UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| þ | | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 20052006
or
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| o | | Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file number: 000-49883
PLUMAS BANCORP
(Exact name of Registrant as specified in its charter)
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California
(State or other jurisdiction of
incorporation or organization) | | 75-2987096
(IRS Employer Identification No.) |
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35 S. Lindan Avenue, Quincy, CA
(Address of principal executive offices) | | 95971
(Zip Code) |
Registrant’s telephone number, including area code:(530) 283-7305
Securities to be registered pursuant to Section 12(b) of the Act:None.
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| Title of Each Class: | | Name of Each Exchange on which Registered: |
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| Common Stock, no par value | | The NASDAQ Stock Market LLC |
Securities to be registered pursuant to Section 12(g) of the Act:Common Stock, no par value.None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yesþ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o Yesþ No
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.
þ Yeso No
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.þo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act (check one):
Large Accelerated Filero Accelerated Filerþ Non-Accelerated Filero
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yesþ No
As of June 30, 2005,2006, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $80.5 million, based on the closing price reported to the Registrant on that date of $18.59$18.50 per share.
Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of the affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of Common Stock of the registrant outstanding as of March 10, 20069, 2007 was 4,997,618.4,997,321.
Documents Incorporated by Reference: Portions of the definitive proxy statement for the 20062007 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to SEC Regulation 14A are incorporated by reference in Part III, Items 10-14.
PART I
Forward-Looking Information
This Annual Report onForm 10-K includes forward-looking statements and information is subject to the “safe harbor” provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements (which involve Plumas Bancorp’s (the “Company’s”) plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:
| | •§ | | Competitive pressure in the banking industry, competition in the markets the Company operates in and changes in the legal, accounting and regulatory environment |
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| | •§ | | Changes in the interest rate environment and volatility of rate sensitive depositsassets and liabilities |
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| | •§ | | Declines in the health of the economy, nationally or regionally, which could reduce the demand for loans, reduce the ability of borrowers to repay loans and/or reduce the value of real estate collateral securing most of the Company’s loans |
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| | •§ | | Credit quality deterioration, which could cause an increase in the provision for loan and lease losses |
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| | •§ | | Devaluation of fixed income securities |
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| | •§ | | Asset/liability matching risks and liquidity risks |
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| | •§ | | Loss of key personnel |
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| | •§ | | Operational interruptions including data processing systems failure and fraud |
The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. For additional information concerning risks and uncertainties related to the Company and its operations, please refer to Management’s Discussion and AnalysisItem 1A of Financial Condition and Results of Operations in Item 7thisForm 10-K entitled “Risk Factors” and other information in this Report.
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ITEM 1. BUSINESS
General
The Company. Plumas Bancorp (the “Company”) is a California corporation registered as a bank holding company under theBank Holding Company Actof 1956, as amended, and is headquartered in Quincy, California. The Company was incorporated in January 2002 and acquired all of the outstanding shares of Plumas Bank (the “Bank”) in June 2002. The Company’s principal subsidiary is the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. At the present time, the Company’s only other subsidiaries are Plumas Statutory Trust I and Plumas Statutory Trust II, which were formed in 2002 and 2005 solely to facilitate the issuance of trust preferred securities.
The Company’s principal source of income is dividends from the Bank, but the Company intends to explore supplemental sources of income in the future. The cash outlays of the Company, including (but not limited to) the payment of dividends to shareholders, if and when declared by the Board of Directors, costs of repurchasing Company common stock, and the cost of servicing debt, will generally be paid from dividends paid to the Company by the Bank.
At December 31, 2005,2006, the Company had consolidated assets of $472.8$473.2 million, deposits of $426.6$402.2 million and shareholders’ equity of $31.1$35.8 million. The Company’s liabilities include $10.3 million in junior subordinated deferrable interest debentures issued in conjunction with the trust preferred securities issued by Plumas Statutory Trust I (the “Trust I”) in September 2002 and Plumas Statutory Trust II (the “Trust II”). Both Trust I and Trust II are further discussed in the section titled “Trust Preferred Securities.”
References herein to the “Company,” “we,” “us” and “our” refer to Plumas Bancorp and its consolidated subsidiary, unless the context indicates otherwise. Our operations are conducted at 35 South Lindan Avenue, Quincy, California. Our annual, quarterly and other reports, required under the Securities Exchange Act of 1934 and filed with the Securities and Exchange Commission and are posted and are available at no cost on the Company’s website,www.plumasbank.com, as soon as reasonably practicable after the Company files such documents with the SEC. These reports are also available through the SEC’s website atwww.sec.gov.
The Bank.The Bank is a California state-chartered bank that was incorporated in July 1980 and opened for business in December 1980. The Bank’s Administrative Office is also located at 35 South Lindan Avenue, Quincy, California. At December 31, 20052006 the Bank had approximately $472.2$472.7 million in assets, $321.6$354.7 million in loans and $429.0$403.0 million in deposits (including a deposit of $2.4$0.9 million from the Company)Bancorp). It is currently the largest independent bank headquartered in Plumas County. The Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to maximum insurable amounts. The Bank is not a member of the Federal Reserve System.
The Bank’s primary service area covers the Northeastern corner of California, with Lake Tahoe to the South and the Oregon border to the North. The Bank, through its twelve branch network, serves the seven contiguous counties of Plumas, Nevada, Sierra, Placer, Lassen, Modoc and Shasta. The branches are located in the communities of Quincy, Portola, Greenville, Westwood, Truckee, Fall River Mills, Alturas, Susanville, Chester, Tahoe City, Kings Beach and Loyalton. Additionally, within our service area, the Bank maintains sixteen automated teller machines (“ATMs”) tied in with major statewide and national networks. During the fourth quarter of 2006 the Bank opened a commercial lending office in Reno, Nevada. The Bank’s primary business is servicing the banking needs of these communities and itscommunities. Its marketing strategy stresses its local ownership and commitment to serve the banking needs of individuals living and working in the Bank’s primary service areas.
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With a predominant focus on personal service, the Bank has positioned itself as a multi-community independent bank serving the financial needs of individuals and businesses within the Bank’s geographic footprint. Our principal retail lending services include consumer, home equity and home mortgage loans. Our principal commercial lending services include term real estate, land development and construction
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loans. In addition, we provide commercial and industrial term, government-guaranteed and agricultural loans as well as credit lines.
The Bank’s Government-guaranteed lending center, headquartered in Truckee, provides Small Business Administration (SBA) lending and USDA Rural Development lending. The Bank produces 6-10 of both of these types of loans annually and it is anticipated that this will continue at the same level for the foreseeable future. Also in Truckee, we have a senior commercial lender charged with the production and maintenance of a significant participation loan portfolio. $35.1Participations with commitments totaling $22.3 million and outstanding balances of $20.5 million were purchased during 2006. Total participations of $41.7 and $30.7 million were included in new participations were acquired inthe Company’s loan portfolio as of December 31, 2006 and 2005.
The Agricultural Credit Centers located in Susanville and Alturas provide a complete line of credit services in support of the agricultural activities which are key to the continued economic development of the communities we serve. “Ag lending” clients include a full range of individual farming customers, small- to medium-sized business farming organizations and corporate farming units.
As of December 31, 2005,2006, the principal areas in which we directed our lending activities, and the percentage of our total loan portfolio for which each of these areas was responsible, were as follows: (i) loans secured by real estate – 51.9%54.2%; (ii) commercial and industrial (including SBA) loans – 13.1%10.2%; (iii) consumer loans (including residential equity lines of credit) – 25.3%25.6%; and (iv) agricultural loans (including agricultural real estate loans) – 9.7%10.0%.
In addition to the lending activities noted above, we offer a wide range of deposit products for the retail and commercial banking markets including checking, interest-bearing checking, business sweep, savings, time deposit and retirement accounts, as well as telephone banking and internet banking with bill-pay options. As of December 31, 2005,2006, the Bank had 34,304 deposit accounts with balances totaling approximately $403 million, compared to 34,596 deposit accounts with balances totaling approximately $429.0 million compared to 34,969 deposit accounts with balances totaling approximately $378.6 million at December 31, 2004.2005. We attract deposits through our customer-oriented product mix, competitive pricing, convenient locations, extended hours and drive-up banking, all provided with the highesthigh level of customer service. During September 2005 the Bank introduced its Money Fund Plu$ checking account. This account is intended to pay rates comparable to those available on a money fund offered by a typical brokerage firm. Since its introduction this product has been very successful in generating interest bearing checking deposits. Money Fund Plu$ balances increased by $21.6 million in 2006 and balances totaled $42.9 million at December 31, 2006.
Most of our deposits are attracted from individuals, business-related sources and smaller municipal entities. This mix of deposit customers resulted in a relatively modest average deposit balance of approximately $12,400$11,750 at December 31, 2005,2006, but makes us less vulnerable to adverse effects from the loss of depositors who may be seeking higher yields in other markets or who may otherwise draw down balances for cash needs. We do not accept brokered deposits.
We also offer a multitude of other products and services to our customers to complement the lending and deposit services previously reviewed. These include cashier’s checks, traveler’s checks, bank-by-mail, ATMs, night depository, safe deposit boxes, direct deposit, electronic funds transfers, on-line banking, and other customary banking services.
In order to provide non-deposit investment options we have developed a strategic alliance with Financial Network Investment Corporation (“FNIC”). Through this arrangement, certain employees of the Bank are also registered and licensed representatives of FNIC. These employees provide our customers throughout our branch network with convenient access to annuities, insurance products, mutual funds, and a full range of investment products.
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We haveThe Bank has not engaged in any material research activities relating to the development of new products or services during the last two fiscal years; however, a substantial investment of time and capital has been devoted to the improvement of existing Bank services during the last twelve months.this period. In January of 2005, the bankBank introduced a single close construction/permanent residential loan product. This provided the customer with the ability to obtain a construction and permanent loan on their residence with only one application, one set of loan documents and a fixed rate for the entire term. This product has become very popular with loan originations of over $17 million during 2006 and with current enhancements, should generate aoutstanding loans totaling $9.7 million at December 31, 2006. During 2006 the Bank introduced an equity line of credit product secured by investment or commercial property, including improved or unimproved lots. Although this product has generated some interest among the Bank’s customers, it has not generated significant amount of new loans in 2006.loan balances to date. Loans balances at December 31, 2006 related to this product totaled $193,000.
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The officers and employees of the Bank are continually engaged in marketing activities, including the evaluation and development of new products and services to enable the Bank to retain and improve its competitive position in its service area. Alternatives for future electronic banking delivery are currently being examined in an effort to keep pace with evolving technology and continue to provide superior customer service.
We hold no patents or licenses (other than licenses required by appropriate bank regulatory agencies)agencies or local governments), franchises, or concessions. Our business has a modest seasonal component due to the heavy agricultural and tourism orientation of some of the communities we serve. As our branches in less rural areas such as Truckee have expanded, however, the agriculture-related base has become less significant. We are not dependent on a single customer or group of related customers for a material portion of our deposits, nor is a material portion of our loans concentrated within a single industry or group of related industries. There has been no material effect upon our capital expenditures, earnings, or competitive position as a result of Federal,federal, state, or local environmental regulation.
Commitment to our Communities.The Board of Directors and Management believe that the Company plays an important role in the economic well being of the communities it serves. Our Bank has a continuing responsibility to provide a wide range of lending and deposit services to both individuals and businesses. These services are tailored to meet the needs of the communities served by the Company and the Bank.
We offer various loan products which promote home ownership and affordable housing, fuel job growth and support community economic development. Types of loans offered range from personal and commercial loans to real estate, construction, agricultural, mortgage and government-guaranteed community infrastructure loans. Many banking decisions are made locally with the goal of maintaining customer satisfaction.
Recent Developments.In NovemberDuring October of 2003,2006 we expanded into Placer County with the opening of our de novo branchopen a commercial lending office in the community of Tahoe City. Also in November 2003, we increased our deposit base by $45 million within our service area through the acquisition of five branches from a competitor. The branch acquisition involved the purchase of deposits and certain fixed and other assets related to the branches located in the communities of Kings Beach, Loyalton, Portola, Quincy and Truckee. The deposits of the Portola, Quincy and Truckee branches were consolidated into our existing branches in those communities while the Kings Beach and Loyalton offices were added to our existing branch network.Reno, Nevada.
Trust Preferred Securities.During the third quarter of 2002, the Company formed a wholly owned Connecticut statutory business trust, Plumas Statutory Trust I (the “Trust I”). On September 26, 2002, the Company issued to the Trust I, Floating Rate Junior Subordinated Deferrable Interest Debentures due 2032 (the “Debentures”) in the aggregate principal amount of $6,186,000. In exchange for these debentures the Trust I paid the Company $6,186,000. The Trust I funded its purchase of debentures by issuing $6,000,000 in floating rate capital securities (“trust preferred securities”), which were sold to a third party. These trust preferred securities qualify as Tier I capital under current Federal Reserve Board guidelines. The Debentures are the only asset of the Trust I. The interest rate and terms on both instruments are substantially the same. The rate is based on the three month LIBOR (London Interbank Offered Rate) plus 3.40%, not to exceed 11.9%, adjustable quarterly. The proceeds from the sale of the Debentures were primarily used by the Company to inject capital into the Bank.
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During the third quarter of 2005, the Company formed a wholly owned Connecticut statutory business trust, Plumas Statutory Trust II (the “Trust II”). On September 28, 2005, the Company issued to the Trust II, Floating Rate Junior Subordinated Deferrable Interest Debentures due 2035 (the “Debentures”) in the aggregate principal amount of $4,124,000. In exchange for these debentures the Trust II paid the Company $4,124,000. The Trust II funded its purchase of debentures by issuing $4,000,000 in floating rate capital securities (“trust preferred securities”), which were sold to a third party. These trust preferred securities qualify as Tier I capital under current Federal Reserve Board guidelines. The Debentures are the only asset
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of the Trust II. The interest rate and terms on both instruments are substantially the same. The rate is based on the three month LIBOR (London Interbank Offered Rate) plus 1.48%, adjustable quarterly. The proceeds from the sale of the Debentures were primarily used by the Company to inject capital into the Bank.
The Debentures and trust preferred securities accrue and pay distributions quarterly based on the floating rate described above on the stated liquidation value of $1,000 per security. The Company has entered into contractual agreements which, taken collectively, fully and unconditionally guarantee payment of: (1) accrued and unpaid distributions required to be paid on the capital securities; (2) the redemption price with respect to any capital securities called for redemption by either Trust I or Trust II, and (3) payments due upon voluntary or involuntary dissolution, winding up, or liquidation of either Trust I or Trust II.
The trust preferred securities are mandatorily redeemable upon maturity of the Debentures on September 26, 2032 for Trust I and September 28, 2035 for Trust II, or upon earlier redemption as provided in the indenture.
Neither Trust I nor Trust II are consolidated into the Company’s consolidated financial statements and, accordingly, both entities are accounted for under the equity method and the junior subordinated debentures are reflected as debt on the consolidated balance sheet.
Business Concentrations.No individual or single group of related customer accounts is considered material in relation to the Banks’ assets or deposits, or in relation to our overall business. However, at December 31, 20052006 approximately 66.3%64% of the Bank’s total loan portfolio consisted of real estate-secured loans, including real estate mortgage loans, real estate construction loans, consumer equity lines of credit, and agricultural loans secured by real estate. Moreover, our business activities are currently focused in the California counties of Plumas, Nevada, Placer, Lassen, Modoc, Shasta and Sierra.Sierra and Washoe County in Nevada. Consequently, our results of operations and financial condition are dependent upon the general trends in these California economies and, in particular, the residential and commercial real estate markets. In addition, the concentration of our operations in these areas of California and Nevada exposes us 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 in California.California and Nevada.
Competition. With respect to commercial bank competitors, the business is largely dominated by a relatively small number of major banks with many offices operating over a wide geographical area. These banks have, among other advantages, the ability to finance wide-ranging and effective advertising campaigns and to allocate their resources to regions of highest yield and demand. Many of the major banks operating in the area offer certain services that we do not offer directly but may offer indirectly through correspondent institutions. By virtue of their greater total capitalization, such banks also have substantially higher lending limits than we do. For customers whose loan demands exceed our legal lending limit, we attempt to arrange for such loans on a participation basis with correspondent banks.
In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking institutions such as finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms. In recent years, increased competition has also developed from specialized
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finance and non-finance companies that offer wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal financial software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are offered to customers. Mergers between financial institutions have placed additional pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive. Competition has also intensified due to federal and state interstate banking laws enacted in the mid-1990’s, which permit banking organizations to expand into other states, and the relatively large California market has been particularly attractive to out-of-state institutions. The Financial Modernization Act, which became effective March 11, 2000, has made it possible for full affiliations to occur between banks and securities firms, insurance companies, and other financial companies, and has also intensified competitive conditions.
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Currently, within the Bank’s branch service area there are 23 traditional banking branch offices of competing institutions, including 19 branches of 4 major banks. As of June 30, 2005,2006, the Federal Deposit Insurance Corporation estimated the Bank’s market share of insured deposits within the communities it serves to be as follows: Chester 72%71%, Quincy 66%, Portola 50%49%, Susanville 40%, Alturas 37%38%, Kings Beach 30%31%, Truckee 20%, Fall River Mills/Burney 29%, Truckee 15%20%, Tahoe City 3% and 100% in the communities of Greenville, Westwood and Loyalton. Tahoe City is the location of our most recently opened branch, which opened its doors in November 2003.
Technological innovations have also resulted in increased competition in financial services markets. Such innovation has, for example, made it possible for non-depository institutions to offer customers automated transfer payment services that previously were considered traditional banking products. In addition, many customers now expect a choice of delivery systems and channels, including telephone, mail, home computer, ATMs, full-service branches, and/or in-store branches. The sources of competition in such products include traditional banks as well as savings associations, credit unions, brokerage firms, money market and other mutual funds, asset management groups, finance and insurance companies, internet-only financial intermediaries, and mortgage banking firms.
For many years we have countered rising competition by providing our own style of community-oriented, personalized service. We rely on local promotional activity, personal contacts by our officers, directors, employees, and shareholders, automated 24-hour banking, and the individualized service that we can provide through our flexible policies. This appears to be well-received by our customers throughout our service area, who appreciate a more personal and customer-oriented environment in which to conduct their financial transactions. We have also embraced the electronic age and installed telephone banking and personal computer and internet banking with bill payment capabilities to meet the needs of customers with electronic access requirements. This high tech and high touch approach allows the customers to customize their access to our services based on their particular preference.
Employees.At December 31, 2005,2006, the Company and its subsidiary employed 200205 persons. On a full-time equivalent basis, we employed 178181 persons. We believe our employee relations are excellent.
Supervision and Regulation
The Company.As a bank holding company, we are subject to regulation under the Bank Holding Company Act of 1956, as amended, (the “BHCA”), and are registered with and subject to the supervision of the Federal Reserve Bank (the “FRB”). It is the policy of the FRB, that each bank holding company serve as a source of financial and managerial strength to its subsidiary banks. We are required to file reports with the FRB and provide such additional information as the FRB may require. The FRB has the authority to examine us and our subsidiary, as well as any arrangements between us and our subsidiary, with the cost of any such examination to be borne by us.
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The BHCA requires us to obtain the prior approval of the FRB before acquisition of all or substantially all of the assets of any bank or ownership or control of the voting shares of any bank if, after giving effect to the acquisition, we would own or control, directly or indirectly, more than 5% of the voting shares of that bank. Amendments to the BHCA expand the circumstances under which a bank holding company may acquire control of or all or substantially all of the assets of a bank located outside the State of California.
We may not engage in any business other than managing or controlling banks or furnishing services to our subsidiary, with the exception of certain activities which, in the opinion of the FRB, are so closely related to banking or to managing or controlling banks as to be incidental to banking. In addition, we are generally prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company unless that company is engaged in such authorized activities and the Federal Reserve approves the acquisition.
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We and our subsidiary are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or provision of services. For example, with certain exceptions, the bank may not condition an extension of credit on a customer obtaining other services provided by us, the bank or any other subsidiary of ours, or on a promise by the customer not to obtain other services from a competitor. In addition, federal law imposes certain restrictions on transactions between the bank and its affiliates. As affiliates, the bank and we are subject, with certain exceptions, to the provisions of federal law imposing limitations on and requiring collateral for extensions of credit by the bank to any affiliate.
The Bank.As a California state-chartered bank that is not a member of the Federal Reserve, Plumas Bank is subject to primary supervision, examination and regulation by the FDIC, the California Department of Financial Institutions (the “DFI”) and is subject to applicable regulations of the FRB. The Bank’s deposits are insured by the FDIC to applicable limits. As a consequence of the extensive regulation of commercial banking activities in California and the United States, banks are particularly susceptible to changes in California and federal legislation and regulations, which may have the effect of increasing the cost of doing business, limiting permissible activities or increasing competition.
Various other requirements and restrictions under the laws of the United States and the State of California affect the operations of the Bank. Federal and California statutes and regulations relate to many aspects of the Bank’s operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, branching, capital requirements and disclosure obligations to depositors and borrowers. California law presently permits a bank to locate a branch office in any locality in the state. Additionally, California law exempts banks from California usury laws.
Capital Standards.The FRB and the FDIC have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of credit and recourse arrangements, which are reported as off-balance-sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment percentages, which range from 0.0%0% for assets with low credit risk, such as certain U.S. government securities, to 100.0%100% for assets with relatively higher credit risk, such as business loans.
A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off-balance-sheet items. The regulators measure risk-adjusted assets and off-balance-sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock and minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for loan and lease losses and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. Since
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December 31, 1992, the FRB and the FDIC have required a minimum ratio of qualifying total capital to risk-adjusted assets and off-balance-sheet items of 8.0%8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off-balance-sheet items of 4.0%4%.
In addition to the risk-based guidelines, the FRB and FDIC require banking organizations to maintain a minimum amount of Tier 1 capital to average total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3.0%3%. It is improbable, however, that an institution with a
3.0%3% leverage ratio would receive the highest rating by the regulators since a strong capital position is a significant part of the regulators’ ratings. For all banking organizations not rated in the highest category, the minimum leverage ratio is at least 100 to 200 basis points above the
3.0%3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, is at least
4.0%4% or
5.0%5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the FRB
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and FDIC have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
A bank that does not achieve and maintain the required capital levels may be issued a capital directive by the FDIC to ensure the maintenance of required capital levels. As discussed above, we are required to maintain certain levels of capital, as is the Bank. The regulatory capital guidelines as well as our actual capitalization on a consolidated basis and for the Bank and Bancorp as of December 31, 20052006 follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Requirement | | | | | | Requirement for the | | | | |
| | | For the Bank to | | | | | | Bank to be: | | | | |
| | | Adequately | | be Well | | Plumas | | Plumas | | Adequately | | Well | | Plumas | | Plumas |
| | | Capitalized | | Capitalized | | Bank | | Bancorp | | Capitalized | | Capitalized | | Bank | | Bancorp |
| | | | | |
| Tier 1 leverage capital ratio | | | | 4.0 | % | | | 5.0 | % | | | 9.3 | % | | | 9.5 | % |
| Tier 1 risk-based capital ratio | | | | 4.0 | % | | | 6.0 | % | | | 10.6 | % | | | 10.9 | % |
| Total risk-based capital ratio | | | 8.0 | % | | | 10.0 | % | | | 10.4 | % | | | 11.1 | % | | | 8.0 | % | | | 10.0 | % | | | 11.6 | % | | | 11.8 | % |
| Tier 1 risk-based capital ratio | | | 4.0 | % | | | 6.0 | % | | | 9.6 | % | | | 10.3 | % | |
| Tier 1 leverage capital ratio | | | 4.0 | % | | | 5.0 | % | | | 7.8 | % | | | 8.5 | % | |
Prompt Corrective Action.Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including those institutions that fall below one or more prescribed minimum capital ratios described above. An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions.
In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. Additionally, a holding company’s inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company.
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Premiums for Deposit Insurance.Through the Bank Insurance Fund,The deposit insurance fund or BIF,DIF of the FDIC insures our customer deposits up to prescribed limits for each depositor. The amountFederal Deposit Insurance Reform Act of 2005 and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 amended the insurance of deposits by the FDIC and collection of assessments paid by each BIF member institution is basedfrom insured depository institutions for deposit insurance. Passed on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically,such amendments enacted, the FDIC approved a final rule to determine risk-based assessment rates on November 2, 2006. An insured depository institution’s assessment rate under the final rule is based on the institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.
The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease thenew assessment rate schedule,
on a semi-annual basis. Due to continued growth in depositsits long-term debt issuer ratings or recent financial ratios and
some recent bank failures, the BIF is nearing its minimum ratio of 1.25% of insured deposits as mandated by law. If the ratio drops below 1.25%, it is likely the FDIC will be required to assess premiums on all banks.supervisory ratings. Any increase in assessments or the assessment rate could have a material adverse
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effect on our business, financial condition, results of operations or cash flows, depending on the amount of the increase. Furthermore, the FDIC is authorized to raise insurance premiums under certain circumstances.
The FDIC is authorized to terminate a depository institution’s deposit insurance upon a finding by the FDIC that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit insurance for the bank would have a material adverse effect on our business, financial condition, results of operations or cash flows.
All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO bonds, were issued to capitalize the Federal Savings and Loan Insurance Corporation. The FDIC established the FICO assessment rates effective for the second half of 2005 at approximately 1.34 cents for each $100 of assessable deposits. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC’s insurance funds and do not vary depending on a depository institution’s capitalization or supervisory evaluations.
Federal Home Loan Bank System.The Bank is a member of the Federal Home Loan Bank of San Francisco (the “FHLB-SF”). Among other benefits, each Federal Home Loan Bank (“FHLB”), serves as a reserve or central bank for its members within its assigned region. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB. A new capital plan of the FHLB-SF was approved and implemented by the Federal Housing Finance Board on April 1, 2004. The new capital plan incorporates a single class of stock with a par value of $100 per share, and may be issued, exchanged, redeemed, and repurchased only at par value. As an FHLB member, the bank is required to own capital stock in an FHLB in an amount equal to the greater of:
| | •§ | | a membership stock requirement with an initial cap of $25 million (100% of “membership asset value” as defined), or |
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| | •§ | | an activity based stock requirement (based on percentage of outstanding advances). |
The new capital stock is redeemable on five years’years written notice, subject to certain conditions.
In April 2005 the Bank was required to purchase an additional 12,810 shares, or $1,281,000, of capital stock under the FHLB-SF’s new capital plan. At December 31, 20052006 the Bank owned 20,00021,034 shares of the FHLB-SF capital stock. We do not believe that the FHLB-SF’s new capital plan had a material impact upon our business, financial condition, results of operations or cash flows.
Federal Reserve System.The FRB requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts and non-personal time deposits. At December 31, 2005,2006, we were in compliance with these requirements.
Impact of Monetary Policies.The earnings and growth of the Company are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment. The earnings of the Company are affected not only by general economic conditions but also by the monetary and fiscal policies of the United States and federal agencies, particularly the FRB. The FRB can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in United States Government securities and by its control of the discount rates applicable to borrowings by banks from the FRB. The actions of the FRB in these areas influence the growth of bank loans and leases, investments and deposits and affect the interest rates charged on loans and leases and paid on deposits. The FRB’s policies have had a significant effect on the operating results of commercial banks
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and are expected to continue to do so in the future. The nature and timing of any future changes in monetary policies are not predictable.
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Extensions of Credit to Insiders and Transactions with Affiliates.TheFederal Reserve Actand FRBRegulation Oplace limitations and conditions on loans or extensions of credit to:
| | •§ | | a bank’s or bank holding company’s executive officers, directors and principal shareholders (i.e., in most cases, those persons who own, control or have power to vote more than 10% of any class of voting securities), |
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| | •§ | | any company controlled by any such executive officer, director or shareholder, or |
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| | •§ | | any political or campaign committee controlled by such executive officer, director or principal shareholder. |
Loans and leases extended to any of the above persons must comply with loan-to-one-borrower limits, require prior full board approval when aggregate extensions of credit to the person exceed specified amounts, must be made on substantially the same terms (including interest rates and collateral) as, and follow credit-underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with non-insiders, and must not involve more than the normal risk of repayment or present other unfavorable features. In addition, Regulation O provides that the aggregate limit on extensions of credit to all insiders of a bank as a group cannot exceed the bank’s unimpaired capital and unimpaired surplus. Regulation O also prohibits a bank from paying an overdraft on an account of an executive officer or director, except pursuant to a written pre-authorized interest-bearing extension of credit plan that specifies a method of repayment or a written pre-authorized transfer of funds from another account of the officer or director at the bank.
Consumer Protection Laws and Regulations.The banking regulatory agencies are focusing greater attention on compliance with consumer protection laws and their implementing regulations. Examination and enforcement have become more intense in nature, and insured institutions have been advised to monitor carefully compliance with such laws and regulations. The Company is subject to many federal and state consumer protection and privacy statutes and regulations, some of which are discussed below.
TheCommunity Reinvestment Act(the “CRA”) is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities. The CRA specifically directs the federal regulatory agencies, in examining insured depository institutions, to assess a bank’s record of helping meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices. The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or holding company formations. formations.The agencies use the CRA assessment factors in order to provide a rating to the financial institution. The ratings range from a high of “outstanding” to a low of “substantial noncompliance.” In its last examination for CRA compliance, as of August 2005, the Bank was rated “satisfactory.”
TheEqual Credit Opportunity Act(the “ECOA”) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
TheTruth in Lending Act(the “TILA”) is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the TILA, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule, among other things.
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The
Fair Housing Act(the “FH Act”) regulates many practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion,
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national origin, sex, handicap or familial status. A number of lending practices have been found by the courts to be, or may be considered, illegal under the FH Act, including some that are not specifically mentioned in the FH Act itself.
TheHome Mortgage Disclosure Act(the “HMDA”), in response to public concern over credit shortages in certain urban neighborhoods, requires public disclosure of information that shows whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The HMDA also includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.
TheRight to Financial Privacy Act(the “RFPA”) imposes a new requirement for financial institutions to provide new privacy protections to consumers. Financial institutions must provide disclosures to consumers of its privacy policy, and state the rights of consumers to direct their financial institution not to share their nonpublic personal information with third parties.
Finally, theReal Estate Settlement Procedures Act(the “RESPA”) requires lenders to provide noncommercial borrowers with disclosures regarding the nature and cost of real estate settlements. Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts.
Penalties for noncompliance or violations under the above laws may include fines, reimbursement and other penalties. Due to heightened regulatory concern related to compliance with CRA, ECOA, TILA, FH Act, HMDA, RFPA and RESPA generally, the Company may incur additional compliance costs or be required to expend additional funds for investments in its local community.
Recent Legislation and Other Changes.Federal and state laws affecting banking are enacted from time to time, and similarly federal and state regulations affecting banking are also adopted from time to time. The following include some of the recent laws and regulations affecting banking.
On February 8, 2006, the President signed The Federal Reserve Board in NovemberDeposit Insurance Reform Act of 2005 approved amendments(the Reform Act) into law. The Federal Deposit Insurance Reform Conforming Amendments Act of 2005, which the President signed into law on February 15, 2006, contains necessary technical and conforming changes to Regulation CC that define “remotely created checks”implement deposit insurance reform, as well as a number of study and create transfer and presentment warranties that shift liabilitysurvey requirements. The Reform Act provides for an unauthorized remotely created check to the institution where it is first deposited. In place of a signature, a remotely created check generally bears a statement that the customer authorized the check or bears the customer’s printed or typed name, such as when a debtor authorizes a credit card company to create a remotely created check by telephone so that the debtor may pay a credit card bill in a timely manner. Since the remotely created checks are vulnerable to fraud Regulation CC creates transfer and presentment warranties under which any bank that transfers or presents a remotely created check would warrant that the check is authorized by the person on whose account the check is drawn. The warranties would apply only to banks and would ultimately shift liability for losses attributable to an unauthorized remotely created check to the depositary bank. These amendments would not affect the rights of checking account customers, as they are not liable for unauthorized checks drawn on their accounts. The amendments to Regulation CC become effective on July 1, 2006
On August 2, 2005, the OCC, FDIC, and the Board of Governors of the Federal Reserve System adopted a final rule to revise their CRA regulations. The effective date of the final rule is September 1, 2005. Major points of the final rule include:following changes:
| | • | | increasingMerging the asset-size threshold forBank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into a “small bank” to $1 billion. Small banks are not subject to certain data collection and reporting requirements and are eligible for evaluation undernew fund, the small bank lending test.Deposit Insurance Fund (DIF). This change was made effective March 31, 2006. |
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| | • | | creatingIncreasing the coverage limit for retirement accounts to $250,000 and indexing the coverage limit for retirement accounts to inflation as with the general deposit insurance coverage limit. This change was made effective April 1, 2006. |
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| • | | Establishing a new categoryrange of “intermediate small banks” for purposes1.15 percent to 1.50 percent within which the FDIC Board of evaluation underDirectors may set the CRA. Intermediate small banks are those withDesignated Reserve Ratio (DRR). |
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| • | | Allowing the FDIC to manage the pace at least $250 million but less than $1 billion in assets.which the reserve ratio varies within this range. |
| 1. | | If the reserve ratio falls below 1.15 percent—or is expected to within 6 months—the FDIC must adopt a restoration plan that provides that the DIF will return to 1.15 percent generally within 5 years. |
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| 2. | | If the reserve ratio exceeds 1.35 percent, the FDIC must generally dividend to DIF members half of the amount above the amount necessary to maintain the DIF at 1.35 percent, unless the FDIC Board, considering statutory factors, suspends the dividends. |
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| | 3. | | If the reserve ratio exceeds 1.5 percent, the FDIC must generally dividend to DIF members all amounts above the amount necessary to maintain the DIF at 1.5 percent. |
| • | | The overall CRA rating for an intermediate small bank will beEliminating the restrictions on premium rates based both on the rating fromDRR and granting the small bank lending test andFDIC Board the rating from a new community development test.discretion to price deposit insurance according to risk for all insured institutions regardless of the level of the reserve ratio. |
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| | • | | RevisingGranting a one-time initial assessment credit (of approximately $4.7 billion) to recognize institutions’ past contributions to the definition of “community development” to increase the number and kinds of rural tracts in which bank activities are eligible for community development consideration. |
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| • | | Revising the regulation to address the impact on a bank’s CRA rating of evidence of discrimination or other illegal credit practices.fund. |
In May 2005, the FRB adoptedThe Federal Reserve Board in February 2006 approved a final rule to amend Regulation DDthat expands the definition of a small bank holding company under its Small Bank Holding Company Policy Statement and the Board’s risk-based and leverage capital guidelines for bank holding companies. The policy statement facilitates the transfer of ownership of small community banks by permitting debt levels at small bank holding companies that are higher than what would typically be permitted for larger small bank holding companies. In its revisions to the Policy Statement, the Federal Reserve Board has raised the small bank holding company asset size threshold from $150 million to $500 million and amended the related qualitative criteria for determining eligibility as a small bank holding company for the purposes of the policy statement and the capital guidelines.
The FDIC finalized its interim final rule, with changes, that amended its deposit insurance regulations to implement applicable revisions to the Federal Deposit Insurance Act made by the Federal Deposit Insurance Reform Act of 2005 and the Federal Deposit Insurance Reform Conforming Amendments Act of 2005. The final rule provides for consideration of inflation adjustments to increase the current standard maximum deposit insurance amount of $100,000 on a five-year cycle beginning in 2010; increases the deposit insurance limit for certain retirement accounts from $100,000 to $250,000, also subject to inflation adjustments; and provides per-participant insurance coverage to employee benefit plan accounts, even if the depository institution at which the deposits are placed is not authorized to accept employee benefit plan deposits. The final rule is effective on October 12, 2006.
The Board of Governors of the Federal Reserve System amended Regulation E, which implements the Electronic Fund Transfer Act, and the official staff interpretations,commentary to improve the uniformity and adequacyregulation, which interprets the requirements of informationRegulation E to consumers about certain services provided by banks to their deposit customers. These services are commonly referred to as “bounced-check protection” or “courtesy overdraft protection” services (overdraft services). These amendments become effective on July 1, 2006. These amendments require banks to disclose information about overdraft fees on periodic statements and account-opening disclosures, and to include certain disclosures in advertisements for overdraft services. Regulation DD generally requires that banks disclose the amount of any fee that may be imposed in connection with the account and the conditions under which a fee may be imposed. The final rule amends the official staff interpretations to state that, in satisfying this requirement with respect to fees for overdraft services, a bank must specify the categories of transactions for which an overdraft fee may be imposed.
The Federal Reserve Board issued a final rule on March 1, 2005 that amends Regulation H and Regulation Y to limit restricted core capital elements (including trust preferred securities) which count as Tier 1 capital to 25 percent of all core capital elements, net of goodwill less any associated deferred tax liability. Internationally active bank holding companies, defined as those with consolidated assets greater than $250 billion or on-balance-sheet foreign exposure greater than $10 billion, will be subject to a 15 percent limit, but they may include qualifying mandatory convertible preferred securities up to the generally applicable 25 percent limit. Amounts of restricted core capital elements in excess of these limits generally may be included in Tier 2 capital. The final rule provides a five-year transition period, ending March 31, 2009, for applicationthat Regulation E covers payroll card accounts that are established directly or indirectly through an employer, and to which transfers of the quantitative limits.consumer’s salary, wages, or other employee compensation are made on a recurring basis. The final rule also provides financial institutions with an alternative to providing periodic statements for payroll card accounts if they make account information available to consumers by specified means.
California Senate Bill 1 createdThe federal financial regulatory agencies in September 2006 issued final guidance to address the California Financial Information Privacy Act which became effective on July 1, 2004risks posed by nontraditional residential mortgage products that allow borrowers to provide greater privacy protections thandefer repayment of principal and sometimes interest, including “interest-only” mortgages and “payment option” adjustable-rate mortgages. These products allow borrowers to exchange lower payments during an initial period for higher payments later. The lack of principal amortization and the potential for negative amortization and features that compound risks (such as no document loans and simultaneous second mortgages) elevate the concern of the federal Gramm-Leach-Bliley Act. Codifiedbanking agencies for nontraditional mortgage products. The guidelines require depository institutions to ensure that loan terms and underwriting standards are consistent with prudent lending practices, including consideration of a borrower’s repayment capacity, to recognize that many nontraditional mortgage loans, particularly when they have risk-layering features, are untested in California Financial Code section 4050 -4060,a stressed environment. The guidelines also express the law prohibits financialneed for depository institutions from sharing or selling personally identifiable nonpublic information without obtaining a consumer’s consent, as provided. It providesto have strong risk management standards, capital levels commensurate with the risk, an allowance for a plain-language noticeloan and lease losses that reflects the collectibility of the privacy rights it confers. The law requiresportfolio, and the need to make sure that (1)consumers have sufficient information to clearly understand loan terms and associated risks prior to making a consumer must “opt in” before a financial institution may share personal information with an unaffiliated third party, (2) consumers be given an opportunity to “opt out” of sharing with a financial institution’s financial marketing partners, and (3) consumers be given the opportunity to “opt out” of sharing with a financial institution’s affiliates, with some exceptions. When an affiliate is wholly owned, in the same line of business, subject to the same functional regulator and operates under the same brand name, an institution may share its customers’ personal information with the affiliate without providing an opt-out right. A recent federal district court decision has enjoined the enforcement of the affiliate sharing provisions of the California Financial Privacy Act.
The Sarbanes-Oxley Act (“SOX”) was adopted in 2002 for the stated purpose to increase corporate responsibility, enhance penalties for accounting and auditing improprieties at publicly traded companies, and protect investors by improving the accuracy and reliability of corporate disclosures. SOX amends the Securities Act of 1934 and contains far-reaching securities legislation. SOX includes very specific additional disclosure requirements and new corporate governance rules, requires the Securities and Exchange Commission (the “SEC”) to adopt extensive additional disclosure, corporate governance and other related rules. Among its provisions, SOX subjects bonuses issued to top executives to disgorgement if a subsequent restatement of a company’s financial statements was due to corporate misconduct, prohibits an officerproduct or director from misleading or coercing an auditor, prohibits insider trades during pension fund “blackout periods,” imposes new criminal penalties for fraud and other wrongful acts and extends the period during which certain securities fraud lawsuits can be brought against a company or its officers.payment choice.
