e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
|
|
þ |
|
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2010
or
|
|
|
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)
|
|
|
California
|
|
75-2987096 |
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer Identification No.) |
|
|
|
35 S. Lindan Avenue, Quincy, CA
|
|
95971 |
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants telephone number, including area code: (530) 283-7305
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of Each Class:
|
|
Name of Each Exchange on which Registered: |
Common Stock, no par value
|
|
The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
o Yes þ 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 Yes þ 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 Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
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 Registrants 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule12b-2 of the
Exchange Act:
|
|
|
|
|
|
|
Large Accelerated Filer o
|
|
Accelerated Filer o
|
|
Non-Accelerated Filer o
|
|
Smaller Reporting Company þ |
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
As of June 30, 2010, the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Registrant was approximately $11.9 million, based on the closing
price reported to the Registrant on that date of $2.71 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 22, 2011 was
4,776,339.
Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2011
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 on Form 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 Bancorps
(the Companys) 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 |
|
|
|
Changes in the interest rate environment and volatility of rate sensitive assets and
liabilities |
|
|
|
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 Companys loans |
|
|
|
Credit quality deterioration, which could cause an increase in the provision for loan
and lease losses |
|
|
|
|
Devaluation of fixed income securities |
|
|
|
|
Asset/liability matching risks and liquidity risks |
|
|
|
|
Loss of key personnel |
|
|
|
|
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.
3
General
The Company. Plumas Bancorp (the Company) is a California corporation registered as a bank
holding company under the Bank Holding Company Act of 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 Companys 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 Companys 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 Companys principal source of income is dividends from the Bank, but the Company may 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, the cost of servicing debt and
preferred stock dividends, will generally be paid from dividends paid to the Company by the Bank.
The Company cannot currently pay dividends without the prior approval of its primary regulators.
At December 31, 2010, the Company had consolidated assets of $484 million, deposits of $425
million, other liabilities of $21 million and shareholders equity of $38 million. The Companys
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) in September 2005. Both Trust I
and Trust II are further discussed in the section titled Trust Preferred Securities.
Shareholders equity includes $11.7 million in preferred stock issued pursuant to the U.S.
governments Capital Purchase Program which is discussed in the section titled Capital Purchase
Program TARP Preferred Stock and Stock Warrant.
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,
(the SEC) are posted and are available at no cost on the Companys 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 SECs website at www.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 is not a member of the Federal Reserve System. The
Banks Administrative Office is located at 35 South Lindan Avenue, Quincy, California. At December
31, 2010 the Bank had approximately $483 million in assets, $307 million in net loans and $425
million in deposits (including deposits of $0.6 million from the Bancorp). It is currently the
largest independent bank headquartered in Plumas County. The Banks deposit accounts are insured
by the Federal Deposit Insurance Corporation (the FDIC) up to maximum insurable amounts.
The Banks primary service area covers the Northeastern portion of California, with Lake Tahoe to
the South and the Oregon border to the North. The Bank, through its eleven 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, Truckee, Fall River Mills,
Alturas, Susanville, Chester, Tahoe City, Kings Beach and Redding. The Bank maintains fifteen
automated teller machines (ATMs) tied in with major statewide and national networks. In addition
to its branch network, the Bank operates a lending office specializing in government-guaranteed
lending in Auburn, California. The Banks primary business is servicing the banking needs of these
communities. Its marketing strategy stresses its
local ownership and commitment to serve the banking needs of individuals living and working in the
Banks primary service areas.
4
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 Banks
geographic footprint. Our principal retail lending services include consumer and home equity
loans. Our principal commercial lending services include term real estate, land development and
construction loans. In addition, we provide commercial and industrial term, government-guaranteed
and agricultural loans as well as credit lines.
The Banks Government-guaranteed lending center, headquartered in Auburn, California with
additional personnel in Truckee, provides Small Business Administration and USDA Rural Development
loans to qualified borrowers throughout Northern California and Northern Nevada. During 2007 the
Bank was granted nationwide Preferred Lender status with the U.S. Small Business Administration and
we expect government-guaranteed lending to continue to be an important part of our overall lending
operation. During 2010 we sold $13.6 million in government-guaranteed loans and generated a gain on
sale of $1.1 million.
The Agricultural Credit Centers located in Susanville and Alturas provide a complete line of credit
services in support of the agricultural activities which are key to the continued economic
development of the communities we serve. Ag lending clients include a full range of individual
farming customers, small- to medium-sized business farming organizations and corporate farming
units.
As of December 31, 2010, the principal areas to which we directed our lending activities, and the
percentage of our total loan portfolio comprised by each, were as follows: (i) loans secured by
real estate 61.7%; (ii) commercial and industrial loans 10.6%; (iii) consumer loans
(including residential equity lines of credit) 15.5%; and (iv) agricultural loans (including
agricultural real estate loans) 12.2%.
In addition to the lending activities noted above, we offer a wide range of deposit products for
the retail and commercial banking markets including checking, interest-bearing checking, business
sweep, public funds sweep, savings, time deposit and retirement accounts, as well as remote
deposit, telephone and mobile banking and internet banking with bill-pay options. Interest bearing
deposits include high yield sweep accounts designed for our commercial customers and for public
entities such as municipalities. In addition we offer a Money Fund Plu$ checking account for our
consumer customers. These accounts pay rates comparable to those available on a money fund offered
by a typical brokerage firm. As of December 31, 2010, the Bank had 30,372 deposit accounts with
balances totaling approximately $425 million, compared to 31,173 deposit accounts with balances
totaling approximately $437 million at December 31, 2009. We attract deposits through our
customer-oriented product mix, competitive pricing, convenient locations, extended hours, remote
deposit operations and drive-up banking, all provided with a high level of customer service.
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 $14,000 at December 31, 2010. However, it 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. At December 31, 2010 we had $2 million in CDARS reciprocal time
deposits which for regulatory purposes are classified as brokered deposits.
We also offer a variety of other products and services to complement the lending and deposit
services previously reviewed. These include cashiers checks, travelers checks, bank-by-mail,
ATMs, night depository, safe deposit boxes, direct deposit, electronic funds transfers, on-line
banking, remote deposit, mobile banking and other customary banking services.
5
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 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.
During 2007 we added Remote Deposit to our product mix. Remote Deposit allows our customers to make
non-cash deposits remotely from their physical location. With this product, we have extended our
service area and can now meet the deposit needs of customers who may not be located within a
convenient distance of one of our branch offices.
Additionally, the Bank has devoted a substantial amount of time and capital to the improvement of
existing Bank services, during the last two fiscal years, including an on balance sheet business
sweep product which we introduced during the first quarter of 2008. During 2009 we replaced our
on-line banking service with a new state of the art product that greatly expands the features
available to our customers. In addition we utilized this platform to add mobile banking services
during the first quarter of 2010. During 2010 Plumas Bank began offering a new Green Account which
promotes protecting the environment, reducing clutter and making life simpler for the customer
through technological advancements such as eStatements, online banking, and debit card usage while
providing the customer with the opportunity to grow their savings through monthly monetary rewards
for green behavior. 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.
We hold no patents or licenses (other than licenses required by appropriate bank regulatory
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 and with the opening our
Auburn commercial lending office, 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 are 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, 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, and government-guaranteed community
infrastructure loans. Many banking decisions are made locally with the goal of maintaining
customer satisfaction through the timely delivery of high quality products and services.
Capital Purchase Program TARP Preferred Stock and Stock Warrant. On January 30, 2009 the
Company entered into a Letter Agreement (the Purchase Agreement) with the United States
Department of the Treasury (Treasury), pursuant to which the Company issued and sold (i) 11,949
shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the Series A
Preferred Stock) and (ii) a warrant (the Warrant) to purchase 237,712 shares of the Companys
common stock, no par value (the Common Stock), for an aggregate purchase price of $11,949,000 in
cash.
The Series A Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends quarterly
at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Company may
redeem the Series A Preferred Stock at its liquidation preference ($1,000 per share) plus accrued
and unpaid dividends under the American Recovery and Reinvestment Act of 2009, subject to the
Treasurys consultation with the Companys appropriate federal regulator.
6
The Warrant has a 10-year term and was immediately exercisable with an exercise price, subject to
antidilution adjustments, equal to $7.54 per share of the Common Stock. Treasury has agreed not to
exercise voting power with respect to any shares of Common Stock issued upon exercise of the
Warrant.
Prior to January 30, 2012, unless the Company has redeemed the Series A Preferred Stock, or the
Treasury has transferred the Series A Preferred Stock to a third party, the consent of the Treasury
will be required for the Company to: (1) declare or pay any dividend or make any distribution on
shares of the Common Stock (other than regular quarterly cash dividends of not more than $0.04 per
share or regular semi-annual cash dividends of not more than $0.08 per share); or (2) redeem,
purchase or acquire any shares of Common Stock or other equity or capital securities, other than in
connection with benefit plans consistent with past practice and certain other circumstances
specified in the Purchase Agreement.
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.
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 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 Companys 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.
7
Recent Developments.
Effective March 16, 2011, in connection with the Banks regularly scheduled 2010 Joint FDIC and
California Department of Financial Institutions (DFI) examination, the Bank entered into a
Consent Order (Order) with the FDIC and the DFI. The FDIC and DFI in the Order, require certain
actions to be taken by the Bank including among others: continue to reduce certain classified asset
balances, maintain strong capital ratios, improve lending policies and practices, and retain
qualified management as stated in the terms of the order.
One of Managements top priorities has and will continue to be to reduce it problem assets. The
order services to formalize and reinforce the Companys on-goings plans to strengthen the Companys
operations and to implement the Banks strategic plan. Currently the Bank has exceeded the
Orders total risk-based capital ratio goal of 13% and Management expects to achieve the leverage
ratio target of 10% by year-end without the injection of any new capital.
See Note 2 Regulatory Matters of the Companys Consolidated Financial Statements in Item 8
Financial Statements and Supplementary Data of this Annual Report on Form 10K for additional
information related to the Order.
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, 2010 approximately 80% of the Banks 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 and Washoe County in Nevada. Consequently, our results of
operations and financial condition are dependent upon the general trends in these 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 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 or other 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 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 competitive pressure on banks within the industry to streamline
their operations, reduce expenses, and increase revenues. Competition has also intensified due to
federal and state interstate banking laws enacted in the mid-1990s, which permit banking
organizations to expand into other states. 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.
8
Currently, within the Banks branch service area there are 64 banking branch offices of competing
institutions, including 28 branches of 7 major banks. As of June 30, 2010, the Federal Deposit
Insurance Corporation estimated the Banks market share of insured deposits within the communities
it serves to be as follows: Chester 72%, Quincy 57%, Portola 52%, Alturas 50%, Fall River Mills
40%, Kings Beach 35%, Susanville 34%, Truckee 17%, Tahoe City 4%, Redding less than 1% and 100% in
Greenville. Redding is the location of our most recently opened branch, which became operational
in June 2007.
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, mobile, 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 approach appears to
be well-received by our customers who appreciate a more personal and customer-oriented environment
in which to conduct their financial transactions. To meet the needs of customers who prefer to
bank electronically, we offer telephone banking, mobile banking, remote deposit, and personal
computer and internet banking with bill payment capabilities. This high tech and high touch
approach allows the customers to tailor their access to our services based on their particular
preference.
Employees. At December 31, 2010, the Company and its subsidiary employed 157 persons. On a
full-time equivalent basis, we employed 146 persons. We believe our employee relations are
excellent.
Code of Ethics
The Board of Directors has adopted a code of business conduct and ethics for directors, officers
(including Plumas Bancorps principal executive officer and principal financial officer) and
financial personnel, known as the Corporate Governance Code of Ethics. This Code of Ethics Policy
is available on Plumas Bancorps website at www.plumasbank.com. Shareholders may request a free
copy of the Code of Ethics Policy from Plumas Bancorp, Ms. Elizabeth Kuipers, Investor Relations,
35 S. Lindan Avenue, Quincy, California 95971.
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.
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 all or substantially all of the assets of
a bank located outside the State of California.
9
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.
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 Banks 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 Banks 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
organizations 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% for assets with low credit risk, such as certain U.S. government
securities, to 100% for assets with relatively higher credit risk, such as business loans.
A banking organizations 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 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%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and
off-balance-sheet items of 4%.
10
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%.
It is improbable; however, that an institution
with a 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% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, is at least 4%
or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply
across the industry, the FRB 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 the actual capitalization for the Bank and Bancorp as of December 31, 2010
follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Requirement for the |
|
|
|
|
|
|
|
|
|
Bank to be: |
|
|
|
|
|
|
|
|
|
Adequately |
|
|
Well |
|
|
Plumas |
|
|
Plumas |
|
|
|
Capitalized |
|
|
Capitalized |
|
|
Bank |
|
|
Bancorp |
|
Tier 1 leverage capital ratio |
|
|
4.0 |
% |
|
|
5.0 |
% |
|
|
8.9 |
% |
|
|
8.9 |
% |
Tier 1 risk-based capital ratio |
|
|
4.0 |
% |
|
|
6.0 |
% |
|
|
12.8 |
% |
|
|
12.7 |
% |
Total risk-based capital ratio |
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
14.0 |
% |
|
|
13.9 |
% |
Management believes that the Company and the Bank met all their capital adequacy requirements as of
December 31, 2010 and 2009; however, as a result of the Order the Bank has agreed to maintain
capital ratios in excess of those defined above as Well Capitalized. See Note 2 Regulatory
Matters of the Companys Consolidated Financial Statements in Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10K for information related to the Order.
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 companys
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.
11
Premiums for Deposit Insurance. The deposit insurance fund of the FDIC insures our customer
deposits up to prescribed limits for each depositor. The Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 in a comprehensive manner revised the deposit insurance assessment
system including the specific mandate that the FDIC require the base on which deposit insurance
assessments are charged be revised from one based on domestic deposits to one based on assets.
Among other things with respect to the FDIC insurance fund, the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010,
|
|
|
raised the minimum designated reserve ratio (DDR) which the FDIC must set each year, to
1.35 percent (from the former minimum of 1.15 percent) and removed the upper limit on the DRR
(which was formerly capped at 1.5 percent) and therefore on the size of the fund; |
|
|
|
required that the fund reserve ratio reach 1.35 percent by September 30, 2020 (rather than
1.15 percent by the end of 2016, as formerly required); |
|
|
|
required that, in setting assessments, the FDIC offset the effect of requiring that the
reserve ratio reach 1.35 percent by September 30, 2020 rather than 1.15 percent by the end of
2016 on insured depository institutions with total consolidated assets of less than
$10,000,000,000; |
|
|
|
eliminated the requirement that the FDIC provide dividends from the fund when the reserve
ratio is between 1.35 percent and 1.5 percent; and |
|
|
|
continued the FDICs authority to declare dividends when the reserve ratio at the end of a
calendar year is at least 1.5 percent, but granted the FDIC sole discretion in determining
whether to suspend or limit the declaration or payment of dividends. |
In February 2011, the FDIC adopted conforming regulations mandated by the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 that (i) modifies the definition of an institutions
deposit insurance assessment base, (ii) changes the assessment rate adjustments (and includes the
unsecured debt adjustment, which lowers an institutions assessment rate to recognize the buffer
that long-term unsecured and subordinated debt provides the FDICs Deposit Insurance Fund), (iii)
revises the deposit insurance assessment rate schedules in light of the new assessment base and
altered related adjustments; to implement the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 dividend provisions; (iv) revises the large insured depository institution assessment
system to differentiate for risk and determine account losses from large institution failures that
the FDIC may incur; and to (vi) make technical and other changes to the FDICs assessment rules.
The new rules are effective April 1, 2011, and the assessment rate would range between a minimum of
2 basis points and a maximum of 45 basis points. In addition, the FDIC Board may increase or
decrease such total base assessment rates up to a maximum increase of 2 basis points or a fraction
thereof or a maximum decrease of 2 basis points or a fraction thereof (after aggregating increases
and decreases), as the Board deems necessary. In setting assessment rates, the Board shall take
into consideration the following:
|
|
|
estimated operating expenses of the Deposit Insurance Fund; |
|
|
|
case resolution expenditures and income of the Deposit Insurance Fund; |
|
|
|
the projected effects of assessments on the capital and earnings of the institutions paying
assessments to the Deposit Insurance Fund; |
|
|
|
the risk factors and other factors taken into account pursuant to 12 USC 1817(b)(1); and |
|
|
|
any other factors the Board may deem appropriate. |
The new rules would likely lower the overall assessment for smaller banks such as the Bank.
However, due to the significant losses at failed banks and expected losses for banks that will
fail, there are no assurances that FDIC insurance fund assessments on the Bank will not increase,
and such increased assessments may materially adversely affect the profitability of the Bank.
Any increase in assessments or the assessment rate could have a material adverse effect on our
business, financial condition, results of operations or cash flows, depending on the amount or
frequency of the assessment. Furthermore, the FDIC is authorized to raise insurance premiums under
certain circumstances.
The FDIC is authorized to terminate a depository institutions deposit insurance upon a finding by
the FDIC that the institutions 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 institutions regulatory agency. The termination of deposit insurance for the bank
would have a material adverse effect on our business, financial condition, results of operations
and/or cash flows.
12
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. The FHLB-SF utilizes a single class of stock with a par value of $100 per
share, which may be issued, exchanged, redeemed and repurchased only at par value. As an FHLB
member, the Bank is required to own FHLB SF capital stock 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 |
|
|
|
an activity based stock requirement (based on percentage of outstanding
advances). |
The FHLB SF capital stock is redeemable on five years written notice, subject to certain
conditions.
At December 31, 2010 the Bank owned 21,884 shares of the FHLB-SF capital stock.
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, 2010, 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 FRBs policies have had a
significant effect on the operating results of commercial banks 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.
Extensions of Credit to Insiders and Transactions with Affiliates. The Federal Reserve Act and FRB
Regulation O place limitations and conditions on loans or extensions of credit to:
|
|
|
a banks or bank holding companys 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), |
|
|
|
any company controlled by any such executive officer, director or
shareholder, or |
|
|
|
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 banks 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.
13
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.
The Community 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 banks 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 institutions 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. 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.
The Equal 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.
The Truth 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.
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, 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.
The Home 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.
The Right 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, the Real 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 communities.
14
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.
The 2010 Tax Relief Act was enacted on December 17, 2010. The 2010 Tax Relief Act extends on a
temporary basis the bonus depreciation for taxable years 2011 and 2012. For small businesses, the
maximum amount and phase-out threshold under section 179 for taxable years 2012 are set at $125,000
and $500,000 respectively, indexed for inflation. The law also provided a one-year reauthorization
of federal UI benefits and cuts FICA taxes for employees to 4.2 percent and those self employed to
10.4 percent on self-employment income up to $106,800.
The Small Business Jobs Act of 2010 (SBA Jobs Act) enacted in September 2010 provides numerous
tax breaks for small businesses including start up small businesses, and more importantly for
insured financial institutions eligibility for participation in a U S Treasury program that will
provide a maximum $30 billion for purchases of preferred stock and other debt instruments issued by
eligible financial institutions for the purpose of increasing credit availability for small
businesses.
In addition, there are important changes to various SBA loan administration programs to aid small
businesses under the SBA Jobs Act. The SBA Jobs Act provides for increasing maximum individual
loan limits of SBA loans, extending the higher government guarantee level and waiver of borrower
fees for certain SBA loans, and allowing alternative underwriting measures, specifically net worth
and net income to allow more small businesses to participate in certain SBA loans.
The Dodd-Frank Act, signed into law in July, 2010, will significantly change the current bank
regulatory structure and affect the lending, investment, trading and operating activities of
financial institutions and their holding companies. The Dodd-Frank Act creates of a new
interagency council, the Financial System Oversight Council that is charged with identifying and
monitoring the systemic risk to the U.S. economy posed by systemically significant, large financial
companies, including bank holding companies and non-bank financial companies. The Office of Thrift
Supervision will be eliminated and its powers distributed among the Office of the Comptroller of
the Currency, the Federal Reserve Board and the FDIC. The legislation also establishes a floor
for capital of insured depository institutions that cannot be lower than the standards in effect
today, and directs the federal banking regulators to implement new leverage and capital
requirements within 18 months that take into account off-balance sheet activities and other risks,
including risks relating to securitized products and derivatives.
The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to
supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad
rulemaking authority for a wide range of consumer protection laws that apply to all banks and
savings institutions including the authority to prohibit unfair, deceptive or abusive acts and
practices. The Consumer Financial Protection Bureau has examination and enforcement authority over
all banks and savings institutions with more than $10 billion in assets. Banks and savings
institutions with $10 billion or less in assets will be examined by their applicable bank
regulators. The new legislation also weakens the federal preemption available for national banks
and federal savings associations, and gives state attorneys general the ability to enforce
applicable federal consumer protection laws.
The legislation also broadens the base for FDIC insurance assessments. Assessments will now be
based on the average consolidated total assets less tangible equity capital of a financial
institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance
for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January
1, 2008, and non-interest bearing
transaction accounts have unlimited deposit insurance through December 31, 2013. The Dodd-Frank
Act also repeals the prohibition on payment of interest on corporate demand deposits.
15
Many of the provisions of the Dodd-Frank Act will not take effect for at least a year, and the
legislation requires various federal agencies to promulgate numerous and extensive implementing
regulations over the next several years. Although the substance and scope of these regulations
cannot be determined at this time, it is expected that the legislation and implementing
regulations, particularly those provisions relating to the new Consumer Financial Protection
Bureau, will increase the Banks operating and compliance costs as it is likely that the Banks
existing regulatory agencies will adopt the same or similar consumer protections as the new
Consumer Financial Protection Bureau will adopt.
The Electronic Funds Transfer Act (the EFTA) provides a basic framework for establishing the
rights, liabilities, and responsibilities of consumers who use electronic funds transfer (EFT)
systems. The EFTA is implemented by the Federal Reserves Regulation E, which governs transfers
initiated through ATMs, point-of-sale terminals, payroll cards, automated clearinghouse (ACH)
transactions, telephone bill-payment plans, or remote banking services. Regulation E was amended
in January 2010 to require consumers to opt in (affirmatively consent) to participation in the
Banks overdraft service program for ATM and one-time debit card transactions before overdraft fees
may be assessed on the consumers account. Notice of the opt-in right must be provided to all
existing and new customers who are consumers, and the customers affirmative consent must be
obtained, before charges may be assessed on the consumers account for paying such overdrafts.
The new rule provides bank customers with an ongoing right to revoke consent to participation in an
overdraft service program for ATM and one-time debit card transactions, as opposed to being
automatically enrolled in such a program. The new rule also prohibits banks from conditioning the
payment of overdrafts for checks, ACH transactions, or other types of transactions that overdraw
the consumers account on the consumers opting into an overdraft service for ATM and one-time
debit card transactions. For customers who do not affirmatively consent to overdraft service for
ATM and one-time debit card transactions, a bank must provide those customers with the same account
terms, conditions, and features that it provides to consumers who do affirmatively consent, except
for the overdraft service for ATM and one-time debit card transactions.
The mandatory compliance date for the Regulation E amendments was July 1, 2010 and provided the
Bank with the ability to continue to assess overdraft service fees or charges on existing customer
accounts up to August 15, 2010, without obtaining the consumers affirmative consent. The Banks
compliance with the new Regulation E amendments will have an impact on the Banks revenue from
overdraft service fees and non-sufficient funds (NSF) charges.
In May 2009 the Helping Families Save Their Homes Act of 2009 was enacted to help consumers avoid
mortgage foreclosures on their homes through certain loss mitigation actions including special
forbearance, loan modification, pre-foreclosure sale, deed in lieu of foreclosure, support for
borrower housing counseling, subordinate lien resolution, and borrower relocation. The new law
permits the Secretary of Housing and Urban Development (HUD), for mortgages either in default or
facing imminent default, to: (1) authorize the modification of such mortgages; and (2) establish a
program for payment of a partial claim to a mortgagee who agrees to apply the claim amount to
payment of a mortgage on a 1- to 4-family residence. In implementing the law, the Secretary of HUD
is authorized to (1) provide compensation to the mortgagee for lost income on monthly mortgage
payments due to interest rate reduction; (2) reimburse the mortgagee from a guaranty fund in
connection with activities that the mortgagee is required to undertake concerning repayment by the
mortgagor of the amount owed to HUD; (3) make payments to the mortgagee on behalf of the borrower,
under terms defined by HUD; and (4) make mortgage modification with terms extended up to 40 years
from the modification date. The new law also authorizes the Secretary of HUD to: (1) reassign the
mortgage to the mortgagee; (2) act as a Government National Mortgage Association (GNMA, or Ginnie
Mae) issuer, or contract with an entity for such purpose, in order to pool the mortgage into a
Ginnie Mae security; or (3) resell the mortgage in accordance with any program established for
purchase by the federal government of insured mortgages. The new law also amends the Foreclosure
Prevention Act of 2008, with respect to emergency assistance for the redevelopment of abandoned and
foreclosed homes (neighborhood
stabilization), to authorize each state that has received certain minimum allocations and has
fulfilled certain requirements, to distribute any remaining amounts to areas with homeowners at
risk of foreclosure or in foreclosure without regard to the percentage of home foreclosures in such
areas.
16
Also in May 2009, the Credit Card Act of 2009 was enacted to help consumers and ban certain
practices of credit card issuers. The new law allows interest rate hikes on existing balances only
under limited conditions, such as when a promotional rate ends, there is a variable rate or if the
cardholder makes a late payment. Interest rates on new transactions can increase only after the
first year. Significant changes in terms on accounts cannot occur without 45 days advance notice
of the change. The new law bans raising interest rates on customers based on their payment records
with other unrelated credit issuers (such as utility companies and other creditors) for existing
credit card balances, though card issuers would still be allowed to use universal default on future
credit card balances if they give at least 45 days advance notice of the change. The new law
allows consumers to opt out of certain significant changes in terms on their accounts. Opting out
means cardholders agree to close their accounts and pay off the balance under the old terms. They
have at least five years to pay the balance. Credit card issuers will be banned from issuing
credit cards to anyone under 21, unless they have adult co-signers on the accounts or can show
proof they have enough income to repay the card debt. Credit card companies must stay at least
1,000 feet from college campuses if they are offering free pizza or other gifts to entice students
to apply for credit cards.
The new Act requires card issuers to give card account holders a reasonable amount of time to
make payments on monthly bills. That means payments would be due at least 21 days after they are
mailed or delivered. Credit card issuers would no longer be able to set early morning or other
arbitrary deadlines for payments. When consumers have accounts that carry different interest rates
for different types of purchases payments in excess of the minimum amount due must go to balances
with higher interest rates first. Consumers must opt in to over-limit fees. Those who opt out
would have their transactions rejected if they exceed their credit limits, thus avoiding over-limit
fees. Fees charged for going over the limit must be reasonable. Finance charges on outstanding
credit card balances would be computed based on purchases made in the current cycle rather than
going back to the previous billing cycle to calculate interest charges. Fees on credit cards
cannot exceed 25 percent of the available credit limit in the first year of the card. Credit card
issuers must disclose to cardholders the consequences of making only minimum payments each month,
namely how long it would take to pay off the entire balance if users only made the minimum monthly
payment. Issuers must also provide information on how much users must pay each month if they want
to pay off their balances in 36 months, including the amount of interest.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was enacted to
provide stimulus to the struggling US economy. ARRA authorizes spending of $787 billion, including
about $288 billion for tax relief, $144 billion for state and local relief aid, and $111 billion
for infrastructure and science. In addition, ARRA includes additional executive compensation
restrictions for recipients of funds from the US Treasury under the Troubled Assets Relief Program
of the Emergency Economic Stimulus Act of 2008 (EESA). The provisions of EESA amended by the
ARRA include (i) expanding the coverage of the executive compensation limits to as many as the 25
most highly compensated employees of a TARP funds recipient and its affiliates for certain aspects
of executive compensation limits and (ii) specifically limiting incentive compensation of covered
executives to one-third of their annual compensation which is required to be paid in restricted
stock that does not vest until all of the TARP funds are no longer outstanding (note that if TARP
warrants remain outstanding and no other TARP instruments are outstanding, then such warrants would
not be considered outstanding for purposes of this incentive compensation restriction. In
addition, the board of directors of any TARP recipient is required under EESA, as amended to have a
company-wide policy regarding excessive or luxury expenditures, as identified by the Treasury,
which may include excessive expenditures on entertainment or events; office and facility
renovations; aviation or other transportation services; or other activities or events that are not
reasonable expenditures for staff development, reasonable performance incentives, or other similar
measures conducted in the normal course of the business operations of the TARP recipient.
On February 10, 2009, the U. S. Treasury, the Federal Reserve Board, the FDIC, the Office of the
Comptroller of the Currency, and the Office of Thrift Supervision all announced a comprehensive set
of measures to restore confidence in the strength of U.S. financial institutions and restart the
critical flow of credit to households and businesses. This program is intended to restore the
flows of credit necessary to support recovery.
