivalent employees increased by 22 to 172 at June 30, 2022. The increase in bonus expense is consistent with the increase in income during the comparable quarters.

The increase in occupancy and equipment expense includes $313 thousand related to our Yuba City branch. Non-interest expense at this branch totaled $909 thousand and $478 thousand during the six months ended June 30, 2022 and 2021, respectively. The largest components of the increase in outside service fees were $103 thousand in debit card and ATM processing costs, $89 thousand in human resources administration and payroll processing and $51 thousand in online banking expense

The only decline in non-interest expense was $177 thousand in professional fees which were abnormally high in 2021 related to non-recurring merger costs.

The following table describes the components of non-interest expense for the six-month periods ended June 30, 2022 and 2021, dollars in thousands:

Provision for income taxes. The Company recorded an income tax provision of $4.0 million, or 25.8% of pre-tax income for the six months ended June 30, 2022. This compares to an income tax provision of $3.5 million, or 27.9% of pre-tax income for the six months ended June 30, 2021. The percentages for 2022 and 2021 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal loan and securities interest decrease taxable income and during 2021 nondeductible merger expenses which increase taxable income.

Net Income. The Company recorded net income of $5.7 million for the three months ended June 30, 2022 up $1.2 million from net income of $4.5 million for the three months ended June 30, 2021. Increases of $3.5 million in net interest income and $784 thousand in non-interest income were partially offset by increases of $2.7 million in non-interest expense, $237 thousand in the provision for income taxes and $150 thousand in the provision for loan losses. The annualized return on average assets was 1.40% for the three months ended June 30, 2022 down from 1.45% for the three months ended June 30, 2021. The annualized return on average equity increased from 17.2% during the second quarter of 2021 to 19.0% during the current quarter.

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

Net interest income before provision for loan losses. Driven by the acquisition of BFR, organic growth and an increase in market rates, net interest income increased by $3.5 million from $9.9 million during the three months ended June 30, 2021 to $13.4 million for the three months ended June 30, 2022.

The increase in net interest income includes an increase of $3.5 million in interest income slightly offset by an increase of $37 thousand in interest expense. Interest and fees on loans increased by $2.0 million as a decline of $447 thousand in fees net of costs on PPP loans was offset by growth in the loan portfolio and an increase in yield on the portfolio. During the current quarter we recorded amortization of loan fees net of loan costs on PPP loans totaling $389 thousand. This compares to $836 thousand during the second quarter of 2021. This includes normal amortization on our PPP portfolio and the effect of PPP loan forgiveness.

Average loan balances increased by $112 million, while the average yield on these loans increased by 31 basis points from 4.90% during the second quarter of 2021 to 5.21% during the current quarter. The increase in loan yield includes the effect of an increase in market rates during 2022 including an increase in the rate earned on loans tied to the prime interest rate partially offset by a decline in PPP fee income as described above. The average prime interest rate increased from 3.25% during the second quarter of 2021 to 3.94% during the current quarter.

Interest and fees on loans held for sale increased by $9 thousand related to an increase in average balance of $0.6 million from $8.0 million for the three months ended June 30, 2021 to $8.6 million for the three months ended June 30, 2022.

Interest on investment securities increased by $896 thousand from the second quarter of 2021, related to an increase in average total investment securities of $112 million to $337 million and an increase in yield on the investment portfolio from 1.86% during the second quarter of 2021 to 2.31% during the current quarter. Interest on cash balances increased by $609 thousand related to both an increase in the rate paid on these balances and an increase in average cash balances. The rate paid on cash balances increased from 0.10% during the second quarter of 2021 to 0.84% during the current quarter mostly related to an increase in the rate paid on balances held at the Federal Reserve Bank. The average rate paid on Federal Reserve balances was 0.11% during the second quarter of 2021 and 0.84% during the current quarter.

Net interest margin for the three months ended June 30, 2022 increased 18 basis points to 3.58%, up from 3.40% for the same period in 2021.

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:

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:

Provision for loan losses. During the three months ended June 30, 2022 and 2021 we recorded a provision for loan losses of $400 thousand and $250 thousand, respectively. See “Analysis of Asset Quality and Allowance for Loan Losses” for a discussion of loan quality trends and the provision for loan losses.

Non-interest income. Non-interest income increased by $784 thousand to $2.7 million during the current quarter from $1.9 million during the three months ended June 30, 2021. The largest component of this increase was an increase in gain on sale of SBA loans of $634 thousand. We did not sell SBA loans during the second and third quarters of 2021 resulting in an inventory of loans held for sale of $31.3 million at December 31, 2021. During the current quarter we sold $14.1 million in guaranteed portions of SBA loans and ended the quarter with loans held for sale totaling $4.6 million.

The following table describes the components of non-interest income for the three-month periods ended June 30, 2022 and 2021, dollars in thousands:

Non-interest expense. During the three months ended June 30, 2022, total non-interest expense increased by $2.7 million from $5.3 million during the second quarter of 2021 to $8.0 million during the current quarter. The largest component of this increase was an increase in salary and benefit expense of $2.0 million. Occupancy and equipment costs increased by $207 thousand of which $163 thousand relates to the Yuba City branch.

The largest increases in salary and benefit expense were $1.1 million related to the ERC, $625 thousand in salary expense and $266 thousand in bonus expense. The increase in salary expense includes the effect of the acquisition of Bank of Feather River as well as other additions to personnel and merit and promotional increases. Full time equivalent employees increased by 22 to 172 at June 30, 2022. The increase in bonus expense is consistent with the increase in income during the comparable quarters.