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SOX represents significantThe federal involvementfinancial regulatory agencies in matters traditionally leftDecember 2006 issued a new interagency policy statement on the allowance for loan and lease losses (ALLL) along with supplemental frequently asked questions. The policy statement revises and replaces a 1993 policy statement on the ALLL. The agencies issued the revised policy statement in view of today’s uncertain economic environment and the presence of concentrations in untested loan products in the loan portfolios of insured depository institutions. The policy statement has also been revised to state regulatory systems, such asconform with generally accepted accounting principles (GAAP) and post-1993 supervisory guidance. The 1993 policy statement described the regulationresponsibilities of the accounting profession, and to state corporate law, such as the relationship between a boardboards of directors, and management, and betweenbanking examiners regarding the ALLL; factors to be considered in the estimation of the ALLL; and the objectives and elements of an effective loan review system, including a boardsound credit grading system. The policy statement reiterates that each institution has a responsibility for developing, maintaining and documenting a comprehensive, systematic, and consistently applied process appropriate to its size and the nature, scope, and risk of directorsits lending activities for determining the amounts of the ALLL and its committees. the provision for loan and lease losses and states that each institution should ensure controls are in place to consistently determine the ALLL in accordance with GAAP, the institution’s stated policies and procedures, management’s best judgment and relevant supervisory guidance.
The policy statement also restates that insured depository institutions must maintain an ALLL at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio, and that estimates of credit losses should reflect consideration of all significant factors that affect the collectibility of the portfolio as of the evaluation date. The policy statement states that prudent, conservative, but not excessive, loan loss allowances that represent management’s best estimate from within an acceptable range of estimated losses are appropriate.
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation in December 2006 issued final guidance on sound risk management practices for concentrations in commercial real estate lending. The agencies observed that the commercial real estate is an area in which some banks are becoming increasingly concentrated, especially with small- to medium- sized banks that face strong competition in their other business lines. The agencies support banks serving a vital role in their communities by supplying credit for business and real estate development. However, the agencies are concerned that rising commercial real estate loan concentrations may expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in commercial real estate markets. The guidance provides supervisory criteria, including numerical indicators to assist in identifying institutions with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny, but such criteria are not limits on commercial real estate lending.
In addition,California, effective January 1, 2007, a new law Financial Code Section 854.1 recognizes the federal banking regulatory authorities have adopted requirements concerningability of mortgage brokers to obtain the certificationbenefit of financial statements by bank officials that are generally similarnon interest-bearing accounts on trust funds deposited in a “commercial bank.” The provision applies to requirements under SOX.
Specifically, SOX prohibits a registered public accounting firm from performing specified nonauditreal estate brokers who collect payments or provide services contemporaneouslyin connection with a mandatory auditloan secured by a lien on real property and vestspermits a mortgage broker to earn interest on an interest-bearing account at a financial institution. Interest on funds received by a real estate broker who collects payments or provides services for an “institutional investor” in connection with a loan secured by commercial real property may inure to the audit committeebroker, if agreed to in writing by the broker and the institutional investor. For purposes of an issuerthis law, commercial real property means real estate improved with responsibilityother than a one-to-four family residence.
A new California law makes it easier for California banks to accept deposits from local government agencies. Under the appointment, compensation, and oversight of any registered public accounting firm employed to perform audit services. SOX also requires each committee memberold law, local agency deposits over $100,000 had to be a member of the board of directors of the issuer, and to be otherwise independent. SOX further requires the chief executive officer and chief financial officer of an issuer to make certain certifications as to each annual or quarterly report filed with the SEC.secured by collateral. Pursuant to the mandateenactment of Assembly Bill 2011, banks would be able to acquire surplus public deposits exceeding $100,000 without pledging collateral if they participate in SOX,a deposit placement service where excess amounts are placed in certificates of deposit at other institutions within a network. Such a network (of which currently there is only one available in the SEC has adopted various rules, including rulesmarket) permits the entire amount of a customer’s deposit to require reporting companies to adopt a code of ethics for its senior financial officers, disclosure of all material off-balance sheet transactions and relationships that may have a material effect upon the financial status of an issuerbe FDIC-insured, and the presentation of pro forma financial information in a manner that is not misleading, and which is reconcilable withbank taking the financial conditionoriginal deposit retains the benefit of the issuer under generally accepted accounting principles.full amount of the
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SOX underdeposit for lending or other purposes. AB 2011 clarifies that a local agency may deposit up to 30% of its Section 404 also provides for mandated internal control report and assessment with the annual report and an attestation and a report on such report by the company’s auditor. On June 30, 2005, the Company’s market capitalization exceeded the SEC’s established criteria for compliance with SOX Section 404. As a result, the Company completed these additional requirements under Section 404surplus funds in certificates of deposit at a costbank, savings association, savings bank, or credit union that participates in such a deposit-sharing network. Since the entire amount of approximately $175,000 for the year ending December 31, 2005.deposits would be FDIC-insured, a bank would not be required to pledge collateral. The bill permits agencies to make these deposits until January 1, 2012.
It is impossible to predict what effect the enactment of certain of the above-mentioned legislation will have on the Company. Moreover, it is likely that other bills affecting the business of banks may be introduced in the future by the United States Congress or California legislature.
Recent Accounting Pronouncements
Other-Than-Temporary ImpairmentAccounting for Servicing of Financial Assets
In March 2004,2006, the Financial Accounting Standards Board (FASB) and Emerging Issues Task Force (EITF) reached consensus on several issues being addressed in EITF Issueissued Statement No. 03-1,156 (SFAS 156),The MeaningAccounting for Servicing of Other-Than-Temporary Impairment and Its Application to Certain Investments. The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired and was effective for other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004. The disclosure provisionsFinancial Assets – An Amendment of EITF Issue No. 03-1 continue to be effective for the Company’s consolidated financial statements for the year ended December 31, 2005.
On November 3, 2005, the FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. This FSP nullifies certain requirements of EITF Issue No. 03-1, and supersedes EITF Topic No. D-44,Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value. The guidance in this FSP amends FASB Statement No. 115,Accounting140. SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Under SFAS 156, an entity can elect subsequent fair value measurement of its servicing assets and servicing liabilities by class. An entity should apply the requirements for Certain Investmentsrecognition and initial measurement of servicing assets and servicing liabilities prospectively to all transactions after the effective date. SFAS 156 permits an entity to reclassify certain available-for-sale securities to trading securities provided that they are identified in Debt and Equity Securities.some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities subsequently measured at fair value. The FSP isprovisions of SFAS 156 are effective for reporting periodsan entity as of the beginning of its first fiscal year that begins after DecemberSeptember 15, 2005. The Company2006. Management does not anticipate any material impact to its financial condition or results of operations as a result ofexpect the adoption of this guidance.
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Share-Based Payments
In December 2004, the FASB issued Statement No. 123 (revised 2004) (FAS 123 (R)),Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. The Company may elect to adopt FAS 123 (R) using a modified prospective method or modified retrospective method. Under the modified retrospective method, the Company would restate previously issued financial statements, basing the compensation expense on that previously reported in their pro forma disclosures required by FAS 123. The modified prospective method would require the Company to record compensation expense for the unvested portion of previously granted awards that remain outstanding at the date of adoption as these awards continue to vest. FAS 123 (R) is effective for the first fiscal year beginning after June 15, 2005. Management has elected to use the modified prospective method and has completed its evaluation of the effect of FAS 123 (R), and does not expect itSFAS 156 to have a material impact on itsthe Company’s financial position or results of operations.
Accounting Changes and Error Correctionsfor Uncertainty in Income Taxes
On June 7, 2005,In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48 (FIN 48),Accounting for Uncertainty in Income Taxes –An Interpretation of FASB Statement No. 154 (FAS 154),Accounting Changes and Error Corrections — a replacement of Accounting Principles Board (APB) Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes109. FIN 48 clarifies the accounting for uncertainty in Interim Financial Statements. Under the provisions of FAS 154, voluntary changesincome taxes recognized in accounting principles are applied retrospectively to prior periods’an enterprise’s financial statements unless it would be impractical to do so. FAS 154 supersedes APB Opinionin accordance with FASB Statement No. 20, which required that most voluntary changes in accounting principles be recognized by including in109,Accounting for Income Taxes.FIN 48 prescribes a recognition threshold and measurement standard for the current period’s net income the cumulative effect of the change. FAS 154 also makes a distinction between “retrospective application”financial statement recognition and measurement of a changetax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting principlein interim periods, disclosures and the “restatement” of financial statements to reflect the correction of an error. The provisions of FAS 154 aretransitions. FIN 48 is effective for accounting changes made in fiscal years beginning after December 15, 2005. Management2006.
The Company presently recognizes income tax positions based on management’s estimate of whether it is reasonably possible that a liability has been incurred for unrecognized income tax benefits by applying FASB Statement No. 5, Accounting for Contingencies.
The provisions of FIN 48 will be effective for the Company on January 1, 2007 and are to be applied to all tax positions upon initial application of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption.
The cumulative effect of applying the provisions of FIN 48, if any, will be reported as an adjustment to the opening balance of retained earnings for the fiscal year of adoption. Management does not expect the adoption of this standardFIN 48 to have a material impact on itsthe Company’s financial position or results of operations.
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Accounting for Purchases of Life Insurance
In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No. 06-5,Accounting for Purchases of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance. FASB Technical Bulletin No. 85-4 requires that the amount that could be realized under the insurance contract as of the date of the statement of financial position should be reported as an asset. Since the issuance of FASB Technical Bulletin No. 85-4, questions arose regarding whether “the amount that could be realized” should consider 1) any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value and 2) the contractual ability to surrender all of the individual-life policies (or certificates in a group policy) at the same time. EITF 06-5 determined that “the amount that could be realized” should 1) consider any additional amounts included in the contractual terms of the policy and 2) assume the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). Any amount that is ultimately realized by the policy holder upon the assumed surrender of the final policy (or final certificate in a group policy) shall be included in the “amount that could be realized.” An entity should apply the provisions of EITF 06-5 through either a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or a change in accounting principle through retrospective application to all prior periods. The provisions of EITF 06-5 are effective for fiscal years beginning after December 15, 2006. Management has not yet completed its evaluation of the impact that EITF 06-5 will have.
Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements
In September 2006, the FASB ratified the consensuses reached by the Task Force on Issue No. 06-4 (EITF 06-4),Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. A question arose when an employer enters into an endorsement split-dollar life insurance arrangement related to whether the employer should recognize a liability for the future benefits or premiums to be provided to the employee. EITF 06-4 indicates that an employer should recognize a liability for future benefits and that a liability for the benefit obligation has not been settled through the purchase of an endorsement type policy. An entity should apply the provisions of EITF 06-4 either through a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or a change in accounting principle through retrospective application to all prior periods. The provisions of EITF 06-4 are effective for fiscal years beginning after December 15, 2007. Management has not yet completed its evaluation of the impact that EITF 06-4 will have.
Fair Value Measurements
In September 2006, the FASB issued Statement No. 157 (SFAS 157),Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions should be applied prospectively, except for certain specifically identified financial instruments. Management does not expect the adoption of SFAS 157 to have a material impact to the Company’s financial position or result of operations.
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Consideration of the Effects of Prior Year Misstatements
In September 2006, the Securities and Exchange Commission published Staff Accounting Bulleting No. 108 (SAB 108)Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.The interpretations in this Staff Accounting Bulleting were issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice to build up improper amounts on the balance sheet. This guidance will apply to the first fiscal year ending after November 15, 2006 or December 31, 2006 for the Company. The adoption of SAB 108 did not have a material impact on the Company’s financial position, results of operations or cash flows and no cumulative adjustment was required.
ITEM 1A. RISK FACTORS
Our high concentration of real estate loans expose us to increased lending risks, especially in the event of a recession or natural disaster.Our loan portfolio is strongly concentrated in real estate loans. As of December 31, 2005, 66.3%2006, 64% of our loan portfolio was concentrated in real estate related loans. There has been a relatively rapid increase in real estate values in our market area in recent years, and the occurrence of a real estate recession affecting our market areas would likely reduce the security for many of our loans and adversely affect the ability of many of our borrowers to repay their loan from us. Therefore, our financial condition may be adversely affected by a decline in the value of the real estate securing our loans. In addition, acts of nature, including earthquakes, fires and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively impact our financial condition.
Deterioration of local economic conditions could hurt our profitability. Our operations are primarily located in NorthernNortheastern California and are concentrated in Plumas, Nevada, Placer, Lassen, Modoc, Shasta and Sierra Counties and Washoe County, Nevada and surrounding areas. As a result of this geographic concentration, our financial results depend largely upon economic conditions in these areas. The local economy relies heavily on real estate, agriculture and ranching, timber and tourism. A significant downturn in any or all of these industries could result in a decline in the local economy in general, which could in turn negatively impact us. Poor economic conditions could cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. Also, if there were significant recessionary conditions in our market area, our financial condition would be negatively impacted.
Our growth and expansion strategy may not prove to be successful and our market value and profitability may suffer.We plan to grow our operations, however our ability to manage any such growth
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will depend primarily on our ability to attract and retain qualified personnel, monitor operations, maintain earnings and control costs. We expect to continue to grow our assets and deposits, the products and services which we offer and the scale of our operations, generally. Our ability to manage our growth successfully will depend on our ability to maintain cost controls and asset quality while attracting additional loans and deposits on favorable terms. If we grow too quickly and are not able to control costs and maintain asset quality, this rapid growth could materially adversely affect our financial performance. Our future successful growth will depend on the ability of our officers and other key employees to continue to implement and improve our operational, credit, financial, management and other internal risk controls and processes and our reporting systems and procedures, and to manage a growing number of client relationships. We may not successfully implement improvements to our management information and control systems and control procedures and processes in an efficient or timely manner and may discover deficiencies in existing systems and controls. In particular, our controls and procedures must be able to accommodate an increase in expected loan volume and the infrastructure that comes with growth. Thus, our growth strategy may divert management from our existing businesses and may require us to incur additional expenditures to expand our administrative and operational infrastructure. If we are unable to manage future expansion in our operations, we may experience compliance and operational problems, have to slow the pace of growth, or have to incur additional expenditures beyond current projections to support such growth, any one of which could adversely affect our business.
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Loss of any of our executive officers or key personnel could be damaging to us.We depend upon the skills and reputations of our executive officers and key employees for our future success. The loss of any of these key persons or the inability to attract and retain other key personnel could adversely affect our business. We cannot assure you that we will be able to retain our existing key personnel or attract other qualified persons. All of our current executive officers have been with us since at least 2001. While we have an employment agreement with Douglas N. Biddle, our President and CEO, which contains an agreement not to compete following termination, we do not have employment agreements with our other executive officers and, therefore, upon leaving the employ of Plumas Bank, such executives other than Mr. Biddle may become employed by our competitors.
Our performance is subject to interest rate risk.Our operations are significantly influenced by general economic conditions and by the related monetary and fiscal policies of the federal government. Deposit flows and the cost of funds are influenced by interest rates of competing investments and general market rates of interest. Lending activities are affected by the demand for loans, which in turn is affected by the interest rates at which such financing may be offered and by other factors affecting the availability of funds.
Our operations are substantially dependent on our net interest income, which is the difference between the interest income received from our interest-earning assets and the interest expense incurred in connection with our interest-bearing liabilities. To reduce exposure to interest rate fluctuations, we seek to manage the balances of our interest sensitive assets and liabilities, and maintain the maturity and repricing of these assets and liabilities at appropriate levels. A mismatch between the amount of rate sensitive assets and rate sensitive liabilities in any time period is referred to as a “gap”. Generally, if rate sensitive assets exceed rate sensitive liabilities, the net interest margin will be positively impacted during a rising rate environment and negatively impacted during a declining rate environment. When rate sensitive liabilities exceed rate sensitive assets, the net interest margin will generally be positively impacted during a declining rate environment and negatively impacted during a rising rate environment.
Increases in the level of interest rates may reduce the amount of loans originated by us, and, thus, the amount of loan and commitment fees, as well as the value of our investment securities and other interest-earning assets. Moreover, fluctuations in interest rates also can result in disintermediation, which is the flow of funds away from depository institutions into direct investments, such as corporate securities and other investment vehicles which, because of the absence of federal deposit insurance, generally pay higher rates of return than depository institutions.
We could experience loan losses which exceed our allowance for loan losses.The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower, and, in the case of a collateralized loan, the value and marketability of the collateral. We maintain an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, we make various assumptions and determinations about the ultimate collectibility of our loan portfolio and provide an allowance for losses based upon a percentage of the outstanding balances and for specific loans where their collectibility is considered to be questionable.
As of December 31, 2005,2006, our allowance for loan losses was approximately $3.3$3.9 million representing 1.01%1.1% of gross outstanding loans. Although we believe that this allowance is adequate, we can give no assurance that it will be sufficient to cover future loan losses. Although we use the best information available to make our determinations with respect to this allowance, future adjustments may be necessary if economic conditions change substantially from the assumptions used or if negative developments occur with respect to non-performing or performing loans. If our assumptions or conclusions prove to be incorrect and the allowance for loan losses is not adequate to absorb future losses, or if bank regulatory agencies require us to increase our allowance, our earnings and potentially even our capital could be significantly and adversely impacted.
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We face strong competition which may adversely affect our operating results.In recent years, competition for bank customers, the source of deposits and loans, has greatly intensified. This competition includes:
| | • | | larger national and regional banks in many of the communities we serve; |
| |
| | • | | finance companies, investment banking and brokerage firms, and insurance companies that offer bank-like products; |
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| | • | | credit unions, which can offer highly competitive rates on loans and deposits because they receive tax advantages not available to commercial banks; and |
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| | • | | technology-based financial institutions including large national and super-regional banks offering on-line deposit, bill payment, and mortgage loan application services. |
Some of the financial services organizations with which we compete are not subject to the same degree of regulation as is imposed on bank holding companies and federally insured financial institutions. As a result, these nonbank competitors have certain advantages over us in accessing funding and in providing various services.
By virtue of their larger capital, major banks have substantially larger lending limits then we have and can perform certain functions for their customers which we are not equipped to offer directly, such as trust and international services. Many of these also operate with “economies of scale” which result in lower operating costs than ours on a per loan or per asset basis.
Other existing single or multi-branch community banks, or new community bank start-ups, have marketing strategies similar to ours. These other community banks can open new branches in the communities we serve and compete directly for customers who want the high level of service community banks offer. Other community banks also compete for the same management personnel and the same potential acquisition and merger candidates. Ultimately, competition can drive down our interest margins and reduce our
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profitability, as well as make it more difficult to increase the size of our loan portfolio and deposit base. SeeITEM 1. BUSINESS –General - Competition.
Our future growth may be hindered if we do not raise additional capital.Banks and bank holding companies are required to meet capital adequacy guidelines and maintain their capital to specified percentages of their assets. SeeITEM 1. BUSINESS –Supervision and Regulation – Capital Standards. A failure to meet these guidelines will limit our ability to grow and could result in banking regulators requiring us to increase our capital or reduce our assets. Therefore, in order for us to continue to increase our assets and net income, we may be required from time to time to raise additional capital. We cannot assure that such capital will be available or, if it is, that it will be available on reasonable terms. Any such future capital raising may include the sale of additional securities, which could have a dilutive effect on the earnings per share and book value of per share for our stockholders prior to that offering. We have recently incurred long-term debt in order to maintain our capital adequacy and we may need to continue to do so in the future. Adequate funding sources for such borrowing may not be available in the future which would cause us to fall below the required capital ratios. In such an event, the FDIC could proceed with regulatory actions and Plumas Bank may be required to reduce its asset base in order to comply with the capital guidelines until such time as borrowings become available or an additional offering is successfully completed.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
No comments have been submitted to the registrant by the staff of the Securities Exchange Commission.
ITEM 2. PROPERTIES
Of the Company’s twelve depository branches, nineten are owned and threetwo are leased. In addition the Company owns twothree administrative facilities and leases one administrativetwo lending office.offices. The Company also owns propertypurchased a building located at 424 N. Mill Creek, Quincy, California during the first quarter of 2006 which, after modifications to be undertaken in Truckee, CA that2007, is currently under construction.expected to house the Company’s data processing facilities.
| | | | | |
Owned Properties
|
| |
35 South Lindan Avenue
| | 32 Central Avenue | | 80 W. Main St. |
| Quincy, California (1) | | 32 Central Avenue
Quincy, California (1) | | Quincy, California (1) |
| | | | |
| 424 N. Mill Creek | | 336 West Main Street
| | 120 North Pine Street |
| Quincy, California (4) | | Quincy, California | | Portola, California |
| | | | | |
120 North Pine Street
Portola, California43163 Highway 299E | | 121 Crescent Street
Greenville, California | | 315 Birch Street
|
| Fall River Mills, California | | Greenville, California | | Westwood, California (2) |
| | | | | |
43163 Highway 299E
Fall River Mills, California255 Main Street | | 510 North Main Street
Alturas, California | | 3000 Riverside Drive
|
| Chester, California | | Alturas, California | | Susanville, California |
| | | | | |
255 Main Street
Chester, California | | 8475 North Lake Boulevard
Kings Beach, California | | 11638 Donner Pass Road
| | |
| Kings Beach, California | | Truckee, California (3) | | |
| | | | | |
Leased Properties
|
| |
11429 Donner Pass Road
Truckee, California | | 243 North Lake Boulevard
| | 604 Main Street | | 2625 Fair Oaks Blvd., Ste. 7 |
| Tahoe City, California | | 604 Main Street
Loyalton, California | | Sacramento, California (3) |
| | | | | |
12219 Business Park Drive
Truckee, California (1)1895 Plumas Ste 2 | | | | |
| Reno, Nevada (3) | | | | |
| | |
| (1) | | Non-branch administrative or credit administrative offices. |
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| (2) | | The Westwood branch is a mortgaged property with an outstanding balance of $72,000$63,000 at December 31, 2005.2006. |
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| (3) | | New branch under construction, not currently in use.Commercial lending offices |
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| (4) | | Former branch office (from 2003 branch acquisition) not currently in use.Future location of Company’s data processing facilities |
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Total rental expenses under all leases, including premises, totaled $221,000, $242,000 and $264,000, in 2006, 2005 and $179,000, in 2005, 2004 and 2003 respectively. The expiration dates of the leases vary, with the first such lease expiring during 20062007 and the last such lease expiring during 2008.2009. Future minimum lease payments in thousands of dollars are as follows:
| | | | | | | | | |
| Year Ending | | |
| December 31, | | |
| | 2006 | | $ | 188,000 | | |
| 2007 | | 127,000 | | | $ | 164 | |
| 2008 | | 22,000 | | | 49 | |
| | | | | |
| 2009 | | | 22 | |
| | | | | |
| Total | | $ | 337,000 | | | $ | 235 | |
| | | | | | | |
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The Company maintains insurance coverage on its premises, leaseholds and equipment, including business interruption and record reconstruction coverage. The branch properties and non-branch offices are adequate, suitable, in good condition and have adequate parking facilities for customers and employees. The Company and Bank are limited in their investments in real property under Federal and state banking laws. Generally, investments in real property are either for the Company and Bank use or are in real property and real property interests in the ordinary course of the Bank’s business.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and/or its subsidiary are a party to claims and legal proceedings arising in the ordinary course of business. In the opinion of the Company’s management, the amount of ultimate liability with respect to such proceedings will not have a material adverse effect on the financial condition or results of operations of the Company taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to vote of the security holders during the fourth quarter of the period covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK- HOLDER MATTERS AND RELATED STOCKHOLDER MATTERSISSUER PURCHASES OF EQUITY SECURITIES.
The Company’s common stock is quoted on the NASDAQ Capital Market under the ticker symbol “PLBC”. As of December 31, 2005,2006, there were 4,976,6545,023,205 shares of the Company’s stock outstanding held by approximately 1,9002,038 shareholders of record as of the same date. The following table shows the high and low sales prices for the common stock, for each quarter as reported by Yahoo Finance.
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| | | Closing Prices | | | | | | | | | | | | |
| Quarter | | Dividends | | High | | Low | | Dividends | | High | | Low |
| | 4th Quarter 2006 | | | $ | 0.13 | | | $ | 17.45 | | | $ | 14.50 | |
3rd Quarter 2006 | | | | — | | | $ | 19.00 | | | $ | 15.77 | |
2nd Quarter 2006 | | | $ | 0.13 | | | $ | 19.89 | | | $ | 15.50 | |
| 1st Quarter 2006 | | | | — | | | $ | 23.00 | | | $ | 17.00 | |
| | | | | | | | | | | | | | |
| 4th Quarter 2005 | | $ | 0.11 | | | $ | 27.00 | | | $ | 20.77 | | | $ | 0.11 | | | $ | 27.00 | | | $ | 20.77 | |
| 3rd Quarter 2005 | | | — | | | $ | 26.07 | | | $ | 17.34 | | |
| 2nd Quarter 2005 | | $ | 0.11 | | | $ | 21.33 | | | $ | 14.20 | | |
3rd Quarter 2005 | | | | — | | | $ | 26.07 | | | $ | 17.34 | |
2nd Quarter 2005 | | | $ | 0.11 | | | $ | 21.33 | | | $ | 14.20 | |
| 1st Quarter 2005 | | | — | | | $ | 15.67 | | | $ | 13.33 | | | | — | | | $ | 15.67 | | | $ | 13.33 | |
| | |
| 4th Quarter 2004 | | $ | 0.09 | | | $ | 14.67 | | | $ | 13.00 | | |
| 3rd Quarter 2004 | | | — | | | $ | 13.33 | | | $ | 12.23 | | |
| 2nd Quarter 2004 | | $ | 0.09 | | | $ | 13.27 | | | $ | 11.60 | | |
| 1st Quarter 2004 | | | — | | | $ | 13.40 | | | $ | 12.00 | | |
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On August 17, 2005 the Company’s Board of Director approved a three-for-two stock split for shareholders of record at the close of business on September 2, 2005 and effective on September 16, 2005. All share and per share data in the consolidated financial statements have been retroactively adjusted to give effect to the stock split.
Dividends paid to shareholders by the Company are subject to restrictions set forth in California General Corporation Law, which provides that a corporation may make a distribution to its shareholders if retained earnings immediately prior to the dividend payout are at least equal to the amount of the proposed distribution. As a bank holding company without significant assets other than its equity position in the Bank, the Company’s ability to pay dividends to its shareholders depends primarily upon dividends it receives from the Bank. Such dividends paid by the Bank to the Company are subject to certain limitations. See “Item 1 Business — Supervision and Regulation — Capital Standards”.
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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. The Board by resolution shall set the amount, the record date and the payment date of any dividend after considering numerous factors, including the Company’s regulatory capital requirements, earnings, financial condition and the need for capital for expanded growth and general economic conditions. Although no assurance can be given that cash or stock dividends will be paid in the future the Company’s cash dividend payout ratio over the last five years has averaged approximately 25%. of net income.
On January 22, 2007 the Company announced that the Board authorized a common stock repurchase plan. The plan calls for the repurchase of up to 250,000 shares, or approximately 5%, of the Company’s shares outstanding as of January 22, 2007. The repurchases will be made from time to time by the Company in the open market or privately negotiated transactions as conditions allow. All such transactions will be structured to comply with Securities and Exchange Commission Rule 10b-18 and all shares repurchased under this plan will be retired. The number, price and timing of the repurchases shall be at the Company’s sole discretion and the plan may be re-evaluated depending on market conditions, liquidity needs or other factors. The Board, based on such re-evaluations, may suspend, terminate, modify or cancel the plan at any time without notice.
Securities Authorized for Issuance under Equity Compensation Plans.The following table sets forth securities authorized for issuance under equity compensation plans as for December 31, 2005.2006.
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Number of securities remaining |
| | | Number of securities remaining | | available for future issuance |
| | | available for future issuance | | Number of securities to | | Weighted-average | | under equity compensation |
| | | Number of securities to | | Weighted-average | | under equity compensation | | be issued upon exercise | | exercise price of | | plans (excluding securities |
| | | be issued upon exercise | | exercise price of | | plans (excluding securities | | of outstanding options | | outstanding options | | reflected in column (a)) |
| Plan Category | | of outstanding options | | outstanding options | | reflected in column (a)) | | (a) | | (b) | | (c) |
| | | (a) | | (b) | | (c) | | |
| | | | |
| Equity compensation plans approved by security holders | | 355,976 | | $ | 10.90 | | 617,781 | | | 290,914 | | $ | 11.62 | | 615,037 | |
| Equity compensation plans not approved by security holders | | None | | Not Applicable | | None | | None | | Not Applicable | | None |
| | | | | |
| Total | | 355,976 | | $ | 10.90 | | 617,781 | | | 290,914 | | $ | 11.62 | | 615,037 | |
| | | | | |
For additional information related to the above plans see Note 10 of the Company’s Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10K.
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Plumas Bancorp Stock Performance Graph
The graph below compares the cumulative total shareholder return on Plumas Bancorp’s (Plumas Bank’s prior to June 2002) common stock to the cumulative total return of the NASDAQ Composite Index, a broad market index of all stocks traded on the NASDAQ Exchange, the SNL NASDAQ Bank Index, a cumulative total of almost 400 banks traded on the NASDAQ Exchange, and the SNL OTC-BB & Pink Banks Index, a cumulative total of over 600 banks traded on either the Over-The-Counter Bulletin Board or Pink Sheets. These Indexes were prepared by SNL Financial LC. The graph assumes that a $100 investment was made in the Company’s Common Stock as well as the other indexes on December 31, 2001 and that all dividends were reinvested. The chart represents the average closing price for the month of December in each of the years presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | Period Ending | |
| | Index | | | 12/31/01 | | | 12/31/02 | | | 12/31/03 | | | 12/31/04 | | | 12/31/05 | | | 12/31/06 | |
| | Plumas Bancorp | | | | 100.00 | | | | | 158.08 | | | | | 208.63 | | | | | 227.57 | | | | | 337.24 | | | | | 243.04 | | |
| | NASDAQ Composite | | | | 100.00 | | | | | 68.76 | | | | | 103.67 | | | | | 113.16 | | | | | 115.57 | | | | | 127.58 | | |
| | SNL NASDAQ Bank Index | | | | 100.00 | | | | | 102.85 | | | | | 132.76 | | | | | 152.16 | | | | | 147.52 | | | | | 165.62 | | |
| | SNL All OTC-BB & Pink Banks Index | | | | 100.00 | | | | | 124.40 | | | | | 170.92 | | | | | 204.07 | | | | | 221.37 | | | | | 242.38 | | |
| |
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents a summary of selected financial data and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included under Item 8 – Financial Statements and Supplementary Data.
| | | | | | | | | | | | | | | | | | | | | | |
| | | At or for the year ended December 31, | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | | At or for the year ended December 31, |
| | | | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 |
| | | (dollars in thousands except per share information) | | (dollars in thousands except per share information) |
Statement of Income | | |
| Interest income | | $ | 25,497 | | $ | 20,110 | | $ | 18,549 | | $ | 18,389 | | $ | 19,149 | | | $ | 29,483 | | $ | 25,497 | | $ | 20,110 | | $ | 18,549 | | $ | 18,389 | |
| Interest expense | | 4,793 | | 2,914 | | 3,013 | | 4,038 | | 6,373 | | | 6,954 | | 4,793 | | 2,914 | | 3,013 | | 4,038 | |
| | | | | |
| Net interest income | | 20,704 | | 17,196 | | 15,536 | | 14,351 | | 12,776 | | | 22,529 | | 20,704 | | 17,196 | | 15,536 | | 14,351 | |
| Provision for loan losses | | 1,100 | | 750 | | 750 | | 825 | | 725 | | | 1,000 | | 1,100 | | 750 | | 750 | | 825 | |
| Noninterest income | | 4,653 | | 4,784 | | 3,639 | | 3,278 | | 2,854 | | | 5,159 | | 5,073 | | 5,099 | | 3,639 | | 3,278 | |
| Noninterest expense | | 17,129 | | 15,583 | | 13,126 | | 11,604 | | 10,480 | | | 18,290 | | 17,549 | | 15,898 | | 13,126 | | 11,604 | |
| Provision for income taxes | | 2,600 | | 2,001 | | 2,018 | | 2,046 | | 1,667 | | | 3,196 | | 2,600 | | 2,001 | | 2,018 | | 2,046 | |
| | | | | |
| Net income | | $ | 4,528 | | $ | 3,646 | | $ | 3,281 | | $ | 3,154 | | $ | 2,758 | | | $ | 5,202 | | $ | 4,528 | | $ | 3,646 | | $ | 3,281 | | $ | 3,154 | |
| | | | | |
| | | |
Balance sheet (end of period) | | |
| Total assets | | $ | 472,803 | | $ | 417,346 | | $ | 390,262 | | $ | 325,650 | | $ | 275,090 | | | $ | 473,239 | | $ | 472,803 | | $ | 417,346 | | $ | 390,262 | | $ | 325,650 | |
| Total loans | | $ | 321,646 | | $ | 266,913 | | $ | 217,957 | | $ | 207,721 | | $ | 183,676 | | | $ | 354,712 | | $ | 321,646 | | $ | 266,913 | | $ | 217,957 | | $ | 207,721 | |
| Allowance for loan losses | | $ | 3,256 | | $ | 2,722 | | $ | 2,524 | | $ | 2,431 | | $ | 2,113 | | | $ | 3,917 | | $ | 3,256 | | $ | 2,722 | | $ | 2,524 | | $ | 2,431 | |
| Total deposits | | $ | 426,560 | | $ | 378,567 | | $ | 355,842 | | $ | 293,941 | | $ | 252,206 | | | $ | 402,176 | | $ | 426,560 | | $ | 378,567 | | $ | 355,842 | | $ | 293,941 | |
| Total shareholders’ equity | | $ | 31,137 | | $ | 27,891 | | $ | 25,749 | | $ | 23,286 | | $ | 20,617 | | | $ | 35,852 | | $ | 31,137 | | $ | 27,891 | | $ | 25,749 | | $ | 23,286 | |
| | | |
Balance sheet (period average) | | |
| Total assets | | $ | 452,225 | | $ | 409,335 | | $ | 339,160 | | $ | 294,708 | | $ | 257,581 | | | $ | 468,988 | | $ | 452,225 | | $ | 409,335 | | $ | 339,160 | | $ | 294,708 | |
| Total loans | | $ | 302,596 | | $ | 233,759 | | $ | 214,736 | | $ | 197,900 | | $ | 176,746 | | | $ | 335,226 | | $ | 302,596 | | $ | 233,759 | | $ | 214,736 | | $ | 197,900 | |
| Total deposits | | $ | 403,818 | | $ | 373,267 | | $ | 304,840 | | $ | 268,773 | | $ | 235,840 | | | $ | 415,700 | | $ | 403,818 | | $ | 373,267 | | $ | 304,840 | | $ | 268,773 | |
| Total shareholders’ equity | | $ | 29,548 | | $ | 26,829 | | $ | 24,558 | | $ | 22,184 | | $ | 19,423 | | | $ | 33,682 | | $ | 29,548 | | $ | 26,829 | | $ | 24,558 | | $ | 22,184 | |
| | | |
Capital ratios | | |
| Leverage ratio | | | 8.5 | % | | | 7.6 | % | | | 8.4 | % | | | 8.8 | % | | | 7.4 | % | | | 9.5 | % | | | 8.5 | % | | | 7.6 | % | | | 8.4 | % | | | 8.8 | % |
| Tier 1 risk-based capital | | | 10.3 | % | | | 10.1 | % | | | 10.4 | % | | | 11.8 | % | | | 9.3 | % | | | 10.9 | % | | | 10.3 | % | | | 10.1 | % | | | 10.4 | % | | | 11.8 | % |
| Total risk-based capital | | | 11.1 | % | | | 10.9 | % | | | 11.3 | % | | | 12.8 | % | | | 10.3 | % | | | 11.8 | % | | | 11.1 | % | | | 10.9 | % | | | 11.3 | % | | | 12.8 | % |
| | | |
Asset quality ratios | | |
| Nonperforming loans/total loans | | | 0.52 | % | | | 0.45 | % | | | 0.40 | % | | | 0.86 | % | | | 0.71 | % | | | 0.29 | % | | | 0.52 | % | | | 0.45 | % | | | 0.40 | % | | | 0.86 | % |
| Nonperforming assets/total assets | | | 0.36 | % | | | 0.30 | % | | | 0.22 | % | | | 0.59 | % | | | 0.52 | % | | | 0.22 | % | | | 0.36 | % | | | 0.30 | % | | | 0.22 | % | | | 0.59 | % |
| Allowance for loan losses/total loans | | | 1.01 | % | | | 1.03 | % | | | 1.18 | % | | | 1.19 | % | | | 1.17 | % | | | 1.10 | % | | | 1.01 | % | | | 1.03 | % | | | 1.18 | % | | | 1.19 | % |
| | | |
| Net loan charge-offs | | | $ | 339 | | $ | 566 | | $ | 552 | | $ | 657 | | $ | 507 | |
Performance ratios | | |
| Return on average assets | | | 1.00 | % | | | 0.89 | % | | | 0.97 | % | | | 1.07 | % | | | 1.07 | % | | | 1.11 | % | | | 1.00 | % | | | 0.89 | % | | | 0.97 | % | | | 1.07 | % |
| Return on average equity | | | 15.2 | % | | | 13.5 | % | | | 13.3 | % | | | 14.2 | % | | | 14.2 | % | | | 15.4 | % | | | 15.2 | % | | | 13.5 | % | | | 13.3 | % | | | 14.2 | % |
| Net interest margin | | | 5.06 | % | | | 4.77 | % | | | 5.20 | % | | | 5.48 | % | | | 5.57 | % | | | 5.32 | % | | | 5.06 | % | | | 4.77 | % | | | 5.20 | % | | | 5.48 | % |
| Loans to Deposits | | | 75.4 | % | | | 70.5 | % | | | 61.3 | % | | | 70.7 | % | | | 72.8 | % | | | 88.2 | % | | | 75.4 | % | | | 70.5 | % | | | 61.3 | % | | | 70.7 | % |
| Efficiency ratio | | | 67.6 | % | | | 70.9 | % | | | 68.5 | % | | | 65.8 | % | | | 67.1 | % | | | 66.1 | % | | | 68.1 | % | | | 71.3 | % | | | 68.5 | % | | | 65.8 | % |
| | | |
Per share information | | |
| Basic earnings | | $ | 0.92 | | $ | 0.75 | | $ | 0.68 | | $ | 0.66 | | $ | 0.58 | | | $ | 1.04 | | $ | 0.92 | | $ | 0.75 | | $ | 0.68 | | $ | 0.66 | |
| Diluted earnings | | $ | 0.89 | | $ | 0.73 | | $ | 0.66 | | $ | 0.64 | | $ | 0.57 | | | $ | 1.02 | | $ | 0.89 | | $ | 0.73 | | $ | 0.66 | | $ | 0.64 | |
| Cash dividends | | $ | 0.22 | | $ | 0.19 | | $ | 0.16 | | $ | 0.18 | | $ | 0.13 | | | $ | 0.26 | | $ | 0.22 | | $ | 0.19 | | $ | 0.16 | | $ | 0.18 | |
| Dividend payout ratio | | | 23.9 | % | | | 25.1 | % | | | 23.7 | % | | | 27.3 | % | | | 23.0 | % | | | 25.0 | % | | | 23.9 | % | | | 25.1 | % | | | 23.7 | % | | | 27.3 | % |
| Book value | | $ | 6.26 | | $ | 5.69 | | $ | 5.29 | | $ | 4.84 | | $ | 4.31 | | | $ | 7.14 | | $ | 6.26 | | $ | 5.69 | | $ | 5.29 | | $ | 4.84 | |
| Common shares outstanding at period end | | 4,976,654 | | 4,901,197 | | 4,863,040 | | 4,813,975 | | 4,788,502 | | | 5,023,205 | | 4,976,654 | | 4,901,197 | | 4,863,040 | | 4,813,975 | |
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| | |
ITEM 7. | | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSGeneral
We are a bank holding company for Plumas Bank, a California state-chartered commercial bank. We derive our income primarily from interest received on real estate related, commercial and consumer loans and, to a lesser extent, interest on investment securities, fees received in connection with servicing deposit and loan customers and fees from the sale or referral of loans. Our major operating expenses are the interest we pay on deposits and borrowings and general operating expenses. We rely on locally-generated deposits to provide us with funds for making loans.
We are subject to competition from other financial institutions and our operating results, like those of other financial institutions operating in California, are significantly influenced by economic conditions in California, including the strength of the real estate market. In addition, both the fiscal and regulatory policies of the federal and state government and regulatory authorities that govern financial institutions and market interest rates also impact the Bank’s financial condition, results of operations and cash flows.