17
The core program elements include:
|
|
|
A new Capital Assistance Program to help ensure that our banking institutions have
sufficient capital to withstand the challenges ahead, paired with a supervisory process to
produce a more consistent and forward-looking assessment of the risks on banks balance
sheets and their potential capital needs. |
|
|
|
A new Public-Private Investment Fund on an initial scale of up to $500 billion, with
the potential to expand up to $1 trillion, to catalyze the removal of legacy assets from
the balance sheets of financial institutions. This fund will combine public and private
capital with government financing to help free up capital to support new lending. |
|
|
|
A new Treasury and Federal Reserve initiative to dramatically expand up to $1
trillion the existing Term Asset-Backed Securities Lending Facility (TALF) in order to
reduce credit spreads and restart the securitized credit markets that in recent years
supported a substantial portion of lending to households, students, small businesses, and
others. |
|
|
|
An extension of the FDICs Temporary Liquidity Guarantee Program to October 31, 2009. A
new framework of governance and oversight to help ensure that banks receiving funds are
held responsible for appropriate use of those funds through stronger conditions on
lending, dividends and executive compensation along with enhanced reporting to the public. |
In October 2008, the President signed the Emergency Economic Stabilization Act of 2008 (EESA), in
response to the global financial crisis of 2008 authorizing the United States Secretary of the
Treasury with authority to spend up to $700 billion to purchase distressed assets, especially
mortgage-backed securities, under the Troubled Assets Relief Program (TARP) and make capital
injections into banks under the Capital Purchase Program. EESA gives the government the
unprecedented authority to buy troubled assets on balance sheets of financial institutions under
the Troubled Assets Relief Program and increases the limit on insured deposits from $100,000 to
$250,000 through December 31, 2009. Some of the other provisions of EESA are as follows:
|
|
|
accelerated from 2011 to 2008 the date that the Federal Reserve Bank could pay interest
on deposits of banks held with the Federal Reserve to meet reserve requirements; |
|
|
|
to the extent that the U. S. Treasury purchases mortgage securities as part of TARP,
the Treasury shall implement a plan to minimize foreclosures including using guarantees
and credit enhancements to support reasonable loan modifications, and to the extent loans
are owned by the government to consent to the reasonable modification of such loans; |
|
|
|
limits executive compensation for executives for TARP participating financial
institutions including a maximum corporate tax deduction limit of $500,000 for each of the
top five highest paid executives of such institution, requiring clawbacks of incentive
compensation that were paid based on inaccurate or false information, limiting golden
parachutes for involuntary and certain voluntary terminations to 2.99x their average
annual salary and bonus for the last five years, and prohibiting the payment of incentive
compensation that encourages management to take unnecessary and excessive risks with
respect to the institution; |
|
|
|
extends the mortgage debt forgiveness provision of the Mortgage Forgiveness Debt Relief
Act of 2007 by three years (2012) to ease the income tax burden on those involved with
certain foreclosures; and |
|
|
|
qualified financial institutions may count losses on FNMA and FHLMC preferred stock
against ordinary income, rather than capital gain income. |
On February 10, 2009, the Treasury Secretary announced a new comprehensive financial stability
legislation (the Financial Stability Plan), which earmarked the second $350 billion of unused
funds originally authorized under the EESA. The major elements of the Financial Stability Plan
included: (i) a
capital assistance program that has invested in convertible preferred stock of certain qualifying
institutions, (ii) a consumer and business lending initiative to fund new consumer loans, small
business loans and commercial mortgage asset-backed securities issuances, (iii) a public/private
investment fund intended to leverage public and private capital with public financing to purchase
up to $500 billion to $1 trillion of legacy toxic assets from financial institutions, and (iv)
assistance for homeowners by providing up to $75 billion to reduce mortgage payments and interest
rates and establishing loan modification guidelines for government and private programs.
18
On October 22, 2009, the Federal Reserve Board issued a comprehensive proposal on incentive
compensation policies intended to ensure that the incentive compensation policies of banking
organizations do not undermine the safety and soundness of such organizations by encouraging
excessive risk-taking. The proposal, which covers all employees that have the ability to
materially affect the risk profile of an organization, either individually or as part of a group,
is based upon the key principles that a banking organizations incentive compensation arrangements
should (i) provide incentives that do not encourage risk-taking beyond the organizations ability
to effectively identify and manage risks, (ii) be compatible with effective internal controls and
risk management, and (iii) be supported by strong corporate governance, including active and
effective oversight by the organizations board of directors. The proposal also contemplates a
detailed review by the Federal Reserve Board of the incentive compensation policies and practices
of a number of large, complex banking organizations. Any deficiencies in compensation practices
that are identified may be incorporated into the organizations supervisory ratings, which can
affect its ability to make acquisitions or perform other actions. In addition, the proposal
provides that enforcement actions may be taken against a banking organization if its incentive
compensation arrangements or related risk-management control or governance processes pose a risk to
the organizations safety and soundness and the organization is not taking prompt and effective
measures to correct the deficiencies. Similarly, on January 12, 2010, the FDIC announced that it
would seek public comment through advance notice of rule making on whether banks with compensation
plans that encourage risky behavior should be charged at higher deposit assessment rates than such
banks would otherwise be charged.
On September 3, 2009, the U.S. Treasury issued a policy statement entitled Principles for
Reforming the U.S. and International Regulatory Capital Framework for Banking Firms. The
statement was developed in consultation with the U.S. bank regulatory agencies and sets forth eight
core principles intended to shape a new international capital accord. Six of the core
principles relate directly to bank capital requirements. The statement contemplates changes to the
existing regulatory capital regime that would involve substantial revisions to, if not replacement
of, major parts of the Basel I and Basel II and affect all regulated banking organizations and
other systemically important institutions. The statement calls for higher and stronger capital
requirements for bank and non-bank financial firms that are deemed to pose a risk to financial
stability due to their combination of size, leverage, interconnectedness and liquidity risk. The
statement suggested that changes to the regulatory capital framework be phased in over a period of
several years with a recommended schedule providing for a comprehensive international agreement by
December 31, 2010, with the implementation of reforms by December 31, 2012, although it does remain
possible that U.S. bank regulatory agencies could officially adopt, or informally implement, new
capital standards at an earlier date. Following the issuance of the statement, on December 17,
2009, the Basel committee issued a set of proposals (the Capital Proposals) that would
significantly revise the definitions of Tier 1 capital and Tier 2 capital, with the most
significant changes being to Tier 1 capital. Most notably, the Capital Proposals would disqualify
certain structured capital instruments, such as trust preferred securities, from Tier 1 capital
status. The Capital Proposals would also re-emphasize that common equity is the predominant
component of Tier 1 capital by adding a minimum common equity to risk-weighted assets ratio and
requiring that goodwill, general intangibles and certain other items that currently must be
deducted from Tier 1 capital instead be deducted from common equity as a component of Tier 1
capital. The Capital Proposals also leave open the possibility that the Basel committee will
recommend changes to the minimum Tier 1 capital and total capital ratios of 4.0% and 8.0%,
respectively. Concurrently with the release of the Capital Proposals, the Basel committee also
released a set of proposals related to liquidity risk exposure (the Liquidity Proposals). The
Liquidity Proposals have three key elements, including the implementation of (i) a liquidity
coverage ratio designed to ensure that a bank maintains an adequate level of unencumbered,
high-quality assets sufficient to meet the banks liquidity needs over a 30-day time
horizon under an acute liquidity stress scenario, (ii) a net stable funding ratio designed to
promote more medium and long-term funding of the assets and activities of banks over a one-year
time horizon, and (iii) a set of monitoring tools that the Basel committee indicates should be
considered as the minimum types of information that banks should report to supervisors and that
supervisors should use in monitoring the liquidity risk profiles of supervised entities.
19
In California, SB931 enacted in 2010 requires the holder of a first mortgage or deed of trust that
is secured by 1-4 family residential real property to accept as full payment, the proceeds of a
short sale to which it agrees to in writing, and obligates the holder to discharge the remaining
amount of a borrowers indebtedness on such mortgage or deed of trust (excludes borrowers that are
corporate entities or political subdivisions), except to the extent the borrower has committed
fraud or waste upon the property.
The enactment of AB 2325 in 2010 requires foreclosure consultants register and become certificated
by the Department of Justice. The definition of foreclosure consultant includes one who arranges
or attempts to arrange for the audit of any obligation secured by a lien on a residence in
foreclosure.
The enactment of SB1427 in 2010 provides that prior to imposing a fine or penalty for failure to
maintain a vacant property in California that is subject to a notice of default or that has been
purchased at a foreclosure sale or acquired through foreclosure under a mortgage or deed of trust
that a governmental entity shall provide the owner of that property with a notice of violation and
an opportunity to correct the violation.
The enactment of AB329 in 2009, the Reverse Mortgage Elder Protection Act of 2009 prohibits a
lender or any other person who participates in the origination of the mortgage from participation
in, being associated with, or employing any party that participates in or is associated with any
other financial or insurance activity or referring a prospective borrower to anyone for the
purchase of other financial or insurance products; and imposes certain disclosure requirements on
the lender.
The enactment of AB1160 in 2009, requires a supervised financial institution in California that
negotiates primarily in any of a number of specified languages in the course of entering into a
contract or agreement for a loan or extension of credit secured by residential real property, to
deliver, prior to the execution of the contract or agreement, and no later than 3 business days
after receiving the written application, a specified form in that language summarizing the terms of
the contract or agreement; provides for administrative penalties for violations; and requires the
California Department of Corporations and the Department of Financial Institutions to create a form
for providing translations and make it available in Spanish, Chinese, Tagalog, Vietnamese and
Korean. The statute became operative on July 1, 2010, or 90 days after issuance of the form,
whichever occurred later.
The enactment of AB 1291 in 2009 makes changes to the California Unclaimed Property Law including
(among other things): allowing electronic notification to customers who have consented to
electronic notice; requiring that notices contain certain information and allow the holder to
provide electronic means to enable the owner to contact the holder in lieu of returning the
prescribed form to declare the owners intent; authorizing the holder to give additional notices;
and requiring, beginning January 1, 2011, a banking or financial organization to provide a written
notice regarding escheat at the time a new account or safe deposit box is opened.
The enactment of SB306 makes specified changes to clarify existing law related to filing a notice
of default on residential real property in California, including (among other things): clarifying
that the provisions apply to mortgages and deeds of trust recorded from January 1, 2003 through
December 31, 2007, secured by owner-occupied 3 4 residential real property containing no more than
4 dwelling units; revising the declaration to be filed with the notice of default; specifying how
the loan servicers have to maximize net present value under their pooling and servicing agreements
applies to certain investors; specifying how and when the notice to residents of property subject
to foreclosure is to be mailed; and extending the time during which the notice of sale must be
recorded from 14 to 20 days. The bill also makes certain changes related to short-pay agreements
and short-pay demand statements.
On February 20, 2009, Governor Schwarzenegger signed ABX2 7 and SBX2 7, which established the
California Foreclosure Prevention Act. The California Foreclosure Prevention Act modifies the
foreclosure process to provide additional time for borrowers to work out loan modifications while
providing an exemption for mortgage loan servicers that have implemented a comprehensive loan
modification program. Civil Code Section 2923.52 requires an additional 90 day period beyond the
period already provided before a Notice of Sale can be given in order to allow all parties to
pursue a loan modification to prevent foreclosure of loans meeting certain criteria identified in
that section.
20
A mortgage loan servicer who has implemented a comprehensive loan modification program may file an
application for exemption from the provisions of Civil Code Section 2923.52. Approval of this
application provides the mortgage loan servicer an exemption from the additional 90-day period
before filing the Notice of Sale when foreclosing on real property covered by the new law.
California Assembly Bill 1301 was signed by the Governor on July 16, 2008 and became law on January
1, 2009. Among other things, the bill eliminated unnecessary applications that consume time and
resources of bank licensees and which in many cases are now perfunctory. All of current Article 5
Locations of Head Office of Chapter 3, and all of Chapter 4 Branch Offices, Other Places
of Business and Automated Teller Machines were repealed. A new Chapter 4 Bank Offices was
added. The new Chapter 4 requires notice to the California Department of Financial Institutions
(DFI) the establishment of offices, rather than the current application process. Many of the
current branch applications are perfunctory in nature and/or provide for a waiver of application.
Banks, on an exception basis, may be subject to more stringent requirements as deemed necessary.
As an example, new banks, banks undergoing a change in ownership and banks in less than
satisfactory condition may be required to obtain prior approval from the DFI before establishing
offices if such activity is deemed to create an issue of safety and soundness. The bill eliminated
unnecessary provisions in the Banking Law that are either outdated or have become undue
restrictions to bank licensees. Chapter 6 Powers and Miscellaneous Provisions was repealed.
A new Chapter 6 Restrictions and Prohibited Practices was added. This chapter brings together
restrictions in bank activities as formerly found in Chapter 18 Prohibited Practices and
Penalties. However, in bringing the restrictions into the new chapter, various provisions were
updated to remove the need for prior approval by the DFI Commissioner. The bill renumbered current
Banking Law sections to align like sections. Chapter 4.5 Authorizations for Banks was added.
The purpose of the chapter is to provide exceptions to certain activities that would otherwise be
prohibited by other laws outside of the Financial Code. The bill added Article 1.5 Loan and
Investment Limitations to Chapter 10 Commercial Banks. This article is new in concept and
acknowledges that investment decisions are business decisions so long as there is a
diversification of the investments to spread any risk. The risk is diversified in this article by
placing a limitation on the loans and investments that can be made to any one entity. This section
is a trade-off for elimination of applications to the DFI for approval of investments in
securities, which were repealed.
Other changes AB 1301 made to the Banking Law:
|
|
|
Authorized a bank or trust acting in any capacity under a court or private trust to
arrange for the deposit of securities in a securities depository or federal reserve bank,
and provided how they may be held by the securities depository; |
|
|
|
Reduced from 5% to 1% the amount of eligible assets to be maintained at an approved
depository by an office of a foreign (other nation) bank for the protection of the
interests of creditors of the banks business in this state or for the protection of the
public interest; |
|
|
|
Enabled the DFI to issue an order against a bank licensee parent or subsidiary; |
|
|
|
Provided that the examinations may be conducted in alternate examination periods if the
DFI concludes that an examination of the state bank by the appropriate federal regulator
carries out the purpose of this section, but the DFI may not accept two consecutive
examination reports made by federal regulators; |
|
|
|
Provided that the DFI may examine subsidiaries of every California state bank, state
trust company, and foreign (other nation) bank to the extent and whenever and as often as
the DFI shall deem advisable; |
|
|
|
|
Enabled the DFI issue an order or a final order to now include any bank holding company
or subsidiary of the bank, trust company, or foreign banking corporation that is violating
or failing to comply with any applicable law, or is conducting activities in an unsafe or
injurious manner; |
|
|
|
Enabled the DFI to take action against a person who has engaged in or participated in
any unsafe or unsound act with regard to a bank, including a former employee who has left
the bank. |
21
Recent Accounting Pronouncements
See Note 3 Summary of Significant Accounting Policies Adoption of New Financial Accounting
Standards of the Companys Consolidated Financial Statements in Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10K for information related to recent accounting
pronouncements.
As a smaller reporting company we are not required to provide the information required by this
item.
|
|
|
ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
No comments have been submitted to the registrant by the staff of the Securities Exchange
Commission.
Of the Companys eleven depository branches, ten are owned and one is leased. The Company also
leases two lending offices, and owns four administrative facilities.
Owned Properties
|
|
|
|
|
35 South Lindan Avenue
Quincy, California (1)
|
|
32 Central Avenue
Quincy, California (1)
|
|
80 W. Main St.
Quincy, California (3) |
424 N. Mill Creek
Quincy, California (1)
|
|
336 West Main Street
Quincy, California
|
|
120 North Pine Street
Portola, California |
43163 Highway 299E
Fall River Mills, California
|
|
121 Crescent Street
Greenville, California
|
|
255 Main Street
Chester, California |
510 North Main Street
Alturas, California
|
|
3000 Riverside Drive
Susanville, California
|
|
8475 North Lake Boulevard
Kings Beach, California |
11638 Donner Pass Road
Truckee, California
|
|
2175 Civic Center Drive
Redding, California |
|
|
Leased Properties
|
|
|
|
|
243 North Lake Boulevard
|
|
1005 Terminal Way, Ste. 246
|
|
470 Nevada St., Suite 108 |
Tahoe City, California
|
|
Reno, Nevada (1)
|
|
Auburn, California (2) |
|
|
|
(1) |
|
Non-branch administrative or credit administrative offices. |
|
(2) |
|
Commercial lending office. |
|
(3) |
|
Leased to a third party. |
Total rental expenses under all leases, including premises, totaled $20,000, $317,000 and
$347,000, in 2010, 2009 and 2008 respectively. The decline in rental expense during 2010 resulted
from the purchase of our Redding branch building on March 31, 2010. Previously we had leased this
building. Under the terms of the lease agreement we were provided free rent for a period of time;
however, in accordance with accounting principals we recognized monthly rent expense equal to the
total payments required under the lease dividend by the term of the lease in months. At the time of
the purchase we reversed this accrual recognizing a $184 thousand reduction in rental expense. The
expiration dates of the leases vary, with the first such lease expiring during 2011 and the last
such lease expiring during 2015.
22
Future minimum lease payments in thousands of dollars are as follows:
|
|
|
|
|
Year Ending |
|
|
|
|
December 31, |
|
|
|
|
2011 |
|
$ |
133,000 |
|
2012 |
|
|
128,000 |
|
2013 |
|
|
60,000 |
|
2014 |
|
|
37,000 |
|
2015 |
|
|
9,000 |
|
|
|
|
|
|
|
$ |
367,000 |
|
|
|
|
|
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 Banks 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 Companys 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. |
|
(REMOVED AND RESERVED) |
23
PART II
|
|
|
ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCK-
HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
The Companys common stock is quoted on the NASDAQ Capital Market under the ticker symbol PLBC.
As of December 31, 2010, there were 4,776,339 shares of the Companys stock outstanding held by
approximately 1,700 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
Quarter |
|
Dividends |
|
|
High |
|
|
Low |
|
4th Quarter 2010 |
|
|
|
|
|
$ |
3.09 |
|
|
$ |
1.92 |
|
3rd Quarter 2010 |
|
|
|
|
|
$ |
3.22 |
|
|
$ |
2.53 |
|
2nd Quarter 2010 |
|
|
|
|
|
$ |
3.39 |
|
|
$ |
2.46 |
|
1st Quarter 2010 |
|
|
|
|
|
$ |
3.78 |
|
|
$ |
2.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4th Quarter 2009 |
|
|
|
|
|
$ |
4.80 |
|
|
$ |
2.88 |
|
3rd Quarter 2009 |
|
|
|
|
|
$ |
4.99 |
|
|
$ |
3.80 |
|
2nd Quarter 2009 |
|
|
|
|
|
$ |
5.96 |
|
|
$ |
3.80 |
|
1st Quarter 2009 |
|
|
|
|
|
$ |
7.81 |
|
|
$ |
3.80 |
|
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 Companys ability to pay dividends to its
shareholders depends primarily upon dividends it receives from the Bank.
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 Companys 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. No common cash dividends were paid in 2009
or 2010 and none are anticipated to be paid in 2011.
The Company is subject to various restrictions on the payment of dividends. See Note 2
Regulatory Matters and Note 12 Shareholders Equity Dividend Restrictions of the Companys
Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data of this
Annual Report on Form 10K.
On January 30, 2009, under the Capital Purchase Program, the Company entered into a Letter
Agreement (the Purchase Agreement) with the United States Department of the Treasury
(Treasury), pursuant to which the Company issued and sold (i) 11,949 shares of the Companys
Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the Preferred Shares) and (ii) a
ten-year warrant to purchase up to 237,712 shares of the Companys common stock, no par value at
an exercise price, subject to anti-dilution adjustments, of $7.54 per share, for an aggregate
purchase price of $11,949,000 in cash. The Series A Preferred Stock and the Warrant were issued in
a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended. As described in the following paragraph the Purchase Agreement contains
provisions that restrict the payment of dividends on Plumas Bancorp common stock and restrict the
Companys ability to repurchase Plumas Bancorp common stock.
24
Under the Purchase Agreement, prior to January 30, 2012, unless the Company has redeemed the
Preferred Shares, or the Treasury has transferred the Preferred Shares to a third party, the
consent of the Treasury will be required for the Company to: (1) declare or pay any dividend or
make any distribution on shares of the Common Stock (other than regular quarterly cash dividends of
not more than $0.04 per share or regular semi-annual cash dividends of not more than $0.08 per
share); or (2) redeem, purchase or acquire any shares of Common Stock or other equity or capital
securities, other than in connection with benefit plans consistent with past practice and certain
other circumstances specified in the Purchase Agreement.
Securities Authorized for Issuance under Equity Compensation Plans. The following table sets forth
securities authorized for issuance under equity compensation plans as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities remaining |
|
|
|
|
|
|
|
|
|
|
|
available for future issuance |
|
|
|
Number of securities to |
|
|
Weighted-average |
|
|
under equity compensation |
|
|
|
be issued upon exercise |
|
|
exercise price of |
|
|
plans (excluding securities |
|
|
|
of outstanding options |
|
|
outstanding options |
|
|
reflected in column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
security holders |
|
|
312,030 |
|
|
$ |
13.41 |
|
|
|
561,155 |
|
Equity compensation
plans not approved
by security holders |
|
|
None |
|
|
Not Applicable |
|
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
312,030 |
|
|
$ |
13.41 |
|
|
|
561,155 |
|
|
|
|
|
|
|
|
|
|
|
For additional information related to the above plans see Note 12 of the Companys
Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data of this
Annual Report on Form 10K.
Issuer Purchases of Equity Securities. There were no purchases of Plumas Bancorp common stock by
the Company during 2010.
25
|
|
|
ITEM 6. |
|
SELECTED FINANCIAL DATA |
The following table presents a summary of selected financial data and should be read in conjunction
with the Companys consolidated financial statements and notes thereto included under Item 8
Financial Statements and Supplementary Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the year ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(dollars in thousands except per share information) |
|
Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
20,680 |
|
|
$ |
22,836 |
|
|
$ |
25,440 |
|
|
$ |
30,284 |
|
|
$ |
29,483 |
|
Interest expense |
|
|
3,147 |
|
|
|
3,655 |
|
|
|
5,364 |
|
|
|
8,536 |
|
|
|
6,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
17,533 |
|
|
|
19,181 |
|
|
|
20,076 |
|
|
|
21,748 |
|
|
|
22,529 |
|
Provision for loan losses |
|
|
5,500 |
|
|
|
14,500 |
|
|
|
4,600 |
|
|
|
800 |
|
|
|
1,000 |
|
Noninterest income |
|
|
8,561 |
|
|
|
5,752 |
|
|
|
5,091 |
|
|
|
5,448 |
|
|
|
5,159 |
|
Noninterest expense |
|
|
19,234 |
|
|
|
26,354 |
|
|
|
20,475 |
|
|
|
19,671 |
|
|
|
18,290 |
|
Provision for (benefit from) income taxes |
|
|
389 |
|
|
|
(6,775 |
) |
|
|
(212 |
) |
|
|
2,502 |
|
|
|
3,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
971 |
|
|
$ |
(9,146 |
) |
|
$ |
304 |
|
|
$ |
4,223 |
|
|
$ |
5,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet (end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
484,480 |
|
|
$ |
528,117 |
|
|
$ |
457,175 |
|
|
$ |
453,115 |
|
|
$ |
473,239 |
|
Total loans |
|
$ |
314,200 |
|
|
$ |
332,678 |
|
|
$ |
366,017 |
|
|
$ |
352,949 |
|
|
$ |
354,712 |
|
Allowance for loan losses |
|
$ |
7,324 |
|
|
$ |
9,568 |
|
|
$ |
7,224 |
|
|
$ |
4,211 |
|
|
$ |
3,917 |
|
Total deposits |
|
$ |
424,887 |
|
|
$ |
433,255 |
|
|
$ |
371,493 |
|
|
$ |
391,940 |
|
|
$ |
402,176 |
|
Total shareholders equity |
|
$ |
37,988 |
|
|
$ |
38,231 |
|
|
$ |
35,437 |
|
|
$ |
37,139 |
|
|
$ |
35,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet (period average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
500,082 |
|
|
$ |
490,000 |
|
|
$ |
447,720 |
|
|
$ |
464,974 |
|
|
$ |
468,988 |
|
Total loans |
|
$ |
323,906 |
|
|
$ |
354,482 |
|
|
$ |
355,416 |
|
|
$ |
353,384 |
|
|
$ |
335,226 |
|
Total deposits |
|
$ |
430,777 |
|
|
$ |
403,896 |
|
|
$ |
382,279 |
|
|
$ |
403,772 |
|
|
$ |
415,700 |
|
Total shareholders equity |
|
$ |
38,941 |
|
|
$ |
43,839 |
|
|
$ |
37,343 |
|
|
$ |
37,041 |
|
|
$ |
33,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage ratio |
|
|
8.9 |
% |
|
|
7.9 |
% |
|
|
9.8 |
% |
|
|
10.0 |
% |
|
|
9.5 |
% |
Tier 1 risk-based capital |
|
|
12.7 |
% |
|
|
10.4 |
% |
|
|
11.0 |
% |
|
|
11.6 |
% |
|
|
10.9 |
% |
Total risk-based capital |
|
|
13.9 |
% |
|
|
11.6 |
% |
|
|
12.2 |
% |
|
|
12.7 |
% |
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset quality ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans/total loans |
|
|
8.07 |
% |
|
|
4.30 |
% |
|
|
7.31 |
% |
|
|
0.75 |
% |
|
|
0.29 |
% |
Nonperforming assets/total assets |
|
|
7.07 |
% |
|
|
4.84 |
% |
|
|
6.78 |
% |
|
|
0.70 |
% |
|
|
0.22 |
% |
Allowance for loan losses/total loans |
|
|
2.33 |
% |
|
|
2.88 |
% |
|
|
1.97 |
% |
|
|
1.19 |
% |
|
|
1.10 |
% |
Net loan charge-offs |
|
$ |
7,744 |
|
|
$ |
12,156 |
|
|
$ |
1,587 |
|
|
$ |
506 |
|
|
$ |
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return (loss) on average assets |
|
|
0.19 |
% |
|
|
(1.87 |
)% |
|
|
0.07 |
% |
|
|
0.91 |
% |
|
|
1.11 |
% |
Return (loss) on average common equity |
|
|
1.1 |
% |
|
|
(29.5 |
)% |
|
|
0.8 |
% |
|
|
11.4 |
% |
|
|
15.4 |
% |
Return (loss) on average equity |
|
|
2.5 |
% |
|
|
(20.9 |
)% |
|
|
0.8 |
% |
|
|
11.4 |
% |
|
|
15.4 |
% |
Net interest margin |
|
|
4.24 |
% |
|
|
4.52 |
% |
|
|
4.99 |
% |
|
|
5.18 |
% |
|
|
5.32 |
% |
Loans to deposits |
|
|
73.9 |
% |
|
|
76.8 |
% |
|
|
98.5 |
% |
|
|
90.1 |
% |
|
|
88.2 |
% |
Efficiency ratio |
|
|
73.7 |
% |
|
|
105.7 |
% |
|
|
81.4 |
% |
|
|
72.3 |
% |
|
|
66.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) |
|
$ |
0.06 |
|
|
$ |
(2.05 |
) |
|
$ |
0.06 |
|
|
$ |
0.85 |
|
|
$ |
1.04 |
|
Diluted earnings (loss) |
|
$ |
0.06 |
|
|
$ |
(2.05 |
) |
|
$ |
0.06 |
|
|
$ |
0.84 |
|
|
$ |
1.02 |
|
Common cash dividends |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.24 |
|
|
$ |
0.30 |
|
|
$ |
0.26 |
|
Dividend payout ratio |
|
|
|
% |
|
|
|
% |
|
|
400 |
% |
|
|
35.3 |
% |
|
|
25.0 |
% |
Book value per common share |
|
$ |
5.51 |
|
|
$ |
5.58 |
|
|
$ |
7.42 |
|
|
$ |
7.63 |
|
|
$ |
7.14 |
|
Common shares outstanding at period end |
|
|
4,776,339 |
|
|
|
4,776,339 |
|
|
|
4,775,339 |
|
|
|
4,869,130 |
|
|
|
5,023,205 |
|
26
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
General
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 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 Banks
financial condition, results of operations and cash flows.
Critical Accounting Policies
Our accounting policies are integral to understanding the financial results reported. Our
most complex accounting policies require managements judgment to ascertain the valuation of
assets, liabilities, commitments and contingencies. We have established detailed policies and
internal control procedures that are intended to ensure valuation methods are applied in an
environment that is designed and operating effectively 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 is an estimate of credit
losses inherent in the Companys loan portfolio that have been incurred as of the balance-sheet
date. 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. Credit exposures determined to be uncollectible are charged
against the allowance. Cash received on previously charged off amounts is recorded as a recovery
to the allowance. The overall allowance consists of two primary components, specific reserves
related to impaired loans and general reserves for inherent losses related to loans that are not
impaired.
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 managements 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 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.
Other Real Estate Owned. Other real estate owned (OREO) represents properties acquired
through foreclosure or physical possession. Write-downs to fair value at the time of transfer to
OREO is charged to allowance for loan losses. Subsequent to foreclosure, we periodically evaluate
the value of OREO held for sale and record a valuation allowance for any subsequent declines in
fair value less selling costs. Subsequent declines in value are charged to operations. Fair value
is based on our assessment of information available to us at the end of a reporting period and
depends upon a number of factors, including our historical experience, economic conditions, and
issues specific to individual properties. Our evaluation of these factors involves subjective
estimates and judgments that may change.
27
Income Taxes. The Company files its income taxes on a consolidated basis with its subsidiary.
The allocation of income tax expense (benefit) represents each entitys proportionate share of the
consolidated provision for 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. A valuation allowance is
recognized if, based on the weight of available evidence, management believes it is more likely
than not that some portion or all of the deferred tax assets will not be realized. 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.
When tax returns are filed, it is highly certain that some positions taken would be sustained
upon examination by the taxing authorities, while others are subject to uncertainty about the
merits of the position taken or the amount of the position that would be ultimately sustained. The
benefit of a tax position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not that the position
will be sustained upon examination, including the resolution of appeals or litigation processes, if
any. Tax positions taken are not offset or aggregated with other positions. Tax positions that
meet the more-likely-than-not recognition threshold are measured as the largest amount of tax
benefit that is more than 50 percent likely of being realized upon settlement with the applicable
taxing authority. The portion of the benefits associated with tax positions taken that exceeds the
amount measured as described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated interest and penalties that would be payable
to the taxing authorities upon examination.
Stock-Based Compensation. Compensation cost is recognized for all stock based awards
that vest subsequent to January 1, 2006 based on the grant-date fair value of the awards. We
believe this is a critical accounting estimate since the grant-date fair value is estimated using
the Black-Scholes-Merton 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 to amortize over the vesting period, management makes estimates about the
expected forfeiture rate of options.
The following discussion is designed to provide a better understanding of significant trends
related to the Companys financial condition, results of operations, liquidity and capital. It
pertains to the Companys financial condition, changes in financial condition and results of
operations as of December 31, 2010 and 2009 and for each of the three years in the period ended
December 31, 2010. The discussion should be read in conjunction with the Companys audited
consolidated financial statements and notes thereto and the other financial information appearing
elsewhere herein.
Overview
Our Company continues to be affected by an economic downturn unprecedented in recent memory.