The following table describes the components of non-interest expense for the three-month periods ended June 30, 2022 and 2021, dollars in thousands:

Provision for income taxes. The Company recorded an income tax provision of $2.0 million, or 25.7% of pre-tax income for the three months ended June 30, 2022. This compares to an income tax provision of $1.7 million, or 27.9% of pre-tax income for the three months ended June 30, 2021. The percentages for 2022 and 2021 differ from statutory rates as tax exempt items of income such as earnings on Bank owned life insurance and municipal loan and securities interest decrease taxable income and during 2021 nondeductible merger expenses which increase taxable income.

Deposits totaled $1.5 billion at June 30, 2022, an increase of $33.6 million from December 31, 2021. Mostly related to a $27.8 million decrease in other comprehensive income, shareholders’ equity decreased by $17.9 million from $134.1 million at December 31, 2021 to $116.2 million at June 30, 2022.

Loan Portfolio. Gross loans totaled $862.2 million, an increase of $23.6 million from December 31, 2021. PPP loans declined by $26.6 million from $34.6 million at December 31, 2021 to $8.0 million at June 30, 2022. Unearned fees, net of costs, on PPP loans declined by $993 thousand from $1.3 million at December 31, 2021 to $279 thousand at June 30, 2022 .

The largest areas of growth in the Company’s loan portfolio were $29.4 million in commercial real estate loans and $9.4 million in construction loans. The largest declines in loan balances was $15.4 million in commercial loans, resulting from the $26.6 decline in PPP loans discussed above. Although the Company offers a broad array of financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These loans offer diversification as to industries and types of businesses, thus limiting material exposure in any industry concentrations. The Company offers both fixed and floating rate loans and obtains collateral in the form of real property, business assets and deposit accounts, but looks to business and personal cash flows as its primary source of repayment.

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

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 75% of the total loan portfolio at June 30, 2022. Moreover, the business activities of the Company currently are focused in the California counties of Plumas, Nevada, Placer, Lassen, Modoc, Shasta, Sierra, and Sutter and in Washoe and Carson City Counties in Northern Nevada. Consequently, the results of operations and financial condition of the Company are dependent upon the general trends in these economies and, in particular, the commercial real estate markets. In addition, the concentration of the Company's operations in these areas of Northeastern California and Northwestern Nevada exposes it to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and floods in these regions.

The rates of interest charged on variable rate loans are set at specific increments in relation to the Company's lending rate or other indexes such as the published prime interest rate or U.S. Treasury rates and vary with changes in these indexes. The frequency in which variable rate loans reprice can vary from one day to several years. At June 30, 2022 and December 31, 2021, approximately 78% and 76%, respectively of the Company's loan portfolio was comprised of variable rate loans. Loans indexed to the prime interest rate were approximately 23% of the Company’s loan portfolio; these loans reprice within one day to three months of a change in the prime rate. At June 30, 2022 and December 31, 2021, 53% and 55%, respectively of the variable loans were at their respective floor rate. While real estate mortgage, agricultural, commercial and consumer lending remain the foundation of the Company's historical loan mix, some changes in the mix have occurred due to the changing economic environment and the resulting change in demand for certain loan types.

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

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. We added a pandemic qualitative factor to our allowance for loan loss calculation during 2020.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to- maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU No. 2016- 13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. On October 16, 2019, the FASB approved a proposal to change the effective date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities, delaying the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. As the Company is a smaller reporting company and has not adopted provisions of the standard early, the delay is applicable to the Company. The Company has begun its implementation efforts by establishing an implementation team chaired by the Company’s Chief Credit Officer and composed of members of the Company’s credit administration and accounting departments. We have purchased software to support the CECL calculation of the allowance for loan losses under ASU No 2016-13. During the second quarter of 2021 we engaged a consultant to perform a model validation of our CECL model and to assist us in documenting all aspects of the CECL model. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s Consolidated Financial Statements, in particular the level of the reserve for credit losses. However, the Company continues to evaluate the extent of the potential impact.

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.

During the six months ended June 30, 2022 and 2021 we recorded a provision for loan losses of $700 thousand and $625 thousand, respectively. Net charge-offs totaled $133 thousand during the six months ended June 30, 2022, a decrease of $266 thousand from $399 thousand during the six months ended June 30, 2021.

The allowance for loan losses totaled $10.9 million at June 30, 2022 and $10.4 million at December 31, 2021. 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. Specific reserves related to impaired loans totaled $38 thousand at June 30, 2022 and $28 thousand at December 31, 2021. The allowance for loan losses as a percentage of total loans was 1.27% at June 30, 2022 and 1.23% at December 31, 2021.

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.

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) not included in nonperforming loans in the following table totaled $0.9 million at June 30, 2022 and December 31, 2021, 2020 and 2019. For additional information related to restructured loans see Note 4 to the condensed consolidated financial statements contained within this Form 10-Q.

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

Nonperforming loans at June 30, 2022 were $1.6 million, a decrease of $3.3 million from $4.9 million at December 31, 2021. Specific reserves on nonaccrual loans totaled $16 thousand at June 30, 2022 and $0 at December 31, 2021. Performing loans past due thirty to eighty-nine days were $3.4 million at June 30, 2022 down slightly from $3.5 million at December 31, 2021. Of the loans past due thirty to eighty-nine days at June 30, 2022, $1.9 million were automobile loans.

