PLUMAS BANCORP
ADMINISTRATION OFFICE
35 S. Lindan Avenue Quincy, CA 95971 530.283.7305 Fax 530.283. 9665
To our Shareholders:
It is with great pleasure that we report yet another profitable year for Plumas Bank, and, even more
exciting, our second highest level of earnings in our 34-year history. Also in 2014, we achieved another
very significant achievement; Plumas Bank was ranked in the top ten percent of similarly-sized
community banks in the nation on the CB Resource Top Ten™ Performance Scorecard. We are very
proud of all of these important accomplishments.
In terms of profitability, our 2014 net income was $4.7 million, a 38% increase over 2013. This
profitability is the result of the positive operating momentum that we carried into 2014 which extended
throughout the year, along with strong organic loan growth, a substantial increase in our non-interest
revenues, responsible management of operating expenses and continued improvement in asset quality.
During 2014, we initiated a number of strategic actions which positioned the Company for additional
opportunity. These actions included the expansion of our small business lending, or SBA, operations into
Oregon and the opening of a commercial and agricultural loan production office in Chico, California. And
more recently, in February 2015, we filed an application with the Federal Deposit Insurance Corporation
(FDIC) to establish a full-service branch in Reno, Nevada so that we can expand our offerings in the
Northern Nevada region.
In April, our online banking technology will be enhanced with Unified User Experience (UUX). UUX
provides a consistent look, feel and functionality across all virtual channels – smartphones, tablets and
desktop computers. This technology will improve the customer experience by making navigation simple
and familiar regardless of device.
Because of these strategic actions, our business is well positioned in our markets and we are optimistic
about further growth opportunities into new markets. We look to sustain momentum through
continued investments in talent, products and services. We remain committed to successfully building
this organization for the long-term and delivering value to both clients and shareholders.
On behalf of your Board and Management team, thank you for your continued trust and confidence.
Sincerely,
Andrew J. Ryback
President & Chief Executive Officer
Daniel E. West
Chairman of the Board
PLUMAS BANCORP
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of Plumas Bancorp, (the
“Company”) which will be held at the Plumas Bank Credit Administration Building located at 32 Central
Avenue, Quincy, California, on Wednesday, May 20, 2015 at 9:30 a.m. At this annual meeting,
shareholders will be asked to (i) elect nine directors for the next year and (ii) ratify the appointment of
Vavrinek, Trine, Day & Company, LLP as our independent auditors for the fiscal year ending
December 31, 2015.
The Company is requesting your proxy to vote on the election of directors and the ratification of
auditors. The Board of Directors of the Company recommends that you vote “FOR” the election of each
of the nominees for director and “FOR” the ratification of the appointment of Vavrinek, Trine, Day &
Company, LLP as the Company’s independent auditors for the fiscal year ending December 31, 2015.
The proxy statement contains information about each of the nominees for directors, the Company’s
executive compensation, and proposal 2.
To ensure that your vote is represented at this important meeting, please sign, date and return the
proxy card in the enclosed envelope as promptly as possible. As an alternative to using your paper proxy
card to vote, you may also vote by telephone or over the internet by following the instructions on your
proxy card.
Sincerely,
Andrew J. Ryback
President and Chief Executive Officer
The date of this proxy statement is April 1, 2015.
TABLE OF CONTENTS
Notice of Annual Meeting
General Information
Revocability of Proxies and Proxy Voting
Persons Making the Solicitation
Voting Securities
Shareholdings of Certain Beneficial Owners and Management
Section 16(a) Beneficial Ownership Compliance
Proposal No. 1—Election of Directors
Board of Directors
Director Experience and Qualifications
Board Matters
The Board of Directors and Committees
Shareholder Communication with the Board of Directors
Board Role in Risk Oversight
Leadership Structure of Board
Code of Ethics
Director Independence
Audit Committee
Audit Committee Report
Corporate Governance Committee
Executive Officers
Executive Compensation
Named Executive Officer Compensation Table
Non-Equity Incentive Plan
Stock Option Awards
Post-Employment Benefits and Potential Payments Upon Termination Or Change of Control
Perquisites
Outstanding Equity Awards at December 31, 2014
Compensation of Directors
Director Compensation
Non-Qualified Stock Options
Director Retirement Agreement
Post-Retirement Consulting Agreement
Director Compensation Table
Proposal No. 2—Ratification of Appointment of Independent Auditors
Change in Independent Auditors
Fees Paid to Independent Auditors
Shareholder Proposals
Nomination of Director Candidates
Copy of Bylaw Provisions
Certain Transactions
Other Matters
Available Information
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Notice of Annual Meeting of Shareholders
Plumas Bancorp
To: The Shareholders of
Plumas Bancorp
Notice is hereby given that, pursuant to its Bylaws and the call of its Board of Directors, the annual
meeting of shareholders of Plumas Bancorp will be held at the Plumas Bank Credit Administration
Building located at 32 Central Avenue, Quincy, California, on Wednesday, May 20, 2015 at 9:30 a.m., for
the purpose of considering and voting upon the following matters:
1. Election of Directors. To elect nine (9) persons to serve as directors of the Bancorp until their
successors are duly elected and qualified.
Alvin G. Blickenstaff
Steven M. Coldani
William E. Elliott
Gerald W. Fletcher
John Flournoy
Arthur C. Grohs
Robert J. McClintock
Terrance J. Reeson
Daniel E. West
2.
Ratification of the Appointment of Independent Auditors. To vote on the ratification of the
appointment of Vavrinek, Trine, Day & Company, LLP as our independent auditors for the fiscal
year ending December 31, 2015.
3.
Transaction of Other Business. To transact such other business as may properly come before the
meeting and any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 2015 as the record date for
determination of shareholders entitled to notice of, and the right to vote at, the meeting.
You are urged to vote “FOR” the election of all of the nominees for directors and “FOR” the
ratification of the appointment of Vavrinek, Trine, Day & Company, LLP as our independent
auditors for the fiscal year ending December 31, 2015, by signing and returning the enclosed proxy
as promptly as possible, whether or not you plan to attend the meeting in person. As an alternative
to using your paper proxy card to vote, you may also vote by telephone or over the internet by
following the instructions on your proxy card. If you do attend the meeting, you may then
withdraw your proxy. The proxy may be revoked at any time prior to its exercise.
By Order of the Board of Directors,
Dated: April 1, 2015
Terrance J. Reeson, Vice Chairman and Secretary
ii
Plumas Bancorp
Proxy Statement
Annual Meeting of Shareholders
May 20, 2015
Plumas Bancorp (the “Company”) is providing this proxy statement to its shareholders in
connection with the annual meeting (the “Meeting”) of shareholders to be held at the Plumas Bank Credit
Administration Building located at 32 Central Avenue, Quincy, California, on Wednesday, May 20, 2015
at 9:30 a.m. and at any and all adjournments thereof.
It is expected that the Company will mail this proxy statement and accompanying notice and form
of proxy to shareholders on or about April 8, 2015.
Shareholders may also view this proxy statement and the 2014 Annual Report to
Stockholders on the internet at http://materials.proxyvote.com/729273.
General Information
Voting By Proxy. Whether or not you plan to attend the Meeting, you may submit a proxy to vote
the shares registered in your name via internet, telephone or mail as more fully described below:
•
•
•
By Internet: Go to http://www.proxyvote.com and follow the instructions. You will need
information from your proxy card or electronic delivery notice to submit your proxy.
By Telephone: Call 1.800.690.6903 and follow the voice prompts. You will need
information from your proxy card or electronic delivery notice to submit your proxy.
By Mail: Mark your vote, sign your name exactly as it appears on your proxy card, date
your proxy card and return it in the envelope provided.
If a bank, broker or other nominee holds your shares, you will receive voting instructions directly
from the holder of record. All shares represented by valid proxies that we receive through this
solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card
or as instructed via internet or telephone. If you properly submit a proxy without giving specific voting
instructions, your shares will be voted in accordance with the Board’s recommendations “FOR”:
•
•
Proposal 1: Election to the Board of all of the 9 director nominees named in this proxy
statement; and
Proposal 2: Ratification of the appointment of Vavrinek, Trine, Day & Company, LLP as
our independent auditors for the fiscal year ending December 31, 2015.
If other matters properly come before the Meeting, the persons appointed to vote the proxies will vote
on such matters in accordance with their best judgment. Such persons also have discretionary authority to
vote to adjourn the Meeting, including for the purpose of soliciting proxies to vote in accordance with the
Board’s recommendations on any of the above items.
1
Revocability of Proxies and Proxy Voting
You may revoke your proxy at any time before it is exercised by:
•
•
•
•
written notice of revocation delivered to Terrance J. Reeson, Corporate Secretary
of Plumas Bancorp, at 35 S. Lindan Avenue, Quincy, California 95971;
a properly executed proxy of a later date mailed to the Company;
casting a new vote by telephone or internet; or
voting in person at the Meeting if you are the record holder.
If you are a street name shareholder and you voted by proxy, you may revoke your proxy by
informing the holder of record in accordance with that entity’s procedures. In addition, the powers of the
proxy holders will be revoked if the person executing the proxy is present at the Meeting and elects to
vote in person. Subject to such revocation or suspension, the proxy holders will vote all shares
represented by a properly executed proxy received in time for the Meeting in accordance with the
instructions on the proxy.
If no instruction is specified by the shareholder with regard to the matter on the proxy to be
acted upon, the proxy holders will vote the shares represented by the proxy “FOR” each of the
nominees for directors and “FOR” the ratification of the appointment of Vavrinek, Trine, Day &
Company, LLP as our independent auditors for the fiscal year ending December 31, 2015. If any
other matter is presented at the Meeting, the proxy holders will vote in accordance with the
recommendations of management.
Persons Making the Solicitation
The Board of Directors of the Company is soliciting proxies. The Company will bear the expense
of preparing, assembling, printing and mailing this proxy statement and the material used in the
solicitation of proxies for the Meeting. The Company contemplates that proxies will be solicited
principally through the use of the mail, but officers, directors and employees of the Company may solicit
proxies personally or by telephone, without receiving special compensation for the solicitation. Although
there is no formal agreement to do so, the Company will reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in forwarding these proxy materials to
their principals. In addition, the Company may utilize the services of individuals or entities not regularly
employed by the Company in connection with the solicitation of proxies, if management of the Company
determines that this is advisable.
Voting Securities
Management of the Company has fixed March 31, 2015 as the record date for purposes of
determining the shareholders entitled to notice of, and to vote at, the Meeting. On March 31, 2015, there
were 4,800,439 shares of the Company’s common stock issued and outstanding. Each holder of the
Company’s common stock will be entitled to one vote for each share of the Company’s common stock
held of record on the books of the Company as of the record date. In connection with the election of
directors, shares may be voted cumulatively if a shareholder present at the Meeting gives notice at the
Meeting, prior to the voting for election of directors, of his or her intention to vote cumulatively. If any
shareholder of the Company gives that notice, then all shareholders eligible to vote will be entitled to
cumulate their shares in voting for election of directors. Cumulative voting allows a shareholder to cast a
number of votes equal to the number of shares held in his or her name as of the record date, multiplied by
the number of directors to be elected. These votes may be cast for any one nominee, or may be distributed
2
among as many nominees as the shareholder sees fit. If cumulative voting is declared at the Meeting,
votes represented by proxies delivered pursuant to this proxy statement may be cumulated in the
discretion of the proxy holders, in accordance with management’s recommendation.
The effect of broker non-votes is that such votes are not counted as being voted; however, such
votes are counted for purposes of determining a quorum. The effect of a vote of abstention on any matter
is that such vote is not counted as a vote for or against the matter, but is counted as an abstention.
Shareholdings of Certain Beneficial Owners and Management
Management of the Company knows of no person who owns, beneficially or of record, either
individually or together with associates, 5 percent or more of the outstanding shares of the Company’s
common stock, except as set forth in the table below. The following table sets forth, as of March 20,
2015, the number and percentage of shares of the Company’s outstanding common stock beneficially
owned, directly or indirectly, by principal shareholders, by each of the Company’s directors, our
executive officers named in the Summary Compensation Table contained in this proxy statement and by
the directors and executive officers of the Company as a group. The shares “beneficially owned” are
determined under the Securities and Exchange Commission (“SEC”) Rules, and do not necessarily
indicate ownership for any other purpose. In general, beneficial ownership includes shares over which the
director, named executive officer or principal shareholder has sole or shared voting or investment power
and shares which such person has the right to acquire within 60 days of March 20, 2015. Unless otherwise
indicated, the persons listed below have sole voting and investment powers of the shares beneficially
owned or acquirable by exercise of stock options. Management is not aware of any arrangements, which
may result in a change of control of the Company.
Beneficial Owner
Beneficial Ownership (1) Percent of Class (1)
Amount and Nature of
Principal Shareholders that own 5% or more:
Dean A. Cortopassi (2)
Siena Capital Management, LLC (3)
Directors and Named Executive Officers:
Andrew J. Ryback, President and CEO
Richard L. Belstock, EVP and CFO
Monetta R. Dembosz, EVP- Operations Manager of
Plumas Bank
Daniel E. West, Director and Chairman of the Board
Terrance J. Reeson, Director, Vice Chairman and
Secretary of the Board
Alvin G. Blickenstaff, Director
Steven M. Coldani, Director
William E. Elliott, Director
Gerald W. Fletcher, Director
John Flournoy, Director
Arthur Grohs, Director
Robert J. McClintock, Director
476,967
277,754
45,340 (4)
45,135 (5)
27,059 (6)
54,181 (7)
84,631 (8)
77,393 (9)
7,314 (10)
82,410 (11)
35,254 (12)
54,906 (13)
33,478 (14)
85,156 (15)
9.9
5.8
*
*
*
1.1
1.8
1.6
*
1.7
*
1.1
*
1.8
All 14 Directors and Executive Officers as a Group
671,662
13.7
*
Less than one percent
3
(1)
(2)
(3)
Includes 116,700 shares subject to options held by the directors and executive officers that were
exercisable within 60 days of March 20, 2015. These are treated as issued and outstanding for the
purpose of computing the percentage of each director, named executive officer and the directors
and executive officers as a group, but not for the purpose of computing the percentage of class
owned by any other person, including principal shareholders.
Two Cortopassi controlled entities have beneficial ownership over a total of 476,967 shares of
the Company. The Cortopassi Family Trust owns 156,410 shares of the Company’s common
stock, while Cortopassi Partners, L.P. owns 320,557 shares of the Company’s common stock.
Dean A. Cortopassi is the Trustee of the Cortopassi Family Trust and is also President of San
Tomo, Inc., the general partner of Cortopassi Partners, L.P. Mr. Cortopassi disclaims beneficial
ownership of the shares held by Cortopassi Family Trust and Cortopassi Partners, L.P. except to
the extent of his pecuniary or partnership interests therein. The address of the Cortopassi entities
is 11292 North Alpine Road, Stockton, California 95212.
Siena Capital Management, LLC is the general partner of each of Siena Capital Partners I, L.P.
and Siena Capital Partners Accredited, L.P. Siena Capital Partners I, L.P. may be deemed to
beneficially own 269,932 shares of common stock of the Company, Siena Capital Partners
Accredited, L.P. may be deemed to own 7,822 shares of common stock of the Company and
Siena Capital Management, LLC may be deemed to own 277,754 shares of common stock of the
Company. The address of the Siena entities is 100 North Riverside Plaza, Suite 1630 Chicago,
Illinois 60606.
(4)
Mr. Ryback has shared voting and investment powers as to 13,200 of these shares. Mr. Ryback
also has 9,500 shares acquirable by exercise of stock options.
(5)
Mr. Belstock has 16,900 shares acquirable by exercise of stock options.
(6)
(7)
(8)
(9)
Ms. Dembosz has shared voting and investment powers as to 4,359 of these shares. Ms.
Dembosz also has 22,700 shares acquirable by exercise of stock options.
Mr. West has shared voting and investment powers as to 23,662 of these shares and sole voting
powers but shared investment powers as to 16,794 of these shares. He also has 5,000 shares
acquirable by exercise of stock options.
Mr. Reeson has shared voting and investment powers as to 74,771 of these shares. He also has
5,000 shares acquirable by exercise of stock options.
Mr. Blickenstaff has shared voting and investment powers as to 69,602 of these shares. He also
has 2,600 shares acquirable by exercise of stock options.
(10)
Mr. Coldani has shared voting and investment powers as to 3,239 of these shares. He also has
800 shares acquirable by exercise of stock options.
(11)
Mr. Elliott has shared voting and investment powers as to 77,410 of these shares. He also has
5,000 shares acquirable by exercise of stock options.
4
(12)
Mr. Fletcher has shared voting and investment powers as to 32,609 of these shares. He also has
2,600 shares acquirable by exercise of stock options.
(13)
Mr. Flournoy has 5,100 shares acquirable by exercise of stock options.
(14)
Mr. Grohs has shared voting and investment powers as to 28,478 of these shares. He also has
5,000 shares acquirable by exercise of stock options.
(15)
Mr. McClintock has shared voting and investment powers as to 43,058 of these shares. He also
has 4,000 shares acquirable by exercise of stock options.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and certain
executive officers and persons who own more than ten percent (10%) of a registered class of the
Company’s equity securities (collectively, the “Reporting Persons”), to file reports of ownership and
changes in ownership with the SEC. The Reporting Persons are required by SEC regulation to furnish the
Bancorp with copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to the Company
during and with respect to its 2014 fiscal year, no director, executive officer or beneficial owner of 10%
or more of the Company’s common stock failed to file, on a timely basis, reports required during or with
respect to 2014 by Section 16(a) of the Securities Exchange Act of 1934, as amended.
5
PROPOSAL 1
ELECTION OF DIRECTORS
The persons named below, all of whom are current members of the Board of Directors (the
“Board”), will be nominated for election as directors at the Meeting to serve until the 2016 Annual
Meeting of Shareholders and until their successors are elected and have qualified. Votes of the proxy
holders will be cast in such a manner as to effect the election of all 9 nominees, as appropriate. The 9
nominees for directors receiving the most votes will be elected directors. In the event that any of the
nominees should be unable to serve as a director, it is intended that the proxy will be voted for the
election of such substitute nominee, if any, as shall be designated by the Board. The Board has no reason
to believe that any of the nominees named below will be unable to serve if elected. Additional
nominations for directors may only be made by complying with the nomination procedures which are
included in the notice of annual meeting of shareholders accompanying this proxy statement.
The following table sets forth the names of, and certain information concerning, the persons to be
nominated by the Board for election as directors of the Company.
Name and Title
Other than Director
Year First
Appointed
Age Director Principal Occupation During the Past Five Years
Daniel E. West
Chairman of the Board
61
1997
President, Graeagle Land & Water Co., a
management company. President, Graeagle Water Co,
a private water utility, Graeagle, CA.
land
Terrance J. Reeson
Vice Chairman and Secretary
of the Board
70
1984
Retired. Formerly with the U.S. Forestry
Service, Quincy, CA.
Alvin G. Blickenstaff
79
1988
Farmer and Rancher, partner in Blickenstaff Ranch,
Janesville, CA.
Steven M. Coldani
61
2013
President, Owner/Broker, Coldani Realty Inc. and co-
owner of Graeagle Associates Realtors; a managing
member of Coldani Farming, LLC, a diversified
farming company, Lodi, CA.
William E. Elliott
74
1987
Retired. Formerly President and CEO of the Company
and Plumas Bank, Quincy, CA.
Gerald W. Fletcher
72
1988
Forest Products Wholesaler, Susanville, CA.
John Flournoy
70
2005
Rancher and Chief Financial Officer of Likely
Land and Livestock Corporation, Likely, CA.
Arthur C. Grohs
78
1988
Retired. Former Retailer, Sparks, NV.
Robert J. McClintock
57
2008
Certified Public Accountant, co-owner of
McClintock Accountancy Corporation, Tahoe City, CA.
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The following is a brief description of the experience and qualifications of each nominee that the
Corporate Governance Committee considered, in light of the Company’s business and structure, in
nominating them for service as Directors:
Daniel E. West
Chairman of the Board
Director since 1997
Mr. Daniel E. West has lived in Graeagle, California since 1958. He is president of Graeagle Land
and Water Company, a land management company, and Graeagle Water Company, a private water utility.
Mr. West is a managing member of Graeagle Timber Company, LLC and is a member of the Feather
River College Foundation. He also serves as a director on the boards of Graeagle Fire Protection District
and California Water Association. Mr. West’s valuable business acumen, his extensive experience on
various and diverse boards, and his deep ties to his community highly qualify him for service as a
member of the Board and Chairman.
Terrance J. Reeson
Vice Chairman
Director since 1984
Mr. Terrance J. Reeson has lived in Quincy, California for over 50 years. He is a retired U.S.
Forest Service Aviation Officer for the Plumas National Forest. Mr. Reeson is active in his community
and is a former executive director of the Quincy Chamber of Commerce. Mr. Reeson’s relevant
experience qualifying him for service as a director includes extensive government service and widespread
civic and community involvement.
Alvin G. Blickenstaff
Director
Director since 1988
Mr. Alvin G. Blickenstaff was born and raised in the Susanville, California area. Mr. Blickenstaff, along
with his wife, Beverly, own and operate Blickenstaff Ranch, a family-owned partnership, where they raise
alfalfa hay, wheat, straw and alfalfa seed. He was a founding director and chairman of former Sierra
Security Bank. He is a member and past president of both the Lassen County Farm Bureau and Lassen
County Cattleman’s Association. Mr. Blickenstaff served as a 4-H leader and on the Jr. Livestock Sale
Committee for 42 years. He served on the FHA Loan Board and the Agricultural Stabilization and
Conservation Committee and received the Conservationist of the Year Award in 1972. In 2007, he was
recognized by his peers with a Distinguished Service Award for community service. Mr. Blickenstaff’s
expertise in the agricultural industry and business management highly qualifies him for service as a
member of the Board.
Steven M. Coldani
Director
Director since 2013
Mr. Steven M. Coldani was born and raised in Lodi, California. He is a licensed real estate broker and the
president and owner of Coldani Realty Inc. in Lodi, California; he is also co-owner of Graeagle
Associates Realtors in Graeagle, California since 1992. In addition, Mr. Coldani is a managing member of
Coldani Farming, LLC, a diversified farming company producing various row crops such as olives and
grapes, hay and livestock. Mr. Coldani graduated from the University of the Pacific, Stockton, California
where he received a Bachelor of Science degree in Business and Public Administration. Mr. Coldani’s
relevant experience qualifying him for service as a member of the Board is comprised of a broad range of
management and community service experience including his service on the board of Community
Business Bank as well as his membership in the Lodi District Chamber of Commerce, the California
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Farm Bureau, the Lodi Association of Realtors and the Plumas Association of Realtors; he is also a past
director of the California Association of Realtors.
William E. Elliott
Director
Director since 1987
Mr. William E. Elliott joined Plumas Bank in 1987 as President and Chief Executive Officer and retired
in 2005. He has been in the banking industry for over 50 years holding various management and board
positions; this experience highly qualifies him for service as a board director. Mr. Elliott graduated from
California State University, Sacramento where he received a Bachelor of Science degree in Accounting
and a Master’s in Business Administration. He also graduated from the Pacific School of Banking at the
University of Washington. Mr. Elliott is very active in his community; he is a director and former
chairman of the Feather River Community College Board, and he is a former director on the Plumas
District Hospital Board, both in Quincy, California. He has been a member of the Rotary Club for over 40
years.
Gerald W. Fletcher
Director
Director since 1988
Mr. Gerald W. Fletcher has lived in Susanville, California since 1956 and is a retired rancher, realtor, and
insurance agent. He was also a director of former Sierra Security Bank. Mr. Fletcher owns and operates
Fletcher Christmas Trees. He was also a reforeststation contractor and has planted millions of trees
throughout Northern California. He is a member and past president of Lassen County Cattleman’s
Association and a member of the Lassen County Farm Bureau. Mr. Fletcher’s relevant experience
qualifying him for service as a member of the Board is comprised of a broad range of management and
community service including his past service as Lieutenant in the Susanville Volunteer Fire Department,
a past 4-H Leader and member of the Lassen County Jr. Livestock Auction Committee.
John Flournoy
Director
Director since 2005
Mr. John Flournoy was born and raised in Likely, California. He is a rancher and hay producer in Likely,
California. Since 1971, he has served on the board of directors of the South Fork Irrigation District
(SFID). He served for many years as a committee member for the Farm Service Agency where he
reviewed all loan applications for small agricultural operations and evaluated collateral releases and
settlements. Mr. Flournoy’s relevant experience qualifying him for service as a member of the Board
includes his lifelong experience as a rancher and hay producer on his family-owned ranch, expertise in
business and agricultural lending, and operational risk management.
Arthur C. Grohs
Director
Director since 1988
Mr. Arthur C. Grohs was born in Susanville, California and raised in Westwood and Susanville,
California. Mr. Grohs is an experienced business owner and entrepreneur; he retired after 35 years of
retail store ownership in Susanville. Mr. Groh’s experience in qualifying him for service as a member of
the Board includes marketing, long range planning, personnel management, and operational risk
management. He now resides in Reno, Nevada and remains active in the Northern Nevada community.
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Robert J. McClintock
Director
Director since 2008
Mr. Robert J. McClintock has lived in Tahoe City, California for over 30 years. He is a Certified Public
Accountant and is a shareholder of McClintock Accountancy Corporation headquartered in Tahoe City,
California with an additional office in Truckee, California. As a CPA, Mr. McClintock brings strong
accounting and financial skills important to the oversight of the Company’s financial reporting, enterprise
and operational risk management. Mr. McClintock is Troop Committee Chairman for Boy Scouts of
America Troop 266. He is also a board member of the Kiwanis Club of North Lake Tahoe and has served
previously as past President and Treasurer. He is a member of the advisory board for the Tahoe Truckee
Excellence in Education Foundation and has served previously as Treasurer. Mr. McClintock attended
Michigan Tech University where he received his Bachelor of Science degree in Business Administration.
All nominees will continue to serve if elected at the Meeting until the 2015 annual meeting of
shareholders and until their successors are elected and have been qualified. None of the directors were
selected pursuant to any arrangement or understanding other than with the directors and executive officers
of the Company acting within their capacities as such. There are no family relationships between any of
the directors of the Company. No director of the Company serves as a director of any company that has a
class of securities registered under, or which is subject to the periodic reporting requirements of, the
Securities Exchange Act of 1934, or of any company registered as an investment company under the
Investment Company Act of 1940.
Board Matters
The Board of Directors and Committees
During 2014, the Company’s Board of Directors met 18 times. None of the Company’s directors
attended less than 75 percent of all Board of Directors’ meetings and committee meetings of which they
were members. The Company does not have a policy requiring director attendance at its annual meeting;
however, most directors attend the meeting as a matter of course. All current directors attended the annual
meeting of shareholders held in May 2014. The Board has established, among others, an Audit
Committee and a Corporate Governance Committee and each of these committees have charters. Charters
for each of these committees are available on the Company’s website www.plumasbank.com.
Shareholder Communication with the Board of Directors
If you wish to communicate with the Board of Directors or the Chairman of the Board you may
send correspondence to the Corporate Secretary, Plumas Bancorp, 35 S. Lindan Avenue, Quincy,
California 95971. The Corporate Secretary will perform a review of such correspondence to ensure that
communications forwarded to the Board or the Chairman preserve the integrity of the process. For
example, items that are unrelated to the duties and responsibilities of the Board or the Chairman such as
spam, junk mail and mass mailings, product complaints, personal employee complaints, product inquiries,
new product suggestions, resumes and other forms of job inquiries, surveys, business solicitations or
advertisements (the “Unrelated Items”) will not be forwarded. In addition, material that is unduly hostile,
threatening, illegal or similarly unsuitable will not be forwarded. Any communication that is relevant to
the conduct of the Company’s business and is not forwarded will be retained for one year (other than
Unrelated Items) and made available to the Chairman and any other independent director on request. The
independent directors grant the Corporate Secretary discretion to decide what correspondence shall be
shared with the Company’s management and specifically instruct that any personal employee complaints
be forwarded to the Company’s Human Resources Department.
9
Board Role in Risk Oversight
The Board’s duties include understanding and assessing risks to the Company and monitoring the
management of those risks. To fulfill this responsibility the directors are expected to attend all meetings
and review materials in advance of the meetings. Each meeting includes a review of the activities of each
board committee including the committee’s activities related to risk management. Each of our board
committees concentrates on specific risks for which they have an expertise and each committee is
required to regularly report to the Board of Directors on its findings.
The Board believes that evaluating how the executive team manages the various risks confronting
the Company is one of its most important areas of oversight. In carrying out this critical responsibility, the
Board has designated the Audit Committee with primary responsibility for overseeing enterprise risk
management. While the Audit Committee has primary responsibility for overseeing enterprise risk
management, each of the other Board committees also considers risk within its area of responsibility. For
example, the Corporate Governance Committee reviews risks related to legal and regulatory compliance
as they relate to corporate governance structure and processes, and reviews risks related to compensation
matters. The Board is apprised by the committee chairs of significant risks and management’s response to
those risks via periodic reports. While the Board and its committees oversee risk management strategy,
management is responsible for implementing and supervising day-to-day risk management processes and
reporting to the Board and its committees on such matters.
Furthermore, because the banking industry is highly regulated, certain risks to the Company are
monitored by the Board through its review of the Company’s compliance with regulations set forth by its
regulatory authorities, including the FDIC and recommendations contained in regulatory examinations.
With respect to risk related to compensation matters, the Corporate Governance Committee
considers, in establishing and reviewing the Company’s executive compensation program, whether the
program encourages unnecessary or excessive risk taking and has concluded that it does not. Executives’
base salaries are fixed in amount and thus do not encourage risk-taking. During 2014, the Company
established a non-equity incentive plan (the NEI) for its officer level employees. Under the NEI, an
allocation of 50% of pretax income in excess of budgeted pretax income is payable to eligible employees
up to a maximum of $500,000 for all eligible employees, exclusive of the CEO. The CEO’s allocation is
based on 10% of pretax income in excess of budgeted pretax income up to a maximum of $100,000. For
2014, the entire $600,000 was earned. No individual officer’s earnings under the NEI exceeded $20,000
with the exception of Mr. Ryback who earned an incentive of $100,000. The Corporate Governance
Committee concluded that the NEI as descripted above did not encourage unnecessary or excessive risk
taking. The other significant source of compensation to executives is in the form of long-term equity
awards that are important to help further align executives’ interests with those of the Company’s
shareholders. The Corporate Governance Committee believes that these awards do not encourage
unnecessary or excessive risk-taking since the ultimate value of the awards is tied to the Company’s stock
price, and awards are subject to long-term vesting schedules to help ensure that executives have
significant value tied to long-term stock price performance.
The Corporate Governance Committee has also reviewed the Company’s compensation programs
for employees generally and has concluded that these programs do not create risks that are reasonably
likely to have a material adverse effect on the Company. The Corporate Governance Committee believes
that the design of the Company’s annual cash and long-term equity incentives provides an effective and
appropriate mix of incentives to help ensure the Company’s performance is focused on long-term
shareholder value creation and does not encourage the taking of short-term risks at the expense of long-
term results.
10
Leadership Structure of Board
The Board believes that the Company and its shareholders are best served by having an
independent Board Chairman and a separate CEO. We separate these roles in recognition of the
differences between the two roles. The CEO is responsible for day-to-day leadership and performance of
the Company, while the Chairman of the Board provides strategic guidance to the CEO and presides over
meetings of the full Board.
Code of Ethics
The Board of Directors has adopted a code of business conduct and ethics for directors, officers
(including the Company’s 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
the Company’s 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. Additionally, a copy of the Company’s Corporate Governance Code of Ethics
can be accessed at http://www.plumasbank.com. Click on the “Investor Relations tab” and then
Governance Documents.
Director Independence
The Board has determined that each of the following non-employee directors are “independent”
within the meaning of the listing standards and rules of NASDAQ.