One of our strategic objectives is to expand our banking service activities in the Truckee/Tahoe region and the adjacent communities. Consistent with this objective, in late 2003 we opened a de novo branch in Tahoe City. Also in late 2003, we bought five branches located within our existing service area from another community bank. Of the five branches purchased, two were located in the Truckee/Tahoe region, specifically in the communities of Truckee and Kings Beach. This helped further strengthen our presence in this region.
In October, 2006 we completed construction and opened a new Bank owned branch in Truckee, California. This replaced a much smaller leased facility. During 2004 and 2005the fourth quarter of 2006 we focused on migrating the liquidity generated from the 2003 branch purchases into higher-yieldingopened a commercial real estate loan balances.office in Reno, Nevada.
Critical Accounting Policies
Our accounting policies are integral to understanding the financial results reported. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. The following is a brief description of our current accounting policies involving significant management valuation judgments.
Allowance for Loan Losses.The allowance for loan losses represents our best estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries.
We evaluate our allowance for loan losses quarterly. We believe that the allowance for loan losses is a “critical accounting estimate” because it is based upon management’s assessment of various factors affecting the collectibility of the loans, including current economic conditions, past credit experience, delinquency status, the value of the underlying collateral, if any, and a continuing review of the portfolio of loans.
We determine the appropriate level of the allowance for loan losses, primarily on an analysis of the various components of the loan portfolio, including all significant credits on an individual basis. We segment the loan portfolio into as many components as practical. Each component has similar characteristics, such as risk classification, past due status, type of loan or lease, industry or collateral.
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We cannot provide you with any assurance that economic difficulties or other circumstances which would adversely affect our borrowers and their ability to repay outstanding loans will not occur which would be reflected in increased losses in our loan portfolio, which could result in actual losses that exceed reserves previously established.
23
Available for Sale Securities.Statement of Financial Accounting Standards No. 115,Accounting for Certain Investments in Debt and Equity Securities, requires that available-for-saleAvailable-for-sale securities are required to be carried at fair value. We believe this is a “critical accounting estimate” in that the fair value of a security is based on quoted market prices or if quoted market prices are not available, fair values are extrapolated from the quoted prices of similar instruments. Adjustments to the available-for-sale securities fair value impact the consolidated financial statements by increasing or decreasing assets and shareholders’ equity.
Deferred Income Taxes.Deferred income taxes reflect the estimated future tax effects of temporary differences between the reported amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. We use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and our net income will be reduced.
Impairment of Core Deposit Intangible.The core deposit intangible represents the excess of the premiums paid over the fair value of the assets and liabilities acquired in the branch acquisitions. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assetsand SFAS No. 144Accounting for the Impairment or Disposal of Long-Lived Assets,theThe core deposit intangible willis required to be amortized over its expected useful life and willrequired to be evaluated for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the fair value of the asset is determined to be less than the carrying amount, the core deposit intangible will be written down through a charge to operations.
Stock-Based Compensation.CompensationThe. Effective January 1, 2006, the Company accountsadopted Statement of Financial Accounting Standards No. 123 (R),Share-Based Payment(“SFAS 123 (R)”). Under SFAS 123(R), compensation cost is recognized for its stock-based compensation under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issuedall awards that vest subsequent to Employees, and related interpretations. Since the Company’s stock option plan provides for the issuance of options at a price of no less than the fair market value at the date of adoption based on the grant, nogrant-date fair value estimated in accordance with SFAS No. 123,Accounting for Stock-Based Compensationand SFAS 123(R). We believe this is a “critical accounting estimate” since the grant-date fair value is estimated using the Black-Scholes option-pricing formula, which involves making estimates of the assumptions used, including the expected term of the option, expected volatility over the option term, expected dividend yield over the option term and risk-free interest rate. In addition, when determining the compensation expense is recognized in the financial statements unless the options are modified after the grant date.
In December 2004, the Financial Accounting Standards Board issued Statement Number 123 (revised 2004) (“FAS 123(R)”), Share-Based Payments. FAS 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. The Company has elected to apply FAS 123(R) on a modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Management believes that the effect of FAS 123(R) will be consistent with its pro forma disclosures included in Note 2 to the Consolidated Financial Statements in Item 8 — Financial Statements and Supplementary Data. The fair value of each option is estimated on the date of grant using an option pricing model and amortizedamortize over the service period. Critical assumptions that affectvesting period, management makes estimates about the estimated fair valueexpected forfeiture rate of each option include expected stock price volatility, dividend yields, option life and forfeiture rates and the risk-free interest rate.options.
The following discussion is designed to provide a better understanding of significant trends related to the Company’s financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It pertains to the Company’s financial condition, changes in financial condition and results of operations as of December 31, 20052006 and 20042005 and for each of the three years in the period ended December 31, 2005.2006. The discussion should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere herein.
Overview
The Company reported its eighteenth consecutive year of earnings growth in 2006. The Company’s net income increased $882,000,$674,000, or 24.2%14.9%, to $4,528,000$5,202,000 for the year ended December 31, 20052006 from $3,646,000$4,528,000 for the same period in 2004.2005. Net income was $3,281,000$3,646,000 for the year ended December 31, 2003. The2004. During 2006 the Company increased its average interest earning assets and its net interest margin resulting in an increase in net interest income of $1,825,000. This increase in net interest income was the primary contributorscontributor to the increase in net income for 2005 were a $5.4 million2006. In addition, during 2006 the Company’s non-interest income increased slightly by $86,000 and its provision for loan losses decreased by $100,000. Partially offsetting these increases in income in 2006 was an increase of $741,000 in non-interest expense and an increase of $596,000 in the provision for income taxes.
2427
increase in interest income largely offset by a $1.9 million increase in interest expense and a $1.5 million increase in non-interest expenses.
Total assets at December 31, 20052006 increased $55$436,000 to $473 million. Growth in the Company’s loan portfolio was offset by decreases in Federal funds sold and investment securities. Net loans grew $32.8 million, or 13%,10% to $473 million from $417$352 million at December 31, 2004. Growth in total assets was concentrated in the loan portfolio. The loan portfolio grew $55 million, or 21%,2006, compared to $319 million duringat December 31, 2005. Growth in loans was funded by growtha decrease of $23.1 million in depositsinvestment securities and declinesa decrease of $7.3 million in the investment portfolio. Federal funds sold and an increase in short-term borrowings. At December 31, 2006 investments securities totaled $75 million, there were no Federal funds sold and short-term borrowings were $20 million.
Deposits grew $48declined by $24 million, or 13%6%, to $427$402 million at December 31, 20052006 from $379$426 million at December 31, 2004 while investment securities decreased $15 million.2005. Competition for deposit dollars throughout the Company’s service area, both from bank and non-bank sources, and a lack of significant deposit growth in the Company’s service area have contributed to this decline in deposits. The Company believes that additional deposits could be generated through aggressive pricing, but has chosen to rely on alternative sources of liquidity, such as short-term FHLB borrowings, to fund additions to its loan portfolio during 2006.
The return on average assets was 1.11% for 2006, up from 1.00% for 2005, up from 0.89% for 2004.2005. The return on average equity was 15.4% for 2006, up from 15.2% for 2005, up from 13.5% for 2004. The Company reported its seventeenth consecutive year of earnings growth in 2005.
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Results of Operations
Net Interest Income before Provision for Loan Losses
The following table presents for the years 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 yields expressed in both dollars and yield percentages, as well as the amounts of interest expense on interest-bearing liabilities and the resultant cost expressed in both dollars and rate percentages. Nonaccrual loans are included in the calculation of average loans while nonaccrued interest thereon is excluded from the computation of yields earned:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | | |
| | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Year ended December 31, | |
| | | Interest | | Rates | | Interest | | Rates | | Interest | | Rates | | | 2006 | | 2005 | | 2004 | |
| | | Average | | income/ | | earned | | Average | | income/ | | earned | | Average | | income/ | | earned | | | Interest | | Rates | | Interest | | Rates | | Interest | | Rates | |
| | | balance | | expense | | / paid | | balance | | expense | | / paid | | balance | | expense | | / paid | | | Average | | income/ | | earned | | Average | | income/ | | earned | | Average | | income/ | | earned | |
| | | | | | | | | balance | | expense | | / paid | | | balance | | expense | | / paid | | | balance | | expense | | / paid | |
| | | (dollars in thousands) | | | (dollars in thousands) | |
Assets | | |
| Federal funds sold | | $ | 5,930 | | $ | 218 | | | 3.68 | % | | $ | 12,729 | | $ | 163 | | | 1.28 | % | | $ | 11,276 | | $ | 116 | | | 1.03 | % | | $ | 3,616 | | $ | 164 | | | 4.54 | % | | $ | 5,930 | | $ | 218 | | | 3.68 | % | | $ | 12,729 | | $ | 163 | | | 1.28 | % |
Investment securities(1) | | 100,633 | | 3,324 | | 3.30 | | 113,684 | | 3,483 | | 3.06 | | 72,745 | | 2,221 | | 3.05 | | | 84,794 | | 3,047 | | 3.59 | | 100,633 | | 3,324 | | 3.30 | | 113,684 | | 3,483 | | 3.06 | |
Total loans(2)(3) | | 302,596 | | 21,955 | | 7.26 | | 233,759 | | 16,464 | | 7.04 | | 214,736 | | 16,212 | | 7.55 | | | 335,226 | | 26,272 | | 7.84 | | 302,596 | | 21,955 | | 7.26 | | 233,759 | | 16,464 | | 7.04 | |
| | | | | | | | | | | | | | | |
| Total earning assets | | 409,159 | | 25,497 | | | 6.23 | % | | 360,172 | | 20,110 | | | 5.58 | % | | 298,757 | | 18,549 | | | 6.21 | % | | 423,636 | | 29,483 | | | 6.96 | % | | 409,159 | | 25,497 | | | 6.23 | % | | 360,172 | | 20,110 | | | 5.58 | % |
| | | | | | | | | | | | | | | |
| Cash and due from banks | | 15,953 | | 23,813 | | 21,517 | | | 13,547 | | 15,953 | | 23,813 | |
| Other assets | | 27,357 | | 25,551 | | 19,077 | | | 31,805 | | 27,357 | | 25,551 | |
| | | | | | | | | | | | | | | |
| Total assets | | $ | 452,469 | | $ | 409,536 | | $ | 339,351 | | | $ | 468,988 | | $ | 452,469 | | $ | 409,536 | |
| | | | | | | | | | | | | | | |
| | | |
Liabilities and shareholders’ equity | | |
| Interest bearing demand deposits | | $ | 48,577 | | 196 | | | 0.40 | % | | $ | 44,244 | | 58 | | | 0.13 | % | | $ | 35,668 | | 79 | | | 0.22 | % | | $ | 80,685 | | 1,489 | | | 1.85 | % | | $ | 48,577 | | 196 | | | 0.40 | % | | $ | 44,244 | | 58 | | | 0.13 | % |
| Money market deposits | | 64,025 | | 747 | | 1.17 | | 65,026 | | 490 | | 0.75 | | 58,814 | | 498 | | 0.85 | | | 56,496 | | 661 | | 1.17 | | 64,025 | | 747 | | 1.17 | | 65,026 | | 490 | | 0.75 | |
| Savings deposits | | 67,702 | | 445 | | 0.66 | | 64,472 | | 292 | | 0.45 | | 48,866 | | 310 | | 0.63 | | | 59,802 | | 423 | | 0.71 | | 67,702 | | 445 | | 0.66 | | 64,472 | | 292 | | 0.45 | |
| Time deposits | | 98,946 | | 2,704 | | 2.73 | | 93,684 | | 1,760 | | 1.88 | | 83,186 | | 1,816 | | 2.18 | | | 93,515 | | 3,314 | | 3.54 | | 98,946 | | 2,704 | | 2.73 | | 93,684 | | 1,760 | | 1.88 | |
| Federal funds purchased | | 6,921 | | 210 | | 3.03 | | — | | — | | — | | 1,028 | | 10 | | 0.97 | | |
| Short-term borrowings | | | 4,446 | | 237 | | 5.33 | | 6,921 | | 210 | | 3.03 | | — | | — | | — | |
| Trust preferred securities | | 7,259 | | 479 | | 6.60 | | 6,186 | | 305 | | 4.93 | | 6,186 | | 288 | | 4.66 | | | 10,310 | | 810 | | 7.86 | | 7,259 | | 479 | | 6.60 | | 6,186 | | 305 | | 4.93 | |
| Other | | 245 | | 12 | | 4.90 | | 215 | | 9 | | 4.19 | | 189 | | 12 | | 6.35 | | | 285 | | 20 | | 7.02 | | 245 | | 12 | | 4.90 | | 215 | | 9 | | 4.19 | |
| | | | | | | | | | | | | | | |
| Total interest bearing liabilities | | 293,675 | | 4,793 | | | 1.63 | % | | 273,827 | | 2,914 | | | 1.06 | % | | 233,937 | | 3,013 | | | 1.29 | % | | 305,539 | | 6,954 | | | 2.28 | % | | 293,675 | | 4,793 | | | 1.63 | % | | 273,827 | | �� | | 2,914 | | | 1.06 | % |
| | | | | | | | | | | | | | | |
| Noninterest bearing demand deposits | | 124,568 | | 105,841 | | 78,306 | | | 125,202 | | 124,568 | | 105,841 | |
| Other liabilities | | 4,434 | | 2,838 | | 2,359 | | | 4,565 | | 4,434 | | 2,838 | |
| Shareholders’ equity | | 29,792 | | 27,030 | | 24,749 | | | 33,682 | | 29,792 | | 27,030 | |
| | | | | | | | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 452,469 | | $ | 409,536 | | $ | 339,351 | | | $ | 468,988 | | $ | 452,469 | | $ | 409,536 | |
| | | | | | | | | | | | | | | |
Net interest income | | $ | 20,704 | | $ | 17,196 | | $ | 15,536 | | | $ | 22,529 | | $ | 20,704 | | $ | 17,196 | |
| | | | | | | | | | | | | | | |
Net interest spread(4) | | | 4.60 | % | | | 4.52 | % | | | 4.92 | % | | | 4.68 | % | | | 4.60 | % | | | 4.52 | % |
Net interest margin(5) | | | 5.06 | % | | | 4.77 | % | | | 5.20 | % | | | 5.32 | % | | | 5.06 | % | | | 4.77 | % |
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| | |
| (1) | | Interest income is reflected on an actual basis and is not computed on a tax-equivalent basis. |
| |
| (2) | | Average nonaccrual loan balances of $1.2 million for 2006, $1.3 million for 2005 and $1.6 million for 2004 and $2.0 million for 2003 are included in average loan balances for computational purposes. |
| |
| (3) | | Loan origination fees and costs are included in interest income as adjustments of the loan yields over the life of the loan using the interest method. Loan interest income includes net loan costs of $539,000 and $21,000 for 2006 and 2005, respectively and net loan fees of $317,000 and $585,000 for 2004 and 2003, respectively.2004. |
| |
| (4) | | Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. |
| |
| (5) | | Net interest margin is computed by dividing net interest income by total average earning assets. |
29
The following table sets forth changes in interest income and interest expense, for the years 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:
| | | | | | | | | | | | | | | | | | | |
| | | 2005 compared to 2004 | | 2004 compared to 2003 | |
| | | Increase (decrease) due to change in: | | Increase (decrease) due to change in: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 2006 compared to 2005 | | 2005 compared to 2004 |
| | | Average | | Average | | Average | | Average | | | | | | Increase (decrease) due to change in: | | Increase (decrease) due to change in: |
| | | Volume(1) | | Rate(2) | | Mix(3) | | Total | | Volume(1) | | Rate(2) | | Mix(3) | | Total | | Average | | Average | | Average | | Average | | | | |
| | | | | | | Volume(1) | | Rate(2) | | Mix(3) | | Total | | Volume(1) | | Rate(2) | | Mix(3) | | Total |
| | | (dollars in thousands) | | | (dollars in thousands) |
Interest-earning assets: | | |
| Federal funds sold | | $ | (87 | ) | | $ | 305 | | $ | (163 | ) | | $ | 55 | | $ | 15 | | $ | 28 | | $ | 4 | | $ | 47 | | | $ | (85 | ) | | $ | 51 | | $ | (20 | ) | | $ | (54 | ) | | $ | (87 | ) | | $ | 305 | | $ | (163 | ) | | $ | 55 | |
| Investment securities | | | (400 | ) | | 272 | | | (31 | ) | | | (159 | ) | | 1,250 | | 8 | | 4 | | 1,262 | | | | (523 | ) | | 292 | | | (46 | ) | | | (277 | ) | | | (400 | ) | | 272 | | | (31 | ) | | | (159 | ) |
| Loans | | 4,848 | | 497 | | 146 | | 5,491 | | 1,436 | | | (1,088 | ) | | | (96 | ) | | 252 | | | 2,367 | | 1,760 | | 190 | | 4,317 | | 4,848 | | 497 | | 146 | | 5,491 | |
| | | | | | | | | |
| Total interest income | | 4,361 | | 1,074 | | | (48 | ) | | 5,387 | | 2,701 | | | (1,052 | ) | | | (88 | ) | | 1,561 | | | 1,759 | | 2,103 | | 124 | | 3,986 | | 4,361 | | 1,074 | | | (48 | ) | | 5,387 | |
| | | | | | | | | |
| | | |
Interest-bearing liabilities: | | |
| Interest bearing demand deposits | | 6 | | 120 | | 12 | | 138 | | 19 | | | (32 | ) | | | (8 | ) | | | (21 | ) | | 130 | | 700 | | 463 | | 1,293 | | 6 | | 120 | | 12 | | 138 | |
| Money market deposits | | | (8 | ) | | 269 | | | (4 | ) | | 257 | | 53 | | | (55 | ) | | | (6 | ) | | | (8 | ) | | | (88 | ) | | 2 | | — | | | (86 | ) | | | (8 | ) | | 269 | | | (4 | ) | | 257 | |
| Savings deposits | | 15 | | 132 | | 6 | | 153 | | 99 | | | (89 | ) | | | (28 | ) | | | (18 | ) | | | (52 | ) | | 34 | | | (4 | ) | | | (22 | ) | | 15 | | 132 | | 6 | | 153 | |
| Time deposits | | 99 | | 800 | | 45 | | 944 | | 229 | | | (253 | ) | | | (32 | ) | | | (56 | ) | | | (148 | ) | | 802 | | | (44 | ) | | 610 | | 99 | | 800 | | 45 | | 944 | |
| Federal funds purchased | | — | | — | | 210 | | 210 | | | (10 | ) | | | (10 | ) | | 10 | | | (10 | ) | |
| Short-term borrowings | | | | (75 | ) | | 159 | | | (57 | ) | | 27 | | — | | — | | 210 | | 210 | |
| Trust preferred securities | | 53 | | 103 | | 18 | | 174 | | — | | 17 | | — | | 17 | | | 201 | | 91 | | 39 | | 331 | | 53 | | 103 | | 18 | | 174 | |
| Other borrowings | | 1 | | 2 | | — | | 3 | | 1 | | | (4 | ) | | — | | | (3 | ) | | 2 | | 5 | | 1 | | 8 | | 1 | | 2 | | — | | 3 | |
| | | | | | | | | |
| Total interest expense | | 166 | | 1,426 | | 287 | | 1,879 | | 391 | | | (426 | ) | | | (64 | ) | | | (99 | ) | | | (30 | ) | | 1,793 | | 398 | | 2,161 | | 166 | | 1,426 | | 287 | | 1,879 | |
| | | | | | | | | |
| | | |
Net interest income | | $ | 4,195 | | $ | (352 | ) | | $ | (335 | ) | | $ | 3,508 | | $ | 2,310 | | $ | (626 | ) | | $ | (24 | ) | | $ | 1,660 | | | $ | 1,789 | | $ | 310 | | $ | (274 | ) | | $ | 1,825 | | $ | 4,195 | | $ | (352 | ) | | $ | (335 | ) | | $ | 3,508 | |
| | | | | | | | | |
| | |
|
| (1) | | The volume change in net interest income represents the change in average balance dividedmultiplied by the previous year’s rate. |
| |
| (2) | | The rate change in net interest income represents the change in rate dividedmultiplied 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. |
20052006 compared to 2004.2005.Net interest income before provision for loan losses is the difference between interest income and interest expense. Net interest income, on a nontax-equivalent basis, was $22.5 million for the year ended December 31, 2006, an increase of $1.8 million, or 9%, from $20.7 million for 2005. The increase in net interest income was primarily attributed to volume and rate increases in the Company’s average loan balances partially offset by increases in the rates paid on interest bearing deposit account balances and the level of and rates paid on the junior subordinated debentures (trust preferred securities).
Interest income increased $4.0 million, or 16%, to $29.5 million for the year ended December 31, 2006. Interest and fees on loans increased by $4.3 million from $22.0 million for the year ended December 31, 2005 to $26.3 million during the 2006. The average loan balances were $335.2 million for 2006, up $32.6 million, or 11%, from the $302.6 million for 2005. The average yields on loans were 7.84% for 2006 up 58 basis points from 7.26% for 2005. The increase in yield is consistent with market conditions in the Company’s service area.
Interest on investment securities decreased by $277 thousand, as an increase in yield of 29 basis points was offset by a decline in average investment securities of $15.8 million. Interest earned on federal funds sold decreased by $54 thousand. This item benefited from an increase in yield of 86 basis points but was offset by a decline in average balances outstanding of $2.3 million.
Interest expense increased $2.2 million to $7.0 million for the year ended December 31, 2006, up from $4.8 million for 2005. The increase in interest expense was primarily attributed to rate increases on time deposits and interest-bearing demand deposits and the increase in the level of and rates paid on the junior subordinated debentures.
For the year ended December 31, 2006 compared to 2005, the Company’s average rate paid on time deposits increased 81 basis points to 3.54% from 2.73%. This increase is consistent with market conditions
30
in the Company’s service area and reflects the rising interest rate environment which began in 2004 and continued into 2006. The average rate paid on interest-bearing demand deposits increased 145 basis points to 1.85% for the year ended December 31, 2006 from 0.40% for 2005 primarily as a result of the introduction of the Money Fund Plu$ account in September 2005.
Money Fund Plu$ is a high interest bearing checking account designed to pay rates comparable to those available on a typical brokerage account. Since its introduction, there has been significant growth in the total Money Fund Plu$ balances with an average balance of $40.2 million for the year ended December 31, 2006 and total balances as of December 31, 2006 of $42.9 million. The average rate paid on Money Fund Plu$ accounts during 2006 was 3.51%.
Adding to interest expense was an increase in the average balance of the junior subordinated debentures of $3.1 million to $10.3 million and in the average rate paid of 126 basis points from 6.60% to 7.86%.
Net interest margin is net interest income expressed as a percentage of average interest-earning assets. As a result of the changes noted above, the net interest margin for 2006 increased 26 basis points to 5.32%, up from 5.06% for 2005.
2005 compared to 2004.Net interest income was $20.7 million for 2005, an increase of $3.5 million, or 20%, from $17.2 million for 2004. The increase in net interest income was attributed to volume increases in average loan balances and average yields on interest earning assets partially offset by increases in rates paid on deposits. The average loan balances were $302.6 million for 2005, up $68.8 million, or 29%, from the $233.8 million for 2004. The average yields on interest earning assets, which are a combination of loans, investments and federal funds sold, were 6.23% for 2005 up from 5.58% for 2004. Offsetting the benefits of the increased loan volume and higher yields was the impact of the rising interest rate environment which began in 2004 on interest bearing liabilities, especially on time deposits.
Interest expense increased $1.9 million, or 64%, to $4.1 million for 2005, up from $2.9 million for 2004. The increase in interest expense was primarily attributed to rate increases for all interest bearing deposits, with the largest increases in time deposits. The average rate paid on time deposits was 2.73% for 2005, up 85 basis points, or 45%, from the 1.88% paid for 2004.
26
Net interest margin is net interest income expressed asAs a percentageresult of average interest-earning assets. Thethe changes noted above, the net interest margin for 2005 increased 29 basis points to 5.06%, up from 4.77% for 2004.
2004 compared to 2003.Net interest income was $17.2 million for 2004, an increase of $1.7 million, or 11%, from $15.5 million for 2003. The increase in net interest income was attributed to volume increases in average loan and investment balances combined with declines in rates paid on deposits, partially offset by declines in loan yields and volume increases in average deposit balances due to the branch acquisition competed in 2003. The average loan balances were $233.8 million for 2004, up $19.0 million, or 9%, from the $214.7 million for 2003. The average investment balances were $113.7 million for 2004, up $40.9 million, or 56%, from the $72.7 million for 2003. Offsetting the benefits of the increased loan volume was the continuing impact of the falling interest rate environment which began in 2001. Although rates began to rise during the second half of 2004, the average loan yield was 7.04% for 2004, down 51 basis points, or 7%, from the 7.55% for 2003.
Interest expense decreased $100,000, or 3%, to $2.9 million for 2004, down from $3.0 million for 2003. The decrease in interest expense was primarily attributed to rate decreases for all interest bearing deposits, with the largest declines in time and savings deposits. The rate decreases were offset by volume increases primarily in savings and time deposit balances. The average rate paid on time deposits was 1.88% for 2004, down 30 basis points, or 14%, from the 2.18% paid for 2003. The average rate paid on savings deposits was 0.45% for 2004, down 18 basis points, or 28%, from the 0.63% paid for 2003. The average savings deposit balances, were $64.5 million for 2004, up $15.6 million, or 32%, from the $48.9 million for 2003. The average time deposit balances, were $93.7 million for 2004, up $10.5 million, or 13%, from the $83.2 million for 2003.
The net interest margin for 2004 declined 43 basis points to 4.77%, down from 5.20% for 2003. The adverse effects of the falling interest rate environment, which began in 2001, on the Company’s loan portfolio offset the positive affects of the increasing loan and investment balances and declining cost of funds and resulted in the decline in the net interest margin when comparing the periods of 2004 and 2003.
Provision for Loan Losses
The allowance for loan losses is maintained at a level that management believes will be adequate to absorb inherent losses on existing loans based on an evaluation of the collectibility 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 pay. The allowance for loan losses is based on estimates, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. See the sections titled Asset Quality and Analysis of Allowance for Loan Losses for further discussion of loan quality trends and the provision for loan losses.
The Company recorded $1,100,000$1,000,000 in provision for loan losses for 2006, $1,100,000 for 2005 and $750,000 for both 20042004. The Company has experienced a general strengthening in overall credit quality of the loan portfolio as evidenced by a decline in net charge-offs as a percentage of average loans in 2006 and 2003.2005 and a decline in nonperforming loans in 2006 compared to 2005. Net charge-offs as a percentage of average loans improved duringdecreased to 0.10%, or 47%, from the 2005 declininglevel of 0.19%. Net charge-offs as a percentage of average loans decreased to 0.18%0.19%, down 3 basis points, or 14%21%, from the 2004 level of 0.21%0.24%. Similarly, the static provision for loan losses in 2004Nonperforming loans decreased from 2003 was attributed$1.7 million at December 31, 2005 to the general improvement in the overall credit quality of the loan portfolio. Net charge-offs as a percentage of loans improved during 2004, declining to 0.21%, down 9 basis points, or 30%, from the 2003 level of 0.30%.$1.0 million at December 31, 2006. Based on
31
information currently available, management believes that the allowance for loan losses is adequate to absorb potential risks 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. The Company’s loan portfolio composition and non-performing assets are further discussed under the financial condition section that begins on page 31.35.
27
Non-Interest Income
The following table sets forth the components of non-interest income for the years ended December 31, 2006, 2005 2004 and 2003.2004.
| | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | Change during Year | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | Years Ended December 31, | | Change during Year |
| | | | | | | 2006 | | 2005 | | 2004 | | 2006 | | 2005 |
| | | (dollars in thousands) | | | (dollars in thousands) |
| Service charges on deposit accounts | | $ | 3,038 | | $ | 2,982 | | $ | 1,988 | | $ | 56 | | $ | 994 | | | $ | 3,676 | | $ | 3,458 | | $ | 3,297 | | $ | 218 | | $ | 161 | |
| Earnings on bank owned life insurance policies | | 355 | | 415 | | 313 | | | (60 | ) | | 102 | | | 393 | | 355 | | 415 | | 38 | | | (60 | ) |
| Merchant processing | | 338 | | 263 | | 235 | | 75 | | 28 | | | 318 | | 338 | | 263 | | | (20 | ) | | 75 | |
| Investment services | | 189 | | 175 | | 134 | | 14 | | 41 | | |
| Mortgage loan commission and servicing fees | | 171 | | 184 | | 272 | | | (13 | ) | | | (88 | ) | |
| Official check fees | | 118 | | 62 | | 58 | | 56 | | 4 | | | 170 | | 118 | | 62 | | 52 | | 56 | |
| Customer service fees | | 111 | | 119 | | 96 | | | (8 | ) | | 23 | | | 113 | | 111 | | 119 | | 2 | | | (8 | ) |
| Federal Home Loan Bank dividends | | 82 | | 50 | | 22 | | 32 | | 28 | | |
| Investment services | | | 104 | | 189 | | 175 | | | (85 | ) | | 14 | |
| Federal Home Loan Bank Dividends | | | 104 | | 82 | | 50 | | 22 | | 32 | |
| Safe deposit box and night depository income | | 69 | | 61 | | 55 | | 8 | | 6 | | | 69 | | 69 | | 61 | | — | | 8 | |
| Printed check fee income | | 43 | | 24 | | | (19 | ) | | 19 | | 43 | | | 44 | | 43 | | 24 | | 1 | | 19 | |
| Other deposit account fees | | 45 | | 33 | | 20 | | 12 | | 13 | | |
| Gain on sale of loans, net | | | 42 | | 45 | | 94 | | | (3 | ) | | | (49 | ) |
| Loan commission and servicing fees | | | 14 | | 171 | | 184 | | | (157 | ) | | | (13 | ) |
| (Loss) gain on sale of investment securities, net | | | (8 | ) | | 235 | | 328 | | | (243 | ) | | | (93 | ) | | — | | | (8 | ) | | 235 | | 8 | | | (243 | ) |
| Gain on sale of loans, net | | 45 | | 94 | | 67 | | | (49 | ) | | 27 | | |
| Other income | | 57 | | 87 | | 70 | | | (30 | ) | | 17 | | | 112 | | 102 | | 120 | | 10 | | | (18 | ) |
| | | | | | | | | |
| Total non-interest income | | $ | 4,653 | | $ | 4,784 | | $ | 3,639 | | $ | (131 | ) | | $ | 1,145 | | | $ | 5,159 | | $ | 5,073 | | $ | 5,099 | | $ | 86 | | $ | (26 | ) |
| | | | | | | | | |
2006 compared to 2005.During 2006, total non-interest income increased slightly by $86,000, or 2%, to $5.2 million, up from $5.1 million from the comparable period in 2005. This increase was primarily related to an increase in service charges on deposit accounts of $218,000 thousand from the previous year. This increase primarily relates to fees from increased customer usage of deposit account overdrafts privileges, the collection of fees resulting from those overdrafts and from an increase in the rate charged.
Loan commissions and servicing fees declined by $157 thousand from 2005. This decline primarily relates to an increase in the amortization of servicing assets and I/O strips receivable. Declines of $85,000 in investment services income and $20,000 in merchant processing income were mostly offset by increases of $38,000 in earnings on life insurance policies and $52,000 in official check fees.
2005 compared to 2004.During 2005, total non-interest income decreased $131,000,slightly by $26,000, or 3%1%, to $4.7 million, down from $4.8 million for 2004.$5.1 million. The decrease in non-interest income was primarily the result of decreases in gains on sale of investments securities and loans and declines in earnings on bank owned life insurance policies slightlypartially offset by increases in merchant processing fees and service charges on deposit accounts.
DuringThe decrease in gains on sales of investment securities is primarily a result of the increase in short-term interest rates in 2005 the Federal Open Market Committee (the “FOMC”) increased the overnight borrowing rate eight times for a total of a 200 basis points causing the short-term rate environment to shift upward significantly, as a resultreducing opportunities to record gains on the sale of investment securities significantly diminished.securities.
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Earnings on bank-owned life insurance policies (“BOLI”) decreased $60,000, or 14%, as a result of declining yields. Although the short-term rate environment has moved upward in the past eighteen months, the Company’s yields on its holdings in BOLI have not yet benefited from this increasing rate environment.these particular investments The book yields on BOLI averaged 4.1% during 2005 as compared todown from 5.1% during 2004.
Fee income on merchant processing services increased $75,000, or 29%, primarily as a result of an increased number of merchants serviced. The Company continued to increase the number of merchant processing vendors it services and as a result the fees generated from this service increased.
Lastly, as a result of increased volume, serviceService charges on deposit accounts, primarily in the areaareas of ATM and debit card activity and in overdraft fees, increased $56,000,$161,000, or 1.5%5% to $3,038,000$3,458,000 for 2005 up from $2,982,000$3,297,000 for 2004.
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2004 compared to 2003.During 2004, total non-interest income increased $1,145,000, or 31%, to $4.8 million, up from $3.6 million for 2003. The increase in non-interest income was primarily the result of increases in service charge revenue, increases in the cash surrender value of bank-owned life insurance policies (“BOLI”) slightly offset by declines in total gains recorded on the sale of investment securities and fewer commissions on mortgage loans processed.
A large portion of the growth in service charge revenue resulted from an increase in the Company’s overall number of fee generating accounts. As a result of the acquisition in mid-November 2003 of five branches from a competitor, the Company began servicing over 7,300 new deposit accounts. In addition, during April 2004 the Company implemented a new overdraft privilege program for select deposit relationships thereby increasing service charge revenue. Lastly, beginning in 2004 the Company separated fee income from expenses related to its outsourced ATM and debit card activity. Largely as a result of this change, service fee income related to ATM and debit cards increased $332,000 however, expenses related to these products recorded as outside service fees under non-interest expense increased by $173,000.
During the last half of 2003, the Company increased its holding in BOLI by $3.2 million to provide additional coverage for an executive officer of the Company. As a result, during 2004 the Company realized a full year’s tax-exempt earnings from these policies as opposed to only half a year in 2003.
During the second half of 2004, as the rate environment began to shift upward, opportunities to record gains on the sale of investment securities significantly diminished.
Lastly, the increase in the rate environment also resulted in fewer mortgage loans referrals to our third party processor resulting in a decline in loan origination fee income as well as fewer non-conforming and specialty mortgage loans processed internally and sold by the Company.volume.
Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended December 31, 2006, 2005 2004 and 2003.2004.
| | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | Change during Year | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | 2005 | | 2004 | | Years Ended December 31, | | Change during Year |
| | | | | | | 2006 | | 2005 | | 2004 | | 2006 | | 2005 |
| | | (dollars in thousands) | | | (dollars in thousands) |
| Salaries and employee benefits | | $ | 9,514 | | $ | 8,831 | | $ | 7,442 | | $ | 683 | | $ | 1,389 | | | $ | 10,043 | | $ | 9,514 | | $ | 8,831 | | $ | 529 | | $ | 683 | |
| Occupancy and equipment | | 3,070 | | 2,713 | | 2,343 | | 357 | | 370 | | | 3,323 | | 3,070 | | 2,713 | | 253 | | 357 | |
| Professional fees | | 865 | | 596 | | 392 | | 269 | | 204 | | | 780 | | 865 | | 596 | | | (85 | ) | | 269 | |
| Outside service fees | | | 591 | | 700 | | 551 | | | (109 | ) | | 149 | |
| Business development | | 494 | | 389 | | 357 | | 105 | | 32 | | | 555 | | 494 | | 389 | | 61 | | 105 | |
| Advertising and promotion | | 467 | | 350 | | 288 | | 117 | | 62 | | | 552 | | 467 | | 350 | | 85 | | 117 | |
| Telephone and data communications | | 366 | | 346 | | 357 | | 20 | | | (11 | ) | | 374 | | 366 | | 346 | | 8 | | 20 | |
| Director compensation and retirement | | | 370 | | 288 | | 284 | | 82 | | 4 | |
| Core deposit intangible amortization | | | 301 | | 301 | | 299 | | — | | 2 | |
| Stationery and supplies | | | 282 | | 336 | | 292 | | | (54 | ) | | 44 | |
| Armored car and courier | | 337 | | 371 | | 342 | | | (34 | ) | | 29 | | | 270 | | 337 | | 371 | | | (67 | ) | | | (34 | ) |
| Stationery and supplies | | 336 | | 292 | | 349 | | 44 | | | (57 | ) | |
| Core deposit intangible | | 301 | | 299 | | 161 | | 2 | | 138 | | |
| Director compensation and Retirement | | 288 | | 284 | | 196 | | 4 | | 88 | | |
| Outside service fees | | 280 | | 236 | | 201 | | 44 | | 35 | | |
| Postage | | 258 | | 261 | | 253 | | | (3 | ) | | 8 | | | 249 | | 258 | | 261 | | | (9 | ) | | | (3 | ) |
| Insurance | | 206 | | 236 | | 164 | | | (30 | ) | | 72 | | | 173 | | 206 | | 236 | | | (33 | ) | | | (30 | ) |
| Loan expenses | | 114 | | 191 | | 170 | | | (77 | ) | | 21 | | | 139 | | 114 | | 191 | | 25 | | | (77 | ) |
| Other operating expense | | 233 | | 188 | | 111 | | 45 | | 77 | | | 288 | | 233 | | 188 | | 55 | | 45 | |
| | | | | | | | | |
| Total non-interest expense | | $ | 17,129 | | $ | 15,583 | | $ | 13,126 | | $ | 1,546 | | $ | 2,457 | | | $ | 18,290 | | $ | 17,549 | | $ | 15,898 | | $ | 741 | | $ | 1,651 | |
| | | | | | | | | |
2006 compared to 2005.During 2006, total non-interest expense increased $741 thousand, or 4%, to $18.3 million, up from $17.5 million for the comparable period in 2005. The increase in non-interest expense was primarily the result of increases in salaries and employee benefits, occupancy and equipment costs.
Salaries and other employee benefits increased $529 thousand, or 6%, over 2005. Salaries increased $504,000 as a result of staffing additions including increases in loan production, accounting and customer service staff as well as general salary merit increases. Employee bonuses increased $287,000 and stock based compensation expenses increased $126,000. These increases were offset by reductions in workers’ compensation costs of $67,000, salary continuation costs of $268,000 and an increase in capitalized salary costs of $131,000 related to increased loan origination activities. The increase in bonus expense includes the effect of the increase in salary expense and revisions to the Company’s bonus plans for 2006. The decrease in salary continuation expense relates to non-recurring accruals for the Company’s former President and Chief Executive Officer who retired in December 2005.
2933
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (R),Share Based Payment(“SFAS 123 (R)”), using the modified prospective application transition method to record stock based compensation. As a result of adopting SFAS 123 (R), the Company recorded $126,000 of employee stock based compensation expense and $47,000 of director stock based compensation expense during 2006. Basic and diluted earnings per share for the year ended December 31, 2006 would have been $1.07 and $1.05, respectively, without the adoption of SFAS 123 (R) compared to $1.04 and $1.02, respectively, as reported. As of December 31, 2006, there was $263,000 of unrecognized employee compensation costs and $98,000 of unrecognized director compensation cost related to non-vested share-based compensation arrangements. These costs are expected to be recognized over a weighted average period of 2.4 years.
Prior to January 1, 2006, the Company accounted for the stock options under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost was recorded prior to January 1, 2006, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant.
The Company determines the fair value of the options previously granted on the date of grant using a Black-Scholes option pricing model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate.
Occupancy and equipment expense increased by $253,000, or 8%, over 2005. Occupancy expense increased by $206,000 which included depreciation, taxes and insurance associated with the Company’s new Truckee, California branch facility. This facility, completed during October 2006, replaced a much smaller leased facility. In addition the Company experienced higher levels of janitorial, utilities, and other operating costs during 2006. A decrease in equipment deprecation was offset by increases in software costs, as the Company continues to expand and upgrade its computer software applications, resulting in an increase in equipment costs of $47,000.
Professional fees declined by $85,000 in 2006 to $780,000 from $865,000 during 2005. This decline primarily relates to a lower level of consulting fees. As described below, 2005 included several large consulting projects. The Company also benefited from lower outside service fees during 2006. A decline of $109,000 in outside service fees to $591,000 during 2006 from $700,000 during 2005 was primarily related to lower ATM processing fees. An increase of $61,000 in business development costs relates to increased education and training costs. The Company expanded its education and training budget during 2006 and expects to continue to incur an increase in training costs during 2007. The increase in advertising and promotion costs of $85,000, or 18%, includes costs associated with the Company’s newly built Truckee, California branch, an increase in customer incentive programs, and an increase in the overall marketing budget. Armored car and courier costs decreased $67,000, or 20%, as compared to 2005. Courier savings were realized as a result of the Bank’s implementation of “Check 21”. Check 21 is a federal law promoting the transmission of checks electronically between institutions rather than physically transporting the items.