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 $2.6 million from $5.5 million at December 31, 2021 to $2.9 million at June 30, 2022. Loans classified as special mention increased by $4.2 million from $5.0 million at December 31, 2021 to $9.2 million at June 30, 2022.

At June 30, 2022 and December 31, 2021, the Company's recorded investment in impaired loans totaled $1.4 million and $4.9 million, respectively. The specific allowance for loan losses related to impaired loans totaled $38 thousand and $28 thousand at June 30, 2022 and December 31, 2021.

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 June 30, 2022 is appropriate. However, the determination of the amount of the allowance is judgmental and subject to economic conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the allowance may occur in future periods.

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

As of June 30, 2022 and December 31, 2021 the Company had $4.6 million and $31.3 million, respectively in SBA government guaranteed loans held for sale. Loans held for sale are recorded at the lower of cost or fair value and therefore may be reported at fair value on a non-recurring basis. The fair values for loans held for sale are based on either observable transactions of similar instruments or formally committed loan sale prices.

OREO represents real property acquired by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. Repossessed assets include vehicles and other commercial assets acquired under agreements with delinquent borrowers. OREO holdings represented 2 properties totaling $369 thousand at June 30, 2022 and 3 properties totaling $487 thousand at December 31, 2021. Nonperforming assets as a percentage of total assets were 0.12% at June 30, 2022 and 0.33% at December 31, 2021.

The following table provides a summary of the change in the number and balance of OREO properties for the six months ended June 30, 2022 and 2021 (dollars in thousands):

Investment Portfolio and Federal Funds Sold. Total investment securities were $365 million as of June 30, 2022 and $306 million as of December 31, 2021. Net unrealized losses on available-for-sale investment securities totaling $38.8 million were recorded, net of $11.5 million in tax benefit, as accumulated other comprehensive loss within shareholders' equity at June 30, 2022. Net unrealized gains on available-for-sale investment securities totaling $1.7 million were recorded, net of $493 thousand in tax expense, as accumulated other comprehensive income within shareholders' equity at December 31, 2021. No securities were sold during the six months ended June 30, 2022 and 2021. The change from an unrealized gain of $1.7 million to an unrealized loss of $38.8 million is related to a significant increase in market rates. During the first quarter of 2022 the Federal Reserve began increasing the Federal Funds rate to combat inflationary pressures in the economy. The Federal Funds rate has increased 150 basis points during the six months ended June 30, 2022 .

The investment portfolio at June 30, 2022 consisted of $9.9 million in U.S. Treasury securities, $183.9 million in securities of U.S. Government-sponsored agencies, $69.3 million in securities of U.S. Government-agencies and 215 municipal securities totaling $102.1 million. The investment portfolio at December 31, 2021 consisted of $151.0 million in securities of U.S. Government-sponsored agencies, $57.2 million in securities of U.S. Government-agencies and 188 municipal securities totaling $97.7 million.

There were no Federal funds sold at June 30, 2022 and December 31, 2021; however, the Bank maintained interest earning balances at the Federal Reserve Bank totaling $277 million at June 30, 2022 and $320 million at December 31, 2021. The balance, at June 30, 2022, earns interest at the rate of 1.65%.

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

Deposits. Total deposits increased by $33.6 million from $1.4 billion at December 31, 2021 to $1.5 billion at June 30, 2022. The increase in deposits includes increases of $28.3 million in demand deposits and $24.0 million in savings accounts. Money market accounts declined by $14.9 million and time deposits declined by $3.8 million.

Deposits represent the Bank's primary source of funds. Deposits are primarily core deposits in that they are demand, savings and time deposits generated from local businesses and individuals. These sources are considered to be relatively stable, long-term relationships thereby enhancing steady growth of the deposit base without major fluctuations in overall deposit balances. The Company experiences, to a small degree, some seasonality with the slower growth period between November through April, and the higher growth period from May through October. To assist in meeting any funding demands, the Company maintains a secured borrowing arrangement with the Federal Home Loan Bank of San Francisco (FHLB). There were no brokered deposits at June 30, 2022 or December 31, 2021.

Short-term Borrowing Arrangements. The Company is a member of the FHLB and can borrow up to $254 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $519 million. The Company is required to hold FHLB stock as a condition of membership. At June 30, 2022 the Company held $5.0 million of FHLB stock which is recorded as a component of other assets. Based on this level of stock holdings the Company can borrow up to $183.8 million. To borrow the full $254 million in available credit the Company would need to purchase $1.9 million in additional FHLB stock. In addition to its FHLB borrowing line, the Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB or the correspondent banks at June 30, 2022 and December 31, 2021.

Note Payable. During 2021 and until January 25, 2022, the Company maintained a $15 million line of credit facility with one of its correspondent banks (the "Note"). Interest on the Note was payable at the "Prime Rate". There were no borrowings on the Note during the current quarter or during the year ended December 31, 2021. The Note was secured by 100 shares of Plumas Bank stock representing the Company's 100% ownership interest in Plumas Bank. Under the Note, the Bank was 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.