However, the effect of this downturn on operations lessened in 2010. The Company recorded net
income of $971 thousand for the year ended December 31, 2010, an increase of $10.1 million from a
net loss of $9.1 million for the year ended December 31, 2009 and up $667 thousand from net income
of $304 thousand for the year ended December 31, 2008. Our provision for loan losses was still
significantly elevated from historical norms at $5.5 million, but was down $9 million from 2009
levels. Additionally our provision for losses on OREO declined by $4.4 million from $4.8 million
in 2009 to $356 thousand during 2010. We also benefited from a $2.8 million increase in
non-interest income primarily related to a $1.4 million gain on the sale of our merchant processing
portfolio and $1.2 million in gains on sale of investments. Non-interest expense, exclusive of
the provision for OREO losses, declined by $2.7 million with reductions of $1.3 million in salary
and benefits, $663 thousand in occupancy and equipment expense and $691 thousand in all other
non-interest expense. Partially offsetting these items was a decline in net interest income of $1.6
million. The result was pretax income of $1.4 million for the year ended December 31, 2010. This
compares to a pretax loss of $15.9 million in 2009 and pretax income of $92 thousand in 2008. We
recorded a provision for income taxes of $389 thousand compared to tax benefits of $6.8 million in
2009 and $212 thousand in 2008.
28
Net income (loss) allocable to common shareholders increased from a net loss of $9.8 million
during the year ended December 31, 2009 to net income of $287 thousand during 2010. Income (loss)
allocable to common shareholders is calculated by subtracting dividends accrued and discount
amortized on preferred stock from net income (loss).
Total assets at December 31, 2010 decreased $43.6 million, or 8.3% to $484 million. Decreases
include $24.9 million in investment securities, $16.3 million in net loans, $2.4 million in real
estate and vehicles acquired through foreclosure. Net loans totaled $307.1 million at December 31,
2010, down 5% from $323.4 million at December 31, 2009. At December 31, 2010 investment securities
totaled $63.0 million compared to $87.9 million at December 31, 2009. Investment securities are
mostly composed of debt securities issued by agencies of the U.S. Government.
Decreases of $6.1 million in interest-bearing demand (NOW) accounts, $5.0 million in time deposits,
$1.9 million in money market accounts and $0.2 million in non-interest bearing demand accounts
were, somewhat offset by an increase of $4.8 million in savings accounts, for a total decrease of
$8.4 million, or 1.9%, to $424.9 million at December 31, 2010 from $433.3 million at December 31,
2009. During 2009 the Company had been successful in increasing its interest-bearing demand
accounts as a result of a new interest bearing transaction account designed for local public
agencies, which was successfully marketed to several of the municipalities in our service area.
While this account was very successful in generating deposits, we determined that we needed to
reduce the rate paid to increase the profitability of the product. The decline in NOW accounts
relates to an $8 million decline in balances from this product from $37.8 million at December 31,
2009 to $29.8 million at December 31, 2010. Beginning in June of 2009 and ending in April of 2010
we offered a promotional time deposit with an 18-month term and a 2% rate. The decline in time
deposits is mostly related to maturities from this product. Time deposits are expected to continue
to decline in 2011 as these promotional deposits mature, although we do expect a significant
portion of these deposits to remain with the Bank reinvested in other deposit products. At December
31, 2010 we had $53 million in these promotional time deposits.
Total borrowings at December 31, 2009 were $40 million, while no borrowings were outstanding at
December 31, 2010. Borrowings at December 31, 2009 consisted of $10 million in a two-year term
FHLB advance, $10 million in a three-year term FHLB advance and $20 million in a six-month FHLB
advance which matured on January 19, 2010. We chose to prepay both of the long-term borrowings
during July 2010 incurring a prepayment penalty as we had significant excess liquidity and no
longer projected a need for these borrowings.
Shareholders equity as of December 31, 2010 decreased by $243 thousand to $38.0 million down from
$38.2 million as of December 31, 2009. This decrease was related to a decrease of $674 thousand in
accumulated other comprehensive income/loss from income of $622 thousand at December 31, 2009 to
accumulated other comprehensive loss of $52 thousand at December 31, 2010.
The return (loss) on average assets was 0.19% for 2010, up from (1.87) % for 2009. The return
(loss) on average common equity was 1.1% for 2010, up from (29.5) % for 2009.
29
Results of Operations
Net Interest Income
The following table presents, for the years indicated, the distribution of consolidated average
assets, liabilities and shareholders equity. Average balances are based on average daily balances.
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, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Interest |
|
|
Rates |
|
|
|
|
|
|
Interest |
|
|
Rates |
|
|
|
|
|
|
Interest |
|
|
Rates |
|
|
|
Average |
|
|
income/ |
|
|
earned |
|
|
Average |
|
|
income/ |
|
|
earned |
|
|
Average |
|
|
income/ |
|
|
earned |
|
|
|
balance |
|
|
expense |
|
|
/ paid |
|
|
balance |
|
|
expense |
|
|
/ paid |
|
|
balance |
|
|
expense |
|
|
/ paid |
|
|
|
(dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
$ |
19,808 |
|
|
$ |
48 |
|
|
|
0.24 |
% |
|
$ |
6,298 |
|
|
$ |
15 |
|
|
|
0.24 |
% |
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
118 |
|
|
|
3 |
|
|
|
2.54 |
|
Investment securities(1) |
|
|
69,357 |
|
|
|
1,772 |
|
|
|
2.55 |
|
|
|
64,047 |
|
|
|
2,163 |
|
|
|
3.38 |
|
|
|
46,658 |
|
|
|
1,887 |
|
|
|
4.04 |
|
Total loans (2)(3) |
|
|
323,906 |
|
|
|
18,860 |
|
|
|
5.82 |
|
|
|
354,482 |
|
|
|
20,658 |
|
|
|
5.83 |
|
|
|
355,416 |
|
|
|
23,550 |
|
|
|
6.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
413,071 |
|
|
|
20,680 |
|
|
|
5.01 |
% |
|
|
424,839 |
|
|
|
22,836 |
|
|
|
5.38 |
% |
|
|
402,192 |
|
|
|
25,440 |
|
|
|
6.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
38,945 |
|
|
|
|
|
|
|
|
|
|
|
27,372 |
|
|
|
|
|
|
|
|
|
|
|
12,174 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
48,066 |
|
|
|
|
|
|
|
|
|
|
|
37,789 |
|
|
|
|
|
|
|
|
|
|
|
33,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
500,082 |
|
|
|
|
|
|
|
|
|
|
$ |
490,000 |
|
|
|
|
|
|
|
|
|
|
$ |
447,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
$ |
101,519 |
|
|
|
382 |
|
|
|
0.38 |
% |
|
$ |
98,394 |
|
|
|
671 |
|
|
|
0.68 |
% |
|
$ |
73,338 |
|
|
|
548 |
|
|
|
0.75 |
% |
Money market deposits |
|
|
42,514 |
|
|
|
221 |
|
|
|
0.52 |
|
|
|
41,844 |
|
|
|
346 |
|
|
|
0.83 |
|
|
|
37,626 |
|
|
|
312 |
|
|
|
0.83 |
|
Savings deposits |
|
|
51,011 |
|
|
|
86 |
|
|
|
0.17 |
|
|
|
50,286 |
|
|
|
90 |
|
|
|
0.18 |
|
|
|
48,573 |
|
|
|
161 |
|
|
|
0.33 |
|
Time deposits |
|
|
124,810 |
|
|
|
2,007 |
|
|
|
1.61 |
|
|
|
105,313 |
|
|
|
2,062 |
|
|
|
1.96 |
|
|
|
110,743 |
|
|
|
3,501 |
|
|
|
3.16 |
|
Short-term borrowings |
|
|
986 |
|
|
|
5 |
|
|
|
0.51 |
|
|
|
24,292 |
|
|
|
80 |
|
|
|
0.33 |
|
|
|
11,857 |
|
|
|
202 |
|
|
|
1.70 |
|
Long-term borrowings |
|
|
9,973 |
|
|
|
130 |
|
|
|
1.30 |
|
|
|
1,589 |
|
|
|
27 |
|
|
|
1.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures |
|
|
10,310 |
|
|
|
312 |
|
|
|
3.03 |
|
|
|
10,310 |
|
|
|
371 |
|
|
|
3.60 |
|
|
|
10,310 |
|
|
|
623 |
|
|
|
6.04 |
|
Other |
|
|
123 |
|
|
|
4 |
|
|
|
3.25 |
|
|
|
212 |
|
|
|
8 |
|
|
|
3.77 |
|
|
|
309 |
|
|
|
17 |
|
|
|
5.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
341,246 |
|
|
|
3,147 |
|
|
|
0.92 |
% |
|
|
332,240 |
|
|
|
3,655 |
|
|
|
1.10 |
% |
|
|
292,756 |
|
|
|
5,364 |
|
|
|
1.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand deposits |
|
|
110,923 |
|
|
|
|
|
|
|
|
|
|
|
108,059 |
|
|
|
|
|
|
|
|
|
|
|
111,999 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
8,972 |
|
|
|
|
|
|
|
|
|
|
|
5,862 |
|
|
|
|
|
|
|
|
|
|
|
5,622 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
38,941 |
|
|
|
|
|
|
|
|
|
|
|
43,839 |
|
|
|
|
|
|
|
|
|
|
|
37,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
500,082 |
|
|
|
|
|
|
|
|
|
|
$ |
490,000 |
|
|
|
|
|
|
|
|
|
|
$ |
447,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
17,533 |
|
|
|
|
|
|
|
|
|
|
$ |
19,181 |
|
|
|
|
|
|
|
|
|
|
$ |
20,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread (4) |
|
|
|
|
|
|
|
|
|
|
4.09 |
% |
|
|
|
|
|
|
|
|
|
|
4.28 |
% |
|
|
|
|
|
|
|
|
|
|
4.50 |
% |
Net interest margin (5) |
|
|
|
|
|
|
|
|
|
|
4.24 |
% |
|
|
|
|
|
|
|
|
|
|
4.52 |
% |
|
|
|
|
|
|
|
|
|
|
4.99 |
% |
|
|
|
(1) |
|
Interest income is reflected on an actual basis and is not computed on a tax-equivalent
basis. |
|
(2) |
|
Average nonaccrual loan balances of $18.8 million for 2010, $25.1 million for 2009 and $5.2
million for 2008 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 $20,000, $214,000 and $288,000 for 2010, 2009 and 2008, respectively. |
|
(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. |
30
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 compared to 2009 |
|
|
2009 compared to 2008 |
|
|
|
Increase (decrease) due to change in: |
|
|
Increase (decrease) due to change in: |
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
Volume(1) |
|
|
Rate(2) |
|
|
Mix(3) |
|
|
Total |
|
|
Volume(1) |
|
|
Rate(2) |
|
|
Mix(3) |
|
|
Total |
|
|
|
(dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
$ |
32 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15 |
|
|
$ |
15 |
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
|
3 |
|
|
|
(3 |
) |
Investment securities |
|
|
179 |
|
|
|
(527 |
) |
|
|
(43 |
) |
|
|
(391 |
) |
|
|
703 |
|
|
|
(311 |
) |
|
|
(116 |
) |
|
|
276 |
|
Loans |
|
|
(1,782 |
) |
|
|
(18 |
) |
|
|
2 |
|
|
|
(1,798 |
) |
|
|
(62 |
) |
|
|
(2,838 |
) |
|
|
8 |
|
|
|
(2,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(1,571 |
) |
|
|
(545 |
) |
|
|
(40 |
) |
|
|
(2,156 |
) |
|
|
638 |
|
|
|
(3,152 |
) |
|
|
(90 |
) |
|
|
(2,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits |
|
|
21 |
|
|
|
(301 |
) |
|
|
(9 |
) |
|
|
(289 |
) |
|
|
187 |
|
|
|
(48 |
) |
|
|
(16 |
) |
|
|
123 |
|
Money market deposits |
|
|
5 |
|
|
|
(128 |
) |
|
|
(2 |
) |
|
|
(125 |
) |
|
|
35 |
|
|
|
|
|
|
|
(1 |
) |
|
|
34 |
|
Savings deposits |
|
|
1 |
|
|
|
(5 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
6 |
|
|
|
(74 |
) |
|
|
(3 |
) |
|
|
(71 |
) |
Time deposits |
|
|
382 |
|
|
|
(369 |
) |
|
|
(68 |
) |
|
|
(55 |
) |
|
|
(172 |
) |
|
|
(1,333 |
) |
|
|
66 |
|
|
|
(1,439 |
) |
Short-term borrowings |
|
|
(77 |
) |
|
|
43 |
|
|
|
(41 |
) |
|
|
(75 |
) |
|
|
212 |
|
|
|
(163 |
) |
|
|
(171 |
) |
|
|
(122 |
) |
Long-term borrowings |
|
|
142 |
|
|
|
(6 |
) |
|
|
(33 |
) |
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
27 |
|
Junior subordinated debentures |
|
|
|
|
|
|
(59 |
) |
|
|
|
|
|
|
(59 |
) |
|
|
|
|
|
|
(252 |
) |
|
|
|
|
|
|
(252 |
) |
Other borrowings |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
1 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
471 |
|
|
|
(826 |
) |
|
|
(153 |
) |
|
|
(508 |
) |
|
|
263 |
|
|
|
(1,875 |
) |
|
|
(97 |
) |
|
|
(1,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
(2,042 |
) |
|
$ |
281 |
|
|
$ |
113 |
|
|
$ |
(1,648 |
) |
|
$ |
375 |
|
|
$ |
(1,277 |
) |
|
$ |
7 |
|
|
$ |
(895 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The volume change in net interest income represents the change in average balance
multiplied by the previous years rate. |
|
(2) |
|
The rate change in net interest income represents the change in rate multiplied by the previous
years average balance. |
|
(3) |
|
The mix change in net interest income represents the change in average balance multiplied by
the change in rate. |
2010 compared to 2009. Net interest income is the difference between interest income and
interest expense. Net interest income, on a nontax-equivalent basis, was $17.5 million for the year
ended December 31, 2010, a decline of $1.6 million, or 8.6%, from $19.2 million for 2009.
The overall change in net interest income was primarily a result of a decrease of $1.8 million in
loan interest income, due to a decline in average loans outstanding. Additionally, interest on
investments securities declined by $391 thousand, related to a decrease in yield. Partially
offsetting these decreases in interest income was a decline in rates paid on the companys deposits
and borrowings.
Interest income decreased $2.2 million, or 9.4%, to $20.7 million for the year ended December 31,
2010. Interest and fees on loans decreased by $1.8 million from $20.7 million for the year ended
December 31, 2009 to $18.9 million for 2010. The average loan balances were $323.9 million for
2010, down $30.6 million from the $354.5 million for 2009. The decline in loan balances is
consistent with the decrease in economic activity in the Companys service area and the Companys
successful effort to reduce its exposure to real estate construction and land development loans.
The average yields on loans were 5.82% for 2010 down slightly from the 5.83% for 2009.
Interest on investment securities decreased by $391 thousand, as a decrease in yield of 83 basis
points was partially offset by an increase in average investment securities of $5.3 million. The
decline in yield is primarily related to the replacement of matured and sold investment securities
with new investments with market yields below those which they replaced.
Deposit rates in the Banks service area continued to decline in 2010 resulting in a decline in
interest expense on deposits of $473 thousand for the year ended December 31, 2010, from $3.2
million for 2009 to $2.7 million for the year ended December 31, 2010. All deposit products
experienced rate declines in 2010.
31
Interest expense on NOW accounts decreased by $289 thousand related to a decrease in the average
rate paid on these accounts. Rates paid on NOW accounts declined by 30 basis points from 0.68%
during 2009 to 0.38% during 2010 as we significantly lowered the rate paid on local public agencies
NOW accounts. Although we lost some deposits by lowering this rate; we currently are more focused
on the profitability of the public sweep accounts rather than the amount of deposits we can
generate from this source.
Interest expense on money market accounts decreased by $125 thousand related to a decrease in rate
paid on these accounts of 31 basis points from 0.83% during the year ended December 31, 2009 to
0.52% during the current year. This was primarily related to a significantly drop in the rates
paid on our money market sweep product.
Interest on time deposits declined by $55 thousand as an increase in average balance was offset by
a decline in rate paid. For the year ended December 31, 2010 compared to 2009, the Companys
average time deposits increased by $19.5 million from $105.3 million for 2009 to $124.8 million for
the year ended December 31, 2010. The increase in time deposits is related to a promotional time
deposit product we began offering in June, 2009 and continued to offer until April 30, 2010. The
average rate paid on time deposits decreased from 1.96% during 2009 to 1.61% during the current
year. This decrease primarily relates to a decline in market rates in the Companys service area.
Interest on borrowings increased by $28 thousand related to an increase in the rate paid on
borrowings as we chose to extend the term of our borrowings; however, this was partially offset by
a $59 thousand decline in interest paid on junior subordinated debentures.
Interest expense on long-term borrowings increased by $103 thousand to $130 thousand for year ended
December 31, 2010. We chose to prepay these borrowings during July 2010 as we had significant
excess liquidity and no longer projected a need for these long-term borrowings. We incurred a $226
thousand prepayment penalty on these advances which we anticipate will be more than offset by
future savings in interest expense. Interest on short-term borrowings decreased by $75 thousand to
$5 thousand related to a decline in average balance of $23.3 million from $24.3 million during 2009
to $986 thousand during the current period.
Interest expense paid on junior subordinated debentures, which fluctuates with changes in the
3-month London Interbank Offered Rate (LIBOR) rate, decreased by $59 thousand during 2010 as a
result of a decrease in the LIBOR rate.
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 2010 decreased 28
basis points to 4.24%, from 4.52% for 2009.
2009 compared to 2008. Net interest income, on a nontax-equivalent basis, was $19.2 million for
the year ended December 31, 2009, a decline of $895 thousand, or 4.5%, from $20.1 million for 2008.
The decline in interest income and expense includes the affect of a decline in market interest
rates during the comparison periods as illustrated by the decline in the average prime interest
rate from 5.09% during 2008 to 3.25% for 2009. Additionally, interest earned on the Companys loan
portfolio declined related to an increase in average nonaccrual loans from $5.2 million during the
2008 period to $25.1 million during the year ended December 31, 2009.
Overall changes in net interest income are primarily a result of a decrease in loan interest
income, largely due to the decline in yields earned, partially offset by an increase in interest on
investments securities, related to an increase in average investment securities outstanding and
decreases in interest expense on deposits, short-term borrowings and junior subordinated debentures
primarily due to the decline in the average rates paid.
Interest income decreased $2.6 million, or 10.2%, to $22.8 million for the year ended December 31,
2009. Interest and fees on loans decreased by $2.9 million from $23.6 million for the year ended
December 31, 2008 to $20.7 million for 2009. The average loan balances were $354.5 million for
2009, down $0.9 million from the $355.4 million for 2008. The average yields on loans were 5.83%
for 2009 down from the 6.63% for 2008. In addition to the decline in yield related to a decline in
market interest rates, loan yields for 2009 reflect the impact from an increase in the balance of
average nonaccrual loans.
32
Interest on investment securities increased by $276 thousand, as a decrease in yield of 66 basis
points was offset by an increase in average investment securities of $17.4 million. The decrease in
rate for 2009 relates
to the purchase of securities during the twelve months ended December 31, 2009 and the maturity of
higher rate securities.
As a result of the declining rate environment, interest expense decreased $1.7 million to $3.7
million for the year ended December 31, 2009, from $5.4 million for 2008. The decrease in interest
expense was primarily attributed to rate decreases on time deposits and, to a lesser extent, rate
decreases on interest-bearing transaction accounts, savings and money market deposits, short-term
borrowings and junior subordinated debentures. The decrease in expense related to declining rates
was slightly offset by increases in the average balances of interest bearing demand deposits and
short-term borrowings.
For the year ended December 31, 2009 compared to 2008, the Companys average rate paid on time
deposits decreased 120 basis points to 1.96% from 3.16%. This decrease primarily relates to a
decline in market rates in the Companys service area. During the same period the average balances
of time deposits declined by $5.4 million to $105.3 million. Interest expense on time deposits
declined by $1.4 million from $3.5 million during 2008 to $2.1 million during the twelve months
ended December 31, 2009.
Interest expense on interest-bearing demand accounts increased by $123 thousand related to an
increase in the average balance of these deposits from $73.3 million during 2008 to $98.4 million
during 2009 partially offset by a decrease in the average rate paid on these accounts from 0.75%
during 2008 to 0.68% during the twelve months ended December 31, 2009. The increase in
interest-bearing demand accounts primary relates to a new interest bearing transaction account
designed for local public agencies, which we have successfully marketed to several of the
municipalities in our service area. Interest expense on money market accounts increased by $34
thousand related to an increase in the average balance. The rate paid on these accounts was 0.83%
during both periods as a decline in market interest rates was offset by the introduction of a new
corporate sweep product which offers a tiered rate structure that rewards customers with a higher
rate for maintaining larger balances. Interest on savings deposits declined by $71 thousand
related to a decline in rate paid from 0.33% during 2008 to 0.18% during 2009.
Interest on short-term borrowings decreased by $122 thousand as a decline in the rate paid on these
borrowings of 137 basis points was partially offset by an increase of $12.4 million in average
balance. Interest expense paid on junior subordinated debentures, which fluctuates with changes in
the 3-month London Interbank Offered Rate (LIBOR) rate, decreased by $252 thousand during 2009 as a
result of a decrease in the LIBOR rate.
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 2009 decreased 47
basis points to 4.52%, from 4.99% for 2008.
Provision for Loan Losses
The allowance for loan losses is maintained at a level that management believes will be appropriate
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 borrowers ability to repay
their loan. The allowance for loan losses is based on estimates, and ultimate losses may vary from
the current estimates. These estimates are reviewed periodically and, as adjustments become
necessary, they are reported in earnings in the periods in which they become known.
33
During the year ended December 31, 2010 we recorded a provision for loan losses of $5.5 million
down $9.0 million from the $14.5 million provision recorded during the year ended December 31,
2009. Net charge-offs totaled $7.7 million during the year ended December 31, 2010 and $12.2
million during 2009. Net charge-offs as a percentage of average loans decreased from 3.43% during
2009 to 2.39% during the year ended December 31, 2010. While we incurred significant charge-offs
during the 2010 period, $3.1 million of the charge-offs had been incorporated in the allowance for loan losses at December 31,
2009 as specific reserves on impaired loans. The allowance for loan losses totaled $7.3 million at
December 31, 2010 and $9.6 million at December 31, 2009. The decrease in the allowance for loan
losses from December 31, 2009 is attributable to a $2.4 million decrease in specific reserves
related to impaired loans from $4.3 million at December 31, 2009 to $1.9 million at December 31,
2010 and a decrease of $30.6 million in average loan balances. General reserves increased by $133
thousand to $5.4 million at December 31, 2010. Related to the decrease in specific reserves on
impaired loans, the allowance for loan losses as a percentage of total loans decreased from 2.88%
at December 31, 2009 to 2.33% at December 31, 2010. The percentage of general reserves to
unimpaired loans increased from 1.69% at December 31, 2009 to 1.90% at December 31, 2010.
Based on information currently available, management believes that the allowance for loan losses is
appropriate 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.
See the section Analysis of Asset Quality and Allowance for Loan Losses for further discussion of
loan quality trends and the provision for loan losses.
Non-Interest Income
The following table sets forth the components of non-interest income for the years ended December
31, 2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
Change during Year |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
|
(dollars in thousands) |
|
Service charges on deposit accounts |
|
$ |
3,642 |
|
|
$ |
3,796 |
|
|
$ |
3,951 |
|
|
$ |
(154 |
) |
|
$ |
(155 |
) |
Sale of merchant processing
Portfolio |
|
|
1,435 |
|
|
|
|
|
|
|
|
|
|
|
1,435 |
|
|
|
|
|
Gain on sale of investments |
|
|
1,160 |
|
|
|
10 |
|
|
|
|
|
|
|
1,150 |
|
|
|
10 |
|
Gain on sale of loans, net |
|
|
1,055 |
|
|
|
593 |
|
|
|
111 |
|
|
|
462 |
|
|
|
482 |
|
Earnings on bank owned life
insurance policies |
|
|
444 |
|
|
|
434 |
|
|
|
421 |
|
|
|
10 |
|
|
|
13 |
|
Loan servicing fees |
|
|
195 |
|
|
|
139 |
|
|
|
96 |
|
|
|
56 |
|
|
|
43 |
|
Merchant processing |
|
|
141 |
|
|
|
282 |
|
|
|
286 |
|
|
|
(141 |
) |
|
|
(4 |
) |
Customer service fees |
|
|
135 |
|
|
|
121 |
|
|
|
114 |
|
|
|
14 |
|
|
|
7 |
|
Safe deposit box and night
depository income |
|
|
66 |
|
|
|
68 |
|
|
|
67 |
|
|
|
(2 |
) |
|
|
1 |
|
Impairment loss on investment
security |
|
|
|
|
|
|
|
|
|
|
(415 |
) |
|
|
|
|
|
|
415 |
|
Other income |
|
|
288 |
|
|
|
309 |
|
|
|
460 |
|
|
|
(21 |
) |
|
|
(151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
$ |
8,561 |
|
|
$ |
5,752 |
|
|
$ |
5,091 |
|
|
$ |
2,809 |
|
|
$ |
661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
2010 compared to 2009. During the year ended December 31, 2010 non-interest income increased by
$2.8 million to $8.6 million, from $5.8 million during 2009. This increase was primarily related to
three items, the largest of which was a $1.4 million gain on the sale of our merchant processing
portfolio. During June 2010 we entered into an alliance with a world-wide merchant processing
leader. In conjunction with this alliance we sold our merchant processing business, recording a
one-time gain of $1.4 million. The Company believes that this alliance provides our customers with
a superior merchant processing solution. Additionally we sold securities having a book value of
$39.7 million, recording a gain on sale of $1.2 million. We chose to sell substantially our entire
municipal securities portfolio as part of our overall asset/liability management strategy and
related to the favorable market price for these securities. In addition, we sold $28.9 million in
U.S. government agency securities to lock in significant gains that were available on these
securities. Finally, we recorded a gain on sale of government guaranteed loans of $1.1 million
representing the sale of $13.6 million in loans. Additional SBA government guaranteed loans
totaling $4.3 million were sold during the fourth quarter; however, the gain on sale generated will
not be recorded until the 90-day premium recourse period on SBA loan sales has expired. During the
first quarter of 2011, assuming no premiums are refunded, related to these loan sales the Company
will recognize a gain on sale of approximately $338 thousand; however, it will also incur
commission expense of approximately $106 thousand.
Loan service fees increased by $56 thousand to $195 thousand for the year ended December 31, 2010.
Loan service fees are primarily related to fees earned for servicing the sold portion of SBA loans
and the increase in this category is consistent with the increase in sold SBA loans.
Service charges on deposit accounts declined by $154 thousand primarily related to a decline in
overdraft fees as new regulations placed additional restrictions on the Bank in charging overdraft
fees on ATM and Point of Sale transactions. Merchant processing fees declined by $141 thousand
related to the sale of our merchant processing portfolio in June.
2009 compared to 2008. During 2009, total non-interest income increased by $661 thousand or 13%,
to $5.8 million, up from $5.1 million from the comparable period in 2008. This increase was
primarily related to two items: (i) during the 2008 period non-interest income was adversely
affected by an other than temporary impairment write down of $415 thousand on a security issued by
Lehman Brothers Holdings Inc., which filed for Chapter 11 bankruptcy on September 15, 2008 and;
(ii) during 2009 we increased our gain on sale of SBA government guaranteed loans by $482 thousand.
In addition, other income increased by $80 thousand and loan servicing fees increased by $43
thousand.
Gains on loan sales are related to the sale of the guaranteed portion of SBA loans. The increase in
loan sale gains include an increase in loans sold from $4.3 million during the year ended December
31, 2008 to $10.8 million during 2009, increases in the market price of SBA guaranteed loans and an
increase, during 2009, in the percentage of each loan that is guaranteed by the SBA.
Partially offsetting these increases in income were declines of $155 thousand in service charges
and $151 thousand in other income including declines in investment services income, official check
fees and FHLB dividends. The decrease in service charge income is related to a decline in
NSF/overdraft income. Investment services income decreased by $44 thousand; however, the Company
offset this decrease by a decrease in staffing dedicated to this department. The Company attributes
these decreases primarily to the economic conditions present during 2009. Official checks fees
declined by $76 thousand. Official checks fees represent fees paid by a third party processor for
the processing of our cashier and expense checks. These fees are indexed to the federal funds rate
and the decrease in income from this item is primarily related to the decline in the federal funds
rate during 2009. Additionally, during 2008 the processor changed the fee structure further
reducing fees that we earn under this relationship. The FHLB paid only one dividend totaling $4
thousand during 2009 compared to four quarterly dividends totaling $105 thousand during 2008.
35
Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended
December 31, 2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
Change during Year |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
|
(dollars in thousands) |
|
Salaries and employee benefits |
|
$ |
9,732 |
|
|
$ |
11,054 |
|
|
$ |
10,884 |
|
|
$ |
(1,322 |
) |
|
$ |
170 |
|
Occupancy and equipment |
|
|
3,096 |
|
|
|
3,759 |
|
|
|
3,838 |
|
|
|
(663 |
) |
|
|
(79 |
) |
Outside service fees |
|
|
1,212 |
|
|
|
990 |
|
|
|
803 |
|
|
|
222 |
|
|
|
187 |
|
FDIC insurance |
|
|
1,009 |
|
|
|
1,125 |
|
|
|
258 |
|
|
|
(116 |
) |
|
|
867 |
|
Professional fees |
|
|
587 |
|
|
|
789 |
|
|
|
688 |
|
|
|
(202 |
) |
|
|
101 |
|
OREO costs |
|
|
573 |
|
|
|
370 |
|
|
|
175 |
|
|
|
203 |
|
|
|
195 |
|
Provision for OREO losses |
|
|
356 |
|
|
|
4,800 |
|
|
|
618 |
|
|
|
(4,444 |
) |
|
|
4,182 |
|
Telephone and data communications |
|
|
338 |
|
|
|
392 |
|
|
|
400 |
|
|
|
(54 |
) |
|
|
(8 |
) |
Loan collection costs |
|
|
261 |
|
|
|
399 |
|
|
|
205 |
|
|
|
(138 |
) |
|
|
194 |
|
Advertising and promotion |
|
|
252 |
|
|
|
327 |
|
|
|
448 |
|
|
|
(75 |
) |
|
|
(121 |
) |
Business development |
|
|
250 |
|
|
|
333 |
|
|
|
467 |
|
|
|
(83 |
) |
|
|
(134 |
) |
Armored car and courier |
|
|
239 |
|
|
|
281 |
|
|
|
289 |
|
|
|
(42 |
) |
|
|
(8 |
) |
Director compensation and retirement |
|
|
233 |
|
|
|
293 |
|
|
|
323 |
|
|
|
(60 |
) |
|
|
(30 |
) |
Insurance |
|
|
218 |
|
|
|
142 |
|
|
|
235 |
|
|
|
76 |
|
|
|
(93 |
) |
Postage |
|
|
207 |
|
|
|
207 |
|
|
|
208 |
|
|
|
|
|
|
|
(1 |
) |
Core deposit intangible amortization |
|
|
173 |
|
|
|
173 |
|
|
|
216 |
|
|
|
|
|
|
|
(43 |
) |
Stationery and supplies |
|
|
145 |
|
|
|
183 |
|
|
|
236 |
|
|
|
(38 |
) |
|
|
(53 |
) |
(Gain) loss on sale of OREO |
|
|
(43 |
) |
|
|
158 |
|
|
|
|
|
|
|
(201 |
) |
|
|
158 |
|
Other operating expense |
|
|
396 |
|
|
|
579 |
|
|
|
184 |
|
|
|
(183 |
) |
|
|
395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
$ |
19,234 |
|
|
$ |
26,354 |
|
|
$ |
20,475 |
|
|
$ |
(7,120 |
) |
|
$ |
5,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 compared to 2009. We continue to focus on cost control initiatives which have resulted in
savings in most categories of non-interest expense. Additionally, during the second quarter of 2010
we performed an extensive analysis of our personnel requirements throughout the organization and
based on this analysis we were able to reduce our head count by approximately 10% which has
resulted in significant savings in salary and benefits during the second half of 2010. During the
year ended December 31, 2010, total non-interest expense decreased by $7.1 million, or 27%, to
$19.2 million, down from $26.3 million for the comparable period in 2009. This decrease in
non-interest expense was primarily the result of savings in salaries and employee benefits,
occupancy and equipment costs, professional fees, provision for OREO losses and a reduction in
losses on the sale of OREO. These items and other reductions were partially offset by increases in
outside service fees, OREO carrying expenses and insurance expense.