Daniel E. West
Alvin G. Blickenstaff
Steven M. Coldani
John Flournoy
Audit Committee
Robert J. McClintock
Terrance J. Reeson
Gerald W. Fletcher
Arthur C. Grohs
The Company has an Audit Committee composed of Mr. McClintock, Chairman and
Messrs. Flournoy, Grohs and Reeson. The Board has determined that each member of the Audit
Committee meets the independence and experience requirements of the listing standards of NASDAQ and
the SEC. The Board has also determined that Mr. Robert J. McClintock is qualified as an audit committee
financial expert and that he has accounting or related financial management expertise, in each case in
accordance with the rules of the SEC and NASDAQ’s listing standards.
The Audit Committee met 7 times during 2014. The Audit Committee reviews all internal and
external audits including the audit by Vavrinek, Trine, Day & Company, LLP, the Company’s
independent auditor for 2014. The Audit Committee reports any significant findings of audits to the
Board of Directors, and ensures that the Company’s internal audit plans are met, programs are carried out,
and deficiencies and weaknesses, if any, are addressed. The Audit Committee meets regularly to discuss
and review the overall audit plan. The Audit Committee’s policy is to pre-approve all recurring audit and
non-audit services provided by the independent auditors through the use of engagement letters. These
services may include audit services, audit-related services, tax services and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to particular service or category
of services and is generally subject to a specific budget. The independent auditors and management are
required to periodically report to the Audit Committee regarding all services provided by the independent
auditors and fees associated with those services performed to date. The fees paid to the independent
auditors in 2014 and 2013 were approved per the Audit Committee’s pre-approval policies.
11
Audit Committee Report
This report of the Audit Committee shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise be deemed filed under the
Acts.
The Board of Directors and the Audit Committee has reviewed the Company’s audited financial
statements and discussed such statements with management. The Audit Committee has discussed with
Vavrinek, Trine, Day & Company, LLP, the Company’s independent auditors during the year 2014, all
communications required by standards of the Public Company Accounting Oversight Board, including the
matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees,
and Rule 2-07, Communication with Audit Committees, of Regulation S-X, and, with and without
management present, discussed and reviewed the results of the independent external audit firm’s
examination of the financial statements. The Committee also discussed the results of internal audits.
The Audit Committee has also received the written disclosures and the letter from Vavrinek, Trine,
Day & Company, LLP as required by the PCAOB’s Ethics and Independence Rule 3526
(Communication with Audit Committees Concerning Independence) and has discussed with the
independent registered public accounting firm their independence.
Based on the review and discussions noted above, the Audit Committee recommended to the Board
of Directors that the Company’s audited financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2014, for filing with the SEC.
THE AUDIT COMMITTEE:
Robert J. McClintock, Chairman
Arthur C. Grohs
Corporate Governance Committee
John Flournoy
Terrance J. Reeson
The Company has a Corporate Governance Committee which met 5 times during 2014. The
Corporate Governance Committee consists of Mr. Flournoy, Chairman, and Messrs. Coldani, Grohs,
Reeson and West. The Board has determined that Messrs. Flournoy, Coldani Grohs, Reeson and West are
“independent” within the meaning of the listing standards and rules of NASDAQ. The Corporate
Governance Committee, which functions as the Board’s nominating and compensation committees,
provides assistance to the Board by identifying qualified individuals as prospective Board members,
recommends to the Board the director nominees for election at the annual meeting of shareholders,
nominates the Chairperson and Vice-Chairperson of the Board, oversees the annual review and evaluation
of the performance of the Board and its committees, and develops and recommends corporate governance
guidelines to the Board of Directors.
The Corporate Governance Committee also at least annually reviews, adjusts (as necessary), and
approves the Company’s directors’ compensation, including cash, equity or other compensation for
service on the Board, any committee of the Board and as Chairperson of the Board or any committee of
the Board, at least annually reviews, adjusts (as necessary) and approves the Chief Executive Officer’s
compensation, provides advice and consents to the Chief Executive Officer in the review and adjustment
of executive officer compensation (other than the Chief Executive Officer), approves the compensation
strategy for the Company’s employees, reviews and recommends for approval by the Board all equity-
based compensation, including stock options and stock grants and approves other personnel matters,
which are in excess of management’s authority.
12
The Corporate Governance Committee has the authority, to the extent it deems necessary, to retain
and terminate an outside compensation consultant to assist in the evaluation of director and executive
officer compensation and benefit matters. During the year ending December 31, 2014 the Corporate
Governance Committee did not engage an outside compensation consultant.
The Corporate Governance Committee does not have any written specific minimum qualifications
or skills that the committee believes must be met by either a committee-recommended or a shareholder-
recommended candidate in order to serve on the Board. The Corporate Governance Committee identifies
nominees by first evaluating the current members of the Board willing to continue in service. Current
members of the Board with skills and experience that are relevant to the Company’s business and who are
willing to continue in service are considered for re-nomination, balancing the value of continuity of
service by existing members of the Board with that of obtaining a new perspective. If any member of the
Board does not wish to continue in service or if the Corporate Governance Committee or the Board
decided not to re-nominate a member for re-election, the Corporate Governance Committee identifies the
desired skills and experience of a new nominee in light of the following criteria. While no specific
diversity policy exists, when identifying and evaluating new directors, the Corporate Governance
Committee considers the diversity and mix of the existing members of the Board, including, but not
limited to, such factors as: the age of the current directors, their geographic location (being a community
bank, there is a strong preference for local directors), background, skills and employment experience.
Among other things, when examining a specific candidate’s qualifications, the Corporate Governance
Committee considers the candidate’s: ability to represent the best interest of the Company; existing
relationships with the Company; interest in the affairs of the Company and its purpose; ability to fulfill
director responsibilities; leadership skills; reputation within the Company’s community; community
service; integrity; business judgment; ability to develop business for the Company; and ability to work as
a member of a team. The Committee does not assign specific weights to particular criteria and no
particular criterion is necessarily applicable to all prospective nominees. Nominees are not discriminated
against on the basis of race, religion, national origin, sexual orientation, disability or any other basis
proscribed by law. All nominees to be considered at the Meeting were recommended by the Corporate
Governance Committee.
The Corporate Governance Committee will consider nominees to the Board proposed by
shareholders, although the Board has no formal policy with regard to shareholder nominees as it considers
all nominees on their merits as aforementioned. Any shareholder nominations proposed for consideration
by the Board may only be made by complying with the procedures which are included in this proxy
statement and should be addressed to:
President
Plumas Bancorp
35 S. Lindan Avenue
Quincy, CA 95971
13
Executive Officers
The following table sets forth information concerning executive officers of the Company and Plumas
Bank:
Name
Andrew J. Ryback
Age
49
Position and Principal Occupation for the Past Five Years
President and Chief Executive Officer of the Company and Plumas
Bank since November 16, 2011. Interim President and Chief Executive
Officer of the Company and Plumas Bank effective March 29, 2010.
Richard L. Belstock
58
Executive Vice President of the Company and Plumas Bank since July
18, 2012. Chief Financial Officer of the Company and Plumas Bank
since November 16, 2011. Interim Chief Financial Officer of the
Company and Plumas Bank effective March 31, 2010.
Monetta R. Dembosz
64 Executive Vice President and Operations Manager of Plumas Bank.
BJ North
64
Executive Vice President of Retail Banking, Marketing and
Commercial Lending of Plumas Bank.
Kerry D. Wilson
58
Executive Vice President and Chief Credit Officer of Plumas Bank
since July 18, 2012. Chief Credit Administrator of Plumas Bank since
February, 2012. Previously Senior Vice President and Assistant Loan
Administrator of Plumas Bank.
Executive Compensation
Summary Compensation Table
Year
(b)
Salary
(c)
Bonus
(d)
Stock
Awards
(1)
(e)
Option
Awards
(2)
(f)
Non-Equity
Incentive
Plan
Compensation
(g)
Nonqualified
Deferred
Compensation
Earnings
(h)
All Other
Compensation
(3)
(i)
Total
(j)
Name and Principal
Position
(a)
Andrew J. Ryback
President and CEO of
the Company and
Plumas Bank
Richard L. Belstock
EVP and CFO of the
Company and Plumas
Bank
2014
2013
$210,000
$200,000
2014
2013
$145,000
$135,000
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$ 43,452
$ 0
$ 100,000
$ 0
$ 0
$ 0
$ 6,456
$ 7,018
$359,908
$207,018
$ 28,968
$ 0
$ 19,600
$ 9,800
$ 0
$ 0
$ 2,172
$ 2,001
$195,740
$146,801
$ 28,968
$ 0
$ 17,700
$ 8,600
$ 0
$ 0
$ 3,815
$ 4,129
$195,483
$147,729
Monetta R. Dembosz
EVP and Operations
Manager of Plumas Bank
2014
2013
$145,000
$135,000
(1) The Company did not grant any stock awards in 2014 or 2013.
(2) The amounts in column (f) reflect the aggregate grant date fair value computed in accordance with
FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in
footnote 3 to the Company’s audited financial statements for the fiscal year ended December 31,
2014 included in the Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 19, 2015. No stock options were granted in 2013.
The amounts in column (i) include premiums paid and accrued on life insurance policies,
personal use of a Company automobile, Company-provided gasoline and cell phone allowance.
(3)
14
Non-Equity Incentive Plan
During 2014, the Company established a non-equity incentive plan (the “2014 NEI”) for its officer
level employees. Under the 2014 NEI, an allocation of 50% of pretax income in excess of budgeted
pretax income is payable to eligible employees up to a maximum of $500,000 for all eligible employees,
exclusive of the CEO. The CEO’s allocation is based on 10% of pretax income in excess of budgeted
pretax income up to a maximum of $100,000. For 2014, the entire $600,000 was earned. No individual
officer’s earnings under the 2014 NEI exceeded $20,000 with the exception of Mr. Ryback who earned an
incentive of $100,000. A total of forty employees received a bonus payment under the 2014 NEI. These
payments were made during the first quarter of 2015. The Company’s 2015 NEI is expected to be similar
to the 2014 NEI.
Under the Company’s 2013 NEI an allocation of 50% of pretax income in excess of budgeted pretax
income was payable to eligible employees up to a maximum of $250,000 for all eligible employees. For
2013 the entire $250,000 was earned. No individual officer’s earnings under the 2013 NEI exceeded
$10,000. Mr. Ryback was not included in the 2013 NEI as during most of 2013 we were subject to
restrictions on paying incentives to our CEO under the Troubled Asset Relief Capital Purchase Program.
Stock Option Awards
We consider equity compensation in the form of annual stock option awards an important
component of our total compensation package because it helps align the interests of our executives to
those of our shareholders and provides a significant retention benefit. During 2013 the Company’s
shareholders approved the Plumas Bancorp 2013 Stock Option Plan (2013 Plan) which allows for the
granting of stock option awards to employees. The 2013 Plan is for a term of 10 years. No more than
500,000 shares of common stock may be issued pursuant to Awards of stock options. The Corporate
Governance Committee approves and recommends to the Board for its approval all stock option grants.
On April 28, 2014 the Company granted 110,400 stock options under the 2013 plan with an
exercise price of $6.32 per share. These options have a four year vesting period and expire eight (8) years
from the date of grant. There were no stock options granted during the year ended December 31, 2013.
The Company makes grants of equity-based compensation only at fair market value of our stock at the
time of grant. The exercise price of stock options is set at the closing stock price on the date of grant. All
option grants have a maximum vesting period of five (5) years and expire no more than ten (10) years
from the date of grant.
The Company incorporates the officer’s position level in the determination of the total value of the
equity-based compensation to be included in the officer’s total compensation. The higher the officer’s
level, the more options that may be granted to the officer. Additional options may be granted to an
individual based on outstanding achievement. This is consistent with the Company’s philosophy of
rewarding those officers who have the most impact on our performance.
Post-Employment Benefits and Potential Payments Upon Termination Or Change of Control
We consider providing significant post-employment benefits in the form of providing salary
continuation benefits to our executives as an important part of their total executive compensation to
reward them for their service and loyalty to the Company. The Company has entered into salary
continuation agreements with Mr. Ryback and Ms. Dembosz. The purpose of the salary continuation
agreements is to provide special incentive to the experienced executive officer to continue employment
with the Company on a long-term basis. The agreements provide the executive with salary continuation
benefits of up to $62,000 per year for 15 years after retirement at age 65. In the event of death prior to
retirement, the executive’s beneficiary will receive salary continuation benefits at a reduced amount
depending on the length of service with the Company or in the case of Mr. Ryback his beneficiary is
entitled to a portion of the death benefits pursuant to a split dollar agreement. In the event of disability
15
wherein the executive does not continue employment with the Company, the executive is entitled to
salary continuation benefits, at a reduced amount depending on the length of service with the Company,
beginning at age 65 or on the date on which he is no longer entitled to disability benefits under the
Company’s group disability insurance, whichever is earlier. If the executive terminates employment with
the Company for a reason other than death or disability prior to the retirement age of 65, such person will
be entitled to salary continuation benefits at a reduced amount depending on the length of service with the
Company. The vesting of salary continuation benefits for Mr. Ryback occurs at a rate that provides for a
90% vesting at age 60 and 2% per year for the next five years of service, for a total vesting of 100%. Ms.
Dembosz’s salary continuation benefits were approximately 32% vested at age 60. Between age 60 and
65 her vesting will increase at an annual rate of between 13% and 15% per year and she will become fully
vested at age 65.
In the event of a change of control of the Company and the executive terminates employment with
the Company or its successor within a period of 24 months after such change in control, then the
executive may elect full vesting of his salary continuation payments and the payment of the salary
continuation benefits beginning with the month following the month of termination, subject to the
reduction of benefits if the benefits result in a limitation of deductibility of such benefits for the Company
under Section 280G of the Internal Revenue Code. The salary continuation benefits are informally funded
by single premium life insurance policies with the executive as the insured parties and the Company as
the beneficiary of the policies.
The Company has entered into a split dollar agreement with Mr. Ryback. The purpose of the split
dollar agreement is to provide special incentive to Mr. Ryback to continue employment with the
Company on a long-term basis. To accomplish this, the Company agrees to divide the net death proceeds
of life insurance policies on Mr. Ryback’s life with Mr. Ryback’s beneficiary. However, Mr. Ryback’s
rights or interests in the split dollar policies no longer exist once he ceases to be employed by the
Company for any reason whatsoever prior to normal retirement age provided that he has received or had
the opportunity to receive any benefit under his executive salary continuation agreement.
The Company has agreed to pay the taxes on the imputed income on the life insurance benefit
provided to Mr. Ryback under the split dollar agreement.
Perquisites
We offer a qualified 401(k) plan in which the named executive officers participate on the same
terms as all other employees. On April 1, 2010 we discontinued the Company’s matching contribution but
reinstated it at a reduced rate beginning January 1, 2015. In addition we offer medical, dental and vision
plans under the same terms to all employees. Other perquisites and benefits, which do not represent a
significant portion of the named executive’s total compensation, include for Mr. Ryback a Company
provided automobile, maintenance on the automobile and the payment of his portion of the split dollar
insurance premium. Mr. Ryback, Mr. Belstock and Ms. Dembosz also receive a monthly allowance to
cover the business portion of their cellular phone use and are provided with gasoline for the business use
of their automobiles. These plans, and the contributions we make to them, provide an additional benefit to
attract and retain executive officers of the Company.
16
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Option
Exercise
Price ($)
Option
Expiration
Date
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
Market
value of
Shares or
Units of
Stock
That Have
Not
Vested ($)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Name
(a)
Andrew J.
Ryback
10,400 (2)
5,900 (3)
0 (1)
0
0
14,400
5,000 (5)
2,600 (2)
1,500 (3)
5,600 (4)
0 (1)
0
0
0
2,400
9,600
10,400 (2)
5,900 (3)
10,800 (4)
0 (1)
0
0
3,600
9,600
Richard L.
Belstock
Monetta R.
Dembosz
$16.37
$12.40
$ 6.23
$16.89
$16.37
$12.40
$2.95
$6.23
$16.37
$12.40
$2.95
$6.23
03/01/2015
02/20/2016
04/28/2022
09/20/2016
03/01/2015
02/20/2016
03/16/2019
04/28/2022
03/01/2015
02/20/2016
03/16/2019
04/28/2022
N/A
N/A
N/A
0
$0
0
0
$0
$0
0
0
0
(j)
$0
$0
$0
(1) Options were granted 4/28/2014, have an eight year life and vest 25% per year beginning 4/28/2015
(2) Options were granted 3/1/2007, have an eight year life and vest 25% per year beginning 3/01/2008
(3) Options were granted 2/20/2008, have an eight year life and vest 25% per year beginning 2/20/2009
(4) Options were granted 3/16/2011, have an eight year life and vest 25% per year beginning 3/16/2012
(5) Options were granted 9/20/2006, have a ten year life and vest 20% per year beginning 9/20/2007
Compensation of Directors
Director Compensation: During 2014 Directors, except the Chairman, each received $2,100 per
month for serving on the Company’s and Plumas Bank’s Board of Directors. The Chairman received
$2,650 per month.
Non-Qualified Stock Options: On April 28, 2014, the Company granted to each of its directors
3,200 in non-qualified stock options with an exercise price of $6.23 per share. The options vest 25% per
year beginning on April 28, 2015 and have an eight year life. The Company makes grants of non-
qualified stock options only at fair market value of our stock at the time of grant. All option grants have a
maximum vesting period of five (5) years and expire no more than ten (10) years from the date of grant.
Upon a change in control, all stock options held by directors may vest and become exercisable.
Director Retirement Agreement: The Company has entered into Director Retirement (fee
continuation) Agreements with its Directors excluding Mr. Elliott and Mr. Coldani. Mr. Elliott retired as
President and Chief Executive Officer of the Company during 2005 and is currently receiving benefits
under his executive salary continuation agreement. The purpose of the fee continuation agreements is to
provide a retirement benefit to the Board members as an incentive to continue informal service with the
Company. The agreements provide for fee continuation benefits of up to $10,000 per year with a term of
12 years after retirement with the exception that Board members Flournoy and McClintock’s agreements
have a term of 15 years. In the event of death prior to retirement, the beneficiary will receive full fee
continuation benefits, with the exception of Messrs. Flournoy and McClintock’s beneficiaries who would
17
be entitled to receive a lump sum payment of $30,000. In the event of disability wherein the director does
not continue service with the Company, the director is entitled to fee continuation benefits, at a reduced
amount depending on the length of service with the Company, beginning the month following termination
of service. The agreements, with the exception of Messrs. Flournoy and McClintock’s agreements, allow
for a Hardship Distribution under specified circumstances. Hardship Distributions are limited to the
amount the Company had accrued under the terms of the agreement as of the day the director petitioned
the Board to receive a Hardship Distribution. Upon a change in control, the director is eligible to receive
the full fee continuation benefits upon the director’s termination of service. The fee continuation benefits,
with the exception of Mr. McClintock’s benefits, are informally funded by single premium life insurance
policies. The directors are the insured parties and the Company is the beneficiary of the respective
policies.
Post-Retirement Consulting Agreement: The Company has entered into Post-Retirement
Consulting Agreements with its non-employee Directors with the exception of Messrs. Flournoy, Elliott,
McClintock and Coldani. The purpose of the Agreements is to provide consideration to the Board
members in exchange for consulting services after their retirement from the Board. The Agreements
provide for consulting fees of $10,000 per year for 3 years after retirement. In the event of death prior to
completion of the consulting services, the beneficiary will receive death benefits equal to the remaining
unpaid consulting fee benefits. In the event of disability wherein the retired director is unable to continue
consulting services with the Company, the Company may terminate the director’s post-retirement
consulting services. If the retired director voluntarily terminates his or her consulting services for other
than good reason or if the Company terminates the director’s post-retirement consulting services for
cause, the Post-Retirement Consulting Agreement shall terminate.
The table below summarizes the compensation paid by the Company to non-employee Directors for the
fiscal year ended December 31, 2014.
Director Compensation Table
Fees
Earned
or Paid
in Cash
(b)
$31,800
$25,200
$25,200
$25,200
$25,200
$25,200
$25,200
$25,200
$25,200
Stock
Awards
(1)
(c)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Option
Awards
($) (2)
(d)
$ 9,656
$ 9,656
$ 9,656
$ 9,656
$ 9,656
$ 9,656
$ 9,656
$ 9,656
$ 9,656
Non-Equity
Incentive Plan
Compensation
(e)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Nonqualified
Deferred
Compensation
Earnings
(f)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
All Other
Compensation
(g)
$0
$0
$0
$0
$0
$0
$0
$0
$0
Total
(h)
$41,456
$34,856
$34,856
$34,856
$34,856
$34,856
$34,856
$34,856
$34,856
Name
(a)
Daniel E. West
Terrance J. Reeson
Alvin G. Blickenstaff
Steven M. Coldani
William E. Elliott
Gerald W. Fletcher
John Flournoy
Arthur Grohs
Robert J. McClintock
(1) The Company did not grant any stock awards in 2014.
(2) The amounts in column (f) reflect the aggregate grant date fair value computed in accordance with FASB
ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 3 to the
Company’s audited financial statements for the fiscal year ended December 31, 2014 included in the
Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 19, 2015.
18
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
At the Meeting, shareholders will be asked to ratify the appointment of Vavrinek, Trine, Day &
Company, LLP as the Company’s independent auditors for the fiscal year ending December 31, 2015.
The firm of Vavrinek, Trine, Day & Company, LLP served as independent registered public accounting
firm for the audit of the Company’s consolidated financial statements as of and for the year ended
December 31, 2014. We have been advised by Vavrinek, Trine, Day & Company, LLP and by the
directors themselves that neither it nor any of its members or associates has any relationship with us or
our subsidiaries, other than as independent auditors.
Proposal 2 is nonbinding. If the appointment is not ratified, our Audit Committee will consider
whether to appoint another independent registered public accounting firm in its discretion. If the
appointment is ratified, our Audit Committee in its discretion may appoint a different independent
registered public accounting firm at any time if it determines that such a change would be advisable.
Representatives of Vavrinek, Trine, Day & Company, LLP will be present at the Meeting, will have
an opportunity to make any statement that they may desire to make, and will be available to answer
appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
APPOINTMENT OF VAVRINEK, TRINE, DAY & COMPANY, LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2015.
Change in Independent Auditors:
On December 19, 2013, the Company notified Crowe Horwath LLP that it will be dismissed as the
Company’s independent registered public accounting firm upon the completion of its audit of the
Company’s consolidated financial statements as of and for the year ending December 31, 2013. The
decision to dismiss Crowe Horwath LLP was approved by the Company’s Audit Committee. The audit
report of Crowe Horwath LLP on the consolidated financial statements of the Company for the years
ended December 31, 2013, December 31, 2012 and December 31, 2011 did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the years ended December 31, 2012 and December 31, 2011 and the
subsequent interim period through December 19, 2013 there were: (1) no disagreements between the
Company and Crowe Horwath LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of Crowe Horwath LLP would have caused them to make reference thereto in their reports on
the Company’s financial statements for such years, and (2) no reportable events within the meaning set
forth in Item 304(a)(1)(v) of the SEC’s Regulation S-K. The Company has provided Crowe Horwath LLP
with a copy of the preceding statements and requested Crowe Horwath LLP to furnish it with a letter
addressed to the SEC stating whether or not it agrees with the statements. A copy Crowe Horwath LLP’s
letter was included as an exhibit to the Company’s Form 8-K filed with the SEC on December 23, 2013.
During the years ended December 31, 2012 and December 31, 2011, and the subsequent interim
period through December 19, 2013 the Company did not consult Vavrinek, Trine, Day & Company, LLP
regarding: (1) the application of accounting principles to a specified transaction, either completed or
proposed; (2) the type of audit opinion that might be rendered on the Company’s financial statements, and
Vavrinek, Trine, Day & Company, LLP did not provide any written report or oral advice that Vavrinek,
Trine, Day & Company, LLP concluded was an important factor considered by the Company in reaching
a decision as to any such accounting, auditing or financial reporting issue; or (3) any matter that was
either the subject of a disagreement or a reportable event.
19
Fees Paid to Independent Auditors:
Aggregate fees billed by Vavrinek, Trine, Day & Company, LLP (2014) and Crowe Horwath LLP (2013)
to the Company and Plumas Bank and the percentage of those fees that were pre-approved by the
Company’s Audit Committee for the years ended 2014 and 2013 are as follows:
Audit fees
Audit-related fees
Tax fees
Total fees
Percentage
Pre-
Approved
100 % $
100%
100%
100% $
2014
$ 100,000
15,000
15,000
$ 130,000
2013
215,000
19,000
19,000
253,000
Percentage
Pre-
Approved
100 %
100 %
100 %
100 %
The Audit Committee of the Bancorp has considered the provision of non-audit services
provided by Vavrinek, Trine, Day & Company, LLP and Crowe Horwath LLP to be compatible with
maintaining the independence of Vavrinek, Trine, Day & Company, LLP and Crowe Horwath LLP.
Shareholder Proposals
In order for a shareholder proposal to be considered for inclusion in the Company’s proxy
statement for next year’s annual meeting, the written proposal must be received by the Company no later
than December 10, 2015 and should contain such information as is required under the Company’s
Bylaws. Such proposals will need to comply with the SEC’s regulations regarding the inclusion of
shareholder proposals in the Company’s proxy materials.
Nomination of Director Candidates: The Company’s Bylaws permit shareholders to nominate
directors at a shareholder meeting. In order to make a director nomination at an annual shareholder
meeting, it is necessary that you notify the Company not less than 120 days before the first anniversary of
the date that the proxy statement for the preceding year’s annual meeting was first sent to shareholders.
The Company’s 2015 proxy statement was first sent to stockholders on April 8, 2015. Thus, in order for
any such nomination notice to be timely for next year’s annual meeting, it must be received by the
Company not later than December 10, 2015. In addition, the notice must meet all other requirements
contained in the Company’s Bylaws and include any other information required pursuant to Regulation
14A under the Exchange Act.
Copy of Bylaw Provisions: You may contact the Investor Relations Officer, Ms. Elizabeth
Kuipers, at the Company for a copy of the relevant Bylaw provisions regarding the requirements for
making shareholder proposals and nominating director candidates. Additionally, a copy of the
Company’s Bylaws can be accessed at http://www.plumasbank.com. Click on the “Investor Relations
tab” and then Governance Documents.
Certain Transactions
Some of the directors and executive officers of the Company and their immediate families, as well
as the companies with which they are associated, are customers of, or have had banking transactions with,
the Company in the ordinary course of the Company’s business, and the Company expects to have
banking transactions with such persons in the future. In management’s opinion, all loans and
commitments to lend in such transactions were made in compliance with applicable laws and on
substantially the same terms, including interest rates and collateral, as those prevailing for comparable
transactions with other persons of similar creditworthiness and, in the opinion of management, did not
involve more than a normal risk of collectibility or present other unfavorable features.
20
Other Matters
Management does not know of any matters to be presented at the Meeting other than those set forth
above. However, if other matters come before the Meeting, it is the intention of the persons named in the
accompanying proxy to vote the shares represented by the proxy in accordance with the recommendations
of management on such matters, and discretionary authority to do so is included in the proxy.
Available Information
The Company’s common stock is registered under the Securities Exchange Act of 1934 and as a
result the Company is required to file annual reports, quarterly reports and other periodic filings with the
SEC and are posted and are available at no cost on the Company’s website, www.plumasbank.com, as
soon as reasonably practicable after the Company files such documents with the SEC. These reports and
filings are also available for inspection and/or printing at no cost through the SEC website, www.sec.gov.
In addition, regulatory report data for both the Company and Plumas Bank are available for inspection
and/or printing at no cost through the Federal Financial Institutions Examination Council’s (the “FFIEC”)
website, www.ffiec.gov and the Federal Deposit Insurance Corporation’s (the “FDIC”) website,
www.fdic.gov, respectively.
You may request an additional copy of the proxy statement, 10-K, 2014 annual report to
shareholders, and form of proxy as to this Meeting or all future shareholder meetings by calling us at
1.888.375.8627, by writing to us at Plumas Bancorp, 35 S. Lindan Avenue, Quincy, California 95971,
Attn: Ms. Elizabeth Kuipers, Vice President and Investor Relations Officer, or by email at
investorrelations@plumasbank.com.
21
[THIS PAGE INTENTIONALLY LEFT BLANK]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:58) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2014
or
(cid:133) 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
(State or other jurisdiction of
incorporation or organization)
75-2987096
(IRS Employer Identification No.)
35 S. Lindan Avenue, Quincy, CA
(Address of principal executive offices)
95971
(Zip Code)
Registrant's telephone number, including area code: (530) 283-7305
Securities 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.
(cid:133) Yes
(cid:58) 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.
(cid:133) Yes
(cid:58) 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.
(cid:58) Yes
(cid:133) 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). (cid:58) Yes No (cid:133)
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:58)
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 (cid:133) Accelerated Filer (cid:133) Non-Accelerated Filer (cid:133) Smaller Reporting Company (cid:58)
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(cid:58) No
(cid:133) Yes
As of June 30, 2014 the aggregate market value of the voting and non-voting common equity held by non-affiliates of
the Registrant was approximately $28.8 million, based on the closing price reported to the Registrant on June 30, 2014 of
$6.80 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 13, 2015 was 4,799,139.
Documents Incorporated by Reference: Portions of the definitive proxy statement for the 2015 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.
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
PART IV
Page
3
14
14
15
16
16
17
18
19
40
40
41
41
42
42
42
42
42
42
43
46
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 Bancorp’s (the “Company’s”) plans, beliefs and
goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not
limited to, the following factors:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Local, regional, national and international economic conditions and the impact they may have on us and
our customers, and our assessment of that impact on our estimates including, but not limited to, the
allowance for loan losses.
The effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate
policies of the Federal Open Market Committee of the Federal Reserve Board.
The ability to receive regulatory approval for the Bank to declare and pay dividends to the Company.
Changes imposed by regulatory agencies to increase our capital to a level greater than the current level
required for well-capitalized financial institutions (including the impact of the recent joint rule proposals
by the Federal Reserve Board, Office of the Comptroller of the Currency, and the FDIC to revise the
regulatory capital rules, including the implementation of the Basel III standards), the failure to maintain
capital above the level required to be well-capitalized under the regulatory capital adequacy guidelines,
the availability of capital from private or government sources, or the failure to raise additional capital as
needed.
The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies,
as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board
and other accounting standard setters.
The costs and effects of changes in laws and regulations and of other legal and regulatory developments,
including, but not limited to, increases in FDIC insurance premiums, the resolution of legal proceedings or
regulatory or other governmental inquiries, and the results of regulatory examinations, reviews or other
inquires.
Changes in the interest rate environment and volatility of rate sensitive assets and liabilities.
(cid:131) Declines in the health of the economy, nationally or regionally, which could reduce the demand for loans,
reduce the ability of borrowers to repay loans and/or reduce the value of real estate collateral securing
most of the Company’s loans.
(cid:131)
Credit quality deterioration, which could cause an increase in the provision for loan and lease losses.
(cid:131) Devaluation of fixed income securities.
(cid:131)
(cid:131)
Asset/liability matching risks and liquidity risks.
Loss of key personnel.
(cid:131) Operational interruptions including data processing systems failure and fraud.
(cid:131) Our success at managing the risks involved in the foregoing items.
The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-
looking statements.
2
ITEM 1. BUSINESS
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 Company’s principal subsidiary is the Bank, and the Company exists primarily for the purpose of
holding the stock of the Bank and of such other subsidiaries it may acquire or establish. At the present time, the
Company’s only other subsidiaries are Plumas Statutory Trust I and Plumas Statutory Trust II, which were formed
in 2002 and 2005 solely to facilitate the issuance of trust preferred securities.
The Company’s principal source of income is dividends from the Bank, but the Company 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.
At December 31, 2014, the Company had consolidated assets of $539 million, deposits of $468 million, other
liabilities of $35 million and shareholders’ equity of $36 million. The Company’s other liabilities include $10.3
million in junior subordinated deferrable interest debentures, $7.5 million in subordinated debentures and a $1.0
million note payable. These items are described in detail later in this section.