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

Repurchase Agreements. The Bank offers a repurchase agreement product for its larger customers which use securities sold under agreements to repurchase as an alternative to interest-bearing deposits. Securities sold under agreements to repurchase totaling $10.4 million and $17.3 million at June 30, 2022 and December 31, 2021, respectively are secured by U.S. Government agency securities with a carrying amount of $19.1 million and $23.0 million at June 30, 2022 and December 31, 2021, respectively. Interest paid on this product is similar to that which is paid on the Bank’s money market accounts; however, these are not deposits and are not FDIC insured.

Junior Subordinated Deferrable Interest Debentures. Plumas Statutory Trust I and II are business trust subsidiaries formed by the Company with capital at June 30, 2022 of $368,000 and $185,000, respectively, for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company.

During 2002, Trust I issued 6,000 Floating Rate Capital Trust Pass-Through Securities ("Trust Preferred Securities"), with a liquidation value of $1,000 per security, for gross proceeds of $6,000,000. During 2005, 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 and bear an effective interest rate of 4.15%, with payments due quarterly. Trust II’s Subordinated Debentures mature on September 28, 2035 and bear an effective interest rate of 2.23%, with payments due quarterly. The effective interest rate includes the effect of interest rate swaps that are associated with these borrowings. See Interest Rate Swaps below. The interest rate of the Trust Preferred Securities issued by Trust I adjust on each quarterly anniversary date to equal the 3-month LIBOR plus 3.40%. The Trust Preferred Securities issued by Trust II adjust on each quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. 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 six months ended June 30, 2022 and 2021 related to the subordinated debentures was $179 thousand and $165 thousand, respectively.

From time to time, we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These financial instruments are not used for trading or speculative purposes. On May 26, 2020 we entered into two separate interest rate swap agreements, effectively converting the $10 million in Subordinated Debentures to fixed obligations. The swaps have a 10 year maturity and fix the LIBOR rate on the Subordinated Debentures at approximately 75 basis points. These agreements have been designated and qualify as cash flow hedging instruments and, as such changes in the fair value are recorded in accumulated other comprehensive income/loss to the extent the agreements are effective hedges. At June 30, 2022 and December 31, 2021 the carrying value of the swaps, which was included in other assets, was an unrealized gain of $1.6 million and $607 thousand, respectively.

Shareholders’ equity decreased by $17.9 million from $134.1 million at December 31, 2021 to $116.2 million at June 30, 2022. The $17.9 million decrease was related to a reduction in accumulated other comprehensive income of $27.8 million and shareholder dividends of $1.9 million partially offset by earnings during the first six months of 2022 of $11.4 million and $0.4 million representing stock option activity.

It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the payment of cash dividends. Such dividends help promote shareholder value and capital adequacy by enhancing the marketability of the Company’s stock. All authority to provide a return to the shareholders in the form of a cash or stock dividend or split rests with the Board of Directors. The Board will periodically, but on no regular schedule, review the appropriateness of a cash dividend payment. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. The Company is subject to various restrictions on the payment of dividends. Quarterly cash dividends of $0.16 were paid on May 16, 2022 and February 15, 2022 and quarterly cash dividends of $0.14 per share were paid on November 15, 2021, August 16, 2021, May 17, 2021 and February 15, 2021.

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

In July, 2013, the federal bank regulatory agencies adopted rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. depository organizations, sometimes called “Basel III,” that increased the minimum regulatory capital requirements for bank holding companies and depository institutions and implemented strict eligibility criteria for regulatory capital instruments. The Basel III capital rules include a minimum common equity Tier 1 ratio of 4.5%, a Tier 1 capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets). The minimum capital levels required to be considered “well capitalized” include a common equity Tier 1 ratio of 6.5%, a Tier 1 risk-based capital ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. In addition, the Basel III capital rules require that banking organizations maintain a capital conservation buffer of 2.5% above the minimum capital requirements in order to avoid restrictions on their ability to pay dividends, repurchase stock or pay discretionary bonuses. Including the capital conservation buffer of 2.5%, the Basel III capital rules require the following minimum ratios for a bank holding company or bank to be considered well capitalized: a common equity Tier 1 capital ratio of 7.0%; a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%. At June 30, 2022 and December 31, 2021, the Bank’s capital ratios exceeded the thresholds necessary to be considered “well capitalized” under the Basel III framework.

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

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

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

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

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

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

Loan Commitments. In the normal course of business, there are various commitments outstanding to extend credits that are not reflected in the financial statements. Commitments to extend credit and letters of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Annual review of commercial credit lines, letters of credit and ongoing monitoring of outstanding balances reduces the risk of loss associated with these commitments. As of June 30, 2022, the Company had $169.6 million in unfunded loan commitments and no letters of credit. This compares to $162.5 million in unfunded loan commitments and $12 thousand in letters of credit at December 31, 2021. Of the $169.6 million in unfunded loan commitments, $111.1 million and $58.5 million represented commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at June 30, 2022, $110.2 million were secured by real estate, of which $61.4 million was secured by commercial real estate and $48.8 million was secured by residential real estate mostly in the form of equity lines of credit. The commercial loan commitments not secured by real estate primarily represent business lines of credit, while the consumer loan commitments not secured by real estate primarily represent revolving credit card lines and overdraft protection lines. Since some of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements.

Operating Leases. The Company leases three depository branches, one of which is a land lease on which we own the building, three lending offices, two administrative offices and two non-branch automated teller machine locations. The expiration dates of the leases vary, with the first such lease expiring during 2022 and the last such lease expiring during 2044. Including variable lease expense, total rent expense was $300 thousand and $204 thousand during the six months ended June 30, 2022 and 2021, respectively.