Salaries and employee benefits decreased by $1.3 million primarily related to four items. Salary
expense, excluding commissions, declined by $796 thousand related to a reduction in staffing in all
areas with the exception of government guaranteed lending and problem assets. While the Company has
reduced personnel in most functional areas, we have increased staffing in our problem asset
department to effectively manage our increased level of nonperforming assets. Additionally, we have
increased staffing in our government guaranteed lending department as we see continued
opportunities for loan growth in this area. Commission expense, which relates to government
guaranteed lending personnel and is included in salary expense, increased by $152 thousand
resulting from the increase in government guaranteed loan sales. Stock compensation expense
decreased by $199 thousand. During the first quarter of 2010 we recorded an adjustment to the
estimated forfeiture rate associated with option expense. Finally, we have eliminated discretionary
bonuses in 2010 resulting in a decrease in bonus expense of $269 thousand and during the second
quarter of 2010 we discontinued the company matching contributions to our 401k plan saving $172
thousand during 2010.
36
The decline in occupancy and equipment expense primarily relates to the savings realized from the
purchase of our Redding branch. On March 31, 2010 we purchased the building housing our Redding
branch at a cost of $1.0 million. Previously we had leased this building. Under the terms of the
lease agreement we were provided free rent for a period of time; however, in accordance with
accounting principals we recognized monthly rent expense equal to the total payments required under
the lease dividend by the term of the lease in months. At the time of the purchase we reversed this
accrual recognizing a $184 thousand reduction in occupancy costs. In addition to the one-time
savings from the reversal of accrued rent we benefit from reduced operating costs on this building
as the owner rather than a renter. Occupancy costs also benefited from a milder winter resulting in
reduced utility and snow removal costs. Equipment costs benefited from a $153 thousand reduction
in depreciation expense.
Professional fees were abnormally high during 2009 related to consulting costs associated with our
computer network and telephone system. The decrease in profession fees includes a $157 thousand
reduction in consulting costs.
Losses on the sale of OREO and other vehicles owned (OVO) totaled $158 thousand during 2009;
however, during 2010 we recorded $43 thousand net gains on sale of OREO. During 2009 we
experienced a significant decline in the value of many of our OREO properties requiring a $4.8
million loss provision; however, this decline in value slowed significantly in 2010. During 2010
our provision for OREO losses declined by $4.4 million to $356 thousand.
Other reductions in expense include savings in FDIC insurance, telephone, loan collection costs,
business development, advertising, director expense, courier expense, director expenses, supplies
costs and other. In total these costs were down $789 thousand for 2010.
Outside service fees increased by $222 thousand related to the outsourcing of daily management of
our computer network operations and the installation of a new internet banking platform. Consistent
with the increase in average OREO (See Analysis of Asset Quality and Allowance for Loan Losses)
OREO carrying expenses increased by $203 thousand.
Insurance expense, as more fully described below, was abnormally low in 2009.
2009 compared to 2008. During the year ended December 31, 2009, total non-interest expense
increased by $5.9 million, or 29%, to $26.4 million, up from $20.5 million for the comparable
period in 2008. This increase in non-interest expense was primarily the result of an increase in
the provision for OREO losses of $4.2 million and an increase in FDIC insurance assessments of $867
thousand. Other significant increases included $170 thousand in salaries and employee benefits,
$187 thousand in outside service fees, $101 thousand in professional fees, $194 thousand in loan
collection costs, $195 thousand in OREO costs, $158 thousand in losses on the sale of OREO and $395
thousand in other expense. These items were partially offset by reductions in other costs, the
three largest of which where advertising and shareholder relations, business development and
insurance expense.
A valuation allowance for losses on other real estate is maintained to provide for declines in
value. The provision for OREO losses for the year ended December 31, 2009 totaled $4.8 million
which represents significant declines in the value of several properties. At December 31, 2009 OREO
consisted of twenty-nine properties with a total fair value, which includes a $5.1 million
valuation allowance, of $11.2 million. At December 31, 2008 OREO consisted of nineteen properties
with a fair value of $4.1 million.
During 2009 the FDIC increased regular assessments and implemented a special assessment resulting
in a significant increase in FDIC assessments. Additionally, during the first quarter of 2008 the
Company was able to use its remaining credit balance with the FDIC to offset insurance premium
billings; however, by the end of the first quarter of 2008 the credit balance had been fully
utilized. The Company is currently forecasting elevated FDIC insurance premiums for next several
years.
37
Salaries and other employee benefits increased by $170 thousand primarily related to a decrease in
the deferral of loan origination costs. Salary expense increased by $21 thousand as an increase
in salary expense of $296 thousand related to our government guaranteed lending operations was
mostly offset by reductions in staffing in other areas including our Reno loan production office
and our branch network. Related to a decrease in loan production, the deferral of loan origination
cost, which reduces salary and benefits cost, declined by $160 thousand.
During the fourth quarter of 2009 the Company outsourced the oversight of its computer network,
resulting in a reduction in information technology staffing. The cost of this outsourcing is
included in the increase in outside services fees. In addition, during 2009 we implemented an
outsourced online banking product which also increased outside service fees.
Consistent with the increase in nonperforming loans and assets during the period (See the section
Analysis of Asset Quality and Allowance for Loan Losses) loan collection costs and OREO expenses
increased by $389 thousand. OREO costs which include the cost of holding and maintaining
foreclosed real estate increased by $195 thousand to $370 thousand while loan collection costs
increased by $194 thousand to $399 thousand. Losses incurred on the sale of OREO totaled $158
thousand and relate to the sale of nine properties. Proceeds received on sale of these properties
totaled $2.0 million.
The increase in other expense, which totaled $395 thousand, is primarily related to nonrecurring
expense items, the largest of which totaled $140 thousand.
We implemented cost control initiatives which, among other things, have resulted in savings in
advertising, shareholder relation costs and business development costs. These cost savings totaled
$255 thousand during 2009 when compared to 2008. We reduced our shareholder expense by eliminating
the glossy section of our annual report. Business development costs declined as we reduced certain
employee travel and relationship-building initiatives which generated an annual savings of
approximately $75 thousand.
During the first quarter of 2009 our Chief Information and Technology officer retired from the
Company. Because his retirement took place prior to the age of sixty-five he forfeited his
benefits under his company provided split dollar life insurance plan. To reflect this forfeiture
we recorded a one-time reduction in insurance expense totaling $83 thousand.
Provision for Income Taxes. The Company recorded an income tax provision of $389 thousand, or
28.6% of pre-tax income for the year ended December 31, 2010. The percentage for 2010 differs from
the statutory rate as tax exempt income such as earnings on Bank owned life insurance and municipal
loan and investment income decrease taxable income. During 2009 the Company recorded an income tax
benefit of $6.8 million, or 42.6% of pre-tax loss for the year ended December 31, 2009.
Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The
determination of the amount of deferred income tax assets which are more likely than not to be
realized is primarily dependent on projections of future earnings, which are subject to uncertainty
and estimates that may change given economic conditions and other factors. The realization of
deferred income tax assets is assessed and a valuation allowance is recorded if it is more likely
than not that all or a portion of the deferred tax asset will not be realized. More likely than
not is defined as greater than a 50% chance. All available evidence, both positive and negative
is considered to determine whether, based on the weight of that evidence, a valuation allowance is
needed. Based upon our analysis of available evidence, we have determined that it is more likely
than not that all of our deferred income tax assets as of December 31, 2010 and 2009 will be fully
realized and therefore no valuation allowance was recorded.
38
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.
The Companys largest lending categories are real estate mortgage loans, consumer and agricultural
loans. These categories accounted for approximately 51.7%, 15.5% and 12.2%, respectively of the
Companys total loan portfolio at December 31, 2010, and approximately 48.5%, 16.4% and 12.5%,
respectively of the Companys total loan portfolio at December 31, 2009. Additionally, construction
and land development loans represented 9.9% and 11.4% of the loan portfolio as of December 31,
2010 and 2009, respectively. The construction and land development portfolio component has been
identified by Management as a higher-risk loan category. The quality of the construction and land
development category is highly dependent on property values both in terms of the likelihood of
repayment once the property is transacted by the current owner as well as the level of collateral
the Company has securing the loan in the event of default. Loans in this category are
characterized by the speculative nature of commercial and residential development properties and
can include property in various stages of development from raw land to finished lots. The decline
in these loans as a percentage of the Companys loan portfolio reflects managements efforts to
reduce its exposure to construction and land development loans in 2010 and 2009 due to the severe
valuation decrease in the real estate market.
The Companys 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 80% and 77% of the total loan portfolio at December 31, 2010 and 2009. Moreover, the
business activities of the Company currently are focused in the California counties of Plumas,
Nevada, Placer, Lassen, Modoc, Shasta, Sierra and in Washoe County in Northern Nevada.
Consequently, the results of operations and financial condition of the Company are dependent upon
the general trends in these economies and, in particular, the residential and commercial real
estate markets. In addition, the concentration of the Companys operations in these areas of
Northeastern California and Northwestern Nevada exposes it to greater risk than other banking
companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires and
floods in these regions.
The rates of interest charged on variable rate loans are set at specific increments in relation to
the Companys lending rate or other indexes such as the published prime interest rate or U.S.
Treasury rates and vary with changes in these indexes. At December 31, 2010 and 2009, approximately
66% and 68%, respectively, of the Companys loan portfolio was compromised of variable rate loans.
While real estate mortgage, commercial and consumer lending remain the foundation of the Companys
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. Agricultural loans include both commercial and commercial real estate
loans. The Companys agricultural loan balances totaled $38 million and $42 million at December
31, 2010 and 2009, respectively.
39
The following table sets forth the amounts of loans outstanding by category as of the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(dollars in thousands) |
|
Real estate mortgage |
|
$ |
162,513 |
|
|
$ |
161,397 |
|
|
$ |
151,943 |
|
|
$ |
128,357 |
|
|
$ |
116,329 |
|
Real estate
construction and land
development |
|
|
31,199 |
|
|
|
38,061 |
|
|
|
73,820 |
|
|
|
76,478 |
|
|
|
75,930 |
|
Commercial |
|
|
33,433 |
|
|
|
37,056 |
|
|
|
42,528 |
|
|
|
39,584 |
|
|
|
36,182 |
|
Consumer |
|
|
48,586 |
|
|
|
54,442 |
|
|
|
61,706 |
|
|
|
72,768 |
|
|
|
90,694 |
|
Agriculture |
|
|
38,469 |
|
|
|
41,722 |
|
|
|
36,020 |
|
|
|
35,762 |
|
|
|
35,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
314,200 |
|
|
|
332,678 |
|
|
|
366,017 |
|
|
|
352,949 |
|
|
|
354,712 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred costs |
|
|
(275 |
) |
|
|
(298 |
) |
|
|
(279 |
) |
|
|
(564 |
) |
|
|
(1,182 |
) |
Allowance for loan losses |
|
|
7,324 |
|
|
|
9,568 |
|
|
|
7,224 |
|
|
|
4,211 |
|
|
|
3,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
307,151 |
|
|
$ |
323,408 |
|
|
$ |
359,072 |
|
|
$ |
349,302 |
|
|
$ |
351,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the maturity of gross loan categories as of December 31, 2010.
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 |
|
|
|
(dollars in thousands) |
|
Real estate mortgage |
|
$ |
20,691 |
|
|
$ |
32,704 |
|
|
$ |
109,118 |
|
|
$ |
162,513 |
|
Real estate construction and land development |
|
|
10,328 |
|
|
|
12,046 |
|
|
|
8,825 |
|
|
|
31,199 |
|
Commercial |
|
|
10,229 |
|
|
|
10,542 |
|
|
|
12,662 |
|
|
|
33,433 |
|
Consumer |
|
|
7,057 |
|
|
|
10,870 |
|
|
|
30,659 |
|
|
|
48,586 |
|
Agriculture |
|
|
13,852 |
|
|
|
9,621 |
|
|
|
14,996 |
|
|
|
38,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
62,157 |
|
|
$ |
75,783 |
|
|
$ |
176,260 |
|
|
$ |
314,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans maturing after one year with: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rates |
|
|
|
|
|
$ |
24,771 |
|
|
$ |
53,221 |
|
|
$ |
77,992 |
|
Variable interest rates |
|
|
|
|
|
|
51,011 |
|
|
|
123,040 |
|
|
|
174,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
75,782 |
|
|
$ |
176,261 |
|
|
$ |
252,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Asset Quality and Allowance for Loan Losses. The Company attempts to minimize
credit risk through its underwriting and credit review policies. The Companys credit review
process includes internally prepared credit reviews as well as contracting with an outside firm to
conduct periodic credit reviews. The Companys management and lending officers evaluate the loss
exposure of classified and impaired loans on a quarterly basis, or more frequently as loan
conditions change. The Management Asset Resolution Committee (MARC) reviews the asset quality of
criticized loans on a monthly basis and reports the findings to the full Board of Directors The
Boards Loan Committee reviews the asset quality of new loans on a monthly basis and reports the
findings to the full Board of Directors. In managements opinion, this loan review system helps
facilitate the early identification of potential criticized loans.
The Company has implemented MARC to develop an action plan to significantly reduce nonperforming
loans. It consists of members of executive management, credit administration management and the
Board of Directors, and the activities are governed by a formal written charter. The MARC meets at
least monthly and reports to the Board of Directors.
More specifically, a formal plan to effect repayment and/or disposition of every significant
nonperforming loan relationship is developed and documented for review and on-going oversight by
the MARC. Some of the strategies used include but are not limited to: 1) obtaining additional
collateral, 2) obtaining additional investor cash infusion, 3) sale of the promissory note to an
outside party, 4) proceeding with foreclosure on the underlying collateral, 5) legal action against
borrower/guarantors to encourage settlement of debt and/or collect any deficiency balance owed.
Each step includes a benchmark timeline to track progress.
40
MARC also provides guidance for the maintenance and timely disposition of OREO properties;
including developing financing and marketing programs to incent individuals to purchase OREO.
The allowance for loan losses is established through charges to earnings in the form of the
provision for loan losses. Loan losses are charged to and recoveries are credited to the allowance
for loan losses. The allowance for loan losses is maintained at a level deemed appropriate by
management to provide for known and inherent risks in loans. The adequacy of the allowance for
loan losses is based upon managements continuing assessment of various factors affecting the
collectibility of loans; including current economic conditions, maturity of the portfolio, size of
the portfolio, industry concentrations, borrower credit history, collateral, the existing allowance
for loan losses, independent credit reviews, current charges and recoveries to the allowance for
loan losses and the overall quality of the portfolio as determined by management, regulatory
agencies, and independent credit review consultants retained by the Company. There is no precise
method of predicting specific losses or amounts which may ultimately be charged off on particular
segments of the loan portfolio. The collectibility of a loan is subjective to some degree, but
must relate to the borrowers financial condition, cash flow, quality of the borrowers 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
allowance for loan and lease losses. The agencies issued the revised policy statement in view of
todays uncertain economic environment and the presence of concentrations in untested loan products
in the loan portfolios of insured depository institutions. The policy statement was also 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 institutions stated policies and procedures, managements 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 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 managements 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 staffs 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 Commissions interpretations.
The Companys 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 determined in accordance with ASC Topic 310 Receivables
(formerly FAS 114, Accounting for Impairment of a loan) based on probable losses on
specific loans. |
|
|
|
general reserves determined in accordance with guidance in ASC Topic 450
Contingencies (formerly SFAS No. 5, Accounting for Contingencies), based on historical
loan loss experience adjusted for other qualitative risk factors both internal and
external to the Company. |
41
Specific allocations are established based on managements 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, loans are grouped by internal risk classifications which are Watch,
substandard, doubtful, and loss. Watch loans are currently performing but are potentially
weak, as the 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.
Loans are consistently monitored against risk rating criteria. As loans are identified that may
warrant a classification change, they are discussed with the Companys credit administration
officers and appropriate risk grades are assigned. There are several times in the life of a loan
that this occurs:
|
|
|
loan servicing actions (change in terms, collateral release, etc.) |
|
|
|
annual financial review |
|
|
|
delinquency monitoring and follow-up |
If weaknesses (or improvements) are noted, a change in risk rating, if warranted by credit
administration, will be made. Loans classified Watch or below in an amount of $100,000 or more will
be individually evaluated for impairment in accordance with the Banks policy for determining and
measuring impairment under FAS 114.
Formula allocations are calculated by applying loss factors to outstanding loans with similar
characteristics. Loss factors are based on the Companys 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 managements judgment, affect the collectibility of the portfolio
as of the evaluation date. Effective for the third quarter of 2010, the Company modified its
method of estimating the allowance for loan losses for non-impaired loans. This modification
incorporated historical loss experience based on a rolling eight quarters ending with the most
recently completed calendar quarter to identified pools of loans. This modification did not have a
material affect on the Companys allowance for loans losses or provision for loan losses.
The discretionary allocation is based upon managements 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.
42
The following table provides certain information for the years indicated with respect to the
Companys allowance for loan losses as well as charge-off and recovery activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(dollars in thousands) |
|
Balance at beginning of period |
|
$ |
9,568 |
|
|
$ |
7,224 |
|
|
$ |
4,211 |
|
|
$ |
3,917 |
|
|
$ |
3,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural |
|
|
1,219 |
|
|
|
663 |
|
|
|
477 |
|
|
|
83 |
|
|
|
126 |
|
Real estate mortgage |
|
|
3,105 |
|
|
|
1,145 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
Real estate construction |
|
|
3,617 |
|
|
|
10,133 |
|
|
|
522 |
|
|
|
46 |
|
|
|
|
|
Consumer |
|
|
408 |
|
|
|
559 |
|
|
|
689 |
|
|
|
657 |
|
|
|
519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
8,349 |
|
|
|
12,500 |
|
|
|
1,783 |
|
|
|
786 |
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural |
|
|
26 |
|
|
|
18 |
|
|
|
11 |
|
|
|
53 |
|
|
|
46 |
|
Real estate mortgage |
|
|
396 |
|
|
|
8 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Real estate construction |
|
|
65 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
118 |
|
|
|
228 |
|
|
|
171 |
|
|
|
227 |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
605 |
|
|
|
344 |
|
|
|
196 |
|
|
|
280 |
|
|
|
306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
7,744 |
|
|
|
12,156 |
|
|
|
1,587 |
|
|
|
506 |
|
|
|
339 |
|
Provision for loan losses |
|
|
5,500 |
|
|
|
14,500 |
|
|
|
4,600 |
|
|
|
800 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
7,324 |
|
|
$ |
9,568 |
|
|
$ |
7,224 |
|
|
$ |
4,211 |
|
|
$ |
3,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs during the period to
average loans |
|
|
2.39 |
% |
|
|
3.43 |
% |
|
|
0.45 |
% |
|
|
0.14 |
% |
|
|
0.10 |
% |
Allowance for loan losses to total loans |
|
|
2.33 |
% |
|
|
2.88 |
% |
|
|
1.97 |
% |
|
|
1.19 |
% |
|
|
1.10 |
% |
During the year ended December 31, 2010 we recorded a provision for loan losses of $5.5
million down $9.0 million from the $14.5 million provision recorded during the year ended December
31, 2009. Net charge-offs totaled $7.7 million during the year ended December 31, 2010 and $12.2
million during 2009. Net charge-offs as a percentage of average loans decreased from 3.43% during
2009 to 2.39% during the year ended December 31, 2010. While we incurred significant charge-offs
during the 2010 period, $3.1 million of the charge-offs had been incorporated in the allowance for
loan losses at December 31, 2009 as specific reserves on impaired loans.
We currently anticipate that net charge-offs could range from approximately $3.5 million to $5.5
million in 2011, the largest part of which are anticipated to be related to real estate loans and
consistent with 2010 activity. For other categories of loans we expect charge-offs to be similar
to 2010 activity. However, given the lack of stability in the real estate market and the recent
volatility in charge-offs, there can be no assurance that charge offs of loans in future periods
will not increase or decrease from this estimate.
The allowance for loan losses totaled $7.3 million at December 31, 2010 and $9.6 million at
December 31, 2009. The decrease in the allowance for loan losses from December 31, 2009 is
attributable to a $2.4 million decrease in specific reserves related to impaired loans from $4.3
million at December 31, 2009 to $1.9 million at December 31, 2010 and a decrease of $30.6 million
in average loan balances. General reserves increased by $133 thousand to $5.4 million at December
31, 2010. Related to the decrease in specific reserves on impaired loans, the allowance for loan
losses as a percentage of total loans decreased from 2.88% at December 31, 2009 to 2.33% at
December 31, 2010. The percentage of general reserves to unimpaired loans increased from 1.69% at
December 31, 2009 to 1.90% at December 31, 2010.
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 Companys 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 or interest on a loan is considered to
be doubtful by management, it is placed on nonaccrual status prior to becoming 90 days delinquent.
43
Impaired loans are measured based on the present value of the expected future cash flows
discounted at the loans effective interest rate or the fair value of the collateral if the loan is
collateral dependent. The amount of impaired loans is not directly comparable to the amount of
nonperforming loans disclosed later in this section. The primary difference between impaired loans
and nonperforming loans is that impaired loan recognition considers not only loans 90 days or more
past due, restructured loans and nonaccrual loans but also may include identified problem loans
other than delinquent loans where it is considered probable that we will not collect all amounts
due to us (including both principal and interest) in accordance with the contractual terms of the
loan agreement.
A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the Company, for
economic or legal reasons related to the debtors financial difficulties, grants a concession to
the debtor that it would not otherwise consider. Restructured workout loans typically present an
elevated level of credit risk as the borrowers are not able to perform according to the original
contractual terms. Loans that are reported as TDRs are considered impaired and measured for
impairment as described above.
The following table sets forth the amount of the Companys nonperforming assets as of the dates
indicated.
Loans restructured and in compliance with modified terms totaled $2.0 million and $3.4 million at
December 31, 2010 and 2009, respectively. There were no troubled debt restructurings at December
31, 2008, 2007 or 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(dollars in thousands) |
|
|
|
Nonaccrual loans |
|
$ |
25,313 |
|
|
$ |
14,263 |
|
|
$ |
26,444 |
|
|
$ |
2,618 |
|
|
$ |
972 |
|
Loans past due 90 days or more and
still accruing |
|
|
45 |
|
|
|
28 |
|
|
|
297 |
|
|
|
14 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans |
|
|
25,358 |
|
|
|
14,291 |
|
|
|
26,741 |
|
|
|
2,632 |
|
|
|
1,013 |
|
Other real estate owned |
|
|
8,867 |
|
|
|
11,204 |
|
|
|
4,148 |
|
|
|
402 |
|
|
|
|
|
Other vehicles owned |
|
|
17 |
|
|
|
65 |
|
|
|
129 |
|
|
|
135 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
34,242 |
|
|
$ |
25,560 |
|
|
$ |
31,018 |
|
|
$ |
3,169 |
|
|
$ |
1,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income forgone on
nonaccrual loans |
|
$ |
1,021 |
|
|
$ |
568 |
|
|
$ |
576 |
|
|
$ |
161 |
|
|
$ |
53 |
|
Interest income recorded on a Cash
basis on nonaccrual loans |
|
$ |
608 |
|
|
$ |
369 |
|
|
$ |
74 |
|
|
$ |
118 |
|
|
$ |
116 |
|
Nonperforming loans to total Loans |
|
|
8.07 |
% |
|
|
4.30 |
% |
|
|
7.31 |
% |
|
|
0.75 |
% |
|
|
0.29 |
% |
Nonperforming assets to total Assets |
|
|
7.07 |
% |
|
|
4.84 |
% |
|
|
6.78 |
% |
|
|
0.70 |
% |
|
|
0.22 |
% |
Nonperforming loans at December 31, 2010 were $25.4 million, an increase of $11.1 million from
the $14.3 million balance at December 31, 2009. Of the total nonperforming loans at December 31,
2010, fifteen loans had principal balances ranging from $4.7 million to $570 thousand. In total
these loans amount to $19.1 million representing 76% of the nonaccrual balance of $25.3 million.
Specific reserves of $1.0 million were allocated to these loans. For all nonaccrual loans at
December 31, 2010 specific reserves totaled $1.8 million or 7% of total nonaccrual loans.
Additionally, the nonaccrual balances at December 31, 2010 are net of $2.8 million in partial
charge-offs.
44
A substandard loan is not adequately protected by the current sound worth and paying capacity of
the borrower or the value of the collateral pledged, if any. At December 31, 2010 $13.3 million of
performing loans were classified as substandard. Further deterioration in the credit quality of
individual performing substandard loans or other adverse circumstances could result in the need to
place these loans on nonperforming status.
At December 31, 2010 and 2009, the Companys recorded investment in impaired loans totaled $28.8
million and $19.2 million, respectively. The increases in impaired and nonperforming loans mostly
relates to two large relationships totaling $8.1 million. These loans were measured for impairment
and it was determined that a $600 thousand specific allowance was required at December 31, 2010.
The specific allowance for loan losses related to impaired loans totaled $1.9 million and $4.3
million at December 31, 2010 and 2009, respectively. Additionally, $2.8 million has been charged
off against the impaired loans at December 31 2010. This compares to $1.0 that had been charged
off against impaired loans at December 31, 2009. The average recorded investment in impaired loans
was $20.8 million, $25.1 million, $5.2 million for the years ended December 31, 2010, 2009 and
2008, respectively. In most cases, the Company uses the cash basis method of income recognition
for impaired loans. For the years ended December 31, 2010, 2009 and 2008, the Company recognized
$608 thousand, $369 thousand and $74 thousand, respectively, of income on such loans. Interest
foregone on impaired loans totaled $1,021 thousand $568, thousand and $576 thousand for the years
ended December 31, 2010, 2009 and 2008, respectively.
It is the policy of management to make additions to the allowance for loan losses so that it
remains appropriate to absorb the inherent risk of loss in the portfolio. Management believes that
the allowance at December 31, 2010 is appropriate. However, the determination of the amount of the
allowance is judgmental and subject to economic conditions which cannot be predicted with
certainty. Accordingly, the Company cannot predict whether charge-offs of loans in excess of the
allowance may occur in future periods.
OREO represents real property taken by the Bank either through foreclosure or through a deed in
lieu thereof from the borrower. Repossessed assets include vehicles and other commercial assets
acquired under agreements with delinquent borrowers. Repossessed assets and OREO are carried at
fair market value, less selling costs. OREO holdings represented thirty-one properties totaling
$8.9 million at December 31, 2010 and twenty-nine properties totaling $11.2 million at December 31,
2009. Of the thirty-one properties, three properties represent 84% of the balance or $7.5 million
of the $8.9 million. These three properties were transferred into OREO during the third quarter of
2009. We have actively marketed the properties and while we have received offers for each property,
to date none have been accepted by the Bank. Nonperforming assets as a percentage of total assets
increased to 7.07% at December 31, 2010 up from 4.84% at December 31, 2009.
The following table provides a summary of the change in the OREO balance for the year ended
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands) |
|
Beginning Balance |
|
$ |
11,204 |
|
|
$ |
4,148 |
|
Additions |
|
|
1,438 |
|
|
|
14,006 |
|
Dispositions |
|
|
(3,419 |
) |
|
|
(2,150 |
) |
Write-downs |
|
|
(356 |
) |
|
|
(4,800 |
) |
|
|
|
|
|
|
|
Ending Balance |
|
$ |
8,867 |
|
|
$ |
11,204 |
|
|
|
|
|
|
|
|
45
Investment Portfolio and Federal Funds Sold. Total investment securities decreased by $25 million
from $88.0 million at December 31, 2009 to $63.0 million as of December 31, 2010. There were no
Federal funds sold at December 31, 2010 or 2009; however, the Bank maintained interest earning
balances at the
FRB totaling $52.3 million and $18.8 million at December 31, 2010 and 2009, respectively. These
balances currently earn 25 basis points.
The investment portfolio balances in U.S. Treasuries, U.S. Government agencies, and municipal
obligations comprised 2%, 98% and less than 1%, respectively, at December 31, 2010 versus 1%, 86%
and 13%, respectively, at December 31, 2009. During 2010 we chose to sell substantially our entire
municipal securities portfolio as part of our overall asset/liability management strategy related
to credit quality concerns and the favorable market price for these securities. In addition, we
sold $28.9 million in U.S. government agency securities to lock in significant gains that were
available on these securities. The total proceeds received from the sale of municipal and agency
securities were $40.9 million including a $1.2 million gain on sale.