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
Company’s website, www.plumasbank.com, as soon as reasonably practicable after the Company files such
documents with the SEC. These reports are also available through the SEC’s website 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 Bank’s Administrative
Office is located at 35 South Lindan Avenue, Quincy, California. At December 31, 2014 the Bank had
approximately $538 million in assets, $367 million in net loans and $469 million in deposits (including deposits of
$0.6 million from the Bancorp). It is currently the largest independent bank headquartered in Plumas County. The
Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to maximum
insurable amounts.
The Bank’s 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
California 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 lending offices specializing in
government-guaranteed lending in Auburn, California and Beaverton, Oregon, a commercial/agricultural lending
office located in Chico, California, and a commercial loan office located in Reno, Nevada. The Bank’s 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 Bank’s primary service areas.
With a predominant focus on personal service, the Bank has positioned itself as a multi-community independent
bank serving the financial needs of individuals and businesses within the Bank’s geographic footprint. Our principal
retail lending services include consumer, automobile and home equity loans. Our principal commercial lending
3
services include term real estate, commercial and industrial term loans. In addition, we provide government-
guaranteed and agricultural loans as well as credit lines. We provide land development and construction loans on a
limited basis.
The Bank’s Government-guaranteed lending center, headquartered in Auburn, California with additional personnel
in Truckee, California and Beaverton, Oregon (serving the Portland Oregon metropolitan area) provides Small
Business Administration and USDA Rural Development loans to qualified borrowers throughout Northern
California, Oregon 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 2014 proceeds from the sale of government-guaranteed loans
totaled $21.6 million and we generated a gain on sale of $1.4 million. In 2013 proceeds from the sale of government
guaranteed loans totaled $21.7 million and we generated a gain on sale of $1.4 million.
The Agricultural Credit Centers located in Susanville, Chico 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, 2014, 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) commercial real estate – 44.1%; (ii) commercial and
industrial loans – 8.5%; (iii) consumer loans (including residential equity lines of credit and automobile loans) –
23.4%; (iv) agricultural loans (including agricultural real estate loans) – 9.5%; (v) residential real estate – 7.9%; and
(vi) construction and land development – 6.6% .
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 premium interest
bearing checking account for our consumer customers. As of December 31, 2014, the Bank had 28,821 deposit
accounts with balances totaling approximately $469 million, compared to 29,072 deposit accounts with balances
totaling approximately $450 million at December 31, 2013. 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 $16.2 thousand at
December 31, 2014. 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.
We also offer a variety of other products and services to complement the lending and deposit services previously
reviewed. These include cashier’s 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.
Through our offering of a Remote Deposit product our customers are able 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 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. In 2011, we introduced a new product for
our larger business customers which use repurchase agreements as an alternative to interest-bearing deposits. The
balance in this product at December 31, 2014 was $9.6 million. Interest paid on this product is similar to that which
4
can be earned on the Bank’s premium money market account; however, these are not deposits and are not FDIC
insured. During the first quarter of 2012 we replaced our ATMs with new state of the art machines that are capable
of accepting check and cash deposits without a deposit envelope.
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 of 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 encourage job growth and support community economic development. Types
of loans offered range from personal and commercial loans to real estate, construction, agricultural, automobile 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 Company’s 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 Company’s common stock, no par value (the “Common Stock”), for an aggregate
purchase price of $11,949,000 in cash.
On April 11, 2013, the Treasury announced its intent to sell its investment in the Bancorp’s Series A Preferred Stock
along with similar investments the Treasury had made in seven other financial institutions, principally to qualified
institutional buyers. Using a modified Dutch auction methodology that establishes a market price by allowing
investors to submit bids at specified increments during the period of April 15, 2013 through April 18, 2013, the U.S.
Treasury auctioned all of the Bancorp’s 11,949 Series A Preferred Stock. The Bancorp sought and obtained
regulatory permission to participate in the auction. The Bancorp successfully bid to repurchase 7,000 shares of the
11,949 outstanding shares. This repurchase resulted in a discount of approximately 7% on the face value of the
Series A Preferred Stock plus related outstanding dividends. The remaining 4,949 shares were purchased at auction
by third party private investors. On June 27, 2013 the Bancorp repurchased 1,566 shares of the Series A Preferred
Stock at $1,000 per share from certain of those third party private investors and on September 16, 2013 the Bancorp
repurchased 250 shares at $985 per share from another one of the third party investors leaving 3,133 shares
outstanding as of September 30, 2013. On October 25, 2013, Plumas Bancorp repurchased the remaining 3,133
shares of the Series A Preferred Stock from a third party private investor for $3,101,670 plus accrued dividends of
$30,453. This represents a discount of 1% from the liquidation value of the Preferred Stock. On May 22, 2013 the
Bancorp repurchased the Warrant from the Treasury at a cost of $234,500.
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
5
(“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 Company’s consolidated financial statements and, accordingly,
both entities are accounted for under the equity method and the junior subordinated debentures are reflected as debt
on the consolidated balance sheet.
Subordinated Debentures. On April 15, 2013 the Bancorp issued $7.5 million in subordinated debentures
(“subordinated debt”). The subordinated debt was issued to an unrelated third-party (“Lender”) pursuant to a
subordinated debenture purchase agreement, subordinated debenture note, and stock purchase warrant. The
subordinated debt agreement provides that in the event of default with respect to the subordinated debt, the Bancorp
will be subject to certain restrictions on the payment of dividends and distributions to shareholders, repurchase or
redemption of the Bancorp’s securities and payment on certain debts or guarantees. The subordinated debenture
agreement also provides that in the event of default, Lender will have the right to appoint a director to the Bancorp’s
board of directors and/or the Plumas Bank board in certain limited circumstances.
The subordinated debt bears an interest rate of 7.5% per annum, has a term of 8 years with no prepayment allowed
during the first two years and was made in conjunction with an eight-year warrant (the “Lender Warrant”) to
purchase up to 300,000 shares of the Bancorp’s common stock, no par value at an exercise price, subject to anti-
dilution adjustments, of $5.25 per share. Interest expense related to the subordinated debt for the years ended
December 31, 2014 and 2013 totaled $756,000 and $541,000, respectively.
The Company allocated the proceeds received on April 15, 2013 between the subordinated debt and the Lender
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 $318,000. The discount recorded on the subordinated note will be
amortized by the level-yield method over 2 years.
6
Promissory Note. On October 24, 2013 the Bancorp issued a $3 million promissory note (the “Note”) payable to an
unrelated commercial bank. The note bears interest at the U.S. "Prime Rate" plus three-quarters percent per annum,
4.00% at December 31, 2014 and 2013, has a term of 18 months and is secured by 100 shares of Plumas Bank stock
representing the Company's 100% ownership interest in Plumas Bank. Interest expense related to this note for the
years ended December 31, 2014 and 2013 totaled $111,000 and $23,000, respectively. Under the Note the Bank is
subject to several negative and affirmative covenants including, but not limited to providing timely financial
information, maintaining specified levels of capital, restrictions on additional borrowings, and meeting or exceeding
certain capital and asset quality ratios. The Bank was in compliance with all such requirements at December 31,
2014 and December 31, 2013.
On July 28, 2014, Plumas Bancorp entered into a Renewal, Extension, and Modification of Loan Agreement (the
“Agreement”) related to the Note. This Agreement provides for the following changes, among others:
1.)
2.)
3.)
The maturity date of the Note is October 24, 2015.
The maximum amount of the Note is $7.5 million.
The Company may borrow, repay, and reborrow up to the principal face amount of the Note.
The above provisions are subject to the following conditions:
1.)
2.)
3.)
An advance under the Note in excess of $3 million is subject to the lender completing a
satisfactory loan review of the Company.
The Company shall provide an assignment of Key Man life Policy(s) in a minimum amount of
$3.5 million.
The Company shall not prepay the Company’s Junior Subordinated Deferrable Interest Debentures
until the Note has been paid in full.
On August 26, 2014 the Company made a $2 million payment on the Note reducing the outstanding balance to $1
million.
Proceeds from the Note and the subordinated debt were used to partially fund the repurchase of preferred stock.
Regulatory Developments. Effective February 8, 2012, the Bank entered into an informal agreement with the
FDIC and the California Department of Financial Institutions (“DFI”) which, among other things, requested that the
Bank maintain a Tier 1 Leverage Capital Ratio of 9% which is in excess of that required for well capitalized
institutions and continue to reduce its level of classified asset balances that were outstanding as of September 30,
2011 to not more than 50% of Tier 1 Capital plus the allowance for loan losses. At December 31, 2012 this ratio
was 32% and the Bank’s Tier 1 Leverage Capital Ratio was 10.4%. The FDIC and DFI terminated the informal
agreement effective January 24, 2013.
On July 28, 2011 the Company entered into an agreement with the Federal Reserve Bank of San Francisco (the
"FRB Agreement"). Under the terms of the FRB Agreement, Plumas Bancorp agreed to take certain actions that are
designed to maintain its financial soundness so that it may continue to serve as a source of strength to the Bank.
Among other things, the FRB Agreement required prior written approval related to the payment or taking of
dividends and distributions, making any distributions of interest, principal or other sums on subordinated debentures
or trust preferred securities, incurrence of debt, and the purchase or redemption of stock. In addition, the FRB
Agreement required Plumas Bancorp to submit, within 60 days of the FRB Agreement, a written statement of
Plumas Bancorp’s planned sources and uses of cash for debt service, operating expense and other purposes (“Cash
Flow Statement”) for the remainder of 2011 and annually thereafter. The Company submitted the Cash Flow
Statements within the required time frames. On April 19, 2013 the Company received notice that the FRB
Agreement had been terminated.
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, 2014
approximately 74% of the Bank's total loan portfolio consisted of real estate-secured loans, including real estate
mortgage loans, real estate construction loans, consumer equity lines of credit, and agricultural loans secured by real
estate. Moreover, our business activities are currently focused in the California counties of Plumas, Nevada, Placer,
7
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-1990’s, 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.
Currently, within the towns in which the Bank has a branch there are 51 banking branch offices of competing
institutions (excluding credit unions, but including savings banks), including 28 branches of 8 major banks. As of
June 30, 2014, the Federal Deposit Insurance Corporation (FDIC) estimated the Bank’s market share of insured
deposits within the communities it serves to be as follows: Chester 65%, Quincy 57%, Alturas 66%, Fall River Mills
37%, Kings Beach 32%, Susanville 28%,Truckee 17%, Tahoe City 9%, Redding less than 1% and 100% in
Greenville and Portola. 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 home computer, mobile, remote deposit, telephone,
ATMs, mail, 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.
8
Employees. At December 31, 2014, the Company and its subsidiary employed 155 persons. On a full-time
equivalent basis, we employed 133 persons. None of the Company’s employees are represented by a labor union,
and management considers its relations with employees to be good.
Code of Ethics. The Board of Directors has adopted a code of business conduct and ethics for directors, officers
(including Plumas Bancorp’s 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 Bancorp’s
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
General. We are extensively regulated under federal and state law. These laws and regulations are generally
intended to protect depositors and customers, not shareholders. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statute or
regulation. Any change in applicable laws or regulations may have a material effect on our business and prospects.
Our operations may be affected by legislative changes and by the policies of various regulatory authorities. We
cannot accurately predict the nature or the extent of the effects on our business and earnings that fiscal or monetary
policies, or new federal or state legislation may have in the future.
Securities Regulation. The Company is subject to the disclosure and regulatory requirements of the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both as administered by the Securities
and Exchange Commission. As a listed company on NASDAQ, we are subject to NASDAQ rules for listed
companies.
Holding Company Regulation. We are a registered bank holding company under the Bank Holding Company Act
of 1956, as amended, and are subject to the supervision of, and regulation by, the Board of Governors of the Federal
Reserve System (the “FRB”). We are required to file reports with the FRB and the FRB periodically examines the
Company. A bank holding company is required to serve as a source of financial and managerial strength to its
subsidiary bank and, under appropriate circumstances, to commit resources to support the subsidiary bank. FRB
regulations require the Company to meet or exceed certain capital requirements and regulate provisions of certain
bank holding company debt. The Company is also a bank holding company within the meaning of Section 3700 of
the California Financial Code. Therefore, the Company and any of its subsidiaries are subject to supervision and
examination by, and may be required to file reports with, the California Department of Business Oversight (“DBO”).
Capital Adequacy. The Federal Deposit Insurance Corporation (the “FDIC”) has risk-based capital adequacy
guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a
banking organization’s operations for both transactions reported on the balance sheet as assets, and transactions,
such as letters of credit and recourse arrangements, which are reported as off-balance-sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied
by one of several risk adjustment percentages, which range from 0% 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 organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-
adjusted assets and off-balance-sheet items. The regulators measure risk-adjusted assets and off-balance-sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1
capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock and
minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a limited
amount of the allowance for loan and lease losses and certain other instruments with some characteristics of equity.
The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal
banking agencies. Since 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%.
9
In addition to the risk-based guidelines, the FRB requires 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
and/or the DBO to ensure the maintenance of required capital levels. The Company is also required to maintain
certain levels of capital. The regulatory capital guidelines as well as the actual capitalization for the Bank and the
Company as of December 31, 2014 were as follows:
Tier 1 leverage capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Minimum ratio required to be:
Adequately
Capitalized
4.0%
4.0%
8.0%
Well
Capitalized
5.0%
6.0%
10.0%
Plumas
Bank
9.8%
13.2%
14.4%
Plumas Bancorp
8.4%
11.4%
14.5%
The Company and the Bank met all of the above capital adequacy requirements as of December 31, 2014 and 2013.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires federal banking
regulators to take “prompt corrective action” with respect to a capital-deficient institution, including requiring a
capital restoration plan and restricting certain growth activities of the institution. The Company could be required to
guarantee any such capital restoration plan required of the Bank if the Bank became undercapitalized. Pursuant to
FDICIA, regulations were adopted defining five capital levels: well capitalized, adequately capitalized,
undercapitalized, severely undercapitalized and critically undercapitalized.
If capital falls below the minimum levels established by these regulatory capital guidelines, a holding company or a
bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new
facilities.
Banks with capital ratios below the required minimums are subject to certain administrative actions, including
prompt corrective action, the termination of deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing.
New Capital Rules. In July, 2013, the federal bank regulatory agencies approved the final rules implementing the
Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. Under the final rules, minimum
requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules
include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1
capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1
capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules
also implement strict eligibility criteria for regulatory capital instruments.
The phase-in period for the final rules begin on January 1, 2015, with full compliance with all of the final rule’s
requirements phased in over a multi-year schedule. As of January 1, 2015, the Company’s and the Bank’s capital
levels remained “well-capitalized” under the new rules.
10
Dividends. The Company's ability to pay cash dividends is dependent on dividends paid to it by the Bank and
limited by California corporation law. Under California law, the holders of common stock of the Company are
entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available, subject
to certain restrictions. The California general corporation law prohibits the Company from paying dividends on its
common stock unless: (i) its retained earnings, immediately prior to the dividend payment, equals or exceeds the
amount of the dividend or (ii) immediately after giving effect to the dividend, the sum of the Company's assets
(exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred
taxes, deferred income and other deferred liabilities) and the current assets of the Company would be at least equal
to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the
two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least
equal to 125% of its current liabilities.
Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank's retained
earnings or the Bank's net income for the latest three fiscal years, less dividends previously declared during that
period, or, with the approval of the DBO, 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, 2014, the
maximum amount available for dividend distribution under this restriction was approximately $5,100,000. In
addition the Company’s ability to pay dividends is subject to certain covenants contained in the indentures relating
to the Trust Preferred Securities issued by the business trusts.
Federal and State Bank Regulation. The Bank, as a state-chartered bank with deposits insured by the FDIC, is
primarily subject to the supervision and regulation of the California Department of Business Oversight (the “DBO”),
the FDIC, and the Consumer Financial Protection Bureau (the “CFPB”). These agencies may prohibit the Bank
from engaging in what they believe constitute unsafe or unsound banking practices. The DBO regularly examines
the Bank or participates in joint examinations with the FDIC.
The Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires that, in connection with
examinations of financial institutions within its jurisdiction, the FDIC evaluate the record of the financial institutions
in meeting the credit needs of their local communities, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating
mergers, acquisitions and applications to open a branch or new facility. A less than “Satisfactory” rating would
likely result in the suspension of any growth of the Bank through acquisitions or opening de novo branches until the
rating is improved. As of the most recent CRA examination the Bank’s CRA rating was “Satisfactory.”
Transactions with Affiliates. Banks are also subject to certain restrictions imposed by the Federal Reserve Act on
extensions of credit to executive officers, directors, principal shareholders (including the Company) or any related
interest of such persons. Extensions of credit 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 persons not affiliated with the bank, and must not involve more than the
normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and
restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of
substantial civil monetary penalties on the affected bank or any officer, director, employee, agent or other person
participating in the conduct of the affairs of that bank, the imposition of a cease and desist order, and other
regulatory sanctions.
The Federal Reserve Act and related Regulation W limit the amount of certain loan and investment transactions
between the Bank and its affiliates, require certain levels of collateral for such loans, and limit the amount of
advances to third parties that may be collateralized by the securities of the Company or its subsidiaries. Regulation
W requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least
as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving nonaffiliated
companies or, in the absence of comparable transactions, on terms and under circumstances, including credit
standards, that in good faith would be offered to or would apply to nonaffiliated companies. The Company and its
subsidiaries have adopted an Affiliate Transactions Policy and have entered into various affiliate agreements in
compliance with Regulation W.
11
Safety and Soundness Standards. The FRB and the FDIC have adopted non-capital safety and soundness standards
for institutions. These standards cover internal controls, information and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, and
standards for asset quality, earnings and stock valuation. An institution that fails to meet these standards must
develop a plan acceptable to the agency, specifying the steps that it will take to meet the standards. Failure to
submit or implement such a plan may subject the institution to regulatory sanctions.
Federal Deposit Insurance. In addition to supervising and regulating state chartered non-member banks, the FDIC
insures the Bank’s deposits, up to prescribed statutory limits, through the Deposit Insurance Fund (the “DIF”),
currently $250,000 per depositor per institution. The DIF is funded primarily by FDIC assessments paid by each
DIF member institution. The amount of FDIC assessments paid by each DIF member institution is based on its
relative risk of default as measured by regulatory capital ratios and other supervisory factors. The Bank’s FDIC
insurance expense totaled $0.4 million for 2014.
Additionally, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on
bonds issued by the Financing Corporation (“FICO”), an agency of the Federal government established to
recapitalize the predecessor to the DIF. The FICO assessment rates, which are determined quarterly, averaged less
than 0.01% of deposits in fiscal 2014. These assessments will continue until the FICO bonds mature in 2017.
The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial
condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to
the DIF or that may prejudice the interest of the bank’s depositors. Under California law, the termination of deposit
insurance for the Bank would result in a termination of the Bank’s charter.
Interstate Branching. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),
authorized national and state banks to establish branches in other states to the same extent as a bank chartered by
that state would be permitted to branch. Previously, banks could only establish branches in other states if the host
state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks will be able to
enter new markets more freely.
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, including but not limited to the following:
(cid:120)
(cid:120)
(cid:120)
The Equal Credit Opportunity Act (“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 (“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. As a result of the Dodd-Frank Act, Regulation Z promulgated under the
TILA includes new limits on loan originator compensation for all closed-end mortgages. These changes
include, prohibiting certain payments to a mortgage broker or loan officer based on the transaction’s terms
or conditions, prohibiting dual compensation, and prohibiting a mortgage broker or loan officer from
‘‘steering’’ consumers to transactions not in their interest, to increase mortgage broker or loan officer
compensation.
The Fair Housing Act (“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
12
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 (“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 (“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.
The Real Estate Settlement Procedures Act (“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.
(cid:120)
(cid:120)
(cid:120)
Penalties for noncompliance or violations under the above laws may include fines, reimbursement and other
penalties. Due to heightened regulatory expectations related to compliance with generally, the Company may incur
additional compliance costs.
The Dodd-Frank Act created a new, independent federal agency called the Consumer Financial Protection Bureau
(“CFPB”), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer
financial protection laws. The CFPB has examination and primary enforcement authority with respect to depository
institutions with $10 billion or more in assets. Smaller institutions will be subject to rules promulgated by the CFPB
but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes.
The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of
consumer financial products. The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for
the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, the
Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a
“qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection
laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances,
permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
Anti-Money Laundering Laws. A series of banking laws and regulations beginning with the bank Secrecy Act in
1970 requires banks to prevent, detect, and report illicit or illegal financial activities to the federal government to
prevent money laundering, international drug trafficking, and terrorism. Under the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, financial
institutions are subject to prohibitions against specified financial transactions and account relationships,
requirements regarding the Customer Identification Program, as well as enhanced due diligence and “know your
customer” standards in their dealings with high risk customers, foreign financial institutions, and foreign individuals
and entities.
Privacy and Data Security. The Gramm-Leach Bliley Act (“GLBA”) of 1999 imposes requirements on financial
institutions with respect to consumer privacy. he GLBA generally prohibits disclosure of consumer information to
non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such
disclosure. Financial institutions are further required to disclose their privacy policies to consumers annually. The
GLBA also directs federal regulators, including the FDIC, to prescribe standards for the security of consumer
information. The Bank is subject to such standards, as well as standards for notifying consumers in the event of a
security breach. The Bank is required to have an information security program to safeguard the confidentiality and
security of customer information and to ensure proper disposal of information that is no longer needed. Customers
must be notified when unauthorized disclosure involves sensitive customer information that may be misused.
13
Potential Enforcement Actions; Supervisory Agreements.
its
institution-affiliated parties may be the subject of potential enforcement actions by the FDIC for unsafe and unsound
practices in conducting their businesses, or for violations of any law, rule or regulation or provision, any consent
order with any agency, 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, cease-and-desist orders and written
agreements, the termination of insurance of deposits, the imposition of civil money penalties and removal and
prohibition orders against institution-affiliated parties. The DBO also has authority to bring similar enforcement
actions against the Bank. The FRB has the authority to bring similar enforcement actions against the Company.
Under federal
the Bank and
law,
Legislation and Proposed Changes. From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between
banks and other financial institutions. Proposals to change the laws and regulations governing the operations and
taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in the
Hawaii legislature and before various bank regulatory agencies. Typically, the intent of this type of legislation is to
strengthen the banking industry, even if it may on occasion prove to be a burden on management’s plans. No
prediction can be made as to the likelihood of any major changes or the impact that new laws or regulations might
have on us.
Effects of Government Monetary Policy. Our earnings and growth are affected not only by general economic
conditions, but also by the fiscal and monetary policies of the federal government, particularly the FRB. The FRB
implements national monetary policy for such purposes as curbing inflation and combating recession, through its
open market operations in U.S. Government securities, control of the discount rate applicable to borrowings from
the FRB, and establishment of reserve requirements against certain deposits. These activities influence growth of
bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The
Company’s profitability, like most financial institutions, is primarily dependent on interest rate spreads. In general,
the difference between the interest rates paid by the Bank on interest-bearing liabilities, such as deposits and other
borrowings, and the interest rates received by the Bank on interest-earning assets, such as loans extended to
customers and securities held in the investment portfolio, will comprise the major portion of the Company’s
earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, recession
and unemployment, the monetary and fiscal policies of the federal government and the policies of regulatory
agencies, particularly the FRB and the impact which future changes in domestic and foreign economic conditions
might have on us cannot be predicted. The nature and impact of future changes in monetary policies and their
impact on us cannot be predicted with certainty.
Recent Accounting Pronouncements
See Note 3 – “Summary of Significant Accounting Policies – Adoption of New Accounting Standards” of the
Company’s 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.
ITEM 1A. RISK FACTORS
As a smaller reporting company we are not required to provide the information required by this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
14
ITEM 2. PROPERTIES
Of the Company’s eleven depository branches, ten are owned and one is leased. The Company also leases three
lending offices and one administrative/lending office, and owns four administrative facilities.
35 South Lindan Avenue
Quincy, California (1)
424 N. Mill Creek
Quincy, California (1)
43163 Highway 299E
Fall River Mills, California
510 North Main Street
Alturas, California
11638 Donner Pass Road
Truckee, California
Owned Properties
32 Central Avenue
Quincy, California (1)
336 West Main Street
Quincy, California
121 Crescent Street
Greenville, California
3000 Riverside Drive
Susanville, California
2175 Civic Center Drive
Redding, California
Leased Properties
80 W. Main St.
Quincy, California (1)
120 North Pine Street
Portola, California
255 Main Street
Chester, California
8475 North Lake Boulevard
Kings Beach, California
243 North Lake Boulevard
Tahoe City, California
1755 E. Plumb Lane, Suite 270
Reno, Nevada (1) (3)
470 Nevada St., Suite 108
Auburn, California (2)
12725 SW Millikan Way, Suite 30
Beaverton, OR 97005 (2)
2585 Ceanothus Avenue,
Suite 173
Chico, CA 95973 (3)
(1) Non-branch administrative or credit administrative offices.
(2) SBA lending office.
(3) Commercial lending office.
Total rental expenses under all leases, including premises, totaled $192,000, $154,000 and $153,000, in 2014, 2013
and 2012 respectively. The expiration dates of the leases vary, with the first such lease expiring during 2015 and the
last such lease expiring during 2016.
Future minimum lease payments in thousands of dollars are as follows:
Year Ending
December 31,
2015
2016
$ 140,000
88,000
$ 228,000
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 Bank’s business.
15
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and/or its subsidiary are a party to claims and legal proceedings arising in the
ordinary course of business. In the opinion of the Company's management, the amount of ultimate liability with
respect to such proceedings will not have a material adverse effect on the financial condition or results of operations
of the Company taken as a whole.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
16
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCK-
HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company’s common stock is quoted on the NASDAQ Capital Market under the ticker symbol "PLBC". As of
December 31, 2014, there were 4,799,139 shares of the Company’s stock outstanding held by approximately 1,300
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.
Quarter
4th Quarter 2014
3rd Quarter 2014
2nd Quarter 2014
1st Quarter 2014
4th Quarter 2013
3rd Quarter 2013
2nd Quarter 2013
1st Quarter 2013
Common
Dividends
-
-
-
-
-
-
-
-
High
$ 8.25
$ 8.50
$ 7.74
$ 6.75
$ 6.74
$ 6.99
$ 8.00
$ 5.96
Low
$ 7.52
$ 6.77
$ 6.12
$ 5.96
$ 6.00
$ 5.72
$ 4.36
$ 3.24
It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the
payment of cash dividends. Such dividends help promote shareholder value and capital adequacy by enhancing the
marketability of the Company’s stock. All authority to provide a return to the shareholders in the form of a cash or
stock dividend or split rests with the Board of Directors (the “Board). The Board will periodically, but on no regular
schedule and in accordance with regulatory restrictions, if any, reviews the appropriateness of a cash dividend
payment. No common cash dividends were paid in 2014 or 2013.
The Company is subject to various restrictions on the payment of dividends. See Note 13 “Shareholders’ Equity –
Dividend Restrictions” of the Company’s Consolidated Financial Statements in Item 8 – Financial Statements and
Supplementary Data of this Annual Report on Form 10K.
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, 2014.
Number of securities to
be issued upon exercise
of outstanding options
(a)
Weighted-average
exercise price of
outstanding options
(b)
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)
416,793
None
416,793
$ 7.52
Not Applicable
$ 7.52
389,600
None
389,600
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
For additional information related to the above plans see Note 13 of the Company’s 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 2014.
17
ITEM 6. SELECTED FINANCIAL DATA
The following table presents a summary of selected financial data and should be read in conjunction with the
Company’s consolidated financial statements and notes thereto included under Item 8 – Financial Statements and
Supplementary Data.
2014
At or for the year ended December 31,
2012
2013
2011
2010
Statement of Income
Interest income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Provision for income taxes
Net income
Discount on redemption of Preferred Stock
Preferred Stock dividends and discount accretion
Net income available to common shareholders
Balance sheet (end of period)
Total assets
Total loans
Allowance for loan losses
Total deposits
Total common equity
Total shareholders’ equity
Balance sheet (period average)
Total assets
Total loans
Total deposits
Total shareholders’ equity
Capital ratios
Leverage ratio
Tier 1 risk-based capital
Total risk-based capital
Asset quality ratios
Nonperforming loans/total loans
Nonperforming assets/total assets
Allowance for loan losses/total loans
Net loan charge-offs
Performance ratios
Return on average assets
Return on average common equity
Return on average equity
Net interest margin
Loans to deposits
Efficiency ratio
Per share information
Basic earnings
Diluted earnings
Common cash dividends
Book value per common share
Common shares outstanding at period end
(dollars in thousands except per share information)
$ 18,425
1,274
17,151
2,350
6,596
18,377
1,070
$ 19,460
1,534
17,926
1,400
6,642
17,570
2,167
$ 21,147
1,693
19,454
1,100
7,315
17,845
3,086
$ 4,738 $ 3,431 $ 1,950 $ 941 $ 971
-
-
$ 4,738
$ 18,668
1,848
16,820
3,500
7,162
19,246
295
$ 20,680
3,147
17,533
5,500
8,468
19,141
389
-
684
$ 287
565
347
$ 3,649
-
684
$ 1,266
-
684
$ 257
$ 515,725
$ 338,551
$ 477,802
$ 538,862
$ 370,390
$ 315,057
$ 5,451 $ 5,517 $ 5,686 $ 6,908 $ 7,324
$ 467,891
$ 36,497
$ 36,497
$ 449,439
$ 30,593
$ 30,593
$ 411,562
$ 29,995
$ 41,850
$ 424,887
$ 26,306
$ 37,988
$ 391,140
$ 27,865
$ 39,634
$ 484,480
$ 314,200
$ 455,349
$ 293,865
$ 531,528
$ 353,389
$ 464,067
$ 33,810
$ 497,711
$ 321,210
$ 432,284
$ 36,032
$ 467,354
$ 464,609
$ 302,841
$ 301,799
$ 401,110
$ 407,982
$ 41,023 $ 39,244
$ 500,082
$ 323,906
$ 430,777
$ 38,941
8.4%
11.4%
14.5%
7.8%
10.7%
13.8%
10.3%
13.9%
15.1%
9.8%
13.7%
15.0%
8.9%
12.7%
13.9%
1.79%
1.90%
1.47%
1.64%
2.33%
1.63%
$ 1,166 $ 1,569
4.35%
3.98%
1.80%
$ 3,572
5.73%
5.60%
2.35%
$ 3,916
8.07%
7.07%
2.33%
$ 7,744
0.89%
14.0%
14.0%
4.05%
79.2%
66.7%
0.69%
12.0%
9.5%
4.03%
75.3%
71.5%
0.42%
4.3%
4.8%
4.18%
76.6%
77.4%
0.20%
0.9%
2.4%
4.08%
75.1%
80.3%
0.19%
1.1%
2.5%
4.24%
73.9%
73.6%
$ 0.99 $ 0.76
$ 0.95 $ 0.75
$ 0.00
$ 7.61
4,799,139
18
$ 0.00
$ 6.39
4,787,739
$ 0.26 $ 0.05
$ 0.26 $ 0.05
$ 0.00
$ 6.28
4,776,339
$ 0.00
$ 5.83
4,776,339
$ 0.06
$ 0.06
$ 0.00
$ 5.51
4,776,339
ITEM 7. MANAGEMENT’S 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, automobile 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
Bank’s 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 management’s 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
Company's 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 collectively evaluated for impairment.
We evaluate our allowance for loan losses quarterly. We believe that the allowance for loan losses is a “critical
accounting estimate” because it is based upon management’s assessment of various factors affecting the
collectability 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. OREO is initially recorded at fair value less costs to sell when acquired. 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.
19
The following discussion is designed to provide a better understanding of significant trends related to the Company's
financial condition, results of operations, liquidity and capital. It pertains to the Company's financial condition,
changes in financial condition and results of operations as of December 31, 2014 and 2013 and for each of the three
years in the period ended December 31, 2014. The discussion should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere
herein.
Overview
The Company recorded net income of $4.7 million for the year ended December 31, 2014, a 38% increase over net
income of $3.4 million during the year ended December 31, 2013. Pretax income increased by $2.2 million, or 40%,
from $5.6 million in 2013 to $7.8 million during the year ended December 31, 2014.