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 $254 million from the FHLB secured by commercial and residential mortgage loans with carrying values totaling $519 million. 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 two of its correspondent banks in the amounts of $50 million and $20 million. There were no outstanding borrowings to the FHLB or the correspondent banks at June 30, 2022 and December 31, 2021.

Customer deposits are the Company’s primary source of funds. Total deposits increased by $33.6 million from $1.4 billion at December 31, 2021 to $1.5 billion at June 30, 2022. 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.

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of June 30, 2022. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2022.

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2022 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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

In addition to the other information set forth in this Form 10-Q you should carefully consider the risk factors that appeared under Item 1A, “Risk Factors” in the Company’s 2021 Annual Report. There are no material changes from the risk factors included within the Company’s 2021 Annual Report.

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

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.

(Mark One)
i ☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED i June 30, 2022

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

i California	i 75-2987096
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

i 5525 Kietzke Lane, Suite 100, i Reno, i Nevada	i 89511
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code ( i 775) i 786-0907

Title of Each Class:	Trading Symbol	Name of Each Exchange on which Registered:
i Common Stock, no par value	i PLBC	The i NASDAQ Stock Market LLC

	*June 30,*			*December 31,*
	*2022*			*2021*

Assets
Cash and cash equivalents	$	i 317,657		$	i 380,584
Investment securities available for sale		i 365,189			i 305,914
Loans held for sale		i 4,646			i 31,277
Loans, less allowance for loan losses of $10,919 at June 30, 2022 and $10,352 at December 31, 2021		i 853,427			i 829,385
Real estate acquired through foreclosure		i 369			i 487
Premises and equipment, net		i 18,212			i 16,424
Bank owned life insurance		i 16,031			i 15,844
Goodwill		i 5,502			i 5,502
Accrued interest receivable and other assets		i 39,593			i 28,657
Total assets	$	i 1,620,626		$	i 1,614,074

Liabilities and Shareholders’ Equity

Deposits:
Non-interest bearing	$	i 764,907		$	i 736,582
Interest bearing		i 707,695			i 702,417
Total deposits		i 1,472,602			i 1,438,999
Repurchase agreements		i 10,418			i 17,283
Accrued interest payable and other liabilities		i 11,138			i 13,400
Junior subordinated deferrable interest debentures		i 10,310			i 10,310
Total liabilities		i 1,504,468			i 1,479,992

Commitments and contingencies (Note 5)

Shareholders’ equity:
Common stock, no par value; 22,500,000 shares authorized; issued and outstanding – 5,844,566 shares at June 30, 2022 and 5,816,991 at December 31, 2021		i 27,133			i 26,801
Retained earnings		i 115,212			i 105,681
Accumulated other comprehensive (loss) income, net		( i 26,187	)		i 1,600
Total shareholders’ equity		i 116,158			i 134,082
Total liabilities and shareholders’ equity	$	i 1,620,626		$	i 1,614,074

	*For the Six Months Ended*
	*June 30,*
	*2022*			*2021*
Cash Flows from Operating Activities:
Net income	$	i 11,397		$	i 8,928
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		i 700			i 625
Change in deferred loan origination costs/fees, net		( i 1,530	)		i 1,276
Depreciation and amortization		i 911			i 760
Stock-based compensation expense		i 117			i 118
Amortization of investment security premiums		i 548			i 542
Loss on sale of other vehicles		i 39			i -
Loss on sale of OREO		i 5			i -
Gain on sale of loans held for sale		( i 2,335	)		( i 591	)
Loans originated for sale		( i 14,189	)		( i 14,919	)
Proceeds from loan sales		i 42,152			i 8,254
Earnings on bank-owned life insurance		( i 187	)		( i 175	)
Decrease (increase) in accrued interest receivable and other assets		i 2,601			( i 2,432	)
(Decrease) increase in accrued interest payable and other liabilities		( i 2,262	)		i 731
Net cash provided by operating activities		i 37,967			i 3,117

Cash Flows from Investing Activities:
Proceeds from principal repayments from available-for-sale mortgage-backed securities		i 15,504			i 22,790
Proceeds from matured and called available-for-sale securities		i 470			i 500
Purchases of available-for-sale securities		( i 116,198	)		( i 94,986	)
Purchase of FHLB stock		( i 514	)		( i 231	)
Purchase of FRB stock		( i 4	)		( i 2	)
Net increase in loans		( i 23,237	)		( i 19,459	)
Proceeds from sale of OREO		i 113			i 56
Proceeds from sale of other vehicles		i 346			i 174
Purchase of premises and equipment		( i 2,461	)		( i 114	)
Net cash used in investing activities		( i 125,981	)		( i 91,272	)

Plumas Bancorp – ‘10-Q’ for 6/30/22

On: Thursday, 8/4/22, at 9:00am ET · For: 6/30/22 · Accession #: 1437749-22-18760 · File #: 0-49883

Previous ‘10-Q’: ‘10-Q’ on 5/5/22 for 3/31/22 · Next: ‘10-Q’ on 11/9/22 for 9/30/22 · Latest: ‘10-Q’ on 11/8/23 for 9/30/23 · 7 References:

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

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Dates Referenced Herein and Documents Incorporated by Reference