During 2009 we increased our level of agency securities primarily to support our growth in public
agency sweep account deposits which require the pledging of investment securities for balances in
excess of those covered by FDIC insurance. While this account was very successful in generating
deposits, we determined that we needed to reduce the rate paid to increase the profitability of the
product, resulting in a decline in balances from this product from $37.8 million at December 31,
2009 to $29.8 million at December 31, 2010. The decrease in investment securities between periods
includes the affect of lowered pledging requirements, the sale of municipal securities and market
rate considerations.
The Companys investments in mortgage-backed securities of U.S. Government agencies provide
interest income as well as cash flows for liquidity and reinvestment opportunities as these
securities pay down. At December 31, 2010, total balances in these mortgage-backed securities were
$21.3 million up from $19.3 million at December 31, 2009. Although these pass-through securities
typically have final maturities of between ten and fifteen years, the pass-through nature of
principal payments from the prepayment or refinance of loans underlying these securities is
expected to significantly reduce their average life.
The Company classifies its investment securities as available-for-sale or held-to-maturity.
Currently all securities are classified as available-for-sale. Securities classified as
available-for-sale may be sold to implement the Companys 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 Companys investment securities held on the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Available-for-sale (fair value) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(dollars in thousands) |
|
U.S. Treasuries |
|
$ |
1,032 |
|
|
$ |
1,052 |
|
|
$ |
1,508 |
|
U.S. Government agencies |
|
|
40,430 |
|
|
|
55,889 |
|
|
|
10,392 |
|
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
1,550 |
|
U.S. Government agency
mortgage-backed Securities |
|
|
21,273 |
|
|
|
19,287 |
|
|
|
12,357 |
|
Municipal obligations |
|
|
282 |
|
|
|
11,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
63,017 |
|
|
$ |
87,950 |
|
|
$ |
25,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Held-to-maturity (amortized cost) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(dollars in thousands) |
|
Municipal obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
12,567 |
|
|
|
|
|
|
|
|
|
|
|
46
At December 31, 2009 the Company transferred all of its municipal securities from held-to-maturity
to available-for-sale as it was determined that management no longer had the intent to hold these
investments to maturity.
The following table summarizes the maturities of the Companys securities at their carrying value
and their weighted average tax equivalent yields at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
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 |
|
U.S. Treasuries |
|
$ |
1,032 |
|
|
|
1.07 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
1,032 |
|
|
|
1.07 |
% |
U.S. Government agencies |
|
|
1,012 |
|
|
|
1.17 |
% |
|
|
39,418 |
|
|
|
1.76 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
40,430 |
|
|
|
1.74 |
% |
U.S. Government agency
mortgage-backed securities |
|
|
405 |
|
|
|
4.01 |
% |
|
|
1,097 |
|
|
|
3.84 |
% |
|
|
3,263 |
|
|
|
3.86 |
% |
|
|
16,508 |
|
|
|
3.21 |
% |
|
|
21,273 |
|
|
|
3.35 |
% |
Municipal obligations |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
282 |
|
|
|
4.85 |
% |
|
|
|
|
|
|
|
% |
|
|
282 |
|
|
|
4.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,449 |
|
|
|
1.59 |
% |
|
$ |
40,515 |
|
|
|
1.81 |
% |
|
$ |
3,545 |
|
|
|
3.97 |
% |
|
$ |
16,508 |
|
|
|
3.21 |
% |
|
$ |
63,017 |
|
|
|
2.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Deposits. Total deposits were $424.9 million as of December 31, 2010, a decrease of $8.4
million, or 2%, from the December 31, 2009 balance of $433.3 million. Declines of $6.1 million in
interest bearing transaction accounts (NOW), $1.9 million in money market accounts, $5.0 million in
time deposits and $0.2 million in non-interest bearing demand deposits was partially offset by an
increase of $4.8 million in savings accounts. The decline in NOW accounts relates to an $8 million
decline in balances in our public sweep account from $37.8 million at December 31, 2009 to $29.8
million at December 31, 2010.
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. There were only minor changes in the composition
of our deposits at December 31, 2010 and 2009. Non-interest bearing demand deposits were 26% of
total deposits at December 31, 2010 and 2009. Interest bearing transaction accounts were 24% of
total deposits at December 31, 2010 and 25% at December 31, 2009. Money market and savings
deposits totaled 22% of total deposits at December 31, 2010 and 21% at December 31, 2009. Time
deposits were 28% of total deposits at December 31, 2010 and 2009.
Deposits represent the Banks 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 secured borrowing arrangements with the Federal
Home Loan Bank and the Federal Reserve Bank of San Francisco. Included in time deposits at
December 31, 2010 and 2009 were $2 million and $5 million, respectively in CDARS reciprocal time
deposits which, under regulatory guidelines, are classified as brokered deposits. The Company did
not hold brokered deposits during the year ended December 31, 2008.
The Companys time deposits of $100,000 or more had the following schedule of maturities at
December 31, 2010:
(dollars in thousands)
|
|
|
|
|
|
|
Amount |
|
Remaining Maturity: |
| | | |
Three months or less |
|
$ |
14,558 |
|
Over three months to six months |
|
|
15,938 |
|
Over six months to 12 months |
|
|
15,937 |
|
Over 12 months |
|
|
5,671 |
|
|
|
|
|
Total |
|
$ |
52,104 |
|
|
|
|
|
Time deposits of $100,000 or more are generally from the Companys local business and individual
customer base. The potential impact on the Companys liquidity from the withdrawal of these
deposits is discussed at the Companys asset and liability management committee meetings, and is
considered to be minimal.
Short-term Borrowing Arrangements.
The Company is a member of the FHLB and can borrow up to $91,408,000 from the FHLB secured by
commercial and residential mortgage loans with carrying values totaling $150,217,000. The Company
is required to hold FHLB stock as a condition of membership. At December 31, 2010, the Company
held $2,188,000 of FHLB stock which is recorded as a component of other assets. At this level of
stock holdings the Company can borrow up to $46,561,000. There were no borrowings outstanding as of
December 31, 2010. To borrow the $91,408,000 in available credit the Company would need to
purchase $2,108,000 in additional FHLB stock.
In addition, the Company has the ability to secure advances through the FRB discount window. These
advances also must be collateralized.
48
Short-term borrowings at December 31, 2009 consisted of a $20 million FHLB advance at 0.47% which
matured on January 19, 2010. No borrowings were outstanding at December 31, 2010.
The average balance in short-term borrowings during the years ended December 31, 2010 and 2009 were
$986 thousand and $24.3 million, respectively. The average rate paid on these borrowings was 0.51%
during 2010 and 0.33% during 2009. The maximum amount of short-term borrowings outstanding at any
month-end during 2010 and 2009 was zero and $33.8 million, respectively.
Long-term Borrowing Arrangements. Long-term borrowings at December 31, 2009 consisted of two $10
million FHLB advances. The first advance was scheduled to mature on November 23, 2011 and bore
interest at 1.00%. The second advance was scheduled to mature on November 23, 2012 and bore
interest at 1.60%. We chose to prepay both of these borrowings during July 2010 as we had
significant excess liquidity and no longer projected a need for these long-term borrowings. We
incurred a $226 thousand prepayment penalty on these advances which we anticipate will be more than
offset by future savings in interest expense. No long-term borrowings were outstanding as of
December 31, 2010.
Capital Resources
Shareholders equity as of December 31, 2010 totaled $38.0 million down slightly from $38.2
million as of December 31, 2009.
On January 30, 2009, under the Capital Purchase Program, the Company sold (i) 11,949 shares of the
Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the Preferred Shares) and
(ii) a ten-year warrant to purchase up to 237,712 shares of the Companys common stock, no par
value at an exercise price, subject to anti-dilution adjustments, of $7.54 per share, for an
aggregate purchase price of $11,949,000 in cash. Ten million of the twelve million in proceeds from
the sale of the Series A Preferred Stock was injected into Plumas Bank providing addition capital
for the bank to support growth in loans and investment securities and strengthen its capital
ratios. The remainder provides funds for holding company activities and general corporate purposes.
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 Companys 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. No common cash dividends were paid in 2009
or 2010 and none are anticipated to be paid in 2011.
The Company is subject to various restrictions on the payment of dividends. See Note 2
Regulatory Matters and note 12 Shareholders Equity Dividend Restrictions of the Companys
Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data of this
Annual Report on Form 10K.
At the request of the FRB, Plumas Bancorp deferred its regularly scheduled quarterly interest
payments on its outstanding junior subordinated debentures relating to its two trust preferred
securities and suspended quarterly cash dividend payments on its Series A Preferred Stock.
Therefore, Plumas Bancorp is currently in arrears with the dividend payments on the Series A
Preferred Stock and interest payments on the junior subordinated debentures as permitted by the
related documentation. As of December 31, 2010 the amount of the arrearage on the dividend payments
of the Series A Preferred Stock is $449 thousand and the amount of the arrearage on the payments on
the subordinated debt associated with the trust preferred securities is $233 thousand. Although we
have sufficient cash and liquidity to pay these amounts, we are taking these actions to support
holding company cash and preserve our capital position.
Capital Standards. The Companys significantly increased its regulatory capital ratios during 2010
related both to an increase in regulatory capital as illustrated in the below table and a decrease
in its fourth quarter average assets (used in Leverage Ratio) and risk based assets (used in Tier 1
and Total Risk-Based Capital Ratios). Adjusted fourth quarter average assets declined by $32
million and the Companys risk based assets declined by $52 million.
49
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 Companys capital position at December 31, 2010
exceeded 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-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 losses, subject to certain limitations. The
Series A Preferred Stock qualifies as Tier 1 capital for the Company.
As noted previously, the Companys junior subordinated debentures represent borrowings from its
unconsolidated subsidiaries that have issued an aggregate $10 million in trust-preferred
securities. These trust-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 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. On March 23, 2009 the requirement to
deduct goodwill was delayed until March 31, 2011.
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, 2010 and 2009 (amounts in thousands except percentage amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Tier 1 Leverage Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
42,994 |
|
|
|
8.9 |
% |
|
$ |
40,564 |
|
|
|
7.9 |
% |
Minimum regulatory requirement |
|
|
19,361 |
|
|
|
4.0 |
% |
|
|
20,652 |
|
|
|
4.0 |
% |
Plumas Bank |
|
|
43,262 |
|
|
|
8.9 |
% |
|
|
38,172 |
|
|
|
7.4 |
% |
Minimum requirement for
Well-Capitalized institution
under the prompt corrective
action plan |
|
|
24,190 |
|
|
|
5.0 |
% |
|
|
25,848 |
|
|
|
5.0 |
% |
Minimum regulatory requirement |
|
|
19,352 |
|
|
|
4.0 |
% |
|
|
20,678 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
|
42,994 |
|
|
|
12.7 |
% |
|
|
40,564 |
|
|
|
10.4 |
% |
Minimum regulatory requirement |
|
|
13,570 |
|
|
|
4.0 |
% |
|
|
15,641 |
|
|
|
4.0 |
% |
Plumas Bank |
|
|
43,262 |
|
|
|
12.8 |
% |
|
|
38,172 |
|
|
|
9.8 |
% |
Minimum requirement for
Well-Capitalized institution
under the prompt corrective
action plan |
|
|
20,342 |
|
|
|
6.0 |
% |
|
|
23,433 |
|
|
|
6.0 |
% |
Minimum regulatory requirement |
|
|
13,561 |
|
|
|
4.0 |
% |
|
|
15,622 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
|
47,274 |
|
|
|
13.9 |
% |
|
|
45,512 |
|
|
|
11.6 |
% |
Minimum regulatory requirement |
|
|
27,140 |
|
|
|
8.0 |
% |
|
|
31,281 |
|
|
|
8.0 |
% |
Plumas Bank |
|
|
47,539 |
|
|
|
14.0 |
% |
|
|
43,113 |
|
|
|
11.0 |
% |
Minimum requirement for
Well-Capitalized institution
under the prompt corrective
action plan |
|
|
33,903 |
|
|
|
10.0 |
% |
|
|
39,056 |
|
|
|
10.0 |
% |
Minimum regulatory requirement |
|
|
27,123 |
|
|
|
8.0 |
% |
|
|
31,244 |
|
|
|
8.0 |
% |
50
Management believes that the Company and the Bank met all their capital adequacy requirements
as of December 31, 2010 and 2009. On March 16, 2011, the Bank entered into a Consent Order
(Order) with the FDIC and the DFI. Within 240 days of the date of the Order we are required to
increase and maintain the Banks Tier 1 capital to a level such that its leverage ratio is at least
10% and its total risk-based capital is at least 13%. Currently the Bank has exceeded the Orders
total risk-based capital ratio goal of 13% and Management expects to achieve the leverage ratio
target of 10% by year-end without the injection of any new capital.
See Note 2 Regulatory Matters of the Companys Consolidated Financial Statements in Item 8
Financial Statements and Supplementary Data of this Annual Report on Form 10K for information
related to the Order.
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 Banks 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, 2010, the Company had $71.6 million in unfunded loan commitments
and $164 thousand in letters of credit. This compares to $67.3 million in unfunded commitments and
$304 thousand in letters of credit at December 31, 2009. Of the $71.6 million in unfunded loan
commitments, $34.9 million and $36.7 million represented commitments to commercial and consumer
customers, respectively. Of the total unfunded commitments at December 31, 2010, $35.8 million
were secured by real estate, of which $8.9 million was secured by commercial real estate and $26.9
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 necessarily represent future cash requirements.
Operating Leases. The Company leases one depository branch, one lending office and one loan
administration office and two non branch automated teller machine locations. Total rental expenses
under all operating leases, including premises, totaled $20,000 $317,000 and $347,000, in 2010,
2009 and 2008 respectively. The expiration dates of the leases vary, with the first such lease
expiring during 2011 and the last such lease expiring during 2015.
The decline in rental expense during 2010 resulted from the purchase of our Redding branch building
on March 31, 2010. Previously we had leased this building. Under the terms of the lease agreement
we were provided free rent for a period of time; however, in accordance with accounting principals
we recognized monthly rent expense equal to the total payments required under the lease dividend by
the term of the lease in months. At the time of the purchase we reversed this accrual recognizing a
$184 thousand reduction in rental expense.
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 Companys
liquidity needs are managed using assets or liabilities, or both. On the asset side, in addition to
cash and due from banks, the Company maintains an investment portfolio containing U.S. Government,
agency and municipal securities that are classified as available-for-sale. On the liability side,
liquidity needs are managed by charging competitive offering rates on deposit products and the use
of established lines of credit.
51
The Company is a member of the FHLB and can borrow up to $91,408,000 from the FHLB secured by
commercial and residential mortgage loans with carrying values totaling $150,217,000. The Company
is required to hold FHLB stock as a condition of membership. At December 31, 2010, the Company
held $2,188,000 of FHLB stock which is recorded as a component of other assets. At this level of
stock holdings the Company can borrow up to $46,561,000. There were no borrowings outstanding as of
December 31, 2010. To borrow the $91,408,000 in available credit the Company would need to
purchase $2,108,000 in additional FHLB stock. In addition, the Company has the ability to secure
advances through the FRB discount window. These advances also must be collateralized.
Customer deposits are the Companys primary source of funds. Total deposits were $424.9 million as
of December 31, 2010, a decrease of $8.4 million, or 2%, from the December 31, 2009 balance of
$433.3 million. Deposits are held in various forms with varying maturities. The Companys
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 cash held at the FRB, Federal funds sold and investment securities, to serve as a source of
funding for future loan growth. Management believes that the Companys available sources of funds,
including borrowings, will provide adequate liquidity for its operations in the foreseeable future.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a smaller reporting company we are not required to provide the information required by this
item.
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The following consolidated financial statements of Plumas Bancorp and subsidiary, and report of the
independent registered public accounting firm are included in the Annual Report of Plumas Bancorp
to its shareholders for the years ended December 31, 2010, 2009 and 2008.
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-10 |
|
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Plumas Bancorp and Subsidiary
We have audited the accompanying consolidated balance sheet of Plumas Bancorp and subsidiary
(the Company) as of December 31, 2010 and 2009 and the related consolidated statements of
operation, stockholders equity and cash flows for each of the years in the three-year period ended
December 31, 2010. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these 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 audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform an audit of its
internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 financial position of Plumas Bancorp and subsidiary as of December 31, 2010
and 2009 and the consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Perry-Smith LLP
Sacramento, California
March 23, 2011
F - 1
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
64,628,000 |
|
|
$ |
59,493,000 |
|
Investment securities |
|
|
63,017,000 |
|
|
|
87,950,000 |
|
Loans, less allowance for loan losses of $7,324,000
in 2010 and $9,568,000 in 2009 |
|
|
307,151,000 |
|
|
|
323,408,000 |
|
Premises and equipment, net |
|
|
14,431,000 |
|
|
|
14,544,000 |
|
Intangible assets, net |
|
|
475,000 |
|
|
|
648,000 |
|
Bank owned life insurance |
|
|
10,463,000 |
|
|
|
10,111,000 |
|
Other real estate and vehicles acquired through foreclosure |
|
|
8,884,000 |
|
|
|
11,269,000 |
|
Accrued interest receivable and other assets |
|
|
15,431,000 |
|
|
|
20,694,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
484,480,000 |
|
|
$ |
528,117,000 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
111,802,000 |
|
|
$ |
111,958,000 |
|
Interest bearing |
|
|
313,085,000 |
|
|
|
321,297,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
424,887,000 |
|
|
|
433,255,000 |
|
|
|
Short-term borrowings |
|
|
|
|
|
|
20,000,000 |
|
Long-term debt |
|
|
|
|
|
|
20,000,000 |
|
Accrued interest payable and other liabilities |
|
|
11,295,000 |
|
|
|
6,321,000 |
|
Junior subordinated deferrable interest debentures |
|
|
10,310,000 |
|
|
|
10,310,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
446,492,000 |
|
|
|
489,886,000 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Serial preferred stock no par value; 10,000,000
shares authorized; 11,949 issued and outstanding
at December 31, 2010 and 2009 |
|
|
11,682,000 |
|
|
|
11,595,000 |
|
Common stock no par value; 22,500,000 shares
authorized; issued and outstanding 4,776,339
shares at December 31, 2010 and 2009 |
|
|
6,027,000 |
|
|
|
5,970,000 |
|
Retained earnings |
|
|
20,331,000 |
|
|
|
20,044,000 |
|
Accumulated other comprehensive (loss) income |
|
|
(52,000 |
) |
|
|
622,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
37,988,000 |
|
|
|
38,231,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
484,480,000 |
|
|
$ |
528,117,000 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
F - 2
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
18,860,000 |
|
|
$ |
20,658,000 |
|
|
$ |
23,550,000 |
|
Interest on investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
1,649,000 |
|
|
|
1,708,000 |
|
|
|
1,398,000 |
|
Exempt from Federal income taxes |
|
|
123,000 |
|
|
|
455,000 |
|
|
|
489,000 |
|
Other |
|
|
48,000 |
|
|
|
15,000 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
20,680,000 |
|
|
|
22,836,000 |
|
|
|
25,440,000 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
2,696,000 |
|
|
|
3,169,000 |
|
|
|
4,522,000 |
|
Interest on borrowings |
|
|
135,000 |
|
|
|
80,000 |
|
|
|
202,000 |
|
Interest on junior subordinated
deferrable interest debentures |
|
|
312,000 |
|
|
|
371,000 |
|
|
|
623,000 |
|
Other |
|
|
4,000 |
|
|
|
35,000 |
|
|
|
17,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,147,000 |
|
|
|
3,655,000 |
|
|
|
5,364,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income before
provision for loan losses |
|
|
17,533,000 |
|
|
|
19,181,000 |
|
|
|
20,076,000 |
|
|
|
Provision for loan losses |
|
|
5,500,000 |
|
|
|
14,500,000 |
|
|
|
4,600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses |
|
|
12,033,000 |
|
|
|
4,681,000 |
|
|
|
15,476,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
|
|
3,642,000 |
|
|
|
3,796,000 |
|
|
|
3,951,000 |
|
Sale of merchant processing portfolio |
|
|
1,435,000 |
|
|
|
|
|
|
|
|
|
Gain on sale of investments |
|
|
1,160,000 |
|
|
|
10,000 |
|
|
|
|
|
Gain on sale of loans |
|
|
1,055,000 |
|
|
|
593,000 |
|
|
|
111,000 |
|
Impairment loss on investment
security |
|
|
|
|
|
|
|
|
|
|
(415,000 |
) |
Earnings on bank owned life
insurance policies |
|
|
444,000 |
|
|
|
434,000 |
|
|
|
421,000 |
|
Other |
|
|
825,000 |
|
|
|
919,000 |
|
|
|
1,023,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
8,561,000 |
|
|
|
5,752,000 |
|
|
|
5,091,000 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 3
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Continued)
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Non-interest expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
$ |
9,732,000 |
|
|
$ |
11,054,000 |
|
|
$ |
10,884,000 |
|
Occupancy and equipment |
|
|
3,096,000 |
|
|
|
3,759,000 |
|
|
|
3,838,000 |
|
Provision for losses on other real
estate |
|
|
356,000 |
|
|
|
4,800,000 |
|
|
|
618,000 |
|
Other |
|
|
6,050,000 |
|
|
|
6,741,000 |
|
|
|
5,135,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
19,234,000 |
|
|
|
26,354,000 |
|
|
|
20,475,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes |
|
|
1,360,000 |
|
|
|
(15,921,000 |
) |
|
|
92,000 |
|
|
|
Provision (benefit) for income taxes |
|
|
389,000 |
|
|
|
(6,775,000 |
) |
|
|
(212,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
971,000 |
|
|
|
(9,146,000 |
) |
|
|
304,000 |
|
|
|
Preferred stock dividends accrued and
discount accretion |
|
|
(684,000 |
) |
|
|
(628,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available
to common shareholders |
|
$ |
287,000 |
|
|
$ |
(9,774,000 |
) |
|
$ |
304,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
0.06 |
|
|
$ |
(2.05 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share |
|
$ |
0.06 |
|
|
$ |
(2.05 |
) |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common dividends per share |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
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, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Total |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Retained |
|
|
(Loss) Income |
|
|
Shareholders |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
(Net of Taxes) |
|
|
Equity |
|
|
Income (loss) |
|
Balance, January 1, 2008 |
|
|
|
|
|
|
|
|
|
|
4,869,130 |
|
|
$ |
5,042,000 |
|
|
$ |
32,204,000 |
|
|
$ |
(107,000 |
) |
|
$ |
37,139,000 |
|
|
|
|
|
Cumulative effect of change in accounting principle,
adoption of EITF 06-4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(420,000 |
) |
|
|
|
|
|
|
(420,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,000 |
|
|
|
|
|
|
|
304,000 |
|
|
$ |
304,000 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized (losses)/gains
on available-for-sale investment
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,000 |
|
|
|
424,000 |
|
|
|
424,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
728,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends $0.24 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,153,000 |
) |
|
|
|
|
|
|
(1,153,000 |
) |
|
|
|
|
Stock options exercised and related
tax benefit |
|
|
|
|
|
|
|
|
|
|
12,476 |
|
|
|
68,000 |
|
|
|
|
|
|
|
|
|
|
|
68,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292,000 |
|
|
|
|
|
|
|
|
|
|
|
292,000 |
|
|
|
|
|
Repurchase and retirement of
common stock |
|
|
|
|
|
|
|
|
|
|
(106,267 |
) |
|
|
(100,000 |
) |
|
|
(1,117,000 |
) |
|
|
|
|
|
|
(1,217,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
4,775,339 |
|
|
$ |
5,302,000 |
|
|
$ |
29,818,000 |
|
|
$ |
317,000 |
|
|
$ |
35,437,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 5
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(Continued)
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
Total |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Retained |
|
|
(loss) Income |
|
|
Shareholders |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
(Net of Taxes) |
|
|
Equity |
|
|
Income (loss) |
|
Balance, December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
4,775,339 |
|
|
$ |
5,302,000 |
|
|
$ |
29,818,000 |
|
|
$ |
317,000 |
|
|
$ |
35,437,000 |
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,146,000 |
) |
|
|
|
|
|
|
(9,146,000 |
) |
|
$ |
(9,146,000 |
) |
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities transferred
from held-to-maturity to available-
for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,000 |
|
|
|
197,000 |
|
|
|
197,000 |
|
Net change in unrealized gains
on available-for-sale investment
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,000 |
|
|
|
108,000 |
|
|
|
108,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(8,841,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock issued |
|
|
11,949 |
|
|
$ |
11,516,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,516,000 |
|
|
|
|
|
Stock warrants issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,000 |
|
|
|
|
|
|
|
|
|
|
|
407,000 |
|
|
|
|
|
Preferred stock dividends & accretion |
|
|
|
|
|
|
79,000 |
|
|
|
|
|
|
|
|
|
|
|
(628,000 |
) |
|
|
|
|
|
|
(549,000 |
) |
|
|
|
|
Stock options exercised and related
tax benefit |
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256,000 |
|
|
|
|
|
|
|
|
|
|
|
256,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
11,949 |
|
|
|
11,595,000 |
|
|
|
4,776,339 |
|
|
|
5,970,000 |
|
|
|
20,044,000 |
|
|
|
622,000 |
|
|
|
38,231,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lncome |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
971,000 |
|
|
|
|
|
|
|
971,000 |
|
|
$ |
971,000 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains
on available-for-sale investment
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(674,000 |
) |
|
|
(674,000 |
) |
|
|
(674,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
297,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends & accretion |
|
|
|
|
|
|
87,000 |
|
|
|
|
|
|
|
|
|
|
|
(684,000 |
) |
|
|
|
|
|
|
(597,000 |
) |
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,000 |
|
|
|
|
|
|
|
|
|
|
|
57,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
11,949 |
|
|
$ |
11,682,000 |
|
|
|
4,776,339 |
|
|
$ |
6,027,000 |
|
|
$ |
20,331,000 |
|
|
$ |
(52,000 |
) |
|
$ |
37,988,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F - 6
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
971,000 |
|
|
$ |
(9,146,000 |
) |
|
$ |
304,000 |
|
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
5,500,000 |
|
|
|
14,500,000 |
|
|
|
4,600,000 |
|
Change in deferred loan origination
costs/fees, net |
|
|
(79,000 |
) |
|
|
(19,000 |
) |
|
|
285,000 |
|
Stock-based compensation expense |
|
|
57,000 |
|
|
|
256,000 |
|
|
|
292,000 |
|
Depreciation and amortization |
|
|
1,693,000 |
|
|
|
1,929,000 |
|
|
|
1,984,000 |
|
Amortization of investment security
premiums |
|
|
514,000 |
|
|
|
283,000 |
|
|
|
56,000 |
|
Accretion of investment security discounts |
|
|
(55,000 |
) |
|
|
(53,000 |
) |
|
|
(55,000 |
) |
Impairment loss on investment security |
|
|
|
|
|
|
|
|
|
|
415,000 |
|
Gain on sale of investments |
|
|
(1,160,000 |
) |
|
|
(10,000 |
) |
|
|
|
|
Gain on sale of loans held for sale |
|
|
(1,055,000 |
) |
|
|
(593,000 |
) |
|
|
|
|
Loans originated for sale |
|
|
(21,286,000 |
) |
|
|
(12,598,000 |
) |
|
|
|
|
Proceeds from loan sales |
|
|
14,873,000 |
|
|
|
11,393,000 |
|
|
|
|
|
Provision for losses on other real estate |
|
|
356,000 |
|
|
|
4,800,000 |
|
|
|
618,000 |
|
Proceeds from secured borrowing |
|
|
4,284,000 |
|
|
|
|
|
|
|
|
|
Net loss (gain) on sale of premises and
equipment |
|
|
4,000 |
|
|
|
(6,000 |
) |
|
|
13,000 |
|
Net (gain) loss on sale of other
real estate and vehicles owned |
|
|
(58,000 |
) |
|
|
198,000 |
|
|
|
18,000 |
|
Earnings on bank owned life insurance
policies |
|
|
(444,000 |
) |
|
|
(434,000 |
) |
|
|
(421,000 |
) |
Expenses on bank owned life insurance
policies |
|
|
92,000 |
|
|
|
89,000 |
|
|
|
83,000 |
|
Provision (benefit) for deferred income taxes |
|
|
389,000 |
|
|
|
(3,852,000 |
) |
|
|
(1,459,000 |
) |
Decrease (increase) in accrued interest
receivable and other assets |
|
|
5,322,000 |
|
|
|
(7,022,000 |
) |
|
|
297,000 |
|
Increase (decrease) increase in accrued interest
payable and other liabilities |
|
|
197,000 |
|
|
|
355,000 |
|
|
|
(711,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
|
10,115,000 |
|
|
|
70,000 |
|
|
|
6,319,000 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 7
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from matured and called available-
for-sale investment securities |
|
$ |
31,895,000 |
|
|
$ |
8,000,000 |
|
|
$ |
16,475,000 |
|
Proceeds from matured and called held-to-
maturity investment securities |
|
|
|
|
|
|
1,836,000 |
|
|
|
920,000 |
|
Proceeds from sale of held-to-maturity securities |
|
|
|
|
|
|
943,000 |
|
|
|
|
|
Proceeds from sale of available-for-sale securities |
|
|
40,902,000 |
|
|
|
86,000 |
|
|
|
|
|
Purchases of available-for-sale investment
securities |
|
|
(57,238,000 |
) |
|
|
(65,876,000 |
) |
|
|
(2,990,000 |
) |
Purchases of held-to-maturity investment
securities |
|
|
|
|
|
|
(1,586,000 |
) |
|
|
|
|
Proceeds from principal repayments from
available-for-sale government-guaranteed
mortgage-backed securities |
|
|
8,927,000 |
|
|
|
7,320,000 |
|
|
|
2,819,000 |
|
Net decrease (increase) in loans |
|
|
16,623,000 |
|
|
|
8,683,000 |
|
|
|
(19,520,000 |
) |
Proceeds from sale of vehicles |
|
|
177,000 |
|
|
|
270,000 |
|
|
|
376,000 |
|
Proceeds from sale of other real estate |
|
|
3,462,000 |
|
|
|
1,992,000 |
|
|
|
|
|
Purchases of premises and equipment |
|
|
(1,210,000 |
) |
|
|
(253,000 |
) |
|
|
(2,566,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
43,538,000 |
|
|
|
(38,585,000 |
) |
|
|
(4,486,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in demand,
interest-bearing and savings deposits |
|
|
(3,353,000 |
) |
|
|
37,383,000 |
|
|
|
9,658,000 |
|
Net (decrease) increase in time deposits |
|
|
(5,015,000 |
) |
|
|
24,379,000 |
|
|
|
(30,105,000 |
) |
Net (decrease) increase in short-term
borrowings |
|
|
(20,000,000 |
) |
|
|
(14,000,000 |
) |
|
|
26,500,000 |
|
Proceeds from long-term debt |
|
|
|
|
|
|
20,000,000 |
|
|
|
|
|
Repayment of long-term debt |
|
|
(20,000,000 |
) |
|
|
|
|
|
|
|
|
Issuance of preferred stock, net of discount |
|
|
|
|
|
|
11,516,000 |
|
|
|
|
|
Payment of cash dividend on preferred stock |
|
|
(150,000 |
) |
|
|
(473,000 |
) |
|
|
|
|
Issuance of common stock warrant |
|
|
|
|
|
|
407,000 |
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
5,000 |
|
|
|
68,000 |
|
Repurchase and retirement of common stock |
|
|
|
|
|
|
|
|
|
|
(1,217,000 |
) |
Payment of cash dividends on common stock |
|
|
|
|
|
|
|
|
|
|
(1,153,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing
activities |
|
|
(48,518,000 |
) |
|
|
79,217,000 |
|
|
|
3,751,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents |
|
|
5,135,000 |
|
|
|
40,702,000 |
|
|
|
5,584,000 |
|
|
|
Cash and cash equivalents at beginning of year |
|
|
59,493,000 |
|
|
|
18,791,000 |
|
|
|
13,207,000 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
64,628,000 |
|
|
$ |
59,493,000 |
|
|
$ |
18,791,000 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F - 8
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
3,000,000 |
|
|
$ |
3,666,000 |
|
|
$ |
5,804,000 |
|
Income taxes |
|
$ |
|
|
|
$ |
65,000 |
|
|
$ |
1,385,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosure |
|
$ |
1,391,000 |
|
|
$ |
14,053,000 |
|
|
$ |
4,364,000 |
|
Vehicles acquired through repossession |
|
$ |
112,000 |
|
|
$ |
245,000 |
|
|
$ |
388,000 |
|
Reclassification of loans to other assets |
|
|
|
|
|
|
|
|
|
$ |
113,000 |
|
Investment securities transferred from
held-to-maturity to available-for-sale |
|
$ |
|
|
|
$ |
11,722,000 |
|
|
$ |
|
|
Net change in unrealized gain/loss on
available-for-sale investment securities |
|
$ |
(674,000 |
) |
|
$ |
108,000 |
|
|
$ |
424,000 |
|
The accompanying notes are an integral
part of these consolidated financial statements.