Net interest income increased by $1.5 million from $17.9 million during 2013 to $19.4 million for the year ended
December 31, 2014. This increase in net interest income resulted from an increase in interest income of $1.7 million
partially offset by an increase in interest expense of $159 thousand. Interest on loans increased by $1.3 million and
interest on investment securities increased by $353 thousand. A decrease of $84 thousand in interest expense on
deposits was offset by an increase in interest expense on borrowings of $243 thousand. The provision for loan losses
declined by $300 thousand from $1.4 million during 2013 to $1.1 million during 2014 resulting in an increase in net
interest income after provision for loan losses of $1.8 million.
During the year ended December 31, 2014 non-interest income totaled $7.3 million an increase of $673 thousand
from the year ended December 31, 2013. The $673 thousand includes increases of $196 thousand in service charges
on deposits accounts, $179 thousand in loan servicing income, a $148 thousand gain on sale of our credit card
portfolio and $128 thousand in gains on sale of securities.
Non-interest expense increased by $275 thousand from $17.6 million during the twelve months ended December 31,
2013 to $17.8 million during 2014. We achieved reductions is several categories of expense the largest two of
which were $248 thousand in professional fees and $246 thousand in the provision for losses on OREO. The two
largest increases in expense were $745 thousand in salary and benefits expense and $187 thousand in outside service
fees.
The provision for income taxes increased from $2.2 million in 2013 to $3.1 million during the year ended December
31, 2014.
Net income allocable to common shareholders increased by $1.1 million from $3.6 million during the year ended
December 31, 2013 to $4.7 million during 2014. Income allocable to common shareholders is calculated by adding
discount on redemption of preferred stock and subtracting dividends and discount amortized on preferred stock from
net income. During 2013 the Company redeemed all of its outstanding preferred stock, recording a $565 discount on
redemption. Discount amortized on the preferred stock during 2013 totaled $347 thousand.
Total assets at December 31, 2014 were $539 million, an increase of $23.1 million from $516 million at December
31, 2013. An increase of $32.4 million in net loans and $0.3 million in bank owned life insurance was partially
offset by decreases of $4.3 million in cash and due from banks, $23 thousand in investment securities, $0.9 million
in premises and equipment, $2.9 million in OREO and $1.5 million in other assets.
Total deposits increased by $18.5 million from $449 million at December 31, 2013 to $468 million at December 31,
2014. Core deposit growth remained strong in 2014 as evidenced by increases of $17.8 million in demand deposits
and $12.3 million in savings accounts. Time deposits declined by $6.3 million, much of which we attribute to
migration into other types of deposits given the low rates and lack of liquidity associated with time deposits.
Interest-bearing transaction accounts (NOW) declined by $0.5 million and money market accounts declined by $4.8
million.
Total shareholders’ equity increased by $5.9 million from $30.6 million at December 31, 2013 to $36.5 million at
December 31, 2014. The $5.9 million includes earnings during the twelve month period totaling $4.7 million and a
20
decrease in net unrealized loss on investment securities of $1.1 million with the balance of $0.1 million representing
stock option activity.
The return on average assets was 0.89% for 2014, up from 0.69% for 2013. The return on average common equity
was 14.0% for 2014, up from 12.0% for 2013.
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:
2014
Interest
income/
expense
Rates
earned
/ paid
Average
balance
Year ended December 31,
Average
balance
2013
Interest
income/
expense
Rates
earned
/ paid
(dollars in thousands)
2012
Interest
income/
expense
Rates
earned
/ paid
Average
balance
$ 137
1,515
19,495
21,147
0.35%
1.72
5.52
4.41%
$ 38,626
87,906
353,389
479,921
16,323
35,284
$ 531,528
$ 41,262
82,820
321,210
445,292
14,572
37,847
$ 497,711
$ 124
1,162
18,174
19,460
0.30%
1.40
5.66
4.37%
$ 106
892
17,427
18,425
0.27%
1.28
5.77
4.49%
$ 38,783
69,664
301,799
410,246
14,560
39,803
$ 464,609
$ 83,398
46,691
102,664
59,063
2,299
7,371
10,310
7,529
76
65
163
212
111
756
303
7
0.09%
0.14
0.16
0.36
4.83
10.26
2.94
0.09
$ 83,966
48,730
84,475
66,046
567
5,185
10,310
90
82
147
281
23
541
313
7,298
57
0.11%
0.17
0.17
0.43
4.06
10.43
3.04
0.78
$ 82,648
42,957
68,755
76,138
-
-
10,310
6,003
111
91
132
513
-
-
344
83
0.13%
0.21
0.19
0.67
-
-
3.34
1.38
Assets
Interest bearing deposits
Investment securities(1)
Total loans (2)(3)
Total earning assets
Cash and due from banks
Other assets
Total assets
Liabilities and
shareholders’ equity
Interest bearing demand
deposits
Money market deposits
Savings deposits
Time deposits
Note payable
Subordinated debentures
Junior subordinated debentures
Other
Total interest bearing
liabilities
319,325
1,693
0.53%
306,577
1,534
0.50%
286,811
1,274
0.44%
Noninterest bearing demand
deposits
Other liabilities
Shareholders’ equity
Total liabilities and
172,251
6,142
33,810
shareholders’ equity
$ 531,528
149,067
6,035
36,032
$ 497,711
130,612
6,163
41,023
$ 464,609
Net interest income
Net interest spread (4)
Net interest margin (5)
$19,454
$17,926
$ 17,151
3.88%
4.05%
3.87%
4.03%
4.05%
4.18%
(1)
Interest income is reflected on an actual basis and is not computed on a tax-equivalent basis.
(2) Average nonaccrual loan balances of $6.7 million for 2014, $9.3 million for 2013 and $14.6 million for 2012 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 $380,000, $371,000 and $75,000 for 2014, 2013 and 2012, 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.
21
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:
2014 compared to 2013
Increase (decrease) due to change in:
2013 compared to 2012
Increase (decrease) due to change in:
Average Average
Rate(2)
Volume(1)
Mix(3)
Average
Volume(1)
Total
(dollars in thousands)
Average
Rate(2)
Mix(3)
Total
$ (8)
72
1,821
1,885
$ 22
265
(454)
(167)
$ (1)
16
(46)
(31)
$ 13
353
1,321
1,687
$ 6
169
1,121
1,296
$ 11
85
(351)
(255)
$ 1
16
(23)
(6)
$ 18
270
747
1,035
(1)
(3)
32
(30)
70
228
-
2
298
(13)
(14)
(13)
(44)
4
(9)
(10)
(50)
(149)
-
-
(3)
5
14
(4)
-
(2)
10
(14)
(17)
16
(69)
88
215
(10)
(50)
159
2
12
30
(68)
-
-
-
18
(6)
(22)
(19)
(12)
(189)
-
-
(31)
(36)
(309)
(1)
(2)
(3)
25
23
541
-
(8)
575
(21)
(9)
15
(232)
23
541
(31)
(26)
260
Interest-earning assets:
Interest bearing deposits
Investment securities
Loans
Total interest income
Interest-bearing liabilities:
Interest bearing demand
deposits
Money market deposits
Savings deposits
Time deposits
Note payable
Subordinated debentures
Junior subordinated debentures
Other borrowings
Total interest expense
Net interest income
$ 1,587
$ (18)
$ (41)
$ 1,528
$ 1,302
$ 54
$ (581)
$ 775
(1)
(2)
(3)
The volume change in net interest income represents the change in average balance multiplied by the previous year’s rate.
The rate change in net interest income represents the change in rate multiplied by the previous year’s average balance.
The mix change in net interest income represents the change in average balance multiplied by the change in rate.
2014 compared to 2013. Net interest income is the difference between interest income and interest expense. Net
interest income, on a nontax-equivalent basis, was $19.4 million for the year ended December 31, 2014, up $1.5
million, or 8.5%, from $17.9 million for 2013. An increase of $1.7 million, or 8.7% in interest income, from $19.4
million during 2013 to $21.1 million during the current year, was partially offset by an increase in interest expense
of $159 thousand.
Interest and fees on loans increased by $1.3 million, interest on investment securities increased by $353 thousand
and interest on deposits increased by $13 thousand. The increase in interest and fees on loans was related to an
increase in average loan balances partially offset by a decline in yield. Interest on investments securities benefited
from both an increase in yield and an increase in average balance.
Interest and fees on loans was $19.5 million during 2014 and $18.2 million for the year ended December 31, 2013.
The average loan balances were $353.4 million for 2014, up $32.2 million from the $321.2 million for 2013. The
following table compares loan balances by type at December 31, 2014 and 2013.
Percent of
Loans in
Each
Category to
Total Loans
12/31/14
Percent of
Loans in
Each
Category to
Total Loans
12/31/13
(dollars in thousands)
Balance at
End of
Period
12/31/13
$ 32,612
30,647
31,322
155,942
17,793
35,800
30,305
4,130
$ 338,551
8.5%
9.5%
7.9%
44.1%
6.6%
10.5%
12.1%
0.8%
100%
9.6%
9.0%
9.3%
46.1%
5.3%
10.6%
8.9%
1.2%
100%
Balance at
End of
Period
12/31/14
$ 31,465
35,355
29,284
163,306
24,572
38,972
44,618
2,818
$ 370,390
22
Commercial
Agricultural
Real estate - residential
Real estate – commercial
Real estate – construction
Equity Lines of Credit
Auto
Other
Total Gross Loans
The average yield on loans was 5.52% for 2014 down from 5.66% for 2013. We attribute much of the decrease in
yield to price competition in our service area as well as an increase in lower yielding automobile loans as a
percentage of total loans.
Interest on investment securities increased by $353 thousand as a result of an increase in yield of 32 basis points
from 1.40% during 2013 to 1.72% during 2014 and an increase in average balance from $82.8 million in 2013 to
$87.9 million in 2014. The increase in yield on investment securities incudes an increase in government sponsored
agency residential mortgage backed securities and municipal securities as a percentage of total securities and an
increase in market yields. Interest income on other interest-earning assets, which totaled $137 thousand in 2014
and $124 thousand in 2013, primarily relates to interest on cash balances held at the Federal Reserve.
Interest expense on deposits decreased by $84 thousand, or 14%, to $516 thousand for the twelve months ended
December 31, 2014, down from $600 thousand in 2013. Interest expense on time deposits declined by $69 thousand
from $281 thousand during 2013 to $212 thousand at during 2014. Average time deposits declined by $6.9 million
from $66.0 million during 2013 to $59.1 million for the year ended December 31, 2014. We attribute much of this
decline to migration into other types of deposits given the low rates and lack of liquidity associated with time
deposits. The average rate paid on time deposits decreased from 0.43% during 2013 to 0.36% during the current
twelve month period. This decrease primarily relates to a decline in market rates paid in the Company’s service area
and the maturity of higher rate time deposits.
Interest expense on NOW accounts declined by $14 thousand. Rates paid on NOW accounts declined by 2 basis
points from 0.11% during 2013 to 0.09% during 2014. Average balances decreased by $568 thousand from 2013.
Interest expense on money market accounts decreased by $17 thousand related to a decrease in rate paid on these
accounts of 3 basis points from 0.17% during 2013 to 0.14% during 2014 and a decline in average balances from
$48.7 million during 2013 to $46.7 million in 2014. Interest expense on savings accounts increased by $16 thousand
as we continued to experience strong growth in this category of deposits. Average savings deposits increased by
$18.2 million from $84.5 million during 2013 to $102.7 million during 2014. The average rate paid on savings
accounts during this same period declined from 17 basis points during 2013 to 16 basis points during 2014. The
decline in rates paid on deposits is consistent with a decline in competitive market rates in our service area.
Interest expense on other interest-bearing liabilities increased by $243 thousand from $934 thousand during the
twelve months ending December 31, 2013 to $1,177 thousand during 2014. This increase was mostly related to an
increase of $215 thousand in interest expense on a $7.5 million subordinated debenture which was only outstanding
for 8.5 months during 2013. The subordinated debt bears an interest rate of 7.5% per annum, has a term of 8 years
with no prepayment allowed during the first two years and was made in conjunction with an eight-year warrant (the
“Lender Warrant”) to purchase up to 300,000 shares of the Bancorp’s common stock, no par value at an exercise
price, subject to anti-dilution adjustments, of $5.25 per share. The effective yield on the debenture during 2014 was
10.3% which was in excess of the 7.5% rate due to amortization of a $75 thousand commitment fee and a discount
recorded on issuance of $318 thousand.
On October 24, 2013 the Bancorp issued a $3 million promissory note dated October 24, 2013 payable to an
unrelated commercial bank. The note bears interest at the U.S. "Prime Rate" plus three-quarters percent per annum
(currently 4%), has a term of 18 months and is secured by 100 shares of Plumas Bank stock representing the
Company's 100% ownership interest in Plumas Bank. Proceeds from this note were used to help fund the
redemption of the remaining preferred shares during 2013. Interest expense on this note for 2013 totaled $23
thousand and for 2014 it totaled $111 thousand. The increase relates mostly to an increase in average balance from
$567 thousand in 2013 to $2.3 million during 2014.
Interest expense on junior subordinated debentures, which decreased by $10 thousand from 2013, fluctuates with
changes in the 3-month London Interbank Offered Rate (LIBOR) rate.
Interest on other borrowings, which during 2014 relates to repurchase agreements, totaled $7 thousand in 2014 and
$57 thousand in 2013.
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 2014 increased slightly to 4.05%, from 4.03% for 2013.
23
2013 compared to 2012. Net interest income, on a nontax-equivalent basis, was $17.9 million for the year ended
December 31, 2013, up $775 thousand, or 4.5%, from $17.2 million for 2012. An increase of $1.0 million, or 5.6%
in interest income, from $18.4 million during 2012 to $19.4 million during the current year, was partially offset by
an increase in interest expense of $260 thousand.
Interest and fees on loans increased by $747 thousand, interest on investment securities increased by $270 thousand
and interest on deposits increased by $18 thousand. The increase in interest and fees on loans was related to an
increase in average loan balances partially offset by a decline in yield. Interest on investments securities benefited
from both an increase in yield and an increase in average balance.
Interest and fees on loans was $18.2 million during 2013 and $17.4 million for the year ended December 31, 2012.
The average loan balances were $321.2 million for 2013, up $19.4 million from the $301.8 million for 2012. The
largest areas of loan growth were in our commercial real estate and auto portfolios. We have dedicated significant
resources to our loan production activities and have emphasized the need for quality and diversified growth in the
portfolio.
The average yields on loans were 5.66% for 2013 down from 5.77% for 2012. We attribute much of the decrease in
yield to intense pricing competition in our service area.
Interest on investment securities increased by $270 thousand as a result of an increase in yield of 12 basis points
from 1.28% during 2012 to 1.40% during 2013 and an increase in average balance from $69.7 million in 2012 to
$82.8 million in 2013. The increase in yield incudes an increase in government sponsored agency residential
mortgage backed securities as a percentage of total securities and an increase in market yields.
Interest income on interest-bearing deposits, which totaled $124 thousand in 2013 and $106 thousand in 2012,
mostly relates to interest on cash balances held at the Federal Reserve.
Interest expense on deposits decreased by $247 thousand, or 29%, to $600 thousand for the twelve months ended
December 31, 2013, down from $847 thousand in 2012. Interest expense on time deposits declined by $232
thousand from $513 thousand at December 31, 2012 to $281 thousand at December 31, 2013. Average time
deposits declined by $10.1 million from $76.1 million during 2012 to $66.0 million for the year ended December 31,
2013. We attribute much of this decline to migration into other types of deposits given the low rates and lack of
liquidity associated with time deposits. The average rate paid on time deposits decreased from 0.67% during 2012 to
0.43% during the current twelve month period. This decrease primarily relates to a decline in market rates paid in
the Company’s service area and the maturity of higher rate time deposits.
Interest expense on NOW accounts declined by $21 thousand. Rates paid on NOW accounts declined by 2 basis
points from 0.13% during 2012 to 0.11% during 2013. Average balances increased by $1.3 million from 2012.
Interest expense on money market accounts decreased by $9 thousand related to a decrease in rate paid on these
accounts of 4 basis points from 0.21% during 2012 to 0.17% during 2013. Average money market balances
increased by $5.8 million from $42.9 million during 2012 to $48.7 million in 2013. Interest expense on savings
accounts increased by $15 thousand as we have experienced strong growth in this category of deposits. Average
savings deposits increased by $15.7 million from $68.8 million during 2012 to $84.5 million during 2013. The
average rate paid on savings accounts during this same period declined from 19 basis points during 2012 to 17 basis
points during 2013. The decline in rates paid on deposits is consistent with a decline in competitive market rates in
our service area.
Interest expense on other interest-bearing liabilities increased by $507 thousand from $427 thousand during the
twelve months ending December 31, 2012 to $934 thousand during 2013. This increase was related to $541
thousand in interest expense on the $7.5 million subordinated debenture. The effective yield on the debenture was
10.4% which was in excess of the 7.5% rate due to amortization of a $75 thousand commitment fee and a discount
recorded on issuance of $318 thousand.
Interest expense on junior subordinated debentures decreased by $31 thousand from 2012. Interest expense on our
outstanding note payable for 2013 totaled $23 thousand. Interest on other borrowings, which totaled $57 thousand
in 2013 and $83 thousand in 2012, primarily relates to interest paid on repurchase agreements.
24
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 2013 decreased 15 basis points to 4.03%, from 4.18% for 2012.
Provision for Loan Losses
During the year ended December 31, 2014 we recorded a provision for loan losses of $1.1 million, down $300
thousand from the $1.4 million provision recorded during 2013. See “Analysis of Asset Quality and Allowance for
Loan Losses” for further discussion of loan quality trends and the provision for loan losses.
The allowance for loan losses is maintained at a level that management believes will be appropriate to absorb
inherent losses on existing loans based on an evaluation of the collectability of the loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may
affect the borrower's ability to repay their loan. The allowance for loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed periodically and, as adjustments become
necessary, they are reported in earnings in the periods in which they become known.
Based on information currently available, management believes that the allowance for loan losses is appropriate to
absorb 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.
Non-Interest Income
The following table sets forth the components of non-interest income for the years ended December 31, 2014, 2013
and 2012.
Service charges on deposit
accounts
Gain on sale of loans, net
Gain on sale of investments
Earnings on bank owned life
insurance policies
Loan servicing fees
Other income
Total non-interest income
Years Ended December 31,
2013
2014
2012
(dollars in thousands)
Change during Year
2014
2013
$ 4,108
1,396
128
$ 3,912
1,399
-
$ 3,617
1,324
403
$ 196 $ 295
75
(403)
(3)
128
341
502
840
$ 7,315
344
323
664
$ 6,642
345
215
692
$ 6,596
(3)
179
176
(1)
108
(28)
$ 673 $ 46
2014 compared to 2013. During the twelve months ended December 31, 2014 non-interest income totaled $7.3
million an increase of $673 thousand from the twelve months ended December 31, 2013. The largest component of
this increase was an increase of $196 thousand in service charge income which we attribute to growth in the
Company’s demand deposit accounts, an increase in debit card interchange income and a restructuring of our service
charge fee structure beginning in August of 2013. During July and August 2014 we sold fourteen available-for- sale
securities totaling $16.2 million recognizing a gain on sale of $128 thousand. Loan servicing fees, which totaled
$502 thousand for the 12 months ended December 31, 2014, increased by $179 thousand from 2013. Loan servicing
fees mostly relate to servicing income on the sold portion of government guaranteed small business administration
loans. Other non-interest income increased by $176 thousand mostly related to a $148 thousand gain on the sale of
our credit card portfolio during the fourth quarter of 2014. Prior to the sale, credit card loans represented less than
one-half of a percent of our loan portfolio.
2013 compared to 2012. During the twelve months ended December 31, 2013 non-interest income totaled $6.6
million an increase of $46 thousand from 2012. The largest component of this change was an increase of $295
thousand in service charges on deposit accounts which we attribute to growth in the Company’s demand deposit
accounts, an increase in debit card interchange income and a restructuring of our service charge fee schedule
beginning in August of 2013. Gains on sale of government guaranteed loans increased by $75 thousand. During
2012 we sold 53 loans receiving proceeds of $20.1 million on sale. Sales proceeds increased to $21.7 million in
25
2013 related to the sale of 55 loans. During 2013 loan servicing income totaled $323 thousand an increase of $108
thousand from $215 thousand during 2012.
The largest decrease in non-interest income was $403 thousand in gain on sale of investment securities. No
investment securities were sold in 2013. During 2012 we sold twenty-five available-for-sale securities totaling
$20.8 million recognizing a gain on sale of $403 thousand.
Non-Interest Expense
The following table sets forth the components of other non-interest expense for the years ended December 31, 2014,
2013 and 2012.
Salaries and employee benefits
Occupancy and equipment
Outside service fees
Professional fees
Deposit insurance
OREO costs
Telephone and data
communications
Director compensation and
retirement
Advertising and promotion
Business development
Provision for OREO losses
Armored car and courier
Loan collection costs
Stationery and supplies
Postage
Core deposit intangible
Insurance
(Gain) loss on sale of OREO
Other operating expense
Total non-interest expense
$ 9,474
2,902
2,042
583
387
362
351
298
282
279
240
224
182
122
45
-
(9)
(101)
182
$ 17,845
Years Ended December 31,
2013
2014
Change during Year
2014
2013
2012
(dollars in thousands)
$ 8,968
3,023
1,503
875
613
187
$ 8,729
2,874
1,855
831
435
310
745
28
187
(248)
(48)
52
$ (239)
(149)
352
(44)
(178)
123
287
232
281
291
486
228
212
113
51
128
112
(171)
286
$ 17,570
308
255
251
268
907
224
219
124
104
173
120
16
239
$ 18,377
64
(21)
66
(23)
1
(12)
(246)
(4)
(30)
9
(6)
(128)
(121)
70
(104)
$ 275
30
23
(421)
4
(7)
(11)
(53)
(45)
(8)
(187)
47
$ (807)
2014 compared to 2013. During the twelve months ended December 31, 2014, total non-interest expense increased
by $275 thousand, or 2%, to $17.8 million, up from $17.6 million for the comparable period in 2013. The largest
components of this increase were $745 thousand in salary and benefit expense, $187 thousand in outside service fees
and $70 thousand related to reduction in gain on sale of OREO. The largest declines in non-interest expense were
$248 thousand in professional fees, $246 thousand in provision for OREO losses, $128 thousand in deposit premium
amortization and $121 thousand in insurance expense.
Salaries and employee benefits increased by $745 thousand primarily related to an increase in bonus expense of
$350 thousand. The Bank’s bonus plan for 2014 provides for a bonus pool of 60% of the amount that pretax income
exceeds budgeted pretax income with a cap of $600 thousand. Bonus expense was $600 thousand for the twelve
months ended December 31, 2014 and $250 thousand during the twelve months ended December 31, 2013. In both
years the maximum allowed under the bonus plans was earned. Salary expense, exclusive of commissions, increased
by $265 thousand as a decline of four employees from 159 at December 31, 2013 to 155 at December 31, 2014 was
offset by an increase in average salary per employee which includes the effect of merit and promotional increases.
Other increases include, but were not limited to an $89 thousand increase in commissions, which relate to
government guaranteed loan production, and a $67 thousand increase in payroll tax expense. Partially offsetting
these items was an increase in deferred loan origination costs totaling $104 thousand.
26
Of the $187 thousand increase in outside service fees, $96 thousand was related to the outsourcing of our item
processing beginning in June of 2013. This cost as been offset by savings in salary and benefit expense and
software expense. In addition we incurred an increase in costs for the management of our investment portfolio and
an increase in costs related to an increase in debit card interchange transactions.
Professional fees benefited from reductions in legal expense related to loan collection activities totaling $148
thousand, a reduction in corporate legal expense of $88 thousand mostly related the repurchase of the preferred
stock in 2013 and a reduction in audit expense related to a change in audit firms beginning in 2014.
When other real estate is acquired, any excess of the Bank’s recorded investment in the loan balance and accrued
interest income over the estimated fair market value of the property less costs to sell is charged against the
allowance for loan losses. A valuation allowance for losses on other real estate is maintained to provide for
temporary declines in value. The allowance is established through a provision for subsequent losses on other real
estate which is included in other expenses. Subsequent gains or losses on sales or write-downs resulting from
impairment are recorded as incurred. The provision for OREO losses declined by $246 thousand from $486
thousand during the twelve months ended December 31, 2013 to $240 thousand during the current period. During
the second quarter of 2013 we recorded a $300 thousand provision related to one land development property.
Insurance expense benefited from a one-time adjustment to accrued life insurance costs. The deposit premium
intangible asset was fully amortized at the end of September, 2013 resulting in a savings of $128 thousand during
the comparison periods.
2013 compared to 2012. Non-interest expense declined by $807 thousand from $18.4 million during the twelve
months ended December 31, 2012 to $17.6 million during 2013. Reductions of $239 thousand in salary and benefits
expense, $421 thousand in the provision for changes in OREO, $187 thousand in gain/loss on sale of OREO, $149
thousand in occupancy and equipment, $44 thousand in professional fees, $178 thousand in deposit insurance and
$53 thousand in postage were partially offset by increases in other expenses, the largest of which were outside
service fees of $352 thousand and costs associated with OREO properties of $123 thousand.
During June of 2012 we outsourced the processing of our account statements and notices and during June of 2013
we outsourced our item processing department resulting in savings in salary expense, occupancy and equipment
costs, postage and stationary costs. The $178 thousand reduction in deposit insurance expense is related to a decline
in the rate charged to Plumas Bank. The reduction in professional fees primarily relates to a decrease in consulting
costs.
Salaries and employee benefits decreased by $239 thousand primarily related to declines in salary continuation
expense and stock compensation expense and an increase in deferred loan origination costs. Salary continuation
expense declined by $188 thousand related to an adjustment in 2012. During 2012, related to a significant reduction
in long term market interest rates, we reduced the discount rates used in calculating the present value of our salary
continuation liabilities. This had the effect of increasing salary continuation expense during 2012 by $195 thousand.
Stock compensation expense decreased by $58 thousand from $93 thousand during 2012 to $35 thousand during the
current period. During the first quarter of 2012 we had an adjustment to the estimated forfeiture rate resulting in an
increase in stock compensation; no adjustment was required during 2013. The largest reduction in salary and
benefits was related to an increase in deferred loan origination costs totaling $384 thousand. We attribute this
increase in deferred loan origination costs to an increase in lending activity. These items were partially offset by an
increase in bonus expense of $250 thousand and salary expense of $173 thousand. The Bank’s bonus plan for 2013
provided for a bonus pool of 50% of the amount that pretax income exceeds budgeted pretax income with a cap of
$250 thousand. The maximum amount was allocated under this formula. There was no bonus plan in place and no
bonuses were earned or paid in 2012. Salary expense increased by $173 thousand as savings related to the
outsourcing of statement and item processing were offset by an increase in loan production personnel and salary
increases.
27
The $486 thousand OREO provision during 2013, a $421 thousand decline from 2012, resulted from declines in
value of ten properties. The $907 thousand in OREO provision during the 2012 was related to a decline in the value
of twenty-one properties. During the year ended December 31, 2013, we sold twenty-eight properties and a portion
of another property recording a gain on sale of $171 thousand. During 2012, we sold fourteen properties and a
portion of two other properties recording a loss on sale of $16 thousand.
The increase in outside service fees was related to the outsourcing of our statement and notice processing in June of
2012, the outsourcing of our item processing beginning in June of 2013, an increase in costs related to monitoring
and maintaining our ATMs and an increase in the cost of managing our investment portfolio. During 2012 the Bank
modernized its ATM network by purchasing new ATM machines which have the ability to accept currency and
checks and provide an imaged receipt. While these ATMs provide a significant increase in functionality, they are
also more expensive to operate and maintain. During the first half of 2012 we began to use a third party for
assistance with the analysis and management of our investment securities portfolio. The increase in cost during 2013
for this function was related to a full year of costs and an increase in the balance of our portfolio.
OREO expense during the 2012 period benefited from $80 thousand in rental income net of operating expenses on
an apartment building acquired in July 2011. Both the rental income and the operating expenses are included under
the category of OREO expense. This building was sold during the third quarter of 2012. The remaining increase in
OREO expense during 2013 primarily relates to an increase in legal expense as we are actively pursuing additional
recoveries on selected OREO properties through legal channels.
Provision for Income Taxes. The Company recorded an income tax provision of $3.1 million, or 39.4% of pre-tax
income for the year ended December 31, 2014. During 2013 the Company recorded an income tax provision of $2.2
million, or 38.7% of pre-tax income for the year ended December 31, 2013. The percentages for 2014 and 2013
differ from the statutory rate as tax exempt income such as earnings on Bank owned life insurance, municipal loan
interest and in 2013 state of California enterprise zone interest, decrease taxable income.
Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the
reported amount of assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The determination of the amount of deferred income tax assets which are more likely than
not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and
estimates that may change given economic conditions and other factors. The realization of deferred income tax
assets is assessed and a valuation allowance is recorded if it is "more likely than not" that all or a portion of the
deferred tax asset will not be realized. "More likely than not" is defined as greater than a 50% chance. All available
evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a
valuation allowance is needed.
Based upon the analysis of available evidence, management has determined that it is "more likely than not" that all
deferred income tax assets as of December 31, 2014 and 2013 will be fully realized and therefore no valuation
allowance was recorded.
28
Financial Condition
Loan Portfolio. Net loans increased by $32.4 million, or 10%, from $334.4 million at December 31, 2013 to
$366.8 million at December 31, 2014. The two largest areas of growth in the Company’s loan portfolio were $14.3
million in automobile loans and $7.4 million in commercial real estate loans. Additionally, construction and land
development loans increased by $6.8 million to $24.6 million and agricultural loans increased by $4.7 million.
The Company continues to manage the mix of its loan portfolio consistent with its identity as a community bank
serving the financing needs of all sectors of the area it serves. Although the Company offers a broad array of
financing options, it continues to concentrate its focus on small to medium sized commercial businesses. These
commercial loans offer diversification as to industries and types of businesses, thus limiting material exposure in
any industry concentrations. The Company offers both fixed and floating rate loans and obtains collateral in the
form of real property, business assets and deposit accounts, but looks to business and personal cash flows as its
primary source of repayment.
As shown in the following table the Company's largest lending categories are commercial real estate loans, auto
loans, equity lines of credit, agricultural loans and commercial loans.
(dollars in thousands)
Commercial
Agricultural
Real estate - residential
Real estate – commercial
Real estate – construction
Equity Lines of Credit
Auto
Other
Total Gross Loans
Percent of
Loans in
Each
Category to
Total Loans
12/31/14
8.5%
9.5%
7.9%
44.1%
6.6%
10.5%
12.1%
0.8%
100%
Percent of
Loans in
Each
Category to
Total Loans
12/31/13
9.6%
9.0%
9.3%
46.1%
5.3%
10.6%
8.9%
1.2%
100%
Balance at
End of
Period
12/31/13
$ 32,612
30,647
31,322
155,942
17,793
35,800
30,305
4,130
$ 338,551
Balance at
End of
Period
12/31/14
$ 31,465
35,355
29,284
163,306
24,572
38,972
44,618
2,818
$ 370,390
Construction and land development loans represented 6.6% and 5.3% of the loan portfolio as of December 31, 2014
and December 31, 2013, 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 Company’s loan portfolio from over 21% at December 31, 2007 to
less than 7% during the last two years reflects management’s efforts, which began in 2009, to reduce its exposure to
construction and land development loans.
The Company’s real estate related loans, including real estate mortgage loans, real estate construction and land
development loans, consumer equity lines of credit, and agricultural loans secured by real estate comprised 74% of
the total loan portfolio at December 31, 2014. 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 Company's operations in these areas of Northeastern California and Northwestern
Nevada exposes it to greater risk than other banking companies with a wider geographic base in the event of
catastrophes, such as earthquakes, fires and floods in these regions.