2005 compared to 2004.During 2005, non-interest expense increased $1.5$1.6 million, or 10%, to $17.1$17.5 million, up from $15.6$15.9 million for 2004. The increase in non-interest expense was primarily the result of increases in salaries and employee benefits, occupancy and equipment and professional fees.
During 2005 salaries and employee benefits increased $683,000, or 8%, due primarily to the staffing additions related to the full yearsyear’s operations of the Bank’s three new branch offices, expansion of the Company’s dealer loan unit and other centralized lending functions, branch administration and marketing and other staffing additions to manage the overall growth of the Company. Higher salary and employee costs were somewhat offset by the deferral of salary costs related to increased loan origination activities.
34
Occupancy and equipment expense increased $357,000, or 13%, over the prior year primarily as a result of additional amortization expenses related to software upgrades including item processing and data transmission software developed to comply with new “Check 21” requirements. Check 21 is a federal law that is designed to enable banks to handle checks electronically, which should make check processing faster and more efficient. Additionally, amortization expenses on software increased as a result of upgrades to the Company’s core data system, credit services systems, regulatory compliance systems, teller systems, communication systems and security systems.
Professional fees increased $269,000, or 45%, over the prior year primarily as a result of consulting projects related to an evaluation of the Company’s risk management environment, a management training program and costs incurred by the Company to comply with the new Sarbanes-Oxley reporting requirements.
2004 compared to 2003.Provision for income taxes.During 2004, non-interest expense increased $2.5The provision for income taxes was $3.2 million, or 19%,38.1% of pre-tax income for 2006. This compares to $15.6$2.6 million up from $13.1or 36.5% of pre-tax income during 2005 and $2.0 million for 2003.or 35.5% of pre-tax income during 2004. The increase in non-interestprovision as a percentage of pre-tax income for 2006 reflects the effect of employee stock based compensation expense was primarilywhich is included in expense during 2006, but excluded from the result of increases in salaries and employee benefits, occupancy and equipment, professional fees and deposit premium amortization.
During 2004, salaries and employee benefits increased $1.4 million, or 19%, due primarily to the staffing additions related to the full year’s operationcalculation of the Bank’s three new branch offices that were acquired, expansionprovision for income taxes and a reduction in the percentage of the Company’s centralized lending function, staffing additions to manage the overall growth of the Company and increased employee benefit costs related to health-care and the Company’s salary continuation plans.
Occupancy and equipment expense increased $370,000, or 16%, over the prior year primarilytax exempt income as a resultpercentage of additional depreciation and operating costs associated with the three new branches. These new branches began serving the communities of Tahoe City, Kings Beach and Loyaltonpre-tax income. The increase in November 2003. Other increases in occupancy and equipment relate to depreciation on capitalized upgrades to the Company’s network systems.
Professional fees increased $204,000, or 52%, from 2003 to 2004. The increases in professional fees related primarily to several consulting projects conducted in 2004. These projects included an operational and efficiency review of the lending function, development of a plan to enhance the customer relationship management (CRM) process and development and implementation of the new overdraft privilege program.
Lastly, core deposit intangible amortization increased $138,000, or 86%, over the prior yearprovision as a resultpercentage of additional premium amortization relatedpre-tax income taxes for 2005 over 2004 relates to $45.5 milliona reduction in earnings on Bank owned life insurance policies and a reduction in the percentage of deposits purchased in November 2003.tax exempt income as a percentage of pre-tax income.
Financial Condition
Loan Portfolio.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.
30
The Company’s largest historical lending categories are real estate mortgage loans, commercial loansconsumer and consumerreal estate construction loans. These categories accounted for approximately 34.4%32.8%, 13.1%25.6% and 25.3%21.4%, respectively of the Company’s total loan portfolio at December 31, 2005,2006, and approximately 38.3%34.4%, 16.0%25.3% and 22.1%17.5%, respectively of the Company’s total loan portfolio at December 31, 2004.2005. In addition, the Company’s real estate-related loans, including real estate mortgage loans, real estate construction loans, consumer equity lines of credit, and agricultural loans secured by real estate comprised 66.3%64% and 66% of the total loan portfolio at December 31, 2006 and 2005. Moreover, the business activities of the Company currently are focused in the California counties of Plumas, Nevada, Placer, Lassen, Modoc, Shasta, and Sierra.Sierra and beginning in the fourth quarter of 2006 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 California 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 Northern 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 in California.regions.
The rates of interest charged on variable rate loans are set at specific increments in relation to the Company’s published lending rate and vary as the Company’s lending rate changes. At December 31, 2006 and 2005, approximately 61% and 2004, approximately 74% and 73%, respectively, of the Company’s loan portfolio was compromised of variable rate loans. 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. In addition, the Company remains committed to the agricultural industry in Northeastern California and will continue to pursue high quality agricultural loans as an important component of its overall loan portfolio.loans. Agricultural loans include both commercial and commercial real estate loans. The Company’s agricultural loan balances remained unchanged and wereincreased to $36 million at December 31, 2006 up from $31 million at both December 31, 2005 and 2004.2005.
35
The following table sets forth the amounts of loans outstanding by category as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | | At December 31, |
| | | | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 |
| | | (dollars in thousands) | | (dollars in thousands) |
| Real estate – mortgage | | $ | 110,686 | | $ | 102,125 | | $ | 67,532 | | $ | 66,039 | | $ | 50,865 | | | $ | 116,329 | | $ | 110,686 | | $ | 102,125 | | $ | 67,532 | | $ | 66,039 | |
| Real estate – construction | | 56,370 | | 31,964 | | 26,194 | | 15,175 | | 13,705 | | | 75,930 | | 56,370 | | 31,964 | | 26,194 | | 15,175 | |
| Commercial | | 42,252 | | 42,689 | | 51,073 | | 52,432 | | 49,910 | | | 36,182 | | 42,252 | | 42,689 | | 51,073 | | 52,432 | |
| Consumer | | 81,320 | | 59,068 | | 46,621 | | 48,465 | | 47,280 | | | 90,694 | | 81,320 | | 59,068 | | 46,621 | | 48,465 | |
| Agriculture | | 31,018 | | 31,067 | | 26,537 | | 25,610 | | 21,916 | | | 35,577 | | 31,018 | | 31,067 | | 26,537 | | 25,610 | |
| | | | | |
| Total loans | | 321,646 | | 266,913 | | 217,957 | | 207,721 | | 183,676 | | | 354,712 | | 321,646 | | 266,913 | | 217,957 | | 207,721 | |
| Less: | | |
| Deferred (costs) fees | | | (766 | ) | | 260 | | 530 | | 601 | | 748 | | | | (1,182 | ) | | | (766 | ) | | 260 | | 530 | | 601 | |
| Allowance for loan losses | | 3,256 | | 2,762 | | 2,564 | | 2,471 | | 2,153 | | | 3,917 | | 3,256 | | 2,722 | | 2,524 | | 2,431 | |
| | | | | |
| Net loans | | $ | 319,156 | | $ | 263,891 | | $ | 214,863 | | $ | 204,649 | | $ | 180,775 | | | $ | 351,977 | | $ | 319,156 | | $ | 263,931 | | $ | 214,903 | | $ | 204,689 | |
| | | | | |
The following table sets forth the maturity/repricingmaturity of gross loan categories as of December 31, 2005.2006. Also provided with respect to such loans are the amounts due after one year, classified according to sensitivity to changes in interest rates:
| | | | | | | | | | | | | | | | | | |
| | | Within | | After One | | After | | | | | | | | | | | | | | | | | | |
| | | One Year | | Through Five Years | | Five Years | | Total | | Within | | After One | | After | | |
| | | | | One Year | | Through Five Years | | Five Years | | Total |
| | | (dollars in thousands) | | (dollars in thousands) |
| Real estate – mortgage | | $ | 47,015 | | $ | 51,116 | | $ | 12,555 | | $ | 110,686 | | | $ | 6,077 | | $ | 30,826 | | $ | 79,426 | | $ | 116,329 | |
| Real estate – construction | | 45,605 | | 9,600 | | 1,165 | | 56,370 | | | 37,998 | | 27,263 | | 10,669 | | 75,930 | |
| Commercial | | 30,247 | | 11,211 | | 794 | | 42,252 | | | 11,131 | | 15,132 | | 9,919 | | 36,182 | |
| Consumer | | 35,713 | | 23,123 | | 22,484 | | 81,320 | | | 14,272 | | 47,695 | | 28,727 | | 90,694 | |
| Agriculture | | 18,850 | | 11,755 | | 413 | | 31,018 | | | 18,069 | | 13,003 | | 4,505 | | 35,577 | |
| | | | | |
| Total | | $ | 177,430 | | $ | 106,805 | | $ | 37,411 | | $ | 321,646 | | | $ | 87,547 | | $ | 133,919 | | $ | 133,246 | | $ | 354,712 | |
| | | | | |
| Loans maturing after one year with: | | |
| Fixed interest rates | | $ | 35,214 | | $ | 36,468 | | $ | 71,682 | | | $ | 66,521 | | $ | 35,752 | | $ | 102,273 | |
| Variable interest rates | | 71,591 | | 943 | | 72,534 | | | 67,398 | | 97,494 | | 164,892 | |
| | | | | |
| Total | | $ | 106,805 | | $ | 37,411 | | $ | 144,216 | | | $ | 133,919 | | $ | 133,246 | | $ | 267,165 | |
| | | | | |
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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 bi-weeklyquarterly basis, or more frequently as loan conditions change. The Board of Directors, through the loan committee, reviews the asset quality of new and criticized loans on a monthly basis and reports the findings to the full Board of Directors. In management’s opinion, this loan review system facilitates the early identification of potential criticized loans.
Net charge-offs during the year ended December 31, 20052006 totaled $566,000,$339,000, or 0.18%0.10% of total loans, compared to $552,000,$566,000, or 0.21%0.18% of total loans, for the comparable period in 20042005 and $657,000,$552,000, or 0.30%0.21% of total loans for the comparable period of 2004. The allowance for loan losses stood at 1.10% of total loans as of December 31, 2006, versus 1.01% of total loans as of December 31, 2005, versus 1.03% of total loans as of December 31, 2004.2005.
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 loans. The adequacy of the allowance for loan losses is based upon management’s continuing assessment of various factors affecting the collectibility of loans; including current economic
36
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 collectibility 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. The federal financial regulatory agencies in December 2006 issued a new interagency policy statement on the allowance for loan and lease losses along with supplemental frequently asked questions. When determining the adequacy of the allowance for loan losses, the Company follows these guidelines. The policy statement revises and replaces a 1993 policy statement on the guidelines set forthallowance for loan and lease losses. The agencies issued the revised policy statement in view of today’s uncertain economic environment and the presence of concentrations in untested loan products in the Interagency Policy Statementloan portfolios of insured depository institutions. The policy statement has also been revised to conform with accounting principles generally accepted in the United States of America (“GAAP”) and post-1993 supervisory guidance. The policy statement reiterates that each institution has a responsibility for developing, maintaining and documenting a comprehensive, systematic, and consistently applied process appropriate to its size and the nature, scope, and risk of its lending activities for determining the amounts of the allowance for loan and lease losses and the provision for loan and lease losses and states that each institution should ensure controls are in place to consistently determine the allowance for loan and lease losses in accordance with GAAP, the institution’s stated policies and procedures, management’s best judgment and relevant supervisory guidance.
The policy statement also restates that insured depository institutions must maintain an allowance for loan and lease losses at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the Allowance for Loan and Lease Losses (“Statement”) issued jointly by banking regulators during July 2001. The Statement outlines characteristics that should be used in segmentationremainder of the loan and lease portfolio, for purposesand that estimates of credit losses should reflect consideration of all significant factors that affect the collectibility of the analysis including risk classification, past due status, type of loan, industry or collateral in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5 “Accounting for Contingencies”. It also outlines factors to consider when adjusting the loss factors for various segmentsportfolio as of the evaluation date. The policy statement states that prudent, conservative, but not excessive, loan portfolio.loss allowances that represent management’s best estimate from within an acceptable range of estimated losses are appropriate. In addition, the Company incorporates the Securities and Exchange Commission Staff Accounting Bulletin No. 102, which represents the SEC staff’s view related to methodologies and supporting documentation for the Allowance for Loan and Lease Losses that should be observed by all public companies in complying with the federal securities laws and the Commission’s interpretations.
The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements, which include but are not limited to:
| | •§ | | specific allocation for problem graded loans (“classified loans”), |
| |
| | •§ | | general or formula allocation, |
| |
| | •§ | | and discretionary allocation based on loan portfolio segmentation. |
In addition, theThe Company’s methodology incorporates the following accounting pronouncements in determining the adequacy of the allowance related to impaired loans:for loan losses:
| | •§ | | Statement of Financial Accounting Standards (“SFAS”) No. 114,5 “Accounting for Contingencies”, |
|
| § | | SFAS No.114 ,“Accounting by Creditors for Impairment of a Loan” and |
| |
| | •§ | | SFAS 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” |
Specific allocations are established based on management’s periodic evaluation of loss exposure inherent in classified, impaired, and other loans in which management believes that the collection of principal and interest under the original terms of the loan agreement are in question. For purposes of this analysis,
32
classified loans are grouped by internal risk classifications which are “special mention”, “substandard”, “doubtful”, and “loss”. Special mention loans are currently performing but are potentially weak, as the
37
borrower has begun to exhibit deteriorating trends, which if not corrected, could jeopardize repayment of the loan and result in further downgrade. Substandard loans have well-defined weaknesses which, if not corrected, could jeopardize the full satisfaction of the debt. A loan classified as “doubtful” has critical weaknesses that make full collection of the obligation improbable. Classified loans, as defined by the Company, include loans categorized as substandard and doubtful. Loans classified as loss are immediately charged off.
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 on the internal risk grade of those loans and may be adjusted for significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date. The formula allocation analysis incorporates loan losses over the past twelve quarters (three years).seven years. Loss factors are adjusted to recognize and quantify the estimated loss exposure resulting from changes in market conditions and trends in the Company’s loan portfolio.
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.
The following table provides certain information for the years indicated with respect to the Company’s allowance for loan losses as well as charge-off and recovery activity.
| | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | | At December 31, |
| | | | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 |
| | | (dollars in thousands) | | (dollars in thousands) |
| Balance at beginning of period | | $ | 2,722 | | $ | 2,524 | | $ | 2,431 | | $ | 2,113 | | $ | 1,848 | | | $ | 3,256 | | $ | 2,722 | | $ | 2,524 | | $ | 2,431 | | $ | 2,113 | |
| | | | | |
| Charge-offs: | | |
| Commercial and agricultural | | 297 | | 103 | | 295 | | 195 | | 215 | | | 126 | | 297 | | 103 | | 295 | | 195 | |
| Real estate mortgage | | — | | — | | 26 | | 13 | | — | | | — | | — | | — | | 26 | | 13 | |
| Real estate construction | | — | | — | | 6 | | — | | — | | | — | | — | | — | | 6 | | — | |
| Consumer | | 442 | | 600 | | 520 | | 393 | | 345 | | | 519 | | 442 | | 600 | | 520 | | 393 | |
| | | | | |
| Total charge-offs | | 739 | | 703 | | 847 | | 601 | | 560 | | | 645 | | 739 | | 703 | | 847 | | 601 | |
| | | | | |
| Recoveries: | | |
| Commercial and agricultural | | 21 | | 15 | | 45 | | 21 | | 15 | | | 46 | | 21 | | 15 | | 45 | | 21 | |
| Real estate mortgage | | — | | — | | — | | — | | — | | | — | | — | | ��� | | — | | — | |
| Real estate construction | | — | | — | | — | | — | | — | | | — | | — | | — | | — | | — | |
| Consumer | | 152 | | 136 | | 145 | | 73 | | 85 | | | 260 | | 152 | | 136 | | 145 | | 73 | |
| | | | | |
| Total recoveries | | 173 | | 151 | | 190 | | 94 | | 100 | | | 306 | | 173 | | 151 | | 190 | | 94 | |
| | | | | |
| Net charge-offs | | 566 | | 552 | | 657 | | 507 | | 460 | | | 339 | | 566 | | 552 | | 657 | | 507 | |
| Provision for loan losses | | 1,100 | | 750 | | 750 | | 825 | | 725 | | | 1,000 | | 1,100 | | 750 | | 750 | | 825 | |
| | | | | |
| Balance at end of period | | $ | 3,256 | | $ | 2,722 | | $ | 2,524 | | $ | 2,431 | | $ | 2,113 | | | $ | 3,917 | | $ | 3,256 | | $ | 2,722 | | $ | 2,524 | | $ | 2,431 | |
| | | | | |
| Net charge-offs during the period to average loans | | | 0.19 | % | | | 0.24 | % | | | 0.31 | % | | | 0.26 | % | | | 0.26 | % | | | 0.10 | % | | | 0.19 | % | | | 0.24 | % | | | 0.31 | % | | | 0.26 | % |
| Allowance for loan losses to total loans | | | 1.01 | % | | | 1.03 | % | | | 1.18 | % | | | 1.19 | % | | | 1.17 | % | | | 1.10 | % | | | 1.01 | % | | | 1.02 | % | | | 1.16 | % | | | 1.17 | % |
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 collectibility of the principal
33
or interest on a loan is considered to be doubtful by management, it is placed on nonaccrual status prior to becoming 90 days delinquent.
38
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.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.
The following table sets forth the amount of the Company’s nonperforming assets as of the dates indicated. None of the Company’s loans were troubled debt restructurings.
| | | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | | At December 31, |
| | | | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 |
| | | (dollars in thousands) | | (dollars in thousands) |
| Nonaccrual loans | | $ | 1,661 | | $ | 1,171 | | $ | 847 | | $ | 1,711 | | $ | 1,203 | | | $ | 972 | | $ | 1,661 | | $ | 1,171 | | $ | 847 | | $ | 1,711 | |
| Loans past due 90 days or more and still accruing | | — | | 36 | | 29 | | 75 | | 98 | | | 41 | | — | | 36 | | 29 | | 75 | |
| | | | | |
| Total nonperforming loans | | 1,661 | | 1,207 | | 876 | | 1,786 | | 1,301 | | | 1,013 | | 1,661 | | 1,207 | | 876 | | 1,786 | |
| Other real estate owned | | — | | — | | — | | 125 | | 122 | | | — | | — | | — | | — | | 125 | |
| Other vehicles owned | | 40 | | 33 | | — | | — | | — | | | 47 | | 40 | | 33 | | — | | — | |
| | | | | |
| Total nonperforming assets | | $ | 1,701 | | $ | 1,240 | | $ | 876 | | $ | 1,911 | | $ | 1,423 | | | $ | 1,060 | | $ | 1,701 | | $ | 1,240 | | $ | 876 | | $ | 1,911 | |
| | | | | |
| Interest income forgone on nonaccrual loans | | $ | 39 | | $ | 25 | | $ | 51 | | $ | 148 | | $ | 72 | | | $ | 53 | | $ | 39 | | $ | 25 | | $ | 51 | | $ | 148 | |
| Interest income recorded on a cash basis on nonaccrual loans | | $ | 16 | | $ | 63 | | $ | 143 | | $ | 29 | | $ | 1 | | | $ | 116 | | $ | 16 | | $ | 63 | | $ | 143 | | $ | 29 | |
| Nonperforming loans to total loans | | | 0.52 | % | | | 0.45 | % | | | 0.40 | % | | | 0.86 | % | | | 0.71 | % | |
| Nonperforming assets to total assets | | | 0.36 | % | | | 0.30 | % | | | 0.22 | % | | | 0.59 | % | | | 0.52 | % | |
| Allowance for loan losses to nonperforming loans | | | 196 | % | | | 229 | % | | | 293 | % | | | 138 | % | | | 165 | % | |
| Nonperforming loans to total Loans | | | | 0.29 | % | | | 0.52 | % | | | 0.45 | % | | | 0.40 | % | | | 0.86 | % |
| Nonperforming assets to total Assets | | | | 0.22 | % | | | 0.36 | % | | | 0.30 | % | | | 0.22 | % | | | 0.59 | % |
| Allowance for loan losses to nonperforming Loans | | | | 387 | % | | | 196 | % | | | 226 | % | | | 288 | % | | | 136 | % |
At December 31, 20052006 and 2004,2005, the Company’s recorded investment in loans for which impairment has been recognized totaled $1.7$1.0 million and $1.2$1.7 million, respectively. The specific allowance for loan losses related to impaired loans was $137,000$66,000 and $121,000$137,000 at December 31, 20052006 and 2004,2005, respectively. The average recorded investment in impaired loans was $1.2 million, $1.3 million and $1.6 million and $2.0 million duringfor the years ended December 31, 2006, 2005 2004 and 2003,2004, respectively. In most cases, the Company uses the cash basis method of income recognition for impaired loans. For the years ended December 31, 2006, 2005 2004 and 2003,2004, the Company recognized $116,000, $16,000 $63,000 and $143,000,$63,000, respectively, of income on such loans.
It is the policy of management to make additions to the allowance for loan losses so that it remains adequate to absorb the inherent risk of loss in the portfolio. Management believes that the allowance at December 31, 20042006 is adequate. 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.
Investment Portfolio and Federal Funds Sold.Total investment securities and Federal funds sold decreased $8.1$30.4 million, or 7%29%, to $105.2$74.8 million as of December 31, 2005,2006, down from $113.3$105.2 million at December 31, 2004. The slight decline in these balances in 2005 directly relates to our planned migration of assets, acquired2005. During 2006 the Company utilized the proceeds from the 2003 branchmaturities and deposit purchase, from the investment securities portfolio to the loan portfolio. In late 2003, when the Company initially received funds for assuming the deposit liabilitiescalls of the acquired branches, these funds were directed into shorter-term investment securities.
3439
However, over time we have transitionedinvestment securities along with advances from the Federal Home Loan Bank to fund its loan growth. This resulted in the Company increasing its net interest margin as it replaced lower yielding investments with loans. The Company intends to continue to fund a significant portion of its anticipated loan growth in 2007 with funds generated from matured or called investment securities. Since the addition of $45 million in deposits from branch acquisitions in late 2003, the Bank has continued to migrate the original placement of these assetsamounts from short-term investment securities into higher-yielding loan balances.
The composition of the portfolio as of the end of 20052006 was fairly consistent with the composition of the portfolio as of the end of 2004.2005. The investment portfolio balances in U.S. Treasuries, U.S. Government agencies, corporate debt securities and municipal obligations comprised 7%, 64%, 10% and 19%, respectively, at December 31, 2006 versus 10%, 66%, 10% and 14%, respectively, at December 31, 2005 versus 9%, 69%, 9%2005. The increase in municipal obligations as a percentage of the investment relates to the decrease in shorter maturity investment securities such as U.S. Treasuries and 13%, respectively, at December 31, 2004. Two trends that continueU.S. agency securities. As these securities mature the proceeds where used to primarily to fund growth in the investment portfolio are the growth in holdings of mortgage-backed securities and tax-exempt municipal securities.
loan portfolio. During 2003,2006 the Company began investingpurchased $155,000 of securities while maturities and principal repayments totaled $23.6 million
The Company’s investments in mortgage-backed securities of U.S. Government agencies toachieve both an increase in interest income and provide cash flows for liquidity and reinvestment opportunities. At December 31, 2005,2006, total balances in these mortgage-backed securities amounted to $17 million down from $21 million.million at December 31, 2005. Although these pass-through securities typically have final maturities of between ten and fifteen years, the pass-through nature of the monthly principal and interest payments is expected to significantly reduce the average life of these securities.
Lastly, the Company has continued to expand its holdings in longer-term municipal securities. In addition to providing diversified investment holdings, theseMunicipal securities provide attractive tax equivalent yields for the Company. Since the majority of the interest earnings on these securities are not taxable for Federal purposes the growth inaddition of municipal securities has resultedresults in significantly loweringa reduction in the effective tax rate of the Company.
The Company classifies its investment securities as available-for-sale or held-to-maturity. Plumas Bancorp’sThe Company’s intent is to hold all securities classified as held-to-maturity until maturity and management believes that it has the ability to do so. Securities 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.
The following tables summarize the values of the Company’s investment securities held on the dates indicated:
| | | | | | | | | | | | | | |
| | | December 31, | |
| | | | |
| | 2005 | | 2004 | | 2003 | | | | | | | | | | | | |
| | | | | December 31, | |
| Available-for-sale (fair value) | | (dollars in thousands) | | 2006 | | 2005 | | 2004 | |
| | | | (dollars in thousands) | |
| U.S. Treasuries | | $ | 9,823 | | $ | 10,055 | | $ | 11,907 | | | $ | 5,344 | | $ | 9,823 | | $ | 10,055 | |
| U.S. Government agencies | | 43,756 | | 57,083 | | 70,442 | | | 30,063 | | 43,756 | | 57,083 | |
| Corporate debt securities | | 9,231 | | 9,501 | | 10,983 | | | 7,868 | | 9,231 | | 9,501 | |
| U.S. Government agency mortgage-backed securities | | 20,951 | | 20,640 | | 12,832 | | |
| U.S. Government agency mortgage-backed Securities | | | 17,440 | | 20,951 | | 20,640 | |
| | | | | |
| Total | | $ | 83,761 | | $ | 97,279 | | $ | 106,164 | | | $ | 60,715 | | $ | 83,761 | | $ | 97,279 | |
| | | | | |
| | | | | | | | | | | | | | |
| | | December 31, | |
| | | | |
| | 2005 | | 2004 | | 2003 | | | | | | | | | | | | |
| | | | | December 31, | |
| Held-to-maturity (amortized cost) | | (dollars in thousands) | | 2006 | | 2005 | | 2004 | |
| | | | (dollars in thousands) | |
| U.S. Government agencies | | $ | 6 | | $ | 507 | | $ | 512 | | | $ | 6 | | $ | 507 | |
| Corporate debt securities | | — | | 500 | | 1,502 | | | — | | 500 | |
| Municipal obligations | | 14,077 | | 14,966 | | 7,705 | | | $ | 14,080 | | 14,077 | | 14,966 | |
| | | | | |
| Total | | $ | 14,083 | | $ | 15,973 | | $ | 9,719 | | | $ | 14,080 | | $ | 14,083 | | $ | 15,973 | |
| | | | | |
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The following table summarizes the maturities of the Company’s securities at their carrying value and their weighted average yields at December 31, 2005. Yields on tax-exempt municipal obligations have been computed using a cost of funds rate of 0.71%.2006.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | | Within One Year | | One to Five Years | | Five to Ten Years | | Over Ten Years | | Total | | After One Through | | After Five Through | | | | |
| Available-for-sale | | | | | | | | | | | | | | | | | | | | | | One Year or Less | | Five Years | | Ten Years | | After Ten Years | | Total |
| (Fair Value) | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| | | | |
| U.S. Treasuries | | $ | 4,527 | | | 2.18 | % | | $ | 5,296 | | | 2.91 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 9,823 | | | 2.58 | % | | $ | 1,966 | | | 2.73 | % | | $ | 3,378 | | | 3.02 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 5,344 | | | 2.91 | % |
| U.S. Government agencies | | 13,882 | | | 2.42 | % | | 29,874 | | | 3.15 | % | | — | | | — | % | | — | | | — | % | | 43,756 | | | 2.92 | % | | 21,743 | | | 3.26 | % | | 8,320 | | | 2.87 | % | | — | | | — | % | | — | | | — | % | | 30,063 | | | 3.15 | % |
| Corporate debt securities | | 1,348 | | | 2.55 | % | | 7,883 | | | 3.36 | % | | — | | | — | % | | — | | | — | % | | 9,231 | | | 3.25 | % | | 3,996 | | | 3.17 | % | | 3,872 | | | 3.57 | % | | — | | | — | % | | — | | | — | % | | 7,868 | | | 3.37 | % |
| U.S. Government agency mortgage-backed securities | | — | | | — | % | | 5,084 | | | 3.54 | % | | 7,085 | | | 3.92 | % | | 8,782 | | | 4.79 | % | | 20,951 | | | 4.19 | % | | — | | | — | % | | 5,688 | | | 3.68 | % | | 4,332 | | | 3.85 | % | | 7,420 | | | 4.79 | % | | 17,440 | | | 4.19 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 19,757 | | | 2.38 | % | | $ | 48,137 | | | 3.20 | % | | $ | 7,085 | | | 3.92 | % | | $ | 8,782 | | | 4.79 | % | | $ | 83,761 | | | 3.23 | % | | $ | 27,705 | | | 3.21 | % | | $ | 21,258 | | | 3.24 | % | | $ | 4,332 | | | 3.85 | % | | $ | 7,420 | | | 4.79 | % | | $ | 60,715 | | | 3.46 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Held-to-maturity (Amortized Cost) | | |
| U.S. Government agencies | | $ | — | | | — | % | | $ | 6 | | | 7.63 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 6 | | | 7.63 | % | |
| | | | | | | | | | | | |
| Municipal obligations | | 85 | | | 6.06 | % | | 1,579 | | | 5.78 | % | | 6,193 | | | 5.34 | % | | 6,220 | | | 5.95 | % | | 14,077 | | | 5.66 | % | | $ | 588 | | | 5.37 | % | | $ | 1,501 | | | 5.61 | % | | $ | 8,789 | | | 5.52 | % | | $ | 3,202 | | | 6.32 | % | | $ | 14,080 | | | 5.70 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 85 | | | 6.06 | % | | $ | 1,585 | | | 5.79 | % | | $ | 6,193 | | | 5.34 | % | | $ | 6,220 | | | 5.95 | % | | $ | 14,083 | | | 5.67 | % | |
| | | | | | | | | | | | |
3641
Deposits.Total deposits were $426.6$402.2 million as of December 31, 2005, an increase2006, a decrease of $48$24.4 million, or 13%6%, from the December 31, 20042005 balance of $378.6$426.6 million. Competition for deposit dollars throughout the Company’s service area, both from bank and non-bank sources and a lack of significant deposit growth in the Company’s service area have contributed to this decline in deposits. The Company believes that additional deposits could be generated through aggressive pricing, but has chosen to rely on alternative sources of liquidity to fund additions to its loan portfolio during 2006. The Company continues to manage the mix of its deposits consistent with its identity as a community bank serving the financial needs of its customers. As of December 31, 2005,2006, non-interest bearing demand deposits and interest checking deposits increased to 46.8%50.3% of total deposits versus 40.7%46.8% at December 31, 2004.2005. Money market and savings deposits decreased to 30.0%24.6% of total deposits as of December 31, 20052006 compared to 34.3%30.0% as of December 31, 2004.2005. Time deposits decreasedincreased to 23.2%25.1% of total deposits as of December 31, 20052006 compared to 25.0%23.2% at December 31, 2004.2005.
While the Company has experienced an overall decline in deposits, its’ Money Fund Plu$ checking account, introduced in September 2005, has been very successful in generating interest bearing checking deposits. This account is intended to pay rates comparable to those available on a typical brokerage account. Since its introduction, there has been significant growth in the total Money Fund Plu$ balances with an increase of $21.6 million in 2006 and balances at December 31, 2006 of $42.9 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. In order to assist in meeting any funding demands, the Company maintains unsecured borrowing arrangements with several correspondent banks in addition to a secured borrowing arrangement with the Federal Home Loan Bank for longer more permanent funding needs. The Company does not accept brokered deposits.
The following chart sets forth the distribution of the Company’s average daily deposits for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Average | | Average | | Average | | | | | 2006 | | 2005 | | 2004 | |
| | | Balance | | Rate % | | Balance | | Rate % | | Balance | | Rate % | | | Average | | Average | | Average | | | |
| | | | | Balance | | Rate % | | Balance | | Rate % | | Balance | | Rate % | |
| | | (dollars in thousands) | | | (dollars in thousands) | |
| Non-interest-bearing deposits | | $ | 124,568 | | $ | 105,841 | | $ | 78,301 | | | $ | 125,202 | | $ | 124,568 | | $ | 105,841 | |
| | | | | | | | | | | | | | | |
| Interest-bearing deposits: | | |
| NOW accounts | | 48,577 | | | 0.40 | % | | 44,244 | | | 0.13 | % | | 35,668 | | | 0.22 | % | |
| Interest bearing demand deposits | | | 80,685 | | | 1.85 | % | | 48,577 | | | 0.40 | % | | 44,244 | | | 0.13 | % |
| Money market accounts | | 64,025 | | | 1.17 | % | | 65,026 | | | 0.75 | % | | 58,814 | | | 0.85 | % | | 56,496 | | | 1.17 | % | | 64,025 | | | 1.17 | % | | 65,026 | | | 0.75 | % |
| Savings | | 67,702 | | | 0.66 | % | | 64,472 | | | 0.45 | % | | 48,866 | | | 0.63 | % | | 59,802 | | | 0.71 | % | | 67,702 | | | 0.66 | % | | 64,472 | | | 0.45 | % |
| Time deposits | | 93,946 | | | 2.73 | % | | 93,684 | | | 1.88 | % | | 83,186 | | | 2.18 | % | | 93,515 | | | 3.54 | % | | 93,946 | | | 2.73 | % | | 93,684 | | | 1.88 | % |
| | | | | | | | | | | | | | | |
| Total interest bearing deposits | | 274,250 | | | 1.49 | % | | 267,426 | | | 0.97 | % | | 226,534 | | | 1.19 | % | | 290,498 | | | 2.03 | % | | 274,250 | | | 1.49 | % | | 267,426 | | | 0.97 | % |
| | | | | | | | | | | | | | | |
| Total deposits | | $ | 398,818 | | | 1.03 | % | | $ | 373,267 | | | 0.70 | % | | $ | 304,835 | | | 0.89 | % | | $ | 415,700 | | | 1.42 | % | | $ | 398,818 | | | 1.03 | % | | $ | 373,267 | | | 0.70 | % |
| | | | | | | | | | | | | | | |
The Company’s time deposits of $100,000 or more had the following schedule of maturities at December 31, 2005:2006:
| | | | | | | | | |
| | | Amount | | | Amount | |
| (dollars in thousands) | |
| | | | (dollars in thousands) | |
| Remaining Maturity: | | |
| Three months or less | | $ | 14,285 | | | $ | 7,672 | |
| Over three months to six months | | 5,944 | | | 11,338 | |
| Over six months to 12 months | | 5,759 | | | 10,844 | |
| Over 12 months | | 6,587 | | | 7,009 | |
| | | | | | | |
| Total | | $ | 32,575 | | | $ | 36,863 | |
| | | | | | | |
42
Time deposits of $100,000 or more are generally from the Company’s local business and individual customer base. The potential impact on the Company’s liquidity from the withdrawal of these deposits is discussed inat the Company’s asset and liability management committee meetings, and is considered to be minimal.
37
Capital Resources
Shareholders’ Equity.Shareholders’ equity as of December 31, 20052006 increased $3.2$4.7 million, or 12%15%, to $31.1$35.8 million from $27.9$31.1 million as of December 31, 2004.2005. This increase was due to the retention of current period earnings of $4.5$5.2 million and, to a lesser extent, the net funds received from key employees and directors exercising their stock options totaling $407,000.$242,000, stock-based compensation expense of $174,000 and a decrease in unrealized losses on available-for-sale investment securities of $399,000. Partially offsetting these increases were two cash dividends totaling $1.1$1.3 million paid during 2005 and a decrease in the unrealized gains on available-for-sale investment securities of $599,000.2006.
Capital Standards.At December 31, 2005,An increase in the Company’s capital ratios increased slightly. This increaseduring 2006 was primarily attributed to increase in shareholders’ equity described above while the issuance in Septemberlevel of 2005 of an additional $4.1 million of trust preferred securities to accommodate the Company’s plans for continued growth.risk weighted assets remained fairly consistent.
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 Company’s current capital position exceeds minimum thresholds established by industry regulators, and by current regulatory definitions the Bank is well capitalized, the highest rating of the categories defined under Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991. 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 balanceoff-balance sheet exposures. There are two categories of capital under the guidelines: Tier 1 capital includes common stockholders’ equity, and qualifying trust-preferred securities (including notes payable to unconsolidated special purpose entities that issue trust-preferred securities), less goodwill and certain other deductions, notably the unrealized net gains or losses (after tax adjustments) on available for sale investment securities carried at fair market value; Tier 2 capital can include qualifying subordinated debt and the allowance for loan and lease losses, subject to certain limitations.
As noted previously, the Company’s junior subordinated debentures represent borrowings from its unconsolidated subsidiaries that have issued an aggregate $10 million in trust-preferred securities. These debenturestrust-preferred securities currently qualify for inclusion as Tier 1 capital for regulatory purposes as they do not exceed 25% of total Tier 1 capital, but are classified as long-term debt in accordance with generally accepted accounting principles.GAAP. On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued inclusion of trust-preferred securities (and/or related subordinated debentures) in the Tier I capital of bank holding companies. However, under the final rule, after a five-year transition period goodwill must be deducted from Tier I capital prior to calculating the 25% limitation. Generally, the amount of junior subordinated debentures in excess of the 25% Tier 1 limitation is included in Tier 2 capital.
43
The following tables present the capital ratios for the Company and the Bank compared to the standards for bank holding companies and the regulatory minimum requirements for depository institutions as of December 31, 2006 and 2005 (amounts in thousands except percentage amounts).
| | | | | | | | | | | | | | | | | |
| | | December 31, 2005 | | December 31,2004 |
| | | Amount | | Ratio | | Amount | | Ratio |
| |
Tier 1 Leverage Ratio | | | | | | | | | | | | | | | | |
Plumas Bancorp and Subsidiary | | $ | 40,589 | | | | 8.5 | % | | $ | 32,444 | | | | 7.6 | % |
| Minimum regulatory requirement | | | 19,103 | | | | 4.0 | % | | | 17,120 | | | | 4.0 | % |
Plumas Bank | | | 37,611 | | | | 7.8 | % | | | 31,982 | | | | 7.5 | % |
| Minimum requirement for “Well-Capitalized” institution | | | 24,060 | | | | 5.0 | % | | | 21,400 | | | | 5.0 | % |
| Minimum regulatory requirement | | | 19,248 | | | | 4.0 | % | | | 17,120 | | | | 4.0 | % |
| | | | | | | | | | | | | | | | | |
Tier 1 Risk-Based Capital Ratio | | | | | | | | | | | | | | | | |
Plumas Bancorp and Subsidiary | | | 40,589 | | | | 10.3 | % | | | 32,444 | | | | 10.1 | % |
| Minimum regulatory requirement | | | 15,780 | | | �� | 4.0 | % | | | 12,858 | | | | 4.0 | % |
Plumas Bank | | | 37,611 | | | | 9.6 | % | | | 31,982 | | | | 10.0 | % |
| Minimum requirement for “Well-Capitalized” institution | | | 23,635 | | | | 6.0 | % | | | 19,262 | | | | 6.0 | % |
| Minimum regulatory requirement | | | 15,757 | | | | 4.0 | % | | | 12,841 | | | | 4.0 | % |
38
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2005 | | December 31,2004 | | December 31, 2006 | | December 31, 2005 |
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| | | |
Tier 1 Leverage Ratio | | |
Plumas Bancorp and Subsidiary | | | $ | 45,206 | | | 9.5 | % | | $ | 40,589 | | | 8.5 | % |
| Minimum regulatory requirement | | | 18,955 | | | 4.0 | % | | 19,013 | | | 4.0 | % |
Plumas Bank | | | 44,094 | | | 9.3 | % | | 37,611 | | | 7.8 | % |
| Minimum requirement for “Well-Capitalized” institution | | | 23,669 | | | 5.0 | % | | 24,060 | | | 5.0 | % |
| Minimum regulatory requirement | | | 18,935 | | | 4.0 | % | | 19,248 | | | 4.0 | % |
| | | |
Tier 1 Risk-Based Capital Ratio | | |
Plumas Bancorp and Subsidiary | | | 45,206 | | | 10.9 | % | | 40,589 | | | 10.3 | % |
| Minimum regulatory requirement | | | 16,610 | | | 4.0 | % | | 15,780 | | | 4.0 | % |
Plumas Bank | | | 44,094 | | | 10.6 | % | | 37,611 | | | 9.6 | % |
| Minimum requirement for “Well-Capitalized” institution | | | 24,885 | | | 6.0 | % | | 23,635 | | | 6.0 | % |
| Minimum regulatory requirement | | | 16,590 | | | 4.0 | % | | 15,757 | | | 4.0 | % |
| | | |
Total Risk-Based Capital Ratio | | |
Plumas Bancorp and Subsidiary | | 43,845 | | | 11.1 | % | | 35,206 | | | 10.9 | % | | 49,123 | | | 11.8 | % | | 43,845 | | | 11.1 | % |
| Minimum regulatory requirement | | 31,560 | | | 8.0 | % | | 25,715 | | | 8.0 | % | | 33,221 | | | 8.0 | % | | 31,560 | | | 8.0 | % |
Plumas Bank | | 40,867 | | | 10.4 | % | | 34,744 | | | 10.8 | % | | 48,011 | | | 11.6 | % | | 40,867 | | | 10.4 | % |
| Minimum requirement for “Well-Capitalized” institution | | 39,392 | | | 10.0 | % | | 32,103 | | | 10.0 | % | | 41,475 | | | 10.0 | % | | 39,392 | | | 10.0 | % |
| Minimum regulatory requirement | | 31,514 | | | 8.0 | % | | 25,682 | | | 8.0 | % | | 33,180 | | | 8.0 | % | | 31,514 | | | 8.0 | % |
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 leverage, Tier 1 risk-based and total risk-based capital ratios of 5%, 6% and 10%, respectively, 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 December 31, 2005,2006, the Company had $107.5$101.8 million in unfunded loan commitments and $1.2 million$600 thousand in letters of credit. Of the $107.5$101.8 million in unfunded loan commitments, $72.7$62.8 million and $34.8$39.0 million represented commitments to commercial and consumer customers, respectively. Of the total unfunded commitments at December 31, 2005, $69.22006, $65.6 million were secured by real estate, of which $42.4$38.5 million was secured by commercial real estate and $26.8$27.1 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. Since, some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessary represent future cash requirements.