7 Previous Filings that this Filing References

	Amortized Cost		Estimated Fair Value
Within one year	$	i 732	$	i 734
After one year through five years		i 14,831		i 14,828
After five years through ten years		i 12,154		i 11,950
After ten years		i 100,309		i 84,482
Investment securities not due at a single maturity date:
Government- agencies commercial mortgage-backed securities		i 76,887		i 69,337
Government-sponsored agencies residential mortgage-backed securities		i 199,076		i 183,858
	$	i 403,989	$	i 365,189

	June 30,			December 31,
	2022			2021

Commercial	$	i 84,378		$	i 99,804
Agricultural		i 125,807			i 126,456
Real estate – residential		i 15,867			i 15,837
Real estate – commercial		i 447,980			i 418,609
Real estate – construction and land development		i 60,891			i 51,526
Equity lines of credit		i 34,745			i 32,793
Auto		i 87,907			i 89,046
Other		i 4,577			i 4,516
Total loans		i 862,152			i 838,587
Deferred loan costs, net		i 2,194			i 1,150
Allowance for loan losses		( i 10,919	)		( i 10,352	)
Total net loans	$	i 853,427		$	i 829,385

(in thousands)
Balance at December 31, 2021	$	i 28
Additions		i -
Removals¹		( i 10	)
Accretion		( i 3	)
Balance at June 30, 2022	$	i 15

Assets:
Cash and cash equivalents	$	i 28,369
Loans		i 160,409
Core deposit intangible		i 1,037
Goodwill		i 5,502
Bank premises and equipment		i 2,657
Right of use asset		i 2,359
Other assets		i 4,627
Total assets acquired	$	i 204,960

Liabilities:
Deposits:
Non-interest bearing	$	i 89,479
Interest bearing
Savings accounts		i 9,353
Money market accounts		i 45,600
Time accounts		i 32,279
Total deposits		i 176,711

Lease Liabilities		i 2,359
Deferred tax liability		i 402
Other liabilities		i 2,093
Total liabilities assumed	$	i 181,565
Merger consideration (cash payments of $4.7 million and $18.7 million in stock)	$	i 23,395

Book value of net assets acquired from FRB	$	i 16,292

Fair value adjustments:
Loans		i 2,453
Bank premises and equipment		( i 1,218	)
Right of use asset		i 2,359
Lease liability		( i 2,359	)
Core deposit intangible asset		i 1,037
Total purchase accounting adjustments	$	i 2,272
Deferred tax liabilities (tax effect of purchase accounting adjustments at 29.56%)		( i 671	)
Fair value of net assets acquired from FRB	$	i 17,893

Merger consideration		i 23,395
Less: fair value of net assets acquired from FRB		( i 17,893	)
Goodwill		i 5,502

	For the Six Months Ended							For the Six Months Ended
	June 30, 2022							June 30, 2021
	Average							Average
	Balance		Interest		Yield/			Balance		Interest		Yield/
	(in thousands)		(in thousands)		Rate			(in thousands)		(in thousands)		Rate
Interest-earning assets:
Loans ^{(2) (3)}	$	838,866	$	21,302		5.12	%	$	725,207	$	18,724		5.21	%
Loans held for sale		15,624		429		5.54	%		5,010		143		5.76	%
Taxable investment securities		226,609		2,314		2.06	%		141,485		1,207		1.72	%
Non-taxable investment securities ⁽¹⁾		97,703		1,159		2.39	%		65,512		739		2.27	%
Interest-bearing deposits		333,615		829		0.50	%		198,622		104		0.11	%
Total interest-earning assets		1,512,417		26,033		3.47	%		1,135,836		20,917		3.71	%
Cash and due from banks		51,663							28,505
Other assets		64,634							37,129
Total assets	$	1,628,714						$	1,201,470

Interest-bearing liabilities:
Money market deposits	$	258,833	$	122		0.10	%	$	192,842	$	128		0.13	%
Savings deposits		390,812		167		0.09	%		268,992		136		0.10	%
Time deposits		63,045		88		0.28	%		40,951		74		0.36	%
Total deposits		712,690		377		0.11	%		502,785		338		0.14	%
Junior subordinated debentures		10,310		179		3.50	%		10,310		165		3.23	%
Repurchase agreements & other		11,987		34		0.57	%		15,212		4		0.05	%
Total interest-bearing liabilities		734,987		590		0.16	%		528,307		507		0.19	%
Non-interest-bearing deposits		755,979							561,368
Other liabilities		11,919							8,617
Shareholders' equity		125,829							103,178
Total liabilities & equity	$	1,628,714						$	1,201,470
Cost of funding interest-earning assets ⁽⁴⁾						0.08	%						0.09	%
Net interest income and margin ⁽⁵⁾			$	25,443		3.39	%			$	20,410		3.62	%

	2022 over 2021 change in net interest income
	for the six months ended June 30,
	(in thousands)
	Volume (1)			Rate (2)			Mix (3)			Total

Interest-earning assets:
Loans	$	2,935		$	(309	)	$	(48	)	$	2,578
Loans held for sale		303			(5	)		(12	)		286
Taxable investment securities		726			238			143			1,107
Non-taxable investment securities		363			38			19			420
Interest-bearing deposits		70			390			265			725
Total interest income		4,397			352			367			5,116
Interest-bearing liabilities:
Money market deposits		44			(37	)		(13	)		(6	)
Savings deposits		61			(21	)		(9	)		31
Time deposits		40			(17	)		(9	)		14
Junior subordinated debentures		-			14			-			14
Repurchase agreements & other		(1	)		39			(8	)		30
Total interest expense		144			(22	)		(39	)		83
Net interest income	$	4,253		$	374		$	406		$	5,033