29
The rates of interest charged on variable rate loans are set at specific increments in relation to the Company's
lending rate or other indexes such as the published prime interest rate or U.S. Treasury rates and vary with changes
in these indexes. At December 31, 2014 and December 31, 2013, approximately 71% and 73%, respectively of the
Company's loan portfolio was comprised of variable rate loans. At December 31, 2014 and December 31, 2013,
42% and 40%, respectively of the variable loans were at their respective floor rate. While real estate mortgage,
commercial and consumer lending remain the foundation of the Company's historical loan mix, some changes in the
mix have occurred due to the changing economic environment and the resulting change in demand for certain loan
types. The most significant change has been an increase in indirect auto lending with automobile loans increasing
from 2.5% of gross loans at December 31, 2011 to 12.1% of gross loans at December 31, 2014. The automobile
portfolio provides diversification to the loan portfolio in terms of rate, term and balance as these loans tend to have a
much shorter term and balance than commercial real-estate loans and are fixed rate. 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 Company’s
agricultural loan balances totaled $35 million at December 31, 2014 and $31 million at December 31, 2013.
The following table sets forth the amounts of loans outstanding by category as of the dates indicated.
At December 31,
2014
2013
2012
2011
2010
(dollars in thousands)
$ 192,590
$ 187,264
$ 174,212
$ 158,431
$ 162,513
24,572
31,465
86,408
35,355
17,793
32,612
70,235
30,647
15,801
29,552
60,368
35,124
17,063
30,235
49,268
38,868
31,199
33,433
48,586
38,469
370,390
338,551
315,057
293,865
314,200
1,848
1,340
5,451
$ 366,787
5,517
900
5,686
475
6,908
275
7,324
$ 334,374
$ 310,271
$ 287,432
$ 307,151
Real estate – mortgage
Real estate – construction and land
development
Commercial
Consumer (1)
Agriculture (2)
Total loans
Plus:
Deferred costs
Less:
Allowance for loan losses
Net loans
(1) Includes equity lines of credit and auto
(2) Includes agriculture real estate
The following table sets forth the maturity of gross loan categories as of December 31, 2014. Also provided with
respect to such loans are the amounts due after one year, classified according to sensitivity to changes in interest
rates:
Real estate – mortgage
Real estate – construction and land
development
Commercial
Consumer
Agriculture
Total
Loans maturing after one year with:
Fixed interest rates
Variable interest rates
Total
Within
One Year
After One
Through Five Years
After
Five Years
Total
(dollars in thousands)
$ 11,320
$ 58,463
$ 122,807
$ 192,590
7,512
10,712
39,485
10,518
9,791
35,846
24,572
31,465
86,408
35,355
$ 124,361 $ 192,920 $ 370,390
13,958
8,189
$ 53,957 $ 38,017 $ 91,974
225,307
70,404
$ 124,361
154,903
$ 192,920
$ 317,281
6,542
10,962
11,077
13,208
$ 53,109
30
Analysis of Asset Quality and Allowance for Loan Losses. The Company attempts to minimize credit risk
through its underwriting and credit review policies. The Company’s credit review process includes internally
prepared credit reviews as well as contracting with an outside firm to conduct periodic credit reviews. The
Company’s management and lending officers evaluate the loss exposure of classified and impaired loans on a
quarterly basis, or more frequently as loan conditions change. The Management Asset Resolution Committee
(MARC) reviews the asset quality of criticized and past due loans on a monthly basis and reports the findings to the
full Board of Directors. In management's opinion, this loan review system helps facilitate the early identification of
potential criticized loans.
The Company has implemented MARC to develop an action plan to significantly reduce nonperforming assets. It
consists of the Bank’s Chief Executive Officer, Chief Financial Officer and Chief Credit Officer, and the activities
are governed by a formal written charter. The MARC meets at least monthly and reports to the Board of Directors.
More specifically, a formal plan to effect repayment and/or disposition of every significant nonperforming loan
relationship is developed and documented for review and on-going oversight by the MARC. Some of the strategies
used include but are not limited to: 1) obtaining additional collateral, 2) obtaining additional investor cash infusion,
3) sale of the promissory note to an outside party, 4) proceeding with foreclosure on the underlying collateral, and 5)
legal action against borrower/guarantors to encourage settlement of debt and/or collect any deficiency balance owed.
Each step includes a benchmark timeline to track progress.
MARC also provides guidance for the maintenance and timely disposition of OREO properties; including
developing financing and marketing programs to incent individuals to purchase OREO.
The allowance for loan losses is established through charges to earnings in the form of the provision for loan losses.
Loan losses are charged to and recoveries are credited to the allowance for loan losses. The allowance for loan
losses is maintained at a level deemed appropriate by management to provide for known and inherent risks in the
loan portfolio. The adequacy of the allowance for loan losses is based upon management's continuing assessment of
various factors affecting the collectability of loans; including current economic conditions, maturity of the portfolio,
size of the portfolio, industry concentrations, borrower credit history, collateral, the existing allowance for loan
losses, independent credit reviews, current charges and recoveries to the allowance for loan losses and the overall
quality of the portfolio as determined by management, regulatory agencies, and independent credit review
consultants retained by the Company. There is no precise method of predicting specific losses or amounts which
may ultimately be charged off on particular segments of the loan portfolio. The collectability of a loan is subjective
to some degree, but must relate to the borrower’s financial condition, cash flow, quality of the borrower’s
management expertise, collateral and guarantees, and state of the local economy.
Formula allocations are calculated by applying loss factors to outstanding loans with similar characteristics. Loss
factors are based on the Company’s historical loss experience as adjusted for changes in the business cycle and may
be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the
evaluation date. Historical loss data from the beginning of the latest business cycle are incorporated in the loss
factors.
The discretionary allocation is based upon management’s evaluation of various loan segment conditions that are not
directly measured in the determination of the formula and specific allowances. The conditions may include, but are
not limited to, general economic and business conditions affecting the key lending areas of the Company, credit
quality trends, collateral values, loan volumes and concentrations, and other business conditions.
31
The following table provides certain information for the years indicated with respect to the Company's allowance for
loan losses as well as charge-off and recovery activity.
For the Year Ended December 31,
2014
2013
2012
(dollars in thousands)
2011
2010
$ 5,517
$ 5,686
$ 6,908
$ 7,324
$ 9,568
191
1,015
106
601
1,913
401
419
735
360
1,915
1,159
616
1,524
602
3,901
539
483
2,603
622
4,247
1,219
3,105
3,617
408
8,349
89
19
491
148
747
1,166
1,100
$ 5,451
140
109
-
97
346
1,569
1,400
$ 5,517
66
8
81
174
329
3,572
2,350
$ 5,686
199
18
5
109
331
3,916
3,500
$ 6,908
26
396
65
118
605
7,744
5,500
$ 7,324
0.33%
1.47%
0.49%
1.63%
1.18%
1.80%
1.29%
2.35%
2.39%
2.33%
Balance at beginning of period
Charge-offs:
Commercial and agricultural (2)
Real estate mortgage
Real estate construction
Consumer (1)
Total charge-offs
Recoveries:
Commercial and agricultural (2)
Real estate mortgage
Real estate construction
Consumer (1)
Total recoveries
Net charge-offs
Provision for loan losses
Balance at end of period
Net charge-offs during the period
to average loans
Allowance for loan losses to total loans
(1) Includes equity lines of credit and auto
(2) Includes agriculture real estate
During the year ended December 31, 2014 we recorded a provision for loan losses of $1.1 million down $300
thousand from the $1.4 million provision recorded during the year ended December 31, 2013. Net charge-offs
totaled $1.2 million during the year ended December 31, 2014 down $403 thousand from $1.6 million during 2013.
Net charge-offs as a percentage of average loans decreased from 0.49% during 2013 to 0.33% during the year ended
December 31, 2014.
The following table provides a breakdown of the allowance for loan losses:
(dollars in thousands)
Commercial and agricultural
Real estate mortgage
Real estate construction
Consumer (includes equity LOC & Auto)
Total
Balance at
End of Period
2014
$ 799
2,080
1,227
1,345
$ 5,451
Percent of
Loans in Each
Category to
Total Loans
2014
18.0%
52.0%
6.6%
23.4%
100.0%
Balance at
End of Period
2013
$ 949
2,412
944
1,212
$ 5,517
Percent of
Loans in Each
Category to
Total Loans
2013
18.6%
55.4%
5.3%
20.7%
100.0%
The allowance for loan losses totaled $5.5 million at December 31, 2014 and December 31, 2013. Specific reserves
related to impaired loans decreased by $65 thousand from $629 thousand at December 31, 2013 to $564 thousand at
December 31, 2014. At least quarterly the Company evaluates each specific reserve and if it determines that the
loss represented by the specific reserve is uncollectable it records a charge-off for the uncollectable portion. General
reserves were $4.9 million at December 31, 2014 and December 31, 2013. The allowance for loan losses as a
percentage of total loans decreased from 1.63% at December 31, 2013 to 1.47% at December 31, 2014. The
percentage of general reserves to unimpaired loans decreased from 1.49% at December 31, 2013 to 1.35% at
December 31, 2014 primarily related to reductions in historical net charge-offs.
32
The Company places loans 90 days or more past due on nonaccrual status unless the loan is well secured and in the
process of collection. A loan is considered to be in the process of collection if, based on a probable specific event, it
is expected that the loan will be repaid or brought current. Generally, this collection period would not exceed
90 days. When a loan is placed on nonaccrual status the Company's general policy is to reverse and charge against
current income previously accrued but unpaid interest. Interest income on such loans is subsequently recognized
only to the extent that cash is received and future collection of principal is deemed by management to be probable.
Where the collectability of the principal or interest on a loan is considered to be doubtful by management, it is
placed on nonaccrual status prior to becoming 90 days delinquent.
Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral if the loan is collateral dependent. The amount of impaired
loans is not directly comparable to the amount of nonperforming loans disclosed later in this section. The primary
difference between impaired loans and nonperforming loans is that impaired loan recognition considers not only
loans 90 days or more past due, restructured loans and nonaccrual loans but also may include identified problem
loans other than delinquent loans where it is considered probable that we will not collect all amounts due to us
(including both principal and interest) in accordance with the contractual terms of the loan agreement.
A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the Company, for economic or legal
reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise
consider. Restructured workout loans typically present an elevated level of credit risk as the borrowers are not able
to perform according to the original contractual terms. Loans that are reported as TDRs are considered impaired and
measured for impairment as described above.
Loans restructured (TDRs) and not included in nonperforming loans in the following table totaled $2.0 million, $4.5
million, $5.4 million, $8.6 million and $2.0 million at December 31, 2014, 2013, 2012, 2011 and 2010, respectively.
For additional information related to restructured loans see Note 6 of the Company’s Consolidated Financial
Statements in Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10K.
The following table sets forth the amount of the Company's nonperforming assets as of the dates indicated.
Nonaccrual loans
Loans past due 90 days or
more and still accruing
Total nonperforming loans
Other real estate owned
Other vehicles owned
Total nonperforming assets
Interest income forgone on
nonaccrual loans
Interest income recorded on a
cash basis on nonaccrual loans
2014
2013
At December 31,
2012
(dollars in thousands)
2011
2010
$ 6,625
$ 5,519
$ 13,683
$ 16,757
$ 25,313
-
6,625
3,590
13
17
5,536
6,399
60
15
13,698
5,295
41
72
16,829
8,623
57
45
25,358
8,867
17
$ 10,228 $ 11,995 $ 19,034 $ 25,509 $ 34,242
$ 345 $ 280 $ 646 $ 510 $ 1,021
$ 31 $ 22 $ 192 $ 285 $ 608
Nonperforming loans to total loans
Nonperforming assets to total assets
1.79%
1.90%
1.64%
2.33%
4.35%
3.98%
5.73%
5.60%
8.07%
7.07%
Nonperforming loans at December 31, 2014 were $6.6 million, an increase of $1.1 million from the $5.5 million
balance at December 31, 2013. Specific reserves on nonaccrual loans totaled $522 thousand at December 31, 2014
and $578 thousand at December 31, 2013, respectively. Performing loans past due thirty to eighty-nine days
increased by $0.1 million from $1.5 million at December 31, 2013 to $1.6 million at December 31, 2014.
33
A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or
the value of the collateral pledged, if any. Total substandard loans increased by $612 thousand from $7.5
million at December 31, 2013 to $8.1 million at December 31, 2014. Loans classified as watch decreased by $1.4
million from $5.8 million at December 31, 2013 to $4.4 million at December 31, 2014. At December 31, 2014, $1.6
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, 2014 and December 31, 2013, the Company's recorded investment in impaired loans totaled $8.6
million and $9.8 million, respectively. The specific allowance for loan losses related to impaired loans totaled $564
thousand and $629 thousand at December 31, 2014 and December 31, 2013, respectively. Additionally, $0.7 million
has been charged off against the impaired loans at December 31, 2014 and December 31 2013.
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, 2014 is
appropriate. However, the determination of the amount of the allowance is judgmental and subject to economic
conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs
of loans in excess of the allowance may occur in future periods.
OREO represents real property acquired by the Bank either through foreclosure or through a deed in lieu thereof
from the borrower. Repossessed assets include vehicles and other commercial assets acquired under agreements with
delinquent borrowers. OREO holdings represented fifteen properties totaling $3.6 million at December 31, 2014
and twenty-six properties totaling $6.4 million at December 31, 2013. During June 2014 the Company sold its
largest property in OREO, a land development property with an OREO value of $2.2 million which represented 36%
of the total OREO balance prior to sale. A gain of $28 thousand was recorded on the sale of this property.
Nonperforming assets as a percentage of total assets were 1.90% at December 31, 2014 and 2.33% at December 31,
2013.
The following table provides a summary of the change in the number and balance of OREO properties for the years
ended December 31, 2014 and 2013, dollars in thousands:
Beginning Balance
Additions
Dispositions
Provision from change in OREO valuation
Ending Balance
Year Ended December 31,
#
26
6
(17)
-
15
2014
$ 6,399
729
(3,298)
(240 )
$ 3,590
#
40
14
(28)
-
26
2013
$ 5,295
3,824
(2,234)
(486 )
$ 6,399
Investment Portfolio and Federal Funds Sold. Total investment securities were $90.3 million as of December 31,
2014 and December 31, 2013. During the twelve months ended December 31, 2014 we sold investment securities
with a book balance of $16.2 million and recognized a gain on sale of $128 thousand. The investment portfolio at
December 31, 2014 consisted of $77.3 million in securities of U.S. Government-sponsored agencies, 52 municipal
securities totaling $12.5 million and one corporate security totaling $0.5 million. Included in the $90.3 million at
December 31, 2013 were $89.0 million in securities of U.S. Government-sponsored agencies and six municipal
securities totaling $1.3 million.
There were no Federal funds sold at December 31, 2014 and December 31, 2013; however, the Bank maintained
interest earning balances at the Federal Reserve Bank (FRB) totaling $22.9 million at December 31, 2014 and $29.1
million at December 31, 2013. These balances currently earn 25 basis points.
The Company classifies its investment securities as available-for-sale or held-to-maturity. Currently all securities are
classified as available-for-sale. Securities classified as available-for-sale may be sold to implement the Company's
asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar
factors.
34
The following tables summarize the values of the Company's investment securities held on the dates indicated:
Available-for-sale (fair value)
U.S. Government-sponsored agencies
U.S. Government-sponsored agency residential
mortgage-backed securities
Municipal obligations
Corporate debt
Total
December 31,
2014
2013
2012
(dollars in thousands)
$ 7,002
$ 27,097 $ 38,442
70,280
12,532
506
$ 90,320
61,875
1,371
-
$ 90,343
42,522
-
-
$ 80,964
The following table summarizes the maturities of the Company's securities at their carrying value, which represents
fair value, and their weighted average tax equivalent yields at December 31, 2014. Mortgage-backed securities are
included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual
maturities because the issuers may have the right to call or prepay obligations.
Within One
Year
After One
Through Five
Years
After Five
Through Ten Years
After Ten Years
Total
Amount Yield Amount Yield
Amount Yield
Amount Yield
Amount
Yield
(dollars in thousands)
Available-for-sale
(Fair Value)
U.S. Government-
sponsored agencies $ -
-%
$ 7,002
1.22%
-
-%
-
-%
$ 7,002
1.22%
U.S. Government-
sponsored agency
residential mortgage-
backed securities
Municipal obligations
Corporate debt
Total
-
-
-%
-%
-
-
-% $ 12,926
1.55% $ 57,354
1.82%
70,280
1.77%
-%
9,393
3.59%
3,139
4.05%
12,532
3.71%
-
$ -
-%
506
-% $ 7,508
2.02%
-
1.27% $ 22,319
-%
-
2.41% $ 60,493
-%
1.94%
506
$ 90,320
2.02%
2.00%
Deposits. During 2013 and continuing into 2014 we have experienced strong core deposit growth and have
benefited from the closing of two branches of a large national bank in our service area. Total deposits increased by
$18.5 million from $449 million at December 31, 2013 to $468 million at December 31, 2014. Core deposit growth
remained strong in 2014 as evidenced by increases of $17.8 million in demand deposits and $12.3 million in savings
accounts. Time deposits declined by $6.3 million, much of which we attribute to migration into other types of
deposits given the low rates and lack of liquidity associated with time deposits. Interest-bearing transaction accounts
(NOW) declined by $0.5 million and money market accounts declined by $4.8 million.
The Company continues to manage the mix of its deposits consistent with its identity as a community bank serving
the financial needs of its customers. The following table shows the distribution of deposits by type at December 31,
2014 and 2013.
(dollars in thousands)
Non-interest bearing
NOW
Money Market
Savings
Time
Total Deposits
Balance at
End of
Period
12/31/14
$ 180,649
82,144
42,499
106,257
56,342
$ 467,891
35
Percent of
Deposits in
Each
Category
12/31/14
Balance at
End of
Period
12/31/13
$ 162,816
38.6%
82,687
17.6%
47,331
9.1%
93,922
22.7%
12.0%
62,683
100% $ 449,439
Percent of
Deposits in
Each
Category
12/31/13
36.2%
18.4%
10.5%
20.9%
14.0%
100%
Deposits represent the Bank's primary source of funds. Deposits are primarily core deposits in that they are demand,
savings and time deposits generated from local businesses and individuals. These sources are considered to be
relatively stable, long-term relationships thereby enhancing steady growth of the deposit base without major
fluctuations in overall deposit balances. The Company experiences, to a small degree, some seasonality with the
slower growth period between November through April, and the higher growth period from May through October.
In order to assist in meeting any funding demands, the Company maintains a secured borrowing arrangement with
the FHLB. There were no brokered deposits at December 31, 2014 or 2013.
The Company's time deposits of $100,000 or more had the following schedule of maturities at December 31, 2014:
(dollars in thousands)
Remaining Maturity:
Three months or less
Over three months to six months
Over six months to 12 months
Over 12 months
Total
Amount
$ 7,277
4,601
6,296
4,283
$ 22,457
Time deposits of $100,000 or more are generally from the Company's local business and individual customer base.
The potential impact on the Company's liquidity from the withdrawal of these deposits is discussed at the
Company's 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
$133,000,000 from the FHLB secured by commercial and residential mortgage loans with carrying values totaling
$205,000,000. The Company is required to hold FHLB stock as a condition of membership. At December 31, 2014
and 2013, the Company held $2,380,000 and $2,226,000 of FHLB stock which is recorded as a component of other
assets. Based on the level of stock holdings at December 31, 2014, the Company can borrow up to $50,600,000. To
borrow the $133,000,000 in available credit the Company would need to purchase $3,900,000 in additional FHLB
stock. In addition to its FHLB borrowing line, the Company has unsecured short-term borrowing agreements with
three of its correspondent banks in the amounts of $11 million, $10 million and $10 million. There were no
outstanding borrowings to the FHLB or the correspondent banks under these agreements at December 31, 2014 and
2013.
Note Payable. On October 24, 2013 the Bancorp issued a $3 million promissory note (the “Note”) payable to an
unrelated commercial bank. The note bears interest at the U.S. "Prime Rate" plus three-quarters percent per annum,
4.00% at December 31, 2014 and 2013, has a term of 18 months and is secured by 100 shares of Plumas Bank stock
representing the Company's 100% ownership interest in Plumas Bank. Interest expense related to this note for the
years ended December 31, 2014 and 2013 totaled $111,000 and $23,000, respectively. Under the Note the Bank is
subject to several negative and affirmative covenants including, but not limited to providing timely financial
information, maintaining specified levels of capital, restrictions on additional borrowings, and meeting or exceeding
certain capital and asset quality ratios. The Bank was in compliance with all such requirements at December 31,
2014 and December 31, 2013.
On July 28, 2014, Plumas Bancorp entered into a Renewal, Extension, and Modification of Loan Agreement (the
“Agreement”) related to the Note. This Agreement provides for the following changes, among others:
1.) The maturity date of the Note is October 24, 2015.
2.) The maximum amount of the Note is $7.5 million.
3.) The Company may borrow, repay, and reborrow up to the principal face amount of the Note.
The above provisions are subject to the following conditions:
1.) An advance under the Note in excess of $3 million is subject to the lender completing a satisfactory loan
review of the Company.
2.) The Company shall provide an assignment of Key Man life Policy(s) in a minimum amount of $3.5 million.
3.) The Company shall not prepay the Company’s Junior Subordinated Deferrable Interest Debentures until the
Note has been paid in full.
36
On August 26, 2014 the Company made a $2 million payment on the Note reducing the outstanding balance to $1
million.
Repurchase Agreements. In 2011 Plumas Bank introduced a new product for their larger business customers
which use repurchase agreements as an alternative to interest-bearing deposits. The balance in this product at
December 31, 2014 was $9.6 million an increase of $0.5 million from the December 31, 2013 balance of $9.1
million. Interest paid on this product is similar to that which is paid on the Bank’s premium money market account;
however, these are not deposits and are not FDIC insured.
Subordinated Debentures. On April 15, 2013, to help fund the repurchase of preferred stock during 2013, the
Company issued a $7.5 million subordinated debenture. The subordinated debt bears an interest rate of 7.5% per
annum, has a term of 8 years with no prepayment allowed during the first two years and was made in conjunction
with an eight-year warrant to purchase up to 300,000 shares of the Bancorp’s common stock, no par value at an
exercise price, subject to anti-dilution adjustments, of $5.25 per share. The effective yield on the debenture was
10.3% which was in excess of the 7.5% rate due to amortization of a $75 thousand commitment fee and a discount
recorded on issuance of $318 thousand. Interest expense related to the subordinated debt for the years ended
December 31, 2014 and 2013 totaled $756,000 and $541,000, respectively.
The subordinated debt agreement provides that in the event of default with respect to the subordinated debt, the
Bancorp will be subject to certain restrictions on the payment of dividends and distributions to shareholders,
repurchase or redemption of the Bancorp’s securities and payment on certain debts or guarantees. The subordinated
debenture agreement also provides that in the event of default, Lender will have the right to appoint a director to the
Bancorp’s board of directors and/or the Plumas Bank board in certain limited circumstances. Under current capital
guidelines the subordinated debt qualifies as Tier 2 capital; however, under Basel III guidelines effective January 1,
2015 it does not qualify for regulatory capital.
Junior Subordinated Deferrable Interest Debentures. Plumas Statutory Trust I and II are Connecticut business
trusts formed by the Company with capital of $304,000 and $161,000, respectively, for the sole purpose of issuing
trust preferred securities fully and unconditionally guaranteed by the Company. Under current applicable regulatory
guidance, the amount of trust preferred securities (TRUPS) that is eligible as Tier 1 capital is limited to twenty-five
percent of the Company's Tier 1 capital, as defined, on a pro forma basis. At December 31, 2014, all of the trust
preferred securities that have been issued qualify as Tier 1 capital. Under Basel III guidelines the twenty-five
percent limitation applies to Tier 1 capital exclusive of the TRUPS which we expect will result in a portion of the
TRUPS not qualifying as Tier 1 capital. The amount of the TRUPS that does not qualify as Tier 1 capital will be
included in Tier 2 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 I’s Subordinated Debentures mature on September 26, 2032, bear a current interest rate of 3.66% (based on 3-
month LIBOR plus 3.40%), with repricing and payments due quarterly. Trust II’s Subordinated Debentures mature
on September 28, 2035, bear a current interest rate of 1.72% (based on 3-month LIBOR plus 1.48%), with repricing
and payments due quarterly. The interest rate of the Trust Preferred Securities issued by Trust I adjust on each
quarterly anniversary date to equal the 3-month LIBOR plus 3.40%. The Trust Preferred Securities issued by Trust
II adjust on each quarterly anniversary date to equal the 3-month LIBOR plus 1.48%. Both Trusts I and II have the
option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default
on the payment of interest on the Subordinated Debentures.
Interest expense recognized by the Company for the years ended December 31, 2014, 2013 and 2012 related to the
subordinated debentures was $303,000, $313,000 and $344,000, respectively.
37
Capital Resources
Total shareholders’ equity increased by $5.9 million from $30.6 million at December 31, 2013 to $36.5 million at
December 31, 2014. The $5.9 million includes earnings during the twelve month period totaling $4.7 million and a
decrease in net unrealized loss on investment securities of $1.1 million with the balance of $0.1 million representing
stock option activity.
It is the policy of the Company to periodically distribute excess retained earnings to the shareholders through the
payment of cash dividends. Such dividends help promote shareholder value and capital adequacy by enhancing the
marketability of the Company’s stock. All authority to provide a return to the shareholders in the form of a cash or
stock dividend or split rests with the Board of Directors (the “Board). The Board will periodically, but on no regular
schedule, review the appropriateness of a cash dividend payment. Banking regulations limit the amount of dividends
that may be paid without prior approval of regulatory agencies. No common cash dividends were paid during the last
five years.
The Company is subject to various restrictions on the payment of dividends.
Capital Standards.
The Company uses a variety of measures to evaluate its capital adequacy, with risk-based capital ratios calculated
separately for the Company and the Bank. Management reviews these capital measurements on a monthly basis and
takes appropriate action to ensure that they are within established internal and external guidelines. The FDIC has
promulgated risk-based capital guidelines for all state non-member banks such as the Bank. These guidelines
establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures. 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.
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, 2014
and 2013 (amounts in thousands except percentage amounts).
December 31, 2014
Ratio
Amount
December 31, 2013
Amount
Ratio
Tier 1 Leverage Ratio
Plumas Bancorp and Subsidiary
Minimum regulatory requirement
Plumas Bank
Minimum requirement for “Well-Capitalized” institution
$
under the prompt corrective action regulation
Minimum regulatory requirement
Tier 1 Risk-Based Capital Ratio
Plumas Bancorp and Subsidiary
Minimum regulatory requirement
Plumas Bank
Minimum requirement for “Well-Capitalized” institution
under the prompt corrective action regulation
Minimum regulatory requirement
Total Risk-Based Capital Ratio
Plumas Bancorp and Subsidiary
Minimum regulatory requirement
Plumas Bank
Minimum requirement for “Well-Capitalized” institution
under the prompt corrective action regulation
Minimum regulatory requirement
46,557
22,157
53,925
27,643
22,114
46,557
16,358
53,925
24,517
16,344
59,128
32,715
59,039
40,860
32,689
38
8.4% $
4.0%
9.8%
5.0%
4.0%
11.4%
4.0%
13.2%
6.0%
4.0%
14.5%
8.0%
14.4%
10.0%
8.0%
40,909
20,856
50,748
26,026
20,821
40,909
15,332
50,748
22,986
15,324
53,006
30,664
55,547
38,310
30,648
7.8%
4.0%
9.7%
5.0%
4.0%
10.7%
4.0%
13.2%
6.0%
4.0%
13.8%
8.0%
14.5%
10.0%
8.0%
Management believes that the Company and the Bank currently meet their entire capital adequacy requirements.
The current and projected capital positions of the Company and the Bank and the impact of capital plans and long-
term strategies are reviewed regularly by management. The Company policy is to maintain the Bank’s ratios above
the prescribed well-capitalized leverage, Tier 1 risk-based and total risk-based capital ratios of 5%, 6% and 10%,
respectively, at all times.
Basel III Capital Rules. In July, 2013, the federal bank regulatory agencies approved the final rules implementing
the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. Under the final rules, minimum
requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules
include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1
capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1
capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules
also implement strict eligibility criteria for regulatory capital instruments. Under current capital guidelines the
Company’s subordinated debt qualifies as Tier 2 capital; however, under Basel III guidelines effective January 1,
2015 it does not qualify for regulatory capital. Additionally, the Basel III rules have reduced the amount of TRUPS
that is eligible for inclusion in Tier 1 capital which will we expect will result in a portion of the TRUPS not
qualifying as Tier 1 capital. The amount that does not qualify as Tier 1 capital will qualify as Tier 2 capital.
The phase-in period for the final rules begin on January 1, 2015, with full compliance with all of the final rule’s
requirements phased in over a multi-year schedule. As of January 1, 2015, the Company’s and the Bank’s capital
levels remained “well-capitalized” under the new rules.
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, 2014, the Company had $89.7 million in unfunded
loan commitments and no letters of credit. This compares to $84.2 million in unfunded loan commitments and $60
thousand in letters of credit at December 31, 2013. Of the $89.7 million in unfunded loan commitments,
$52.3 million and $37.4 million represented commitments to commercial and consumer customers, respectively. Of
the total unfunded commitments at December 31, 2014, $41.7 million were secured by real estate, of which $14.8
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 and overdraft protection lines. Since some of the commitments are expected to expire without being
drawn upon the total commitment amounts do not necessarily represent future cash requirements.
Operating Leases. The Company leases one depository branch, three lending offices, one loan administration
office and two non-branch automated teller machine locations. Total rental expenses under all operating leases were
$192,000 and $154,000 during the years ended December, 31, 2014 and 2013, respectively. The expiration dates of
the leases vary, with the first such lease expiring during 2015 and the last such lease expiring during 2016.
39
Liquidity
The Company manages its liquidity to provide the ability to generate funds to support asset growth, meet deposit
withdrawals (both anticipated and unanticipated), fund customers' borrowing needs, satisfy maturity of short-term
borrowings and maintain reserve requirements. The Company’s liquidity needs are managed using assets or
liabilities, or both. On the asset side, in addition to cash and due from banks, the Company maintains an investment
portfolio which includes unpledged U.S. Government-sponsored agency securities that are classified as available-
for-sale. On the liability side, liquidity needs are managed by charging competitive offering rates on deposit
products and the use of established lines of credit.
The Company is a member of the FHLB and can borrow up to $133,000,000 from the FHLB secured by commercial
and residential mortgage loans with carrying values totaling $205,000,000. See “Short-term Borrowing
Arrangements” for additional information on our FHLB borrowing capacity. In addition to its FHLB borrowing line,
the Company has unsecured short-term borrowing agreements with three of its correspondent banks in the amounts
of $11 million, $10 million and $10 million. There were no outstanding borrowings under the FHLB or the
correspondent bank borrowing lines at December 31, 2014 or 2013.
Customer deposits are the Company’s primary source of funds. Total deposits increased by $18.5 million from $449
million at December 31, 2013 to $468 million at December 31, 2014. Deposits are held in various forms with
varying maturities. The Company’s securities portfolio, Federal funds sold, FHLB advances, and cash and due from
banks serve as the primary sources of liquidity, providing adequate funding for loans during periods of high loan
demand. During periods of decreased lending, funds obtained from the maturing or sale of investments, loan
payments, and new deposits are invested in short-term earning assets, such as cash held at the FRB, Federal funds
sold and investment securities, to serve as a source of funding for future loan growth. Management believes that the
Company’s available sources of funds, including borrowings, will provide adequate liquidity for its operations in the
foreseeable future.
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, 2014, 2013 and 2012.
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and
2012
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2014,
2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-3
F-4
F-6
F-7
F-8
F-11
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Plumas Bancorp and Subsidiary
Quincy, California
We have audited the accompanying consolidated balance sheets of Plumas Bancorp and Subsidiary (the
“Company”) as of December 31, 2014 and the related consolidated statements of income and
comprehensive income, changes in shareholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides 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, 2014 and the
results of its operations and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Vavrinek, Trine, Day & Co., LLP
Laguna Hills, California
March 19, 2015
F - 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors
Plumas Bancorp
Quincy, California
We have audited the accompanying consolidated balance sheet of Plumas Bancorp and Subsidiary (the
income,
"Company") as of December 31, 2013, and
comprehensive income, changes in shareholders' equity, and cash flows for each of the two years in the
period ended December 31, 2013. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
the related consolidated statements of
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 consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Plumas Bancorp and Subsidiary as of December 31, 2013, and the
results of their operations and their cash flows for each of the two years in the period ended December
31, 2013 in conformity with accounting principles generally accepted in the United States of America.