F - 9
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. |
|
THE BUSINESS OF PLUMAS BANCORP |
During 2002, Plumas Bancorp (the Company) was incorporated as a bank holding company for
the purpose of acquiring Plumas Bank (the Bank) in a one bank holding company
reorganization. This corporate structure gives the Company and the Bank greater flexibility
in terms of operation expansion and diversification. The Company formed Plumas Statutory
Trust I (Trust I) for the sole purpose of issuing trust preferred securities on September
26, 2002. The Company formed Plumas Statutory Trust II (Trust II) for the sole purpose of
issuing trust preferred securities on September 28, 2005.
The Bank operates eleven branches in California, including branches in Alturas, Chester,
Fall River Mills, Greenville, Kings Beach, Portola, Quincy, Redding, Susanville, Tahoe City,
and Truckee. In addition to its branch network, the Bank operates an administrative office
in Reno, Nevada and a lending office specializing in government-guaranteed lending in
Auburn, California. The Banks 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.
The Banks deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to
applicable legal limits. The Bank is participating in the Federal Deposit Insurance
Corporation (FDIC) Transaction Account Guarantee Program. Under the program, through
December 31, 2010, all noninterest-bearing transaction accounts were fully guaranteed by the
FDIC for the entire amount in the account. On July 21, 2010, President Barack Obama signed
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which,
in part, permanently raises the current standard maximum deposit insurance amount to
$250,000. Amendments related to the enactment of the Dodd-Frank Act now provide full
deposit insurance coverage for noninterest bearing deposit transaction accounts beginning
December 31, 2010 for an additional two year period.
Effective March 16, 2011, in connection with the Banks regularly scheduled 2010 Joint FDIC
and California Department of Financial Institutions (DFI) examination, the Bank entered
into a Consent Order (Order) with the FDIC and the DFI. The FDIC and DFI in the Consent
Order, require certain actions to be taken by the Bank including among others:
|
|
|
Within 240 days of the date of the Order, increase and maintain the Banks
leverage ratio to at least 10% and maintain its total risk-based capital ratio at
13% or more; |
|
|
|
Reduce or eliminate certain classified assets by $19.4 million within 180 days
of the date of the Order and reducing them by an additional $4.9 million within 240
days of the Order; |
|
|
|
Obtain an independent study of the management and personnel structure of the
Bank within 150 days of the date of the Order to determine whether the Bank is
staffed by qualified individuals commensurate with its size and risk profile to
ensure the safe and profitable operation of the Bank; |
|
|
|
|
Not pay cash dividends to Plumas Bancorp without the prior written consent of
the FDIC and DFI. |
F - 10
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. |
|
REGULATORY MATTERS (Continued) |
One of Managements top priorities has and will continue to be to reduce its problem assets.
The order serves to formalize and reinforce the Companys on-going plans to strengthen the
Companys operations and to implement the Banks strategic plan. Currently the Bank has
exceeded the Orders total risk-based capital ratio goal of 13% and Management expects to
achieve the leverage ratio target of 10% by year-end without the injection of any new
capital. As of December 31, 2010, the Banks leverage ratio was 8.9% and total risk-based
capital ratio was 14.0%.
3. |
|
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 Companys consolidated
financial statements and, accordingly, are accounted for under the equity method. The
Companys investment in Trust I of $275,000 and Trust II of $152,000 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 the
classifications used in 2010.
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 - 11
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Use of Estimates
The preparation of consolidated 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 consolidated 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. As of December 31, 2010 all cash held with other federally insured institutions
was fully insured by the FDIC.
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.
During 2009, management determined they no longer had the positive intent to hold their
held-to-maturity securities and transferred their held-to-maturity securities to available-
for-sale (see note 5). This transfer increases the Companys flexibility in managing its
investment portfolio allowing the investments to be sold in implementing its asset/liability
management strategies and in response to changes in interest rates, prepayment rates and
similar factors. All transfers between categories are accounted for at fair value. There
were no transfers between categories during 2010 or 2008. As of December 31, 2010 and 2009
the Company did not have any investment securities classified as trading and 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.
F - 12
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Investment Securities (Continued)
An investment security is impaired when its carrying value is greater than its fair value.
Investment securities that are impaired are evaluated on at least a quarterly basis and more
frequently when economic or market conditions warrant such an evaluation to determine
whether such a decline in their fair 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 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, and management does not intend to sell the security
or it is more likely than not that the Company will not be required to sell the security
before recovery, only the portion of the impairment loss representing credit
exposure is recognized as a charge to earnings, with the balance recognized as a charge to
other comprehensive income. If management intends to sell the security or it is more likely
than not that the Company will be required to sell the security before recovering its
forecasted cost, the entire impairment loss is recognized as a charge to earnings.
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, 2010 and 2009, Federal Home Loan Bank (FHLB) stock totaled $2,188,000
and $1,933,000, 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
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 can receive a
premium in excess of the adjusted carrying value of the loan at the time of sale. In the
case of SBA loans, 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.
In accordance with new accounting standards for the sale of a portion of a loan, as more
fully described in the Adoption of New Financial Accounting Standards section of this
note, we have recorded the proceeds from the sale of the guaranteed portions of SBA loans
that are subject to a premium refund obligation, which totaled $4,284,000, as a secured
borrowing and included such secured borrowings in other liabilities on the balance sheet.
Once the premium refund obligation has elapsed the transaction will be recorded as a sale
with the guaranteed portions of loans and the secured borrowing removed from the balance
sheet and the resulting gain on sale recorded. Included in commercial loans at December 31,
2010 is $4,284,000 in guaranteed portions of SBA loans sold subject to a 90-day premium
refund obligation. In February 2011, the SBA eliminated the refund obligation period and
the Company will no longer be required to defer gain recognition.
F - 13
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Loans Held for Sale, Loan Sales and Servicing (Continued)
As of December 31, 2010 the Company had $5,208,000 in government guaranteed loans held for
sale. Loans held for sale are recorded at the lower of cost or fair vale and therefore
maybe reported at fair value on a non-recurring basis. The fair values for loans held for
sale are based on either observable transactions of similar instruments or formally
committed loan sale prices.
Government guaranteed loans with unpaid balances of $33,686,000 and $18,512,000 were being
serviced for others at December 31, 2010 and 2009, respectively. The Company also serviced
loans previously sold to the Federal National Mortgage Association (FNMA) totaling
$2,185,000 and $3,014,000 as of December 31, 2010 and 2009, respectively.
The Company accounts for the transfer and servicing of financial assets based on the fair
value of financial and servicing assets it controls and liabilities it has assumed,
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.
The Companys 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. 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.
F - 14
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Loans
Loans are stated at principal balances outstanding, except for loans, if any, that are
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.
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 Companys
estimate of undiscounted cash flows expected to be collected over the Companys 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 loans yield over its remaining life. Decreases in
cash flows expected to be collected should be 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, 2010 and 2009, there were no
such loans being accounted for under this policy.
Allowance for Loan Losses
The allowance for loan losses is an estimate of credit losses inherent in the Companys loan
portfolio that have been incurred as of the balance-sheet date. 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. Credit exposures determined to be uncollectible are charged against
the allowance. Cash received on previously charged off amounts is recorded as a recovery to
the allowance. The overall allowance consists of two primary components, specific reserves
related to impaired loans and general reserves for inherent losses related to loans that are
not impaired.
F - 15
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Allowance for Loan Losses (Continued)
A loan is considered impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due, including principal and
interest, according to the contractual terms of the original agreement. Loans determined to
be impaired are individually evaluated for impairment. When a loan is
impaired, the Company measures impairment based on the present value of expected future cash
flows discounted at the loans effective interest rate, except that as a practical
expedient, it may measure impairment based on a loans observable market price, or the fair
value of the collateral if the loan is collateral dependent. A loan is collateral dependent
if the repayment of the loan is expected to be provided solely by the underlying collateral.
A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the Company,
for economic or legal reasons related to the debtors financial difficulties, grants a
concession to the debtor that it would not otherwise consider. Restructured workout loans
typically present an elevated level of credit risk as the borrowers are not able to perform
according to the original contractual terms. Loans that are reported as TDRs are considered
impaired and measured for impairment as described above.
The determination of the general reserve for loans that are not impaired is based on
estimates made by management, to include, but not limited to, consideration of historical
losses by portfolio segment, internal asset classifications, and qualitative factors to
include economic trends in the Companys service areas, industry experience and trends,
geographic concentrations, estimated collateral values, the Companys underwriting policies,
the character of the loan portfolio, and probable losses inherent in the portfolio taken as
a whole.
The Companys maintains a separate allowance for each portfolio segment (loan type). These
portfolio segments include commercial and industrial, agricultural, real estate construction
(including land and development loans), commercial real estate mortgage, residential
mortgage, home equity loans, installment loans, automobile loans and other loans primarily
consisting of credit card receivables. The allowance for loan losses attributable to each
portfolio segment, which includes both impaired loans and loans that are not impaired, is
combined to determine the Companys overall allowance, which is included on the consolidated
balance sheet.
The Company assigns a risk rating to all loans and periodically performs detailed reviews of
all such loans over a certain threshold to identify credit risks and to assess the overall
collectability of the portfolio. These risk ratings are also subject to examination by
independent specialists engaged by the Company and the Companys regulators. During these
internal reviews, management monitors and analyzes the financial condition of borrowers and
guarantors, trends in the industries in which borrowers operate and the fair values of
collateral securing these loans. These credit quality indicators are used to assign a risk
rating to each individual loan. The risk ratings can be grouped into five major categories,
defined as follows:
Pass A pass loan is a strong credit with no existing or known potential
weaknesses deserving of managements close attention.
F - 16
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Allowance for Loan Losses (Continued)
Watch A Watch loan has potential weaknesses that deserve managements close
attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or in the Companys credit
position at some future date. Watch loans are not adversely classified and do not
expose the Company to sufficient risk to warrant adverse classification.
Substandard A substandard loan is not adequately protected by the current sound
worth and paying capacity of the borrower or the value of the collateral pledged, if
any. Loans classified as substandard have a well-defined weakness or weaknesses
that jeopardize the liquidation of the debt. Well defined weaknesses include a
projects lack of marketability, inadequate cash flow or
collateral support, failure to complete construction on time or the projects
failure to fulfill economic expectations. They are characterized by the distinct
possibility that the Company will sustain some loss if the deficiencies are not
corrected.
Doubtful Loans classified doubtful have all the weaknesses inherent in those
classified as substandard with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently known facts, conditions
and values, highly questionable and improbable.
Loss Loans classified as loss are considered uncollectible and charged off
immediately.
The general reserve component of the allowance for loan losses also consists of reserve
factors that are based on managements assessment of the following for each portfolio
segment: (1) historical losses and (2) other qualitative factors, including inherent credit
risk. These reserve factors are inherently subjective and are driven by the repayment risk
associated with each portfolio segment described below.
Commercial Commercial loans generally possess a lower inherent risk of loss than
real estate portfolio segments because these loans are generally underwritten to
existing cash flows of operating businesses. Debt coverage is provided by business
cash flows and economic trends influenced by unemployment rates and other key
economic indicators are closely correlated to the credit quality of these loans.
Agricultural Loans secured by crop production and livestock are especially
vulnerable to two risk factors that are largely outside the control of Company and
borrowers: commodity prices and weather conditions.
Real estate Residential and Home Equity Lines of Credit The degree of risk in
residential real estate lending depends primarily on the loan amount in relation to
collateral value, the interest rate and the borrowers ability to repay in an
orderly fashion. These loans generally possess a lower inherent risk of loss than
other real estate portfolio segments. Economic trends determined by
unemployment rates and other key economic indicators are closely correlated to the
credit quality of these loans. Weak economic trends indicate that the borrowers
capacity to repay their obligations may be deteriorating.
F - 17
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Allowance for Loan Losses (Continued)
Real estate Commercial Commercial real estate mortgage loans generally possess
a higher inherent risk of loss than other real estate portfolio segments, except
land and construction loans. Adverse economic developments or an overbuilt market
impact commercial real estate projects and may result in troubled loans. Trends in
vacancy rates of commercial properties impact the credit quality of these loans.
High vacancy rates reduce operating revenues and the ability for properties to
produce sufficient cash flow to service debt obligations.
Real estate Construction and Land Development Construction and land development
loans generally possess a higher inherent risk of loss than other real estate
portfolio segments. A major risk arises from the necessity to complete projects
within specified cost and time lines. Trends in the construction industry
significantly impact the credit quality of these loans, as demand drives
construction activity. In addition, trends in real estate values significantly
impact the credit quality of these loans, as property values determine the economic
viability of construction projects.
Installment An installment loan portfolio is usually comprised of a large number
of small loans scheduled to be amortized over a specific period. Most installment
loans are made directly for consumer purchases, but business loans granted for the
purchase of heavy equipment or industrial vehicles may also be included. Economic
trends determined by unemployment rates and other key economic indicators are
closely correlated to the credit quality of these loans. Weak economic trends
indicate that the borrowers capacity to repay their obligations may be
deteriorating.
Other - Other loans primarily consist of automobile and credit card loans and are
similar in nature to installment loans.
Although management believes the allowance to be adequate, ultimate losses may vary from its
estimates. At least quarterly, the Board of Directors reviews the adequacy of the
allowance, including consideration of the relative risks in the portfolio, current economic
conditions and other factors. If the Board of Directors and management determine that
changes are warranted based on those reviews, the allowance is adjusted. In addition, the
Companys primary regulators, the FDIC and California Department of Financial Institutions,
as an integral part of their examination process, review the adequacy of the allowance.
These regulatory agencies may require additions to the allowance based on their judgment
about information available at the time of their examinations.
F - 18
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Allowance for Loan Losses (Continued)
The Company also maintains a separate allowance for off-balance-sheet commitments.
Management estimates anticipated losses using historical data and utilization assumptions.
The allowance totaled $141,000 at
December 31, 2010 and 2009,
respectively and is included in accrued interest payable and other liabilities in the
consolidated balance sheet.
Other Real Estate
Other real estate relates to real estate acquired in full or partial settlement of loan
obligations, which was $8,867,000 net of a valuation allowance of $4,188,000 at December 31,
2010 and $11,204,000 net of a valuation allowance of $5,066,000 at December 31, 2009.
Proceeds from sales of other real estate totaled $3,462,000 and $1,992,000 for the years
ended December 31, 2010 and 2009, respectively. For the year ended December 31, 2010 the
Company recorded a gain on sale of other real estate of $43,000. This compares to a loss on
sale of $158,000 during 2009. There were no sales of other real estate in 2008. When other
real estate is acquired, any excess of the Banks recorded investment in the loan balance
and accrued interest income over
the estimated fair market value of the property less costs to sell is charged against the
allowance for loan losses. A valuation allowance for losses on other real estate is
maintained to provide for temporary declines in value. The allowance is established
through a provision for losses on other real estate which is included in other expenses.
Subsequent gains or losses on sales or write-downs resulting from permanent impairment are
recorded in other income or expenses as incurred.
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. There were no such events or circumstances in 2010 or 2009.
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.
F - 19
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Income Taxes
The Company files its income taxes on a consolidated basis with its subsidiary. The
allocation of income tax expense (benefit) represents each entitys 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. A valuation allowance is recognized if, based on the weight
of available evidence management believes it is more likely than not that some portion or
all of the deferred tax assets will not be realized. On the consolidated balance sheet, net
deferred tax assets are included in accrued interest receivable and other assets.
Accounting for Uncertainty in Income Taxes
When tax returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject to
uncertainty about the merits of the position taken or the amount of the position that would
be ultimately sustained. The benefit of a tax position is recognized in the financial
statements in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if any. Tax positions taken are not
offset or aggregated with other positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing authority. The
portion of the benefits associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated interest and penalties that would be
payable to the taxing authorities upon examination.
Interest expense and penalties associated with unrecognized tax benefits, if any, are
classified as income tax expense in the consolidated statement of operations. There have
been no significant changes to unrecognized tax benefits or accrued interest and penalties
for the years ended December 31, 2010 and 2009.
Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS), which excludes dilution, is computed by dividing
income (loss) available to common stockholders (net income or (loss) less preferred
dividends) 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 - 20
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Stock-Based Compensation
At December 31, 2010, 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 12.
Compensation expense, net of related tax benefits, recorded in 2010, 2009 and 2008 totaled
$53,000, $237,000 and $269,000 or $0.01, $0.05 and $0.06 per diluted share, respectively.
Compensation expense is recognized over the vesting period on a straight line accounting
basis.
The Company determines the fair value of the options previously granted on the date of grant
using a Black-Scholes-Merton 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
Companys common stock over the most recent period commensurate
with the estimated expected life of the Companys 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.
|
|
|
|
|
|
|
2008 |
|
Expected life of stock options |
|
5.2 years |
|
Interest ratestock options |
|
|
2.98 |
% |
Volatilitystock options |
|
|
25.3 |
% |
Dividend yields |
|
|
2.61 |
% |
Weighted-average fair value of options granted during
the year |
|
$ |
2.54 |
|
No options were granted during the years ended December 31, 2010 and 2009.
F - 21
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Adoption of New Financial Accounting Standards
Accounting for Transfers of Financial Assets
In June 2009, the Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Update (ASU) 2009-16, Accounting for Transfers of Financial Assets (Statement
166), which amends previously issued accounting guidance to enhance accounting and reporting
for transfers of financial assets, including securitizations or continuing exposure to the
risks related to transferred financial assets. Prior to the issuance of Statement 166,
transfers under participation agreements and other partial loan sales fell under the general
guidance for transfers of financial assets. Statement 166 introduces a new definition for a
participating interest along with the requirement for partial loan sales to meet the
definition of a participating interest for sale treatment to occur. If a participation
or other partial loan sale does not meet the
definition, the portion sold should remain on the books and the proceeds recorded as a
secured borrowing until the definition is met. Additionally, existing provisions that
require the transferred assets to be isolated from the originating institution
(transferor), that the
transferor does not maintain effective control through certain agreements to repurchase or
redeem the transferred assets and that the purchasing institution (transferee) has the
right to pledge or exchange the assets acquired were retained. The new provisions became
effective on January 1, 2010 and early adoption was not permitted. Under this new standard,
the Companys loan participations were not affected, but the Company deferred approximately
$340,000 of gains and recorded $4,284,000 of secured borrowings related to the sale of a
portion of certain loans as of December 31, 2010. These gains will be recognized when the
warranty periods that precluded the sales from meeting the participating interest standard
expire.
Fair Value Measurements
In January 2010, the FASB issued FASB ASU 2010-06, Improving Disclosures about Fair Value
Measurements, which amends and clarifies existing standards to require additional
disclosures regarding fair value measurements. Specifically, the standard requires
disclosure of the amounts of significant transfers between Level 1 and Level 2 of the fair
value hierarchy and the reasons for these transfers, the reasons for any transfers in or out
of Level 3, and information in the reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis. This standard clarifies that
reporting entities are required to provide fair value measurement disclosures for each class
of assets and liabilitiespreviously separate fair value disclosures were required for each
major category of assets and liabilities. This standard also clarifies the requirement to
disclose information about both the valuation techniques and inputs used in estimating Level
2 and Level 3 fair value measurements. Except for the requirement to disclose information
about purchases, sales, issuances, and settlements in the reconciliation of recurring Level
3 measurements on a gross basis, these disclosures are effective for the year ended December
31, 2010. The requirement to separately disclose purchases, sales, issuances, and
settlements of recurring Level 3 measurements becomes effective for the Company for the year
beginning on January 1, 2011. The Company adopted this new accounting standard as of
January 1, 2010 and the impact of adoption was not material to the consolidated financial
statements.
F - 22
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Adoption of New Financial Accounting Standards (Continued)
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses
In July 2010, the FASB issued FASB ASU 2010-20, Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 requires more robust
and disaggregated disclosures about the credit quality of financing receivables (loans) and
allowances for loan losses, including disclosure about credit quality indicators, past due
information and modifications of finance receivables. The disclosures as of the end of a
reporting period are effective for interim and annual reporting periods ending on and
after December 15, 2010. The disclosures about
activity that occurs during a reporting period are effective for interim and annual
reporting periods beginning on or after December 15, 2010. The adoption of this guidance
has significantly expanded disclosure requirements related to accounting policies and
disclosures related to the allowance for loan losses but did not have an impact on the
Companys financial position, results of operation or cash flows.
4. |
|
FAIR VALUE MEASUREMENTS |
Fair Value of Financial Instruments
The estimated fair values of the Companys financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
64,628,000 |
|
|
$ |
64,628,000 |
|
|
$ |
59,493,000 |
|
|
$ |
59,493,000 |
|
Investment securities |
|
|
63,017,000 |
|
|
|
63,017,000 |
|
|
|
87,950,000 |
|
|
|
87,950,000 |
|
Loans |
|
|
307,151,000 |
|
|
|
304,045,000 |
|
|
|
323,408,000 |
|
|
|
325,589,000 |
|
FHLB stock |
|
|
2,188,000 |
|
|
|
2,188,000 |
|
|
|
1,933,000 |
|
|
|
1,933,000 |
|
Bank owned life insurance |
|
|
10,463,000 |
|
|
|
10,463,000 |
|
|
|
10,111,000 |
|
|
|
10,111,000 |
|
Accrued interest receivable |
|
|
1,784,000 |
|
|
|
1,784,000 |
|
|
|
2,487,000 |
|
|
|
2,487,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
424,887,000 |
|
|
$ |
425,009,000 |
|
|
$ |
433,255,000 |
|
|
$ |
433,311,000 |
|
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
20,000,000 |
|
|
|
20,000,000 |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
20,000,000 |
|
|
|
19,817,000 |
|
Junior subordinated deferrable
interest debentures |
|
|
10,310,000 |
|
|
|
2,992,000 |
|
|
|
10,310,000 |
|
|
|
2,909,000 |
|
Accrued interest payable |
|
|
623,000 |
|
|
|
623,000 |
|
|
|
476,000 |
|
|
|
476,000 |
|
These estimates do not reflect any premium or discount that could result from offering the
Companys entire holdings of a particular financial instrument for sale at one time, nor do
they attempt to estimate the value of anticipated future business related to the
instruments. In addition, the tax ramifications related to the realization of unrealized
gains and losses can have a significant effect on fair value estimates and have not been
considered in any of these estimates.
The following methods and assumptions were used by management to estimate the fair value of
its financial instruments at December 31, 2010 and December 31, 2009:
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 - 23
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. |
|
FAIR VALUE MEASUREMENTS (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 value of accrued interest receivable approximates its fair value.
The fair value of impaired loans is based on either the estimated fair value of underlying
collateral or estimated cash flows, discounted at the loans effective rate. Assumptions
regarding credit risk and cash flows are determined using available market information and
specific borrower information.
FHLB stock: The carrying amount of FHLB stock approximates its fair value. This
investment is carried at cost and is redeemable at par with certain restrictions.
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.
Long-term debt: The fair values for long-term FHLB term advances are estimated
using discounted cash flow analyses, using interest rates currently being offered at each
reporting date for FHLB advances with a similar maturity.
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, these items are not included in the table above.
F - 24
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. |
|
FAIR VALUE MEASUREMENTS (Continued) |
Because no market exists for a significant portion of the Companys 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 Company measures fair value under the fair value hierarchy described below.
Level 1: Quoted prices for identical instruments traded in active exchange markets.
Level 2: Quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active and model-based
valuation techniques for which all significant assumptions are observable or can be
corroborated by observable market data.
Level 3: Model based techniques that use one significant assumption not observable in
the market. These unobservable assumptions reflect the Companys estimates of
assumptions that market participants would use on pricing the asset or liability.
Valuation techniques include management judgment and estimation which may be
significant.
In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in its entirety. The Companys
assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or liability.
Management monitors the availability of observable market data to assess the appropriate
classification of financial instruments within the fair value hierarchy. Changes in economic
conditions or model-based valuation techniques may require the transfer of financial
instruments from one fair value level to another. In such instances, the transfer is
reported at the beginning of the reporting period.
Management evaluates the significance of transfers between levels based upon the nature of
the financial instrument and size of the transfer relative to total assets, total
liabilities or total earnings.
F - 25
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. |
|
FAIR VALUE MEASUREMENTS (Continued) |
The following tables present information about the Companys assets and liabilities
measured at fair value on a recurring and non recurring basis as of December 31, 2010 and
December 31, 2009, and indicates the fair value hierarchy of the valuation techniques
utilized by the Company to determine such fair value:
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable |
|
|
|
Total Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
Inputs (Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities |
|
$ |
1,032,000 |
|
|
$ |
1,032,000 |
|
|
|
|
|
|
|
|
|
U.S. Government
agencies |
|
|
40,430,000 |
|
|
|
40,430,000 |
|
|
|
|
|
|
|
|
|
U.S. Government
agencies
collateralized
by mortgage
obligations |
|
|
21,273,000 |
|
|
|
|
|
|
$ |
21,273,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
states and
political
subdivisions |
|
|
282,000 |
|
|
|
282,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,017,000 |
|
|
$ |
41,744,000 |
|
|
$ |
21,273,000 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Unobservable |
|
|
|
Total Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
Inputs (Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities |
|
$ |
1,052,000 |
|
|
$ |
1,052,000 |
|
|
|
|
|
|
|
|
|
U.S. Government
agencies |
|
|
55,889,000 |
|
|
|
55,889,000 |
|
|
|
|
|
|
|
|
|
U.S. Government
agencies
collateralized
by mortgage
obligations |
|
|
19,287,000 |
|
|
|
|
|
|
$ |
19,287,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of
states and
political
subdivisions |
|
|
11,722,000 |
|
|
|
11,722,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
87,950,000 |
|
|
$ |
68,663,000 |
|
|
$ |
19,287,000 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 26
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. |
|
FAIR VALUE MEASUREMENTS (Continued) |
The fair value of securities available-for-sale equals quoted market price, if available.
If quoted market prices are not available, fair value is determined using quoted market
prices for similar securities. There were no changes in the valuation techniques used during
2010 or 2009. Changes in fair market value are recorded in other comprehensive income.
Assets and liabilities measured at fair value on a non-recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
Total Gains |
|
|
|
Total Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans |
|
$ |
13,521,000 |
|
|
|
|
|
|
$ |
13,521,000 |
|
|
|
|
|
|
$ |
(1,356,000 |
) |
Other real estate |
|
|
8,867,000 |
|
|
|
|
|
|
|
8,867,000 |
|
|
|
|
|
|
|
(235,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,388,000 |
|
|
|
|
|
|
$ |
22,388,000 |
|
|
|
|
|
|
$ |
(1,591,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
|
Total Gains |
|
|
|
Total Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans |
|
$ |
9,435,000 |
|
|
|
|
|
|
$ |
9,435,000 |
|
|
|
|
|
|
$ |
(5,127,000 |
) |
Other real estate |
|
|
11,204,000 |
|
|
|
|
|
|
|
11,204,000 |
|
|
|
|
|
|
|
(4,457,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,639,000 |
|
|
|
|
|
|
$ |
20,639,000 |
|
|
|
|
|
|
$ |
(9,584,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following methods were used to estimate the fair value of each class of assets
above.
Impaired Loans: The fair value of impaired loans is based on the fair value of the
collateral, if collateral dependent or the present value of the expected cash flows
discounted at the loans effective rate for those loans not collateral dependent. If the
Company determines that the value of an impaired loan is less than the recorded investment
in the loan, the carrying value is adjusted through a charge-off recorded through the
allowance for loan losses. Total losses of $1,356,000 and $5,127,000 represent impairment
charges recognized during the years ended December 31, 2010 and 2009, respectively related
to the above impaired loans. There were no changes in the valuation techniques used during
2010.
F - 27
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. |
|
FAIR VALUE MEASUREMENTS (Continued) |
Other Real Estate: The fair value of other real estate is based on property
appraisals at the time of transfer and as appropriate thereafter, less estimated costs to
sell. Estimated costs to sell other real estate were based on standard market factors.
Management periodically reviews other real estate to determine whether the property
continues to be carried at the lower of its recorded book value or estimated fair value, net
of estimated costs to sell.