44
Operating Leases.The Company leases threetwo depository branches as well as one administrativetwo lending officeoffices and five automated teller machine locations used in the normal course of business throughout six counties in the Company’s service area.
Total rental expenses under all operating leases, including premises, totaled $221,000, $242,000 and $264,000, in 2006, 2005 and $179,000, in 2005, 2004 and 2003 respectively. The expiration dates of the leases vary, with the first such lease expiring during 20062007 and the last such lease expiring during 2008.2009.
Contractual Obligations and Commitments
The Company’s contractual obligations and commitments are comprised of the junior subordinated deferrable interest debentures and operating lease obligations, salary continuation plans and a mortgage for various banking facilities. As of December 31, 2005,2006, future contractual obligations of the Company are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | Contractual Obligations Due by Period | | | | | | | | | | | | | | | | | | | | |
| | | | | Contractual Obligations Due by Period |
| (dollars in thousands) | | Total | | Less than 1 year | | 1 to 3 years | | 3 to 5 years | | More than 5 years | | Total | | Less than 1 year | | 1 to 3 years | | 3 to 5 years | | More than 5 years |
| | | | | |
| Long-term debt obligations: | | |
| Junior subordinated deferrable Interest debentures | | $ | 10,310 | | $ | — | | $ | — | | $ | — | | $ | 10,310 | | | $ | 10,310 | | $ | — | | $ | — | | $ | — | | $ | 10,310 | |
| Operating lease obligations | | 337 | | 188 | | 149 | | — | | — | | | 235 | | 164 | | 71 | | — | | — | |
| Other long-term liabilities: | | |
| Salary continuation | | 2,626 | | 8 | | 18 | | 21 | | 2,040 | | | 2,822 | | 35 | | 84 | | 106 | | 2,597 | |
| Branch mortgage | | 72 | | 9 | | 20 | | 23 | | 20 | | | 63 | | 10 | | 21 | | 25 | | 7 | |
| | | | | |
| Total contractual liabilities | | $ | 13,345 | | $ | 205 | | $ | 187 | | $ | 44 | | $ | 12,370 | | | $ | 13,430 | | $ | 209 | | $ | 176 | | $ | 131 | | $ | 12,914 | |
| | | | | |
39
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 Federal Funds sold, the Company maintains an investment portfolio containing U.S. Government and agency securities that are classified as available-for-sale. On the liability side, liquidity needs are managed by changing competitive offering rates on deposit products and the use of established lines of credit from other financial institutions and the Federal Home Loan Bank.
The Company has unsecured short-term borrowing agreements with two of its correspondent banks in the amounts of $10 million and $5 million. In addition, the Company can borrow up to $77.5$93.3 million from the Federal Home Loan Bank secured by commercial and residential mortgage loans. Short-term borrowings at December 31, 2006 consisted of $20,000,000 in Federal Home Loan Bank advances which are normally purchased for one day periods. There were no short-term borrowings outstanding at December 31, 2005, and 2003, but there was a $1 million short-term borrowing outstanding at December 31, 2004.
Customer deposits are the Company’s primary source of funds. Deposits totaled $426.6Total deposits were $402.2 million atas of December 31, 2005, an increase2006, a decrease of $48.0$24.4 million, or 12%6%, from the December 31, 20042005 balance of $378.6$426.6 million. Those funds are held in various forms with varying maturities. The Company does not accept brokered deposits. The Company’s securities portfolio, Federal funds sold, Federal Home Loan Bank 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 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 short-term borrowings, will provide adequate liquidity for its operations in the foreseeable future.
45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates and prices such as interest rates, commodity prices and equity prices. As a financial institution, the Company’s market risk arises primarily from interest rate risk exposure. Fluctuation in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest earning assets and interest bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of its operations, the Company is not subject to foreign currency exchange or commodity price risk. However, the Bank’s real estate loan portfolio, concentrated primarily within northeastern California, is subject to risks associated with the local economies.
The fundamental objective of the Company’s management of its assets and liabilities is to maximize the economic value of the Company while maintaining adequate liquidity and an exposure to interest rate risk deemed by management to be acceptable. Management believes an acceptable degree of exposure to interest rate risk results from the management of assets and liabilities through using floating rate loans and deposits, maturities, pricing and mix to attempt to neutralize the potential impact of changes in market interest rates. The Company’s profitability is dependent to a large extent upon its net interest income which is the difference between its interest income on interest-earning assets, such as loans and securities, and its interest expense on interest-bearing liabilities, such as deposits, trust preferred securities and other borrowings. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-earning assets reprice differently than its interest-bearing liabilities. The Company manages its mix of assets and liabilities with the goals of limiting its exposure to interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds.
The Company seeks to control its interest rate risk exposure in a manner that will allow for adequate levels of earnings and capital over a range of possible interest rate environments. The Company has adopted formal policies and practices to monitor and manage interest rate risk exposure. As part of this effort, the Company measures interest rate risk utilizing both an internal asset liability management system as well as employing independent third party reviews to confirm the reasonableness of the assumptions used to measure and report the Company’s interest rate risk, enabling management to make any adjustments necessary.
40
Interest rate risk is managed by the Company’s Asset Liability Committee (“ALCO”), which includes members of senior management. The ALCO monitors interest rate risk by analyzing the potential impact on net interest income from potential changes in interest rates and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages the Company’s balance sheet in part to maintain the potential impact on net interest income within acceptable ranges despite changes in interest rates. The Company’s exposure to interest rate risk is reviewed on at least a quarterly basis by ALCO.
Net Interest Income Simulation.In order to measure interest rate risk at December 31, 2005,2006, the Company used a simulation model to project changes in net interest income that result from forecasted changes in interest rates. This analysis which is performed quarterly by management, calculates the difference between net interest income forecasted using a rising and falling interest rate scenario and net interest income forecast using a base market interest rate derived from the current treasury yield curve. The income simulation model includes various assumptions regarding the repricing relationships for each of the Company’s products. Many of the Company’s assets are floating rate loans, which are assumed to reprice immediately and to the same extent as the change in market rates according to their contracted index. Some loans and investment vehicles include the opportunity of prepayment (imbedded options) and accordingly the simulation model uses national indexes to estimate these prepayments and reinvest their proceeds at current yields. The Company’s non-term deposit products reprice more slowly, usually changing less than the change in market rates and at the discretion of the Company.
This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet grows modestly but that its structure will remain similar to the structure at year-end. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to the Company’s credit risk profile as interest rates change. Furthermore, loan prepayment rate estimates and spread relationships change
46
regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on the Company’s net interest income.
The following table reflects the Company’s projected net interest income sensitivity analysis based on year-end data:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2005 | | December 31, 2004 | | December 31, 2006 | | December 31, 2005 |
| | | Adjusted Net | | Percent | | Adjusted Net | | Percent | | Adjusted Net | | Percent | | Adjusted Net | | Percent |
| | | Interest Income | | Change | | Interest Income | | Change | | Interest Income | | Change | | Interest Income | | Change |
| Change in Rates | | (in thousands) | | From Base | | (in thousands) | | From Base | | (in thousands) | | From Base | | (in thousands) | | From Base |
| | Up 300 basis points | | $ | 27,408 | | | 18.1 | % | | $ | 25,844 | | | 24.0 | % | | $ | 28,996 | | | 14.8 | % | | $ | 27,408 | | | 18.1 | % |
| Up 200 basis points | | 25,965 | | | 11.9 | % | | 24,032 | | | 15.3 | % | | 27,724 | | | 9.8 | % | | 25,965 | | | 11.9 | % |
| Up 100 basis points | | 24,568 | | | 5.9 | % | | 22,304 | | | 7.0 | % | | 26,477 | | | 4.8 | % | | 24,568 | | | 5.9 | % |
| Base scenario | | 23,206 | | | — | % | | 20,836 | | | — | % | | 25,258 | | | — | % | | 23,206 | | | — | % |
| Down 100 basis points | | 21,855 | | | -5.8 | % | | 20,221 | | | -2.9 | % | | 24,051 | | | -4.8 | % | | 21,855 | | | -5.8 | % |
| Down 200 basis points | | 20,536 | | | -11.5 | % | | 19,074 | | | -8.5 | % | | 22,853 | | | -9.5 | % | | 20,536 | | | -11.5 | % |
| Down 300 basis points | | 19,233 | | | -17.1 | % | | 17,682 | | | -15.1 | % | | 21,664 | | | -14.2 | % | | 19,233 | | | -17.1 | % |
For the rising and falling interest rate scenarios, the base market interest rate forecast was increased or decreased, on an instantaneous and sustained basis, by 100, 200 and 300 basis points. At December 31, 2005,2006, the Company’s net interest income exposure related to these hypothetical changes in market interest rate was within the current guidelines established by the Company.
41
Unaudited Quarterly Statement of Operations Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2005 | | 2005 | | 2005 | | 2004 | | 2004 | | 2004 | | 2004 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 |
| | | | | 2006 | | 2006 | | 2006 | | 2006 | | 2005 | | 2005 | | 2005 | | 2005 |
| | | (dollars in thousands) | | (dollars in thousands) |
| Net interest income | | $ | 5,541 | | $ | 5,399 | | $ | 5,027 | | $ | 4,737 | | $ | 4,689 | | $ | 4,414 | | $ | 4,040 | | $ | 4,019 | | | $ | 5,877 | | $ | 5,741 | | $ | 5,519 | | $ | 5,391 | | $ | 5,541 | | $ | 5,399 | | $ | 5,027 | | $ | 4,737 | |
| Provision for loan losses | | 200 | | 300 | | 300 | | 300 | | 150 | | 300 | | 150 | | 150 | | | 100 | | 300 | | 300 | | 300 | | 200 | | 300 | | 300 | | 300 | |
| Non-interest income | | 1,235 | | 1,199 | | 1,110 | | 1,109 | | 1,172 | | 1,274 | | 1,342 | | 1,030 | | | 1,306 | | 1,393 | | 1,348 | | 1,112 | | 1,354 | | 1,306 | | 1,110 | | 1,109 | |
| Non-interest expense | | 4,496 | | 4,307 | | 4,125 | | 4,201 | | 3,989 | | 3,920 | | 3,913 | | 3,761 | | | 4,958 | | 4,580 | | 4,441 | | 4,310 | | 4,615 | | 4,414 | | 4,125 | | 4,201 | |
| | | | | |
| Income before income taxes | | 2,080 | | 1,991 | | 1,712 | | 1,345 | | 1,722 | | 1,468 | | 1,319 | | 1,138 | | | 2,125 | | 2,254 | | 2,126 | | 1,893 | | 2,080 | | 1,991 | | 1,712 | | 1,345 | |
| Income taxes | | 780 | | 743 | | 629 | | 448 | | 583 | | 537 | | 469 | | 412 | | | 804 | | 858 | | 816 | | 718 | | 780 | | 743 | | 629 | | 448 | |
| | | | | |
| Net income | | $ | 1,300 | | $ | 1,248 | | $ | 1,083 | | $ | 897 | | $ | 1,139 | | $ | 931 | | $ | 850 | | $ | 726 | | | $ | 1,321 | | $ | 1,396 | | $ | 1,310 | | $ | 1,175 | | $ | 1,300 | | $ | 1,248 | | $ | 1,083 | | $ | 897 | |
| | | | | |
| | | |
| Per share: | | |
| Basic earnings per share | | $ | 0.26 | | $ | 0.25 | | $ | 0.22 | | $ | 0.19 | | $ | 0.23 | | $ | 0.19 | | $ | 0.17 | | $ | 0.16 | | | $ | 0.26 | | $ | 0.28 | | $ | 0.26 | | $ | 0.24 | | $ | 0.26 | | $ | 0.25 | | $ | 0.22 | | $ | 0.19 | |
| Diluted earnings per share | | $ | 0.25 | | $ | 0.24 | | $ | 0.22 | | $ | 0.18 | | $ | 0.23 | | $ | 0.19 | | $ | 0.16 | | $ | 0.15 | | | $ | 0.26 | | $ | 0.27 | | $ | 0.26 | | $ | 0.23 | | $ | 0.25 | | $ | 0.24 | | $ | 0.22 | | $ | 0.18 | |
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Plumas Bancorp and subsidiary, and independent auditor’s report included in the Annual Report of Plumas Bancorp to its shareholders for the years ended December 31, 2006, 2005 2004 and 2003.2004.
| | | |
| | | Page |
| | F-1 |
| | F-2 |
| | F-3 |
| | F-5 |
| | F-7 |
| | F-10 |
4248
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and
Board of Directors
Plumas Bancorp and Subsidiary
We have audited the accompanying consolidated balance sheet of Plumas Bancorp and subsidiary (the “Company”) as of December 31, 20052006 and 20042005 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2005.2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Plumas Bancorp and subsidiary as of December 31, 20052006 and 20042005 and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005,2006, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Plumas Bancorp and subsidiary’s internal control over financial reporting as of December 31, 2005,2006, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 200612, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of Plumas Bancorp’s internal control over financial reporting and an unqualified opinion on the effectiveness of Plumas Bancorp’s internal control over financial reporting.
/s/ PERRY-SMITH LLP
Sacramento, California
March 3, 200612, 2007
F-1F - 1
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 20052006 and 20042005
| | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | | 2006 | | 2005 | |
ASSETS | | |
| Cash and due from banks | | $ | 17,271,000 | | $ | 11,444,000 | | | $ | 11,293,000 | | $ | 17,271,000 | |
| Federal funds sold | | 7,325,000 | | | — | | 7,325,000 | |
| | | | | | | | | | | |
| | |
| Cash and cash equivalents | | 24,596,000 | | 11,444,000 | | | 11,293,000 | | 24,596,000 | |
| | |
| Investment securities (Notes 3 and 7) | | 97,844,000 | | 113,252,000 | | |
| Loans, less allowance for loan losses of $3,256,000 in 2005 and $2,722,000 in 2004 (Notes 4, 7, 9 and 13) | | 319,156,000 | | 263,931,000 | | |
| Investment securities (Note 3) | | | 74,795,000 | | 97,844,000 | |
| Loans, less allowance for loan losses of $3,917,000 in 2006 and $3,256,000 in 2005 (Notes 4, 7, 9 and 13) | | | 351,977,000 | | 319,156,000 | |
| Premises and equipment, net (Note 5) | | 11,404,000 | | 9,793,000 | | | 15,190,000 | | 11,404,000 | |
| Intangible assets, net (Note 17) | | 1,638,000 | | 1,939,000 | | | 1,337,000 | | 1,638,000 | |
| Bank owned life insurance (Note 14) | | 8,930,000 | | 8,362,000 | | | 9,449,000 | | 8,930,000 | |
| Accrued interest receivable and other assets (Note 12) | | 9,235,000 | | 8,665,000 | | | 9,198,000 | | 9,235,000 | |
| | | | | | | | | | | |
| | | |
| Total assets | | $ | 472,803,000 | | $ | 417,386,000 | | | $ | 473,239,000 | | $ | 472,803,000 | |
| | | | | | | | | | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | |
| | | |
| Deposits: | | |
| Non-interest bearing | | $ | 129,734,000 | | $ | 108,556,000 | | | $ | 121,464,000 | | $ | 129,734,000 | |
| Interest bearing (Note 6) | | 296,826,000 | | 270,011,000 | | | 280,712,000 | | 296,826,000 | |
| | | | | | | | | | | |
| | | |
| Total deposits | | 426,560,000 | | 378,567,000 | | | 402,176,000 | | 426,560,000 | |
| | | |
| Federal funds purchased (Note 7) | | — | | 1,035,000 | | |
| Short-term borrowings (Note 7) | | | 20,000,000 | | — | |
| Accrued interest payable and other liabilities | | 4,796,000 | | 3,707,000 | | | 4,901,000 | | 4,796,000 | |
| Junior subordinated deferrable interest debentures (Note 8) | | 10,310,000 | | 6,186,000 | | | 10,310,000 | | 10,310,000 | |
| | | | | | | | | | | |
| | | |
| Total liabilities | | 441,666,000 | | 389,495,000 | | | 437,387,000 | | 441,666,000 | |
| | | | | | | | | | | |
| | | |
| Commitments and contingencies (Note 9) | | |
| | | |
| Shareholders’ equity (Note 10): | | |
| Serial preferred stock — no par value; 10,000,000 shares authorized; none issued | | — | | — | | | — | | — | |
| Common stock — no par value; 22,500,000 shares authorized; issued and outstanding – 4,976,654 shares in 2005 and 4,901,197 shares in 2004 | | 4,412,000 | | 4,013,000 | | |
| Common stock — no par value; 22,500,000 shares authorized; issued and outstanding – 5,023,205 shares in 2006 and 4,976,654 shares in 2005 | | | 4,828,000 | | 4,412,000 | |
| Retained earnings | | 27,816,000 | | 24,370,000 | | | 31,716,000 | | 27,816,000 | |
| Accumulated other comprehensive loss (Notes 3 and 15) | | | (1,091,000 | ) | | | (492,000 | ) | | | (692,000 | ) | | | (1,091,000 | ) |
| | | | | | | | | | | |
| | | |
| Total shareholders’ equity | | 31,137,000 | | 27,891,000 | | | 35,852,000 | | 31,137,000 | |
| | | | | | | | | | | |
| | | |
| Total liabilities and shareholders’ equity | | $ | 472,803,000 | | $ | 417,386,000 | | | $ | 473,239,000 | | $ | 472,803,000 | |
| | | | | | | | | | | |
The accompanying notes are an integral
part of these consolidated financial statements.
F-2F - 2
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 2006, 2005 2004 and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| Interest income: | | |
| Interest and fees on loans | | $ | 21,955,000 | | $ | 16,464,000 | | $ | 16,212,000 | | | $ | 26,272,000 | | $ | 21,955,000 | | $ | 16,464,000 | |
| Interest on investment securities: | | |
| Taxable | | 2,787,000 | | 3,044,000 | | 2,074,000 | | | 2,516,000 | | 2,787,000 | | 3,044,000 | |
| Exempt from Federal income taxes | | 537,000 | | 439,000 | | 147,000 | | | 531,000 | | 537,000 | | 439,000 | |
| Interest on Federal funds sold | | 218,000 | | 163,000 | | 116,000 | | | 164,000 | | 218,000 | | 163,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Total interest income | | 25,497,000 | | 20,110,000 | | 18,549,000 | | | 29,483,000 | | 25,497,000 | | 20,110,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Interest expense: | | |
| Interest on deposits (Note 6) | | 4,092,000 | | 2,600,000 | | 2,703,000 | | |
| Interest on deposits | | | 5,887,000 | | 4,092,000 | | 2,600,000 | |
| Interest on short-term borrowings (Note 7) | | 222,000 | | 9,000 | | 22,000 | | | 257,000 | | 222,000 | | 9,000 | |
| Interest on junior subordinated deferrable interest debentures (Note 8) | | 479,000 | | 305,000 | | 288,000 | | | 810,000 | | 479,000 | | 305,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Total interest expense | | 4,793,000 | | 2,914,000 | | 3,013,000 | | | 6,954,000 | | 4,793,000 | | 2,914,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Net interest income before provision for loan losses | | 20,704,000 | | 17,196,000 | | 15,536,000 | | | 22,529,000 | | 20,704,000 | | 17,196,000 | |
| | | |
| Provision for loan losses (Note 4) | | 1,100,000 | | 750,000 | | 750,000 | | | 1,000,000 | | 1,100,000 | | 750,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Net interest income after provision for loan losses | | 19,604,000 | | 16,446,000 | | 14,786,000 | | | 21,529,000 | | 19,604,000 | | 16,446,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Non-interest income: | | |
| Service charges | | 3,038,000 | | 2,982,000 | | 1,988,000 | | | 3,676,000 | | 3,458,000 | | 3,297,000 | |
| Gain on sale of loans | | 45,000 | | 94,000 | | 67,000 | | | 42,000 | | 45,000 | | 94,000 | |
| (Loss) gain on sale of available-for- sale investment securities, net (Notes 3 and 15) | | | (8,000 | ) | | 235,000 | | 328,000 | | | — | | | (8,000 | ) | | 235,000 | |
| Earnings on Bank owned life insurance policies (Note 14) | | 355,000 | | 415,000 | | 313,0000 | | | 393,000 | | 355,000 | | 415,000 | |
| Other | | 1,223,000 | | 1,058,000 | | 943,000 | | | 1,048,000 | | 1,223,000 | | 1,058,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Total non-interest income | | 4,653,000 | | 4,784,000 | | 3,639,000 | | | 5,159,000 | | 5,073,000 | | 5,099,000 | |
| | | | | | | | | | | | | | | |
(Continued)
F-3F - 3
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Continued)
For the Years Ended December 31, 2006, 2005 2004 and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| Non-interest expenses: | | |
| Salaries and employee benefits (Notes 4 and 14) | | $ | 9,514,000 | | $ | 8,831,000 | | $ | 7,442,000 | | | $ | 10,043,000 | | $ | 9,514,000 | | $ | 8,831,000 | |
| Occupancy and equipment (Notes 5 and 9) | | 3,070,000 | | 2,713,000 | | 2,343,000 | | | 3,323,000 | | 3,070,000 | | 2,713,000 | |
| Other (Note 11) | | 4,545,000 | | 4,039,000 | | 3,341,000 | | | 4,924,000 | | 4,965,000 | | 4,354,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Total non-interest expenses | | 17,129,000 | | 15,583,000 | | 13,126,000 | | | 18,290,000 | | 17,549,000 | | 15,898,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Income before provision for income taxes | | 7,128,000 | | 5,647,000 | | 5,299,000 | | | 8,398,000 | | 7,128,000 | | 5,647,000 | |
| | | |
| Provision for income taxes (Note 12) | | 2,600,000 | | 2,001,000 | | 2,018,000 | | | 3,196,000 | | 2,600,000 | | 2,001,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Net income | | $ | 4,528,000 | | $ | 3,646,000 | | $ | 3,281,000 | | | $ | 5,202,000 | | $ | 4,528,000 | | $ | 3,646,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Basic earnings per share (Note 10) | | $ | 0.92 | | $ | 0.75 | | $ | 0.68 | | | $ | 1.04 | | $ | 0.92 | | $ | 0.75 | |
| | | | | | | | | | | | | | | |
| | | |
| Diluted earnings per share (Note 10) | | $ | 0.89 | | $ | 0.73 | | $ | 0.66 | | | $ | 1.02 | | $ | 0.89 | | $ | 0.73 | |
| | | | | | | | | | | | | | | |
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2006, 2005 2004 and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accumulated | | | | | | | Accumulated | | | | | |
| | | Other | | | | | | | Other | | | | | |
| | | Common Stock | | Comprehensive | | Total | | Total | | | Common Stock | | Comprehensive | | Total | | Total | |
| | | Retained | | (Loss) Income | | Shareholders’ | | Comprehensive | | | Retained | | (Loss) Income | | Shareholders’ | | Comprehensive | |
| | | Shares | | Amount | | Earnings | | (Net of Taxes) | | Equity | | Income | | | Shares | | Amount | | Earnings | | (Net of Taxes) | | Equity | | Income | |
| Balance, January 1, 2003 | | 4,813,975 | | $ | 3,743,000 | | $ | 19,133,000 | | $ | 410,000 | | $ | 23,286,000 | | |
| | | |
| Comprehensive income (Note 15): | | |
| Net income | | 3,281,000 | | 3,281,000 | | $ | 3,281,000 | | |
| Other comprehensive loss, net of tax: | | |
| Net change in unrealized gains on available-for-sale investment securities | | | (244,000 | ) | | | (244,000 | ) | | | (244,000 | ) | |
| | | | | |
| | | |
| Total comprehensive income | | $ | 3,037,000 | | |
| | | | | |
| | | |
| Cash dividends — $0.16 per share | | | (776,000 | ) | | | (776,000 | ) | | |
| Retirement of common stock in connection with the exercise of stock options (Note 10) | | | (6,380 | ) | | | (74,000 | ) | | | (74,000 | ) | | |
| Stock options exercised and related tax benefit (Note 10) | | 55,445 | | 276,000 | | 276,000 | | |
| | | | | | | | | | | | | |
| | | |
| Balance, December 31, 2003 | | 4,863,040 | | 3,945,000 | | 21,638,000 | | 166,000 | | 25,749,000 | | |
| Balance, January 1, 2004 | | | 4,863,040 | | $ | 3,945,000 | | $ | 21,638,000 | | $ | 166,000 | | $ | 25,749,000 | |
| | | |
| Comprehensive income (Note 15): | | |
| Net income | | 3,646,000 | | 3,646,000 | | $ | 3,646,000 | | | 3,646,000 | | 3,646,000 | | $ | 3,646,000 | |
| Other comprehensive loss, net of tax: | | |
| Net change in unrealized gains (losses) on available-for-sale investment securities (Note 3) | | | (658,000 | ) | | | (658,000 | ) | | | (658,000 | ) | | | (658,000 | ) | | | (658,000 | ) | | | (658,000 | ) |
| | | | | | | |
| | | |
| Total comprehensive income | | $ | 2,988,000 | | | $ | 2,988,000 | |
| | | | | | | |
| | | |
| Cash dividends — $0.19 per share | | | (914,000 | ) | | | (914,000 | ) | | | | (914,000 | ) | | | (914,000 | ) | |
| Retirement of common stock in connection with the exercise of stock options (Note 10) | | | (13,461 | ) | | | (176,000 | ) | | | (176,000 | ) | | | | (13,461 | ) | | | (176,000 | ) | | | (176,000 | ) | |
| Stock options exercised and related tax benefit (Note 10) | | 51,618 | | 244,000 | | 244,000 | | | 51,618 | | 244,000 | | 244,000 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Balance, December 31, 2004 | | 4,901,197 | | 4,013,000 | | 24,370,000 | | | (492,000 | ) | | 27,891,000 | | | 4,901,197 | | 4,013,000 | | 24,370,000 | | | (492,000 | ) | | 27,891,000 | |
| Comprehensive income (Note 15): | | |
| Net income | | | 4,528,000 | | 4,528,000 | | $ | 4,528,000 | |
| Other comprehensive loss, net of tax: | | |
| Net change in unrealized losses on available-for-sale investment securities (Note 3) | | | | (599,000 | ) | | | (599,000 | ) | | | (599,000 | ) |
| | | | | | | | | | | | | | | |
| | | |
| Total comprehensive income | | | $ | 3,929,000 | |
| | | | | |
| | | |
| Cash dividends — $0.22 per share | | | | (1,082,000 | ) | | | (1,082,000 | ) | |
| Retirement of common stock in connection with the exercise of stock options (Note 10) | | | | (6,904 | ) | | | (105,000 | ) | | | (105,000 | ) | |
| Stock options exercised and related tax benefit (Note 10) | | | 82,608 | | 512,000 | | 512,000 | |
| Fractional shares repurchased as a result of three-for-two stock split | | | | (247 | ) | | | (8,000 | ) | | | (8,000 | ) | |
| | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 4,976,654 | | 4,412,000 | | 27,816,000 | | | (1,091,000 | ) | | 31,137,000 | |
| | | | | | | | | | | | | |
(Continued)
F-5F - 5
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Continued)
For the Years Ended December 31, 2006, 2005 2004 and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Accumulated | | | | | | | Accumulated | | | | | |
| | | Other | | | | | | | Other | | | | | |
| | | Common Stock | | Comprehensive | | Total | | Total | | | | | Comprehensive | | Total | | Total | |
| | | Retained | | (Loss) Income | | Shareholders’ | | Comprehensive | | | Common Stock | | Retained | | (Loss) Income | | Shareholders’ | | Comprehensive | |
| | | Shares | | Amount | | Earnings | | (Net of Taxes) | | Equity | | Income | | | Shares | | Amount | | Earnings | | (Net of Taxes) | | Equity | | Income | |
| Balance, December 31, 2004 | | 4,901,197 | | $ | 4,013,000 | | $ | 24,370,000 | | $ | (492,000 | ) | | $ | 27,891,000 | | |
| Balance, December 31, 2005 | | | 4,976,654 | | 4,412,000 | | 27,816,000 | | | (1,091,000 | ) | | 31,137,000 | |
| | | |
| Comprehensive income (Note 15): | | |
| Net income | | 4,528,000 | | 4,528,000 | | $ | 4,528,000 | | | 5,202,000 | | 5,202,000 | | $ | 5,202,000 | |
| Other comprehensive loss, net of tax: | | |
| Net change in unrealized losses on available-for-sale investment securities (Note 3) | | | (599,000 | ) | | | (599,000 | ) | | | (599,000 | ) | | 399,000 | | 399,000 | | 399,000 | |
| | | | | | | |
| | | |
| Total comprehensive income | | $ | 3,929,000 | | | $ | 5,601,000 | |
| | | | | | | |
| | | |
| Cash dividends — $0.22 per share | | | (1,082,000 | ) | | | (1,082,000 | ) | | |
| Cash dividends — $0.26 per share | | | | (1,302,000 | ) | | | (1,302,000 | ) | |
| Retirement of common stock in connection with the exercise of stock options (Note 10) | | | (6,904 | ) | | | (105,000 | ) | | | (105,000 | ) | | | | (21,255 | ) | | | (417,000 | ) | | | (417,000 | ) | |
| Stock options exercised and related tax benefit (Note 10) | | 82,608 | | 512,000 | | 512,000 | | | 67,806 | | 659,000 | | 659,000 | |
| Fractional shares repurchased as a result of three-for-two stock split | | | (247 | ) | | | (8,000 | ) | | | (8,000 | ) | | |
| Stock-based compensation expense | | | 174,000 | | 174,000 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Balance, December 31, 2005 | | 4,976,654 | | $ | 4,412,000 | | $ | 27,816,000 | | $ | (1,091,000 | ) | | $ | 31,137,000 | | |
| Balance, December 31, 2006 | | | 5,023,205 | | $ | 4,828,000 | | $ | 31,716,000 | | $ | (692,000 | ) | | $ | 35,852,000 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| Disclosure of reclassification amount, net of taxes (Note 15): | | |
| Unrealized holding losses arising during the year | | $ | (604,000 | ) | | $ | (523,000 | ) | | $ | (50,000 | ) | |
| | | |
| Unrealized holding gain (losses) arising during the year | | | $ | 399,000 | | $ | (604,000 | ) | | $ | (523,000 | ) |
| Reclassification adjustment for (losses) gains included in net income | | | (5,000 | ) | | 135,000 | | 194,000 | | | — | | | (5,000 | ) | | 135,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Net unrealized losses on available-for-sale investment securities | | $ | (599,000 | ) | | $ | (658,000 | ) | | $ | (244,000 | ) | |
| Net unrealized gain (losses) on available-for-sale investment securities | | | $ | 399,000 | | $ | (599,000 | ) | | $ | (658,000 | ) |
| | | | | | | | | | | | | | | |
The accompanying notes are an integral
part of these consolidated financial statements.
F-6F - 6
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2006, 2005 2004 and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| Cash flows from operating activities: | | |
| Net income | | $ | 4,528,000 | | $ | 3,646,000 | | $ | 3,281,000 | | | $ | 5,202,000 | | $ | 4,528,000 | | $ | 3,646,000 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Provision for loan losses | | 1,100,000 | | 750,000 | | 750,000 | | | 1,000,000 | | 1,100,000 | | 750,000 | |
| Change in deferred loan origination costs/fees, net | | | (1,026,000 | ) | | | (270,000 | ) | | | (71,000 | ) | | | (416,000 | ) | | | (1,026,000 | ) | | | (270,000 | ) |
| Stock-based compensation expense | | | 174,000 | |
| Depreciation and amortization | | 2,076,000 | | 1,625,000 | | 1,314,000 | | | 2,171,000 | | 2,076,000 | | 1,625,000 | |
| Net loss (gain) on sale of available-for-sale investment securities | | 8,000 | | | (235,000 | ) | | | (328,000 | ) | | 8,000 | | | (235,000 | ) |
| Amortization of investment security premiums | | 633,000 | | 918,000 | | 1,200,000 | | | 387,000 | | 633,000 | | 918,000 | |
| Accretion of investment security discounts | | | (72,000 | ) | | | (87,000 | ) | | | (24,000 | ) | | | (89,000 | ) | | | (72,000 | ) | | | (87,000 | ) |
| Net loss (gain) on sale of premises and equipment | | 2,000 | | | (4,000 | ) | | 3,000 | | | 2,000 | | | (4,000 | ) |
| Net loss (gain) on sale of other real estate | | 15,000 | | | (141,000 | ) | | | (71,000 | ) | | 15,000 | | | (141,000 | ) |
| Net loss on judgement receivable | | 53,000 | | | 53,000 | |
| Net loss on sale of other vehicles owned | | 28,000 | | 22,000 | | |
| Net (gain) loss on sale of other vehicles owned | | | | (23,000 | ) | | 28,000 | | 22,000 | |
| Writedown of other real estate to fair value | | 18,000 | | | 18,000 | |
| Net decrease in loans held for sale | | 276,000 | | 1,196,000 | | | 276,000 | |
| Earnings on bank owned life insurance policies | | | (355,000 | ) | | | (415,000 | ) | | | (313,000 | ) | | | (393,000 | ) | | | (355,000 | ) | | | (415,000 | ) |
| Expenses on bank owned life insurance policies | | 68,000 | | 66,000 | | 35,000 | | | 74,000 | | 68,000 | | 66,000 | |
| Increase in accrued interest receivable and other assets | | | (215,000 | ) | | | (217,000 | ) | | | (1,060,000 | ) | | | (41,000 | ) | | | (215,000 | ) | | | (217,000 | ) |
| Increase in accrued interest payable and other liabilities | | 1,021,000 | | 2,217,000 | | 221,000 | | | 105,000 | | 1,021,000 | | 2,217,000 | |
| Provision for deferred income taxes | | 34,000 | | 82,000 | | 28,000 | | | | (456,000 | ) | | 34,000 | | 82,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Net cash provided by operating activities | | 7,845,000 | | 8,304,000 | | 6,161,000 | | | 7,695,000 | | 7,845,000 | | 8,304,000 | |
| | | | | | | | | | | | | | | |
(Continued)
F-7F - 7
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2004, 20032006, 2005 and 20022004
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| Cash flows from investing activities: | | |
| Cash acquired in the purchase of selected assets and liabilities of another bank | | $ | 42,520,000 | | |
| | | |
| Proceeds from matured and called available- for-sale investment securities | | $ | 16,000,000 | | $ | 2,355,000 | | 15,000,000 | | | $ | 19,931,000 | | $ | 16,000,000 | | $ | 2,355,000 | |
| Proceeds from matured and called held-to- maturity investment securities | | 1,801,000 | | 15,320,000 | | 6,237,000 | | | 1,801,000 | | 15,320,000 | |
| Proceeds from sale of available-for-sale investment securities | | 1,992,000 | | 36,309,000 | | 32,426,000 | | | 1,992,000 | | 36,309,000 | |
| Purchases of available-for-sale investment securities | | | (9,688,000 | ) | | | (47,147,000 | ) | | | (104,217,000 | ) | | | (9,688,000 | ) | | | (47,147,000 | ) |
| Purchases of held-to-maturity investment securities | | | (8,827,000 | ) | | | (6,174,000 | ) | | | (155,000 | ) | | | (8,827,000 | ) |
| Proceeds from principal repayments from available-for-sale government-guaranteed mortgage-backed securities | | 3,572,000 | | 2,722,000 | | 695,000 | | | 3,521,000 | | 3,572,000 | | 2,722,000 | |
| Proceeds from principal repayments from held-to-maturity government-guaranteed mortgage-backed securities | | 143,000 | | 181,000 | | 322,000 | | | 134,000 | | 143,000 | | 181,000 | |
| Net increase in loans | | | (55,527,000 | ) | | | (49,745,000 | ) | | | (12,338,000 | ) | | | (33,831,000 | ) | | | (55,527,000 | ) | | | (49,745,000 | ) |
| Proceeds from sale of other real estate | | 284,000 | | 890,000 | | 370,000 | | |
| Proceeds from sale of other real estate and vehicles | | | 211,000 | | 284,000 | | 890,000 | |
| Proceeds from the sale of premises and equipment | | 6,000 | | | 8,000 | | 6,000 | |
| Purchases of premises and equipment | | | (3,394,000 | ) | | | (809,000 | ) | | | (1,587,000 | ) | | | (5,173,000 | ) | | | (3,394,000 | ) | | | (809,000 | ) |
| Purchase of bank owned life insurance | | | (281,000 | ) | | | (3,170,000 | ) | | | (200,000 | ) | | | (281,000 | ) | |
| | | | | | | | | |
| | | | | | | | | |
| Net cash used in investing activities | | | (45,092,000 | ) | | | (48,751,000 | ) | | | (29,916,000 | ) | | | (15,554,000 | ) | | | (45,092,000 | ) | | | (48,751,000 | ) |
| | | | | | | | | | | | | | | |
| | | |
| Cash flows from financing activities: | | |
| Net increase in demand, interest-bearing and savings deposits | | $ | 43,443,000 | | $ | 21,535,000 | | $ | 19,114,000 | | |
| Net increase (decrease) in time deposits | | 4,550,000 | | 1,190,000 | | | (2,677,000 | ) | |
| Net decrease in the Federal funds purchased | | | (1,035,000 | ) | | |
| Net (decrease) increase in demand, interest-bearing and savings deposits | | | $ | (26,025,000 | ) | | $ | 43,443,000 | | $ | 21,535,000 | |
| Net increase in time deposits | | | 1,641,000 | | 4,550,000 | | 1,190,000 | |
| Net increase (decrease) in short-term borrowings | | | 20,000,000 | | | (1,035,000 | ) | |
| Proceeds from exercise of stock options | | 407,000 | | 68,000 | | 176,000 | | | 181,000 | | 407,000 | | 68,000 | |
| Cash paid for fractional shares | | | (8,000 | ) | | | | (8,000 | ) | |
| Excess tax benefits from stock-based compensation | | | 61,000 | |
| Proceeds from the issuance of junior subordinated deferrable interest debentures | | 4,124,000 | | | 4,124,000 | |
| Payment of cash dividends | | | (1,082,000 | ) | | | (914,000 | ) | | | (776,000 | ) | | | (1,302,000 | ) | | | (1,082,000 | ) | | | (914,000 | ) |
| | | | | | | | | | | | | | | |
| | | |
| Net cash provided by financing activities | | 50,399,000 | | 21,879,000 | | 15,837,000 | | |
| Net cash (used in) provided by financing activities | | | | (5,444,000 | ) | | 50,399,000 | | 21,879,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Increase (decrease) in cash and cash equivalents | | 13,152,000 | | | (18,568,000 | ) | | | (7,918,000 | ) | |
| (Decrease) increase in cash and cash equivalents | | | | (13,303,000 | ) | | 13,152,000 | | | (18,568,000 | ) |
| | | |
| Cash and cash equivalents at beginning of year | | 11,444,000 | | 30,012,000 | | 37,930,000 | | | 24,596,000 | | 11,444,000 | | 30,012,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Cash and cash equivalents at end of year | | $ | 24,596,000 | | $ | 11,444,000 | | $ | 30,012,000 | | | $ | 11,293,000 | | $ | 24,596,000 | | $ | 11,444,000 | |
| | | | | | | | | | | | | | | |
(Continued)
F - 8
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2006, 2005 2004 and 20032004
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | |
| Interest expense | | $ | 4,581,000 | | | $ | 2,881,000 | | | $ | 3,123,000 | |
| Income taxes | | $ | 2,805,000 | | | $ | 1,612,000 | | | $ | 2,052,000 | |
| | | | | | | | | | | | | |
| Non-cash investing activities: | | | | | | | | | | | | |
| Real estate acquired through foreclosure | | | | | | $ | 145,000 | | | $ | 175,000 | |
| Vehicles acquired through repossession | | $ | 228,000 | | | $ | 92,000 | | | | | |
| Reclassification of loans to other assets | | | | | | | | | | $ | 1,399,000 | |
| Net change in unrealized (loss) gain on available-for-sale investment securities | | $ | (1,019,000 | ) | | $ | (1,122,000 | ) | | $ | (415,000 | ) |
| | | | | | | | | | | | | |
| Non-cash financing activities: | | | | | | | | | | | | |
| Common stock retired in connection with the with the exercise of stock options | | $ | 105,000 | | | $ | 176,000 | | | $ | 74,000 | |
| | | | | | | | | | | | | |
| On November 17, 2003, the Company purchased certain assets and liabilities of the Kings Beach, Loyalton, Portola, Quincy and Truckee branches from Placer Sierra Bank (Note 17): | | | | | | | | | | | | |
| Deposits assumed | | | | | | | | | | $ | 45,464,000 | |
| Loans | | | | | | | | | | | (129,000 | ) |
| Premises and equipment | | | | | | | | | | | (552,000 | ) |
| Premium paid for deposits | | | | | | | | | | | (1,709,000 | ) |
| Other assets | | | | | | | | | | | (581,000 | ) |
| Other liabilities | | | | | | | | | | | 27,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cash received | | | | | | | | | | $ | 42,520,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2006 | | 2005 | | 2004 |
| Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | |
| Interest expense | | $ | 6,882,000 | | | $ | 4,581,000 | | | $ | 2,881,000 | |
| Income taxes | | $ | 3,370,000 | | | $ | 2,805,000 | | | $ | 1,612,000 | |
| | | | | | | | | | | | | |
| Non-cash investing activities: | | | | | | | | | | | | |
| Real estate acquired through foreclosure | | | | | | | | | | $ | 145,000 | |
| Vehicles acquired through repossession | | $ | 196,000 | | | $ | 228,000 | | | $ | 92,000 | |
| Reclassification of loans to other assets | | $ | 230,000 | | | | | | | | | |
| Net change in unrealized loss on available-for-sale investment securities | | $ | 679,000 | | | $ | (1,019,000 | ) | | $ | (1,122,000 | ) |
| | | | | | | | | | | | | |
| Non-cash financing activities: | | | | | | | | | | | | |
| Common stock retired in connection with the exercise of stock options | | $ | 417,000 | | | $ | 105,000 | | | $ | 176,000 | |
The accompanying notes are an integral
part of these consolidated financial statements.