/s/ Crowe Horwath LLP
Sacramento, California
March 20, 2014
F - 2
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2014 and 2013
ASSETS
2014
2013
Cash and cash equivalents
Investment securities available for sale
Loans, less allowance for loan losses of $5,451,000
in 2014 and $5,517,000 in 2013
Premises and equipment, net
Bank owned life insurance
Other real estate and vehicles acquired through foreclosure
Accrued interest receivable and other assets
$
45,574,000 $
90,320,000
49,917,000
90,343,000
366,787,000
11,642,000
11,845,000
3,603,000
9,091,000
334,374,000
12,519,000
11,504,000
6,459,000
10,609,000
Total assets
$
538,862,000 $
515,725,000
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Repurchase agreements
Note payable
Subordinated debenture
Accrued interest payable and other liabilities
Junior subordinated deferrable interest debentures
$
180,649,000 $
287,242,000
162,816,000
286,623,000
467,891,000
449,439,000
9,626,000
1,000,000
7,454,000
6,084,000
10,310,000
9,109,000
3,000,000
7,295,000
5,979,000
10,310,000
Total liabilities
502,365,000
485,132,000
Commitments and contingencies (Note 12)
Shareholders' equity:
Serial preferred stock - no par value; 10,000,000
shares authorized; none outstanding
Common stock - no par value; 22,500,000 shares
authorized; issued and outstanding – 4,799,139 at
December 31, 2014 and 4,787,739 at
December 31, 2013
Retained earnings
Accumulated other comprehensive loss
-
-
6,312,000
30,245,000
(60,000)
6,249,000
25,507,000
(1,163,000)
Total shareholders' equity
36,497,000
30,593,000
Total liabilities and shareholders' equity
$
538,862,000 $
515,725,000
The accompanying notes are an integral
part of these consolidated financial statements.
F - 3
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2014, 2013 and 2012
2014
2013
2012
Interest income:
Interest and fees on loans
Interest on investment securities:
Taxable
Exempt from Federal income taxes
Other
$
19,495,000 $
18,174,000 $
17,427,000
1,368,000
147,000
137,000
1,155,000
7,000
124,000
892,000
-
106,000
Total interest income
21,147,000
19,460,000
18,425,000
Interest expense:
Interest on deposits
Interest on note payable
Interest on subordinated debenture
Interest on junior subordinated
deferrable interest debentures
Other
516,000
111,000
756,000
303,000
7,000
600,000
23,000
541,000
313,000
57,000
847,000
-
-
344,000
83,000
Total interest expense
1,693,000
1,534,000
1,274,000
Net interest income before
provision for loan losses
19,454,000
17,926,000
17,151,000
Provision for loan losses
1,100,000
1,400,000
2,350,000
Net interest income after
provision for loan losses
Non-interest income:
Service charges
Gain on sale of loans
Gain on sale of investments
Earnings on bank owned life
insurance policies, net
Other
18,354,000
16,526,000
14,801,000
4,108,000
1,396,000
128,000
341,000
1,342,000
3,912,000
1,399,000
-
3,617,000
1,324,000
403,000
344,000
987,000
345,000
907,000
Total non-interest income
7,315,000
6,642,000
6,596,000
(Continued)
F - 4
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
For the Years Ended December 31, 2014, 2013 and 2012
2014
2013
2012
Non-interest expenses:
Salaries and employee benefits
Occupancy and equipment
Provision for losses on other real
estate
Other
$
9,474,000 $
2,902,000
8,729,000 $
2,874,000
8,968,000
3,023,000
240,000
5,229,000
486,000
5,481,000
907,000
5,479,000
Total non-interest expenses
17,845,000
17,570,000
18,377,000
Income before income
taxes
7,824,000
5,598,000
3,020,000
Provision for income taxes
3,086,000
2,167,000
1,070,000
Net income
Discount on redemption of preferred
stock
Preferred stock dividends and
discount accretion
Net income available
to common shareholders
4,738,000
3,431,000
1,950,000
-
-
565,000
-
(347,000)
(684,000)
$
4,738,000 $
3,649,000 $
1,266,000
Basic earnings per common share
Diluted earnings per common share
Common dividends per share
$
$
$
0.99
0.95
-
$
$
$
0.76
0.75
-
$
$
$
0.26
0.26
-
The accompanying notes are an integral
part of these consolidated financial statements.
F - 5
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2014, 2013 and 2012
2014
2013
2012
Net Income
Other comprehensive income (loss):
Change in net unrealized gain (loss)
Less: reclassification adjustments
for net gains included in net income
$
4,738,000 $
3,431,000 $
1,950,000
2,006,000
(2,540,000)
695,000
(128,000)
-
(403,000)
Net unrealized holding gain (loss)
1,878,000
(2,540,000)
292,000
Related income tax effect:
Change in unrealized (gain) loss
Reclassification of gains included in
net income
(828,000)
1,048,000
(288,000)
53,000
-
167,000
Income tax effect
(775,000)
1,048,000
(121,000)
Total other comprehensive income (loss) 1,103,000 (1,492,000) 171,000
Comprehensive income
$ 5,841,000 $ 1,939,000 $ 2,121,000
The accompanying notes are an integral
part of these consolidated financial statements.
F - 6
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PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2014, 2013 and 2012
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses
Change in deferred loan origination
2014
2013
2012
$
4,738,000 $
3,431,000 $
1,950,000
1,100,000
1,400,000
2,350,000
costs/fees, net
(752,000)
Stock-based compensation expense 81,000
Depreciation and amortization
Amortization of investment security
1,306,000
premiums
487,000
(667,000)
38,000
1,408,000
(629,000)
95,000
1,354,000
Accretion of investment security discounts
Gain on sale of investments
Gain on sale of loans held for sale
Loans originated for sale
Proceeds from loan sales
Provision for losses on other real estate
Net (gain) loss on sale of other
real estate and vehicles owned
Earnings on bank owned life insurance
policies
Provision for deferred income taxes
(Increase) decrease in accrued interest
receivable and other assets
Increase (decrease) in accrued interest
payable and other liabilities
Net cash provided by operating
445,000
(6,000)
-
(8,000)
(128,000)
(1,396,000)
(22,063,000)
21,592,000
(1,399,000)
(17,609,000)
21,733,000
240,000 486,000
525,000
(5,000)
(403,000)
(1,324,000)
(21,154,000)
20,084,000
907,000
(160,000)
(183,000)
9,000
(341,000)
1,165,000
(344,000)
2,085,000
(345,000)
1,042,000
(620,000)
613,000
632,000
104,000
(724,000)
717,000
activities
5,345,000
10,707,000
5,805,000
(Continued)
F - 8
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2014, 2013 and 2012
Cash flows from investing activities:
Proceeds from matured and called available-
for-sale investment securities
$
Proceeds from sale of available-for-sale securities
Purchases of available-for-sale investment
securities
Proceeds from principal repayments from
available-for-sale government-guaranteed
mortgage-backed securities
Net increase in loans
Proceeds from sale of vehicles
Proceeds from sale of other real estate
Purchases of premises and equipment
Net cash used in investing
activities
Cash flows from financing activities:
Net increase in demand,
interest-bearing and savings deposits
Net decrease in time deposits
Net increase (decrease) in securities sold under
agreements to repurchase
Issuance of subordinated debenture, net of discount
Issuance of common stock warrant
Issuance of note payable
Payment on note payable
Repurchase of common stock warrant
Redemption of preferred stock
Payment of cash dividend on preferred stock
Proceeds from exercise of stock options
Net cash provided by financing
2014
2013
2012
16,044,000 $
16,325,000
14,000,000 $
-
23,179,000
20,773,000
(40,511,000)
(34,734,000)
(75,214,000)
9,692,000
(31,733,000)
318,000
3,399,000
(225,000)
8,376,000
(31,864,000)
148,000
2,404,000
(352,000)
8,390,000
(23,734,000)
81,000
3,714,000
(915,000)
(26,691,000)
(42,022,000)
(43,726,000)
24,793,000
(6,341,000)
45,770,000
(7,893,000)
30,221,000
(9,799,000)
517,000
-
-
-
(2,000,000)
-
-
-
34,000
1,732,000
7,182,000
318,000
3,000,000
-
(234,000)
(11,384,000)
(1,968,000)
34,000
(902,000)
-
-
-
-
-
-
-
-
activities
17,003,000
36,557,000
19,520,000
(Decrease) increase in cash and cash
equivalents
(4,343,000)
5,242,000
(18,401,000)
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
49,917,000
45,574,000 $
44,675,000
49,917,000 $
63,076,000
44,675,000
$
(Continued)
F - 9
PLUMAS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended December 31, 2014, 2013 and 2012
2014
2013
2012
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense
Income taxes
Non-cash investing activities:
Real estate acquired through foreclosure
Vehicles acquired through repossession
$
$
$
$
1,560,000 $
1,916,000 $
2,438,000 $
30,000 $
942,000
2,000
729,000 $ 3,824,000 $ 1,208,000
65,000
211,000 $ 155,000 $
The accompanying notes are an integral
part of these consolidated financial statements.
F - 10
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. The Bank’s administrative headquarters is in Quincy,
California. In addition, the Bank operates a loan administrative office in Reno, Nevada,
lending offices specializing in government-guaranteed lending in Auburn, California and
Beaverton, Oregon and a commercial/agricultural lending office in Chico, California. The
Bank's primary source of revenue is generated from providing loans to customers who
are predominately small and middle market businesses and individuals residing in the
surrounding areas.
2.
REGULATORY MATTERS
On February 15, 2012, the Bank received notice from the Federal Deposit Insurance
Corporation (FDIC) and the California Department of Financial Institutions (“DFI”) that
the Consent Order with the FDIC and the DFI which was effective on March 16, 2011
had been terminated. Effective February 8, 2012, the Bank entered into an informal
agreement with the FDIC and DFI which, among other things, requested that the Bank
continue to maintain a Tier 1 Leverage Capital Ratio of 9% which is in excess of that
required for well capitalized institutions and continue to reduce its level of classified
asset balances that were outstanding as of September 30, 2011 to not more than 50% of
Tier 1 Capital plus the allowance for loan losses. At December 31, 2012 this ratio was
32% and the Bank’s Tier 1 Leverage Capital Ratio was 10.4%. The FDIC and DFI
terminated the informal agreement effective January 24, 2013. Effective July 1, 2013,
the California Department of Corporations and the DFI merged to form the Department
of Business Oversight (“DBO”).
On July 28, 2011 the Company entered into an agreement with the Federal Reserve
Bank of San Francisco (the "FRB Agreement"). Under the terms of the FRB Agreement,
Plumas Bancorp agreed to take certain actions that were designed to maintain its
financial soundness so that it may continue to serve as a source of strength to the Bank.
Among other things, the FRB Agreement required prior written approval related to the
payment or taking of dividends and distributions, making any distributions of interest,
principal or other sums on subordinated debentures or trust preferred securities,
incurrence of debt, and the purchase or redemption of stock. On April 19, 2013 the
Company received notice that the FRB Agreement had been terminated.
F - 11
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 Company's
consolidated financial statements and, accordingly, are accounted for under the equity
method. The Company's investment in Trust I of $304,000 and Trust II of $161,000 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 2014. These reclassifications had no impact on the Company’s
consolidated financial position, results of operations or net change in cash and cash
equivalents.
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.
Use of Estimates
To prepare financial statements in conformity with accounting principles generally
accepted in the United States of America management makes estimates and
assumptions based on available information. These estimates and assumptions affect
the amounts reported in the financial statements and the disclosures provided, and
actual results could differ. The allowance for loan losses, loan servicing rights, deferred
tax assets, and fair values of financial instruments are particularly subject to change.
Cash and Cash Equivalents
For the purpose of the statement of cash flows, cash and due from banks and Federal
funds sold are considered to be cash equivalents. Generally, Federal funds are sold for
one day periods. Cash held with other federally insured institutions in excess of FDIC
limits as of December 31, 2014 was $12.0 million. Net cash flows are reported for
customer loans and deposit transactions and repurchase agreements.
F - 12
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities
Investments are classified into one of the following categories:
(cid:120) 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.
(cid:120) 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. As of December 31, 2014 and 2013 the Company did
not have any investment securities classified as held-to-maturity.
Management determines the appropriate classification of its investments at the time of
purchase and may only change the classification in certain limited circumstances.
As of December 31, 2014 and 2013 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
for accretion of discounts and
amortization of premiums accounted for by the level yield method with no pre-payment
anticipated.
income, net of applicable adjustments
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.
F - 13
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank (FHLB) System, the Bank is required to
maintain an investment in the capital stock of the FHLB. The investment is carried at
cost classified as a restricted security, and periodically evaluated for impairment based
on ultimate recovery of par value. At December 31, 2014 and 2013, FHLB stock totaled
$2,380,000 and $2,226,000, respectively. On the consolidated balance sheet, FHLB
stock is included in accrued interest receivable and other assets.
Loans Held for Sale, Loan Sales and Servicing
Included in the loan portfolio are loans which are 75% to 85% guaranteed by the Small
Business Administration (SBA), US Department of Agriculture Rural Business
Cooperative Service (RBS) and Farm Services Agency (FSA). The guaranteed portion
of these loans may be sold to a third party, with the Bank retaining the unguaranteed
portion. The Company can receive a premium in excess of the adjusted carrying value
of the loan at the time of sale.
As of December 31, 2014 and 2013 the Company had $3.0 million and $2.8 million,
respectively in government guaranteed loans held for sale. Loans held for sale are
recorded at the lower of cost or fair value and therefore may be reported at fair value on
a non-recurring basis. The fair values for loans held for sale are based on either
observable transactions of similar instruments or formally committed loan sale prices.
Government guaranteed loans with unpaid balances of $76,797,000 and $70,212,000
were being serviced for others at December 31, 2014 and 2013, 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 fair value and are subsequently
amortized in proportion to and over the period of the related net servicing income or
expense. Servicing rights are evaluated for impairment based upon the fair value of the
rights as compared to carrying amount. Impairment is determined by stratifying rights
into groupings based on predominant risk characteristics, such as interest rate, loan type
and investor type. Impairment is recognized through a valuation allowance for an
individual grouping, to the extent that fair value is less than the carrying amount. If the
Company later determines that all or a portion of the impairment no longer exists for a
particular grouping, a reduction of the allowance may be recorded as an increase to
income. Changes in valuation allowances are reported with non-interest income on the
statement of income. The fair values of servicing rights are subject to significant
fluctuations as a result of changes in estimated and actual prepayment speeds and
default rates and losses.
F - 14
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)
The Company's investment in the loan is allocated between the retained portion of the
loan, the servicing asset, the interest-only (IO) strip, and the sold portion of the loan
based on their 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 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.
Loans
Loans that management has the intent and ability to hold for foreseeable future or until
maturity or payoff are reported at the principal balance outstanding, net of purchase
premiums or discounts, deferred loan fees and costs, and an allowance for loan losses.
Loans, if any, that are transferred from loans held for sale 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
collectability 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. A loan is moved to non-accrual status in
accordance with the Company’s policy, typically after 90 days of non-payment unless
well secured and in the process of collection. Past due status is based on the contractual
terms of the loan. Subsequent payments on these loans, or payments received on
nonaccrual loans for which the ultimate collectability of principal is not in doubt, are
applied first to earned but unpaid interest and then to principal. Loans are returned to
accrual status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
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.
F - 15
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (continued)
When the Company acquires such loans, the yield that may be accreted (accretable
yield) is limited to the excess of the Company's estimate of undiscounted cash flows
expected to be collected over the Company's initial investment in the loan. The excess
of contractual cash flows over cash flows expected to be collected may not be
recognized as an adjustment to yield, loss, or a valuation allowance.
Subsequent increases in cash flows expected to be collected generally should be
recognized prospectively through adjustment of the loan's yield over its remaining life.
Decreases in cash flows expected to be collected should be 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, 2014 and
2013, there were no such loans being accounted for under this policy.
Allowance for Loan Losses
The allowance for loan losses is an estimate of probable incurred credit losses inherent
in the Company's 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. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited 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 but collectively
evaluated for impairment.
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 loan's effective interest rate, except that as a
practical expedient, it may measure impairment based on a loan's 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 debtor's financial difficulties, grants a
concession to the debtor that it would not otherwise consider. Restructured workout
loans typically present an elevated level of credit risk as the borrowers are not able to
perform according to the original contractual terms. Loans that are reported as TDRs
are considered impaired and measured for impairment as described above.
F - 16
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
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 from January 1, 2008 (the beginning of the latest business
cycle as determined by management) to the most current balance sheet date, internal
asset classifications, and qualitative factors to include economic trends in the
Company’s service areas, industry experience and trends, geographic concentrations,
estimated collateral values, the Company’s underwriting policies, the character of the
loan portfolio, and probable incurred losses inherent in the portfolio taken as a whole.
During 2012, the Company modified its method of estimating the allowance for loan
losses for non-impaired loans. This modification incorporated historical losses from the
beginning of the latest business cycle. Previously we utilized historical loss experience
based on a rolling eight quarters ending with the most recently completed calendar
quarter. This modification had the effect of increasing the required allowance related to
the expanded historical loss period by $250,000. The Company believes that, given the
recent trend in historical losses, it was prudent to increase the period examined and that
a full business cycle was the appropriate period.
The Company maintains a separate allowance for each portfolio segment (loan type).
These portfolio segments include commercial, agricultural, real estate construction
(including land and development loans), commercial real estate mortgage, residential
mortgage, home equity loans, automobile loans and other loans primarily consisting of
consumer installment loans and 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 Company’s overall allowance, and is
included as a component of loans on the consolidated balance sheet.
The Company assigns a risk rating to all loans, with the exception of automobile and
other loans and periodically, but not less than annually, performs detailed reviews of all
such loans over $100,000 to identify credit risks and to assess the overall collectability
of the portfolio. These risk ratings are also subject to examination by independent
specialists engaged by the Company and the Company’s regulators. During these
internal reviews, management monitors and analyzes the financial condition of
borrowers and guarantors, trends in the industries in which borrowers operate and the
fair values of collateral securing these loans. These credit quality indicators are used to
assign a risk rating to each individual loan.
F - 17
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
The risk ratings can be grouped into five major categories, defined as follows:
Pass – A pass loan is a strong credit with no existing or known potential
weaknesses deserving of management's close attention.
Watch – A Watch loan has potential weaknesses that deserve management's
close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the loan or in the Company’s credit
position at some future date. Watch loans are not adversely classified and do
not expose the Company to sufficient risk to warrant adverse classification.
Substandard – A substandard loan is not adequately protected by the current
sound worth and paying capacity of the borrower or the value of the collateral
pledged, if any. Loans classified as substandard have a well-defined weakness
or weaknesses that jeopardize the liquidation of the debt. Well defined
weaknesses include a project's lack of marketability, inadequate cash flow or
collateral support, failure to complete construction on time or the project's failure
to fulfill economic expectations. They are characterized by the distinct possibility
that the Company will sustain some loss if the deficiencies are not corrected.
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 associated with loans
collectively evaluated for impairment also consists of reserve factors that are based on
management's 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 on the next page.
F - 18
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
Commercial – Commercial 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 borrower's 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.
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.
Automobile – An automobile loan portfolio is usually comprised of a large
number of smaller loans scheduled to be amortized over a specific period. Most
automobile loans are made directly for consumer purchases, but business
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 consumer and credit card loans and are
similar in nature to automobile loans.
F - 19
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (continued)
Although management believes the allowance to be adequate, ultimate losses may vary
from its estimates. At least quarterly, the Board of Directors and management review
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 Company's primary regulators, the FDIC and
DBO, 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.
The Company also maintains a separate allowance for off-balance-sheet commitments.
Management estimates anticipated
losses using historical data and utilization
assumptions. The allowance for these commitments totaled $141,000 at December 31,
2014 and 2013, respectively and is included in accrued interest payable and other
liabilities in the consolidated balance sheet.
Other Real Estate
Other real estate owned relates to real estate acquired in full or partial settlement of loan
obligations, which was $3,590,000 ($5,884,000
less a valuation allowance of
$2,294,000) at December 31, 2014 and $6,399,000 ($9,065,000 less a valuation
allowance of $2,666,000) at December 31, 2013. Proceeds from sales of other real
estate owned totaled $3,399,000, $2,404,000 and $3,714,000 for the years ended
December 31, 2014, 2013 and 2012, respectively. For the year ended December 31,
2014 and 2013 the Company recorded gains on sale of other real estate owned of
$101,000 and $171,000, respectively. For the year ended December 31, 2012 the
Company recorded a loss on sale of other real estate owned of $16,000. Other real
estate owned is initially recorded at fair value less cost to sell when acquired, any
excess of the Bank's recorded investment in the loan balance and accrued interest
income over the estimated fair 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 also recorded in other expenses as incurred.
The following table provides a summary of the change in the OREO balance for the
years ended December 31, 2014 and 2013:
Beginning balance
Additions
Dispositions
Write-downs
Ending balance
Year Ended December 31,
2014
$ 6,399,000
729,000
(3,298,000)
( 240,000)
$ 3,590,000
2013
$ 5,295,000
3,824,000
(2,234,000)
(486,000)
$ 6,399,000
F - 20
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangible Assets
Intangible assets consist of core deposit intangibles related to branch acquisitions and
are amortized using the straight-line method over ten years. These assets were fully
amortized as of December 31, 2013. 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 2013 or 2012.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated
depreciation. 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.
Bank Owned Life Insurance
The Company has purchased life insurance policies on certain key executives. Bank
owned life insurance is recorded at the amount that can be realized under the insurance
contract at the balance sheet date, which is the cash surrender value adjusted for other
charges or other amounts due that are probable at settlement.
Income Taxes
The Company files its income taxes on a consolidated basis with its subsidiary. Income
tax expense is the total of current year income tax due or refundable and the change in
deferred tax assets and liabilities.
Deferred tax assets and liabilities are recognized for the tax consequences of temporary
differences between the reported amount of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. A valuation allowance is recognized if, based on the
weight of available evidence management believes it is more likely than not that some
portion or all of the deferred tax assets will not be realized. On the consolidated balance
sheet, net deferred tax assets are included in accrued interest receivable and other
assets.
F - 21
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 income statement. There have
been no significant changes to unrecognized tax benefits or accrued interest and
penalties for the years ended December 31, 2014 and 2013.
Earnings Per Share
Basic earnings per share (EPS), which excludes dilution, is computed by dividing income
available to common stockholders (net income plus discount on redemption of preferred
stock less preferred dividends and accretion) 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.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on securities available for
sale which are also recognized as separate components of equity. There were no sales
of available for sale investment securities during the year ended December 31, 2013.
The amount reclassified out of other accumulated comprehensive income relating to
realized gains on securities available for sale was $128,000 and $403,000 for 2014 and
2012, with the related tax effect of $53,000 and $167,000, respectively.
F - 22
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Dividend Restrictions
Banking regulations require maintaining certain capital levels and may limit the dividend
paid by the bank to the holding company or by the holding company to shareholders.
Fair Value of Financial Instruments
Fair values of financial instruments are estimated using relevant market information and
other assumptions, as more fully disclosed in a separate note. Fair value estimates
involve uncertainties and matters of significant judgment regarding interest rates, credit
risk, prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could significantly
affect these estimates.
Stock-Based Compensation
Compensation expense related to the Company’s Stock Option Plans, net of related tax
benefit, recorded in 2014, 2013 and 2012 totaled $75,000, $37,000 and $93,000 or
$0.02, $0.01 and $0.02 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 options 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
Company’s common stock over the most recent period commensurate with the
estimated expected life of the Company’s stock options. The Company bases its
expected life assumption on its historical experience and on the terms and conditions of
the stock options it grants to employees. The risk-free rate is based on the U.S. Treasury
yield curve for the periods within the contractual life of the options in effect at the time of
the grant. The Company also makes assumptions regarding estimated forfeitures that
will impact the total compensation expenses recognized under the Plans.
During 2014 the Company granted options to purchase 110,400 shares of common
stock. The fair value of each option was estimated on the date of grant using the
following assumptions.
Expected life of stock options (in years)
Risk free interest rate
Volatility
Dividend yields
Weighted-average fair value of options
granted during the year
2014
5.2
1.64 %
63.8 %
2.00 %
$3.02
No options were granted during the years ended December 31, 2013 and 2012.
F - 23
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Adopted Accounting Pronouncements
In July 2013, the FASB issued ASU 2013-11, Income Taxes, Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,
or a Tax Credit Carryforward Exists. The FASB issued ASU 2013-11 to eliminate the
diversity in the presentation of unrecognized tax benefits in those instances. The
amendments in this update are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2013. The Company has determined the provisions
for ASU 2013-11 did not have a material impact on the financial statements.
Pending Accounting Pronouncements
In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential
Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective
of this guidance is to clarify when an in substance repossession or foreclosure occurs,
that is, when a creditor should be considered to have received physical possession of
residential real estate property collateralizing a consumer mortgage loan such that the
loan receivable should be derecognized and the real estate property recognized. ASU
No. 2014-04 states that an in substance repossession or foreclosure occurs, and a
creditor is considered to have received physical possession of residential real estate
property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining
legal title to the residential real estate property upon completion of a foreclosure or (2)
the borrower conveying all interest in the residential real estate property to the creditor to
satisfy that loan through completion of a deed in lieu of foreclosure or through a similar
legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure
of both (1) the amount of foreclosed residential real estate property held by the creditor
and (2) the recorded investment in consumer mortgage loans collateralized by
residential real estate property that are in the process of foreclosure according to local
requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and
annual reporting periods beginning after December 15, 2014. The adoption of ASU No.
2014-04 is not expected to have a material impact on the Company's Financial
Statements.
In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with
Customers. This update to the ASC is the culmination of efforts by the FASB and the
International Accounting Standards Board (IASB) to develop a common revenue
standard for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU
2014-09 supersedes Topic 605 – Revenue Recognition and most industry-specific
guidance. The core principal of the guidance is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. The guidance in ASU 2014-09 describes a 5-step process entities
can apply to achieve the core principle of revenue recognition and requires disclosures
sufficient to enable users of financial statements to understand the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers
and the significant judgments used in determining that information.
F - 24
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pending Accounting Pronouncements (continued)
The amendments in ASU 2014-9 are effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period and early
application is not allowed. The Company is currently evaluating the effects of ASU 2014-
09 on its financial statements and disclosures, if any.
In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions,
Repurchase Financings, and Disclosures. The Update improves the financial reporting of
repurchase agreements and other similar transactions through a change in accounting
for repurchase-to-maturity transactions and repurchase financings, and the introduction
of two new disclosure requirements. New disclosures are required for (1) transfers
accounted for as sales in transactions that are economically similar to repurchase
agreements, in which the transferor retains substantially all of the exposure to the
economic return on the transferred financial asset throughout the term of the transaction
and (2) repurchase agreements, securities lending transactions, and repurchase-to-
maturity transactions accounted for as secured borrowings about the nature of collateral
pledged and the time to maturity of those transactions. The Company is currently
evaluating the effects of ASU 2014-011 on its financial statements and disclosures, if
any.
4.
FAIR VALUE MEASUREMENTS
The Company measures fair value under the fair value hierarchy described below.
Level 1: Quoted prices for identical instruments traded in active exchange markets.
Level 2: Quoted prices (unadjusted) for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active and model-
based valuation techniques for which all significant assumptions are observable or
can be corroborated by observable market data.
Level 3: Model based techniques that use one significant assumption not observable
in the market. These unobservable assumptions reflect the Company’s estimates of
assumptions that market participants would use on pricing the asset or liability.
Valuation techniques include management judgment and estimation which may be
significant.
In certain cases, the inputs used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, the level in the fair value hierarchy within which the
fair value measurement in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in its entirety. The Company’s
assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or liability.
Management monitors the availability of observable market data to assess the
appropriate classification of financial instruments within the fair value hierarchy.
Changes in economic conditions or model-based valuation techniques may require the
F - 25
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
transfer of financial instruments from one fair value level to another. In such instances,
the transfer is reported at the beginning of the reporting period.
Management evaluates the significance of transfers between levels based upon the
nature of the financial instrument and size of the transfer relative to total assets, total
liabilities or total earnings.
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments, at December
31, 2014 and December 31, 2013 are as follows:
Fair Value Measurements at December 31, 2014 Using:
Carrying
Value
$45,574,000
90,320,000
366,787,000
2,380,000
1,727,000
Financial assets:
Cash and cash equivalents
Investment securities
Loans, net
FHLB stock
Accrued interest receivable
Financial liabilities:
Deposits
Repurchase agreements
Note payable
Subordinated debenture
Junior subordinated deferrable
interest debentures
Accrued interest payable
9,626,000
1,000,000
7,454,000
10,310,000
72,000
Carrying
Value
$49,917,000
90,343,000
334,374,000
2,226,000
1,691,000
Financial assets:
Cash and cash equivalents
Investment securities
Loans, net
FHLB stock
Accrued interest receivable
Financial liabilities:
Deposits
Repurchase agreements
Note payable
Subordinated debenture
Junior subordinated deferrable
interest debentures
Accrued interest payable
9,109,000
3,000,000
7,295,000
10,310,000
98,000
467,891,000 411,549,000
Level 1
$45,574,000
Level 2
Level 3
Total Fair
Value
$90,320,000
281,000
56,364,000
9,626,000
$45,574,000
90,320,000
$368,442,000 368,442,000
N/A
1,727,000
1,446,000
467,913,000
9,626,000
1,000,000 1,000,000
7,313,000 7,313,000
7,000
47,000
6,636,000 6,636,000
72,000
18,000
Fair Value Measurements at December 31, 2013 Using:
Level 1
$49,917,000
$90,343,000
Level 2
Level 3
Total Fair
Value
$49,917,000
90,343,000
$337,392,000 337,392,000
N/A
1,691,000
260,000 1,431,000
449,439,000 386,757,000
62,743,000
9,109,000
449,500,000
9,109,000
3,000,000 3,000,000
7,121,000 7,121,000
6,000
58,000
7,193,000 7,193,000
98,000
34,000
F - 26
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
These estimates do not reflect any premium or discount that could result from offering
the Company's entire holdings of a particular financial instrument for sale at one time,
nor do they attempt to estimate the value of anticipated future business related to the
instruments. In addition, the tax ramifications related to the realization of unrealized
gains and losses can have a significant effect on fair value estimates and have not been
considered in any of these estimates.
The following methods and assumptions were used by management to estimate the fair
value of its financial instruments:
Cash and cash equivalents: The carrying amounts of cash and short-term instruments
approximate fair values and are classified as Level 1.
Investment securities: Fair values for securities available for sale are generally
determined by matrix pricing, which is a mathematical technique widely used in the
industry to value debt securities without relying exclusively on quoted prices for the
specific securities but rather by relying on the securities’ relationship to other benchmark
quoted securities (Level 2).
Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: For
variable rate loans that reprice frequently and with no significant change in credit risk,
fair values are based on carrying values resulting in a Level 3 classification. Fair values
for other loans are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar credit quality
resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair
value. The methods utilized to estimate the fair value of loans do not necessarily
represent an exit price.
FHLB stock: It was not practicable to determine the fair value of the FHLB stock due to
restrictions placed on its transferability.
Deposits: The fair values disclosed for demand deposits, including interest and non-
interest demand accounts, savings, and certain types of money market accounts are, by
definition, equal to the carrying amount at the reporting date resulting in a Level 1
classification. Fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time deposits
resulting in a Level 2 classification.
Repurchase agreements: The fair value of securities sold under repurchase agreements
is estimated based on bid quotations received from brokers using observable inputs and
are included as Level 2.
Note payable: The fair value of the Company’s Note Payable is estimated using
discounted cash flow analyses based on the current borrowing rates for similar types of
borrowing arrangements resulting in a Level 3 classification.