	For the Six Months Ended
	June 30,
	2022		2021		Dollar Change			Percentage Change
Gain on sale of loans, net		2,335		591		1,744			295.1	%
Interchange income		1,615		1,528		87			5.7	%
Service charges on deposit accounts		1,170		1,107		63			5.7	%
Loan servicing fees		422		423		(1	)		(0.2	)%
Earnings on life insurance policies		187		175		12			6.9	%
Other		585		406		179			44.1	%
Total non-interest income	$	6,314	$	4,230	$	2,084			49.3	%

	For the Three Months Ended							For the Three Months Ended
	June 30, 2022							June 30, 2021
	Average							Average
	Balance		Interest		Yield/			Balance		Interest		Yield/
	(in thousands)		(in thousands)		Rate			(in thousands)		(in thousands)		Rate
Interest-earning assets:
Loans ^{(2) (3)}	$	846,358	$	10,992		5.21	%	$	734,662	$	8,972		4.90	%
Loans held for sale		8,600		123		5.74	%		7,964		114		5.74	%
Taxable investment securities		238,477		1,315		2.21	%		154,664		650		1.69	%
Non-taxable investment securities ⁽¹⁾		98,552		626		2.55	%		70,586		395		2.24	%
Interest-bearing deposits		314,289		661		0.84	%		202,365		52		0.10	%
Total interest-earning assets		1,506,276		13,717		3.65	%		1,170,241		10,183		3.49	%
Cash and due from banks		48,852							29,517
Other assets		68,522							37,658
Total assets	$	1,623,650						$	1,237,416

Interest-bearing liabilities:
Money market deposits	$	255,088	$	56		0.09	%	$	197,020	$	59		0.12	%
Savings deposits		396,868		85		0.09	%		281,828		70		0.10	%
Time deposits		61,955		42		0.27	%		41,308		36		0.35	%
Total deposits		713,911		183		0.10	%		520,156		165		0.13	%
Junior subordinated debentures		10,310		90		3.50	%		10,310		86		3.35	%
Repurchase agreements & other		10,135		16		0.63	%		12,576		1		0.03	%
Total interest-bearing liabilities		734,356		289		0.16	%		543,042		252		0.19	%
Non-interest-bearing deposits		757,655							581,263
Other liabilities		11,935							8,669
Shareholders' equity		119,704							104,442
Total liabilities & equity	$	1,623,650						$	1,237,416
Cost of funding interest-earning assets ⁽⁴⁾						0.08	%						0.09	%
Net interest income and margin ⁽⁵⁾			$	13,428		3.57	%			$	9,931		3.40	%

	2022 over 2021 change in net interest income
	for the three months ended June 30,
	(in thousands)
	Volume (1)		Rate (2)			Mix (3)			Total

Interest-earning assets:
Loans	$	1,364	$	569		$	87		$	2,020
Loans held for sale		9					0			9
Taxable investment securities		352		203			110			665
Non-taxable investment securities		157		53			21			231
Interest-bearing deposits		29		374			206			609
Total interest income		1,911		1,199			424			3,534
Interest-bearing liabilities:
Money market deposits		17		(16	)		(4	)		(3	)
Savings deposits		29		(10	)		(4	)		15
Time deposits		18		(8	)		(4	)		6
Junior subordinated debentures		-		4			-			4
Repurchase agreements & other		-		19			(4	)		15
Total interest expense		64		(11	)		(16	)		37
Net interest income	$	1,847	$	1,210		$	440		$	3,497

			Percent of					Percent of
			Loans in Each					Loans in Each
	Balance at End		Category to			Balance at End		Category to
(dollars in thousands)	of Period		Total Loans			of Period		Total Loans
	06/30/2022		06/30/2022			12/31/2021		12/31/2021
Commercial	$	84,378		9.8	%	$	99,804		11.9	%
Agricultural		125,807		14.6	%		126,456		15.1	%
Real estate – residential		15,867		1.8	%		15,837		1.9	%
Real estate – commercial		447,980		52.0	%		418,609		49.9	%
Real estate – construction & land		60,891		7.1	%		51,526		6.1	%
Equity Lines of Credit		34,745		4.0	%		32,793		3.9	%
Auto		87,907		10.2	%		89,046		10.6	%
Other		4,577		0.5	%		4,516		0.6	%
Total Gross Loans	$	862,152		100	%	$	838,587		100	%

	For the Six Months Ended						For the Year Ended
*(dollars in thousands)*	June 30,						December 31,
	2022			2021			2021			2020			2019
Balance at beginning of period	$	10,352		$	9,902		$	9,902		$	7,243		$	6,958
Charge-offs:
Commercial		19			161			188			131			587
Agricultural		-			-			-			-			-
Real estate – residential		-			-			-			-			-
Real estate – commercial		-			-			-			-			-
Real estate – construction & land		-			-			-			-			-
Equity Lines of Credit		-			-			-			-			6
Auto		419			346			703			574			867
Other		31			37			47			82			61
Total charge-offs		469			544			938			787			1,521
Recoveries:
Commercial		17			47			72			34			26
Agricultural		-			-			-			-			-
Real estate – residential		2			1			3			15			3
Real estate – commercial		-			4			8			8			4
Real estate – construction & land		-			-			-			-			-
Equity Lines of Credit		-			2			4			4			5
Auto		311			77			136			200			258
Other		6			14			40			10			10
Total recoveries		336			145			263			271			306
Net charge-offs		133			399			675			516			1,215
Provision for loan losses		700			625			1,125			3,175			1,500
Balance at end of period	$	10,919		$	10,128		$	10,352		$	9,902		$	7,243
Net charge-offs during the period to average loans (annualized for the six-month periods)		0.03	%		0.11	%		0.09	%		0.07	%		0.21	%
Allowance for loan losses to total loans		1.27	%		1.40	%		1.23	%		1.40	%		1.17	%