F - 9
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 1. | | THE BUSINESS OF PLUMAS BANCORP |
| |
| | | On January 17,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 reorganization was approved by the Company’s shareholders on May 29, 2002, and was consummated on June 21, 2002. 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 twelve branches in California, including branches in Alturas, Chester, Fall River Mills, Greenville, Kings Beach, Loyalton, Portola, Quincy, Susanville, Tahoe City, Truckee and Westwood. During the fourth quarter of 2006 the Bank opened a commercial lending office in Reno, Nevada. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits. The Bank’s primary source of revenue is generated from providing loans to customers who are predominately small and middle market businesses and individuals residing in the surrounding areas. |
|
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| |
| | | Consolidation and Basis of Presentation |
| |
| | | The consolidated financial statements include the accounts of the Company and the consolidated accounts of its wholly-owned subsidiary, Plumas Bank. All significant intercompany balances and transactions have been eliminated. |
| |
| | | Plumas Statutory Trust I and Trust II are not consolidated into the Company’s consolidated financial statements and, accordingly, are accounted for under the equity method. The Company’s investment in Trust I of $186,000$235,000 and Trust II of $124,000$134,000 are included in accrued interest receivable and other assets on the consolidated balance sheet. The junior subordinated deferrable interest debentures issued and guaranteed by the Company and held by Trust I and Trust II are reflected as debt on the consolidated balance sheet. |
| |
| | | The accounting and reporting policies of Plumas Bancorp and subsidiary conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. |
| |
| | | Reclassifications |
| |
| | | Certain reclassifications have been made to prior years’ balances to conform to classifications used in 2005.2006. |
F - 10
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
| |
| | | Segment Information |
| |
| | | Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank. |
F - 10
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
| |
| | | Stock Split |
| |
| | | On August 17, 2005 the Company’s Board of Director approved a three-for-two stock split for shareholders of record at the close of business on September 2, 2005 and effective on September 16, 2005. All share and per share data in the consolidated financial statements have been retroactively adjusted to give effect to the stock split. |
| |
| | | Use of Estimates |
| |
| | | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. |
| |
| | | Cash and Cash Equivalents |
| |
| | | For the purpose of the statement of cash flows, cash and due from banks and Federal funds sold are considered to be cash equivalents. Generally, Federal funds are sold for one day periods. Cash held with other federally insured institutions in excess of FDIC limits as of December 31, 20052006 was $68,000.$84,000. |
| |
| | | Investment Securities |
| |
| | | Investments are classified into one of the following categories: |
| | • | | Available-for-sale securities reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders’ equity. |
| |
| | • | | Held-to-maturity securities, which management has the positive intent and ability to hold, reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums. |
| | | Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value. As of December 31, 20052006 and 20042005 the Company did not have any investment securities classified as trading.trading and there were no transfers between categories during 2006 or 2005. |
F - 11
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Investment Securities (Continued) |
| |
| | | Gains or losses on the sale of securities are computed on the specific identification method. Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums. |
| |
| | | Investment securities are evaluated for impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the securities for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the |
F - 11
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Investment Securities (continued) |
|
| | decline, to determine whether the loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. |
| |
| | | Investment in Federal Home Loan Bank Stock |
| |
| | | As a member of the Federal Home Loan Bank System, the Bank is required to maintain an investment in the capital stock of the Federal Home Loan Bank. The investment is carried at cost. At December 31, 20052006 and 2004,2005, Federal Home Loan Bank stock totaled $2,000,000$2,103,000 and $1,827,000,$2,000,000, respectively. On the consolidated balance sheet, Federal Home Loan Bank stock is included in accrued interest receivable and other assets. |
| |
| | | Loans Held for Sale, Loan Sales and Servicing |
| |
| | | The Company accounts for the transfer and servicing of financial assets based on the financial and servicing assets it controls and liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. |
| |
| | | Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights retained are recognized as separate assets or liabilities. Servicing assets or liabilities are recorded at the difference between the contractual servicing fees and adequate compensation for performing the servicing, and are subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are periodically evaluated for impairment. Fair values are estimated using discounted cash flows based on current market interest rates. For purposes of measuring impairment, servicing assets are stratified based on note rate and term. The amount of impairment recognized, if any is the amount by which the servicing assets for a stratum exceed their fair value. |
F - 12
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Loans Held for Sale, Loan Sales and Servicing (Continued) |
| |
| | | Government Guaranteed Loans |
| |
| | | Included in the 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 generally receivescan receive a premium in excess of the adjusted carrying value of the loan at the time of sale. The Company may be required to refund a portion of the sales premium if the borrower defaults or prepays within ninety days of the settlement date. At December 31, 2005,2006, the premiums and guaranteed portion of these sold loans subject to these recourse provisions totaled $45,000was not significant. During 2006, 2005 and $53,000, respectively. |
F - 12
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Loans Held for Sale, Loan Sales and Servicing (Continued) |
|
| | Government Guaranteed Loans(Continued)2004 the Company was not required to refund any significant amounts of sales premiums related to the loans sold. |
| |
| | | The Company’s investment in the loan is allocated between the retained portion of the loan, the servicing asset, the interest-only (IO) strip, and the sold portion of the loan based on their relative fair values on the date the loan is sold. The gain on the sold portion of the loan is recognized as income at the time of sale. The carrying value of the retained portion of the loan is discounted based on the estimated value of a comparable non-guaranteed loan. The servicing asset is recognized and amortized over the estimated life of the related loan (see Note 4). Assets (accounted for as interest-only (IO) strips) are recorded at the fair value of the difference between note rates and rates paid to purchasers (the interest spread) and contractual servicing fees, if applicable. IO strips are carried at fair value with gains or losses recorded as a component of shareholders’ equity, similar to available-for-sale investment securities. Significant future prepayments of these loans will result in the recognition of additional amortization of related servicing assets and an adjustment to the carrying value of related IO strips. |
| |
| | | The Company serviced SBA and RBS government guaranteed loans for others totaling $4,251,000 and $3,001,000 as of December 31, 2005 and 2004, respectively. |
|
| | Mortgage Loans |
| |
| | | The Company originates mortgage loans that are either held in the Company’s loan portfolio or sold in the secondary market. Loans held-for-sale are carried at the lower of cost or market value. Market value is determined by the specific identification method as of the balance sheet date or the date which the purchasers have committed to purchase the loans. At the time the loan is sold, the related right to service the loan is either retained, with the Bank earning future servicing income, or released in exchange for a one-time servicing-released premium. Loans subsequently transferred to the loan portfolio are transferred at the lower of cost or market value at the date of transfer. Any difference between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield by the interest method. The Company did not have any loans held for sale at December 31, 20052006 or 2004.2005. |
| |
| | | The Company may be required to refund a portion of the premiums and repurchase a portion of the loans that are sold if the borrower defaults within one hundred and eighty days of the settlement date. At December 31, 2005,2006, there were no premiums on sold loans subject to these recourse provisions. |
|
| | The Company serviced loans for the Federal National Mortgage Association (FNMA) totaling $8,229,000 and $9,817,000 as of December 31, During 2006, 2005 and 2004 respectively. |
|
| | Participation Loans |
|
| | Thethe Company also servicedwas not required to refund any significant amounts of sales premiums related to the loans which it has participated with other financial institutions totaling $1,516,000 and $1,667,000 as of December 31, 2005 and 2004, respectively.sold. |
F - 13
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Loans Held for Sale, Loan Sales and Servicing (Continued) |
|
| | Mortgage Loans(Continued) |
|
| | The Company serviced loans for the Federal National Mortgage Association (FNMA) totaling $6,388,000 and $8,229,000 as of December 31, 2006 and 2005, respectively. |
|
| | Participation Loans |
|
| | The Company also serviced loans which it has participated with other financial institutions totaling $2,910,000 and $1,516,000 as of December 31, 2006 and 2005, respectively. |
| |
| | | Loans |
| |
| | | Loans are stated at principal balances outstanding, except for loans transferred from loans held for sale which are carried at the lower of principal balance or market value at the date of transfer, adjusted for accretion of discounts. Interest is accrued daily based upon outstanding loan balances. However, when, in the opinion of management, loans are considered to be impaired and the future collectibility of interest and principal is in serious doubt, loans are placed on nonaccrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against income. Payments received are applied to reduce principal to the extent necessary to ensure collection. Subsequent payments on these loans, or payments received on nonaccrual loans for which the ultimate collectibility of principal is not in doubt, are applied first to earned but unpaid interest and then to principal. |
| |
| | | An impaired loan is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical matter, at the loan’s observable market price or the fair value of collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (including both principal and interest) in accordance with the contractual terms of the loan agreement. |
| |
| | | Loan origination fees, commitment fees, direct loan origination costs and purchased premiums and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan. The unamortized balance of deferred fees and costs is reported as a component of net loans. |
| |
| | | The Company may acquire loans through a business combination or a purchase for which differences may exist between the contractual cash flows and the cash flows expected to be collected due, at least in part, to credit quality. When the Company acquires such loans, the yield that may be accreted (accretable yield) is limited to the excess of the Company’s estimate of undiscounted cash flows expected to be collected over the Company’s initial investment in the loan. The excess of contractual cash flows over cash flows expected to be collected may not be recognized as an adjustment to yield, loss, or a valuation allowance. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected should be |
F - 14
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Loans (Continued) |
|
| | recognized as an impairment. The Company may not “carry over” or create a valuation allowance in the initial accounting for loans acquired under these circumstances. At December 31, 2006 and 2005, there were no such loans being accounted for under this policy. |
| |
| | | Allowance for Loan Losses |
| |
| | | The allowance for loan losses is maintained to provide for losses related to impaired loans and other losses that can be expected to occur in the normal course of business. The determination of the allowance is based on estimates made by management, to include consideration of the character of the loan portfolio, specifically identified problem loans, potential losses inherent in the portfolio taken as a whole and economic conditions in the Company’s service area. |
F - 14
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Allowance for Loan Losses (continued) |
| |
| | | Classified loans and loans determined to be impaired are evaluated by management for specific risk of loss. In addition, reserve factors are assigned to currently performing loans based on management’s assessment of the following for each identified loan type: (1) inherent credit risk, (2) historical losses and, (3) where the Company has not experienced losses, the loss experience of peer banks. These estimates are particularly susceptible to changes in the economic environment and market conditions. |
| |
| | | The Bank’s Loan Committee reviews the adequacy of the allowance for loan losses at least quarterly, to include consideration of the relative risks in the portfolio and current economic conditions. The allowance is adjusted based on that review if, in management’s judgment, changes are warranted. |
| |
| | | The allowance is established through a provision for loan losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance after credit losses and loan growth. The allowance for loan losses at December 31, 20052006 and 2004,2005, respectively, reflects management’s estimate of possibleprobable losses in the portfolio. |
| |
| | | Allowance for Losses Related to Undisbursed Commitments |
| |
| | | The Company maintains a separate allowance for losses related to undisbursed loan commitments. Management estimates the amount of probable losses by applying a loss reserve factor to the unused portion of undisbursed lines of credit. The allowance totaled $55,000 and $40,000 at December 31, 20052006 and 2004,2005, respectively and is included in accrued interest payable and other liabilities in the consolidated balance sheet. |
| |
| | | Other Real Estate |
| |
| | | The Company had no other real estate holdings at December 31, 2005. Other real estate holdings at December 31, 2004 included former Bank premises with a balance of $105,000. At December 31, 2005 and 2004, the Company had no investment in real estate acquired in full or partial settlement of loan obligations.obligations at December 31, 2006 and 2005. When property 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 |
F - 15
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Other Real Estate (Continued) |
|
| | 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 losses on other real estate which is included in other expenses. Subsequent gains or losses on sales or writedownswrite-downs resulting from permanent impairment are recorded in other income or expenses as incurred. |
F - 15
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
| | | Premises and Equipment |
| |
| | | Premises and equipment are carried at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets. The useful lives of premises are estimated to be twenty to thirty years. The useful lives of furniture, fixtures and equipment are estimated to be two to ten years. Leasehold improvements are amortized over the life of the asset or the life of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred. The Company evaluates premises and equipment for financial impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. |
| |
| | | Intangible Assets |
| |
| | | Intangible assets consist of core deposit intangibles related to branch acquisitions and are amortized using the straight-line method over ten years. The Company evaluates the recoverability and remaining useful life annually to determine whether events or circumstances warrant a revision to the intangible asset or the remaining period of amortization. |
| |
| | | Income Taxes |
| |
| | | The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for income taxes. |
| |
| | | 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. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets. |
F - 16
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
| |
| | | Earnings Per Share |
| |
| | | Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS 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 EPS. |
F - 16
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
| | | Stock-Based Compensation |
| |
| | | At December 31, 2005,2006, the Company had two shareholder approved stock-based compensation plans, the Plumas Bank 2001 and 1991 Stock Option Plans (the “Plans”) which are described more fully in Note 10. On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (R),Share-Based Payment(“SFAS 123 (R)”), using the modified prospective application transition method, which requires recognition of expense for options granted prior to the adoption date equal to the fair value of the unvested amounts over their remaining vesting period based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123Accounting for Stock Based Compensationand compensation cost for all share based payments granted subsequent to January 1, 2006 based on the grant date fair values estimated in accordance with the provisions of SFAS 123 (R). The Company accountsapplied the alternative transition method in calculating its pool of excess tax benefits available to absorb future tax deficiencies as provided by FSP FAS 123(R)-3,Transition Election Related to Accounting for these plansthe Tax Effects of Share-Based Payment Awards. Results for prior periods have not been restated. Prior to January 1, 2006, the Company accounted for the Plans under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income,was recorded prior to January 1, 2006, as all options granted under these plansPlans had an exercise price equal to the market value of the underlying common stock on the date of the grant. |
| |
| | | Pro forma adjustments toAs a result of adopting SFAS 123 (R), the Company’s consolidated net earningsincome before provision for income taxes and earnings per share are disclosed during the years in which the options become vested. The following table illustrates the effect on net income for the year ended December 31, 2006 was $174,000 and earnings per share$154,000, respectively, lower than if the Company had appliedcontinued to account for share-based compensation under APB 25. Basic and diluted earnings per share for the fair value recognition provisionsyear ended December 31, 2006 would have been $1.07 and $1.05, respectively, without the adoption of FASB Statement No.SFAS 123Accounting for Stock-Based Compensation, (R) compared to stock-based compensation.$1.04 and $1.02, respectively, as reported. |
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| Net income, as reported | | $ | 4,528,000 | | | $ | 3,646,000 | | | $ | 3,281,000 | |
| Deduct: Total stock-based compen- sation expense determined under the fair value based method for all awards, net of related tax effects | | | 177,000 | | | | 144,000 | | | | 91,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Pro forma net income | | $ | 4,351,000 | | | $ | 3,502,000 | | | $ | 3,190,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Basic earnings per share — as reported | | $ | .92 | | | $ | .75 | | | $ | .68 | |
| Basic earnings per share — pro forma | | $ | .88 | | | $ | .72 | | | $ | .66 | |
| | | | | | | | | | | | | |
| Diluted earnings per share — as reported | | $ | .89 | | | $ | .73 | | | $ | .66 | |
| Diluted earnings per share — pro forma | | $ | .86 | | | $ | .71 | | | $ | .64 | |
| | | | | | | | | | | | | |
| Weighted average fair value of options granted during the year | | $ | 4.77 | | | $ | 5.09 | | | $ | 5.30 | |
|
| | | The fair valueIn accordance with SFAS 123 (R), beginning in 2006 the Company has presented excess tax benefits from the exercise of each option was estimated onstock-based compensation awards as a financing activity in the dateconsolidated statement of grant using an option-pricing model with the following assumptions:cash flows. |
| | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 |
| Dividend yield | | | 1.48 | % | | | 1.44 | % | | | 1.29 | % |
| Expected volatility | | | 30.53 | % | | | 51.54 | % | | | 38.74 | % |
| Risk-free interest rate | | | 4.14 | % | | | 3.46 | % | | | 3.07 | % |
| Expected option life | | 5 years | | 5 years | | 5 years |
F - 17
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
Stock-Based Compensation (Continued)
The following table illustrates the pro forma SFAS 123 adjustment on consolidated net income and earnings per share had the Company recorded compensation expense in accordance with SFAS 123 for the years ended December 31, 2005 and 2004:
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| Net income, as reported | | $ | 4,528,000 | | | $ | 3,646,000 | |
| Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects | | | 177,000 | | | | 144,000 | |
| | | | | | | |
| Pro forma net income | | $ | 4,351,000 | | | $ | 3,502,000 | |
| | | | | | | |
| | | | | | | | | |
| Basic earnings per share — as reported | | $ | .92 | | | $ | .75 | |
| Basic earnings per share — pro forma | | $ | .88 | | | $ | .72 | |
| Diluted earnings per share — as reported | | $ | .89 | | | $ | .73 | |
| Diluted earnings per share — pro forma | | $ | .86 | | | $ | .71 | |
The Company determines the fair value of the options previously granted on the date of grant using a Black-Scholes option pricing model that uses assumptions based on expected option life, expected stock volatility and the risk-free interest rate. The expected volatility assumptions used by the Company are based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of the grant. The Company also makes assumptions regarding estimated forfeitures that will impact the total compensation expenses recognized under the Plans.
The fair value of each option is estimated on the date of grant using the following assumptions.
| | | | | | | | | | | | | |
| | | 2006 | | 2005 | | 2004 |
| Expected life of stock options | | 5 years | | | 5 years | | | 5 years | |
| Interest rate—stock options | | | 4.67 | % | | | 4.14 | % | | | 3.46 | % |
| Volatility—stock options | | | 21.4 | % | | | 30.53 | % | | | 51.54 | % |
| Dividend yields | | | 1.40 | % | | | 1.48 | % | | | 1.44 | % |
| Weighted-average fair value of options granted during the year | | $ | 4.56 | | | $ | 4.77 | | | $ | 5.09 | |
F - 18
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
| |
| | | Impact of New Financial Accounting Standards |
| |
| | | Other-Than-Temporary ImpairmentAccounting for Servicing of Financial Assets |
| |
| | | In March 2004,2006, the Financial Accounting Standards Board (FASB) and Emerging Issues Task Force (EITF) reached consensus on several issues being addressed in EITF Issueissued Statement No. 03-1,156 (SFAS 156),The MeaningAccounting for Servicing of Other-Than-Temporary Impairment and Its Application to Certain InvestmentsFinancial Assets – An Amendment of FASB Statement No. 140. SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Under SFAS 156, an entity can elect subsequent fair value measurement of its servicing assets and servicing liabilities by class. An entity should apply the requirements for recognition and initial measurement of servicing assets and servicing liabilities prospectively to all transactions after the effective date. SFAS 156 permits an entity to reclassify certain available-for-sale securities to trading securities provided that they are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities subsequently measured at fair value. The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired and wasprovisions of SFAS 156 are effective for other-than-temporary impairment evaluations made in reporting periodsan entity as of the beginning of its first fiscal year that begins after JuneSeptember 15, 2004. The disclosure provisions2006. Management does not expect the adoption of EITF Issue No. 03-1 continueSFAS 156 to be effective forhave a material impact on the Company’s consolidated financial statements for the year ended December 31, 2005.position or results of operations. |
| |
| | | On November 3, 2005, the FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. This FSP nullifies certain requirements of EITF Issue No. 03-1, and supersedes EITF Topic No. D-44,Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value. The guidance in this FSP amends FASB Statement No. 115,Accounting for Certain InvestmentsUncertainty in Debt and Equity SecuritiesIncome Taxes. The FSP is effective for reporting periods beginning after December 15, 2005. The Company does not anticipate any material impact to its financial condition or results of operations as a result of the adoption of this guidance. |
|
| | Share-Based Payments |
| |
| | | In December 2004,July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48 (FIN 48),Accounting for Uncertainty in Income Taxes –An Interpretation of FASB Statement No. 123 (revised 2004) (FAS 123 (R)),Share-Based Payments109. FAS 123 (R) requires all entities to recognize compensation expense.. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an amount equal to the fair value of share-based payments such as stock options granted to employees. The Company may elect to adopt FAS 123 (R) using a modified prospective method or modified retrospective method. Under the modified retrospective method, the Company would restate previously issuedenterprise’s financial statements basing the compensation expense on that previously reported in their pro forma disclosures required by FAS 123. The modified prospective method would require the Company to record compensation expenseaccordance with FASB Statement No. 109,Accounting for Income Taxes.FIN 48 prescribes a recognition threshold and measurement standard for the unvested portionfinancial statement recognition and measurement of previously granted awards that remain outstanding at the date of adoption as these awards continuea tax position taken or expected to vest. FAS 123 (R)be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006. |
|
| | The Company presently recognizes income tax positions based on management’s estimate of whether it is reasonably possible that a liability has been incurred for unrecognized income tax benefits by applying FASB Statement No. 5, Accounting for Contingencies. |
|
| | The provisions of FIN 48 will be effective for the firstCompany on January 1, 2007 and are to be applied to all tax positions upon initial application of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption. |
|
| | The cumulative effect of applying the provisions of FIN 48, if any, will be reported as an adjustment to the opening balance of retained earnings for the fiscal year beginning after June 15, 2005. of adoption.
Management has electeddoes not expect the adoption of FIN 48 to usehave a material impact on the modified prospective method and has completed its evaluationCompany’s financial position or results of the effect of FAS 123 (R), and believes that the effect of its implementation will be consistent with the proforma disclosures noted above.operations. |
F-18F - 19
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
| |
| | | Impact of New Financial Accounting Standards (continued)(Continued) |
| |
| | | Accounting Changes and Error Correctionsfor Purchases of Life Insurance |
| |
| | | On June 7, 2005,In September 2006, the FASB issued Statementratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No. 154 (FAS 154),06-5,Accounting Changesfor Purchases of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance. FASB Technical Bulletin No. 85-4 requires that the amount that could be realized under the insurance contract as of the date of the statement of financial position should be reported as an asset. Since the issuance of FASB Technical Bulletin No. 85-4, questions arose regarding whether “the amount that could be realized” should consider 1) any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value and Error Corrections —2) the contractual ability to surrender all of the individual-life policies (or certificates in a replacementgroup policy) at the same time. EITF 06-5 determined that “the amount that could be realized” should 1) consider any additional amounts included in the contractual terms of Accounting Principles Board (APB) Opinion No. 20, Accounting Changes,the policy and SFAS No. 3, Reporting Accounting Changes2) assume the surrender of an individual-life by individual-life policy (or certificate by certificate in Interim Financial Statementsa group policy). UnderAny amount that is ultimately realized by the policy holder upon the assumed surrender of the final policy (or final certificate in a group policy) shall be included in the “amount that could be realized.” An entity should apply the provisions of FAS 154, voluntary changes in accounting principles are applied retrospectively to prior periods’ financial statements unless it would be impractical to do so. FAS 154 supersedes APB Opinion No. 20, which required that most voluntary changes in accounting principles be recognized by including in the current period’s net income the cumulative effect of the change. FAS 154 also makes a distinction between “retrospective application” ofEITF 06-5 through either a change in accounting principle andthrough a cumulative-effect adjustment to retained earnings as of the “restatement”beginning of financial statementsthe year of adoption or a change in accounting principle through retrospective application to reflect the correction of an error.all prior periods. The provisions of FAS 154EITF 06-5 are effective for accounting changes made in fiscal years beginning after December 15, 2005.2006. Management has not yet completed its evaluation of the Companyimpact that EITF 06-5 will have. |
|
| | Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements |
|
| | In September 2006, the FASB ratified the consensuses reached by the Task Force on Issue No. 06-4 (EITF 06-4),Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. A question arose when an employer enters into an endorsement split-dollar life insurance arrangement related to whether the employer should recognize a liability for the future benefits or premiums to be provided to the employee. EITF 06-4 indicates that an employer should recognize a liability for future benefits and that a liability for the benefit obligation has not been settled through the purchase of an endorsement type policy. An entity should apply the provisions of EITF 06-4 either through a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or a change in accounting principle through retrospective application to all prior periods. The provisions of EITF 06-4 are effective for fiscal years beginning after December 15, 2007. Management has not yet completed its evaluation of the impact that EITF 06-4 will have. |
F - 20
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 2. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued) |
|
| | Impact of New Financial Accounting Standards (Continued) |
|
| | Fair Value Measurements |
|
| | In September 2006, the FASB issued Statement No. 157 (SFAS 157),Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions should be applied prospectively, except for certain specifically identified financial instruments. Management does not expect the adoption of this standardSFAS 157 to have a material impact on itsto the Company’s financial position or resultsresult of operations. |
| |
| | Consideration of the Effects of Prior Year Misstatements |
|
| | In September 2006, the Securities and Exchange Commission published Staff Accounting Bulleting No. 108 (SAB 108)Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.The interpretations in this Staff Accounting Bulleting were issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice to build up improper amounts on the balance sheet. This guidance will apply to the first fiscal year ending after November 15, 2006 or December 31, 2006 for the Company.. The adoption of SAB 108 did not have a material impact on the Company’s financial position, results of operations or cash flows and no cumulative adjustment was required. |
F - 21
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. | | INVESTMENT SECURITIES |
| |
| | | The amortized cost and estimated fair value of investment securities at December 31, 20052006 and 20042005 consisted of the following: |
| |
| | | Available-for-Sale |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | | 2006 | |
| | | Gross | | Gross | | Estimated | | | Gross | | Gross | | Estimated | |
| | | Amortized | | Unrealized | | Unrealized | | Fair | | | Amortized | | Unrealized | | Unrealized | | Fair | |
| | | Cost | | Gains | | Losses | | Value | | | Cost | | Gains | | Losses | | Value | |
| Debt securities: | | |
| U.S. Treasury securities | | $ | 10,030,000 | | $ | (207,000 | ) | | $ | 9,823,000 | | | $ | 5,481,000 | | $ | | | $ | (137,000 | ) | | $ | 5,344,000 | |
| U.S. Government agencies | | 44,574,000 | | $ | 1,000 | | | (819,000 | ) | | 43,756,000 | | | 30,435,000 | | | (372,000 | ) | | 30,063,000 | |
| U.S. Government agencies collateralized by mortgage obligations | | 21,549,000 | | 12,000 | | | (610,000 | ) | | 20,951,000 | | | 17,959,000 | | | (519,000 | ) | | 17,440,000 | |
| Corporate debt securities | | 9,465,000 | | | (234,000 | ) | | 9,231,000 | | | 8,018,000 | | | (150,000 | ) | | 7,868,000 | |
| | | | | | | | | | | | | | | | | | | |
| | | |
| | | $ | 85,618,000 | | $ | 13,000 | | $ | (1,870,000 | ) | | $ | 83,761,000 | | | $ | 61,893,000 | | $ | | | $ | (1,178,000 | ) | | $ | 60,715,000 | |
| | | | | | | | | | | | | | | | | | | |
| | Net unrealized losses on available-for-sale investment securities totaling $1,178,000 were recorded, net of $486,000 in tax benefits, as accumulated other comprehensive loss within shareholders’ equity at December 31, 2006. There were no sales of available-for-sale investment securities during the year ended December 31, 2006. |
| | | | | | | | | | | | | | | | | |
| | | 2005 | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains | | | Losses | | | Value | |
| Debt securities: | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | | $ | 10,030,000 | | | | | | | $ | (207,000 | ) | | $ | 9,823,000 | |
| U.S. Government agencies | | | 44,574,000 | | | $ | 1,000 | | | | (819,000 | ) | | | 43,756,000 | |
| U.S. Government agencies collateralized by mortgage obligations | | | 21,549,000 | | | | 12,000 | | | | (610,000 | ) | | | 20,951,000 | |
| Corporate debt securities | | | 9,465,000 | | | | | | | | (234,000 | ) | | | 9,231,000 | |
| | | | | | | | | | | | | |
| | | $ | 85,618,000 | | | $ | 13,000 | | | $ | (1,870,000 | ) | | $ | 83,761,000 | |
| | | | | | | | | | | | | |
F - 22
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. | | INVESTMENT SECURITIES(Continued) |
|
| | Available-for-Sale: (Continued) |
|
| | | Net unrealized losses on available-for-sale investment securities totaling $1,857,000 were recorded, net of $766,000 in tax benefits, as accumulated other comprehensive loss within shareholders’ equity at December 31, 2005. Proceeds and gross realized losses from the sale of available-for-sale investment securities for the year ended December 31, 2005 totaled $1,992,000 and $8,000, respectively. Proceeds and gross realized gains from the sale of available-for-sale investment securities for the year ended December 31, 2004 totaled $36,309,000 and $235,000, respectively. |
|
| | Held-to-Maturity |
| | | | | | | | | | | | | | | | | |
| | | 2006 | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains | | | Losses | | | Value | |
| Debt securities: | | | | | | | | | | | | | | | | |
| Obligations of states and political subdivisions | | $ | 14,080,000 | | | $ | 90,000 | | | $ | (44,000 | ) | | $ | 14,126,000 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | 2005 | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains | | | Losses | | | Value | |
| Debt securities: | | | | | | | | | | | | | | | | |
| U.S. Government agencies | | $ | 6,000 | | | | | | | | | | | $ | 6,000 | |
| Obligations of states and political subdivisions | | | 14,077,000 | | | $ | 48,000 | | | $ | (180,000 | ) | | | 13,945,000 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | $ | 14,083,000 | | | $ | 48,000 | | | $ | (180,000 | ) | | $ | 13,951,000 | |
| | | | | | | | | | | | | |
| | There were no sales or transfers of held-to-maturity investment securities during the years ended December 31, 2006, 2005 and 2004. |
F-19F - 23
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. | | INVESTMENT SECURITIES(Continued) |
| |
| | | Available-for-Sale: (Continued) |
| | | | | | | | | | | | | | | | | |
| | | 2004 | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains | | | Losses | | | Value | |
| Debt securities: | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | | $ | 10,161,000 | | | | | | | $ | (106,000 | ) | | | 10,055,000 | |
| U.S. Government agencies | | | 57,514,000 | | | $ | 2,000 | | | | (433,000 | ) | | | 57,083,000 | |
| U.S. Government agencies collateralized by mortgage obligations | | | 20,848,000 | | | | 8,000 | | | | (216,000 | ) | | | 20,640,000 | |
| Corporate debt securities | | | 9,594,000 | | | | | | | | (93,000 | ) | | | 9,501,000 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | $ | 98,117,000 | | | $ | 10,000 | | | $ | (848,000 | ) | | $ | 97,279,000 | |
| | | | | | | | | | | | | |
| | NetInvestment securities with unrealized losses on available-for-sale investment securities totaling $838,000 were recorded, net of $346,000 in tax benefits, as accumulated other comprehensive loss within shareholders’ equity at December 31, 2004. Proceeds2006 are summarized and gross realized gains fromclassified according to the saleduration of available-for-sale investment securities for the year ended December 31, 2004 totaled $36,309,000 and $235,000, respectively. Proceeds and gross realized gains from the sale of available-for-sale investment securities for the year ended December 31, 2003 totaled $32,426,000 and $328,000, respectively. |
|
| | Held-to-Maturityloss period as follows: |
| | | | | | | | | | | | | | | | | |
| | | 2005 | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains | | | Losses | | | Value | |
| Debt securities: | | | | | | | | | | | | | | | | |
| U.S. Government agencies | | $ | 6,000 | | | | | | | | | | | $ | 6,000 | |
| Obligations of states and political subdivisions | | | 14,077,000 | | | $ | 48,000 | | | $ | (180,000 | ) | | | 13,945,000 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | $ | 14,083,000 | | | $ | 48,000 | | | $ | (180,000 | ) | | $ | 13,951,000 | |
| | | | | | | | | | | | | |
F-20
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Less than 12 Months | | | 12 Months or More | | | Total | |
| | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | |
| | | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | |
| Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | | | | | | | | | | $ | 5,344,000 | | | $ | 137,000 | | | $ | 5,344,000 | | | $ | 137,000 | |
| U.S. Government agencies | | | | | | | | | | | 30,063,000 | | | | 372,000 | | | | 30,063,000 | | | | 372,000 | |
| Obligations of states and political subdi- visions | | | | | | | | | | | 5,738,000 | | | | 44,000 | | | | 5,738,000 | | | | 44,000 | |
| U.S. Government agencies collateral- ized by mortgage obligations | | | 2,816,000 | | | | 15,000 | | | | 14,553,000 | | | | 504,000 | | | | 17,369,000 | | | | 519,000 | |
| Corporate debt securities | | | | | | | | | | | 7,868,000 | | | | 150,000 | | | | 7,868,000 | | | | 150,000 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 2,816,000 | | | $ | 15,000 | | | $ | 63,566,000 | | | $ | 1,207,000 | | | $ | 66,382,000 | | | $ | 1,222,000 | |
| | | | | | | | | | | | | | | | | | | |
3. | | INVESTMENT SECURITIES(Continued) |
|
| | Held-to-Maturity (Continued) |
| | | | | | | | | | | | | | | | | |
| | | 2004 | |
| | | | | | | Gross | | | Gross | | | Estimated | |
| | | Amortized | | | Unrealized | | | Unrealized | | | Fair | |
| | | Cost | | | Gains | | | Losses | | | Value | |
| Debt securities: | | | | | | | | | | | | | | | | |
| U.S. Government agencies | | $ | 507,000 | | | $ | 2,000 | | | | | | | $ | 509,000 | |
| Obligations of states and political subdivisions | | | 14,966,000 | | | | 169,000 | | | $ | (45,000 | ) | | | 15,090,000 | |
| Corporate debt securities | | | 500,000 | | | | 12,000 | | | | | | | | 512,000 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | $ | 15,973,000 | | | $ | 183,000 | | | $ | (45,000 | ) | | $ | 16,111,000 | |
| | | | | | | | | | | | | |
| | There were no sales or transfers of held-to-maturity investment securities during the years ended December 31, 2005, 2004 and 2003. |
|
| | | Investment securities with unrealized losses at December 31, 2005 are summarized and classified according to the duration of the loss period as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Less than 12 Months | | | 12 Months or More | | | Total | |
| | | Fair | | | Unrealized | | | Fair | | | Unrealized | | | Fair | | | Unrealized | |
| | | Value | | | Losses | | | Value | | | Losses | | | Value | | | Losses | |
| Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury securities | | | | | | | | | | $ | 9,823,000 | | | $ | 207,000 | | | $ | 9,823,000 | | | $ | 207,000 | |
| U.S. Government agencies | | $ | 6,330,000 | | | $ | 38,000 | | | | 34,421,000 | | | | 781,000 | | | | 40,751,000 | | | | 819,000 | |
| Obligations of states and political subdi- visions | | | 5,098,000 | | | | 49,000 | | | | 5,444,000 | | | | 131,000 | | | | 10,542,000 | | | | 180,000 | |
| U.S. Government agencies collateral- ized by mortgage obligations | | | 2,216,000 | | | | 19,000 | | | | 15,226,000 | | | | 591,000 | | | | 17,442,000 | | | | 610,000 | |
| Corporate debt securities | | | | | | | | | | | 9,231,000 | | | | 234,000 | | | | 9,231,000 | | | | 234,000 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 13,644,000 | | | $ | 106,000 | | | $ | 74,145,000 | | | $ | 1,944,000 | | | $ | 87,789,000 | | | $ | 2,050,000 | |
| | | | | | | | | | | | | | | | | | | |
| | | U.S. Treasury and U.S. Government Agencies |
|
| | At December 31, 2005,2006, the Company held 140 investment3 U.S. Treasury and 22 U.S. Government agency securities all of which 29 were in a loss position for less than twelve months and 91 were in a loss position and had been in a loss position for twelve months or more. Management periodically evaluates each investment security for other than temporary impairment, relying primarilyThe unrealized losses on industry analyst reportsthe Company’s investments in direct obligations of the U.S. Treasury and observation of market conditions andU.S. government agencies were caused by interest rate fluctuations. Management believes it will be able to collect all amounts due according to theincreases. The contractual terms of those investments do not permit the underlying investmentissuer to settle the securities and thatat a price less than the notedamortized costs of the investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, is considered temporary and due onlywhich may be maturity, the Company does not consider those investments to interest rate fluctuations.be other-than-temporarily impaired at December 31, 2006. |
F-21F - 24
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. | | INVESTMENT SECURITIES(Continued) |
|
| | Obligations of States and Political Subdivision |
|
| | At December 31, 2006, the Company held 56 obligations of states and political subdivision securities of which 23 were in a loss position and had been in a loss position for twelve months or more. The unrealized losses on the Company’s investments in obligations of states and political subdivision securities were caused by interest rate increases. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2006. |
|
| | U.S. Government Agencies Collateralized by Mortgage Obligations |
|
| | At December 31, 2006, the Company held 26 U.S. Government agency securities collateralized by mortgage obligation securities of which 3 were in a loss position for less than twelve months and 22 were in a loss position and had been in a loss position for twelve months or more. The unrealized losses on the Company’s investments in U.S. government agencies collateralized by mortgage obligations were caused by interest rate increases. The contractual cash flows of these investments are guaranteed by an agency of the U.S. government. It is expected that the securities will not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2006. |
|
| | Corporate Debt Securities |
|
| | At December 31, 2006, the Company held 16 corporate debt securities all of which were in a loss position and had been in a loss position for twelve months or more. The unrealized losses on the Company’s investments in corporate debt securities were caused by interest rate increases. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2006. |
F - 25
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 3. | | INVESTMENT SECURITIES(Continued) |
| |
| | | The amortized cost and estimated fair value of investment securities at December 31, 20052006 by contractual maturity are shown below. 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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Available-for-Sale | | Held-to-Maturity | | | Available-for-Sale | | Held-to-Maturity | |
| | | Estimated | | Estimated | | | Estimated | | Estimated | |
| | | Amortized | | Fair | | Amortized | | Fair | | | Amortized | | Fair | | Amortized | | Fair | |
| | | Cost | | Value | | Cost | | Value | | | Cost | | Value | | Cost | | Value | |
| Within one year | | $ | 19,930,000 | | $ | 19,757,000 | | $ | 85,000 | | $ | 86,000 | | | $ | 27,943,000 | | $ | 27,705,000 | | $ | 588,000 | | $ | 586,000 | |
| After one year through five years | | 44,139,000 | | 43,053,000 | | 1,579,000 | | 1,596,000 | | | 15,991,000 | | 15,569,000 | | 1,501,000 | | 1,500,000 | |
| After five years through ten years | | 6,193,000 | | 6,103,000 | | | 8,789,000 | | 8,798,000 | |