The amortized cost and estimated fair value of investment securities at December 31, 2010
and 2009 consisted of the following:
Available-for-Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,025,000 |
|
|
$ |
7,000 |
|
|
|
|
|
|
$ |
1,032,000 |
|
U.S. Government agencies |
|
|
40,662,000 |
|
|
|
58,000 |
|
|
$ |
(290,000 |
) |
|
|
40,430,000 |
|
U.S. Government agencies
collateralized by mortgage
obligations |
|
|
21,110,000 |
|
|
|
270,000 |
|
|
|
(107,000 |
) |
|
|
21,273,000 |
|
Obligations of states and
political subdivisions |
|
|
308,000 |
|
|
|
|
|
|
|
(26,000 |
) |
|
|
282,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,105,000 |
|
|
$ |
335,000 |
|
|
$ |
(423,000 |
) |
|
$ |
63,017,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on available-for-sale investment securities totaling $88,000 were
recorded, net of $36,000 in tax benefit, as accumulated other comprehensive loss within
shareholders equity at December 31, 2010. During the year ended December 31, 2010 the
Company sold sixty-five available-for-sale securities for $40,902,000, recording a
$1,160,000 gain on sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,059,000 |
|
|
|
|
|
|
$ |
(7,000 |
) |
|
$ |
1,052,000 |
|
U.S. Government agencies |
|
|
55,520,000 |
|
|
$ |
420,000 |
|
|
|
(51,000 |
) |
|
|
55,889,000 |
|
U.S. Government agencies
collateralized by mortgage
obligations |
|
|
18,925,000 |
|
|
|
362,000 |
|
|
|
|
|
|
|
19,287,000 |
|
Obligations of states and
political subdivisions |
|
|
11,387,000 |
|
|
|
360,000 |
|
|
|
(25,000 |
) |
|
|
11,722,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
86,891,000 |
|
|
$ |
1,142,000 |
|
|
$ |
(83,000 |
) |
|
$ |
87,950,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available-for-sale investment securities totaling $1,059,000
were recorded, net of $437,000 in tax expense, as accumulated other comprehensive income
within shareholders equity at December 31, 2009. During 2009 we sold one available-for sale
security for $86,000, recording a $1,000 gain on sale.
F - 28
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. |
|
INVESTMENT SECURITIES (Continued) |
Held-to-Maturity
There were no securities classified as held-to-maturity at December 31, 2010 or December 31,
2009. Related to a significant deterioration in creditworthiness, during 2009 we sold five
held-to maturity securities for $943,000, recording a $9,000 gain on sale. At December 31,
2009 the Company transferred all of its obligations of states and political subdivisions
from held-to-maturity to available-for-sale as it was determined that management no longer
had the intent to hold these investments to maturity. At the time of the transfer these
securities had an amortized cost of $11,387,000 and a fair value of $11,722,000. There were
no sales or transfers of held-to-maturity investment securities during the years ended
December 31, 2010 or 2008.
Investment securities with unrealized losses at December 31, 2010 and 2009 are
summarized and classified according to the duration of the loss period as follows:
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
|
Fair |
|
|
Unrealized |
|
December 31, 2010 |
|
Value |
|
|
Losses |
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
14,763,000 |
|
|
$ |
290,000 |
|
U.S. Government agencies
collateralized by mortgage
obligations |
|
|
13,205,000 |
|
|
|
107,000 |
|
Obligations of states and political subdivisions |
|
|
282,000 |
|
|
|
26,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,250,000 |
|
|
$ |
423,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
|
Fair |
|
|
Unrealized |
|
December 31, 2009 |
|
Value |
|
|
Losses |
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
1,052,000 |
|
|
$ |
7,000 |
|
U.S. Government agencies |
|
|
10,787,000 |
|
|
|
51,000 |
|
Obligations of states and political subdivisions |
|
|
1,208,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,047,000 |
|
|
$ |
83,000 |
|
|
|
|
|
|
|
|
There were no securities in a loss position for more than one year as of December 31,
2010 and 2009.
F - 29
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. |
|
INVESTMENT SECURITIES (Continued) |
At December 31, 2010, the Company held 63 securities of which 22 were in a loss position. Of
the securities in a loss position, all were in a loss position for less than twelve months.
Of the 22 securities 11 are U.S. government agencies, 9 are U.S. Government agencies
collateralized by mortgage obligations and 2 are obligations of states and political
subdivisions. The unrealized losses relate principally to market rate conditions. All of the
securities continue to pay as scheduled. When analyzing an issuers financial condition,
management considers the length of time and extent to which the market value has been less
than cost; the historical and implied volatility of the security; the financial condition of
the issuer of the security; and the Companys intent and ability to hold the security to
recovery. As of December 31, 2010, management does not have the intent to sell these
securities nor does it believe it is more likely than not that it will be required to sell
these securities before the recovery of its amortized cost basis. Based on the Companys
evaluation of the above and other relevant factors, the Company does not believe the
securities that are in an unrealized loss position as of December 31, 2010 are other than
temporarily impaired.
The amortized cost and estimated fair value of investment securities at December 31, 2010 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.
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
Estimated |
|
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
Within one year |
|
$ |
2,033,000 |
|
|
$ |
2,044,000 |
|
After one year through five years |
|
|
39,654,000 |
|
|
|
39,418,000 |
|
After five years through ten years |
|
|
308,000 |
|
|
|
282,000 |
|
|
|
|
|
|
|
|
|
|
|
41,995,000 |
|
|
|
41,744,000 |
|
Investment securities not due at a single maturity date: |
|
|
|
|
|
|
|
|
Government-guaranteed mortgage-backed securities |
|
|
21,110,000 |
|
|
|
21,273,000 |
|
|
|
|
|
|
|
|
|
|
$ |
63,105,000 |
|
|
$ |
63,017,000 |
|
|
|
|
|
|
|
|
Investment securities with amortized costs totaling $36,828,000 and $72,154,000 and
estimated fair values totaling $36,814,000 and $73,254,000 at December 31, 2010 and 2009,
respectively, were pledged to secure deposits, including public deposits and treasury, tax
and loan accounts.
F - 30
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. |
|
LOANS AND THE ALLOWANCE FOR LOAN LOSSES |
Outstanding loans are summarized below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Commercial |
|
$ |
33,433,000 |
|
|
$ |
37,056,000 |
|
Agricultural |
|
|
38,469,000 |
|
|
|
41,722,000 |
|
Real estate residential |
|
|
43,291,000 |
|
|
|
59,815,000 |
|
Real estate commercial |
|
|
119,222,000 |
|
|
|
101,582,000 |
|
Real estate construction and land development |
|
|
31,199,000 |
|
|
|
38,061,000 |
|
Equity lines of credit |
|
|
36,946,000 |
|
|
|
34,814,000 |
|
Installment |
|
|
2,879,000 |
|
|
|
3,334,000 |
|
Other |
|
|
8,761,000 |
|
|
|
16,294,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
314,200,000 |
|
|
|
332,678,000 |
|
|
|
Deferred loan costs, net |
|
|
275,000 |
|
|
|
298,000 |
|
Allowance for loan losses |
|
|
(7,324,000 |
) |
|
|
(9,568,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
307,151,000 |
|
|
$ |
323,408,000 |
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
Balance, beginning of year |
|
$ |
9,568,000 |
|
|
$ |
7,224,000 |
|
|
$ |
4,211,000 |
|
Provision charged to operations |
|
|
5,500,000 |
|
|
|
14,500,000 |
|
|
|
4,600,000 |
|
Losses charged to allowance |
|
|
(8,349,000 |
) |
|
|
(12,500,000 |
) |
|
|
(1,783,000 |
) |
Recoveries |
|
|
605,000 |
|
|
|
344,000 |
|
|
|
196,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
7,324,000 |
|
|
$ |
9,568,000 |
|
|
$ |
7,224,000 |
|
|
|
|
|
|
|
|
|
|
|
The recorded investment in impaired loans totaled $28,755,000 and $19,228,000 at December
31, 2010 and 2009, respectively. The Company had specific allowances for loan losses of
$1,903,000 on impaired loans of $11,292,000 at December 31, 2010 as compared to specific
allowances for loan losses of $4,281,000 on impaired loans of $13,716,000 at December 31,
2009. The average recorded investment in impaired loans for the years ended December 31,
2010, 2009 and 2008 was $20,833,000, $25,092,000 and $5,243,000, respectively. The Company
recognized $608,000, $369,000 and $74,000 in interest income on a cash basis for impaired
loans during the years ended December 31, 2010, 2009 and 2008, respectively.
Included in impaired loans are troubled debt restructurings. A troubled debt restructuring
is a formal restructure of a loan where the Company for economic or legal reasons related to
the borrowers financial difficulties, grants a concession to the borrower. The concessions
may be granted in various forms, including reduction in the standard interest rate,
reduction in the loan balance or accrued interest, and extension of the maturity date.
F - 31
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. |
|
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued) |
At December 31, 2010 and 2009, nonaccrual loans totaled $25,313,000 and $14,263,000,
respectively. Interest foregone on nonaccrual loans totaled $1,021,000, $568,000 and
$576,000 for the years ended December 31, 2010, 2009 and 2008, respectively. Loans past due
90 days or more and on accrual status were $45,000 and $28,000 at December 31, 2010 and
2009, respectively.
Salaries and employee benefits totaling $638,000, $708,000 and $868,000 have been deferred
as loan origination costs during the years ended December 31, 2010, 2009 and 2008,
respectively.
The following table shows the loan portfolio allocated by managements internal risk ratings
at December 31, 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Credit Exposure |
|
|
|
Credit Risk Profile by Internally Assigned Grade |
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
Real Estate |
|
|
|
Commercial |
|
|
Agricultural |
|
|
Residential |
|
|
Commercial |
|
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
28,923 |
|
|
$ |
34,081 |
|
|
$ |
39,194 |
|
|
$ |
96,527 |
|
Watch |
|
|
904 |
|
|
|
646 |
|
|
|
1,738 |
|
|
|
8,192 |
|
Substandard |
|
|
3,606 |
|
|
|
3,742 |
|
|
|
2,295 |
|
|
|
14,503 |
|
Doubtful |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,433 |
|
|
$ |
38,469 |
|
|
$ |
43,291 |
|
|
$ |
119,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Credit Exposure |
|
|
|
Credit Risk Profile by Internally Assigned Grade |
|
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
Construction |
|
|
Equity LOC |
|
|
Total |
|
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
15,987 |
|
|
$ |
34,787 |
|
|
$ |
249,499 |
|
Watch |
|
|
2,165 |
|
|
|
585 |
|
|
|
14,230 |
|
Substandard |
|
|
12,982 |
|
|
|
1,502 |
|
|
|
38,630 |
|
Doubtful |
|
|
65 |
|
|
|
72 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
31,199 |
|
|
$ |
36,946 |
|
|
$ |
302,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Credit Exposure |
|
|
|
Credit Risk Profile Based on Payment Activity |
|
|
|
Installment |
|
|
Other |
|
|
Total |
|
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
Performing |
|
$ |
2,830 |
|
|
$ |
8,643 |
|
|
$ |
11,473 |
|
Non-performing |
|
|
49 |
|
|
|
118 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,879 |
|
|
$ |
8,761 |
|
|
$ |
11,640 |
|
|
|
|
|
|
|
|
|
|
|
F - 32
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. |
|
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued) |
The following table shows the allocation of the allowance for loan losses at and for the
year ended December 31, 2010 by portfolio segment and by impairment methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate- |
|
|
Real Estate- |
|
|
Real Estate- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
Agricultural |
|
|
Residential |
|
|
Commercial |
|
|
Construction |
|
|
Equity LOC |
|
|
Installment |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
760 |
|
|
$ |
184 |
|
|
$ |
632 |
|
|
$ |
1,819 |
|
|
$ |
3,011 |
|
|
$ |
652 |
|
|
$ |
66 |
|
|
$ |
200 |
|
|
$ |
7,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually
evaluated for impairment |
|
$ |
22 |
|
|
$ |
|
|
|
$ |
121 |
|
|
$ |
201 |
|
|
$ |
1,479 |
|
|
$ |
72 |
|
|
$ |
8 |
|
|
$ |
|
|
|
$ |
1,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively
evaluated for impairment |
|
$ |
738 |
|
|
$ |
184 |
|
|
$ |
511 |
|
|
$ |
1,618 |
|
|
$ |
1,532 |
|
|
$ |
580 |
|
|
$ |
58 |
|
|
$ |
200 |
|
|
$ |
5,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
33,433 |
|
|
$ |
38,469 |
|
|
$ |
43,291 |
|
|
$ |
119,222 |
|
|
$ |
31,199 |
|
|
$ |
36,946 |
|
|
$ |
2,879 |
|
|
$ |
8,761 |
|
|
$ |
314,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: individually
evaluated for impairment |
|
$ |
2,706 |
|
|
$ |
868 |
|
|
$ |
3,870 |
|
|
$ |
8,204 |
|
|
$ |
11,501 |
|
|
$ |
1,382 |
|
|
$ |
106 |
|
|
$ |
118 |
|
|
$ |
28,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively
evaluated for impairment |
|
$ |
30,727 |
|
|
$ |
37,601 |
|
|
$ |
39,421 |
|
|
$ |
111,018 |
|
|
$ |
19,698 |
|
|
$ |
35,564 |
|
|
$ |
2,773 |
|
|
$ |
8,643 |
|
|
$ |
285,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 33
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. |
|
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued) |
The following table shows an aging analysis of the loan portfolio by the time past due at
December 31, 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 Days |
|
|
90 Days and |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Past Due |
|
|
Still Accruing |
|
|
Nonaccrual |
|
|
Past Due |
|
|
Current |
|
|
Total |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
352 |
|
|
$ |
|
|
|
$ |
2,706 |
|
|
$ |
3,058 |
|
|
$ |
30,375 |
|
|
$ |
33,433 |
|
Agricultural |
|
|
272 |
|
|
|
|
|
|
|
868 |
|
|
|
1,140 |
|
|
|
37,329 |
|
|
|
38,469 |
|
Real estate construction |
|
|
136 |
|
|
|
|
|
|
|
9,797 |
|
|
|
9,933 |
|
|
|
21,266 |
|
|
|
31,199 |
|
Real estate |
|
|
802 |
|
|
|
|
|
|
|
8,204 |
|
|
|
9,006 |
|
|
|
110,216 |
|
|
|
119,222 |
|
Residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
400 |
|
|
|
|
|
|
|
2,189 |
|
|
|
2,589 |
|
|
|
40,702 |
|
|
|
43,291 |
|
Equity LOC |
|
|
494 |
|
|
|
|
|
|
|
1,382 |
|
|
|
1,876 |
|
|
|
35,070 |
|
|
|
36,946 |
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment |
|
|
56 |
|
|
|
|
|
|
|
49 |
|
|
|
105 |
|
|
|
2,774 |
|
|
|
2,879 |
|
Other |
|
|
348 |
|
|
|
45 |
|
|
|
118 |
|
|
|
511 |
|
|
|
8,250 |
|
|
|
8,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,860 |
|
|
$ |
45 |
|
|
$ |
25,313 |
|
|
$ |
28,218 |
|
|
$ |
285,982 |
|
|
$ |
314,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows information related to impaired loans at and for the year
ended December 31, 2010 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized |
|
With no related allowance
recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
2,680 |
|
|
$ |
3,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural |
|
|
868 |
|
|
|
1,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction |
|
|
4,151 |
|
|
|
5,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
|
|
5,994 |
|
|
|
5,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential |
|
|
2,244 |
|
|
|
2,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit |
|
|
1,310 |
|
|
|
1,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment |
|
|
98 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
118 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
26 |
|
|
|
26 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
Agricultural |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction |
|
|
7,350 |
|
|
|
8,770 |
|
|
|
1,479 |
|
|
|
|
|
|
|
|
|
Real estate mortgage |
|
|
2,210 |
|
|
|
2,210 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
Real estate residential |
|
|
1,626 |
|
|
|
1,743 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
Equity Lines of Credit |
|
|
72 |
|
|
|
72 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
Installment |
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
2,706 |
|
|
|
3,044 |
|
|
|
22 |
|
|
$ |
1,924 |
|
|
$ |
11 |
|
Agricultural |
|
|
868 |
|
|
|
1,109 |
|
|
|
|
|
|
|
1,454 |
|
|
|
102 |
|
Real estate construction |
|
|
11,501 |
|
|
|
13,939 |
|
|
|
1,479 |
|
|
|
8,440 |
|
|
|
100 |
|
Real estate mortgage |
|
|
8,204 |
|
|
|
8,204 |
|
|
|
201 |
|
|
|
7,516 |
|
|
|
261 |
|
Real estate residential |
|
|
3,870 |
|
|
|
3,988 |
|
|
|
121 |
|
|
|
750 |
|
|
|
121 |
|
Equity Lines of Credit |
|
|
1,382 |
|
|
|
1,382 |
|
|
|
72 |
|
|
|
565 |
|
|
|
|
|
Installment |
|
|
106 |
|
|
|
106 |
|
|
|
8 |
|
|
|
44 |
|
|
|
2 |
|
Other |
|
|
118 |
|
|
|
118 |
|
|
|
|
|
|
|
140 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
28,755 |
|
|
$ |
31,890 |
|
|
$ |
1,903 |
|
|
$ |
20,833 |
|
|
$ |
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 34
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. |
|
PREMISES AND EQUIPMENT |
|
|
Premises and equipment consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Land |
|
$ |
2,628,000 |
|
|
$ |
2,377,000 |
|
Premises |
|
|
15,394,000 |
|
|
|
14,220,000 |
|
Furniture, equipment and leasehold improvements |
|
|
9,810,000 |
|
|
|
10,108,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,832,000 |
|
|
|
26,705,000 |
|
Less accumulated depreciation
and amortization |
|
|
(13,401,000 |
) |
|
|
(12,161,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,431,000 |
|
|
$ |
14,544,000 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization included in occupancy and equipment expense totaled
$1,521,000, $1,756,000 and $1,769,000 for the years ended December 31, 2010, 2009 and 2008,
respectively. |
|
|
Interest-bearing deposits consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Interest-bearing demand deposits |
|
$ |
100,000,000 |
|
|
$ |
106,083,000 |
|
Money market |
|
|
42,279,000 |
|
|
|
44,239,000 |
|
Savings |
|
|
53,150,000 |
|
|
|
48,304,000 |
|
Time, $100,000 or more |
|
|
52,104,000 |
|
|
|
55,003,000 |
|
Other time |
|
|
65,552,000 |
|
|
|
67,668,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
313,085,000 |
|
|
$ |
321,297,000 |
|
|
|
|
|
|
|
|
F - 35
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. |
|
DEPOSITS (Continued) |
|
|
|
At December 31, 2010, the scheduled maturities of time deposits were as follows: |
|
|
|
|
|
Year Ending |
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
2011 |
|
$ |
101,785,000 |
|
2012 |
|
|
12,885,000 |
|
2013 |
|
|
1,431,000 |
|
2014 |
|
|
1,106,000 |
|
2015 |
|
|
449,000 |
|
|
|
|
|
|
|
$ |
117,656,000 |
|
|
|
|
|
|
|
At December 31, 2010, the contractual maturities of time deposits with a denomination of
$100,000 and over were as follows: $14,558,000 in 3 months or less, $15,938,000 over 3
months through 6 months, $15,937,000 over 6 months through 12 months, and $5,671,000 over 12
months. |
|
|
Deposit overdrafts reclassified as loan balances were $314,000 and $328,000 at December 31,
2010 and 2009, respectively. |
9. |
|
BORROWING ARRANGEMENTS |
|
|
The Company is a member of the FHLB and can borrow up to $91,408,000 from the FHLB secured
by commercial and residential mortgage loans with carrying values totaling $150,217,000. The
Company is required to hold FHLB stock as a condition of membership. At December 31, 2010,
the Company held $2,188,000 of FHLB stock which is recorded as a component of other assets.
At this level of stock holdings the Company can borrow up to $46,561,000. To borrow the
$91,408,000 in available credit the Company would need to purchase $2,108,000 in additional
FHLB stock. In addition, the Company has the ability to secure advances through the Federal
Reserve Bank of San Francisco discount window. These advances also must be collateralized. |
|
|
Short-term borrowings at December 31, 2009 consisted of a $20,000,000 FHLB advance at 0.47%
which matured and was repaid on January 19, 2010. Long-term borrowings at December 31, 2009
consisted of two $10,000,000 FHLB advances. The first advance was scheduled to mature on
November 23, 2011 with an interest rate of 1.00%. The second advance was scheduled to
mature on November 23, 2012 and had an interest rate of 1.60%. During July 2010 the Company
prepaid the two long term advances incurring a $226,000 prepayment penalty. There were no
borrowings outstanding at December 31, 2010.
|
F - 36
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. |
|
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES |
|
|
Plumas Statutory Trust I and II are Connecticut business trusts formed by the Company with
capital of $275,000 and $152,000, 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 Companys Tier 1 capital, as defined, on a
pro forma basis. At December 31, 2010, 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, 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 Is Subordinated Debentures mature on September 26, 2032, bear a current interest rate
of 3.70% (based on 3-month LIBOR plus 3.40%), with repricing and payments due quarterly.
Trust IIs Subordinated Debentures mature on September 28, 2035, bear a current interest
rate of 1.78% (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%. The Trust Preferred Securities issued by Trust II adjust on each quarterly
anniversary date to equal the 3-month LIBOR plus 1.48%. Both Trusts I and II have the
option to defer payment of the distributions for a period of up to five years, as long as
the Company is not in default on the payment of interest on the Subordinated Debentures.
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.
|
F - 37
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. |
|
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (Continued) |
|
|
Since the second quarter of 2010, the Company has deferred regularly scheduled quarterly
interest payments on its outstanding junior subordinated debentures relating to its two
trust preferred securities. While the Company has accrued for this obligation, it is
currently deferring the interest payments on the junior subordinated debentures as permitted
by the agreements. As of December 31, 2010, the amount of the arrearage on the payments on
the subordinated debt associated with the trust preferred securities is $233,000. |
|
|
Interest expense recognized by the Company for the years ended December 31, 2010, 2009 and
2008 related to the subordinated debentures was $312,000, $371,000 and $623,000,
respectively. |
11. |
|
COMMITMENTS AND CONTINGENCIES |
|
|
The Company has commitments for leasing premises under the terms of noncancelable operating
leases expiring from 2010 to 2015. Future minimum lease payments are as follows: |
|
|
|
|
|
Year Ending |
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
2011 |
|
$ |
133,000 |
|
2012 |
|
|
128,000 |
|
2013 |
|
|
60,000 |
|
2014 |
|
|
37,000 |
|
2015 |
|
|
9,000 |
|
|
|
|
|
|
|
$ |
367,000 |
|
|
|
|
|
|
|
Rental expense included in occupancy and equipment expense totaled $20,000, $317,000 and
$347,000 for the years ended December 31, 2010, 2009 and 2008, 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 Companys 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 - 38
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. |
|
COMMITMENTS AND CONTINGENCIES (Continued) |
The following financial instruments represent off-balance-sheet credit risk:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit |
|
$ |
71,605,000 |
|
|
$ |
67,258,000 |
|
Letters of credit |
|
$ |
164,000 |
|
|
$ |
304,000 |
|
|
|
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 total commitment
amounts do not necessarily represent future cash requirements. The Company evaluates each
customers 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 managements 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, 2010 and 2009. The
Company recognizes these fees as revenues over the term of the commitment or when the
commitment is used. |
|
|
At December 31, 2010, consumer loan commitments represent approximately 14% of total
commitments and are generally unsecured. Commercial and agricultural loan commitments
represent approximately 36% 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 50% 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
Companys 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 in California and Washoe county in Northern Nevada. |
F - 39
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. |
|
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. A continued substantial
decline in the economy in general, or a continued decline in real estate values in the
Companys primary market areas in particular, could have an adverse impact on the
collectibility of these loans. However, personal and business income represent the primary
source of repayment for a majority of these loans. |
|
|
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. |
|
|
The Companys 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 Companys 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 Banks retained earnings or the Banks 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 (DFI), 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, 2010, the bank was restricted, without prior
approval from the DFI, from paying cash dividends to the Company. In addition the Companys
ability to pay dividends is subject to certain covenants contained in the indentures
relating to the Trust Preferred Securities issued by the business trusts (see Note 10 for
additional information related to the Trust Preferred Securities). |
|
|
As describe below, dividends on common stock are also limited related to the Companys
participation in the Capital Purchase Program. Additionally, Plumas Bancorp was required by
the Federal Reserve Bank of San Francisco (FRB) to obtain the FRBs prior written consent
before paying any dividends on its common stock or its Series A Preferred Stock, or making
any payments on its trust preferred securities. |
F - 40
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. |
|
SHAREHOLDERS EQUITY (Continued) |
Preferred Stock
|
|
On January 30, 2009 the Company entered into a Letter Agreement (the Purchase Agreement)
with the United States Department of the Treasury (Treasury), pursuant to which the
Company issued and sold (i) 11,949 shares of the Companys Fixed Rate Cumulative Perpetual
Preferred Stock, Series A (the Series A Preferred Stock) and (ii) a warrant (the
Warrant) to purchase 237,712 shares of the Companys common stock, no par value (the
Common Stock), for an aggregate purchase price of $11,949,000 in cash. |
|
|
The Warrant has a 10-year term and is exercisable, with an exercise price, subject to
antidilution adjustments, equal to $7.54 per share of the Common Stock. Treasury has agreed
not to exercise voting power with respect to any shares of Common Stock issued upon exercise
of the Warrant. |
|
|
The Company allocated the proceeds received on January 30, 2009 between the Series A
Preferred Stock and the Warrant based on the estimated relative fair value of each. The
fair value of the Warrant was estimated based on a Black-Scholes-Merton model and totaled
$320,000. The discount recorded on the Series A Preferred Stock was based on a discount
rate of 12% and will be amortized by the level-yield method over 5 years. Discount
accretion for the year ended December 31, 2009 totaled $79,000. |
|
|
The Series A Preferred Stock qualifies as Tier 1 capital and will pay cumulative dividends
quarterly at a rate of 5% per annum for the first five years, and 9% per annum thereafter.
The Company may redeem the Series A Preferred Stock at its liquidation preference ($1,000
per share) plus accrued and unpaid dividends under the American Recovery and Reinvestment
Act of 2009, subject to the Treasurys consultation with the Companys appropriate federal
regulator. |
|
|
With respect to dividends on the Companys common stock, Treasurys consent shall be
required for any increase in common dividends per share until the third anniversary of the
date of its investment unless prior to such third anniversary the Series A Preferred Stock
is redeemed in whole or the Treasury has transferred all of the Senior Preferred Series A
Preferred Stock to third parties. Furthermore, with respect to dividends on certain other
series of preferred stock, restrictions from Treasury may apply. The Company does not have
any outstanding preferred stock other than the Series A Preferred Stock discussed above. |
|
|
During the second quarter of 2010, Plumas Bancorp, as required by the FRB, suspended
quarterly cash dividend payments on its Series A Preferred Stock. While Plumas Bancorp has
accrued for this obligation, it is currently in arrears in the amount of $449,000 with the
dividend payments on the Series A Preferred Stock as of December 31, 2010.
|
F - 41
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. |
|
SHAREHOLDERS EQUITY (Continued) |
|
|
Basic earnings per share is computed by dividing income (loss) available to common
shareholders by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock, such as stock options, result in the issuance of
common stock which shares in the earnings of the Company. The treasury stock method has
been applied to determine the dilutive effect of stock options in computing diluted earnings
per share. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
(In thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net Income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
971 |
|
|
$ |
(9,146 |
) |
|
$ |
304 |
|
Dividends accrued and discount accreted on
preferred shares |
|
|
(684 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
287 |
|
|
$ |
(9,774 |
) |
|
$ |
304 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
0.06 |
|
|
$ |
(2.05 |
) |
|
$ |
0.06 |
|
Diluted earnings (loss) per share |
|
$ |
0.06 |
|
|
$ |
(2.05 |
) |
|
$ |
0.06 |
|
Weighted Average Number of Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
4,776 |
|
|
|
4,776 |
|
|
|
4,817 |
|
Diluted shares |
|
|
4,776 |
|
|
|
4,776 |
|
|
|
4,835 |
|
|
|
Included in diluted shares were dilutive stock options totaling 18,022 for the year
ended December 31, 2008. |
|
|
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. When a net loss occurs, no difference
in earnings per share is calculated because the conversion of potential common stock is
anti-dilutive. Stock options not included in the computation of diluted earnings per share,
due to shares not being in the-money and having an antidilutive effect, were 312,000 and
394,000 for the years ended December 31, 2010 and 2008, respectively. |
F - 42
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. |
|
SHAREHOLDERS EQUITY (Continued) |
|
|
In 2001 and 1991, the Company established Stock Option Plans for which 873,185 shares of
common stock remain reserved for issuance to employees and directors and 561,155 shares are
available for future grants under incentive and nonstatutory agreements as of December 31,
2010. The Plans 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 combined activity
within the Plans follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
|
|
|
|
Shares |
|
|
Price |
|
|
Term |
|
|
Intrinsic Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2008 |
|
|
395,772 |
|
|
$ |
13.37 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
90,300 |
|
|
|
12.40 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(12,476 |
) |
|
|
5.38 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(6,640 |
) |
|
|
14.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008 |
|
|
466,956 |
|
|
$ |
13.38 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(1,000 |
) |
|
|
5.43 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(61,990 |
) |
|
|
12.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009 |
|
|
403,966 |
|
|
$ |
13.56 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(91,936 |
) |
|
|
14.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2010 |
|
|
312,030 |
|
|
$ |
13.41 |
|
|
|
3.7 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010 |
|
|
255,437 |
|
|
$ |
13.24 |
|
|
|
3.4 |
|
|
$ |
|
|
Expected to vest after December 31, 2010 |
|
|
49,219 |
|
|
$ |
14.19 |
|
|
|
4.8 |
|
|
$ |
|
|
|
|
As of December 31, 2010, there was $72,000 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 0.8 years. |
|
|
The total fair value of options vested was $210,000 for the year ended December 31, 2010.