F - 27
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
Subordinated debentures and Junior subordinated deferrable interest debentures: The
fair values of the Company’s Subordinated Debentures are estimated using discounted
cash flow analyses based on the current borrowing rates for similar types of borrowing
arrangements resulting in a Level 3 classification.
Accrued interest and payable: The carrying amounts of accrued interest approximate
fair value and are considered to be linked in classification to the asset or liability for
which they relate.
Commitments to extend credit and letters of credit: The fair value of commitments are
estimated using the fees currently charged to enter into similar agreements and are not
significant and, therefore, not presented. Commitments to extend credit are primarily for
variable rate loans and letters of credit.
Because no market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding current economic
conditions, risk characteristics of various financial instruments and other factors. Those
estimates that are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision are included in
Level 3. Changes in assumptions could significantly affect the fair values presented.
The following tables present information about the Company’s assets and liabilities
measured at fair value on a recurring and non-recurring basis as of December 31, 2014
and December 31, 2013, and indicates the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value:
Assets and liabilities measured at fair value on a recurring basis at December 31, 2014
are summarized below:
Fair Value Measurements at December 31, 2014 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Total Fair
Value
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
Assets:
U.S. Government-
sponsored
agencies
U.S. Government-
sponsored
agencies
collateralized
by mortgage
obligations-
residential
Obligations of
states and
political
subdivisions
Corporate debt
$ 7,002,000
$ 7,002,000
70,280,000
70,280,000
12,532,000
506,000
12,532,000
506,000
$ 90,320,000
$ -
$ 90,320,000
$ -
F - 28
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
Assets and liabilities measured at fair value on a recurring basis at December 31, 2013
are summarized below:
Fair Value Measurements at December 31, 2013 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Total Fair
Value
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
$ 27,097,000
$ 27,097,000
61,875,000
61,875,000
1,371,000
1,371,000
$ 90,343,000
$ -
$ 90,343,000
$ -
Assets:
U.S. Government-
sponsored
agencies
U.S. Government-
sponsored
agencies
collateralized
by mortgage
obligations-
residential
Obligations of
states and
political
subdivisions
The fair value of securities available-for-sale equals quoted market price, if available. If
quoted market prices are not available, fair value is determined using quoted market
prices for similar securities or matrix pricing. There were no changes in the valuation
techniques used during 2014 or 2013. Transfers between hierarchy measurement levels
are recognized by the Company as of the beginning of the reporting period. Changes in
fair market value are recorded in other comprehensive income.
F - 29
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
Assets and liabilities measured at fair value on a non-recurring basis at December 31,
2014 are summarized below:
Fair Value Measurements at December 31, 2014 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Gains
(Losses)
Total Fair Value
Assets:
Impaired loans:
Commercial
Agricultural
Real estate –
residential
Real estate –
commercial
Real estate –
construction and
land development
Equity lines of credit
Auto
Other
Total impaired loans
Other real estate:
Real estate –
residential
Real estate –
commercial
Real estate –
construction and
land development
Equity lines of credit
Total other real estate
$ -
$ -
$ -
-
838,000
1,479,000
27,000
80,000
-
-
2,424,000
146,000
1,052,000
-
-
1,984,000
408,000
3,590,000
$ 6,014,000
-
$ -
-
$ -
$ -
-
$ -
-
838,000
(16,000)
1,479,000
(43,000)
27,000
80,000
-
-
2,424,000
(62,000)
(4,000)
-
-
(125,000)
146,000
(17,000)
1,052,000
(33,000)
1,984,000
408,000
3,590,000
$ 6,014,000
(138,000)
(52,000)
(240,000)
$ (365,000)
F - 30
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
Assets and liabilities measured at fair value on a non-recurring basis at December 31,
2013 are summarized below:
Assets:
Impaired loans:
Commercial
Agricultural
Real estate –
residential
Real estate –
commercial
Real estate –
construction and
land development
Equity lines of credit
Auto
Other
Total impaired loans
Other real estate:
Real estate –
residential
Real estate –
commercial
Real estate –
construction and
land development
Equity lines of credit
Total other real estate
Total Fair Value
$ 767,000
-
28,000
1,377,000
-
360,000
-
-
2,532,000
873,000
983,000
4,289,000
254,000
6,399,000
$ 8,931,000
Fair Value Measurements at December 31, 2013 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Gains
(Losses)
$ -
$ -
-
-
-
$ -
-
$ -
$ 767,000
-
$ (16,000)
-
28,000
(38,000)
1,377,000
(28,000)
-
360,000
-
-
2,532,000
(28,000)
86,000
-
-
(24,000)
873,000
(101,000)
983,000
(9,000)
4,289,000
254,000
6,399,000
$ 8,931,000
(376,000)
-
(486,000)
$ (510,000)
The Company has no liabilities which are reported at fair value.
The following methods were used to estimate fair value.
Impaired Loans: The fair value of collateral dependent impaired loans with specific
allocations of the allowance for loan losses or loans that have been subject to partial
charge-offs are generally based on recent real estate appraisals. These appraisals may
utilize a single valuation approach or a combination of approaches including comparable
sales and the income approach. Adjustments are routinely made in the appraisal
process by the independent appraisers to adjust for differences between the comparable
sales and income data available. Such adjustments are usually significant and typically
result in a Level 3 classification of the inputs for determining fair value. Total losses of
$125,000 and $24,000 represent impairment charges recognized during the years ended
December 31, 2014 and 2013, respectively, related to the above impaired loans.
F - 31
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
Other Real Estate: Nonrecurring adjustments to certain commercial and residential real
estate properties classified as other real estate owned (OREO) are measured at fair
value, less costs to sell. Fair values are based on recent real estate appraisals. These
appraisals may use a single valuation approach or a combination of approaches
including comparable sales and the income approach.
Appraisals for both collateral-dependent impaired loans and other real estate are
performed by certified general appraisers (for commercial properties) or certified
residential appraisers (for residential properties) whose qualifications and licenses have
been reviewed and verified by the Company. Once received, a member of the Loan
Administration Department reviews the assumptions and approaches utilized in the
appraisal as well as the overall resulting fair value in comparison with independent data
sources such as recent market data or industry-wide statistics. On a quarterly basis, the
Company compares the actual selling price of similar collateral that has been liquidated
to the most recent appraised value for unsold properties to determine what additional
adjustment, if any, should be made to the appraisal value to arrive at fair value.
Adjustments are routinely made in the appraisal process by the independent appraisers
to adjust for differences between the comparable sales and income data available.
F - 32
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
FAIR VALUE MEASUREMENTS (Continued)
The following table presents quantitative information about Level 3 fair value measurements for
financial instruments measured at fair value on a non-recurring basis at December 31, 2014 and
2013 (dollars in thousands):
Description
Impaired Loans:
Fair Value
12/31/2014
Fair Value
12/31/2013
Valuation Technique
Significant Unobservable
Input
Range
(Weighted
Average)
12/31/2014
Range
(Weighted
Average)
12/31/2013
Commercial
$ - $ 767 Sales Comparison
Agricultural
$ - $ - Sales Comparison
RE – Residential
$ 838
$ 28
Sales Comparison
RE – Commercial
$ 1,479 $ 1,377 Sales Comparison
Land and Construction
$ 27 $ - Sales Comparison
Equity Lines of Credit
$ 80
$ 360
Sales Comparison
Other Real Estate:
RE – Residential
$ 146
$ 873 Sales Comparison
Land and Construction
$ 1,984 $ 4,289 Sales Comparison
RE – Commercial
$ 1,052
$ 983
Sales Comparison
Adjustment for differences
between comparable sales
N/A
0% (0%)
Adjustment for differences
between comparable sales
N/A
N/A
Adjustment for differences
between comparable sales
Adjustment for differences
between comparable sales
8% (8%)
8% (8%)
9%-12% (10%)
10% - 12% (11%)
Adjustment for differences
between comparable sales
8% (8%)
N/A
Adjustment for differences
between comparable sales
8% (8%)
8% (8%)
Adjustment for differences
between comparable sales 10% (10%)
Adjustment for differences
between comparable sales
Adjustment for differences
between comparable sales
10% (10%)
10% (10%)
10% (10%)
10% (10%)
10% (10%)
Equity Lines of Credit
$ 408 $ 254 Sales Comparison
Adjustment for differences
between comparable sales
10% (10%)
10% (10%)
F - 33
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at December 31,
2014 and 2013 consisted of the following:
Available-for-Sale
2014
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Debt securities:
U.S. Government-sponsored
agencies
U.S. Government-sponsored
agencies collateralized by
mortgage obligations-
residential
Obligations of states and
political subdivisions
$ 7,003,000 $ 19,000 $ (20,000) $ 7,002,000
70,610,000
192,000 (522,000) 70,280,000
12,307,000
234,000
(9,000) 12,532,000
Corporate debt
502,000
4,000
- 506,000
$ 90,422,000 $
449,000 $
(551,000) $ 90,320,000
Net unrealized loss on available-for-sale investment securities totaling $102,000 were
recorded, net of $42,000 in tax benefits, as accumulated other comprehensive income
within shareholders' equity at December 31, 2014. During the year ended December 31,
2014 the Company sold fourteen available-for-sale investment securities for total
proceeds of $16,325,000 recording a $128,000 gain on sale. The Company realized a
gain on sale from thirteen of these securities totaling $134,000 and a loss on sale on one
security of $6,000.
Available-for-Sale
2013
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Debt securities:
U.S. Government-sponsored
agencies
U.S. Government-sponsored
agencies collateralized by
mortgage obligations-
residential
Obligations of states and
political subdivisions
$ 27,132,000 $ 40,000 $
(75,000) $ 27,097,000
63,807,000
22,000 (1,954,000) 61,875,000
1,384,000
$ 92,323,000 $
4,000
66,000 $
(17,000)
1,371,000
(2,046,000) $90,343,000
F - 34
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
INVESTMENT SECURITIES (Continued)
Net unrealized loss on available-for-sale investment securities totaling $1,980,000 were
recorded, net of $817,000 in tax benefits, as accumulated other comprehensive income
within shareholders' equity at December 31, 2013. No securities were sold during the
year ended December 31, 2013
Net unrealized gains on available-for-sale investment securities totaling $561,000 were
recorded, net of $232,000 in tax expense, as accumulated other comprehensive income
within shareholders' equity at December 31, 2012. During the year ended December 31,
2012, the Company sold twenty-five available-for-sale investment securities for
$20,773,000, recording a $403,000 gain on sale. No securities were sold at a loss.
There were no transfers of available-for-sale investment securities during the years
ended December 31, 2014, 2013 or 2012. There were no securities classified as held-
to-maturity at December 31, 2014 or December 31, 2013.
Investment securities with unrealized losses at December 31, 2014 and 2013 are
summarized and classified according to the duration of the loss period as follows:
December 31, 2014
Debt securities:
U.S. Government-
sponsored agencies
U.S. Government
agencies collateral-
ized by mortgage
obligations-residential
Obligations of states
and political subdi-
visions
December 31, 2013
Debt securities:
U.S. Government-
sponsored agencies
U.S. Government
agencies collateral-
ized by mortgage
obligations-residential
Obligations of states
and political subdi-
visions
Less than 12 Months
Fair
Value
Unrealized
Losses
12 Months or More
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
994,000 $
6,000 $ 2,985,000 $
14,000 $
3,979,000 $
20,000
4,504,000
17,000
28,643,000
505,000
33,147,000
522,000
2,014,000
$ 7,512,000 $
9,000
32,000
-
-
2,014,000
9,000
$31,628,000 $
519,000 $ 39,140,000 $
551,000
Less than 12 Months
Fair
Value
Unrealized
Losses
12 Months or More
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$ 5,930,000 $
75,000 $
- $
- $
5,930,000 $
75,000
53,603,000
1,700,000
4,317,000
254,000
57,920,000
1,954,000
928,000
17,000
$ 60,461,000 $ 1,792,000
-
$4,317,000 $
F - 35
-
17,000
254,000 $ 64,778,000 $ 2,046,000
928,000
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
INVESTMENT SECURITIES (Continued)
At December 31, 2014, the Company held 120 securities of which 42 were in a loss
position. Of the securities in a loss position, 14 were in a loss position for less than
twelve months. Of the 42 securities 4 are U.S. Government-sponsored agencies 29 are
U.S. Government-sponsored agencies collateralized by residential mortgage obligations
and 9 were obligations of states and political subdivisions. The unrealized losses relate
principally to market rate conditions. All of the securities continue to pay as scheduled.
When analyzing an issuer’s financial condition, management considers the length of
time and extent to which the market value has been less than cost; the historical and
implied volatility of the security; the financial condition of the issuer of the security; and
the Company’s intent and ability to hold the security to recovery. As of December 31,
2014, management does not have the intent to sell these securities nor does it believe it
is more likely than not that it will be required to sell these securities before the recovery
of its amortized cost basis. Based on the Company’s evaluation of the above and other
relevant factors, the Company does not believe the securities that are in an unrealized
loss position as of December 31, 2014 are other than temporarily impaired.
The amortized cost and estimated fair value of investment securities at December 31,
2014 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
After one year through five years
After five years through ten years
After ten years
Investment securities not due at a single maturity date:
Government-sponsored mortgage-backed securities
$
Amortized
Fair
Cost
Value
7,508,000
7,505,000 $
9,240,000
9,393,000
3,067,000 3,139,000
70,610,000
90,422,000 $
70,280,000
90,320,000
$
Investment securities with amortized costs totaling $57,793,000 and $54,373,000 and
estimated fair values totaling $57,636,000 and $53,493,000 at December 31, 2014 and
2013, respectively, were pledged to secure deposits and repurchase agreements.
F - 36
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,
2014
2013
Commercial
Agricultural
Real estate – residential
Real estate – commercial
Real estate – construction and land development
Equity lines of credit
Auto
Other
35,355,000
29,284,000
$ 31,465,000 $ 32,612,000
30,647,000
31,322,000
163,306,000 155,942,000
17,793,000
35,800,000
30,305,000
4,130,000
370,390,000 338,551,000
24,572,000
38,972,000
44,618,000
2,818,000
Deferred loan costs, net
Allowance for loan losses
1,848,000
1,340,000
(5,451,000) (5,517,000)
$ 366,787,000 $ 334,374,000
Changes in the allowance for loan losses were as follows:
Year Ended December 31,
2013
2012
2014
Balance, beginning of year
Provision charged to operations
Losses charged to allowance
Recoveries
Balance, end of year
$
$
5,517,000 $
1,100,000
(1,913,000)
747,000
5,451,000 $
5,686,000 $
1,400,000
(1,915,000)
346,000
5,517,000 $
6,908,000
2,350,000
(3,901,000)
329,000
5,686,000
The recorded investment in impaired loans totaled $8,582,000 and $9,815,000 at
December 31, 2014 and 2013, respectively. The Company had specific allowances for
loan losses of $564,000 on impaired loans of $2,401,000 at December 31, 2014 as
compared to specific allowances for loan losses of $629,000 on impaired loans of
$2,322,000 at December 31, 2013. The balance of impaired loans in which no specific
reserves were required totaled $6,181,000 and $7,493,000 at December 31, 2014 and
2013, respectively. The average recorded investment in impaired loans for the years
ended December 31, 2014, 2013 and 2012 was $8,070,000 $10,182,000 and
$19,816,000, respectively. The Company recognized $152,000, $298,000 and $597,000
in interest income on impaired loans during the years ended December 31, 2014, 2013
and 2012, respectively. Of these amounts, $31,000, $22,000 and $192,000 were
recognized on the cash basis, respectively.
Included in impaired loans are troubled debt restructurings. A troubled debt restructuring
is a formal restructure of a loan where the Company for economic or legal reasons
related to the borrower’s financial difficulties, grants a concession to the borrower. The
concessions may be granted in various forms to include one or a combination of the
following: a reduction of the stated interest rate of the loan; an extension of the maturity
date at a stated rate of interest lower than the current market rate for new debt with
similar risk; or a permanent reduction of the recorded investment in the loan.
F - 37
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
In order to determine whether a borrower is experiencing financial difficulty, an
evaluation is performed of the probability that the borrower will be in payment default on
any of its debt in the foreseeable future without the modification. This evaluation is
performed under the Company’s internal underwriting policy.
The carrying value of troubled debt restructurings at December 31, 2014 and December
31, 2013 was $5,738,000 and $7,616,000, respectively. The Company has allocated
$319,000 and $284,000 of specific reserves on loans to customers whose loan terms
have been modified in troubled debt restructurings as of December 31, 2014 and
December 31, 2013, respectively. The Company has not committed to lend additional
amounts on loans classified as troubled debt restructurings at December 31, 2014 and
December 31, 2013.
During the twelve month period ended December 31, 2014, the terms of certain loans
were modified as troubled debt restructurings. Modifications involving a reduction of the
stated interest rate of the loan was for periods ranging from 1 month to 10 years. During
the twelve month period ended December 31, 2013, the terms of certain loans were
modified as troubled debt restructurings. Modifications involving a reduction of the
stated interest rate of the loan was for periods ranging from 1 month to 10 years. For the
periods described above, modifications involving an extension of the maturity date were
for periods ranging from 1 month to 10 years
The following table presents loans by class modified as troubled debt restructurings that
occurred during the twelve months ending December 31, 2014:
Troubled Debt Restructurings:
Auto
2 $ 29,000
$ 29,000
Number of
Loans
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Recorded
Investment
The troubled debt restructurings described above resulted in no allowance for loan
losses or charge-offs during the year ending December 31, 2014.
The following table presents loans by class modified as troubled debt restructurings that
occurred during the twelve months ending December 31, 2013:
Troubled Debt Restructurings:
Auto
Other
Total
Number of
Loans
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Recorded
Investment
1
1
2
$ 8,000
9,000
$ 17,000
$ 7,000
9,000
$ 16,000
The troubled debt restructurings described above resulted in no allowance for loan
losses or charge-offs during the year ending December 31, 2013.
F - 38
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
There were no troubled debt restructurings for which there was a payment default within
twelve months following the modification during the twelve months ended December 31,
2014.
The following table presents loans by class modified as troubled debt restructurings for
which there was a payment default within twelve months following the modification
during the twelve months ended December 31, 2013.
Troubled Debt Restructurings:
Real estate – construction and land development
Total
Number of
Loans
Recorded
Investment
1
1
$ 837,000
$ 837,000
The troubled debt restructurings that subsequently defaulted described above increased
the allowance for loan losses by $158,000 and resulted in no charge-offs during the year
ending December 31, 2013.
The terms of certain other loans were modified during the years ending December 31,
2014 and 2013 that did not meet the definition of a troubled debt restructuring. These
loans have a total recorded investment as of December 31, 2014 and 2013 of $27
million and $14 million, respectively.
These loans which were modified during the years ended December 31, 2014 and 2013
did not meet the definition of a troubled debt restructuring as the modification was a
delay in a payment ranging from 30 days to 3 months that was considered to be
insignificant or the borrower was not considered to be experiencing financial difficulties.
At December 31, 2014 and 2013, nonaccrual loans totaled $6,625,000 and $5,519,000,
respectively. Interest foregone on nonaccrual loans totaled $345,000, $280,000 and
$646,000 for the twelve months ended December 31, 2014, 2013 and 2012,
respectively. The Company recognized $31,000, $22,000 and $192,000 in interest
income on nonaccrual loans during the years ended December 31, 2014, 2013 and
2012, respectively. Loans past due 90 days or more and on accrual status totaled $0
and $17,000 at December 31, 2014 and 2013, respectively.
Salaries and employee benefits totaling $1,441,000, $1,337,000 and $953,000 have
been deferred as loan origination costs during the years ended December 31, 2014,
2013 and 2012, respectively.
F - 39
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A
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables show an aging analysis of the loan portfolio by the time past due, in
thousands:
December 31, 2014
30-89 Days
90 Days and
Past Due Still Accruing
Nonaccrual
Total
Past Due
Current
Total
Commercial:
Commercial
Agricultural
Real estate – construction
Real estate
Residential:
Real estate
Equity LOC
Consumer:
Auto
Other
Total
$
$
131 $
-
345
-
292
194
601
43
1,606 $
- $
-
-
-
-
-
-
-
- $
38 $
339
1,111
3,643
985
415
169 $
339
1,456
3,643
31,296 $
35,016
23,116
159,663
31,465
35,355
24,572
163,306
1,277
609
28,007
38,363
29,284
38,972
93
1
6,625 $
694
44
8,231 $
43,924
2,774
362,159 $
44,618
2,818
370,390
December 31, 2013
90 Days and
30-89 Days
Past Due Still Accruing
Nonaccrual
Total
Past Due
Current
Total
Commercial:
Commercial
Agricultural
Real estate – construction
Real estate
Residential:
Real estate
Equity LOC
Consumer:
Auto
Other
Total
$
$
129 $
-
25
304
695
72
- $
-
-
-
-
-
1,295 $
-
18
2,369
1,424 $
-
43
2,673
31,188 $
30,647
17,750
153,269
32,612
30,647
17,793
155,942
899
861
1,594
933
29,728
34,867
31,322
35,800
244
63
1,532 $
-
17
17 $
77
-
5,519 $
321
80
7,068 $
29,984
4,050
331,483 $
30,305
4,130
338,551
F - 43
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables show information related to impaired loans at the dates indicated, in thousands:
As of December 31, 2014:
With no related allowance recorded:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
With an allowance recorded:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
Total:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
Total
l
As of December 31, 2013:
With no related allowance recorded:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
With an allowance recorded:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
Total:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
Total
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
55 $
$
61 $
1
605
495
3,389
1,422
121
93
1
- $
-
757
254
1,096
294
-
-
55 $
605
1,252
3,643
2,518
415
93
1
8,582 $
55
605
495
4,036
1,433
121
93
1
757
254
1,102
294
-
-
605
512
2,460
1,443
130
81
-
-
778
589
1,112
299
-
-
- $ - $ - $
-
-
274
65
51
174
-
-
55 $ - $
-
274
65
51
174
-
-
564 $
605
1,252
4,290
2,535
415
93
1
9,246 $
61 $
605
1,290
3,049
2,555
429
81
-
8,070 $
51
9
-
80
-
-
-
-
-
-
-
11
-
-
-
1
51
9
-
91
-
-
-
152
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
1,224 $
267
1,325
2,237
2,024
339
77
-
100 $
-
412
837
451
522
-
-
1,324 $
267
1,737
3,074
2,475
861
77
-
9,815 $
1,493
267
1,325
2,675
2,035
339
77
-
$
1,239 $
267
1,384
2,489
2,057
294
20
-
-
100 $ 79 $ 58 $
-
13
232
200
105
-
-
-
417
994
452
511
-
-
412
837
451
522
-
-
1,593 $ 79 $
267
1,737
3,512
2,486
861
77
-
-
13
232
200
105
-
-
629 $
10,533 $
1,297 $
267
1,801
3,483
2,509
805
20
-
10,182 $
F - 44
3
20
79
53
89
9
3
-
-
-
25
-
10
7
-
-
3
20
104
53
99
16
3
-
298
$
$
$
$
$
$
$
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following table shows information related to impaired loans at the date indicated, in
thousands:
As of December 31, 2012:
With no related allowance recorded:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
With an allowance recorded:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
Total:
Commercial
Agricultural
Real estate – construction
Real estate – commercial
Real estate – residential
Equity Lines of Credit
Auto
Other
Total
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$
$
$
$
1,022 $
245
1,429
941
343
490
44
2
2,456 $
402
3,762
3,587
3,255
870
-
2
3,478 $
647
5,191
4,528
3,598
1,360
44
4
18,850 $
1,398
725
1,503
1,013
354
490
44
2
$
1,597 $
573
1,106
1,997
1,336
613
60
45
2,849 $ 192 $ 2,765 $
1
68
284
459
180
-
2
403
2,056
3,473
2,818
974
-
-
402
5,187
3,588
3,255
1,082
-
2
4,247 $ 192 $
1,127
6,690
4,601
3,609
1,572
44
4
21,894 $
1
68
284
459
180
-
2
1,186 $
4,362 $
976
3,162
5,470
4,154
1,587
60
45
19,816 $
16
39
98
96
28
22
5
6
20
20
35
102
105
5
-
-
36
59
133
198
133
27
5
6
597
F - 45
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7.
PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
Land
Premises
Furniture, equipment and leasehold improvements
Less accumulated depreciation
and amortization
December 31,
2014
2013
$
2,628,000 $
15,768,000
6,599,000
24,995,000
2,628,000
15,793,000
9,643,000
28,064,000
(13,353,000)
(15,545,000)
$ 11,642,000 $ 12,519,000
Depreciation and amortization included in occupancy and equipment expense totaled
$1,147,000, $1,166,000 and $1,181,000 for the years ended December 31, 2014, 2013
and 2012, respectively.
8.
DEPOSITS
Interest-bearing deposits consisted of the following:
Interest-bearing demand deposits
Money market
Savings
Time, $250,000 or more
Other time
December 31,
2014
2013
$ 82,144,000 $ 82,687,000
47,331,000
93,922,000
3,290,000
59,393,000
$ 287,242,000 $ 286,623,000
42,499,000
106,257,000
3,291,000
53,051,000
At December 31, 2014, the scheduled maturities of time deposits were as follows:
Year Ending
December 31,
2015
2016
2017
2018
2019
thereafter
$ 45,949,000
7,221,000
1,945,000
725,000
502,000
-
$ 56,342,000
F - 46
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8.
DEPOSITS (Continued)
Deposit overdrafts reclassified as loan balances were $269,000 and $357,000 at
December 31, 2014 and 2013, respectively.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are secured by U.S. Government agency
securities with a carrying amount of $9,626,000 and $9,109,000 at December 31, 2014
and 2013, respectively.
Securities sold under agreements to repurchase are financing arrangements that mature
within two years. At maturity, the securities underlying the agreements are returned to the
Company. Information concerning securities sold under agreements to repurchase during
2014 and 2013 is summarized as follows:
Average daily balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at year-end 0.11%
2014
$7,519,000
0.09%
$11,466,000
Average daily balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at year-end 0.09%
2013
$7,285,000
0.18%
$9,109,000
10.
BORROWING ARRANGEMENTS
The Company is a member of the FHLB and can borrow up to $133,000,000 from the
FHLB secured by commercial and residential mortgage loans with carrying values totaling
$205,000,000. The Company is required to hold FHLB stock as a condition of
membership. At December 31, 2014 and 2013, the Company held $2,380,000 and
$2,226,000 of FHLB stock which is recorded as a component of other assets. Based on
this level of stock holdings at December 31, 2014, the Company can borrow up to
$50,600,000. To borrow the $133,000,000 in available credit the Company would need to
purchase $3,900,000 in additional FHLB stock. In addition to its FHLB borrowing line, the
Company has unsecured short-term borrowing agreements with three of its correspondent
banks in the amounts of $11 million, $10 million and $10 million. There were no
outstanding borrowings to the FHLB or the correspondent banks under these agreements
at December 31, 2014 and 2013.
F - 47
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.
BORROWING ARRANGEMENTS (Continued)
On October 24, 2013 the Bancorp issued a $3 million promissory note (the “Note”) payable
to an unrelated commercial bank. The note bears interest at the U.S. "Prime Rate" plus
three-quarters percent per annum, 4.00% at December 31, 2014 and 2013, has a term of
18 months and is secured by 100 shares of Plumas Bank stock representing the
Company's 100% ownership interest in Plumas Bank. Interest expense related to this note
for the years ended December 31, 2014 and 2013 totaled $111,000 and $23,000,
respectively. Under the Note the Bank is subject to several negative and affirmative
covenants including, but not limited to providing timely financial information, maintaining
specified levels of capital, restrictions on additional borrowings, and meeting or exceeding
certain capital and asset quality ratios. The Bank was in compliance with all such
requirements at December 31, 2014 and December 31, 2013.
On July 28, 2014, Plumas Bancorp entered into a Renewal, Extension, and Modification of
Loan Agreement (the “Agreement”) related to the Note. This Agreement provides for the
following changes, among others:
1.)
2.)
3.)
The maturity date of the Note is October 24, 2015.
The maximum amount of the Note is $7.5 million.
The Company may borrow, repay, and reborrow up to the principal face
amount of the Note.
The above provisions are subject to the following conditions:
1.)
2.)
3.)
An advance under the Note in excess of $3 million is subject to the lender
completing a satisfactory loan review of the Company.
The Company shall provide an assignment of Key Man life Policy(s) in a
minimum amount of $3.5 million.
The Company shall not prepay the Company’s Junior Subordinated
Deferrable Interest Debentures until the Note has been paid in full.
On August 26, 2014 the Company made a $2 million payment on the Note reducing the
outstanding balance to $1 million.
On April 15, 2013 the Bancorp issued $7.5 million in subordinated debentures
(“subordinated debt”). The subordinated debt was issued to an unrelated third-party
(“Lender”) pursuant to a subordinated debenture purchase agreement, subordinated
debenture note, and stock purchase warrant. The subordinated debt agreement provides
that in the event of default with respect to the subordinated debt, the Bancorp will be
subject to certain restrictions on the payment of dividends and distributions to
shareholders, repurchase or redemption of the Bancorp’s securities and payment on
certain debts or guarantees. The subordinated debenture agreement also provides that in
the event of default, Lender will have the right to appoint a director to the Bancorp’s board
of directors and/or the Plumas Bank board in certain limited circumstances.
The interest only payments on the subordinated debt are based on an interest rate of 7.5%
per annum. Principal repayment is required at the conclusion of an 8 year term with no
prepayment allowed during the first two years. Issuance of the subordinated debt was
made in conjunction with an eight-year warrant (the “Lender Warrant”) to purchase up to
F - 48
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.
BORROWING ARRANGEMENTS (Continued)
300,000 shares of the Bancorp’s common stock, no par value at an exercise price, subject
to anti-dilution adjustments, of $5.25 per share. Under capital guidelines in effect through
December 31, 2014 the subordinated debt qualifies as Tier 2 capital. However, under the
provisions of Basel III, which became effective for the Company on January 1, 2015, the
subordinated debt no longer qualifies as capital. Interest expense related to the
subordinated debt for the years ended December 31, 2014 and 2013 totaled $756,000 and
$541,000, respectively.
The Company allocated the proceeds received on April 15, 2013 between the
subordinated debt and the Lender 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 $318,000 The discount recorded on the subordinated noted will be
amortized by the level-yield method over 2 years.
Proceeds from the Note and the subordinated debt were used to partially fund the
repurchase of preferred stock. (see Note 13 - Shareholders’ Equity for additional
information related to the repurchase, during 2013, of the Bancorp’s Fixed Rate
Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”).
11.
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
Plumas Statutory Trust I and II are Connecticut business trusts formed by the Company
with capital of $304,000 and $161,000, respectively, for the sole purpose of issuing trust
preferred securities fully and unconditionally guaranteed by the Company. Under
applicable regulatory guidance in effect as of December 31, 2014, the amount of trust
preferred securities that is eligible as Tier 1 capital is limited to twenty-five percent of the
Company's Tier 1 capital, as defined, on a pro forma basis. At December 31, 2014, 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 I’s Subordinated Debentures mature on September 26, 2032, bear a current interest
rate of 3.66% (based on 3-month LIBOR plus 3.40%), with repricing and payments due
quarterly. Trust II’s Subordinated Debentures mature on September 28, 2035, bear a
current interest rate of 1.72% (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
F - 49
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES (Continued)
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. Beginning in the second quarter of 2010 and
continuing until March 15, 2013, the Company had deferred regularly scheduled quarterly
interest payments on its outstanding junior subordinated debentures relating to its two trust
preferred securities and had given notice of deferral each quarterly payment period.
While the Company had accrued for this obligation, it had been deferring the interest
payments on the junior subordinated debentures as permitted by the agreements. As of
December 31, 2012 the amount of the arrearage on the payments on the subordinated
debt associated with the trust preferred securities was $906,000.
On March 15, 2013, with the approval of the Federal Reserve Bank of San Francisco
(FRB), the Company made all current and deferred interest payments on its trust preferred
securities and all subsequent payments have been made when due.