	At
	June 30,			At December 31,
	2022			2021			2020			2019
	*(dollars in thousands)*

Nonaccrual loans	$	1,551		$	4,863		$	2,536		$	2,050
Loans past due 90 days or more and still accruing		-			-			-			-
Total nonperforming loans		1,551			4,863			2,536			2,050
Other real estate owned		369			487			403			707
Other vehicles owned		40			47			31			56
Total nonperforming assets	$	1,960		$	5,397		$	2,970		$	2,813
Interest income forgone on nonaccrual loans	$	151		$	381		$	119		$	158
Interest income recorded on a cash basis on nonaccrual loans	$	-		$	-		$	-		$	-
Nonperforming loans to total loans		0.18	%		0.58	%		0.36	%		0.33	%
Nonperforming assets to total assets		0.12	%		0.33	%		0.27	%		0.33	%

	Six Months Ended June 30,
	#		2022			#		2021
Beginning Balance		3	$	487			3	$	403
Additions		-		-			1		177
Dispositions		1		(118	)		1		(56	)
Ending Balance		2	$	369			3	$	524

			Percent of					Percent of
			Deposits in Each					Deposits in Each
	Balance at End		Category to			Balance at End		Category to
(dollars in thousands)	of Period		Total Deposits			of Period		Total Deposits
	06/30/2022		06/30/2022			12/31/2021		12/31/2021
Non-interest bearing	$	764,907		52.0	%	$	736,582		51.2	%
Money Market		246,067		16.7	%		261,005		18.1	%
Savings		401,091		27.2	%		377,050		26.2	%
Time		60,537		4.1	%		64,362		4.5	%
Total Deposits	$	1,472,602		100	%	$	1,438,999		100	%

						Minimum Amount of Capital Required
											To be Well-Capitalized
						For Capital					Under Prompt
	Actual					Adequacy Purposes (1)					Corrective Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2022
Common Equity Tier 1 Ratio	$	143,705		14.4	%	$	44,985		4.5	%	$	64,978		6.5	%
Tier 1 Leverage Ratio		143,705		8.7	%		65,786		4.0	%		82,232		5.0	%
Tier 1 Risk-Based Capital Ratio		143,705		14.4	%		59,980		6.0	%		79,973		8.0	%
Total Risk-Based Capital Ratio		154,964		15.5	%		79,973		8.0	%		99,966		10.0	%

December 31, 2021
Common Equity Tier 1 Ratio	$	134,015		14.4	%	$	42,024		4.5	%	$	60,701		6.5	%
Tier 1 Leverage Ratio		134,015		8.4	%		64,066		4.0	%		80,083		5.0	%
Tier 1 Risk-Based Capital Ratio		134,015		14.4	%		56,032		6.0	%		74,709		8.0	%
Total Risk-Based Capital Ratio		144,708		15.5	%		74,709		8.0	%		93,387		10.0	%

2.1	Agreement and Plan of Reorganization and Merger dated as of March 10, 2021, by and between Plumas Bancorp and Feather River included as exhibit 2.1 to the Registrant’s 8-K filed on March 11, 2021, which is incorporated by this reference herein.

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.

4.1	Description of Securities of Plumas Bancorp Registered Under Section 12 of the Exchange Act, is included as Exhibit 4.1 to the Registrant's 10-K for December 31, 2019, which is incorporated by this reference herein.

10.1	Form of Stock Option Agreement Under Plumas Bancorp 2022 Equity Incentive Plan, is included as Exhibit 10.1 to the Registrant's 8-K filed on June 16, 2022, which is incorporated by this reference herein.

10.2	Form of Stock Option Agreement Under Plumas Bancorp 2022 Equity Incentive Plan with Post-Retirement Exercisability is included as Exhibit 10.2 to the Registrant's 8-K filed on June 16, 2022, which is incorporated by this reference herein.

10.3	Form of Restricted Stock Award Agreement Under Plumas Bancorp 2022 Equity Incentive Plan is included as Exhibit 10.3 to the Registrant's 8-K filed on June 16, 2022, which is incorporated by this reference herein

10.4	Plumas Bancorp 2022 Equity Incentive Plan (incorporated by reference to Appendix A to Plumas Bancorp’s Definitive Proxy Statement filed on March 28, 2022)

31.1*	Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated August 4. 2022.

31.2*	Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated August 4, 2022.

32.1*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 4, 2022.

32.2*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 4, 2022.

101.INS*	Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH*	Inline XBRL Taxonomy Extension Schema Document

101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*	Filed herewith

PLUMAS BANCORP
(Registrant)
Date: August 4, 2022
	/s/ *Richard L. Belstock*
	Richard L. Belstock
	Chief Financial Officer

	/s/ *Andrew J. Ryback*
	Andrew J. Ryback
	Director, President and Chief Executive Officer