The total intrinsic value of options at time of exercise was $1,000 and $56,000 for the
years ended December 31, 2009 and 2008, respectively. |
|
|
Cash received from option exercise for the years ended December 31, 2009 and 2008 was $5,000
and $68,000, respectively. There was no tax benefit realized for the tax deduction from
options exercised in 2009 or 2008.
|
F - 43
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. |
|
SHAREHOLDERS EQUITY (Continued) |
|
|
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 Companys consolidated financial statements. |
|
|
Under capital adequacy guidelines, the Company and the Bank must meet specific capital
guidelines that involved quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. These
quantitative measures are established by regulation and require that minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average
assets be maintained. Capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors. |
|
|
The Bank is also subject to additional capital guidelines under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must maintain
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table on
the following page and cannot be subject to a written agreement, order or capital directive
issued by the FDIC. As a result of a regulatory examination in 2010, the Bank also became
subject to Tier 1 leverage ratio of 9% and will become subject to a 10% Tier 1 leverage
ratio and 13% total risk-based ratio under the Order described in Note 2. At December 31,
2010, the Tier 1 leverage ratio was 8.9% and the total risk-based capitol ratio was 14.0%. |
F - 44
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. |
|
SHAREHOLDERS EQUITY (Continued) |
Regulatory Capital (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Leverage Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
42,994,000 |
|
|
|
8.9 |
% |
|
$ |
40,564,000 |
|
|
|
7.9 |
% |
Minimum regulatory requirement |
|
$ |
19,361,000 |
|
|
|
4.0 |
% |
|
$ |
20,652,000 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bank |
|
$ |
43,262,000 |
|
|
|
8.9 |
% |
|
$ |
38,172,000 |
|
|
|
7.4 |
% |
Minimum requirement for Well-
Capitalized institution under the
prompt corrective action plan |
|
$ |
24,190,000 |
|
|
|
5.0 |
% |
|
$ |
25,848,000 |
|
|
|
5.0 |
% |
Minimum regulatory requirement |
|
$ |
19,352,000 |
|
|
|
4.0 |
% |
|
$ |
20,678,000 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
42,994,000 |
|
|
|
12.7 |
% |
|
$ |
40,564,000 |
|
|
|
10.4 |
% |
Minimum regulatory requirement |
|
$ |
13,570,000 |
|
|
|
4.0 |
% |
|
$ |
15,641,000 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bank |
|
$ |
43,262,000 |
|
|
|
12.8 |
% |
|
$ |
38,172,000 |
|
|
|
9.8 |
% |
Minimum requirement for Well-
Capitalized institution under the
prompt corrective action plan |
|
$ |
20,342,000 |
|
|
|
6.0 |
% |
|
$ |
23,433,000 |
|
|
|
6.0 |
% |
Minimum regulatory requirement |
|
$ |
13,561,000 |
|
|
|
4.0 |
% |
|
$ |
15,622,000 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bancorp and Subsidiary |
|
$ |
47,274,000 |
|
|
|
13.9 |
% |
|
$ |
45,512,000 |
|
|
|
11.6 |
% |
Minimum regulatory requirement |
|
$ |
27,140,000 |
|
|
|
8.0 |
% |
|
$ |
31,281,000 |
|
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumas Bank |
|
$ |
47,539,000 |
|
|
|
14.0 |
% |
|
$ |
43,113,000 |
|
|
|
11.0 |
% |
Minimum requirement for Well-
Capitalized institution under the
prompt corrective action plan |
|
$ |
33,903,000 |
|
|
|
10.0 |
% |
|
$ |
39,056,000 |
|
|
|
10.0 |
% |
Minimum regulatory requirement |
|
$ |
27,123,000 |
|
|
|
8.0 |
% |
|
$ |
31,244,000 |
|
|
|
8.0 |
% |
F - 45
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Other expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside service fees |
|
$ |
1,212,000 |
|
|
$ |
990,000 |
|
|
$ |
803,000 |
|
FDIC Insurance |
|
|
1,009,000 |
|
|
|
1,125,000 |
|
|
|
258,000 |
|
Professional fees |
|
|
587,000 |
|
|
|
789,000 |
|
|
|
688,000 |
|
OREO expenses |
|
|
573,000 |
|
|
|
370,000 |
|
|
|
175,000 |
|
Telephone and data communications |
|
|
338,000 |
|
|
|
392,000 |
|
|
|
400,000 |
|
Loan collection expenses |
|
|
261,000 |
|
|
|
399,000 |
|
|
|
205,000 |
|
Advertising and promotion |
|
|
252,000 |
|
|
|
327,000 |
|
|
|
448,000 |
|
Business development |
|
|
250,000 |
|
|
|
333,000 |
|
|
|
467,000 |
|
Armored car and courier |
|
|
239,000 |
|
|
|
281,000 |
|
|
|
289,000 |
|
Director compensation and retirement |
|
|
233,000 |
|
|
|
293,000 |
|
|
|
323,000 |
|
Insurance |
|
|
218,000 |
|
|
|
142,000 |
|
|
|
235,000 |
|
Postage |
|
|
207,000 |
|
|
|
207,000 |
|
|
|
208,000 |
|
Core deposit intangible amortization |
|
|
173,000 |
|
|
|
173,000 |
|
|
|
216,000 |
|
Stationery and supplies |
|
|
145,000 |
|
|
|
183,000 |
|
|
|
236,000 |
|
(Gain) loss on sale of other real estate |
|
|
(43,000 |
) |
|
|
158,000 |
|
|
|
|
|
Other operating expenses |
|
|
396,000 |
|
|
|
579,000 |
|
|
|
184,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,050,000 |
|
|
$ |
6,741,000 |
|
|
$ |
5,135,000 |
|
|
|
|
|
|
|
|
|
|
|
The provision for (benefit from) income taxes for the years ended December 31, 2010, 2009
and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
State |
|
|
Total |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
$ |
4,000 |
|
|
$ |
4,000 |
|
Deferred |
|
$ |
277,000 |
|
|
|
108,000 |
|
|
|
385,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
$ |
277,000 |
|
|
$ |
112,000 |
|
|
$ |
389,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
State |
|
|
Total |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
(2,803,000 |
) |
|
$ |
(120,000 |
) |
|
$ |
(2,923,000 |
) |
Deferred |
|
|
(2,122,000 |
) |
|
|
(1,730,000 |
) |
|
|
(3,852,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income
taxes |
|
$ |
(4,925,000 |
) |
|
$ |
(1,850,000 |
) |
|
$ |
(6,775,000 |
) |
|
|
|
|
|
|
|
|
|
|
F - 46
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. |
|
INCOME TAXES (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
State |
|
|
Total |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
788,000 |
|
|
$ |
459,000 |
|
|
$ |
1,247,000 |
|
Deferred |
|
|
(1,002,000 |
) |
|
|
(457,000 |
) |
|
|
(1,459,000 |
) |
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for
Income taxes |
|
$ |
(214,000 |
) |
|
$ |
2,000 |
|
|
$ |
(212,000 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
1,490,000 |
|
|
$ |
2,838,000 |
|
Net operating loss carryovers |
|
|
2,418,000 |
|
|
|
1,353,000 |
|
Deferred compensation |
|
|
1,614,000 |
|
|
|
1,588,000 |
|
Core deposit premium |
|
|
255,000 |
|
|
|
266,000 |
|
OREO valuation allowance |
|
|
1,723,000 |
|
|
|
2,066,000 |
|
Other |
|
|
521,000 |
|
|
|
427,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
8,021,000 |
|
|
|
8,538,000 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
Prepaid costs |
|
|
(104,000 |
) |
|
|
(95,000 |
) |
Deferred loan costs |
|
|
(739,000 |
) |
|
|
(782,000 |
) |
Premises and equipment |
|
|
|
|
|
|
(135,000 |
) |
Unrealized gain on available-for-sale
investment securities |
|
|
|
|
|
|
(437,000 |
) |
Other |
|
|
(174,000 |
) |
|
|
(173,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(1,017,000 |
) |
|
|
(1,622,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
7,004,000 |
|
|
$ |
6,916,000 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The determination of the amount of deferred income tax assets which
are more likely than not to be realized is primarily dependent on projections of future
earnings, which are subject to uncertainty and estimates that may change given economic
conditions and other factors. The realization of deferred income tax assets is assessed and
a valuation allowance is recorded if it is more likely than not that all or a portion of
the deferred tax asset will not be realized. More likely than not is defined as greater
than a 50% chance. All available evidence, both positive and negative is considered to
determine whether, based on the weight of that evidence, a valuation allowance is needed. |
F - 47
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. |
|
INCOME TAXES (Continued) |
As part of its analysis, the Company considered the following positive evidence:
|
|
|
The Companys 2009 net loss was largely attributable to losses on its
Construction and Land Development portfolio that represented approximately 80% of
net charge-offs during the year ended December 31, 2009. This portfolio has
significantly decreased during the last two years and the Company is not growing
the portfolio. |
|
|
|
The Companys 2009 net loss was also attributable to large write-downs in
Construction and Land Development real estate owned which represented the majority
of its provision for losses on other real estate during 2009. During 2010 other
real estate write-downs decreased by $4.4 million from $4.8 million during the year
ended December 31, 2009 to $356 thousand during 2010. |
|
|
|
The Company has a long history of earnings profitability. |
|
|
|
The Company was profitable in 2010 and is projecting future taxable and book
income will be generated by operations. |
|
|
|
The size of loan credits in the Companys pipeline of potential problem loans
has significantly decreased. |
|
|
|
The Company does not have a history of net operating losses or tax credits
expiring unused. |
As part of its analysis, the Company considered the following negative evidence:
|
|
|
The Company recorded a large net loss in 2009 and is in a cumulative loss
position for the current and preceding two years. |
Based upon our analysis of available evidence, we have determined that it is more likely
than not that all of our deferred income tax assets as of December 31, 2010 and 2009 will
be fully realized and therefore no valuation allowance was recorded. On the consolidated
balance sheet, net deferred tax assets are included in accrued interest receivable and other
assets.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax, at statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
State franchise tax, net of Federal tax effect |
|
|
5.5 |
% |
|
|
7.0 |
% |
|
|
1.7 |
% |
Interest on obligations of states and political
subdivisions |
|
|
(4.4 |
)% |
|
|
1.3 |
% |
|
|
(256.3 |
)% |
Net increase in cash surrender value of bank
owned life insurance |
|
|
(8.8 |
)% |
|
|
0.8 |
% |
|
|
(125.1 |
)% |
Other |
|
|
2.3 |
% |
|
|
(0.5 |
)% |
|
|
114.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
28.6 |
% |
|
|
42.6 |
% |
|
|
(231.0 |
)% |
|
|
|
|
|
|
|
|
|
|
F - 48
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. |
|
INCOME TAXES (Continued) |
The Company and its subsidiary file income tax returns in the U.S. federal and California
jurisdictions. The Company conducts all of its business activities in the States of
California and Nevada. There are currently no pending U.S. federal, state, and local income
tax or non-U.S. income tax examinations by tax authorities.
With few exceptions, the Company is no longer subject to tax examinations by U.S. Federal
taxing authorities for years ended before December 31, 2007, and by state and local taxing
authorities for years ended before December 31, 2006.
The unrecognized tax benefits and changes therein and the interest and penalties
accrued by the Company as of December 31, 2010 were not significant.
15. |
|
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 2010:
|
|
|
|
|
Balance, January 1, 2010 |
|
$ |
1,370,000 |
|
|
|
Disbursements |
|
|
12,000 |
|
Amounts repaid |
|
|
(367,000 |
) |
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
$ |
1,015,000 |
|
|
|
|
|
|
|
|
|
|
Undisbursed commitments to related
parties, December 31, 2010 |
|
$ |
194,000 |
|
|
|
|
|
16. |
|
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 Plans investment
options is the option to invest in Company stock. The Companys contribution consists of
the following:
|
|
|
For the years ended December 31, 2009 and 2008 and the three months ended March
31, 2010 a contribution which matches the participants contribution, up to a
maximum of 3% of the employees compensation. No contribution was made for the nine
months ended December 31, 2010. |
|
|
|
An additional discretionary contribution. No discretionary contribution was made
for the years ended December 31, 2010, 2009 and 2008. |
F - 49
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. |
|
EMPLOYEE BENEFIT PLANS (Continued) |
Profit Sharing Plan (Continued)
During the years ended December 31, 2010, 2009 and 2008, the Companys contribution totaled
$41,000, $213,000 and $206,000, respectively.
Salary Continuation and Retirement Agreements
Salary continuation and retirement agreements are in place for three key executives and
seven 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. 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
based on a discount rate of 6.00%. The expense recognized under these plans for the years
ended December 31, 2010, 2009 and 2008 totaled $342,000, $330,000 and $238,000,
respectively. Accrued compensation payable under the salary continuation plan totaled
$3,613,000 and $3,483,000 at December 31, 2010 and 2009, respectively.
In connection with these agreements, the Bank purchased single premium life insurance
policies with cash surrender values totaling $10,463,000 and $10,111,000 at December 31,
2010 and 2009, respectively. Income earned on these policies, net of expenses, totaled
$352,000, $345,000 and $338,000 for the years ended December 31, 2010, 2009 and 2008,
respectively.
17. |
|
COMPREHENSIVE INCOME (LOSS) |
|
|
Comprehensive income (loss) is reported in addition to net income for all periods presented.
Comprehensive income (loss) 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
Companys available-for-sale investment securities are included in other comprehensive
income (loss). Total comprehensive income (loss) and the components of accumulated other
comprehensive income (loss) are presented in the consolidated statement of changes in
shareholders equity. |
F - 50
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. |
|
COMPREHENSIVE INCOME (LOSS) (Continued) |
At December 31, 2010, 2009 and 2008, the Company held securities classified as
available-for-sale which had unrealized gains as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
Before |
|
|
Benefit |
|
|
After |
|
|
|
Tax |
|
|
(Expense) |
|
|
Tax |
|
For the Year Ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains |
|
$ |
12,000 |
|
|
$ |
(5,000 |
) |
|
$ |
7,000 |
|
Reclassification adjustment for gains
included in net income |
|
|
(1,160,000 |
) |
|
|
479,000 |
|
|
|
(681,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss |
|
$ |
(1,148,000 |
) |
|
$ |
474,000 |
|
|
$ |
(674,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities transferred
from held-to-maturity to available
for-sale |
|
$ |
335,000 |
|
|
$ |
(138,000 |
) |
|
$ |
197,000 |
|
Unrealized holding gains |
|
|
184,000 |
|
|
|
(75,000 |
) |
|
|
109,000 |
|
Reclassification adjustment for gains
included in net loss |
|
|
(10,000 |
) |
|
|
|
|
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
$ |
509,000 |
|
|
$ |
(213,000 |
) |
|
$ |
296,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains |
|
$ |
1,138,000 |
|
|
$ |
(470,000 |
) |
|
$ |
668,000 |
|
Reclassification adjustment for
impairment loss included in
net income |
|
|
(415,000 |
) |
|
|
171,000 |
|
|
|
(244,000 |
) |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
$ |
723,000 |
|
|
$ |
(299,000 |
) |
|
$ |
424,000 |
|
|
|
|
|
|
|
|
|
|
|
During 2003, the Company acquired certain assets and liabilities of five branches from
another 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 is amortized
using the straight-line method over ten years. In addition, included in the gross carrying
amount of intangible assets during 2007 and earlier years was $1,274,000 related to a
previous acquisition which was fully amortized in 2008 and is no longer included in the
carrying amount or accumulated amortization. Annually, the intangible asset is analyzed for
impairment.
At December 31, 2010, 2009 and 2008, no impairment of the intangible asset has been
recognized in the consolidated financial statements. Amortization expense totaled $173,000,
$173,000 and $216,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
F - 51
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. |
|
INTANGIBLE ASSETS (Continued) |
The gross carrying amount of intangible assets and accumulated amortization was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Core Deposit Intangibles |
|
$ |
1,709,000 |
|
|
$ |
1,234,000 |
|
|
$ |
1,709,000 |
|
|
$ |
1,061,000 |
|
The estimated remaining intangible amortization is as follows:
|
|
|
|
|
Year Ending |
|
|
|
|
December 31, |
|
|
|
|
2011 |
|
$ |
173,000 |
|
2012 |
|
|
173,000 |
|
2013 |
|
|
129,000 |
|
|
|
|
|
|
|
$ |
475,000 |
|
|
|
|
|
F - 52
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. |
|
PARENT ONLY CONDENSED FINANCIAL STATEMENTS |
CONDENSED BALANCE SHEET
December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
626,000 |
|
|
$ |
3,710,000 |
|
Investment in bank subsidiary |
|
|
47,399,000 |
|
|
|
44,734,000 |
|
Other assets |
|
|
1,071,000 |
|
|
|
452,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
49,096,000 |
|
|
$ |
48,896,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
798,000 |
|
|
$ |
355,000 |
|
Junior subordinated deferrable interest debentures |
|
|
10,310,000 |
|
|
|
10,310,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
11,108,000 |
|
|
|
10,665,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock |
|
|
11,682,000 |
|
|
|
11,595,000 |
|
Common stock |
|
|
6,027,000 |
|
|
|
5,970,000 |
|
Retained earnings |
|
|
20,331,000 |
|
|
|
20,044,000 |
|
Accumulated other comprehensive (loss) income |
|
|
(52,000 |
) |
|
|
622,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
37,988,000 |
|
|
|
38,231,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
49,096,000 |
|
|
$ |
48,896,000 |
|
|
|
|
|
|
|
|
CONDENSED STATEMENT OF OPERATIONS
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared by bank subsidiary |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,000,000 |
|
Earnings from investment in Plumas
Statutory Trusts I and II |
|
|
9,000 |
|
|
|
11,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
9,000 |
|
|
|
11,000 |
|
|
|
3,019,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on junior subordinated
deferrable interest debentures |
|
|
312,000 |
|
|
|
371,000 |
|
|
|
623,000 |
|
Other expenses |
|
|
242,000 |
|
|
|
808,000 |
|
|
|
730,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
554,000 |
|
|
|
1,179,000 |
|
|
|
1,353,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
undistributed income of subsidiary |
|
|
(545,000 |
) |
|
|
(1,168,000 |
) |
|
|
1,666,000 |
|
|
|
Equity in undistributed income (loss) of
subsidiary |
|
|
1,292,000 |
|
|
|
(8,452,000 |
) |
|
|
(1,911,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
747,000 |
|
|
|
(9,620,000 |
) |
|
|
(245,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
224,000 |
|
|
|
474,000 |
|
|
|
549,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
971,000 |
|
|
$ |
(9,146,000 |
) |
|
$ |
304,000 |
|
|
|
|
|
|
|
|
|
|
|
F - 53
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. |
|
PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued) |
CONDENSED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
971,000 |
|
|
$ |
(9,146,000 |
) |
|
$ |
304,000 |
|
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed (income) loss of
subsidiary |
|
|
(1,292,000 |
) |
|
|
8,452,000 |
|
|
|
1,911,000 |
|
Stock-based compensation expense |
|
|
10,000 |
|
|
|
47,000 |
|
|
|
58,000 |
|
(Increase) decrease in other assets |
|
|
(619,000 |
) |
|
|
124,000 |
|
|
|
(35,000 |
) |
Increase in other liabilities |
|
|
(4,000 |
) |
|
|
115,000 |
|
|
|
28,000 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities |
|
|
(934,000 |
) |
|
|
(408,000 |
) |
|
|
2,266,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in bank subsidiary |
|
|
(2,000,000 |
) |
|
|
(8,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,000,000 |
) |
|
|
(8,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of cash dividends on common stock |
|
|
|
|
|
|
|
|
|
|
(1,153,000 |
) |
Payment of cash dividends on preferred stock |
|
|
(150,000 |
) |
|
|
(473,000 |
) |
|
|
|
|
Issuance of preferred stock, net of discount |
|
|
|
|
|
|
11,517,000 |
|
|
|
|
|
Issuance of common stock warrant |
|
|
|
|
|
|
407,000 |
|
|
|
|
|
Proceeds from the exercise of stock
options |
|
|
|
|
|
|
5,000 |
|
|
|
68,000 |
|
Repurchase and retirement of common stock |
|
|
|
|
|
|
|
|
|
|
(1,217,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities |
|
|
(150,000 |
) |
|
|
11,456,000 |
|
|
|
(2,302,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash
equivalents |
|
|
(3,084,000 |
) |
|
|
3,048,000 |
|
|
|
(36,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning
of year |
|
|
3,710,000 |
|
|
|
662,000 |
|
|
|
698,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
626,000 |
|
|
$ |
3,710,000 |
|
|
$ |
662,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain/loss on
investment securities available-for-sale |
|
$ |
(674,000 |
) |
|
$ |
305,000 |
|
|
$ |
424,000 |
|
F - 54
|
|
|
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 Interim Chief Executive Officer and Interim 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 Interim Chief
Executive Officer and Interim 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 Interim Chief Executive Officer and Interim 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, 2010. In conducting its assessment, management used the criteria
established 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, 2010, our internal control over financial reporting was effective based on those
criteria.
This annual report does not include an attestation report of the Companys independent
registered public accounting firm regarding internal control over financial reporting. Managements
report was not subject to attestation by the Companys independent registered public accounting
firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to
provide only managements report in this annual report.
|
|
|
/s/ Andrew J. Ryback
Andrew J. Ryback
|
|
|
Interim President and Chief Executive Officer |
|
|
|
|
|
/s/ Richard L. Belstock
Richard L. Belstock
|
|
|
Senior Vice President and Interim Chief Financial Officer |
|
|
Dated March 23, 2011
53
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
PART III
|
|
|
ITEM 10. |
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by Items 10 can be found in Plumas Bancorps 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 Bancorps 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 Bancorps Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
54
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE |
The information required by Items 13 can be found in Plumas Bancorps 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 Bancorps 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 |
(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 Registrants
Form S-4, File No. 333-84534, which is incorporated by reference herein. |
|
|
|
|
|
|
3.2 |
|
|
Bylaws of Registrant as amended on March 16, 2011. |
|
|
|
|
|
|
3.3 |
|
|
Amendment of the Articles of Incorporation of Registrant dated November 1, 2002, is included
as exhibit 3.3 to the Registrants 10-Q for September 30, 2005, which is incorporated by this
reference herein. |
|
|
|
|
|
|
3.4 |
|
|
Amendment of the Articles of Incorporation of Registrant dated August 17, 2005, is included as
exhibit 3.4 to the Registrants 10-Q for September 30, 2005, which is incorporated by this
reference herein. |
|
|
|
|
|
|
4 |
|
|
Specimen form of certificate for Plumas Bancorp included as exhibit 4 to the Registrants Form
S-4, File No. 333-84534, which is incorporated by reference herein. |
|
|
|
|
|
|
4.1 |
|
|
Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, is
included as exhibit 4.1 to Registrants 8-K filed on January 30, 2009, which is incorporated
by this reference herein. |
|
|
|
|
|
|
10.1 |
|
|
Executive Salary Continuation Agreement of Andrew J. Ryback dated December 17, 2008, is
included as exhibit 10.1 to the Registrants 10-K for December 31, 2008, which is incorporated
by this reference herein. |
|
|
|
|
|
|
10.2 |
|
|
Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included as Exhibit 10.2
to the Registrants 8-K filed on October 17, 2005, which is incorporated by this reference
herein. |
|
|
|
|
|
|
10.8 |
|
|
Director Retirement Agreement of John Flournoy dated March 21, 2007, is included as Exhibit
10.8 to Registrants 10-Q for March 31, 2007, which is incorporated by this reference herein. |
|
|
|
|
|
|
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 Registrants 8-K filed on September 17,
2004, which is incorporated by this reference herein. |
55
|
|
|
|
|
|
|
|
|
|
|
10.18 |
|
|
Amended and Restated Director Retirement Agreement of Daniel E. West dated May 10, 2000, is
included as Exhibit 10.18 to the Registrants 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
Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants 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 Registrants 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
Registrants 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 Registrants 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 Registrants 10-QSB for June 30, 2002, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.35 |
|
|
Letter Agreement, dated January 30, 2009 by and between Plumas Bancorp, Inc. and the United
States Department of the Treasury and Securities Purchase Agreement Standard Terms attached
thereto, is included as exhibit 10.1 to Registrants 8-K filed on January 30, 2009, which is
incorporated by this reference herein. |
|
|
|
|
|
|
10.36 |
|
|
Form of Senior Executive Officer letter agreement, is included as exhibit 10.2 to Registrants
8-K filed on January 30, 2009, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.37 |
|
|
Deferred Fee Agreement of Alvin Blickenstaff is included as Exhibit 10.37 to the Registrants
10-Q for March 31, 2009, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.40 |
|
|
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, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.41 |
|
|
Form of Indemnification Agreement (Plumas Bancorp) is included as Exhibit 10.41 to the
Registrants 10-Q for March 31, 2009, which is incorporated by this reference herein. |
56
|
|
|
|
|
|
|
|
|
|
|
10.42 |
|
|
Form of Indemnification Agreement (Plumas Bank) is included as Exhibit 10.42 to the
Registrants 10-Q for March 31, 2009, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.43 |
|
|
Plumas Bank 401(k) Profit Sharing Plan as amended is included as exhibit 99.1 of the Form S-8
filed February 14, 2003, File No. 333-103229, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.44 |
|
|
Executive Salary Continuation Agreement of Robert T. Herr dated June 4, 2002, is included as
Exhibit 10.44 to the Registrants 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 Registrants 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 Registrants 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 Registrants 10-Q for September 30, 2004, which is
incorporated by this reference herein. |
|
|
|
|
|
|
10.49 |
|
|
Amended and Restated Plumas Bancorp Stock Option Plan is included as Exhibit 10.49 to the
Registrants 10-Q for September 30, 2006, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.50 |
|
|
Executive Salary Continuation Agreement of Rose Dembosz, is included as exhibit 10.50 to the
Registrants 10-K for December 31, 2008, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.51 |
|
|
First Amendment to Split Dollar Agreement of Andrew J. Ryback, is included as exhibit 10.51 to
the Registrants 10-K for December 31, 2008, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.56 |
|
|
Second Amendment to Executive Salary Continuation Agreement of Robert T. Herr dated
June 4, 2002 and Amended September 15, 2004, is included as exhibit 10.56 to the Registrants
10-K for December 31, 2008, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.57 |
|
|
First Amendment to Split Dollar Agreements of Robert T. Herr dated September 15, 2004, is
included as exhibit 10.57 to the Registrants 10-K for December 31, 2008, which is
incorporated by this reference herein. |
|
|
|
|
|
|
10.58 |
|
|
Executive Salary Continuation Agreement of Robert T. Herr dated December 17, 2008, is included
as exhibit 10.58 to the Registrants 10-K for December 31, 2008, which is incorporated by this
reference herein. |
|
|
|
|
|
|
10.64 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Alvin Blickenstaff adopted on September 19, 2007, is included as Exhibit 10.64 to the
Registrants 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.65 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Arthur C. Grohs adopted on September 19, 2007, is included as Exhibit 10.65 to the
Registrants 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.67 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Terrance J. Reeson adopted on September 19, 2007, is included as Exhibit 10.67 to the
Registrants 8-K filed on September 25, 2007, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.69 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Daniel E. West adopted on September 19, 2007, is included as Exhibit 10.69 to the Registrants
8-K filed on September 25, 2007, which is incorporated by this reference herein. |
57
|
|
|
|
|
|
|
|
|
|
|
10.70 |
|
|
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Gerald W. Fletcher adopted on October 9, 2007, is included as Exhibit 10.70 to the
Registrants 10-Q for September 30, 2007, which is incorporated by this reference herein. |
|
|
|
|
|
|
10.71 |
|
|
Consent Order issued by the FDIC and CDFI to Plumas Bank on March 18, 2011, is included as
Exhibit 10.1 of the Registrants 8-K filed on March 21, 2011, which is incorporated by this
reference herein. |
|
|
|
|
|
|
10.72 |
|
|
Stipulation and Consent to the Issuance of Consent Order among Plumas Bank and the FDIC
entered into on March 16, 2011, is included as Exhibit 10.2 of the Registrants 8-K filed on
March 21, 2011, 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 12 Shareholders Equity. |
|
|
|
|
|
|
21.01 |
|
|
Plumas Bank California. |
|
|
|
|
|
|
21.02 |
|
|
Plumas Statutory Trust I Connecticut. |
|
|
|
|
|
|
21.03 |
|
|
Plumas Statutory Trust II Connecticut. |
|
|
|
|
|
|
23 |
|
|
Independent Registered Public Accountants Consent letter dated March 23, 2011 |
|
|
|
|
|
|
31.1 |
|
|
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 23, 2011 |
|
|
|
|
|
|
31.2 |
|
|
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 23, 2011 |
|
|
|
|
|
|
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 23, 2011. |
|
|
|
|
|
|
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 23, 2011. |
|
|
|
|
|
|
99.1 |
|
|
Certification of Chief Executive Officer pursuant to Section 111(b)(4) of the Emergency
Economic Stabilization Act of 2008 dated March 23, 2011. |
|
|
|
|
|
|
99.2 |
|
|
Certification of Chief Financial Officer pursuant to Section 111(b)(4) of the Emergency
Economic Stabilization Act of 2008 dated March 23, 2011. |
58
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.
PLUMAS BANCORP
(Registrant)
Date: March 23, 2011
|
|
|
|
|
|
|
|
|
/s/ ANDREW J. RYBACK
|
|
|
Andrew J. Ryback |
|
|
Interim President and Chief Executive Officer |
|
|
|
|
|
|
/s/ RICHARD L. BELSTOCK
|
|
|
Richard L. Belstock |
|
|
Senior Vice President and Interim Chief Financial Officer |
|
|
59
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
Daniel E. West, Director and Chairman of the Board
|
|
Dated: March 23, 2011 |
|
|
|
/s/ TERRANCE J. REESON
Terrance J. Reeson, Director and Vice Chairman of
the Board
|
|
Dated: March 23, 2011 |
|
|
|
/s/ ALVIN G. BLICKENSTAFF
Alvin G. Blickenstaff, Director
|
|
Dated: March 23, 2011 |
|
|
|
/s/ W. E. ELLIOTT
William E. Elliott, Director
|
|
Dated: March 23, 2011 |
|
|
|
/s/ GERALD W. FLETCHER
Gerald W. Fletcher, Director
|
|
Dated: March 23, 2011 |
|
|
|
/s/ JOHN FLOURNOY
John Flournoy, Director
|
|
Dated: March 23, 2011 |
|
|
|
/s/ ARTHUR C. GROHS
Arthur C. Grohs, Director
|
|
Dated: March 23, 2011 |
|
|
|
/s/ ROBERT J. MCCLINTOCK
Robert J. McClintock, Director
|
|
Dated: March 23, 2011 |
60