Interest expense recognized by the Company for the years ended December 31, 2014,
2013 and 2012 related to the subordinated debentures was $303,000, $313,000 and
$344,000, respectively.
12.
COMMITMENTS AND CONTINGENCIES
Leases
The Company has commitments for leasing premises under the terms of noncancelable
operating leases expiring from 2015 to 2016. Future minimum lease payments are as
follows:
Year Ending
December 31,
2015
2016
$
$
140,000
88,000
228,000
Rental expense included in occupancy and equipment expense totaled $192,000,
$154,000 and $153,000 for the years ended December 31, 2014, 2013 and 2012,
respectively.
F - 50
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. COMMITMENTS AND CONTINGENCIES (Continued)
Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business in order to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized on the consolidated balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the other party
for commitments to extend credit and letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and letters of credit as it does for loans included on the consolidated
balance sheet.
The following financial instruments represent off-balance-sheet credit risk:
Commitments to extend credit
Letters of credit
December 31,
2014
2013
$ 89,735,000 $ 84,229,000
$ - $ 60,000
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 customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the borrower. Collateral held varies,
but may include accounts receivable, crops, inventory, equipment, income-producing
commercial properties, farm land and residential properties.
Letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to customers. The fair
value of the liability related to these letters of credit, which represents the fees received for
issuing the guarantees, was not significant at December 31, 2014 and 2013. The
Company recognizes these fees as revenues over the term of the commitment or when
the commitment is used.
At December 31, 2014, consumer loan commitments represent approximately 12% of total
commitments and are generally unsecured.
loan
commitments represent approximately 42% 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 46% of total commitments
and are generally secured by property with a loan-to-value ratio not to exceed 80%. In
addition, the majority of the Company’s commitments have variable interest rates.
Commercial and agricultural
F - 51
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. COMMITMENTS AND CONTINGENCIES (Continued)
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.
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 Company’s primary
market areas in particular, could have an adverse impact on the collectability of these
loans. However, personal and business income represents the primary source of
repayment for a majority of these loans.
Contingencies
The Company is subject to legal proceedings and claims which arise in the ordinary
course of business. In the opinion of management, the amount of ultimate liability with
respect to such actions will not materially affect the financial position or results of
operations of the Company.
13.
SHAREHOLDERS' EQUITY
Dividend Restrictions
The Company's ability to pay cash dividends is dependent on dividends paid to it by the
Bank and limited by California corporation law. Under California law, the holders of
common stock of the Company are entitled to receive dividends when and as declared by
the Board of Directors, out of funds legally available, subject to certain restrictions. The
California general corporation law prohibits the Company from paying dividends on its
common stock unless: (i) its retained earnings, immediately prior to the dividend payment,
equals or exceeds the amount of the dividend or (ii) immediately after giving effect to the
dividend, the sum of the Company's assets (exclusive of goodwill and deferred charges)
would be at least equal to 125% of its liabilities (not including deferred taxes, deferred
income and other deferred liabilities) and the current assets of the Company would be at
least equal to its current liabilities, or, if the average of its earnings before taxes on income
and before interest expense for the two preceding fiscal years was less than the average
of its interest expense for the two preceding fiscal years, at least equal to 125% of its
current liabilities.
Dividends from the Bank to the Company are restricted under California law to the lesser
of the Bank's retained earnings or the Bank's net income for the latest three fiscal years,
less dividends previously declared during that period, or, with the approval of the DBO, 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,
2014, the maximum amount available for dividend distribution under this restriction was
approximately $5,100,000. In addition the Company’s ability to pay dividends is subject to
certain covenants contained in the indentures relating to the Trust Preferred Securities
F - 52
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
SHAREHOLDERS' EQUITY (Continued)
Dividend Restrictions (continued)
issued by the business trusts (see Note 11 for additional information related to the Trust
Preferred Securities).
Preferred Stock
On January 30, 2009 the Bancorp entered into a Letter Agreement (the “Purchase
Agreement”) with the United States Department of the Treasury (“Treasury”), pursuant to
which the Bancorp issued and sold (i) 11,949 shares Series A Preferred Stock and (ii) a
warrant (the “Warrant”) to purchase 237,712 shares of the Bancorp’s common stock, no
par value (the “Common Stock”), for an aggregate purchase price of $11,949,000 in cash.
On April 11, 2013, the Treasury announced its intent to sell its investment in the Bancorp’s
Series A Preferred Stock along with similar investments the Treasury had made in seven
other financial institutions, principally to qualified institutional buyers. Using a modified
Dutch auction methodology that establishes a market price by allowing investors to submit
bids at specified increments during the period of April 15, 2013 through April 18, 2013, the
U.S. Treasury auctioned all of the Bancorp’s 11,949 Series A Preferred Stock. The
Bancorp sought and obtained regulatory permission to participate in the auction. The
Bancorp successfully bid to repurchase 7,000 shares of the 11,949 outstanding shares.
This repurchase resulted in a discount of approximately 7% on the face value of the Series
A Preferred Stock plus related outstanding dividends. The remaining 4,949 shares were
purchased at auction by third party private investors.
On June 27, 2013 the Bancorp repurchased 1,566 shares of the Series A Preferred Stock
at $1,000 per share from certain of those third party private investors and on September
16, 2013 the Bancorp repurchased 250 shares at $985 per share from another one of the
third party investors leaving 3,133 shares outstanding as of September 30, 2013. On
October 25, 2013, Plumas Bancorp repurchased the remaining 3,133 shares of the Series
A Preferred Stock from a third party private investor. The Company paid $3,101,670 plus
accrued dividends of $30,453. This represents a discount of 1% from the liquidation value
of the Preferred Stock. On May 22, 2013 the Bancorp repurchased the Warrant from the
Treasury at a cost of $234,500.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock options, result in the
issuance of common stock which shares in the earnings of the Company. The treasury
stock method has been applied to determine the dilutive effect of stock options in
computing diluted earnings per share.
F - 53
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
SHAREHOLDERS' EQUITY (Continued)
Earnings Per Share (continued)
(In thousands, except per share data)
For the Year Ended December 31,
2013
2014
2012
Net Income:
Net income
Discount on redemption of preferred shares
Dividends and accretion on preferred shares
Net income available to common shareholders
$
Earnings Per Share:
$
4,738 $
-
-
4,738 $
3,431 $ 1,950
-
(684)
1,266
565
(347)
3,649 $
Basic earnings per share
Diluted earnings per share
Weighted Average Number of Shares Outstanding:
Basic shares
Diluted shares
$
$
0.99 $
0.95 $
0.76
0.75
$
$
0.26
0.26
4,793
4,977
4,780
4,883
4,776
4,782
Shares of common stock issuable under stock options and warrants for which the exercise
prices were greater than the average market prices were not included in the computation
of diluted earnings per share due to their antidilutive effect. Stock options and warrants
not included in the computation of diluted earnings per share, due to shares not being in
the-money and having an antidilutive effect, were 238,000, 172,000 and 632,000 for the
years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014
and 2013 one stock warrant was outstanding to purchase up to 300,000 shares of the
Bancorp’s common stock at an exercise price, subject to anti-dilution adjustments, of
$5.25 per share. At December 31, 2012 one stock warrant was outstanding to purchase
up to 237,712 shares of the Bancorp’s common stock at an exercise price, subject to anti-
dilution adjustments, of $7.54 per share.
Stock Options
In 2001, the Company established a Stock Option Plan for which 306,393 shares of
common stock remain reserved for issuance to employees and directors and no shares
are available for future grants as of December 31, 2014.
As of December 31, 2014, there was $10,000 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 0.2 years.
The total fair value of options vested was $49,000 and $52,000 for the year ended
December 31, 2014 and 2013, respectively. The total intrinsic value of options at time of
exercise was $51,000 and $34,000 for the years ended December 31, 2014 and 2013,
respectively.
$34,000 in cash was received from option exercises for each of the years ended
December 31, 2014 and 2013. A tax benefit of $13,000 was realized for the tax deduction
from options exercised in 2014. There was no tax benefit realized for the tax deduction
from options exercised in 2013.
F - 54
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
SHAREHOLDERS' EQUITY (Continued)
Stock Options (continued)
A summary of the activity within the 2001 Stock Option Plan follows:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Shares
Intrinsic Value
Options outstanding at January 1, 2012
Options cancelled
Options outstanding at December 31, 2012
Options cancelled
Options exercised
Options outstanding at December 31, 2013
Options cancelled
Options exercised
Options outstanding at December 31, 2014
Options exercisable at December 31, 2014
Expected to vest after December 31, 2014
482,780
(62,974)
419,806
(43,347)
(11,400)
365,059
(47,266)
(11,400)
306,393
257,200
41,918
$ 8.74
9.17
$ 8.67
11.34
2.95
$ 8.53
13.64
2.95
$ 7.95
$ 8.91
$ 2.95
2.7 $
2.4 $
4.2 $
901,000
653,000
211,000
In May 2013, the Company established the 2013 Stock Option Plan for which 500,000
shares of common stock are reserved and 389,600 shares are available for future grants
as of December 31, 2014. The Plan requires that the option price may not be less than
the fair market value of the stock at the date the option is granted, and that the stock must
be paid in full at the time the option is exercised. Payment in full for the option price must
be made in cash, with Company common stock previously acquired by the optionee and
held by the optionee for a period of at least six months, in options of the Optionee that are
fully vested and exercisable or in any combination of the foregoing. The options expire on
dates determined by the Board of Directors, but not later than ten years from the date of
grant. Options granted during the years ended December 31, 2014 and 2013 were
110,400 and 0 options, respectively.
As of December 31, 2014, there was $186,000 of total unrecognized compensation cost
related to non-vested, share-based compensation arrangements granted under the 2013
Plan. That cost is expected to be recognized over a weighted average period of 3.3 years.
F - 55
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
SHAREHOLDERS' EQUITY (Continued)
Stock Options (continued)
A summary of the activity within the 2013 Plan follows:
Weighted
Average
Remaining
Contractual
Term in
Years
Weighted
Average
Exercise
Price
Shares
Intrinsic Value
Options outstanding at January 1, 2014
Options granted
Options outstanding at December 31, 2014
Options exercisable at December 31, 2014
Expected to vest after December 31, 2014
-
110,400
110,400
-
94,061
$ -
6.32
$ 6.32
N/A
$ 6.32
7.3 $
N/A $
7.3 $
184,000
N/A
157,000
Compensation cost related to stock options recognized in operating results under the two
stock option plans was $81,000 and $38,000 for the years ended December 31, 2014 and
2013, respectively. The associated future income tax benefit recognized was $6,000 for
the year ended December 31, 2014 and $1,000 for the year ended December 31, 2013.
Regulatory Capital
The Company and the Bank are subject to certain regulatory capital requirements
administered by the Board of Governors of the Federal Reserve System and the FDIC.
Failure to meet these minimum capital requirements can initiate certain mandatory and
possibly additional discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines, 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. Management believes that the Company and the Bank met all capital
adequacy requirements to which they are subject.
In July, 2013, the federal bank regulatory agencies approved the final rules implementing
the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. Under
the final rules, minimum requirements will increase for both the quantity and quality of
capital held by the Company and the Bank. The rules include a new common equity Tier 1
F - 56
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
SHAREHOLDERS' EQUITY (Continued)
Regulatory Capital (continued)
capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital
conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the
minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a
minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for
regulatory capital instruments.
The 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, 2014 and 2013.
December 31,
2014
2013
Leverage Ratio
Amount
Ratio Amount
Ratio
Plumas Bancorp and Subsidiary
Minimum regulatory requirement
$ 46,557,000 8.4% $ 40,909,000 7.8%
$ 22,157,000 4.0% $ 20,856,000 4.0%
Plumas Bank
Minimum requirement for "Well-
Capitalized" institution under the
prompt corrective action
Minimum regulatory requirement
Tier 1 Risk-Based Capital Ratio
$ 53,925,000 9.8% $ 50,748,000 9.7%
$ 27,643,000 5.0% $ 26,026,000 5.0%
$ 22,114,000 4.0% $ 20,821,000 4.0%
Plumas Bancorp and Subsidiary
Minimum regulatory requirement
$ 46,557,000 11.4% $ 40,909,000 10.7%
$ 16,358,000 4.0% $ 15,332,000 4.0%
Plumas Bank
Minimum requirement for "Well-
Capitalized" institution under the
prompt corrective action
Minimum regulatory requirement
Total Risk-Based Capital Ratio
$ 53,925,000 13.2% $ 50,748,000 13.2%
$ 24,517,000 6.0% $ 22,986,000 6.0%
$ 16,344,000 4.0% $ 15,324,000 4.0%
Plumas Bancorp and Subsidiary
Minimum regulatory requirement
$ 59,128,000 14.5% $ 53,006,000 13.8%
$ 32,715,000 8.0% $ 30,664,000 8.0%
Plumas Bank
Minimum requirement for "Well-
Capitalized" institution under the
prompt corrective action
Minimum regulatory requirement
$ 59,039,000 14.4% $ 55,547,000 14.5%
$ 40,860,000 10.0% $ 38,310,000 10.0%
$ 32,689,000 8.0% $ 30,648,000 8.0%
F - 57
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
OTHER EXPENSES
Other expenses consisted of the following:
Year Ended December 31,
2013
2012
2014
2,042,000 $
$
Outside service fees
Professional fees
583,000
FDIC Insurance 387,000
362,000
OREO expenses
351,000
Telephone and data communications
298,000
Director compensation and retirement
282,000
Advertising and promotion
279,000
Business development
224,000
Armored car and courier
182,000
Loan collection expenses
122,000
Stationery and supplies
45,000
Postage
-
Core deposit intangible amortization
(101,000)
(Gain) loss on sale of other real estate
173,000
Other operating expenses
5,229,000 $
$
1,855,000 $
831,000
1,503,000
875,000
435,000 613,000
187,000
308,000
255,000
251,000
268,000
224,000
219,000
124,000
104,000
173,000
16,000
359,000
5,479,000
310,000
287,000
232,000
281,000
291,000
228,000
212,000
113,000
51,000
128,000
(171,000)
398,000
5,481,000 $
15.
INCOME TAXES
The provision for income taxes for the years ended December 31, 2014, 2013 and 2012
consisted of the following:
2014
Current
Deferred
Provision for income taxes
Federal
State
Total
$
$
1,863,000 $
401,000
2,264,000 $
58,000 $
764,000
822,000 $
1,921,000
1,165,000
3,086,000
2013
Current
Deferred
Provision for income taxes
2012
Current
Deferred
Provision for income taxes
Federal
$
60,000 $
1,578,000
1,638,000 $
$
State
Total
22,000 $
507,000
529,000 $
82,000
2,085,000
2,167,000
State
Total
3,000 $
230,000
233,000 $
28,000
1,042,000
1,070,000
Federal
$
25,000 $
812,000
837,000 $
$
F - 58
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15.
INCOME TAXES (Continued)
Deferred tax assets (liabilities) consisted of the following:
Deferred tax assets:
Allowance for loan losses
Deferred compensation
OREO valuation allowance
Net operating loss carryovers
Unrealized loss on available-for-sale
investment securities
Other
Total deferred tax assets
Deferred tax liabilities:
Deferred loan costs
Other
Total deferred tax liabilities
Net deferred tax assets
December 31,
2014
2013
$
181,000 $
1,773,000
944,000
236,000
29,000
1,757,000
1,097,000
1,069,000
42,000
847,000
4,023,000
817,000
1,049,000
5,818,000
(1,397,000)
(229,000)
(1,626,000)
2,397,000 $
(1,187,000)
(233,000)
(1,420,000)
4,398,000
$
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.
At December 31, 2014 total deferred tax assets were approximately $4,023,000 and total
deferred tax liabilities were approximately $1,626,000 for a net deferred tax asset of
$2,397,000. The Company’s deferred tax assets primarily relate to net operating loss
carry-forwards, tax benefits related to unrealized losses on available-for-sale investment
securities and timing differences in the tax deductibility of impairment charges on other
real estate owned and deferred compensation. Based upon our analysis of available
evidence, management of the Company determined that it is "more likely than not" that all
of our deferred income tax assets as of December 31, 2014 and 2013 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.
F - 59
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15.
INCOME TAXES (Continued)
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 income. There have
been no significant changes to unrecognized tax benefits or accrued interest and penalties
for the year ended December 31, 2014.
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:
Federal income tax, at statutory rate
State franchise tax, net of Federal tax effect
Interest on obligations of states and political
subdivisions
Net increase in cash surrender value of bank
owned life insurance
Other
Effective tax rate
2014
2013
2012
34.0 %
6.9 %
34.0 %
6.0 %
34.0 %
5.7 %
(0.7)%
(0.1)%
(0.3)%
(1.5)%
0.7 %
39.4 %
(2.1)%
0.9%
38.7 %
(3.9)%
(0.1)%
35.4 %
At year-end 2014, the Company had state operating loss carry-forwards of approximately
$3,300,000 which expire at various dates from 2029 to 2031. Deferred tax assets are
recognized for net operating losses because the benefit is more likely than not to be
realized.
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, 2011, and by state and
local taxing authorities for years ended before December 31, 2010.
F - 60
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15.
INCOME TAXES (Continued)
The unrecognized tax benefits and changes therein and the interest and penalties accrued
by the Company as of or during the years ended December 31, 2014 and 2013 were not
significant. The Company does not expect the total amount of unrecognized tax benefits
to significantly increase or decrease in the next twelve months.
16.
RELATED PARTY TRANSACTIONS
During the normal course of business, the Company enters into transactions with related
parties, including executive officers and directors. The following is a summary of the
aggregate activity involving related party borrowers during 2014:
Balance, January 1, 2014
Disbursements
Amounts repaid
Balance, December 31, 2014
Undisbursed commitments to related parties, December 31, 2014
$
$
$
1,413,000
3,039,000
(2,703,000)
1,749,000
2,907,000
17.
EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Plumas Bank Profit Sharing Plan commenced April 1, 1988 and is available to
employees meeting certain service requirements. Under the Plan, employees are able to
defer a selected percentage of their annual compensation. Included under the Plan's
investment options is the option to invest in Company stock. No contribution was made for
the years ended December 31, 2014, 2013 and 2012.
Salary Continuation and Retirement Agreements
Salary continuation and retirement agreements are in place for two key executives and
seven members of the Board of Directors as well as four former executives and four
former 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. The expense recognized
under these plans for the years ended December 31, 2014, 2013 and 2012 totaled
$289,000, $286,000 and $507,000, respectively. Accrued compensation payable under
these plans totaled $4,007,000 and $4,009,000 at December 31, 2014 and 2013,
respectively.
In connection with these agreements, the Bank purchased single premium life insurance
policies with cash surrender values
totaling $11,845,000 and $11,504,000 at
December 31, 2014 and 2013, respectively. Income earned on these policies, net of
expenses, totaled $341,000, $344,000 and $345,000 for the years ended December 31,
2014, 2013 and 2012, respectively.
F - 61
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, 2014 and 2013
ASSETS
Cash and cash equivalents
Investment in bank subsidiary
Other assets
Total assets
LIABILITIES AND
SHAREHOLDERS' EQUITY
Other liabilities
Note payable
Subordinated debenture
Junior subordinated deferrable interest debentures
Total liabilities
Shareholders' equity:
Common stock
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
2014
2013
$
628,000 $
53,865,000
790,000
598,000
49,585,000
1,048,000
$ 55,283,000 $ 51,231,000
$
22,000 $
1,000,000
7,454,000
10,310,000
33,000
3,000,000
7,295,000
10,310,000
18,786,000
20,638,000
6,312,000
30,245,000
(60,000)
6,249,000
25,507,000
(1,163,000)
36,497,000
30,593,000
Total liabilities and shareholders' equity
$ 55,283,000 $ 51,231,000
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 2014, 2013 and 2012
Income:
Dividends declared by bank subsidiary
Earnings from investment in Plumas
Statutory Trusts I and II
Total income
Expenses:
Interest on note payable
Interest on subordinated debenture
Interest on junior subordinated
deferrable interest debentures
Other expenses
Total expenses
Income (loss) before equity in
undistributed income of subsidiary
Equity in undistributed income (loss) of
subsidiary
Income before income taxes
Income tax benefit
Net income
Total comprehensive income
2014
2013
2012
$
2,500,000 $
4,500,000 $
-
9,000
9,000
2,509,000
4,509,000
10,000
10,000
111,000
756,000
303,000
211,000
23,000
541,000
313,000
309,000
1,381,000
1,186,000
-
-
344,000
242,000
586,000
1,128,000
3,323,000
(576,000)
3,111,000
(330,000)
2,289,000
4,239,000
499,000
2,993,000
438,000
4,738,000 $ 3,431,000 $
1,713,000
237,000
1,950,000
5,841,000 $ 1,939,000 $
2,121,000
$
$
F - 62
PLUMAS BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18.
PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2014, 2013 and 2012
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Undistributed (income) loss of
subsidiary
Amortization of discount on debentures
Stock-based compensation expense
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash provided by (used in)
2014
2013
2012
$ 4,738,000 $ 3,431,000 $ 1,950,000
(3,111,000)
159,000
14,000
207,000
(11,000)
330,000
113,000
(2,289,000)
-
4,000 5,000
285,000
(990,000)
(248,000)
399,000
operating activities
1,996,000
3,173,000
(183,000)
Cash flows from financing activities:
Issuance of subordinated debt, net of discount
Issuance of common stock warrant
Issuance of note payable
Payment on note payable
Repurchase of common stock warrant
Redemption of preferred stock
Proceeds from exercise of stock options
Payment of cash dividends on preferred stock
Net cash used in financing activities
(2,000,000)
7,182,000
318,000
3,000,000
-
- (234,000)
(11,384,000)
34,000
- (1,968,000)
(1,966,000) (3,052,000)
-
34,000
-
-
-
-
-
-
-
-
-
-
-
-
Increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning
of year
30,000
121,000
(183,000)
598,000
477,000
660,000
Cash and cash equivalents at end of year
$
628,000 $
598,000 $
477,000
F - 63
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and
with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules and forms. There was no
change in our internal control over financial reporting during our most recently completed fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Plumas Bancorp and subsidiary (the “Company”), is responsible for establishing and
maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934.
Management, including the undersigned Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of our internal control over financial reporting presented in conformity with accounting
principles generally accepted in the United States of America as of December 31, 2014. In conducting its
assessment, management used the criteria established by the Committee of Sponsoring Organizations of the
Treadway Commission in the 2013 Internal Control — Integrated Framework. Based on this assessment,
management concluded that, as of December 31, 2014, our internal control over financial reporting was
effective based on those criteria.
This annual report does not include an attestation report of the Company's independent registered public
accounting firm regarding internal control over financial reporting. Management's report was not subject to
attestation by the Company's independent registered public accounting firm pursuant to the rules of the
Securities and Exchange Commission that permit the Company to provide only management's report in this
annual report.
/s/ Andrew J. Ryback
Andrew J. Ryback
President and Chief Executive Officer
/s/ Richard L. Belstock
Richard L. Belstock
Executive Vice President and Chief Financial Officer
Dated: March 19, 2015
41
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 can be found in Plumas Bancorp’s Definitive Proxy Statement
pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is by this reference
incorporated herein.
42
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Exhibits
PART IV
The following documents are included or incorporated by reference in this Annual Report on Form 10K.
3.1
3.2
3.3
3.4
4
10.1
10.2
10.3
10.4
10.5
10.6
10.8
10.18
10.19
10.21
10.22
10.24
Articles of Incorporation as amended of Registrant included as exhibit 3.1 to the Registrant’s
Form S-4, File No. 333-84534, which is incorporated by reference herein.
Bylaws of Registrant as amended on March 16, 2011 included as exhibit 3.2 to the Registrant’s
Form 10-K for December 31, 2010, which is incorporated by this reference herein.
Amendment of the Articles of Incorporation of Registrant dated November 1, 2002, is included as
exhibit 3.3 to the Registrant’s 10-Q for September 30, 2005, which is incorporated by this
reference herein.
Amendment of the Articles of Incorporation of Registrant dated August 17, 2005, is included as
exhibit 3.4 to the Registrant’s 10-Q for September 30, 2005, which is incorporated by this
reference herein.
Specimen form of certificate for Plumas Bancorp included as exhibit 4 to the Registrant’s Form S-
4, File No. 333-84534, which is incorporated by reference herein.
Executive Salary Continuation Agreement of Andrew J. Ryback dated December 17, 2008, is
included as exhibit 10.1 to the Registrant’s 10-K for December 31, 2008, which is incorporated by
this reference herein.
Split Dollar Agreement of Andrew J. Ryback dated August 23, 2005, is included as Exhibit 10.2 to
the Registrant’s 8-K filed on October 17, 2005, which is incorporated by this reference herein.
Subordinated Debenture dated April 15, 2013, is included as Exhibit 10.3 to the Registrant’s 10-Q
filed on May 10, 2013, which is incorporated by this reference herein.
Stock Purchase Warrant dated April 15, 2013, is included as Exhibit 10.4 to the Registrant’s 10-Q
filed on May 10, 2013, which is incorporated by this reference herein.
Subordinated Debenture Purchase Agreement dated April 15, 2013, is included as Exhibit 10.5 to
the Registrant’s 10-Q filed on November 7, 2013, which is incorporated by this reference herein.
Promissory Note Dated October 24, 2013, is included as Exhibit 10.6 to the Registrant’s 10-Q filed
on May 10, 2013, which is incorporated by this reference herein.
Director Retirement Agreement of John Flournoy dated March 21, 2007, is included as Exhibit
10.8 to Registrant’s 10-Q for March 31, 2007, which is incorporated by this reference herein.
Amended and Restated Director Retirement Agreement of Daniel E. West dated May 10, 2000, is
included as Exhibit 10.18 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein.
Consulting Agreement of Daniel E. West dated May 10, 2000, is included as Exhibit 10.19 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.
Amended and Restated Director Retirement Agreement of Alvin G. Blickenstaff dated April 19,
2000, is included as Exhibit 10.21 to the Registrant’s 10-QSB for June 30, 2002, which is
incorporated by this reference herein.
Consulting Agreement of Alvin G. Blickenstaff dated May 8, 2000, is included as Exhibit 10.22 to
the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.
Amended and Restated Director Retirement Agreement of Gerald W. Fletcher dated May 10, 2000,
is included as Exhibit 10.24 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated
by this reference herein.
43
10.25
10.27
10.28
10.33
10.34
10.37
10.41
10.42
10.43
10.47
10.48
10.49
10.50
10.51
10.64
10.65
10.66
10.67
Consulting Agreement of Gerald W. Fletcher dated May 10, 2000, is included as Exhibit 10.25 to
the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.
Amended and Restated Director Retirement Agreement of Arthur C. Grohs dated May 9, 2000, is
included as Exhibit 10.27 to the Registrant’s 10-QSB for June 30, 2002, which is incorporated by
this reference herein.
Consulting Agreement of Arthur C. Grohs dated May 9, 2000, is included as Exhibit 10.28 to the
Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.
Amended and Restated Director Retirement Agreement of Terrance J. Reeson dated April 19,
2000, is included as Exhibit 10.33 to the Registrant’s 10-QSB for June 30, 2002, which is
incorporated by this reference herein.
Consulting Agreement of Terrance J. Reeson dated May 10, 2000, is included as Exhibit 10.34 to
the Registrant’s 10-QSB for June 30, 2002, which is incorporated by this reference herein.
Deferred Fee Agreement of Alvin Blickenstaff is included as Exhibit 10.37 to the Registrant’s 10-
Q for March 31, 2009, which is incorporated by this reference herein.
Form of Indemnification Agreement (Plumas Bancorp) is included as Exhibit 10.41 to the
Registrant’s 10-Q for March 31, 2009, which is incorporated by this reference herein.
Form of Indemnification Agreement (Plumas Bank) is included as Exhibit 10.42 to the Registrant’s
10-Q for March 31, 2009, which is incorporated by this reference herein.
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.
2013 Stock Option Plan is included as exhibit 99.1 of the Form S-8 filed September 12, 2013,
which is incorporated by this reference herein.
Specimen Form of Incentive Stock Option Agreement under the 2013 Stock Option Plan is
included as exhibit 99.2 of the Form S-8 filed September 12, 2013, which is incorporated by this
reference herein.
Specimen Form of Nonqualified Stock Option Agreement under the 2013 Stock Option Plan is
included as exhibit 99.3 of the Form S-8 filed September 12, 2013, which is incorporated by this
reference herein.
Executive Salary Continuation Agreement of Rose Dembosz, is included as exhibit 10.50 to the
Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein.
First Amendment to Split Dollar Agreement of Andrew J. Ryback, is included as exhibit 10.51 to
the Registrant’s 10-K for December 31, 2008, which is incorporated by this reference herein.
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Alvin Blickenstaff adopted on September 19, 2007, is included as Exhibit 10.64 to the Registrant’s
8-K filed on September 25, 2007, which is incorporated by this reference herein.
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Arthur C. Grohs adopted on September 19, 2007, is included as Exhibit 10.65 to the Registrant’s
8-K filed on September 25, 2007, which is incorporated by this reference herein.
Director Retirement Agreement of Robert McClintock, is included as Exhibit 10.66 to the
Registrant’s 10-K filed on March 23, 2012, which is incorporated by this reference herein.
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Terrance J. Reeson adopted on September 19, 2007, is included as Exhibit 10.67 to the Registrant’s
8-K filed on September 25, 2007, which is incorporated by this reference herein.
44
10.69
10.70
11
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Daniel E. West adopted on September 19, 2007, is included as Exhibit 10.69 to the Registrant’s 8-
K filed on September 25, 2007, which is incorporated by this reference herein.
First Amendment to the Plumas Bank Amended and Restated Director Retirement Agreement for
Gerald W. Fletcher adopted on October 9, 2007, is included as Exhibit 10.70 to the Registrant’s
10-Q for September 30, 2007, which is incorporated by this reference herein.
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 13 –
Shareholders’ Equity.
21.01
Plumas Bank – California.
21.02
Plumas Statutory Trust I – Connecticut.
21.03
Plumas Statutory Trust II – Connecticut.
23.01*
23.02*
Independent Registered Public Accountant’s Consent for audit of years ended December 31, 2013
dated March 19, 2015.
Independent Registered Public Accountant’s Consent for audit of year ended December 31, 2014
dated March 19, 2015.
31.1*
Rule 13a-14(a) [Section 302] Certification of Principal Financial Officer dated March 19, 2015.
31.2*
Rule 13a-14(a) [Section 302] Certification of Principal Executive Officer dated March 19, 2015.
32.1*
32.2*
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 19, 2015.
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 19, 2015.
101.INS* XBRL Instance Document.
101.SCH* XBRL Taxonomy Schema.
101.CAL* XBRL Taxonomy Calculation Linkbase.
101.DEF* XBRL Taxonomy Definition Linkbase.
101.LAB* XBRL Taxonomy Label Linkbase.
101.PRE* XBRL Taxonomy Presentation Linkbase.
*
Filed herewith
45
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 19, 2015
/s/ ANDREW J. RYBACK
Andrew J. Ryback
President and Chief Executive Officer
/s/ RICHARD L. BELSTOCK
Richard L. Belstock
Executive Vice President and Chief Financial Officer
46
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
Dated: March 19, 2015
Daniel E. West, Director and Chairman of the Board
/s/ TERRANCE J. REESON
Dated: March 19, 2015
Terrance J. Reeson, Director and Vice Chairman of the Board
/s/ ALVIN G. BLICKENSTAFF
Dated: March 19, 2015
Alvin G. Blickenstaff, Director
/s/ W. E. ELLIOTT
Dated: March 19, 2015
William E. Elliott, Director
/s/ Steven M. Coldani
Dated: March 19, 2015
Steven M. Coldani, Director
/s/ GERALD W. FLETCHER
Dated: March 19, 2015
Gerald W. Fletcher, Director
/s/ JOHN FLOURNOY
Dated: March 19, 2015
John Flournoy, Director
/s/ ARTHUR C. GROHS
Dated: March 19, 2015
Arthur C. Grohs, Director
/s/ ROBERT J. MCCLINTOCK
Dated: March 19, 2015
Robert J. McClintock, Director
47
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