| After ten years through fifteen years | | 6,220,000 | | 6,160,000 | | | 3,202,000 | | 3,242,000 | |
| | | | | | | | | | | | | | | | | | | |
| | | |
| | | 64,069,000 | | 62,810,000 | | 14,077,000 | | 13,945,000 | | | 43,934,000 | | 43,275,000 | | 14,080,000 | | 14,126,000 | |
| | | |
| Investment securities not due at a single maturity date: | | |
| Government-guar- anteed mortgage- backed securities | | 21,549,000 | | 20,951,000 | | | 17,959,000 | | 17,440,000 | |
| SBA loan pools | | 6,000 | | 6,000 | | |
| | | | | | | | | | | | | | | | | | | |
| | | |
| | | $ | 85,618,000 | | $ | 83,761,000 | | $ | 14,083,000 | | $ | 13,951,000 | | | $ | 61,893,000 | | $ | 60,715,000 | | $ | 14,080,000 | | $ | 14,126,000 | |
| | | | | | | | | | | | | | | | | | | |
| | | Investment securities with amortized costs totaling $38,678,000$41,616,000 and $35,050,000$38,678,000 and estimated fair values totaling $37,975,000$41,184,000 and $35,072,000$37,975,000 at December 31, 20052006 and 2004,2005, respectively, were pledged to secure public deposits and treasury, tax and loan accounts. |
F-22F - 26
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 4. | | LOANS AND THE ALLOWANCE FOR LOAN LOSSES |
| |
| | | Outstanding loans are summarized below: |
| | | | | | | | | | | | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2005 | | 2004 | | | 2006 | | 2005 | |
| Commercial | | $ | 42,252,000 | | $ | 42,689,000 | | | $ | 36,182,000 | | $ | 42,252,000 | |
| Agricultural | | 31,018,000 | | 31,067,000 | | | 35,577,000 | | 31,018,000 | |
| Real estate — mortgage | | 110,686,000 | | 102,125,000 | | | 116,329,000 | | 110,686,000 | |
| Real estate — construction and land development | | 56,370,000 | | 31,964,000 | | |
| Real estate – construction and land development | | | 75,930,000 | | 56,370,000 | |
| Installment | | 81,320,000 | | 59,068,000 | | | 90,694,000 | | 81,320,000 | |
| | | | | | | | | | | |
| | | |
| | | 321,646,000 | | 266,913,000 | | | 354,712,000 | | 321,646,000 | |
| | | |
| Deferred loan costs (fees), net | | 766,000 | | | (260,000 | ) | |
| Deferred loan costs, net | | | 1,182,000 | | 766,000 | |
| Allowance for loan losses | | | (3,256,000 | ) | | | (2,722,000 | ) | | | (3,917,000 | ) | | | (3,256,000 | ) |
| | | | | | | | | | | |
| | | |
| | | $ | 319,156,000 | | $ | 263,931,000 | | | $ | 351,977,000 | | $ | 319,156,000 | |
| | | | | | | | | | | |
| | Changes in the allowance for loan losses were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| Balance, beginning of year | | $ | 2,722,000 | | $ | 2,524,000 | | $ | 2,431,000 | | | $ | 3,256,000 | | $ | 2,722,000 | | $ | 2,524,000 | |
| Provision charged to operations | | 1,100,000 | | 750,000 | | 750,000 | | | 1,000,000 | | 1,100,000 | | 750,000 | |
| Losses charged to allowance | | | (739,000 | ) | | | (703,000 | ) | | | (847,000 | ) | | | (645,000 | ) | | | (739,000 | ) | | | (703,000 | ) |
| Recoveries | | 173,000 | | 151,000 | | 190,000 | | | 306,000 | | 173,000 | | 151,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Balance, end of year | | $ | 3,256,000 | | $ | 2,722,000 | | $ | 2,524,000 | | | $ | 3,917,000 | | $ | 3,256,000 | | $ | 2,722,000 | |
| | | | | | | | | | | | | | | |
| | | The recorded investment in loans that were considered to be impaired totaled $1,661,000$972,000 and $1,171,000$1,661,000 at December 31, 20052006 and 2004,2005, respectively. The related allowance for loan losses for impaired loans was $137,000$66,000 and $121,000$137,000 at December 31, 20052006 and 2004,2005, respectively. The average recorded investment in impaired loans for the years ended December 31, 2006, 2005 and 2004 was $1,201,000,$1,263,000 and 2003 was $1,263,000, $1,582,000, and $2,034,000, respectively. The Company recognized $116,000, $16,000 $63,000 and $143,000$63,000 in interest income on a cash basis for impaired loans during the years ended December 31, 2006, 2005 2004 and 2003,2004, respectively. |
F-23F - 27
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 4. | | LOANS AND THE ALLOWANCE FOR LOAN LOSSES(Continued) |
| |
| | | At December 31, 20052006 and 2004,2005, nonaccrual loans totaled $1,661,000$972,000 and $1,171,000,$1,661,000, respectively. Interest foregone on nonaccrual loans totaled $53,000, $39,000 $25,000 and $51,000$25,000 for the years ended December 31, 2006, 2005 2004 and 2003,2004, respectively. |
| |
| | | Salaries and employee benefits totaling $1,328,000, $1,197,000 $746,000 and $728,000$746,000 have been deferred as loan origination costs during the years ended December 31, 2006, 2005 2004 and 2003,2004, respectively. |
| |
| | | SalesServicing Assets and ServicingInterest-Only Strips Receivable |
|
| | The Company serviced government guaranteed loans for others totaling $4,622,000, $4,251,000 and 3,001,000 as of Government-Guaranteed LoansDecember 31, 2006, 2005 and 2004, respectively. |
| |
| | | A summary of the activity in government-guaranteed loansrelated servicing assets and interest-only strips receivable are as follows: |
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2005 | | 2004 | | 2003 |
| Loans originated | | $ | 1,943,000 | | | $ | 3,044,000 | | | $ | 3,010,000 | |
| Loans sold (guaranteed portion) | | | 979,000 | | | | 2,333,000 | | | | | |
| Loans outstanding at year end | | | 5,986,000 | | | | 4,538,000 | | | | 6,773,000 | |
| Premium received at sale | | | 45,000 | | | | 103,000 | | | | | |
| Balance of servicing assets at year end | | | 97,000 | | | | 106,000 | | | | 82,000 | |
| Fair value of interest-only strips at year end | | | 326,000 | | | | 356,000 | | | | 237,000 | |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2006 | | | 2005 | | | 2004 | |
| Servicing Assets: |
| |
| Balance at beginning of year | | $ | 97,000 | | | $ | 106,000 | | | $ | 82,000 | |
| Increase from loan sales | | | 15,000 | | | | 3,000 | | | | 36,000 | |
| Amortization charged to income | | | (43,000 | ) | | | (12,000 | ) | | | (12,000 | ) |
| | | | | | | | | | |
| Balance at end of year | | $ | 69,000 | | | $ | 97,000 | | | $ | 106,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| Interest-Only Strips Receivable: |
| |
| Balance at beginning of year | | $ | 326,000 | | | $ | 356,000 | | | $ | 237,000 | |
| Increase from loan sales | | | 66,000 | | | | 10,000 | | | | 166,000 | |
| Amortization charged to income | | | (155,000 | ) | | | (40,000 | ) | | | (47,000 | ) |
| | | | | | | | | | |
| Balance at end of year | | $ | 238,000 | | | $ | 326,000 | | | $ | 356,000 | |
| | | | | | | | | | |
| | | At December 31, 2006, 2005, and 2004, the Company had interest-only strips of $238,000, $326,000, and $356,000, respectively, which approximates fair value. There were no significant gains or losses recognized on the interest-only strips for the years ended December 31, 2006, 2005 2004 and 2003.2004. |
|
F - 28
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 5. | | PREMISES AND EQUIPMENT |
| |
| | | Premises and equipment consisted of the following: |
| | | | | | | | | | | | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2005 | | 2004 | | | 2006 | | 2005 | |
| Land | | $ | 1,882,000 | | $ | 1,349,000 | | | $ | 2,372,000 | | $ | 1,882,000 | |
| Premises | | 7,073,000 | | 6,931,000 | | | 12,142,000 | | 7,073,000 | |
| Furniture, equipment and leasehold improvements | | 7,934,000 | | 7,512,000 | | | 8,799,000 | | 7,934,000 | |
| Construction in progress | | 1,880,000 | | 320,000 | | | 247,000 | | 1,880,000 | |
| | | | | | | | | | | |
| | | |
| | | 18,769,000 | | 16,112,000 | | | 23,560,000 | | 18,769,000 | |
| | | |
| Less accumulated depreciation and amortization | | | (7,365,000 | ) | | | (6,319,000 | ) | | | (8,370,000 | ) | | | (7,365,000 | ) |
| | | | | | | | | | | |
| | | | $ | 15,190,000 | | $ | 11,404,000 | |
| | | $ | 11,404,000 | | $ | 9,793,000 | | | | | | |
| | | | | | | |
| | Depreciation and amortization included in occupancy and equipment expense totaled $1,870,000, $1,775,000 and $1,326,000 for the years ended December 31, 2006, 2005 and 2004, respectively. |
| 6. | | DEPOSITS |
|
| | Interest-bearing deposits consisted of the following: |
| | | | | | | | | |
| | | December 31, | |
| | | 2006 | | | 2005 | |
| Interest-bearing demand deposits | | $ | 81,011,000 | | | $ | 69,889,000 | |
| Money market | | | 44,082,000 | | | | 62,214,000 | |
| Savings | | | 54,866,000 | | | | 65,611,000 | |
| Time, $100,000 or more | | | 38,863,000 | | | | 32,575,000 | |
| Other time | | | 61,890,000 | | | | 66,537,000 | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 280,712,000 | | | $ | 296,826,000 | |
| | | | | | | |
F-24F - 29
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.6. | | PREMISES AND EQUIPMENTDEPOSITS(Continued) |
| |
| | | Depreciation and amortization included in occupancy and equipment expense totaled $1,775,000, $1,326,000 and $1,153,000 for the years endedAt December 31, 2005, 2004 and 2003, respectively.2006, the scheduled maturities of time deposits were as follows: |
| | | | | |
| Year Ending | | | | |
| December 31, | | | | |
| 2007 | | $ | 81,838,000 | |
| 2008 | | | 14,292,000 | |
| 2009 | | | 2,625,000 | |
| 2010 | | | 1,383,000 | |
| 2011 | | | 469,000 | |
| Thereafter | | | 146,000 | |
| | | | |
| | | | | |
| | | $ | 100,753,000 | |
| | | | |
| |
6. | | INTEREST-BEARING DEPOSITSAt December 31, 2006, the contractual maturities of time deposits with a denomination of $100,000 and over were as follows: $7,672,000 in 3 months or less, $11,338,000 over 3 months through 6 months, $10,844,000 over 6 months through 12 months, and $7,009,000 thousand over 12 months. |
| |
| | | Interest-bearing deposits consisted of the following:Deposit overdrafts reclassified as loan balances were $474,000 and $497,000 at December 31, 2006 and 2005, respectively. |
| | | | | | | | | |
| | | December 31, | |
| | | 2005 | | | 2004 | |
| NOW | | $ | 69,889,000 | | | $ | 45,439,000 | |
| Money market | | | 62,214,000 | | | | 63,189,000 | |
| Savings | | | 65,611,000 | | | | 66,821,000 | |
| Time, $100,000 or more | | | 32,575,000 | | | | 28,361,000 | |
| Other time | | | 66,537,000 | | | | 66,201,000 | |
| | | | | | | |
| | | | | | | | | |
| | | $ | 296,826,000 | | | $ | 270,011,000 | |
| | | | | | | |
| | | Aggregate annual maturities of time deposits are as follows: |
| | | | | |
| Year Ending | | | | |
| December 31, | | | | |
| 2006 | | $ | 77,143,000 | |
| 2007 | | | 16,097,000 | |
| 2008 | | | 2,937,000 | |
| 2009 | | | 1,920,000 | |
| 2010 | | | 896,000 | |
| Thereafter | | | 119,000 | |
| | | | |
| | | | | |
| | | $ | 99,112,000 | |
| | | | |
| | Interest expense recognized on interest-bearing deposits consisted of the following: |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2005 | | | 2004 | | | 2003 | |
| NOW | | $ | 196,000 | | | $ | 58,000 | | | $ | 79,000 | |
| Money market | | | 747,000 | | | | 490,000 | | | | 498,000 | |
| Savings | | | 445,000 | | | | 292,000 | | | | 310,000 | |
| Time, $100,000 or more | | | 809,000 | | | | 540,000 | | | | 507,000 | |
| Other time | | | 1,895,000 | | | | 1,220,000 | | | | 1,309,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | $ | 4,092,000 | | | $ | 2,600,000 | | | $ | 2,703,000 | |
| | | | | | | | | | |
F-25
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 7. | | SHORT-TERM BORROWING ARRANGEMENTS |
| |
| | | The Company has unsecured short-term borrowing arrangements with two of its correspondent banks in the amounts of $10,000,000 and $5,000,000. The Company can also borrow up to $77,506,000$93,261,000 from the Federal Home Loan Bank (“FHLB”) secured by commercial and residential mortgage loans with carrying values totaling $127,068,000. In addition, the Bank has a reverse repurchase agreement$182,380,000. These FHLB advances are normally made for one day periods but can be for longer periods. Short-term borrowings at December 31, 2006 consisted of $20,000,000 in one day FHLB advances with a securities firm whereby all borrowings are fully secured by investment securities.5.34% weighted average rate. There were no short-term borrowings outstanding at December 31, 2005. Short-term borrowings at December 31, 2004 consisted of $1,035,000 in Federal funds purchased which are normally purchased for one day periods. |
| |
| 8. | | JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES |
| |
| | | Plumas Statutory Trust I and II are Connecticut business trusts formed by the Company with capital of $186,000$235,000 and $124,000,$134,000, respectively, for the sole purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to twenty-five percent of the Company’s Tier 1 capital, as defined, on a pro forma basis. At December 31, 2005,2006, all of the trust preferred securities that have been issued qualify as Tier 1 capital. |
|
| | During 2002, Plumas Statutory 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, Plumas Statutory Trust II issued 4,000 Trust Preferred Securities with a liquidation value of $1,000 per security, |
F - 30
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 8. | | JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES(Continued) |
|
| | 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 7.36% (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 5.49% (based on 3-month LIBOR plus 1.48%), with repricing and payments due quarterly. The Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Board of Governors, on any quarterly anniversary date on or after the 5-year anniversary date of the issuance. The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture. The Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the Subordinated Debentures and upon maturity of the Subordinated Debentures on September 26, 2032 for Trust I and September 28, 2035 for Trust II. |
| |
| | | Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security. 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% provided, however, that prior to September 26, 2007, such annual rate does not exceed 11.90%. The Trust Preferred Securities issued by Trust II adjust on each quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both |
F-26
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. | | JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES(Continued) |
|
| | 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. The Trust Preferred Securities were sold and issued in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the Trust Preferred Securities. |
| |
| | | Interest expense recognized by the Company for the years ended December 31, 2006, 2005 2004 and 20032004 related to the subordinated debentures was $810,000, $479,000 $305,000 and $288,000,$305,000, respectively. The amount of deferred costs at December 31, 2006 and 2005 was $155,000 and 2004 was $161,000, and $167,000, respectively. The amortization of the deferred costs was $6,000 for each of the years ended December 31, 2006, 2005 2004 and 2003.2004. |
F - 31
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 9. | | COMMITMENTS AND CONTINGENCIES |
| |
| | | Leases |
| |
| | | The Company leases its Truckee, Tahoe City and Loyalton branch offices and administrativeits Reno, Nevada loan production office space in Truckee under noncancelable operating leases that expire in January 2007, March 2008, June 2007 and April 2006,October 2009, respectively. The Tahoe City and Truckee office leases contain optionslease contains an option to renew the leaseslease for fifteen years and three years, respectively.years. Future minimum lease payments are as follows: |
| | | | | | | | | |
| Year Ending | | |
| December 31, | | |
| 2006 | | $ | 188,000 | | |
| 2007 | | 127,000 | | | $ | 164,000 | |
| 2008 | | 22,000 | | | 49,000 | |
| 2009 | | | 22,000 | |
| | | | | | | |
| | | $ | 337,000 | | |
| | | | | | $ | 235,000 | |
| | | | | |
| | | Rental expense included in occupancy and equipment expense totaled $221,000, $242,000 $264,000 and $179,000$264,000 for the years ended December 31, 2006, 2005 2004 and 2003,2004, respectively. |
| |
| | | Financial Instruments With Off-Balance-Sheet Risk |
| |
| | | The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the consolidated balance sheet. |
| |
| | | The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and letters of credit as it does for loans included on the consolidated balance sheet. |
F-27
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. | | COMMITMENTS AND CONTINGENCIES(Continued) |
|
| | Financial Instruments With Off-Balance-Sheet Risk (Continued) |
| |
| | | The following financial instruments represent off-balance-sheet credit risk: |
| | | | | | | | | | | | | | | | | |
| | | December 31, | | | December 31, |
| | | 2005 | | 2004 | | | 2006 | | 2005 |
| Commitments to extend credit | | $ | 107,500,000 | | $ | 90,084,000 | | | $ | 101,759,000 | | $ | 107,500,000 | |
| Letters of credit | | $ | 1,195,000 | | $ | 1,777,000 | | | $ | 564,000 | | $ | 1,195,000 | |
| | | Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the |
F - 32
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 9. | | COMMITMENTS AND CONTINGENCIES(Continued) |
|
| | total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, crops, inventory, equipment, income-producing commercial properties, farm land and residential properties. |
| |
| | | Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The fair value of the liability related to these letters of credit, which represents the fees received for issuing the guarantees, was not significant at December 31, 20052006 and 2004.2005. The Company recognizes these fees as revenues over the term of the commitment or when the commitment is used. |
| |
| | | At December 31, 2005,2006, consumer loan commitments represent approximately 12% of total commitments and are generally unsecured. Commercial and agricultural loan commitments represent approximately 23%24% of total commitments and are generally secured by various assets of the borrower. Real estate loan commitments, including consumer home equity lines of credit, represent the remaining 65%64% of total commitments and are generally secured by property with a loan-to-value ratio not to exceed 80%. In addition, the majority of the Company’s commitments have variable interest rates. |
| |
| | | Concentrations of Credit Risk |
| |
| | | The Company grants real estate mortgage, real estate construction, commercial, agricultural and consumer loans to customers throughout Plumas, Nevada, Placer, Lassen, Sierra, Shasta and Modoc counties. |
F-28
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. | | COMMITMENTS AND CONTINGENCIES(Continued) |
|
| | Concentrations of Credit Risk (continued) |
| |
| | | Although the Company has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate. However, personal and business income represent the primary source of repayment for a majority of these loans. |
| |
| | | Contingencies |
| |
| | | The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Company. |
F - 33
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 10. | | SHAREHOLDERS’ EQUITY |
| |
| | | Dividend Restrictions |
| |
| | | The Company’s ability to pay cash dividends is dependent on dividends paid to it by the Bank and limited by California corporation law. Under California law, the holders of common stock of the Company are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available, subject to certain restrictions. The California general corporation law prohibits the Company from paying dividends on its common stock unless: (i) its retained earnings, immediately prior to the dividend payment, equals or exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend, the sum of the Company’s assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred taxes, deferred income and other deferred liabilities) and the current assets of the Company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least equal to 125% of its current liabilities. |
| |
| | | Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the Department of Financial Institutions, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year. As of December 31, 2005,2006, the maximum amount available for dividend distribution under this restriction was approximately $9,938,000.$13,282,000. In addition the Company’s ability to pay dividends is subject to certain covenants contained in the indentures relating to the Trust preferredPreferred Securities issued by the business trusts (see Note 8). |
F-29F - 34
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 10. | | SHAREHOLDERS’ EQUITY(Continued) |
| |
| | | Earnings Per Share |
| |
| | | A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weighted | | | | | Weighted | | | |
| | | Average | | | | | Average | | | |
| | | Number of | | | | | Number of | | | |
| | | Net | | Shares | | Per Share | | | Net | | Shares | | Per Share | |
| For the Year Ended | | Income | | Outstanding | | Amount | | | Income | | Outstanding | | Amount | |
| December 31, 2006 | | |
| | | |
| Basic earnings per share | | | $ | 5,202,000 | | 5,001,389 | | $ | 1.04 | |
| | | | | |
| | | |
| Effect of dilutive stock options | | | 83,532 | |
| | | | | | | |
| | | |
| Diluted earnings per share | | | $ | 5,202,000 | | 5,084,921 | | $ | 1.02 | |
| | | | | | | | | |
| | | |
| December 31, 2005 | | |
| | | |
| Basic earnings per share | | $ | 4,528,000 | | 4,946,026 | | $ | 0.92 | | | $ | 4,528,000 | | 4,946,026 | | $ | 0.92 | |
| | | | | | | |
| | | |
| Effect of dilutive stock options | | 150,700 | | | 150,700 | |
| | | | | | | | | | | |
| | | |
| Diluted earnings per share | | $ | 4,528,000 | | 5,096,726 | | $ | 0.89 | | | $ | 4,528,000 | | 5,096,726 | | $ | 0.89 | |
| | | | | | | | | | | | | | | |
| | | |
| December 31, 2004 | | |
| | | |
| Basic earnings per share | | $ | 3,646,000 | | 4,890,630 | | $ | 0.75 | | | $ | 3,646,000 | | 4,890,630 | | $ | 0.75 | |
| | | | | | | |
| | | |
| Effect of dilutive stock options | | 108,820 | | | 108,820 | |
| | | | | | | | | | | |
| | | |
| Diluted earnings per share | | $ | 3,646,000 | | 4,999,450 | | $ | 0.73 | | | $ | 3,646,000 | | 4,999,450 | | $ | 0.73 | |
| | | | | | | | | | | | | | | |
| | | |
| December 31, 2003 | | |
| | | |
| Basic earnings per share | | $ | 3,281,000 | | 4,846,434 | | $ | 0.68 | | |
| | | | | |
| | | |
| Effect of dilutive stock options | | 132,010 | | |
| | | | | | | |
| | | |
| Diluted earnings per share | | $ | 3,281,000 | | 4,978,444 | | $ | 0.66 | | |
| | | | | | | | | |
| | | Shares of common stock issuable under stock options for which the exercise prices were greater than the average market prices were not included in the computation of diluted earnings per share due to their antidilutive effect. Stock options not included in the computation of diluted earnings per share were 12,500 and 78,562 for the years ended December 31, 2006 and 2004, respectively. For the year ending December 31, 2005, all stock options were dilutive and therefore included in the computation of diluted earnings per share. Stock options not included in the computation of diluted earnings per share were 78,562 and 85,387 for the years ended December 31, 2004 and 2003, respectively. |
F-30F - 35
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 10. | | SHAREHOLDERS’ EQUITY(Continued) |
| |
| | | Stock Options |
| |
| | | In 2001 and 1991, the Company established Stock Option Plans for which 973,757909,951 shares of common stock remain reserved for issuance to employees and directors and 617,781615,037 shares are available for future grants under incentive and nonstatutory agreements as of December 31, 2005.2006. The plansPlans require 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 or with Company common stock previously acquired by the optionee and held by the optionee for a period of at least six months. The Plans do not provide for the settlement of awards in cash and new shares are issued upon option exercise. The options expire on dates determined by the Board of Directors, but not later than ten years from the date of grant. Upon grant, options vest ratably over a three to five year period. A summary of the activity within the plansPlans follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 |
| | | | | | | Weighted | | | | | | Weighted | | | | | | Weighted |
| | | | | | | Average | | | | | | Average | | | | | | Average |
| | | | | | | Exercise | | | | | | Exercise | | | | | | Exercise |
| | | Shares | | Price | | Shares | | Price | | Shares | | Price |
| | | | | | | | | | | | | | | | | | | |
| Incentive | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Options outstanding, beginning of year | | | 322,279 | | | | 9.94 | | | | 321,862 | | | | 8.43 | | | | 294,004 | | | $ | 6.71 | |
| |
| Options granted | | | 7,500 | | | | 18.97 | | | | 57,112 | | | | 14.07 | | | | 76,200 | | | $ | 12.83 | |
| Options exercised | | | (64,895 | ) | | | 5.71 | | | | (49,338 | ) | | | 4.60 | | | | (44,855 | ) | | $ | 4.42 | |
| Options canceled | | | (22,039 | ) | | | 13.36 | | | | (7,357 | ) | | | 11.76 | | | | (3,487 | ) | | $ | 10.75 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options outstanding, end of year | | | 242,845 | | | | 11.05 | | | | 322,279 | | | | 9.94 | | | | 321,862 | | | $ | 8.43 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options exercisable, end of year | | | 137,729 | | | | 9.45 | | | | 157,354 | | | | 7.11 | | | | 171,307 | | | $ | 5.46 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Nonstatutory | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options outstanding, beginning of year | | | 137,790 | | | | 10.33 | | | | 114,757 | | | | 9.37 | | | | 100,035 | | | $ | 7.52 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options granted | | | | | | | | | | | 25,313 | | | | 14.19 | | | | 25,312 | | | $ | 13.19 | |
| Options exercised | | | (17,713 | ) | | | 7.58 | | | | (2,280 | ) | | | 4.96 | | | | (10,590 | ) | | $ | 4.91 | |
| Options canceled | | | (6,946 | ) | | | 12.94 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options outstanding, end of year | | | 113,131 | | | | 10.59 | | | | 137,790 | | | | 10.33 | | | | 114,757 | | | $ | 9.37 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options exercisable, end of year | | | 70,386 | | | | 9.15 | | | | 67,852 | | | | 7.87 | | | | 51,945 | | | $ | 6.50 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Weighted | | |
| | | | | | | Weighted | | Average | | |
| | | | | | | Average | | Remaining | | |
| | | | | | | Exercise | | Contractual | | Intrinsic Value |
| | | Shares | | Price | | Term | | (in thousands) |
Incentive: | | | | | | | | | | | | | | | | |
| Options outstanding at January 1, 2004 | | | 321,862 | | | $ | 8.43 | | | | | | | | | |
| Options granted | | | 57,112 | | | | 14.07 | | | | | | | | | |
| Options exercised | | | (49,338 | ) | | | 4.60 | | | | | | | | | |
| Options cancelled | | | (7,357 | ) | | | 11.76 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding at December 31, 2004 | | | 322,279 | | | $ | 9.94 | | | | | | | | | |
| Options granted | | | 7,500 | | | | 18.97 | | | | | | | | | |
| Options exercised | | | (64,895 | ) | | | 5.71 | | | | | | | | | |
| Options cancelled | | | (22,039 | ) | | | 13.36 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding at December 31, 2005 | | | 242,845 | | | $ | 11.05 | | | | | | | | | |
| Options granted | | | 5,000 | | | | 16.89 | | | | | | | | | |
| Options exercised | | | (50,771 | ) | | | 8.90 | | | | | | | | | |
| Options cancelled | | | (4,756 | ) | | | 12.68 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding at December 31, 2006 | | | 192,318 | | | $ | 11.72 | | | | 6.5 | | | $ | 613 | |
| Options exercisable at December 31, 2006 | | | 120,949 | | | $ | 10.57 | | | | 5.9 | | | $ | 525 | |
| Expected to vest after December 31, 2006 | | | 71,369 | | | $ | 13.67 | | | | 7.5 | | | $ | 88 | |
| | | | | | | | | | | | | | | | | |
Nonstatutory: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding at January 1, 2004 | | | 114,757 | | | $ | 9.37 | | | | | | | | | |
| Options granted | | | 25,313 | | | | 14.19 | | | | | | | | | |
| Options exercised | | | (2,280 | ) | | | 4.96 | | | | | | | | | |
| Options cancelled | | | — | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding at December 31, 2004 | | | 137,790 | | | $ | 10.33 | | | | | | | | | |
| Options granted | | | — | | | | — | | | | | | | | | |
| Options exercised | | | (17,713 | ) | | | 7.58 | | | | | | | | | |
| Options cancelled | | | (6,946 | ) | | | 12.94 | | | | | | | | | |
| Options outstanding at December 31, 2005 | | | 113,131 | | | $ | 10.59 | | | | | | | | | |
| Options granted | | | 2,500 | | | | 18.79 | | | | | | | | | |
| Options exercised | | | (17,035 | ) | | | 6.95 | | | | | | | | | |
| Options cancelled | | | — | | | | — | | | | | | | | | |
| Options outstanding at December 31, 2006 | | | 98,596 | | | $ | 11.43 | | | | 6.2 | | | $ | 343 | |
| Options exercisable at December 31, 2006 | | | 67,976 | | | $ | 10.44 | | | | 5.7 | | | $ | 304 | |
| Expected to vest after December 31, 2006 | | | 30,620 | | | $ | 13.63 | | | | 7.3 | | | $ | 39 | |
F-31F - 36
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 10. | | SHAREHOLDERS’ EQUITY(Continued) |
| |
| | | Stock Options (Continued) |
| |
| | | A summaryAs of December 31, 2006, there was $361,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2001 Plan. That cost is expected to be recognized over a weighted average period of 2.4 years. |
|
| | The total fair value of options outstanding atvested was $140,000 for the year ended December 31, 2006. The total intrinsic value of options at time of exercise was $616,000, $947,000 and $429,000 for the years ended December 31, 2006, 2005, follows:and 2004, respectively. |
| | | | | | | | | | | | | |
| | | Number of | | | Weighted | | | | |
| | | Options | | | Average | | | Options | |
| | | Outstanding | | | Remaining | | | Exercisable | |
| Range of | | December 31, | | | Contractual | | | December 31, | |
| Exercise Prices | | 2005 | | | Life | | | 2005 | |
| Incentive | | | | | | | | | | | | |
| $ 4.96 | | | 17,153 | | | 2.9 years | | | 17,153 | |
| $ 5.43 | | | 10,500 | | | 5.7 years | | | 10,500 | |
| $ 5.52 | | | 9,150 | | | 2.7 years | | | 9,150 | |
| $ 5.53 | | | 11,250 | | | 5.8 years | | | 11,250 | |
| $10.75 | | | 84,782 | | | 6.9 years | | | 56,613 | |
| $10.76 | | | 7,949 | | | 7.2 years | | | 2,775 | |
| $12.34 | | | 657 | | | 7.5 years | | | 657 | |
| $12.67 | | | 3,000 | | | 8.3 years | | | 600 | |
| $13.19 | | | 47,172 | | | 8.0 years | | | 19,073 | |
| $13.24 | | | 862 | | | 8.8 years | | | 172 | |
| $14.19 | | | 42,870 | | | 9.0 years | | | 9,786 | |
| $18.97 | | | 7,500 | | | 9.6 years | | | | |
| | | | | | | | | | | |
| | | | 242,845 | | | | | | | | 137,729 | |
| | | | | | | | | | | |
| Nonstatutory | | | | | | | | | | | | |
| $ 4.96 | | | 12,457 | | | 2.9 years | | | 12,457 | |
| $ 5.15 | | | 8,437 | | | 1.9 years | | | 8,437 | |
| $ 5.53 | | | 5,625 | | | 5.8 years | | | 5,625 | |
| $10.75 | | | 42,183 | | | 6.9 years | | | 30,933 | |
| $13.19 | | | 21,933 | | | 8.0 years | | | 8,435 | |
| $14.19 | | | 22,496 | | | 9.0 years | | | 4,499 | |
| | | | | | | | | | | |
| | | | 113,131 | | | | | | | | 70,386 | |
| | | | | | | | | | | |
F-32
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. |
| | SHAREHOLDERS’ EQUITY(Continued)Cash received from option exercise for the years ended December 31, 2006, 2005, and 2004, was $181,000, $372,000 and $62,000, respectively. The tax benefit realized for the tax deductions from option exercise totaled $61,000, $35,000 and $6,000, respectively, for the years ended December 31, 2006, 2005, and 2004. |
| |
| | | Regulatory Capital |
| |
| | | The Company and the Bank are subject to certain regulatory capital requirements administered by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. |
| |
| | | Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. Management believes that the Company and the Bank met all their capital adequacy requirements as of December 31, 20052006 and 2004.2005. |
| |
| | | In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below. There are no conditions or events since that notification that management believes have changed the Bank’s category. |
| | | | | | | | | | | | | | | | | |
| | | December 31, | |
| | | 2005 | | | 2004 | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | |
| Leverage Ratio | | | | | | | | | | | | | | | | |
| |
| Plumas Bancorp and Subsidiary | | $ | 40,589,000 | | | | 8.5 | % | | $ | 32,444,000 | | | | 7.6 | % |
| Minimum regulatory requirement | | $ | 19,013,000 | | | | 4.0 | % | | $ | 17,120,000 | | | | 4.0 | % |
| |
| Plumas Bank | | $ | 37,611,000 | | | | 7.8 | % | | $ | 31,982,000 | | | | 7.5 | % |
| Minimum requirement for “Well-Capitalized” institution | | $ | 24,060,000 | | | | 5.0 | % | | $ | 21,400,000 | | | | 5.0 | % |
| Minimum regulatory requirement | | $ | 19,248,000 | | | | 4.0 | % | | $ | 17,120,000 | | | | 4.0 | % |
F-33F - 37
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 10. | | SHAREHOLDERS’ EQUITY(Continued) |
| |
| | | Regulatory Capital (Continued) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | December 31, |
| | | 2005 | | 2004 | | 2006 | | 2005 |
| | | | Amount | | Ratio | | Amount | | Ratio |
| Leverage Ratio | | |
| | | |
| Plumas Bancorp and Subsidiary | | | $ | 45,206,000 | | | 9.5 | % | | $ | 40,589,000 | | | 8.5 | % |
| Minimum regulatory requirement | | | $ | 18,955,000 | | | 4.0 | % | | $ | 19,013,000 | | | 4.0 | % |
| | | |
| Plumas Bank | | | $ | 44,094,000 | | | 9.3 | % | | $ | 37,611,000 | | | 7.8 | % |
| Minimum requirement for “Well-Capitalized” institution | | | $ | 23,669,000 | | | 5.0 | % | | $ | 24,060,000 | | | 5.0 | % |
| Minimum regulatory requirement | | | $ | 18,935,000 | | | 4.0 | % | | $ | 19,248,000 | | | 4.0 | % |
| | | Amount | | Ratio | | Amount | | Ratio | |
| Tier 1 Risk-Based Capital Ratio | | |
| | | |
| Plumas Bancorp and Subsidiary | | $ | 40,589,000 | | | 10.3 | % | | $ | 32,444,000 | | | 10.1 | % | | $ | 45,206,000 | | | 10.9 | % | | $ | 40,589,000 | | | 10.3 | % |
| Minimum regulatory requirement | | $ | 15,780,000 | | | 4.0 | % | | $ | 12,858,000 | | | 4.0 | % | | $ | 16,610,000 | | | 4.0 | % | | $ | 15,780,000 | | | 4.0 | % |
| | | |
| Plumas Bank | | $ | 37,611,000 | | | 9.6 | % | | $ | 31,982,000 | | | 10.0 | % | | $ | 44,094,000 | | | 10.6 | % | | $ | 37,611,000 | | | 9.6 | % |
| Minimum requirement for “Well- Capitalized” institution | | $ | 23,635,000 | | | 6.0 | % | | $ | 19,262,000 | | | 6.0 | % | |
| Minimum requirement for “Well-Capitalized” institution | | | $ | 24,885,000 | | | 6.0 | % | | $ | 23,635,000 | | | 6.0 | % |
| Minimum regulatory requirement | | $ | 15,757,000 | | | 4.0 | % | | $ | 12,841,000 | | | 4.0 | % | | $ | 16,590,000 | | | 4.0 | % | | $ | 15,757,000 | | | 4.0 | % |
| | | |
| Total Risk-Based Capital Ratio | | |
| | | |
| Plumas Bancorp and Subsidiary | | $ | 43,845,000 | | | 11.1 | % | | $ | 35,206,000 | | | 10.9 | % | | $ | 49,123,000 | | | 11.8 | % | | $ | 43,845,000 | | | 11.1 | % |
| Minimum regulatory requirement | | $ | 31,560,000 | | | 8.0 | % | | $ | 25,715,000 | | | 8.0 | % | | $ | 33,221,000 | | | 8.0 | % | | $ | 31,560,000 | | | 8.0 | % |
| | | |
| Plumas Bank | | $ | 40,867,000 | | | 10.4 | % | | $ | 34,744,000 | | | 10.8 | % | | $ | 48,011,000 | | | 11.6 | % | | $ | 40,867,000 | | | 10.4 | % |
| Minimum requirement for “Well- Capitalized” institution | | $ | 39,392,000 | | | 10.0 | % | | $ | 32,103,000 | | | 10.0 | % | |
| Minimum requirement for “Well-Capitalized” institution | | | $ | 41,475,000 | | | 10.0 | % | | $ | 39,392,000 | | | 10.0 | % |
| Minimum regulatory requirement | | $ | 31,514,000 | | | 8.0 | % | | $ | 25,682,000 | | | 8.0 | % | | $ | 33,180,000 | | | 8.0 | % | | $ | 31,514,000 | | | 8.0 | % |
F - 38
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 11. | | OTHER EXPENSES |
| |
| | | Other expenses consisted of the following: |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2005 | | | 2004 | | | 2003 | |
| Professional fees | | $ | 865,000 | | | $ | 596,000 | | | $ | 392,000 | |
| Business development | | | 494,000 | | | | 389,000 | | | | 357,000 | |
| Advertising and promotion | | | 467,000 | | | | 350,000 | | | | 288,000 | |
| Telephone and data communications | | | 366,000 | | | | 346,000 | | | | 357,000 | |
| Stationery and supplies | | | 336,000 | | | | 292,000 | | | | 349,000 | |
| Armored car and courier | | | 337,000 | | | | 371,000 | | | | 342,000 | |
| Core deposit intangible amortization | | | 301,000 | | | | 299,000 | | | | 161,000 | |
| Director compensation and retirement | | | 288,000 | | | | 284,000 | | | | 196,000 | |
| Outside service fees | | | 280,000 | | | | 236,000 | | | | 201,000 | |
| Postage | | | 258,000 | | | | 261,000 | | | | 253,000 | |
| Insurance | | | 206,000 | | | | 236,000 | | | | 164,000 | |
| Loan expenses | | | 114,000 | | | | 191,000 | | | | 170,000 | |
| Other operating expenses | | | 233,000 | | | | 188,000 | | | | 111,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | $ | 4,545,000 | | | $ | 4,039,000 | | | $ | 3,341,000 | |
| | | | | | | | | | |
F-34
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2004 |
| Professional fees | | $ | 780,000 | | | $ | 865,000 | | | $ | 596,000 | |
| Outside service fees | | | 591,000 | | | | 700,000 | | | | 551,000 | |
| Business development | | | 555,000 | | | | 494,000 | | | | 389,000 | |
| Advertising and promotion | | | 552,000 | | | | 467,000 | | | | 350,000 | |
| Telephone and data communications | | | 374,000 | | | | 366,000 | | | | 346,000 | |
| Director compensation and retirement | | | 370,000 | | | | 288,000 | | | | 284,000 | |
| Core deposit intangible amortization | | | 301,000 | | | | 301,000 | | | | 299,000 | |
| Stationery and supplies | | | 282,000 | | | | 336,000 | | | | 292,000 | |
| Armored car and courier | | | 270,000 | | | | 337,000 | | | | 371,000 | |
| Postage | | | 249,000 | | | | 258,000 | | | | 261,000 | |
| Insurance | | | 173,000 | | | | 206,000 | | | | 236,000 | |
| Loan expenses | | | 139,000 | | | | 114,000 | | | | 191,000 | |
| Other operating expenses | | | 288,000 | | | | 233,000 | | | | 188,000 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | $ | 4,924,000 | | | $ | 4,965,000 | | | $ | 4,354,000 | |
| | | | | | | | | | | | | |
| 12. | | INCOME TAXES |
| |
| | | The provision for income taxes for the years ended December 31, 2006, 2005 2004 and 20032004 consisted of the following: |
| | | | | | | | | | | | | |
| | | Federal | | | State | | | Total | |
| 2005 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Current | | $ | 1,809,000 | | | $ | 757,000 | | | $ | 2,566,000 | |
| Deferred | | | 44,000 | | | | (10,000 | ) | | | 34,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 1,853,000 | | | $ | 747,000 | | | $ | 2,600,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| 2004 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Current | | $ | 1,378,000 | | | $ | 541,000 | | | $ | 1,919,000 | |
| Deferred | | | 51,000 | | | | 31,000 | | | | 82,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 1,429,000 | | | $ | 572,000 | | | $ | 2,001,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| 2003 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Current | | $ | 1,437,000 | | | $ | 553,000 | | | $ | 1,990,000 | |
| Deferred | | | 19,000 | | | | 9,000 | | | | 28,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 1,456,000 | | | $ | 562,000 | | | $ | 2,018,000 | |
| | | | | | | | | | |
Deferred tax assets (liabilities) consisted of the following:
| | | | | | | | | |
| | | December 31, | |
| | | 2005 | | | 2004 | |
| Deferred tax assets: | | | | | | | | |
| | | | | | | | | |
| Allowance for loan losses | | $ | 1,149,000 | | | $ | 986,000 | |
| Future benefit of state income tax deduction | | | 172,000 | | | | 87,000 | |
| Deferred compensation | | | 1,300,000 | | | | 1,006,000 | |
| Core deposit premium | | | 210,000 | | | | 166,000 | |
| Unrealized loss on available-for-sale investment securities | | | 766,000 | | | | 346,000 | |
| Other | | | 22,000 | | | | 40,000 | |
| | | | | | | |
| | | | | | | | | |
| Total deferred tax assets | | | 3,619,000 | | | | 2,631,000 | |
| | | | | | | |
| | | | | | | | | | | | | |
| | | Federal | | | State | | | Total | |
| 2006 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Current | | $ | 2,736,000 | | | $ | 916,000 | | | $ | 3,652,000 | |
| Deferred | | | (434,000 | ) | | | (22,000 | ) | | | (456,000 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 2,302,000 | | | $ | 894,000 | | | $ | 3,196,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| 2005 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Current | | $ | 1,809,000 | | | $ | 757,000 | | | $ | 2,566,000 | |
| Deferred | | | 44,000 | | | | (10,000 | ) | | | 34,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 1,853,000 | | | $ | 747,000 | | | $ | 2,600,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| 2004 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Current | | $ | 1,378,000 | | | $ | 541,000 | | | $ | 1,919,000 | |
| Deferred | | | 51,000 | | | | 31,000 | | | | 82,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 1,429,000 | | | $ | 572,000 | | | $ | 2,001,000 | |
| | | | | | | | | | |
F-35F - 39
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 12. | | INCOME TAXES(Continued) |
|
| | Deferred tax assets (liabilities) consisted of the following: |
| | | | | | | | | |
| | | December 31, | |
| | | 2004 | | | 2003 | |
| Deferred tax liabilities: | | | | | | | | |
| | | | | | | | | |
| Prepaid costs | | $ | (126,000 | ) | | $ | (160,000 | ) |
| Deferred loan costs | | | (1,272,000 | ) | | | (786,000 | ) |
| Premises and equipment | | | (576,000 | ) | | | (82,000 | ) |
| Other | | | (76,000 | ) | | | | |
| | | | | | | |
| | | | | | | | | |
| Total deferred tax liabilities | | | (2,050,000 | ) | | | (1,028,000 | ) |
| | | | | | | |
| | | | | | | | | |
| Net deferred tax assets | | $ | 1,569,000 | | | $ | 1,603,000 | |
| | | | | | | |
| | | | | | | | | |
| | | December 31, | |
| | | 2006 | | | 2005 | |
| Deferred tax assets: | | | | | | | | |
| Allowance for loan losses | | $ | 1,431,000 | | | $ | 1,149,000 | |
| Future benefit of state income tax deduction | | | 246,000 | | | | 172,000 | |
| Deferred compensation | | | 1,441,000 | | | | 1,300,000 | |
| Core deposit premium | | | 254,000 | | | | 210,000 | |
| Unrealized loss on available-for-sale investment securities | | | 486,000 | | | | 766,000 | |
| Other | | | 46,000 | | | | 22,000 | |
| | | | | | | |
| | | | | | | | | |
| Total deferred tax assets | | | 3,904,000 | | | | 3,619,000 | |
| | | | | | | |
The Company believes that it is more likely than not that it will realize the above deferred tax assets in future periods; therefore, no valuation allowance has been provided against its deferred tax assets.| | | | | | | | | |
| | | December 31, | |
| | | 2006 | | | 2005 | |
| Deferred tax liabilities: | | | | | | | | |
| Prepaid costs | | $ | (80,000 | ) | | $ | (126,000 | ) |
| Deferred loan costs | | | (1,421,000 | ) | | | (1,272,000 | ) |
| Premises and equipment | | | (535,000 | ) | | | (576,000 | ) |
| Other | | | (123,000 | ) | | | (76,000 | ) |
| | | | | | | |
| | | | | | | | | |
| Total deferred tax liabilities | | | (2,159,000 | ) | | | (2,050,000 | ) |
| | | | | | | |
| | | | | | | | | |
| Net deferred tax assets | | $ | 1,745,000 | | | $ | 1,569,000 | |
| | | | | | | |
| | The Company believes that it is more likely than not that it will realize the above deferred tax assets in future periods; therefore, no valuation allowance has been provided against its deferred tax assets. |
|
| | The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rate to operating income before income taxes. The significant items comprising these differences consisted of the following: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | 2006 | | 2005 | | 2004 |
| Federal income tax, at statutory rate | | | 34.0 | % | | | 34.0 | % | | | 34.0 | % | | | 34.0 | % | | | 34.0 | % | | | 34.0 | % |
| State franchise tax, net of Federal tax effect | | | 6.9 | % | | | 6.7 | % | | | 6.8 | % | | | 7.0 | % | | | 6.9 | % | | | 6.7 | % |
| Interest on obligations of states and political subdivisions | | | (2.8 | )% | | | (3.2 | )% | | | (1.2 | )% | | | (2.3 | )% | | | (2.8 | )% | | | (3.2 | )% |
| Net increase in cash surrender value of bank owned life insurance | | | (1.4 | )% | | | (2.5 | )% | | | (2.0 | )% | | | (1.3 | )% | | | (1.4 | )% | | | (2.5 | )% |
| Other | | | (0.2 | )% | | | 0.5 | % | | | 0.5 | % | | | 0.7 | % | | | (0.2 | )% | | | 0.5 | % |
| | | | | | | | | | | | | | | |
| | | |
| Effective tax rate | | | 36.5 | % | | | 35.5 | % | | | 38.1 | % | | | 38.1 | % | | | 36.5 | % | | | 35.5 | % |
| | | | | | | | | | | | | | | |
F-36F - 40
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 13. | | RELATED PARTY TRANSACTIONS |
| |
| | | During the normal course of business, the Company enters into transactions with related parties, including executive officers and directors. These transactions include borrowings with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers during 2005:2006: |
| | | | | |
| Balance, January 1, 2005 | | $ | 1,863,000 | |
| | | | | |
| Disbursements | | | 4,467,000 | |
| Amounts repaid | | | (3,865,000 | ) |
| | | | |
| | | | | |
| Balance, December 31, 2005 | | $ | 2,465,000 | |
| | | | |
| | | | | |
| Undisbursed commitments to related parties, December 31, 2005 | | $ | 525,000 | |
| | | | |
| | | | | |
| Balance, January 1, 2006 | | $ | 2,465,000 | |
| | | | | |
| Disbursements | | | 5,639,000 | |
| Amounts repaid | | | (5,376,000 | ) |
| | | | |
| | | | | |
| Balance, December 31, 2006 | | $ | 2,728,000 | |
| | | | |
| | | | | |
| Undisbursed commitments to related parties, December 31, 2006 | | $ | 281,000 | |
| | | | |
| 14. | | EMPLOYEE BENEFIT PLANS |
| |
| | | Profit Sharing Plan |
| |
| | | The Plumas Bank Profit Sharing Plan commenced April 1, 1988 and is available to employees meeting certain service requirements. Under the Plan, employees are able to defer a selected percentage of their annual compensation. Included under the Plan’s investment options is the option to invest in Company stock. The Company’s contribution consists of the following: |
| | • | | A contribution which matches the participant’s contribution, up to a maximum of 3% of the employee’s compensation. |
| |
| | • | | An additional discretionary contribution. |
| | During the years ended December 31, 2006, 2005 and 2004, the Company’s contribution totaled $195,000, $189,000 and 2003, the Company’s contribution totaled $189,000, $160,000, and $139,000, respectively.Salary Continuation and Retirement Agreements
Salary continuation and retirement agreements are in place for five key executives and members of the Board of Directors. Under these agreements, the directors and executives will receive monthly payments for twelve to fifteen years, respectively, after retirement. These benefits are substantially equivalent to those available under split-dollar life insurance policies purchased by the Bank on the lives of the directors and executives. In addition, the estimated present value of these future benefits is accrued over the period from the effective dates of the agreements until the participants’ expected retirement dates. The expense recognized under these plans for the years ended December 31, 2005, 2004 and 2003 totaled $558,000, $435,000 and $402,000, respectively.
|
|
| | Salary Continuation and Retirement Agreements |
|
| | Salary continuation and retirement agreements are in place for five key executives and members of the Board of Directors. Under these agreements, the directors and executives will receive monthly payments for twelve to fifteen years, respectively, after retirement. These benefits are substantially equivalent to those available under split-dollar life insurance policies purchased by the Bank on the lives of the directors and executives. In addition, the estimated present value of these future benefits is accrued over the period from the effective dates of the agreements until the participants’ expected retirement dates. The expense recognized under these plans for the years ended December 31, 2006, 2005 and 2004 totaled $331,000, $558,000 and $435,000, respectively. |
F-37F - 41
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 14. | | EMPLOYEE BENEFIT PLANS(Continued) |
| |
| | | Salary Continuation and Retirement Agreements (Continued) |
| |
| | | In connection with these agreements, the Bank purchased single premium life insurance policies with cash surrender values totaling $8,930,000$9,449,000 and $8,362,000$8,930,000 at December 31, 20052006 and 2004,2005, respectively. Income earned on these policies, net of expenses, totaled $319,000, $287,000 $349,000 and $278,000$349,000 for the years ended December 31, 2006, 2005 2004 and 2003,2004, respectively. Income earned on these policies is not subject to Federal and State income tax. |
| |
| 15. | | COMPREHENSIVE INCOME |
| |
| | | Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. The unrealized gains and losses on the Company’s available-for-sale investment securities are included in other comprehensive income (loss). Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the consolidated statement of changes in shareholders’ equity. |
| |
| | | At December 31, 2006, 2005 2004 and 2003,2004, the Company held securities classified as available-for-sale which had unrealized (losses) gains as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Tax | | | | | Tax | | | |
| | | | Before | | Benefit | | After | |
| | | | Tax | | (Expense) | | Tax | |
| For the Year Ended December 31, 2006 | | |
| | | |
| Total other comprehensive income: | | |
| | | |
| Unrealized holding gains | | | $ | 679,000 | | $ | (280,000 | ) | | $ | 399,000 | |
| | | Before | | Benefit | | After | | | | | | | | |
| | | Tax | | (Expense) | | Tax | | |
| For the Year Ended December 31, 2005 | | |
| | | |
| Other comprehensive loss: | | |
| | | |
| Unrealized holding losses | | $ | (1,027,000 | ) | | $ | 423,000 | | $ | (604,000 | ) | | $ | (1,027,000 | ) | | $ | 423,000 | | $ | (604,000 | ) |
| Reclassification adjustment for losses included in net income | | | (8,000 | ) | | 3,000 | | | (5,000 | ) | | | (8,000 | ) | | 3,000 | | | (5,000 | ) |
| | | | | | | | | | | | | | | |
| | | |
| Total other comprehensive loss | | $ | (1,019,000 | ) | | $ | 420,000 | | $ | (599,000 | ) | | $ | (1,019,000 | ) | | $ | 420,000 | | $ | (599,000 | ) |
| | | | | | | | | | | | | | | |
| | | |
| For the Year Ended December 31, 2004 | | |
| | | |
| Other comprehensive loss: | | |
| | | |
| Unrealized holding losses | | $ | (885,000 | ) | | $ | 362,000 | | $ | (523,000 | ) | |
| Reclassification adjustment for gains included in net income | | 235,000 | | | (100,000 | ) | | 135,000 | | |
| | | | | | | | | |
| | | |
| Total other comprehensive loss | | $ | (1,120,000 | ) | | $ | 462,000 | | $ | (658,000 | ) | |
| | | | | | | | | |
F-38F - 42
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 15. | | COMPREHENSIVE INCOME(Continued) |
|
| | For the Year Ended December 31, 2004 |
| | | | | | | | | | | | | | |
| | | Tax | | | | |
| | | Before | | Benefit | | After | | |
| | | Tax | | (Expense) | | Tax | | |
| For the Year Ended December 31, 2003 | | |
| | | | | | | | | | | | | | |
| Other comprehensive loss: | | |
| | | |
| Unrealized holding losses | | $ | (87,000 | ) | | $ | 37,000 | | $ | (50,000 | ) | | $ | (885,000 | ) | | $ | 362,000 | | $ | (523,000 | ) |
| Reclassification adjustment for gains included in net income | | 328,000 | | | (134,000 | ) | | 194,000 | | | 235,000 | | | (100,000 | ) | | 135,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Total other comprehensive loss | | $ | (415,000 | ) | | $ | 171,000 | | $ | (244,000 | ) | | $ | (1,120,000 | ) | | $ | 462,000 | | $ | (658,000 | ) |
| | | | | | | | | | | | | | | |
| 16. | | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS |
| |
| | | Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. |
| |
| | | Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. |
| |
| | | The following methods and assumptions were used by management to estimate the fair value of its financial instruments at December 31, 20052006 and 2004:2005: |
| |
| | | Cash and cash equivalents: For cash and cash equivalents, the carrying amount is estimated to be fair value. |
| |
| | | Investment securities: For investment securities, fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers. |
F-39F - 43
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 16. | | DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS(Continued) |
| |
| | | Loans: For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values. Fair values of loans held for sale, if any, are estimated using quoted market prices for similar loans. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered at each reporting date for loans with similar terms to borrowers of comparable creditworthiness. The fair value of loans is adjusted for the allowance for loan losses. The carrying amount of accrued interest receivable approximates its fair value. |
| |
| | | Bank owned life insurance: The fair values of bank owned life insurance policies are based on current cash surrender values at each reporting date provided by the insurers. |
| |
| | | Deposits: The fair values for demand deposits are, by definition, equal to the amount payable on demand at the reporting date represented by their carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis using interest rates offered at each reporting date by the Bank for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value. |
| |
| | | Short-term borrowings: The carrying amount of the short-term borrowings approximates its fair value. |
|
| | Junior subordinated deferrable interest debentures: The fair value of junior subordinated deferrable interest debentures was determined based on the current market value for like kind instruments of a similar maturity and structure. |
| |
| | | 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. Commitments to extend credit are primarily for variable rate loans and letters of credit. For these commitments, there is no significant difference between the committed amounts and their fair values and therefore, is not included in the table below. |
| |
| | | The estimated fair values of the Company’s financial instruments are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2005 | | December 31, 2004 | | December 31, 2006 | | December 31, 2005 |
| | | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair |
| | | Amount | | Value | | Amount | | Value | | Amount | | Value | | Amount | | Value |
| Financial assets: | | |
| Cash and cash equivalents | | $ | 24,596,000 | | $ | 24,596,000 | | $ | 11,444,000 | | $ | 11,444,000 | | | $ | 11,293,000 | | $ | 11,293,000 | | $ | 24,596,000 | | $ | 24,596,000 | |
| Investment securities | | 97,844,000 | | 97,712,000 | | 113,252,000 | | 113,390,000 | | | 74,795,000 | | 74,841,000 | | 97,844,000 | | 97,712,000 | |
| Loans | | 319,156,000 | | 320,540,000 | | 263,931,000 | | 265,492,000 | | | 351,977,000 | | 350,721,000 | | 319,156,000 | | 320,540,000 | |
| Cash surrender value of life insurance policies | | 8,930,000 | | 8,930,000 | | 8,362,000 | | 8,362,000 | | | 9,449,000 | | 9,449,000 | | 8,930,000 | | 8,930,000 | |
| Accrued interest receivable | | 2,673,000 | | 2,673,000 | | 2,451,000 | | 2,451,000 | | | 2,784,000 | | 2,784,000 | | 2,673,000 | | 2,673,000 | |
| | | |
| Financial liabilities: | | |
| Deposits | | $ | 426,560,000 | | $ | 426,437,000 | | $ | 378,567,000 | | $ | 378,612,000 | | | $ | 402,176,000 | | $ | 402,326,000 | | $ | 426,560,000 | | $ | 426,437,000 | |
| Short-term borrowings | | | 20,000,000 | | 20,000,000 | |
| Junior subordinated deferrable interest debentures | | 10,310,000 | | 10,310,000 | | 6,186,000 | | 6,186,000 | | | 10,310,000 | | 10,392,000 | | 10,310,000 | | 10,495,000 | |
| Accrued interest payable | | 484,000 | | 484,000 | | 271,000 | | 271,000 | | | 556,000 | | 556,000 | | 484,000 | | 484,000 | |
F-40F - 44
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| 17. | | INTANGIBLE ASSETS |
| |
| | | During 2003, the Company acquired certain assets and liabilities of the Kings Beach, Loyalton, Portola, Quincy and Truckee branches of Placer Sierra Bank. Upon acquisition, premises and equipment were valued at fair value and a core deposit premium was recorded as an intangible asset. This core deposit premium, along with core deposit premiums from previous acquisitions, is amortized using the straight-line method over ten years. Annually, the intangible asset is analyzed for impairment. At December 31, 2006, 2005 2004 and 2003,2004, no impairment of the intangible asset has been recognized in the consolidated financial statements. Amortization expense totaled $301,000, $299,000$301,000 and $161,000$299,000 for the years ended December 31, 2006, 2005 2004 and 2003,2004, respectively. Unamortized core deposit premiums related to acquisitions totaled $1,638,000$1,338,000 and $1,939,000$1,638,000 at December 31, 20052006 and 2004,2005, respectively. The estimated intangible amortization is $301,000 for each year through December 31, 2010. |
| |
| 18. | | SUBSEQUENT EVENT |
| |
| | | On March 3, 2006,January 22, 2007 the company purchased landCompany announced that its Board of Directors authorized a common stock repurchase plan. The plan calls for the repurchase of up to 250,000 shares, or approximately 5%, of the Company’s shares outstanding as of January 22, 2007. The repurchases will be made from time to time by the Company in Quincy, California for $1,205,000 in cash, tothe open market or privately negotiated transactions as conditions allow and all shares repurchased under this plan will be utilized as a future administrative office location.retired. The number, price and timing of the repurchases shall be at the Company’s sole discretion and the plan may be re-evaluated depending on market conditions, liquidity needs or other factors. The Board, based on such re-evaluations, may suspend, terminate, modify or cancel the plan at any time without notice. |
F-41F - 45
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
December 31, 2006 and 2005
| | | | | | | | | |
| | | 2006 | | | 2005 | |
ASSETS | | | | | | | | |
| | | | | | | | | |
| Cash and cash equivalents | | $ | 857,000 | | | $ | 2,409,000 | |
| Investment in bank subsidiary | | | 44,740,000 | | | | 38,158,000 | |
| Other assets | | | 650,000 | | | | 896,000 | |
| | | | | | | |
| | | | | | | | | |
| Total assets | | $ | 46,247,000 | | | $ | 41,463,000 | |
| | | | | | | |
| | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| Other liabilities | | $ | 85,000 | | | $ | 16,000 | |
| Junior subordinated deferrable interest debentures | | | 10,310,000 | | | | 10,310,000 | |
| | | | | | | |
| | | | | | | | | |
| Total liabilities | | | 10,395,000 | | | | 10,326,000 | |
| | | | | | | |
| | | | | | | | | |
| Shareholders’ equity: | | | | | | | | |
| Common stock | | | 4,828,000 | | | | 4,412,000 | |
| Retained earnings | | | 31,716,000 | | | | 27,816,000 | |
| Accumulated other comprehensive loss | | | (692,000 | ) | | | (1,091,000 | ) |
| | | | | | | |
| | | | | | | | | |
| Total shareholders’ equity | | | 35,852,000 | | | | 31,137,000 | |
| | | | | | | |
| | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 46,247,000 | | | $ | 41,463,000 | |
| | | | | | | |
CONDENSED STATEMENT OF INCOME
For the Years Ended December 31, 2006, 2005 and 2004
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| Income: | | | | | | | | | | | | |
| Dividends declared by bank subsidiary | | | | | | $ | 840,000 | | | $ | 1,250,000 | |
| Earnings from investment in Plumas Statutory Trusts I and II | | $ | 24,000 | | | | 14,000 | | | | 9,000 | |
| | | | | | | | | | |
| Total income | | | 24,000 | | | | 854,000 | | | | 1,259,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Interest on junior subordinated deferrable interest debentures | | | 810,000 | | | | 479,000 | | | | 305,000 | |
| Other expenses | | | 793,000 | | | | 611,000 | | | | 335,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Total expenses | | | 1,603,000 | | | | 1,090,000 | | | | 640,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| (Loss) income before equity in undistributed income of subsidiary | | | (1,579,000 | ) | | | (236,000 | ) | | | 619,000 | |
| | | | | | | | | | | | | |
| Equity in undistributed income of subsidiary | | | 6,183,000 | | | | 4,328,000 | | | | 2,771,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Income before income taxes | | | 4,604,000 | | | | 4,092,000 | | | | 3,390,000 | |
| | | | | | | | | | | | | |
| Income tax benefit | | | 598,000 | | | | 436,000 | | | | 256,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income | | $ | 5,202,000 | | | $ | 4,528,000 | | | $ | 3,646,000 | |
| | | | | | | | | | |
F - 46
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. | | PARENT ONLY CONDENSED FINANCIAL STATEMENTS |
CONDENSED BALANCE SHEET
December 31, 2005 and 2004
| | | | | | | | | |
| | | 2005 | | | 2004 | |
ASSETS | | | | | | | | |
| Cash and cash equivalents | | $ | 2,409,000 | | | $ | 8,000 | |
| Investment in bank subsidiary | | | 38,158,000 | | | | 33,429,000 | |
| Other assets | | | 896,000 | | | | 645,000 | |
| | | | | | | |
| | | | | | | | | |
| Total assets | | $ | 41,463,000 | | | $ | 34,082,000 | |
| | | | | | | |
| | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| Other liabilities | | $ | 16,000 | | | $ | 5,000 | |
| Junior subordinated deferrable interest debentures | | | 10,310,000 | | | | 6,186,000 | |
| | | | | | | |
| | | | | | | | | |
| Total liabilities | | | 10,326,000 | | | | 6,191,000 | |
| | | | | | | |
| | | | | | | | | |
| Shareholders’ equity: | | | | | | | | |
| Common stock | | | 4,412,000 | | | | 4,013,000 | |
| Retained earnings | | | 27,816,000 | | | | 24,370,000 | |
| Accumulated other comprehensive loss | | | (1,091,000 | ) | | | (492,000 | ) |
| | | | | | | |
| | | | | | | | | |
| Total shareholders’ equity | | | 31,137,000 | | | | 27,891,000 | |
| | | | | | | |
| | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 41,463,000 | | | $ | 34,082,000 | |
| | | | | | | |
CONDENSED STATEMENT OF INCOME
For the Years Ended December 31, 2005, 2004 and 2003
| | | | | | | | | | | | | |
| | | 2005 | | | 2004 | | | 2003 | |
| Income: | | | | | | | | | | | | |
| Dividends declared by bank subsidiary | | $ | 840,000 | | | $ | 1,250,000 | | | $ | 812,000 | |
| Earnings from investment in Plumas Statutory Trusts I and II | | | 14,000 | | | | 9,000 | | | | 11,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Total income | | | 854,000 | | | | 1,259,000 | | | | 823,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Interest on junior subordinated deferrable interest debentures | | | 479,000 | | | | 305,000 | | | | 288,000 | |
| Other expenses | | | 611,000 | | | | 335,000 | | | | 347,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Total expenses | | | 1,090,000 | | | | 640,000 | | | | 635,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| (Loss) income before equity in undistributed income of subsidiary | | | (236,000 | ) | | | 619,000 | | | | 188,000 | |
| | | | | | | | | | | | | |
| Equity in undistributed income of subsidiary | | | 4,328,000 | | | | 2,771,000 | | | | 2,839,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Income before income taxes | | | 4,092,000 | | | | 3,390,000 | | | | 3,027,000 | |
| | | | | | | | | | | | | |
| Income tax benefit | | | 436,000 | | | | 256,000 | | | | 254,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income | | $ | 4,528,000 | | | $ | 3,646,000 | | | $ | 3,281,000 | |
| | | | | | | | | | |
F-42
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. | | 19. PARENT ONLY CONDENSED FINANCIAL STATEMENTS(Continued) |
CONDENSED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2006, 2005 2004 and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| Cash flows from operating activities: | | |
| Net income | | $ | 4,528,000 | | $ | 3,646,000 | | $ | 3,281,000 | | | $ | 5,202,000 | | $ | 4,528,000 | | $ | 3,646,000 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Undistributed net income of subsidiary | | | (4,328,000 | ) | | | (2,771,000 | ) | | | (2,839,000 | ) | | | (6,183,000 | ) | | | (4,328,000 | ) | | | (2,771,000 | ) |
| Increase in other assets | | | (127,000 | ) | | | (106,000 | ) | | | (62,000 | ) | |
| Stock-based compensation expense | | | 174,000 | |
| Decrease (increase) in other assets | | | 246,000 | | | (127,000 | ) | | | (106,000 | ) |
| Increase (decrease) in other liabilities | | 11,000 | | | (31,000 | ) | | 31,000 | | | 69,000 | | 11,000 | | | (31,000 | ) |
| | | | | | | | | | | | | | | |
| | | |
| Net cash provided by operating activities | | 84,000 | | 738,000 | | 411,000 | | |
| Net cash (used in) provided by operating activities | | | | (492,000 | ) | | 84,000 | | 738,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Cash flows from investing activities: | | |
| Investment in bank subsidiary | | | (1,000,000 | ) | | | (3,000,000 | ) | | | (1,000,000 | ) | |
| Investment in Plumas Statutory Trust II | | | (124,000 | ) | | | | (124,000 | ) | |
| | | | | | | | | | | | | | | |
| | | |
| Net cash used in investing activities | | | (1,124,000 | ) | | | (3,000,000 | ) | | | (1,124,000 | ) | |
| | | | | | | | | | | | | | | |
| | | |
| Cash flows from financing activities: | | |
| Proceeds from the issuance of junior sub- ordinated deferrable interest debentures | | 4,124,000 | | | 4,124,000 | |
| Dividends paid | | | (1,082,000 | ) | | | (914,000 | ) | | | (776,000 | ) | |
| Payment of cash dividends | | | | (1,302,000 | ) | | | (1,082,000 | ) | | | (914,000 | ) |
| Proceeds from the exercise of stock Options | | 407,000 | | 68,000 | | 176,000 | | | 181,000 | | 407,000 | | 68,000 | |
| Excess tax benefits from stock-based Compensation | | | 61,000 | |
| Cash paid for fractional shares | | | (8,000 | ) | | | | (8,000 | ) | |
| | | | | | | | | | | | | | | |
| | | |
| Net cash provided by (used in) financing activities | | 3,441,000 | | | (846,000 | ) | | | (600,000 | ) | |
| Net cash (used in) provided by financing activities | | | | (1,060,000 | ) | | 3,441,000 | | | (846,000 | ) |
| | | | | | | | | | | | | | | |
| | | |
| Increase (decrease) in cash and cash equivalents | | 2,401,000 | | | (108,000 | ) | | | (3,189,000 | ) | |
| (Decrease) increase in cash and cash equivalents | | | | (1,552,000 | ) | | 2,401,000 | | | (108,000 | ) |
| | | |
| Cash and cash equivalents at beginning of year | | 8,000 | | 116,000 | | 3,305,000 | | | 2,409,000 | | 8,000 | | 116,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Cash and cash equivalents at end of year | | $ | 2,409,000 | | $ | 8,000 | | $ | 116,000 | | | $ | 857,000 | | $ | 2,409,000 | | $ | 8,000 | |
| | | | | | | | | | | | | | | |
| | | |
| Non-cash investing activities: | | |
| | | |
| Net change in unrealized (loss) gain on investment securities available-for- sale | | $ | (1,019,000 | ) | | $ | (1,122,000 | ) | | $ | (415,000 | ) | |
| Net change in unrealized gain (loss) on investment securities available-for- sale | | | $ | 679,000 | | $ | (1,019,000 | ) | | $ | (1,122,000 | ) |
F-43F - 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Plumas Bancorp and subsidiary (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
Management, including the undersigned Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting presented in conformity with accounting principles generally accepted in the United States of America as of December 31, 2005.2006. In conducting its assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2005,2006, our internal control over financial reporting was effective based on those criteria.
Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005,2006, has been audited by Perry-Smith LLP an independent registered public accounting firm, as stated in their report appearing on page 45,50, which expresses unqualified opinions on management’s assessment and on the effectiveness of our internal control over financial reporting as of December 31, 2005.2006.
| | | |
/s//s/ D. N. BIDDLE | | |
| | |
| President and Chief Executive Officer | | |
| | | |
/s//s/ ANDREW RYBACK | | |
| | |
| Mr. Andrew J. Ryback | | |
| Executive Vice President and Chief Financial Officer | | |
43Dated March 12, 2007
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors
Plumas Bancorp and Subsidiary
We have audited management’s assessment, included in the accompanying Management’s Report of Management on Internal Control Over Financial Reporting, that Plumas Bancorp and subsidiary (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005,2006, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
4450
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
(Continued)
In our opinion, management’s assessment that Plumas Bancorp and subsidiary maintained effective internal control over financial reporting as of December 31, 2005,2006, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, Plumas Bancorp and subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005,2006, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Plumas Bancorp and subsidiary as of December 31, 20052006 and 2004,2005, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 20052006 and our report dated March 3, 200612, 2007 expressed an unqualified opinion.
/s/ PERRY-SMITH LLP
Sacramento, California
March 3, 200612, 2007
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, AND EXECUTIVE OFFICERS OF THE REGISTRANTAND CORPORATE GOVERNANCE
The information required by Items 10 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Items 11 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Items 12 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
4551
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED MATTERSTRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Items 13 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Items 14 can be found in Plumas Bancorp’s Definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference incorporated herein.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)Exhibits
The following documents are included or incorporated by reference in this Annual Report on Form 10K.
| | | |
| 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 included as exhibit 3.2 to the Registrant’s Form S-4, File No. 333-84534, which is incorporated by reference herein. |
| | | |
| 3.3 | | Amendment of the Articles of Incorporation of Registrant dated November 1, 2002. |
| | | |
| 3.4 | | Amendment of the Articles of Incorporation of Registrant dated August 17, 2005. |
| | | |
| 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 August 23, 2005, is included as Exhibit 10.1 to the Registrant’s 8-K filed on October 17, 2005, 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. |
| | | |
10.3 | | Executive Salary Continuation Agreement as amended of William E. Elliott dated October 13, 1993, is included as Exhibit 10.3 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | |
10.4 | | Split Dollar Agreements of William E. Elliott dated January 23, 2002, is included as Exhibit 10.4 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | |
| 10.5 | | Employment Agreement of Douglas N. Biddle dated January 1, 2006 is included as Exhibit 10.5 to the Registrant’s 8-K filed on March 15, 2006, which is incorporated by this reference herein. |
| | | |
| 10.6 | | Executive Salary Continuation Agreement as amended of Douglas N. Biddle dated June 2, 1994, is included as Exhibit 10.6 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.7 | | Split Dollar Agreements of Douglas N. Biddle dated January 24, 2002, is included as Exhibit 10.7 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.9 | | Executive Salary Continuation Agreement as amended of Dennis C. Irvine dated June 2, 1994, is included as Exhibit 10.9 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.10 | | Split Dollar Agreements of Dennis C. Irvine dated January 24, 2002, is included as Exhibit 10.10 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
46
| | | |
| 10.11 | | First Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated September 15, 2004, is included as Exhibit 10.11 to the Registrant’s 8-K filed on September 17, 2004, which is incorporated by this reference herein. |
52
| | | |
| 10.13 | | Deferred Fee Agreement as amended of Jerry V. Kehr dated August 19, 1998, is included as Exhibit 10.13 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.14 | | Amended and Restated Director Retirement Agreement of Jerry V. Kehr dated April 28, 2000, is included as Exhibit 10.14 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.15 | | Consulting Agreement of Jerry V. Kehr dated May 10, 2000, is included as Exhibit 10.15 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.16 | | Deferred Fee Agreement of Jerry V. Kehr dated December 21, 2005 is included as Exhibit 10.16 to the Registrant’s 8-K filed on March 15, 2006, 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. |
| | | |
| 10.20 | | Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is included as Exhibit 10.20 to the Registrant’s 8-K filed on September 17, 2004, 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. |
| | | |
| 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. |
| | | |
| 10.30 | | Amended and Restated Director Retirement Agreement of Christine McArthur dated May 12, 2000, is included as Exhibit 10.30 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.31 | | Consulting Agreement of Christine McArthur dated May 12, 2000, is included as Exhibit 10.31 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. |
| | | |
| 10.39 | | Deferred Fee Agreement of Thomas Watson dated March 3, 2001, is included as Exhibit 10.39 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.40 | | Form of Indemnification Agreement, is included as Exhibit 10.41 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
| | | |
| 10.41 | | 2001 Stock Option Plan as amended is included as exhibit 99.1 of the Form S-8 filed July 23, 2002, File No. 333-96957. |
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10.42 | | 1991 Stock Option Plan on Form S-8 filed August 19, 2002, File No. 333-98319. |
47
| | |
| 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. |
53
| | | |
| 10.44 | | Executive Salary Continuation Agreement of Robert T. Herr dated June 4, 2002, is included as Exhibit 10.44 to the Registrant’s 10-Q for March 31, 2003, which is incorporated by this reference herein. |
| | | |
| 10.46 | | 1991 Stock Option Plan as amended is included as Exhibit 10.46 to the Registrant’s 10-Q for September 30, 2004, which is incorporated by this reference herein. |
| | | |
| 10.47 | | Specimen form of Incentive Stock Option Agreement under the 1991 Stock Option Plan is included as Exhibit 10.47 to the Registrant’s 10-Q for September 30, 2004, which is incorporated by this reference herein. |
| | | |
| 10.48 | | Specimen form of Non-Qualified Stock Option Agreement under the 1991 Stock Option Plan is included as Exhibit 10.48 to the Registrant’s 10-Q for September 30, 2004, which is incorporated by this reference herein. |
| | |
| 10.49 | | Amended and Restated Plumes Bancorp Stock Option Plan is included as Exhibit 10.49 to the Registrant’s 10-Q for September 30, 2006, which is incorporated by this reference herein. |
| | | |
| 10.59 | | Director Retirement Agreement of Thomas Watson dated May 1, 2003, is included as Exhibit 10.59 to the Registrant’s 10-Q for June 30, 2003, which is incorporated by this reference herein. |
| | | |
| 10.60 | | Consulting Agreement of Thomas Watson dated May 1, 2003, is included as Exhibit 10.60 to the Registrant’s 10-Q for June 30, 2003, which is incorporated by this reference herein. |
| | | |
| 10.62 | | Deferred Fee Agreement of Thomas Watson dated December 23, 2004, is included as Exhibit 10.62 to the Registrant’s 8-K filed on January 6, 2005, which is incorporated by this reference herein. |
| | | |
| 10.63 | | Deferred Fee Agreement of Jerry V. Kehr dated December 24, 2004, is included as Exhibit 10.63 to the Registrant’s 8-K filed on January 6, 2005, which is incorporated by this reference herein. |
| | | |
| 11 | | Computation of per share earnings appears in the attached 10-K under Item 8 Financial Statements — Plumas Bancorp and Subsidiary Notes to Consolidated Financial Statements as Footnote 10 – Shareholders’ Equity. |
| | | |
13.01 | | Form 10-Q for the quarterly period ended March 31, 2005. |
| | |
13.02 | | Form 10-Q for the quarterly period ended June 30, 2005. |
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13.03 | | Form 10-Q for the quarterly period ended September 30, 2005. |
| | |
| 21.01 | | Plumas Bank — California. |
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| 21.02 | | Plumas Statutory Trust I – Connecticut. |
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| 21.03 | | Plumas Statutory Trust II – Connecticut. |
| | | |
| 23 | | Independent Auditor’s Consent letter dated March 15, 2006.12, 2007. |
| | | |
| 31.1 | | Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 13, 2006.12, 2007. |
| | | |
| 31.2 | | Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 13, 2006.12, 2007. |
| | | |
| 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 March 13, 2006.12, 2007. |
| | | |
| 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 March 13, 2006.12, 2007. |
4854
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Pursuant to the requirements of Section 13 or 15(d) 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: March 14, 20062007
| | | | | |
| | | /s/ D. N. BIDDLE | | |
| | | Douglas N. Biddle | | |
| | | President/Chief Executive Officer | | |
| | | | | |
| | | /s/ ANDREW RYBACK | | |
| | | | | |
| | | Andrew J. Ryback | | |
| | | Executive Vice President/Chief Financial Officer | | |
4955
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| | | |
/s/ DANIEL E. WEST | | |
| | | |
/s/ DANIEL E. WESTDaniel E. West, Director and Chairman of the Board | | | | Dated: March 15, 200614, 2007 | | |
| | | |
/s/ TERRANCE J. REESON | | | |
| | | | Dated: March 14, 2007 | | |
Terrance J. Reeson,Director and Vice Chairman of the Board | | Dated: March 15, 2006 |
| | | |
/s/ D. N. BIDDLE | | |
| | | | | | | |
/s/ D. N. BIDDLEDouglas N. Biddle, Director | | Dated: March 15, 2006 |
| | | |
/s/ ALVIN G. BLICKENSTAFFDated: March 14, 2007 | | |
| | | | | | | |
/s/ ALVIN G. BLICKENSTAFFAlvin G. Blickenstaff, Director | | Dated: March 15, 2006 |
| | | |
/s/ W. E. ELLIOTTDated: March 14, 2007 | | |
| | | | | | | |
/s/ W. E. ELLIOTTWilliam E. Elliott, Director | | Dated: March 15, 2006 |
| | | |
/s/ GERALD W. FLETCHERDated: March 14, 2007 | | |
| | | | | | | |
/s/ GERALD W. FLETCHERGerald W. Fletcher, Director | | Dated: March 15, 2006 |
| | | |
/s/ JOHN FLOURNOYDated: March 14, 2007 | | |
| | | | | | | |
/s/ JOHN FLOURNOYJohn Flournoy, Director | | Dated: March 15, 2006 |
| | | |
/s/ ARTHUR C. GROHSDated: March 14, 2007 | | |
| | | | | | | |
/s/ ARTHUR C. GROHSArthur C. Grohs, Director | | Dated: March 15, 2006 |
| | | |
/s/ JERRY V. KEHRDated: March 14, 2007 | | |
| | | | | | | |
/s/ JERRY V. KEHRJerry V. Kehr, Director | | Dated: March 15, 2006 |
| | | |
/s/ CHRISTINE MCARTHURDated: March 14, 2007 | | |
| | | | | | | |
/s/ CHRISTINE MCARTHURChristine McArthur, Director | | Dated: March 15, 2006 |
| | | |
/s/ THOMAS WATSONDated: March 14, 2007 | | |
| | | | | | | |
/s/ THOMAS WATSONThomas Watson, Director | | | | Dated: March 15, 200614, 2007 | | |
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